Latest / The Income Show / Mike Alfred: AI, Bitcoin, Digital Credit, & The Future of Investing | The Income Show | Ep. 1

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Mike Alfred: AI, Bitcoin, Digital Credit, & The Future of Investing | The Income Show | Ep. 1 · The Income Show

0:00
You can take a big chunk of your retirement portfolio instead of using a 3 or 4 or 5% withdrawal rate.
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You can just put it into something that yields significantly more than that.
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But digital credit, I think, has a lot of promise because it's built on something that is much more pristine than the traditional financial system.
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But I still think Bitcoin is going to a million dollars, probably by 2033 or 2035, something like that.
0:30
Mike, thanks so much for taking the time to record with us.
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Yeah, great to be here. Good to see you again, Joe.
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Absolutely. Thanks for hosting us as well. This is incredible.
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Let's start off broadly. I do want to talk about, obviously, Bitcoin and digital credit.
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But first, I want to know your general investment philosophy.
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I think at a high level, I'm a sort of high conviction, long duration value investor.
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I like to take large positions relative to the size of my overall capital in companies where
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I feel like I have some sort of edge, either because I know the business better, I know the
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strategy better, I know the team better. The team has been a key determinant for me many times where
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I'm able to look at a set of 20, 30, 40 companies, let's say in an emerging industry and
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sort of handicap the likelihood of having success as a shareholder in those companies. Just a little
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bit of pattern recognition, a little bit of human psychology. And I just had a good track record
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over a long period of time of being able to pick out kind of leading CEOs, founders, management
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teams. But I like to hold stuff for as long as possible. So ideally, when I find a good investment,
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I'm able to enter when people are extremely bearish and negative. A good example would be
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when I was buying Strive last fall. Last spring, about a year ago, everybody was losing their minds
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over all these new fangled treasury companies
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and they were willing to chase
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at much higher multiples of the underlying Bitcoin.
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By the time I was interested,
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those premiums had largely gone away
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and the sentiment had gone from too exuberant
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to then sort of too negative.
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And if I like the long-term trajectory
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of a business model,
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then my preference is to see those opportunities
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when people are the most afraid
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because that de-risked, right?
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So partially de-risked the investment opportunity
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because if you're entering at the right price, it's harder to lose money.
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I also look at the balance sheet.
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I'm very much a balance sheet first investor.
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If I can't understand how I'm not going to lose money in something,
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then I probably won't get involved at all.
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If you look at a balance sheet, for example, with a company like Iron or Cypher,
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two, three years ago, they owned sites that were worth more
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than the market cap of the companies at that time.
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The sentiment was extremely negative.
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We were coming into the landing in the Q4 of 2022, crypto bear market.
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NASDAQ, better market, right? It was a tough time for investors. And that was when you could
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actually buy those stocks with like a pretty good intrinsic value margin of safety, right? So you
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were buying them probably for about a third of what the, what I estimated that the value of the
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sites was at that time. And that's if the business wasn't successful. And so those are the types of
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situations I like, like high asymmetry, protection on the downside via the balance sheet, business
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models that I maybe think I have an edge in the market and world-class management teams. And if I
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I think if I find those types of situations, I size those positions up, that it's actually pretty hard to lose money over long periods of time.
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In fact, you might actually compound at much higher rates than most people.
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I mean, I'm targeting 30% to 50% type returns over long periods of time, which you can't do if you have like 75 stocks or 75 investments in your portfolio and they're all sized at 1% to 5% type of thing.
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You're sometimes going to have to be 40% or 50% long, one idea.
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maybe even higher depending on where you think you are in the cycle in order to achieve those
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types of CAGRs. But if you could do that for two decades, for three decades, then you're basically
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drunk and milling. And it's harder and harder to start a fund now that looks like that because
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everybody's looking for Millennium and Citadel and things where it seems like it's guaranteed
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with a low volatility because the risk parameters are so tight. So they're managing for 10% to 20%,
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but every single year. And if anybody in the pod goes off track, they just cut the risk
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right away. So they're selling stocks when I'm buying them because that's part of their model
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and their model works for them. And that's a lot of people want low volatility. That's why people
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get sucked into Ponzi schemes, by the way. The Ponzi's usually look like super low volatility,
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like 18% every single year or something. And that's usually not real because it's basically
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impossible to do that. But a lot of the podgeps have been able to emulate that type of return
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string by diversifying the risk across a number of teams and then cutting risk whenever somebody
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draws down, let's say more than 3%. To do what I do, you have to be willing to draw down 30%,
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50%. And you might even do that several times in a cycle. But again, if you really know what you
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own, maybe you can hold those positions. So it's very much like a point to point style. Like if I
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close my eyes for three years, if I know the price, price in year one is $1. And I think the
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price in year three is going to be $5 or $10, which is approximately what you need to do in order to
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generate those types of keggers and hire, then you can close your eyes as long as you're right.
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Right. Because the stock might go from one to two to 50 cents to three to 50 cents to four to 75 cents to two to one to three.
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And if it ultimately gets to five in year three, then you've got your year five X return.
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Yeah. So anyway, that's kind of how I think about some of this stuff.
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Yeah. I've always admired your longtime horizon and the ability to maintain like conviction when throughout that extreme volatility.
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What do you think like most people get wrong when it comes to markets and invest investing?
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I think a lot of people don't really have the end goal in mind. So it's easy to get whipsawed if you don't really think about, well, the whole purpose of this exercise is to have more wealth in the future.
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Yeah.
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Right. So whether the market gives you a mark to market gain today or tomorrow or next week is irrelevant.
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People want to feel richer. They want to feel better off.
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And so they'll trade too much.
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They'll get sucked into whatever's hot or whatever is sexy right now, whatever's going up, whatever looks good on a chart.
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And that's not, in my opinion, the best way to make money.
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The best way to make money is to really keep the end goal in mind and focus on your longer term outcomes over three, five, 10, 15 years.
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I see people on X, they're 25 years old and they're trading around like they need to retire by 27.
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Yeah. Now, if you needed to retire at 27, yeah, maybe reduce your risk and hedge and use put
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options and do whatever you can to keep your account balance stable. But if you're not going
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to be retiring and using that money for 20, 30 years, why are you acting like you need it next
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week? Yeah. So I just think there's a mismatch sometimes between what people are actually trying
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to achieve or what they shouldn't be thinking about trying to achieve and what they actually
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do. And so I think if you start with a crystal clear view as to what the objective is, it makes
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it easier to reverse engineer how you should be investing. So as I said, for me, I'm looking for
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30 to 50% long-term Caggers, like two decades, three decades, four decades. So I can't afford to
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sell everything every time people are freaking out. In fact, I'd probably need to do the opposite.
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I need to be generally buying every single time people are freaking out. And it doesn't even
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matter what it is because every single time people have been freaking out in markets for the last
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100 years, the market always comes back. Even like 2008, everything's collapsing. The global
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financial crisis is going to kill the global economy. And we bottomed in March of 2009,
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one of the best buying opportunities in the last 25 years. Everyone was told,
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you got to be careful. You got to be careful. Everyone always tells you to be careful when
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you actually should be adding more and investing. So I'm able to understand that over a long
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duration and I never let anything that's happening in the very short term change that view. So like
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more recently, like with this Iran thing, like straightover moves, closing is going to end
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human civilization. It's going to send oil prices to the moon. Like you should sell everything.
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Everything's going to go lower. There's going to be a global margin call. You know, a couple of
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years earlier, it was like Silicon Valley Bank and Silvergate and everything going down because
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of mark to market accounting on bond portfolios is going to kill every bank and crash the global
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economy, right? You go back to COVID. Oh, this virus that basically causes a flu is going to
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kill the global economy. They're never going to open it up again. And so you're an idiot for
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owning stocks every single time. I can give you like a dozen more examples just in the last 10,
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15 years. Every single time was a time to add. But if you read social media and you read the news
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and you listen to Jim Cramer on CNBC, these guys always get you aggravated right when you need to
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be super calm and making additional investments. So I just try to remind people on X, like every
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time this stuff happened. They always say, Mike, it's different. You don't get it. It's different
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this time, every single time. And I'm like, nope, check back with me in six months. We'll probably
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be higher again. And even if we're not, then you get six more months to act. And six months after
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that, we'll be higher. The longest major drawdowns in the indices, like 2000 to 2002, for example,
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in the NASDAQ, that was pretty painful. People who just held tech stocks through that period lost a
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lot of money, but if they bought them in 2002 or 2003 and held them until now, they obviously
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crushed the market over that period of time.
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So you basically just have to buy high quality stuff when it gets cheap.
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Yep.
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And the thing that causes cheapness in the market is usually people being afraid.
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So when people are afraid, I use that as a kind of a key heuristic for when I should
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be thinking more about buying, thinking with more granularity about what's actually cheap
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and looking more carefully as to what's available at what price.
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How do you know when the peak level of fear might be?
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Or does it not even matter to you?
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You don't necessarily know when it is.
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You just try to keep adding when there is fear.
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I think in markets, sometimes it's better to be approximately correct
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or directionally correct rather than trying to be precisely correct.
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Basically, trying to be perfect is the enemy of great success in markets
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because you're never going to be perfect.
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It's just like golf.
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yeah like good golfers like it's really minimizing errors more than being perfect so even when you
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have a bad shot it's less bad than the other guy's bad shot right over long periods of time
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but i think it's the same with behavioral psychology and investing like you generally
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want to do the right thing like if you look at your last 10 years when people were afraid did
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you did you do what did you take the right action at approximately the right time not did you
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buy every stock in your portfolio at the absolute low and and trim it at the absolute high but did
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you generally buy high quality stuff when they were cheap? And did you generally trim or rotate
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from things that were expensive? And I think sentiment is just one heuristic, right? But it is
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pretty all encompassing that you can see it in the VIX, right? You can see it in options positioning.
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You can see it in a bunch of other like technical metrics you might use as a more technical trader.
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You can kind of see that sentiment is negative and it doesn't really matter like, you know,
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how long that period lasts necessarily, as long as you have the capability to consistently add
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through that period.
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But I think X is actually a useful tool.
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I've mentioned this many times.
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Like I mostly use X to gauge that.
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And I have my kind of like proprietary list
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of accounts that have proven to be absolutely terrible
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at inflection points.
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And I monitor those accounts.
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I monitor the situation
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every time we're in a so-called crisis
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because those accounts tend to freak out
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the most right at the time you should be buying.
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Some of them have almost perfect track records
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of being bearish at the bottom.
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And so if you get an aggregate view like that,
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and then you also kind of go out in the real economy
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talk to people. You can get a sense for what's going on. And one of the things I noticed the
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last three years is a lot of people got bearish on X because of things that were largely technical,
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but nothing actually happened in the real economy. Like I've been posting for three,
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four years now. There's not going to be a recession because every time I go anywhere,
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every restaurant is packed. Like people are spending money and they're like, Mike, that's,
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that's just the rich people. It's just, it's all credit card spending. I said, I don't think so.
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I just, I think you're underestimating how strong the economy is because your fundamental mindset is,
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is negative and pessimistic.
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And so you're always looking for things to fill in,
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to explain why you're being rational and being negative.
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The truth is that over long periods of time,
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all the real money that's made in markets
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is made during periods of time
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where other people are afraid, right?
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So like the world's been almost ending
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for as long as markets have existed
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and the world hasn't ended yet,
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but people who stayed long made a ton of money.
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Yeah.
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And that'll continually be the thing.
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Optimists will make most of the money in markets.
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people who stay positioned will make most of the money in the market um certainly there'll be
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counter examples like firms like jane street where they're just on all sides of everything or
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some of these pod shops like i mentioned like they'll do fairly well because they're just
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taking a tax basically on the whole system but long-term fundamental investors will outperform
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day traders right just as a general rule over long periods of time yeah what did you do before
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you first learned about bitcoin and like how did you discover bitcoin what what clicked for you
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I mean, I was a software entrepreneur.
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So I had a couple of different software companies.
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I had a little bit of a financial background, did a little bit of like personal financial
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management, which taught me a lot about how individuals think about investing and retirement
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and risk management and insurance and things like that.
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And the whole time, the thread is I've always been interested in investing since like the
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late 90s.
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um and so the question is it will sort of remind me of like what exactly where you're going with
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that uh just like what did you do before bitcoin and like what was the catalyst for you understanding
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like why bitcoin is interesting are you just watching bitcoin for years because coming from
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the technology side a lot of the dcs were really excited about bitcoin yeah it was far back as like
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2012, 2013, 2014.
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I just made the mistake of dismissing it at that time.
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I've said this before, largely because I didn't like the people who were telling me I should
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look at it.
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Nice.
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So I made a mistake, a mistake I've largely corrected now, behaviorally, where I'm willing
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to change my mind or take a look at something if there's enough there where there's enough
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that I can pull the thread and start to dig into it more.
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So I finally started to pay closer attention in 2015, 2016.
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And I considered putting a large chunk of capital into Bitcoin in Q4 2016, but I didn't actually do it until spring of 7th.
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And it was really just finally starting to understand that Bitcoin was this decentralized, immutable thing that what didn't look like any other thing that had ever existed, because almost everything that was held out as money and human history was issued by some sort of central authority.
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or is controlled by some central authority.
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It's very hard, especially for older people,
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to get their mind around the idea
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that there can be a system that nobody's actually running
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or nobody specifically is able to control.
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And I just thought that was a really interesting idea.
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And I started to figure it out that like,
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if you can't turn it off and you can't control it,
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and it is harder from a scarcity standpoint
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than the currency that it's being priced in,
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the US dollar, let's say, if you're in the US,
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then over time it basically algorithmically sort of designed to increase purchasing power over a long period of time And I think where people get confused on the behavioral psychology side is they see the price of Bitcoin moving and they ascribe that to some sort of flaw in Bitcoin itself
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Well, it must be risky.
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The government's going to shut it down.
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It must be because criminals use it.
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It must be because it's manipulated.
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When in fact, Bitcoin is just merely reflecting the volatility that exists in the fiat system,
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a system that is largely, again, controlled by politicians and central banks and is highly
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manipulated because they need to control the issuance of the currency. And if political
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requirements require them to print more of it, then they'll print more of it. Right. And so
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Bitcoin doesn't do that. It just follows its own path. But because it's priced in dollars and we
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think of it in dollar terms, it sort of reflects that volatility from the dollar system back at the
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the market. I think that confuses people. They look at the way Bitcoin trades versus the NASDAQ.
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They look at the way that Bitcoin trades versus most equities. And they say, well, Bitcoin must
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be risked because it does this BART thing. And it seems very algorithmic. And that's a free market.
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That's what happens when you don't have the government in there trying to incentivize people
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to do so. Real estate seems super stable because the government gives all these tax incentives.
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The US stock market seems really stable because you're incentivized via 401k savings, which gives you a tax break. So that incentivizes you to put it into basically index funds, which is what all the 401k platforms are sort of shoving you into. And so that creates an automatic flow into large publicly traded equities, which makes them look maybe safer than they really are.
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I think true safety comes from the margin of safety of buying something below its intrinsic value.
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But a lot of more casual investors think safety is how volatile the price is on a chart.
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So if they see it not moving, then they think it's safe, even though they're not going to beat inflation.
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So I like to say, if you really want to avoid volatility, buy a CD.
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You can get a guaranteed loss of purchase in power over time.
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Because the things you actually want to buy are inflating at 4%, 5%, 6%, and you're going to get 3%.
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So they think they're getting it because they see more dollars in the account.
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But when they actually need to go spend it in 10 years, they're going to realize they're less there.
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So I think a lot of people are just not attuned to the real underlying risk in markets because they're so focused on the here and now.
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It's like tunnel vision.
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I can only see the price on the screen now and my portfolio value now.
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And they're not thinking like 5, 10, 15 years out.
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And I think that kind of time arbitrage of thinking a little bit more carefully about everything across time, right?
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And sequentially and thinking about how you're going to feel two years from now, this month or six years from now in July.
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Like if you could actually visualize that perfectly, it would, and most people can't because again, they're just going to work today and picking their kids up and reading social media and doom scrolling and stuff.
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Like they're not able to actually do that kind of thing.
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If they did, it would make it easier to make better decisions.
17:54
Yeah.
17:54
Yeah. Speaking of flows into different assets, digital credit is obviously becoming a lot more
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popular. STRC has had major success. What do you make of the success that we've seen with
18:07
digital credit so far? Well, I've been watching it very closely. I do have 50,000 shares of SATA
18:14
that I bought. I think my cost basis is like 93, 91. Could be better, but ultimately it doesn't
18:19
matter, right? Because it's primarily like an income instrument. If you were intrepid enough
18:25
to buy them when they first came out and people were more afraid about whether they would be able
18:29
to make those payments, you know, you could get a lower price. But I still think at 11 and a half
18:34
for stretch and 13 or even more, right, recently, if you bought it below 100 effective yield,
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like you're getting something that you can't get very easily in the rest of the income market,
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So you're really competing against bonds, dividend stocks, short-term loans.
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You're competing against other asset classes that to do those safely, you typically have to stay below 10%.
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And so the argument from TradFi will be, well, these yields are too high.
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They're not sustainable.
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And that may be true if it's based on the dollar as the underlying center of the universe.
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But these products are largely, in my view, like built on Bitcoin in the sense that if Bitcoin performs in dollar terms the way many of us model that it will, let's say 20 to 50 percent CAGRs over the next 10 years, then then, you know, theoretically, you should be able to make those cash dividend payments to the preferred holders indefinitely.
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and that solves a big problem for a big chunk of u.s savers in particular who don't have enough
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save for retirement to live the kind of retirement that they want to have in the same place where
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they currently live like if you live in la jolla california if you live in a suburb of new york or
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right if you live in seattle or something like that cost of living isn't going down
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if you saved a million dollars you may think you can have a comfortable retirement there you may
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not, you may need to move to Wyoming or Tennessee or somewhere cheaper. Or you can take a big chunk
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of your retirement portfolio, instead of using a three or four or 5% withdrawal rate, you can just
20:08
put it into something that yields significantly more than that. So like one of the things I just
20:12
did with my mom recently, we went through her portfolio and we identified a bunch of dividend
20:17
stocks that we had purchased at lower prices. So the effective yield, the yield at the time
20:22
was let's say five to eight percent and some of them are now three or four because the prices have
20:28
gone up stuff in consumer staples like tobacco stocks and uh energy mlps and stuff like that we
20:33
were able to take basically a basket of stuff that was probably a blended yield of like four
20:38
three four percent and move it into sata uh you know this drive preferred at like whatever it was
20:45
13 12 and a half 13 percent at the time i think she got like 98 90 the thunder 98 like 97 90 or
20:52
something like that. So she's already up 2% on the units, right? Plus she has, you know, the yield,
20:58
which is going to come at a higher cadence. So I think it's a really interesting product. And if
21:03
they really work, they probably will take a lot of share from traditional income instruments. Like
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what's the point of buying a bond with a three or 4% yield? It doesn't really solve a huge problem
21:13
for a lot of people. It doesn't help them get to retirement or have a better retirement.
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And so I like the space. I was just talking, I mentioned on X that I was just with Fong from MSTR last night and we had a nice conversation about this. And so the more I talk about, the more I think about, the more I use these products, the more I'm constructive on them.
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There are risks, as there is with any high income product, but I think the risks are somewhat mitigated if you really understand Bitcoin.
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So I think a lot of traditional investors are sort of underwriting it as just a classic like vulture capital instrument where we've got this money.
21:49
We can buy this thing at 98, 99, 100, whatever, and we're going to get, let's say, approximately 1% a month.
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And so we could put a stop loss at 96 or 97 as long as they pay it for three or four months, like war in the green. If things go better than expected and they're able to pay it indefinitely, great, but it's liquid.
22:09
So if we change our mind and we decide we don't like the way the balance sheet is headed, we don't like the direction Bitcoin price is headed or whatever, they can cut risk very easily and avoid losing money.
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And so I think what will change, though, is if Bitcoin starts to go back into a bull market again, now you'll start to have people start to ask questions.
22:27
Well, what if the Bitcoin price goes up a lot?
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Like what if it goes up to 200,000 or 300,000?
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Like, should these things trade above par?
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Like, will they be able to lower the yield and still keep the same demand?
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because a lot of the yield today is higher to incentivize people to take a risk on a new product
22:44
where it's less proven. But maybe in a year or two from now, Bitcoin's higher and people are able to
22:51
see a path for these things to be paid for a long time. And the thing I do like right now is it looks
22:56
like there's a pretty hard threshold of a billion dollar market cap. And over a billion dollar
23:02
market cap, there's certainly a lot of companies that could issue preferred, but there aren't that
23:05
many that are going to take that risk or even understand or be interested in the sector yet.
23:10
There are a lot of people that are smaller that would love to do it. They would love to follow
23:14
MSTR and Strive. But candidly, in this environment, it's going to be very hard for them to get their
23:21
market caps up and they'll be competing for Mindshare with companies that already have these
23:25
things this year. So it's an interesting time. It'll be interesting to see what happens.
23:29
Yeah. How do you think about portfolio allocation when it comes to growth investing,
23:34
like the treasury companies themselves,
23:35
like the common stock and the AI companies
23:38
and the miners compared to income investing,
23:41
more of like stable, high yield type products
23:44
like digital credit?
23:45
How do you think about where to allocate capital
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and when to do each?
23:49
I think it's a very individual thing.
23:52
Like for my mom, who's using that money
23:54
to live in retirement,
23:56
she's much more heavily weighted towards things that,
23:59
hey, yeah.
24:00
So that's kind of one bucket of people, those retirees.
24:08
And because I advise informally, like my mom and my father-in-law and stuff, I'm always thinking about these types of investments.
24:15
But then there's just sophisticated investors who are actively investing who are always going to maintain some liquidity.
24:22
So you're going to have access to liquidity via margin.
24:25
the things that are lower risk and lower volatility, the broker will give you more margin on those
24:31
instruments than they will on high growth or small cap crypto. They think those things are
24:37
risky, so they're not going to extend much credit around that. So you always need to maintain some
24:42
liquidity as an investor because otherwise you don't have anything to buy with. So people are
24:46
always like, well, why not just be 100% in Bitcoin? It's like, well, Bitcoin doesn't generate any
24:49
income. And so I'd have to sell it in order to buy something else or to take advantage of
24:54
dislocation market. And so I think these instruments can be useful to institutions,
24:59
right? 12 or 11, 12, 13% return is good for a lot of different types of investors. Not everybody's
25:05
trying to get 30% or 40% a year. To me, they're somewhat defensive, right? They performed pretty
25:12
well during the period of time that Bitcoins drew down from 125 to 60, right? They weren't trading
25:18
at 100 most of the time during that window, but they didn't collapse, right? And then they firmed
25:23
up even as Bitcoin was still down in the 60, 70 area, they firmed up because people started to
25:28
realize it's just a math problem. Like, is there enough liquidity there to pay these yields? And
25:32
if there is, then the products work. And if there isn't, they won't. But I think people are gaining
25:37
confidence that they will. Are you surprised that last year, it peaked at 125 or whatever,
25:43
and then Bitcoin did fall to 60K? Are you surprised at the resilience that digital credit
25:48
had or did you kind of expect it?
25:51
I mean, I owned it.
25:52
So I was obviously betting that the fear about it was not going to last.
25:58
Right?
25:58
Because some of those purchases on SATA were below 90, like 88, 89, some of them were 90,
26:05
91, 92.
26:06
I tend to dollar cost average for months once I decided to take a position.
26:10
That like encaptured prices over time as sentiment changes.
26:14
And so I was comfortable just continually adding, adding, adding, adding.
26:18
and when I finally stopped adding it was a 93, whatever, 91, 92 cost basis.
26:24
So like I was adding there because I thought the market was wrong,
26:28
but the market was trading in 93 because people thought there was some risk
26:32
that they wouldn't be paid.
26:33
And I thought I was pretty confident that they would at least be paid
26:36
for two, three, four years.
26:37
Yeah.
26:38
Because my view now is like, even though there's some optionality
26:42
that companies don't have to pay,
26:44
that effectively the business model is predicated on them paying.
26:48
If you have one of the preferreds and you don't pay, then you've effectively destroyed the one component, in my view, of the treasury company model that is, I think, proving to be a real sustainable flywheel.
26:59
Because there's real product markets there.
27:01
There are a lot of people who need higher incomes.
27:04
And so I think over time, as people realize that these things are going to get paid, they're probably going to trade at $100.
27:11
A lot.
27:12
They may trade $100 for the whole month.
27:14
Yeah.
27:14
I mean, you don't want to trade too much over 100 because you want the companies to buy more Bitcoin.
27:20
Yeah.
27:21
I mean, you really believe in Bitcoin.
27:22
It's interesting because I don't think you necessarily have to believe in Bitcoin to buy these things.
27:25
But in the long run, if they work, you might as well have believed in Bitcoin because if they work, Bitcoin will go up too.
27:31
Yeah.
27:31
Yeah, it's definitely a fascinating instrument.
27:35
What would you say to someone that sees the high yields and the relatively stable price?
27:40
And this is too good to be true.
27:42
I mean, I would advise everybody to consider the risks, right? I'm not recommending these to everyone. I had a good conversation with my mom about the risk and the potential reward. She kept a bunch of her energy MLPs and she didn't sell any of her EPD, for example. And she, we only trimmed British American tobacco and Altria a little bit, right? We cut some of the staples, other staples names more.
28:09
um and so we it wasn't an all-in or all-out thing it was like yeah a portion of the portfolio right
28:16
and but that portion of the portfolio because it's it's paying 13 percent punches above its weight
28:20
and increases the blended yield uh substantially so they're the only reason you're getting that
28:26
yield now is because there is some risk and it's some risk that's probably above or at least
28:31
perceived risk above the risk of buying pepsi or something um but because i had no bitcoin so long
28:38
I'm confident that it will probably, especially from a 70K or an 80K starting price, probably compound at higher than 10 or 15 percent over the next 10 years.
28:48
I'm pretty confident the yields get paid.
28:51
So not an endorsement.
28:52
I'm not recommending everyone run out and get it.
28:54
I especially don't think young people should be buying them as much because you'd be better off just buying Bitcoin and growth stocks.
29:02
if you're in your 20s and 30s and you have 20 or 30 years to invest, you're not going to get rich
29:06
on a 12 or 13% yield.
29:11
Generally, it's going to be better suited for people who are already rich
29:14
and they want to stay rich or want to increase their income.
29:18
For people like that, for a portion of the portfolio where they're comfortable with taking
29:22
some risk, again, the risk is somewhat mitigated because you can always sell. It's not like you're locked in.
29:26
You're not betting on it forever. You're betting on it for as long as you feel comfortable
29:30
that those yields will be paid.
29:32
Yeah.
29:32
How do you think it compares to
29:34
the turbulence that we've seen in private credit
29:36
where people have been trying to withdraw
29:38
their capital and digital credit
29:41
actually being liquid?
29:43
How does it compare?
29:44
Well, I mean, Bitcoin's...
29:45
The underlying asset is a 24-7, 365 liquidity.
29:50
The old issue in private credit
29:53
is that the underlying assets
29:55
were not marked to market in the years.
29:57
So like a lot of it is centered around software, software companies, a lot of
30:03
software companies in 2022 went down between 30 and 99%.
30:07
Right.
30:08
Companies like Carvana went down like 98%.
30:10
Netflix and Meta were down 70%.
30:11
People forget that it was only a few years ago.
30:14
But the private software companies that are the closest peers to some of these big tech platform companies and publicly traded technology companies generally they never got remarked because maybe they didn need to raise money
30:27
So the way private assets get marked is whenever there's a transaction.
30:30
Sometimes there's no transaction in private equity companies because one private equity company bought the company six years ago and they don't need to sell it right now.
30:37
So they can just mark to whatever the last mark is and ignore the public company stuff for a while.
30:43
And so that creates kind of false incentives and false pricing and false expectations. You know, you've got managers who, you know, private equity managers who still want to generate their fees and they still want to raise their next fund. So what's the incentive for them to go tell their investors that they actually think some of the companies in their portfolio are worth 70% less?
31:03
And so the underlying issue that people are talking about, private credit, is largely a function of the lack of liquidity.
31:09
The fact that there has been no mark to market at all for some long, prolonged period of time.
31:14
And Bitcoin is the opposite, right?
31:16
Bitcoin, the underlying asset that is sort of powering these new products and the returns of which are likely to potentially make them sustainable for the long run, is the most liquid asset on more time frames than any other thing.
31:30
And private credit is the exact opposite issue.
31:32
So it literally couldn't be more different.
31:34
Yeah.
31:35
I don't, again, even the nomenclature digital credit, like it's not, it's not really a credit
31:41
instrument.
31:42
It's, it's a form of equity that's higher up the stack than, than common.
31:46
And so it behaves different because there's all the protections being it further up the
31:49
capital stack.
31:50
So I appreciate the marketing and I think it's good that there's a common nomenclature.
31:53
I think it might be a little misleading because in my view, it's not really a credit.
31:59
There's no like amortization to it.
32:01
There's no guarantee that the payments are going to be made, right?
32:05
Not that there's a guarantee with anything, although some people would argue that treasuries are guaranteed.
32:10
It's the basis of the risk-free rate.
32:13
But digital credit as a general category, no matter what you call it, I think has a lot of promise because it's built on something that is much more pristine than the traditional financial system.
32:23
How important do you think building a track record of making the dividend payments over time and maintaining that target price range is for like institutional investors to really be like, oh, this is not going away anytime soon?
32:38
I think it's absolutely critical.
32:40
You could already see it in the price right now.
32:43
Every month when you get closer to the X date, right?
32:48
Like the price of both of them tend to be moving back towards 100.
32:53
And the dip kind of inter-month when you're the furthest away from the next dividend payment is they're getting shallower and shallower for each of these instruments.
33:01
If you just look at the chart, you can see the behavioral change in the market as people realize that these things are going to keep paying.
33:08
So I think it's month over month right now.
33:10
But I think when you blink and look back in two years, assuming there's no surprises and they're still paying, the spread is going to get tighter and tighter.
33:18
Right. Like the range in which these things are trading super tight.
33:22
And again, at some point they may trade, depending on if the company sort of allow it, they may trade well above par.
33:28
Right. Within reason.
33:29
Like I think there's this kind of interesting dynamic because you want the price to be higher because that's a sign of competence.
33:36
but you also don't want to miss the opportunity to leverage that higher price in order to add more Bitcoin to the balance sheet.
33:43
And I think it's a bit of a give and take.
33:45
And there's some artistry to that.
33:47
There's some creativity.
33:48
That's not a hard math.
33:49
It's not just a simple math problem.
33:51
Because you don't know how investors are going to respond to how you let the thing trade.
33:56
So until we see these things trading at 100.5 or 101, we don't really know what that means yet.
34:02
We know what it's like when they trade under 100 because for big chunks of the month since they were issuing, they have.
34:09
STRC started to trade at 100 for more days of the month and for longer periods of time leading up to the X date.
34:15
And then now it looks like SATA is starting to demonstrate similar patterns.
34:19
We'll see if we get back, if we even get back down to 98 in May.
34:25
We might not.
34:27
But if we don't, obviously, it's extremely bullish.
34:29
right if it can stay between the targeted i think they're targeting 99 you 99 to 101 101
34:36
it's a day but i know you work this yeah yeah no that's that's really good um what do you think
34:45
that means for bitcoin if these are actually very successful i mean it's a natural buyer
34:51
in the market it's very similar to the etf i think the etf is sort of one major structural component
34:55
and then the treasury companies themselves are a major component.
35:01
But I was unclear to me in 2024 and for most of 25,
35:04
what was the real sustainable flywheel there.
35:08
I heard people saying infinite money glitch,
35:10
kid analyst, many of whom I like dearly.
35:14
But they would say stuff like that.
35:15
And I thought it was largely like,
35:18
because there wasn't a business model yet,
35:19
like selling common equity to buy an asset,
35:22
put on the balance sheet is not going to work for long periods of time.
35:25
And this product has the potential to actually work for long periods of time.
35:30
Again, assuming the sale of that preferred and the purchase of Bitcoin is consistently
35:35
accretive across time.
35:37
And the big risk, of course, is that Bitcoin falls enough for long enough that the market
35:42
sort of starts to question whether or not those yields are going to be paid.
35:45
And then it would be self-reinforcing like a negative feedback loop.
35:49
People would stop buying the preferreds.
35:52
You would have to stop buying Bitcoin.
35:54
and the model starts to kind of unwind itself the other way.
35:56
Right now, we're going the other direction from good levels
35:59
where there's more interest in these products.
36:01
There's more institutions there.
36:03
And these products are going to serve as a natural buyer every day.
36:07
So I think that's kind of the two legs right now is the ETF,
36:11
which obviously has been a wild success.
36:13
That's used a lot by institutions as well.
36:16
Individuals can buy it, but a lot of institutional investors
36:18
will access that and the options market around that.
36:22
And then these treasury companies have been a buyer in the market, but I think they're not getting enough credit because I think a lot of people didn't think that they could actually sustain the level of buying that Michael Saylor and others have been doing this cycle.
36:34
I think these products maybe change that narrative and maybe change some people's perspective on whether or not it's possible for Saylor to, say, keep buying consistently as far as the eye can see.
36:45
Yeah, that's an interesting point. Like looking back, strategy made a lot of their largest buys like when Bitcoin was just ripping because that was when they were selling common equity. Now it seems like Bitcoin had a rough, you know, eight, nine months or so. And strategy has been ramping their buys during the bear market.
37:02
The success of the preferred is not predicated on the price of Bitcoin going up like every day or every week or every month.
37:09
It's not predicated on being on like a parabolic bull market, which draws in investor attention, gets people to chase common equity at higher and higher prices, even if the math doesn't really work, which is what I was sort of warning people about.
37:22
in November of 2024. I held a number of spaces the week before Thanksgiving, including the night
37:28
before the peak. I had like 1,200 or 1,300 people in that space. Ben Workman was actually in there.
37:33
I still remember his little face popping up on spaces. That was the day before MSTR topped at
37:40
whatever, 541. I wasn't long-term negative on MSTR. I was more concerned about the level of
37:48
exuberance for an equity that I thought was trading far beyond the fundamental value.
37:53
And again, with balance sheet first, it didn't make rational sense to me why someone would
37:56
be willing to pay two or three or four dollars for one dollar of Bitcoin that they don't
38:00
need to control.
38:02
And I think that was largely the correct view.
38:04
It's a nuanced view because a lot of people say, well, you were just negative on everything.
38:07
No, I'm not negative on everything.
38:08
I love Bitcoin.
38:09
I just wanted to see a sustainable business model.
38:12
And so the preferred, because the market is maybe a different group of people, they're
38:16
not FOMO investors.
38:17
They're not people who want to buy something because it's gone up 300% this year and they want to buy call options on it.
38:23
These are people who largely just want a stable income stream that's higher than their alternatives.
38:29
Those people might buy as it becomes more clear that the dividend's been paid for some period of time and less so because Bitcoin is up, down or whatever.
38:37
And I think that gives you another level that's not so price, another lever that's not so price sensitive to allow you to kind of continue to grow the Bitcoin on a balance sheet.
38:47
This is more of a broad question, but what's something that probably sounds crazy to most people that you think will be very obvious in five years?
38:58
I mean, it's a hard one, right?
39:02
I spend so much time thinking about this stuff that probably a lot of stuff that I just think is consensus probably isn't.
39:09
Yeah.
39:10
but I still think Bitcoin
39:12
is going to a million dollars
39:14
probably by 2033 or 2035
39:17
something like that
39:18
so however many years that is
39:21
6, 7, 8, 9 years
39:23
could be much sooner
39:24
it's possible we're even at a million within 5 years
39:27
when Bitcoin does start to gain momentum and go parabolic
39:29
it moves a long way quickly
39:31
it's been so long since
39:33
we've really had a sustainable break
39:35
above the previous
39:37
cycle highs
39:38
that people forgot that
39:40
Bitcoin has these impulsive moves.
39:43
And so I think if you
39:44
tell most people today they should be interested in Bitcoin
39:46
they're like, well, why? All my AI
39:48
stocks, my SanDisk and my Micron are
39:50
going up. That's human nature.
39:52
People are going to chase whatever's gone up recently. They weren't
39:54
interested in SanDisk, by the way, a year ago.
39:56
They're only interested in it after it went up.
39:58
And they say they're not interested in Bitcoin now, but if it's
40:00
really ripping again, which I think
40:02
certainly it will at some point in the next few years,
40:05
people will come back.
40:06
So I think that just continually being long Bitcoin and not just jumping to AI or all in on AI just because everyone else is doing it, I think, is the type of thing.
40:16
If you told someone Bitcoin might outperform AI stocks right now, a lot of them would say there's no way.
40:21
AI is a real product.
40:23
Bitcoin doesn't do anything.
40:24
There's a lot of people who still believe that.
40:26
Whereas in my view is that AI and Bitcoin are both fundamentally physical products.
40:31
They require a large amount of energy to run.
40:33
And it's one of the biggest constraining factors for both of them.
40:36
And they're now actually sort of fighting at the data center level to use that energy to sustain themselves.
40:41
Bitcoin is a little bit more scrappy.
40:44
So Bitcoin, you can just spin up a miner in an old abandoned warehouse and suck power that's not being used by anything.
40:55
AI needs a more professional data center environment with cooling and fiber and connectivity to really be useful.
41:01
um so i think bitcoin it's like the like the cockroach right of of energy users where like
41:08
everybody else could be in a recession everybody else could have trouble maintaining itself but
41:12
bitcoin will always find a way to sustain um ai is hot right now um i think ai is probably a lot
41:18
bigger than most people think even now i think it'll be like the internet where there's another
41:23
100x or something ahead of us it may take 20 years to to do that and there'll be macro recessions
41:28
in between, which will throw people off. Every time the market goes down, 50% of people are
41:31
going to say, see, it's over. And then five years later, it'll be higher. And 10 years later,
41:35
it'll be much higher. And 20 years later, it'll be like 2002 to 2022, where if you bought Amazon
41:41
and NVIDIA and stocks like that, like Apple, Microsoft, you made a killing. Most people just
41:47
didn't have the vision at that time to understand that the internet and software was going to be the
41:52
biggest industry in the world. Because at that time, it was still ExxonMobil, right? And Chevron
41:56
and Walmart and old school businesses.
41:59
So I think there'll be a similar paradigm shift
42:01
over the next 20 years
42:02
where some of these things accelerate
42:04
far more than even people think now.
42:06
Even people that are bullish on AI
42:07
might be not bullish enough.
42:09
Yeah.
42:10
What do you make of the current AI explosion?
42:13
Because you kind of saw a lot of it coming beforehand
42:16
and you've profited off that.
42:18
Remember?
42:19
I mean, I think it's...
42:19
Yeah.
42:21
I think it's...
42:22
Like, how'd you see it coming?
42:23
I mean, I love technology. So I watch every emerging thing and try to understand what it is, how it compares to what's before.
42:37
One thing that struck me with AI and Bitcoin is that they were sort of built and distributed on Internet rails.
42:44
So the technology, the Internet of like instant dissemination of information anywhere in the world had to exist before Bitcoin would be able to exist.
42:53
Right. Or Uber or something. Right. Like, you know, you're not gonna be able to call a car on your phone on some random street corner unless you have access to like ubiquitous information on location and right.
43:07
Like who you are, identity, payments, everything has to be integrated and tied together.
43:13
But once you have that, you're able to to build new stuff on top of it.
43:17
Bitcoin had the internet to help in its dissemination.
43:20
So it grew independently and emerged organically in the free market as money,
43:24
much faster than any other money in human history.
43:28
People may think it's taking a long time for the price to go up,
43:30
but the reality is most monies took decades to gain acceptance, if not longer.
43:36
Gold's been around for thousands of years as a monetary metal, right?
43:38
Like the reason why people largely think of it as money is because it's been around so long.
43:43
AI has the internet to disseminate itself.
43:45
So like a new AI application, a new program, it goes viral and like seemingly in a month or two, everybody in the world is using something that didn't exist before.
43:54
So the distribution of new technologies is on much faster cycles because everything's kind of going parabolic.
44:00
It's basically stacked exponential technology.
44:02
So you got one exponential technology stack and then the next one, the next one.
44:05
And so if you've been following that, as I have, I was sitting in my Stanford dormer marveling about what I could do on the Internet.
44:11
Right. And in the late 90s, like in 1999 and thinking, man, the whole world's going to want to use Google.
44:17
And I went home for spring break in 2000 and nobody used Google since where I lived.
44:22
Right. And so I got like 50 people to use Google when I just went home for like a winter break or spring break.
44:30
And I realized then that if you were just paying attention, you could always be sort of ahead of most people in the market.
44:37
Because most people are just, as I said earlier, just kind of going about their day, focused very much with tunnel vision on the here and now.
44:43
One of the great things about being a professional investor, full-time investor, especially in the construct I have where I don't really have a lot of oversight.
44:49
I don't really have a lot of people bothering me.
44:51
I don't have to do IR calls all the time.
44:53
I don't have to catch up with a whole long list of LPs because I only have one.
44:57
I'm able to just sit and think most of the time.
44:59
I'm like, I'll just sit right here out on the deck and just think during the day.
45:06
And it allows you to put things in context when everybody else is like doing their work,
45:10
their prescribed structured work.
45:13
I'm not saying there's anything wrong with doing that structured work.
45:15
It's just harder to see the progression if you can't zoom out and really give your mind
45:20
a chance to wander and really consider the implications So I just spent a lot of time on this stuff I not an expert on every component of AI by any means but I knew as a thematic it was going to be really big really important And that one way to guarantee basically
45:35
that you can make money is to provision Compute
45:37
to the users of Compute,
45:40
which are largely these application developers,
45:43
hyperscalers, the Anthropics and OpenAIs of the world.
45:46
I wasn't smart enough to pick Anthropic
45:48
as a winner at the seed stage,
45:49
or I didn't even see the deal right.
45:51
but I was smart enough to know that if Anthropic was going to be successful
45:54
they were going to need a lot more power and compete than existed
45:57
three or four years ago and I wanted to be heavily involved
46:00
in the companies that were going to do that.
46:02
To me it's like selling shovels during the gold rush
46:06
selling Levi's jeans and a pickaxe
46:09
to the people that are going to go pan for gold
46:11
in the river in the 1840s or something
46:15
and this is a modern day gold rush for sure
46:17
and I don't think it's anywhere near done by the way. I think
46:20
the next two or three years could be insane.
46:22
I think the next two, three years could be something analogous
46:24
to the late 90s,
46:26
where we might be in 97 right now,
46:28
we might be in 98, we might even be in 99,
46:31
we might even be in mid-99.
46:33
But at worst, we probably have
46:34
three to six months of very
46:36
positive sentiment
46:38
as things turn going into the SpaceX
46:40
and Anthropik and
46:42
open AI IPOs. And maybe at best,
46:45
we might have two or three years just mirroring
46:46
the CapEx cycle
46:48
for AI, which is still going parabolic right now and likely will for at least another one,
46:53
two, three years.
46:53
Now, the market may top for certain things way before sort of the CapEx cycle does.
47:00
But if you go back to 2000, the AI data center, sorry, the traditional data center CapEx turned
47:06
over right around the time that the stocks turned over.
47:08
So it's been a pretty good barometer historically of like when cycles were turned.
47:12
And I would argue that the CapEx cycle signaling like much higher prices and probably at some
47:17
point, some form of mania that mirrors what the dot-com kind of bubble felt like 26 years ago now.
47:24
If we are going into some sort of like, you know, 97 through 99 period where markets do
47:30
exceptionally well, are you going to try to like time the market near the peak and try to reposition
47:35
your portfolio? Or how are you going to think about that? I'm always, I'm always repositioning
47:40
at the edges. So I'm always trading around the core, trimming, rotating. Like I did a little
47:46
minor rotation in Q4 last year where I went into a number of things that I thought were deeply out
47:51
of favor. That worked out really well, right? Coming to this year, like stuff that sucked in
47:55
Q4 was doing great in Q1. And then I rotated a little bit back out and back right into my core
48:01
AI Bitcoin type of stuff that I think still has some way to run. So yeah, I mean, I do this for
48:06
a living. So I don't just sit totally still. If you look back to Q1 23, though, my biggest
48:13
two positions are still my biggest two positions now.
48:17
So while there's some movement around the edges in terms of turnover,
48:21
in terms of new positions and sizing changes,
48:24
the general ideas follow a much longer duration.
48:28
So what I would do, though, is if, let's just say,
48:31
we go into like a late 90s kind of mania like we saw with the dot-com bubble
48:35
and some of the stuff I own goes up another 10X or something,
48:38
I'll be trimming them into that.
48:40
And when I sense that everybody wants to own those socks, those positions will be much smaller on a relative basis than they are today.
48:47
And that's the artistry of investing, right?
48:50
There's no rule for that.
48:52
You'll never know until after the fact.
48:55
Obviously, if you knew for sure what was going to happen in the future, you could trade it perfectly.
48:58
It would actually be totally optimal to trade more if you knew for sure on what day each one of the equities that you own, for example, is going to hit their high price for the next five years.
49:08
because you would just buy the most levered instruments to create the most convexity.
49:13
So you'd buy out of the money calls, the ones that had the biggest variance between where we are now
49:17
and where you knew the price was going to go.
49:18
You'd buy out of the money calls and try to pull them in as tightly as possible
49:22
because you get the highest return if you don't buy leaps that are way out.
49:25
And then you would sell everything as close to that price.
49:29
If you have large positions, this is the thing a lot of people don't get
49:32
if they're trading like 5,000 shares a time or 10,000 shares a time.
49:35
If you have 5 million shares of something, even with block trading and dark bulls, you may not be able to get out of all that position in the same day.
49:44
And if you do, you'll move the stock.
49:45
So your realized price will actually be lower than if you were more careful and you did it over the course of a week or two.
49:53
But you don't know that, right?
49:54
So because you don't know that, it's always a probabilistic analysis.
49:58
So I'm always looking at, is the stock trading at the level that I actually think is the right level?
50:03
And then secondarily, if I overlay sentiment and some of the other heuristics on it, does that really match up?
50:09
So if a stock is trading well below where I think its intrinsic value is or its value likely is to be in two years and sentiment is really negative, it's always a buy.
50:17
If I think the stock is trading near where I thought it was going to be trading a year or two ago and sentiment is very bullish, then that may be an opportunity to reduce it.
50:27
But I don't think we've seen since basically 2021, I do not think we've seen a traditional bull market in any sense.
50:34
The ISM PMI only recently went over 50.
50:37
The rates, short-term rates were in the 4% or 5% range, right?
50:42
The Fed funds rate, which the Fed had raised rates 500 basis points in quick succession.
50:46
It was one of the fastest rate hiking cycles in history.
50:48
They may need to do that to contain inflation because of all the stuff that we did to bail out people in COVID.
50:53
and basically just the ZERP and the money printing
50:57
and the QE we've been doing
50:58
for basically since a great financial crisis.
51:00
But in doing so,
51:01
they really created like a truncated bull market.
51:04
We've had like a re-rating
51:06
and a little bit of a ratchet back
51:07
to normality over three years,
51:09
but I don't think we've actually had the completion
51:11
of anything that looks like a normal economic cycle
51:14
or business cycle.
51:14
And so what I think we've just experienced
51:16
is actually just like a mid-cycle style blip
51:19
that's ultimately going to lead
51:21
to a release of compression
51:23
in the coming, say, three to six months on the short end
51:26
and maybe up to a year or two on the long end
51:27
that will actually cause the completion of the move.
51:30
And you'll know it's completion of the move
51:31
because there'll be a broadening of success
51:34
in the economy beyond AI, right?
51:36
So you'll see, like we saw at the beginning of this year,
51:38
you started to see other components of the S&P 500
51:40
besides technology start to outperform.
51:43
You saw the equal weighted S&P outperforming
51:45
the market cap weighted.
51:45
You saw small caps outperforming, large caps,
51:48
some international markets outperforming the US.
51:50
Those are all signs of a market
51:51
that's actually trying to transition
51:53
into a full scalable market.
51:56
You'll also see signs like everybody you know
51:58
will want to talk about Bitcoin.
51:59
Everyone you know will want to talk about stocks.
52:01
Everyone you know will want to talk about crypto.
52:03
And most people are largely just not paying attention now.
52:07
It's not what the end of a bull market
52:10
or a bull cycle typically looks like.
52:13
Those heuristics weren't perfect,
52:14
but it's really, really hard to get a serious,
52:17
long drawn out bear market
52:18
without anything that looks like
52:20
traditional bull market euphoria.
52:21
So I'm still pretty confident that's ahead.
52:24
And a lot of the returns, just like in the late 90s, could come at the very end.
52:28
So it feels like you've made a lot of money if you've been in NVIDIA or if you've been in IRON or if you've been in MSTR from the bottom of the cycle, like Q4 2022, right?
52:37
But that might not actually be the move.
52:40
And actually the most substantial part of it could happen in the last three to six months before the actual more painful, like year-long bear market.
52:47
Yeah.
52:47
That's kind of like, again, these are all probabilistic.
52:49
So this is just the weighting.
52:51
I'm giving that the highest weighting because that seems to be the most likely outcome from
52:55
my perspective.
52:57
But that's not to say it might not happen totally differently.
52:59
I will adjust as I see, I get more data, right?
53:02
Like life is all about how the cards flip over across time to use a Vegas analogy.
53:07
And so what you're always trying to do as an investor is buy as much time as possible
53:11
because the more cards you can see flip over, the more certainty you get about the outcome.
53:15
You make the most money by betting before any cards come out, but you get the most certainty
53:18
as all the cards come out, right?
53:20
Because you get to the 51st card or something,
53:23
well, you almost know for sure, right?
53:24
You know for sure what the 52nd.
53:26
If you're counting, you know exactly what the 52nd card is.
53:29
If there's 48 cards out,
53:30
you can narrow it down with high likelihood, right?
53:33
If there's only two cards out,
53:34
well, you've got 50 more cards to come.
53:37
So you might make more money if you choose correctly,
53:40
but the odds of choosing correctly are lower.
53:43
So everything investing is along that spectrum.
53:46
And so over time,
53:47
like you're going to see more cards come out we're going to see does opening i get public
53:51
see does spacex people how do they trade it seems like there's a lot of demand in the private market
53:55
it seems like there are a lot of people that have cash and want to invest in stuff and they're
53:58
looking to try to pile into some of the stuff if i'm right that means markets are going to go
54:02
a lot higher before they go lower yeah yeah i mean last year i think a lot of people expected
54:07
bitcoin to have a great year yeah gold ended up yeah me too but gold ended up having a pretty
54:14
your last year.
54:16
Do you think it's Bitcoin's turn at this point?
54:18
What do you make of the gold outperformance over Bitcoin
54:20
over the last, I don't know, 18 months at this point?
54:22
Gold's outperformed Bitcoin in a lot of the previous cycles.
54:25
And then when it stops outperforming Bitcoin,
54:26
Bitcoin tends to go into its bull cycle.
54:28
There's also a correlation between gold and copper
54:31
that is trading near,
54:34
it's kind of long-term trend line
54:36
that the technical guys show me.
54:38
Where when copper starts to outperform gold again,
54:41
that's also a good sign for Bitcoin.
54:42
As I said, I think this is all linked
54:44
to the business cycle and the fact that we really haven't had one because of sort of external
54:49
macro and structural factors that are largely not about Bitcoin, but do affect liquidity,
54:54
at least liquidity that'd be interested in Bitcoin and crypto. We haven't had a bull market in crypto
54:58
at all. So the broader crypto ecosystem, Bitcoin has been okay because of the ETF and treasury
55:03
companies, which are largely benefited Bitcoin over any other crypto asset. The rest of crypto,
55:08
everybody's giving up. They haven't made any money since 2021. They're literally giving up.
55:13
sad. Some of them, some of them, yeah, it's just, it's, it's sad for them.
55:18
They would have been better off just buying Bitcoin,
55:20
but Bitcoin would benefit if those things would go up too.
55:22
Like Bitcoin would, would go up a lot more if those things were going up.
55:26
So in a, in a weird paradoxical way,
55:28
even though I don't personally support most crypto and meme coins and things
55:32
like that, I am wanting them to go up.
55:34
Cause when they're going up, Bitcoin will be 200,000, 300,000,
55:37
400,000 in order for Bitcoin to get to a million.
55:39
And unfortunately, there'll be more meme coin cycles and more crypto cycles.
55:43
It's just a nature of an asset class that's emerging.
55:47
Yeah.
55:47
So that's what I think is going to happen.
55:48
I'm remaining bullish here.
55:52
I've managed to do pretty well, even with Bitcoin drawing down.
55:56
So I'm not 100%.
55:57
Bitcoin in the AI data center space has been quite firm, even with all of all.
56:02
So I think we have a Fed meeting right now.
56:04
Yeah.
56:04
I'm so glad we scheduled this during the Fed meeting, because normally I'd be watching
56:07
And I'd be watching Powell bloviate about all the conversations he had with his friends at Goldman Sachs and telling us that he's really doing that for the benefit of the American public.
56:16
But I didn't have to listen back to that.
56:18
Perfect. Good to hear. I think it's his last meeting.
56:21
It should be his last one. And then we get Warsh in there and we'll see if he's able to move the needle and get the other Fed governors to agree with him that maybe we can loosen conditions a little bit.
56:31
Do you think that will be a big deal or is he just like another, you know, cog in the wheel and what's going to happen is going to happen?
56:38
I mean, he's an independent guy, so he may have said more or less the thing that Trump wanted to hear.
56:44
But we know like Trump doesn't agree with what the Supreme Court justices often say, even after he put them in there.
56:51
Right. Like, thank God the American system works the way it does.
56:54
It is the best non-decentralized system of governance in the world.
56:59
I'd say Bitcoin is the best governance system, but the US government's probably the second best system, right?
57:05
It just works over long periods of time.
57:06
It's been very productive.
57:08
And so even though I don't love the idea of a central bank and I prefer both currencies that emerge in the free market and interest rates being set by the market, I understand that it's not going away anytime soon.
57:19
And all things being equal, I'd rather have someone in there who's going to manage rates and manage the balance sheet for the benefit of the normal person and not for just asset owners and the wealthy and bankers.
57:29
No matter what Powell says, a lot of the things he's done while he's been in there have benefited banks, have benefited the wealthiest people.
57:37
And so I think I could see a scenario where Warsh tries to decrease the balance sheet, but also lowers rates.
57:44
The lowering of rates actually will help small cap companies, family businesses, individuals.
57:49
and the shrinking of the balance sheet
57:53
might actually hurt some larger asset owners,
57:55
but it might have the net benefit
57:57
of sort of balancing out the economy.
57:59
I don't think Warsh versus Powell
58:01
is going to be the reason why Bitcoin goes to $200,000 or $300,000.
58:04
I think that's largely just a long-term adoption story
58:07
combined with time,
58:08
but it might be a catalyst for like a new phase.
58:11
And I hope sent to that.
58:13
Makes sense.
58:14
Last question, looking forward over the next five years
58:17
for the future of America
58:19
and humanity, are you optimistic
58:21
or pessimistic about the future?
58:23
I'm super optimistic.
58:24
I don't think you can make
58:27
a lot of money in being a bear.
58:28
Look at Michael Burry and Jim Chanos.
58:30
They were famous because they called one thing in the last
58:33
25 years. Chanos
58:35
called Enron 25
58:36
years ago.
58:38
Burry called 17, 18 years,
58:40
called the Great Financial Crisis. Now, those are great calls,
58:43
but the reality is if you followed
58:45
almost everything else they did, they were almost
58:46
negative when you blended out.
58:49
So, and Chandler has mostly given back most of his net worth.
58:52
He's had to give up all of his properties in New York because he lost so much money.
58:55
And it's fun.
58:56
It turns out it's really hard to be rare.
58:57
So even great short sellers will tell you that it's sort of like a negative carry business
59:02
because you're always paying the expense of borrowing stock.
59:05
Borrow stock is a dividend.
59:06
You've got to pay the dividend to the holder, right?
59:09
You're fighting against the natural reverse gravity of markets, which is that high quality
59:14
assets and usually the whole market in general tends to increase in value over time.
59:18
And to some degree, because there's real growth in some of these stocks and to some degree because the dollar's debasing.
59:23
So the combination of the two causes this sort of natural move.
59:28
It's something rooted in physics almost.
59:30
And so when you're short, you're betting that you're smarter and you're going to outrun.
59:35
You're going to be able to jump and go higher than gravity will actually allow you to.
59:39
Gravity is just going to push you back down, even if you're Michael Jordan.
59:41
Eventually, you're going to come back down.
59:43
And I would say shorting is like the reverse of that.
59:45
Like thinking that you're going to correctly cause things that go down a lot when in reality, on average, most things go up.
59:52
And so I just think it's negative asymmetry, right?
59:56
You're decreasing your odds of being successful in the long run.
1:00:00
You're decreasing your odds of being wealthy.
1:00:01
I personally enjoy not having to answer to anyone every day and waking up every day and having my time be my own.
1:00:07
And that's only possible if I continue to be an optimist.
1:00:10
So it's not impossible if I succumb to bearishness or listen to charts,
1:00:15
we go as a kid analyst trying to scare me out of stocks every three weeks.
1:00:18
I like that a lot.
1:00:19
Well, Mike, thanks so much for taking the time to do this.
1:00:21
This is an incredible conversation.
1:00:23
Any final closing thoughts?
1:00:25
Nothing beyond, I mean, you covered a lot.
1:00:27
I'd say stay long, Bitcoin, stay long, AI for the long run.
1:00:30
It's going to be hard to lose too much if you stick with it
1:00:33
and don't get off the ride in the middle of the ride.
1:00:34
Love it.
1:00:35
Well, thanks.
1:00:36
This is great.
1:00:36
Thank you.