The Pomp Podcast - #1377 Alex Thorn | Bitcoin Is Taking Over Wall Street

Episode Date: June 27, 2024

Alex Thorn is the Head of Firmwide Research at Galaxy Digital. In this conversation, we talk about bitcoin, bitcoin mining, ETFs, regulation, politics, global adoption, potential problems, token unlocks, Galaxy Digital, and more.  ======================= 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 ======================= 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. ======================= 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. What's up, guys? Bang, bang. Man, do I have a treat for you today. We have Alex Thorne, head of firm-wide research at Galaxy, here to join the podcast. In this conversation,

we talk about Bitcoin. We talk about Bitcoin mining. We talk about the ETFs, the Ethereum ETF, what's going on in the regulatory world, talk a little bit about politics, go around the world to different nation states, and then we get into some of the problems that might be on the horizon, including tons of unlocks of tokens that are coming. Could be as much as $80 billion that going to hurt your bags. So you better tune into this. And then we talk about Galaxy, what they're doing, the different funds that they've been launching, what it's like to work with Mike Novogratz and much, much more. I think you guys will really enjoy this conversation. So here is my episode with Alex Thorne. Anthony Pompliano runs Pomp Investments. All views of him and the

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all right guys we've got an incredible conversation today but i thought a great place to start is bitcoin is american values i think just codified well not only that but i think that the features of the bitcoin protocol that they perpetuate um values that are highly american think about self-sovereignty free markets capitalism private property right i mean bitcoin is digital private property it's sort of the first ever instantiation of digital scarcity. These are things that we believe in in America. We believe in private property. It underpins our entire legal system, our entire markets. It's not just that we have the best capital markets because, you know, the Wall Street is, you know, good at trading. It's because of

our private property laws. It's because you can credibly invest in America with a belief that it can't be arbitrarily taken from you. That's a legal system thing. Bitcoin really enforces that, you know, frankly, in a much stronger way. But yeah, I think the whole argument about Bitcoin in my mind is one of individual freedom of ownership of sovereignty. These are like America's like one of the only countries in the world that at its core truly believes in these things. So I think there's a lot of overlap. Now, does that mean that America is more likely to embrace it because we already understand the ideals and values? Or is it a thing where self-sovereignty is an american value but the people in charge actually say wait a second if

you guys are gonna have self-sovereignty if you're gonna have the ability to uh not have be censored or seized etc we don't like that yeah and so does it almost counter you know balance there's definitely a tension you know we don't have a our government at any given moment isn't perfectly defending or supporting the you know the core values of the american revolution or the bill of rights or the constitution as i think they should be um but what i would say is um look we have pole position to lead on bitcoin in america we already do lead on it got the most hash rate we got the most investment all the biggest etfs are here i would venture to say we have the biggest cohort of intellectual mind share in the bitcoin world in the united states so we really just

shouldn't screw that up um whether or not we are going to screw it up i think it still remains to be seen part of the reason that i have this as one of my hobby horses is trying to convince policy makers that you can be pro-america and pro-bitcoin that you don't have to that that a vote for bitcoin is not inherently anti-american or anti-dollar i think that's also part of the unease that you hear do people think that though are there people who think a vote for bitcoin is anti-american i mean i saw hillary clinton say that the bitcoin threatens the dollar i think president trump when he was president at one point said i am not a fan of bitcoin or cryptocurrencies because i like the dollar um i think that's easing i think people understand that for example for

electrical grids bitcoin mining large flexible loads are very useful and helpful so wait maybe that's not bad for money maybe it's look it's really good at not being seized but it's not super private it's not it's trivial in some cases to tr to trace right so maybe it isn't great for crime like i think the the dam is breaking on that um but i you know there are plenty of people who who still think that some of our most articulate critics take congressman brad sherman he has this down as a hot he absolutely says that it's anti-dollar and that thus it must be killed but i think that trump as an example people are like oh he's flip-flopping he's pandering he's doing all this stuff i almost look at it it's just like no this is the natural progression

that every bitcoiner goes through you start off it's like this is stupid this is a scam this is for crime this is not going to work then it's like okay well maybe i kind of sort of see this one possible use case but everything else is stupid and like fast forward five years yeah and then you're like uh i own bitcoin and you know here's all the good things about it and so should we actually expect not that the politicians are dumb or the politicians are um you know kind of uh intentionally you know lying to us or anything like that but instead like they just started looking at it in the last five years and so now we're getting to the point where you're going to see them start changing their mind because it takes about you know five years to get up to speed

on it learn get familiar with it talk to a bunch of people and then finally make sense I think that's possibility I agree I don't think everybody who didn't like it or doesn't like it is inherently against it obviously President Trump I think he has had he's you know changed his mind I think there's no doubt that it's political as well it'll be you know the the extent to which there's a Delta between his campaign words and if he's re-elected his policies remains to be seen but um I think reasonable you do everybody has to go through their own thing i think it helps you know five years ago when he said that um there weren't the biggest asset managers in the world with etfs um the the most loud research on bitcoin mining said that it was going to consume

all of the world's electricity by like 2022 obviously that did not happen so like there's been a maturation of how to think about bitcoin of data on bitcoin of the types of players that are involved in Bitcoin that I think also makes it easier. Now, as Bitcoin continues to be successful in a bottoms up manner, we now are seeing corporations and balance sheets. We're seeing the financial institutions show up. Is it also something where like the messenger changes now? Nick Carter and I recently talked about the fact that like Larry Fink's a way better messenger than any of us. Right. And so if Larry Fink says Bitcoin's a flight to quality, like who cares what bitcoiners say right because to a politician larry fink saying that is exponentially more important

for a whole host of reasons and so have we kind of now we can knock on the nation-state doors because we have the financial organizations that are gonna like do the bidding for us yeah it's like you know walk or crawl walk run i think it also the game theory too now right i mean the second blackrock was kind of late to that game right everybody else that ended up getting a bitcoin etf had already filed before and then they showed up and everybody of course was like we got to now we all have to do it again um what do they know right they're doing it we've got to do it then you start seeing like you know the same thing could be said for a nation state i think the game theory is pretty simple like you might not care but if the united states adopts a national bitcoin

strategy every ally and foe is going to also adopt one right so this this starts you know if it's else just el salvador today and then maybe a couple other smaller dominoes fall but like eventually like they just it's pure competition it doesn't matter if it's a national gravel strategy right people have to adopt it so i think you're absolutely right and you know right if it's just michael saylor um you know he's like a bitcoin guy he might be like oh he's that crazy bitcoin ceo guy that's not as convincing as larry fink and it's but if it's and then jack dorsey you're like well he does did build two companies that are really really successful then you're like okay well wait if it starts to be like you know additional non-bitcoin zealots michael dell

now michael is rumored to potentially be one i mean he retweeted about uh he retweeted michael saylor right and so he he must be interested in bitcoin so i agree the messengers help a lot i mean look you had to do it all though you had to have um you know um antinopolis by himself in that room in 2012 you've seen this video that always goes around of of andreas antinopolis explaining bitcoin to like one person in a giant empty auditorium like you had to do that it's just i think it's natural it's part of bitcoin's inevitability and and like i really don't know a lot of people who really understand it i almost know almost nobody who really understands bitcoin that also hates it now when we go and we look at whoever wins this presidential election we

got trump and biden both running as of right now um what should they do right in terms of being supportive to bitcoin bitcoin mining the crypto industry you know you could be president for a day what would you do oh man um if i had that type of god power i don't i don't think it the president really doesn't have god powers but let's just say that they did i mean you would want um specific clarity at the regulatory agencies i think in my mind one of the most important is a clear definition of what is a digital commodity versus what is a digital security just start there um would be a huge boon that lets businesses build in crypto and know like who their regulator is when and why um but also like i mean overhaul things about um um guidance about when somebody

is custodial versus non-custodial so things like non-custodial software developers should never be respond like they can't be responsible for the actions of their users um right like whether that's multi-custody or a self-custody wallet provider or a smart contract that doesn't have any admin keys right or a privacy preserving wallet that has no custody of the users like funds right i think that's pretty much the n-boss core question is like you know i would look at rules to very specifically codify that developers of those tools aren't can never be um you know bank secrecy act uh money transmitters things like that um that's the bill that elizabeth warren has been proposing that um uh damo the digital asset money laundering act or anti-money laundering act

um that classifies like software developers like bitcoin core developers as having to register with fincen and the and uh comply with the bank secrecy act they don't have any ability to do that that's like insane so whatever you need to do to prevent that from happening to me that's the actual end boss everything else is sort of like regulatory clarity um as long as people can write and ship code and give it away for free on the internet and anyone can run it like that's that's the core of what needs to be protected they haven't really come after that much but that plus like yeah general regulatory clarity on like who owns what you can't have the cftc saying that ether is a commodity and the chair of the sec refusing to confirm or deny whether or not it

is like that's insane we've been talking a lot about the united states um internationally what's the next country you think to buy oh man like from like the next el salvador either buy bitcoin they could mine bitcoin maybe they just become like very you know supportive of bitcoin yeah um well i think there's some middle eastern countries that have some pretty sizable activities particularly on the bitcoin mining side and think of some energy wealthy countries um and they're public about it yeah yeah and then there's some um um there's also some like south central asian countries that have large amounts of hydroelectric that mine i think mining if you especially in a lot of countries have nationalized uh energy infrastructure well i mean if you have like

like piles of renewable energy like rivers which you can't turn off when you don't need like you should just put something on it that's why you damn them that's why you generate electricity all of that i would say then you i start to think about the high inflation countries right so argentina lebanon um turkey um now this is tricky because it's similar question about the dollar versus bitcoin like would to the turkish lira that does the turkish government want to defend the turkish lira rather than create an exit valve probably but to me that it's pretty straightforward like um they're not the world's reserve currency so they don't have the special benefits that the us does with its dollar so maybe it makes sense certainly the the we've seen uptick in usage by

citizens and countries like that i also think um in general if you think of sort of non-aligned countries countries that aren't like you know definitively in the geopolitical camp of the us and the west or russia and china right some could make a lot of sense there countries that that have gold reserves i think you would see um serious interest i mean i think of bitcoin kind of as gold with wings it's i mean you ever try to send somebody any gold it's basically impossible right the the value to weight ratio is totally askew um so So geopolitically neutral countries, countries with inflation, countries with high energy. I think this is where you look and I think you will start to see it.

And should we expect central banks or nation states to start to buy this for price exposure? Like, hey, Bitcoin is going to go up. So I want to own some. Or is it more of like a defensive tool? You know, right now you see China buying a lot of gold. Obviously, the United States kind of reaction to the Russian invasion of Ukraine. A lot of countries probably say, hey, wait a second. You can like just like take my assets.

um how do you think about you know offense versus defense as to why some of these countries may participate sovereign wealth funds and affiliated funds are probably looking at price exposure primarily but also um uncensorability and you know wanting to you could probably hold that inside your borders that's pretty strong um yeah central banks or national reserve asset kind of thing is an interesting question um national countries in their reserves often have commodities they have gold, they have oil. We have a strategic national oil reserve, right, in the United States. You could imagine it's reasonable to have Bitcoin. I would think more for use in international trade. The reality is the dollar is the most widely used fiat currency, but I would venture to say

that Bitcoin is accessible in more nations than the dollar. It is truly global. It's obviously not nearly as big or liquid, but it's it's it's there. It's everywhere, whereas the dollar is not literally everywhere. And you could imagine, I think, in a world that becomes more fractured geopolitically, I think it's pretty fair to say we're in a relatively multipolar world today. I think it probably continues in that direction. And so you'd probably want something that's more neutral in general available. It doesn't mean that it won't be the dollar. It won't be the renminbi. It won't be some other fiat currency too. I don't think they go away, but I also think it should be this way. I don't think it's right that humanity is

doomed to oscillate between one fiat currency printed out of thin air by one nation to the next every time there's a war. We should be able to level up as a species. It's kind of like the game Civilization. I feel like we really don't have a chance at becoming an interplanetary species until we figured out how to have money that's not in control of some bank in new york city well also how do you just get the money to another planet probably is uh yeah culty too do you really think they're gonna be like calling down elon the you know elon town or you know muskville on in mars like when they need some cash they're really gonna call down to the new york fed well uh did you see the blowback that he got uh he basically was like uh we're gonna

come up with the laws on mars and they were like no we can't let the billionaires get it whatever and i remember being like well if you want to make the laws like you got there first yeah get beat them there right like that's been the uh way the world's worked yeah thousands of years right if you get there first you lay claim to the land uh you can make the rules it's so true if you think of like what's that phrase they always say like a born too late to explore the earth and too early to explore the stars but you know at least i've got meme coins on solana um no i mean yeah when the when they land it's interesting i don't know i think it's it's reasonable for everyone to think one way or another um if you you know christopher columbus was sailing what at the time under the

mandate of the spanish i think right um he'd gone to everyone for money and i guess only they sent it i mean so technically he was claiming it for spain i'm not sure but of course that all got super messy and eventually and it was quite lawless so i i don't know i think it's reasonable for whatever existing national powers or powers at all to say no like you know elon goes like he's going for nasa technically they're his ships and but i mean like so we get to claim but i mean no matter what they whether they say that or not it's gonna be law of whoever's there i mean i don't think you can expect there's a good show um what's that show on uh on apple tv about this basically an alternate history of if the soviets had landed on the moon first and then it goes all

the way forward through mars and this the whole thing happens where it's like there's a technically there's a an american and a and a russian and uh like even a north korean in this future like enclave on mars and like they all follow their national things but like sometimes they don't it's like yeah you gotta figure it out right the frontier um is there a rate of return that bitcoin could breach to the downside that would make it unattractive so one of the reasons you said earlier gold with wings bitcoin is digital gold but it goes up you know whatever the these things are the compound annual growth rate has been very high yeah it has like a 50 to 100 depending on bull or bear market you know when you look if it only went up 20 a year would some

people not be interested 15 10 5 30 like what is the the down you know side kind of breach point where it no longer has wings or is gold but goes up and people would say actually it may not be worth the upside you know for the risk that i'm taking yeah i mean that will for sure i think there is if you think about like investing um you know if it's below the risk-free rate you know that you get on t-bills then i would say it's like anything that's lower than that it wouldn't be good um i i don't know what the number is i think obviously if it i think just i happen to have looked i mean you can pick the starting point for a compound annual growth rate at any point but i just recently like yesterday pulled the five-year rolling and it was like 52 that's great 52

annualized like kagger over five years um is an incredible return right but um you know if you beat every hedge fund yeah i mean and honestly i think it beat basically every crypto hedge fund we have a database vision track at galaxy research that something like 300 plus crypto hedge funds provide performance information to and literally a tiny handful have beaten bitcoin in the like since 23. what percent do you think it is i think it's less than 10 less than 10 of crypto hedge funds beat bitcoin yes since since like the start of last year um which makes sense i mean a lot of um well bitcoin's up like from 16.5 to start 2023 to you know we're we're correcting here a little bit but that to 73 000 like that's a crazy return that um so look but what about over a longer

period of time i don't know how much i could guess i would say um maybe like 30 percent yeah i would not i would say not more than half definitely not i mean it's tough you're going up against the big boss here and which i i think maybe what's interesting about that is uh if you go to the public markets definitely nowhere near 50 of the hedge funds beat the s p every year right right so maybe there are five ten percent max right but probably closer to five percent or less yeah um in crypto actually there may be a higher percentage that beat bitcoin because they're investing in a new universe there's more you know opportunity whatever but you would expect over time that actually the crypto hedge fund landscape will look similar to the stock landscape because

bitcoin will continue to be the kind of that s p and these hedge funds will have a hard time beating it year after year i think that's right i think also you're going to see more mainstreaming of blockchain rails like a crypto hedge fund may end up starting looking like a normal fund anyway if you get treasuries on chain or equities on chain i mean this is the people have talked about this forever it's like the you know what remember like in 16 it was like blockchain, not Bitcoin. The DTCC wrote this great paper about how they should be disinformated by the blockchain, how stocks should be on the blockchain. It's a great ledger. So anyway, that also I think is finally starting to happen slowly. Not like, you know, not a single name

equities, but you're seeing some fixed income securities. You're seeing some real estate actually trade on chain now. So I just mean for another reason that they could also start looking like normal hedge funds. But yeah, I think it's power law in the scheme of things, right? It's going to be um i don't think any of the big crypto hedge funds beat bitcoin so the the if we look by numbers like count of funds that did saying 10 i bet like five percent or less of the total crypto hedge fund aum actually outperformed bitcoin um yeah the question is too is that the index on crypto i mean i think it is i think it's the prize asset but i think there's a case to be made it's something else that like if the even ether could be that on crypto because it has the

applications that make up the broader ecosystem then again bitcoin may yet get those applications too um let's talk about all coin market uh one of the things that i think now people are trying to warm up to is this idea that uh man there's a lot of locked tokens that are going to quickly not be locked tokens which would insinuate that some percentage of them are going to get sold and so there's kind of this like wall of selling in the altcoin market that is on the way and you know i've looked at some of these coins there's like 80 of the coins are still locked and are not going to be locked over the next 12 to 18 months and so is it that simple like coins get unlocked everyone sells prices go down you know let's go home and go back to kind of the large caps

yeah it could be it could be that simple i think um we did some research and found there's 80 billion of unlocking token supply between now and the end of 2026 so the next two and a half years um it's and the entire crypto hedge fund market like i was saying is 20 billion aum as of the end of march according to our data that's the entire market of funds that buy liquid cryptos um so there's four times that aum coming or that supply coming on as so i don't know who buys that i think who is there to buy that wave um well the other thing would be like retail mania but let's face it i don't think retail is really here yet in crypto at all in this cycle i mean maybe buying bitcoin etfs i think most of the bitcoin etf flow in the end or the plurality

was probably people buying it in their iras and 401k brokerage windows and like on platforms advisors aren't even really here yet so i don't think that was really them some of the independent advisors sure so but that's again bitcoin not the same right i think the the performance of the ether etfs when they launch which i think is probably in the next like week or so week or two um will maybe tell us give us more information about this but again that probably even further um stratifies the market between okay now it's like bitcoin and ether you could buy these in an etf for financial exposure to crypto do you really need more than that isn't probably gives you 80 of the narratives in crypto maybe not all the upside certainly but i think most people will

start to just buy those two that further um you know holds back uh demand to buy the alts so i don't know i think it's a pretty unprecedented wave i don't think people realize how much token supply future token supply was created um in 21 and 22 and you know think about if you like bought If you're an investor or a VC and you did a simple agreement for future tokens in 21, you might have had a three-year lockup. Well, that's now, right? So I think it's pretty bad. I mean, I think that's a huge amount of dilution and supply for the market to absorb. And just based on the current market, I don't see where that $80 billion is going to get bought.

I don't think it's at these prices. Is there anything that the founders, foundations, or kind of participants in these markets can do to lessen the blow of these unlocking tokens? So I was thinking about, okay, what do we do in general? You've got the supply and demand side. So the supply side is your question. I mean, you could see you either stop the unlocks or change the tokens, right? And on the other side, you increase the size of the crypto hedge fund market. Well, we can work on that. I mean, we're in that market, right? So it's helping people raise, it's raising its cap intro. It's all that type of stuff on the buy side, on the, on the

demand, on the supply side. Yeah. You could see maybe like token, some token mergers. You could maybe see some DAOs or foundations, depending on what the situation is, like literally rework some of their rework, some of their token economics. You could see the, maybe buy back tokens to be clear like there's plenty of issues with doing that like that's tricky but i mean that's the type of stuff we're talking about depending on how these unlocks actually exist they may be immutable and can actually like not deliver you may be contractually obligated to deliver right so it's maybe thinking creatively i i think this is something they should be thinking about because no matter how good your app is or your protocol is like if if you designed the the

economic such that the token is going to be like effectively down only for potentially to all of the supply is absorbed like you're not going to have a good time i think it also raises questions about how to organize these types of token sales in the first place and i don't blame necessarily the protocols projects whomever for i mean we've got this it's this what they call the low float high fdv problem right where it's like partly it's kind of like water on pavement right the ICO was highly egalitarian, but very few disclosures. And so plenty of scams went through that way. But the projects that did actually survive, think of like Ethereum, Cardano, Tezos, highly distributed token supply. So actually, they look much better. But, you know, those were

thought to be illegal securities offerings or unregistered securities offerings. So they went this private transitioning to first private and then maybe selling. So like the simple agreements, So the protocols that launched like 20, 21, 22, they'll have much less dispersed supply, much more highly concentrated, which is bad, right, for those assets. I mean, and hard to solve. Again, that's reaction to the regulatory setup. Similarly, I think if we had a different way to do different types of sales or distributions that was regulatorily compliant and obviously safe for consumers and all that, you might think of something different where, for example, like the foundation or the team, they only get one token for every one token that's airdropped to the user. and so like more users equal more airdrops like the and then the team only gets funded as usage actually grows up because the other problem here anthony is that a lot of the projects suck right

so like why should they have yeah most right so why should they have a giant treasury and a bunch of millions of dollars or 100 millions of dollars when their their project failed or their company is bad right somehow we want to try to figure out if you're going to do tokens as sales and things going forward or as these assets that are tied to projects which is a neutral term i mean we could say companies i think for a lot of them then obviously the value of the token the full market value should be somewhat tied to the success or failure of the thing right um so thinking about ways to do that i think one way that it like right you can if every new time a user on boards they get airdropped a token then like then one for one maybe token and found not

this like predetermined schedule where the investors get all of this locked for a period and the foundation gets this and the team the contribution like that that ends up with a bunch of people with um with tokens that whose value is totally disconnected from the success or failure of the project i don't want to say who it is but somebody recently uh came in here and um we're meeting and they said to me you know what i think that actually uh token m a is going to pick up and we see a huge opportunity to go and basically create a token yeah and then use that to acquire the ip the product the user base uh token holder base etc of these other tokens and so we'll just give them some of our token we'll take all their tokens we'll burn them we'll then

get their users whatever is that going to happen i mean that's one of the things i'm talking about when we say um like on the cell supply side right i said talk to dows you talk to redesign tokenomics i think mergers is possible i don't know if it's like i haven't thought about whether the way you do that is by creating a new token raising for that and then using that you could do that you could you could buy the dow by influence with the dow or buy up the tokens like so like a like a hostile takeover basically you could do that for some of them um if the dows truly do control the thing a lot of the dows are you know decentralized in name only they're they're like um snapshot votes only um you could i think you could also just in general i think straight

up merging some would be a solution here um does everything need a token i mean obviously the answer is no yeah we know why a lot of them want one some of them do some of them have good reasons for existing many don't should collapse some of those together i think that makes sense um the ether etf looks like it's gonna get approved in the next two weeks or so um how much money's gonna flow into these things yeah we just um sent our version of this report we did this report for bitcoin in october i think we talked about this and um we did um we said 15 billion in year one 14.5 billion in year one would take us to 75 000 bitcoin well we basically we're now at 15 in bitcoin but 14.5 did take us to 73.9 um and so that for bitcoin that's pretty good that was

pretty good analysis although here's where we were wrong we got to 14.5 totally not why we thought we said that that was the advisors would drive that we got there without them they're not here yet so actually that's bullish thankfully so it makes us small we won't finish the year with 14.5 we'll end up being lower but yes we we think we'll be lower than i'm saying sorry we'll we'll we will have been well low in our prediction so we'll be much higher yeah i don't know how high in the amount that went into the etf yeah the net inflows into the bitcoin etfs in year one will be much more than the 14.5 we predicted but that 14.5 we were right about the the volume uh then flows to the spot price really so looking at the ether ones we take it we didn't take the same approach

Instead, we said, I think this is what most people are now doing. I've seen a couple, Bitwise published one, Bernstein published one, the Bloomberg guys have some estimates. We're all kind of like now taking the empirical data we have from the Bitcoin ETFs and saying like, okay, how much less will it be? We all agree that it will be less, at a minimum, just because it's proportionally market cap less. You know, Ether's market cap is maybe a third of Bitcoin.

So you think even if it's just as successful, a third is what it should be. um we we take it so we did some work we come around to say it'll be about 30 percent of the bitcoin flows over the first five months if we compare the two which puts it up you think eth is going to get this i think 30 percent yeah so this puts us at the high end of what people have said i've heard that sounds fucking insane i've heard 10 look here's the thing we it's a naive assumption it's purely market cap weighted right there are plenty of reasons why it should be less we get this yeah one all the some of them and we list them we just choose not i can't really quantify them yeah yeah so we choose not to just like arbitrarily be like and start with 30 but

like cut it in half like it could be half for sure um no staking means that the anyone in these etfs is effectively getting like a 370 or 400 bp additional fee um no marketing right i mean there's gbdc ads all over the world in every airport i haven't seen a single eth ad right because nobody thought this was gonna happen um not a four-month drumbeat of like bullish telling the world that this was going to happen right different time in the market too i mean bitcoin etfs came online like right when we were like we're back like felt aggressive uplifting right now we're kind of like in chop chop sideways for months right um so plenty of reasons why it should also more in my mind more complicated narrative yeah i think the narrative is the

biggest problem yeah i don't know what it is one of the greatest mistakes that the people in the ethereum community made in my personal opinion is they tried to do the ultrasound money stuff and instead they should have just said bitcoin is trying to be a sound money currency uh we are trying to be something else which is where it really started yeah right uh and we're going to be the best general computer in the world and here's all the use cases and all these things that you can do on top of it we're laser focused on this use case uh and i think they would be much further ahead than they are now but when you start to try to have three four or five different narratives if i talk to people in the institutional world today and i'm like you know

what what is ethereum they actually will tell me different things with bitcoin i don't get that yeah bitcoin actually like the bitcoin community is now trying to add new narratives with like l2s and like all this kind of stuff but really everyone agrees it's like it's store value yeah and it's such a strong like meme or narrative that it works ethereum they kind of like go back to the presentation deck right like rework it get the designers i mean yeah i've heard i've heard internet bond which is their ultrasound money idea because it has a you know risk free rate from the staking rewards i've heard um world computer was the original which i like that made sense to me i call it by the way a general purpose blockchain meaning you know not bitcoin

basically something you can write arbitrary code on that's nobody knows what that means if i use that to sell it right if if they say um and then you hear i've recently i've heard the app store bitcoin's digital gold but but ethereum's the app store i'm like i i don't know what that means either. Right. I mean, so I agree. I mean, look, to be clear, like the 30 percent is just we're saying this is the market cap weighted. The real juice in our report is that we actually whatever it is, we think the correlation between inflows and like net inflows and Ether price appreciation will be higher because there's so Ether will be more price sensitive to the ETFs because there's much more inner or locked supply on Ether than there is on Bitcoin. Sure, there's plenty of

inactive supply but that doesn't mean it's like stuck right like on bitcoin on ether a third of it's staking right now right so like that definitely doesn't get unstaked and put in the etfs because they don't get the staking rewards right there's another giant chunk that's in defy right it's collateral sticky right so i think it's actually less liquid from a supply standpoint probably on a net basis than bitcoin so there's um it whatever the flows are um could have an a bigger impact again, up or down theoretically. Like, I mean, there's a big chunk of ETH that's probably coming out, right. If GBDC is any indication. So as high as 30%, I mean, the other thing too, there's plenty of reasons, but I also, we were so blown away. Like I said,

our entire estimate for inflows was that advisors are the ones who need this product. You can, you and I can buy on Coinbase or. No, it's all retail. River.com. Right. They didn't even come yet. So there was all, most of this was probably a 20% of it was hedge funds and 80 of it was retail on like fidelity schwab td whatever e-trade right um so i just don't want to like mid-curve this i think it's possible i think that's boomer flows by the way yeah maybe right it's uh oh finally my kid's been buying this on coinbase but now i don't have to go sign up for a coinbase account i just do it like mid you know people even our age like millennials who've been working for a while maybe they have it you know they even if

they we already own like bitcoin or crypto whatever you like like you know i already own bitcoin but like i've been working for 15 years like i have a 401k that i could never put bitcoin in and now i can't like there's a lot of money out there that i think that relates to so i'm just saying like i actually think also sentiment has turned so bearish on the net inflow predictions for the ether etfs for good reason i listed some of them i agree with all of those i personally i would if i wanted to buy eth i would try to buy it and put it somewhere that's staking it like i would not do that but i just think i think people are maybe they're just going to be surprised at the upside what number for inflows in the first month or five months or whatever you would say

this product failed oh man um it's not going to be zero no i don't think so well i don't know he's going to probably unwind half of it but let's just say that if a billion dollars net inflow i think that's that's positive in one month or in five in a month or six months whatever yeah i i think that would be um compared to bitcoin's 14 billion yeah so they i mean yeah i mean um god that's tricky i think i think less than market cap weighted is reasonable so like you know less than a third of 14 you know so four or five um i think like less than five can be seen as a disappointment because it's underperforming on a weighted basis i don't think that's really fair because as we said like these etfs think about like bitcoin is a store of value so storing it

inert in an etf it's not as crazy a thing to do as taking this thing that powers all these apps the app store and then just like not using it it's like buying aws credits and putting them in a vault and not using them on aws like that's stupid so it's it's a net worse product than the bitcoin etfs compared to the underlying so it should be lower i don't know i'll just pick a number two billion less than two in a few months i think is a is not a success yeah that's kind of where the bar is pretty low for success though to this point i think nobody it's now it now you're looking at effectively unsophisticated um crypto investors who want eth exposure if you're sophisticated you would stake you would try to stake right and you can do that at like retail broke retail exchanges

it's not like hard to say um so you're really looking at like capital that simply can't right what's going on with the bitcoin l2s i know that there's a lot of excitement there's a lot of energy yeah there's a lot of apps um it seems like every day somebody is pitching me twitter dm email text stopping me in the street right with i'm building this thing whatever do any of them work i don't think any of them have really launched yet these new ones you have some code from some of them um there are some that i know the teams at um that are that are good um you know i think the real thing that's strange is there's two big questions one who needs these or what's the market for this right do we think that bitcoin store value people are like going to jump it you know

they didn't do the token trading or lend and borrow in the ethereum world just because it was ethereum related but the second it's like bitcoin adjacent or affiliated they're gonna go in i don't think so at scale so i think you're mostly competing with the other it lets part of a new part of the bitcoin ecosystem compete with ethereum and solana and that is interesting to me so long as it doesn't you know screw up what makes the core of bitcoin's value prop and i don't think it will but that's something it's reasonable to wonder if it will and be vigilant the other question is how are the roll-ups going to pay for the bitcoin block space it's expensive to post to bitcoin right we're talking about using bitcoin as a da layer a data availability layer it's the most

expensive block space often sometimes eth is slightly more expensive for sure they plenty of times it has been it hasn't been recently but um they've altered the blockchain um on ether particularly with proto dang sharding to just to make sure that it's not too expensive with all of the l2 posting going on there we bitcoiners have not done that right so you know we're doing some research on this but if you think that one or two they each have to to post maybe 200 to 400 kilobytes per block. There's about 4,000 kilobytes total available per block. Now you got, say, three post 400. Now that's 1.2 megabytes taken up in every single block. That's only like two or three of them. That's going to cause fees to be expensive on

Bitcoin L1 for everyone, but also for them. It's the sequencers in a roll up, collect the fees from their users, use that to pay for posting their data to Bitcoin or to the DA layer. How much usage are they going to need to generate the revenue to pay to post? How many of them can generate enough revenue to post? I think it's two or three, not 65. We think there's 65 trying to launch. So it's an interesting question of like, at what point is Bitcoin successful? Right now, I would say that it's got product market fit as a store value. There's a lot of people who really wanted to be a medium of exchange questionable whether it has actually achieved product market fit there and worked i would argue probably not actually which may

surprise people but yeah but it's trying and there's at least a light at the end of the tunnel you're like okay a couple things got to go right and like there's a world unit of account obviously would be another big one and then this like settlement layer for all these l2s etc yeah If Bitcoin only becomes a global store of value and it occupies one to five percent of people's portfolio globally, is Bitcoin successful or do you need these other use cases for it to kind of achieve, you know, a degree of success where like the Bitcoin community would be like, you know, we did it. We did it, Joe. That is a tough question. I think it doesn't need them. I think purely a digital gold asset

would be a real achievement because you're still able then to take your wealth out of a perpetually depreciating, inflating fiat system and store it in a digital scarce commodity, right, that is global, can be sent, stored, whatever, and has those properties. That's if it doesn't become money in the medium of exchange sense. If it doesn't become if we don't achieve what some people call hyper Bitcoin organization. I think the idea is it's hyperinflation, except it's the Bitcoinification

process. I don't think it needs that to be successful. Do we want that to happen? Right. I mean, like there's this world where people used to always ask me, like, what happens if the power goes out? Yeah. Right. I'm like, dude, you're not going to want Bitcoin. You're going to want a gun. Yeah. You're not going to want dollars either. Right. You want a gun to protect yourself and your family. Yeah. If it is like full on anarchy, there's no power in the united states yeah like i hope you know how to make food out in the woods it's always it's always some somebody that like their whole bank their whole like financial life is operated through a fintech neobank that says that you're like you're not gonna have any money either bro yeah

so i think that's like one but like on the other hand it is this weird world of like hyper inflation is not fun no i've talked to people who've lived through it they're like i know one guy uh who literally said i went to work one day and i calculated i was making 30 cents a month i stopped going to work yeah right and he's like and all of my colleagues thought that basically i was like not fulfilling my duty of like going to work every day and he was like do you understand they're not paying you yeah right like we think we're getting paid we're not getting paid anymore why are you going to work and not getting paid and so this like hyperinflation narrative which like it sounds cool that bitcoin's price you know hyper inflates

but it only happens in a world that like again maybe i'm completely oblivious to some scenario but it kind of sounds like there's just carnage everywhere and that's not a world that we want yeah we don't want it to hyper bitcoinize right or hyper we we want it to be slow and steady adoption i do think we should the world i do think the world would be a better place if governments had more checks on their monetary policy and you know being tied it's just grind up yeah basically that's what we hope for yeah bitcoin yeah you don't want to wake up tomorrow and have bitcoin gone from 61k to 1 million dollars per coin that is a scary world that's a very scary world we'd like to slow and steady wins the race i think that will ultimately happen

we don't want to see those big that means like collapse of governments and stuff that would lead to some jump like that. But I think there is a world where governments and in the case of our, you know, our Federal Reserve is not part of the government, but the Federal Reserve, our central bank is constrained by physical reality to some degree when they print money. I don't think that necessarily everyone's going to be spending Bitcoin, but I do see a world where a scarce digital asset, Bitcoin, could be the underlying reserve or a portion of it somewhat akin to what Hal Finney suggested with his Bitcoin banks post, which was more of a free banking idea that banks would issue their own paper, but it would be backed to some degree or not by Bitcoin. And

that would help determine the face value of that paper. I think the era of just unchecked fiat currencies, like it just doesn't, I think they are pretty much guaranteed to fail forever. So like, it's just, look, we can go through this for another, you know, 500,000 years. For all we know, we will. I hope we don't. I hope Bitcoin is something that gets us out of that. You know, wouldn't the French have loved to own Bitcoin or wouldn't they have loved to own the British pound when the British have loved to own the dollar if they knew. Right. I'm pretty sure every fiat currency in history has been dethroned from the World Reserve status and every fiat currency has basically inflated to, you know, effectively zero compared to where it started. So like there's got

to be some break in that chain. And I think Bitcoin could be that. But it doesn't mean that like we don't want to get it too quickly and I think part of this would be a national Bitcoin strategy like just to hold some hold some the US government has been selling Bitcoin for like 15 years right or 10 years we should say right uh Tim Draper famously bought all that bro some of the 30 000 or something I think I just thought one of our analysts said that they're moving coins on uh on chain right now the US government right so you know I don't I'm not gonna do them the favor not calculating how much money they would have if they just kept that bitcoin but um i think that's part of the way you start to do it in a more like orderly fashion to me every world reserve

currency is destined to fail you'd have to believe in the end of history to believe that that's not going to be true so you may as well like shouldn't you hedge and uh no no brainer yeah i hope we get there what um what are you guys doing at galaxy galaxy is this like monolithic you know death star down in uh well and it is like you know our uh well i'm not gonna say what it is but our wi-fi password is or for guests is is a star wars reference and it's called galaxy because novogratz loves star wars there's plenty of star wars art all over there so yeah i don't think of us as the death star like hopefully we're on the good so well i guess in that one the empire is bad and the the terrorists are good and star wars right um whichever side we're on i hope it's the

winning one um so what are you guys doing well i mean we we are just here like still right i mean when i started like i i thought of like um dcg and galaxy as the big competitors to each other like that they had both had trading and derivatives and lending and asset management and mining in some way and venture um now i think that i think we stand clearly above them now given what's happened at genesis and um and the rest of dcg's sort of world but i mean we're i think we're the biggest derivatives shop now we're the we're a cftc swap dealer which you only get to you're required to do when you hit a certain amount of volume um i don't know if there are any others so that's volume based so i think we're the biggest um we didn't blow up um we just announced i think

um some interesting new partnerships we've um i mean yeah i don't know we're just out here cruising dude it feels like one of the partnerships so we just announced um we're partnering with state street to launch managed etfs that include exposure to bitcoin and eth so it would be equities like right but um you have these etfs now so also those um so that's partners with partners with state street like you know working with basically some of the biggest asset managers in the world it's like we're it feels to me it was a fidelity for 12 years before i came to galaxy like and i love fidelity i still do um and i use fidelity by the way for all of my TradFi stuff. But they didn't feel like the center. When I'm standing on the floor in Galaxy

with my research team and the trading teams there, there are many centers, thankfully, in crypto. It's a decentralized global market in addition to movement. But it feels like one of the true centers of what's going on. And so we, I don't know. Yeah, we're here and we're cooking, dude. What's it like working with Mike Novogratz? It's great. I mean, Mike is a brilliant trader. I think Stan Druckenmiller in a Bloomberg piece about Mike a year ago said, look, Mike's had his ups and downs, but, you know, this is a volatile market and he's still here. You can't be a trader for 20 years and survive without being good. But he's also he is downtown Bitcoin Mike. That's how I think of him.

Like he is the Bitcoin guy in lower Manhattan, like has been for a while. And dude, he's a funny guy. He's got great sense of fashion that you can both cheer on and, you know, ogle and ridicule. Yeah. He's fun, man. It's a fun, it's a fun place. You know, what is the biggest thing that people don't know about galaxy that if they understood they would get a sense of the culture of the team? It's a young company. It's I'm probably in like the top, like decile of people there age wise. And I'm, you know, 38.

so um and everyone there from the people who work on you know crypto vc or like trading cryptos to the people in our back and middle office right hr and and marketing and finance like they all love crypto like this is a company of people um that came from traditional businesses traditional finance to work on crypto this isn't like this is a a real um it's a real thing for for us right like we same same with me like you know i i didn't i can't go back to the i did legal and compliance before i was into bitcoin i'm not going back to that right like we're all in so um and so are our employees looking forward um i think people believe we're in a bull market seems to be that way um what are the big milestones you think we'll have hit before the end of this bull market

oh yeah um i'm a little bleak for the next couple months it's summer volumes low there's not a lot on the calendar but i think the election's a major catalyst one way or the other potentially i think before this cycle's over i want to see bitcoin in like at least the two hundred thousand dollar range just straight up like that it doesn't feel you know i think it's reasonable to say it's possible yeah I do I think it is possible I don't think we're gonna get there well because the volatility gets so it's possible well it's possible yeah it's definitely possible we may not I mean I I fear that we won't I fear that like the diminishing returns of these cycles but I also hope that we can stop talking about cycles one day shouldn't you know I've seen this chart I can't

even figure out how people make this chart I was talking about the global liquidity cycle um the four-year one yeah it lines up with the having that also lines up with every other four years everything yeah it turns out it's like the fibonacci number i guess four years every four years the elections and um i would like bitcoin to become more widely held and stable so we don't have to like go through these ridiculous like situations there's no reason that it should like i mean it's actually insane that it went from 69 to 16.5 to 69 like it should just like that you should just hold right through that never even know you wouldn't even know didn't know ftx collapsed didn't know you know block fi collapsed didn't know that luna collapsed you

wouldn't even know you shouldn't have to know like bitcoin is not really related to the volatility that we've been seeing um and and it should become more widely held and more stable so like i'm not sure if cycle i now will cycles exist i mean i i'm not gonna bet i'm not gonna say this is the last cycle i don't know but i would like to see bitcoin higher i would like to see um i would like to see some equities some publicly traded equities get on the blockchain you know like legally i think that's like i mean i've been hearing about tokenization i for literally 10 years we were looking at it once um i think when i first talked to you we were both looking at there was all those companies and some of them have done well there's secure ties and republic and

that are still here but it was remember there was like there was like dozens of these platforms for doing this and we were joking there was more of these token issuance platforms than there were token issuances we're still kind of there like rwa quote unquote there's a decent amount it's a trend no doubt but um that's mostly just like opportunistic tradfi yields trying to serve crypto money that wants tried by yield on chain it's not like no one in like in like public boardrooms or in on wall street's like oh man we need an amm for this they're all well served by the current financial system right i'd like to see somebody come up with like a you know a true 10x experience that's better because i believe public blockchains are better ledgers for ownership of assets than

anything we've ever seen so like why should it be like like where is my apple stock where is it i don't know is that fidelity no it's not it's it's not there it's fidelity has a claim on it apparent in my name i mean and there's there's legal structures like protecting me here but and regulatory rules about how that has to be stored yeah we don't want people to hold the stock certificate on their phone not necessarily like a bearer asset i'd like us to be able to know directly like think about things like short locate or um blue sheet reporting there's all the stuff that you have to do that's literally just like send a csv to finra or like or like how do we know they did the short locate often they don't they're required by rule but like can't prove it

like you could they should be using in their infrastructure this stuff i'd like to see that that happen um i don't know i'm making up a bunch of things now but there's a couple good ones i think it's a great list where uh where can we send for people to find you on twitter and also where can we send them to listen to the podcast which oh yeah galaxy brands with a freestyle yeah uh galaxy brains great podcast galaxybrains.io or just google galaxy brains um i'm intangible coins on twitter and uh you can read all our stuff that's public galaxy.com research you guys do a fantastic job so i appreciate you putting it all out there i like to take your chart sometime and put them in the letter that i write yeah and then i give you a little hyperlink and i say look how

smart they are so there you go yeah i appreciate that all right we'll do it again in the future All right. Thank you, my friend.