On The Brink with Castle Island - Andy Edstrom on Bitcoin Adoption in the RIA Channel (EP.184)

Episode Date: February 23, 2021

Andy Edstrom, a financial advisor and Head of Institutional at Swan Bitcoin joins the show. In this episode we discuss: Andy's new book Why Buy Bitcoin and why he embarked on writing a book about Bitcoin His path to understanding Bitcoin through the lens of an RIA His views on the prospects of a new Bretton Woods or Plaza Accord style arrangement in the coming years Prospects for an exchange-traded Bitcoin fund in the United States Bitcoin as a corporate treasury asset and the outlook for more MicroStrategy style moves   To learn more about Andy visit his website, check out his book or follow him on Twitter at @edstromandrew

On today's episode, I sat down with Andy Edstrom, a financial advisor and also head of institutional at Swan Bitcoin. Andy recently wrote a book titled Why Buy Bitcoin, which we cover in this episode and that I think is a great read for people that are getting into the space. I wanted to have Andy on the show to discuss how Bitcoin and Bitcoin investment products are being perceived by the RIA channel and how advisors are introducing this concept of Bitcoin to their clients. As you'll hear, we discussed a range of topics in addition to that.

I'll also note that we had a brief audio issue. at the outset of this recording, but it improves a couple minutes in, so just bear with us. So without further ado, here's my conversation with Andy Edstrom. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis.

The bank of England has pumped 75 billion pounds. more, the Britain's ailing economy with a new round of constituted easing. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called a Bitcoin. So a lot to talk about today and would love to get into your views on financial advisors and Bitcoin investment products and how we should be thinking about this through the lens of RIA is entering the space. But maybe before we do that, why don't we just start it off with a little bit of background on

yourself and can you introduce yourself to the listeners? Yeah, happy to do it. So I'm a Southern California guy. I grew up in L.A. went to school in Massachusetts, was an econ major, was taught all the wrong econ, all the Keynesian econ, should not help me understand Bitcoin. But that's fine. I went to Wall Street. I worked for Golden Sacks for a couple of years. And then I went to the buy side. I worked for a private equity fund that spun out of the Carlisle group for a little while. And then I worked for a hedge fund out here in L.A., about a $5 billion hedge fund called Tenenbaum Capital, doing really broad mandate, like everything from distressed debt to basically private debt underwriting to public equities to kind of cross the board, hybrid stuff, special situations.

And then I actually got interested in the family business. So my father and his founding partner started a registered investment advisor, a wealth manager over 30 years ago. I mean, it wasn't 30 years at the time I joined, but that was in 2012. And I got excited about joining and growing that business. So then I, of course, found Bitcoin. I was a three exposure guy. I didn't take the first two exposures, but in 2017, I found it.

Then I fell down the rabbit hole of all the alts and other things in the space. And then eventually I came back to Bitcoin, and that's when I started writing the book, was at the bottom of the market in January 2019. Bitcoin was under 4K. And it was both an exercise in educating my clients and hardening my own conviction. and wanting to put out a product basically for general consumption that any intelligent reader could approach. And so that's kind of my short professional bio as well as how I found Bitcoin. I love that that's the reason you wrote the book. I've always felt that if I try to study something,

if I force myself to write up almost a memo on it, then I tend to understand it a lot better. So I'm sure that you, in the process of writing this book, which is great, by the way, it's called Why Buy Bitcoin. We'll link to it in the show notes. I'm sure it actually forced you to question some of your assumptions about Bitcoin in the first place. It absolutely did. And it helped me fill in the holes. That's always the thing with writing is you think you got the thesis in your head and it's 80% or 90% and then you fill in the gaps and it was important.

And also, to be honest, it made the bear market a little less painful because I had something to do. Yeah. Exactly right. That's exactly right. Well, I want to go back to that moment when you had joined Westcap and you started to pay attention to Bitcoin. Was this initially just.

hey, this could be an interesting PA type of a thing, or were you looking at it through the lens of maybe this is a new asset class that our clients should care about? Yeah, I think it was both. I mean, the one thing about moving from sort of the regular way private equity hedge fund by side land to wealth management is it's, I moved from sort of bottom up company by company analysis as well as industry analysis to a much broader macro view because we are asset allocators and we put our clients in a whole wide range of assets the world over. So part of it was, yeah, filling in the gap on, oh, this is a new thing. And I'd like to understand

its place in the world. But then obviously, it was a potential PA trade. And of course, I did make the trade. Then I made an investment and had an interesting, ultimately profitable ride, but it's not like I got in at the beginning of 2017 Bitcoin under a thousand or anything like that. I wish I had. I didn't buy even my first Bitcoin, I think was right after the fork. So like early August 2017. But it was both. It was both personal interest as well as, oh, how could this effect or fit into the broader view of the world and the broader asset allocation? And I remember back then, you'd sent me some memos. Were you sort of educating your clients just via memo? And here's what I think is interesting. Was that kind of your approach back then? Yeah, I mean, part of it was forcing

myself, as you just described to really distill the ideas. The first versions of that memo were pretty rough. But by the time I got to the quote unquote final version, although I don't think I ever published it as vital. I think it was always, it always had a draft stamp on it, and that was probably the right decision. But no, that memo didn't, I'm trying to remember if that went to clients. I kind of don't think it did go to clients. It went to friends and family that I trusted, and it went to people in the industry, basically investors that I trusted, partly to get their feedback, partly to test the waters on, is anyone looking at this thing? Of my whatever X number of contacts in the investment in finance base, like what percent had any clue what's going on here? Maybe that'll be indicative of how

early we are in the trade or how early we are in the development of this space. But no, I don't think that I sent it to clients. It was pretty rough and I think their heads might have exploded. I love that story. One thing that was always interesting to me is I started to really understand Bitcoin was I took a lot of detours along the way. I mean, I remember you hop in. The first thing you see is Bitcoin and you have to figure out what this ripple thing is all about. For a while, I went down this private blockchain side to see if there's anything there. Eventually, the ERC 20 standard launches and there's just this wave of alternative cryptocurrencies. So along the way, for me at least, I felt like it was helpful to just think about these things

in terms of different taxonomies. Some things are trying to be money. Some things are trying to be decentralized internet services. From there, I was able to sort of tease out which ones of these should matter, shouldn't matter. And of course, a bunch of these things are probably unregistered securities. But I'm curious how you thought about that, first of all. And then second of all, how do you even explain this to someone who's just looking at crypto for the first time? Yeah. So, Matt, I used the same approach as you did. I used the taxonomy and put the different assets into different buckets.

I agree that approach still works. Although, as we know, some of these assets try to put themselves in a different bucket than they actually belong in. Totally. We can talk about that. That's that question. And then as to how I approach it with clients, honestly, I just, I focus on Bitcoin. By the way, I in general focus on Bitcoin because I think Bitcoin is the thing and it's the most important thing and it's the one asset you got to own here early in the year 2021. But I really just start and focus on Bitcoin and I usually respond to questions about other assets and that's the approach I take. When you think about this through the lens of an RIA, if clients are asking you about

other assets, is it generally just here's some education, here's how to think about this, this is more of a venture bet that you probably don't want direct exposure to. How do you handle that? It's a really good question. I don't know. You might be surprised. Maybe my clients aren't as interested in it or maybe they just notice that Bitcoin is the only asset in the title of the book that I went to the trouble of writing. But I don't get too many questions about other things. I mean, of course I get the odd question on ether. And then I talk about, I mostly talk about risk factors in that case, which is like they're trying to change out. the engine in midair. They're trying to change to a different consensus mechanism and it's not really

decentralized and sort of all that stuff. So that's usually the approach I take with ether, but I don't get that many questions about other stuff, to be honest. And when you think about what Bitcoin is competing to be, this kind of non-sovereign, pristine collateral money that is not controlled by the government, do you see this as a winner take-all market for that use case? Or do you think that we're going to have other options that people will use? I generally assume sort of a Pareto distribution. I mean, winner take truly all is maybe too strong, but I do think that Bitcoin is well on the way to 80% plus dominance of the monetary use case, where the monetary use case is truly enormous. I mean, I look partly to precious metals.

I look at the relative relationship between the value of gold versus the value of silver. The value of silver took a little spin yesterday. It seems to have gone back to where it started, not shockingly. So that's another clue. And there again, gold is orders of magnitude larger that silver, at least more than one order of magnitude, I think, maybe order and a half. And so, yeah, those are things I look toward. Now, I also think about obviously Fiat money. And I think we're so far from medium of exchange usage that it's not that it's not worth thinking about, but I'm just not that focused on it, to be honest. Likewise, Michael Siler, who calls it an asset, basically, store a value primarily, but not a transactional money.

But that's my answer is I think it's going to be pretty skewed toward Bitcoin. And I'm not a true 100% maximalist, but I'm in the camp of it's likely to be so dominant that it's probably the only thing worth focusing on at the moment. When you think about that use case and network effect around digital gold, it's going to be really difficult, in my opinion, to replicate just the distribution mechanics of Bitcoin in the sense that it was full. fair. There was no pre-sale. And when the first mining started to happen, it was just such a little fringe thing that it was allowed to kind of flourish without even having a market price for a long

period of time. And if you were to start one of these things now, even if you said, I'm going to do a fair distribution, there would be kind of an arms race and there's a big mining industry that would be immediately mining it. You know, VCs coming in and mining it too. So in my mind, that's one of the biggest impediments to having really a robust competition for that use case. I suppose there could be forks of Bitcoin with privacy and things like that that use the UTXO set. But you're curious your views on that. No, I agree completely. Bitcoin is sui generis.

It is unique and it is unique because of the history, as you described, both because we don't know who the founder was and because of what you described, which is nobody was paying attention. It was mine from day one. Anybody could mine. There was no pre-mine. There was no effective security distribution. which does apply to most of the crypto assets out there, including some of the very large ones who may or may not get a pass ultimately from the SEC. I won't name names at the moment.

But yeah, you look at, I think the recent fair launch that comes to mind was the Mimble Wimble coin. I guess it was Grin. Grin, the VCs were all over. I remember some VC pitching me his Grin ASIC plan a few years ago. And yeah, it was just like, this doesn't work. You can't replicate that cold start bootstrapping activity that happened in the early days when no one was paying attention except those who cared about it. And I agree with you 100%. The distribution mechanics, maybe that's something that we'll learn from defy, just kind of novel ways to distribute tokens.

But it certainly doesn't seem like there's been any better way than just turning it on and allowing people to mine it. Too bad for all the crypto funds and crypto VCs who would really like to. create something where they have a larger stash, a larger allocation to begin with. Well, I guess part of the reason it works is that no one owns it, no one introduced it, and the fact that we don't know who introduced it makes it even more powerful. It's almost a founding myth. It is a founding myth, really. It's just it makes it that much more intellectually appealing, I think, to some.

Totally agree. I want to get into kind of how you view Bitcoin just the asset, and especially through this lens of an RIA. I was telling you this story before we started recording around a friend of Castle Island who has a financial advisor and sent the financial advisor a question around what's the firm's opinion on Bitcoin? And this is a big wirehouse bank and received an answer that, look, there's nothing on the platform that offers you Bitcoin exposure.

We don't do that. And oh, by the way, here's this article to an anonymous blog post about Tether around how the price of Bitcoin is manipulated. And so to this person, that, was sort of the wirehouses point of view. It's like some anonymous tether troll that is trying to fud Bitcoin price. So it was remarkable to me. I guess I shouldn't be surprised, but in this day and age, 2021, you have these large enterprise entering, you have big macrophones, you have fidelity building, a huge business behind this, and you're still getting that type of reaction. So what do you think?

Is that happening elsewhere in this industry? So a couple of things. First of all, I really enjoyed the episode you did recently with Nick, with your partner, about the TetherFud. I think you successfully closed the book on that one. So if people haven't listened to that one, I think it was maybe last episode or a couple episodes ago, they definitely should. With respect to what are the wirehouses saying about it, I have contacts, actually, to be honest, probably potential client prospects who have reached out to me because they've heard me on podcast or they've read my book or whatever. And they're telling me about how they have their existing advisor is one of the big wirehouses, possibly one of the ones that I may have worked for in the past without naming names

to be specific, who was basically telling them the same thing. And so yes, that is ongoing. It's happening now. There's still this sort of fud anti-Bitcoin mentality among that cohort, at least some set of it. And then to your question of how do I frame it for clients? As we know, Bitcoin is different things to different people. For clients, for my clients, it's at least two things. And it is a high risk asset and a hedge, quote unquote, high risk asset. So I do present it as, look, we know what the TAM is. We know what the total addressable market is. We don't actually know it. The only thing we do know is that it's huge. So maybe we can frame it within an order of magnitude or two, but the good news is you almost don't have to because the upside is so enormous. So that's

the asset you can make a nice high return on. So that's one. And of course, as we know, it's the highest returning asset of the decade ended 2019, and then, of course, Monster Year last year, so basically the best returning asset ever. So that's one piece of it. But the other piece of it is really important. And for the first time in, well, really for the first time in the history of the firm, and certainly since I've been there, we have an asset allocation, basically an asset class, which we call hard money assets. And these are assets that ought to be inflation proof. And of course, the star of that show historically has been gold and monetary metals, but we've got this new participant, and that's Bitcoin. And there, it's really crucial,

in my opinion, because I get feedback from clients who are quote unquote low risk. They got a lot of bonds in the portfolio. And what I explained to them is, what is the one thing that is kryptonite, that is deadly for bonds? And that is inflation. I mean, really, it's inflation, which causes higher interest rates. And even though we may not be close to that yet, I explain them in the thesis about how we could be a lot closer than people think and certainly a lot closer than we've been literally in decades. And so if you have a bond heavy portfolio, man, you better own those hard money assets or that bond money portfolio is going to sink in terms of its purchasing power. I like that framing a lot. And I like in your book, you talk about sort of the history of money.

And I think that's such an important foundation for understanding Bitcoin. And the other thing that's really important is just monetary systems and like how countries engage with each other. And so as I think about what we're potentially coming into right now, we've had this era post-World War II where we had the Bretton Wood system. And then 1971, we go off of gold and we're essentially on the petro dollar system. And it would seem to me that we're entering this era where it is unstable for the U.S. to continue the petro dollar system.

as is. And just being this global reserve asset seems to be kind of in doubt. And it's really, in a lot of ways, gutted the middle class in the United States and had some really negative side effects that are being felt. And not to mention the fact that I just want to jump in there. I'm sorry to cut you off, but I agree completely. And part of my learning, part of my personal journey about that was the fact that the quote unquote exorbitant privilege of issuing the world's reserve currency is not a privilege at all. It is actually a burden. Yes, maybe it made sense when the U.S. GDP was almost half of global GDP coming out of World War II, which it's not anymore. We're, I don't know, 20 percent or something here in the U.S. And as you said, we've gutted the

middle class because you've got this Dutch disease effect of the dollar being overvalued, something I know your partner, Nick, has written about, I think, at some length. And it's not helping us. It's hurting us. Now, that is not the public perception, I don't think. And I think it's especially not the public perception among people in power, at least in the U.S. Although I do think that is shifting. The book that I recommend to people a lot is trade wars or class wars. That's Michael Pettus and Matthew C. Klein. It's a little bit hard to get your head around why this is true, why having the reserve

currency is actually a burden, not a privilege or an advantage. But I have definitely come to that view. And it's actually one of the things that I'm trying to educate people on because it is definitely not the consensus view, I don't think, yet. And I would build on that by saying there are benefits in some respect. You can enforce sanctions. You can have greater kind of surveillance over the financial apparatus. And you can exert geopolitical control through some of those mechanisms.

But it's pretty inarguable, I think, at this point, that the dollar's role on that global stage is waning. You can look at oil denominated trades between Russia and China that are U.S. dollar based. And they're really precipitously declining over like a five years. your basis. So all this to say, I think the framing around Bitcoin is digital gold is great for the narrative. But we might be talking about a total addressable market here that is just orders of magnitude larger than that if you think about what will emerge from this petrador dollar system. So I'd be curious your perspective on what will emerge here. Are we going to have a bank core? Does Bitcoin have a role here? So a few things there. And by the way, because we were talking about

how I explained this to clients. So I agree with you completely. The actual total addressable market of Bitcoin is not just 10 or 12 trillion of gold. It is, as you say, much, much larger. However, most of my clients aren't ready to think in those terms. I don't think. It's sort of like the Overton window of what I can reasonably get them to buy into or even consider seriously. So I agree with you, but it's hard for people to think about that. But yeah, what's in the future? I mean, like Bretton Woods 2.0, probably impossible. I mean, I don't see the governments of the world uniting to figure this thing out. Something more like a plaza cord, maybe possible, could be. I sort of like Lynn Alden's framing, which is like,

although you can have a global reserve currency, there's no requirement. I mean, we could be in a multi-currency world for some period of time, and there have been periods in history where that's been true. And frankly, that would make more sense in the context of the geopolitics, which is, yes, U.S. power is waning, although still quite strong. I'm very bullish on the future for the U.S. in the long run. Yes, rising power in China. Yes, Russia's the spoiler as always. And Europe's still an important block, although the unification there is sort of hot and cold. But yeah, in this multipolar setup, why wouldn't you have multiple currencies or multiple monies, at least for some period of time? So personally, I'm quite bullish on Bitcoin having a shot at becoming

the global reserve currency, but we could go through a period where we don't have a proper reserve currency. There's not an obvious other sovereign currency to fall back on. I don't think that China's currency would really fit the bill. I think that there's been discussions about a bank or to your point, I think that would be politically difficult to achieve. So maybe you're right. Maybe we just have various fiat currencies with the option of having a non-sovereign store of value

in the mix there. and it's just kind of an FX option to some degree. Exactly. And you can have for some period several different currency blocks. You can have the Europe block, which may somewhat have influence in the near geography, maybe into Africa to some degree. Although you'll probably have the China block. They've got all these trading partners. They've got built in road. They've made all these infrastructure investments in parts of Africa, other parts of Asia. So maybe the Chinese yuan or the DSEP or whatever comes of it will be more dominant in that sphere. And then maybe

we'll have the still the American sphere. I mean, the U.S. is in its own right still a very large economy and we still a lot of trading partners and they'll still demand dollars and we'll just have to see. To your point on the Overton window, I can't believe that we're having this type of conversation though. Back in 2016, 2015, in all these private blockchain consortiums, the kind of one rule with all of the Wall Street banks is you can't mention Bitcoin. It's all about blockchain, but not Bitcoin. And here we are talking about Bitcoin on the global scale being a reserve asset. Wasn't that a fun stage? I mean, I wasn't around in 2016. I wish I had been. But yeah, man, it was all about blockchain, man, blockchain, blockchain, blockchain. Let's talk a little bit about

just ways to get exposure to Bitcoin. How do you think about this through the lens of an RIA and clients that are seeking this exposure? So obviously, as we know, the sort of silver bullet here is the ETF. And we don't have that yet. And there have been lots of attempts over multiple years. I'm actually bullish that we'll see it this year or maybe latest next year, mostly because Barry Silbert and DCG are hoovering up so much cash. I mean, you can see the framework I've presented is Bitcoin Trust becomes a $100 billion asset, which isn't that far away. You get a little bit more premium back. You get the flow obviously at net asset value, which turns into shares, that arb trade that the funds have been doing, as well as you get six figures or

100K Bitcoin and basically you're there. So I think that's a real black eye on the SEC in terms of their management of this process. You've talked about this at length. You've been right in focusing on it. So that's, I think, where we're ultimately headed. So in the meantime, what do we have? Yeah, well, still really the Bitcoin Trust is like the one thing that trades in the secondary market that most custodians, I'm talking about like Schwab and TD Ameritrade and I think Fidelity, basically the platforms that are commonly used by wealth managers by RIAs. So that's still the easiest thing to buy. Now it has its various downsides. And so what's happened recently is there's been new products coming to market. I mean, you always had limited partnership products. You had Pantara's Bitcoin Fund,

which is sort of not fully institutional grade, but it's been around for a long time. So that's been there for a while. But you've got three IQ, although that's not, I don't think, fully distributed in the U.S. You've got Bitwise, but it's not trading yet on the secondary. You've got Skybridge, obviously, those guys come to market in a pretty loud and exciting way. And even Fidelity, your old shop, has a fund, although the minimum is quite high. And so it's not really accessible even to most high net worth wealth management clients. And then you've got this class of options that are not fund wrappers. They're basically, they happen to be custodyed for the most part at Gemini. And there's several firms, Eaglebrook, D-AIM, and then, of course, there's my shop

that I'm affiliated with, which is Swan. And those options are really more about, okay, there's some support for the RIA in terms of reporting and seeing what's going on as well as placing the trades, but it's not in a proper fund wrapper. Now, none of these options is perfect. And some are better than others and some are more expensive than others. And there's various parameters in terms of relevant regulation and oversight versus fund structure versus fees versus liquidity. And there's all these factors that come into effect. And I happen to be in the process of reviewing options for my clients because there's actually new product launches not quite on a weekly basis, but at least on a monthly basis. So the whole space is actually developing.

and growing quite nicely. And basically, RAs have a much better set of options than they used to. And none of them is perfect. So if you don't understand the asset enough to realize this is a huge investment opportunity, then I suppose maybe you're still ignoring these options. However, if you understand the thesis and you realize that owning this thing may be critical to getting a good investment return for your clients in 2021 and beyond, then I believe you ought to be willing.

willing to use an imperfect product, hair and warts and all, figure out the one that's right for you, recognize that you're never going to get to a perfect, pristine zero risk product unless and until you have the ETF. And my opinion on when we hit that is Bitcoin is already six figures. So you'll miss whatever 3x. That's interesting. So I guess two ways to think about from my perspective. One is what is the best product for the customer? And I'd be curious your views on spot exposure versus through a wrapper. And then the second part of that question is, obviously, this matters to the RIA because they want to get paid on it. And so if you're telling someone to go out and buy spot Bitcoin on a third-party platform, you're just sending assets away from yourself.

And so you want to be thinking about that too. So how do you kind of tangle with those tradeoffs? getting paid on it is obviously important to wealth managers and legacy finance guys like me. I agree with you. That sort of favors the fund product. And it also favors having the asset clearly integrated with the custodian, the platform that you're using as the advisory, like Schwab, TD Ameritrade, et cetera. Okay. Now, counter argument to that is, look, I have clients. I put them in funds. I put them in limited partnership structures from time to time. How do I build them on those? Well, I have other assets. that I manage for them, and I basically suck the fees out of the account that I can access

directly based on the measurement of net asset value of the asset or the investment that's not in the account. That's not an insurmountable problem. Is it optimal? Like, does it require a little bit more reporting, basically among systems and sharing of information? Yes, but it's definitely doable. That's one consideration. And then another consideration, the direct holding of Bitcoin, What's interesting about that or the advantage there versus the security is my understanding, and this is not tax advice. Also, this is not investment advice, of course. You are not my client person listening to this podcast. The thing about the direct holding of Bitcoin is my understanding is that there's no wash sale rule. So with the security, if you buy your Bitcoin in a bad moment and it goes down 20% plus, like could have happened to some people last month.

Well, the wash sale rule of security says that if you exit it, you can't rebuy. for another month. Otherwise, it's not deemed a taxable loss. And we like to harvest losses because we can use those to offset gains elsewhere in the portfolio at a later time. So the nice thing about holding the Bitcoin direct is my understanding is you can sell and then re-buy a second later still realize the taxable loss, but then maintain your Bitcoin exposure. Oh, that's really interesting. And obviously you've got slippage risk there because sometimes Bitcoin gaps in one direction or the other, but if you execute quickly enough, the risk of that is low. So that's one advantage of the direct holdings.

And then so those are, I would say, for me, the things that come to the top of my mind. One other thing as well is there's some question, well, it is believed that RIAs are not supposed to custody client assets. I'm not supposed to touch the money, so to speak. That's definitely true. That's the rule. And so when I say believed, I mean, like, it's not entirely clear. I would argue whether the custodian or the advisor has control.

I mean, some of these direct holding structures are set up so that the advisor shouldn't be able to actually move the money anywhere. But I do think that some advisors are concerned about, hey, if it's not in a fund wrapper, could I be deemed basically to have effective custody or de facto custody? And then, of course, there's the overarching question of who is the SEC qualified custodian in the space? And the answer is, there isn't one yet. At least the SEC hasn't opined in that regard. Now, I would argue that there are many custody options that probably would pass muster with the SEC, not least your former shop, but there are multiple others. So I'm less worried about that, but I think that some advisors are still worried about that. Yeah. And there's been some comment letters, actually, in the past couple of weeks around that SEC qualified custodian status. It's kind of interesting to me that you can have New York limited purpose trusts in non-crual.

crypto asset world, such as Bank of New York Mellon and DTCC, and those are SEC qualified custodians. And so why shouldn't a crypto asset custodian under the exact same regulatory framework? Why would that not be? That's my perspective. And I think that there are a lot of advisors who really don't want to do the work to understand Bitcoin and they're looking for excuses not to. Yeah. Certainly from my experience, that's true.

This whole spot versus investment product tradeoff, I've gotten back and forth at this over the years because one part of me says this is just a new novel asset. And so why do we need to jam it into a kind of a wrap security? Then you figure out all these kind of nuances around the accounting treatment of holding Bitcoin on the balance sheet and the fact that you need to hold it as an intangible. And therefore, you'd have to mark it down, but you wouldn't be able to market back up to fair market value if it went below the threshold where you bought it at. So I could see a real world where we just have a coexistence here. I don't know how you feel about that. Yeah, you mean in the long run.

Yeah. Like even after we, yeah. After an ETF, you'd have spot exposure and ETF exposure. And depending on your regulatory status or where you're based, maybe it makes sense to have one or the other. No, absolutely. And actually, I think the business model for some of these spot exposure guys, some of these businesses, basically, is they are looking to the future.

They're saying, well, this makes sense as a way to allow advisors to hold Bitcoin. And of course, they're thinking about 10 years from now. well, what percent of the portfolio will be crypto assets, in quotation marks, and what percent of the portfolio by then will be tokenized anyway, tokenized securities. And I think they are thinking in terms of pivoting into a much, much larger market where a significant portion of financial assets that exist today are now on token or crypto rails. So that's for sure part of the very long-term business plan, I think, for some of these guys. You mentioned the Bitcoin ETF and thinking that the SEC would not act here until Bitcoin is

in the six figures. And I've certainly heard people say that. I think Kathy Wood said something similar a couple weeks ago, even that it would have to be three times larger than it is now, which is a shame for a lot of retail folks that are trying to buy it through their traditional brokerages. But if you look at just the facts and circumstances on the ground around the market it's structure evolving and the quality of exchanges. And I would argue that we're kind of there in terms of what we need to see. But what do you think they're waiting for? The question at the age, I've had conversations with people in the space, some of whom you

definitely know, who talked about how did the votes go down with the various ETS approvals. And it seems that the votes were sort of close. That's my sense. In other words, if there's five commissioners, it's not like it was a unanimous rejection. That was not the case. We know we've got supporters. I think Hester Purst, you may have had her on your pod, and you've had conversations with her. She's great. And then, of course, we've got Gensler showing up, and he at least knows what he's talking about, it seems. He's very educated. We have not had Hester. We'd love to have her open invite to Mr. Oh, okay. But yeah, Gary Gensler really understands

this market structure. That's all favorable. There was that letter that came, I think it was authored or signed by Dahlia Blass maybe at the time. And I think it was early 2018 or early 2019. It was like, here's the five things that are wrong with the Bitcoin market that need to be fixed. You've talked about the custody problem that solved. And I do think that the manipulation and or monitoring of, I don't want to say substantially all or the substantial majority of volume of exchange volume, but let's say we need enough price discovery on onshore regulated exchanges. Now, are we there yet? I kind of feel like we are there yet, especially think like, I feel like we are more there thanks to what's gone on with BitMex recently.

And so is that a solved problem? I kind of think it is a solved problem. And as I think maybe you pointed out or others have pointed out, the significant regulated futures volume is a part of that, the CME volume. So to me, to my mind, it's mostly solved. Does the SEC think that way? I don't know the answer. We'll find out.

We'll find out. There'll certainly there'll be a lot more R. IA is asking questions out of you and reading your book once we have a Bitcoin ETF, I think. That's when people will start to notice. Let's talk about the book for a little while. I highly recommend it. I think that people who are looking to just ramp up to speed, I think it's a great first book

to read first couple books. You don't want to jump into like the most technical of books reading about how Nance's work is your entry point. So curious kind of who you're writing the book for. And then were there anything that you just? just discovered yourself about Bitcoin or really came to a new conclusion, I guess I would say, as you were writing this book. I appreciate your kind words about the book, Matt. And by the way, the book does include a discussion of the mechanics of nonces and proof of work. And I made that

conscious decision because I thought about what's the book I want to write. And I decided that I didn't want to write a book that was so high level that someone who was really truly curious wouldn't feel satisfied reading it. And I'll explain why, because it was from personal experience. So my personal experience when I was first looking into Bitcoin, I probably had done five or 10 hours of reading online about Bitcoin and what is it and how it works. And I got to the end of the day one day and I was like, just tell me how the damn thing really works. Because it wasn't clear to me why this system was secure. And I finally ran into it. to an article, I think it was on TechCrunch, that explained exactly that, explained how a hash

worked, explained how the block chain is constructed, explained the search for the nonce, and that was the light bulb moment for me. So there is actually a chapter on that. There's actually some discussion on potential attacks on the system. So obviously it's not completely fulsome. Truly covering all the potential possible attacks would be a book in itself. But it does have enough, I think, to get people, basically get an intelligent, skeptical reader to the point of, oh, I guess I get how this thing could work. So that's the framing. Now, obviously, I recognize that, okay, you need a little history of money. I didn't go too deep into the history of money because others, frankly, have done that really well. I do pepper it with some personal anecdotes for my time

on Wall Street because I wanted to make it more entertaining. The first draft of the book was very technical. And I got to the end of it and I decided, okay, this is not what I want. I want something that my clients can read. I want something that my family can read and my friends can read. I want something that an intelligent person basically can read and hopefully understand most of. And toward that end, I hired a really excellent editor, Beth Rashbaum, who edited one of Stephen Hawking's books and also edited the Snowball, which is probably most successful Warren Buffett biography. And I picked her because she's really, really excellent editor, but she edits technical stuff basically for the masses. So that was the approach I took. And obviously you've got the investment thesis

in their evaluation. And you've got the laundry list of risks, 40 pages of fud, as I like to say. But that's the book. And it's really meant for any intelligent reader. And it might be their first book on Bitcoin. It might even be their second or third book on Bitcoin, but that was the goal. Was there anything when you were writing about the history of Bitcoin that made you just kind of step back and say, I didn't really fully appreciate that. Or that's just a remark. kind of development. Anything surprise you as you were kind of rehashing your own knowledge? I mean, the one thing that I think is crucial that people don't understand that it took me a while to understand was that, quote unquote, intrinsic value of money is a bug, not a feature.

It's the best money is the type of money that's only useful as money. And the framework I used in the book was actually, it goes all the way back to the Austrians. I think it might be Carl Manger, who had three types of goods, consumption goods, capital goods, and monetary good. And the framing that I discovered, which I'm sure someone smarter than me figured out long ago, was that the moneyness of assets is just what we, in the investment business and the legacy finance business called liquidity. And I use the example of a portfolio of investment properties, apartment buildings. Maybe if you buy them all individually, you pay 15 times cash flow. But if you float them in a real estate investment trust format, you give them liquidity,

okay, now it trades it 20 times cash flow. And so that assets fundamentally is 75% investment assets or real estate asset and 25% money. And people in financial markets talk all the time about liquidity. Liquidity, liquidity. We talk about it all day. But I don't think that people realize that quote unquote liquidity is probably the same as moneyness. It's the money component of any asset on the market out there. So I'd say that. That was sort of the aha moment that I had when writing it. Do you have any thoughts on just the narratives of Bitcoin over time? Obviously, there was a narrative around payments and moving into digital gold, but it moves. And I think that's the great thing about Bitcoin is that it is never static. So curious your views on just narratives

and maybe going forward if you think that future versions of this book will incorporate other types of narratives around this asset. I was sort of conservative with the narrative in the sense that I was focusing on, well, when I did the valuation, I focused obviously on it's going to take share of assets. What's it going to do? Okay, it's going to take share. from gold. It's going to take share from fiat money. It's going to take share from offshore assets. It's going to take share of monetary premium embedded in real estate stocks and everything else. And then the magical category five is new, cool stuff that you can do with programmable money that you just can't do with other kinds of money. So I did present all those sort of potential upside cases.

However, when talking to clients, I really do focus on digital gold. So as you point out, it is a many-headed Hydra. It's many things to many people. And there's lots of ways to win for Bitcoin. I do think that gold, digital gold is clearly the most salient right now. And so that's what I've been focusing on. But yeah, in the future, will we be focused on the fact that it is programmable? It's now fully liquid on layer two or layer three. And so the settlement time is instantaneous and you can make micropayments and machines can pay between each other. Yeah, I think that stuff likely will be much more important in the future. And so I focus for now on digital gold and later we'll be talking about all those other opportunities. It's a great industry because things just pop up and

surprise you. I mean, I was not expecting Bitcoin to be a balance sheet asset for publicly traded companies as fast as it. That just totally shocked me. You and me both, Matt. That was the big surprise of 2020 was Michael Saylor showing up out of nowhere. Sailor was the Black Swan of 2020, I would argue. And obviously others before him had been talking about it for private companies. But a big, well, let's say just a sizable billion dollar plus market cap company CEO coming out and just going all in. Man, what a surprise. I was shocked too. The hero we needed. Well, Andy, I could talk to you for hours and hopefully we'll do this again in person at some point. But to close out, where can we send people to follow you on the internet and to

find out about the book? So the book is called Why Buy Bitcoin investing today and the money of tomorrow. It's on Amazon. It's on Apple. That's a few other places, but Amazon's the easiest to find, obviously. Follow me on Twitter. My handles Edstrom Andrew, which is just last name, first name. You can check out other podcast appearances and stuff on my personal website. That's Andy Edstrom.com. and if you want to stack some sats with swine Bitcoin, swine Bitcoin forward slash Andy. That's awesome. Well, thanks so much for joining Andy. Thank you, Matt. It's a pleasure. Thanks for listening to another episode of On the Brink with Castle Island.

To find out more about Castle Island, visit castle island. Visit castle island.vc. To listen to all of our podcast episodes, please go to On the brink dashpodcast.com or just click on the tab in our website. Thanks for listening. Thank you.