Unchained - Why Bitcoin Now: Bitcoin Under a Biden Administration - Ep.198

Episode Date: November 10, 2020

In this episode, Dan Tapiero, founder of 10T Holdings and Gold Bullion International, and Cathie Wood, CEO and CIO at ARK Invest, discuss the long election week in the U.S. and how they believe Bitcoin will behave in a post-election world. They also talk about: how a changeover from a Trump to a Biden administration could affect Bitcoin how the prospect of legal challenges from the Trump administration might affect Bitcoin whether they think the presidential election influenced Bitcoin’s precipitous price jump in the first week of November what it takes to change the mind of a Bitcoin skeptic in the investment world whether gold investors are becoming more resistant or more embracing of Bitcoin whether Democratic control of the Senate would affect Bitcoin how they expect the new wave of rising coronavirus cases and lockdowns to affect economies and Bitcoin the new inflation policy introduced by Federal Reserve chairman Jerome Powell and how it will affect Bitcoin the recent Bitcoin halving and how they expect Bitcoin to perform over the next year how banking will change over the next few years and how that will affect Bitcoin their thoughts on central bank digital currencies and how an increase in CBDCs might affect Bitcoin what factors they are looking at right now when thinking about what could happen with Bitcoin over the next year   Thank you to our sponsor!  Crypto.com: https://www.crypto.com   Episode links:  Cathie Wood: https://twitter.com/cathiedwood Ark Invest: https://ark-invest.com/ Yassine Elmandjra: https://twitter.com/yassineARK   Dan Tapiero: https://twitter.com/DTAPCAP 10T Holdings: https://10tfund.com/ Gold Bullion International: https://bullioninternational.com/   Unchained with Brian Brooks: https://unchainedpodcast.com/acting-comptroller-of-the-currency-brian-brooks-on-crypto-banks/   Jerome Powell speech on targeting inflation of 2%: https://www.cnbc.com/2020/08/27/powell-announces-new-fed-approach-to-inflation-that-could-keep-rates-lower-for-longer.html   Bitcoin-gold correlation: https://coinmetrics.io/correlation-charts/#assets=btc-gld   Bitcoin-S&P 500 correlation: https://coinmetrics.io/correlation-charts/#assets=btc-s&p   Forbes profile on Cathie Wood: https://www.forbes.com/sites/antoinegara/2020/10/05/how-cathie-wood-beat-wall-street-by-betting-tesla-is-worth-more-than-1-trillion/?sh=12d44f813d45   ARK Invest Bitcoin white papers: https://ark-invest.com/white-papers/bitcoin-part-one/ https://ark-invest.com/white-papers/bitcoin-part-two/   Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto five years ago and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. Subscribe to Unchained on YouTube, where you can watch the videos of me and my guests. Go to YouTube.com slash C slash Unchained podcast and subscribe today. Crypto.com, the crypto super app that lets you buy, earn, and spend crypto, all in one place. Earn up to 8.5% per year on your BTC and more than 20 other coins. Download the crypto.com app now to find out how much you could be earning. This is the eighth episode in the Why Bitcoin Now series, in which we take a closer look at Bitcoin in the context of macroeconomic forces, including the pandemic and the economic response. The most recent episode in the series came out the day of the election, and now here we are recording this on Friday afternoon.

And at this moment in time, it looks like Joe Biden will become the 46th president of the United States. Here to discuss how this could affect Bitcoin are Dan Tapiero, co-founder of 10T Holdings and Gold Bullion International, and Kathy Wood, CEO and CIO at Arc Invest. Welcome, Dan and Kathy. Thank you, Laura. Thank you for having us. There's so much to discuss about this crazy groundhog day week. We're all basically still going through. Hopefully by the time this comes out, we won't still be going through it. But first, let's discuss the elephant, or in this case, donkey in the room, the presidential election. At this moment, the most likely scenario we're looking at is that we'll have former vice president, Joe Biden, as our next president. How do you think a changeover, from a Trump administration to abide in one will affect Bitcoin. Well, you know, it's interesting.

This is what I love about our political system. I don't think a lot is going to change because this is really a regulatory question. And I don't think, I don't see a lot of changes on the regulatory front. Although the head of the OCC, I really love the direction he's going in. As long as he stays in that,

yeah, Brian Brooks. as long as he stays in that position, I think we're going to have a force for good. If Jay Clayton is chosen for a different position away from the chair of the SEC, we might get someone more friendly, I think, to crypto. I think given all of the stable coins and the currency-backed coins

that each country is starting to issue, I think there's a certain acceptance of this now. And, you know, if you want to move into the modern age, you kind of have to be with it. And I think this administration would like to be a part of that movement. But again, on the regulatory side, if there's some displacement at the SEC, we might see things moving. What I find interesting is I have been used to watching all of these financial regulators compete with each other over the years. And I feel, for power, that is. And I've been waiting for Jay to respond to Brian. But I haven't seen much movement. So I think we could get someone more friendly and maybe some competition from a regulatory point of view, meaning a positive point of view. And when you say you've been waiting for Jay Clayton, the chairman of the SEC to respond to Brian, you mean in what way, like in a way where he would be more friendly to crypto, kind of, you know, in a competitive way?

Well, basically this is my turf, and it's a turf thing. I see. It's a turf thing. In 2006, I think, was the first time I ever saw regulators work together, and that was when they all wrote a letter and said, we don't like these exotic home equity loans. They were united. Now, back then I was saying, wait a minute, this is really bad because they never get together. This is going to cause a lot of problems, which, of course, it did. This time, I would expect not that.

I would expect someone to be looking at what Brian is doing and saying, wait a minute, you know, I should be weighing in on this. It's a little bit of a competitive regulatory dynamic that I've witnessed over the years. Interesting. Yeah, I have a little bit more to add to that. But why don't we, Dan, why don't you say what you think? Sure. I don't think the election is going to be determined for quite some time.

So, you know, I think, you know, could run easily into late to seven. I think the Supreme Court eventually probably has to weigh in. The votes are just too close and Trump is just not going to, you know, he's just not going to sit down and say, okay, I've lost because he's lost by 5,000 votes in one state. So I think you're going to have recounts in multiple states. I don't think they can start the recounts until after December 3rd. That's when the official, I guess, vote gets handed in by each of the states. And then again, each of the states has a different view about when, you know, when does vote counting stop.

So I think this is almost as complex an issue as Bitcoin, maybe not quite as complex. But it's very complex. I think it's going to take a while. And every time I think that we've tried to count out Trump. And again, you could have started doing this in early 2016. He's defied the consensus. So I'm not really willing to bet against him, even though it does look, it's leaning one way or another. I really, I just don't know. And I think that uncertainty actually has been helping the Bitcoin price action, you know, helping gold as well.

But look, the big relief is that this, from my perspective, why is the market up so much the last few days? because the 20 percentage point gain increase in the long-term capital gains tax that Biden had outlined seems to be off the table. And so that is basically it, right? Like that's why we're doing what we're doing in the markets because, you know, maybe they raise it some amount, but that 20% was, you know, was going to be destructive, completely destructive. Now that the Senate and the House have picked up a little bit of a Republican bias, clearly the socialist, or I would just, left leaning, well, let's say extreme left agenda that some people had feared that would come along with a blue wave, that's not going to happen. So the more uncertainty also, if it drags on past December and into

January, I think there'll be more of a reliance than on monetary policy. That's another reason, I think, for the sort of this 50% move in Bitcoin in the last few weeks. 30, 40%, is that they won't get fiscal together. And so if things do soften or if they are nervous about things, you're going to get more on the monetary. And, you know, that was confirmed a little bit by the ECB and the Bank of England this week, that, you know, they're thinking about additional bond buying, et cetera. So. Yeah, I was going to add, working in the equity markets. It was very interesting for me to watch the equity markets move up.

into the election. This has been a decent year, certainly for the NASDAQ. And so the market in its wisdom, I think, saw effectively gridlock, which is what we have now, you know, with a Republican Senate and a Democrat House. So I was, even though Biden's numbers were going up in the polls, the market was going up. And I've watched many elections over the years. And I've been surprised. at the market and its wisdom. I think also one of the thing is going on, there are flashpoints in the world, and I think it emanates from all of these unhinged monetary policies.

You know, I guess Argentina's peso is down 30% this year. The Turkish lira is now down 30%. And I do believe that people, especially in emerging markets, and Asia especially remember when the Thai bot devalued in, I think it was 1997, nobody thought, nobody thought anything of it. Who cares? Tai bot, who cares? It was the beginning of a domino effect. And I'm wondering if what might be getting into Bitcoin now is a little bit of a sense of a domino effect here. Oh, yeah. Yeah, there's so much to unpack in what you guys just said. So I actually want to go back to the initial comments about the different appointments because I do, you know, Kathy, when you mentioned Brian Brooks, by the way, people should listen to the episode. I did with him where I, you know, I asked him all kinds of questions about what he's doing at the OCC. And yes, he has been so extremely friendly to the crypto industry. He, you know, did come from Coinbase previously. And he really understands the problems that the crypto industry faces.

and understands the leavers of government. However, I will say also, actually, there are some good signs in that, you know, even though a lot of these positive moves that the OCC made for the crypto industry after he was appointed as acting control of the currency, actually news came out afterward that they had been in the works for quite some time. So I do think there are, you know, other people in these agencies that sort of understand what's going on and, you know, are working to make things better. However, what I will say is because he's acting controller and he hasn't been confirmed, I don't know if he will survive, you know, through a Biden administration. I mean, he might, but just from what I heard, I think that this is the kind of appointment where a Democratic

president would want kind of like someone that they, you know, somebody from their party to have in that position. So, you know, that may, that may switch over. However, I have heard, you know, people who are steeped in the D.C. world saying that they think that switch over to a Biden administration will, will basically also potentially remove some other people who tend to be quite problematic for the crypto industry. And so they view it as a positive in other respects. And so, yeah, you know, Dan went right into a question. I was going to ask a little later, but we might as well just go there now because obviously the counting has been very slow. You know, at the moment, as I started, I said it was trending in a direction that's positive

for Biden. However, as we know, Trump has previously refused to say whether or not he would accept the outcome of the election if he loses. And so now that it does appear that he will probably lose in his campaign is already mounting these legal challenges in the different states, how do you think the prospect of these legal challenges that drag on and put into doubt this transition of power in the U.S. How do you think all that will affect Bitcoin if it happens? Dan, do you want to start this? Well, you know, I mean, I think it is happening. You know, as I said, he's not going to concede. And I don't think that's connected to his previous comments. I think if I were running for president and I lost the whole thing in 5,000 votes, I would want to recount. So this is completely, I think,

within the realm of what is reasonable. Maybe foreigners don't understand this. I'm getting messages from people around the world like, why is Trump not stepping down? Well, because it's part of our process. In 2000, we had the recount that was normal. And I suspect four or five states are close enough that there will be recounts. So look, it's positive for Bitcoin in the same way in a sense that it's positive for gold. There's a little bit of uncertainty premium. But as I said, I think the key driver here is that we're just not going to see those more extreme left policies that I think some of the markets were worried about. So, and I guess I might have a little more of a different take on that.

If we had thought that socialist policies were going to start permeating the U.S., I would definitely think that that would be a reason to take an insurance policy out with Bitcoin. So I'm taking my cues more from the equity market. And I do think, as I said, that Bitcoin is going up. There's a tremendous amount of liquidity in the world. So that's the monetary policy. But also these flashpoints in terms of devaluation. You see, when I see scrolling on Bloomberg in one day after the other,

Turkish lira does this, Turkish lira. There's, you know, there's something going. on out there. And usually mistakes are made, when mistakes are made, the emerging markets are the most vulnerable. So that's why I keep my eye on them. Yeah, I mean, I think there's something to that. But you know what? I think the greatest mistake people in this space make, and look, I've been, I guess I'm saying this coming from 30 years of trading in the macro markets, is that, you know, I actually, I think Bitcoin is just doing. doing its own thing. And I think people's attempts at trying to figure out why it's up this week

or it winds down that week aren't really relevant. I mean, I can make the case that you've got enough independent Bitcoin positive news, you know, between what Sailor is doing, between PayPal Square, just, you know, the fact that Barry's is a gray scale thing is eating up all the Bitcoin outstanding. You know, we're in a position where supply is getting really tight, you know, regardless. We could have any outcome for the presidential election, any outcome, you know, for Secretary of Treasury. Again, I think the concern before was about Warren getting in and now I think that's less of an issue.

So, like, I just, I think there's, there is some applicability of the macro to a Bitcoin. But I actually, I think Bitcoin's bigger than. all of this stuff. And I agree with you on what's happening on the corporate front. Square just reported last night just a boom in Bitcoin trading. And PayPal embracing it as well. There's a competitive dynamic. That's very interesting.

And PayPal, what's interesting, PayPal has a relationship with Mercado Libre in Latin America. And that's where one of these flashpoints is, right? So I do think that. And then also the idea that a micro strategy and a square itself would put, you know, put some of its cash into Bitcoin, some or all of its cash. You know, when micro strategy did it, I looked at the management team and I said, okay, who, wow. You know, this is interesting. And I saw that the CFO had had a lot of experience in Latin America, probably used to the hyperinflation. and the roller coaster there.

But I did think what they did was extreme. Square following on, I think we're going to see more. And then this notion of 21 million units, we're at 18 and a half, it's going to start resonating a little bit more. Well, but one thing, so I totally understand your point that right now there are just so many forces that are boosting the Bitcoin price. But, you know, in particular this week, there was like very sharp movement in Bitcoin that maybe was tied to the presidential election.

I wanted to ask you guys about that. Because, you know, at this moment that we're recording on Friday afternoon, yesterday, Bitcoin hit $15,000 for the first time since the early days of January 2018. And not only that, but within the last 24 hours, it had risen so precipitously that there was a point where it almost reached 16,000. So I wondered what you guys thought of that, like why that was the case. I mean, it has since pulled back, but I just wondered, you know,

if you thought it had to do with a presidential election or something else? I think one source of demand after another is starting to impact it. And if you look at Yasin El Mandra, our crypto analyst, just wrote actually a two-part Bitcoin paper, trying to figure out, okay, the question was, are institutions ready for Bitcoin? And he turned that on its head and said, wait a minute, is Bitcoin ready for institutions? and looked at all of the ways to get access, exposure to Bitcoin from an institutional point of view. And, you know, the easy way to just dimension it is it trades like just one of the mega-cap stocks, just one in our market. Now, that's pretty big.

And as the price increases, there's more quote-unquote market cap. But, you know, if institutions are beginning to leg in here, and there certainly is a lot of support for that, you know, from a fidelity, the Cambridge Research Associates, you know, reports saying, hey, you should at least check this out. We have backed. We have square. You know, we have a lot of infrastructure moving into place, which is legitimizing it from an institutional point of view. It's still not really easy to do. But I do think there are some adventurous, if not, it would probably be more on the alternative side, of course, but more of the fast-adopting institutions, or they might be just, you know, dipping their toes in. Dan, do you have an opinion? Yeah, no, I think that's right. I'm head of an investment committee for an endowment, a relatively significant size.

and, you know, that's sort of my, you know, charitably. I'm not, I don't receive any compensation for that. But, and so, and I've done that for 10 years. And so, M plugged in a little bit to how other endowments are thinking and acting. And I will say in Q1, Q2 of 19 last year, we put 1% of the entire endowment into Bitcoin, a touch into Ethereum, a very small percent, and a little bit into, what I would call some other digital asset fund exposure. And at the time, I think we were the first endowment of this type to do that.

The Investment Committee is sort of very forward thinking. And our advisors and the people we spoke with who help us manage that portfolio, they really kind of caught on. I think they really got it. it and when they see guys who are sort of more from a traditional background, being able to explain to them why, you know, at least 1%. I think we probably should have had 3 to 5%. But, you know, 1% is that whence this Casares thing get off zero, just put 1%. That's very helpful with institutions. And for Tentie Holdings, we've been speaking with lots of institutions. There are more people who are getting it and who are sort of getting ready and warmed up. So I think that just, I think the infrastructure is out to handle the, the, the, the, the, the, the, the, the, the, the, the, the, the price will go up. So, you know, it'll double or triple or whatever it is in whatever time period. You know, that's what Bitcoin is, is meant to do. It's going to, you know, it's a, it's unlike these, you know, currency pegs in a way, or the opposite of the currency pegs, the one thing that, uh, there's no control of is, is the upside. The price will, will go to wherever the price needs to go. Yeah, so, yesine just wrote, I think, another blog. If it's not out now, it will be soon.

And it may have been part of our second paper. And basically took a look at 10 years' worth of data, all of the assets that, you know, are available to institutions, and the managed assets at that. those that are actually managed by third parties. And that's about 110 trillion in the world. So a 10-year study in order and using correlations of returns and all of the usual metrics determined that in order to minimize the volatility

of putting Bitcoin in the portfolio and still enjoy the return. that was a 2% position. If you wanted to maximize the return and we're willing to accept more volatility, that would have been a 6.5% position. And the punchline, and this is going to be years away, but if that 6.5, if institutions were to hew to that 6.5% in Bitcoin, that would, you know, all of the things equal, knowing what we know about the supply out here, And the fact that more than 50% of all the Bitcoin holders right now have held the Bitcoin for more than a year. And many for more than five years. So you have to take that out as a supply constraint.

The number he came up with as a price target. I don't want this plastered all over headlines and so forth because this is just if, if, lots of ifs there is $500,000. Oh, wow. And did he have like a certain time period or just if these things happen? This will happen gradually. And believe me, we're talking about the institutional world. These sorts of things happen quite gradually.

Yeah, but I think that's about, that's around the right number. I've quoted, I've been quoted at least 10 or 15 times in the past year with that kind of 300 to 500,000 number. It's not, it's just not too crazy. I mean, the market cap of Bitcoin now. is call it $300 billion. If you understand what the security apparatus is, that is the Bitcoin network, and you sort of contemplate what that kind of network is actually worth to the world,

I mean, you can easily say it's worth $2, $4 trillion. It's certainly worth more than one company in the NASDAQ. And so that can get you to that number. It's just that, look, it's a complex thing. Most people don't have even realize that it is a network. work. They think it's a, they think it's a price bobbing up and down or flashing on their Bloomberg, or that it's magic money or whatever it is. So, magic internet money. Yeah. I think there's still a lot of residual. You'd think that would go away by now, but I still, you know, meet people who are

definitively hard, no. It's fraudulent. I'll have nothing to do with it. Wow. So, Dan, you have a lot of credibility in this call because you came out of the physical gold world. And I'm sure there are a lot of your former colleagues, or maybe they are still your colleagues, who wouldn't touch Bitcoin. So it's been very interesting to watch your evolution. Yeah, well, Dan, actually, do you want to talk about that a little bit? like either your conversion or, you know, watching somebody else's? Like, what does it take to, you know, take someone like that and have them finally understand what Bitcoin's about?

So, I mean, I think the most natural, the first adopters really, in theory, should be gold people because we're from this hard money school. And so, you know, people out there in the Bitcoin world who are attacking gold, they don't really understand, I mean, they don't really understand all the nuances that come along with owning physical gold and no need to get into it here. But the philosophy behind owning gold generically is very, very similar. And so I think, you know, in a way, and I've said this before, the gold guys are kind of like cousins to the Bitcoin crowd. And it's really sort of the the long only equity crowd in America that sort of needs to be converted.

And the reason they aren't is because they never think about currency, right? They just, if the dollar goes down, if fiat is going down, it's good because it generally has been supportive of the equity market. So for most American investors, fiat is the NASDAQ for them, meaning fiat going down makes sense because the devaluation of the dollar over time always has shown up in the S&P or in the NASDAQ. So Americans aren't as natural, let's say, you know, as the Argentines or other people who have grown up with trying to understand currency. Americans are not as advanced. And so being a gold guy and being a hard money, you know, someone who understands hard money, the jump to Bitcoin is easy.

What's difficult is to understand what exactly Bitcoin is. And so you have to go and you read the Satoshi White Paper and you say, okay, that solves the Byzantine General's problem. Okay, and why is that important? And then you say, oh my gosh, he turns electricity into security. Bitcoin is a security network, right? That's the genius of this thing. So it's actually, Bitcoin is actually a lot more than just gold. Gold is a store of value, but it's not programmable.

There's no lightning network on Bitcoin. There's no digital asset ecosystem. I mean, I think the real opportunity of Bitcoin is much, much greater than just digital gold. And as Kathy mentioned before, there's a whole world of companies that are growing up in what I would call the digital asset ecosystem that are enabling the, you know, enabling the usage and transatlage. transaction of cryptocurrencies. There are, you know, early stage sort of applications of blockchain technology that are relevant. You know, the bitcoins hate that, hate that word. You know, I just think that the Bitcoin and the technology that's behind it or the invention, you know, of Satoshi's. And what it actually is, it's just much bigger. And so I mean, a very bullish gold.

I think we're in the early stages of a bull market. I think the gold price will double. But as Paul Tudor Jones says, Bitcoin will be the fastest horse. I think Bitcoin can go up 20 to 30x as gold doubles. You know, it's just at an earlier stage, you know, of its development. But, I mean, there's a lot there, I said, and I should stop. Yeah. Yeah, well, so why don't we, you know what, we're going to regroup a little bit about

election stuff because I still feel like there are certain questions there we should discuss. But first, let's take a quick word from the sponsors who make this show possible. The scorebed app here with trusted stats and real-time sports news. Yeah, hey, who should I take in the Boston game? Well, statistically speaking. Nah, no more statistically speaking. I want hot takes. I want knee-jerk reactions. That's not really what I do. Is that because you don't have any knees? Or?

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the Crypto.com metal card, which pays you up to 8% cash back instantly. Reserve years now in the crypto.com app. Back to my conversation with Dan and Kathy. So, so far, we've been mainly just discussing the presidential election and we have been talking about having a new administration that has a legislature that's controlled by the other party. However, there are two elections that look like they'll be going to a runoff in January, in Georgia, which would potentially determine the control of the Senate. And I just wondered what you thought things would look like if we ended up with an administration with a legislature that was controlled by the same party, for instance, if it was a Biden administration with a Democratic one. Would that change your remarks in any way

about how this could affect Bitcoin? It would change my remarks about how it would affect everything. Because what you're talking about there is the so-called blue wave. And I do think we'd see tax rates going up pretty precipitously. And I think the equity markets would go down. I think Bitcoin could serve as a place of safety or a refuge of some sort. So it's been interesting to watch the equities and bonds. Going up to the election, what we've seen is, if you look from January of 18, just say people started thinking about the election way back then. What you've seen is there's been an inflow into the bond market of more than $800 billion.

and there's been an outflow of equities, and this excludes share repurchases, to the tune of more than $400 billion. So investors in the equity market have been somewhat concerned about how investments will be treated here. So I think what you're seeing in the market with the odds going up that the Republicans will control the Senate, notwithstanding what you're saying about those two. The odds have gone up. I think the equity market is levitating. And it is interesting that Bitcoin is going with all assets are levitating. It's like, okay, the money is out there.

Let's see how many places we could put it. So I find that very interesting. And housing, housing as well, screaming. So I think we're beginning to see the very early days of the reserves that have been sitting on the central bank's balance sheet for a long time. They're being activated. That has been kindling for a long while, and we just put another dollup on it with the coronavirus. So we went the peak last time after 0809 was $4.5 trillion. Now, if estimates are correct, this could be $9 trillion just in the U.S. by the end of the year.

and it seems like risk-taking has stepping up a bit, that the memory of 0-8-09 and the fact that the equity market's been going up consistently since, which has left a lot of people on the sidelines, it seems like they're stepping out and taking more risk. And I think that gridlock, if that's what we end up with, Republican Senate and Democrat House, I think the risk-taking will continue. to increase or risk-seeking will continue to increase. And that will include Bitcoin. It seems like a risky animal because it's volatile, maybe not as volatile as it used to be. But it is a hedge of, it's an insurance policy. So, you know, I can see diversification of portfolios into many,

many asset classes. Dan? No, I would broadly agree with that. You know, I would broadly agree with that. I just think, you know, as long as the tail of the extreme left and the, you know, Liz Warren type possibilities are gone. I mean, I don't think the Democrats, even if they win both, they don't really have a mandate to completely change everything in the country. I mean, this was, you know, the whole thing was basically a toss-up. So I don't think they have that. you know, they don't have that mandate. So, but no, but broadly, I think Kathy's right. Well, then so let's also, you know, Kathy mentioned this briefly, but we really should

discuss this more in depth because obviously with all this stuff going on, there's also the pandemic, which in the U.S. looks like it's going into the third wave. There were 121,500 new cases yesterday, 1100 deaths. yesterday. In the U.S. we're reaching almost a quarter million deaths total. And France, Germany, England at this point are all entering new lockdowns. There's India and Russia, which are seeing high numbers. So, you know, it's only fall here. We've still got fall and winter to go through. And I wondered how you expected this new wave of infections and the subsequent lockdowns to affect the economy and in turn how they would affect Bitcoin.

I think it's, look, increased uncertainty. The U.S. economic data has been relatively strong. The Chinese data has been good. Europe is still floundering a bit. So I think it just, it sort of takes the edge off of or the fear that things are coming back too quickly. In fact, I think Jay Powell has sort of been very cautious. And look, that's all good because rates at zero are very supportive for, you know, all sorts of assets. And, you know, importantly, look, I think the most important

decision investors have to make in the next 10 years. So like the key thing during the 20s will be what to do with that, that part of the portfolio, the traditional portfolios that are 70, 30, or 60, 40, what to do about that 30 or 40? Because they're in government bonds or in bonds that are yielding very low yields. And they're not going to protect if we have a slowdown. They've sort of become neutered as a hedge component of the portfolio. Their upside will be limited by the zero bound. And so as people realize pensions and insurance companies, and we're already seeing this in Europe with negative yields, they're going to have to go out and find some real alpha. And, you know, I think the academic work, certainly that's been done on what happens to your

portfolio when you add 1% to Bitcoin or 3% to Bitcoin. The results are so dramatic that I think it's hard for investors to ignore. So, you know, that's... With the comment that if you buy at the right time, because I'm sure there are definitely people who buy... No, Laura, I don't... So I don't think that's right. I think that that's the greatest misconception.

You know, if you're a long-term... If you're, you know, an endowment or a pension, as I said, you know, you've got a 10-year horizon. There is no 10-year horizon that you could buy today, you goodbye for the next three years, you're going to be fine on a 10-year horizon. Yes, I agree with that. Really, you know, so those big pools of capital, that $100 trillion plus that Kathy's talking about, I think they're going to make their, you know, they're starting to see this.

And it's partly as a result of the bond yield staying low. And that's also partially a result of COVID hanging over everybody because everyone is still cautious and uncertain, even though my personal opinion is that it's sort of beyond the worst of it. March was the worst April that we're going to see. But, you know, people can remain cautious for another year or two. So again, that keeps yields low. That keeps, you know, and that makes the institutional investors start to question like, you know, what 30% of his portfolio is doing at 40 basis points. Right. And I would say that this latest surge, I think, in the U.S. will probably respond differently than Europe is. I mean, because I think we're asking the

question, wait a minute, this is a virus. The first lockdown did not work, really. So what do we think, why are we doing that again? So I think there's more of that attitude in the U.S., and I think that actually impacted the election, to be honest. I think, you know, there was a clear difference. I mean, Looking at the election results, if I didn't know anything, if I didn't know anything except the numbers in Congress, Senate and the House, the Democrats lost seats in the House, Republicans kept the Senate, despite the polls saying otherwise. I would have said that, wow, President Trump's coattails brought a lot of these people along. It did not seem like, or at least the, I don't know how the vote will end, as Dan says, it will be contested. But I would have said, wow, those are some coat tails because that was a big change and was not predicted by any of the polls. And I think part of it was, one party wanted to shut the country down and the other party did not.

I mean, that's a little too black and white. And so I do think that's why we are back in gridlocking comments. I really do. All right. Well, I mean, this has been sprinkled throughout the conversation, but let's just tackle this directly. In late August, Federal Reserve Chairman Jerome Powell introduced new interest rate policy that will target an average 2% inflation, even if that means allowing for higher inflation for longer periods of time. So I wondered how you thought this policy would affect Bitcoin. Well, I don't think, you know, there's not a lot out of the central banks. it's really relevant.

I mean, 2% inflation. You know, I think, I mean, look, obviously they're not going to care about two or three. It's bullish for a Bitcoin. It just means there's more liquidity available out there. They're going to let things run hot. But I just don't think we're in that old framework anymore. You know, the old, you know, let's try to interpret monetary policy to mean something.

It's just not, you know, that's old school. You know, that's what you did in the 90s and in 2000s. I think it's all rates everywhere are basically, real rates everywhere, basically zero around the whole world and nominal rates are zero in a big chunk of the world. So if we get some, what you want to call inflation and the rate goes up 1%, I mean, it doesn't matter. I think we're in a post central bank world in a way, not post-monet monetary policy world. I would say. I don't think they have much impact to, you know, ability to impact things. So I think what Dan says, you know, a lot of, a lot of people after 0809, seeing the monetary base go up so dramatically were worried about inflation. And so here we are again in the second big stage here. And I see fewer people worried now, which makes me

worry a little bit more. In other words, I think complacency is where we could get into trouble here. So when I saw the 2%, and we'll let it go above 2%, you know, not saying how far above, because of how far below and how long it has been below 2%, I said, hmm, now. So I'm going to be looking at a few things, one. And they have to do with the velocity of money, which has been plummeting. And that's why it hasn't caused any inflation. When consumer confidence increases, I have associated that in the past with all we need to see is a cessation of the falling velocity.

And we're already seeing, for example, in the housing market, we're seeing shortages of lumber and materials, which is kind of an inflationary psychology. And we're seeing, you know, the minimum wage. If you look at Amazon and a number of other companies, they're talking about, yes, we're going to have a $15 minimum wage. And so you get people thinking, oh, okay, well, if we change the mindset from this, you know, I have to hold my money. I have to hold precautionary balances. I can't spend it because something could go wrong,

then if they just stop acting like that, just a cessation of the decline in velocity would change the momentum here in terms of inflation. We've got M2 at 25% on a year-over-year basis. It might be even higher than that right now. So while I don't think there's an inflation problem right away, I think we're focused at ARC exclusively on disruptive innovation, Bitcoin, blockchain technology being that, but they're all deflationary in nature.

So I think there are these huge undercurrents of deflation and productivity games that are going to hold inflation at bay. So I just listen and I do hear people not worrying about it anymore. And I'm not worried about it because of what I just told you. However, I don't like the complacency because I think that's when mistakes are going to be made. So for that reason, I have up to my own insurance policy on Bitcoin. And I already owned a lot. Okay. Well, yeah, let's actually dive a little bit more into Bitcoin because, you know, here we've discussed politics. We've discussed the pandemic. And amidst all this, we also had this halving last spring, which cut the new supply of Bitcoin being produced in half to 6.25 Bitcoins every 10 minutes, down from 12.4.4.

And so I wondered as you're looking at these larger forces and then in the middle of all that you see, the clock-like ticking of the Bitcoin software, how do you expect Bitcoin to perform over this next year? I know we did talk, you know, just generally without putting a time frame on it. But I'm kind of curious over this next year as we, you know, continue to kind of write out the pandemic. And we just had a halving. Well, the last time we had it having it took a little while for, I don't know if it took a while for the knowledge to hit in or the actual impact to make its way into the marketplace, but it was a setup for a very nice run. And I do think that's part of what's going on this time as well as people do the arithmetic. Yassine in his paper put out, or it may be the next paper, but this chart where you can track because the network is so transparent, how much Bitcoin has been held for five years and more, three years and more, one year and more, you know, 30 days. and the loyalty is pretty startling.

I mean, 60% more than a year. So a lot of people think it's this wild, crazy trading mentality at work, but it's 60% more than a year. Equity portfolios, even our own equity portfolios, we might hold our names. We may have very little name turnover, but we'll be trading in, you know, around volatility. We're not seeing that in Bitcoin.

I mean, at the margins, of course we are, but in terms of the vast majority of the holders, I know some of it's lost, but, and we don't know how much of that 60%, but, you know, they're holders. So that's quite significant. Dan, what do you think? I mean, look, I think it's too hard to trade Bitcoin.

I think the certainty of a price projection over one year is dramatically less than over three years. So look, I would say can Bitcoin go to 30, 40,000 by the end of next year? Sure. But I would have a higher degree of confidence that it could get to 70,000 in three years. So I just, I think, again, I think there's too much of this historical, traditional, or attempts at historical analysis or traditional. analysis from other markets. Like, you know, to say if X happens X plus Y will then equal Z. I think, as I said, Bitcoin is just doing its own thing. It's an early stage technology, you know, early stage monetary standard. I mean, it's so many different things. So I could see it in almost any

number, honestly. And I think trying to finesse it is just going to be heartache. I mean, this is one of a few times in life where you're really just given an opportunity to just sit back. If you have that luxury, you don't have to do any more, you can spend an hour or two reading about Bitcoin, you know, you've got your position. People always want to run around and do things and move around and like be productive. You know, if you're long enough Bitcoin in the right percentage, that, you know, that's going to be enough. I just want to say one thing about Kathy's point. I've been, you know, I've admired her business and her focus and how she set that up. I mean, I think it's sort of a new wave of companies and also, you know, she's doing something better than the

legacy system and the deflationary pressure that she's talking about that's coming from her industries is just so massive. And it's in a way never been measured before. And so you're looking at these old things like the CPI, which were constructed, who knows when, 1948. I mean, it's like the Swift system. It's like pre-internet. So, you know, just as an example, Zoom, for instance, I was supposed to go to Australia and meet investors for two weeks. I was going to have 20 meetings.

COVID hits. I don't have to go to Australia. I don't have to spend two weeks, $50,000 on hotels and flights and this and that. I do one call. With 20 investors, one hour, one call, finito. So tell me, is that measured in the CPI? No way. I just save 50 grand just to not.

So I just think that this is the most interesting time I can ever recall in my career because the change that's going on underneath the system or underneath the market, it, like the changes. They're, you know, yes, there's, there are people who are suffering now. But, you know, there's been so much that's been pulled forward, especially in Kathy's world, so much that's been pulled forward that's sort of gone into hyper speed. I mean, and again, Zoom is the perfect example. I don't think those things have been calculated.

And normally, I'm worried about the complacency aspect as well. but on inflation, but no, I'm not. And I actually really like sailors the way that he's looking at inflation, which is that, you know, I've got to keep up with my, you know, the 15% a year that the NASDAQ's going to do. Or I, you know, so he's looking at his allocations based upon what relative assets do that he's involved with. I like that.

And also, you know, the point that, yes, I mean, you're cash at zero with a 1% inflation rate. You're losing 1% a year. And so, you know, there are a bunch of powerful forces right now that are interacting. And I don't think there's any analysis that's been done on that yet. They'll do it in three or four years. And this confusion leads to opportunity. And, you know, that's why each of us in our own way are prospering.

having focused on this new digital world. Well, I imagine Kathy actually probably has done some analysis, and I was going to ask you about that, but why don't we jump to that question now? Because I know that one area that you've called out as right for disruption is banking, and obviously you've made like, you know, Prussian investments in Square and such.

So how do you see banking changing over the next few years? And obviously, how do you think that will affect Bitcoin? Yes, so we believe that I think the number is there are roughly $250 billion in bank branches, and those are going to be stranded assets. We're going to walk around with bank branches in our pockets or our pocketbooks. Honestly, we're shocked that this year, J.P. Morgan, after shrinking its bank branch base, has decided to move it up. The only thing we can conclude because at least they're thinking about crypto and digital wallets and so

forth is that J.P. Morgan is aiming to become the Walmart or Costco of banking, which is very different from what they're perceived right now. They want to roll up the industry because we think the industry is in real trouble. And one of the reasons we think it is in real trouble is the yield curve is, while it's gone positive here, we think it's going to flatten and go negative, longer term again, because if you look at periods of very rapid inflation and you go back to, I mean, innovation, you go back to telephone, electricity, automobile in the late 1800s, early 1900s. The yield curve was inverted more than half of the time there back then, over that 50-year period into the roaring 20s,

with the average inversion being 100 basis points. And that was primarily because of the burst of deflation that was occurring associated with these new technologies. So we think banks are going to be commoditized. There's no way they cannot jump into this new DNA. That's one thing I've learned over my career. There's old DNA, and they usually say to the new, newbies when they surface like square and Venmo. Either they dismiss them entirely or they basically say,

we're going to wipe them off the face of the earth. That's our installed base. We can do that. We're spending this much on technology. Wrong DNA. You and I are old, you and I are old DNA and we've been making the transition. Well, you know, but I don't think organizational, I don't think organizational structures can. You know, when you think about, I mean, everything we do, whether it's autonomous, electric, you know, the auto manufacturers are not even, that's not how transportation is going to be going forward. You have to be, you have to be battery, you have to know batteries, you have to know software, you have to know artificial intelligence, you know, it's just a new ballgame, new ballgame. You and I as investors, I mean, I'm charged up by

innovation, so I'm always seeking it out. And I certainly, I think one of the biggest mistakes that our industry has made. I think it's led to the most massive misallocation of capital in history, and that is the move to indexation, passive, especially after the tech and telecom bust and the 0809 meltdown. More than half of all equities in the United States today are held in passive portfolios. That is really sad, massive misallocation of capital. That's why I want us to stay ahead as much as we can in the blockchain world, Bitcoin world. I know this is a global, phenomenon, but I don't want the innovation associated with it to migrate because the capital markets aren't financing it, right? That's one of the reasons I started the company.

They're not financing it. No, they're not. I know. I know. And in fact, a lot of the innovation is moving abroad. A lot of the funds are moving abroad and they don't even want American investors in them because of our regulatory system. So we risk being left out in the cold in some way. So Like, I'm out there, like, beating the drum saying, hey, you want to win in this race, you've got to make the regulatory environment much more friendly to innovation. Otherwise, we lose it to other countries. And especially now with China on the march, on the march, right? Literally on the march to become number one in innovation. The one thing we do very well here in the United States, though, is open source.

The movement started primarily here. I think Linus was from Norway, but the movement started here. And I do think more and more industries are going open source. Of course, blockchain, Bitcoin blockchain, that's open source. China's not going to allow that. They're not going to allow that. So they could be left out in the cold for that reason. I've been thinking a lot about this.

But we in the United States have got to get our capital allocation straight. move away from the dinosaurs. That world is going to be really destroyed in many ways. And I think you asked about banks, and here I'm off on a completely worldview, but I really think banks are in harm's way. That's why they're underperforming. I think they're going to lose, they're going to lose their business to digital. Yeah, they'll be able to participate in some of it, and it will be a roll-up industry. There will be a roll-up. There will be some very few, but some very big strong banks, but more digital will run circles around the rest of it. Laura, I think we've got to get Kathy down to D.C.

One of those committees to tell them that, you know, we really are, you know, there really is a possibility that we lose our edge here. I couldn't agree more. Yeah. So I don't get involved in that. However, I will say I do know a number of regulators do listen to this show. however they're probably already the ones that are interested in this stuff anyway so maybe they're not the ones that need to hear it but yeah there was a funny thing that happened to me I think it was

last winter and I did mention it on the show but I was walking down the street and I think I like I don't remember what it was like I had I don't know let's say like a dentist appointment or something and I was like leaving and I just was thinking about nothing and I passed by a bank and a little voice in my head was like, that won't be there in five years. Like, I remember when that thought just popped in my head. I was like, what? And then I thought, oh, yeah, that'll probably be the case, but it'll be more like, you know, within the next 10.

But anyway, since you mentioned China, I was also going to ask about the whole issue around central bank digital currencies because, you know, here we've got like great momentum around Bitcoin, you know, which you can think of as this non-state money. And yet, on the other hand, we have all these governments. that are working in these central bank digital currencies, and China obviously is already in this pilot phase of rolling one out. The European Central Bank is actually soliciting feedback on a potential digital euro at the moment.

The Federal Reserve has said that it is exploring a CBDC. And obviously we know they're smart and influential people, like the former CFTC chairman, Chris John Carlow, who's advocating for a digital dollar. So at this point, I'm sure it's just a matter of when, not if. And I wondered as we start to see more central bank digital currencies become issued, how do you think that would affect Bitcoin and, you know, kind of what are you looking for in that movement, especially if China kind of comes out first? Like, do you think they could leverage that in any way? You know, I actually think that movement to CBDCs is going to, it's, in a way, it's an indirect way, it's validating the space, even though it has, bears no resemblance to be. Bitcoin, right? Nothing, night and day. In fact, this is just a way for China to continue its surveillance

and verification procedures. And as more people learn that that, you know, you've got big brother watching everything now, I think the demand for Bitcoin, stateless Bitcoin, will go up. So I, yeah. And this will probably serve as like an easier on-ramp because it will, you know, their money will already be digital. Right. And Dan. Yes, that's what I was going to say. I mean, I agree with Kathy that it puts the, also the scarcity aspect of Bitcoin in stark relief, right?

I mean, the central banks just push a button and it's created. But more importantly, I think it just gets people more comfortable with the concept of abstract money or digital money. And we're going to be on those new rails. And so once you're on those new rails, you're like, well, what else can? we put on these rails. Oh, there's Bitcoin, there's Ethereum. I mean, I just think that it opens up people's minds. And I think that's the big challenge in this space with Bitcoin and, and broadly, the digital asset ecosystem. It's just getting people comfortable with how it works and why it is the future. All right. So we're kind of coming up on the hour here. And we haven't even, I mean,

there's just been so much activity in Bitcoin and there's just so much going on in the world that it could, that could affect Bitcoin. So there's like kind of too many things to discuss. But I will throw out some other things around just to see. I'm kind of curious to know what you're looking for, you know, in the next, let's say, year in terms of like how you think this could affect Bitcoin. But, you know, we didn't go into the whole micro strategy or square thing very much. We did not even touch PayPal integrating Bitcoin, which is, you know, obviously huge. Or the JP Morgan Chase investment node, which was kind of bullish on Bitcoin, which is pretty remarkable given that the CEO, Jamie Diamond, has been famously pretty dismissive of Bitcoin. So just with everything going on in the world,

the political stuff, the election, the pandemic, etc. What are you looking for when you were thinking about what could happen with Bitcoin over the next year? Well, I think the rush you're seeing here is there's been this aha moment. And I think the coronavirus caused it. you know, innovation always takes off during tough times, always, because it solves a lot of problems. And that has certainly been true here. And I believe, you know, that executives are looking at the accelerated shifts taking place in retail. If you listen to Cheryl Sandberg on Facebook's call last week, she made the just simple observation that online retail has gained.

100 basis points of share every year for the last four years. In the second quarter, it gained 400 basis points, so 4%. So it took four years prior, and in one quarter, we got four percentage points up to 16 percent and only 16 percent in the U.S. online retail is a percent of total. Most of us think and behave as though it's much more than that. That is the beginning point of the sweet spot for the S-curve, just the exponential growth. Many people think Amazon's already done it, but there's so much more to come.

And I think executives were awakened to a lot of digital realities and how far behind they were. If you look in the GDP report that came out this last week, I have never seen a bigger surge. I think it was a 70% surge. That's an annualized.

rate in one quarter. I've never seen that before. There is an absolute, you know, rush to get into the modern digital age. And part of that is all digital assets, including cryptocurrencies. That's why I did, I do think you saw the micro strategy announcement and Square integrating it into its digital wallet. It saw the use cases and now stocks and everything. So if you, if you, this digital wallet that Square has, this cash app, is going to trample so many traditional financial institutions that they have to face the reality, what is my digital future? So they have to learn more about crypto assets, cryptocurrencies, and, you know, digital assets broadly. So I think it's a wake-up calling it, the movement gained acceleration. You know, this, this, okay, I have to think about this.

It's not, this is not a five-year phenomenon. It's now. That's what I think is happening. Dan, what about you? I mean, you know, that's, that's very well said. Look, I've been, I've sort of had the same view on Bitcoin in terms of price. And in my head, it's sort of on autopilot. So I don't, you know, there's no trading of it. I'm holding. I think I have a a price in my head years down the line. So I've actually been focused more on what I would call the mid to late stage businesses, companies that are in the digital asset ecosystem, not the VC or early stuff. You know, you say who built that PayPal functionality? Well, it was Paxos, right? Paxos is a, what I call a D-A-E, you know, company. You know, Coinbase is going to

have potentially an IPO next year. There, some really good companies. They're all private that are growing up in the space. My attention is squarely focused on them. And, you know, I will be incorporating equity in those companies into my own portfolio. And 10-T is going to make a business of that. So I think that that's a whole of the world we haven't even discussed. There are some phenomenal companies. You know, you look at BlockFi. That's come out of nowhere. You know, I could, you know, go on and on about, you know, and the growth rates are astronomical. So I think that will also bring a whole new level of attention to Bitcoin, because you asked the question about Bitcoin. But as and as these

companies, you know, grow and hire more people. And people start to know, you know, what cracking is or, you know, just people outside of our world don't even know that there are companies in this space. They don't know that you can, you can earn 5% on your Bitcoin, you know, if you want. They don't. So that's something that is easy for people to understand. Equity companies, leadership, income statement, balance sheet. They don't have to figure out, you know, token economics or, you know, which protocol is going to, you know, beat, you know, the other protocol. So I think investors increasingly become focused on this world,

right? Right. And the whole, the whole defy movement. And to your point, Dan, you know, the interest rates that you can get out there in the crypto asset world, those are attracting a lot of interest relative to the competition in the old world. And I think the best thing that happened to that, ecosystem was March, the coronavirus also, because there were, you know, masters of the universe evolving and they thought they could do no wrong and now their businesses are shut down really good in terms of getting the right governance structures put in place in this very young emerging technology world. So we're pretty excited about that as well. All right. Well, we will get to see where all.

all this takes us and what the future holds amidst all these shifting forces. In the meantime, where can people learn more about each of you and your work? So ARC-Invest is our research site. So we put all of our research up there. We give it away. And we're on Twitter as well. If you look on our site, you'll see our analysts. Each one of them has a handle. Yassine Elmandra's handle, if you're interested in Bitcoin, is probably the one you want to follow. But we're doing more and more research on Bitcoin because we do believe the institutional world should be and is getting ready to move into the space. Oh, yeah. Actually, Kathy, I'm glad you mentioned the open source thing or your research, because I did mean to mention that when you talked about open source, that you open source your research, which I think, you. you know, it's definitely obviously something quite different in your world,

but it shows that you really follow the philosophy and, you know, your investment philosophy aligns with how you run your business. Yes. And Dan. Yeah. And thanks, Kathy, for doing that because I certainly have benefited from meeting some of those research pieces. Oh, great.

Thank you. Yeah. No, absolutely. Absolutely. I mean, it's three to five years ago, there was no research in the space. That was part of the reason it took me a while to get into it. But I think you're doing great work and you're helping tons of people out there.

Thank you. So I would recommend that to people. I'm on Twitter. I put something out every once in a while on Bitcoin, gold, macro, et cetera. Tenty Holdings is a private equity fund. It's private. You know, you can Google me. There are all kinds of interviews and other things that we've done.

You know, Gold Bullion International is the gold company I founded 10 years ago. We are still booming and this year was a record year. And, you know, we do sell physical gold and sell in store. And we think we are sort of the institutional quality, high caliber provider in the space. We are now the third largest vault of gold in the world outside. of the banking system, over 300,000 clients. We've done over a million trades on the platform. I mean, so it's very robust.

But I'm not involved in the day to day there. I'm just watching it grow, especially this year. So, but it's really Twitter and of course, you know, everything is on Google now. I mean, I used to remember when you could Google, and before Google, I would spend, you know, two weeks in a research library looking for one book. And now, you know, I did that when I studied history in college.

And now it's like everything is there. It's almost, you know, where can they not find you is really the question. Right. Yes, yes. I totally agree. I just feel like even, yeah, just, you know, in the two decades since I've graduated from college, just the way that I research things has completely changed. All right.

Well, this has been such a fun conversation. Thank you both so much for coming on Unchained. Thank you. Thank you, Laura. Thanks so much for joining us today. To learn more about Dan and Kathy, check out the show notes for this episode. Don't forget, you can now watch video recordings of the shows on the Unchained YouTube channel. Go to YouTube.com slash C slash Unchained podcast and subscribe today.

Unchained is produced by me, Laura Shin, with help from Anthony Yun, Daniel Ness, Bossie Baker, Shoshank, and the team at CLK transcription. Thanks for listening. Thank you.