The Wolf Of All Streets - Global Macro Director at Fidelity Shares His Investing Strategies For Bitcoin | Jurrien Timmer

Episode Date: October 5, 2021

Jurrien Timmer, the Global Macro Director at Fidelity, has a deep understanding of financial markets. Always ahead of the curve, Fidelity began their deep dive into crypto years ahead of other reluctant institutions. This has paid off - Fidelity is a major player in the space, and Jurrien is a vocal advocate for responsible Bitcoin and crypto investing. In this episode, Jurrien Timmer does a phenomenal job of discussing Bitcoin’s place in a portfolio and in context of global macro. Jurrien Timmer: https://twitter.com/TimmerFidelity -- Sorare: Where fantasy meets reality. Collect, trade and earn weekly prizes on https://thewolfofallstreets.link/sorare. #OwnYourGame #Bitcoin #Crypto #Sorare -- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by Blockworks. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworks.co ーーー Join the Wolf Den newsletter: ►►https://www.getrevue.co/profile/TheWolfDen/members The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

This episode is brought to you by SoRare. Stay tuned for more information on them later in the episode. What's up, everybody? I'm Scott Melker, and this is the Wolf of Wall Street's podcast where twice a week I talk to your favorite personalities from the worlds of Bitcoin, finance, trading, art, music, sports, and politics. Basically anyone with a good story to tell. Now, institutions are clearly becoming increasingly interested in digital assets, but there are some institutions that have been

trailblazers in the space for years. Arguably, none have been beating the drum harder for crypto than Fidelity, a behemoth in investment management with over $4.3 trillion in assets under management. Wow. Today's guest, Urien Timmer, is the director of Global Macro at Fidelity. I've preached often that the path to generational wealth is patient and informed investing. Well, Urien's a master at curating these strategies and a proponent for including cryptocurrencies in investor portfolios. So thank you so much for coming on the show. It's a pleasure to have you. It's great to be here, Scott. So now to get into today's episode, can you talk a bit about how Fidelity first began exploring

crypto? Yeah, so we started, I'm not exactly sure what year, but it was at least five, six years ago. And, you know, I think that the general thinking was, you know, nobody really knew what it was going to be at that point. But we knew that as, you know, one of the world's largest financial institutions, obviously, if it was going to be a thing we needed to be to be there um and um and so you know we we started getting involved i mean we even mine our own bitcoin very sustainably i might add using hydropower um but so we were really a very early mover certainly from uh from the lens of a traditional financial company as opposed to you

know a bunch of coders out there to try trying to get involved so uh we i don't know if we were the first as you know in terms of large institutional players but we've got to we we should have been one of the first i think not not shadowy super coders i I guess. Exactly. But that speaks, I think, to certainly the ethos of Fidelity as a company, because everybody heard about it five or six years ago, but very few decided to do anything and were utterly dismissive, to be quite honest. I don't think they even foresaw that it could become a thing, much less that they would actually put resources behind the chance that it might become a thing. So what is that about Fidelity that as a company, you would be interested in even exploring a new asset class?

I think it's just the way that the industry and Fidelity has evolved. I mean, when I started there in 1995, a very, very long time ago. And at that point, you know, the mid 90s, it was, you know, the holy grail of active management. And, you know, we were really just a mutual fund investment organization, building a lot of skill. I mean, we already had a lot of skill. But, you know, as that industry matures, and as it became more passive with ETFs kind of taking over the landscape, and as Fidelity created even more scale as just a general financial services organization beyond just managing money, but also taking care of people's money, even if it wasn't at Fidelity.

I think we have 11 trillion under administration, and I think we have something like 38 million customers, right? So the scale is pretty off the charts. But the operating structure evolves. So we became really more of a technology company in a way. I mean, we're still obviously a mutual fund. We still have, as you said, $4.3 trillion under direct management. But the needs change, and it's all about scale and technology and making the experience easier for people.

And I think blockchain was recognized as being potentially a disruptor. Nobody knew if it was going to be a disruptor. But, you know, I mean, we weren't really talking about d5 back then of course uh but but it's but it the the potential was there to be a technological disruptor and we tend to get there early uh when when we see something moving right if crypto becomes that big most companies of your size will probably be the blockbuster and not the netflix right and i and i and i think it takes some vision to appreciate that that's even a a possibility most companies of your size will probably be the blockbuster and not the Netflix, right? And I think it takes some vision to appreciate that that's even a possibility. So you mentioned, obviously,

Fidelity's early interest in ETFs as well and becoming a large player in that industry. The Bitcoin ETF, Bitcoin futures ETF, whichever it may be or not be, has been the talk of the crypto town certainly for quite a while here. it was reported that fidelity was in private meetings with regulators trying to push for an etf so why do you think an etf is important and do you think that it's likely yeah so i was not in any meeting so i just wanted to put that to make that clear um but you know it's uh an etf uh whether it's us or someone else and and and you know, depending on what the bones are, whether it's futures or some kind of storage, you know, Infidelity already has a product for accredited investors. You know, I mean, it's likely to happen.

I think I don't know who will be the first or when it will happen. It may take longer than maybe most people think, just because obviously we know what's happening on the regulatory front or what's not happening on the regulatory front, but that all eyes are on the industry. And I think it's, you know, I would imagine that as the industry becomes more mainstream, you know, there will be more regulation. And we generally see that actually as a good thing, because it will basically legitimize the space. And I think, you know, if I when I talk to institutions, for instance, you know, corporate treasurers, or pension funds, CIOs, I think, you know, there's always a list of things that people worry about one was sort of the ESG angle,

which I think has largely subsided now that China has banned mining. But one is obviously regulatory risk, volatility is the other one. And I think, you know, if the space does get regulated, obviously in a constructive way, I think it will actually help legitimize the industry and will facilitate the institutional adoption. Like the retail adoption would require some vehicles like an ETF, for instance, but institutions don't generally need that. So there's still a bunch of things between here and there. And whether it takes six months or a year or two years, I don't know. And I don't think anyone else really does either.

You said quite a few things. And the one that just stuck immediately into my mind was that you're having conversations with pensions about Bitcoin and crypto assets, right? Because a few years ago, that would have been unimaginable, almost. I think I've made the argument that your average risk manager or portfolio manager at a company probably would have been viewed as crazy two years ago if they even dared bring up Bitcoin in a meeting. And now it's probably flipped. You have to have some knowledge of it or you're the guy who's behind the times. So are you seeing that across the board with the big wall of money, endowments, pensions, these people that you're talking to when we talk about trillions coming into the space?

Is that really a part of the conversation uh it has been yes so i you know i went down the rabbit hole on on bitcoin specifically last december you know like it's like any of us right you're you're a bystander until it you know the it starts to saturate the airwaves enough that it's like okay you know i'm going to learn about this and first thing you do is you go on on on on twitter quickly realize that there's a lot of very polarizing opinions, and they're not always that well backed or that objective, if you will. And I think institutions had probably that same issue. Again, you were talking about six, nine months ago. So it's a hard thing to understand, to onboard yourself with. There's a steep learning curve.

And so you have to put in the time to understand it. And I think, especially when I wrote this paper back in February about Bitcoin being an aspiring store of value and kind of digital gold and what it would mean in a 60-40 portfolio in today's world where that 40 side of the 60-40 is a little impaired through negative real rates and et cetera. And so that was kind of my conclusion that I don't really want to touch the 60 side because the 60, the equity side is a pretty proven store of value with its compounding math behind it, even during inflationary times, not hyperinflation, but regular inflationary times. But the 40 side, normally you get paid to diversify against the 60, right?

You buy bonds, you get income and diversification. These days, you have to pay to get the diversification because you're paying through negative real rates you're still getting the negative correlation but you have to pay for it um and so that was my conclusion and i think that that generally resonated uh with institutions so we went through a few months where we sat down with a lot of cios mostly of corporate pension plans, but also some treasurers. And I think for them, it was really like, how do I learn about this space? Maybe they had a board member knocking on that door saying, what's this Bitcoin stuff about? Or maybe it went

in the other direction. And there weren't a lot of places to go. Since that time, most financial institutions, the large ones have weighed in on the matter but we were kind of one of the the first ones and so for them it was really just kicking the tires what is this all about how should I look at this what do I need to know uh whether they were ready to pull the trigger or not you know I I wasn't uh I wasn't privy to but but there certainly was a lot of interest and And of course, remember, this was also the time when Bitcoin was just roaring ahead to its $65,000 peak so far. So there was that kind of that momentum that I think also forces people to say, God, what

am I missing here? Right. Do you think that institutions are generally cognizant of the problems with money printing. I have conversations all of the time with Wall Street guys, even on these, and they sort of view it as a benefit. You talked about the 60% in equities. Obviously, that benefits from inflation to some degree, right? You buy hard assets, they go up in value because of inflation. Or do you think that they believe that you can still hold cash in a treasury or hold bonds and it'll be fine inflation or do you think that uh they believe that you can still hold cash in the treasury or hold bonds and it'll be fine or do you think they have a long-term vision that we

really need to start investing in some assets that might be a hedge against this i i think the conversation starts with um you know historically when you would own gold as an investor, so I don't view gold as something you own all the time, because most of the time it's just sitting there on the far right hand side of the risk reward spectrum. It's collecting dust and it has an annualized volatility of like 25 and it's essentially earning the inflation rate. That's historically been gold's role. But there are times regimes where gold does extremely well.

And those are times when monetary inflation is very high. So 1970s, 1940s, even around the financial crisis and obviously in 2020 uh you know excess money um money supply growth minus gdp growth to something like 35 i mean the highest we've ever seen so that would normally be a time where you want that store of value to protect yourself from inflation and from from negative real rates we all know that gold trades in lockstep with the 10-year tips real yield and so it is it is a perfect hedge against negative real rates from that sense but then essentially bitcoin enters the scene uh and it has the potential of being you know a digital form of gold but with more convexity because it has that whole network dimension

and it has even scarcer supplied in gold, right? Gold supply is scarce, but it's scarce at the same rate of change in terms of the amount of supply, in terms of its stock to flow. You know, the same amount of gold is mined more or less every year. And of course, we know the story that for Bitcoin, that is not true. That is not the case. So I think generally speaking, when I talk to investors, that's how I think about it. And I think that's generally kind of what they take away from it is that a period of monetary inflation, you need a hedge. Stocks are one of them. And again, in the 60-40 mindset which I

think most of us live in whether your institution or individual investor it really is that 40 side where you know certainly on the short-term side if I'm going to lose you know two three four five percent of my money in terms of purchasing power very similar to what happened during the 1940s during World War II, and the Fed was kind of tasked with monetizing the increase in debt, and it capped interest rates at 2.5%. I liken it to a kind of analogous to that period. And of course, gold wasn't free to trade back in the 40s. That happened in 70s but once gold came of age and it was free to become an asset class you know it was kind of money before now it became an asset class

uh it it did its thing in the 1970s and i view bitcoin as kind of doing that same thing that coming of age um and so in the conversation we've had uh generally that's kind of where i go and i think that that view i think is generally um shared like i think that resonates with with it with people with institutions as to okay because you know it's easy to say wow this is really cool uh but then you're operating or managing you know an endowment or a pension then you have to figure out, like, where does it go? You know, how much do I own? Like, does it go in a 60 on the 40? Is it 1%? Is it 5%? And so there are a lot of open questions, and obviously the volatility, which I do think will come down over time, as will its return, you know, the Sharpe ratio will probably stay the same, but both the numerator and denominator will

come down. But obviously, being an institution, especially a treasurer, where you are just meant to do no harm, keep that cash safe, buying something with a vol of 100 is not an easy task, right? That's true. So you speak to them in a language they understand, basically, and the language that everybody understands is gold. But gold hasn't fared particularly well in this period, right? While we've seen Bitcoin, obviously, from the March 20 lows pulled 17x to 65,000, as you talked about, gold remained somewhat stable, which is fine. But do you now view Bitcoin as a better version of gold? Do you think that there's a general sentiment that gold has, no pun intended, lost its luster

and that Bitcoin has now become superior? Because really, it seems like there's a pretty sizable exodus from the metals market. Yeah, I think as Bitcoin comes into its own being as an aspiring asset class and one with a very, very unique, maybe the most unique ever supply-demand dynamic, right? I mean, it has that scarcity and it has the network. I mean, I don't know of any other asset that combines those two things, right? Gold does not have it. It doesn't have the network effect. It has scarcity like i said you know it's stock to flow is pretty stable at around 50 i think uh whereas bitcoins will just go up over time um and so i do think that gold that bitcoin has uh taken market share and mind share from traditional precious metals um and i think as bitcoin matures over the years, it will become kind of like a Paris trade.

You know, like before Bitcoin, if we were in the precious metals, you know, theme as a market, we could go gold versus silver, gold versus gold miners, right? They're like ratios and one gets oversold to the other. I think we'll, you know, in five years, it'll be Bitcoin versus gold. It'll be Bitcoin versus Ethereum. Like everything will trade as a pair. And if one goes too far, then people will start gravitating. And, you know, one of the things we're not seeing a lot on right now on neither Bitcoin nor gold is actual valuation work, right? Everyone kind of anchors to price and gold valuation would be trading off of the real tips yield, for instance. But gold trades off of the 10-year real yield instead of the five-year real yield. And I could have easily

have seen it pick the five-year. And this may sound like inside baseball, but the five-year real yield is much more leveraged towards a Fed policy because when the Fed does QE, it's buying in the belly of the curve. And when the Fed sets forward guidance, it goes out maybe three, four, five years, but not beyond that. So the five-year tends to be more sensitive to Fed policy.

And so if gold was trading on the five-year real yield, it would be at about 21 2200, which is not that much higher than where it is, but it's higher. And so gold could have easily been justified to trade at 2200 right now. But it's not and I think it's because it's just losing mindshare and maybe younger generations of investors who don't have any gold, maybe they say, well, I've got this gold and I've got this new digital gold. Why don't I just go there? Whereas maybe an older generation who's always been in gold, well, that's like their benchmark and they'll go there. I don't think you're ever convincing the younger generation to buy a bar of gold and

secure it. I just don't think it's going to happen. And I think the same sort of relationship you just described is the same relationship that older generations tend to have with technology, right? So a younger generation is inherently going to adopt something that makes sense to them because they're more technologically forward generations. That makes perfect sense. So something that you were talking about before we talked about the 1940s and 1970s, periods of monetary inflation where stores of value like gold have succeeded or thrived. This, I hate to use the words this time it's different, but it feels like the expansion of monetary policy now is different that you know we're seeing a 30-40% increase in dollars printed all time in one year. So do you think, you talked about gold being a trade for certain times, but do you think that that now is the environment moving forward and that we will continue to see this increased

monetary policy, inflation, money printing, and that maybe these assets become a permanent part of your portfolio rather than something that you, I hate to use the word transitory, but something that you move in and out of depending on the environment. I think the potential is definitely there for that. And these regimes that I mentioned of monetary inflation, they do tend to last a while.

They can last 10 plus years. And by monetary inflation, they do tend to last a while. They can last 10 plus years. And by monetary inflation, I just mean that money supply is growing faster than its historical trend, right? We have M2 going back 100 plus years, and it grows at a certain kind of trend line. And then you have these periods like the 30s, 40s, 70s, late 60s, 70s, around the 08 financial crisis, where it just kind of goes much, much faster than that. And so that regime can persist for a while. So by regime, I don't mean you own it for a year and then you sell it. But when I look at the efficient frontier, risk on the horizontal, return on the vertical, and I go back seven years, and I look at where cash is, bottom left, stocks, upper right, bonds kind of

towards the third 6040s, right on that curve, but commodities are down and to the right, right? So you're getting inflation, but you're paying like the volatility of em equities for that for only getting you know three four five percent uh but then you have periods you know 10 plus years where uh they work extremely well and and i do think the 1940s is very analogous um and i also think uh what what's happening in japan is very analogous even though japan is completely different in many many many ways but you know i look at many ways. But I look at the bond market and I look at what the Bank of Japan has done to the bond market there. The BOJ owns half of the outstanding debt stock in Japan, and it buys half of the new supply.

And the Bank of Japan has completely tamed the bond market there into submission. The annualized volatility of long-term JGBs is three. That same volatility for long-term treasuries is 11. And there are days where the JGB market doesn't even trade. It's just become a thing that the Bank of Japan owns and controls. And now the Fed isn't anywhere close to that. The Fed only owns 26% of the outstanding debt stock, which is only, and it's buying about a third of the new supply. And the Fed can talk about tapering all at once,

but my personal sense is that in the coming years, five plus years from now, the Fed's going to look a lot more in the coming years, five plus years from now, the Fed's gonna look a lot more like the BOJ and maybe it will too, will have tamed the bond market into submission. But the question that, you know, we can say, okay, fine. The question is, what is that going to do? Right? Will that create hyperinflation? Or will that cause the dollar to crash and lose its reserve status? And that, as you know, is,

is a common kind of refrain from the hardcore Bitcoin community. And I don't really share that view. I mean, obviously, again, Japan is totally different in many ways from the US, but demographically, the US is about 10 years behind Japan. When you look at the age dependency curve or the labor force growth rates, we're tracking Japan with a lag of 10 years. And to me, it is not far fetched just to think that maybe in 10 years,

our interest rate system will look like Japan's, where the Fed will be the controlling owner. There won't be a lot of volatility left the bond market the bond vigilantes will be a thing of the past um but in japan there doesn't seem to have been a price to be paid for they don't have inflation the currency is stable and i think this speaks to one of the things that i think is often overlooked when people talk about the reserve status of the dollar and what's going to happen. We're going to print our way into oblivion. And that is that the whole world has the same problem, right? Europe, Japan, China, the US, they all have the same problem. Our collective debt to GDP, so including corporate, financial,

individual, and government, we're running at about 300% of GDP. Well, so is Europe. So is China. And Japan takes the prize. They're at over 400% of GDP. But their rates are zero. Their inflation is zero. Their currency is stable. conclude that this money printing era or this monetary inflation era is so self-destructive that the whole thing is going to end in a disaster. And even during the 1940s, right, a different era. We had a baby boom. It was a world war, all that stuff. So completely different environment. But, you know, the government tripled its debt when it entered World War Two in 1942. The Fed, which was not independent yet was tasked with monetizing that debt. The Fed increased its balance sheets by 10x 10x. Okay, we've only done two x so far, you know,

from last year to now. It capped long rates at two and a half it kept short rates at three-eighths it kept the policy rate the back then the discount rate at about one one and a half percent even though inflation was running at six through that period of the 1940s and when it ended when the fed got its independence in 1951 it's not like everything blew up. Bond yields were stable, inflation was stable for a decade and a half until the late 60s with the guns and butter. So I don't want to over conclude that this is so unsustainable that we need to go barter stuff and sell all of our financial assets. James Kotecki Yeah, I certainly wasn't implying. I also don't believe

that there's an impending explosion necessarily. It was just more a statement of once the train is going, it's hard to stop. And so I don't think money printing necessarily itself will stop. And with that in mind, the argument that you just made that maybe it'll be fine, probably actually, I should say, it'll be fine and eventually it will come under control. Has Bitcoin benefited from only existing in a period like that? Obviously, Bitcoin, Satoshi Nakamoto even said that it was a reaction to the banks and policy in 2008 and 2009 that sparked the creation of Bitcoin. And we've never really been in an environment with Bitcoin where there wasn't inflationary monetary policy. So is that in some way an indictment or something that we should be wary of or aware of moving forward that if things calm down, maybe Bitcoin

won't be the trade at that point for the best investment? I think Bitcoin is only one piece of the puzzle, right? I mean, Bitcoin is just the incentive token to build the blockchain, right? I mean, that is why people are verifying transactions and that's how the network grows. And similar to other networks, when you think about Apple or Google a number of years ago, you grow that network and it gets to a point where it becomes impenetrable. It's so big, you can't hack it, you can't even really regulate it. Maybe you can try to, but you can't really shut it down anymore. And so I think Bitcoin will in all likelihood benefit from, you know, that first mover advantage. And now it's over 10 years old and there's 38 million addresses with a non-zero balance. It's growing exponentially.

And so it goes through these boom-bust periods because it has price inelasticity because we know the supply. It's not like there can be a supply response if demand goes up because it's completely set in stone, right? So the price movement is really all about demand. Demand goes up, it moves very, very quickly. And if it goes down- Or if demand even remains static, in theory, price goes up. Right. Exactly.

So not to say that the stock to flow model is is the best way of looking at this but you see the stock to flow model it has these boom bus cycles right and they're around the halvings and i understand why that is um and so where where we land in the next you know year or two um who knows but i think bitcoin will have its moments like it's had since the COVID lockdown. And then it will just kind of sit around and do nothing for a while. And then it will have its moment again. And I think during the periods where it sits around, then people will kind of go back to maybe gold.

They say, oh, wow, gold's really been left for dead here. Maybe I, you know, like, there'll be that kind of relative value play. So it has its moments where these catalysts come up and say, holy cow, you know, it's now. And then there'll be other times where it kind of sits around. And in a way, since April has been kind of sitting around. Oh, sure. Do you love sports collectibles or fantasy sports as much as I do? SoRare is blending this together to create an entirely new gaming experience powered by its community. SoRare cards are officially licensed NFTs from over 160 clubs, including Real Madrid, Paris Saint-Germain, and Liverpool, and all built on Ethereum. You truly own your collectibles.

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And so, that does put much higher prices in play. It just might require patience and it might not be the single highest appreciating asset always. And it's interesting because, so I, you know, as I did my dive down the rabbit hole late last year, you know, I looked up the plan B stuff and I tried to like reverse engineer the stock to flow model, which I think I did. But I was left unsatisfied that, you know, this can't just be a supply story because something that has no worth doesn't matter how scarce it is. Right. And so then I started looking

at the Metcalfe law stuff, the S curves, you know, plenty of examples of those throughout time, of course. And I built out a demand model and I actually modeled it after mobile phone adoption back a few decades ago. And when I posted on Twitter, people were criticizing me for how can you possibly compare Bitcoin to mobile phones? It's like, well, that's not the point. It's the network curve, right? That exponential growth curve.

That's the point because all those curves are the same essentially. And it's interesting that the demand model and the supply model have obviously done a good job explaining price so far. And part of that is just because you curve fit it for that period. So it's always going to look good, but they kind of deviate from each other going forward where the demand model is much more conservative, still with very crazy prices, but less crazy than the stock-to-flow model. And 2024 is about the last time that those two models intersect, and then they kind of diverge from each other. You've made the point a few times.

It's just worth highlighting. It really is such a unique asset that's why people don't i think understand it people can understand the supply and demand very easily and people can look at technology like you said google's the facebook's the apples the cell phone and understand metcalf's law network effects but they have a very hard time marrying the two of those yeah yeah no it's a um requires, you know, it's a highly risky proposition in the early days because a small network, you know, can just kind of die off, but a larger network work, it builds, it builds on itself, but it requires some sort of

social agreement, if you will. It's like, you know, money only is money because everyone agrees that it's money. And HTTP IP in the early internet days, you know, as it gets the scale, then things are built on it. Same with Ethereum right now, where things are being built on top of it. But you need to get to that point. And until you get to that point, like nobody has any idea whether it's going to work or not. And, you know, I did a little study that we're posting on Twitter probably in the next couple of days where I compare Bitcoin to the early days for Apple. I'm not a stock picker, so I don't know Apple, you know, as a security person but you know apple in 90 from 1996 on um its price far outstripped its sales or its market value grew much faster than its revenues did and that's because as the revenue

becomes more scalable that's my way of describing it as a network um it's not that price just moves in line with that but it moves exponentially which is metcalf's law right it's the exponential so so the the sales went up price went up or market value went up even more its price to sales went up and so it is not a linear thing and i think that's what's happening to Bitcoin is that obviously, its network is growing, but its value is growing even more. Because the bigger that network becomes, the more powerful and scalable, well, maybe not scalable for Bitcoin, because it's decentralized. But you know what I mean, the more immutable that network becomes. I mean, in the last 30 years, how many times have we seen,

well, either old school investors or people who are used to doing valuations in a certain way laugh at tech? How is this company worth X amount when they're losing X amount every single year, right? Companies that aren't making money have these tremendous values based on that network effect. Yeah. And so one simple exercise that I did was I created like a PE ratio for Bitcoin, price per millions of addresses with a non-zero balance. So it's like a price to network ratio. And if I index that price to network ratio back to Bitcoin's price in 2010. So Bitcoin said 40, when I did this, it was 47,000. Bitcoin's price would be only 66 if you priced it in valuation terms. So in other words, most of its price increase was justified by the increase in its network. And so I see very little work on valuation. I think it's important to do it because people anchor to price. It's like 50,000. It was like 2 cents. But the network has grown

exponentially. So on a price-to-network basis, it's not nearly as expensive as it is in price terms. And price is kind of meaningless. What are you you're, what are you paying for something? It's like Dow 30,000, who cares? Like what's the price to earnings ratio? That's what matters. I talk about price being different than value all the time. And you made such an important point because that exact argument is a huge argument against Bitcoin and similar assets. I don't know what the value, what's the fundamental value of it. It has no fundamental value. It's just price, but there are ways to give a valuation. They're just not the classic ways that Wall Street or managers are used to looking at. Yeah, exactly. Yeah, that makes so much sense. You said something interesting. You said, listen, money is just a social agreement

between people. We all agree that it has value. You can say that it's backed by government or military. Everybody has their sort of idea. One of the largest criticisms against Bitcoin is it has no intrinsic value. But to that end, what does have intrinsic value? Isn't everything to some degree a social construct or a social agreement? Yeah, in a way, even language. Like what if we couldn't agree on what the right words are in the English language? We wouldn't get anything done. So, yes, I mean, social agreement is a big part of it. And again, think back to the early Internet, you know, the actual protocols. With Bitcoin, you can actually own the protocol.

You know, in the Internet days, you'd have to buy a company that built something on the protocol, you know, like whatever it was, Google or Amazon or Facebook. And so, yeah, part of it is a social agreement on what this network is and what can be done off of it. And it's still unclear exactly where this will go, whether DeFi will replace or disintermediate banks or whether they will just live side by side and just like the post office list next to the email um and so i don't think it's an either or thing uh which again is another kind of maxi way of looking at it uh but i think you know there are a lot of people in the world who um live in a in a regime where they don't

know if their money is going to get inflated away or confiscated, or people that are unbanked. You know, by my count, when I look at the World Bank data, there's about one and a half billion people over the age of 15 who do not have financial services available to them. And so, you know, we're living in a world where, you know, we operate in dollars, we're living in the US. And so we kind of have the luxury of having a stable currency, I mean, a dollar is very stable, you know, over the past 50 years, in real terms, it's lost half a percent per year on a compounded basis, not a big deal. But not everyone is so fortunate, right? So we have the reserve currency, it's backed, like you said, by the largest economy

and military power in the world. But there are a lot of people who don't have that luxury. And I think the blockchain and Bitcoin and the whole crypto sphere certainly has a use case for them as well as for all of us, especially when you think about all the applications that can be built on top of this blockchain. But in the early days, it's super risky because

you haven't built that consensus yet, right? You haven't agreed on the language yet or what the value is of money and how fungible it is and how exchangeable it is. But the further we go and the longer it survives all these big ups and downs, I think the more it will become obvious that this is a new social norm that has a lot of computing power and a lot of stuff that can be built on. So you're obviously a fan of the 60-40 model. We've clarified that. I want to talk a bit about individual investment strategy. So I had Mark Yusko on the podcast from Morgan Creek, and he said that, I don't know if

it was a study or somebody told him, but that the best performing accounts at Fidelity were the ones where people were deceased and the accounts had just basically never been closed or managed, lending to the idea that passive investment is obviously the best strategy. And then if you actively invest, you're probably not going to beat a dead person. Is that true? And is that a core value of the way that an individual should approach investment? Just to clarify, when I think about passive investment i i'm not i want to make sure we're talking about the same thing but there's active versus passive in terms of do i buy an etf or an actively managed fund and i i don't think that's what you're talking

about i think what you're talking about is dollar cost averaging and not uh trading it away just a very fixed strategy over a long period of time right right? Yeah. So in my view, and I've been doing this three decades, is that is absolutely the case. So dollar cost averaging, don't try to outsmart the markets by trying to time these market cycles. I used to do that. My ego couldn't resist to try to be the contrarian that outsmarts all the other people. And I think it's a fool's errand. I think whenever you try to outsmart the market by getting out, it seems so easy. What do I have to lose? I just get out, and then I can just kind of take a look, and I can always get back in. But unless you time it correctly, when you're out of the market, you're not compounding those returns, right? So this is all about the compounding magic of how

you get to a 10, 11% return over the longterm, even though you have an annualized volatility of 15, which is generally the vol for equities for a 60-40, it's nine. And that time out of the market can be very costly. And if you're wrong, and you miss the bottom, and all of a sudden the market's back at a new high, I mean, look at how quickly that happened last year. Then it's like, well, I'll wait for the pullback. The next tip. The next thing you know, you've been out of the market for five years. It's five times where it was before. And you've lost that extremely valuable compounding.

And so my take is, and when I talk to my kids, my daughter's 24. She has her 403B account. She's a nurse. I said, just put as much as you can away don't touch it you have 40 years till retirement you know you're going to do well over that period of time so i totally agree that the less you you know have the right plan that makes sense where you are optimizing return per unit of risk right uh? And obviously, the younger you are, the more risk you can take, which means that your 60-40 is going to be more like a 90-10 or something like that. And so set up that plan and just execute on it. Don't try to second guess it. I mean,

it's behavioral finance, right? The market only goes up 60% of the time, which means that 40% of the time it's going against us. And that 40% of the time we're going to want to get out. And we have to resist and overcome that urge, that fight or flight urge to get out. And then to rebalance, of course, right? In February of last year, before the big 35% decline, if we had a 60-40 portfolio, literally a month later, was a 50 50 because stocks went down and bonds went up well you need to rebalance back to 60 40 so that when the recovery happens the recovery is happening on the 60 not on the 50 right and so this really those three rules you know have a plan stick with the plan and rebalance either a certain time of year or when there's been a lot

of a big move, like after a big move, it's good to rebalance. And if you can do that and stick with it, I think that the market math shows that over time, that's been a good strategy. And especially dollar cost averaging, whether it's for stocks or for Bitcoin, you're never going to buy the low, but you're never going to buy the high. And there's something to be said for that. Yeah. You talked about the potential of having a 90-10 when you're younger, which obviously lends to rebalancing and becoming more conservative with time. What is, and I guess it depends on your age, but what is Bitcoin's role in that portfolio? I know, obviously, that you've said it fits into that 40 and not into the 60, obviously,

because equities do so well. But I guess, do you have a lot to lose if you're 20 and 90% of your portfolio is in, not necessarily crypto, but... I think one of the things that I learned kind of doing some stress testing on bitcoin's very short 10-year history is that um a little goes a long way right so if you're um if the 40 side of your portfolio or let's say you're a corporate treasurer and you tend to be more conservatively invested your benchmark is going to be shorter bonds than a 40 a general 40 would be and you're just trying to solve for not losing purchasing power in a world of negative real rates you don't need to own a lot assuming that past

performance you know continues which of course it won't it'll be more truncated i think but you know even like just like one or two percent would have gotten you there in terms of flipping that negative purchasing power to a positive one. But as we talked about, it comes at a cost in terms of volatility. Bitcoin is not a short-term asset. So that's why for a treasurer, it's really hard because you have a short-term portfolio that you're hedging, for lack of a better word, with a very long-term asset and and then you run the risk of a of a duration mismatch so right if you're a treasurer and you need that money to make an

acquisition or buy back shares and it's all and it's it's in a 50 drawdown that's that's not going to be a good thing right so you need to have a long enough horizon that you can kind of let let that market math do its thing so my sense is and again it's going to be different for everyone uh everyone's situation is different but if you're solving for a loss of purchasing power and normally you would buy gold and now you want to buy digital gold you know that that that's one specific solution. But even there, the answer depends on what else you have in your portfolio. If you own a bunch of real estate, then that's a real asset as well. And in this environment, if you bought it with a 30-year fixed rate mortgage, you're even better off because you're locking in.

Free land. You're locking in that negative rate on the other side of the ledger, right? And so it's always subject to how your whole portfolio looks um but you know but it's it's certainly um it certainly has has its place um uh but it's you know like i said it's highly priced inelastic and and it is subject to these boom bust kind of yourences. And but maybe dollar cost averaging is the way to go. I mean, if you were 5% Bitcoin and that was your conservative view as to what was appropriate, it went up 20 times for you, it becomes a much larger part of your portfolio. The problem for most, I think, adamant believers is that they're not going to rebalance that.

You talk about the importance of rebalancing, but they're not going to rebalance that you're talking about the importance of rebalancing but they're not going to rebalance that no no and i think for for the the real the real hardcore and and i've i've met some of them i go to burning man and there's a lot of crypto stuff at burning man it's like you know i don't trust my money in fiat so i'm putting everything in bitcoin and it's uh i wouldn't call it a religious belief but it's not it's not the traditional asset allocation approach it's, I wouldn't call it a religious belief, but it's not the traditional asset allocation approach. It's just that they think that fiat is more risky than Bitcoin. And I don't subscribe to that. I think if we weren't the reserve, if we were living in Venezuela, maybe, but not in the US. But there is that thinking out there. Yeah. That's a bet on conviction 100 it's just yeah like you said it's in a belief system i wouldn't call it a religion either but i guess it's fair to say

that it's close so what advice would you give to a college student that's trying to start a you know very basic portfolio and plan starting to think about long-term gains and retirement. It's funny, Gary Gensler just put out a video for college kids actually saying, just save 8%, you know, save $5 a week and you'll make 8%, which I have no idea where you're making 8% if you're just putting in a bank account, which was the implication, but that's a different story. And you'll have $135,000 when you retire. Of course, that $135,000 might just buy you a loaf of bread depending on how things go. But if you were. Of course, that $135,000 might just buy you a loaf of bread, depending on how things go. But if you were talking to a college student at this point,

you have $50 you can put away a week. How should you approach that? No, it's a great question. And I have this conversation I had with my 24-year-old daughter when she graduated. And the message is very simple. Start as early as you can because the compounding math requires time, right? Don't start when you're 50 because you're never going to be able to, I mean, you should if you haven't, I mean, it's better than nothing. Right, always. But the compounding math is just not going to work as well as when you start at

20 or 25. And put away as much as you can start at 20 or 25. And, you know, put away as much as you can, get that match from your employer if you have one. And it's just, you know, it's delayed consumption, right? You're foregoing consumption now if you have the luxury of doing it. Not everyone does, of course. They're living, you know, paycheck to paycheck. But if you can do it and you maximize that contribution from your employer, and you can start as soon as you get your first paycheck, and you can invest it tax deferred, and you do that for 40 years, time and market history is on your side. And at Fidelity, we have target date funds where we kind of do the allocation for you, but you can do it yourself.

You know, you start, you look at the timeframe. Again, you look at that efficient frontier and the price to be paid for the higher return is volatility. But if you don't need to buy a house in two years and you have a long, long window of time, you don't really have to worry too much about volatility. I mean, obviously, if you need a down payment on your house in five years, you need to put that money in a different kind of portfolio. But if you're young and you have a job and you have an employer who matches contributions,

then the earlier you start, the more thankful you will be at the other side that you did. So early, often, and then the hardest caveat being you can't take it out every time you want to go on a trip. No. That was my problem. My problem was I was a very good investor until I wanted to go somewhere and I cashed out a mutual fund that was supposed to be for my retirement to pay for the trip. Exactly.

Exactly. Exactly. And the nice thing about 401ks is that you don't really see the money leave, right? It kind of just goes off. And it's much easier to save that way than to make that conscious decision. Oh my God, $300. I could do this with that. You don't even think about it that way. So it's good. Yeah. it's money that never entered your account that it's much easier to see go away and build. Before we're done, what plans does Fidelity have in the future for expanding crypto services?

As you said, obviously, I mean, you guys are mining. You're really down in the trenches on this. So I have to imagine that assuming the asset class continues to mature that you have bigger plans. Yeah. So we have a unit called Fidelity Digital Assets or FDAS, and it's growing very, very quickly. We are obviously building out the infrastructure. We already have services for accredited institutions or accredited investors in terms of storing Bitcoin, even buying it.

And I'm not sure exactly what they're doing at this moment. I work for the asset management side, so it's a different arm. But they're fast growing and working hard at obviously building out the ability to serve an ever-gr growing customer base, both on the institution side as well as on the individual side. And and so, you know, I think we, you know, we committed early to being a big part of this and from everything that I'm seeing is we will continue to do exactly that.

It's admirable and we appreciate it. You guys are absolutely leading the charge. And I think that we talked about institutional adoption in 2016 and 17, but that was kind of a joke. And now it might really be happening. And we definitely appreciate your efforts. Where can everybody follow you after this and keep up with what you're doing? On Twitter, I'm at Timmer Fidelity. And on LinkedIn, you can just plug in my name and you'll see it. But for Timmer, it's at Timmer Fidelity. And on LinkedIn, you can just plug in my name and you'll see it. But for Timmer, it's at Timmer Fidelity. Perfect. Well, thank you so much for taking the time. Much appreciated and a lot of valuable insight for our listeners. I'm sure they're going to love it. Great. Well, thank you, Scott, for doing this. Appreciate it.