uh then introducing this 7030 mix of BTC and eth has an extremely positive impact on the overall sharp ratio of the of the portfolio up to a 20% allocation to crypto that would be like 13 BTC 6 e something like that and then the remaining 80% balance is at a 60/40 ratio of stock to stocks to bonds so 20 Vol is not that high for a young you know healthy working adult so you know maybe maybe some of these allocations will will surprise us once the EFS come out uh but our historically it's been you know half BTC and half other and we're providing the other through these liquid token strategies all right guys bang bang today we have Matthew seagull he is the head of digital assets research and a portfolio manager at Van Vanek is a massive Financial firm they have hundred billion dollar in assets about two billion of that so is in crypto they have been all over this industry they do tons of research they continue to look at various valuation methodologies and I've even left a special treat for all of you at the end of this episode in this conversation Matthew and I talk about Bitcoin ethereum miners how different countries are interacting with this industry what you can look at from a regulation standpoint how Vanek is talking to their clients today about portfolio construction where various opportunities exist and of course how crypto and politics are all intersecting with each other this conversation is packed with insights Matthew did a fantastic job educating me I think all of you will drastically appreciate all of the things we talked about so here's my conversation with Matthew all right guys bang bang I've got Matthew here uh I thought a great place to start the conversation would be Bitcoin is this Sovereign tool that Bitcoin has been yelling about forever now we're starting to see countries do this we're seeing El Salvador a number of others at vanc you guys have a hundred billion dollar in assets you guys are one of the largest asset managers in the world and one of the advantages to that is that you actually have teams that don't know anything about crypto they're not worried about Bitcoin and so you can go talk to those teams for example there's a vanic bond team that is focused on some of these other countries and so talk a little bit about this idea of like Bitcoin infiltrating these countries how they're being used and then maybe the intelligence that you can gather by talking to the bond teams and others at vanc that are specializing in what's happening in these countries so we are a macro shop uh and one of the key overriding themes that's been in place since the firm was founded you know seven decades ago is how to protect wealth in a world of money Printing and dollar debasement and you know we're seeing that quite obviously today in the US with uh you know 7% budget deficits and full employment and we you know we think we're going to look back on this situation as something that that was absurd in hindsight that can cannot last so we have this DNA of gold and gold mining equities uh Yan Vanek was when Bitcoin came around recognized that uh it had the potential to disrupt um um gold and we he wanted to hedge against the possibility of a significant amount of our revenues uh you know underperforming and I think that's really what a lot of the financial system traditional Financial system faces is this huge innovator dilemma uh when it comes to bitcoin and digital assets uh and we can observe that at the country level as well right so if you look at great financial crisis the buildup in debt happened on consumer balance sheets and corporate balance sheets uh and that was where the blowup was was in the mortgage market right this time around the debt has built up at The Sovereign level particularly G7 U so at any given point you know there are call it 5% of the world economy that is in default on their sovereign debt and they go to the IMF or the IMF comes to them you know offering a bailout and in return for that bailout there's all these conditions you know and what we miss As Americans I think is that uh it introduces a lot of political polarization into those countries where who's ever in power is incentivized to strike that deal with the IMF but then in return they give up a little bit of their sovereign and the opposing party in those countries is like hey hold on don't do that you're giving up our sovereignty it's a very convenient wedge issue uh and Bitcoin can kind of emerge as this uh Common Ground within those countries so El Salvador was the most notable example of that where they're really using their Bitcoin policy as a negotiating tool against the IMF uh one of our core thesis uh you know since the three years that I've joined vanak is that an increasing number of countries would uh be faced with that decision and and choose Bitcoin and this this year 2024 uh we've had uh three additional countries announced that they are mining Bitcoin with government power uh so those countries uh Kenya Ethiopia and Argentina now join El Salvador Oman Bhutan and the UAE H each time the investment is getting bigger uh the countries that are doing it are getting bigger and eventually some G7 count is going to do this but to answer your direct question we have this Emerging Markets fixed income team which fits into that overarching theme of how to protect yourself against dollar debasement and fed money printing um Emerging Markets generally have run much more Orthodox monetary policies and as a result their dollar denominated bonds have outperformed uh develop Market denominated bonds over long periods of time now and even the local currency em bonds are uh over the last year starting to outperform Dollar denominated bonds so the performance of the asset class has been quite strong and we think it's for the same thematic reason that we prefer Bitcoin uh and it's been um profitable to work alongside that team uh keeping up to date on the news flow the internal politics uh the monetary policy tweaks within some of these Frontier countries and they've been able to uh buy some of this sovereign debt in El Salvador in Ethiopia and make some money off it so um Yan is uh quite um uh collaborative in bringing the various uh portfolio management teams together twice a week uh everyone presents everyone discusses uh and you know we've gotten some profitable synergies from that from that what is the difference between these countries you know buying Bitcoin which El Salvador did I think got a ton of fanfare for it um very obvious what that means right in terms of hey we took our local currency or dollars and we purchased Bitcoin we now hold the Bitcoin somewhere uh versus mining Bitcoin and when you start saying like were you using government power I think it becomes a little bit more opaque like is the government mining are they providing power and they're just getting paid as a power provider you know it's still kind of almost like Bitcoin tangental right um but how do you guys look at it is it that's the first step and it kind of you know breaks the seal and then it allows them to go do other things or um is that good enough like hey we just want countries if we see them start to mine then they're in the Bitcoin game and you know if they never go buy Bitcoin directly that's okay too or or just talk a little bit about the difference of like buying Bitcoin for like the country's balance sheet versus you know maybe just mining or kind of tow dipping in in some people's eyes at this point we are so early still in the evolution of the entire digital assets class two trillion out of you know 250 trillion in global equities and bonds so any large pool of capital uh that is diverting resources towards Bitcoin Innovation mining uh or buying with think is a positive um but it's clearly most attractive it meaning Bitcoin mining is clearly most attractive uh on the first order for countries with a lot of energy and not enough hard currency to properly monetize that energy uh so you know to use you can have as much energy as you can consume at the top of the volcano but if you literally can't afford the high voltage transmission cables to bring that power to where the demand is then it is wasted or stranded and there's going to be a lot of economic incentive to bring in Bitcoin miners because the capital requirement is so much lower than you know an entire entire battery set or uh this these transmission infrastructure so that's where um you know the first steps have been taken I think there's still uh a lot of push back at the Central Bank level uh the bis who wants to do their own coin uh so we haven't yet seen accumulation by a central bank um that's not in my bull for you know half a decade if not more first step is getting the circular economy going once you're mining Bitcoin then you're going to find some use for those STS besides just selling them although the killer app for these emerging and Frontier countries is access to hard currency uh you know that's why Kenya is doing it they they also have an IMF deal uh that they need to strike and Bitcoin can provide very handy hard currency while they negotiate the details let's talk a little bit more about these IMF deals like what is the IMF trying to accomplish what are the countries trying to accomplish in these negotiations and were these deals previously struck out of pure necessity like the IMF was kind of the only game in town and so Bitcoin really is like negotiating Leverage it if we're on a dollar debt standard right not the bearer asset but the debt base standard which is pretty much what we've been on since we went off the gold standard then the incumbents are going to be incentivized to keep that train rolling issue more debt means more fees uh you know the US dollar is um The Reserve currency for energy purchases so countries that don't have a functioning local currency really do need that hard currency if they want to operate the industrial part of their economy so there there are a lot of entrenched um interests in keeping you know rolling over the debt pretty much uh even it be even if it becomes unproductive and zombie like and let the next Administration you know write it down to zero and start again so Bitcoin introduces this uh uh political compromise that sometimes the uh both parties or whoever's in the opposition in this financially challenged country can agree on and it pisses off the IMF enough that maybe it changes the terms of the deal a little bit got it and when these countries are getting the Bitcoin do we know what they're doing with it like El Salvador seems to just be buying and holding um these countries that are mining are they also just holding the Bitcoin or are they trying to do stuff with it right now it's being being done uh in an opaque fashion via state-owned companies uh so in the UAE it's a JV between the government-owned utility and Marathon uh I I really don't know what they're doing with those coins but it's not you know it's not transparent yeah and then when the ETFs got approved um obviously Vex got one of the uh Bitcoin spot ETFs uh there's many others that that have come out now um one of the most interesting things to me was an ETF would now provide a sovereign wealth fund or a nation state the ability to essentially get long the Bitcoin price without taking ownership or or sovereignty of the asset and you know again El Salvador does it I think most people in the United States are like where's El Salvador on the map doesn't mean that that should be that way but I just think that people look at it like hey it's a small country they don't have a native currency uh it's not really that big of a deal that they've bought this Bitcoin and and they're taking uh control of it from a threat to the United States but if all of a sudden some other countries began to buy Bitcoin and take self- custody of that Bitcoin I think there would be a lot more concerns people would have a lot more questions Etc and so to one degree bitcoin's been too small on another side well maybe I don't want the geopolitical conversation and and kind of the controversy of actually taking self uh uh custody of the Bitcoin oh here's this ETF that comes along now I can get along the price but I don't actually have to take control of the Bitcoin and so do you think that those tools will unlock some of this nation state capital and and kind of sovereign wealth fund uh capital or does that sound like a nice Theory but in practice they're not really kind of going through that evaluation process I think it will uh I think that for developed countries that are in the throws of this kind of climate change uh Main like a country like Norway one of the largest Sovereign wealth funds in the world I think it's unlikely they would be mining Bitcoin directly with energy that could otherwise going in you know be used for norwegian's washing machines that's what they'll say uh they have a functioning Financial system not too many worries about custody or censorship so for them the ETF would unlock the speculative characteristics of Bitcoin and they'd be like I'll pass on the self- custody just no need uh and then it's for countries that have a lot of energy that's not being monetized where the political regime is very volatile and the banking system doesn't function very well again that's like a pretty good um percentage of world economy up to 5% uh they want the utility and the speculative uh characteristics so they would choose uh self- custody and IMF the bis uh they're concerned I think more with the latter these countries that need to roll over debt and um are incentivized to collaborate with the IMF and IMF continues to write warnings to countries not to do that uh and to it and it happened with Pakistan in Pakistan's bailout uh that Pakistan agreed to to tax crypto even though crypto's illegal in Pakistan because IMF told them to put that in the in the communic and that's how they got their billions it's interesting in Pakistan when they made it illegal adoption went up and uh I'm not an expert on Pakistan uh but I believe that there are four kind of uh regions of Pakistan and and uh almost operate as like States from my understanding and in one of those the more localized government of regional government actually capitulated and they said hey we know that the you know national government is saying that this is illegal that we don't want this to happen uh there's some Bottoms Up adoption actually you could see the adoption numbers across the country had gone up but then this one of the four regions actually said we're going to participate and um it reminds me a lot of in the United States kind of this difference between the federal and state governments and we've seen a difference of opinion in some states are very you know Pro Bitcoin and cryptocurrencies some are anti and then at the federal level we're also seeing some standoffs in terms of you know how the state of Texas May treat this stuff versus the the federal government and so if it happens in Pakistan and it happens in the United States you have to imagine this is something that's going to get exported to every country around the world and they're going to have to struggle with this you know who's in charge and what is our position on these assets going to be yeah and it it as You observe it bubbles up from the the bottom up local communities retail investors I remember when I first got involved uh really deeply 2017 and uh my colleagues I was at an investment bank and a lot of discussion not much buying going on H and my colleagues I came back from this uh Road Show I was like you know my taxi drivers are talking about this they're like that's a bearish sign when the taxi drivers I was talking about I was like no you have it inverted this is a retail asset that's meant to take power away from the top like you want your taxi drivers talking about this um so yeah I agree with you yeah when we look at the miners um the United States has been a big winner in mining uh since China banned Bitcoin in 2020 um or 2021 I guess it was and in that shift I think we went from 65% of hash rate in China to today there's about 35% give or take depending on how you measure and on what day uh and about 10% of that is in the state of Texas Alone um talk about the publicly traded miners many of which are based in the United States uh they've used a lot of debt a lot of these you know you know uh ATMs to to drive Capital into their businesses they've grown very very quickly um there's days where I talk to very smart investors and they're like I'm long the miners and I see a lot of opportunity there uh and then there's in the same day I could talk to another smart investor and they're like they're all you know zeros and we just don't see how anyone can drive a return by buying these Miners And so we're sitting it out how do you all evaluate kind of that part of the market and you know allocating Capital there versus maybe just buying Bitcoin or or some other asset so we do have one strategy that owns Bitcoin miners uh and that's why vanex shows up as a you know front page shareholder for basically all these firms it's an ETF that buys uh pure plays exposed to digital assets so it's coinbase micro strategy and a number of the Bitcoin miners um the the publicly traded Bitcoin miners now control roughly a third of the global hash rate and that's an all-time high uh the largest Bitcoin minor in the world went public this year in Abu Dhabi um uh but these stocks have been you know pretty bad underperformers this year and I think there's some structural reasons for that and some cyclical reasons uh cyclical reasons are kind of easy Bitcoin having revenues get cut uh in half and at the same time this AI narrative comes in and while there are a lot of synergies between Bitcoin miners in Ai and we can talk about that and there's been a accelerating number of pivots into AI just in the last month uh you know the these companies aren't haven't really gotten the Boost from the AI narrative um yet and and meanwhile although their debt levels are much lower than they were you know three or four years ago they have been diluting the crap out of shareholders just constant share issuance uh so it's really hard to outperform bitcoin uh without a uh very steady unchanging uh balance sheet strategy and none of the miners have been able to do that because the price has been so volatile and they're so tempted in the upcycle to keep up with that hash rate and the mining machines are depreciating so quickly like the temptation to just spend and spend is very high uh so I think those are the kind of the structural and the uh cyclical reasons why only two of the publicly traded Bitcoin miners are up on the year and everyone else is down and btc's up 70% yeah it's very interesting to watch uh kind of that that challenge and also AI is now starting to kind of come in right if you really think of a Bitcoin minor uh they're providing infrastructure uh it's a beautiful model in Bitcoin because you don't need a sales team you have persistent demand uh Etc um but we do see a number of the minor saying well maybe we're not just a Bitcoin minor we're kind of an advanced computing uh you know business how do you all look at the crossover between Bitcoin mining and some of the AI stuff and is that a a positive strategy or do you think that those companies uh may not do so well today's episode is brought to you by espresso the maker of the world's thinnest portable display now listen up if you're like me you feel like you are at a command center when you sit down at your desk I got a gazillion tabs open and different windows for different activities there's my web browser my text messages I've slack open and I got a Notes app I normally work on a desktop and it can be very very productive but everything falls apart the second I leave my desk if 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P.O or that's too confusing just go click the link in the description if you go to espresso's website they've got a brand new offer there sitting for you you get a little discount and you'll get a beautiful screen trust me I use mine every every day you'll love the espresso screen and I think it'll make you more productive go check them out today by clicking on the link in the description I think it's a positive strategy as you observed the hash rate uh movement out of China happened so fast the same things happened out of Kazakhstan uh the publicly traded Bitcoin miners when you read their conference call transcripts they are saying very clearly the marginal investment opportunity is no longer in Texas because there's higher competition from AI infrastructure that wants to suck on that same power so some number of these miners will be able to monetize that power we saw it most notably yesterday with uh uh core weave making a bid for core scientific stocks up 50% core scientific had done an excellent job of giving the math around how the value of their installed power agreements is higher than the market cap of the stock that was like a month ago stock started to work cor weave strikes this 10 years $3 billion deal and now this thing might get taken out and turned into an AI producer uh but the number of minors that will be able to execute on that because as you observed they don't have the Salesforce they don't have the expertise a lot of times the Bitcoin miners are they're they're in areas that are rich in power but not necessarily with super fast connectivity which you also need so there's a lot of value added capex that would have to go into it I think it's going to be very stock specific and in the the meantime the Texas focused Bitcoin miners now have to look at Argentina uh in the Middle East like they need to find new geographies that takes skill money uh and various expense as well now hundred billion dollar in assets approximately at vanc about two billion of that is in Bitcoin and cryptocurrency um you all have a lot of clients all around the world with many different um you know goals many different constraints uh many different perspectives on how to allocate capital I know that you all have done a lot of work on how to allocate Capital to bitcoin crypto digital assets um what is the current thinking there around portfolio construction um how these assets interact with traditional assets and just kind of what you guys are talking to clients about so th those views are evolving now that it appears that spot ethereum ETFs will trade in the market but our um historical um uh recommend Commendation is that clients put 1 to 5% of their portfolio into digital assets uh that Bitcoin deserves roughly half of that allocation and the other half should go into uh liquid token strategies that include uh other tokens now with the uh news about ethereum we ran some new numbers around what would be the ideal mix of BTC and ethereum in a portfolio uh maximizing for Sharp ratio and the volatility adjusted return uh and when you do that it roughly it's a 7030 mix 70% Bitcoin 30% ethereum uh and we also ran some new uh data exercises to determine how big can an investor get with that digital assets allocation maybe they're maybe they have a high risk tolerance and they're willing to go above that 5% limit and we found some surprising things actually for investors who are willing to stomach a 20% volatility uh in their core portfolio and think of that 6040 portfolio is roughly half that uh then introducing this 7030 mix of BTC and eth has an extremely positive impact on the overall sharp ratio of the of the portfolio up to a 20% allocation to crypto so that would be like 13 BTC 6 e something like that and then the remaining 80% balance is at a 640 ratio of stock to stocks to bonds so 20 Vol is not that high for a young you know healthy working adult so you know maybe maybe some of these allocations will will surprise us once the EFS come out uh but our historically it's been you know half BTC and half other and we're providing the other through these liquid token strategies got it and when you're talking about those percentages what about rebalancing because one of the interesting things about crypto it's so asymmetric so if you say 1 to 5% and let's say that somebody went and they did that last year that 1 to 5% now literally could be two or three to 10 or 15 depending on what assets they bought how they allocated the exact timing Etc and so uh 1 to 5% sounds prudent if that grows to 15% are you seen clients want to rebalance are you saying hey maybe that's a good idea or is this such an asymmetric asset and you actually want to let the winners run and and kind of it's a set it and forget it type you know allocation I think fiduciaries are going to have a lot of choices to make on that and you're going to see a range of options I heard you on CNBC kind of warning that inflows can turn to outflows when you're talking about these systematic portfolio allocators and we manage some model portfolios uh that include include equities bonds and crypto the crypto allocation is around 5% and the portfolio manager on that strategy uh you know took some Prof Bitcoin ran to 7% and he took some profits right after the post ETF run to bring it down into the fours in line that decision is made um kind of ad hoc by the PM generally I think quarterly is a A good rule of thumb and in these kind of decisions how does regulation play into it right so one of the things that I find uh fascinating is um you can go and you can look at the miners you can go look at Bitcoin uh ETF maybe there's going to be this ethereum ETF coming shortly uh as these assets continue to come to the market and people begin allocating um it almost feels like Regulators are becoming looser with their approvals as they become looser with the approvals uh there will be more choice and so is a world where hey I allocated the Bitcoin ETF but that was 100% of what I was going to allocate now here comes with the ethereum ETF I actually should roll some of my Bitcoin investment because it was 100% of my digital asset allocation to the next asset that gets approved and then when salana gets approved or you know name your next asset we'll eventually see people not put net new dollars in but it's almost like a diversification as these assets are getting proved in the US or should we expect people allocate to bitcoin and then net new dollars are going to come in for this next thing and I think about almost this like wealth effect that we saw in the in the coins in you know outside of the regulated uh kind of traditional stock markets is that going to get repeated here you know in uh in kind of these ETFs so putting aside the regulatory piece to answer the question I would say that when you look at who bought the Bitcoin ETFs one thing that struck me was um hedge funds own the same amount as raas okay raas manage 10 times the assets of hedge funds uh when we look at the 13fs in 6 months a year and three years in my opinion there is no way that those ratios are going to be equal it's going to be raas just pulling ahead and uh and and growing faster and some of them will diversify into ethereum or whatever is next but the overall Pi will be glow will be growing and I think as you observed like the way this asset class works is first you get a a a Bitcoin bull market a lot of market cap is generated paper wealth some percentage of that gets tempted to speculate into uh um newer stuff and the newer stuff is less liquid so if you put the same amount of money into it the price return is multiples and that's one reason why now I'll get to the regulation piece uh I'm not terribly optimistic there's going to be a ton of ETF choices in the US partially for that reason um and but most specifically because uh there needs to be a regulated Futures market and CME is not going to list uh salana Futures till after the election would be my guess how far down the stack do you think that the US market will eventually go and so um there's this idea of like depth right if you go to coin market cap okay Bitcoin is kind of first got it it ethereum is second um I think there's like 20,000 that are listed I don't expect the 20,000 to get listed but should we think about it as like the top 10 the top 15 the top 100 um and along that will we maybe skip some assets right obviously there's not going to be mo most likely a usdc or a usdt ETF doesn't really see like there Al I saw a new money market fund ETF just launched first of its kind so you never know so maybe right but but um I hear your point that Dogecoin is are Regulators going to approve it on one hand you're like that seems crazy on the other hand if the people want it and it fits within the rules can they really stop it right and so how do you just think about like how far down the list do we go and also will they kind of play you know winner picker in terms of skipping over some of the assets as they go down the list so for ETF specifically you need to know if the underlying asset is security or commodity uh because that uh determines what type of filing you make so a large number of these assets uh you know the government still thinks that they Securities maybe the crypto uh ecosystem disagrees but anyway there's uncertainty and um you won't be able to get an ETF on those for some amount of time until that situation is clarified uh you can look we can look at other markets where there is Clarity like Germany uh and they have approved roughly like the top 50 assets are available if someone wants to put in the work to make an ETF on it uh the regulator has to understand those assets and you need to get this Confluence of issuer support so someone like a vanac is like yeah we're bullish on this asset let's make an ETF then you have to have customer demand where our sales team goes out and like who wants to actually buy this anyone and then you have to have counterparties uh that are willing to support the infr structure required regulated Futures Market would be one so I do think there will be assets that are skipped because they can't tick all those three boxes and I think once there's Clarity on uh what specifically is a security versus commodity then we'll start going down the list of the top 50 not we vanak but like the industry people yeah yeah and it's interesting I guess um the Custer demand may be the easier thing to understand because you can look at the market caps of the crypto assets you can see um you know people are buying it and it's increasing Etc um the issuers I tend to think but you guys are experts not me um they kind of follow the customer demand like if the customers want something the issuers most likely are going to show up someone maybe our motto is like intelligently designed investment products and so if a bunch of dumb people want some ETF we will you know we we will say well we don't like that idea yeah which makes sense right um but if you guys don't do it somebody else will do it right like kind the economic incentive is there is if the customer wants it somebody's going to come and provide them the access uh it's that third bucket though that I think is like the big question and um that feels like the bucket where there's still kind of like the old school Wall Street perspective on should we provide support should we not um is going to really come into play and maybe be the ging Factor yeah because you want an our firms been around for seven decades we don't launch a ETF and then you know expect to close it within two years and the history of this asset class with its volatility is that you need to pick and choose carefully on which assets are going to have staying power the top 10 assets from 2017 look nothing like the top 10 assets from 2024 now um what about the other crypto companies that are either growth stage in the private Market or now public so coinbase obviously is probably the the big one that is in the public market it's not a minor it's not a you know direct uh crypto asset um seems to have garnered quite a bit of attention people are allocating Capital there uh but there's also uh a number of companies that are trying to get into the public markets um Circle and others have uh at least announced or rumored to have uh be planning these IPOs and so is this a game where this industry is not only maturing because of ETFs but we should also expect many more companies to come into the public markets throughout kind of the next you know 24 months or so uh maybe 24 months yes I don't think six months so Exodus exod this is a uh micro cap that has done very well crypto wallet you know they they tried to uplist uh SEC blocked it at the last minute Galaxy's been trying to move over the NASDAQ can't do it um C no sign of circle um now they have turned around the market share losses so I think the fundamental case is better so where where's the IPO I don't think the SEC wants to approve these I don't think we're going to see them until after after the election uh and then uh kind of re-evaluate uh what the next Administration is saying yeah and you have referenced the election a number of times is the thought process that there will be a new SEC Administration in there uh post elction regardless of who wins or is it if Trump wins it changes if Biden uh wins then it stays like how are you guys thinking about the implications of the election specifically Yeah in our uh two 2024 predictions piece so last December we said Trump's going to win this election um still think that to be the case and then he will change uh the SEC chair I know there's some debate around how easy that is to do but uh we think it'll get done if Biden wins uh I I don't have a prediction because the entire um thought process behind their SEC SEC strategy has been illogical so it's hard to hard to guess yeah um and then there's other things regulation wise that maybe aren't explicitly like CFT TC or SEC uh oversight we've seen you know many uh legislative pieces put forward obviously those organizations will have a hand in you know providing feedback maybe enforcing the rules Etc um but politicians kind of in the traditional sense in Congress and Senate uh are starting to have much more influence uh starting to be much more involved in the process that is directly impacting crypto um 12 months ago there was definitely some politicians that were saying hey this is important we should be ahead of this it feels like there's a lot more now we saw you know even in the Democratic party a number of them kind of break from the Democratic party and some of these recent votes and so is it a thing of just like an idea as time has come politicians don't want to be on the wrong side of history and we should expect more and more of them to become kind of pro crypto over time or is there something else going on yeah the demographic story I think is very simple the older you are the less uh optimistic you are about this asset class because of a uh understanding Gap uh and the the crypto Super PAC raising $125 million that is the largest industry specific Super PAC it's twice the size of the American Israel uh Pac which is you know renowned so it's bigger than Trump's reelection pack think about that I'm this is a guy who I'm sure looked at it was like these guys are raising more money than me I want part of that so I think it's demographics and Money Talks yeah um and what do you think is happening in those conversations is it just money or is there some sort of pitch that uh these politicians are sympathetic to the pitch is easy it's a pitch for Innovation and growth uh and like one side uh you know doesn't want that at least by their policies it becomes clear this degrowth movement uh so I think the pitch for young people is very simple you know let entrepreneurs innovate uh you know let technology disintermediate big Tech who have you know who are printing super normal margins because they're arms of the state right now the state censors the content that big Tech serves you uh and you know crypto is a way to break free of that and and and grow I think that's that story resonates with young people yeah um you have a very interesting background uh you were at Alliance Bernstein uh you worked very closely with Kathy Wood uh while she was there before she started Arc um you all uh not only work together but also uh it was during a time where uh there's some chaos in markets uh I think you worked there during the global financial crisis talk a little bit about that experience uh both going through the global financial crisis but working with Kathy and maybe some of the things you learned so I started my career as a as a journalist covering Finance at Bloomberg CNBC uh I got you know envious of interviewing people with bigger balance sheets than me all the time and I realized pretty early on the phenomenon of fake news and that how journalists spend their time and how they're incentivized to spend their time is not necessarily in pursuit of the truth so uh the buy side is the clearest uh expression of of Truth seeking at least for like economically rational people who want to hold on to their jobs so I like any good journalist I started networking meeting a bunch of people getting got my CFA and uh met Kathy and and started working for her in 2007 un covering technology on these Global well at the time was a US thematic fund and we were uh heavily invested in what was then kind of the beginning of web 2 and we had a strong um bias towards open source like we were big shareholders of red hat so it learned that okay you can be a for-profit company whose job is just to maintain an open source datab base that uh turned on a lot of light bulbs for me and working for Kathy you know she is truth seeking you know and she remembers more numbers than anyone in the room so she can win a lot of arguments and we were on the right side of a lot of thematic disruption going on um the elements of the strategy that I you know disagreed with came down to uh portfolio turnover um the amount of trading and I feel I I began to learn that that's how you make mistakes that that if you are telling clients you have a 5-year View and then you're trading every quarter you know that's a mismatch and it will eventually be revealed through lack of fundraising and uh lack of performance so I left Kathy in 2011 took a detour worked on the cell side for 10 years writing research for a uh Hong Kong based Investment Bank which was then acquired by a Chinese Mainland company so then I really felt this information censorship uh like in my in my professional life and uh grew attracted for Bitcoin you know to uh as one of the solutions for that and as I started to formulate how I wanted to invest uh once I got back to the buy side specifically in digital assets uh I wanted to take the view that um don't just do something sit there like when in doubt don't make a trade buy the best assets you can buy earn income from them if you can do so without taking too much risk uh risk manage but don't trade and I think that lower turnover approach if you can pick the winners you know we'll we'll be a have a much higher batting average over the long run during the global financial crisis uh I think you guys were also invested in some of the banks going into uh the crisis yes what what was that like cuz they went down pretty quick so so Alliance Bernstein at the time had three legs to the stool it had growth equities value equities and fixed income and sitting in those morning meetings in 2007 you know became very clear that all three legs of the stools kind of own the same stuff uh automakers Leman Brothers uh and that produced this uh highly correlated negative performance across all the aset classes that we managed and the firm went through a very tumultuous time and you know we were we were selling uh Leman Brothers at $6 I remember that but I also remember buying red hat at a 10% free cash flow yield uh with with that money or you know something along those lines so I I you know it was a very tough time to manage money when you have really smart analysts showing you the intrinsic value of uh some of these Financial franchises which which Leman was and you're trying to achieve diversification in a fund that's benchmarked to the S&P where we want to take some tracking error and these are 10% tracking error products that Kathy was running so pretty high but it's not 50% you got to own you know you got to diversify uh and I you know we had a really tough 2008 I think we were down 42 43% and you know Cathy leaned in and we had a rip roaring 2009 and caught the whole the whole rebound so if you looked at the two-year performance you know it looked good but volatility adjusted the Salesforce is like you know we it's too volatile for us yeah well now being in digital assets uh it's very similar right is people look at Bitcoin and it'll go up a couple hundred% and then it'll draw down 80 and just does that over and over again and so um do you think that there will be issues with people wanting to allocate to the asset because of that today's episode is brought to you by meanwhile meanwhile is the world's first licensed and regulated life insurance company built for the Bitcoin economy operating on the Bitcoin standard they do everything in Bitcoin you pay in Bitcoin they pay claims to your family in Bitcoin you take out policy loans entirely in Bitcoin when you need liquidity meanwhile Bitcoin life insurance has redefined what it means to huddle protect your family from life's uncertainty and a broken Financial system build intergenerational Bitcoin wealth while the cost of living skyrockets in dollar terms get all the tax and legal benefits of life insurance now in Bitcoin they are actively binding policies today whether you are a 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BM go check them out today yeah there are issues you and that's why you know this kind of 1 to 5% allocation makes sense uh but the way I like to think about Bitcoin and digital assets and coming you know I'm someone who spent a lot of time in Emerging Markets uh lived in Asia traveled widely around southeast Asia that's part of what gave me conviction in in digital assets Emerging Market asset class emerging market equities right people used to put 5 or 10% of their portfolio in there it 40% China you know it was two years ago now it's still 25% China a lot of American investors don't want that and with Bitcoin you can get an asset that has similar negative correlation to the US dollar but with a lot more upside and the draw Downs are big but Bitcoin draw down was 77% in 2022 meta stock was 78% draw down and meta is a 2 and a half% position in the S&P everyone effectively owns it so the the bang you get for your buck with Bitcoin and the uh negative correlation to the dollar similar to emerging market equities you know makes it very attractive in our view now what about staking you mentioned earlier you know if you can buy assets and and get some income off of them uh obviously staking is uh a big part of the crypto ecosystem um it feels like wall Street's going to be pretty excited about staking if they can get access to it yeah we'll see if if this SEC thinks that staking is a Securities transaction uh that question maybe needs to be resolved but at when I'm uh managing assets I think staking is critical that dilution is one of the you know biggest costs of investing in many digital assets less so Bitcoin right because 94% of the supply is is out there but when you're looking at some of these layer twos where you know 80% is still left to go you know you're going to get diluted and if you can't stake to avoid that you're going to underperform so I'm a aggressive you know stake the max that I can uh as long as I can handle uh investor liquidity which is which is monthly uh and then you know risk manage around the edges got it and ethereum or The Ether ETF getting approved um staking will not be allowed from what I understand um will that change the interest or the demand for ether like I feel as if the ether ETF gets approved and investors can participate in the staking there could be a much much higher degree of capital that would flow without it it may be unclear to me why people would buy the asset I I generally agree with you um but uh let me start over actually um yeah I I think demand for an ethereum ETF without staking is going to be obviously lower than it be would be with staking um I don't think it's permanent that staking will not be allowed so we have vanak has an ethereum ETP in Europe and we're currently staking roughly 70% of those assets and investors are earning a you know a decent yield on that I think that will come to America at some point but we are still so early on this asset like most of traditional Wall Street does not know that ethereum is not just a speculative asset but it's got you know real world utility 2,000 Developers is working on it every month there's 3,000 different apps $3 trillion dollar of value that's been settled across the ethereum network over the last year uh that education process if we can execute on it is going to draw interest whether or not there's some 2% 3% apy going along with it in the first three six months one year I don't think it's going to matter over five years I think it will matter now Bitcoin I think is a very clean story it's digital gold it's a store of value uh when you look out at the crypto landscape it's unclear that there is anyone else competing with it it's kind of Bitcoin works or it doesn't is very you know binary in many people's eye but if there's going to be a digital store of value Bitcoin will be the winner right um ethereum five years ago I think had a very clear kind of Monopoly on it is the Smart contract platform fast forward to today ethereum is one of of many and it feels like it has come under assault from all of these other smart contract platforms that are showing up saying I'm faster I'm cheaper I'm better I'm you know whatever the name of the game in technology platforms historically has been competition um in money not so much money is more of kind of a maximalist type asset you know you get paid in dollars you save in dollars um you don't necessarily have 10 you know different Fiat currencies in your wallet right you're kind of locked in an ecosystem with ethereum what I think is interesting is if the ETF gets approved The Ether ETF will have a monopoly on the smart contract narrative for some period of time but if 6 months two months 12 months whatever later you start to get some of these other assets getting approved very quickly that Monopoly on the narrative gets commoditized and now you have well should I buy ether should I buy salana should I buy name the smart contract platform um on one hand Wall Street is prepared to go do whatever analysis and you know valuation methodology ET they want to pursue on the other hand I really don't know how much of that's being done when people are buying Bitcoin right I think that a lot of people just hear the story they hear the it's digital gold it goes up a lot it goes down a lot but over time you know it's a great store value I'm buying it not oh it's at $71,000 right now is that above or below you know kind of the the value that I think that I'm actually buying and so does that shift the investor base when we start getting these other coins more to an Institutional Investor base where they are going to do valuations and and try to understand you know kind of where the price is today versus Bitcoin is like almost like the perfect story for institutions and Retail to pile into regardless of current price point the main levers to our smart contract platform Financial models are the penetration rate what percent of the value being sent around the world is going to be intermediated by these open- Source blockchains compared to traditional Finance that's lever number one lever two is the market share of the smart contract platform we generally assume these are all call options there's a lot of win or take all characteristics and digital networks the top guys is going to get 70% so that's our base case market share and there's monetization how much are token holders going to get from every kind of transaction or each unit of value that's locked on the protocol the first variable has the biggest impact just the penetration rate so that's why all these assets are 90% correlated when Bitcoin goes up everything kind of goes up uh I think that's still going to be true once we have these ETFs yes investors are going to differentiate a little bit um try to figure out who the winner is and yes ethereum will have that Monopoly uh in ETF World until the uh other products come around tokenization what are you guys thinking about there what are you excited about the opportunity cost of tokenization is not owning Bitcoin not owning ethereum so if you're resource constrained and it you know it may sound like we're not we have 100 billion but um you know Fidelity has 50 times that black rock has you know some multiple of that uh you have to pick and choose what to do and I think one of the features of blockchain tech is that the tech the technology itself is commodity open source anyone can spin up a token it's not particularly difficult to make a um open you know a money market fund a tokenized money market fund and put it on chain question is will be there will there be any demand for it and can you make money and on that um we although we've done a lot of R&D we haven't done anything directly and we've put most of our resources into owning the open source projects so that if there's $ trillion of value sloshing around that is looking for an onchain money market fund uh we can quickly spin one up that said uh Yan son Nick vanak has recently launched the Agora dollar which is a stable coin that looks to compete with tether and is basically starting a price War so you know tether these guys are earning $5 billion a year they keep all the interest for themselves Distributors don't see any consumers don't see any now there's a reason why consumers don't see any is because it makes it a security and introduces all types of friction that would probably hurt tether you know if they tried to do that and fragment their their user base but why not share revenues with Partners Distributors exchanges businesses who introduce your stable coin as a means of payment or incentivize uh you know platform users to use it as a means of payment so vanck will manage the back end of the agore dollar which will be you know short-term debt instruments overnight repo the these types of things and then Agora will go out and kick tether's ass what are the odds today that you think tether could be unseated uh I think they're you know greater than 25% in the next 3 years mhm uh there are still regulatory questions for tether uh and they don't really have any presence in developed markets so if stable coins become a thing for payments in Europe and us at your Walmart and Target I doubt it's going to be with tether so I think there is an opportunity The Profit pool is so big someone's got to go go after it got it um when we begin to think about the maturation of stable coins there is this question of Regulation but internationally it seems like people like tether because it is not regulated by the US that you know and I say not regulated in the sense that they still have to follow rules right um but usdc in comparison is seen as much more regulated and so I have heard from people in various countries they say oh people here don't like uh usdc because it's the government coin now again anecdotal probably you know huge exaggeration in terms of the amount of people thinking about this but it is this interesting thing about you know in the US we look at regulation Etc especially in the institutional world as like oh it is quote unquote safe again could be debated may not always be the case but I think that generally the US has a lean towards if something is regulated has oversight it's deemed better the rest of the world if it is regulated by the US specifically because some of the actions we've taken in the geopolitical you know conflicts Etc they may be turning off to that and so how do you think through like you know you want to be regulated and kind of compete in the greatest Capital Market in the world but in some way you may be turning off some of the international users as well yeah and remembered I remember the the president of Indonesia a couple years ago right after the uh start of the the Ukraine war and he called out visa and MasterCard specifically he's like we need payments rails that are not run by these American companies that can censor assets so that that was helpful for uh getting conviction what you say that like the rest of the world is looking at the other side of the coin here and they're looking for Hedges on US dollar hegemony with Bitcoin and then the hegemony of the US administrative state by owning what they perceive to be a less regulated asset in tether versus usdc so I think that phenomenon is is real uh and you know that vanex not starting the stable coin right we're we're going to manage the assets see if see what Agora can do uh because I do think there are a lot of hurdles yeah um and then also if you look at you know China they continue to acquire gold um China and Japan used to buy 22% of all us treasuries now it's down to like 7% stable coins have stepped up and I think they're like the 15th or 16th largest holder of treasuries at the moment um but it's not just like hey we may not be buying as much they're actively diversifying into gold you have to imagine there will be a country somewhere at some point that says screw it let's do the digital Gold version as well kind of additive totally um is it concerning for the US should we be worried that these countries have seen some of the actions we've taken and they're going to diversify concerning uh I think what should be concerning to policy makers is that the rest of the world much of the rest of the world doesn't agree with our foreign policy anymore and they don't agree with how we are spending our budget deficits right whether it's on forever Wars or you know crazy woke policies in the education system a lot of them are like you know that's a bad use of funds uh and it's devaluing your money and we want to own something harder so let's own Bitcoin if the US policy makers if both sides of the political aisle like recognize that and were realistic about what we can do as Americans in the rest of the world uh given the fiscal challenges that we have then like I think that would be constructive that would be like a realistic real politique I guess as it's as it's known uh doesn't feel like anyone's really incentivized to say that in public so you're stuck in this environment of like you know fake news yeah um my last question for you is if you were president for a week what would you do that you think would be good for the country good for the people and good for Bitcoin cryptocurrency kind of the the overall industry I like RFK Jr's idea to back a portion of t- Bill issuance with Bitcoin by starting a Bitcoin Reserve fund I think that would be the most impactful why well the price would go up a lot uh and it would be a recognition that the current monetary regime is unsustainable and that the bad points outweigh the good points at this at this point and the thought process would be you only have to do a little bit because as the dollar price goes up you could have eventually get to some significant amount of backing over time exactly yeah what about um the speculative attack like just just print a trillion dollars we won't even notice based on how we spend now and government doesn't declare Wars like that uh I think that's just a too aggressive to act just too antagonistic uh it's like starting a war before you're attacked mhm but if it's a war on an asset that can't fight back right um in terms of if the US government let's you know we'll play a little hypothetical game the US government printed $500 billion without joking it would be a rounding error in some cases to what they're already spending if they then went into the market and began to buy Bitcoin yes the price would appreciate but let's say that the purchasing of that Bitcoin could end up with them acquiring 20% of all Bitcoin in circulation there's maybe 30% that's free floating turning over it may take a while the price will go up people will sell there's a bunch of assumptions that in there but you know 10 to 20% they probably could acquire and they were the first country to do it to me that feels like it would be a significant Advantage going into the future holding 10 to 20% of all Bitcoin in circulation for a long period of time and if the cost is 500 billion that's a big number but it's not even one year you know deficit and so it feels like we are actually incentivized to do something like that now again we may not come out and issue a press release say we're going to start buying Bitcoin today whatever right but you know going down this path and saying look may maybe we should be buying a billion a day and do it for two or three years right um we see with the ETF inflows like the price will go up but it's not going to send it 5x right in terms of uh what we're seeing now and for $500 billion do it's such a binary thing that if you know Bitcoin does become the global store value to own 10 20% literally is the difference between you know extending the Empire or potentially being on the wrong side and somebody else you know having that uh Advantage yeah your you know your question was President for a week not dictator for a week so like I mean like I love your I love your idea but I think that 1% of it would do enough towards reintroducing the idea in people's minds that your money needs to be tied to the productive resources that you have in your economy it can't just be about the printer uh and you know Thomas Edison had the idea a hundred years ago to make the US dollar backed by a basket of Commodities you know introducing Bitcoin in even a tiny measure into the plumbing of our financial system and how t- bills are issued I think would do that for a lot of people and make a lot of sense and incentivize America to remain a lowcost energy leader right there are no energy rich countries so you have to be an energy leader I think bitcoin's going to help with that over the long run yeah um there's a lot of people who don't know that though hopefully that will change um all right where can we send people to find research uh find you on the internet or learn more about vanex products so on van.com if you click on digital assets you can subscribe to get all of our research uh we've done bottoms up models on the largest smart contract platforms um follow me on Twitter Matthew seagull um and the vanak Twitter account vanak intern also distributes all of our stuff and then as a special treat for the people who listened all the way to the end what is your bullish case for Bitcoin eth and Solana right now out of the research yeah so out of the research uh the official price Target on bitcoin is 325,000 uh which is half the market cap of gold we're going to have some new research soon that incorporates the layer to opportunity um and should send the price Target higher for eth new report dropped uh today uh 22,000 per coin we estimate that the network is going to produce $70 billion of free cash flow by 2030 33 times that uh and then Solana our base case was 300 bucks uh that base case is obsolete now because we used a lower market share number for Solana because of some of the technical debt uh and they've made a lot of progress so bull case on that 3,000 365 22,000 and 3,000 yeah the people who waited till the end they're going to be happy all right we'll do it again in the future thank you