The Pomp Podcast - #1398 Daniel Batten | Countries Buy Bitcoin Worth $1 TRILLION?!

Episode Date: August 22, 2024

Daniel Batten is the Co-Founder and Managing Partner of CH4 Capital. Daniel is an ESG investor and believes bitcoin mining is one of the most important technologies when it comes to the environment. In this conversation, we talk about what is holding back sovereign wealth funds from investing 1% of their assets into bitcoin, ESG decision making process, what it will take to educate them, and what the impact of sovereign wealth funds and countries will have.  ======================= 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. Today, I've got a special treat for you. We have Daniel Batten, the co-founder and managing partner of CH4 Capital. He's here to talk about Bitcoin

mining. Now, why is it interesting to hear Daniel talking about Bitcoin mining? Daniel is an ESG investor. He's someone who has taken a ton of time to study the environment and the various impacts, both positive and negative, of all kinds of different technologies. But a couple of years ago, I saw Daniel on Twitter and he started talking about Bitcoin, which I thought would be a negative thing. But instead, Daniel believes that Bitcoin mining is one of the most important technologies when it comes to the environment. That's right. He's an ESG investor who is pro Bitcoin, which is quite unique. In this conversation, Daniel and I both have a conversation all about what is holding back sovereign wealth funds from investing one percent of their assets

into Bitcoin. He talks about their ESG decision making process, what it is going to take to educate them, and then what he believes the impact will be once sovereign wealth funds begin buying Bitcoin. Let me tell you this, having Daniel Batten on our side is a real treat and I'm excited that he continues to do so much work on the ESG impact of Bitcoin, Bitcoin mining. Here is my conversation with Daniel Batten. 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. Today's episode is brought to you by CrossFi. CrossFi is the Apple pay for crypto. For the first time in history, anyone with a Web3 wallet like MetaMask can spend crypto through a physical or virtual Visa card anywhere in the world where Visa is accepted. No more exchanges or middlemen. Just link your wallet, get your card, and start spending today. CrossFly 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 CrossFly card and a prize pool of up to $3 million by joining and participating in their testnet today. You can go to xfi.foundation.users.

Again, that's xfi.foundation.users. Go check it out today. Today's episode is brought to you by iTrust Capital. Are you buying crypto on an exchange because you're excited about the bull run? Well, I hope you're reporting your crypto gains to the IRS because they want you to pay your taxes. That's right. When you buy and sell crypto on an exchange, you need to pay the government taxes when you make profits. That sounds pretty taxing. There's another way you can buy and sell crypto without worrying about taxes.

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That's itrustcapital.com. All right, guys. So I thought a great place to start this conversation, Daniel, would be around these sovereign wealth funds. They're the last great big pool of capital that hasn't been very vocal about going ahead and buying Bitcoin or allocating to this asset. Obviously, with the approval of the ETF, a lot of people are hoping that they'll start to look at Bitcoin as an asset to put into their portfolios. You spent a ton of time looking at this pool of capital, their decision to buy Bitcoin or not. What have you found in that research?

So a couple of things. First of all, who does sovereign funds include? It includes three types of entities, sovereign wealth funds that hold the wealth of sovereign nations, number one. Number two is public pension funds, such as the Wisconsin Pension Fund that recently bought $160 million of Bitcoin, the first one, through Grayscale. And then the third entity is central banks. Now, of those three, we can probably exclude central banks as being unlikely to buy Bitcoin anytime soon. But if we look at those other two entities, the sovereign wealth funds and public pension funds. Collectively, they own $35.7 trillion of assets under management, which is quite significant. That's more than the US government debt right now. So it's a huge

amount of money. And right now, we know that almost none of that can deploy into Bitcoin. And the reason that it cannot deploy into Bitcoin is that all of these sovereign wealth funds have a compliance committee, which has an ESG investment committee, which sits over the top of it. And they have flagged Bitcoin as not ESG compliant. In other words, it fails on the environmental component. Now, we know that that's based on huge amounts of misinformation and old data, which has subsequently been debunked. However, these mythologies live on in people's minds for a long time. And so we are facing the consequence of a lot of misinformation for a long time that has excluded Bitcoin from being an investable asset. So what typically happens

instead is you'll get entities such as the norwegian pension fund that can deploy through other mechanisms so they can invest in micro strategy they can invest in marathon digital holdings and that's what they'll do and they'll have small deployments of bitcoin and they get this deployment not because they're actively looking to hold bitcoin but because their algorithms have told them that these are over performing stocks this is the irony and so they're actually buying Bitcoin or Bitcoin exposure indirectly and without realizing it. So that's the situation we're in at the moment. And if we can get even 1% of assets under management deployed into Bitcoin, this would have a massive influence. It would be the next wave of institutional

adoption. It would be enough to move Bitcoin price to over $148,000. And that 1% asset under management allocation we know that's reasonable because a lot of these wall street funds with etf exposure have already allocated between two and three percent so it's needle moving it has a well identified blocker that can be fixed and the next step is for us to take that conversation to these sovereign wealth funds and start to update that information asymmetry with the latest data the latest information such that they can reformat their views of Bitcoin as an asset class they can invest in. So it sounds like Bitcoin is blocked, if you will, based on their evaluation of these kind of ESG concerns. How do sovereign wealth funds historically deal with tobacco

manufacturers or maybe other things that might not fall into the oil and gas industry that aren't really kind of ESG friendly, but I'm assuming they still have some exposure to those assets as well? In some cases, yes. Now, we know that ESG has been weaponized and has been used in some ways that are crazy. In some cases, let's say, quite frankly, because they don't look for any sane person's reckoning like these have anything to do with protecting people in the environment. So this term has been really weaponized. But the reality is that whatever your impressions about it, these ESG investment committees do exist. They do have metrics and rubrics they have to go through.

and one approach is just to say well who cares about them let them stay poor but the other approach and this is a proper approach that i prefer to take is to actually engage with them hear their concerns see why they can't invest because in many cases it's based on as i say it's out of date information so we can correct that information bring their understanding up to date hear their concerns present them with the latest data such as the fact that the scientific consensus, nine out of the last 10 peer-reviewed articles on Bitcoin, all say that it has positive environmental externalities, then we can get some different answers from these sovereign wealth funds and we can allow them to hold Bitcoin on their balance sheet. So that, for me,

seems like conversations that are worth having. Now, what's been fascinating to me is sovereign wealth funds are very similar to countries to a degree, as you outlined. El Salvador has chosen to participate in Bitcoin as a country in a multitude of ways. They are mining. We see them buying Bitcoin and holding that directly. But we haven't seen them necessarily buy the ETF as an example. There are other countries that are mining Bitcoin, but we don't yet have any country that has come out and publicly disclosed that they are holding the ETF. And so is your thought process that these countries are going to choose between mining and actually buying and holding Bitcoin directly out of the spot market? Or could we see some of these sovereign wealth funds actually go

and buy the ETF instead of maybe hold the coins themselves? Yeah, they won't hold the coins directly. They'll have rules that will prevent that sort of self-custody. So that will have to be through an ETF mechanism or similar. That'll be the mechanism. So the fact that the ETFs have come along is important because it does enable them to get involved. That's why the Wisconsin Pension Fund was recently able to make that allocation.

It wouldn't have been otherwise. And if we look at sovereign nations, one of the great excitements and hopes of 2021 was when El Salvador adopted Bitcoin, there was a lot of hope that a lot of other sovereign nations would follow. Similarly, when MicroStrategy adopted a corporate treasury position, there was a lot of hope that a lot of others would follow. And until recently, no one else has adopted a corporate treasury position, no one anywhere near as high as MicroStrategy, and no other sovereign nations have adopted Bitcoin. And that's because for sovereign nations to hold Bitcoin is hard.

However, for sovereign wealth funds, it is relatively straightforward, but there is a block we need to address, which is these ESG investment committees. But that's really the only blocker for the most part. Now, the interesting thing is that when the Wisconsin Pension Fund announced that it had adopted a Bitcoin position with $160 million of exposure, which, by the way, is tiny, that's 0.1%, less than 0.1% of its total assets under management at the time. And that was enough to move Bitcoin price up by $1,000 on the day. So that was significant for a 0.1% allocation. Now, imagine if it was a 1% allocation and that's just one fund. Imagine

if three funds did it. Imagine if 10 funds did it. Imagine if 50 funds did it. Because there's 100 funds in the world, public pension funds and sovereign wealth funds, all of whom could hold Bitcoin in the balance sheet, who have an average AUM of a quarter of a trillion dollars each, that's $250 billion. So a 1% allocation from even one of them would have a significant upward movement on Bitcoin price. Now, when we go and we take a look at the decision-making process here, I'm assuming one person can't make the decision. And so there's got to be some consensus building. What does that look like? And how do you expect the Bitcoin community to go and educate these people and kind of get that consensus driven so that then they can

go ahead and make the allocation? It requires us to be curious because there will be different considerations for each individual sovereign wealth fund. So we'll all have an ESG investment committee, but they will all make decisions in different ways. They'll all have different things that they've decided is important within that. And so it's about not making assumptions, but going in and just, as with anything, when you're looking to change minds and hearts, is do a good job of listening, find out how they measure, how they make decisions, and then based on that, present the data, which is going to help them to make a different decision. Because you can absolutely bet that a lot of the data they have is anchored in the past. And are there certain sovereign wealth

funds that are kind of the tipping point? If this one does it, then we should expect 10 more to follow versus if this other one does it, no one's going to care. How do you kind of think about who are the inflection point kind of decision makers in this process? It'll be geographically based, I would imagine. So we've already had the first, which was Wisconsin, as I said, about a 1.1% allocation. It'll be more order of magnitude of AUM investment that will make the big difference. When it's 0.1%, people look at it and think, well, that's nice, but that's not really that significant yet. I don't think it'll matter so much where in the world they're in. It'll be more the quanta. So when the first one decides for a 1% AUM allocation, that's when you'll start to

see other people take serious interest. Now, the ones in the US will be probably more influenced by the ones in the US. The ones in Europe will be more influenced by the ones in Europe. The ones in the Middle East will be more influenced by the other ones in the Middle East. So if we can look around the world and pick these different geographical areas and just look for who is the one who's the most receptive, then that can be the one that can excite their peers and colleagues in the interest to make sure that they don't miss out. Because until now, they're assuming that none of their colleagues are able to invest. The moment that assumption is no longer valid, that completely changes their propensity to want to look at Bitcoin as an asset.

Two of the leading US presidential candidates have come out and said that they want to create some sort of strategic Bitcoin reserve within the United States. Do you think that that could be a catalyst where globally people say, well, I pay attention to my local or kind of geographically similar sovereign wealth funds, but if the United States does it, that kind of trumps everything and could be a massive catalyst that causes there to be somewhat of a scramble at the nation state level for people to go and get Bitcoin? So that's one way that it can be done. that's a nation state holding it as a strategic asset is different from a sovereign wealth fund holding it on their balance sheet so for me i'm not too fussed about whether nation states choose

to hold it on their balance sheet or not these arguments each way some people say it's for individuals it's not for sovereign nations when it's however public pension funds these are organizations that are holding on behalf of people who've invested their savings into these public pension funds and they're making decisions on behalf of the people. So it's a very different proposition. And for me, that's the one that excites me more. It's also the one where I think we have greater control and there may be fewer political roadblocks to achieving that. And then as we see this kind of play out, what is the progress that's being made on the environmental side with Bitcoin? Obviously, there is a kind of methane mitigation. I know you've

been working on, a lot of stuff related to landfills and what can be done there. Just talk about how much truth is there that Bitcoin is actually good for the environment or can have this positive impact? Huge amount of truth. And we're seeing this borne out by the literature now. So basically, what Bitcoin mining companies have been telling us for the last five, maybe even 10 years has now been borne out. What tends to happen when you have a disruptive technology is that the science will lag behind the technology and then the media will lag behind the science and then the public will lag behind the media which lags behind the science which lags behind the technology so we see the same thing play out which is the people who've been closest to the

action the ones who are actually doing the bitcoin mining have seen for many years now how if you have a person who's a wind farm or a solar farm or a hydro farm or any form of energy and they have surplus power as variable renewable energy normally does, either water that falls over the edge of the dam, sun in the middle of the day that no one can utilize, or wind in the middle of the night that no one can utilize, then what you really need is someone who's an unfussy consumer of that power who can take it when no one else wants it.

And you and I, we're the worst users of power. We use it when everyone else does it, which is when everyone wants it, five o'clock at night and probably first thing in the morning, depending on our heating or our cooling requirements at the time. So Bitcoin mining companies are the antidote for that. They're very unfussy. They can take power anytime. And it provides that first and last customer for these renewable suppliers that otherwise

would have simply wasted and squandered that energy. So Bitcoin mining is preventing the wastage of energy. And we're now seeing the peer-reviewed literature endorse that. That's why I said in the last 10 different peer-reviewed pieces of literature, nine of them highlighted positive environmental benefits to Bitcoin. That's huge. We've also seen that in the mainstream media, which again is lagging the science, that's starting to catch up. And since April 2023, there have been more positive stories about Bitcoin and energy than there have been negative. This is a massive turnaround. We've seen for the first time sustainability magazines,

independent research institutes even the world economic forum consistently coming out in favor of bitcoin and its environmental benefits so they're real they're numerous they're diverse and the evidence just keeps on stacking and stacking and stacking so that's something worth celebrating that the truth is absolutely coming out now the challenge is that for a long time the truth did not come out so there's a lot of people who over a long period of time were drinking from a poisoned well, and that was the mainstream media who were telling them that it was bad for the environment, that it was using too much energy, that it was opening up mothball coal stations. Turned out not to be true, of course, but that's what was reported repeatedly.

And so now the need is to go back and re-educate people. And re-education takes longer than education because you're not starting in some cases with people who are ambivalent or neutral technology, but people who may have formed an adverse opinion against it based on their information sources, which, as I say, are either out of date or were never true. So that's the work that's in front of us. Now, as those positive articles keep coming out, is there like a reinforcing factor where journalist A writes a positive article, journalist B reads positive article, then goes and writes another positive article, and we almost kind of dilute the negative attacks that are unfounded

by just overwhelming it with positive articles. Like you don't have to fight the negative articles. You can just help educate other journalists who want to create the truth and write more positive things. And ultimately the positive outweigh the negative and people kind of forget about the era of Bitcoin mining

that was constantly under attack as this like negative thing that was hurting the environment. That'll definitely be the way that things progress. We saw that with the internet. When the internet first came out, it was attacked by telecommunications companies who tried to use regulatory levers to stop voice over IP.

And then they worked out they could actually make more money off the internet. So they just got behind providing us another additional service, which was a much better idea. And then the other attack vector we saw was the environmental narrative again, which was Bitcoin, rather the internet's going to open up all these different coal stations. And Forbes even has an article from 1999 that says exactly that. So the attack vectors, the regulatory and the environmental attack vectors

were exactly the same. and then the internet exploded it got huge and people saw its obvious utility to humanity and everyone who wrote those articles pretended that they never did so the same will absolutely happen with bitcoin and there is more work to be done because unlike the internet bitcoin threatens some of the most powerful institutions in the world the internet threatened the print media it threatened telecommunications companies it did not threaten central banks it did not threaten banking networks. It did not threaten authoritarian rulers. And so Bitcoin threatens to disintermediate and to remove the power from some of the most powerful institutions in the

world. So it has some other headwinds to contend with. And so the challenge is that, yes, absolutely, the journalism is turning around. The problem is that right now, the amount of citations of the negative articles about Bitcoin. I'm talking about peer-reviewed journals now. There's 45 times more citations of those than there are of the positives, simply because they had a five-year head start. So we've got a bit of work to do. It'll take a little bit of time, but it's definitely trending in the right direction. And it's a little bit like you're rounding the corner in an F1 vehicle and the driver's heading in the right direction, but the vehicle's still going sideways. And sooner or later, the momentum will stop and that new direction will start to take over and

will start to go in a whole new direction, which is that all these ESG investment committees flip completely, not from negative to neutral, but from negative to positive. It will happen on a dime and most of them will deny they ever had a negative stance in the first place. We're not there yet. So we've been talking about mainstream media. How important is academics and kind of the academia world to the future positive coverage and kind of the truth getting out about bitcoin mining it's incredibly important because without the academic research policy makers and regulators and esg investment committees and compliance committees cannot have a evidential basis to make an investment decision to get behind bitcoin to form positive regulatory environments

for Bitcoin. And they don't have a counter to the mainstream media narratives that they've read about Bitcoin. So tremendously important. When we look at the growth of renewables, one of the things that's always been shocking to me is kind of the reported number was somewhere between 55 to 60% of the energy mix for Bitcoin mining in recent years has been renewables. I think the average US kind of economy industry is somewhere around 18%, which would suggest that Bitcoin mining is three times higher penetration of renewable usage than the average industry. And for that, you would think we should put kind of Bitcoin mining on a pedestal and say, hey, why are these other industries not up to the standard of Bitcoin mining? What is going on with the renewable kind of energy usage? Is that continuing to grow?

Do you expect it to go 70, 80, 90%? should we expect kind of a two-thirds mix? How are you kind of evaluating that right now? So at the moment, you're right. It's between 50% and 60%. As of now, we're saying the minimum expected is 56%, which is incredible. As you say, that's more than any major nation state in the world, and it's more than any other industry in the world. It's growing at a rate of 3.5% per year, which means it's on track to hit 80% around the 2030 mark, which is incredible. It's just phenomenal now the detractors would say well that's all very well but that's still a whole lot of fossil fuel use doing nothing useful and we hear this nothing useful argument a lot

now nothing useful of course all it really means is i haven't yet found the use for it in other words i haven't researched it thoroughly so when you have this combination it's not just that people believe it's using too much energy by itself people don't have a problem with technology using energy. They have a problem that they believe it's using energy for nothing useful. So it's the combination of the media who have put out this message for a long time that it's using too much energy. And at the same time, there has been a complete embargo and complete lack of investigation of any of its uses to humanity. That's been the combination that has had so many people believing it's using too much energy, therefore it's bad for the environment.

And then the third problem is people don't actually understand the connection between energy and environmental harm or good there's nothing environmentally bad about using energy using energy is the way you have a prosperous society there's no such thing as a highly prosperous low energy using society the two go hand in hand and whether that prosperity you can't deploy into renewable energy sources and a whole lot of other things that benefit humanity humanity immensely without energy usage you can't mitigate methane without energy usage and more energy usage there's no incentive supply and demand wise to put more solar and wind and hydro onto the grid so you need that energy usage and a lot of the energy usage with bitcoin is coming

from wasted stranded sources that otherwise no one could ever use so these are the things that people have not investigated yet combination of not knowing its utility believing it's using too much energy and not seeing that too much energy it's not too much that's a value judgment but energy it uses can be a positive thing when it's flexible, using stranded sources, and that incentivizes more of the right sort of energy usage in the future. I talk to a lot of people, there are people in the Bitcoin industry, people outside of it, people that are in politics, people that are entrepreneurs, investors, kind of all across the spectrum. And one of the things that shocks me is how different people analyze and evaluate stabilizing the grid. Bitcoin miners are

preaching how great it is. There are people from ERCOT and elsewhere that are kind of these very large electrical grids that are saying, hey, this is helpful. But I also see a lot of critiquing, people saying, hey, these miners are taking advantage of the grids. They're able to kind of use economics in their favor. They're being predatory. How do you evaluate the stabilization of the grid? And do you think that Bitcoin mining will actually be invited into all of these major kind of geographies where people say, look, we need stabilization of our grid and Bitcoin mining is the solution. So how do we recruit these people to come and build those mines close to us? Yeah, it's already happening. Not just in Irkut, in New Zealand, it's happening.

In India, it's happening. Some places in Europe, even, it's happening. Look, the grid owners know that Bitcoin mining companies are a solution because it gives them that shock absorber they don't have. And right now, grid owners around the world are stressed out because people are screaming at them you've got to put more variable renewable energy onto the grid which is the last thing they want to do in terms of reliability because it's a less reliable source of energy because it's dependent upon the weather conditions at the time now that's all very well but if you're having more intermittent energy you have to counterbalance that with a more flexible customer than you've ever had before and they've been looking around for this flexible customer and

without bitcoin mining it just does not exist traditional data centers are not currently able to power down on a dime, you or I aren't going to power down our electricity usage. We've tried that. People don't want to turn down their air conditioning when there's a heat wave on. They'd rather just pay a little bit extra for power rather than get hot and sweaty. But Bitcoin mining companies, they do that. And they do that because when wholesale electricity spike, it makes no economic sense for them to continue to mine.

So these incentives, the economic incentives just align perfectly. And Bitcoin mining is really the only industry for whom that's true. because of their incredible energy flexibility. So the grid owners totally get that. Now, the critics are one step removed from the grid. So these people who are called energy experts, they're not really grid experts. They're not people who have operated grids

and have seen the complex nuances of balancing electricity supply and demand on a daily basis. So they don't see what the grid owners see. And so they will look at it from afar and they'll have a slightly more linear look at it. And they'll say, well, yes, it's true that Bitcoin mining units power down

and that helps stabilize the grid. But the only reason that the grid stressed out in the first place is that they were there using huge amounts of electricity. And the reason that that is convincing sounding, but actually really wrong, is that that's not the right analogy. What these Bitcoin mining companies really do

is it's like if you imagine you have a highway, it's a five lane highway and it's congested and people are getting sick of taking five hours to drive home or three hours to drive home or whatever it takes. and then this benevolent benefactor comes in and says hey look we will pay enough money for you to build an extra lane of highway and all we want to return is we want to be able to use that lane when no one else is using it and then when everyone else is using it we'll take

the nearest off-ramp and that really is exactly what bitcoin mining companies have done they have paid renewable operators for the additional electricity which gives them a first customer which allows renewable operators to come onto the grid, therefore providing electricity that otherwise would not be available, not just to Bitcoin mining companies, but to everyone. So you've got a wider highway of energy. And then when the grid gets stressed, when there's congestion going on, they take the nearest off-ramp because it makes no economic sense for them to remain in that congested traffic, i.e. makes no sense for them to pay high electricity prices so that in the holistic sense is what bitcoin mining companies are doing for the grid

there is no question of stabilizing it that's why the grid operators say it's stabilizing it the peer-reviewed research seems it's stabilizing it the only ones who don't stabilize it are the people who have not yet looked closely at grids who have not read the peer-reviewed research and have not talked to grid operators or renewable operators or bitcoin mining operators so if we can kind of continue down this path right we've got sovereign wealth funds that uh you believe and i believe are going to be interested in Bitcoin. They're going to want to buy some. Right now, they've got kind of a friction point,

which is a lot of the ESG conversation. They're trying to figure out, hey, this is actually bad for the environment. Does this violate something in our investment thesis that we can't buy it? That problem, you know, I think will get solved. I think truth is on kind of Bitcoin's side. Is it an understatement to say

that countries are going to buy trillions of dollars worth of Bitcoin at some point in the future? Or do you think it's a smaller amount, a bigger amount? so there's different ways that countries can get exposure and one thing we've seen is people and nation states have been more likely to get exposure to bitcoin mining in fact bhutan ethiopia paraguay these nations have all gained huge bitcoin positions through their bitcoin mining positions either by owning bitcoin mining or allowing bitcoin mining companies into the country and charging them for the electricity more than they would otherwise get. And the

profits have, in some cases, been much more than the profits of El Salvador through its hodl strategy with Bitcoin. So this has been overlooked. And it's a tremendous way to get exposure to Bitcoin. And it's actually easier than hodling it on your balance sheet as a nation state. Now, I'm still hopeful that more nation states will adopt a hodl position for Bitcoin like or Salvador. But I wouldn't be surprised if we see many more people getting exposure to Bitcoin mining. And the other way that they'll get exposure, as I said, is through the sovereign wealth funds themselves, which is an easier vehicle for them to get Bitcoin on their balance sheet. Now, when they put those positions on, obviously, if you own a mining facility,

you can't really rebalance, right? It's not like, hey, the mining facility went up in value. And so I'm going to sell off some of the machines. It's a buy, longer term kind of hold. But if you have exposure as more of a financial instrument, whether it's through the ETFs or you hold the coins directly, you can rebalance as the price of Bitcoin goes up. What do you think the behavior of these sovereign wealth funds will be? Do you think that this is like a, hey, let's put 1% of our assets in and whether it goes up, down, sideways, we're just going to hold that 1%? Or do you think that they treat it more like a portfolio construction type allocation? And if 1% becomes 5%, then they'll pare it back down to kind of 1% and keep, you know, trying to

keep it at like that target allocation amount. When they can see that it's winning, they will absolutely change their criteria to allow them to hold more than 1%. So we can expect that threshold to rise. However, I don't think it's going to rise higher than 5%. And so what we'll see at some stage is that we'll see some of the behavior where as Bitcoin goes up in value, they'll be forced to sell down their position. We already saw that in the last cycle in 2021, when the first wave of institutional adoption happened. And as Bitcoin started to moon, some people said, well, our allocation is too big, we have to sell down. And of course, Bitcoin has said, well, what a great strategy you're

selling winners to buy losers. But that's just the way that these things work. And until they can get sign-off for a larger allocation, yeah, we will see some of that behavior. However, you can be absolutely assured at the same time, there'll be people saying, why don't we have this 1% criteria? Why don't we raise it to 2%, 3%, to 5%? And the argument for doing that will be that whilst Bitcoin is more volatile, if you look at the risk-adjusted returns, such as the Sharpe ratio, the Sortino ratio, they still outperform any other single asset class. So there's still very strong reasons to have a larger allocation for these sovereign wealth funds.

And then one of the things I find most interesting is as Bitcoin has become more successful, as it has reached more people, mass adoption has started to occur. Larry Fink and other people on Wall Street begin to get excited about it. It has become de-risked. Larry Fink's now into it, right?

And so the return or the volatility seems to be dampening over time. How do you see this playing out moving forward? You know, in a weird way, the individual loves to buy Bitcoin in 2013, 14, 15, because it has massive asymmetric upside. Institutions, though, seem to be a little bit more comfortable with like, hey, if this compounds at 20 or 30 percent a year, that's good with me. I might not want the thousand percent upside, you know, 90 percent drawdown that we've seen in the past. And so how are you thinking about volatility, especially as these sovereign wealth funds get interested and begin to allocate? when you have it as a one or two percent of your overall portfolio the influence of that

volatility is very little and you're absolutely right they're not looking at these super high returns that a private retail investor may be looking for or hoping for if they can get a 12 return over their whole fund then they're geniuses so for them a two percent allocation can be enough to tip them up from one of the lowest performing funds to one of the highest performing funds. And that's all they're looking for in many cases. It has been very interesting to me where we saw, I think it was BlackRock say, hey, we're going to put a little bit of Bitcoin in one of their fixed income funds. And it felt to me like they were trying to juice the return, right?

If we can put up to 10% in a fund that has nothing to do with Bitcoin, but this thing is very volatile, it's non-correlated, it's got kind of a positive impact on a sharp ratio, we may be able to have a better performing fixed income fund. And so what you're saying is that some of these sovereign wealth funds may be looking at it similarly, where the Bitcoin exposure is not just about, is the Bitcoin exposure going to go up? It's really, how do I juice the overall performance of my fund? Because then I may get a bigger bonus or be in a better position as kind of the CIO or the overseer of the sovereign wealth fund. Exactly. And the other thing that happens is because you're talking about substantial amounts of money once because

these people talk to each other and once one person starts to move you'll start to see other sovereign wealth funds move and so the ones who move first of course you're going to see game theory play out where they will have the advantage that they will hold on their balance sheet and the behavior of their peers is going to influence the value of them and give them a first mover advantage It's very obvious to me why Michael Saylor would buy Bitcoin and then go tell everyone. He wants them to buy his stock. It's very obvious to me why Larry Fink would get into Bitcoin, issue out an ETF, and then go tell everyone about it because he wants people to go buy the ETF.

Why would a sovereign wealth fund buy Bitcoin and then start talking about it? Are they better off buying it and just not saying anything? Or should we expect them to become the new CMOs of Bitcoin and kind of go and really promote it to kind of a larger audience? Whether they talk about it or not, the word's going to get out. Because as soon as the first sovereign wealth fund invests 1% of AUM into Bitcoin, that's going to be widely reported. The halo effect of that and the rest of the industry is going to be huge. If we look at Wisconsin Pension Fund, again, as an example, we could reasonably expect a price movement.

I wouldn't be surprised. I mean, I don't want to be. Of course, I will be held to this. But look, if you just look at the numbers from a data point of view, 0.1% allocation from a Swanskin, Wisconsin result in a $1,000 price movement. It's not unreasonable to expect that a 1% price movement would cause a $10,000 intraday price movement of Bitcoin because people recognize how significant it is when a sovereign wealth fund deploys and when they deploy their first 1% of AUM. and so it's going to happen anyway and naturally either directly through talking to other people sovereign wealth funds other people in esg investment committees or through reading the articles people are going to start to go hey these people have convinced themselves that this is a good idea that this is not high risk that this is esg compliant and they're either going to talk to

those people directly and said how did you convince yourselves of this how did you get it past your esg investment committee or they're going to start doing their own research either way they're going to start learning in a way that they wouldn't if that first mover hadn't taken that stance. If you were talking to the CIO of Sovereign Wealth Fund and they were asking you about this and you could tell they were starting to get excited, but then they stopped the conversation and said, Daniel, what is the risks if I go and I do this? What would your answer be? Well, I'm really only qualified to talk about risks from an ESG point of view.

So I'd leave it to other people much smarter than me to talk about the commercial risks. but from the point of view of brand reputational risk does it tick the esg box risk i can talk about that all day long and i can say look the biggest risk is actually if you don't do it you're probably missing the single best asset for the environment and for humanity of all time and that sounds like a grandiose statement but we've got the data to back that up we really do and then i said look i'd be happy to have a conversation about why i make such a bold statement. It's interesting to me that Bitcoiners are like the ultimate judo kind of debaters. Everything that people say is bad about Bitcoin. Bitcoiners tend to say, well, actually, we think

it's 180 degree difference. And here's why, which I think is a pretty powerful thing. Because the orange pilling moment, it may take a while, but once somebody starts to see the world through kind of a different lens, they fall pretty hard. And then next thing you know, they're telling other people, hey, did you know? Because it really violates their previous worldview in an interesting way. So I tend to think that that would be quite powerful. Daniel, where can we send people to find out more about the work that you're doing, both on the landfill side, sovereign wealth fund research, and generally kind of capital deployment? Yeah, so I've just moved to Costa Rica, because there's a whole lot of landfills around South

America and Central America that are really good candidates for doing Bitcoin mining on. and this is where exactly what you're saying that the argument that bitcoin uses too much energy you say well actually it needs to use more energy because if it used more energy we could do more projects on landfills and we could mitigate a whole lot more methane which is terrible for the environment it results in over a million premature deaths every single year and it's wasted fuel it should be going to generators and power to use to power the future of sound money not seen into the sky or burnt in a flare stack. So I'm in Costa Rica now. That's what I'm doing. I'm committed to this vision. Our website is ch4capital.com, and we're looking to do more

and more projects in the landfill space. And in terms of where I do my work with sovereign wealth funds and talk about the environmental and energy benefits of Bitcoin, best place is on Twitter, which is at DSBet. Amazing. Daniel, I've learned so much from you over the period of time that we've known each other. And I will always remember the first time I said, wait a minute, there's an ESG guy somewhere in the like Australia, New Zealand, he's getting into Bitcoin. Let's talk to that guy. That guy seems to come at this from a completely different angle. And if he's convinced, he must know something I don't know. And it's been pretty cool to see kind of just how much work you've done

and research that you've kind of conducted. And I look forward to what lessons you learn moving forward, and hopefully we'll have you come back and help the audience learn alongside you. It's always great to be here, and thanks for your intellectual curiosity. Absolutely.

Thanks so much for coming.