The Last Trade E033: Wall Street's Bitcoin Blindspot with Larry Lepard & David Foley

Brian Cubellis (00:01.966) Let's do it. Gentlemen, we're on the last trade and we just had the last trade of Bitcoin without an ETF. Today's the first day of the ETF. There's your corny opening for the week. It's good. It's all good. Dave and Larry, we're pumped to have you here. Is this a momentous occasion? That's the question. Brian Cubellis (00:27.45) Yeah, we see it. You know, there's a hundred trillion dollars depending upon who's measuring what you're measuring. Let's say there's conservatively 40 to a hundred trillion dollars of RIA money that couldn't buy a Trezor and couldn't buy GBTC and couldn't buy Bitcoin in any other form that now has the ability to just click a button and buy Bitcoin. I mean, paper Bitcoin admittedly, but it's not the same as holding your own keys, but you know, assuming the auditors are not corrupt. You're actually buying Bitcoin with one of these things. Brian Cubellis (01:03.246) So you're saying you're saying of maybe a hundred trillion Now there's suddenly demand to get maybe a 1% allocation into a asset class that is currently one trillion dollars What's the marginal? And and it's better than that Jesse because as we all know One trillion dollar asset class today 70% of that are what we would consider to be pretty damn strong hands That haven't moved their key their coin for over a year or maybe in some cases, too So they're really bidding on, let's call it 300 billion of what I would call tradable coin today. Soon to be in April to be growing at 8 10ths of a percent per year and now growing at one and a half percent per year. I think people are gonna be shocked. I mean, I think Sampson might be onto something here. We'll have to see. I think the other thing is, you look at like a galaxy. obviously a real smart group of people there that are estimating $13 to $40 billion of ETF inflows over the next three years. Like that just sounds too light to me, like way too light when you think about, I mean, all sorts of things. Like, you know, like we're all getting caught up in the flows and ETFs, but what no one's talking about in the last five days that I see is this whole macro backdrop, which I'm sure we'll get into, that might have a... black swan event that then catalyzes real movements into this asset class. And so the good news is the on ramps to this asset class for those RIAs that used to do the traditional 60-40 equity bonds, if we ever get a real upside down bond market, the on ramps to this asset class got really easy. So I don't know, I don't want to be hyperbolic, but I thought Galaxy was way too conservative in that. And to Larry's point. you know, if there's a trillion dollars at a minimum over the next few years, chasing an asset class of, you know, call it 300 billion, as he's saying, of, you know, called a third of the Bitcoin market cap. But, you know, I just it's unbelievable kind of how much demand over supply this will be. And then we don't even then we could even get into the scarcity and the happening and all that. So it's all a lot of interesting things happening. Well, not only Brian Cubellis (03:29.098) The macroeconomic landscape that's a tailwind behind this right now, but what does the ETF, BlackRock coming in, Galaxy, Alkari, ARK, 11 ETFs getting approved, what does that do for FOMO from other types of large investors? Like I wrote this in the newsletter last night. How many nation states does this send a light bulb off in their minds? Like, oh, maybe we should get Bitcoin. Like that's a whole slug of capital. I don't think people are even talking about everybody's hyper focused on the RIA market the institutional capital But what does this do for? Other layers of the hierarchy of big capital allocators. Yeah Yeah, I mean you think of the sovereign wealth funds that probably haven't really embraced it, you know in the Middle East and other places I mean other than El Salvador there hasn't really been another country to embrace it You know none of the big corporations have embraced it other than you know micro strategy You know, there's just not enough coin to go around at these kind of prices. And I think people are going to be shocked at, you know, the prices that emerge as a result of that fact. I mean, I can't see how we're not at 100,000 soon and, you know, 2 to 500 within a year or two. I mean, maybe less, but certainly, you know, within a year or two. Pretty incredible recent stat from MicroStrategy. recent buying spree. They purchased 35% of all the coins mined in the last quarter. Right. And that's a company that's a $10 billion market cap company that's the 1500th biggest company in the world. That's small potatoes really. Right. And he's not stopping. And now who's joining him? Larry, it's your old classmates, people who run BlackRock and other large trad-py firms who suddenly have a vested interest in getting their clients to think that Bitcoin should be part of their portfolio. Hey, Larry, you know who else isn't stopping? None of us. None of the people listening on the phone. Brian Cubellis (05:41.642) A lot of times I'm sure we've all experienced this in regular world or like Bitcoin world where you go full circle. Once you get educated, you kind of like end up back at like the meta level of, oh, this is like good for me or this was like good for Bitcoin. And I had this realization we've been talking about. I think we all agree here, these products are inferior to holding spot in various forms or fashions. But at this idea of like, man, this is a trap and all the things associated with what happened to GBTC independent of like government intervention, just the fact that the Bitcoin. you know, sitting somewhere where you can't take delivery of. But then I had the realization it's like, we look at this space so long, we've been looking at it so long that we think about it in the terms of like our allocations versus what a traditional individual that is saying, uh, for all intents and purposes, it's like one to 3% alternative asset that sprinkled on top of their 60 40. And my hope is, and I think this is what we've seen play out is as you get educated with that one 3%, whether it's somebody buying on Cash App, buying a little through a river. or looking at it through their brokerage account, you start to actually pay attention to like, what is this thing I'm buying? What am I doing? And then you learn about its properties. And that's why I think like this is always long-term bullish for the asset. It's underlying fundamentals and companies building the right way because over time that kind of like cream rises to the top of, oh, wait, I don't want this all 30, 40, 50% sitting with Coinbase or BlackRock. And that's really where, you know, companies building the right way step in. So kind of the realization. What would be true is that investors chase performance. And I mean, we were up 150 some odd percent last year. And I suspect this year is going to be as good or better. And I mean, I was at the gym this morning with a guy who just, you know, was kicking himself for missing the $15,000 buy opportunity. And his logic was that, well, I thought when FTX blew up, that was it, all this shit was going away. And I said, well, you know, he didn't do the time to differentiate. this from FTX and he said, well, what about Ethereum? There are use cases there. And I said, OK, maybe. But the monetary policy there is totally flawed. I noticed this morning they were talking about another 33 percent dilution in the Ethereum base. So, you know, just and this is a guy who's a very sophisticated money manager. He knows what he's doing, so to speak. And he's not he's not a Bitcoiner, but I bet she's becoming one. So. Brian Cubellis (08:03.474) And there's just going to be a lot of that. I mean, it goes back to how early we all have been and how, you know, people painted us as being crazy. Um, and yet what we've really seen was quite logical and we knew we weren't crazy, we were just early. And that brings up a good question. Is this the crossing the chasm moment for Bitcoin? I think that's been a big topic of discussion and is this the inflection point that really for us Bitcoin to a level where there's no going back. We're sort of leaving the early adopters phase into mainstream adoption over the next three to five years. It feels that way to me. I mean, if you've that model of Mark Malcolm Gladwell's model says when you get as many years as it takes to get to 10%, it takes the same number to get to 90%. And it's hard to know where we're at, but being it would strike me that we might be at 10%. Maybe we're a tad lower. I'm not sure. But boy, this sure opens it up to everybody. Yeah, it's super easy. You know, absolutely. So I think it's way earlier than 10%. And that's where that's where the numbers come in. That are it's kind of hard to believe them, really. But, you know, you can look on chain at how many addresses have zero point one Bitcoin in them. Right. So that at this point, that's five thousand dollars. And that might be too high of a bar at this point. So maybe we should lower it. But. That's the easy cut off to see on chain. There's four million addresses with zero point one Bitcoin in them, which is to say there's at most four million people in the world who have. Saved in an address they control five thousand dollars worth of Bitcoin to be to be completely fair, though, to be completely fair, though, Jesse, there are some address, there's some people who own it in Coinbase or Gemini or other pieces. I mean, you're right, that's four million self-custody people who own a tenth of a coin or more. Right. They're probably in all those brokerage accounts, I would guess, I wonder if Coinbase say their customer count was like 15 million, 20 million? I mean, there've gotta be 20, 30 million brokerage accounts as well that have some, right? And we don't know how much. Absolutely. And then it becomes, yeah, it's a bit fuzzy there of like, where do you draw the line on what is adoption? Brian Cubellis (10:30.754) And I think you can make the argument, and I've made it in the past, that if you really understand Bitcoin, you will have used the network to secure some amount. That's right. Deep understanding owns... there are four million people with deep understanding. I agree with that. Exactly. And so that's a high bar. But that's 0.05% of... of people in the world. That's how low we're talking. I actually will push back. I think it's one tenth of whatever you guys just agreed on the four million. I think what the measure is material wealth, because material wealth basically signals you've looked long enough to at least say if it's on Coinbase and it evaporates or understand it, because a lot of people just have accounts with 100 bucks or $1,000 or 4000. I think material wealth, i.e. over 10% of a single person's personal account or portfolio is less than 400,000. No, I find that hard to believe. Jesse, you've done some work like a year ago on some of that, right? Trying to figure out that was good data you had. Yeah, yeah, I triangulated, you know, the best source we have is the ledger. You know, that's the only transparent data that we have out there. And that's where that four million addresses comes from. And it's been ticking up nicely over the last four years. That went from three million. to 4 million. So more people are adopting and despite the fact that in dollar terms has gone from $1,000 to now $5,000 to meet that 0.1 Bitcoin bar. Yeah, that number is going up. And then from there, you have to triangulate what percent of people understand Bitcoin, have meaningfully saved in Bitcoin, but they've done it in GBTC. despite understanding Bitcoin and realizing that it probably shouldn't just have GBTC. And then there it's kind of your classic back of the envelope consultant math to come up with something. But the hard and fast numbers are on the ledger. And that's where it's kind of incredible how early it is. If you look at just those numbers, which really reflect like deep level of understanding of Bitcoin. Brian Cubellis (12:54.426) It is so, so early that, you know, that's no surprise. There's only one Michael Saylor, you know, doing this with the corporate balance sheet. There's only one El Salvador so far. We're just so early still. Is there a call? I mean, apologize if I'm wrong, but I thought one of the conclusions that I remember reading your analysis was that if we counted people with $10,000 US of network in the world, it was well less than 1% of the global population had expected to Bitcoin. Is that something like that? Yeah, yeah, I was using a data source that said that 2 billion people in the world have a net worth of $10,000. So that to me is realistically the market for who's going to be interested in savings technology, and Bitcoin is savings technology. And so of that number, 4 million of 2 billion is half a percent. of that group has, or sorry, less than half of a percent. That's that 0.05% number because, sorry, that's the other direction. Yeah, that's 0.2% of that group, which however way you cut it, it's incredibly small. Go ahead, Michael. Larry and David, I'd be curious, You guys have backgrounds in, you know, TradFi, you've seen the markets, like, what has been your pre-disposer kind of like thoughts around how stuff starts getting a little weird? Like I was, you know, pinging some people before pre-trading started, right? And you're looking at 25% up. It's like, did they buy that Bitcoin? They had to buy the Bitcoin because nobody's going to take that risk. But like, you know, you're looking at markets that trade within certain timeframes. You have a 24-7 hour, 24-7 hour. days a week, 24 hours a day, seven days a week, global asset, like walk us through kind of your understanding, at least to the extent you do have it, just the market structure from the authorized participants to the shares and like where things can get dislocated. I don't have that background, but it feels like it's not going to be clean long term as these things start to mature that we're talking about and demand increases. And so I'd be curious if you guys have any thoughts on all that. Brian Cubellis (15:17.926) Yeah, I don't know, Michael, but it's funny. Larry and I actually had a conversation yesterday about that, and I'll get to that in a sec, but I woke up in the middle of the night thinking about this. I think back to the Microsoft, sorry, the Facebook IPO from 12 years ago, or whatever it was. I don't know if you can go back and look at the stock chart. Actually, I could share the screen if you want and pull it up. Basically, well, I won't bother, but If you look back at the Facebook IPO, the thing kind of moonshot it up the first few hours and then bang, the next three months absolutely got cut in half down 50%. And it was the classic like, well, there you go. It was too much hype going into it. Institutions sold to retail, this thing craters. And so, you know, having touched the stove like that in markets over years, you get nervous when you see this hype and build up to this ETF. and whether it's going to be 40 billion of inflows over how long will it be and where will the price go, it just naturally gets me nervous in the short run. But in the medium term, we look at kind of those flows we talked about and just how early we are in terms of global adoption like Jesse is just talking about, and just how easy the on-ramps are now for your regular folk RIA. to do these portfolio construction analysis now to realize that better risk adjusted returns happen to your portfolio if you get away from an old 60-40 equity bonds and you start adding in Bitcoin and then, oh by the way Mr. Jones you can buy this ETF and own some Bitcoin and have that portfolio. This just becomes this virtual positive feedback loop over the next 6 to 9 to 12 months of money coming in and those. ETFs forced to go and turn around and buy Bitcoin and suddenly you just get this virtual feedback loop. So it feels highly probable that while there is some risk that this has gotten overhyped and people could get disappointed seven days from now because the money isn't flowing in as fast, I do think that over six to nine to 12 months, as Larry was saying earlier, the money is going to flow in and then we haven't even got into a black swan event, which again we'll get into macro I'm sure. Brian Cubellis (17:41.526) people running to inflation hedge assets, when the money supply of the Fed begins flowing again. And Lori Logan, who I think is one of the Dallas Fed chairs, probably one of the most important people to listen to. She's the one who was the big architect around all of the programs from 2020 that the Fed used to go throw money in the system. And here she is saying over the weekend, this four days ago, that it might be time to stop. with QT. She's seeing some of the issues in the repo market and reverse repo market. And so I'm being long-winded, but to land the plane, we just see more high probability of positive catalysts for Bitcoin and flows of capital and macro backdrop that I think that, you know, as Marty's asking about to an inflection point, I think we will look back at this as a key inflection point. And in the Zen philosophy too. I think we'll look back and say that Sandbank and Freed, we might have been one of the best blessings ever for Bitcoin because it began to teach the global markets about the difference between Bitcoin and crypto. And Gary Gensler in the SEC helped to kind of further educate that through processes like this. So let me pause there, but you know, I was excited. Let me add a few things, Michael. So I think the job of these guys is to make the price of their product. you know, their ETF track the price of the coin, you know, one for one with as little slippage as possible. And so I'm guessing I don't know this for a fact, but I'm just guessing based on how these things typically work that they've got, you know, internal algorithms designed to kind of instantly buy as they get more flows in, they get more purchases. They attract money into their, you know, into their bucket. They literally have to instantaneously turn around. and buy the coin because if they don't, you know, the coin does a god candle, it was up 10,000, well then they're going to slip. They're not going to, you know, they're, you know, at the end of the year, somebody's going to measure how they did against the coin and they don't want to have a lot of slippage, if any. And so I think it's going to really be kind of one for one. They see, they see a new flow and they instantly buy coin. Where it gets interesting is of course they closed down at 4pm because the market shuts. Brian Cubellis (19:59.922) And so what happens if a God candle happens overnight? Well, you know, everyone who's in it already participates, but you can't go buy the ETF, you know, in the middle of the night. And so, but that's fine. In the morning, the new price opens up and you want to bring new money in, fine, bring it in and you're paying the higher price now. So I think that it'll actually be, you know, if they do it right, and I presume they will, and another thing, another, two other comments I'd want to make. One is that some people say, well, this is going to be paper Bitcoin, this, that, and the other. You know, look, we know who we're dealing with here and I've dealt with the gold guys for 30 years so I can, I know how good they are at screwing around with this shit. But I think that in this particular case, they're going to be auditors involved. And so for these people to, you know, take money in and not buy the coin, i.e. create paper Bitcoin, I think is going to be a problem unless they can find a corrupt auditor, which is possible. But I wouldn't rate it as highly likely. So I think that they're going to. they're actually gonna, it's not gonna be paper Bitcoin. There's nothing in the filings and all that. And so I wanna move to the GLD, which is the gold ETF, which is very similar to these things and create a lot of the problems over in the gold space. But in that particular ETF filing, there are all kinds of outs where they could have custodians and sub custodians, they could buy paper gold, they could have futures contracts. And of course, one of the things that a lot of us who looked at that thing said is, these guys are buying paper gold from Lehman Brothers. And if Lehman Brothers fails, the gold's not gonna get delivered. And these don't have any of that language in the ETF filing. So I think they've actually got to legitimately buy the coins. Final point, Nico on Twitter had it this morning, a really great chart. And I retweeted it. I don't know if you guys have the ability to pull it up, but it shows basically when the gold ETF was approved in 2004 and then what happened to the gold price between 2004 and 2011. And it was pretty substantial, you know, the appreciation in gold. So, you know, people weren't going out and buying gold coins. That was a pain in the ass in the early 2000s, to go to your, I mean, the people just didn't do it. But suddenly, ETF arrives, you can buy a gold proxy. Turns out it was quite flawed, but you can still buy a gold proxy, there you go. And look at that, right? What was that, November of 2004, the first GLT ETF comes out, boom. And so. Brian Cubellis (22:22.026) You know, will this repeat exactly? Probably not. But I think the trend is, is pretty indicative of what's going on. So we're, you know, we're, we're incredibly pulled up on this whole thing. I mean, and you know, sailor is too, right? I mean, he's the one of the smartest guys, if not the smartest guy in the space. And he just said, you know, folks, this is a once in a generation opportunity. The front run, a lot of money that, that you know, wants to own the ship, but can't. because of the structure. Your typical RIA cannot own Bitcoin or could not own Bitcoin until today. And so that's really, that's the news story here. And I think we're now in unchartered waters and you know, Samson Maus says he thinks it's going to a million bucks. I mean, who am I to say he's not right? I mean, you know, I mean, I'm not sure I bet on it for sure. But I mean, obviously, it's getting to a million eventually. You know, but what's the timeframe? I don't know. It could be faster than we think. So. Those are kind of my thoughts on how it's working. Brian Cubellis (23:22.514) And anchoring back to the analog of Facebook's IPO that you explained, Dave, like that's people been calling the ETF launch the IPO moment for Bitcoin, but like we all know, and there's exchanges, the trade 24 seven, 365. Like the difference here is that Facebook going public has a bunch of insiders that want to liquidate some of their stock to monetize all the work they've put in for, for many years. And I think this is a different animal in the sense that everybody that's bought in has bought in. just because of what Larry just explained, that you have the chance to front run immense amounts of capital. And I don't think those dynamics of like an IPO launch, insider's dump is gonna play out and things are gonna get really weird. Yeah, I think it's a great point, Marty, that in that case of Facebook, you had institutions selling to retail, but then the mom and pop got held holding the bag. Now look, to be clear, Facebook went down 50% in the next three months. It was the... one of the most phenomenal buying opportunities. It's up literally like 100X from there. And so, I think that that's a more thing I'm just saying could play out in the short run where I think you're kind of, it just feels like the markets broadly in the last two months is the Halloween bottom has had a little levered speculator, Citadel type trend following investor pop in the markets. And ignoring now global economy. And so I'm just saying that, you know, and partly because I'm hoping I'd actually like to see Bitcoin settle back in and then be able to keep adding and just buying more. Now, like you guys, we're always dollar cost averaging and ultimately it won't matter. We'll look back someday on these prices. They got what a bargain this was at forty eight thousand. But I think you're right, Marty, to agree that the irony is we're selling to mom and pop retail on that Facebook IPO. This is the exact opposite. the IPO of Bitcoin as you're saying, but for the institutions now to start getting involved. And all of us that have been here for a while now, we're kind of riding that wave. We front random as Larry's saying. So yeah, this is in general, let me be clear on the medium to longer term, like as Larry said, we couldn't be more bullish. I mean, this is really a huge catalyst to allow anyone in the world to buy it. Brian Cubellis (25:46.658) And the beauty of this asset class is anyone in the world can buy it so long as you have a mobile phone. And one last final point, this guy was just listening to someone overnight was making this point that, you know, if 50% of the world is supposed to have CBDCs thrown upon them in the next year, again, in that spirit of that Zen philosophy of if same bank and freed might have been ended up being the best thing that happened to Bitcoin. create that delineation between crypto and Bitcoin. Same thing here, maybe these CBDCs, as this gentleman was pointing out, creates a tutelage for people in the world to understand how to trade digital cash and therefore the eventual run away from fiat currencies to Bitcoin become that much easier, that they're doing a favor for Bitcoin ultimately by introducing CBDC. So again, I don't want to get too philosophical about that, but sometimes the things that you think are so bad aren't. They're actually really good. And that I mean, I just saw a stat on Twitter or an hour into the trading day. There's one point seven billion dollars of volume across these 11 ETFs. How many how many new Bitcoin, maybe not Bitcoiners as we would define them as people holding their own keys, but how many people, new people have material exposure over ten thousand dollars to Bitcoin today? And I don't think we just had it looks like there's been six hundred billion, six hundred million. Brian Cubellis (27:25.512) billion in GBTC as well, right? Yeah. No. That's not counted in that. Oh. So there was an interesting tweet the other day that said, can you say you're early if you got in after the ETF? You know, we joke around being so early, I think that like to your crossing the chasm point, it's kind of like this is it's a mainstream, it's as mainstream as you can get from an Yeah, it's absolutely a new era. But yeah, to that crossing the chasm point, weirdly, I still think that is way in the future for us. We're still in, you know, based on the numbers I was talking about. firmly in the innovators stage. It just feels like we've come so far, because we have. But the next 15 years will be going through the steep part of the S curve, the adoption S curve. And Larry, I was just reflecting on the chart you brought up about gold was an amazing one to show the power of adding a channel of buying power to an asset. But the big difference, you've already pointed out and done a great job of highlighting how Bitcoin is more auditable and that creates this barrier to the paper Bitcoin problem. But on top of that, gold has kind of historically been the domain of nation states, right? Like it has such a long history that it has become so centralized over time. Brian Cubellis (29:04.926) you know, doesn't have any nation states hoarding it at all yet. And so it's kind of hard to, you know, who has the authority to meddle in a paper gold market and muddy the waters? Really, only nation states are able to do that and get away with it, I think. Or, you know, with the blessing of nation states, at least. And there's no in order to muddy the waters. You have to have you have to control some of the supply. or at least be a player in that market. And there's no nation state player in Bitcoin yet. So I think that's an additional barrier to effectively... I would agree with that. Yeah, I would agree with that. I mean, I would also assume that the on-chain analytics people will be able to see and figure out. I mean, look, you know, we just figured out earlier, there's all, you know, the BlackRock Trust is already to date. What are we open a couple of hours now? has already bought $400 million worth of Bitcoin. You know, you can't hide that. That's, you know, there's gotta be some on-chain transactions going on. Somebody's gonna be able to figure out where they are. Now, they can kinda keep adding addresses and doing different stuff, and I'm sure they will try and mask what they're doing as much as they can. But, you know, there's a bunch of great people who do on-chain analytics that are gonna be able to, I think, look through and see some of this shit. And you can never do that with gold. I mean, the gold is just completely opaque. And frankly, I think a lot of people, a lot of the nation states lie about the gold. I mean, I think the United States is supposed to have 261 million ounces or 8,133 tons. And I don't think we do. I mean, Ron Paul told me personally, he's pretty sure that Fort Knox is empty. And I can't dispute that. So yeah, this is a much better mechanism all around. Can we talk about Franklin? Brian Cubellis (31:25.472) and the SEC not having a 2FA check on their website. It's poetic. It's poetic, it's beautifully poetic. It's just clown world all over the place. Yeah. Maybe it's a good chance to move into kind of the other side of the macro piece, which David and I are writing our fourth quarter letter about. The December numbers just came out and the December US federal deficit is 20%, up 20% year over year. So for the quarter ended December, the US ran a 500 round numbers, 510, I think 500 billion dollar deficit. And the first quarter is typically small. So that would imply compared to the others. So that would imply that, for the year next year, we're gonna be over 2 trillion. We were one seven last year. Would have been more, but the student debt thing got turned around. But anyway, a $2 trillion deficit in a theoretically healthy economy, with 34 trillion of debt. You know, they, we think that, and their letter talks about this. We think that what happened last week, or I should say maybe not two weeks ago, um, is before, you know, how pivoted on the 13th, but before that, you know, the, the U S treasury bond melted down 20% in September, October, and went over the 10 year, went over 5%. And we think that set off alarm bells. And that's what led to them all coming out and saying, no, we're probably done with this rate hike cycle. And it brought the tenure back in and it created liquidity in a lot of areas, which they needed to do because, you know, something was breaking. And our view is they're right on the edge of something breaking and we don't know when it will formally break and break in size, but you know, we Silicon Valley bank was an example of something breaking this stuff, that one back in the can, but they're going to, you know, something is going to break here. And if you read, you know, the zero hedge premium stuff, I mean, Brian Cubellis (33:19.574) as David was alluding to, Lori Logan and the basis trade. And, you know, there's a lot, it's pretty complicated stuff, but there's a lot of, there are a lot of indicators that would suggest that the monetary plumbing is getting really messed up and that things are quite tight and that they're already starting to loosen. And I was surprised, we were surprised by this morning's CPI report. We thought they'd have it rigged to come in low and it didn't, it kind of came in slightly hot and that's not gonna help them. But we think, We think that they don't want to pivot because Powell doesn't want to be Arthur Burns, but we think they're actually being forced to pivot because of the US federal government interest expense and how much of the budget it's chewing up. If they don't get those short-term rates down out of that 5% range, they're going to run into a complete bond market disaster. And so our view is that they will declare, whether they have it or not, they're going to declare victory on inflation. and start unwinding QT and or dropping interest rates. Even though they say they're not, they also said they weren't even thinking about thinking about raising, and they said inflation was transitory, and they consistently lie and are wrong. And at the end of the day, their number one mandate is keeping the system functioning. And it seems to us that there are a lot of clues that suggest that the system is close to not functioning. And by the way, gold and Bitcoin smell it, right? I mean, that's why Bitcoin was up 150 last year, gold was up 13, 14% last year. I mean, in a very negative real interest rate environment, I mean, I'm sorry, in a positive real interest rate environment or close to positive real interest rate environment, they've really raised aggressively, these two monetary, sound monetary assets have done pretty well. And we think that's only set to continue and It's, you know, to us, it's a matter of when, not if, and we think the when is probably sometime in this year, 2024. I ran a left side of the bell curve analysis last week, and at the end of 2008, the ratio of national debt to end to money stock was 1.29, and today it's 1.63. So we've expanded the debt way more than we have the monetary base, and as Parker Lewis likes to say, there's too much debt and not enough dollars, so you just think. Brian Cubellis (35:46.094) again left side of the bell curve looking at that ratio. They're gonna have to revert back to the mean by expanding the monetary base. This is Lynn's famous chart. It's just you've gotta have the monetary base go up in concert with the debt or else the whole thing blows up. So it's coming and that's enormous. That's a macro event that's enormously positive for sound money assets, just enormously positive. But they've held it off. I mean, I give them credit. I thought it was all over with Silicon Valley Bank. And they managed to stuff that one back in the can. But if and when a crisis hits and they have to unleash the monetary spigot, that will ensure that Fed will be Arthur Burns in this era. Oh, absolutely. There's no question. That's where they're headed. Although, you know, there are some, I mean, Gunlock and others who say we could get some low inflation prints. I mean, David has done the research and pointed out that, you know, some of the housing stuff is coming in a lot. I mean, the food was a problem in today's report, but the housing and other things have gotten a lot softer. And honestly, I mean, the difficulty in navigating all of this is we're dealing with numbers that are, you know, they're cooked, I mean, that are, you know, we're dealing, I mean, they lie about all this shit. So, it's fuzzy at best. Right. You know, housing's 38% of the housing and rent, owners' equivalent rent is like 38% of the CPI. And just looking at kind of where those numbers are trending here over the next few months because of the lag effects, like we're definitely good despite today's surprise of CPI, the number is going to keep working its way down. It's most highly probable that it will play out that way. And so, you know, but you know, I think that we're talking about is more just that bigger issue. I mean, like, I think probably the, there's some black swans out there that no one in the world, even none of us are even thinking about that could pop up. But I think the biggest thing that I'm hearing that, you know, a lot of major Wall Street banks worry about is when does one of these auction, treasury auction things really go afoul? And then suddenly you get what we witnessed kind of early fall this year with the Brian Cubellis (38:05.846) When do you see that happening throughout the curve, even in the T-bills, and suddenly now people start losing real faith in the bond market? Again, that's why I think this ETF is a big deal because I think then it's going to be really easy for the RIAs to say, maybe you should go buy some of that Bitcoin ETF, Mr. Jones, with 2% of your bonds, and we'll see just an easy flow out. That's probably when the Treasury will be mad as hell that Gensler allowed these on-ramps to happen. So, hey, Larry, and you mentioned cooking the numbers. The one of the stats that rung out to me I saw early in the week was from Peter St. Onge about why are GDP like we keep being confounded about what's happening? Why are the numbers what they are? It doesn't make sense in like anecdotal references. And he tweeted GDP and jobs defined slowdown predictions, question mark, because most new jobs, 56% last year were disguised as government spending in New York, in Chicago or Illinois. It was 113% in Illinois and 121% in New York. So all the economy's shrinking, government spending, government expenditures. When I heard that early in the week, it was a little, it was kind of scary in the sense of you're at this tail end of this cycle where the government is basically taking up over 100% of jobs in these two states and how many are below that right on that cost. But he just threw out those two numbers. Yeah, and the government has never been a bigger percentage of the economy, except World War II, where it was a huge percent. But that'll be in our quarterly report as well, which we're in the process of finishing up. But one of the things that we found interesting and people wonder, the biggest surprise to us last year was the stock market held together and the GDP held together kind of grew at, I don't know, call it a 2, 7% rate, annualized. And the thing that we found a chart that we put in our report that we thought was very interesting, which shows that, you know, in COVID, the spending kind of took a real quantum jump up. You know, government spending was in the mid fours and went to six plus and seven actually one year, trillion dollars we're talking about US federal government spending. And of course now the COVID crisis has passed by a couple of years and yet we've only come down from that peak of seven to 6.1. So, you know, what's really keeping the economy going is, you know, Bidenomics and this inflation control plan and all these, you know, all these government programs that they've... Brian Cubellis (40:27.822) they're out there spending on and money they're sending around everywhere. And so, and of course they're doing it all with that. You know, they don't have that money. They're just, you know, we're borrowing it. So, you know, we've kind of got a fake economy and fake GDP numbers based on, you know, the, the borrowing and, um, you know, it's, I mean, something's got to give, right? Either they've got to stop borrowing so much and try and close that deficit. Um, or, you know, or worse things will happen in terms of, you know, people will lose faith in the currency. I mean, the way to go back to the inflation point, you know, the dollar has been very weak and understandably so because of, you know, this tilt toward easing. And I think that's going to continue. And where I think it all becomes relevant is eventually the dollar will weaken enough that the dollar price of oil will go back up again. You know, we've been kind of hanging around in this 80 range, 70, 80 range. And when that starts to happen, that'll be the beginning of the next up wave in inflation. But that might be, you know, three months, six months, nine months, who knows? Um, and the other, the final point would be that it's an election year. And I saw somebody tweet out, I don't know how accurate it was. It could be wrong, but there was actually discussion going on in Washington, DC about some kind of a tax break this year in an election year to try and grease the skids for the election, which would just be shocking to me. I mean, they, they absolutely positively need to get more fiscally responsible. And yet you see almost nothing in that direction. And of course they kicked the can on the, on the whole debt ceiling. You know, it doesn't have to get addressed now until January of 2025. So, you know, they can kind of do whatever they want between now and then. And my, my sense is they will. And that's why I think a deficit this year of 2 trillion, that's the low end of the range. I think it could easily be 2, 4, 2, 6, maybe even 3, who knows? But, um, you know, in an election year, they're going to pull out all the stops, right? And if we keep the pace of Q4 2023, it could hit 38 trillion by 2025. Oh, yeah. Oh, that's exactly right. That's that's another thing we discovered. And I wish somebody maybe somebody smarter than we are in terms of government accounting, there might be some intergovernment accounts, but, you know, they had a deficit last year of one point seven trillion. But if you look at the debt at the beginning of the year and you look at the debt at the end of the year, you know, the difference is more like two point five. So there's, you know, there's something like. Brian Cubellis (42:52.882) six, seven, eight trillion, $800 billion. It's not, I mean, the debt's going up. The deficits, either the deficit's underreported or there's some kind of funny accounting going on. But yeah, I mean, and if you look at the OMB reports, I mean, they were saying maybe we'd get to 38, $40 trillion in 2027 or something. Well, hell no, we're gonna, as you point out, Marty, we're gonna be there next year. We're gonna be there at the end of next year, we'll be at 38 probably. And all of this stuff manifests itself in the real world. We were missed to not talk about like the degradation of like products and services in society. We talk about it here and other individuals, but you can see material effects of like products and services being delivered in the most recent. It's not funny, but it kind of is in like complex systems. This was it Delta the airplane, like, yeah, they're blowing up. Yeah. They're falling apart. Right. Yeah, exactly. And I think another landmine. from the macro backdrop that we haven't discussed yet. It's just the geopolitical situation in the world. What's going on in the Red Sea right now? A lot of the BRICS countries becoming emboldened and sort of banning together, not being happy with US foreign policy. You have the Red Sea Coalition, which is a Western-led coalition in the Red Sea that has no allies that are actually in countries that border the Red Sea. I think the only one that's involved may be Oman. could be wrong, but we're really expanding, trying to expand our influence and doing it pretty sloppily right now. And you can see that situation, the election year and the geopolitical situation forming for a perfect storm of a shit show that could just really bite the US in the ass. Oh, absolutely. Yeah, no, and it's interesting. Everyone's kind of ignoring all that stuff, right? It all- That's not even on the radar screen right now for a lot of people. Everyone's thinking about just the election and the economy. And yeah, we could easily have a black swan in some other country or at a larger level. Interestingly, China though has been having a lot of troubles and I saw some data that shows that they're printing like crazy too. I mean, in fact, I think it was Preston who had a really good chart on global M2, or maybe it was Incrementum that showed that, you know, Brian Cubellis (45:11.59) in spite of the Fed tightening and the USM2 actually declining at a global level, it really hasn't dipped all that much. And this isn't uncommon. I mean, all these central banks, like one guy will get tighter and then the other guys will loosen to compensate for it. Right. That's not uncommon. Yeah. And I keep coming back to how the history of rate height cycles, you know, they, they hike, they hike, they hike, they pause. And then, you know, 10 months after the last hike, they start cutting. Um, and everybody is excited that, oh, okay, great. And we're going to, we're going to see relief now. Um, markets will boom, but they tend to start cutting because they know that some the system can't take it anymore. Yeah, no, they're cutting because things are broken and very bad and they've generally always gone too far. And yeah, David's got a great chart on this. I don't know, maybe you can pull it up. Thanks. It shows. Let me share my screen. I don't know, is this working, guys? Can you see it? This Bloomberg chart? Logan's got it. We're still seeing it. There you go. Yeah. So yeah, I mean, exactly that point Jesse just made that this is going back to 50 years, right? The white line is the federal funds rate. red shades or recessions going back to 1970 here. We put in the blue line the SP500 in gold as the sound money proxy here over 50 years. And the key thing to look at is look at the white line that looked from left to right going back to the 70s every time they jacked the federal funds rate invariably there's a pause at the top. And so if we look at yeah good you can see the arrow here. Like look at I mean, let's just stop here kind of in 99 2000, right when they raised rates in late 99 2000, then there's a pause and then the recession lag effect kicks in at the higher rates. And the stock market begins to break kind of in the later phases of the pause. That same thing happened with Bernanke here in 04, trying to pop the housing bubble. He paused for a year, stock market had its blow off top before then the recession kicks in. Brian Cubellis (47:22.966) the stock market falls over and then they have to cut rates rapidly to try and study the economy in this levered fragile economy. And I think that even happened here in 17 and 18 with Powell takes the baton from Yellen as the Fed chair. He tries to end some of the shenanigans and pauses, but then everything was breaking down in the repo market. We had the December of 18. the stock market collapse and they stopped that and then obviously COVID happened. But look here, I mean, here's this rapid increase of the last year and change and here's our pause. And yet the stock market's marching on, the economy ignoring all sorts of geopolitical risk. But our view is that there's definitely a high probability of maybe the soft landing thing doesn't play out like Yellen's been skating with a Stanley Cup on. and recession ensues, stock market begins to collapse, and then all your Luke Gromann theory of now deficits really expand, and the Fed is forced to kind of really not only cut rates but do a lot more QE. Here we go again. I mean, that's that macro catalyst we were talking about that could absolutely begin to moonshot Bitcoin rapidly at that point in time. But yeah, I think- And then you get the one of those pauses gold did extremely well and gold was the proxy for Bitcoin in the old days right and it you know that would cause the repeat of the 70s the Inflation spike and then and then it seems like it's coming down. Oh Turns out you got to do a lot of stimulus and then you have an even bigger second wave of inflation That's exactly right. They're always behind the curve and they really don't know what they're doing. And this is why we should never have had a central bank. They started off, they blew a bubble, they financed World War I. We had the mini depression of 1920 and we had the big depression of 29. These guys just do it over and over again. I tweeted a week ago, Bernanke Brian Cubellis (49:33.302) you know, pours gasoline on his neighbor's house and then lights it on fire and then calls the fire department and writes a book and claims he's the hero with the courage to act. I mean, you know, what the fuck? I mean, you know, I mean, these guys just, they just keep doing it over and over and over again, which actually was interesting. The last Powell press conference, he said something I thought was interesting where he said, you know, that they were willing to start cutting before inflation, headline inflation got to two percent because there's a lag effect. And I was like the first time I ever heard him. talk about a lag effect and then imply that maybe he's thinking of trying to get ahead of this curve knowing what's coming. But we'll see. He does not want to be perceived as burns and yet I don't really see how he can avoid it. I mean, the reason we're all so comfortable in our investment thesis over a longer time frame is just that the math is what it is. And one can't continue to grow the debts in excess of the underlying money supply. without having a eventually hit a hard wall. And so as a result, we know with, you know, as, as Foss used to say, or says, you know, that's, you know, Fiat to basement is a hundred percent certainty. It's just how much and what timeframe. So it's common. And, um, you know, the good news is, you know, we'll have million dollar Bitcoin. You know, the bad news is we might also have $70 gasoline. We'll have to see. Larry, how do you perceive a Or how does your guys' network perceive what's happening? We know some friends mutually that introduced us and you guys made it through. And I think recognizing gold value early helped with that. But just curious, kind of like the scene up in Boston, the Northeast, you guys been around the rim. It's kind of amazing how well Fiat has treated so many people. I mean, David's got a brother who has a very Fiat job, very high level position. And, you know, fiat's been really good to a lot of people. And so they don't really want to recognize or, you know, that they might be wrong or that they might be on the wrong side of this trade. It kind of threatens their worldview. We do have one SMA client who was a fiat guy. I used to work with a venture business and he went off and he did extremely well. He's probably worth half a billion dollars and he gets it. He completely gets it. Brian Cubellis (51:56.846) But I would say he's the exception, not the rule. I think the rule, you know, in the neighborhoods that David and I live with, the people our kids played sports with, et cetera, is that, you know, what are you guys talking about? You know, everything's great. You know, we're rich, we just bought a new Land Rover. You know, we make a ton of money. But it's all gonna change. You know, it's the first shall be last, is what I think. And can't happen soon enough, from my point of view. It's been a long time coming. I mean, as you guys all know, I've been fighting this battle long before Bitcoin existed, which gives me the perspective to know that we are right and to also understand that there are times when it's a shitty battle to be fighting. I've been pleasantly surprised with the Bitcoin price this year and we have Bitcoin in the fund, we have Bitcoin companies in the fund. I'm personally half my... at my personal assets are in Bitcoin, but the other half are in gold and silver. And I must admit the gold and silver side is driving me nuts. You know, it's like, come on guys, let's, let's get going here. And David and I were, David and I were discussing this yesterday. I mean, there's no doubt that Bitcoin is taking some of the shine away from gold and silver. I mean, gold and silver markets about $13 trillion, but really only probably three or 4 trillion of that is tradable. There's a lot of it's on, you know, women's necks and jewelry and India and China. Maybe 25% of it's in central banks. That's not, you know, they're adding, but they're not, they're not selling, but they're, that's not up for sale on any given day. So let's call it $4 trillion on any given day of tradeable gold coins and bullion in the world, um, you know, absent the paper, um, and, um, you know, at the margin, Bitcoin's a trillion dollars of total market cap. And, you know, they're young people, they're not buying any gold. They're buying Bitcoin instead. So. While I think they will both appreciate, as you guys have heard me say, there's no doubt Bitcoin is the much faster horse. And I think gold will eventually become much less important in the entire sound money trade. But I also think that with the central banks doing what they're doing and the buying and the potential for a reset occurring, which I think is reasonably high, that those people will probably try to reset to gold before they try to reset to Bitcoin. Brian Cubellis (54:12.87) Exciting points of all this we touched on it a little bit is a Wall Street's gonna get a nice surprise in that They may think they get their bearings in the next couple and everybody globally the next let's call it 90 days Jesse's version of the Super Bowl is you know set to happen I think right now like April 16th or whatever And you're just gonna get smacked in the face with this supply shock and Is gonna come from that I don't think they're prepared for Brian Cubellis (54:41.65) Yeah, imagine what happens if we wake up one day and Bitcoin's $300,000. I mean, you know, think of the FOMO that's, you know, that's going to exist. And I mean, you know, now, now you're a wealthy human being anywhere in the world. And somebody says, you know, where are you on Bitcoin? I mean, you got to seriously start to think about it, right? I, I joke around that when that happens, it's obviously ties in our product and thesis, but I think people throw their keys out of the window. they become so nuclear, they're like, oh my God, get this amount of capital out of anything that I can actually touch. I don't think we're prepared for it when that price gets to where it is, the amount of like, it's gonna be a very different world. 300K BTC. When you say throw the keys, what do you mean? In other words, they're gonna be just a ton of buyers coming into it or? No, I mean like right now we sit all, I would say fairly confident in our custody situation. We feel good, like wherever it is, solid. When that price hits 90K will be one thing, but $300,000. I don't think our brains, when he thinks about like, in my personal setup or thinking about, I was talking yesterday, I had a lot of conversations, was about, even if I lost it all right now, I feel like I can make it back. Like I can make the money back. But you imagine like a 10X from here and you lose all of that, you're like, I can't ever make this back. Like this is, there's no coming back from, you know, and that reality of like, well, what do you do with the asset? It's just a different like calculus on how you protect something versus how we think about it today. I don't think it's actually just like priced into anybody, let alone people that have been looking at the asset for 10 years, let alone the future buyers. It's just a different world. The gravity will completely change at 300K basically. Yeah, I mean, it's hard to, you know, thinking about how far it can go. I mean, I love sailors coming, you know, it's going up forever, Lauren, I think is right. But I mean, to me, I can see a couple hundred thousand. That's clearly within my... To me, that's falling off a log. We get there in whatever timeframe, but we'll get there. I can actually see a million. After that, I just don't know. I've seen 50 million a coin. Carlos Sarre said that. I've seen 10, 20. Who knows? It's nuts, right? You just don't really know. Well, I was going to say one data point we've looked at historically is... Brian Cubellis (56:54.006) In the late 1970s, call it 79, 80, after that whole inflationary and chaotic period of the 70s, you had global sound money assets, gold and silver at that time, if we just isolated those two. They basically got to high single digits as a percentage of global financial assets. And so if you take gold, silver, and Bitcoin today and say, okay, what percentage of global financial assets are those, we're under 1%. And so, again, in the world in the 1970s, you only had 35% debt to GDP. You didn't have 125% like you do today. This is a much more fragile system now than it was then. And so, when we do the math on that and say, okay, well, what if we just went back to 8% of global financial assets on Bitcoin, gold, and silver? It's pretty easy to get to prices like $400,000, $500,000 a coin in Bitcoin. and having gold and silver go a hell of a lot higher as well. But that's where that math's pretty easy to see if over the next five years. I think the one thing that people have to remember is I think we live in a microwave world where we're used to having our food in 15 seconds. And I think people think, well, okay, Bitcoin will be at 400,000 by December of this year. But these things take time. And you know, Michael, you're asking about the Boston crowd. And I'd say, you know, what I would say that the soccer mom, soccer dad test that I see is everyone's in this fiat world, like Larry's saying, like, hey, the stock market works. These 12 central bankers seem to have the market. What's the Fed gonna do to save us this time? And it scares the hell out of all of us because we know we've studied this in financial history enough to know like, God, this is not gonna end well. But I think what happens is, as Jeremy Grantham, a great value investor up here in Boston, has pointed out, that commodities are where the great fortunes are made. And Bitcoin is a commodity. And it's the scarcest commodity in the world. And if you knew, and if you just have an eight-year patient, low-time preference horizon, you'll make fortunes here given this backdrop of where we are as a percentage of global financial assets, these inflows that are coming, how commodities work. Brian Cubellis (59:11.986) what the global central banks are going to have to do to support the global economy, the demographic challenges with baby boomers maturing, things like that. You can't kick the can much anymore. And so like this to us seems just like the highest probability. Like I can't imagine any other asset outperforming Bitcoin over the next 10 years or even maybe five years than this asset class, given the scarcity properties and given that backdrop. Like I think everyone, to answer your question, Michael, is just too caught up in their stock market 40-year-old model world of the Fed's got your back and rates come down, but they're not watching all these other trends that we're all early on. It's amazing to me how well the average investor has been trained to buy the dip because in 40 years of deflation, it basically has always worked. That's the advantage of being 66 and you see a bunch of cycles and it's as if bear markets have been outlawed or something. Bear markets and stocks have been outlawed. You know what I mean? And that's just not realistic. I mean, you're going to have labor cost pressures. You're going to have falling margins. You're going to have falling demand and you're going to have tighter money and you're going to have better alternatives. I mean, I know many wealthy people who are like... Why do I need to mess with the stock market? I can buy a one month treasury and get 5%. 5% is a nice yield on all the money I've got. And by the way, I think that 5% is gonna go higher and I think the 10 year is gonna go higher. I mean, I think the other big macro thing we haven't really discussed, but we feel it very strong. We are no longer in a deflationary world. We're just not. I mean, there are deflationary aspects of the world, as Jeff Booth points out, the technology and so forth. But... But right now we've under invested in real stuff for 40 years and real stuff is about to come back with a vengeance. And so, you know, that's going to change what works in the stock market. I mean, the stock market in the 70s was a bad place to be. The bond market in the 70s was a terrible place to be. I mean, Henry Kaufman called them certificates of confiscation. And you know, we think this is the 70s on steroids. So you know, to me, Brian Cubellis (01:01:27.726) The biggest decision everybody's got to make right now is they look at their asset allocation, how much they want in stocks, how much they want in bonds, and then how much they want in what we consider sound money assets. We talk to people all the time that have nothing in the sound money asset bucket and we scream at them that they're idiots. Of course, we've got 100% in the sound money bucket and probably we're idiots too for being so overweight in one category, but we believe what we believe. You know, it's pretty clear to us. What's that? Irresponsibly long. Not long. Irresponsibly long. In a business school sense, we were extremely irresponsibly long. My HBS professors would criticize me massively. But you know what? I mean, I just don't give a fuck anymore. You probably should buy some Bitcoin just in case it catches on. Yeah, well, David and I were at a macro conference up there. And I mean, it's. You know, you want to talk about, you want to be the turd in the punch bowl. You just talk about Bitcoin or you talk about a sovereign debt crisis. I mean, you got to remember, I mean, and that's what leaves these people vulnerable. By the way, you got to remember just how fat, happy and stupid all these fiat masters are. I mean, they think they're geniuses. They just think they're absolute genius. And to be fair, they have been. I mean, they've crushed us. I mean, it's, you know, playing that game has been an extremely lucrative game to play. But history would suggest that things are changing. So that's how we see it. They're changing, and they're changing rapidly right now. ETF is here. As Marty says, we're gonna win, right Marty? Oh, we're gonna win. He's, I mean, just like at the state. I hope so, because there are days, you know. There are days, there are weeks, there are months sometimes during the bear markets where your spirits get low. Even when you're winning, sometimes it doesn't always feel fun. I mean. You know, it's really nice to be at this landmark where this ETF got approved, but you know, kind of the run up to it. It was just like, oh really? You know, we're gonna have to go through all this shit again. Brian Cubellis (01:03:33.43) behind us now. Now we're in the winning phase. We're always winning. Brian Cubellis (01:03:39.65) Dave and Larry, it's been a pleasure. Wish we had more than an hour to talk, but. Likewise. It was great to have you two on today. Momentous day. Whether you think getting Bitcoin exposure via the ETF is right or wrong, there's nothing you can do about it. It's in the world now. People are gonna buy it. And it seems like there's a lot of people buying it right now, probably. It's a good thing. There's no way it's anything but a good thing. It does open the door to possible games, but I. I think it'll be harder to game this than it was to game gold. And so I think that's a good thing. Awesome. Thanks, James. Thanks, guys. Good to see you. Yeah, fantastic. Dave and Larry, thanks for joining us. Let's do this again when the crisis really hits. Yeah, that'll happen. And some rivets going to pop, and it's going to be. you know, March of 2020 or 2019 all over again, you know, it's coming. We just don't know when Yeah, we'll talk about whatever acronym they come up with to plug the hole. Yeah, I'm sure they've got a few figured out. BTFP to go. Yeah, exactly. Thanks, guys. Good to see you all. Thanks. All right. See you guys next week.