Latest / The Income Show / Why Bitcoin Needs to Hit $370K by 2032 | The Income Show | Ep. 13

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Why Bitcoin Needs to Hit $370K by 2032 | The Income Show | Ep. 13 · The Income Show

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The dollar is going to be sacrificed.
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And in that scenario, that's exactly why Bitcoin was invented all those years ago,
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was to address these debasements and the impossible environment we find ourselves
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and where we can't save.
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And it was just Bitcoin's price appreciation that continued to incentivize the miners.
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And they did the research and modeled it out.
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Okay, next having, what does Bitcoin's price have to be just to maintain that incentive?
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And it said around $370,000.
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Bitcoin crashed to $3,000 and I was there and then it crashed down to $16,000.
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And now it's crashed and it's at $60,000.
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You kind of feel like you're taking crazy bills because you're like, how do people not see this?
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Hey, everybody. Welcome back to The Income Show.
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This week I have on Sam Callahan.
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sam is the director of bitcoin strategy and research at orange btc one of the largest public
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bitcoin treasury companies and before that he spent years as the lead analyst at swan bitcoin
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and a vp at battery finance he's also also the co-author with lynn alden of some of the most
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cited bitcoin research of the last few years so sam is a great guest for our show today covering
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markets, Bitcoin, growth investing, income investing, and of course, treasury companies.
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So Sam, thanks so much for taking the time to do this. Welcome to the show.
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Thanks for having me on again, Joe. Always a pleasure, my friend.
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Absolutely. Sam, let's start fairly broad. When you think about markets today,
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how do you think about investing and allocating capital from your personal perspective or
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even just holistically thinking about markets overall?
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Well, from a personal standpoint, I kind of follow the Stan Druckenmiller thesis, I guess you could say, which is, you know, keep a few eggs in one basket and watch it closely.
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You know, know a lot about what you're investing in and have a thesis and constantly be challenging that thesis.
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And so Bitcoin was a big part of that.
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It was really a thesis that Bitcoin is really early in its adoption cycle, which means there's a lot of asymmetric upside, that it's a revolutionary technology.
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It's a technological breakthrough. It's a new form of money, has fixed supply.
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And then on the flip side of that is currency debasement and the increased risk of currency debasement across all fiat currencies and why Bitcoin could potentially benefit from that unfortunate trend.
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And that thesis has played out, really. And so I don't really rebalance. I just watch that closely. I am conservative and that's why I like Bitcoin. That's why I like holding Bitcoin for the long term.
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and but when I think about a portfolio I think we're in really interesting times because
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over the last say 20 years modern portfolio theory is really focused on this inverse relationship
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between equities and bonds you know bonds and have been able to act as that shock absorber
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when equities fall they cut interest rates bonds kind of pick up the performance and that's been
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great over the last 20 years. But when you zoom out beyond that, you actually find that the
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relationship for most of history is positive in terms of their correlation, where bonds and stocks
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actually move together. And in inflationary periods, that relationship strengthens and
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becomes even more positive. And so over the last five years or so, as inflation has ramped up,
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We've seen that relationship between bonds and stocks change and then moving together once again.
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And that's really problematic when you think about how portfolios are constructed and how they have this kind of false diversification right now.
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And when bonds and stocks fell together in 2022, it really woke a lot of people up.
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Am I actually diversified?
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And Bitcoin over long periods of time has shown to be really uncorrelated to a lot of different things because it's driven by its supply and its network effects.
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It has different drivers and different risk factors.
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And it just moves differently, which is very valuable when you're thinking about a portfolio.
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And how do you get diversification?
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And when I brought up false diversification, really what I mean is that equities and bonds and cash and cash equivalents, they all have fiat currency risk.
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You know, they all have this embedded, you know, it depends on the credibility of the issuer of the fiat currencies.
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And Bitcoin is a hedge against that.
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And it's very unique in that it can hedge against that.
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And I think there's only a few hard assets or monetary goods like Bitcoin and obviously gold is the traditional hedge.
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You could do other hard assets, but they don't really have the entire profile that Bitcoin can provide.
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And so that's how I think about investing generally.
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When I look out in the future, you have to hedge against this fiat currency risk.
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when you look out on the fiscal picture of all of these different countries, it's imperative that
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you start thinking about real terms. Look at investments in real. Get real with all of your
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investments because if you're looking at things nominally, you're missing the picture completely.
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And so I'll kind of stop there, but that's generally how I think through the broader
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investing landscape today. Yeah, no, I think that was very well said. I mean,
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We're definitely going to get into the current physical picture with massive government deficits in the U.S. and kind of all over the world.
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And you mentioned very articulately the death of bonds that we've kind of seen or the really underperformance of bonds.
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But first, I kind of want to ask you another kind of general question.
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What's an opinion that you hold that may be very unpopular within the Bitcoin community?
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within the Bitcoin community.
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Oh, wow.
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You know, I think one thing that maybe,
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look, I'm all for,
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I think self-custody of Bitcoin is fantastic.
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There's nothing that can compete with that risk profile.
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When you take sovereignty of your Bitcoin
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and you remove counterparty risk
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and you remove censorship risk and all those amazing things.
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But if we're going to drive Bitcoin adoption,
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we have to give different ways to get exposure to Bitcoin
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that fits people's needs as well as their comfort levels
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in terms of their technical expertise.
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I hope everybody will hold some Bitcoin in self-custody.
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But as we bridge Bitcoin adoption,
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I do think it's really important to have different securities
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that give Bitcoin exposure and to help unlock pools of capital.
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And there's a big kind of division in the community right now of like,
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oh, you should only hold the real thing and only hold self-custody Bitcoin.
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I'm like, yeah, I mean, I would agree with that in terms of long-term savings.
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You can't compete with Bitcoin's risk return profile there.
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But for the billions and billions of people, it's also really hard for them to do that.
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So giving them different paths to get exposure to Bitcoin and embedding Bitcoin in different securities will actually drive adoption during this transition period, which could last decades.
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And so I think that's one thing maybe I disagree with.
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And then the other thing that I always think is really funny is when people say like price doesn't matter, like the fiat price of Bitcoin doesn't matter.
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And I really disagree with that, too.
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I think price is incredibly important to Bitcoin.
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When you have conversations with institutional investors and you can show them the CAGR, it really wakes them up.
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There's nothing that incentivizes more than number go up.
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But also it's imperative for the security of the network to incentivize hash rate, to drive the adoption.
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The price is really really important to the health of the network as well and so that another thing that I really disagree with people about is like the fiat price of Bitcoin doesn matter I think it matters quite a bit
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Yeah, no, I agree with the price of Bitcoin mattering for sure.
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What do you think is the difference between conviction and stubbornness?
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You know, like you said, you like to watch a few eggs in one basket
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rather than having a bunch of different baskets,
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which makes a lot of sense.
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obviously Bitcoin is an incredibly volatile asset.
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And to survive that volatility,
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you do have to have a lot of conviction.
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And kind of like we were mentioning,
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a lot of people may not have that conviction.
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How do you tell the difference between,
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okay, well, these people are just stubborn
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and won't give up on their idea
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versus actually these people have conviction
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in Bitcoin being this ultimate long-term savings asset?
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It's a good question. I think really the difference between conviction, I mean, conviction, I think, is you find a truth that you believe in that maybe the broader public doesn't understand yet or doesn't believe in.
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But the fundamentals are there. You know, the truth is on your side.
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You know, stubbornness is like seeing something that challenges your position and then you just don't want to believe it.
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You just stick to your position anyway. But with Bitcoin, it's kind of like the price can drop in the short term. But I always go back to the fundamentals of why I hold it and the fundamentals in terms of the network metrics and some of the adoption metrics that I look at.
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and I say, am I wrong about this?
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Like, am I wrong about the technology?
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Am I wrong about the adoption trends?
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Am I wrong about the value proposition?
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And I always go back to no.
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You know, I do the work,
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and no matter what the mainstream headlines are saying,
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I've done the research,
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and so the conviction is a outcome of the proof of work
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to understand what you own.
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And if those trends were reversed and I started seeing bad trends of adoption trends or Bitcoin security really came under threat or there was some kind of catastrophic event that threw the thesis out of, you know, really damaged the thesis, then that's stubbornness, right?
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Then you're just kind of holding a bag and you want it to work, but everything's telling you it's not working.
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And so I think it's just a matter of kind of like truth. But to have conviction in something, I mean, with Bitcoin, I don't even think it's conviction because I think Bitcoin, it's a technology and it's only grown more and more secure.
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So I think I really needed a conviction like eight years ago or, you know, when Bitcoin was smaller and there was a lot of question marks around its adoption.
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But now I feel like, I mean, it's the Lindy effect's real.
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And the longer Bitcoin exists, the longer it will persist into the future.
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And I do think we've kind of reached escape velocity in terms of Bitcoin adoption.
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But at the same time, there's a lot of work to be done and we're still extremely early.
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But I think, you know, when I look out now, it's like I don't even need that much conviction in Bitcoin itself.
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Bitcoin is Bitcoin and Bitcoin's here to stay.
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So I guess, you know, once you do the work, you don't really need that much conviction.
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It's just you're kind of waiting around with patience for the world to wake up to it.
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Yeah, it does seem like the fundamentals of Bitcoin haven't really ever been stronger necessarily. And the volatility, you know, historical volatility over the last decade plus does seem to be declining too. And that makes it easier to kind of weather the bear markets as they're becoming less painful, I guess, in terms of like total drawdown.
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Yeah. Another question that I want to ask you about, more broad question in terms of how you think about investing. Historically, like it seems like a lot of people think about investing in two different ways. There could be like growth investing and income investing. And you brought up earlier how like bonds and fixed income has kind of tended to underperform more so recently.
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how do you think about that in the context of growth investing and income investing like is
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everyone becoming a growth investor because of the death of fiat money yeah how do you think about
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those two categories well i think more people have had to go out onto the risk curve to overcome the
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rate of monetary inflation and that's just the nature of when money's broken like we see that
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in history, right, the levels of speculation increase as currencies are debased and increasingly
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lose their value. And so I do think people have gone into more of that growth bucket out of
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necessity. They're pushed into risk. And that's a big problem, right? But I do think what you said,
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there is another bucket. Like even though bonds have suffered in real terms over the last, say,
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five years, they do serve a purpose because they do provide that income. A lot of people
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who are elderly or just have, they're kind of saving up for some kind of major purchase in
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the short term. They do require that principal protection as well as the income, just the
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monthly income. They're living off the bonds. And so, yeah, there is this different bucket.
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Now, obviously, I would say that there's a better way to do that these days with some of these different preferred equity products.
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And I think the market will continue to grow that because to understand that, because if you hold one of those preferred equity instruments, you can outperform the rate of monetary inflation, get more frequent distributions, and it's more liquid and all these benefits.
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So I do think there are those two buckets, but I think more and more people have had to go out into the growth bucket out of necessity because of the rising monetary inflation.
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But I think the income will always be there.
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And I don't think they're necessarily competing.
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I think, you know, I think of them also as a short term, short duration bucket, long duration bucket, short term needs, long term savings.
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and there's different ways to kind of diversify inside those buckets.
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But that's kind of the same thing, just kind of different semantics.
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I'm curious if you agree with this perspective that I've said a couple of times,
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but I want to get your thoughts on it.
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Obviously, we both agree that Bitcoin is this very long duration asset.
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It's like if you have a tolerance for high volatility
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and you have that 4, 5, 10 plus year time horizon,
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then you you should likely hold a lot of bitcoin um if if you believe in the you know the the
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debasement thesis you believe bitcoin's monetary properties are more sound like that makes perfect
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sense but like do most people in the world and capital allocators like have that long time horizon
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and if even if they do like do they have the tolerance for the super extreme volatility
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that comes with Bitcoin.
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And, you know, we were talking about like,
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does everyone need to self-custody Bitcoin?
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Does everyone need to do this?
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Like, sure, like in a perfect world,
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maybe everyone does that.
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Everyone thinks 10 years ahead
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and everyone can, you know,
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withstand extreme volatility.
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But maybe like a large portion of the world,
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like just wants something else
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that, you know, provides steadier income
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and lower volatility.
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and is just kind of like a different form of that.
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I'm curious, does that resonate with you at all?
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Do you agree? Do you disagree?
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Well, I will say I think one of the biggest edges you have
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as an individual investor is to lengthen your time horizon
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because you have that privilege especially if you younger to just allocate to either good companies or assets that appreciate in value over the long term
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and just sit on your hands and let the wonders of compounding do its thing.
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Now, as an institutional investor or somebody managing money,
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sometimes you got to think quarter to quarter, quarter to quarter,
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you're really under the knife to perform for your LPs, for your clients.
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You know, if you miss out on this AI run over the last quarter,
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you're going to get redemptions, right?
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People are going to pull their money.
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You have to, you're thinking always about kind of the short term.
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And that's just the nature of the business, I would say, unfortunately.
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You know, people have to think long term to allow compounding to do its thing.
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We know this.
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I mean, some of the best investors really just bought great companies and sat on them for decades.
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And so I think as an individual, you look out at Bitcoin.
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And the reason why I hold Bitcoin over the long term is actually all the risks I eliminate when I hold it.
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It's, you know, it removes all these risks that say are present in equities or the physical risks in real estate or the risks in bond.
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the inflation risk, duration risk.
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You know, Bitcoin removes all those things.
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And that's why I think it's the best hold over the next 10 years, 20 years.
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And that's a bet that I'm making that Bitcoin is going to continue to be adopted
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and the credibility of its scarcity will remain.
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But, you know, unfortunately, I think a lot of people also get shaken out by that volatility.
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You know, they really can't handle, they don't have the risk tolerance, so they don't have the ability to take a deep breath when they see their net worth on paper drop 50%, you know, and then they sell at the very worst time.
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And then they abandon it thinking that it's, you know, a scam or something when really they just got shaken up by the volatility and didn't understand what they owned.
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So for people like that, they might be more interested in something with less volatility that has some income generation that outperforms the rate of monetary inflation.
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So you're still winning in real terms. Are you going to, you know, get those huge multiples that you will receive as a reward for embracing that volatility and taking that on? No, you're not going to you're not going to see huge multiples, but you're probably going to sleep a little bit easier at night if you can't handle that volatility.
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And so I think there's, you know, personally, I would rather hold an instrument like that that's still backed by Bitcoin because I still believe that it is the best form of digital property.
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It's the best form of collateral that we've seen.
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And so I'd rather have an instrument that provides income that's supported by that rather than, say, take on sovereign risk or business risk if it's some kind of corporate bond, you know.
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And so I think everyone needs to think about that.
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But again, as an individual, I think one of the best things you can do is lengthen your time horizon.
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And unfortunately, it's just so hard for people to do that, it seems like.
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It's the easiest thing ever.
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You just do nothing.
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but that's incredibly challenging for so many people
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and that's something that I've learned over the last
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10 years of investing in a volatile asset
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that it's just incredibly difficult for people to focus
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and do nothing and hold
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and let compounding do its thing
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but it's the same advice I'd give today
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that I would give somebody 10 years ago.
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Yeah, I completely agree.
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having the ability and the conviction to lengthen your time horizon and tolerate volatility is
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obviously critical to to maximizing total return over a long period of time another way
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kind of popped into my head as well thinking about like you know you and i and others have
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been talking about bitcoin for for many years at this point almost a decade probably by now
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and you know you look back at bitcoin's historical performance over like any
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significant amount of time it's up pretty significantly i mean the kager of the last 10
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years from 2016 might be like 30 40 50 60 something you know along those lines and to me also like
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the thesis for bitcoin is you know bitcoin is a complicated thing but it's the thesis isn't that
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complicated it's like does bitcoin have superior monetary properties scarce portable durable
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divisible and fungible compared to other monies yes the does the dollar is is it being debased
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year after year forever by design yes it's like okay well it's in in this case maybe it's logical
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to to think of bitcoin as a superior form of money and the performance is there as we we talked about
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like over a long period of time bitcoin's going up but yet still most people don't own much bitcoin
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or or any bitcoin and like one i guess like why do you think that's the case like why has
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if it's so obvious and it's been working, why has adoption not just, you know, global adoption,
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not just 100% by this point? And then two, I guess, like if Bitcoin was going up 30%
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perfectly in a straight line every year, do you think that would have made it more obvious
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to people that this is, you know, a real thing rather than the super volatile cycles that it
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has seen? Yeah, I think everybody wants everything to just go up in a straight line as easy as
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possible. Just like punch your ticket in and then 10 years later, you're wealthy and there's no
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pain. There's no challenge. It's as easy as possible, but that's not how it works.
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And every single new technology is adopted like this, where you have the early innovators. There's
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a lot of information asymmetry, a lot of misunderstanding of what Bitcoin is,
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a lot of distractions that came about.
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I think other cryptocurrencies led to a lot of distractions,
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a lot of misinformation from mainstream media, a lot of regulatory attacks.
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I mean, you name it, Bitcoin went through it.
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And so, you know, unfortunately, people don't take the time to read a book on Bitcoin.
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or to listen to several podcasts and learn a little bit more beyond, say, a headline.
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And so they get this perception of Bitcoin.
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It's not really reality.
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It's a perception.
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And so that's kind of hindered adoption a little bit.
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And the volatility, definitely, I mean, because people just read a headline that says Bitcoin
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crashed.
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But as somebody who's held through that volatility, you feel like you're taking crazy pills because,
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I mean, we literally joke as a community years ago, we're going to read headlines that Bitcoin crashed to 100K.
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And that actually happened this year, which was just like mind boggling to me.
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And even so, like, you know, the important trend to focus on is that Bitcoin's making higher and higher lows over the long term.
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You know, Bitcoin crashed, you know, to 3000 and I was there and then it crashed down to 16,000.
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And now it's crashed and it's at 60.
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And you kind of feel like you're taking crazy pills because you're like, well, how do people not see this?
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Like we're setting floors higher and higher.
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And volatility is really important to get more eyeballs on Bitcoin, both up and down.
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But the conviction of the floor is rising over time.
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And it's a function of Bitcoin's adoption as well as the fiat currency debasement that we've experienced over the last 10 years.
25:30
And so it's happening.
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The price, there's a lot of information in that price.
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And so I do think it might have gone easier,
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but I don't think that's how nature works.
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I don't think that's how technologies are adopted
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if it just went up flat.
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And then I don't think it brings in that opportunity
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for early adopters.
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I don't think they'd be as interested
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if they didn't think that it was going to be really,
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you know, the returns were going to be higher
25:56
if they got in earlier and they should get compensated for taking out that risk before everybody else when it wasn as obvious Cause they put in the work and then they put money behind that conviction
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And that helps support the network early on
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when not a lot of people were doing that.
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So yeah, but again, I think a lot of,
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you know, I think other products
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that offer a smoother volatility profile
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will help bring in more people.
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And I think that'll actually help people learn
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about Bitcoin itself.
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And then they'll say, okay,
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I have my two income buckets and my growth bucket.
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You know, I'll invest in some Bitcoin.
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You know, I'll buy a SATA,
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I'll buy a stretch for some of my income,
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but it's all supported by Bitcoin.
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And that's how I kind of see things playing out
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over the long term.
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Because again, you know,
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if River put out a great chart the other day,
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just to remind everybody, you know, the average lifespan of a fiat currency is 27 years.
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The dollar is the strongest fiat currency out there, but there is, what, 180? And they're all
27:09
worse off in terms of their policy and debasement rates. And that's what ultimately Bitcoin's
27:16
competing with. And so that'll only continue and push people towards Bitcoin-backed securities,
27:23
Bitcoin itself and be a big driver of Bitcoin adoption is just the irresponsibility of the monetary and fiscal policy of all these countries around the world.
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But yeah, I guess I hope that answers your question.
27:39
But I just think that the volatility is just a good thing.
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It's a function, it's a characteristic of Bitcoin given its fixed supply and its increasing adoption and demand waves.
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It'll decline over time as it matures.
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But right now it's great.
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I think it just brings a lot of eyeballs into Bitcoin.
28:03
Yeah, those are some really great points.
28:05
I want to shift the conversation a little bit towards some of the research that you've done in the past as it relates to obviously Bitcoin, but also bonds and kind of the death of bonds or modern bonds to some extent and income investing kind of as a whole.
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So maybe we can start with this concept of physical dominance for someone that like still doesn't fully understand what that phrase mean and how it relates to those topics that I just mentioned.
28:35
Can you kind of give a overview of what it actually means?
28:38
Yeah, fiscal dominance, it's a macro environment where you find yourself in a period where fiscal policy, so like deficit spending, is the main driver of inflationary expectations.
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So inflation and economic activity rather than monetary policy like interest rate policy.
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and that's the environment we find yourself in today
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where actually, you know, normally
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when there's an inflationary pressure,
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the Fed will hike interest rates, right?
29:16
But when we get into these periods
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where we have massive debt burdens
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and we're running $2 trillion deficits,
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we're in this weird period
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where actually raising interest rates
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no longer quells inflation.
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In fact, you could probably make the argument
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that it could stoke more inflation because it increases the interest expense on the debt,
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which blows out the fiscal deficits more.
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And then you have a ballooning fiscal deficit, which, again, is the main driver of economic activity and inflation.
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So the very thing that the Fed was trying to stop by raising interest rate,
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they actually potentially can accelerate it.
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And so that's when the fiscal policy is dominant in the economy.
30:00
You know, it's the main factor. And that's not always the case, right? The governments don't always run massive deficits. They don't always have debt to GDP ratios, you know, above 120.
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So in this environment, fiscal policy is the elephant in the room.
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It's the main driver.
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And it kind of changes how investors should think about portfolio constructions and what they should invest in.
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You and Lynn have also done really interesting research comparing Bitcoin with global liquidity.
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What's your current take on that?
30:40
Like, are they still highly correlated?
30:43
And how are you thinking about it at the moment?
30:45
Yeah, I mean, right now, I mean, we're in a period where there have been a decoupling from the global M2 metric that we used. And in that paper, we kind of explain previous instances where there was a decoupling.
31:02
And really what we said was that if there was some kind of idiosyncratic event in the Bitcoin ecosystem itself, it's probably crypto itself, that could cause periods where Bitcoin-specific events are the main driver of price, regardless of what's happening in global liquidity conditions.
31:22
And so, for instance, when FTX collapsed, that would be an example of when previously we saw that relationship decouple temporarily because that became the main driver of Bitcoin's price.
31:33
There was a lot of fear. A positive example would be when the ETFs were launched. That led a lot of incremental demand into Bitcoin. And that's when we saw the relationship between global liquidity conditions break down a little bit because the ETFs and all these positive regulatory developments kind of took over these endogenous factors, played the main role there.
32:01
And so I think that's actually what happened when we saw the October 10th liquidation event, which we still there's a lot of question marks. What caused that? It's the largest liquidation event in the broader crypto space. It's like some $20 billion of liquidations.
32:18
really if you look at the uh the depth of the market the liquidity of the market the sentiment
32:24
of the market it really never recovered since that early october and that's really when bitcoin
32:30
broke from gold broke from the nasdaq and really started to suffer whereas they all kind of
32:36
continued in line with the increase in global m2 and so they bitcoin broke from the liquidity
32:42
conditions. But, you know, the other point of when it kind of breaks is when you focus on the
32:49
supply side, when there's less about the demand side of the equation and more about the supply
32:54
side. And you see that in cycle tops, cycle bottoms, usually when long-term holders come
33:02
out of the woodwork and start selling at a cycle top, that could be a period where Bitcoin also
33:09
decouples. And so we kind of got both, right? That was another trend in fall and Q4 was you saw a lot
33:16
of long-term holders starting to move their coins, presumably selling some coins, taking some profits
33:23
off the table near the top. And now we're seeing the opposite of where they're starting to accumulate.
33:28
But that could have also been a factor of why we saw that decoupling from GlobalM2.
33:33
Now, over the long term, Lynn and I found that Bitcoin moves in the same direction as GlobalM2
33:39
86% of the time over the last 10 years.
33:43
It just makes sense.
33:44
Bitcoin's the scarcest asset.
33:47
It still trades broadly as a risk asset.
33:50
And so it is shown to be extremely closely tied
33:54
to global liquidity conditions.
33:56
And so I think over the long term,
33:59
Bitcoin will continue to move in line with that
34:01
as almost like a barometer of currency debasement.
34:05
And I think we'll probably see that relationship start to return over the second half of this year as some of these endogenous factors have been starting to get cleaned up a little bit.
34:18
Markets kind of absorbing it. Sentiment and liquidity start to come back to the Bitcoin market itself.
34:26
Then that relationship I think is going to return because I think just logically it makes sense.
34:30
And I think these moments of decoupling, we've seen it before, and Bitcoin again has returned back to that crisis.
34:42
relationship with global liquidity over the long term. And so that's what I expect to happen now.
34:48
I agree with that. I think that makes a lot of sense. Thinking back to like specifically this
34:54
era of physical dominance, running massive government deficits, what do you think that
35:00
that means for the shape of Bitcoin returns over the coming decade? Like you mentioned over the
35:06
next year or two, it's reasonable that Bitcoin like re-correlates with global liquidity and
35:11
and Bitcoin kind of starts to move higher again.
35:14
That makes perfect sense.
35:16
Do you think it's like,
35:17
do you think we keep these four-year cycles
35:19
in terms of, you know,
35:21
with this current physical policy?
35:23
Do you think we, you know,
35:25
have a more slower, consistent grind higher with Bitcoin?
35:28
Or do you think it's like a gradually,
35:30
then suddenly moment,
35:31
and then Bitcoin's returns just go off the charts?
35:35
Like, what do you think is maybe the most probable outcome
35:38
for like the shape of Bitcoin's future returns?
35:41
yeah i could you know i could see bitcoin kind of
35:46
kind of having more steady returns over the next few years it's kind of hard to tell because
35:53
you know the it's impossible to know when the money printer is going to really come back
36:00
in full force um you see cracks here and there you see the bond market yields rising right now
36:07
You see the dollar falling at the same time.
36:10
You look at the amount of deficits that they're going to have to roll over and just how large they're becoming.
36:16
They're structural in nature, meaning that most of it's coming from these entitlement programs and interest expense.
36:25
And that's not reversing anytime soon.
36:28
In fact, it's growing larger.
36:29
and so i i see a scenario where bitcoin returns really good returns especially coming off of you
36:36
know 50 correction from all-time high you look at the forward returns from previous times bitcoin's
36:42
done that over the following you know two three years it's been pretty impressive like triple
36:48
digit returns sometimes now i'm not saying that's going to happen this time but i think it's going
36:52
to be pretty positive i think bitcoin's going to come out of this bear market i think the next few
36:57
years, you're going to see pretty great returns relative to, say, stock indices or even individual
37:04
stocks. I think Bitcoin is going to be right up there. But then when the situation occurs where
37:11
the Federal Reserve will have to come out with an acronym, where they'll have to expand their
37:16
balance sheet meaningfully, where they'll have to do some kind of stimmy checks or when that event
37:23
happens, then Bitcoin's going to rip, just like we saw in 2020. And so I look out at the picture,
37:33
you know, going into 2030, 2031, that's when there's some real issues on the fiscal side of
37:42
things in terms of the projected insolvency of Social Security and Medicare. That could be
37:50
the scenario where we really see the debt explode higher, yields increase significantly as a result
37:58
of that, and then to turn to really accommodative monetary policy and currency debasement. And so
38:06
perhaps that's my base case, is just seeing pretty great steady returns heading into 2030.
38:14
And then we could see a gradually then suddenly thing happen in the early 2030s where Bitcoin kind of reprices significantly higher because of the dynamics of the fiscal side and the likelihood that they'll print to try to fill the gap to make these entitlement programs solvent.
38:36
and so that's my base case
38:39
but knowing Bitcoin
38:42
I'm open to any outcomes
38:46
yeah no
38:48
that makes a lot of sense to me actually
38:51
you think back to
38:53
2016 or even the bottom of 2018 market
38:59
Bitcoin just like now had gone through a pretty extensive bear market
39:03
this one wasn't nearly as bad
39:05
But, you know, it was a bear market. And like this year, you know, I believe like in February, maybe Bitcoin hit around 60K. We're now like 64,000. So like we've generally kind of gone, done nothing for the last, I don't know, six, five, six months.
39:23
and it's like, all right, maybe the next couple years,
39:28
just like 2016 and early 2017,
39:31
it starts to just kind of slowly grind higher
39:34
as the sellers are exhausted.
39:36
And then maybe there is some sort of big print in the future
39:39
where it just goes absolutely crazy
39:41
and it's another 2021-like event.
39:47
Yeah, that's kind of how I see things playing out from here.
39:52
I mean, we saw like the average duration of a bear market
39:59
in terms of like getting back to previous all-time highs
40:02
is like a little over 1,000 days, you know?
40:06
We're like one year into it.
40:08
So we could see a scenario if it just follows what it's previously done
40:13
of the next, you know, year and a half, two years
40:16
of us grinding back towards the all-time high.
40:20
But I don't know.
40:21
I think there's a lot of really positive tailwinds under the surface here.
40:28
The rise of these digital credit products, of Bitcoin treasury companies, of corporate adoption, of institutional adoption, sovereign adoption, reduction of regulatory barriers.
40:45
Like we really just barely scratched the surface of the institutional adoption trend.
40:53
And I think people are underestimating how fast that could accelerate things out of the bear market too.
41:00
And so that's like another scenario that I have in mind that I'm like, you know, there is a lot of bullish fundamentals under the surface here that could really help accelerate things out of the bear market.
41:15
But maybe it'll, it will be like 2018, 2019.
41:18
I remember 2019, you know, we were kind of just like grinding higher.
41:23
I remember it crossed 10 K around the summer and people were like,
41:26
it's going back to 20 K.
41:28
Um, I think it got up to like 12 and then it like crashed back down to eight
41:33
and then it kind of grinded up to 10 and then it and then it crashed to six six right before the COVID dropped to three So you know it just kind of like grinding up higher and then it comes and like we could
41:46
potentially have a situation like that. So I could see both scenarios. Yeah, no, it's definitely
41:55
difficult to predict over a short period of time. Let's shift again towards treasury companies
42:03
and of course like digital credit too.
42:06
You mentioned that is a potential catalyst
42:09
for a lot of capital inflows into Bitcoin.
42:12
Maybe start with like,
42:13
what are you guys doing at Orange BTC
42:15
and kind of how do you see treasury companies
42:18
more specifically and also digital credit
42:20
as catalysts for massive capital inflows into Bitcoin?
42:26
Well, I just think the success of STRC and SEDA
42:30
really showed that there is, you know, product market fit here
42:35
and there's real demand for these income products
42:40
that are supported by Bitcoin.
42:42
And, you know, Sailor was able to raise the $10 billion
42:49
and most of it was in pretty challenging market conditions.
42:55
And that led to just direct demand for the underline.
42:59
And so if you have more issuers of these products and you see a plethora of these products with different investor protections, different yields, I think there's going to be just like a platter to choose from of these different these securities that offer different volatility profiles, different risk profiles, different return profiles.
43:19
And all of it funnels down to demand for the underlying Bitcoin.
43:23
And so in Orange BTC, we think about the fixed income market here and how investors here are fixed income investors.
43:35
They love fixed income.
43:37
But they have to take on sovereign risk a lot of times.
43:42
They got to take on Brazilian risk, you know, just like if it's a Brazilian corporation to get any kind of yield,
43:50
you're kind of making a bet on the Brazilian economy
43:54
and the Brazilian equities
43:56
and that specific sector within the Brazilian economy.
44:00
There's no differentiated yield product
44:03
that's supported by something different.
44:05
And that's really powerful
44:07
to introduce something like that into a new market.
44:12
And so we have that on our roadmap, on our plans.
44:15
Like any treasury company,
44:18
there's a ton of work going on
44:20
behind the scenes to educate the market
44:26
on these new instruments, on this business model,
44:30
navigate the regulatory complexities in the environment,
44:34
work with the regulators to try to launch these products
44:40
and bring them to market.
44:41
And there's lots of different ways to do that.
44:44
And so we're exploring many of them.
44:46
We'll probably have more updates over the next coming quarters or year or so.
44:53
But it's definitely on our roadmap because, you know, we see it as permanent capital.
44:58
You know, if we don't have to pay back the principal and there's no maturity risk and there's no refinancing risk, there's no liquidation risk.
45:07
You know, that's ideal instrument to acquire a long duration asset.
45:14
So it's really about matching your assets and liabilities and weathering Bitcoin's short-term volatility.
45:21
Because that's really what we're trying to do.
45:22
We're trying to structure the capital structure to be able to weather Bitcoin's volatility and benefit from Bitcoin's long-term price appreciation.
45:31
And what is the best types of, it's not even leverage because it's equity, but amplification to achieve that goal.
45:40
and so I do think that these these products though are a bridge in that they'll bring in so many
45:49
different cohorts of investors into the Bitcoin ecosystem and who will learn about Bitcoin and
45:56
not only that but it all like I said before it all provides demand for the underlying and so
46:01
yeah I maybe you asked me before what I disagree with other Bitcoiners or I think it's all
46:10
of these things are incredibly good for Bitcoin. There's a lot of people that think that this is
46:16
hurting Bitcoin adoption or hurting Bitcoin itself. I couldn't disagree more. I think
46:21
it's important to build bridges and meet investors where they are and have everything
46:29
kind of supported by Bitcoin underneath, but kind of helping them get in the door at least,
46:37
right and to to to get exposure to bitcoin um but maybe in a way that they feel comfortable with at
46:45
first and it has the potential to bring in trillions of dollars that would otherwise not be
46:52
able to uh get exposure to bitcoin trillions with a t so um i think it's incredibly important for
46:59
the next phase of Bitcoin adoption.
47:02
I think it's really good for Bitcoin education
47:05
and just unlocking pools of capital
47:09
to get exposure to Bitcoin.
47:14
And then the one thing that I'll say is
47:16
I think there's this tension
47:19
where they're like,
47:23
hey, Bitcoin's supposed to be used as money, right?
47:25
You guys are using it as a store of value,
47:27
as capital.
47:29
You know, there's concentration here of the Bitcoin.
47:33
And they think that we're not like driving Bitcoin forward by issuing these products.
47:39
And really what I think about it, and maybe on the other side, Bitcoin treasury companies aren't really appreciating some of the work being done on the payment side of things and the meaning of exchange.
47:50
But I think Bitcoin adoption is happening everywhere all at once.
47:54
You know, it's really ignorant to say Bitcoin's only being adopted as a store of value when it's really being adopted by unit of account, store of value, unit of exchange all at once at different levels, depending on, say, the jurisdiction.
48:10
And all of it's really important for Bitcoin's health moving forward.
48:15
You know, I think about Bitcoin, if I'm building a company where Bitcoin's the foundation,
48:20
you know, it's the foundation you're issuing these preferred equities off of.
48:26
You know you want to make sure that asset is growing healthy and that you supporting the network And the network 21 million and the credibility is dependent on its decentralization and its security
48:43
And so are you supporting Bitcoin's decentralization?
48:47
What's Bitcoin's decentralization?
48:48
It's a function of the nodes and how distributed it is
48:53
and Bitcoin's use, its transaction flows, its fees.
48:59
over the long term.
49:00
And so you want to make sure that you're not forgetting that
49:02
and that you're supporting Bitcoin's use as money too,
49:07
as a mean of exchange if you're building a company on top of it
49:12
because it's kind of vital for the long-term survival of Bitcoin
49:16
that it's used in different ways.
49:20
And so I think you see efforts from Strive, I think,
49:24
recent to support Bitcoin development.
49:26
You see the Bitcoin security consortium. I think these Bitcoin treasury companies are actually going to be great for supporting Bitcoin's use cases outside of just a store of value.
49:38
We at Orange BTC, we work closely with Ventum, which is a nonprofit that supports Bitcoin open source development for that reason.
49:47
Now, on the other side, I think the medium exchange people don't appreciate what the treasury companies are doing because on the other side is the security.
49:58
And security is a function of the miners have to be incentivized to continue to hash.
50:06
and Bitcoin treasury companies
50:10
by issuing these preferreds
50:13
that bring in more capital
50:14
potentially can accelerate Bitcoin adoption,
50:17
accelerate the price appreciation
50:19
by bringing in more marginal demand,
50:22
it could potentially incentivize the hash rate.
50:26
And that's important for Bitcoin security.
50:28
Like Fidelity just put out this great paper
50:30
that dug into this,
50:32
how do we incentivize hash rate
50:34
when the fee market is so low right now?
50:36
It's that it's that FUD that you always talk about. Well, Bitcoin's long term security budget, having is having every four years, you know, the block rewards having every four years.
50:47
And so how is Bitcoin going to remain secure? But Fidelity did the research and showed that just Bitcoin's price appreciation over the last its entire existence has been the main reason why miners have continued to remain incentivized to hash.
51:03
You know, the block subsidy, although it halved in 2024, the average mining revenue is like $40 million a day.
51:14
But in the previous halving epoch, it was like $31 million.
51:20
And it was just Bitcoin's price appreciation that continued to incentivize the miners.
51:25
And so, and they did the research and modeled it out.
51:29
Okay, next having what Bitcoin, what is Bitcoin's price has to be just to maintain that incentive?
51:35
And it said around $370,000 from 2028 to 2032.
51:43
Fidelity was like, Bitcoin needs to be around $370,000 to maintain the current mining incentive.
51:52
And so what's going to bring Bitcoin up to those price levels?
51:56
It's going to be these Bitcoin-backed security products are going to play a big part of it
52:00
because they're bringing in billions and billions of dollars today, and we're in the first year of it.
52:06
And so you look out over the next five years of how much money can be brought into Bitcoin
52:10
through these efforts of these Bitcoin treasury companies.
52:14
They're going to be one of the main reasons why Bitcoin's price is rising up to these levels
52:19
that can continue to incentivize the miners,
52:22
continue to secure the network.
52:24
And so I think the payments people are really important.
52:27
And so are the treasury companies
52:29
in terms of driving Bitcoin's decentralization and security,
52:33
which is ultimately what maintains the credibility of 21 million.
52:38
And so kind of a lengthy answer,
52:41
but I just think all of it's good for Bitcoin.
52:43
And there's no reason to have this infighting between the two
52:46
because we need both.
52:48
Like we need to be driving Bitcoin adoption in all different types of ways.
52:54
Yeah, no, I think that makes a lot of sense.
52:57
I mean, I definitely agree that there's a lot of capital trapped in, you know, traditional markets that have unique mandates that only allow them to buy certain things.
53:07
And they need also different like risk and volatility profiles and so on and so forth.
53:13
And obviously entrepreneurs and businesses are going out and providing those investment products that meet those needs that satisfy someone that that wants Bitcoin exposure, but maybe can't buy Bitcoin directly or doesn't want to buy Bitcoin directly for a variety of different reasons, as we explained.
53:33
On the topic of educating the market, which I agree, like that's an important thing that obviously has to be done when it comes to these like Bitcoin income products.
53:44
How do you think about that?
53:46
I think a common, very simple objection is, okay, well, other fixed income products, they are built on a business or a government that theoretically can or is generating cash flows from providing products and services.
54:08
Whereas Bitcoin treasury companies are interesting because they generally just hold the Bitcoin for the most part.
54:14
What would be like your counter argument to be like, OK, well, how does this actually work?
54:19
Like, why would this be sustainable?
54:23
Well, it's sustainable because Bitcoin will appreciate faster than, you know, the cost of capital that the treasury company has or the issuer has.
54:34
I remember Ross Stevens from NIDIG wrote something a few years ago.
54:39
It's like Bitcoin, this whole idea that Bitcoin doesn't have cash flow.
54:43
And it's just the cash flow exists. It's just like you decide when it happens, right? So like strategy just generated some cash flow by selling Bitcoin just like last month.
55:00
It's like when you have a liquid asset on your balance sheet, you can generate quote unquote cash flow by selling it whenever you want.
55:09
And so I think it's just a different way to think about things because in traditional debt instruments, you're right.
55:15
It's like you're kind of betting on, you know, future cash flows and their ability to service it.
55:22
Whereas this is a completely different model where they already have the capital on their balance sheet And to me that like as somebody who wants to invest in one of these products I feel safer knowing the company already has the capital on their balance sheet
55:36
than buying some kind of corporate debt that depends on their ability
55:41
to generate future cash flows to service the debt.
55:44
It makes me feel more comfortable knowing that they already have the capital on their balance sheet.
55:49
And so I think it's a little bit of a different way to think about things.
55:52
And, you know, again, you know, when they sold the Bitcoin, everyone was all up in arms about it. You know, I don't really understand that because, A, they bought a significantly amount more this year than what they've sold.
56:08
But then B, they're really proving out that they're an operating company with a large liquid balance sheet.
56:17
And they can do whatever they want with it if they think that that corporate action could increase shareholder value.
56:23
And by selling some Bitcoin to raise their USD reserves, to service the dividends, they're proving that this is an asset that can generate quote unquote cash flow whenever they see fit to meet their end, meet their objectives.
56:43
And so I just kind of reject this whole idea that you need, quote unquote, cash flows. It's like what you need is a large liquid balance sheet. And what you need is that balance sheet to appreciate greater than the costs of your liabilities or your obligations.
57:05
um you know that's ultimately what the bet is right so um yeah in terms of the education i think
57:14
a lot of the misunderstandings around the product still it's it's a it's a it's a misunderstanding
57:21
of bitcoin risk of like how valuable strategies balance sheet is you know it's it's crazy to me
57:30
that a lot of critics are looking at strategy
57:33
and they like gloss over,
57:36
oh yeah, and they have $50 billion worth of Bitcoin.
57:40
It's huge.
57:41
It's like they're one of the biggest
57:43
corporate balance sheets in the world.
57:46
I think they're like what, like number six.
57:50
And everybody else has fiat cash,
57:54
you know, that's melting away.
57:55
And they have, you know,
57:56
the hardest asset in the world
57:58
that's set to appreciate and value.
58:00
and it makes me again feel like i'm taking crazy pills but people really just like gloss over the
58:05
fact that they have that bitcoin um that they'll be able to service those dividends uh you know i
58:13
have to check the math but it's it's what like 30 33 years um the net reserve to service some of
58:23
these dividends or or no it's more like 50 so it's like 50 50 years um and so you're basically
58:31
i think it's actually like a safer way to to uh own some kind of like income generating
58:38
uh security if or income producing security if it's backed by capital already on the balance
58:46
sheet than like future cash flows. Yeah, I think you were that very well. I mean, I think Sailor
58:54
is kind of framed it as, you know, most income products out there at the moment are like,
59:01
the company's like, we don't have the money, we need the money, we're going to invest in these
59:05
humans, we're going to build this factory, we're going to do all these random things, hopefully it
59:09
all comes together. And by the way, like five, 10 years from now, we'll give you back the money.
59:13
whereas Michael's like, we already have the money.
59:16
We just want to do this and buy more of the money
59:18
and we have all the money on our balance sheet already.
59:21
We have 50 something years of it
59:22
and it's just a completely funny way to think about it.
59:27
It's like most people don't have the money.
59:28
They already have the money.
59:30
I know, that's exactly right.
59:32
That's how I think about it.
59:35
So this has been a really good conversation, Sam.
59:38
Any final closing thoughts on markets, Bitcoin,
59:43
digital credit or anything you want to leave the audience with?
59:50
You know, I just think we're in a really interesting moment right now.
59:54
I think if you look at the macro picture, you got rising inflationary pressures,
1:00:03
you got oil prices rising, you got re-escalation of conflict in the Middle East.
1:00:09
Wars are always inflationary.
1:00:13
because they're expensive so there's usually a concurrent increase in government spending
1:00:19
and then there's also disruption of supply chains and and so we have that going on more
1:00:26
inflationary pressures you got long end yields rising to their highest levels in 20 years
1:00:34
and you got a fed who's basically looking at these inflationary pressures
1:00:37
and they're like, hey, we can hike rates.
1:00:42
But that kind of puts more strains on, say,
1:00:46
all of this AI bubble and the credit bubble
1:00:49
that's going along with it,
1:00:50
which could cause problems.
1:00:54
Or you could cut rates
1:00:55
to try to keep all of the fiscal position
1:00:58
and the AI bubble intact.
1:01:01
And in that scenario, Bitcoin and gold will rip.
1:01:06
And so right now they kind of paused.
1:01:08
They just paused the rates.
1:01:10
They kind of delayed things.
1:01:13
Long end yields didn't really like that.
1:01:14
They continue to rise.
1:01:16
And so I think we're going to approach a scenario here
1:01:19
where something will have to give,
1:01:22
whether that's the stock market,
1:01:24
whether that's the bond market,
1:01:25
whether that's the dollar.
1:01:28
I think we're going to get more information
1:01:31
in the coming quarters of like what macro environment
1:01:34
we're really going to head towards.
1:01:36
And I think the likely scenario
1:01:38
is they're going to turn back to more accommodated policy
1:01:42
and the dollar is going to be sacrificed.
1:01:45
And in that scenario, that's exactly why Bitcoin
1:01:47
was invented all those years ago,
1:01:50
was to address these debasements
1:01:55
and the impossible environment we find ourselves
1:01:59
and where we can't save.
1:02:00
So I think I'm just focused on the long-end yields
1:02:04
I'm focused on the inflationary pressures
1:02:08
and what I'm seeing is that
1:02:11
there's never been more reasons
1:02:13
to hold an asset that can't be debased
1:02:15
I love it
1:02:17
I think that's a great spot to end it on
1:02:20
Sam, thanks again for your time
1:02:22
really enjoyed it
1:02:23
thanks Joe, appreciate it