The Pomp Podcast - #1471 James Lavish | Will Bitcoin Strategic Reserve Happen?

Episode Date: January 16, 2025

James Lavish is a Managing Partner & Portfolio Manager at The Bitcoin Opportunity Fund. He is also the author of a newsletter called ‘The Informationist.’ In this conversation we discuss the current state of the US economy, how we fix it, economic changes Donald Trump will make, inflation, why bitcoin should be added to everyone’s portfolio, tailwinds for bitcoin, bitcoin strategic reserve, global game theory, investing opportunities, and what James looks forward to in 2025.  ====================== Consensus is where the industry does business. Join global leaders, innovators, investors, founders and brands in Hong Kong from Feb. 18-20, 2025. Curated by CoinDesk, Consensus Hong Kong offers unparalleled networking opportunities, exclusive access to top decision-makers and the chance to secure deals that will shape the future of Web3 and digital assets. Take 15% off registration with the code POMP. Register now at coindeskpomp.com ======================= BitcoinOS is bringing Bitcoin into a new era. For the first time, Bitcoiners can access real DeFi across the entire crypto ecosystem, powered by revolutionary zero-knowledge technology. No more trusting sketchy bridges or giving up security. BitcoinOS reunites all of crypto around the chain where it all began. Follow BitcoinOS on twitter @BTC_OS and Be early to Bitcoin again. ======================= 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? I've got an awesome episode today with James Lavish. He is the co-managing partner of the Bitcoin Opportunity Fund. And in this conversation, we talk about

what the heck is going on with inflation, what the true state of the US economy is, where we think Bitcoin potentially could go, how the Trump administration could be a tailwind, what the other tailwinds could be, what maybe some of the risks are for Bitcoin in 2025. And then we even talk about what the National Strategic Reserve could look like and how other countries are responding. This conversation is packed with unique insights and will make you think more critically if you listen to the whole thing. So I appreciate you guys tuning in. And here's my latest conversation with James Lavish. 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

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os and be early to bitcoin again so james i thought a great place to start the conversation is uh when people usually ask me about bitcoin i don't talk about bitcoin uh what i do is i start by explaining what the problem is and then once they wrap their head around the problem and they realize we need a solution to that problem then only do i introduce bitcoin and kind of explain why it's the right solution. And so I thought maybe we could do that today, which is let's start with the problem. The U.S. economy, depending on who you ask, Larry Fink recently said it's in really good shape. But if you go and you look at the national debt, if you look at inflation and many other kind of data points, it doesn't look so great. And so you have spent a ton of time

talking about kind of these two different economies that people are experiencing. How do you evaluate, like, where are we with the economy and how good a shape are we actually at? Yeah, that's a good question, Pomp. The issue here is that we're on a debt-based system and we can get into that in a moment. But what we're experiencing here is that you've got, like you just said, two economies that are happening right now. And we've had massive asset inflation from when the Fed printed money during the pandemic, they printed about $5 trillion. And a lot of that went into the economy, into people's checkings accounts, directly into their accounts. And it ended up in the system and it caused asset inflation. Stocks were rising, of course, hard assets like gold and Bitcoin rising, real estate rising. And then they also had cash just sitting in money market accounts.

and which you see in the reverse repo got to over $2 trillion, $2.5 trillion. And that's money that was just making interest every single month for people. And they were taking that and using discretionary spending. So you've got one economy that we are seeing that has benefited from that inflation.

Their stocks are going up, their houses are getting to be valued higher in dollar terms. They're using some of that capital and some of that excess capital they have to go out in the economy and do things. The services business have been crazy and they're traveling, they're out to restaurants and buying things. And so that's one part of the equation. The second part of the second economy is the economy of people who the lower demographic doesn't they don't own assets. And those people have been hurt from this consumer inflation.

So goods have been rising. Yeah, there were supply chain issues and all of that, but that should be resolved at this point. Yet prices are still rising. We saw today that the CPI number came in a little bit lighter than was expected or feared. And so assets are rising because people are optimistic that the Fed is not going to cramp down on interest rates more, that they're going to start lowering rates more again this next year. And so, but it's still those prices are rising and it's hurting that lower demographic. And so if you look at the picture of it and just one stat that just gives you an idea of how bad that is and the separation of wealth that's occurring because of what we call the Cantillon effect, the Cantillon effect, which is people closest to the money spigot benefit the most. And so in the last four years, the top 1% of the demographic, of wealthy demographic, they gained $16 trillion in wealth. And at the same time, the lower 50%, all 50% together, gained $1.8 trillion. And they have to share that between each other. So it's just a stark reality of where this economy has gone from that manipulation of money and from the expansion of the money supply. What's interesting to me is inflation in asset prices leads to more capital available for those individuals that then go spend it.

And so they're actually like creating the consumer inflation to a degree. They're contributing, maybe not creating, but contributing to it. And so there is this relationship between asset inflation feeding into consumer inflation. Absolutely. And we keep seeing it. And that's why you hear people talk about the boomers, the boomers, the boomers. Well, they've got all that capital sitting in their bank accounts. They're making that interest.

They're using that. They're borrowing against their houses. They're selling stocks at all-time highs, and they're living. And so it is creating that consumer inflation on the backside of it. And that's the part that is confusing people. because you hear, and I've got friends who are, you know, they're just middle class. There's regular people and they don't have a ton of savings. They don't have big IRAs and big retirement accounts. And they're struggling because the amount of earnings, right? The

earnings always lag inflation. So their wages have not kept up. Even if they are technically keeping up, they're lagging. So they're always behind that inflation. They go to the store and the grocery store in there. And it's just taking up so much of their paycheck that they can't do things anymore. They can't go on vacations. They can't buy things they want. They can't replace things they want because so much of their, their everyday earnings are being taken up by those needs. And that's the problem that we're seeing in the economy is that you've got those people who are struggling and that's why they're voting. They voted for this change in the administration And they're hoping that Trump can come in and solve that.

And that's the next problem is that that's not really solvable because we live in such a debt laden society. It's debt driven society. And that's the problem. Well, explain more about kind of these policies and why you think this isn't a solvable thing. Well, OK. I mean, to get into just the reality of it, you've got Elon Musk, you've got Vivek. They're talking. They've got the Doge Commission, right? The Department of Government Efficiency, and they're they're aiming to bring down the the the government spending to a point where hopefully we can get into a surplus. OK, we haven't been in a surplus since for you, for the listeners who haven't been around and investing for as long as you and I have. We haven't been in surplus since the Clinton years, and it was a very small blip and it came back down.

We've been in deficit for a very long time, which is why the U.S. now has over $36 trillion of debt. And that's just the debt that's held by the public. That's not including unfunded liabilities like Social Security, Medicare, Medicaid that's owed to future obligations for people who are alive now, which is over $200 trillion. That's about $215 or $220 trillion on top of all that. So the debt problem is so gargantuan, it's hard to even put people's minds around. But let's go back to first principles. Debt in and of itself, that's not a bad thing, right? If you use it responsibly, you know this, you can borrow, you're basically pulling future

earnings into today. So if you want to start a business, say you want to start a restaurant in New York, right? And probably a terrible idea, really hard place to make it as a restaurant here. But if you want to start a restaurant, you either need to have hundreds of thousands of dollars saved up in your bank account to go and buy the equipment, get the lease on the building, get the lease on the space, build it out, get all your equipment and all of your silverware and diningware, all of that stuff, hire the people, start paying them, buy the food, make the food. You either have to have that money right now to fund that in equity, or you can borrow it. can you can borrow it and you can start buying things and do that and then you'll start generating revenue and paying back that that borrowing so all you've done is you've taken that future earnings and pulling it today and that's okay if you do it responsibly but the united states is not doing it

responsibly in fact most uh sovereigns most fiat based sovereigns are not doing it responsibly and we've seen it since 1971, since we got off the gold standard officially with the Nixon shock, is that now there's unchecked spending and it doesn't matter who's in office, it's unchecked. So going back to that question about the efficiencies and can it be solved? Well, the problem is so big now that if you just look at last year, and we'll get to this year in a second. But if you just look at last year, we spent $7.1 trillion or just over $7 trillion, right? And that we know of. But our problem is that our tax receipts were only $4.9 trillion. Okay. We'll break it apart. You think, oh, you just need to cut spending like Elon and Trump

and Vivek are talking about. Just cut some spending. We'll get out of deficit and into surplus. The issue here is that of that spending, $4.1 trillion of that $7 trillion was spent on the things that are signed into legislation. They're mandatory expenses. These are things like Social Security, Medicare, Medicaid, other programs that are signed into legislation. They have to be paid $4.1 trillion. Remember, your tax receipts were only 4.9. So now you've got 4.1 gone. You can't be changed. Now you've got $800 billion left that you can spend. Well, we spend all of that on military. So now that's gone. Again, those are not mandatory. Those are technically discretionary, but long-term contracts, we know what the war

machine is like they're not going to stop spending on on defense and then the next piece is interest on your debt so we know that we're paying over a trillion dollars of interest on debt net net when you because there's intergovernment uh loans and and debt it's about 900 billion dollars okay now you're at what add it all up 5.7 yeah you're you're way over the 4.9 and then on top of it you've got the trillion dollars of discretionary spending that's going on so the issue is that where are you going to cut are you going to cut the the entitlements to spend the the social security the medicare medicaid the people have already paid into are you going to cut defense are you are you not going to pay the interest on your bonds of course not so those even if

you can cut there's there's just not any place to cut enough to get down into surplus so we understand that so that's one thing you could do the second thing you do is you raise taxes right which we don't expect trump to do we expect him to lower taxes but as you and i think we discussed on on one of your shows recently is that there's a laugher curve right um and back in uh in reagan days uh the laugher curve was basically what it what it said was this is the trickle-down economics where if you raise taxes up to a certain point, it tops out to what the earnings are for the government and tax revenues because it starts to crimp on productivity. And so companies don't reinvest in R&D or expand profitable lines or hire more workers. So your tax receipts come down.

That's the second thing you do. The third thing you can do, which we've been doing all along, is just issue more debt, pay the maturing debt with new debt, pay the interest with new debt, and just borrow more. That right there, if you were a company on the floor of the New York Stock Exchange, you would be called a zombie company because you have to borrow money to pay interest on your past debt and you're dead man walking. And that's literally where we are. I always say it's like taking out a second credit card to pay off your first credit card, right? Not exactly good for personal finance, not good for a company, probably not good for a country either. So in this scenario, it's structural, right? I actually don't think that

any one president can stop it or necessarily make some massive change. I think of us much more as kind of a cruise ship than a speedboat, if you will, in trying to make some of these changes. And so I think a lot of people saw inflation go from sub 2% up to 9% and then has come down. And it seems that we're kind of stuck between like 2.5% to 3% in the official CPI metric. But here comes Trump. And Trump has a number of policies. He's got the tariffs, a number of other economic policies that his critics would argue are going to be inflationary. They're going to drive consumer prices higher, and there is a very real risk of inflation reigniting.

How do you evaluate maybe his policies and then also kind of the structural thing with inflation? And do you expect inflation to go back up to four, five, six percent? Or how do you view this? So the way I see it is tariffs can be inflationary, of course. We understand that. But we also know that Trump, he's bombastic. He uses the tariffs. who's seen it, he uses the tariffs as a big sword, you know, and it could actually work in

our favor in some areas. So it's not certain that tariffs are definitely going to cause inflation. Is it likely? Probably more likely than not. Well, let's see. Okay. That's number one. Number two, he's also said drill, baby drill numerous times, which he is very interested in energy policies that will free up regulation, likely allow for build out of refineries that we don't have to refine the oil that we pull out of our own ground, which is just insane, that we need to have regulatory, like regulation, you know, limited regulation, and maybe peel back some of that red tape in order to help energy companies expand and for us to truly become energy independent, right? So that's one thing. And if you bring, if you allow for an influx of oil production

or refining, then that brings the cost of energy down. Okay. That's deflationary. That actually helps inflation because the number one, number one driver of inflation, the impact of it is energy costs right so we know that so that's another thing so um and then the last thing is that he bringing like getting rid of a lot of that red tape for smaller companies it's a it's massively helpful to these smaller companies especially ones that are public just the the amount of of the the regular regulations that cost companies mindlessly uh the you know just to get over this bureaucratic tape, that'll help too. It'll bring down those costs. It'll raise their margins. They'll be more profitable. That raises tax revenues. That would be helpful

too. So all of those things can help. But let's go back to the reality. The reality is that we have $7 trillion of debt coming due this year. We just got the first quarter, 2025, because remember that the United States works on an October fiscal. So we just got the first quarter of spending and we are operating at a $711 billion deficit the first quarter. Okay. So remember last year, the deficit was 2.1 trillion. $711 billion times four, you're at a $2.8 trillion deficit. that's 35% higher than last year. So now we've got $7 trillion of debt that's coming due that we have to refinance

because we don't have the money to do it. And we've got another likely over 2 trillion, looks to be close to $3 trillion of debt that we have to issue this year. So now you're seeing that bonds are going up. So as the Fed has lowered rates by a full percent, the 10-year has gone up by over a percent. it's gone the yield has gone up explain this to people because i don't think a lot of people

understand um kind of the relationship between interest rates and the 10-year yield um and then how also uh this idea of the uh annual deficit is playing in right so um so the benchmark treasury for the entire world is the 10-year u.s 10-year treasury right so it's kind of the it's the bond that everybody wants to own that's not too risky but it gives you enough yield that if you need dollars, it's going to be a good thing to own. And so that's kind of like the benchmark around the whole world. So when the Fed was lowering rates, they've been lowering rates. They'll probably pause this month because of the data we're getting, but they've lowered rates from five and a half to four and a half percent. That's the shortest term rate, which is the

Fed funds overnight rate, basically. Well, all the other rates are supposedly keyed off of that, Right. So if those rates are going down, then the entire curve should go down, meaning that all the yields of all the bonds should go down. Right. But instead, the 10 year yield went up at the same time that those Fed fund rate, that Fed fund rate was coming down. Why is that? Well, because you have bond investors that are very concerned that they're going to see inflation long term. So partially, maybe a little bit of the tariff conversation, maybe. But really what it is, is what we just discussed, which is term premium, where investors are concerned that going 10 years out, I need a better yield than 4.5% to compensate me for this massive amount of bonds that are going to come to the market, because that's

going to be inflationary. why is that inflationary because the more bonds you bring to the market the more the united states needs to allow for inflation right and that's the issue it and we can talk through that so what's interesting to me is um bonds have performed horribly um both in terms of you look at like tlt you know i think it's i shares like 20 plus year uh bond etf uh it's down like 40 in the last five years. If you just think theoretically about a bond that is paying less than 5% yield, you get hit with taxes and then you've got inflation. So you're probably at a zero real rate of return, possibly negative, probably negative. Probably negative. And so you say

to yourself, okay, like who's buying this? Like why are people holding bonds that are a negative real rate of return? Yeah. Well, I mean, pension funds, endowments, they have to own bonds. It's in their mandate. So that's one reason. But they're looking at CPI. Even professional investors, they're just looking at the CPI and saying, well, I'm making a real return because CPI is 2.5% to 3.5%. I'm getting 4.5% or 5.5%. I'm making a real return. I'm outpacing inflation all is good. But the reality is inflation, if you look at the cost of goods and over a long period of time, and you look at the stock market, and if you look at homes, it's much closer, more closely tied to the expansion of the money supply, which is somewhere around 7%,

6.9% to 7.1% since 1971. That's the real rate of inflation. So if you're not making that, you're losing money in real terms. And when we look at this 60-40 global portfolio, I recently wrote and said, maybe the new 60-40 portfolio is actually 60% equities, domestic equities in particular, and 40% Bitcoin. And I went and I looked at all the data. And so, if you look over the last 25 years, gold has outperformed US stocks. Pretty shocking to people. If you look at gold and bonds, and you replace the bonds in a 60-40 portfolio with gold, it's basically no change but if you were to take 60 domestic equities and you were to put 40 bitcoin with those domestic equities the return over the last five years was like 430 something percent

yeah right so you say to yourself okay hold on a second here by having 60 domestic equities um combined with something that is supposed to store value right even though yes the bonds have yield, all this stuff, but still it is supposed to hold the value. Bitcoin destroys, destroys it. So what I use that as kind of a proxy for is like, well, maybe what people start to say is, Hey, this is like one to 2% thing. I kind of had to say that at first. Cause you know, I wanted to be very prudent and I didn't want to really risk this. Maybe I'm not going to go all the way to 40%, but maybe I'm going to go like 60, 20, 20. Maybe I'll go 60% equities, 20%, you know, bonds and 20% Bitcoin. How do you see these institutional type investors,

you know, kind of allocating and thinking about Bitcoin when it starts to get to, it's got a higher Sharpe ratio than gold bonds and equities. It has a lot of properties that when you put it into your portfolio, it actually makes the portfolio better. Right. Well, and we've had these conversations and to start just look, the institutions are not there yet um widespread and a widespread understanding of crypto and bitcoin how bitcoin is different they're just not there yet they're learning and they're being forced to learn this administration talking about having a bitcoin reserve that's forcing some people to get up to speed pretty quickly because like wait if the united states is really like even if it's trump

and he's bombastic if they're really considering this this is a big deal i better get my head around it. Okay. So they're starting to wade in. And we're seeing it at the Bitcoin Opportunity Fund. We're starting to see a lot more interest from family offices, high net worth investors who have IRAs they want to put into the fund. So why are we seeing that? Because of exactly what you just said, people are waking up to the fact that, okay, if I add Bitcoin to my portfolio and there's, um you know you can do this you can do the the math out uh there's a there's a website called nakamoto portfolio that you can actually put in there different parameters and different allocations to different things and if you put in there the 60 40 portfolio that you're talking

about the the let's back up if you put in the traditional 60 40 portfolio um that you have your 6% equities, 40% bonds, and then you layer in Bitcoin on top of that. So you look at that, just adding 1%, 5%, 10%, it's exactly what you just said, is that over the last 10 years, the rate of return, the IRR just skyrockets as you go from 1% to 10%. It really enhances your return, your overall return. That's number one. Your volatility doesn't really jump that much. your drawdowns don't jump that much on your overall portfolio so what it's telling you is that in exactly you said is the sharp ratio goes up and if you add 10 of bitcoin to that 60 40 portfolio over the last 10 years your sharp ratio jumps over that special that that key 1.0 which is

kind of mind-blowing to people and when they start to see that and they start to realize that hey this actually that's a the sharp ratio is the risk adjusted return that means that your risk adjusted return is higher if you add Bitcoin to your portfolio. And institutions are starting to key in on that and think, maybe there's something to this thing. I really need to think hard about exactly what you just said, which is taking some of my allocation, not just from equities and putting it into Bitcoin, but from bonds and putting it to Bitcoin. And so when you look at that whole universe of investable assets, there's $900 trillion dollars of investable assets when you add real estate and bonds and gold and just the cash money.

And you put all that together, it's $900 trillion. Well, Bitcoin at this point is just a sliver of it. It's $2 trillion. Gold is at $18 trillion. So it's just a fraction of, it's like 20, 30 basis points of the entire pool. And people are waking up to the fact that this is going to grow as a separate asset class. And I should allocate some to it now because when it goes from just if it goes less than a quarter, like a quarter of a percent to a half or 1% of those total investable assets, I mean, it's going to go from 100,000 to 400,000 to a million dollars as it grows and becomes two, 3% of that total universe. When you think about all of the tailwinds, there's a kind of economic or portfolio construction argument that you can make. There's

definitely a money printing and kind of undisciplined fiscal and monetary policy argument. What are the other tailwinds that you think are driving some of the institutional interest in Bitcoin? Well, the ETFs are huge. You know, I bet was launched by BlackRock and it gained $50 billion of assets in less than a year it's just such a it's such a blowout etf launch it's it record set um you know by far nothing even close and so why is that well there are institutions or hedge funds and small family offices and uh and you know smaller endowments that were looking to buy some bitcoin but they just couldn't they just there was just no way to do it why is that operationally was there's so many hurdles like the hurdles of trying to figure out you've got

this key issue like who operates who's going to hold the keys and what's the hierarchy there and like how do we make sure that if you have the keys and i have and like how are we going to like there's no way a general counsel would sign off on that like it's just there's just the risk the personal risk and fiduciary risk was too high so that's just who's going to hold the keys who like where are you going to if you're not going to custody yourself who's going to custody it are you going to are you going to leave it at coinbase are you going to put like where is it going to be and then you've got things like you know where are you going to trade it am i going to trade on coinbase and kraken like what is this kraken thing and like imagine going into your chief

investment officer and saying i got an account over here kraken we're ready to buy some bitcoin they'd be like you're out of your mind right so i mean these are old school traditional investors So that's another issue. And then you've got your mark-to-market issue. Like, do you market at midnight? Do you market in London time? Do you market at New York Stock Exchange time? Like, where is this thing going to get marked?

All of those issues, all of those hurdles were completely solved and just completely solved with the issue of the creation of the ETF. Now you have an ETF that has to hold Bitcoin in it. So you know that it's a spot-based ETF. you buy and sell it just like any other stock in your portfolio you know exactly what the what the leverage or the margin will be on it and you settle it with you trade it with your same trader you settle with your same prime broker you custody it with your same custodian it's made it so easy so that's been a huge driver then on the back side of that we just had the etfs

the options open up on them which allows for those institutions to use those options to manage a risk around their holdings, which is an important aspect of owning some sort of security. Then you had the gap accounting. So with gap accounting, like in late 2022, they changed the rule. It used to be that if you bought, if you're a company, you bought Bitcoin, you put it on your balance sheet. Well, if Bitcoin went down, you had to market it at that lowest value it went to and hold it as an impaired asset you couldn't hold so you're either holding at cost if it went up you have to hold it at cost if it went down you have to mark it down that impaired value and then if it went up again you have to hold it that impaired value if you want to get that value

back up you have to literally sell it in the market well so they repealed that and now the accounting um the accounting for it is straight mark to market and so now companies can buy it and not be afraid that it becomes impaired. They can actually hold it at fair value. That's been a big driver. And then you've got the Trump administration coming in. They're clearly very pro-crypto. This last administration was terrible.

They were antagonistic at absolute best. They didn't give us clear regulatory clarity. Like it was just, you know, choke point 2.0, all of that stuff. So, but that's gone. And now you've got Senator Lemus and Trump himself talking about a Bitcoin reserve. so that's huge tailwind even if it doesn't happen this year they're talking about it it's in the conversation they're trying to uh create legislation around it they're they're they're figuring it out and if and if that happens i mean i i don't even want to put a price prediction

on bitcoin do you think it will happen i think it's a low probability this year because there's just so many regulatory hurdles they've got to get there are so many legislative hurdles they've got to get through there are things that trump may be able to do on executive order but it's a little bit different. But I do think they're going to work toward it. I think that the chances are rising with every single day. And so, interestingly enough, if you asked me this question three months ago, right when Trump was elected, I would say, or two months ago when Trump was elected, I was like, I'm not really sure. Pretty low probability. But now, you know, they talk about it just about every day. And so, this is real. They're trying, they're pushing for it. And so, do I think it's a

So probability, not quite more than 50% now, but it's getting closer to that, you know, coin toss. I think that people are drastically underestimating the odds. I don't know exactly percentages, whatever, but like whatever everyone thinks the odds are, it's probably a higher percentage degree than that. That's right. Because if they did, then Bitcoin would be way higher. Higher, exactly. What do you think about, there's the Bitcoin Strategic Reserve. I think that's a huge deal.

The other one that I've mentioned is repealing SAB-121. It's a big one. Um, what do you think the impact there? Just a lot of these people who hold Bitcoin or other assets, they want to put it with the banks and the banks want it because now they can have a new financial asset to kind of lend against and, you know, do the things that they do. Or what is the impact of repealing, you know, kind of this accounting rule that really is preventing the banks from custodying these assets? Yeah, that's another tail one. It's a great one that the banks can now custody it instead of having to hold it as a liability. Now they can hold it as an asset.

And like you said, they can lend against it. They can do things with it. They can use it in the financial system and it makes it mainstream. It just creates more of that mainstream adoption where, you know, right now, like you said, if you go to, you know, Chase or whatever, you can't do anything with your big, you've got to either custody yourself or you custody at another place that is, you know, that only does this kind of business, like a Coinbase or, you know, like a Swan or a River or something like that where they're they're cussing it for you so that's uh that's going to be a huge thing

it's just again it creates more mainstream adoption that allows for that and allows the banks to actually start you like really working around it and and promoting it to allow their their customers to buy it hold it and they'll get the benefit of it too so that's a really big deal The reserve, the Bitcoin reserve, like if you're an intelligent sovereign, you're not going to go and just announce you're doing this or you're going to be in the background doing, you know, buying some of the background first. I don't know how that could work legislatively with the United States, whether they have to pass it first.

And it seems like they have to pass it, announce it, and then go buy it. So it's like almost like you're allowing the entire world to front run you. Well, we see countries like Russia, maybe as a good example. Perfect. They recently came out and they said, hey, we are mining Bitcoin. They've talked about it as this kind of like non-censorable currency or transaction system. They didn't come out and explicitly say Russia is holding Bitcoin on our balance sheet, but they pretty much said in every other way they possibly could without explicitly saying it. Yeah. And so how do you read into countries like that? You know, they're obviously the on the other side of pretty harsh sanctions, given the Russia-Ukraine conflict, et cetera. And so, like, what does that do to this kind of global game theory of these countries adopting something like Bitcoin?

Yeah, we keep hearing about like the BRICS, right? Brazil, Russia, India, China, South Africa, that they want to create a new currency. And I don't really think that's what's happening. I think they want to get away from the dollar system and just have some way to operate around it because of what you what you just pointed out, which is we made a we made a strategic mistake, you know, sanctioning Russia, seizing their treasuries, kicking them off swift. So they are like, well, if any country out there that's not that perfect ally with the United States is thinking, do I really want to hold treasuries if they can seize them? They can kick me off swift. I got to have another way to transact. So you have heard Russia say things like we'll accept crypto and Bitcoin for purchases of

goods, you know, and they move a lot of oil around the world. So that's a big deal. And I do expect that sovereigns like Russia, like China, maybe some other much smaller ones are accumulating Bitcoin quietly. Do I know this? No. But why would they announce it? Of course they wouldn't.

They would just be accumulating it quietly. And if you're a sovereign, if you're issuing debt in your own currency, for instance, why would you not issue that debt issue that debt in your own currency that's debasing use that those debasing uh you know euros or or whatever they are right to go and turn around and buy something can't be debased of course you would it doesn't it makes perfect game theory sense so is it happening for sure i i don't have any evidence of it but i would expect that it's happening in some corners el salvador um i think is a really interesting case where i think they own five or six hundred million dollars now if bitcoin has been growing they continue to buy you know one

bitcoin a day um but they've gotten tether to move their headquarters to el salvador and it feels almost like you kind of get on the bitcoin standard or you know start to embrace bitcoin and other things start to happen like tourism is up huge there um they kind of have plugged themselves into the Bitcoin network, not just financially, but in many other ways. So do you think that that serves as a model for some of these other smaller countries that start saying, hey, you know what? It's not just a financial argument. There's things that we can do to incentivize hundreds of millions of people around the world that are sympathetic to this asset and kind of have a certain value alignment to come to our country, to come and build businesses,

to come and employ our people. Yeah. I mean, Bukele is blazing a trail. You know, well, first thing you did is solve the crime issue there. Right. So, you know, it's likely much safer in their cities than it is in any city in the United States now, which is just mind blowing. So that's number one. But using Bitcoin as a way to enhance their balance sheet, strengthen their balance sheet, they're mining Bitcoin off a volcano. This is just it's incredible. And so is it a model for smaller countries? Absolutely. Absolutely. You've got emerging market, you know, South American, Central American countries that have struggled with hyperinflation. And this could be a way for them to kind of solve that.

It's painful at first, but it can be a way if they use Bitcoin as a, you know, as a strategic reserve themselves, like you're talking about, and they use it as a base currency. as well. I mean, that's a big deal. So I would expect more countries to do that in the near future. When you think about our adversaries, North Korea, many other countries, they seem to be using some of these cryptocurrencies, whether it's Bitcoin or others. And the fact that no one controls them, their bearer assets, et cetera, to their advantage. Is it just, hey, bad people do bad things with dollars and bad people are going to do bad things with Bitcoin? Or how do you kind of balance some of this stuff i mean if you're if you're a criminal using bitcoin you're you're

probably not that smart or you just don't understand bitcoin because everything is is uh available to see on on the uh the blockchain right so in the time chain you know we saw uh we saw reports of hamas saying do not transact in bitcoin please don't they're you know they can follow all of it much easier to transaction in in u.s dollars just give us the cash and suitcases it's easier so um but yeah i mean it cars don't drive themselves into crowds you know knives don't stab people themselves you know they're they're things that you know can be great to cook with or to travel with and uh have good uses for that their nefarious uh purposes will be like they're you'll find people who use in in for nefarious purposes just what it is i mean

But the reality is that Bitcoin being used for illegal activities is far lower. It's a fraction of what the activity is for U.S. dollars. One of the other things that I think the Trump administration could do that would be pretty interesting is repeal the tax treatment for Bitcoin as property and instead let it be treated as a currency. And you probably would have to decipher the difference between are you spending the Bitcoin to buy a good or a service or are you selling the Bitcoin for dollars or some other crypto asset in terms of a trade? How do you think about the likelihood that we're allowed to spend Bitcoin for goods and services without getting hit with that capital gains happening? I think they'll probably create a threshold. Don't know what that threshold would be. It would likely be higher than $600.

dollars you know but um that's that's what i think is most likely again these are legislative things that we're gonna i think we're gonna finally get some clarity on and that's that's what's most important and that's what's going to drive institutional adoption because institutions are like well i don't even understand how exactly what you just said you know i don't understand how this uh how this is going to be seen on my balance sheet or how i'm gonna like these like these are big deals that I think are going to get ironed out over the next four years. And it's, it's going to drive that adoption, widespread adoption, and it could happen rapidly in this cycle. So. And what are the things maybe you're excited about in 2025 that people aren't talking

about? Is there anything that you're like, you know, I think this is a big deal and no one's really paying attention to it? Or are there things maybe that people are really excited about that you're like, eh, I don't really think that's as big of a deal. Oh, that's a really good question. You know, I think that there's as an investor in this space, I mean, just in the last few years, we've seen it evolve so rapidly. And one of the things that we're excited about at the fund and we're over at the conference down the street as we're, you know, we're talking to these CEOs from mining companies and look, hash rate has been going through the roof. To buy miners, it's super expensive now. The efficiencies of the miners, they've grown so much in the last few years that if you're not replacing those miners, you're not keeping up with the hash, you're not keeping up with generating the Bitcoin. One of the things that we're seeing that I think is really important is these companies that are the public companies in particular that are miners, they have these energy assets. And energy is so important.

And people are, they're, they're getting tripped up with the, you know, the growth of, of some of these companies rather than the strategic use of those energy assets and what it can mean as you get high performance computing built out, AI driven computing built out. Like there are big companies that are looking around that need massive operations of computing operations and high performance computing. And, you know, some of these energy assets are exciting. And we've been seeing that on the private side. So you're starting to see it, you know, in the public side. You hear a lot about these, the miners talk about, oh, we're going to do HPC. We're going to convert. Okay, that's great.

But let's start at ground zero. Let's start first principles. What do they need the most? These companies need that power. They need the energy. They need the energy contracts. And if you have those, it's a really big deal. If you have that infrastructure that you can build out easily, that's a really big deal.

So it's kind of separating that growth versus, you know, it's not really a pivot. It's more of a graduation. It's evolution into something that we think is important. And that's something that we're looking at. And we're looking on the private side, too. We see great deals on the private side for companies that are able to get energy and power that the larger companies just haven't haven't dipped into yet. And when you think about the opportunities that you run, you know, the Bitcoin Opportunity Fund, I think you guys have deployed two funds previously and now raising a third. One fund that we're raising a second.

OK, all right. So one fund and now a second. What do you look at in terms of the opportunity set? Right. There's public markets, there's private markets. they're obviously just buying Bitcoin. That does pretty well. How do you look at where there are areas to perform well? And maybe even what is the benchmark? Is it just, hey, we're trying to outperform Bitcoin or is there some other benchmark? That's a great question. So when we

raised the fund, it was a couple of years ago, we started raising this fund in, it was a bear market raise. It was the worst market to try to raise a Bitcoin fund in because nobody wanted to touch it. Bitcoin is languishing around $18,000, $20,000. And it was a really difficult time to raise money. We originally thought, well, we're going to come in and we're going to look at these distressed assets. You had a lot of companies that were going through bankruptcy. You had assets we could buy. And so we structured the fund to be able to do anything. So public, private, we could do early stage, we could do late stage, we can do all the way up and down the capital ladder, the capital structure. We could buy equity, we could buy private equity, we could buy venture

capital. We could buy converts, prefs, anything. It doesn't matter. We could do derivatives around them. What we want to do is restructure it in a way that anywhere we see opportunity in this space, because space is pretty small. So all you see right now is venture capital funds, pretty much. You've got some hedge funds that are dipping in there and doing things, but not focused like this. So what we said was we want to have a Bitcoin opportunity fund that allowed us to take advantage of anything that's out there. And so the way we look at it is that we migrated those assets as they came in into Bitcoin. And so we operate on a Bitcoin standard. So our treasury is in Bitcoin. And then as we look at opportunities, we weigh those opportunities one by one

against holding Bitcoin, where it is, what the risk reward of holding Bitcoin is. And we've got our calculations, what we believe that is. And then we look at that opportunity and say, is it a better risk adjusted return that we're projecting than holding Bitcoin? And so that's really what the fund has evolved into. And so now the second fund and that first fund, like I said, it was a really hard market to raise, but we've done well. We've doubled the fund size on organic growth just through returns. And then the second fund, like I said, we're getting a lot more interest, high net worth investors who have IRAs, we can take IRAs. So that's a great way. That's how I did it. And so you can invest that way or we'll take stable coins, whatever.

It doesn't matter. We take that capital and we'll put it into Bitcoin and then look for those risk adjusted returns that are better. So which should answer your question is that overall, we're looking to deploy capital in a way that will give a better risk adjusted return than Bitcoin. Will we outperform Bitcoin? I cannot guarantee that. We have these long-term private investments that are in the portfolio that could way outperform Bitcoin in the long run because it's basically a leveraged play to those Bitcoin, to just underlying Bitcoin. um will that happen i i don't know but that's the way we look at is that we're just trying to outperform on a risk adjusted basis we're trying to give really solid risk adjusted returns and it's more for those family offices and high net worth investors that understand they want they want exposure to bitcoin but they don't really know how to get it themselves and they want exposure to space i want to help the grow the space but they don't really know

how to or they don't get access to those deals we get you know like you i'm sure you get 10 calls a day, you know, so just being out there, we get a lot of flow. And so that's been helpful. But that's our goal is for those investors who are there, they're, you know, they're intelligent, they're sophisticated, they understand that they're trying to do well in this crazy world that we just talked about with this insane inflation, and relentless inflation, they're trying to outpace that. And they know inherently that Bitcoin can be an anchor to that. And in that performance to keep up with. And that's what we're trying to deliver. What has been the most surprising area of opportunity that you didn't expect when you

started the fund? Well, that's a good question. I think it's what I just talked about is that just that underlying energy. At first, we thought that the opportunity was going to be these distressed situations. But it turned out as we were digging in deeper in both the public and the private side that owning this energy is a really big deal. And that surprise came when the language models, the LLMs came out and suddenly this drive to high-performance computing. Now, we're not high-performance computing investors. That's not what we do. But we've got companies that are invested in working the mining space that are using that and are going to use that to augment their profitability. In the end, investors want to make money. And so do we. So

that was, that's been a little bit of a surprise to us. Yeah. It feels like the miners are also realizing there's a bifurcation, right? Like you either are a miner, you stick to being a miner, put Bitcoin on your balance sheet and go mine as much Bitcoin as you can. Or there's kind of this other track. Like I, you know, I do a lot of work with the HUD eight and they're saying, Hey, look, we're energy dealers, right? We're going to deal energy to the Bitcoin miners. And we're in that business. And that's great business. We're also going to do it for AI data centers. And there's probably going to be three, four or five other different examples, you know, over time as well. And then we have Bitcoin on our balance sheet, right? And so we want to be, you know, in the

Bitcoin industry, but also we want to have some diversification. And there's, you know, an argument of, hey, you might be able to insulate yourself from the cyclicality of these markets and stuff. But also maybe AI or something else has cyclicality as well, right? We just don't know. We don't know. We don't know. But we do know the one thing we do know, and we can what we can to anchor ourselves on is that the debt is expanding. All these governments and the US government, they must debase the currency to pay down that debt. They need cheaper dollars, cheaper future dollars to pay down past debt. We know that's happening. It's going to continue to happen. So that gives me incredible confidence in Bitcoin as an asset to store, a store of value,

just a digital asset that is, it's premier that we can store our value and I can store my value and I work, I make money, I can store it in Bitcoin and know that it won't be debased. And that's what, that's what we look to as our anchor for the future. Do you have a prediction for how high inflation could get in 2025? Oh, you know, in 2025, I mean, look, if you look at, if you look at the 1970s and you overlay that chart. I'll give it to Matt so he can put it up as we talk here. But when you look at 1970s, we've tracked it and you've seen this chart, we've tracked it pretty closely. And so it's a little bit resurgence. It's a resurgence coming into the late seventies and eighties. And we're doing that

right now. If you look, it's almost lockstep the way that it surged, it came down, it kind of stabilized at this level and it looks like it's going to surge again. So the question is what happens when if that does happen, that means that we will have a surge of inflation. How high it goes, we don't know. But the difference is back in the 70s, we had 30% debt to GDP. Now we have over 120% debt to GDP. It's a completely different world. So what I believe, Anthony, is I don't know where inflation will go, but I do believe that they will allow it to run hot enough to keep the going. And whether that's 5%, 7%, 9%, I don't know what it is. It's either higher, like 3% to 5% for an extended period of time, or just a surge of maybe 8% to 15% for a shorter period of time

just to manage some of this debt. There's really no other way around it. Every single road leads to inflation. And that's just reality. Where can we send people to find you online or find out about Bitcoin Opportunity Fund? So I'm on Twitter, James Lavish. And you can find out information. Just go to www.bitcoinopportunity.fund. And if you're a credited investor, just reach out to us. We can send you information. Amazing. Thank you for doing this. I think that you're all over it. I think more people should be paying attention to inflation. So I appreciate you doing it. I appreciate you having me and look forward to the next time. We'll be right back.