Latest / The Income Show / Matthew Sigel: Digital Credit, Government Spending, & Institutional Yield | The Income Show | Ep. 2

Transcript

Matthew Sigel: Digital Credit, Government Spending, & Institutional Yield | The Income Show | Ep. 2 · The Income Show

• 0:00
  But when I saw how seriously everyone else was taking it, I was like, oh, wow, a lot of people are going to keep this money printing going.
• 0:06
  They think it's going to work.
• 0:07
  I think Bitcoin should be able to reach somewhere between a third and a half of gold's market cap.
• 0:13
  That would be roughly 500k per coin.
• 0:17
  I think that, you know, probably after the next halving.
• 0:20
  Fixed income market is multiples of the equity market.
• 0:22
  There's huge regulatory needs, why someone might want a short duration product, which is what that is.
• 0:30
  And we've seen that Sailor is a maestro when it comes to marketing.
• 0:34
  Yeah, I'm not surprised. I think it's going to grow.
• 0:44
  Matthew, thanks so much for taking the time to record.
• 0:47
  Hey, Joe. Good to see you.
• 0:48
  Absolutely. You were just on a panel on Nakamoto's stage. How was that experience? Good?
• 0:52
  Uh, it's a, it's a great conference, uh, full of, um, kind of single-minded Bitcoin people,
• 1:00
  which I think makes it, um, a valuable conference from my perspective. I've really toned down the
• 1:07
  number of events I go to, but, um, sticking with this one because of the purity of, uh,
• 1:13
  of the message. Nice. So I want to ask you a lot about digital credit, income investing,
• 1:18
  and of course, Bitcoin as well. But before I think we get into those details,
• 1:23
  I want to ask a high level question. What is your overall general investment philosophy?
• 1:33
  Well, number go up is the TLDR. Always be buying. So in my personal life, I try to basically never
• 1:45
  sell. I'm just adding to different things based on conviction. Within the equity world, the ideal
• 1:54
  company can compound book value by earning cash flow and creating a return on their invested
• 2:07
  capital, which is higher than their cost of capital. And when a company can do that,
• 2:12
  over time tends to be a very good investment. There's not too many companies like that in the
• 2:19
  Bitcoin and crypto ecosystem yet. So my investment philosophy around Node, I'd say,
• 2:26
  is somewhat different. With a sector like Bitcoin, where I think it's a mega trend,
• 2:35
  there's these demographic tailwinds, there's these fiscal and monetary tailwinds. And so if you have
• 2:42
  that as your North store and you believe that Bitcoin is going to grow, then you don't have to
• 2:47
  be a Stanley Druckenmiller and make one hero bet. I actually think that diversification can really
• 2:53
  work in your favor by muting the volatility of what's already a very volatile asset class,
• 3:02
  and then by negatively screening out certain types of companies. And this is going to lead
• 3:07
  into our conversation on digital credit where I don't really want to own companies with
• 3:14
  a lot of financial leverage, and I don't want to own companies that don't have top-tier
• 3:20
  corporate governance, like the old-school how-to-run-a-publicly-traded company.
• 3:27
  And so those two elements, avoiding companies with a lot of financial leverage and with
• 3:31
  bad governance, I think you can avoid a lot of mistakes and endure.
• 3:37
  That makes sense. What do you think most people get wrong when it comes to markets or investing?
• 3:45
  Probably market timing. So getting bearish. And then the thing about getting bearish and selling
• 3:55
  is that you have to buy back at some point. And so that's two transactions you're making.
• 4:00
  And every transaction, you have a non-trivial chance of being wrong.
• 4:06
  So getting two in a row right is really challenging.
• 4:09
  And I take care to limit how much market risk I'm going to take.
• 4:15
  And I learned that the hard way personally at a younger age.
• 4:20
  So that's probably the biggest mistake.
• 4:22
  Why do you think, I agree with you there.
• 4:24
  Like, why do you think a typical person does try to time the market?
• 4:27
  Is it like gambling kind of instinct?
• 4:30
  I mean, we are in Vegas, but is it something else that makes them think that they can do that?
• 4:36
  Probably the majority of the cases is fear, where people who maybe didn't pay too much attention to the markets wake up with a bearish thesis one day because their attention shifts over time.
• 4:49
  And now they're interested in something different, maybe because they have more money or because for whatever reason they're paying attention to markets more.
• 4:55
  And they don't realize that they're new.
• 5:01
  You know, they're like the new guy who sits down at the table and everyone's already been playing.
• 5:05
  And so you can kind of overestimate your own conviction and knowledge, usually at a time when you're afraid.
• 5:13
  Yeah, makes sense.
• 5:14
  I guess like within the Bitcoin space, that's even more common because the volatility is so extreme. It's more difficult to perhaps like remain the same level of conviction with that extreme volatility. Would you agree with that?
• 5:27
  Yeah, totally agree with that. So like last cycle, Bitcoin had an 80% drawdown and anyone who was levered had much worse than that or bankrupt. So you have to, for me, really weigh like what's the upside of this financial leverage, especially with an asset that's already really volatile.
• 5:46
  I do think credit is in a market that dwarfs the equity market.
• 5:50
  So it's really tempting to try to find how to sustainably generate yield in this industry.
• 6:00
  And that involves leverage generally.
• 6:02
  So I'm not like a zero weight leverage guy, but very careful about it.
• 6:07
  Interesting.
• 6:08
  Yeah.
• 6:08
  Let's maybe start talking about digital credit.
• 6:11
  What are your general thoughts on the success of STRC, for example, with strategy there?
• 6:18
  Yeah.
• 6:19
  So I think with the case of DATS, going first really mattered.
• 6:27
  So getting to the scale where the largest hedge funds in the world are trading the micro strategy capital stack, right?
• 6:37
  The converts, the equity.
• 6:38
  And it's like they have purpose-built desks and the market cap is so big and the assets are so liquid that the very sophisticated entities can extract profits from that volatility.
• 6:55
  And strategy has these relationships with those huge capital allocators at this point.
• 7:01
  And that's the moat from my perspective.
• 7:04
  So the stretch follows along that path.
• 7:11
  I think they're iterating a bit on how they're constructing that yield curve.
• 7:16
  And stretch is probably the most successful offering so far.
• 7:23
  I do think that there's been a transfer of value from the common equity to some of these fixed income securities.
• 7:31
  and they are selling equity below 1x MNAV on a market cap basis,
• 7:38
  not on an enterprise value basis.
• 7:40
  So it's accretive to all of the owners,
• 7:43
  but it's not accretive to the equity holders.
• 7:45
  It can still be profitable if the stock goes up a lot,
• 7:49
  but that value transfer, I think, you know, you have to be aware of it.
• 7:54
  Are you surprised at how much capital strategy has been able to raise with STRC?
• 7:59
  I think either last week or two weeks ago, I think they raised like $2 billion in one week.
• 8:04
  Are you surprised that the amount of demand there is for Stretch?
• 8:08
  I'm not. Yeah. I mean, fixed income market is multiples of the equity market.
• 8:15
  You know, there's huge even regulatory needs why someone might want a short duration product, which is what that is.
• 8:26
  and we've seen that Sailor is a maestro when it comes to marketing.
• 8:33
  So yeah, I'm not surprised. I think it's going to grow.
• 8:37
  Comparing digital credit to traditional fixed income markets,
• 8:41
  how much of a paradigm shift is it?
• 8:44
  Or how different is it from just a normal credit product?
• 8:48
  In the case of strategy and Bitcoin digital credit,
• 8:53
  so to specify for Bitcoin only,
• 8:56
  I think it's very different because Bitcoin has no underlying cash flow.
• 9:01
  So the yield comes from either lending it out to someone else or from creating yield in the options market by, say, selling calls.
• 9:19
  So for strategy, it's almost like a perpetual refinancing.
• 9:22
  And since the value of Bitcoin grows over time, as long as you keep your loan to value ratio constant and Bitcoin is growing, you can keep extracting more debt without increasing your financial leverage from a ratio perspective.
• 9:38
  If Bitcoin goes flat or Bitcoin goes down for any considerable amount of time, then you're going to underperform and the weakest link will probably go bankrupt or have to capitulate.
• 9:48
  And that's what we're kind of starting to see here with some debts selling Bitcoin, buying back stocks, some M&A, right, which you guys have done.
• 9:57
  Yeah, exactly.
• 9:58
  Maybe shifting back a little bit more towards like traditional credit and traditional markets.
• 10:03
  Like it seems like, you know, like the big idea of maybe the last 50 years is like the 60-40 portfolio.
• 10:09
  But now it seems like more and more people are just like leaning more towards equities and not having like that large bond allocation.
• 10:16
  Do you agree with that?
• 10:17
  And if so, why do you think that might be the case?
• 10:21
  I totally agree.
• 10:22
  In my personal life I 75 risk 25 cash And that because I think that G7 bonds are like risk you know there the risk reward is skewed to the downside because of the fiscal irresponsibility of the G7 countries
• 10:45
  So I'd rather just have like ultra safe with the cash and not take any type of duration.
• 10:51
  Well, like I don't want to lend the U.S. government money for 10 years because I know that it's going to be it's going to be debased.
• 10:58
  Yeah. Yeah.
• 10:59
  That makes a lot of sense. Was there like a moment when you realized like traditional bonds or like traditional money was like broken? Like what was like kind of like the light bulb moment for you?
• 11:11
  Yeah. It was 2017 when I was doing a lot of research into the FANG stocks at the time, so Google, Microsoft.
• 11:24
  And I wrote this research piece on why Google's market power was so entrenched and what that meant for the journalism industry, which was the industry that I started my career at.
• 11:41
  And the title of this piece was Google is Evil.
• 11:44
  And then the conclusion was like, buy Google.
• 11:47
  And in that piece, I timestamped my first Bitcoin purchase because like the conclusion was buy Google, right?
• 11:54
  99% of your money, buy Google.
• 11:55
  But if anything, any type of technology will succeed in taking margin away from this like very capital efficient network, which is what Google was.
• 12:07
  Now it's much more capital intensive because everyone's buying GPUs.
• 12:11
  But at the time, you know, very high margins because it's a capital-like network.
• 12:14
  What can take margin?
• 12:15
  Well, we've got this new technology, cryptography, which allows a peer-to-peer relationship that didn't exist previously.
• 12:24
  And cryptography had been deregulated in the Clinton years.
• 12:28
  And I was like, OK, Bitcoin is actually the killer app 1.0 of this cryptography technology, which might take margin from Google and might disrupt these digital networks because of a lower cost alternative.
• 12:39
  So I actually came at it through the Web3 type of lens.
• 12:45
  And then it wasn't really until I read, what was it, the MMT lady, her book, Stephanie Kelton.
• 12:54
  Modern Monitoring Theory.
• 12:56
  Yes.
• 12:56
  And then I read that and it wasn't, I already knew that I wasn't going to agree with that text and I could point out a lot of errors in it.
• 13:03
  But when I saw how seriously everyone else was taking it, I was like, oh, wow, like a lot of people are going to keep this money printing going.
• 13:12
  They think it's going to work. So I got conviction that Bitcoin would be more sustainable than what the market was thinking when the market thought it would be a flash in the pan.
• 13:22
  Yeah, it's so interesting. Yeah, it's interesting that like, that's that idea seems to be continue to be persisting. Like it seems like it's not even necessarily a political issue to spend a bunch of money. Everyone kind of agrees that governments are going to keep spending a bunch of money.
• 13:38
  totally it's just so hard to stop once uh once you reach a certain tipping point yeah what do
• 13:45
  you think about like the general idea of like the k-shaped economy where it's like people have
• 13:49
  mentioned like the top one percent ten percent doing very well and then the average person kind
• 13:54
  of not doing very well is that something that's going to continue to persist does bitcoin or
• 13:59
  digital credit like help the bottom 90 percent how do you think about that um i do think that
• 14:06
  Bitcoin is like a disillusionment asset. It's people who get disillusioned with how the current
• 14:15
  monetary system works often gravitate to Bitcoin. And sometimes that happens for the reasons that
• 14:25
  the K-shaped economy says, which is like you've got a greater proportion of people who feel like
• 14:32
  they're falling behind. But then when you look at the data of who actually owns Bitcoin, it's like
• 14:38
  higher income people, maybe. Maybe that's correlated with intelligence. So maybe they
• 14:41
  figured it out earlier. I don't know. So I think inequality kind of goes in waves. And as long as
• 14:49
  the overall tide is lifting, then, you know, I'm not in favor of making huge changes and stuff.
• 14:58
  Yeah. What do you think is easier to understand? Is it Bitcoin or like digital credit?
• 15:07
  Well, yeah, digital credit as a term, like, does that have a TM next to it? Because I don't think
• 15:13
  the regular person on the street knows that that refers to Bitcoin backed for sure. I agree. Right.
• 15:20
  So from that perspective, I think Bitcoin is probably easier to explain. Yeah. I found
• 15:26
  On microstrategy as a concept is really hard to get the regular person to wrap their head around.
• 15:33
  Because you need to understand the maxi perspective and you need to assign a non-zero probability that it might happen to be bullish on microstrategy because of the way it's Bitcoin per share.
• 15:49
  So it's a second order of thinking that not everyone gets to right away.
• 15:54
  Makes sense.
• 15:54
  You mentioned how if digital credit, thinking about digital credit, if Bitcoin goes down, then that's a problem.
• 16:04
  However, we've seen, looking back since strategy launched, STRC, Bitcoin was at $1.26 at the peak of last year, fell down to $60,000.
• 16:15
  Are you surprised that STRC held up so well, trading near par despite the volatility in Bitcoin?
• 16:24
  I'm not surprised. You know, we've I've owned some of these in, you know, in the fund over time.
• 16:31
  And the details really matter on these things. Like, what's the interest rate? Where is it trading?
• 16:37
  What's the MNAV of the equity? And it's been pretty clear from the actions and words of the larger debts that they're going to keep doing the ATM.
• 16:47
  And as is proper, the bondholders are in control.
• 16:53
  That's who kind of is driving the bus on these companies now.
• 16:57
  And that was a decision that management and the boards had to make because we were in a Bitcoin bear market.
• 17:02
  And if the model is going to persist, those debt holders need to get paid because they don't have that equity upside.
• 17:09
  So there's been this value transfer from the common holders to the fixed income holders.
• 17:14
  and it's been that's why stretch is working santa's working what's been your strategy of
• 17:20
  trading in and out of some of these products or what makes you sometimes want to allocate more
• 17:26
  and sometimes allocate less um i like to buy buy low and sell high yeah so you see if they're
• 17:32
  trading below their like guided price target that's when you might allocate yeah and it depends
• 17:38
  on what's happening with um the rest of the market right so it we'll see what happens over time but
• 17:44
  But there were periods when Bitcoin had had a good run, but some of these preferreds were still trading well below par for whatever reason.
• 17:53
  Maybe they had just done a deal.
• 17:55
  And so that creates interesting risk reward.
• 17:58
  Yeah, that makes sense.
• 18:00
  How important do you think it is to build a track record for digital credit?
• 18:05
  Like we talked about, Bitcoin did go down and most of them held up fairly well.
• 18:11
  Is a track record like super important for building trust in this idea?
• 18:15
  Yeah, it totally is.
• 18:17
  So, you know, the best predictor of survival is survival.
• 18:23
  And so many institutions, when they're going through the due diligence process, say to approve a new ETF, for example, they want to see, you know, three years track record, maybe one, but three years track record.
• 18:39
  They want to look at monthly returns.
• 18:41
  They want to look at the volatility.
• 18:42
  What was the biggest drawdown?
• 18:43
  What portfolio moves did you make during that drawdown?
• 18:46
  So there's a lot of people who are employed to pick one fund or one security over another
• 18:52
  and really look at the details there.
• 18:54
  And the longer that these products can trade near par like this,
• 19:00
  and the volatility has been coming down, I think the market will grow.
• 19:03
  So just thinking about digital credit overall, like some people might say like, oh, well, it's trading at a relatively stable price, pays like a relatively high yield to other potential ideas that they could invest in.
• 19:18
  Is this too good to be true?
• 19:20
  Like where could this go wrong per se?
• 19:22
  Okay.
• 19:25
  When you're a debt holder and the company goes bankrupt, you get paid first.
• 19:31
  So the downside is like definitionally limited relative to what the equity holder has to go through.
• 19:41
  And as an investor, you're always trading like, OK, return versus risk, return versus risk.
• 19:46
  Well, these things are much, much lower risk because they're going to get paid back first.
• 19:51
  Where I think the industry needs to be careful is in overstating the return.
• 19:55
  Right. So and I had someone stop by our booth today and I had this conversation where they were asking about stretch.
• 20:02
  And I said, how long do you have in mind for this investment?
• 20:07
  And he said, oh, 20 years. Well, then why would you buy something which is a one month product?
• 20:13
  This is supposed to be a T-bill. Like you should be in riskier stuff.
• 20:18
  And even though there are some tax deferred benefits to the structure of these products,
• 20:25
  They're not tax free. And you're paying taxes on something with shorter than a one year holding period.
• 20:32
  I mean, it's regular income, whatever, but it's the return of your own capital and it is taxed.
• 20:37
  So I would just be careful of overstating the benefits.
• 20:41
  I don't see the need for these in like a really long term growth oriented portfolio.
• 20:47
  That kind of like leads into my next question.
• 20:49
  Like, how do you evaluate digital credit versus Bitcoin itself?
• 20:53
  Is it simply like a matter of your time horizon and time preference?
• 20:57
  Yeah.
• 20:58
  Especially institutional investors fit into a style box So the style box consists of equity and fixed income Within equity there growth and value There large cap and small cap And then each of those style boxes has a thousand Van X all competing with their own version of like the flavor inside of the style box
• 21:25
  So, you know, stretch and digital credit is going after the short duration, fixed income, single issuer security bucket.
• 21:39
  And, you know, there's competition in that bucket, too.
• 21:43
  But that's not 100 percent of anyone's portfolio.
• 21:47
  Right. So I think like position sizing, matching your assets and liabilities.
• 21:53
  so maybe you're saving up for a car uh in a year and you know you need to grow your capital from
• 22:00
  like 10k to 30k uh i think the stretch or digital credit would be like a reasonable portion of that
• 22:07
  type of uh single use fund yeah this may be a basic question i probably should know the answer
• 22:13
  but i don't think i know the answer if you have digital credit in like your node etf
• 22:18
  do you distribute the dividends as like dividends or can you decide like how you
• 22:24
  allocate the dividends? Yeah, good question. So we, you know, we have bought some of these
• 22:29
  fixed income products in the past, but we're an equity fund. And I think over multiple years,
• 22:34
  I can do much better returns than these products. So I use them sometimes as a cash proxy for a
• 22:41
  short amount of time to manage opportunities in the market. The cash from the dividends will hit
• 22:50
  the net asset value of our ETF. And the fund manager can use that cash for whatever purposes
• 22:58
  we see the most benefit at the time. But at the end of the year, we have to pay it. We pay those
• 23:04
  as a cash distribution. And so is that just the way that you've set up your specific fund?
• 23:10
  Yeah, that's the specific flavor of the ETF wrapper that we're using for Node.
• 23:16
  Interesting. Very cool.
• 23:19
  Wow. You brought up this idea earlier of growth versus value investing.
• 23:24
  Would you classify yourself as more like a growth investor or value investor?
• 23:31
  I'm a hybrid, so I like both parts of the market.
• 23:36
  But when it comes to node and the digital assets ecosystem, it's growth investing.
• 23:44
  So valuation is less relevant when it comes to, say, the Bitcoin miners, where we've done a lot of work.
• 23:53
  And the most expensive names on a market cap per megawatt of power, say, the most expensive names by far have done the best.
• 24:04
  and the cheapest names have done the worst.
• 24:07
  And that's because of what the strategy of management is,
• 24:10
  what they're telling the market.
• 24:12
  The profits haven't really started to flow yet
• 24:14
  from that AI side of the business,
• 24:16
  but they're growth stocks and they've outperformed.
• 24:20
  And some stocks trade on certain catalysts.
• 24:25
  So when you have a lease that transforms
• 24:27
  the entire earnings power of your company,
• 24:31
  just like the day that lease hits,
• 24:32
  your stock is really going to outperform.
• 24:35
  So I take more of a growth mindset, I say, within node.
• 24:40
  How about also growth versus income investing?
• 24:44
  Is that also more of a time preference thing?
• 24:47
  Income investing is going to generally be shorter term
• 24:49
  and growth is going to be longer term or not necessarily?
• 24:55
  I'd say not necessarily.
• 24:57
  um there's a strategy called the dividend aristocrats strategy like companies that have
• 25:05
  raised their dividends uh for a certain number of years um that are performing you know really
• 25:12
  admirable um kind of capital management you know combination of buying back stock paying dividends
• 25:18
  and investing in the business like a fortune 500 companies some of them um you know are able to to
• 25:24
  do that. And it's not necessarily for shorter time horizons. I think it's for people who,
• 25:32
  frankly, are so rich that even like a one or 2% dividend yield they can live on. And then
• 25:38
  they get to the equity portion of the portfolio can still grow. So there's a lot of balanced
• 25:45
  approaches. Makes sense. What's like the closest asset to digital credit that you think,
• 25:51
  like digital credit is superior to um
• 25:59
  yeah i probably it's like a junk bond etf where they're really tempting because they have
• 26:11
  juicy yields that you can't get anywhere else and you can you know they're liquid
• 26:17
  and then investors often kind of underestimate the risks a little bit where in market turbulence,
• 26:28
  you know, the price really can go down even though it's a bond fund.
• 26:30
  And I think if right now these digital credit products are trading at 100 and everything is good,
• 26:36
  but like there will be a day when there's a 10% correction in these things for whatever reason
• 26:42
  because the companies want to issue more or because the market's really weak.
• 26:45
  And I think that for folks who like these like jump on ETFs carve off a portion into, you know, Bitcoin backed credit, that would be interesting.
• 26:57
  What do you think also about credit rating agencies, whether that's like this idea of BitBonds, which I know you've talked about before previously, or like digital credit itself?
• 27:07
  Do you think having ratings from like S&P or Moody's or whoever would be like a big step forward?
• 27:14
  I do. Much of the fixed income buy side community can only buy rated bonds. And you can debate whether or not these rating agencies ever get things early. They're usually like a coincident or a lagging indicator. They're upgrades or downgrades.
• 27:37
  downgrades. But just like the U.S. Constitution and our separation of powers, providing that
• 27:44
  extra layer of rating agency analysis, it spreads the risk around a little bit. And I think they
• 27:55
  provide it relatively valuable service, right? So MicroStrategy got rated recently. I think
• 28:03
  others will probably follow. Yeah, makes sense. Where do you see, like, this is kind of more broad,
• 28:08
  big picture AI, like, how is that affecting markets? I know you've covered like the Bitcoin
• 28:13
  miners, a lot of them are pivoting towards, you know, building AI and buying GPUs and building
• 28:18
  the data centers. How are you thinking about AI in general? Yeah, I mean, at the atomic level
• 28:25
  is the answer. We've had basically several decades of no growth in the electrical infrastructure
• 28:37
  of America, right? So that like, if you look at just the number of gigawatts, it hasn't really
• 28:42
  grown. And part of that is like this supply side dynamic where it's so hard to build anything in
• 28:48
  this country anymore, bureaucratic red tape, and everything's political and all that. So supply's
• 28:54
  been constrained. And then we had this double demand shock of AI, but also just reshoring,
• 29:03
  right? Because we're de-globalizing. We know our connections with China have frayed. For many
• 29:08
  reasons, supply chains are de-globalizing. And so double power demand shock along with this
• 29:16
  undersupply where Bitcoin and AI intersect is at that atomic level where the miners just have the
• 29:25
  know-how to find and develop cheap power sources and then put that to whatever is most productive
• 29:33
  use. So that's maybe not a very satisfying answer because it's not in the theoretical ethos of
• 29:42
  Bitcoin. But in a way, I kind of think it is because one of the like 100 years ago,
• 29:49
  was it Thomas Edison who had like an idea for an agricultural backed money that would,
• 29:56
  you know, its value would fluctuate based on the agricultural capacity of the United States.
• 30:01
  And Bitcoin is kind of like that, you know, where the more energy you have, the richer you are.
• 30:06
  That's kind of true. We've all seen that graph of GDP per capita and energy use per capita.
• 30:15
  So Bitcoin has always been a way to connect the real world to money in a way that we lost with the money printer.
• 30:23
  Makes sense. So thinking back also on digital credit, how big do you think that market could become one day?
• 30:32
  And what would that imply for Bitcoin if it reaches a certain level?
• 30:38
  Okay.
• 30:38
  We'd have to break out our 2050 model where I've lost the memory of how many trillions it could be, right?
• 30:47
  Do you know the size right now?
• 30:49
  It's probably a little bit more than 10 billion or so.
• 30:52
  10 billion?
• 30:52
  Yeah.
• 30:53
  Got it.
• 30:54
  11 or 12 billion.
• 30:55
  Okay.
• 30:56
  Okay.
• 30:56
  Okay. Well, okay. Let's imagine a world where Bitcoin approaches a million dollars,
• 31:08
  which could happen in maybe a decade or maybe less. So at that point, Bitcoin would be like,
• 31:16
  call it 15 trillion. Okay. And then microstrategy is currently like a 15% leverage,
• 31:24
  right, debt to assets. So why don't we say that the overall digital credit market would be like 15%
• 31:31
  of the $15 trillion, right? So let's call it $2.5 trillion, something like that.
• 31:38
  So that 25x you said the current No 250x Yeah Yeah I that that definitely within reach over the next decade yeah that makes that makes sense for me how are you thinking about this on
• 31:52
  like a macro level i know like we're looking at kevin warsh to be the new federal reserve chairman
• 31:58
  in the united states potentially lowering interest rates at some point in the future
• 32:02
  how do you think about that just broadly with bitcoin and and markets but also in context of
• 32:08
  like digital credit yeah my that that estimate of the two maybe that could be low if we get
• 32:14
  anything approaching a like hyper bitcoin is okay right yeah yeah because maybe that leverage level
• 32:19
  is too low if people really lose faith and yeah the other fiats um yeah sorry that's a great topic
• 32:25
  too but uh i do want to ask you like kevin kevin kevin like liquidity right and and interest rates
• 32:32
  I guess in particular. Yeah. Yeah. So we try to pin our Bitcoin conviction to like three different
• 32:42
  factors. And global liquidity is one of those factors. The second is the leverage within the
• 32:48
  ecosystem. So like open interest in the futures market, what you pay for funding, like that type
• 32:53
  of leverage. And then the third is what's happening on chain and the four year cycle
• 32:58
  plays into that. But the global liquidity part is the hardest part where it's very rare to have
• 33:06
  any type of edge in what's going to happen to global liquidity over the next three months,
• 33:11
  say. I mean, some people can do it, but it's tricky. Warren Buffett is always like,
• 33:17
  if you tell me where the 10 year is going, that's the hardest thing to predict.
• 33:22
  So I don't have too much of an edge on the near term for that.
• 33:28
  But Trump wants lower rates.
• 33:31
  It looks like Warsh is going to get through.
• 33:34
  AI should be deflationary in the macro sense.
• 33:38
  There's a pricing shift.
• 33:41
  Maybe electricity becomes more valuable.
• 33:44
  But that's only relative to other things.
• 33:47
  Inflation is only caused by money printing.
• 33:49
  Money printing is happening.
• 33:50
  So the overall tailwinds should be there.
• 33:55
  Yeah.
• 33:56
  How about specifically in the context of both Bitcoin and digital credit?
• 34:01
  Assuming that we can't predict where interest rates are going, if they do in fact go lower, what might happen to Bitcoin and digital credit?
• 34:10
  And then if they do in fact happen to go higher, what might happen to Bitcoin and digital credit?
• 34:14
  Yeah.
• 34:15
  I mean, the worst environment is when rates are rising.
• 34:18
  Right.
• 34:19
  So when the Fed is worried about inflation, it's because the media is worried about inflation.
• 34:26
  And when the media is worried about inflation, they look for scapegoats.
• 34:31
  And Bitcoin is a really handy scapegoat.
• 34:35
  So then the policymakers start to do specific things to target the Bitcoin network.
• 34:41
  And that's not a U.S. phenomenon.
• 34:42
  Like China, famously in 2021, they want to save their hydropower for other things than Bitcoin mining.
• 34:49
  Kazakhstan cut off the Bitcoin miners, right?
• 34:51
  So what you don't want is CPI inflation.
• 34:55
  And then if rates go down a lot, which I guess hopefully Kevin Worsh and others want that to happen,
• 35:03
  what does that imply for Bitcoin?
• 35:05
  Is that the next Bitcoin bull market?
• 35:06
  Will digital credit become incredibly attractive at that point?
• 35:09
  How do you think about that?
• 35:10
  Yeah, we'll see what happens to the rates on the digital credit, right?
• 35:15
  So fixed income market prices off of the treasury market, a spread to the treasury market is like, how much additional return do you get and how much additional risk do you have to take?
• 35:27
  So, you know, I would think that as liquidity is more available and Bitcoin price would go up and so spreads maybe would tighten, digital credit would grow.
• 35:41
  So, you know, that would be a tailwind.
• 35:43
  Yeah. Also, what do you think about Bitcoin versus gold?
• 35:47
  You know, I think like over the last two years, gold has done phenomenally well, probably maybe caught some Bitcoin, you know, believers a little off sides.
• 35:56
  Are you surprised that gold did as well as it did? And especially in the context of Bitcoin's maybe poor performance?
• 36:03
  So Vanek runs the world's largest gold mining fund, and we were the first to start a gold mining fund in the 1960s.
• 36:11
  So we're gold bugs also.
• 36:13
  Nice.
• 36:14
  Now, some of the gold people don't like Bitcoin, and some of the Bitcoin people do or don't like gold.
• 36:19
  But at the top level, we think they take turns.
• 36:22
  They're complementary.
• 36:25
  Yeah, Bitcoin can take market share over time.
• 36:27
  But we've been running some prop capital with a Bitcoin-gold blended portfolio where the weights adjust based on the volatility of the assets.
• 36:38
  And boy, it performs really, really well. So, you know, we like them both.
• 36:43
  Peter Schiff, you know, he's one of the more prominent gold bugs that doesn't like Bitcoin.
• 36:48
  And he also doesn't like digital credit, unsurprisingly.
• 36:51
  Do you think that he actually doesn't understand Bitcoin or like what's it going to take for him to understand Bitcoin?
• 36:57
  He's just a troll. Yeah, there's nothing really to say. Just a troll.
• 37:01
  Fair, fair, fair. Another thing that I saw that was interesting was a four-star U.S. military person was speaking, and they mentioned that the U.S. is now running a Bitcoin node. What do you make of that?
• 37:16
  I'm not surprised.
• 37:21
  Bitcoin is a projection of power because of the energy intensity that it requires.
• 37:27
  And then also, if your enemies are going to be accepting Bitcoin for transiting the Strait of Hormuz,
• 37:33
  it's probably pretty helpful to run a node and be able to have kind of firsthand visibility into the network.
• 37:41
  So, yeah, I'm not surprised by that.
• 37:44
  Makes sense.
• 37:45
  Yeah, it's crazy.
• 37:46
  Crazy seeing what's happening. What also do you think about nation states mining Bitcoin? Like,
• 37:53
  is that a big deal? Is that not a big deal? How do you think about that?
• 37:56
  I mean, that's been one of the linchpins of our thesis for five years that the El Salvador
• 38:03
  experiment was really meaningful because it's a way for countries to push back against IMF
• 38:09
  interfering in their domestic affairs. So about 5% of the global economy is in default to the IMF
• 38:16
  at any given point. And those countries are negotiating against this vague multilateral
• 38:21
  institution that will lend them money if they do structural reforms. And the structural reforms
• 38:26
  are usually raising taxes. And so if you're the dictator or the political party who's in charge
• 38:31
  and you start negotiating with the IMF, then your opponent accuses you of selling out the
• 38:39
  sovereignty. So Bitcoin becomes this really interesting game theory compromise for those
• 38:45
  countries. And many of them have excess energy. Ethiopia was a good example, a country that
• 38:52
  had an IMF deal it needed to negotiate. They had also overspent on this hydro dam.
• 38:58
  And so they invited a bunch of Bitcoin miners to co-locate next to the hydro dam. Now they're
• 39:02
  mining Bitcoin themselves, probably selling it every day for the dollars, because a country that
• 39:07
  is in default to the IMF is by definition short dollars. And Bitcoin becomes a really handy way
• 39:13
  to earn some of that foreign exchange.
• 39:16
  So we're now up to, we count 14 countries
• 39:19
  that are mining Bitcoin at the kind of state level.
• 39:23
  Another 10 who own it in some shape or form
• 39:26
  in a sovereign wealth fund of some kind.
• 39:30
  And I'm pretty confident that's going to grow.
• 39:33
  Any other like final, or here's two more.
• 39:37
  Where do you think Bitcoin is in 2030?
• 39:40
  And where do you think digital credit is in 2030?
• 39:43
  Yeah. I think Bitcoin should be able to reach somewhere between a third and a half of gold's market cap.
• 39:54
  That would be roughly 500k per coin.
• 39:59
  I think that, you know, probably after the next halving.
• 40:02
  It really depends what happens to the volatility.
• 40:05
  So Bitcoin vol has fallen by half over the last four years.
• 40:09
  and digital credit actually playing a role in bringing down some of that volatility by
• 40:18
  segmenting it and kind of selling it to different parts of the marketplace.
• 40:26
  So the more that happens, the bigger that digital credit could be relative to the Bitcoin price,
• 40:34
  potentially. Maybe like one more final question.
• 40:38
  And so it's kind of related to what you just said.
• 40:41
  We've seen like people bid digital credit like when Bitcoin is perhaps struggling, right?
• 40:49
  Like if you're a Bitcoin bull and you have a large Bitcoin allocation, but you want to you think it's overheated for whatever reason.
• 40:56
  You know, STRC has done pretty well in a bear market.
• 40:59
  Like they've written strategy has raised a lot of capital.
• 41:02
  Do you think that that's going to be a trend that persists?
• 41:04
  Like, will there now be like a new bid for Bitcoin in the bear market?
• 41:08
  Yes, it probably won't be big enough to matter too much because that cohort is small.
• 41:22
  So, yeah, I think it's a good question as to whether the Bitcoin-backed bonds, in the end, make Bitcoin more or less volatile.
• 41:32
  Because there's this muting volatility that I described.
• 41:35
  But then there's also what we saw with Terra Luna and other bankruptcies.
• 41:40
  When someone's a forced seller because they're going bankrupt because they had debt, you tend to get even more volatility.
• 41:48
  So, yeah, unknown answers there.
• 41:51
  Yeah, it's interesting to think about.
• 41:53
  Well, Matthew, thanks so much for taking the time to do this.
• 41:56
  This has been a great conversation.
• 41:57
  Where can the audience go to learn more about your Node ETF and VanEck?
• 42:02
  Sure, yeah.
• 42:02
  So we put out a lot of research, which you can follow on X, Matthew underscore Siegel,
• 42:09
  or check out VanEck forward slash node for the holdings and investment philosophy behind that ETF.
• 42:17
  Awesome. Well, love it. Thanks again.
• 42:19
  Thank you.