The Pomp Podcast - Bitcoin Stock Risks & The End of The 4 Year Cycle? | Matthew Sigel

Starting point is 00:00:00 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. 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

Starting point is 00:00:40 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. For your cycle over, or do you think that it will remain? I lean towards remain, but in a more muted fashion. So that's kind of a wishy-washy answer. But it's been around for so long, I'm going to give it the benefit of the doubt. What are the data points you look at to identify whether we are near or at market tops? I'll share a couple that we use to try to identify kind of near-term tops. One is... what's going on guys today we got a great episode with matthew siegel he is the head of digital

Starting point is 00:01:28 assets research at vanek and he's also the portfolio manager of the node etf in this conversation we talk about public equities related to crypto what are they buying where are they interested and what are some of the risk points that you should be paying attention to on top of that we get into the recent staking decision at the government level and what that impact is going to be in the market and then we finish up talking about the government the fed and what is going to happen with stable coins there's a lot to unpack in this conversation there's a lot of stuff that you've never heard before so make sure you watch the entire thing here's my latest conversation with matthew siegel all right man i thought a great place to start the

Starting point is 00:01:59 conversation is everyone knows that you can go and you can buy bitcoin or the underlying crypto assets themselves kind of spot market there's obviously a lot of derivatives and things that people can do uh you're very focused on buying public equities that are related to crypto whether it's bitcoin or other cryptocurrencies uh you have the node etf node is the ticker um and what i find interesting is this launched three, three and a half months ago or so. And you guys have been destroying a number of the other benchmarks. It's up like 28, 30% or so since inception. Bitcoin's up about half of that. So you've doubled the Bitcoin return. And MAG7, S&P, like any of these benchmarks, you guys are doing very well. Help me understand when you think of

Starting point is 00:02:38 the portfolio construction, like public equities related to crypto, I would think you put Coinbase and, you know, like crypto companies. But when I look through the list, that's not what you guys have in this ETF. So talk me through kind of how you guys are thinking of it. Yeah, Pomp, thanks for having me. Great to be back here. I think one of the biggest changes with the new administration is around how capital is formed in the space. And previously, you know, a lot of the capital formation came in token land and you don't need traditional investment banks to do that. That's one of the beauties of crypto. But now with the capital markets so much more open to these strategies, the investment banks are really putting a lot of weight behind bringing equities

Starting point is 00:03:22 to market. And you can see that in just the league tables where year to date, Cantor Fitzgerald has done more investment banking business than Goldman Sachs. Let that sink in because they've been on the forefront of banking crypto equities. BTIG has done more business than Morgan Stanley. This is really big changes in the market share. And now there's a rush, essentially, by the investment banks to get involved. And they're willing to underwrite not only the kind of digital asset treasury companies like the one that you are forming, but also anything peripheral to the space. And the banks being willing to hold that paper for 24 hours in the case of an IPO, or maybe for months in the case of one of these pipes or SPACs is a real vote of confidence to the

Starting point is 00:04:11 traditional capital market participants on Wall Street. So we think that's durable. And we think that it's going to be a very wide number of beneficiaries. So we've been running crypto equity strategies for almost five years now. And what we noticed is that they are really, really volatile. And the tendency is that at the top of the market, the ones with the most leverage are going up the most and doing the best. Leverage is toxic to Bitcoin, as we learned over the last few cycles. And what that dynamic does is that basically at the top of the market, your crypto equity indices are full of the most leveraged stuff. So when there's a washout, they're overweight that high leverage and the drawdowns have been considerable. And the since inception

Starting point is 00:05:02 performance of a lot of the crypto equity products have been subpar from my perspective as someone who wants to put a meaningful amount of my own money in products that are Bitcoin aligned. So what we aim to do with on-chain economy ETF, and thanks for calling out the performance. I just want to be clear that I think those numbers are correct through August 14th or something yesterday. But the past is no guarantee of the future. And we're trying our best to manage this portfolio according to this guidelines. But we might be wrong. We might be lied to. You never know. So investing is risky. So not financial advice. But what we're trying to do is take a very wide approach to the space. Any company that has articulated a strategy to make money

Starting point is 00:05:48 from the on-chain economy, whether that's as a dealer of digital assets like Coinbase or Bullish just came to market uh but also whether they're a provider of infrastructure into the space and given bitcoin dominance still here up around 65 some of the biggest infrastructure providers are selling electricity electrical equipment uh um uh other kind of industrial infrastructure and it's becoming meaningful to the eps growth we think it's becoming meaningful to the multiple They're increasingly calling out the tailwind from Bitcoin mining. I'm referring to that kind of energy and utility slug. But then you also have this whole class of kind of what I call fintech e-commerce names that overlap with some of the MAG7 in the U.S., but they're focused on LATAM or they're focused in Asia.

Starting point is 00:06:41 And some of those companies are starting to adopt stablecoins significantly and calling it out as cost savings. So anyway, the big picture here is that our investment universe is vast. It's over 150 names that have articulated a strategy in digital assets. And we're targeting this barbell approach where, yes, we have some of the pure plays. It's roughly a third of the fund is in kind of that pure play crypto equity space. We have the peripherals bucket where we're into that e-commerce, fintech. And then we have the low volatility bucket, which is this kind of utilities, energy, infrastructure component. And that provides a lot of ballast.

Starting point is 00:07:22 I'm trying to compound, avoid big drawdowns by being very diversified. I feel like when Bitcoin's up here near all time high, being diversified is a good thing. Kind of the rising tide lift all boats. You might not catch the next 10 bagger, but maybe that was really the trade a year ago to look for 10 baggers. And then as we have drawdowns, we'll be able to kind of jettison some of that low vol ballast and turn up the dial on the volatility. So I think what I'm most pleased by is that the outperformance versus Bitcoin since inception has come with lower volatility. So twice the performance of lower volatility. For me, that's a sweet spot. There's no guarantee we can duplicate that, but that's what we're aiming to do. Let's talk about maybe the things that would be most surprising to people that are in there. So you talked about utilities, these kind of electrical hardware companies, etc. What are some examples of that?

Starting point is 00:08:13 And like, what are they doing? Are they just simply selling to Bitcoin miners? Or are there other things that you all are seeing as like the intersection point that then pulls them into the universe that you would consider versus a utility company that's doing nothing in kind of crypto space? Yeah, sure. So some examples are just utilities that are operating in specific regions where Bitcoin mining is growing. So some examples of that are like Arkansas, Oklahoma. OK, so you've got Entergy, which is a southeastern utility. Their commercial load growth has been accelerating.

Starting point is 00:08:48 I've spoken to several Bitcoin miners who buy electricity from Entergy and say that they have the right people to service the market and they're eager to service the market. And they're raising their forecasts for load growth, investing in the space compared to what you pay for crypto equities. You know, the stock is quite cheap and pays a dividend. So that would be one name. In Oklahoma, there's OGE, which is the Oklahoma Local Utility. Google announced this week they're going to invest $9 billion in Oklahoma. Stone Ridge just did a deal for Oklahoma assets. So there as well, the underlying EPS growth should be positive. And you can compound a little bit while you wait for an opportunity.

Starting point is 00:09:32 Because what you're seeing there is, and this is no different than I think how a lot of public equity investors think, is you're essentially going through the full vertical integration of the system, right? So you're saying, okay, hey, we know Bitcoin mining, or we know Bitcoin, right what is part of bitcoin bitcoin mining okay bitcoin mining should continue to grow if bitcoin's going to grow and people are going to be investing in this which they seem to be doing uh if we look at that then where are they getting their hardware where are they getting their energy what are the geographies like you're just kind of working through the stack and then when you locate geographies that are growing and you locate who's providing the power you're saying hey let's go

Starting point is 00:10:04 then evaluate that business so it's really the bitcoin or crypto component is almost a overlay to help you identify potential opportunities and then you're doing a fundamental analysis of the company itself in terms of whether it is uh you know expensive or cheap or fits kind of your your strategy yeah so they they won't even go into our universe unless they've called out bitcoin blockchain crypto as some potential driver of their business and then we're aiming for a certain volatility level compared to Bitcoin, compared to the S&P 500. And that's how we manage the portfolio construction. So yeah, that whole supply chain, you have companies that are selling industrial equipment into the data center industry, a company like Solaris, SEI, which is an

Starting point is 00:10:57 energy company, but they make essentially these generators that are very helpful to co-locate next to a data center when you, say, want to use it for a mix of Bitcoin mining and AI. So that kind of dual-purpose use requires some extra capex to repurpose. And as we've seen, many of the Bitcoin miners are currently pivoting away from being pure play Bitcoin miners to allocate some percentage of their capacity into the AI. So they need equipment to upgrade their data centers to be able to serve that market. We're looking in that space as well. Interesting.

Starting point is 00:11:33 And so when you think through, okay, you've got like kind of the industrial and energy sector. What are maybe some of the other types of businesses that are inside here? You mentioned some of the like crypto, you know, kind of specific businesses. Is it just your normal cast of characters? There's only so many of them available in the public market. Or do you guys look at also kind of a unique way of figuring out who falls into that category? Yeah. So our bias is to own companies because we're bullish on the space.

Starting point is 00:12:01 and the more diversified approach we think is going to provide maybe a more pleasant volatility profile for investors. But we do have a few screens to help us determine position sizing. And one of them is simply the leverage that the business has compared to its earnings power. And so names like a MicroStrategy, which in a pure play crypto equity index might be 10%, we're down at 3% or less than 3%. Why? It's leverage. And the way that these markets work, they're super reflexive.

Starting point is 00:12:41 The indexes get overweight the most leveraged names at the top of the market. And that's where your biggest risks can materialize. So, you know, we saw it last cycle with all the tech companies that went bankrupt when they turned into Bitcoin banks. Essentially, I think this cycle is going to be different because there's a bit more professionalism around how the leverage is being generated. But with a bear asset like Bitcoin, you know, I still believe that it's a volatile asset, you know, more volatile than stocks. And I want to be in the business of compounding, minimizing drawdowns. And one way to do that is to look for strong balance sheets. It's kind of like the investing 101 from how I think about compounding. Yeah, makes sense.

Starting point is 00:13:28 Let's talk about this Japanese utility company. This one, I think, is called Tepco. and you all have it in the ETF. And I was looking at some of these and it's up 50% in the last, I don't know, a couple of weeks or so. Is that Bitcoin and crypto related? Or is that just something that like,

Starting point is 00:13:46 you know, Japan woke up and was like, hey, we need more electricity because of AI or what's going on? I think last time I was here, I told you the story of when I was living in Japan during the earthquake and tsunami and working for Cathie Wood during those days. And we were, you know,

Starting point is 00:13:58 we had a lot of nuclear exposure in the middle of a nuclear meltdown. So I'm pretty familiar with the country, the equities, and the nuclear kind of value chain. And there had been stories in the last couple of years that TEPCO made an investment in a company that's mining Bitcoin, this company AgileX. It's really hard to get information from them about it. There's not too much in the media, but that story's out there. And then I saw that EDF, the French nuclear giant, they've also started to do a little bit of Bitcoin mining. Marathon just bought their data center business, three quarters of it, last week.

Starting point is 00:14:36 And there's a new proposal in the French parliament to formalize those Bitcoin mining efforts, right? It can be a way to like pay down the debt. They've got all this spare electricity that they use to export to Germany. Japan also has some folks of parliament who are talking about amping up the Bitcoin mining. And then the nuclear restart story is starting to heat up in Japan. And I looked at the stock that used to be $30 billion market cap. It's at six. There's no analyst coverage.

Starting point is 00:15:04 They're turning on their nukes. They still don't pay a dividend, right? So there's a lot of risk here. But it looked really cheap. And so combined with the heightened acceptance in France, that whiff of like, maybe we're going to do this. I thought, you know, if that comes to Japan, that could be a big deal for TEPCO. But even without it, the risk reward is really attractive.

Starting point is 00:15:26 So, you know, we tweeted at the company to try to get them to talk a little bit more about their Bitcoin mining. I think that would help the multiple a lot. But there's a fundamental story there. There is some Bitcoin integration. If it got bigger, you know, the stock could really rock it. So that's an example where we have some utilities and energy expertise in-house. We have a natural resources strategies. We've got an analyst.

Starting point is 00:15:44 All he does is utilities. So he and I talk a lot about, you know, which ones make sense. And we collaborated on that one so far. It's been working. Today's episode is brought to you by Figure. They're the largest non-bank mortgage lender in the United States with over $15 billion unlocked on their lending platform. They've just lowered rates on their Bitcoin and Ethereum-backed loans to 8.91%,

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Starting point is 00:17:07 One of the other things that I've seen that I'm fascinated by is you guys were critiquing some of the crypto companies, of the bitcoin miners for uh for the compensation structures and um you know one of the things i think in bitcoin and the broader crypto ecosystem for a long time is it was kind of uh unsophisticated not in a negative you know way but just you have a lot of people who are builders they're entrepreneurs and the sophisticated traditional finance folks who have the rigorous analysis and are used to doing this and have kind of the reps and the skills and the expertise of uh analyzing from the outside which i think in traditional finance holds a lot of companies accountable they weren't paying attention to this stuff that's starting to change now and i think you see

Starting point is 00:17:50 companies acknowledging that they're excited by it they want these people to you know help them build a better company give them access to capital uh you mentioned the banks holding some of the paper all that kind of stuff you guys pointed out the way hell second some of the compensation structures here may actually be off talk through you know what you guys noticed why these companies and then what your suggestion was. Sure. So VanEck, we just celebrated our 70th birthday. So we've been around a long time.

Starting point is 00:18:15 And Jan VanEck, CEO, takes a very engaged approach on governance. So both the VanEck firm, which although it's family owned, has an extremely professional board structure and management team, but also with how we approach our external investments and via our ETFs,

Starting point is 00:18:34 we're pretty large shareholders in companies where we don't necessarily have a PM who is making the investment decisions. So we do vote our proxies, you know, intentionally. And now we show up as some of the top shareholders for the Bitcoin miners and these other companies. And so we wanted to take that same approach. And we noticed in 2021 that the executive comp at the Bitcoin miners was out of whack with, say, the Russell 3000. Or even if you looked at like the tech sector specifically, it was too high. and they're paying themselves too much yeah yeah they're paying themselves too much and i think

Starting point is 00:19:10 it's exactly what you said which is uh mostly retail shareholder base who just didn't really have time to read uh the corporate filings in a way to uncover that and there weren't too many people on twitter talking about it right how much are we talking are they paying themselves like a couple million bucks no tens of millions of dollars for the for the outliers right um per year yeah yeah and and also although a lot of visits it was in stock the uh performance criteria were you know not very strict relative to peers outside of bitcoin got it so maybe if i play devil's advocate in their defense uh the numbers might have been big there was some performance metrics they had to hit i think your side is yeah but they were kind of foregone conclusions you

Starting point is 00:19:54 were going to hit it so it's not really performance driven as much as you know performance driven supposed to uh claim to be you know kind of a thing that you're doing good for cheryl yeah you got it um and and so things kind of we got our little debate on our hands between okay i got it now yeah yeah so 2022 2023 there was a bunch of bankruptcies like this topic was not front and center but what we noticed in 2023 2024 is like the problem has re-emerged and in 2024 to use the most egregious example, the board of Riot paid their named executives, like 80% of the increase of the value of the stock that year went to the executives, essentially. And unpack this in terms of, let's just say a stock's worth $100 at the start of the year, it goes to 180, right? Or I'm

Starting point is 00:20:43 sorry, it goes to 200. You're saying that $80 of that increase went to executives. And how much of that is uh performance based where like if you hit a certain share price or something like that versus it's like hey as long as you breathe and show up to work you're getting you know some of the uh yeah it was more the latter right uh and so this proxy season shareholders have really started to push back and they're and sorry to interrupt but just one other question is um in those scenarios did the stock go up a lot or a little like 80 you know if it only goes up so like riot it was kind of not a great performer relative to others last year.

Starting point is 00:21:21 And it happened to be that the executives had a really chunky chunk of it for 2024. Got it. So there's definitely different levers. Yeah, yeah. There could be some timing things. But from any objective measurement, that specific package is egregious

Starting point is 00:21:33 from our perspective. So we put out some research. Damn, I should have had the right guys here. We could have had a little... Well, I just met them. We had the conversation in person. Yeah, so we put out... What was their...

Starting point is 00:21:43 Just out of curiosity, if you talked with them, what was their defense? Or like, what was their response? Their response was that, you know, you're right. And we're going to pay ourselves zero next year. So in the earnings report, immediately following our report, they said in their call that exec comp was going to come down a lot next year.

Starting point is 00:22:03 And then, you know, we learned that it'll basically be zero for the named executive comp officer. So, you know, it is. Does that make you happy? Like, are you satisfied with that answer? Oh, maybe not. I think the like, let's see the whole package, right? Let's see what all the peers do.

Starting point is 00:22:20 Yeah, the details matter. But I think, you know, looking at kind of your social media on Opendoor and, you know- I'm nice, I'm not having to critique anyone. The point is, is like, if you identify something that you think is a better way to do things and you point it out, like people are going to notice. You know, let's talk about the Opendoor thing for a second.

Starting point is 00:22:40 What I find so fascinating about it is, you know, Eric Jackson, I know him. He's been tweeting about Opendoor a lot. And I think at first when people saw like there's some crazy price target or whatever, you're like, ah, is this real? I talked with him. I understood where he was coming from. And I understood what the assumptions were. And whether I agree or don't agree or maybe I think he's, you know, it can get halfway there.

Starting point is 00:23:01 You know, whatever the thing is. It was just like there's logic here. Right? I think it was like the first checkbox of like, all right, this isn't somebody who's just like picking a random number out of a hat. Like, okay, let me pay attention more. let me go figure out, do I think that $82 is real or some other number? And as I started to do that work, that's when I saw a lot of retail start to start paying attention. And so, you know, frankly, when I bought the stock and publicly came outside, I bought that stock. First of all, I should say

Starting point is 00:23:27 like, it was kind of a starter position, right? It wasn't like I put 50% of my portfolio in or anything like that. I don't own 5% of the company. So I had to disclose or, you know, anything to that degree but it was this combination of like okay you've got this like eye buying you know artificial intelligence almost like market making business that should be valuable if they can build the right product you've got interest rate cuts that likely are coming which should be a boom for housing and transaction volumes and things like that um but probably the thing that got me the most interested was this like idea of like retail activism where you had a lot of eyeballs now looking at a company saying collectively how do we improve this and some

Starting point is 00:24:08 people are focused on the product some people are focused on you know unit economics some people are focused on management some people are focused on the board some people are focused on the market opportunity some people frankly are just yelling and screaming because they are bored and some people are saying hey we got to do more press and and it's like the hive mind right like the power of the crowd which i think that what you're describing in some of these bitcoin miners like you're one participant yeah you guys are a huge firm but you guys are one voice of many who is looking at a company saying, how do we improve this? And so the power of that becomes very interesting. Now, hopefully, I think when people look at the way that I approach that situation

Starting point is 00:24:41 and continuing to do, I have taken the approach of like, I'm not here to critique any one person until I've spoken with them. Now, if I talk to someone and I'm like, okay, you're not fit for a job or you're not doing a good job or whatever, like that's a different story. But I think that I try to always give people the benefit of the doubt and like give them a fair shake and say, until I talk to you, I don't really have a strong opinion. I can look at the body of the work, but stocks go up and down for a lot of reasons. Yeah. One thing I take away from your story is the old adage, invest, then investigate, which is if you're going to be an engaged investor and you have an idea and you think you're early, timing really matters in this space. Put a little down,

Starting point is 00:25:20 monitor the situation. You might come up with a better idea of how things can improve. And the CEO may quit a couple of weeks later and the stock will be up 50%. You know, it's funny, you know, there's a reporter that called me this week. I'm not going to say who it is. And, you know, immediately my take with reporters is off the record, right? I'm not, whatever. And I said, you know, Stanley Druckenmiller's got this famous quote, you know, buy and then research, right?

Starting point is 00:25:42 Invest, invest. Yeah. And, you know, again, starter position. But what I found so fascinating about it was as I started to talk to people, as I started to do this, like the power of the crowd is very real. Now, to your point, that stock, I'm going to get the number. It's not perfect, but it's up like 60 or 70 percent in like five days. Right. It was, I think, a couple of days ago was the fifth most traded stock in the world or at least in the U.S. market. Then it was the third most traded stock. So there's a tension. Right. And what I what I find very interesting about it is the CEO did step down. Right. I was supposed to interview her. That's not going to happen anymore. I don't think we're going to do a postgame interview. Right. So you kind of sort of look at this. Maybe a job interview.

Starting point is 00:26:26 Right. Well, you look at it and you're just like, okay, look at the difference in scenarios. The miners that you guys were critiquing came in and had a conversation with you. Like they should get credit for saying somebody is critiquing us. Let's go talk to them. Because there's a lot of companies, frankly, that it's especially outside of maybe like the digital world economy type stuff. They're just like, eh, we're going to take our money.

Starting point is 00:26:50 You know, here's the digital middle finger, like see you later. Right. they come and talk to you and it sounds like they're trying to make it right or improve it or you know whatever and so i do think like there is something about um executives who understand this like dynamic digital native world and most of the minors you know they go on podcasts they tweet they like like they're engaged they understand the power of the community i think in public markets generally though most of the executives are not like that right they're kind of very much like I have a comms team. Talk to the comms team. And that's where things go to

Starting point is 00:27:25 die, right? So you guys, in a weird way, are a great fit for these types of businesses because you have a voice, you guys do the research, you do the work. When you say things, positive or negative, you're talking to a audience that wants to hear from you. Yeah, I think it goes back to the beginning of our conversation. What's really changed since the new administration came in is that all of the big Wall Street banks want to get involved in stocks. It was Morgan Stanley bringing riot around right so it was uh jp morgan who brought bullish public this week so it you know these are uh high quality research analysts and sales people who are engaging with sophisticated clients or who are you know finicky about little things like executive comp and everyone's going

Starting point is 00:28:09 to come to what i think is a better governance solution that's good for the space that's why there's going to be so many tailwinds behind this crypto equity space from my perspective yeah i I mean, that makes sense. Let's switch gears. You guys also manage a fund that does staking. And what I think is interesting about the whole staking thing is just like it's native revenue. And there's a bunch of questions about that being a security, not a security. I think we've got some clarity there where the SEC is saying this is not a security.

Starting point is 00:28:38 How does that decision change what is going to happen with staking, both in what I'd consider individuals' participation, private funds, And then now we're starting to see these public companies go after, you know, every altcoin ever created and say, we're going to do a digital asset treasury for, you know, X, Y, Z coin. What is the big impact of this staking decision? Today's episode is brought to you by Bidicenship. If you're a Bitcoiner thinking about global mobility and securing a true plan B, listen up. Portugal is one of the most attractive golden visa programs in the world. And Bidicenship has built the ideal pathway to get you there.

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Starting point is 00:29:52 Again, that's bitizenship.com slash POMP. Go check them out today. Yeah, I think one of the most interesting things about the upcoming cross our fingers Solana ETFs, which I think are hopeful that are going to be in the market in the fall, is that we're working to launch them with both staking and with in-kind creation and redemption so that the market makers who make shares of these ETFs can accept, say, Solana to help us create shares of the Solana ETF. And that will bring down friction a lot in the space when dealing with the ETFs, but it's going to also really professionalize the staking operations.

Starting point is 00:30:40 So we're going through some due diligence now on how we're going to handle staking the coins in some of these ETFs. And it's quite a high hurdle to get everyone across the organization on board with these counterparties. And the regulator is also going to be seeing, of course, who we choose. So things like, you know, SOC certifications, like that type of stuff matters again, maybe even a US validator set. So three years ago, you know, in a different administration, we had clients and we also thought that it was less risky to have the validator set of your staked coins be offshore. Now it's maybe 180, you know, there may be some benefits to doing it onshore. So I don't think there's any huge change in how important staking is. I personally think that a lot of these altcoins have very high inflation rates and you're getting diluted constantly as an investor without even realizing it unless you lock up your assets and stake them and earn that APY to at least keep your ownership share of the network flat. But even that's a crazy idea, right? that you're getting yield but it's only able to generate enough yield to cover the inflation like

Starting point is 00:31:55 you know one of the things that uh recently came out that i thought was pretty fascinating since 1971 uh the us dollar has debased at four percent a year for you know 50 plus years so if you're holding treasuries today you're basically flat on that annual i think now some will argue it actually has accelerated in recent years and so therefore maybe you're actually on a real return basis negative by holding treasuries now yeah i would wonder about the reinvestment assumptions of that right well whether enough whether that is true or not i think that um this idea of let's say you're staking eth solana i'm just going online if you are only getting enough yield to cover the dilution of the network one the people who aren't getting yield they're getting screwed

Starting point is 00:32:40 right but two is you're almost being sold this yield story that isn't actually like true like your real return is like flat right there's a couple of projects like ethan soul where when the blockchain activity is strong you actually are earning a positive yield right and that's what makes ethan soul kind of stick out in terms of what type of position size i can justify the fact that what you say is truth for the majority of coins just speaks to how early things are like there's no mass adoption the fees on some of these other blockchains are kind of de minimis the pass-through mechanism to the token holder is not fully mature so you're really buying venture type investments they just happen to be very liquid in in token form yeah it's it's uh it's interesting

Starting point is 00:33:22 what about um in the things that you guys are building i think that's another aspect that people don't quite give uh van eck and the team enough credit for is um agora is uh one of the stable coins um you all have been building other things as well talk through maybe kind of like what the philosophy is around building and then what's some of the progress on these things? Yeah. I think our observation on the space is that crypto blockchain, it's a participatory technology. Like the whole point of self-custody is that you're actually touching the software that interacts with your coins. And so if you're not really building something and experimenting a little bit, you probably are not going to understand the space very well. So we have

Starting point is 00:34:03 Agora, which is a US dollar stable coin, where VanEck is the asset manager behind the reserves there. And it's Nick VanEck who's operating the company and is doing a B2B approach and being quite aggressive in sharing that underlying revenue back to the partners. And if you look at Circle results and the secondary share sale this week and what they're guiding to, it is that those types of kind of marketing and incentive costs are going to rise and so we're just going to take a very long-term approach and be a leader on price from the beginning uh and try to you know partner with some attractive distributors i think that nick if i've got that right i think i have that right do we know what the percentage is that people are giving to the partners is that public

Starting point is 00:34:52 information or uh it's not public but you'll you'll start to see it in the company retail like Because those companies will then pass it along to retail, right? So the same way that you earn 4% on Coinbase APY as a retail customer, you'll see that across a number of platforms. And another just experiment that we've been building is a collectibles platform called Segment, which is kind of Web3 oriented around fractionalizing collectibles and acting as a marketplace for the greater liquidity that has resulted. And I think one of the interesting things about that market is like, it turns out that actually holding the thing is really important.

Starting point is 00:35:33 You know, like the actual warehouse is super important. And it's going to be interesting to watch the kind of real world activity that that creates. There's some very sophisticated warehouses that are getting built around storing wine and whiskey and all that stuff with an idea that the tokenization will make the financial aspects of the asset higher velocity. but you better be damn sure that the whiskey hasn't literally moved a centimeter from where it was sitting. And there'll be sensors that capture all that. So yeah, that's been an interesting experiment as well. And then what are the areas that maybe everyone else is excited about, but you're like, hey, hey, fellas, be careful. Where's the risks? One of the risks that I hear people talk about are these treasury companies. I don't know if you guys think those

Starting point is 00:36:18 are risky or not risky, but just help us understand if we get into a bear market at some point in the next 12 months, what are the potholes? What are the landmines that people should be careful of? Yeah, I think it's the leverage that we talked about. And you can see that kind of in our DAT exposure where we have it, but position size just matters so much when you're dealing with, you know, 80, 90, a hundred ball assets. So we've been kind of, we've backed a few. But I'd say we're being more cautious than maybe some of our competitors. And in the public equity fund, we're trying to identify some valuation arbitrages. Arbitrage is maybe too strong a word. But there are times, I think, when valuation will matter with these DATs. I'm

Starting point is 00:37:09 not sure it's for the mega caps. But in the kind of small cap arena, where management has some levers to pull in terms of maybe like buyback authorizations, or that can really matter, I think, as a signaling mechanism. So I don't want to say super bearish. I think some number of them will succeed and some number will have an escape velocity type of dynamic like microstrategy where they can trade above NAV pretty sustainably. But I think there'll be a long tail that do not. And that could be, you know, trapped capital because executives are going to be making millions to have these public companies, you know, if they're trading at 0.8 MNAV, it's going to be hard for them individually to maybe do the right thing by shareholders. So

Starting point is 00:37:56 maybe on our next corporate governance, you know, topic, we'll, you'll see something from us about that. Trying to figure out how that, uh, how that exactly works. Um, and let's talk about the government. Government seems pretty bullish on Bitcoin cryptocurrencies. We saw the treasury Secretary recently, maybe offhand comment, we're not going to buy. And then, oh, very quickly put out the tweet and said, no, no, we are going to buy just in this budget neutral way. The president seems very excited about this stuff. But also, I think even the entire cabinet, you see, you know, Howard Lutnick and many others who are pretty supportive of the industry. Do you pay attention to anything in particular when it comes to Washington, D.C. and kind of some of this

Starting point is 00:38:33 regulation stuff? I'm definitely spending less time on that recently because I feel like the groundwork has been set to catalyze a lot of capital formation in the space. And the investment banking anecdotes are the biggest example of that. So my expectations have been pretty low on federal government acquiring Bitcoin. I actually think Besant said the truth, maybe by mistake, with his comments yesterday about how there won't be a seller. I think it's going to be very hard to acquire bitcoin in a material size in a budget neutral way without legislation just because something is budget neutral doesn't mean it doesn't require legislation right uh anything material to the finances even revenue neutral requires legislation uh does that mean that the

Starting point is 00:39:19 government could uh nationalize strategy one day well once you know in i've seen people tweet about it right they're like oh like he's just buying it for the government now i'm not saying i believe that yeah but that that could be in a generation right so it's too it's a reasonable people wouldn't base their investment uh you and i are a little bit out there so we kind of do right no i don't think that uh people are buying and selling that company bitcoin or any of that on that stuff but i i do think that um it is an interesting intellectual exercise to go through if you were the government and you wanted to acquire a lot of this because you thought it was going to be very important um inside the united states there are a couple of really big

Starting point is 00:39:59 piles of bitcoin right obviously there's uh now multiple public companies but but one in particular just got a lot uh the etfs have quite a bit of bitcoin right you know and i i do think that people have um fear and anxiety is probably the wrong word but uh they're aware of kind of past decisions the government made about 100 years ago or so right where they said hey you are going to give us some of those assets um i do think it today would be much harder given the internet and, you know, kind of the way that the relationship with the government and the people work. But I don't think that people are like insane

Starting point is 00:40:34 for wondering, you know, how would the United States get a lot of Bitcoin? Especially when the treasury secretary is saying we're going to get it through confiscation. Now he's talking about criminal, you know, proceedings and things like that. But it's the internet, right? Like people immediately like, oh, he said the word

Starting point is 00:40:48 and they, you know, run wild with it. Yeah, I mean, if Bitcoin were backing, say 20% of new T-bill issuance, which maybe in a generation, you know, that could be the case, then it will be reasonable to think about the moral hazard associated with if Bitcoin went down 99%, right? But I think that for the world as it is now and likely to be for the next few years, like it's more likely that the government takes its piece by financial repression, you know, higher taxes on Bitcoin mining, royalties or transaction taxes on self-custody transactions so it's like easier things for them easier things

Starting point is 00:41:26 for them to do yes it was kind of an interesting way to think about it as well right yeah what about uh stable coins do you think the um government has any relationship or uh or would want a relationship with these stable coin issuers in terms of you know the fed has quite a bit of power right now the treasury is quite a bit of power right now if you start to have quote unquote production of money which pseudo production right because technically they store back one to one um you are privatizing that to a degree and so is there anything there that you guys are paying attention to or uh maybe worried about yeah maybe the opportunity uh i think or we think is in um the clearing of stablecoin transactions so the federal government's not going to do one right

Starting point is 00:42:14 There's even kind of proposed laws out there to make it impossible for CBDC. But individual states likely will. I think Wyoming has been on the front foot about that. And then it's questions like merchant acceptance. Who's going to accept these things? If you go to Miami with your Wyoming stable coin, is it going to work? You think the states are going to do it for real? Yeah.

Starting point is 00:42:37 It's not very easy, as you know. No, it's easy. But I just wonder, we're almost going back in time. Yeah, I don't know that they're going to be at scale, right? Government rarely does anything super well. So then I don't think everyone's going to be suddenly in Wyoming using Wyoming dollar and things like that. But they're going to experiment and experiments will have varying successes. But like, who's going to be the interoperability layer for all those stable coins? Because according to federal regulation, they're all going to have pretty similar structures, right? Well, I was going to say, can they even legally do it? Like, isn't there laws? And I'm out of my depth very quickly when it comes to the currency laws. No, the state chartered banks will be able to do it. So they can do it, but it's still backed by U.S. dollars. Yeah.

Starting point is 00:43:17 Got it. Okay. So it's really in a weird way. It's like a branded coin that is backed by dollars, not like Wyoming is going to create their own currency that has nothing to do with dollars. Yeah, U.S. dollar. Just you issued from a Wyoming bank, right? Things like that.

Starting point is 00:43:33 Which technically, I guess right now, like people do issue things from these banks. It's just like their dollars. Yes. Electronically. So we've been in the venture book, VanEck Ventures, where we hired the corporate development team from Circle a couple of years ago. And Wyatt, general partner there, is making a number of investments in maybe who can be the clearinghouse for these next-gen kind of stablecoin rails, right? Yeah, that's interesting. I guess it's somewhat Trumpian for the states to want to put their name on the stablecoin, right?

Starting point is 00:43:59 Because to your point earlier, it's like, okay, there was like product market fit was one competition. then there is going to be an economic competition of who can like give back the most to uh to the clients yep and then there's going to be a brand competition right and maybe there's other future you know kind of uh competition you know vectors but those feel like the three that are maybe most important you know moving forward here yeah i agree and then the uh in the public equity space some of the kind of merchant acquiring businesses or fintechs that uh kind of like you know help retailers accept whatever payments they want uh so they're they're a lot of those guys are starting to add crypto right um you know shopify is kind of a hybrid example of that uh and then

Starting point is 00:44:44 what coins do they accept and what do they use for the interoperability like they're they actually will have some market power because there's going to be a lot if this does trickle down to retail slash small business where our base case is it's mostly um like uh multinational remittances is probably the biggest use case of stable coins over the next year or two. But if it does trickle down to this everyday experience, it'll be interesting to see how the merchant acquirers deal with it. My last questions for you are related to market cycles. For your cycle over, or do you think that it will remain? I lean towards remain, but in a more muted fashion. So that's kind of wishy-washy answer, but it's been around for so long,

Starting point is 00:45:28 going to give it the benefit of the doubt um you know next year we have kind of midterms heating up it's going to be not much happening in terms of progress in washington um you know the the rate cuts might be kind of well known and already enacted by then like it's too early to say but i'm definitely on the lookout for a down year uh at some point here and uh cycles resuming but definitely with the etfs and now the corporate buying hopefully there's some more counterbalance to that what are the data points you look at to identify whether we are near or at market tops you get any interesting data points um i'll share a couple that we use to try to identify kind of near-term tops uh one is the funding rate just how much does it cost to put on a leveraged

Starting point is 00:46:21 position. And when that funding rate is over, if it's in double digits for a couple of weeks on a moving average basis, then you're really at the tail end of something. At least that's what the history shows. We're not, it doesn't look like that at all. We've had a couple of days here and there where we've had these spikes and then a washout, but there hasn't been that sustained period. And then another thing we look at is the unrealized profit in the blockchain. there's that ratio you can look at um again it's it's elevated but it's not in kind of scary territory uh and then there's the anecdotal stuff like app downloads or you know texts from your ex-wife about ethereum i got one of those i was like okay this is a little worrying they were

Starting point is 00:47:05 getting closer and closer right yeah yeah the uh since you shared i'll share one that uh i've been paying more attention to which is the 200 week moving average crosses the previous all-time high price point interesting and it's been like now again could break but historically like almost perfect gotcha right so you get kind of a 200 week moving average and once you cross over you know in this case 69 000 head on a swivel right um but you know look one of the things that in i'm asking because i'm personally interested right is uh i think market cycles if they stay the four year kind of what we've been seeing it'd be like october through december sometime in that frame would be the top you'd then get a big correction people have been around for a while

Starting point is 00:47:53 okay well if we get a september rate cut does that extend things a lot of the digital asset treasury companies are coming to market their deals are closing there's a lot of buying power that starts to hit the market in september october november right like like there are things that just are external to the normal cycle that could have a potential profound impact right um or bitcoin just as bitcoin and he kind of doesn't care what the world does and you know is going to hit a certain level and people are going to say all right it's good enough for this cycle give me my profits and uh see in two years uh at the bottom yeah i mean it's really personal um calculus on what your time horizon is and um kind of what your risk reward appetite is so hard to kind of answer

Starting point is 00:48:44 that question right now right absolutely where can we send people to find you on the internet or find out more about what you guys are doing at vaneck uh yeah thanks uh you can follow me on x matthew underscore siegel or vaneck.com forward slash node you can check out the fund and all the research that we've written to support our investment thesis amazing thank you for coming to do this it's always fun and congratulations on all the success we'll do it again in the future Thanks, mom.

The Pomp Podcast - Bitcoin Stock Risks & The End of The 4 Year Cycle? | Matthew Sigel

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