Speaker 1: Micro strategy becomes the most valuable organization from an equity
Speaker 1: perspective in the entire world, because they will become like
Speaker 1: the central bank of bitcoin in the future.
Speaker 2: There's a group of children that exist in.
Speaker 1: The world today that are around that timeframe that have
Speaker 1: only ever been alive since bitcoin has been around. If
Speaker 1: you believe in artificial intelligence is going to be successful
Speaker 1: long term, you inherently need to understand that bitcoin will
Speaker 1: be as well. These bots are going to have to
Speaker 1: get paid somehow, and they can't set up a bank
Speaker 1: account of Bank of America.
Speaker 2: Bitcoin price will decline.
Speaker 1: Some of these companies may have to start selling their
Speaker 1: bitcoin to buy their shares back to.
Speaker 2: Balance out the end nab of the company.
Speaker 1: The more bitcoin we can actually acquire, the bigger geopolitical
Speaker 1: advantage we.
Speaker 2: Have in the future.
Speaker 3: They've lowered their transaction to these by fifty percent.
Speaker 2: That's remarkable.
Speaker 4: How are you looking forward to that?
Speaker 2: I still believe that our.
Speaker 3: Hi Brian, So, what is the single biggest fundamental shift
Speaker 3: that an investor has getting their head around bitcoin?
Speaker 1: I think the biggest change that people haven't figured out yet,
Speaker 1: especially a lot of traditional investors and asked managers, is
Speaker 1: the difference between the value accretion at the protocol versus
Speaker 1: the application layer, and that's flips with blockchain technology. So
Speaker 1: to give you an example, in the early days of
Speaker 1: the Internet, nobody could invest in IP like Internet Protocol
Speaker 1: or TCP IP right like, that was the open source
Speaker 1: infrastructure layer for the Internet, but if they wanted to
Speaker 1: invest in it, they built on the application layer. So
Speaker 1: your Facebook's, your Google is your yahoos. So if you
Speaker 1: want to invest in email, you couldn't invest in SMTP
Speaker 1: Simple Mail Transfer Protocol, the email protocol itself, but you
Speaker 1: could invest in a company building an application that provided
Speaker 1: email to the markets. Right and so since the Internet
Speaker 1: up until just recently, most of the value accretion happened
Speaker 1: at that application layer, but the software protocol layer couldn't
Speaker 1: accreate any value relative to having an asset that you
Speaker 1: could hold as an individual retail. What's flipped with bitcoin
Speaker 1: is now all the value accretion is happening at the
Speaker 1: software protocol layer. So basically, buying bitcoin, buying that chunk
Speaker 1: of the bitcoin protocol is significantly out performing the businesses
Speaker 1: that operate at the application layer. And a great example
Speaker 1: is if you think about investing in Coinbase in twenty
Speaker 1: thirteen versus fuying bitcoin in twenty thirteen, and the value
Speaker 1: appreciation over that time period to now bitcoins significantly outperform Coinbase,
Speaker 1: even though Coinbase has done very very well, And I
Speaker 1: think that's the big shift people need to wrap their
Speaker 1: heads around.
Speaker 3: But is that is that something that changes through as
Speaker 3: this system matures in the protocol and the applications mature.
Speaker 4: So you mentioned Coinbase, but over.
Speaker 3: The last since coin coin Base went public, has it
Speaker 3: outperformed Bitcoin?
Speaker 2: No? I believe Bitcoin is still still one buick point
Speaker 2: over that time period. Yeah.
Speaker 4: Okay, Well, your fund off the Chain Capital, which thank
Speaker 4: you for dinner last night. Yes, of course.
Speaker 3: So your fund, though, is investing into companies that are
Speaker 3: building on and around the bitcoin ecosystem in hopes that
Speaker 3: they're going to outperform Bitcoin.
Speaker 2: Yeah.
Speaker 1: So we do a mixture of private companies and then
Speaker 1: also liquid assets in our portfolio. So our core goal
Speaker 1: is we try to outperform Bitcoin after fees and we
Speaker 1: take a Warren Buffett Benjamin Graham deep discount value approach
Speaker 1: and we're just applying it to this new technology sector
Speaker 1: and that strategy has fortunately allowed us to outperform bitcoin
Speaker 1: six of the last eight years after fees, and so
Speaker 1: on the private company side, we're looking for very mature
Speaker 1: businesses that are cash flow positive, minimum to no debt,
Speaker 1: and we think are on a one to three year
Speaker 1: pathway to liquidity. And what we do is we find
Speaker 1: early investors or employees that are looking for liquidity and
Speaker 1: become forced or motivated sellers, and we'll go at and
Speaker 1: offer them that liquidity at a large discount to where
Speaker 1: we believe that asset's intrinsically valued. And so we have
Speaker 1: a portion of the portfolio in private companies where we
Speaker 1: do those kinds of things. And then on the liquid side,
Speaker 1: we look for unique ways to actually buy digital assets
Speaker 1: at a discount or things that we think are intrinsically discounting.
Speaker 1: A great example of that is the Mountcox bankruptcy. So
Speaker 1: in the early days of the mountgox trade, we originated
Speaker 1: the way to buy those bitcoin bankruptcy claims with our team.
Speaker 1: And what was interesting about that particular trade is in
Speaker 1: Japanese bankruptcy law, when a bankrupt he concludes, they pay
Speaker 1: out the liquid asset, versus a US bankruptcy law, they
Speaker 1: pay out the assets cash value strike at the point
Speaker 1: of the bankruptcy filing. So not only were we getting
Speaker 1: a discount on the claim value, we were getting Bitcoin's
Speaker 1: future performance. So that's an example of something else we've
Speaker 1: deployed to help us outperform over time.
Speaker 3: Yeah, but if we go back to the example of
Speaker 3: the protocol versus the application layer, right, So to your point,
Speaker 3: you couldn't invest into the protocols of the Internet SMTP, TCIP,
Speaker 3: so the value of creed on the application layer the Facebook,
Speaker 3: the Google, etc. And now Bitcoin gives us an opportunity
Speaker 3: to invest into the base protocol layer. We can buy
Speaker 3: Bitcoin today and certainly, to your point, it's been outperforming
Speaker 3: all the applications. But I guess the point that I
Speaker 3: was trying to ask is do you think that as.
Speaker 4: Of this evolves, that starts to flip.
Speaker 3: So certainly the based protocol Bitcoin will continue to build value,
Speaker 3: but we'll start to see applications being built on top
Speaker 3: of it that eventually, maybe down the road, are growing
Speaker 3: faster than Bitcoin.
Speaker 2: Like give me like layer two type applications on top
Speaker 2: of Bitcoin, or businesses that are built I mean, I
Speaker 2: would consider like.
Speaker 3: Other businesses that are built on top of the Bitcoin
Speaker 3: system and application of that potentially, I.
Speaker 2: Think that's possible in time.
Speaker 1: An interesting way to think about it is that it
Speaker 1: took about the first fifteen to sixteen years, I would say,
Speaker 1: with the Internet to build the infrastructure protocol layer before
Speaker 1: the application layer really started evolving and getting adoption with
Speaker 1: user friendly applications on top.
Speaker 2: Of the Internet.
Speaker 1: And you know, we're kind of that same time span
Speaker 1: into bitcoin now. So I wouldn't be surprised if in
Speaker 1: the years to come we'll see interesting applications built on
Speaker 1: top of bitcoin. I still believe that our thesis around
Speaker 1: the applications that are built that are still more software
Speaker 1: enabled as opposed to a company, I think will still
Speaker 1: outperform over time. And why I think that is because
Speaker 1: the value of a digital asset has exponential growth capabilities
Speaker 1: compared to the equity of a company. Because an equity
Speaker 1: of a company, you know, bitcoin can sometimes trade up
Speaker 1: you know, twenty thirty percent or more in a couple
Speaker 1: of weeks, whereas the equity value of a company is
Speaker 1: generally never going to move this yes, so it'll catch
Speaker 1: up and it's going to create a dragon performance with that,
Speaker 1: and so if you can balance that correctly, you can
Speaker 1: I think you can make money in both areas, right,
Speaker 1: if you can get deep enough discounts on certain assets.
Speaker 1: Once that volatility smooths out from the private equity catching
Speaker 1: up with liquid parts of someone's portfolio, they can work
Speaker 1: well together in tandem. But I do think the liquid assets,
Speaker 1: just by the very nature of how quickly they can
Speaker 1: move from their performance appreciation, will probably continue to outperform
Speaker 1: over time.
Speaker 4: Yeah.
Speaker 3: And you know, I looked at like the early days
Speaker 3: of the Internet in nineteen ninety seven, ninety eight, ninety nine,
Speaker 3: and you were like trading these things called like internet stocks,
Speaker 3: and today there's just no such thing as internet stocks.
Speaker 3: They're just companies, right, And so you know, maybe there's
Speaker 3: this future like that. And I think of like bitcoin
Speaker 3: sort of like as a minu. It's a commodity, it's
Speaker 3: an asset, like oil is a commodity or an asset.
Speaker 3: And over the last fifty years, oil's been in a
Speaker 3: sixty seventy dollars range plus or minus. But then we
Speaker 3: have the oil industry that's the eighth artist industry in
Speaker 3: the world. Right, it's woe point eight trillion dollars. So
Speaker 3: I sort of look at, as you know, the course
Speaker 3: bitcoin will continue to appreciate. But then what about the
Speaker 3: industry that gets built around that?
Speaker 4: How would you do that?
Speaker 2: I think that it's going to grow significantly over time.
Speaker 1: So if we look at bitcoin as the base layer
Speaker 1: and the new types of applications being built on top,
Speaker 1: and some of these applications are like the difference between
Speaker 1: software and equity. So the Lightning Network is an example, right,
Speaker 1: that's a software enabled application built on top of bitcoin.
Speaker 1: Whereas a company that offers like a wallet is an
Speaker 1: example that integrates with the Lighting network would be more
Speaker 1: of the equity structure that's interfacing with that. But I
Speaker 1: think as these new layers get built on top one
Speaker 1: of the thesises that I've had for many years, it
Speaker 1: will be interesting to see how this plays out. Is
Speaker 1: many many years into the future, are we going to
Speaker 1: have all these different blockchains, so bitcoin and other digital
Speaker 1: assets that serve different use cases, or just like IP
Speaker 1: in the early days in the Internet, well that collapse
Speaker 1: on top of bitcoin. Well, the whole digital asset universe
Speaker 1: collapse on top of the bitcoin protocol. Because the applications
Speaker 1: on top get so much more efficient as technology advances
Speaker 1: over time, It's too early for us to know that,
Speaker 1: but if we use the Internet is a lesson from history.
Speaker 2: That's what happened with IP.
Speaker 3: Yeah, yeah, I mean I also understand that and my
Speaker 3: thesis as it does, all collapse, and I think we're
Speaker 3: already starting to see that. And so through the different
Speaker 3: layers that we have right now, we can do pretty
Speaker 3: much all of the if you want to call it
Speaker 3: utility from other layers or I'm sorry, other base layers
Speaker 3: coming over, even to the point of Charles Hoskin from
Speaker 3: our Cardano saying he wants to put it on top
Speaker 3: of bitcoin layer two, smart contracts on layer to privacy
Speaker 3: on layer too.
Speaker 2: All of that.
Speaker 3: I would say, it's sort of like if you think
Speaker 3: about just from like a philosophical level, like a business level,
Speaker 3: like a business's goal should be to remove as much
Speaker 3: friction as possible, and so it's like and then you
Speaker 3: have network effects, and so it's like trying to manage
Speaker 3: different blockchains and different tokens.
Speaker 4: It just doesn't really make sense.
Speaker 3: Like Bitcoin makes sense to me because it's like we
Speaker 3: could have one global, recognized, borderless, you know, type of asset.
Speaker 4: So it'll be interesting to see how that shapes up.
Speaker 4: I mean, don't you think we're starting to see that
Speaker 4: or know it's true.
Speaker 1: No, I think I think we're starting to see it.
Speaker 1: I'll be interesting to see how it shakes out over time.
Speaker 1: I think it's too early to say everything's going to
Speaker 1: collapse because some of these new protocols are using Bitcoin
Speaker 1: for certain things but not for everything. So a great
Speaker 1: example is there's a new protocol called himI that is
Speaker 1: basically taking the speed of the transaction of Ethereum in
Speaker 1: some of things Ethereum does, but they're anchoring it into
Speaker 1: the security network of Bitcoin. So basically they're taking you
Speaker 1: know what Bitcoin is so brilliant on is it's the
Speaker 1: most secure protocol ever invented. But they're using some of
Speaker 1: these other protocols to create a connective tissue between the two.
Speaker 1: So what I'm trying to figure out over time is
Speaker 1: are we going to see more of that where maybe
Speaker 1: the most valuable parts of Bitcoin get connected through this
Speaker 1: tissue to these other blockchains, or as Bitcoin becomes more
Speaker 1: advanced over time, what collapse on top of it. I
Speaker 1: think today it's a little too early to give a
Speaker 1: definitive answer, but I don't think either. I think it's
Speaker 1: possible that could happen over time.
Speaker 3: Yeah, yeah, and we are starting to see a lot
Speaker 3: more side chains and things like that. There's like the
Speaker 3: whole arc ecosystem that's like developing on top of that.
Speaker 3: So yeah, it's interesting. What do you think are the
Speaker 3: most interesting things? What are you most focused on in
Speaker 3: the sort of like this bitcoin opportunity space right now.
Speaker 1: So I think right now there's a huge hype around
Speaker 1: these bitcoin treasury type opportunities, and I think it's very interesting.
Speaker 1: I think that we've participated in some of these, and
Speaker 1: I look at it in kind of two ways. I
Speaker 1: think these treasury companies will have great opportunity, especially the
Speaker 1: ones that hit the markets early in the short to
Speaker 1: near term with them. I do think if we start
Speaker 1: to see a drawdown with bitcoin, like we've seen many
Speaker 1: many times historically through these cycles, there's going to reach
Speaker 1: a point where there'll be too many of these market
Speaker 1: entrants that'll be in there, and it will create a
Speaker 1: washout phase or a shakeout phase, because as the bitcoin
Speaker 1: price will decline, some of these companies may have to
Speaker 1: start selling their bitcoin to buy their shares back to
Speaker 1: balance out the end nab of the company, and that
Speaker 1: could actually create an accelerated drawdown in the space. If
Speaker 1: you have a tenure vision for this, I think it's
Speaker 1: going to be very successful. Overta, I think some of
Speaker 1: these companies will become some of the most valuable businesses
Speaker 1: in the world. Thesis says that long term, micro strategy
Speaker 1: becomes the most valuable organization from an equity perspective in
Speaker 1: the entire world, because they will become like, in my opinion,
Speaker 1: the central Bank of Bitcoin in the future, and the
Speaker 1: other ones around the world that are smaller versions of
Speaker 1: this become like central.
Speaker 2: Bank derivative branches in a sense, but bitcoins and.
Speaker 1: Ominated and I think that over time that happens that
Speaker 1: they have this wash out phase and then a little
Speaker 1: bounce back from that, right, But short term that could
Speaker 1: create an accelerated draw down. But in the near term,
Speaker 1: as these companies are coming online and doing the strategy,
Speaker 1: there's a lot of opportunity there.
Speaker 3: Yeah. So when you talk about the draw down, you're
Speaker 3: talking about the sort of for your cycle volatility of bitcoin.
Speaker 2: If that continues.
Speaker 4: Yeah, okay, so let's let's talk about that. If it continues,
Speaker 4: is what you said.
Speaker 3: So last cycle, Michael Sailor said, all your all your
Speaker 3: models are broken, and I started thinking, you know, I mean, man,
Speaker 3: these institutions are buying it, they put in a deep
Speaker 3: cold storage. They're not really trading around it, although they were.
Speaker 3: And then we had we had the draw down again.
Speaker 3: So you said, if it happened, So how do you
Speaker 3: think about that?
Speaker 4: How are you looking forward to that?
Speaker 2: So I want to shore I'm understanding cre if what particulod.
Speaker 4: You said, if another drawdown happens?
Speaker 2: Oh? Got it? Okay? So when you said if right,
Speaker 2: it's not like there's like a certainty.
Speaker 3: It's not for sure it's going to happen, even though
Speaker 3: it's happened, you know, multiple times in the past. By sure,
Speaker 3: are you thinking that there's a there's a chance of
Speaker 3: probability that maybe it doesn't or it's it's muted.
Speaker 1: I think it's muted or damp and compared to what
Speaker 1: we've seen historically. And the big reason I think that
Speaker 1: is because there's so many new avenues that have occurred,
Speaker 1: like you noted before, to remove friction like a good
Speaker 1: business removes friction and on ramps to an ecosystem, and
Speaker 1: with the bitcoin ets, that was the first huge friction
Speaker 1: remover we've seen for most people that don't trust a
Speaker 1: crypto exchange like that demographic of people around the world
Speaker 1: to now enter the bitcoin market by being able to
Speaker 1: do it in a traditional brokerage in a fashion they're
Speaker 1: used to, right, and so that created a way for
Speaker 1: people to basically get exposure where they didn't have to
Speaker 1: think about it.
Speaker 2: They can just go in and click.
Speaker 1: Because of that, because of the institutional adoption evolutioning compliance
Speaker 1: around the space as well, we're seeing tremendous capital inflows
Speaker 1: from parties that really never had exposure to it before.
Speaker 1: And so a lot of these investors, in my opinion,
Speaker 1: especially at the institutional level, they're not short term traders.
Speaker 1: A lot of them have long term oriented use with this,
Speaker 1: especially when we start thinking about what country governments could
Speaker 1: do in time, like they're thinking about multi generational strategic
Speaker 1: asset holds. And so, even if there is a drawdown,
Speaker 1: because all markets go through cycles, every market in history
Speaker 1: has always gone through some kind of cycle, I think
Speaker 1: the drawdowns in the future aren't going to be seventy
Speaker 1: to ninety percent like we've seen before, but maybe the
Speaker 1: drawdowns fall somewhere between, you know, twenty five to forty
Speaker 1: percent or something like that.
Speaker 3: Yeah, So basically you're talking about the volatility is decreasing,
Speaker 3: So does that mean the upside potential also gets muted?
Speaker 1: So over time it will, but I think we still
Speaker 1: have quite a few years before we're going to see
Speaker 1: that get muted so much. And as a very nature
Speaker 1: of bitcoin being a scariest finite asset, right like, the
Speaker 1: more money that flows in, I think it'll just exponentially
Speaker 1: grow over time. So I think we have a ways
Speaker 1: to go, probably like another at least five to seven
Speaker 1: years before we see like that tremendous adoption that's going
Speaker 1: to be happening over this time period from a growth perspective,
Speaker 1: and then I think we could probably see a little
Speaker 1: more dampened growth on it. But I think that for
Speaker 1: the physample suituture, it's going to be really, really valuable.
Speaker 3: So if understanding correctly, you're saying that the upside volatility
Speaker 3: isn't dampened very much until maybe five to seven years later,
Speaker 3: but the downside volatility is dampened. So does that make
Speaker 3: it a better risk adjusted entry today than we saw
Speaker 3: in the past.
Speaker 2: It's possible.
Speaker 1: I mean we've got now what sixteen years of data
Speaker 1: on bitcoin and what we've seen is when you add
Speaker 1: bitcoin as part of a diversified portfolio from the traditional
Speaker 1: sixty percent stocks, forty percent bond split even two percent
Speaker 1: into bitcoin two percent out of stocks, and you transition
Speaker 1: that into the Bitcoin actually enhances your sharp ratio, your
Speaker 1: risk adjustine returns while lowering the overall ballotility of the portfolios.
Speaker 1: So that's the data we have over the last sixteen years.
Speaker 1: So like you noted, I think it's possible that can
Speaker 1: continue to enhance the portfolio as this non correlated asset
Speaker 1: which fiduciaries when you understand what bitcoin is. This is
Speaker 1: actually one of the things that I think is very
Speaker 1: interesting today. There's so many int situtional asset managers and
Speaker 1: have a fiduciary duty to their clients to find non
Speaker 1: correlated assets that can enhance risk adjustion returns, and so
Speaker 1: many people still.
Speaker 2: Have in bought baycoin.
Speaker 1: Yeah, and it's like we have enough data now to
Speaker 1: figure this out where you're almost violating, you know, or
Speaker 1: infringing on your fiduciary duty to your clients by not
Speaker 1: getting them exposure to this.
Speaker 2: Yeah, because the data is clear.
Speaker 3: Yeah. Just I think it was just this week we
Speaker 3: saw Charles Schwab make a big announcement that they're getting
Speaker 3: into bitcoin. They actually I heard about this a couple
Speaker 3: of weeks ago because my sister in law is the
Speaker 3: vice president over at Charles Schwab, and we have a
Speaker 3: lot of fun at family get together for sure, because
Speaker 3: I don't believe in that advisor model, we don't actually
Speaker 3: talk about it too much. But you know, she's told
Speaker 3: me for years that even if a client that she's
Speaker 3: advising and comes to her and asks her about bitcoin,
Speaker 3: she's not even allowed to discuss it.
Speaker 2: Yeah, it's common across off with several different asset managers
Speaker 2: like that.
Speaker 3: Yeah, so back to the futary of duty. It's like
Speaker 3: even if I'm asking you, you know, you're advising me
Speaker 3: on my portfolio, and hey, do you think I should
Speaker 3: include this? Like I can't talk about that, and what
Speaker 3: a big gap. Now they just had a big meeting
Speaker 3: I think it was two weeks ago, two three weeks ago,
Speaker 3: and they announced, Okay, we're going to start allowing our
Speaker 3: clients to do this. And now I've I posted about
Speaker 3: this on Twitter and I got a lot of people
Speaker 3: commenting the I'm with Schwab. Now they're talking with me
Speaker 3: about it. Okay, Vanguard seems to be maybe the last
Speaker 3: hold out there.
Speaker 4: We'll see what happens there.
Speaker 3: But so I guess so, but if we still have
Speaker 3: a lot of the upside left, the downside's been damp,
Speaker 3: and then it's a little bit of a better asymmetric opportunity,
Speaker 3: I would think.
Speaker 4: So.
Speaker 1: Yeah, I think over time, it's just pretty clear economics, right,
Speaker 1: like if you have something that you can't create more
Speaker 1: and then we know the predictable issuance schedule over time
Speaker 1: and the adoption growth gurbling thing that can change his price.
Speaker 4: Yeah.
Speaker 3: I look at it from like the cycles and the
Speaker 3: different phases that we go through. And so phase one
Speaker 3: was like this retail eruption, and so we had the
Speaker 3: retail money coming in, which was big and it got
Speaker 3: the market up there, but at the same time, the
Speaker 3: risk was so high because like when I started buying
Speaker 3: bitcoin it was twenty fifteen, but like what is it
Speaker 3: and what was it going to do? And then you
Speaker 3: had all the competition, like which layer one is going
Speaker 3: to win out? And now most of that's been sort
Speaker 3: of settled a little bit. And then you have now
Speaker 3: the institutions and they're bringing in hundreds of billions of dollars,
Speaker 3: and so we have sort of the risk removed, as in,
Speaker 3: the government's not going to make it illegal, and the
Speaker 3: US adopted it. That's a big one. It's not going
Speaker 3: to be illegal. It's pretty much won the store value race,
Speaker 3: and now we have hundreds of billions of dollars coming
Speaker 3: in at the same time. So I look at it
Speaker 3: as a much better risk adjested entry right now.
Speaker 1: One thing that's important too, I think that you just
Speaker 1: noted about the government not making it illegal or take
Speaker 1: it over. There's a very important court case that happened
Speaker 1: back in the day. But in twenty thirteen when bitcoin
Speaker 1: went from a couple hundred bucks up to I think
Speaker 1: around twelve to fourteen hundred bucks and crash back down,
Speaker 1: the US government actually had congressional hearings and they were
Speaker 1: considering banning bitcoin. But what they discovered was there was
Speaker 1: a just I think it's an ap pellet case that
Speaker 1: went up and I forget exactly what jurisdiction it was in,
Speaker 1: but there was a university professor named Bernstein who created
Speaker 1: open source cryptography software for some mathematical algorithms, wanted to
Speaker 1: publish to the public that the government said, no, you
Speaker 1: can't publish because this open source cryptography needs to be
Speaker 1: approved for military arms dealing with the US government. And
Speaker 1: this university professor said, that's not fair. This has nothing
Speaker 1: to do with arms dealing or rocket launch systems and
Speaker 1: things of that nature. I should be able to publish
Speaker 1: this in an open source community to show the world
Speaker 1: this work and this algorithm and things I figured out.
Speaker 1: So he sued the US government. So the name of
Speaker 1: the case is Bernstein versus the Department of Justice. The
Speaker 1: Court's ultimately determined that open source cryptography software is considered
Speaker 1: language and protected under the First Amendment with freedom of speech.
Speaker 1: And so when they looked at that, they said, well, one,
Speaker 1: we have court precedent on this. We can't actually ban bickcoin.
Speaker 1: So we all know they slowed it down. It is
Speaker 1: some things to try to slow down this option, but
Speaker 1: they do. They couldn't ban it. I think the other
Speaker 1: thought too, is how can we really ban it? How
Speaker 1: can you ban open source cryptography software that you're going
Speaker 1: to shut off the telecommunications grid or the energy grid, Like,
Speaker 1: it's just not reasonable, right. But that's a very interesting
Speaker 1: court case that kind of set some precedent many years
Speaker 1: ago for open source cryptography software, which is exactly what
Speaker 1: bitcoin is.
Speaker 2: Yeah.
Speaker 3: Good, it's a good point to bring up. And to
Speaker 3: your point, they've done things to slow it down. I
Speaker 3: remember in twenty seventeen, Bitcoin ran from like a thousand
Speaker 3: to twenty thousand that year, and then in a coordinated
Speaker 3: fashion in December of twenty seventeen, you had Facebook and
Speaker 3: Google shut down all advertising around it. You know, most
Speaker 3: of the banks blocked you from sending money over to
Speaker 3: crypto exchanges, credit cards blocked you from making purchasing your
Speaker 3: credit card.
Speaker 4: And so if you think about like markets stopped going
Speaker 4: up when there's no more buyers. Yeah, and so as
Speaker 4: it was going.
Speaker 3: Higher and hire and it sucking in more and more buyers,
Speaker 3: there was less less buyers available, but then they shut
Speaker 3: the door, right, And so to your point, now when
Speaker 3: you look at the market cycle, the structure of the market,
Speaker 3: I would say, to your point, the ETFs and now
Speaker 3: these companies being included in the indexes and now financial
Speaker 3: advisors bringing on board, so like instead of blocking the
Speaker 3: exits like they did in twenty seventeen, it's like or
Speaker 3: I guess they blocked the entrance.
Speaker 4: Now they've just opened up the doors.
Speaker 1: And from a friction standpoint too, I think between now
Speaker 1: twenty thirty we're going to go through a remarkable span
Speaker 1: of adoption because of the amount of friction that's going
Speaker 1: to be relieved. And I noted before that it took
Speaker 1: about sixteen years to build this infrastructure later for bitcoin,
Speaker 1: and now we're reaching this mass adoption phase. I think
Speaker 1: from ease of applications for these unique user experiences, it
Speaker 1: will be developed. An interesting data point is that most
Speaker 1: children around the age of sixteen is when they become
Speaker 1: interested in computer science.
Speaker 2: Now there's a group of children that exist in the world.
Speaker 1: Today that are around that timeframe that have only ever
Speaker 1: been alive since bitcoin has been around, right, and they're
Speaker 1: reaching age sixteen. And if these people follow statistics and
Speaker 1: they start to become interested in computer science, this could
Speaker 1: be the generation of children that build the very very
Speaker 1: interesting killer apps for bitcoin that removes this friction to
Speaker 1: allow the world to just adopt this asset and technology
Speaker 1: in mass.
Speaker 3: Yeah, it's certainly a generational thing. It's like my grandparents
Speaker 3: wouldn't buy bitcoin, but my grandkids or my kids wouldn't
Speaker 3: buy gold kind of thing. And I know even with
Speaker 3: my kids that are older now, but I remember my daughter.
Speaker 3: She just thought everything was a touch screen to go
Speaker 3: to every screen, and it's like, that's not that screen,
Speaker 3: but they just they just think that, right, that's native
Speaker 3: for them.
Speaker 2: Now.
Speaker 3: I know you've been doing a lot of trips over
Speaker 3: to the Middle East, and when you think about the
Speaker 3: Middle East, I had recently. I was over there in
Speaker 3: Abu Dhabi in December and it broke a lot of
Speaker 3: preconceived notions that I had. Right, I hadn't been there before.
Speaker 3: And when you think about the Middle East, you might
Speaker 3: think of old money, oil, right, things like that, But
Speaker 3: they're pretty interested in this. Tell us what's going on
Speaker 3: over in the Middle East. I think Saudi Arabia, UAE,
Speaker 3: things like that.
Speaker 1: Yeah, of course, So if we look at the UAE,
Speaker 1: they were probably the earliest in the world to develop solid,
Speaker 1: understandable crypto regulations. I think it was around twenty eighteen timeframe.
Speaker 1: They just laid out the rules and said everything's a
Speaker 1: digital commodity. So they were complete clarity on what regulatory
Speaker 1: infrastructure was in for digital asset entrepreneurs that wanted to build.
Speaker 1: So there's a ton of people that moved to the
Speaker 1: UAE for that reason, so they're very advanced there. I
Speaker 1: believe the sovereign wealth funds, like one of their top
Speaker 1: holdings is the bitcoin ETFs. They also have big exposure
Speaker 1: to coinbase and some of the asset managers that are
Speaker 1: publicly traded in the crypto space, and I think they're
Speaker 1: very forward thinking in regard to that. And they're making
Speaker 1: huge investments in technology. And actually President Trump was just
Speaker 1: over there recently on a tour. They were talking about
Speaker 1: a lot of the investments they're making in digital assets
Speaker 1: and artificial intelligence to grow the economy over time. And
Speaker 1: then when you look at places like Saudi Arabia, whenever
Speaker 1: the Crown prints NBS came and took over power, he really,
Speaker 1: in my opinion, started this cultural renaissance in Saudi Arabia
Speaker 1: because they were very traditional for many many years, and
Speaker 1: I think he stepped in and he probably looked at
Speaker 1: other things that were going on around the world, and
Speaker 1: even UAE that was attracting tremendous amount of tourists and
Speaker 1: opportunities from technology standpoint, and they started to lay out
Speaker 1: this vision twenty thirty for Saudi Arabia, and that has
Speaker 1: huge investments in technology and clean energy and infrastructure and
Speaker 1: artificial intelligence and a variety of different things in these
Speaker 1: new projects that they're building in the region. I think
Speaker 1: long term to grow the region, attract more types of
Speaker 1: opportunities and tourism to the reason for very unique things
Speaker 1: that they're building, But technology is at the forefront of it,
Speaker 1: and I think long term part of the goal is
Speaker 1: they want to become less dependent on the remaining oil
Speaker 1: reserves that they have, which has been such a tremendous
Speaker 1: income generator for the region over time. And I think
Speaker 1: one of those ways to go about it is thinking
Speaker 1: how do they integrate in the future of technology, which
Speaker 1: is bitcoin, in digital assets, these kinds of things.
Speaker 3: Yeah, Yeah, I saw Trump's announcement of that. Is there
Speaker 3: some joint i think cooperation with the United States to
Speaker 3: build out is it some AI tech data centers or
Speaker 3: something something like that.
Speaker 1: In the UA specifically, there's a tremendous amount of large
Speaker 1: scale bitcoin mining operations that are going on over there
Speaker 1: and they're making the government's making a tremendous investment in
Speaker 1: that space.
Speaker 4: Yeah.
Speaker 3: What are you seen in regards to sort of maybe
Speaker 3: the convergence of bitcoin and AI and how those things
Speaker 3: are working together so long term.
Speaker 1: I always tell people that are hesitant or concerning of
Speaker 1: crypto in bitcoin that you need to understand that if
Speaker 1: you believe in artificial intelligence is going to be successful
Speaker 1: long term, you inherently need to understand that bitcoin will
Speaker 1: be as well. And the reason I say that is
Speaker 1: because all these agents and these people doing these technology
Speaker 1: technology algorithms doing virtual labor and work. There's an energy
Speaker 1: expense to that from the computing power that's necessary whenever
Speaker 1: we're querying groc or chat beat, GPT.
Speaker 2: And things like that.
Speaker 1: So there's going to be a whole economy of these
Speaker 1: virtual agents creating virtual labor to service us and service
Speaker 1: themselves as well. I think there'll be a whole economy
Speaker 1: of even these bots that are doing things for themselves
Speaker 1: in virtual economy, because there is an energy expenditure for that,
Speaker 1: and it creates a computing cost. These bots are going
Speaker 1: to have to get paid somehow, and they can't set
Speaker 1: up at a bank account of Bank of America right,
Speaker 1: or a traditional financial institution, so they will get paid
Speaker 1: in like bitcoin or an astheletic piccoin, right, because it's
Speaker 1: the most Internet native way to exchange value, and so
Speaker 1: I think long term, if you believe AI is going
Speaker 1: to be exponentially revolutionary to our world, which I think
Speaker 1: most people that see it do believe that and understand
Speaker 1: that's going to grow very quickly, you inherently need to
Speaker 1: believe in bitcoin as well.
Speaker 3: Yeah. Do you think that the AI revolution is going
Speaker 3: to take everybody's jobs, is going to depress the economy
Speaker 3: and then kind of hurt the long term trajectory of
Speaker 3: these financial assets, or you think it's going to be
Speaker 3: add to it.
Speaker 1: I think it'll be a combination of both. I think
Speaker 1: there'll be some jobs that'll get replaced completely by AI.
Speaker 1: I think there'll be other jobs that will allow an
Speaker 1: individual or a company to do things significantly more efficient
Speaker 1: and then be able to reallocate their labor in other areas.
Speaker 1: And I'll give you a great example. So I have
Speaker 1: a family member of mine who runs a law firm,
Speaker 1: and in the law firm, he was able to structure
Speaker 1: chat GPT queries so that they could provide information into
Speaker 1: it to help them develop reports and things that they
Speaker 1: needed significantly faster than the manual way they were doing
Speaker 1: it before. And what that allowed him to do was
Speaker 1: actually expand the caseload that each of the pair of
Speaker 1: legals could take on in the firm, So it didn't
Speaker 1: replace the pair of legals, right, but it made them
Speaker 1: ten x more efficient than what they were before. So
Speaker 1: I'm hopeful that that'll be a likely outcome where you
Speaker 1: still had this integration into the traditional economy, but it's
Speaker 1: making people much more productive.
Speaker 4: Yeah.
Speaker 3: Yeah, that's the way I see it too, And that's
Speaker 3: exactly what I was thinking as well. Everyone's like, oh,
Speaker 3: they're going to fire everybody. It's like, why would they
Speaker 3: fire everybody? Like why would'? They just want to be
Speaker 3: more productive, more efficient and make more money, right, yeah,
Speaker 3: which seems to make sense. What about with the bitcoin
Speaker 3: mining and sort of like the AI data centers, is
Speaker 3: that an area that you guys invest in or follow.
Speaker 2: We've looked at it before.
Speaker 1: So a big allocation that we had historically was in
Speaker 1: a group called core Scientific, which was the largest bitcoin
Speaker 1: miner in North America. And one of the things that
Speaker 1: we found interesting about them is we were doing our
Speaker 1: due diligence. Is core Scientific, I think, was coming out
Speaker 1: of bankruptcy from the twenty twenty two events that occurred,
Speaker 1: and when we were doing.
Speaker 2: Our diligence on it.
Speaker 1: What we discovered is about seventy five percent of their
Speaker 1: mining infrastructure could be redirected towards AI computing, and the
Speaker 1: profitability on the AI computing contracts was probably five to
Speaker 1: seven x what the bitcoin mining profitability was and didn't
Speaker 1: mean they were going to shut down the bitcoin mining.
Speaker 1: It just means this was an expansion of their revenue models.
Speaker 1: And when we discovered that that something, we're like, Okay,
Speaker 1: this is very interesting haus a lot of opportunity here,
Speaker 1: So we end up investing in that business. And then
Speaker 1: they started launching these AI contracts and that created a
Speaker 1: tremendous opportunity and for performance for that company, and I
Speaker 1: think that's something that's going to be akin to a
Speaker 1: lot of these bitcoin miners. The thing is is that
Speaker 1: the bitcoin mining companies, as they get into that space,
Speaker 1: most bitcoin miners, from my understanding, have built out their
Speaker 1: infrastructure specific to bitcoin mining, and a lot of the
Speaker 1: AI computing requires different kinds of hardware than what you
Speaker 1: need for bitcoin mining, and so they will have to
Speaker 1: have large capital capax expenses to build that out. But
Speaker 1: over time, I think it's totally makes sense for their
Speaker 1: business model because they're already doing it. They're already hosting
Speaker 1: these data centers for bitcoin mining. You might as well
Speaker 1: expand in that area as well.
Speaker 3: Okay, Now for bitcoiners that are I mean, hopefully most
Speaker 3: bitcoiners are here for the freedom aspects of bitcoin, but
Speaker 3: a lot of us also like the number go up
Speaker 3: part of bitcoin as well. So for people that are
Speaker 3: thinking about allocating towards bitcoin to get their number to
Speaker 3: go up, to protect their savings from inflation, things like that,
Speaker 3: you think about allocating to bitcoin versus maybe some of
Speaker 3: these bitcoin treasury plays, public plays, bitcoin minors or funds
Speaker 3: like off the Jam Capital.
Speaker 2: Yeah.
Speaker 1: So if you're an individual investor that is probably not
Speaker 1: going to have direct access to a lot of these
Speaker 1: bitcoin treasury opportunities in the early stages when they're getting
Speaker 1: the investments to go public and then do that, I
Speaker 1: think it's probably better just to buy bitcoin.
Speaker 2: However, that being said, some of them will do very
Speaker 2: very well.
Speaker 1: Right Like we saw micro Strategy have tremendous performance since
Speaker 1: twenty twenty they adopted the standard and they've outperformed bitcoin
Speaker 1: over that timeframe. So I think that I'm a big
Speaker 1: believer is I don't like market timing if I invest
Speaker 1: in something like Warren Buffett says, I wouldn't hold something
Speaker 1: for ten minutes that I wouldn't hold for ten years, right, Like,
Speaker 1: I'm a very long term oriented thinker, and so from
Speaker 1: that perspective, I actually think you could be looking at
Speaker 1: allocating to both, right, because the bitcoin treasury companies had
Speaker 1: the potential during certain market cycles to outperform bitcoin. And
Speaker 1: then if you have bitcoin directly too, if there's time
Speaker 1: periods where they underperform, that as part of your portfolio
Speaker 1: as well, because they're both getting exposed to the same space.
Speaker 1: But long term, if you think about it from a
Speaker 1: five year, ten year perspective and you have the mindset
Speaker 1: that's possible these bitcoin treasury companies can become these bitcoins
Speaker 1: and nominated central banks in the future. You're talking about
Speaker 1: some of the most valuable organizations in the world in
Speaker 1: my opinion, And so I would look.
Speaker 4: At both, okay, and then where does a fund fit
Speaker 4: in on top of that.
Speaker 1: So from a fun perspective, if as an institution, if
Speaker 1: you're finding the opportunities for these bitcoin treasury plays in
Speaker 1: the early components where people are doing these pipe investment transactions,
Speaker 1: usually you can get exposure at very favorable entry points,
Speaker 1: and then once those companies ultimately do their reverse merger
Speaker 1: or whatever their public offering is, as long as the
Speaker 1: markets are interested in that and they allocate to it,
Speaker 1: there's a lot of opportunity there as well.
Speaker 3: But from an individual investor standpoint, is it something like
Speaker 3: get your bitcoin first. Absolutely, And depending on how big
Speaker 3: your portfolio is, then you might want to take a
Speaker 3: small percentage of that move into some treasury companies. And
Speaker 3: if your portfolio is even big enough, then maybe even
Speaker 3: a small percentage goes into some funds. And so those
Speaker 3: are sort of like different risk levels, different duration levels
Speaker 3: that hopefully have different return profiles.
Speaker 1: So what I always recommend, and this is both for
Speaker 1: institutional investors that don't have crypto exposure and individual investors,
Speaker 1: I always say you should look at three parts of
Speaker 1: your investment strategy. One is bitcoin direct that should be
Speaker 1: the biggest portion of your exposure to the space. And
Speaker 1: then you should also have a smaller percentage of your
Speaker 1: exposure for venture type opportunities, like what are the new
Speaker 1: things happening on top of bitcoin, Like one of these
Speaker 1: new application layers and things are being built, and that
Speaker 1: should be you know, like any venture portfolio, maybe that's
Speaker 1: five to ten percent of the exposure you have to
Speaker 1: the space. And then the third one I tell people
Speaker 1: to consider is what we do with off the chain
Speaker 1: because it's very different. It's its Warren Buffett value strategy.
Speaker 1: But with that, the biggest part of the portfolio for anybody,
Speaker 1: in my opinion, should be a big point.
Speaker 3: Yeah, yeah, yeah, depending yeah, start start there first, and
Speaker 3: then and then and.
Speaker 2: On the treasury companies too.
Speaker 1: The reason it's interesting, I think to find an asset
Speaker 1: manager who's very experienced to do that component is most
Speaker 1: people are going to have a very challenging time trying
Speaker 1: to figure out which one do I invest in, right like,
Speaker 1: which one has a lot of potential, and most people
Speaker 1: won't even understand the differences behind the scenes of what
Speaker 1: these some of these bitcoin treasury companies are doing that
Speaker 1: makes one different from another. And if you can't figure
Speaker 1: that out, in my opinion, it's better for you to
Speaker 1: find an asset manager that's allocating to those types of
Speaker 1: strategies because they're the ones with the boots on the
Speaker 1: ground doing the diligence figuring that out, and then you
Speaker 1: just put your other exposure in bitcoins.
Speaker 3: Yeah, is that because there's all new terminology and all
Speaker 3: new metrics to measure them that people aren't used to.
Speaker 1: There's new terminology, there's new metrics, and a lot of
Speaker 1: these companies too, they're not all doing the same thing, right,
Speaker 1: Like some of them are issuing equity or debt to
Speaker 1: acquire more bitcoin for share. Some of them are taking
Speaker 1: other components where they're going into a certain industry segment
Speaker 1: and they're buying discounted cash off a publicly traded balance sheet,
Speaker 1: which then allows them to get more bitcoin for share
Speaker 1: when they issue their equity. And so there's a lot
Speaker 1: of nuances to it. And so if you don't fully
Speaker 1: understand the differences between each one, you could maybe invest
Speaker 1: in one that doesn't perform as good as another one.
Speaker 4: Cause yeah, yeah, especially when it's very frothy right now.
Speaker 3: Yes, And then to your point, if a market cycle
Speaker 3: turns down, then like who gets left hold.
Speaker 2: In the bag?
Speaker 4: All right, let's wrap this up.
Speaker 3: What would you say is maybe the thing that you're
Speaker 3: most looking forward to over the next five years developing?
Speaker 1: I think I think I'm most excited about is we're
Speaker 1: finally reaching a point after many many years in the
Speaker 1: space where governments are opening their eyes after being so
Speaker 1: resistant for so many years. And I truly believe the
Speaker 1: first government that prints to buy bitcoin wins in mass right,
Speaker 1: like the first government that understands that the more bitcoin
Speaker 1: we can actually acquire, the bigger geopolitical advantage we have
Speaker 1: in the future. And I think the United States government
Speaker 1: is waking up to that relatively quickly. And so I
Speaker 1: think that's a very interesting thing because that, in my opinion,
Speaker 1: is a major step towards potentially backing our currency by
Speaker 1: bitcoin long term, having bitcoin being the global currency, which
Speaker 1: I think long term is the real value because Satoshi's
Speaker 1: original vision was a peer to peer cash electronic system, right,
Speaker 1: And we've gotten so ingrained with how bitcoin has transitioned
Speaker 1: over time and evolved as an asset that we don't
Speaker 1: want to forget that one of the most valuable things
Speaker 1: about bitcoin is transacting value between.
Speaker 2: Two parties peer to peer with no central party intermediary.
Speaker 1: I mean, it's a brilliant, brilliant thing that never existed before, right,
Speaker 1: And I think long term we'll get back to that.
Speaker 1: And I think that is that's a major step for
Speaker 1: governments to have that trust and belief in it where
Speaker 1: we can start backing some of the dollar by bitcoin
Speaker 1: and then maybe eventually it's only bitcoin.
Speaker 3: Yeah, so the government adoption, the sovereign adoption, it's sort
Speaker 3: of like the nuclear or arms race, or like the
Speaker 3: space race, and like which nation is going to acquire
Speaker 3: it first? Yeah, I agree with you on the medium
Speaker 3: exchange front. And it's interesting to know. I think about
Speaker 3: this monetary evolution and it's like we haven't quite got
Speaker 3: to the medium of exchange phase.
Speaker 4: Yet, but in some instances it makes sense.
Speaker 3: And this morning I opened up the show here at
Speaker 3: the Bickcoin conference was the I think it was the
Speaker 3: president or CEO of a Steak and Shake, which is
Speaker 3: like another franchise that just started accepting bitcoin, and he
Speaker 3: was talking about how just since they've started accepting bitcoin
Speaker 3: at the trans at the locations, they've lowered their transaction
Speaker 3: fees by fifty percent.
Speaker 2: That's remarkable, that's I mean, that's no brainer for companies.
Speaker 4: I mean to the bottom line, like, Okay, sign me up.
Speaker 4: But who's not going to do that?
Speaker 3: Right sure, because they're paying whatever three four percent on
Speaker 3: you know whatever two three percent on transactions and now
Speaker 3: they get it for like a point or whatever.
Speaker 4: Right, So okay, cool, Well.
Speaker 3: I think anything else that we should be paying attention
Speaker 3: to that you want to shout out, and.
Speaker 2: I think, yeah, I think that's the main core copis
Speaker 2: we covered? Yeah? I appreciate you having me on. All right, thanks,
Speaker 2: all right, thanks man,