The Pomp Podcast - #1368 Matthew Sigel | Bitcoin Investor Says BILLIONS Are Coming

Episode Date: June 5, 2024

Matthew Sigel is the Head of Digital Assets Research and Portfolio Manager at VanEck. In this conversation, we talk about bitcoin, ethereum, miners, global adoption, regulation, conversations VanEck is having with their clients, where opportunities exist, and how crypto and politics are intersecting with each other.  ======================= Buy and sell cryptocurrency in a tax-advantaged crypto IRA with iTrustCapital. Enjoy 24/7 access, lowest fees in the industry, and tax benefits for your retirement. Open and fund an account today at https://www.itrustcapital.com/pomp to receive a $100 USD funding bonus. ======================= CrossFi is the Apple Pay for Crypto. For the first time in history, anyone with a web 3 wallet like Metamask can spend crypto through a physical or virtual visa cards anywhere in the world where Visa is accepted. Be one of the first to get your hands on a CrossFi card and a prize pool of $3 Million Dollars by joining and participating in their testnet today: https://xfi.foundation/users ======================= Pomp writes a daily letter to over 265,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/ ======================= View 10k+ open startup jobs: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. All right, guys, bang, bang. Today we have Matthew Siegel. He is the head of digital assets research and a portfolio manager at VanEck. VanEck is a massive financial firm. They have

$100 billion in assets, about $2 billion of that or so is in crypto. They have been all over this industry. They do tons of research. They continue to look at various valuation methodologies. And I've even left a special treat for all of you at the end of this episode. In this conversation, Matthew and I talk about Bitcoin, Ethereum, miners, how different countries are interacting with this industry, what you can look at from a regulation standpoint, how VanEck is talking to their clients today about portfolio construction, where various opportunities exist, and of course, how crypto and politics are all intersecting with each other. This conversation is packed with insights.

Matthew did a fantastic job educating me. I think all of you will drastically appreciate all of the things we talked about. So here's my conversation with Matthew. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

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anywhere in the world where Visa is accepted. No more exchanges or middlemen. Just link your wallet, get your card, and start spending today. CrossFide card transactions have already been successfully processed in New York, Los Angeles, London, Dubai, China, Japan, and over 20 other countries. Be one of the first to get your hands on a CrossFide card and a prize pool of up to $3 million by joining and participating in their testnet today. You can go to xfi.foundation slash users. Again, that's xfi.foundation slash users. Go check it out today. All right, guys. Bang, bang. I've got Matthew here. I thought a great place to start the conversation would be Bitcoin is this sovereign tool that Bitcoin has been yelling about forever.

Now we're starting to see countries do this. We're seeing El Salvador, a number of others. at VanEck, you guys have a hundred billion dollars in assets. You guys are one of the largest asset managers in the world. And one of the advantages to that is that you actually have teams that don't know anything about crypto. They're not worried about Bitcoin. And so you can go talk to those teams. For example, there's a VanEck bond team that is focused on some of these other countries. And so talk a little bit about this idea of like Bitcoin infiltrating these countries, how they're being used, and then maybe the intelligence that you can gather by talking to the bond teams and others at VanEck that are specializing in what's happening in

these countries? So we are a macro shop. And one of the key overriding themes that's been in place since the firm was founded seven decades ago is how to protect wealth in a world of money printing and dollar debasement. And we're seeing that quite obviously today in the US with 7% budget deficits and full employment. And we think we're going to look back on this situation as something that was absurd in hindsight that cannot last. So we have this DNA of gold and gold mining equities. Jan van Eyck was, when Bitcoin came around, recognized that it had the potential to disrupt gold. And he wanted to hedge against the possibility of a significant amount of our revenues, you know, underperforming. And I think that's really what a lot of financial

system, traditional financial system faces is this huge innovators dilemma when it comes to Bitcoin and digital assets. And we can observe that at the country level as well. Right. So if you look at great financial crisis the build-up in debt happened on consumer balance sheets and corporate balance sheets and that was where the blow-up was was in the mortgage market right this time around the debt has built up at the sovereign level particularly g7 so at any given point you know there are call it five percent of the world economy that is in default on their sovereign debt And they go to the IMF or the IMF comes to them, you know, offering a bailout. And in return for that bailout, there's all these conditions, you know. And what we miss as Americans, I think, is that it introduces a lot of political polarization into those countries where whosoever in power is incentivized to strike that deal with the IMF. but then in return, they give up a little bit of their sovereignty. And the opposing party in those

countries is like, hey, hold on, don't do that. You're giving up our sovereignty. It's a very convenient wedge issue. And Bitcoin can kind of emerge as this common ground within those countries. So El Salvador was the most notable example of that, where they're really using their Bitcoin policy as a negotiating tool against the IMF. One of our core theses since the three years that I've joined VanEck is that an increasing number of countries would be faced with that decision and choose Bitcoin. And this year, 2024, we've had three additional countries announced that they are mining Bitcoin with government power. So those countries, Kenya, Ethiopia, and Argentina now join El Salvador, Oman, Bhutan, and the UAE. Each time the investment

is getting bigger, the countries that are doing it are getting bigger. And eventually, some G7 country is going to do this. But to answer your direct question, we have this emerging markets fixed income team, which fits into that overarching theme of how to protect yourself against dollar debasement and Fed money printing. Emerging markets generally have run much more orthodox monetary policies. And as a result, their dollar denominated bonds have outperformed developed market denominated bonds over long periods of time now. And even the local currency EM bonds are, over the last year, starting to outperform dollar denominated bonds. So the performance of the asset class has been quite strong, and we think it's for the same

thematic reasons that we prefer Bitcoin. And it's been profitable to work alongside that team, keeping up to date on the news flow, the internal politics, the monetary policy tweaks within some of these frontier countries. And they've been able to buy some of the sovereign debt in El Salvador, in Ethiopia, and make some money off it. So Jan is quite collaborative in bringing the various portfolio management teams together twice a week. Everyone presents, everyone discusses uh and you know we've gotten some profitable synergies from that from that what is the difference between these countries you know buying bitcoin which el salvador didn't i think got a ton of fanfare for it um very obvious what that means right in terms of hey we took our local

currency or dollars and we purchased bitcoin we now hold the bitcoin somewhere uh versus mining bitcoin and when you start saying like we're using government power i think it becomes a little bit more opaque like is the government mining are they providing power and they're just getting paid as a power provider you know it's still kind of almost like bitcoin tangential right um but how do you guys look at it is it that's the first step and it kind of you know breaks the seal and then it allows them to go do other things or um is that good enough like hey we just want countries if we see them start to mine then they're in the bitcoin game and you know if they never go buy bitcoin directly that's okay too or just talk a little bit about the difference of like buying bitcoin

for like the country's balance sheet versus, you know, maybe just mining or kind of toe dipping in in some people's eyes? At this point, we are so early still in the evolution of the entire digital assets class, two trillion out of, you know, 250 trillion in global equities and bonds. So any large pool of capital that is diverting resources towards Bitcoin innovation, mining or buying, we think is a positive. But it's clearly most attractive, it meaning Bitcoin mining is clearly most attractive on the first order for countries with a lot of energy and not enough hard currency to properly monetize that energy. So to use, you can have as much energy as you can consume at the top of the volcano. But if you literally can't afford

the high voltage transmission cables to bring that power to where the demand is, then it is wasted or stranded. And there's going to be a lot of economic incentive to bring in Bitcoin miners because the capital requirement is so much lower than, you know, an entire battery set or these transmission infrastructure. So that's where the first steps have been taken. I think there's still a lot of pushback at the central bank level, the BIS, who wants to do their own coin. So we haven't yet seen accumulation by a central bank. That's not in my bookcase for you know half a decade if not more first step is getting the circular economy going once you're mining bitcoin then you're going to find some use for those sats besides just selling them although

the killer app for these emerging and frontier countries is access to hard currency uh you know that's why kenya is doing it they they also have a an imf deal uh that they need to strike and bitcoin can provide very handy hard currency while they negotiate the details let's talk a little bit bit more about these IMF deals. Like what is the IMF trying to accomplish? What are the countries trying to accomplish in these negotiations? And were these deals previously struck out of pure necessity? Like the IMF was kind of the only game in town. And so Bitcoin really is like negotiating leverage. If we're on a dollar debt standard, right? Not the bearer asset, but the debt-based standard, which is pretty much what we've been on since we went off the

gold standard, then the incumbents are going to be incentivized to keep that train rolling, issue more debt, means more fees. The US dollar is the reserve currency for energy purchases. So countries that don't have a functioning local currency really do need that hard currency if they want to operate the industrial part of their economy. So there are a lot of entrenched interests in keeping, you know, rolling over the debt pretty much, even if it becomes unproductive and zombie-like and let the next administration, you know, write it down to zero and start again. So Bitcoin introduces this political compromise that sometimes the both parties or whoever's in the opposition in this financially challenged country can agree on and

it pisses off the imf enough that maybe it changes the terms of the deal a little bit got it and when these countries are getting the bitcoin do we know what they're doing with it like el salvador seems to just be buying and holding um these countries that are mining are they also just holding the Bitcoin or are they trying to do stuff with it? Right now it's being done in an opaque fashion via state-owned companies. So in the UAE, it's a JV between the government-owned utility and Marathon. I really don't know what they're doing with those coins, but it's not, you know, it's not transparent. Yeah. And then when the ETFs got approved, obviously, VNX got one of the Bitcoin spot ETFs. There's many others that have come out now. One of the

most interesting things to me was an ETF would now provide a sovereign wealth fund or a nation state the ability to essentially get long the Bitcoin price without taking ownership or sovereignty of the asset. And again, El Salvador does it. I think most people in the United States are like, where's El Salvador on the map? Doesn't mean that that should be that way, but I just think people look at it and like hey it's a small country they don't have a native currency uh it's not really that big of a deal that they've bought this bitcoin and they're taking uh control of it from a threat to the united states but if all of a sudden some other countries began to buy bitcoin and take self-custody of that bitcoin i think there would be a lot more concerns people

would have a lot more questions etc and so to one degree bitcoin's been too small on another side well, maybe I don't want the geopolitical conversation and kind of the controversy of actually taking custody of the Bitcoin. Oh, here's this ETF that comes along. Now I can get along the price, but I don't actually have to take control of the Bitcoin. And so do you think that those tools will unlock some of this nation state capital and kind of sovereign wealth fund capital? Or does that sound like a nice theory, but in practice, they're not really kind of going through that evaluation process i think it will uh i think that for developed countries that are in the throes of this kind of climate change uh mania like a country like norway one of the

largest sovereign wealth funds in the world i think it's unlikely they would be mining bitcoin directly with energy that could otherwise going and you know be used for norwegians washing machines. That's what they'll say. They have a functioning financial system, not too many worries about custody or censorship. So for them, the ETF would unlock the speculative characteristics of Bitcoin. And they'd be like, I'll pass on the self-custody, just no need. And then it's for countries that have a lot of energy that's not being monetized, where the political regime is very volatile and the banking system doesn't function very well. Again, that's like a pretty good percentage of world economy, up to 5%. They want the utility and the speculative

characteristics, so they would choose self-custody. And IMF, the BIS, they're concerned, I think, more with the latter, these countries that need to roll over debt and are incentivized to collaborate with the IMF. And IMF continues to write warnings to countries not to do that. And it happened with Pakistan. In Pakistan's bailout, Pakistan agreed to tax crypto, Even though crypto is illegal in Pakistan, because IMF told them to put that in the communique and that's how they got their billions. It's interesting in Pakistan when they made it illegal, adoption went up. And I'm not an expert on Pakistan, but I believe that there are four kind of regions of Pakistan and almost operate as like states from my understanding. And in one of those, the more localized government or regional government actually capitulated.

And they said, hey, we know that the national government is saying that this is illegal, that we don't want this to happen. There's some bottoms up adoption. Actually, you could see the adoption numbers across the country had gone up. But then this one of the four regions actually said, we're going to participate. And it reminds me a lot of in the United States, kind of this difference between the federal and state governments. And we've seen a difference of opinion in some states are very pro Bitcoin and cryptocurrencies. Some are anti. And then at the federal level, we're also seeing some standoffs in terms of how the state of Texas may treat this stuff versus the federal government.

And so if it happens in Pakistan and it happens in the United States, you have to imagine this is something that's going to get exported to every country around the world. And they're going to have to struggle with this, who's in charge and what is our position on these assets going to be? Yeah. And as you observe, it bubbles up from the bottom up, local communities, retail investors. I remember when I first got involved really deeply, 2017, and my colleagues, I was at an investment bank and a lot of discussion, not much buying going on. And my colleagues, I came back from this roadshow. I was like, you know, my taxi drivers are talking about this. like that's a bearish sign when the taxi driver starts talking about it's like no you have it inverted this is a retail asset that's meant to take power away from the top like you want your taxi drivers talking about this so yeah i agree with you yeah when we look at the miners um the united states has been a big winner in mining uh since china banned bitcoin in 2020 um or 2021 i guess it was. And in that shift, I think we went from 65% of hash rate in China to today, there's

about 35%, give or take, depending on how you measure and on what day. And about 10% of that is in the state of Texas alone. Talk about the publicly traded miners, many of which are based in the United States. They've used a lot of debt, a lot of these, you know, ATMs to drive capital into their businesses. They've grown very, very quickly. There's days where I talk to very smart investors and they're like, I'm long the miners and I see a lot of opportunity there. And then there's in the same day, I could talk to another smart investor and they're like, they're all zeros. And we just don't see how anyone can drive a return by buying these miners. And so we're sitting it out. How do you all evaluate kind of that part of the market and allocating capital

there versus maybe just buying Bitcoin or some other asset? So we do have one strategy that owns Bitcoin miners. And that's why VanEck shows up as a front page shareholder for basically all these firms. It's an ETF that buys pure plays exposed to digital assets. So it's Coinbase, MicroStrategy, and a number of the Bitcoin miners. The publicly traded Bitcoin miners now control roughly a third of the global hash rate. And that's an all-time high. The largest Bitcoin miner in the world went public this year in Abu Dhabi. But these stocks have been pretty bad underperformers this year. And I think there's some structural reasons for that and some cyclical reasons.

Cyclical reasons are kind of easy. Bitcoin halving, revenues get cut in half. And at the same time, this AI narrative comes in. And while there are a lot of synergies between Bitcoin miners and AI, and we can talk about that, and there's been an accelerating number of pivots into AI just in the last month, you know, these companies haven't really gotten the boost from the AI narrative yet. And meanwhile, although their debt levels are much lower than they were, you know, three or four years ago, they have been diluting the crap out of shareholders, just constant share issuance. Uh, so it's really hard to outperform Bitcoin, uh, without a, uh, very steady, unchanging, uh, balance sheet strategy. And none of the miners have been able to do that because the price has been so volatile

and they're so tempted in the upcycle to keep up with that hash rate. And the mining machines are depreciating so quickly. like the temptation to just spend and spend is very high. So I think those are the kind of the structural and the cyclical reasons why only two of the publicly traded Bitcoin miners are up on the year and everyone else is down and BTC is up 70%. Yeah, it's very interesting to watch kind of that challenge. And also AI is now starting to kind of come in, right? If you really think of a Bitcoin miner, they're providing infrastructure. It's a beautiful model in Bitcoin because you don't need a sales team. You have persistent demand, et cetera. But we do see a number of

the miners saying, well, maybe we're not just a Bitcoin miner. We're kind of an advanced computing business. How do you all look at the crossover between Bitcoin mining and some of the AI stuff? And is that a positive strategy or do you think that those companies may not do so well? I think it's a positive strategy. As you observed, the hash rate movement out of China happened so fast. The same things happened out of Kazakhstan. The publicly traded Bitcoin miners, when you read their conference call transcripts, they are saying very clearly the marginal investment opportunity is no longer in Texas because there's higher competition from AI infrastructure that wants to suck on that same power. So some number of these miners will be able to monetize that power. We saw it most notably yesterday with CoreWeave making a bid for CoreScientific. Stocks up 50%. CoreScientific had done an excellent job of giving the math around how the value of their

installed power agreements is higher than the market cap of the stock. That was like a month ago. Stock started to work. CoreWeave strikes this 10-year, $3 billion deal. and now this thing might get taken out and turned into an AI producer. But the number of miners that will be able to execute on that, because as you observed, they don't have the sales force, they don't have the expertise. A lot of times the Bitcoin miners are, they're in areas that are rich in power, but not necessarily with super fast connectivity, which you also need.

So there's a lot of value added CapEx that would have to go into it. I think it's going to be very stock specific. And in the meantime, the Texas focused Bitcoin miners now have to look at Argentina, in the Middle East, like they need to find new geographies that takes skill, money, and various expenses as well. Now, $100 billion in assets, approximately at VanEck, about $2 billion of that is in Bitcoin and cryptocurrency. You all have a lot of clients all around the world with many different goals, many different constraints, many different perspectives on how to allocate capital. I know that you all have done a lot of work

on how to allocate capital to Bitcoin, crypto, digital assets. What is the current thinking there around portfolio construction, how these assets interact with traditional assets, and just kind of what you guys are talking to clients about? So those views are revolving now that it appears that spot Ethereum ETFs will trade in the market. But our historical recommendation is that clients put 1% to 5% of their portfolio into digital assets, that Bitcoin deserves roughly half of that allocation, and the other half should go into liquid token strategies that include other tokens.

Now with the news about Ethereum, we ran some new numbers around what would be the ideal mix of BTC and Ethereum in a portfolio, maximizing for Sharpe ratio and the volatility adjusted return. When you do that, roughly it's a 70-30 mix, 70% Bitcoin, 30% Ethereum. We also ran some new data exercises to determine how big can an investor get with that digital assets allocation. Maybe they have a high risk tolerance and they're willing to go above that 5% limit. And we found some surprising things actually. For investors who are willing to stomach a 20% volatility in their core portfolio, and think of that 60-40 portfolio is roughly half that then introducing this 70 30 mix of btc and eth has an extremely positive impact on the overall

sharp ratio of the of the portfolio up to a 20 percent allocation to crypto that would be like 13 btc 6 e something like that and then the remaining 80 balances at a 60 40 ratio of stock to stocks to bonds so 20 vol is not that high for a young you know healthy working adult so you know maybe maybe some of these allocations will will surprise us once the eth etfs come out uh but our historically it's been you know half btc and half other and we're providing the other through these liquid token strategies got it and when you're talking about those percentages what about rebalancing because one of the interesting things about crypto is it's it's so asymmetric. So if you say one to 5%, and let's say that somebody went and they did that

last year, that one to 5% now literally could be two or three to 10 or 15, depending on what assets they bought, how they allocated, the exact timing, et cetera. And so one to 5% sounds prudent. If that grows to 15%, are you seeing clients want to rebalance? Are you saying, hey, maybe it's a good idea? Or is this such an asymmetric asset and you actually want to let the winners run and kind of it's a set it and forget it type allocation? I think fiduciaries are going to have a lot of choices to make on that. And you're going to see a range of options. I heard you on CNBC kind of warning that inflows can turn to outflows when you're talking about these systematic portfolio allocators. And we manage some model portfolios that include equities,

bonds and crypto the crypto allocation is around five percent and the portfolio manager on that strategy uh you know took some prop bitcoin ran to seven percent and he took some profits right after the post etf run to bring it down into the fours in line that decision is made um kind of ad hoc by the PM. Generally, I think quarterly is a good rule of thumb. And in these kind of decisions, how does regulation play into it, right? So one of the things that I find fascinating is you can go and you can look at the miners, you can go look at Bitcoin ETF, maybe there's going to be this Ethereum ETF coming shortly. As these assets continue to come to the market and people begin allocating, it almost feels like regulators are

becoming looser with their approvals. As they become looser with the approvals, there will be more choice. And so is there a world where, hey, I allocated to the Bitcoin ETF, but that was 100% of what I was going to allocate. Now here comes the Ethereum ETF. I actually should roll some of my Bitcoin investment because it was 100% of my digital asset allocation to the next asset that gets approved. And then when Solana gets approved or name your next asset, we'll eventually see people not put net new dollars in, but it's almost like a diversification as these assets are getting approved in the U.S.? Or should we expect people allocate to Bitcoin and then net new dollars are going to come in for this next thing? And I think about almost this like wealth

effect that we saw in the coins in, you know, outside of the regulated kind of traditional stock markets. Is that going to get repeated here, you know, in kind of these ETFs? So putting aside the regulatory piece to answer the question, I would say that when you look at who bought the Bitcoin ETFs, one thing that struck me was hedge funds own the same amount as RIAs. RIAs manage 10 times the assets of hedge funds. when we look at the 13Fs in six months, a year and three years, in my opinion, there is no way that those ratios are going to be equal. It's going to be RIAs just pulling ahead and growing faster. And some of them will diversify into Ethereum or whatever is next, but the overall pie will be growing. And I think as you observe, the way this asset class works is first you get

a Bitcoin bull market, a lot of market cap is generated, paper wealth, some percentage of that gets tempted to speculate into newer stuff. And the newer stuff is less liquid. So if you put the same amount of money into it, the price return is multiples. And that's one reason why now I'll get to the regulation piece. I'm not terribly optimistic. There's going to be a ton of ETF choices in the US, partially for that reason. But most specifically because there needs to be a regulated futures market and CME is not going to list Solana futures till after the election, be my guess. How far down the stack do you think that the US market will eventually go? And so

there's this idea of like depth, right? If you go to coin market cap, okay, Bitcoin is kind of first, got it. Ethereum is second. I think there's like 20,000 that are listed. I don't expect the 20,000 to get listed, but should we think about it as like the top 10, the top 15, the top 100? And along that, will we maybe skip some assets, right? Obviously there's not going to be, most likely a usdc or a usdt etf doesn't really see like there's i saw a new money market fund etf just launched first of its kind so you never know so maybe right but but um i hear your point though dogecoin is our regulators going to approve it on one hand you're like that seems crazy on the other hand if the people want it and it fits within the rules can they really stop it right

And so how do you just think about, like, how far down the list do we go? And also, will they kind of play, you know, winner picker in terms of skipping over some of the assets as they go down the list? So for ETFs specifically, you need to know if the underlying asset is security or commodity, because that determines what type of filing you make. So a large number of these assets, you know, the government still thinks that they're securities. Maybe the crypto ecosystem disagrees. But anyway, there's uncertainty and you won't be able to get an ETF on those for some amount of time until that situation is clarified. You can look we can look at other markets where there is clarity, like Germany, and they have approved roughly like the top 50 assets are available. If someone wants to put in the work to make an ETF on it, the regulator has to understand those assets.

And you need to get this confluence of issuer support. So someone like a VanEck is like, yeah, we're bullish on this asset. Let's make an ETF. Then you have to have customer demand where our sales team goes out and is like, who wants to actually buy this? Anyone? And then you have to have counterparties that are willing to support the infrastructure required.

Regulated futures market would be one. So I do think there will be assets that are skipped because they can't tick all those three boxes. And I think once there's clarity on what specifically is a security versus commodity, then we'll start going down the list of the top 50, not we, VanEck, but like the industry, people. Yeah, and it's interesting, I guess, the customer demand may be the easier thing to understand because you can look at the market caps of the crypto assets. You can see that people are buying it and it's increasing, et cetera. The issuers, I tend to think, but you guys are experts, not me, they kind of follow the customer demand. Like if the customers want something, the issuers most likely are going to show up someone.

Maybe our motto is like intelligently designed investment products. And so if a bunch of dumb people want some ETF, we will, you know, we will say, well, we don't like that idea. Yeah. Which makes sense. Right. But if you guys don't do it, somebody else will do it. Right. Like the kind of economic incentive is there is if the customer wants it, somebody's going to come and provide them the access. It's that third bucket, though, that I think is like the big question. And that feels like the bucket where there's still kind of like the old school Wall Street perspective on should we provide support, should we not, is going to really come into play and maybe be the gating factor. Yeah, because our firm's been around for seven decades. We don't launch an ETF and then expect to close it within two years. And the history of this asset class with its volatility is that you need to pick and choose carefully on which assets are going to have staying power. The top 10 assets from 2017 look nothing like the top 10 assets from 2024.

for. Now, what about the other crypto companies that are either growth stage in the private market or now public? So Coinbase, obviously, is probably the big one that is in the public market. It's not a minor. It's not a direct crypto asset. Seems to have garnered quite a bit of attention. People are allocating capital there. But there's also a number of companies that are trying to get into the public markets. Circle and others have at least announced or rumored to be planning these IPOs. And so is this a game where this industry is not only maturing because of ETFs, but we should also expect many more companies to come into the public markets throughout kind of the next, you know, 24 months or so? Maybe 24 months. Yes. I don't think six

months. So Exodus, EXOD, this is a micro cap that has done very well. Crypto Wallet, you know, they tried to uplist. SEC blocked it at the last minute. Galaxy's been trying to move over to the NASDAQ. Can't do it. No sign of circle. Now they have turned around the market share losses. So I think the fundamental case is better. So where's the IPO? I don't think the SEC wants to approve these. I don't think we're going to see them until after the election. And then kind of reevaluate what the next administration is saying. Yeah. And you have referenced the election a number of times, is the thought process that there will be a new SEC administration in there post-election, regardless of who wins? Or is it if Trump wins, it changes? If Biden wins, then it stays? How

are you guys thinking about the implications of the election specifically? Yeah. In our 2024 predictions piece last December, we said Trump's going to win this election. Still think that to be the case. And then he will change the SEC chair. I know there's some debate around how easy that is to do, but I think it'll get done if Biden wins. I don't have a prediction because the entire thought process behind their SEC strategy has been illogical. So it's hard to guess. Yeah. And then there's other things regulation-wise that maybe aren't explicitly like CFTC or SEC oversight. We've seen many legislative pieces put forward. Obviously, those organizations will have a hand in providing feedback, maybe enforcing the rules, et cetera.

But politicians, kind of in the traditional sense in Congress and Senate, are starting to have much more influence, starting to be much more involved in the process that is directly impacting crypto. 12 months ago, there was definitely some politicians that were saying, hey, this is important. We should be ahead of this. It feels like there's a lot more now. We saw, even in the Democratic Party, a number of them kind of break from the Democratic Party and some of these recent votes. And so is it a thing of just like an idea as time has come, politicians don't want to be on the wrong side of history

and we should expect more and more of them to become kind of pro-crypto over time or is there something else going on? Yeah, the demographic story I think is very simple. The older you are, the less optimistic you are about this asset class because of a understanding gap. And the crypto super PAC raising $125 million, dollars. That is the largest industry specific super PAC. It's twice the size of the American

Israel PAC, which is, you know, renowned. So it's bigger than Trump's reelection PAC. Think about that. I'm sure this is a guy who I'm sure looked at it was like, these guys are raising more money than me. I want part of that. So I think it's demographics and money talks. Yeah. And what do you think is happening in those conversations? Is it just money? Or is there some sort of pitch that these politicians are sympathetic to? The pitch is easy. It's a pitch for innovation and growth. And like one side, you know, doesn't want that, at least by their policies, it becomes clear, this degrowth movement. So I think the pitch for young people is very simple, you know, let entrepreneurs innovate, you know,

let technology disintermediate big tech who have, you know, who are printing super normal margins because they're arms of the state right now. The state censors the content that big tech serves you. And, you know, crypto is a way to break free of that and grow. I think that story resonates with young people. Yeah. You have a very interesting background. You were at Alliance Bernstein. You worked very closely with Cathie Wood while she was there before she started at ARK. You all not only worked together, but also it was during a time where there's some chaos in markets. I think you worked there during the global financial crisis. Talk a little bit about that experience, both going through the global financial crisis, but working with Kathy and

maybe some of the things that you learned. So I started my career as a journalist covering finance at Bloomberg, CNBC. I got envious of interviewing people with bigger balance sheets than me all the time. And I realized pretty early on the phenomenon of fake news and that how journalists spend their time and how they're incentivized to spend their time is not necessarily in pursuit of the truth. So the buy side is the clearest expression of truth seeking, at least for like economically rational people who want to hold on to their jobs. So I, like any good journalist, I started networking, meeting a bunch of people, got my CFA and met Kathy and started working for her in 2007 covering technology on these global,

well, at the time it was a US thematic fund. And we were heavily invested in what was then kind of the beginning of Web2. And we had a strong bias towards open source. Like we were big shareholders of Red Hat. So we learned that, okay, you can be a for-profit company whose job is just to maintain an open source database. That turned on a lot of light bulbs for me. And working for Kathy, you know, she is truth-seeking, you know, and she remembers more numbers than anyone in the room, so she can win a lot of arguments.

And we were on the right side of a lot of thematic disruption going on. The elements of the strategy that I, you know, disagreed with came down to portfolio turnover. um, the amount of trading. And I feel, I, I began to learn that that's how you make mistakes, that if you are telling clients you have a five-year view and then you're trading every quarter, you know, that's a mismatch and it will eventually be revealed through lack of fundraising and, uh, lack of performance. So I left Cathy in 2011, took a detour, worked on the sell side for 10 years writing research for a Hong Kong-based investment bank, which was then acquired by a

Chinese mainland company. So then I really felt this information censorship in my professional life and grew attracted for Bitcoin as one of the solutions for that. And as I started to formulate how I wanted to invest, once I got back to the buy side, specifically in digital assets, I wanted to take the view that don't just do something, sit there. Like when in doubt, don't make a trade. Buy the best assets you can buy, earn income from them if you can do so without taking too much risk. Risk manage, but don't trade. And I think that lower turnover approach, if you can pick the winners, you know, will have a much higher batting average over the long run.

During the global financial crisis, I think you guys were also invested in some of the banks going into the crisis? Yes. What was that like? Because they went down pretty quick. So Alliance Bernstein at the time had three legs to the stool. It had growth equities, value equities, and fixed income. And sitting in those morning meetings in 2007, you know, it became very clear that all three legs of the stools kind of owned the same stuff, automakers, Lehman Brothers. And that produced this highly correlated negative performance across all the asset classes that

we managed. And the firm went through a very tumultuous time. And, you know, we were selling Lehman Brothers at $6. I remember that. But I also remember buying Red Hat at a 10% free cash flow yield with that money or, you know, something along those lines. So, you know, it was a very tough time to manage money when you have really smart analysts showing you the intrinsic value of some of these financial franchises, which Lehman was, and you're trying to achieve diversification in a fund that's benchmarked to the S&P, where we want to take some tracking error. And these are 10% tracking error products that Kathy was running, so pretty high. But it's not 50%. You got to own, you know, you got to diversify. uh and i you know we had a really tough 2008 i think we were down 42 43 percent and you know

kathy leaned in and we had a rip roaring 2009 and caught the whole the whole rebound so if you looked at the two-year performance you know it looked good but volatility adjusted the sales force is like you know we it's too volatile for us yeah well now being in digital assets uh it's very similar right is people look at bitcoin and it'll go up a couple hundred percent and then it'll draw down 80 and just let that over and over again. And so do you think that there will be issues with people wanting to allocate to the asset because of that? Yeah, there are issues. And that's why, you know, this kind of one to five percent allocation makes sense. But the way I like to think about Bitcoin and digital assets and coming and, you know,

I'm someone who spent a lot of time in emerging markets, lived in Asia, traveled widely around Southeast Asia. That's part of what gave me conviction in digital assets. Emerging market asset class, emerging market equities, right? People used to put five or 10% of their portfolio in that. 40% China, you know, it was two years ago. Now it's still 25% China. A lot of American investors don't want that. And with Bitcoin, you can get an asset that has similar negative correlation to the US dollar, but with a lot more upside. And the drawdowns are big, but Bitcoin drawdown was 77% in 2022. Meta stock was a 78% drawdown and Meta is a two and a half percent position in the S&P. Everyone effectively owns it. So the bang you get for your buck with Bitcoin

and the negative correlation to the dollar, similar to emerging market equities, makes it very attractive in our view. Now, what about staking? You mentioned earlier, if you can buy assets and get some income off of them. Obviously, staking is a big part of the crypto ecosystem. It feels like Wall Street's going to be pretty excited about staking if they can get access to it. Yeah, we'll see if this SEC thinks that staking is a securities transaction. That question maybe needs to be resolved. But when I'm managing assets, I think staking is critical that dilution is one of the biggest costs of investing in many digital assets, less so Bitcoin, right? Because 94% of the supply is out there. But when you're looking at some of

these layer twos where 80% is still left to go, you're going to get diluted. And if you can't stake to avoid that, you're going to underperform. So I'm aggressive, stake the max that I can uh, as long as I can handle, uh, investor liquidity, which is, which is monthly, uh, and then, you know, risk manage around the edges. Got it. And Ethereum or the Ether ETF getting approved, um, staking will not be allowed from what I understand. Um, will that change the interest or the demand for Ether? Like I feel as if the Ether ETF gets approved and investors can participate in the staking, there could be a much, much higher degree of capital that would flow. Without it, it may be unclear to me why people would buy the asset.

I generally agree with you. But let me start over, actually. I think demand for an Ethereum ETF without staking is going to be obviously lower than it would be with staking. I don't think it's permanent that staking will not be allowed. So VanEck has an Ethereum ETP in Europe and we're currently staking roughly 70% of those assets and investors are earning a decent yield on that. I think that will come to America at some point, but we are still so early on this asset. Like most of traditional Wall Street does not know

that Ethereum is not just a speculative asset, but it's got real world utility, 2000 developers working on it every month. There's 3000 different apps, $3 trillion of value that's been settled across the Ethereum network over the last year. uh that education process if we can execute on it is going to draw interest whether or not there's some two percent three percent apy going along with it in the first three six months one year

i don't think it's going to matter over five years i think it will matter now bitcoin i think is a very clean story it's digital gold it's a store of value uh when you look out at the crypto landscape It's unclear that there is anyone else competing with it. It's kind of Bitcoin works or it doesn't is very binary in many people's eye. But if there's going to be a digital store of value, Bitcoin will be the winner, right? Ethereum, five years ago, I think had a very clear kind of monopoly on it is the smart contract platform. Fast forward to today, Ethereum is one of many, and it feels like it has come under assault from all of these other smart contract platforms that are showing up saying, I'm faster, I'm cheaper, I'm better, I'm, you know, whatever. The name of the game in technology platforms historically has been competition.

In money, not so much. Money is more of kind of a maximalist type asset. You know, you get paid in dollars, you save in dollars. You don't necessarily have 10, you know, different fiat currencies in your wallet, right? you're kind of locked in an ecosystem. With Ethereum, what I think is interesting is if the ETF gets approved, the Ether ETF will have a monopoly on the smart contract narrative for some period of time. But if six months, two months, 12 months, whatever later, you start to get some of these other assets getting approved, very quickly that monopoly on the narrative

gets commoditized. And now you have, well, should I buy Ether? Should I buy Solana? Should I buy name the smart contract platform? On one hand, Wall Street is prepared to go do whatever analysis and valuation methodology, et cetera, they want to pursue. On the other hand, I really don't know how much of that's being done when people are buying Bitcoin. I think that a lot of people just hear the story. They hear it's digital gold. It goes up a lot. It goes down a lot. But over time, it's a great store of value. I'm buying it. Not, oh, it's at $71,000 right now. Is that above or below the value that I think that I'm actually buying? And so does that shift the investor base when we start getting these other coins more to an institutional investor base where they are going to do valuations and try to understand kind of where the price is today versus Bitcoin is like almost like the perfect story for institutions and retail to pile into regardless of current price point? So the main levers to our smart contract platform financial models are the penetration rate,

what percent of the value being sent around the world is going to be intermediated by these open source blockchains compared to traditional finance. That's lever number one. Lever two is the market share of the smart contract platform. We generally assume these are all call options. There's a lot of winner-take-all characteristics in digital networks. The top guy is going to get 70%. So that's our base case, market share. And then there's monetization. How much are token holders going to get from every kind of transaction or each unit of

value that's locked on the protocol? The first variable has the biggest impact. It's the penetration rate. So that's why all these assets are 90% correlated. When Bitcoin goes up, everything kind of goes up. I think that's still going to be true once we have these ETFs. yes investors are going to differentiate a little bit um try to figure out who the winner is and yes ethereum will have that monopoly uh in etf world until the uh other products come around

tokenization what are you guys thinking about there what are you excited about the opportunity cost of tokenization is not owning bitcoin not owning ethereum so if you're you're resource constrained, and it may sound like we're not, we have 100 billion, but Fidelity has 50 times that. BlackRock has some multiple of that. You have to pick and choose what to do. And I think one of the features of blockchain tech is that the technology itself is commodity, open source, anyone can spin up a token. It's not particularly difficult to make a tokenized money market fund and put it on chain. Question is, will it be there will there be any demand for it? And can you make money? And on that, although we've done a lot of

R&D, we haven't done anything directly. And we've put most of our resources into owning the open source projects so that if there's $20 trillion of value sloshing around that is looking for an on-chain money market fund, we can quickly spin one up. That said, Jan's son, Nick Vanak, has recently launched the Agora dollar, which is a stable coin that looks to compete with Tether and is basically starting a price war. So Tether, these guys are earning $5 billion a year. They keep all the interest for themselves. Distributors don't see any. Consumers don't see any. Now, a reason why consumers don't see any is because it makes it a security and introduces all types of friction that would probably hurt tether you know if they tried to do that and fragment their

their user base but why not share revenues with partners distributors exchanges businesses who introduce your stablecoin as a means of payment or incentivize uh you know platform users to use it as a means of payment so vanak will manage the back end of the agora dollar which will be you know short-term debt instruments overnight repo these types of things and then agora will go out and kick tether's ass what are the odds today that you think tether could be unseated uh i think they're you know greater than 25 in the next three years uh there are still regulatory questions for Tether

and they don't really have any presence in developed markets. So if stable coins become a thing for payments in Europe and US at your Walmart and Target, I doubt it's going to be with Tether. So I think there is an opportunity. The profit pool is so big, someone's got to go after it. Got it. When we begin to think about the maturation of stable coins, there is this question of regulation but internationally it seems like people like

tether because it is not regulated by the u.s that you know and i say not regulated in the sense that they still have to follow rules right um but usdc in comparison is seen as much more regulated and so i have heard from people in various countries they say oh people here don't like USDC because it's the government coin. Now, again, anecdotal, probably, you know, huge exaggeration in terms of the amount of people thinking about this. But it is this interesting thing about, you know, in the U.S., we look at regulation, etc., especially in the institutional world is like, oh, it is, quote unquote, safe. Again, could be debated, may not always be the case. But I think that generally the U.S. has a lean towards if something is

regulated, it has oversight, it's deemed better. The rest of the world, if it is regulated by the US, specifically because some of the actions we've taken in the geopolitical conflicts, etc., they may be turning off to that. And so how do you think through, you want to be regulated and kind of compete in the greatest capital market in the world, but in some way, you may be turning off some of the international users as well yeah i'm remembered i remember the the president of indonesia a couple years ago right after the uh start of the the ukraine war and he called out visa and mastercard specifically he's like we need payments rails that are not run by these american companies that can censor assets so that that was helpful for getting conviction what you say that

like the rest of the world is looking at the other side of the coin here and they're looking for hedges on us dollar hegemony with bitcoin and then the hegemony of the u.s administrative state by owning what they perceive to be a less regulated asset and tether versus usdc so i think that phenomenon is is real uh and you know that van x not starting the stable coin right we're we're going to manage the assets see if see what agora can do uh because i do think there are a lot of hurdles yeah um and then also if you look at you know china they continue to acquire gold um china and japan used to buy 22 of all u.s treasuries now it's down to like seven percent stable coins have stepped up and i think they're like the 15th or 16th largest holder of treasuries at the moment

um but it's not just like hey we may not be buying as much they're actively diversifying into gold you have to imagine there will be a country somewhere at some point that says screw it Let's do the digital gold version as well, kind of additive. Is it concerning for the U.S.? Should we be worried that these countries have seen some of the actions we've taken and they're going to diversify? Concerning? I think what should be concerning to policymakers is that the rest of the world, much of the rest of the world doesn't agree with our foreign policy anymore, and they don't agree with

how we are spending our budget deficits, right? Whether it's on forever wars or, you know, crazy woke policies in the education system. A lot of them are like, you know, that's a bad use of funds and it's devaluing your money and we want to own something harder. So let's own Bitcoin. If the U.S. policymakers, if both sides of the political aisle like recognize that and we're realistic about what we can do as Americans in the rest of the world, given the fiscal challenges that we have then like i think that would be constructive that would be like a realistic real politic i guess as it's as it's known uh it doesn't feel like anyone's really incentivized to say that in public so you're stuck in this environment of like you know fake news

yeah um my last question for you is if you were president for a week what would you do that you think would be good for the country good for the people and good for bitcoin cryptocurrency kind of the the overall industry i like rfk jr's idea to back a portion of t-bill issuance with bitcoin by starting a bitcoin reserve fund i think that would be the most impactful why well the price go up a lot uh and it would be a recognition that the current monetary regime is unsustainable and that the bad points outweigh the good points at this at this point and the thought process would be you only have to do a little bit because as the dollar price goes up you could eventually get to some significant amount of backing over time exactly yeah what about um a speculative attack

like just just print a trillion dollars we won't even notice based on how we spend now and government doesn't declare wars like that uh i think that's just too aggressive to act just too antagonistic uh it's like starting a war before you're attacked but it's a war on an asset that can't fight back, right? In terms of if the U.S. government, let's, you know, we'll play a little hypothetical game. The U.S. government printed $500 billion. Without joking, it would be a rounding error in some cases to what they're already spending. If they then went into the market and began to buy Bitcoin, yes, the price would appreciate. But let's say that the purchasing of that Bitcoin could end up with them acquiring 20% of all Bitcoin in circulation.

There's maybe 30% that's free floating, turning over. It may take a while. The price will go up. People will sell. There's a bunch of assumptions that are in there. But 10% to 20% they probably could acquire. And they were the first country to do it. To me, that feels like it would be a significant advantage going into the future, holding 10% to 20% of all Bitcoin in circulation for a long period of time.

And if the cost is $500 billion, it's a big number. But it's not even one year deficit. And so it feels like we are actually incentivized to do something like that. Now, again, we may not come out and issue a press release that we're going to start buying Bitcoin today, whatever, right? But, you know, going down this path and saying, look, maybe we should be buying a billion dollars a day and do it for two or three years, right? We see with the ETF inflows, like the price will go up, but it's not going to send it 5x, right, in terms of what we're seeing now. and for 500 billion dollars it's such a binary thing that if you know bitcoin does become the global store of value to own 10 20 literally is the difference between you know extending the

empire or potentially being on the wrong side and somebody else you know having that uh advantage yeah you're you know your question was president for a week not dictator for a week I mean, like, I love your idea, but I think that 1% of it would do enough towards reintroducing the idea in people's minds that your money needs to be tied to the productive resources that you have in your economy. It can't just be about the printer. And, you know, Thomas Edison had the idea 100 years ago to make the U.S. dollar backed by a basket of commodities. You know, introducing Bitcoin in even a tiny measure into the plumbing of our financial system and how T-bills are issued, I think would do that for a lot of people and make a lot of sense and incentivize America to remain a low-cost energy leader, right? There are no energy-poor, rich countries, so you have to be an energy leader. I think Bitcoin's going to help with that over the long run.

Yeah. There's a lot of people who don't know that, though. Yeah. Hopefully that will change. All right. Where can we send people to find research, find you on the internet, or learn more about VanEck's products? So on VanEck.com, if you click on digital assets, you can subscribe to get all of our research. We've done bottoms-up models on the largest smart contract platforms. Follow me on Twitter, Matthew underscore Siegel. And the VanEck Twitter account, VanEck Intern, also

distributes all of our stuff and then as a special treat for the people who listened all the way to the end what is your bullish case for bitcoin eth and solana right now out of the research yeah so out of the research uh the official price target on bitcoin is 325 000 which is half the market cap of gold we're going to have some new research soon that incorporates the layer 2 opportunity and should send the price target higher. For ETH, new report dropped today, 22,000 per coin. We estimate that the network is going to produce $70 billion of free cash flow by 2030, 33 times that.

And then Solana, our base case was 300 bucks. That base case is obsolete now because we used a lower market share number for Solana because of some of the technical debt. And they've made a lot of progress. So bull case on that 3,000. 365, 22,000, and 3,000. Yeah.

The people who waited till the end, they're going to be happy. All right, we'll do it again in the future. Thank you.