Bernstein: 'Bitcoin resilience is impressive'

Bernstein: 'Bitcoin resilience is impressive'

The analyst comments "We have been on-road meeting clients through the tariffs chaos. Meanwhile. Bitcoin’s resilience has been nothing but impressive. In historical context, where we have seen Bitcoin fall off the cliff (~50-70% drawdowns) in crises periods (Covid, rate shocks etc), the current price action (down 26%) suggests demand for Bitcoin from more resilient capital. The China tariffs impact the miners, due to dominant China suppliers, but U.S based alternatives exist. Further, AI offers upside and business model diversification to miners. Bitcoin price action during a global crisis, has always been a subject of controversy. It almost never decouples and acts as hedge (similar to Gold) and most often, demonstrates higher correlation with tech stocks (Mag 7 in current context). We believe, Bitcoin acts as the most accessible and liquid risk-market, when equity markets are shut down. When newsflow strikes over weekends, Bitcoin price has acted as a leading indicator on where risk is leaning. This still does not take away from its longer term outperformance as a digital ‘store of value’ asset. In our view, Bitcoin on a time-scale is probabilistic ‘gold’. Just under $2Tn Bitcoin market value vs. over $20Tn for gold, it trades as a highervolatility and more liquid version of gold. Refer Exhibit 1 for Bitcoin’s volatility vs. Gold (~2.5x gold’s volatility). Bitcoin’s digital gold thesis has strengthened driven by growing institutional adoption -institutional flows via ETFs and corporate treasuries. For example, with Bitcoin down 15% YTD, the ETF outflows still remain in positive territory at YTD ~$770mn inflows and the last 30-day outflows around $911Mn on AUM of $94Bn, reflecting higher quality capital (Exhibit 2). Further, MSTR and other corporates on the ‘Bitcoin treasury strategy’ have driven demand with capital duration beyond 5 years (Exhibit 3). In addition, Bitcoin miners have maintained healthy balance sheet with low leverage, with no compulsion to sell Bitcoin on balance sheet. Further, AI data center opportunities have led to greater resilience in their business models. New AI deals in Bitcoin mining have continued - more below. Thus, most of the Bitcoin sellers have been largely short term retail traders, thus explaining the Bitcoin price resilience (Exhibit 4-Exhibit 5). Historical, Bitcoin drawdowns have been larger (~50-70% falls), mostly driven by retail panic and large capitulation by leveraged miners (Exhibit 6). The transition to institutional ownership has obviously helped, with ETFs now ~5% of total supply and another ~5% owned by corporate treasuries."

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