Unchained - Jeff Park Says the 60/40 Portfolio May Be Dead. Here’s His Radical Fix - Ep. 844

Episode Date: June 3, 2025

Jeff Park thinks the most popular investing strategy of the last decades — the 60/40 portfolio — is dead. Jeff has spent his early career inside the traditional system. But now, after two years in finance, he’s calling for a full rethink of the modern portfolio: from what counts as “safe” to how inflation actually works to why Bitcoin may be the real anchor asset in a world that’s spinning off its axis. In this episode, the first in a two-part series, he and Laura dig into: Why the 60/40 portfolio is quietly failing What the rise of “resistance” assets says about trust in institutions Why STRK and BTC are the distillation of Jeff’s radical portfolio How traditional finance may be more correlated to crypto than you think Why “time is liquid energy” and bitcoin is so valuable Visit our website for breaking news, analysis, op-eds, articles to learn about crypto, and much more: unchainedcrypto.com Xapo Bank Bitwise Jeff Park, Head of Alpha Strategies at Bitwise The Radical Portfolio Theory by Jeff Park Unchained: DeFi Leverage on Apollo’s $1.3 Billion Credit Fund Timestamps: 👋 0:00 Intro 🧠 2:19 How entering the workforce in 2008 pushed Jeff to question everything, even the dollar 🏛️ 14:31 Jeff’s role as head of alpha strategies at Bitwise 📉 17:27 Why the classic 60/40 portfolio may be dead 🌍 34:10 How crypto fits into the new financial world ⚡ 40:58 Why “time is liquid energy” and bitcoin captures it best 📊 41:52 The core of Jeff’s radical portfolio theory 🛡️ 54:44 What goes into the “resistance” asset bucket 🎯 59:00 Why prediction markets could diversify your income 💎 1:09:52 Why Jeff is betting big on Strategy’s STRK and BTC 👑 1:14:31 The rise of crypto treasury companies and whether they pose systemic risk Learn more about your ad choices. Visit megaphone.fm/adchoices

I think at the core, it's important to understand this for the radical portfolio because everything we know about investing is based on the belief of the dollar. And the tension here fundamentally undermines that the dollar may not continue to serve its role in the ways that the tensions could break unless there was a great reimagining or reinvigoration of what the dollar could be. And I think there's a role for crypto and Bitcoin specifically to potentially play a role in that. Hi everyone. Welcome to Unchained, your no hype resource for all things crypto. I'm your host, Laura Shin. In every episode, we're featuring quotes from listeners on the show. Today we have one from John Har on X, responding to our recent episode on Crypto Treasury companies with Pantara Capital's Cosmo Gion. John says, crypto treasury companies are not everywhere. There are lots of sizable Bitcoin treasury companies and more coming. Tapping debt slash equity markets to buy.

nonsense crypto tokens not named Bitcoin will not catch on in any meaningful way. If you want your comment featured, write a review of the podcast overall or leave a comment on our video on YouTuber X. This is the June 3rd 2025 episode of Unchained. One early bitcoiner sold 30,000 BTC too soon, missing out on over a billion dollars. Don't want to make the same mistake. With Zapo Bank, eligible members can get instant cash without selling their Bitcoin. Check out Zappobank.com. slash unchained for more. Crypto moves fast. It's why Bitwise launched the weekly CIO memo, a jargon-free summary of what's moving

crypto markets written by one of the best in the business, CIO Matt Hogan. Get up to speed in five minutes or less. Check it out at bitwiseinvestments.com slash CIO memo. Carefully consider the extreme risks associated with crypto before investing. Today's guest is Jeff Park, head of Alpha Strategies of Bitwise. Welcome, Jeff. Hello, Laura. How's it going?

Really good. Super excited to have you. Your posts on crypto Twitter reflect a background that makes you very much the man of the moment. Your insights from your experience, both in the traditional and crypto markets blend together in a unique way that I think generates a lot of interest in your social media posts. But before we get into crypto, I want to take everybody all the way back. You started your career at the height of the 2008 financial crisis. Tell me about that. What did you experience? What did you learn? How does it shape your investment in trading mindset today?

Yeah. So I think it shapes everything, Laura, that I've ever known in the industry as I've grown alongside both for Wall Street and crypto. I think for me, the number one thing I took away is truly that nothing you ever thought you knew can always be something you can build foundations on because the world is ever so dynamic. And I graduated from Stanford with a lot of enthusiasm, a lot of optimism, a lot of hope for all the great things that you're told at school you're going to accomplish. some amazing things. And, you know, the training floor itself can be a little bit brutal as people who have experienced it as apprenticeship model. People come in, they get hazed. You go through the ringer of trying to prove yourself and get your own book eventually and start generating P&L and become a market maker eventually to then have your own principal book, et cetera. But for me, the journey was fairly abrupt because as you've called out, two months into the start, the financial crisis started

unfolding. And so for me, it was probably the best thing that ever happened to me in hindsight because I learned so much. And people do say, you don't really learn anything until you experience chaos and volatility when everything breaks apart because that's when things get real. And I do think that is true. So there are a few things I took away, which is one, the world is extremely unstable. The financial foundation that we're told on, which is the basic foundation of what the risk-free rate in itself could mean, to me, was fundamentally true. challenged when I started my career with a global financial crisis. So that always has anchored a little bit of a bias for me to imagine what the other parallel universe of a financial system could look

like if that ever were to emerge. And so there was a part of me that I think saw the birth of Bitcoin as an optionality, perhaps a little bit before other people, just because I had experienced the pain of the system and otherwise that Bitcoin could represent an opt-out for. And then the second thing I said, I would say I learned is the world is actually not that. black and white. It's actually very path dependent. So when you see the bailout, the TAR programs, Paulson emerging into solving the crisis at the moment, you realize that like there's no textbook on how to navigate financial crisis. It's actually a very human endeavor. There's a lot of technocrats that get involved and they try to fix human problems with human solutions.

And in that world, everything is probabilistic. There's actually a range and a full spectrum of outcome that needs to be analyzed, digested, and understood for you to make an optimal bet on where you think your investment portfolio should be because it's actually not deterministic at all that something should be X and something should be Y. It really depends on kind of the path dependence yes to these events realizing. And so that's the other thing that I really feel like I took away. I was always a bit of a probabilistic thinker just because of my quantitative leanings and wanting to understand probability models. But I think having live to the financial crisis, you really get to appreciate that even more than ever. And I think

actually nowadays, it's more relevant because of the way that the financial markets has become so hyper-financialized for even retail investors to be mindful of what the machine of our capital markets has become that, frankly, it wasn't when I started even my own career two decades ago. Yeah, I think what's interesting is like you said that because you started at that time, that, you know, it kind of made you more open to Bitcoin. But, you know, the fact of the the matter is that Bitcoin got started right around then. And so a lot of other financial professionals should have either maybe had the same realization or, you know, the ones who live through that experience. Like they, you know, could have used that also to inform their views. But as we all know,

there are some very experience in, in fact, esteemed people in Tratfi who just did not see Bitcoin for a long time until very recently. But how did you first hear about it? When was that? And, you know, What, like, were your thoughts when you first came across it? Yep. So I learned about it pretty early on the trading floor. It was probably around 2010 or so. And the reason was, and you'll find this commonality, is that there were a lot of traders who also play poker.

And back in the early 2010s, using Bitcoin as a way to kind of settle your winnings amongst your peers and friends under the guise of otherwise what could sometimes be perceived us unscrupulous behavior that is the world of betting. Bitcoin were prominent. It was fairly prominent. So I have a lot of friends who actually use Bitcoin as a way to just kind of transfer money in ways to, of course, sell it back to dollars, not actually store value in Bitcoin, but it was a conduit for payment. And that's what... Wait, wait, for like whoever lost would have to pay the winner in Bitcoin? Yeah, yeah, yeah, exactly. Yeah. And so it was actually kind of, it's, you know, a lot of things in crypto starts with a little bit of this kind of grayness as to its use cases. You know, this is one in which I think there was some purpose for wanting to transfer winnings and losses.

Wait, wait. I just need to understand. In 2010, like, what were you using wallets? Like, what was the interface for sending the money and receiving it? Yeah, I mean, it was basically all the things that you would have found to be problematic, like the ability to leverage Monkoxes of the world. And actually, that's why, like, the alpha at the time was really just holding onto your Bitcoin. No one really held onto it, right? It was actually you go on exchanges and try to get dollars out of it and try to make sure you don't have counterparty risk and actually custody risk. So what I'm trying to hint here is actually my discovery of it wasn't really a store of value story. It was first actually a conduit of a payment story. And then it was only in 2013 for me personally that I started to really imagine the possibility of its store of value story.

And that's also my Coinbase finally came online in the United States where you actually had a reputable Y Combinator backed startup that you presumably thought was most trustworthy. And you could imagine therefore storing value without the risks that you're highlighting that I first then imagined Bitcoin as a story of value construct. in 2013. And wait, and just to understand, to use Mount Gawks, were you doing that like Dwalah thing to Matt, was that how you got the money over there? Or like, do you remember? So I did not participate. Oh, oh.

Yeah. All I'm saying is that I have friends who are participating in using the poker circle. Yeah. That helped me discover it. And it wasn't until years later that I would take it a little bit more seriously. And then in 2013, when you took it more seriously, was it that? a fall period when it passed $1,000 for the first time? Or was it even before then? No, it was probably around then. It was probably late summer, early fall, kind of on its way to the

peaks into the winter. Yeah. Okay. Oh, so interesting. So then you obviously were following it for a while. And then at a certain point, you came to this moment where you decided to work in Bitcoin and crypto. So tell us like what brought you there and then why at that point you decided to choose BitWi, is your entry point. Yeah, sure. So, I think you're absolutely right. There's a little bit of what I would call like a lost generation almost of my cohort of professionals

who were caught in between, caught in between growing their career in the way that they've known in the traditional rails of Wall Street. You know, I, before I joined Bitwise, had a career in the hedge fund industry for 10 years where I was a partner there. And things can get comfortable and you know what you know. And life is out of stage where you're looking for security.

You're building your family. And you know what you know, right? But if you actually start your career earlier, if you're like a Gen Z, then you don't have those comfort and you don't have those, you know, handcuffs, if you will. And you can accelerate your journey into crypto right away. So I think that's why at some level there is a little bit of a dearth of my cohort in this industry because they're caught between. And they're paying attention because they know it's interesting. They know it's real. But many don't have the conviction to really go all in.

I think now with the regulatory clarity and the political climate having improved to a level where it is being sponsored, you might see more of this traction. But I'm proud to say that I've been able to make that jump at Bitwise about almost four years ago now because to me, it was very clear at that moment and time that this would be the case in the future, that we will be actually upon this journey with folks like you and I. And I think what I came to realize is that this is all I was thinking about, even at my prior job. So I invested in multistrat, equities and credit, special situations, event-driven investing. I love that business. I've learned everything I can ever learn about that business. And you start to realize the itch is crypto. And so 2017 is when I first professionally began this journey.

And I contacted my friend through my alma mater network. hey, I want to invest in crypto professionally for my firm. Who should I talk to to level up? And I was very fortuitous at the time to be then introduced to a gentleman you would know, Avichal Garg, who is also a Stanford alma mater. And he was actually my first mentor, almost, if you will. He's from electric capital, by the way, for people who do. That's right.

That's right. That's right. And maybe perhaps as you might then connect, Vitil Garg and the electoral capital is a seed investor of Bitwise and has been supportive of our journey ever since with our founding team. And so I think at the time, even though I had followed the crypto journey vicariously, I've known the Bitwise name and brand, it wouldn't be until later that I felt that the opportunity for my human capital to actually be useful and contribute. Because there was a period in time where crypto was so novel and so technology driven

in ways that the financialization would yet still have to wait. And that's why you saw the birth of defy and you had to see the birth of things like Ave and compound and almost imagine that coming to Wall Street, but it wouldn't be so obvious when that would happen. And I think a part of me was waiting on the sideline to see for the moment of that inflection. And maybe I jumped ahead a little bit too early. But at some point, the reality is you've got to start committing, build your relationships, spread your human capital.

In the end, that's what all industry is about, and you've got to be early. And so I think for Bitwise, it represented to me the best franchise in crypto asset management at the time that is singularly focused on bringing the ethos of crypto in a very professional way with a fiduciary mindset at the top and being singularly focused on asset management. You know, there are a lot of companies that were doing asset management as a side thing while they're running an exchange and running a merchant banking business. or investing on their balance sheet and doing whatever. And that's okay.

But I really love the idea that Bitwise was singularly focused on serving clients to get access to crypto in ways that it felt was still early at that time when you didn't even have the Bitcoin ETF. And Bitwise, of course, was the filer who would win that by having files, not just one, not just two, but three applications in its journey to get to that point. Yeah, yeah. I remember kind of like the very early days of BitWise. Naval Ravacant reached out to me and said, hey, you know, I'm investing in this company.

And I met Hunter at that time. And it's just so funny because, you know, he and Hong, they were so young at that time. Hopefully Hunter won't be offended by me saying that. And I was kind of like, I mean, this is interesting, like fresh out of college and they're launching this. But, you know, they clearly have found this like niche that they're the leaders in, you know, this kind of intersection of Tradfi and crypto. So, you know, good choice. Explain what it is that you do at BitWise. Yeah. So I lead all the investment leadership in Alpha-centric and Alpha-focused strategies on the BitWise platform. So the goal and vision

at the firm is to build a broad range and suite of capabilities to offer investors that are seeking different types of opportunities. So as you know, we have an index fund. We have indexed strategies to bring different factors in the crypto world to give investors exposure to, like the Bitcoin Standard Corporations ETF that launched recently this year, very thematic and popular with Bitcoin treasuries being at the forefront of a lot of narratives today. Hot on the trend. Hot on the trend, indeed. And I think here to stay.

You, of course, know we have spot ETFs that we're trying to bring to market to in addition to Bitcoin and Ethereum as we have it today. And that's all great. The things that I focus on is really more towards, well, on top of the time. top of that, what other kinds of opportunities are there that is more geared towards alpha. So we have a variety of strategies we offer. One is a multi-strategy format franchise where we think about market neutral opportunities to long-bias, liquid venture opportunities.

Actually, some strategies that deal with just Bitcoin-centric securities like corporate bonds and equities and preferreds that has now proliferated across the universe as trading strategies. And then I also help manage Bitcoin investors access yield. So there are some Bitcoin investors that are out there who are sitting on it, kind of like gold under the mattress. And they don't realize that actually if you put just a little bit of your Bitcoin to some work, you can, in fact, earn a pretty decent yield on it. And depending on, of course, your own risk tolerance, that could be as low as 2% or as high as double digits. And so we have an advisory business in which I help as an investment manager to help investors access Bitcoin yield, which I think has also

become extremely thematic. And then, of course, lastly, you may have seen we launched several options trading ETFs where we are volatility harvesting. What I think are the most volatile stocks today in the stock market, micro strategy, Coinbase, Marathon Digital, more to come. And this is actually to offer a different kind of income stream for investors who want to bet on not just the price of these crypto securities, but the operative. to earn yield off of the volatility that you can harvest along the journey. So those

ETFs have been also really popular and variable received. We're about a month and a half into the journey of the launch and the reception has been great. So there's a lot going on at bitwise. And out of curiosity for the yield on Bitcoin itself, what are some of the top strategies you're using there? Sure. So we basically look at the world in three segments. One is on the very conservative side, the lending model. So if you're able to lend your Bitcoin to trusted counterparties in ways that are operationally rigorously tested, there are opportunities to pick up some incremental yield. And this is going back to a little bit of the comp being if you were to then have a Bitcoin ETF and participate it, for instance, in the borrow market. So that is one version.

And wait, I'm sorry, so you're saying that people are borrowing against their Bitcoin ETFs? or Bitcoin itself. So if you're able to lend your Bitcoin to certain counterparties, they're willing to pay a yield for those borrow relationships. That's sort of like a lead in type of thing? Yeah, exactly. Yeah. And your traditional prime brokerages and market makers will have capacity for wanting to

have inventory for different times of the market environment where they're willing to pay a certain floating rate for it. Okay. And so I wasn't aware people could borrow against. are Bitcoin ATMs, but that's also happening? That is in the works, in the ways that we're constantly in dialogue to provide some capital efficiency for the Bitcoin ETFs. But the ETFs, because it participates in your regular like rec-tee margin model, depending

on kind of like the brokers who are willing to work with, there are people who are able to access it. Huh. Okay. That's interesting. All right. Well, we've spent a long time on your background, which I did want to get on the show. but let's now talk about your radical portfolio theory, which is why I wanted to have you.

This is the theory in which you state that the traditional 6040 portfolio model of investing is dead. So explain why you think that. Yeah. So I think, man, it's actually now become, I think, conventional for people to pick on 6040 as being dead. So maybe it's not so novel anymore. But I think the reality is that a lot of the foundational understandings of the benefits of equities and bonds being diversifiers are being challenged today. And I would say one key moment of that reflection was actually just watching the U.S. sovereign debt get downgraded a few weeks ago as to imagining what that means when the entirety of the Financial Foundation built off this notion that treasuries or risk-free rates are being challenged and re-underwritten. And so what is going on?

I think at a broad level, there's really three things. One is the whole idea of 6040 is because people assume that equities as part of the investment philosophy represents growth. Right? Everyone invests in equities because they think there's an earnings power here which represents growth. And that growth coming from like real true productivity gains. whether it's like actual revenue growth or operating margin improvements or even like corporate financial engineering or share buybacks and whatever, like there's something about equities that reflects growth.

But the reality is the growth model has been challenged for a very long time, I would say, really since the financial crisis, which is that it's hard to find real growth. And because of that, there is a lot of other dynamics at play that distort people. understanding of what that growth is. So take, for example, the classic definition of a GDP, right? GDP includes consumption and investments, and then there's the capital letter G, government expenditures, plus net exports, right?

How much you export against your imports? And what you see is that GDP is over time becoming really moved by what I just refer to as the capital G. And then you realize, wait, if the government spending is driving, is driving growth. Where is that government spending coming from? And how is that funded? And so you have to really go back to like your econ 101 textbooks and really just reimagine,

like, what is it that people told me what growth represents? And like, what is it actually today? And everyone would have told you, like, in a world of a population decline, where, like, there's actually no more growth coming from the population. Like, the whole model of capitalism itself might actually fundamentally turn upside down, right? So this is the moment. Like we actually have a lot of these entering the political climate and social dialogues where people are fundamentally asking like what is growing. And that's that's really important.

The second assumption that we take for granted is that treasuries are safe. And that's the ultimate social covenant that we have been told that allows you to save in U.S. treasuries as if you think that is the very basic minimum that you should be paid. as a way to represent like stability. And that's where the risk rate, of course, comes from. But I think what you're now seeing is that, in fact, it is not very stable. You've seen now that the 10-year and the 30-year behave very volatile over periods of time where there can be funding gaps and liquidity shortages that create all kinds of distortions. You can see it in the move index where it is more volatile and episodically chaotic,

more frequently than historically it ever has been. And you realize that actually, treasuries are not safe, perhaps. There's something about the mark-to-market of treasuries where it looks safe until it doesn't. And then it can get very violent because there's so much liquidity in the system that actually can move even the marginal price of these treasuries,

especially as the makeup of the U.S. yield curve is changing. And that's another conversation point we can touch upon later. but the U.S. funding model has also changed in the last, I would say, for years, especially under Janet Yellen's leadership as to where the U.S. is accessing most of its cost of funding. And the last thing that I think we touched upon already that we have to understand why 6040 is breaking is because that means the very definition of U.S. sovereign creditworthiness is falling apart. And 6040 does not work if that breaks, because if U.S. sovereign is not risk-free, the U.S.'s ability to repay its debt is then being challenged and everything falls apart.

Everything. And that is why it's really important for all of us to reimagine, hey, in this world of such craziness where the like rules of modern finance is potentially being rewritten, what alternatives are there that you should consider in your portfolio that might look a little radical today, but maybe in the future will be so obvious that it is in fact not that radical at all. And that's the journey that I wanted my friends and my colleagues and my investors to experience because to get to that conclusion of what the radical portfolio theory is, it's actually not an economic journey.

It's a social journey. We must understand what is happening at the fabric of our society to imagine where people's interests are lying to then put their money to work that represents their values, their virtues, and you want to be at the forefront of that movement. And that's essentially what the radical portfolio manifesto and the thing. theory is all about. And out of curiosity, because you talk about how the creditworthiness of the U.S. is like this assumption on which the model lies and how that's breaking down, since I think

the first downgrade happened in like 2011, has the 6040 model actually not performed well, like between 2011 to 2025? Like, are we already seeing it in the performance compared to years prior? Or, yeah, like, do you have, you know, numbers that show what's performing less well? Or are you saying that you think we're going to a world where it will perform less well? Yeah, I think there are general moments that you've observed now where that correlation decouples in ways that no one expected. So I think that's the key insight.

6040 in general has performed okay, right? I would say it was okay in the sense that it is generally positive. and it is generally a little bit better than inflation on a long run rate if you were to look at how 6040 performed over 10 year. But the problem is that there are moments when it underperforms exactly when it's supposed to perform. And that's usually the kind of wake-up call as to trying to understand why this actually then might be fundamentally challenged. You know, even this year, 6040 is probably up like single digit. So it's actually going to still probably outpace inflation. But the problem you're seeing is that they're behaving in ways where they're correlated.

That's the problem. The correlation of equities and bonds, if they sustain themselves for too long, defies the entire point of 6040, which is actually I think why a lot of people are now just saying, forget 6040. Just go long equities. Because actually, equities is the most capital efficient way to play the same. trade and the same trade here being that there's way too much liquidity and this like capital flow that is affecting these price movements are not really fundamentally driven but they're driven by

macro factors corporate flows sovereign flows these central banks have gotten so big and now central banks own equities so how are they trading their equities versus their credit the whole system has seems to be getting aligned and whereas like the flows don't look that different right And that is the problem because once the investor bases are not differentiated enough, well, you're basically in the same trade, pretending it's not the same trade. For instance, when Japan is long U.S. equities as part of their funding model that they're funding through their own debt, it's the same circular trade. It's the same global carry that exists as a leveraged system in which the unwind of that flows will basically correlate. And I think that's what you're seeing. when these moments where U.S. Treasury rates blow out and then you see equities underperform,

it is not because, like, one represents security and safety and one represents growth. No, it's because maybe China actually just has to dump all their U.S. treasuries to basically sustain their own growth model, which in fact impacts the U.S.'s growth model and the whole thing is circular. And so the thing we have to understand is the financial system is a lot more integrated than people think. And I think there maybe was a moment when it wasn't like that, when globalization wasn't so dominating as a force where it's hard to know if like the market causes the economy's recession or the economy causes a market recession. But there's something here where that aspect becomes really hard to read.

And so even when we talk about, hey, is there a need for like a recession today that President Trump needs to create such that we could get power to cut rates? such that we could actually bring abundance of liquidity to then bring markets up, is in a name conversation. No one would have had these conversations 20 years ago where you think about purposely creating recessionary dynamics to actually engage in financial warfare. But that's now become normalized, right?

This is actually normalized since GFC, since the European bailout, and this is what the capitalist system of like modern financial warfare kind of now looks like. And that's why I think 6040 has to be challenged because it's actually 100% of the same thing, which is your long global carry. And if you understand that, you need to then think about assets that are actually outside of global carry, things that are actually directly uncorrelated, maybe even reciprocal to the global carry theme that helps you bring true diversification to your portfolio and gives you a fighting chance to actually preserve wealth. when the sovereign flows may be so overwhelming. Okay, so I'm not totally sure I understand this because probably most listeners know this is like not my wheelhouse, but I'm going to try to explain it.

You tell me if I understand this right. So what you're saying is like the world is so global now that if everybody is using the same model and you are part of a part of the herd, then you're not diversified or something. is that kind of like the really short, like condensed version of it? Yeah, that's essentially right. And I think the additional lever I would dial in here is that there's a lot of incestuous relationships almost between how these parties are interacting with each other. And so the fact that the dollar is in itself a little bit of a tricky thing to underwrite

because of what is commonly known as the Triffin Dilemma is really at the time. the core of some of these problems, it's just manifesting itself to a level now where everyone's leverage is so high that people are running out of options. And, you know, the whole idea of leverage ultimately worked because people thought we were going to grow. That really, like, you can't pull forward future spending by borrow because you really thought you could grow into it, that there will be such prosperity and gains that you actually were able to pay it back. And I think what you're seeing is it's not happening. And the system is frustrated.

And it's because of this malfunction that we're seeing so much social tension, I would almost even argue at a global level. But it's because we truly don't have growth the way that people, you know, were religious about it post-Bretton Woods 1970s plus. The way of Benjamin Graham's intelligent investing is literally not how people invest anymore. because it's not the thing that drives markets. People buy index exposure to the SMP, not because they care about the underlying 500 companies,

but because the indexed flows of equities represents inflation hedging in ways that are serving a purpose that almost you would imagine was not the purpose of equities. But actually, equities is becoming correlated to Bitcoin, I think, in my opinion, not because Bitcoin is being correlated to equities, but because equities is also trying to become an inflation hedge for the system for people to find growth, the fastest horse to outpace inflation when the world doesn't have any ability to do so. So Bitcoin represents one version of it.

And I think equities is becoming a representation of that belief system. All right. So in a moment, we're going to talk more about that and the Triff and Dilemma, which Jeff raised earlier. But first, a quick word from the sponsors who make this show possible. Selling your Bitcoin just to get cash? One early Bitcoiner did and missed out on over a billion dollars. With Zapo Bank, you can access up to $1 million instantly without selling a single set. Eligible Zappo Bank members can borrow up to 40% of their Bitcoin's value.

No stress, no selling, no buying back in. Use it for what matters most. Your dream home, your child's education, a getaway or that can't miss investment. With Bitcoin-backed loans, you're in control. Set your installments and repay in Bitcoin or US dollars, your choice. enjoy competitive rates, zero fees, flexible terms, and no penalties for early repayment. And your Bitcoin stays safe, never re-hypothecated, relent, or pooled. It's securely held until your loan is repaid. Check them out at sapobank.com slash unchained.

Hi, I'm Matt Hogan, CIO of crypto asset manager Bitwise. Look, crypto can be confusing. There's so much noise and the space changes so quickly. That's why, every week, I write a five-minute memo. on the biggest stories impacting crypto in plain English. Why is Bitcoin up or down? What are people missing? Where should investors look next?

Get the lowdown every week. Sign up to get the weekly CIO memo delivered straight to your inbox. Go to bitwiseinvestments.com slash CIO memo. That's bitwiseinvestments.com slash CIO memo. Carefully consider the extreme risks associated with crypto before investing. We have more comments from me responding to our recent episode on crypto treasury companies. On X, Biscuit Web 3 writes, quote, this whole SPAC slash reverse merger wave feels like the new institutional hype cycle.

And Martin Krung says, this has little value for the industry. Prices go up, yes, but it's close to worthless. I think it'll blow up at some point. Let us know what's on your mind because we read every comment. You might hear it in a future episode. Write a review or leave a comment on an episode on YouTube or X. Back to my conversation with Jeff. So you briefly alluded to the Triffon Dilemma, which plays a role in your theory about

this kind of being an inflection point for the U.S. and the global economy. So explain what the Triffon Dilemma is and how this also plays into your radical portfolio theory. Sure. So the Triff and Dilemma ultimately centers on the uncomfortable duality of the role of the dollar, which is that the dollar serves both as the medium of exchange and savings and consumptions for its nationals, us Americans who live on it, and therefore have our own economy that is managed by the Federal Reserve as to promoting growth and inflation and employment in the ways that is one part of the system. But the other thing the dollar does is

actually the U.S. is greatest financial export. I might even say it's the greatest export, period. And so because of that, there's other people that are non-Americans who really need dollar. for their own purposes, and their purposes may look different than our purposes, as Americans, who are thinking about our own cost of capital in our economy of a closed-end system. And so what you're seeing is because the dollar is used by foreigners as much as our domestics, there's a little bit of a competing tension as to serving one constituent might actually undermine the other constituent. For instance, we as Americans may generally prefer a strong dollar. and there may be a case where foreigners might prefer a weaker dollar or vice versa.

And it has to do with just how much of the capital count and deficit works for different trading counterparties into whether there's a surplus or a deficit in how they're managing their FX reserves and flows. So these dynamics create this uncomfortable tension where the U.S. has to manage both of these interests, recognizing they can't really satisfy both. And because the dollar is the world's reserve currency, their artificial demand for dollar is a lot higher than what it normally would otherwise find itself to be the market clearing price. Hence, the dollar is generally fairly strong. And that strong dollar, in fact, weakens the U.S. export economy in ways that makes it challenging to compete at a global level. And that is essentially then why you have countries that actually do have these trade surplus.

where the U.S. gets to enjoy a capital account surplus, though we, of course, then have a trade deficit. So this whole financial system that is enacted by the role of the dollar is in itself the challenge of managing growth for Americans versus growth of our creditors. I think that's the best way to put it. And the competing tension that the dollar then experiences. I think at the core, it's important to understand this for the radical portfolio because everything we know about investing.

is based on the belief of the dollar. And the tension here fundamentally undermines that the dollar may not continue to serve its role in the ways that the tensions could break unless there was a great reimagining or reinvigoration of what the dollar could be. And I think there's a role for crypto and Bitcoin specifically to potentially play a role in that because you have to remember, the dollar being basically backed by the creditworthiness of the words of the U.S. government is a relatively still new phenomena. Most of modern financial history would have shown you that currencies

worked with some asset-backed collateralization where there was a true mechanism to rebalance trade by having an account of unit that was more than just, you know, the words of a sovereign. And so if that is the case, you could imagine the dollar is reinvented in a different fashion where the direct implications, I think, would be part of what you're investing for in the radical portfolio. So it sounds to me, like, basically, because, you know, the dollar has this sort of dual role, and, you know, parts, like, parts of the role can be good for Americans, but then those parts would then have an effect in the outer world that would kind of swing back and be bad for other kinds of Americans. like just, you know, this part about like it makes it harder for businesses that export to compete on a global scale, I guess, would be one example. So it almost sounds as if you're saying that the reason why Bitcoin or any crypto really

could be a solution is just because it allows the U.S. to kind of break free of this dilemma. Is that how you're, is that what you're saying? Yeah, yeah. Essentially that's right. Because what I'm arguing at some level is that, The U.S.'s enjoyment of our capital account surplus is directly at the cause of us having this trade deficit that needs to be rebalanced, right? And the trade deficit affects different constituents of our country differently, as does the capital account surplus. One actually really favors asset inflation and one actually doesn't favor real manufacturing inflation, I might argue.

And there has to be a little bit of a rebalancing between those two dynamics. And if you were to do that, then it's almost obvious that U.S. interest rates will have to go up, right? And if U.S. interest rates go up, the general notion is that it's very bad for our funding model because we don't get to enjoy the cheap leverage that we have historically thus far. But one way to counter that potentially is if you infuse some aspect of the U.S. yield curve with something else besides U.S. growth or U.S. creditworthiness. with something hard, with something a little bit more unique and differentiated, which is why I think people are interested about the ideas of this Bitcoin-backed bond or incorporating Bitcoin in ways where it adds an element of reducing a risk premium to the funding model of the perceived creditworthiness of an entity.

So I think the end solution here being is that if we do want to decouple with China and decouple with this idea of the dollar not serving as the global reserve currency, we have to be prepared to accept a higher funding cost. If we don't want to accept a higher funding cost, then we have to reimagine what we might be able to put into those assets to then reduce it back. That's why I think stable coins are super interesting. That's, I think, why there's a lot of questions

as to how we might have to reimagine what stable coins that are issued offshore could look like at the benefit of the United States' financial hegemony and actually imaginable price discrimination for that could look like for foreigners, versus U.S. savers, I think this is a little bit of like a Pandora's box that historically would not have been open in the past, but now it's becoming full-fledged conversations. Okay. I know we haven't even gotten to the actual new radical 6040 portfolio.

But I did want to ask you because you said that you wanted to also chat about the U.S. yield curve changing. So do you want to go into that and then we can talk about what actually makes up your proposed radical 6040 portfolio? Yeah, I think the greatest myth that we've been told that for a whole generation is that somehow the money today represents this incredible, like abstract monetization that results from the manipulation of time. The entire point of a yield curve exists because there's this notion that spending today will help you grow into something in the future that you otherwise need to pull forward, which is really a manipulation of time. And so everything we see in the

to the global liquidity model where it would appear global liquidity is just going up every year. And there's just new money coming from not just the United States, but from China and the ECB. And there's just an abundance of liquidity coming in. To me, that represents one of the greatest sins for a generation that has yet to be able to action into productivity, which is their time is being stolen. And so the genesis of wanting to reimagine. what a radical portfolio could be is to then think about what is on the other side of time. You know, what makes time so abundant and what then is not very abundant.

That could actually be the counterbalance to then re-underwrite liquidity differently. And I think that's where my interest in energy comes in. Because energy, by definition, is scarce. It is, by definition, something that has to be created with real work. It cannot just be printed out of thin air, like the way financial liquidity can. And energy, in fact, is actually on the other side of the thing that can be manipulated to define what liquidity means for the market. That's why I've coined this a little saying that time is liquid energy.

And the goal is to imagine other formats of investment asset classes that are energy leading first before it leads with the manipulation of time itself, which is the entire point of the yield curves existence. In some ways, this will sound very natural to you then why Bitcoin represents such a core ethos as to the radical portfolio, because the very existence of Bitcoin is backed by energy. This very notion that only energy is the thing you must spend to actually produce this thing that otherwise you couldn't, and therefore is extremely robust in valuing the scarcity value that directly contradicts the funding model of a fiat-based economy. Okay. This is so interesting. I guess what comes to mind is, you know, I could imagine

another world where Bitcoin didn't exist, but a lot of the same kind of trends that you're seeing were happening and that you would have these like same conclusions about energy and time and, you know, what I mean, that part that you just said about how, what did you say? You said, time is liquid energy? Is that what you said? Yeah. That was that was super interesting to me. But anyway, point is all I'm trying to say is like, it's just so fascinating that Bitcoin does happen to exist and does happen to kind of like fit into these phenomena that you're talking about in a way that, you know, offers this alternative. So now let's talk about what you're proposing for your radical 60-40 portfolio.

You know, just quick broad strokes is it's 60% compliance, 40% resistance. So the audience can remember that. But go ahead and explain what that means. Sure. So this is where it gets a little bit political. But I do think it is the lens to appreciate what a new investment portfolio could look like in the future, not just for the asset, but the form factor and how you must own it. And so you're absolutely right.

The broad-based words that I have chosen is 60% is compliance assets and 40% is resistance assets. And so what I mean by this is actually everything you know about investing is all compliance generally, right? So 60-40 bonds and equities, that's 100% compliance because actually you're in the system. And if the system goes under, you're going under. There's nothing that's going to save you there. So what defines the core attributes of that system? One, it's centralized, right? It's also generally fairly public, the kinds of things you can own there,

because it is built off of a fairly public ledger, I would say, in the sense that, like, everyone trades, bonds, equities, and commodities in, like, the exchanges that we know, and the investment brokerages that we hold them in. And they can be also then, lastly, be what I call surveilled for maximum state purposes, which is why actually so many of the ways billionaires invest nowadays is to think about not having as much surveillance. So when they buy things like sports franchises that are tax advantaged or they buy artwork and they store it in free ports, it's not just because they're valuable things.

It's a way to actually opt out of like a centralized ledger and hold assets away from the encumbrance of like a potential system that could put a lien on it. And so, you know, it has a little bit of what I call like a maximalist state. flavor in the compliance assets. The 40% that is resistance assets are exactly the opposite. These are generally decentralized. You're not going to find a place to actually custody these things easily or trade these things easily or know how to access these things very easily.

And that's also because they're generally private. There's not going to be like a depository of an index that you can look up on Bloomberg and say, hey, how did this basket of these things perform over a period of time? you're not going to find it because it's actually fairly private. And the third thing is, by definition, as a result, it has a flavor of minimalist state intervention. These are things that the states don't really care about. It's not part of the financial system that they need a lot of surveillance on. Elizabeth Warren could care less that you and I might trade Pokemon cards.

It's none of our business and it's not something that the U.S. government should have an interest in. So there's a little bit of like a minimalist state component into it as well. those are like the essence of how to think about these portfolio assets at the top level. And then the next thing you have to think about is the implementation, which is that there's a custody model for compliance assets and there's a custody model for resistance assets. And there are some that can exist in between. And this is where it gets a little bit grayer, where it's up to the individual investor as to what they find value in to make that trade off. So for instance, gold, I would say is clearly a resistance asset. It's been the world's most favorite resistance asset for all of human civilization,

has the best track record in serving that purpose. But also, you could buy the GLD ETF too if you wanted to get price exposure to gold. And so the GLD ETF in some ways is nonetheless a compliance wrapper, and therefore it's a compliance asset. But if you have gold bars, right, the way that you might get it from your parents or your families pass down to you and you store it in your vault, Well, that's really held in that form specifically because you're trying to opt out of the system for the possibility that it's valuable, especially when you need it for that purpose. So a lot of goldbugs will say the GLD ETF is fine because you get financial access, but you're missing the whole point of why gold is valuable.

Because the moment you'll need it, you're not going to get it in the ETF format the way you need it, which is you need to put it in a bag and run. So there are elements of the custody model that I think is really important. And every individual should just decide for themselves as to how extreme they want to take this practice. Because there's always going to be a greatness and a spectrum for people's relative tradeoff for comfort and convenience as well. But it's important nonetheless that people understand that tradeoff. When you choose to buy the Bitcoin ETF, you have to understand what that represents versus owning Bitcoin spot directly in a way that is representing a movement that still may not be aligned with the way that the compliance assets again. exist. You can buy the Bitcoin ETF. There's a lot of great reasons for you to do that. There's many financial benefits, but you still must acknowledge the custody model in itself is really

unique for resistance asset. There's a premium port. And wait, so just to understand the Bitcoin ETF would follow would fall in which one compliance asset or resistance? You know, so that's, that's kind of like the grayness of it all. In a sense, the return stream, I would say, represents a resistance asset return stream because it's meant to be not part of the global carry system. So the price action of Bitcoin is still going to behave like a resistance asset. But the form factor of how you own it is not the same thing as the investment case. And so if the form factor is an ETF, then I would say that's a compliance implementation. And if you really want it to go all the way, you would imagine just buying Bitcoin and cold

custodying it directly, which is the representation of the radical resistance implementation. But there's a lot of greatness to this, right? Because, you know, in my opinion, one of the beautiful things that's happening with like tokenization and the idea of bringing liquidity to like some of these like esoteric assets is to bring some financialization to the benefit of investors for achieving more liquidity that otherwise historically wouldn't have existed as like a resistance asset. In a way, that's a good thing. But I would also argue the double edge sword is that liquidity itself can be the problem.

So if you bring liquidity to these things, then it becomes a part of the same. system that you were trying to be out of, which then creates the problem. I think this is why so many Bitcoin investors that are Bitcoin Maxis are so philosophically anti this idea. And a part of me understands it because the reason 6040 is breaking is because the flows have gotten so correlated. If the flows get too correlated with Bitcoin because of the financialization that permits the same investors to access it, then it's going to have the same problem in ways

that it becomes a narrative in ways that the value that it represents may not be the actual financial experience based on those flows. So this is the double-edged sword. If you really want amazing resistance assets, you almost kind of don't want a lot of liquidity. And you almost also don't want a lot of liquidity because once you have a lot of liquidity, then Wall Street will put leverage on it. And they'll leverage itself is what is driving the returns of a lot of these assets, where if an asset is good by its own, it should be able to outperform without a lot of leverage.

And that in itself is a very valuable thing because now you're robust and you're outside of the credit system that tends to create these financial crisis. What you're describing there, it almost feels like it's a theory that could apply to any time when a system gets too entrenched and the assumptions that it's based on no longer apply. So it almost feels like this would be a model that would be used during whatever this transition phases that we're in. And then, you know, once that becomes dominant, then it may have less applicability, but then, you know, whatever, 50, 70, whatever, how many years in the future, then it would become

relevant again or something like that. Is that a way to think about it? That this could even apply to future times when the global order or just whatever current order is shifting? Yes. exactly right. I think just as way we thought about 60 compliance and 40 resistance,

the ultimate fruition of those words manifest itself into the global carry system, where 60, I would say, are long global carry and 40 is short global carry. So the long global carry is the aspect that I was alluding to where these assets

tend to have a lot of leverage. They're generally kind of short volatility dynamics where like things look like they're working until they don't. And then it breaks apart pretty fast. And then the short global carry side of assets, there are just not a lot of leverage on it. But the asset's very volatile as a result.

And so that is valuable because the premium, the monetary premium of one of the asset is coming from the underlying volatility of the actual thing, not because of the leverage that is creating the thing. And this goes back to originally, like, what is the whole point of, you know, investing in how we're imagining a yield curve? And the point that I would make is that the 60% that is in the long, long global carry system, and they're engaged in what we just talked about, which is liquidity transformation. It's just the abundance of liquidity that is being transformed in different ways with leverage.

And the other side of the short global carry is you're involved in energy transformation. So these things are valuable inherently, because energy is valuable, because inherently the either the human capital that must be expended as energy to disson, discover these assets is valuable. Otherwise, it's because the resources that it takes in the natural world is valuable to create it that makes it useful. But the point of it is that asset pool is literally creating value by energy. That is not by liquidity transformation. It's an energy transformation mechanism. So one thing that I'm very curious to know is when you were formulating this, did you go back and look at how previous dominant currencies or kind of like

global world orders fell? Because, you know, like one of my favorite things is when people dismiss Bitcoin and say, like, it's not backed by the full faith and forth of force of the U.S. government or whatever. And I'm just like, yeah. And also, we used to use seashells as our main form of, you know, transactions and like people that was fully accepted for a long time. Like, like, why do you think that, you know, whatever moment we're in is somehow better than any other. But anyway, point is, the reason why I'm asking is just because I'm just wondering, like, is this the kind of thing where you've kind of looked back to see at previous times in history, like, would this have also worked? Because, like, what I'm trying to get out also, so there's that. And then the,

the second thing that I'm wondering is just the way you're describing, like, the resistance portion, that's the, that's the, I don't even know what to call it. I don't want to call it. Basically, in a way, it is a bet. It is a bet because you were saying, I see these signs of how all the assumptions that we currently have may not work out at some point in the near future, you know, whether that's the next year or the next 10 years or, you know, whatever it is, you are seeing signs that like the assumptions that everybody is basing their financial decisions on will not to be largely applicable at some point relatively soon. So then you have this other universe of like kind of non-correlated things that you're calling your resistance. But I guess I'm just wondering,

like for any random person, like, yes, I understand, okay, at this point in time, we have Bitcoin or, you know, just other cryptos or, you know, whatever. But like, how would you think kind of an abstract about how to choose amongst the different possibilities? Like, are there certain principles that you would apply? Is it literally just anything? because, you know, I mean, this is an interesting debate. Like, do you think it would be a good idea to include Pokemon cards in the resistance? Or no, but I guess you said that that's the compliance. I guess all I'm trying to say is like how would you take, like, if you were just to come up with a set of principles for how to analyze whether or not something belongs in resistance, like, what would that look like?

It's a great question. And, you know, just kind of riffing on what you said about people's general cynicism about like Bitcoin's representation. You do have to study history a little bit because I think we would all be so surprised by how much of what we take for granted is actually still relatively new in ways that even our grandparents' generation would have said was not normal. So I came across this incredible statistic this past weekend, which was that 90% of Americans were self-employed during World War II. 90% of Americans had their own businesses. Now 10% of Americans really run their own businesses. And that happened basically within generations. And that tells you something about the direction of where the world is going.

It's going towards a model of centralization. It's going towards a model of a top-down version of control. It's actually not the way that it had been for most of American and most of human history. So the thing that I'm trying to enthousier for everyone to just really, really, really consider is the things that are valuable, are the things that you are probably getting least amount of exposure to because it's not widely available, because they don't want you to have it widely available. And those are the things that can really be valuable in the future

precisely because that's the hedge it's representing at almost like a metaphorical level. And so the key point about energy, I think, is the thing that I will try to underwrite everyone's lens to appreciate the opportunity, because if it's valuable, it means you have to spend, time on it and it has to be exhausted. It's valuable because of that purpose. And so anyone that tells you this thing is valuable because it's XYZ price, price does not

represent value. Price is just something that people are transacting at a moment in time. And nowadays, the joke goes around that everyone seems to know the price of everything and the value of nothing. And the key here is that energy is at the underpinning of the resistance assets. So Bitcoin, as we talked about, is one. But the other vector that I consider people to put their time in is that your own human capital as a way to invest in the future is going to be more resistant proof than the things that the global carry system permits for you to achieve. So I talk about professional gambling actually as a category that is incredibly productive and something that most people don't spend nearly enough time in trying to understand how it could be useful to you to build.

a diversify portfolio. And I don't mean professional gambling as to say, like, you should go play slot machines. Like, obviously, slot machines doesn't have an edge. And that's a problem. That's more of like an addiction. But poker is an incredible game of skilled. And if you're a great poker player, you're probably able to earn income off of that in ways that looks uncorrelated to whatever else is happening in the world anyway.

And there are certain elements of this that is becoming possible because of crypto. Now, I pay a lot of attention to the information markets that is now being permitted through the likes of Kashi and Pali market, where anyone and everyone can actually start applying some of their versions of human capital to make intelligent bets, where they are in control of the odds because you are the source of that information edge. Right. Think about like the sports betting business model where there's actually tons of alpha in sports betting because most of the markets that are being created cannot be pressed accurate. by the house themselves. So they actually do need to rely on several people to be the price setter. And the price setters with informational advantage will always have a higher positive EV outcome in which they are actually making money off the house.

Of course, the house quickly adjusts the market. Then volume comes in. So you can't like make all the money without the house knowing. But the point is the house does not have the edge when it comes to very specific information. you can almost apply this to be the most democratizing thing for any individual today that you can go and bet on an outcome of something that nobody knows about, but you can have the edge. And there's something so incredibly useful there that I think is bringing power back to the people.

And people might say that's gambling, but really the point I'm trying to make is the fine line between what is a casino that is Wall Street between the information markets that is, polymarket is becoming very thin. One happens to just give you the individual investor the edge if you're able to put time and resource and energy into actually perfecting an outcome. So this is the aspect in which that energy that you have to invest in learning to do these things, which is your own human capital, becomes almost contradictory to anything that the

compliance asset world will ever want you to think about building a diversified portfolio. No financial advisor is going to say, hey, 10% of your assets should actually be bets on polymarket where you think that you might have the edge to drive a single digit positive yield return. They're never going to say it. No. No, but that is the future in which I think you will have to entertain asset inflation being the thing to fight by participating in those kinds of markets. And the cultural IP here is key because, you know, moving away from professional gambling, The other big category is cultural IP, which is that, you know, you have a brand, you have a voice, and you have a chance to actually do a lot of things in ways that bring income in ways that like no financial investment provider will ever tell you.

But that cultural IP can be manifested into collectibles, right? So this idea of like Pokemon cards as assets sounds really silly, but it is actually valuable to some people. And some people do pay millions of dollars for the rarest thing. And that's almost like a extension of why art is valuable, you know, why people collect things in general because they're scarce and they're actually culture representations that are very valuable to humans. And so culture by definition cannot be printed out of thin air. The value of culture exists because it is scarce. The moment it becomes so mainstream, it doesn't become valuable. And so this really speaks to the importance of having, again,

back to this idea of like a short global carry asset where like it's low leverage, it's got a lot of volatility, but it's the energy you expend on the culture you know and then building an asset pool off of it that can be that can be valuable. Wow, this is so fascinating. And by the way, nobody should take anything that we're saying here is investment advice. Yes, 100%. But yeah, I guess like what you're saying is and I actually feel like this fits into the fact that, you know, everybody's predicting that AI is going to.

bring this kind of like, you know, massive transformation and they don't need it necessarily in a positive way even to like white collar jobs. And like I guess, yeah, I feel like everything that you're saying kind of fits in not just, you know, what you were talking about before about these assumptions about, you know, the risk fee rate for bonds and like the, you know, how credit worthy the U.S. dollar is. But but all or the U.S. government is, but also just like, you know, this is a tension that we've been watching happen play out through the last whatever, like 15 or 20 years where things are getting more globalized. I'm sure you probably spend more time interacting with people digitally in a digital world than you do in person. And I'm sure it's true for many people or even if it's not more, at least, like just as many.

Now with the AI thing, like that I feel like there's like all these ways that we tend to think about like our world or, you know, the different structures or institutions that it's already changing, it's probably going to change even more. So what's just so fascinating is like some of the stuff that you were talking about, it's almost like you're advocating for kind of more self-reliance or like investing in yourself, your own knowledge, like using your own skill and wit to generate your income in a way that like can't be taken away by the machines or whatever. Yeah, I know that that's exactly right.

Right. And I think the trends are, it's a secular tailwind. I think about also just how hyper-financialized Wall Street has become. And so many of the investing opportunities are blurring now the line between retail and institutional with a variety of his permanent capital vehicles that any investor can access with the human capital that they would need to then know how to do it properly. But post-Obama and the crowdfunding act, you know, imagine like the lending place, the marketplace that happened with, kind of the lending clubs of the world, right? This idea that like we can lend money to each other and actually earn a yield without a bank intermediation. Like this concept of like you becoming the person with enough research can find financial opportunities

that otherwise would not be widely available is like a fundamental trend. And so so this represents like at some level the thing that I think most individuals in crypto already know, which is when individuals have a lot more power for what they have that can be monetized. And the resistance assets ultimately manifests itself and the ability for you to do that. Part of it is that, you know, when I was at my prior firm, I invested in a lot of strange, exotic, esoteric things.

I invested in litigation financing. I invested in carbon credit futures fund trading strategies. I invested in all kinds of distressed opportunities that require true human capital to navigate, but the opportunity itself is very scarce because you don't have, of course, tons of ways to print distressed opportunities across a cycle. But all of these things, to me, like, represent the importance of, like, the value being driven by the scarcity of it. Like, litigation financing is such a great investment asset class because you're funding

human capital to legal IP for an outcome, which is not determined by the markets at all. It's just a lawsuit. And if you win the lawsuit, you get paid. And it's based on the facts and circumstances and how you fund that litigation that you get to participate in a return of capital that has no bearings on the price of the S&P or 10-year interest rate. That is literally legal IP. And because there's not that many cases and because there are not many good cases that can be underwritten, they're scarce. But if you can invest in legal opportunities, it is actually one of the best private credit asset class that, Almost any institutional investor will be wishing they could scale into bigger sizes because it's true, true return.

It's true productivity growth return. And nowadays, you actually do have companies like legalist that is bringing these opportunities to the public, right? You, Laura and I could go on legalist.com and search the dockets and find the cases we like and actually sponsor the attorneys for some of the things that you think could be interesting. and you get to participate in now developing an income stream off of an asset that is historically not part of anyone's portfolio, but the endowments and the foundations and the institution investors have already been doing it. So I think the key point I'm trying to drive here is that the line between retail and institution is merging.

It's absolutely true that the crowdfunding model has permitted a lot of access and opportunities for individuals. I think that's the direction that the SEC also has been promoting at some level when I see the kinds of products that are approved in the markets that I never thought would be approved 20 years ago, like a private credit ETF that Apollo has launched. All this means is that we as individual investors need to be more open-minded about finding the scarce assets like that and be ahead of the curve and invest ahead of that time. Yeah, we wrote about that, the Apollo won the private credit fund here because they're taking this sort of like looping strategy that it enables.

But yeah, people should read that because, you know, it's not like all of this is a little bit messy right now. You know, it's not like you can easily say like, oh, you know, this thing that I'm looking for, for, you know, something that's sort of outside a system. It's not like every single thing will, you know, work out well. But, you know, Jeff is kind of like opening our eyes to the fact that these are things that you should be thinking about. I did want to also ask, so you mentioned that you had come to believe that, you know, if you could only own two assets for the radical 60-40 portfolio, that the 60% would be STRK, which is preferred micro-strategies shares and then 40% Bitcoin. So explain why those two and, you know, how they kind of encapsulate your 60-40 radical portfolio. Sure. So the ethos behind those two securities is to honor the intention of the original 6040 portfolio, which is that you want some things that are less volatile to be paired with something

that is volatile. And Bitcoin is, of course, very volatile. We know that. We know that's actually a feature not a bug. And the thing that makes it so valuable in itself that we want it. So then the question is, what do you pair it with in a radical portfolio that you can access easily that is not as volatile, but also perhaps participating in the same thematic movement of opting out of the compliance assets, opting out of traditional securities. And I picked STRK because STRK, which is one of strategies preferred equities that came online this year, offers true yield in a way that I think is complementary to a lot of Bitcoin investors. So, again, it is not investment advice that you should go all in on two assets.

But if you were to think about investing in two assets, I see a lot of crypto investors just diversifying across tickers where they're actually just underwriting the same risk. Like if you own strategy to stock and you own Bitcoin, they're kind of similar. And then if you own like, you know, a CEP on top or meta planet on top, it's kind of similar. They're all Bitcoin or Bitcoin-centric levered beta types of exposures. And therefore, you're not really. diversifying yourself, even though maybe you feel it's diversified because day by day, the price action looks a little bit different. So you got to find something that's really

kind of uncorrelated to that broader price action. And STRK, because it is a part of micro strategies, capital structure, innovation, where it pays a real coupon and a meaningful coupon, actually, in my opinion, that beats risk-free rates in the 10-year and the 30-year. And if you believe in Bitcoin in the perpetual time frame for which you believe it'll be the most important asset, you're getting paid today with a cash yield. And you also do get the chance to convert STRK into the common of micro strategy, which gives you like a little bit more of an upside. And so the goal of that view was to really enthuse the importance of diversification for retail investors. I worry sometimes that those who are not traditionally trained in portfolio theory

don't totally understand what it means to push out the efficient frontier by adding diversified risks that can bring down your marginal risk contribution per asset. And STRK is the closest thing that I've seen that broadly retail investors can access because it is a shelf register preferred, which is, by the way, a historic thing. It's never been done before that you could get a fixed income like experience that is still Bitcoin backed and aligned with the radical mindset and actually does, in fact, diversify your portfolio. So I think I showed the return so far of what that 6040 would look like since the inception of STRK. And it's good. It's actually been up in the double digits. But more importantly,

it's not about the gains. It's about the portfolio volatility. STRK has been very much less volatile than Bitcoin. So it is actually additive to somebody's portfolio construction in a way that's more diversified for being future proof than going YOLO all in on Bitcoin only. So, Jeff, this has been such a fascinating discussion. I have absolutely loved every minute of it. And I actually have so many more questions that you and I just decided I'm going to reveal something to the audience that we're going to do a part two. So I will reserve the rest of my questions because we're already at over an hour.

But it has been so fun exploring your history and all about your thoughts on the Portfolio Theory. So thank you so much. And in the meantime, why don't you let people know where people can reach you and find out more about your work? Sure. The best place you can find me is on Twitter on X. My handle is DGT 10011. It would be fun to see you guys. It's been a pleasure having you on Unchained. Always. Heads up, everyone. Stick around to hear more about this hot Bitcoin Treasury's trend. Hi, everyone. I'm here with Steve Erlich, executive editor at Unchained. And he wrote a story that I think you'll all be interested in called Crypto Treasury Companies are All the Rage.

Could they cause an industry collapse? We saw a little bit of chatter about this on X, which is why we decided to look into it. So, Steve, based on your analysis and reporting, why is it that crypto treasury companies have become the hottest trend in crypto today? I think it really just comes down to trying to capture the momentum started by Donald Trump's a full embrace of crypto going back to last summer. As we've all kind of seen, Bitcoin has gone up and up as hit multiple

all-time highs above $110,000. But many alpcoins have not followed suit. We haven't seen that same type of vault season. Traders are always looking for the next fad, the next trend, the next way to sort of get leveraged exposure to the best-performing assets. And right now, that is Bitcoin, and Bitcoin Treasury companies in particular

have been dramatically out-performed. forming Bitcoin in and of itself. I mean, I think in the story I cited one statistic where Bitcoin was up over about 120% since the ETF started trading in January of 2024. Micro Strategy, or I guess strategy now, is up over 500% over that period of time and tends to trade at a premium of, I think we cited a statistic 1.7 times the actual value of the Bitcoin on its balance sheet. So those are some pretty compelling economics for traders if they can get into the right companies at the right time. And as we detailed in the story, the success of strategy in some of its earliest followers have led to just a slew of copycats that are now trying to follow suit. And do you think that

that is sustainable? Like, and is this, you know, this trading at multiple to have, is that something you're seeing with all of these companies? I think it really depends because I sort of expected strategies premium to sort of move back down towards Nav as arbitrators came in and investors started moving towards the ETFs run by the likes of Black Rock and Fidelity. I mean, real blue chip, blue blood asset managers. But that hasn't happened. And that comes down to, I think the permanence of strategies premium comes down to something we explored in an earlier article, just the fact that it's really been able to create

this feeding frenzy for its options contracts. its convertible debt that has sort of led to its ability to defy gravity. But I have to imagine that, I mean, at this point we're talking about almost dozens of companies that are following this playbook. They're not all going to be able to achieve that type of success. Strategy is a unicorn all to itself at this point. And there's plenty of companies. I mean, I think some that we need tell on the story are trading at premiums of 80 times

that the nav, which is completely, I guess, insane in a certain way. it's hard to imagine that they're going to be able to keep those premiums, especially as more and more companies enter the space. Just the law of sort of efficient markets would dictate otherwise. And then the question that we really try to explore in the piece is, well, these companies are going to be judged based on how well they are able to maintain that premium, how well they are able to outperform Bitcoin. And what we explored is what potential risks could they take and potentially,

like on, I guess, poorly managed risks that could lead to contagion and broader problems throughout the crypto ecosystem. Yeah. One thing is, you know, I think a lot of the concern about, you know, the types of systemic risk in particular that these companies could play in this industry is people were looking back at GBT a lot and making comparisons there. So, you know, why is that? Why were they focused?

And in particular, they were looking at the role that GBT played in the multiple collapses we saw in 2022. So explain why it is that that was the analogy people making and why they were concerned that these crypto treasury companies could someday play a similar role in future industry collapses. So the collapse of GBT was infamously called the Wooda Maker Trade. I forget by who. But it really came down to the fact that for many years, the GBT, trade, GBT, which traded at a premium, I believe up to 120% at one point in time, seemed to be a very safe, durable, and profitable investments. And because of these unique qualities, GBT permeated pretty much the entire like trading and lending desk in crypto. So when that

premium reversed into a discount and could not be fixed, that led to cascading bankruptcies and liquidations for formerly blue chip companies like Terraluna and 3AC and BlackFi and Voyager and obviously FTX as well and and plenty of others. And the parallels to that situation at what's happening now really come down to the fact that this is another asset, these stocks that are trading at massive premiums to NEF. And that's leading to questions about, okay, well, right now is these stocks, what are the chances that especially companies trying to take on additional leverage to justify their performance bonuses and justify investments from their shareholders, what might they try to do?

Could they try to lend out shares? Could they try to lend out their crypto on their balance sheet in order to be more aggressive in accumulating crypto? And if or when that happens, there are fears that we could see sort of a rerun of what happened when GVTC collapsed a few years ago. And so that would be if the, if those. stocks were to be used in some fashion. So just kind of finish out how it could be that, yeah, they could play this role that

GBT played in 2022. So what happened with GBT in particular is that shares in that closed and fund were taken as collateral, trading desks and pseudo banks, et cetera, to extend loans. They were seen as a very safe form of collateral because one, they were backed by Bitcoin and two, they, for the most of their life, they had a pretty sizable premium, so it seemed safe. And obviously it turned out to not be so. These stocks, these shares, I mean, they're also, the parallels are, they're also backed

by crypto on the balance sheets, although sometimes it's unclear exactly whether or not that crypto has been, like, re-hypothecated or pledged as collateral in other places, and they're going to be fairly liquid because they are shares of stock that anybody can can buy herself from a brokerage account. And then there could be, it's pretty easy to imagine a world on a couple of sources that I spoke to for the article. They said that this is not happening yet. But it only takes one or two prime brokers, trading desks, OTC desks, to start accepting these

shares of stock as forms of collateral to extend out margin. And then all of a sudden, this is a copycat industry. It's going to permeate throughout. And then what happens if there's a market reversal? and these companies all of a sudden can't, they can't roll over their debt or the conversion prices for equity grants are no longer in the money and they have to sell off their crypto to payback principal on these something nine and ten figure loans that they're taking out. All of that can lead to a cascading series that crashes. And that, again, we're not set up for that to happen quite yet based on my reporting, but it's still very, very early days for this new type of industry. And I think what my reporting, my story tried to do is sort of just put out a warning that it's

important to remember the lessons that we learn from the collapse of GBT so that unnecessary risk taking or irresponsible risk taking when it comes to these types of companies and these types of shares of stock don't happen again. Yeah. The way that I, you know, was looking at that is basically when they were talking about how there could just be one or two companies that started off. What that then happens is, you know, others want to compete. They want a part of that business.

And so then it's like you're competing on terms that are better maybe in the short term for the borrowers, but then ultimately not perhaps like in a systemic way. So Steve, it's been super interesting and fascinating talking to you about your story. For those of you who didn't get to read the full analysis, I definitely suggest you check it out. He goes into a lot of detail on, you know, kind of how this could play out what's happening right now and then what the similarities might be to GVTC. So otherwise, thank you so much, Steve. Great. Thanks, Laura. Thanks so much for joining us today to learn more about Jeff, Bitwise, and The Radical Portfolio Theory.

Check out the show notes for this episode. Unchained is produced by me, Laura Shin. Well, felt from Matt Pilchard, Juan Armanovich, Pamma Jumdar, and Margaret Curia. Thanks for listening.