Bitcoin tumbles amid Tesla CEO Elon Musk's tweets

David Grider, Fundstrat Lead Digital Asset Strategist, joins the Yahoo Finance Live panel to discuss the latest in the cryptocurrency space as Tesla CEO Elon Musk tweets about Bitcoin.

Video transcript

ZACK GUZMAN: But first, crypto world continuing to battle. Tesla CEO Elon Musk, to stop the madness over the weekend, he doubled down on critiquing the world's largest cryptocurrency, suggesting some changes that previously had been shot down in the past by that community when it comes to tweaking Bitcoin's code, also taunting that Tesla could dump its holdings at any moment before qualifying and clarifying that Tesla has not yet sold any of that $1.5 billion that they added to their balance sheet.

Then there's the update we got from the largest dollar-backed cryptocurrency, the stablecoin Tether issued by crypto giant BitFinX that had long been promised to be backed one-to-one by US dollars. Of course, if you recall earlier this year, we got the update from the New York Attorney General's Office in a settlement with Tether, agreeing to have them disclose their reserve holdings.

This is what we got last week, kind of a breakdown of how that is, clearly, not one-for-one in terms of dollars. 75% cash equivalence in cash, but only 4% in cash. That gave a little bit of investors pause there, wondering exactly what they were holding.

And we got an update today. Tether giving a bit more detail in terms of what that commercial paper consists of, the short-term lending notes that make up the bulk of their cash position, saying that the majority of it is in investment-grade companies without further disclosing details about their other holdings. But considering the size of Tether, about $58 billion in that stablecoin, it's rather important to the crypto ecosystem.

So for more on all this, I want to welcome in our first guess in the noon Eastern time hour in the Crypto Corner, a man who says that this is a buying opportunity, given his $100,000 price target for Bitcoin. FundStrat's lead asset strategist David Grider joins us once again. David, good to be chatting with you today.

I mean, just stepping back, obviously, people are pointing at Elon Musk kind of as the catalyst, since he kind of was the catalyst that people pointed to on the way up. So what do you make of what we're seeing right now in the price jitters and where we could go from here?

DAVID GRIDER: Hey, Zach. Great to be back as always.

I think that if we look back to the last time we were on the show, we were talking about the crypto markets might need kind of a healthy cooling off period. And we saw that with Bitcoin over the recent weeks and really driven, especially-- a catalyst, one of that was Elon Musk in the market and saying that he was not going to sell some of his Bitcoin, but he was going to stop accepting it for payments. And that had put a lot of folks in the crypto community to be a bit upset with Elon but also had caused a bit of de-risking that we've seen in the markets here.

We don't think that what we're seeing here is the signs of a broader market top. I mean, looking at where Bitcoin has traded since February, I mean, we're back to similar levels. We've been kind of range-bound for the last few months.

But we do, as we can talk about in a minute, think that this kind of healthy de-risking could be something that could set us up for a catalyst to take us higher through the balance of the year. And we remain bullish on crypto through the balance of the year.

ZACK GUZMAN: I mean, when we talk about what this catalyst might be, I'm curious to hear kind of more on that because it just seems like Elon Musk is just all in on leaving Bitcoin behind here, first pointing out the sustainability concerns. What would the catalyst be here to kind of end that? And how do you see that going?

DAVID GRIDER: Yeah. I mean, one point is I don't think-- we actually view Bitcoin as kind of, actually, bad for the environment. We think there's a lot of wasted energy. There's a big argument there's a lot of wasted energy that goes into Bitcoin.

I think one point is that I think it's a lot of excess energy that would be wasted otherwise. And I think if we're looking at catalysts that we see for the crypto markets here, I think there's a couple of things. On just a market structural side, no one has really wanted to short Bitcoin or crypto for, really, the balance of the year.

And I think we're seeing, with the selloff, this being something that might be getting some shorts to come into the market. I think you could potentially see, if we get the market kind of bearish here and really bearish into this range, potential for some spot move to push and liquidate some shorts. And that could be something that could be a catalyst to take us higher.

How much farther we have to go to kind of get the right build for that, we'll see how the markets unfold. But I think if we look through the balance of the year, here's a few reasons that we're optimistic on crypto still in general.

One, there's just record amounts of cash on the sideline. I think it's $4.6 trillion, I think there is, of cash. And I think there's a lot of that money that's found its way into crypto, tested the waters, and is looking to come in.

We're seeing it with institutional and retail clients that we're talking to these days, where folks are looking to set up new crypto institutional funds. It's something that's kind of reminiscent of what we saw in 2017, where we had the kind of first wave of crypto funds. I think we're seeing that now on the side of what you consider the mainstream institutions getting in the waters.

And again, I think there's inflation fears. And I think folks are looking for alternative assets there. And I think there's also a realization that many of the other assets, even outside of Bitcoin, have a lot of potential, both on the fintech and [INAUDIBLE] side. And so I think that's exciting to folks.

AKIKO FUJITA: David, it sounds like you're among those skeptics. The real reason behind why Tesla said, look, we're not going to be accepting Bitcoin anymore, to your point. The environmental concerns, pretty widely known for a while here. Did Tesla, you think, miscalculate just how many people would actually use Bitcoin as payments? Is that the real reason here? And I guess the larger theory that's out there is also, did he know that [INAUDIBLE] would necessarily increase the price, and then he reversed course when it reached its peak?

DAVID GRIDER: I think one thing you touched on with the payments and the corporate, I think that was one reason that the market kind of sold off, right? Because I think folks were saying-- very excited about corporates, they're putting more on their balance sheet.

I think Elon Musk certainly knew how Bitcoin works and how mining works. I mean, you got to imagine that a guy who can send rockets into space and engineer greener battery technology and has started PayPal, one of the leading payment companies, probably has a good, sophisticated understanding of how crypto and Bitcoin works.

I think, from a marketing perspective, it's possible that there is a bit of backlash that maybe fell on him from the ESG community, folks who maybe looked at that position. And there is some broader narrative, right, that Bitcoin is bad for the environment. Again, we don't fully agree with that.

But I think that that could have been part of the reason for him kind of at least having to step out and say something. I think that, in terms of payments, I think it's probably early. It didn't happen for very long that it was on the balance sheet. But he did say that they would be open to re-accepting Bitcoin if things changed.

But he's also made some positive moves towards Doge. So we'll also see how that all plays out.

ZACK GUZMAN: And David, lastly, I mean, when we think about what Tether has been updating with in terms of what they say is unrivaled transparency, I wonder how much of it is coming from what they agreed to disclose in that settlement with the New York Attorney General. But when we talk about that, I mean, it does seem like that would be an issue if, maybe, hedge funds or crypto funds out there might have to adjust their holdings, given, maybe, some of the concerns with Tether, just because of the sheer size.

I mean, we can talk about $1.5 billion that Tesla added here to their balance sheet. But the Tether stablecoin at $8 billion market cap would seem to me to be pretty critical to kind of the entire crypto space. So talk to me about jitters around that because Tether has had its issues before and how that might be playing a piece into this too.

DAVID GRIDER: Yeah. I think the one thing about stablecoins that folks have maybe kind of not thought about what these financial instruments are [? correctly ?] for some time is-- I think a lot of folks have looked at them as purely a cash substitute. But really, I think that they're a digital debt instrument in many respects.

And I think that you're seeing that with Tether. You effectively have a pool of debt assets issued with another debt instrument against it, which is redeemable for those debt assets, to the extent that the assets are there. And I think that we didn't necessarily have concern-- or we weren't viewing Tether as, like, something that maybe was completely unbaked or anything like that. That wasn't really a concern of ours.

I think the market is possibly, maybe, looking at this and saying there's a little more risk in this pool of assets, maybe, than they're thinking about before. I think that Tether and stablecoins in general certainly are very important to the crypto economy. I mean, $60 billion is quite a bit of liquidity in how many exchanges transact.

I think that it's good that you have the transparency to the market. I think it's good that it's backed by an asset pool that is covering the notional amount of the stablecoins outstanding. But I think it does require, maybe, a re-paradigming of folks understanding how these instruments work and how capital market structures are formed.

ZACK GUZMAN: All right, David Grider, FundStrat digital asset strategist, appreciate you coming on here to talk about that. Crazy times. We definitely have to reconnect later on. Thanks again.