TFTC: A Bitcoin Podcast - Bitcoin Alpha E002: Bitcoin on the Ballot

Episode Date: November 10, 2024

The Ten31 team discusses the monumental 2024 US Presidential Election and what it means for bitcoin moving forward. 0:00 - Intro 0:24 - ETF inflows at ATH 8:27 - How the election affects bitcoin 23:14 - Supercycle debate 34:55 - Companies embracing sound custody 39:39 - Framing advice on allocation 50:35- IBIT and other benchmarks 54:49 - Trump likely to continue debt expansion

The following is for informational and entertainment purposes only and should not be construed as financial advice. This discussion is a presentation by 1031, the leading institutional investor focused on the Bitcoin ecosystem. 1031 has over 10 years of experience in Bitcoin and has deployed nearly $150 million into the leading opportunities in the space. To learn more, visit 1031.vc. I think we're going to be live. And we're using Restream to do this. It's the first time I do it for Rabbit Hole Recap. Typically, Matt does it.

And I didn't tag any of us in the tweet from the TFTC account, so just checking. Yep, we're live. Well, I'm not on Twitter, so you can't tag me. Didn't tag you. Gentlemen, we said last week we're probably going to do this every two weeks. We don't know exactly what's going to happen. And here we are a week later.

Let's talk about a very important topic. Bitcoin was on the ballot this year. Monumental U.S. presidential election. Year of our Lord 2024. Donald Trump seems to have won in a pretty impressive fashion. Took the White House. The Republicans took the House of Representatives and the Senate. A red wave has washed over the United States.

And it seems like the orange wave is quickly following it. And in surfing, we call it a set. First wave's red. It looks like the second wave could be orange. John, you put together a nice list for us to go through. I guess let's start with the fact that Bitcoin has hit fresh new all-time highs the night of the election as it was becoming clear that Donald Trump would be back in the White House.

What signal is ascending the market? By the way, you also said last time we have to get past the first episode. If we do the second one, then we've got a much higher degree of success that we continue the podcast. So if this is the set, the second wave of our podcast, then that's probably a good sign, too. It is. It is. Yeah. A lot of bullish signals this week for both this podcast and Bitcoin. Bitcoin. Yeah, look, I think it's, you know, to give some perspective or to make sure we maintain perspective, like we shouldn't understate how radically different the setup here is now versus I think it's just about two years ago on the dot that FTX blew up. And, you know, regulators were seizing on that and pouncing on that to circle even Bitcoin, which fundamentally had nothing to do with any of the kind of crypto grift that we saw in the last cycle.

You had various pundits kind of dancing on Bitcoin's grave once again, you know, with the we got our 20,000th obituary about how Bitcoin's finally done, dead and buried. And I don't know if even the most bullish among us would have said that within two years, Bitcoin would be making new all-time highs on the back of the biggest ETF inflows, the biggest ETF launches the world has ever seen. And the election of a president who has spent the last six months kind of doing everything he can to actively court the Bitcoin vote. Um, it's, uh, it's been a truly wild 24 months and, you know, I think the, the, the market is signaling we're in open, open water Bitcoin territory now. And increasingly, um, investors are looking at, I think that the Bitcoin agenda that, that Trump put out there and starting to maybe try to, to price some of that in, um, and we'll, we'll get into it here. But I think it's highly, highly likely that, you know, not going to make short term price calls. Bitcoin takes the path of Max Payne. So it'll always it'll always surprise you one way or another. But I think it's very likely that if anything like the agenda that Trump has proposed fully plays out, then we are very, very, very far from everything being priced in that, you know, the run here is just starting.

Yeah. And I think before we jump into everything that Trump has on the agenda, let's look at some market reactions, particularly ETF flows yesterday hit a historic level. I'm not sure who has the chart grant, maybe if you want to pull it up. But I believe yesterday alone it hit one point one billion dollars in inflows. I think it was one point four. One point four. Excuse me. Sorry for being so bearish. 1.1 was iBit, and I think 1.4 for the total complex. Okay. And that is by far the largest inflow day that we've had since launch of the ETFs earlier this year.

We've got the chart here. Do you think this demand will persist? Well, yeah. I mean, I heard some interesting stats. I mean, this data is pretty good if you go to this website, Coinglass. I think it might be aggregating worldwide ETFs, not just U.S. ETFs. But some of the interesting data points I've heard around the ETF flows, I think this is a couple of weeks dated now. But I think in the U.S., the Bitcoin ETFs had already brought in something like $20 billion or $21 billion this year, year to date, which has been by far the most successful ETF launches in history.

What I heard was the prior record in terms of ETF flows in the first year was the NASDAQ Qs, which was back in the dot-com bubble, which brought in something like $5 billion in its first year. But what most people, I think, don't appreciate is that this is just the first year. And if history is any guide in terms of prior ETF launches, the inflows just keep getting bigger after year one. Year two should be bigger. Year three should be bigger than that. With the gold ETF, what we heard is that the inflows didn't stop increasing until after year eight. So this could be a long, persistent tailwind that we have, that we see in terms of the flows coming into the Bitcoin ETFs. And I think the movement post-election, you know, you saw rapid.

I think there were some people tweeting about how much inflows came in just in the first hour. So this is probably a sign that there's a wave, a tsunami of capital that's going to be coming into these vehicles. Shouldn't be lost on people either. Grant, you mentioned GLD. Bitcoin's often called digital gold, a comp to gold in many ways. The GLD ETF was incredibly popular, incredibly successful over its now close to 20-year history. The Bitcoin ETF complex in 10 months has now surpassed GLD's AUM. If people haven't heard that or looked at the scale, a sense of the types of flows that talking about in less than a year of these things being on the market. Pretty clear signal from the market that the demand is there, strong, getting stronger. I think an element of it that's crazy

too is there are a ton of fiduciaries out there, RIAs, fund managers, wealth managers at large banks and asset management firms that either don't have the ability to even allocate into these yet or to actively kind of pitch them to clients and solicit them to clients and so that'll flow through over the next who knows how long year let's say maybe longer but the point is just we've seen these crazy flows without really kind of uh an extreme um marketing push by kind of the on the ground sales force of a lot of huge asset managers so that's that's incredibly impressive as well. That and without a catalyst, a clear signal that Bitcoin is on the ballot. It is something that the incoming administration wants to embrace and foster as

we move forward in time. And John, you took some time to write a newsletter, a little brief on the potential impacts of this election, particularly on Bitcoin, and laid out exactly how this changes the tide of how Bitcoin is viewed in the eyes of the federal government. So why don't we just walk through what you put together yesterday and published this morning in terms of the immediate impacts that this incoming administration could have on the market? Yeah, for sure. I'll start with the disclaimer that, you know, what we put out is not necessarily exhaustive.

There are probably more downstream impacts to unpack. But just for the sake of kind of summarizing it for any capital allocator who's kind of looking at the space, thinking about Bitcoin and curious how, you know, this might play through to both Bitcoin itself and kind of the Bitcoin ecosystem and the company's building technology on and around Bitcoin. You know, wanted to give a kind of a quick summary of what we see and what we think. um you know we'll walk through each of these points individually but i at a high level like i think the message people should take away um from the last couple days is that the assuming that you know uh trump is inaugurated and assuming that um the the agenda that he put out there approximately maps to reality the regulatory and political left tail risk associated with allocating to Bitcoin has declined dramatically. You never say never. There

will always be risks with any asset of some sort of kind of regulatory headwind. But when we've talked to allocators over the past few years of standing up 1031, the question of kind of the regulatory environment and regulatory framework and banking access and the Department of Justice, how they view different companies and different technologies in the space, like that's all been, you know, top of mind for a lot of allocators and understandably so people just have this kind of, you know, have had this view that there's this kind of black box risk that you can't really underwrite associated with what an administration, particularly, you know, an adversarial administration like, you know, the Biden administration of

the last four years, an administration like that, you know, what they what they might do at the stroke of a pen to Bitcoin and companies building on it. We've always made the argument that Bitcoin ultimately doesn't care and it ultimately doesn't kind of matter if there will be jurisdictional arbitrage kind of regardless of what any government, you know, does to Bitcoin or Bitcoin holders. But certainly it makes our lives easier and makes the lives of all Americans easier if access to Bitcoin is not impeded. And I think that the risk of that happening has, like I said, just declined dramatically and totally changes the way that investors, especially institutional allocators, need to be kind of underwriting their thesis on the risk

reward set up around Bitcoin. Yeah, no doubt. I mean, over the last couple of years, I think we felt pretty good anyway with the with the clarity specifically around how bitcoin was treated versus all the other um crypto stuff uh but nonetheless it still was um one of the biggest uncertainties and um even though we felt good about it there were some some risk out there i would say it's still uncertain which direction it's going to go there still is some risk on on what happens But I think that like that's significantly being diminished at this point, just given the posturing that we've seen. We'll see if some of this stuff plays out. And hopefully, you know, if you say there were certainly some pockets of resistance, some real problem areas such as, you know, the banking access that John mentioned,

there are some other areas that some of the different agencies, three letter agencies are very focused on. Maybe some of that will alleviate, be alleviated going forward. But I'd say the setup certainly looks a lot better today than it did, you know, last week and last year. So that's encouraging. Yeah, I think you got we've been saying for this whole year, like in addition to our general view that we've had for a long time, that the regulatory treatment of Bitcoin in the US has been pretty clear for a long time. Earlier this year, with the launch of the ETFs by institutions as kind of large and venerated and respected as BlackRock, Fidelity, et cetera, that I think was a clear kind of early signal

of where the wind was blowing as it relates to kind of how the regulatory landscape was going to continue to shape up. Generally, asset managers like that aren't launching massive ETFs for any kind of asset or asset class that actually has kind of meaningful regulatory risk associated with it. But I think, you know, the progression over the past year and certainly into the election just firmly validates that, you know, even further. But Grant, you actually bring up an interesting point, uh, that I, before we dive deeply into the different kinds of potential impacts, love to kind of get your thoughts on both you and Marty, um, to take the, we've, we've been, uh, very, very bullish so far on this podcast to look at the bear side to, to kind of,

um, handicap our, our bullishness, you know, how, how likely do we think that the, the bull case is here? We've certainly seen, uh, you know, the, the phrase rugged again in Bitcoin is, is popular for a reason. We've certainly seen our fair share of rug pulls in different ways. So, you know, how likely is it that we, you think that the Trump administration ultimately follows through on a lot of these proposals that they put out there? Well, I don't even know how to probability weight that. I mean, I think in the Bitcoin ecosystem, what you find is that a lot of people, the builders the founders they tend to be they they tend to think very adversarially anyway uh we've sort of had to do that based off of um you know just survival um so building in redundancy building

in resiliency just in case you know just in case your banking access gets uh taken away uh just in case, you know, you have, you know, one off risk pop up that you weren't expecting. So I don't know. I mean, it seems like it would be a pretty significant 180 for, you know, the groups in Washington to go a different direction than what they've been signaling. I'm cautiously optimistic, I guess. But I'll believe it when I see it. I'm going to take the other side of that, which is the super cycle is here, gentlemen, we have to prepare. And what we have to look at is who's coming in and replacing the Biden administration staff, particularly in important departments. And so, Logan, if you'll pull up the polymarket, the polymarket odds for

The Secretary of the Treasury right now, Scott Besant, is well above 50% at 55%. And he has historically been very positive about Bitcoin. So you can see the polymarket odds here between him, John Paulson, and a couple others. And he seems to be pulling away in the odds. And as we know, on election night, the polymarket signal did seem to be pretty high. And so if we're extrapolating that forward, it looks like we could get a pro-Bitcoin treasury secretary, which would be massive. This hasn't happened before. And if you were to pull up Tor's tweet, we can see what Scott Bessette has said about Bitcoin.

Historically, in a tour suite, it says, here's what the likely replacement of Janet Yellen as Treasury Secretary said about Bitcoin last July, so this is over a year ago, and things have obviously progressed pretty well on the institutional side for Bitcoin since then. I think it fits very well with the Republican Party's ethos of freedom. Crypto is about freedom. The crypto economy is here to stay. I think everything is on the table with Bitcoin.

One of the most exciting things about Bitcoin is that it brings in young people and encourages a market culture, a culture where people believe that markets are working for them, that's the centerpiece of capitalism. And so I think those are very positive comments. And from this one comment last July, it seems like Scott Besant understands the profundity of Bitcoin and the opportunity it provides the American economy, particularly young people in the American economy, to really embrace the ideals of free market capitalism around Bitcoin. He's sending a signal that he believes Bitcoin is a great beacon of free market capitalism.

And one would think if he's talking like that last year, he probably holds the same views and wants to foster that. And then I'm not sure if you guys have been watching the two-way streams with Mark Halperin. That wasn't on stream. Logan's running something in my ear. But, Logan, we can pull this video up. And I just want to give a before we play the video, if you guys have not been watching the live streams that Mark Halperin and his team have been doing at two way, it has been incredible, incredibly new format, particularly leading up to the election discussion about the election, engaging the populace to get many views. And I've been watching for the last couple of months and it has been the most high signal cover coverage of the election. And I think they were making it pretty clear that it looked like Trump was going to win in the lead up.

And Mark seems to be pretty well connected in terms of what's going on with the incoming administration. And here's what he said earlier this morning in regards to a potential secretary of state. Okay. Tactical difficulties. I will paraphrase what Mark Halpern was saying in this. And he's saying that he's getting word on the ground that it is likely that Senator Hagerty from Tennessee will be Secretary of State. And as we, the three of us know intimately, having met with Senator Hagerty at Bitcoin Park many times, he is very pro-Bitcoin. Not only is he pro-Bitcoin, he seems to intuitively understand the power of Bitcoin because he's seen it up close and personal in the state of Tennessee. And so as two Tennessee natives on the show here, what are your thoughts about the potential? I mean, it's great to see, obviously, and I think it also speaks to the power in one way of jurisdictional arbitrage in the U.S. that we've been talking about for several years.

Over the last four years or so during the current administration, certain states, and really, I guess, over the last 10 years, certain states have been much more welcoming than others to Bitcoin miners, Bitcoin companies, Bitcoin devs. And we've certainly seen both Texas and Tennessee kind of take the lead on that front where other states like New York were much less welcoming and kind of actively trying to kick a lot of Bitcoin work out of the state. So I think this is maybe just kind of the next step of that. Right. Like you, devs and founders and capital and miners, et cetera, go where they're treated best. um, that happened to be Texas and Tennessee. And so you start building relationships, um, in those jurisdictions, and then that compounds into, um, the, the politicians there, um, getting to know you better, getting to understand the Bitcoin ecosystem better. And so when they, um, you know, gain additional influence as, as they kind of build their careers, they've got kind of a deeply rooted instinct, uh, for what Bitcoin is, how it works, why it's important. Um, why,

why the ecosystem is good for the US and they can kind of carry that forward. So, you know, it's kind of maybe the second phase of the importance and power of the jurisdictional arbitrage. And I know a ton of companies, I know Matt O'Dell, one of our partners and Rod at Bitcoin Park have done a ton of work over the last few years to make sure that local politicians and government officials in Tennessee understood Bitcoin and have positive kind of view of it it and relationship toward it. And, you know, you're just seeing the, I think this is, if this ends up happening, a good example of just the importance of proof of work, um, of, of kind of having, putting in the legwork, uh, at a local level, um, in jurisdictions that kind of want

to work with you and want to be hospitable to Bitcoin. So I think it's a great validation of all that. Yeah. I mean, I don't know if, if, if that'll turn out to be true or not. Um, but I certainly have spent some time with Senator Hagerty. I'm very optimistic about his leadership capabilities in whatever role he's in. I mean, we sat in on a really interesting discussion during the week of the Bitcoin conference that he moderated with Governor Lee of Tennessee and Jeff Lyash, head of the Tennessee Valley Authority. And the three of them, they very much understand Bitcoin. And we're talking a lot about the positive impact that mining in the state of Tennessee can have on the energy infrastructure and resiliency. So whether

or not he ends up positioned in Washington versus stays in Tennessee, I think having people like that, who are open minded and understand Bitcoin in a way that most still do not. You know, I'm optimistic about that. And by the way, Marty, I mean, I do think all the other things that you mentioned, the stars are aligning in what seemed to be a positive way. But I wouldn't necessarily say that that means that we're at the beginning of a super cycle. I tend to think let's debate this. Let's do it. I mean, I think that there, when you say super cycle, I think what you imply is that there's just escape velocity of Bitcoin and that we don't end up having, you know, these, you know, very cyclical swings and volatility and, you know, 80% drawdowns, etc. I don't think that we're going to have that type of evolution in this next cycle. I think that price discovery is something that comes with new people coming into the market, trying to understand it, trying to understand Bitcoin.

It's a very complex thing. And with price discovery and, you know, new people entering the market, I think just inevitably it will lead to the same type of dynamics that we've seen in the past. And I think it's just human nature that you find periods of excess followed by periods of significant decline as those excess, you know, the market excess is corrected. i can see that but i think uh okay so here's my pitch for when i say super cycle super cycle is a bit uh of an outlandish term coined by suzu of three hours capital last cycle and it turned out not to be a super cycle last cycle and suzu was at the center of the shit show that led to the epic collapse of teraluna celsius block fi ftx most notably uh however having been in this for 11 years and to your point about the market needing to learn about bitcoin we so we'll start there

we're 16 years in 16 years from the white paper being published a couple of weeks ago will be 16 years into the network being alive on january 3rd 2025 and when you think about it like bitcoin has brand awareness i mean obviously it has brand awareness there's a bitcoin act that could hit the floor soon to make bitcoin a strategic treasury reserve of the united states and so just from like a pure marketing perspective you have to think of the idea of like converting new users and it comes around touch points like how many touch points does it take with a particular product before a user converts and actually uses that product i think over 16 years there are there is a critical mass of people that have had multiple touch points with bitcoin and do

have the potential to convert into new long-term holders this particular cycle and i think whether we like it or not the legitimacy that comes with the stamp of approval from the u.s federal government will sort of initiate people's monkey brains be like all right bitcoin's good now like it is something i should hold uh two i think this is a very multivariate situation so you have the brand awareness the multiple touch points the legitimacy handed to bitcoin by the u.s government if um they they move forward with the campaign promises of the trump administration uh two we have a completely different market dynamic in terms of the type of bitcoin holder and the drivers of demand this cycle where you have micro strategy out there and has one percent of the

total supply and has publicly stated that they intend on buying 42 billion dollars worth of bitcoin over the next five years and their long-term term hodler sailor seems pretty convicted when it comes to holding Bitcoin for the long term. And that has played out well for MicroStrategy. So that is an example of a demand driver that's going to pull a significant amount, already 1% of the total supply, off market and hold it long term. ETFs, another different holder, maybe not as long term as MicroStrategy. The individual is holding the ETFs, but I think it's important to highlight

that the ETFs have created a new avenue that runs into a dead end that has never existed in the history of bitcoin markets and the fact that the etfs seem to be the uh the avenue that most people are taking into bitcoin this cycle is very important because historically what we've seen is people buy bitcoin particularly retail investors will buy bitcoin on an exchange and then they'll hear the siren calls of altcoins and they'll convert their bitcoin in all coins and speculate on other coins um and so that was an avenue where you'd buy bitcoin and it was very easy to convert that bitcoin to an alternative cryptocurrency and i think that um sort of tapered holding demand for bitcoin in a way but the etfs that does not exist

you don't buy ibit and then convert your ibit to some shitcoin etf that's simply not how it's going to work so i think that dead end um really creates a blockage of a valve that has existed historically which would allow value to eek out of bitcoin into alternative cryptocurrencies uh and then we see it at 1031 too i i've been beating the drum on podcasts that i've been going on over the last few weeks i think this is the cycle now that bitcoin has established itself from a liquidity profile um as a trillion dollar asset like the the meme that has been talked about in a lot of our portfolio companies have been building around for many years of bitcoin is super collateral i think this is the cycle where that really begins to shine and you see bitcoin being blended with

traditional credit products i mean historically we've got unchained down the hall we've got We've got HODL, HODL, Debefi in the portfolio. They've done an incredible job of building rails and tech stacks that make it easy to use Bitcoin as collateral to receive fiat loans. And I think we begin iterating on that very simple product and get into more complex credit structures, which demand that you pull Bitcoin off of the market for an extended period of time, longer durations. And then lastly, you have, if again, promises made, promises not delivered yet because they're not in the White House, but if they are delivered, the U.S. government sending the signal out that we are building a strategic Bitcoin reserve, we want to get a million coins over the next five years, that sends a game theoretical signal to the market that creates a mad dash

on the nation state level. And there's no turning back from that. This is something that Bitcoiners have talked about for 16 years, and it seems like it may finally be happening. And once you get that type of buyer in the market, that is another buyer that U.S. government explicitly in the bill says we're going to hold this Bitcoin for 20 years. And so when you talk about the demand drivers going into this cycle that are simply buying Bitcoin in bulk and taking it off the market for extended periods of time, I think that is a dynamic that has never existed in Bitcoin's life cycle and is only going to grow from here, which would be persistent. demand taking supply off the market which since there's only 21 million bitcoin means one thing the price is going to continue to go up that's the so my view on the super cycle thesis is it's probably not a super cycle because we just passed all-time highs and now everyone is saying it's a

super cycle or not everyone but that that's even a meme like you know a thousand bucks past all-time highs makes me feel like okay it's too it's already too consensus and people are too excited but But to me, the argument, it kind of comes down to the 800-pound gorilla in the room is, do you actually have meaningful nation-state adoption? Does Trump do what's been suggested? Does Senator Lomas' bill get enacted? Does the U.S. actually kind of move forward with building a Bitcoin strategic reserve or even kind of continue to hint that they will do that? Because to your point, even putting the bad signal out there, making the indication that we're strongly considering this immediately kind of triggers the red alert that if you're at all interested in acquiring Bitcoin, there are only 21 million out there. That's a provably fixed supply. And, you know, the biggest government in the world with an infinite budget and essentially no price sensitivity is just going to be like smash buying every day for the next five years.

um even just the thought that that could seriously happen uh i think is is potentially enough to really get the ball rolling on some some meaningful nation-state acquisition and buying and so that to me is that's where you get your multiple orders of magnitude of incremental persistent demand that would kind of dampen typical like cycle dynamics potentially definitely not calling for a super cycle but um i don't think anyone has really grokked yet even even us here on this call like just how crazy and insane it is that the U.S. government might be like a few months away from actively building a Bitcoin strategic reserve that is beyond the pale of anything we've ever seen in prior cycles. So I think it's certainly meaningful and would certainly be

a massive demand spigot for Bitcoin and consequently for all the companies that we're investing in who benefit from the growth of Bitcoin adoption and provide the tools to make it happen and extend its utility in different ways, like you're pointing out with the collateral piece, Marty. So super cycle, I don't know, but I think it's very likely up from here for at least another 12 to 24 months. Yeah, I think I hear all those points. I definitely agree with them in many different ways. I think that when you have increased adoption, like naturally the volatility will go down over time. We're just still so early that I don't think even if we have a 10x in new entrants, new people, institutions, governments entering the

Bitcoin market, we're still going to be so low in terms of adoption and penetration that I find it hard to believe that we'll have enough adoption to dampen volatility so significantly. The unique thing about Bitcoin is this 24-7 global liquid market, unlike anything else in the world. And it responds to exogenous factors immediately in a way that you can't get with markets that are only open from 9.30 to 4.30 or whatever. And I just think that black swan type of events that you don't like, I don't think those are going to go away. I mean, if you think about the last two cycles that we saw, I mean, early 2020 with COVID, right? We saw Bitcoin go down 50% in 24 hours, you know, around the FTX blow up and the crypto excess, you saw a significant

drawdown. What could be the next event? I don't really know. You can sort of tie it into your piece, John. One of the things I'm really interested to see over time with the growth of the ETFs is how the custody dynamic plays out. You know, right now, like most of the ETFs are sitting, you know, the assets are sitting with Coinbase. I know there is a movement of a lot of banks that would love to custody Bitcoin because of SAB 121. It's effectively keeping a lot of these groups on the sidelines. You know, you touched on this in your piece. That could be one dynamic with the new evolution that we have now with the election, that there could be a tailwind behind positive changes there. With the ETF providers, they will look to custody the

Bitcoin in a place that they think is secure. So I think just because a bank decides they want to custody Bitcoin doesn't necessarily mean that they can build it themselves. They can build it safely. Hopefully, the ones that do decide to go and build it themselves, that they are able to build infrastructure that can remain secure. But think of a black swan risk there. If someone starts custodying an asset they've never done before, and there's a hack, there's some sort bug in their infrastructure and a bunch of Bitcoin gets lost. I mean, that's a black swan event that could cause significant disruption in space. But I also think to tie it back to like bullish on the infrastructure and the companies that are already building in the space, as there's evolution

and potentially in the SAB 121 stuff that a lot of these companies are going to potentially become targets for some of the financial players that decide, you know, they'd like to buy that capability rather than build it themselves. So a lot there to unpack, but curious how you guys react to that. Yeah. I mean, there are a lot of companies out there. Well, actually I should say not a lot there. There are a few really strong companies out there, many of which were invested in that have already built great tech stacks, large, sticky customer relationships, brands, trust, et cetera. And Grant, you said this in one of our chats earlier today, but to the extent that this

materializes and that regulations and regulators at Treasury, FDIC, OCC, SEC, et cetera, move in the way that you would expect them to move if they're Trump appointments, and you do see a repeal of SAB 121, which was repealed by Congress earlier this year, and that was vetoed by President Biden, presumably, you know, President-elect Trump would kind of not behave the same way. If all of that happens, you know, you said earlier today, there are a lot more potential acquirers than there are targets. And so I think that there will be a lot of interest in the best companies in the space for existing kind of legacy strategics across a lot of different verticals that may feel that they have more kind of regulatory flex to kind of move into

the space with a little more aggressiveness and urgency. So I do think we've always been bullish on a lot of the companies that we're invested in as potential strategic takeouts at some point. That may or may not be the way that any given founder wants to go. They may want to continue to build themselves. They want to move toward IPO or stay private and just remain a highly cash flowing business. They're all options on the table. But I would not be surprised at all to see a lot more appetite from strategics, especially in kind of these first concentric circles that most clearly touch Bitcoin. So financial services, lending, asset management, payments, whatever it may be. And those guys, I think we'll look at the landscape,

look at where bitcoin's going particularly if a strategic reserve is being built if there's nation-state kind of game theory playing out if adoption's really you know growing um on a hockey stick basis there's going to be just that much more urgency to move if you're strategic and a faster way to deal with that is going to be to buy not build and there are not that many um industry leading companies in bitcoin to go by so uh yeah i bullish on bitcoin and very bullish on you know our companies based on all this as well and i think it's important to note too just having been through many of these cycles the the fomo really sets in when the price starts running so we're sitting here now what seventy six thousand four hundred fifteen dollars according to my block

clock uh let's say we get to six figures we get to a hundred thousand i think that is a psychological level once a hundred thousand is crossed people go oh shit this is a real asset we need to make decisions and funnily enough i think trump will think that way too like if we get to a hundred thousand uh around inauguration day he sees the price running he's gonna be like what are we doing we need to get the strategic reserve bill passed we need to start accumulating bitcoin we can't wait it's running away from us and alternatively similarly you're going to see this in the incumbent financial sector where people like we need a strategy the price is running you have people like howard letnick out there beating the drum like this thing's here to say it's going to

be massive uh we are investing heavily in it and as we know um there's a big herd mentality on wall street if some people are doing something having great success with it others are like all right we need to get in and so i i got lunch with ryan gentry from lightning labs yesterday we were just talking about this and um there could be a point next year maybe by the end of this year where we go over six figures and the FOMO really begins to set in and these companies need to develop a strategy and it's going to take time. So I think that will be an interesting thing to see how it plays out is what is the timing of the strategic acquisitions that the incumbent financial services firms and banks, how fast

can they move and which ones are positioned and have boards set up in a way that they move faster than others in this mad dash to set up this infrastructure and i think again important to point out the differences of this cycle to last cycle it seems like bitcoin is the focus there is obviously crypto talk and um sort of catering to the broader crypto industry but i think anybody that's extremely serious about this at least that we've talked to has noticed that bitcoin is the signal and is what you should be building your infrastructure around compare this to the the blockchain craze and the ico craze of 2017 it's completely different i don't think it's going to be companies putting blockchain in their name and expecting their stock to run i

think people again going to time brand awareness touch points the market getting better information this cycle i think it's oh we need bitcoin infrastructure because this is the asset that um a lot of this incoming wealth is gonna gonna get sucked into um and with that in mind i throw it throw it out to you too like for what we're doing at 1031 talking to a lot of these institutional investors whether it be endowments pensions as we know they they've they move slow historically like what like how would you frame this setup and how they should be thinking and begin preparing for this from an allocation perspective to get exposure to Bitcoin, not only Bitcoin, the asset going up, but the industry maturing and accruing a ton of value as well.

Yeah, I mean, one thing that I guess I would say in response to that, and I think if nothing else, like this is the thing that the point that I would encourage people to most kind of take away from the piece I wrote in this discussion is for a long time, you know, allocators that we've talked to have had the sense of, you know, career risk associated with advocating for kind of Bitcoin exposure or exposure to Bitcoin technology, infrastructure, et cetera, because, you know, it's very new. You see scary blow ups like the last couple of cycles. The brand often gets kind of intermittently tainted by things like FTX or kind of the crypto craze, you know, the ICO craze of 2017. It's new, it's difficult to grok, and you need to do a lot of work internally to kind

of get people over the finish line. And if it doesn't work out, or if you advocate for it at the wrong time of the cycle, and you make an allocation, and then you get hit with a 50%, 80% drawdown, and there are all these negative headlines in the news, well, that looks bad. It's hard for you to deal with and to take to your investment committee and kind of deal with that heat. And so there's just this kind of, even if you are sympathetic to a lot of the arguments that Bitcoin advocates make, it can be hard to get over that hump of career risk, which is understandable in an institutional setting. I think if we are moving to a world where, as we mentioned earlier, the kind of left tail risk of like a catastrophic regulatory outcome

is taken off the table and the federal government is actively encouraging and explicitly protecting at Bitcoin self-custody, Bitcoin mining, Bitcoin technology development kind of writ large. So that kind of the worst outcome is off the table. You've got better cabinet members and friendlier kind of administrative bodies that are not going to debank Bitcoin companies or sue Bitcoin companies for different things that are kind of hard to predict. Beforehand, you've got that kind of risk piece has fallen by the wayside. On the flip side, you've potentially got a government that is not only kind of neutral toward Bitcoin and not going to hurt it, but actively trying to get, you know, five plus percent of the supply and kind of out

there with a passive bid every day to kind of get their own. So now the risk is chopped off on the left tail and the right tail outcome maybe starts to look a lot more likely and fatter, right? And so the expected return profile of that actually gets, you know, dramatically better. And the interesting thing to me is like the career risk gets flipped on its head. It's not career risk from allocating to Bitcoin and it doesn't work out. It's career risk from missing out on Bitcoin at levels that we may, you know, be likely to never see again. If again, if all of this plays out like we're like we're kind of proposing with Trump's agenda. So that's one of the things that I would just encourage anyone in institutional seat or even an individual investor just kind

weighing the risk-reward and how it affects either your portfolio or your career trajectory, we could quickly be in a world where the career risk sits not with embracing Bitcoin and promoting it, but rather ignoring it and waiting too long to develop a Bitcoin strategy. If you're waiting until Bitcoin is absolutely ripping and the US government has already started to build their bitcoin stack in earnest and other nations are kind of aggressively fighting to do the same and you haven't even started to kind of build a bitcoin strategy that's that's too late and that's gonna catch a lot of people off guard unfortunately and be a big surprise to a lot of people um but all it is just to say if this week it truly portends how things are

actually going to play out then we've totally flipped on its head the idea of where the career risks that's when you advocate for or invest in bitcoin very well said i mean i think thematically like from a capital allocator you know institutional investor seat it's become blatantly obvious i think to everyone for a long time now that like the ai trend is here that like they're forced to figure out how how are they dealing with that like how is it impacting their existing investments and unfortunately i think like the the backdrop for a lot of investors who've um allocated to venture capital over the last you know 10 20 years is that a lot of the you know b2b sas um you know traditional silicon valley plays are going to be significantly

disrupted by ai so there's a lot of you know on the one hand there's a lot of just carnage out there that they're forced to just acknowledge and deal with but then on the other hand they're also having to think about it from a new investment perspective you know what where are they looking to get exposure because that is clearly in the very early stages of just this new paradigm shift and it's got tremendous growth and that's obvious to people i think that's obvious to anyone who's been paying attention over the last year, particularly, but even the last two years. But I don't think it's become obvious yet on the Bitcoin side, thematically, that like they need to have a strategy, but pretty soon that is going to be the case. And I think we talked about some

of this last week, but Bitcoin has this underlying long-term secular growth, just like AI that were in the very early stages of, and so as you think about how are you deploying capital, where are you allocating to, I think it's going to be obvious to people that that is one of the areas that they will be forced to consider. You know, from a investment perspective and the different options that they have. I think it points to a number of other trends that are different from how they've allocated in the past. I think these large asset managers that invest across multiple industries, that's been a theme that we've seen declining over a long period of time. And there's been this shift towards highly specialized GPs that go an inch wide and a mile deep in their space.

And I think that will be the case. And people will see that very much so with the Bitcoin ecosystem. Just because they recognize there's a trend in Bitcoin that is here to stay doesn't mean that they can get exposure to it by investing in A16Z or, you know, name another crypto fund. We've moved into this specialized world where it's particularly in the Bitcoin ecosystem, investors that are on the ground, understand Bitcoin in a very deep way, have the network with the people building in the space, that will prove to be a differentiated strategy. And I think that there's going to be this shift from, you know, the large asset managers, the capital allocators into these emerging groups, which I think is bullish for what

we're doing. Yeah, and I think another important thing to bring up here is the fact, I mean, going back to the ETFs in the inflows as it pertains to the institutional investor class. It's something that's been talked about for quite a bit this year, but I think we'll really have some legs behind it as we head into 2025 is benchmark and track record for products that institutional investors have access to that begin to really show like, hey, here's the benchmark. And so pull up the chart, IBIT year to date up 63% almost. I think this is also going to be a big catalyst for the institutional investor class recognizing the career risk that you explained

earlier, John, the career risk has flipped. And if you are not on the boat, you are now being benchmarked against this performance and you're underperforming. So not only do we have IBIT and The other ETFs that have hit the market are performing well. Obviously, you have individual equities like MicroStrategy, but we're beginning to see, I mean, I've had Matt Dines from Build Asset Management on, and their credit fund is beginning to develop a track record as well. And so I think the combination of these products hitting the market and developing a track record over the last year is really going to be in the face of the institutional investor class where it's going to be abundantly clear that they're underperforming compared to people with exposure to Bitcoin and the infrastructure around it. Yeah, absolutely. And the great thing about, you know, Bitcoin too, is everyone can get access to that, especially now, right? If you, you know, before had institutional kind of governors on your ability to hold private keys, or have some sort of multi-sig setup, or you couldn't, you know, you weren't big enough to maybe get an account at like a Fidelity or something like that. as you pointed out earlier, Marty, like maybe you were kind of, you hit a wall and you weren't really able to move forward with a Bitcoin allocation in a direct way. Well, now the

SPY Bitcoin ETFs give you that. And so you won't be able to kind of, you say like, well, yeah, I'm underperforming this or that asset class, but I, you know, I couldn't get into the top decile kind of fund or funds in this or that space that really performed well this year. You know, Bitcoin is right there and easily available, highly liquid. If you don't want to use an ETF, It's, you know, it's saleable 24-7, 365 by basically in as much size as you want almost immediately. And so any allocator, right, is not going to have the ability to kind of fall back on not being able to, you know, get into Bitcoin or not having just the leeway to make an allocation. It's right there and as accessible as it can be. And so I agree that is going to become increasingly, I think, a benchmark people are going to need to fall back on and take a look at as they construct portfolios.

yeah it's it feels like it's all culminating a perfect storm in the and i i do this every bull market but i get a little ahead of my skis but i don't know this does having been in it for 11 years this does feel like a starkly different dynamic heading into a bull market i think that's pretty clear with the potential for strategic bitcoin reserve and very friendly administration coming into the white house uh yeah you if you're out there you're an institutional investor you're listening feel free to reach out to us to dive deeper into this because i think um like again really leaning into that career risk obviously we're talking our own book here and we are highly incentivized to convince you to get exposure to bitcoin but

truly earnestly from somebody who cares about your career and your future like the career risk has flipped and if you don't have a bitcoin strategy moving forward you um you're gonna get yelled at by your clients how did we miss the best performing asset of all time as the us government was giving its stamp of approval and accumulating it yeah well said go ahead john one thing i'll throw out before we if we want to wrap soon One last piece that I threw in that essay was just Trump is very, very likely, as was Harris, you know, had she gotten in, very likely to continue to expand and accelerate the growth of U.S. federal debt and, you know, widen deficits. It looks like, you know, it's early days, but his platform will sustain high spending on a variety of things. we'll shift the spending, the composition of that around. So maybe less goes to ESG,

renewable energy initiatives, and more goes to domestic manufacturing initiatives. Maybe you enact some sort of industrial policy that intends to reshore a lot of manufacturing. But whatever the case may be, the liabilities are going to continue to grow. Interest expense is now above defense spending, likely passes social security spending next year. debt to GDP is over 100%. Even conservative estimates at the CBO and the Treasury Department before Trump was elected, had it going to 120, 130%, you know, by the end of this decade, early next decade. So even if the Trump administration drags its feet on building a strategic Bitcoin reserve, even if there proved to be difficulties in logistically setting that up

one for one reason or another or it gets hamstrung somewhere in congress like the story is ultimately the same it's a question of how how fast we get there and how kind of easy it is for how easy life is for kind of um the devs and founders and entrepreneurs kind of building on bitcoin in the meantime and what their banking access looks like and um whether they're the federal government is suing them or not um but even if the government just remains entirely neutral to bitcoin it kind kind of forgets about it. As long as the pathway of federal deficits continues in the way that it has, as long as the interest burden continues to grow relative to tax receipts and moves toward becoming the biggest line item that the U.S. is spending on, ultimately that points to

basically stimulative activity for the economy, likely a re-ignition of inflation. And we think ultimately down the road, some sort of accommodative monetary policy and maybe unconventional monetary policy that starts to look a lot more like balance sheet expansion, QE, yield curve control, whatever the case may be, whatever you want to call it. We're sitting here now with the Fed having cut rates 75 bps over the past two meetings with the stock market ripping to all time highs. And with unemployment, you know, we can we can talk about the how it looks under the hood. But at the very least, the headlines for unemployment have not been overly recessionary, and yet the Fed's already cutting rates, I think it probably

tells you something about the fiscal dominance we may be in. And regardless of whether we get a strategic Bitcoin reserve, I think we're all bullish on that and hope for that. But the story really hasn't changed here. It's the same long-term glide path and encourage allocators to, even if you're skeptical on the bitcoin reserve piece just to take a look at uh you know the path of federal deficits and and where monetary policy might need to go to accommodate that over the next 10 20 years and realize that um the story is is just accelerating and it's it's uh the same that's the same today as it was yesterday and it's going to continue tomorrow as well the strategic bitcoin reserve is a is a nice kicker that's your bitcoin alpha for the week we'll see you guys next time

Maybe next week. I don't know. We'll see you.