The Last Trade E041: Nobody Puts Bitcoin in a Corner with Mark Connors

Brian Cubellis (00:01.71) And we're Ninja launching. Mark Connors, welcome back to the show. You have an on the ground update from a CNBC digital asset conference. What's going on on the ground? Hey Marty. Yeah, so CIBC was kind enough to invite me. It's Chatham House Rules. So we can talk about sort of coming into the conference, but what we're clearly seeing in Canada through. the lack of movement by the regulator banks is they're not changing anytime soon. They're committed to be custodians. They see the need for it. And I think when you look at incentive structures, if you want to look at what's going to happen the next year or two, it's all in the U .S. What... The legislature, what the courts did with that August 29th decision is still the biggest boon for the industry. Judge Rouse saying, SEC, you're wrong. It's unlawful. And then you have, what is it guys? Is it, it's over 50 billion now in US ETFs, I think. Sounds correct to me. I think it's 700 ,000 BTC. We don't look at those. You're digitally native, Michael. You're like dollars. Come on, man. That's like, boomer talk. You talk coins. So, um, yeah. So as everyone knows, I'm in, I'm in Canada. Um, I'm a, my firm's Canadian ETF, uh, and in closing fund provider. And we were here because when I, um, left Chris Swiss, um, I left before it, it, um, did it's swan dive. There weren't many places in the US to be ahead of research. And this guy, Fred Pye, pierced the veil in Canada, got a spot fun going. And that was it. Since then, Canada has not had constructive regulatory easements for the products. So that's what a lot of people in Canada are saying is what's the next killer app? Tokenization is not it right now. Stablecoins probably. And really, it's adoption of the Brian Cubellis (02:16.91) of the spot product and the still slow appreciation that Bitcoin is a very different animal that just needs to be taken in in its native state. That's what I think the last three months of my tours of US and Canada has gotten me to is it still is really Bitcoin. And then, as you know, everyone's been looking at Ethereum. But that's the scoop. The scoop is, I think banks are not incentivized. Doors are closed for now. And it's going to be by the incentivized asset managers that are watching margins go down that are taking on. I mean, record guys like we had. Not 13000 coins to pull from Michael to follow your lead on talking in in bitcoins. In inflows yesterday alone, is that that was the right number? Yep. Well, it was BlackRock had. with 12, 13 ,000 in Bitcoin inflows alone. It was net because of the GPC. Pull the chart up Logan. It was like 10 ,000 net. Yeah, which I ran the math on. It was 11 times more than the Bitcoin mine yesterday. Yes, and then we had that that flush out of just the speculators, right? That was probably a you know that we're going to have. Yeah, that was. That was probably, that was the traders, in my opinion, that was the trade or the crypto native traders stepping in to do what they always do at the, you know, when a previous all time high happens, which is sell because there's going to be a whole preponderance of leverage, too many leverage longs, late longs that are just, you know, a fish in a barrel for cascading, you know. liquidation if they can get some sell momentum to the downside. We also saw that there were some blocks, some Bitcoin that was mined in 2010, collectively like 400 Bitcoin that hadn't moved since then was sold right when we hit the previous all time high at 69 ,000. So that's some early enthusiast. Brian Cubellis (04:39.886) deciding that they regretted not selling at 69 ,000 a few years ago and they were going to take it when that price came. So, you know, just like a shift in dynamics towards the sell side because of the baggage that people have carried over the last few years and the pattern that has happened when we breach previous all -time highs. And, you know, that has always happened. There's always additional sellers who step in because they regret not selling three years earlier. Yeah. And that's what we saw. Natural and healthy. Mark, I'm curious on like the relentless bid because, you know, these natural market forces, right? We see the liquidations, but to go back and I don't even know what it hit, like 61 ,000 and to see it back close to 68 already. Yeah. It's just insane. It's pretty insane. 59 .3 or so. So we had a negative $10 ,000 swing for the first time ever in one day. I think it was the second largest liquidations, right? In history, like out of billion, a little over a billion. Wasn't even one day, it was five hours. Yeah. I saw the chart of the, like the amount of leverage in the system basically just got reset entirely. Like the amount of leverage longs got wiped out to like healthy levels. And then we, to Michael's point, we've closed two thirds of that gap already. and now have like a totally reset healthy level of leverage in the system. Yeah, our trader relayed that over the past, I think, 10 days. There's something called a funding rate. So to the viewers out there, everyone's focused on the ETFs, which is wrapped spot. So that's good. We like ETFs as far as a product. If you can't natively own it, you know, the asset like the Ron ramp, the at least it's not paper Bitcoin. It's wrapped in paper, but it has to be a actual Bitcoin behind it. That's one buyer or fund flows we're talking about. Then there are folks on chain like the 2010 minted Bitcoin that was sold that Jesse just mentioned. And then besides retail, there's a fourth buyer or player called a speculative long that usually uses these preferreds and they borrow. Brian Cubellis (07:01.87) They do a basis trade. They'll borrow and sell short the preferred or future, which trades at a premium. And then they'll buy the Bitcoin and they'll play the collapse. The funding rates went from 15 to 30 to over 100 percent annualized because of the demand. People thinking, saying, listen, I'm just going to be in it for an hour or three hours. It's going up. I'll make my money. So when you get triple digit funding rates, that's a telltale sign that you're at. speculative market. Yeah, and that's what's been totally reset now with all of those guys getting wiped out. The late longs like when we were starting to break through 69 and it looked like there was no resistance there at all. And we were surely about to run to 80, 90, 100. Those late longs are the ones that get punished. Yeah, broke. It's a. It's fascinating we learned this lesson and for anybody listening out there, this is particularly pronounced in the world of Bitcoin because there are exchanges that let you take obscene amounts of leverage that people get access to whether it's bitmex and there are many others by bit around the world that People who want to go a hundred X long Bitcoin can do so so a lot of that that happened on these exchanges Mark we had a great conversation earlier in the week catching up and and it was awesome to hear kind of your excitement to get on the road and go talk to people face to face. I'd love to, you know, anything you want to share as far as like our conversation and just like what's happening in the streets as far as individuals interest, the ETF. Well, we know the banks aren't coming or at least aren't coming for a while. Just anything that's happening out there, I think, I'd love to hear about. Sure. And when I say the banks, I mean, we expect maybe on the asset management side, some of the some they may allow it given it's an ETF wrap. But on the infrastructure side, the incentive to have a couple hundred billion dollars on a trillion plus balance sheet that has a still not blessed regulatory mandate on it may be difficult. So our discussion was basically saying all we got from our October, November road show where we said, Brian Cubellis (09:27.95) that the ETF is probably coming. And here are eight questions you're going to get from your clients about Bitcoin. And here are the answers. We got about four or five responses. We got a few people who did buy, but we got out of 25 meetings, four or five responses saying, great call. And we share that, not to say we failed or anything else, but just it's still not registering with people. So this demand that's coming from you know, the likes of BlackRock and Fidelity and Bitwise and ARK, et cetera, is, I think, driven internally, whether it's bring your own assets and they're thrown into funds or it's sovereign wealth or it's not a broad base of clients by any stretch. It's actually just deposit that we talked about it last week about that. And that's actually anecdotally heard sovereigns stepping in, but then also have heard from large scale Bitcoin holders that want to access the traditional financial markets about parking Bitcoin there so they can use like debt from when it comes to like financing other products and like the regular economy or just banking system. So there's a lot of like that that I don't think is, it's basically pent up interest that was built for the past like let's call it 12 months before the ETF was launched versus like net new people coming in because the ETF like they heard about and they like can buy it because I don't think a lot of that's even like turned on yet. So what you're saying, Michael, is that by, by switching from say physical to, to the ETFs and leaving it, um, in the fidelity of BlackRock that they can, with coming up assets, they can get leverage on it or they can borrow against it. Or is that exactly what you're saying? Yeah, that's like one avenue that I've heard. And I don't know how big of it, a big of a percentage it is now. Um, but to be able to use it as a financial product to lend against basically the ETF share. I know you can do that at certain advisors in Canada with the ETF. I don't have Intel about Fidelity and BlackRock, but I know it is possible, not at banks, but at brokerages in Canada, that they will give you Reg T, that's not their reg, it's US, but a two to one leverage on your digital assets. You can borrow against it. And even if it's just... Brian Cubellis (11:58.21) BlackRock and the like pointing their clients, getting them to reallocate internally from other assets to get a little bit of a Bitcoin exposure for their existing clients. I BlackRock has 10 trillion, something like that, of assets under management. And, you know, it's Yesterday we had $700 million of net inflows from the ETFs, most of which was from BlackRock. Let's say it's a billion dollars a day. It's short of that, but that's one 10 ,000th of their AUM. And so you could have that kind of flow every day for 200 trading days a year, 250 trading days a year. And... not get anywhere near a 1 % allocation for your clients. And that might be the target that, you know, Fidelity in Canada has talked about, has made that the default of a 1 % 3 % allocation for clients into their Bitcoin products. And so there's enough fuel just sitting in these large asset managers to have this kind of sustained bid. from ETF demand for quite a long time. Yeah, the visual of your model comes to mind when you're talking about the osmosis dynamic of the whole. Yep. You know, of the failing fiat by investors and the absorption of that. And that's that's like the visual. It's like a physics to me. I have tried several different iterations of like an osmosis diagram. I have never nailed it, but that is how I view it as well. I mean, like value wants to flow to where there is greater scarcity is how I think of it. And, you know, you have all these different buckets where there's an osmotic membrane between them, where you can allow value to flow to where it wants to find, where it can find more scarcity and a better store of value. Brian Cubellis (14:21.294) And Bitcoin is the one bucket where like scarcity keeps getting added to it, like salt being added to it. I was like a chamber. But yeah, I have, I've never nailed that diagram. So I haven't put it out there. Marty, I got, I got a spicy take for you. I didn't want to bring it, but I got a little spicy. I'm interested in everybody's thoughts specifically also Mark's because it landed on me today. It's like, I think based on what Mark said, and we talked about Alan, um, The flows aren't here yet from like the traditional market. These are like sovereigns and reallocations. But I think when they do come, people aren't buying Bitcoin as we know it. Like they're buying Bonk or whatever. Think about whatever meme coin you buy in the sense of or like GameStop. Like when the price runs, they're going to be buying a ticker. And the reason I'm bringing this up is because I think this common thought has come up a lot around individuals that have looked at this asset a long time is like, is the ETF good or bad for Bitcoin? And I think without question, it's Amazing for Bitcoin simply because when you first buy it, you're not actually everybody didn't know what they were buying So you're just buying the appreciation buying the ticker from a mimetic perspective because that's what we do that's how crazy like the world has gotten we just like see a number go up and Inherently, they're not buying Bitcoin because if you're buying it you're buying it for the reasons that we all understand Outside of the system hedge against and all the things that we know you're not buying that you're buying inherently It's not built into the product into the product that they're selling you and so once they get it then they're like, oh, I I need to go to river on chain on ramp wherever it is because that's actually Bitcoin. And so it's literally the best thing that could ever happen. But they're not actually buying Bitcoin. They're not even buying anything close to it. They're buying a memetic number that is attributed to everything we've seen the past 10 years. And it's just the next thing. This is just the thing. That's the last thing. If that makes any sense. Yeah, I don't think it's a spicy take. That's spicy. But I think it's like this thought of people think people are buying Bitcoin and they're actually not buying Bitcoin. they're buying bonk. Like they're buying the next thing that they think and it's actually the last thing, it's the last trade. And so that's why it's so good for Bitcoin because like Alan came on last week and he's saying all these things. It's like absolutely like pantily false. Like it's like the best thing to ever happen because at the end of the day, like the awareness is the best thing for Bitcoin. Yeah, it's top of fun. We've discussed this many, many times on the show over the last six months since the filings began flowing in. It's top of funnel. Brian Cubellis (16:44.942) Marketing vehicle for Bitcoin, but yeah, like you said, maybe they're not buying Bach. They're buying I bit they're buying the other tickers I bit stealing one that I can remember off the top my huddle and that reflexivity we've never seen like we haven't started because if we're if we're on this right path that we're saying sovereigns and Reallocations are happening. It actually hasn't even turned into the memetic thing and we'll know it because nobody's called us yet, right? There's one at it. Yeah. Yeah and speaking of that Logan pull up the tweet Speaking of sovereign, it's not a sovereign nation, but a sovereign state here in the United States. I heard about it in the status. Thank you. The Arizona State Senate is considering adding the Bitcoin ETFs to its state retirement portfolios. So this is actually this is not just like a rumor from Bitcoin magazine. This is an official statement from the Arizona State Senate. It's a fact sheet expressing the desire of the Senate to be able to allocate the. Retirement system money to these Bitcoin ETFs. This is actually a pretty big a pretty big event. I think yeah We talked about this we talked about this just a few weeks ago about how the ETFs flip the psychological switch of like the norm has been to not include Bitcoin in your portfolio and now The switch is happening to the norm becoming Of course, you should have some bit Bitcoin in your portfolio. That's what a standard portfolio includes. I And like this is part of that switch from not including Bitcoin and pensions to including Bitcoin and pensions. That's part of that ongoing process. Just the beginning here. It is. And actually harkening back to our first discussion the last time you were on, Mark, and we were surmising, we were asking the question, will these ETF issuers begin putting their Bitcoin spot ETFs in other funds that they that they offer their clients? And that has been proven true as well. I believe BlackRock Canada added it to one of their, or Fidelity's Canadian arm added it to one of their funds. I believe BlackRock has filed a prospectus to include the Bitcoin ETF, their Bitcoin ETF, and a couple of their, I forget the specific funds, but a number of other funds that they have. So it seems like that internal demand for these products is gonna be driven as well. They're gonna begin spreading these Bitcoin ETFs into... Brian Cubellis (19:08.238) there are other funds. And so when you couple that with Arizona stepping out with the fact that a lot of these RIAs have not had the gates open for them to flood in, this is crazy to believe, but this is the only beginning, only the beginning of this massive flood into these ETFs. And, you know, to carry on the bunk, memetic scene that Michael brought up. It's kind of like give a mouse a cookie on the Bitcoin ETF. And so we have our firm as an ETF provider. And when we're on stage talking and there's a Bitcoin maxi, usually cowboy boots and probably from Calgary saying, when are you going to, you know, you're a rent taker and why don't you have everyone go into, you know, into this physical? I go, great. You try to get everyone into physical. It's not going to happen right away. And you want to wait till Bitcoin is 100 ,000. So we, I think the cantaloupe effect, and I mentioned this once before, is alive and well in Bitcoin too. If you don't get in, you know, you deserve Bitcoin, the price you get it. I'd rather people get it. And then we also provide Intel to people if they want to self custody. We will, we will have that discussion with them and it'll be away from us. But we're, we're eventually going to have more services that go beyond it. Maybe some of what you guys are doing. And that's the path. That's the natural order. The mouse with the cookie wants a glass of milk, it wants to go up and sort of fill out the meal. And that meal is being fully nourished by cell sovereign, ultimately. So that's the end of my analogy. It's not the osmosis, Jesse, but we're working my way through different. Yeah, it's a stepping stone. As Michael likes to say, it's a stepping stone to what... maybe the final, the other side of the river is the last trade of taking that final leap into, okay, actually I control my own UTXOs in whatever form of custody makes sense for that person. But yeah, and that's why the ETFs are fantastic from my point of view, because everybody needs the start of their Bitcoin journey. And inherently everybody starts... Brian Cubellis (21:30.51) before they get into Bitcoin, everybody is negative on Bitcoin. That's just human nature because you see all these people who have gotten wealthy with Bitcoin and you resent it. And so you don't like Bitcoin. You're rooting against Bitcoin because you want the schadenfreude of seeing these people lose their wealth because you feel like they didn't deserve to get it in the first place. What is this Bitcoin thing anyway? Screw them. So that's the default mentality. So everybody is anti Bitcoin in some capacity. And then eventually there's some reason where something happens or some sequence of events happens where they're like, all right, I want to be a part of that. I want to have a little bit of that too. And then inevitably everybody does a little toe dip. They just dip their toe in, get just 1 % maybe of Bitcoin. But in doing so, they've done the hardest part. They've gone from rooting against Bitcoin to now they are rooting for Bitcoin. Now they're open to seeing why Bitcoin is good and why it's a great asset. And now they're learning more about it and opening their eyes to what it really is and discovering its merits. And then they want more. So people, that's the important stepping stone towards eventually having like, you know, half, let's say, of your wealth in Bitcoin is you first have to do that toe dip to get 1 % and then you want more. And so I think that's... That's what the ETFs provide is this easy way for people to dip a toe in Bitcoin and become pro Bitcoin, become fans of Bitcoin, open to learning more about it, curious about it, rooting for it. And that's such an important value, a service that the ETFs make possible. Yeah. And just to be clear, Mark, I think you probably know this, but when I was referencing the ETFs in Bonk, it was a generalization on like an asset where you can't take delivery or have the optionality for that. My understanding 3iQ allows that and there's other funds. But I think that's the core idea of individuals will go to those entities and pay more for them naturally because they understand it and they're being educated on why you want that optionality. And that's like the underline. Without naming names, there are certain ETFs and custodians that will only let you bring in Bitcoin and they'll only let you take out dollars, which is just like, yeah. Brian Cubellis (23:58.062) I love you covering my commercial back. Yes, in our close and fun, you can deliver Bitcoin in and take Bitcoin out and we can store a few. Yes, we do provide that. But I guess I didn't even go over that because wherever you want to go with your Bitcoin journey or it has to be informed first because as a couple of people have said, people will lose money. I don't know. What do you guys do? If you could know, everyone who bought Bitcoin for the first time starting, say, today and for the next, say, two years or one year, one year from now. The number of people who entered for the first time, do you think they'll make or lose money by the 12 months from now? If Bitcoin is even higher. Great question. I mean, some percentage will lose money. That's like Dave Portnoy. Like you can buy Bitcoin during a bull market and you can still manage to lose money. Portnoy reference. Love it. Dave, text me if you're listening. I know you listen to the show, Dave. I texted Dave Portnoy this week, like, hey, I sent him his recent video of Bitcoin depresses me. I was like, Dave, I'm here to help you. And he refuses to respond. I'm here, Dave. We'll get him in the pool again. Jesse has a really good chart for the loss funds. I'll drop in the deal. But while I'm putting it in there, Mark, there's a common trope I'll say during conversations of, and I really believe this and I have no data behind it. So you guys correct me if it's wrong is a I think that 50 % of all Bitcoin holders for the past, since the inception, don't hold any Bitcoin anymore. And if not higher, because they've been shaken out of positions, they sold too early, they use leverage, all the things that we've known that happened. And so that's where we focus on the education is because at the end of the day, unless you're educated to start, you're again buying bonk. You're just finding a number on a screen. Yeah, right here. Brian Cubellis (25:50.03) Yeah, so to provide a little color on this, we wanted to quantify how much money has been lost in crypto because of poor custody specifically. And when you think about your major categories of screw ups in crypto broadly, they could have all been solved by better custody ultimately, right? between the Bitcoin that people have lost, which is a huge number, like three million, because they lost their keys. You know, if they had done a better job of custodying it, that wouldn't have happened. But then it's also the same root problem for people who lost money on FTX. I mean, if you're if you're trusting FTX unilaterally with your coins because you're trusting that they have those coins and they're responsibly holding them in proper custody and and in managing that. properly with a business that's not committing fraud. And then there's also the hacks and the thefts that are all over the headlines, like Mt. Gox or Quadriga or whatever, where for whatever reason, customers lost access to funds, usually because those funds were hacked out of Mt. Gox, for example. And so quantifying that and adding up all those buckets, we came up with a hundred and twenty. I think it was 120 billion dollars at the time. It's of lost value from people holding their crypto in the wrong kind of custody, usually because they either screwed up self custody or because they trusted the wrong. counterparty with control of their funds. And that's where not your keys, not your coins comes from because you can, historically you could solve for that problem by taking self custody. And so long as you did self custody, right, you solved for the other problem of losing your, your keys or losing access to your Bitcoin as well. Anyway, together, it's a big problem, right? $120 billion of lost value. And all those people right now are in pain watching. Brian Cubellis (28:13.23) price of Bitcoin and the whole crypto ecosystem rise without them and knowing that their coins would have been worth X amount of dollars if they still had them, but they don't. I'm convinced like we're not at like five trillion to 10 trillion for Bitcoin just because of custody. Like if people like it was like the mental model of imagine any asset you would pitch somebody on Bitcoin and the whole thing is there's a likelihood a non -zero chance and it's pretty decent that I'll never get to see its appreciation because that's what people know. They know landfill or North Korean hackers. Like they can't even actually know this. It's just true. Like they can't even actually wrap their head around it or earnestly look at the asset because they don't feel confident in the custody because it's ephemeral. It's like it's just this thing that's out there. And so that notion of custody, like it is in my mind, like the chicken or egg thing, it's the first part of solving for it. Even though most people talk about the value prop of appreciation, it's like, no, no, we can anchor it to the real world. then you can get to like the actual assets attributes. Cause you can open, you can take it with an open mind of like, Oh, now I can look at this with real like earnest possibilities because I know I can actually buy it and it'll be there when I want it versus right now. I don't think it's solved. Like I don't think Coinbase is the best we have right from the name brand recognition, but that's the best we have. Like that's, that's exactly the point. Artie is like, there's no like, there's no. gold standard for custody that you know you can park it there. Even Saylor, like the best he has is he's probably split in it or he is split in it across two or three exchanges. I don't know. I don't know if I completely agree with that. I agree. Custody certainly has a lot of room to improve. I think that's what we're trying to do at OnRamp. Other companies are doing. But I mean, objectively, most bitcoins held in self -custody. So I don't think that. I think the biggest barrier to entry is just the whole concept people don't... Understand money. They don't understand that their money's broken. They view Bitcoin is some sort of meme stock like you said Two parts two parts on that one is all the money is not in the system, right? All the trillions are out. They're not gonna hold self -custody Bitcoin So that's like the reason why I would be higher and then I'll give you the hot take This is just like I'm telling Alan Farrington just last week got you got me riled up influence. He influenced contrary and takes is Brian Cubellis (30:28.59) I'm convinced that anybody that's holding plastic devices for self custody has a cost basis less than $5 ,000 because if anybody was net new coming in, like $100 ,000 Bitcoin or $75 ,000 and you said, here's a, like plastic device and you're going to hold 500 K or a million, they'd laugh at you. And I actually know this because I did this for a very long time. And so I on rent like exists and I was thinking like about this idea of like plastic devices, like there's a notion of. we are so early that when the price appreciates, the whole idea of like a private key sitting on a single plastic device just starts to become like insane for any material amount of wealth. If it's like a thousand bucks or you know, whatever point one Bitcoin, it's not to say like self custody won't exist and devices won't exist. It'll just be like pieces of a key that can come back together with other things. Like there's a lot of ideas that I've been playing around with, but the core idea of like, Somebody having a bunch of Bitcoin, millions of dollars, net new today on a little plastic device, I don't think people come in and step in to move $3 million into a ledger, basically. I don't know. I'm going to prop one of our publications from last week, which was titled, Nobody Puts Baby in a Corner. And it's like, you can't put Bitcoin in a little device. It's going to get bigger. And to continue the teenage... analogy, moving from the Catskills. I don't know if you guys remember. Yes, Patrick Swayze and what was the name of that movie in the 90s? Roundhouse? No, I love that one. No, this was with the Catskills Resort and Patrick Swayze dancing with Baby. So if you - What's that? Dirty dancing. Dirty dancing. Dirty dancing. You get it. So yeah, you don't put baby in a corner. She's got to be loud and proud in front stage. And like Bitcoin is so young still on every measure from adoption globally to market value that a parent who has a kid is a good athlete might say, I'll get you a trainer. Brian Cubellis (32:45.806) and then they try to get them on the travel team and then they kids good. What do you do with the kid in our town? You send him to IMG in Florida. You know, you go up the up the curve. So to your point, Michael, when this number technology, you know, number of technology, it'll impact how people preserve care for the asset, because it's no longer just a kid dribbling down to try to, you know, fill time on the on the on the schedule of your, you know, it's now something that has to be. nurtured and grown and preserved. And I think that's definitely what's going to happen. Yeah, it intuitively makes sense. If a Bitcoin is a thousand dollars or three thousand dollars or five thousand, it was between that for a very long time and much less than that. And you want 10 Bitcoin, you're looking at 20 to 30 thousand dollars that you're investing. That number is completely different. If you're buying $100 ,000 Bitcoin, you're buying 10 of them. That's a million dollars. How you secure it fundamentally has to be different because that's a different percentage of your wealth, different percentage of a lot of things that are associated with it. So to think that it would be how we did it in 2014 or 2013, again, because we're so early. That's why I love the notion of the best companies in the Bitcoin space don't even exist. The person that founded them hasn't even heard of it because that's how early we are. That like... The first people through the door got some of the stuff right and then other people will build on top of that. Not trying to. Honestly, I agree. I do think as the value Bitcoin increases and there's walls become heavier, people will engage in multi institution, multi SIG. However, we mentioned it earlier. How do you think that miner from 2010 that sold 400 Bitcoin yesterday, millions of dollars, tens of millions of dollars was securing his his Bitcoin probably had. probably had on a laptop he mined on. Well, that's the kicker is like the best that we had was to keep it offline like that. That's what kept it safe. But will that be the best that we have in the future? Because like the big one that we talked about with your buddy, it's like, it's okay on eSIM side, but when it comes to physical safety, do we all want to be sitting with like the hardware, the laptop and knowing that like we had that is that thing like. Brian Cubellis (34:59.054) The world that we all live in, that we're all holding our own Bitcoin is like a world that none of us really want to live in if you really extrapolate that far. That's why banks exist because people put gold underneath their cave and then they got hit over the head. This stuff is not rocket science. This is pretty straightforward. It's actually kind of interesting that the notion of not your keys, not your coins is still a full thing when you extrapolate. If Bitcoin is money and everybody holds it, do you want your kids to just walk to school safely? Because now you were early at 2013. Bitcoin and you somebody can pick up the phone and say I got your kid send me half the coin Like if that could happen that does and that's just like one sliver of the idea around like self -custody. I mean I agree, but I could say I mean Somebody could know you could have your Bitcoin in multi institution Multi sig with on ramp and they could still pick up your kids and be like a call on ramp and tell them to move the Bitcoin Well, that's the same notion of like a bank. Like if you go to a bank, you're you know, you're under duress. Like they know there's a problem. Like there's a whole slew of like weeks that have to go and set it up versus like you can't. Nobody can move a billion dollars out of a bank. No, the point I'm trying to make is like we should be adversarial thinking for those extremes. But are they just that extremes? Like how common will this become? I'm not sure. I could see it both ways. Yeah. Yeah, I think there's a it's sort of funny that a Not your keys, not your coins has been the best advice to date. And it is still good advice, but, you know, it may prevent the Bitcoin community. It may take the Bitcoin community some amount of time to realize that multi -institution custody is a solution that allows for the end user to retain control and and doesn't have the technical hurdles. that come with setting up and maintaining your own self custody. And I think that's sort of a blind spot for the Bitcoin community is, you know, we're a bunch of tech savvy millennials. And, you know, everybody assumes that there's a certain degree of tech savviness that is inherent to all people that I think is overly generous. You know, especially when you consider the gaps between different Brian Cubellis (37:18.222) generational demographics and how familiar and comfortable they are with technology. And so, you know, not your keys, not your coins, that being the singular mantra. I think that bumps up against the reality that that self custody comes with some risks, some dangers and a lot of discomfort for large portions of of the two yet to adopt Bitcoin population in particular. And so I think that that's where like multi -institution custody really shines is bringing into a degree of comfort for people who either don't want to touch self custody at all because they have like a certain awareness of their own limitations when it comes to technology. You know, that's one large cohort. And then the other cohort is just having a way to diversify. the risk that you're taking on by having all of your eggs in one basket if you've set up your own self custody and you have the ability, if you're under duress to move all of your assets, that's a liability that comes with self custody and multi -institution custody diversifies that risk and solves for that wrench attack vector. Yeah, Marty, one thing that I just thought of and I didn't land it earlier when I was talking to Mark about like there are flows coming in, my understanding to get like financial exposure to the asset to play in the financial markets. But I think actually that's not the that's not a large percentage of whatever alloc or increase in ETF exposure, I think is what Jesse just described of holders that were OGs like you referenced Marty that actually haven't scared shitless about their custody situation. and they sent it into BlackRock or an ETF because of the balance sheet and all the things that they know the financial market from insurance related and actually heard this this week from a friend of ours father that basically I think he has it and you know self custody provider or whatever and he's like hey my dad like this thing's getting big he wants to put it he wants to park it in the ETF and and that's again from a boomer it's not a digitally native person but it goes to the same concept of Brian Cubellis (39:31.79) We have to build better products out there that are natural to Bitcoin's protocol because we know that the ETF isn't good. This is the fact you can't take it back out, central point of failure with the custody. But at the same time, just the self custody thing just starts to weigh, weigh more. And I don't think it's either or. I liken it to firearms in the sense of it's very hard to convince somebody to give up their guns, similar as their keys. I think that the way that I've seen it, and personal speaking from a fireman perspective, you like get a safe, like they convince you to get a safe. So you keep them a little safer, like, and it's not all of them, but you just have like a natural like wrapper around that, that you feel comfortable. And there's like redundancy built in. I think that's like the story that we're finding that lands is like from a heritage perspective and like passing and beneficiary or redundancy in that, like if you do have a single SIG or whatever, you can't get knocked out of the game because you mess up. Um, But yeah, definitely hear like the notion because we, you know, market, we know a lot of friends that not your keys, not your coin is the mantra. And I think it's just like over time, it'll start to slow down just because it'll be like, wait, so I'm saying not your keys, not your coin. But then that means that I hold all my Bitcoin and people know that that doesn't sound really good or smart. Well, the opposite side of that coin is like you like to say statism is in a bull market. I think the biggest worry again in allocating your your custody solutions between self custody Maybe collaborative cut the custody multi -sig and then Multi -institution multi -sig where you don't hold a key I mean that I mean that's what I think about like I would not be I would not put it past the American government to Point at these solutions at some point in the future of bitcoins at ten trillion dollar market and say you know what we're gonna need to confiscate some all these companies that are regulated here obey us, sign the 2S3 Quorum and send us Bitcoin to this address. I think that is something that should be considered as well. Executive order 6102. Yeah, but the BlackRock ETF is already done. Yeah, so Martio on that point, like, you know, if governments get to a point where they're like, all right, we're going to start confiscating Bitcoin. Brian Cubellis (41:46.452) Well, there's some very easy to confiscate pools, namely like what's being held at Coinbase. And that's a company that has unilateral control over a lot of Bitcoin. That'd be your first target. So if you want to get to that extreme scenario, that's who they go after. No, again, we're playing both sides of the extreme coin here. And when that is happening, collaborative multi -sig and multi -institution custody key holders are making sure that they are resilient if they haven't already, such that they don't have unilateral control to hand over to an authority that comes knocking. Yeah, Mark, I'd actually be curious your thoughts, because I think there's a more overarching point that we believe in is that all institutions should in the future will only hold one key in whatever. and they participate in for this exact reason. Like you never want the game theory to be that you can move unilateral control. And I learned this very early, you know, and chain is a great example of this. Like they're never in a position that can move clients' funds, which is great for everyone, for them, for the client, and specifically for them, if the government ever did what Marty referenced, because it's like, I can't do anything. So then it always has a game theory of like, well, am I going to go and actually like knock on their door because at best I can just like turn off wall coordination or, you access to the software. So curious, like from your three IQ. or maybe not through a Q lens, but just like from an institutional perspective, can you see how that is actually a natural benefit where a government or an army can't go in and break down somebody's servers and get access to whatever Bitcoin that they hold? Yeah. So, so you're saying self -sovereign like on -site versus multi -sig versus in a in an ETF omnibus account or several. Basically saying that anybody playing in the custody space from an institutional perspective in the future. won't have unilateral control of removing all of that. Right. You will not have unilateral control. Single point of contact. Putting my former risk management hat on. Yeah, you don't want single point of failure. That's what you don't want. And, you know, Marty, you've said to most people and agreed, probably had that. And the guy who mined it or gelled in 2010 was very happy having it in their cold or even on their PC where they're gaming for the last, you know, 14 years, who knows. Brian Cubellis (44:07.118) and it worked for them. So just because it's worked doesn't mean that it's not ideal and won't be compromised in the future. It's a very dynamic market. Look at what technology does. What is safe today may not be tomorrow. That's why they got to be first principles based. And those first principles apply to custody of Bitcoin. But let me pull it back a bit from executive orders and seizures and And, you know, Amazon finally putting 2 % of their treasury into Bitcoin and say, right now, we are focused on getting people in. And the feedback that I can tell you is, and it's applicable to our discussion, everyone's different. Everyone has a different trigger point of what will get them in. And an example is recently we were in a meeting with an asset manager, two heads of sales. I won't tell you what region one was from and the other. Brian Cubellis (45:12.91) One region guy said, our folks are worried about executive orders, Marty. They're worried about asset seizures and they think that there's a debt bubble. So they were do -mers. Other guy goes, no way. If I start with that, I'm losing the whole room. I need to speak about what you said earlier, Mark, about it being like a tech valuation where it's software that's... validated, it has a cashflow for token, it has a price to book. So we put it in terms that they can understand. The analogy I give is that type of analogy is like the Bohr model. It's not accurate. It's not how atoms are constructed, but it's a great entry point to have people understand how protons, electrons and the like operate within a system. So. I think we really are in such an early stage. You guys and me to a degree are more involved in the system. We got to walk it back. We got get these folks in and up the curve slowly. So that's kind of where I'm coming. Get in the game and then we'll walk you to custody. It's very astute, Mark. We're sometimes so far down the weeds, we just get right into it. I think the fact that my conference room just went dark is indicative of what's going on out there. We need to add light to the situation. So let me get that going right here, guys. No, I completely agree. And through that extreme out there, because it exists on both sides of the coin, pun intended. It's just that you need to think about the whole spectrum of possibilities and realities out there. Yeah. And you're right, ultimately, that like that. What that mantra has been helpful for is pointing out that people should have control and you should be hesitant to give up control. And when you dip a toe and you buy an ETF product, great, that's awesome. Welcome to Bitcoin. Learn a bit more and then think about how you might want to hold on to control for the next tranche of your eventual larger allocation to Bitcoin. Brian Cubellis (47:31.31) And control is really what it's all about at the end of the day. So not your keys, not your coins really means make sure you have control of a material. If you're doing a material allocation to Bitcoin and you know, it's not not your keys, not your coins is a lot catchier phrase. And so that's why that has stuck around and is a good phrase. Multi -institution custody, collaborative custody. These are formats that allow the end user to retain control. And so they're alternative versions of a custody where end user has control. And that's really what we what is the end game for Bitcoin custody is making sure that the end user has control in a format that is comfortable for them and workable for them. And, you know, the coins in 2010, they were mined onto a hard drive and probably tucked away. Maybe some copies were made and. on an encrypted hard drive that was stashed away. And that was effectively air gapped away from, from, um, the online environment. And it worked for a few years long enough to know that it was safe. And then as the value of that kept growing, well, the hesitation of changing that model, um, keeps you from doing it. And so that's what worked for that early cypher punk. Um, you know, just like the guy who hacked, uh, silk road loaded. had 50 ,000 Bitcoin on a hard drive stashed away in a popcorn tin and in the floor of his Georgia home. That worked because he was an early tech savvy cypherpunk. But that doesn't work for people who are coming into Bitcoin now and are maybe not cypherpunks. But everybody should be keeping in mind the North Star of like, eventually you want to have control of your Bitcoin allocation. And keeping on this broader theme, I think bringing up a topical news item over the last week, which is we're talking about all this central points of failure, single points of failure, Coinbase, massive central point of failure right now. They've proven multiple times throughout the week, which is mind boggling. They've had this problem in bull markets, bull cycles in the past. And it's insane to me that they have not solved this yet. Brian Cubellis (49:58.286) So for those who are unaware, I believe it was three times in the last seven days is the price volatility has picked up. Coinbase, their retail side of the business is essentially broken every time. The trading stops, the trading engine breaks down, users can't buy or sell Bitcoin, and then when they open the app, they see a zero dollar balance, which is not confidence inducing. And I'm wondering what the ETF issuers who are custodying. Their Bitcoin with Coinbase. Well, yes, it is probably it is definitely a different entity than the retail trading platform But it's the same company operating both Products, what are the ETF providers thinking when they see this? Is it a big deal to them mark? It has not been and so Coinbase the failures were there on the on the retail side and I believe as you can tell I'm gonna champion the the Coinbase institutional custody part here And it was a separate, so it was the retail side. We have not gotten any incoming because of the distinction and the difference between the custody and the exchange part, which has been attested to. And I think that's the major takeaway for us is that there weren't concerns because of the certifications that I got on the institutional side and how it was distinguished from the retail side. So that's my story and I'm sticking to it there. My Marty Jones my Marty Jones hat goes on it's like are they the Bitcoin circuit breakers because this is like I don't believe it but it's just a funny thing to think through this has happened probably every cycle or at least the past three cycles right 17 happen 21 and then now when the price starts to rip that they just pull it it was like this isn't working no it's Brian Armstrong had his like justification tweet of how they they they tested their system for 10x surge in, which is insane. And it's like, you've seen in the past last cycle of the Coinbase's app was the number one downloaded app on the app store for a few days at a time. Like that's the level of spike that they've seen before. That's bigger than a 10 X. And evidently they didn't accommodate, they didn't plan for a larger than 10 X spike. It is a little suspicious. So it's either Alphysens. Brian Cubellis (52:23.246) being the circuit breaker or which is certainly likely as well like a lack of focus by trying to be the casino of the Western world and not being able to focus on doing one thing one thing correct which is making it easy to buy and sell Bitcoin and doing that reliably for your users has distracted them and spread themselves thin I think you're right yeah okay and on the the topic of focus We had a chat with Mark and he was talking about being on the road and the importance of meeting individuals where they're at. And Marty, you'll be pleased. I don't even think we shared this with you. We're launching on -ramp branches this week. This is recording Wednesday, so it'll come out Thursday, or no, it'll come out Friday, but the branches will come out tomorrow, Thursday. And it's really simple. It's just an ode to banking and being able to meet people where they're at. And so Philadelphia will have a branch. LA, Orange County, Dallas, Austin, Houston, and then New Jersey and New York. And the core idea is we have teams, teammates all over the US. And so we'll be able to like schedule time with us and then we'll meet in person. But I think that focus that you're describing is you have this ephemeral asset where you try to go to Coinbase. You can't literally get anybody on the phone, let alone ever meet somebody in meet space. And so, Mark, I'm curious, like from your experience, you know, you were on the road, you're explaining, you're you know, giddy. Usually people don't like traveling for work. You're like, I'm ready to get out there and go look people in the eye and shake their hands and anybody that's been playing in financial services, it's all relationships and trust building, like what that means for you to go out to the market and sit down. I think it'd be great to hear. Sure. So I'll start with being jettisoned out of Credit Suisse a year before they failed. There's there's a fire in traditional finance and it's happening today with New York Community Bank halted. You know, it was down 40 percent to six bucks. down 50 % to three bucks. Now it's a single digit midget at a buck 86 and it is halted because they can't raise, they're trying to raise cash. So here we are, the fed's gonna step in, absorb them, shove them somewhere. And so we do have a problem with valuations at a high interest rate environment. So the reason I'm giddy, as you said, is because I joined CQI almost two years ago, it'll be next month. I put my head down for one year, didn't visit anybody. Brian Cubellis (54:45.838) boned up on what's going on. And finally, I'm convicted of the fact that Bitcoin, of all the traits that you guys already know, it took me a deeper dive because I started this in 2021 and no one understands it. So I appreciate where they are because I'm relatively new to it three years in. So I'm ready to find out where they are and slot in where this fits in their portfolio. And I'm getting some success. So it is no way going to be sold by a publication or by anyone else. And you're just going to make friends in two years when they say, thank God you came in and pushed me to buy some. I just, you know, our price targets, other folks have had to change them in our industry. We have not. We were pretty clear where this was going to go. And we are beyond our mid case on Bitcoin for the having, which was 65 K and. you know, our year end is 160 to 180. So I certainly want to be on the road because I know no one's getting these types of returns. I've we're highly convicted on this. And yeah, I I've in my 30, whatever it is, four year career, there's only one other time where I had this degree of conviction in an asset. And it happened very similar. It was a distressed asset. It took a legal precedent. It was then slowly adopted. by backend equity by all the broker dealers and slowly people came up and then it just shot up from a nickel to over 300. So that's why I'm giddy as you can tell and sorry for hogging the microphone, but if you have something to say, I'll say it and that's what I'll say. It is second time in my career that I've seen price asymmetry that still exists in an asset. What was the first time? It was a, it was a, asset called West Fed. And it was part of a bank that actually William E. Simon started in the 80s. And it's kind of related. In the 80s, you had the SNL crisis and all the banks failed. But what the regulator did is they said, you guys, we can't afford to bring you on like what the Fed's doing now. So they gave them something called supervisory goodwill. They gave them a fake asset so they could comply with all of the regulations and capital. Brian Cubellis (57:12.29) requirements. It was fake, but they operated. So basically operating on very little capital, but the government didn't have to resolve them. But in 91, Congress enacted Feria and ripped out all of that goodwill. They took it away and immediately hundreds of banks failed. There was a lawsuit that went in and it took almost eight years. But our firm back then had bought these bombs that were trading at, I won't even blow a nickel. And I understood the law. I understood the wrongful taking. And I said, this asset is not understood and they're going to get part plus. I see. So that's why I focused on Judge Rowe's decision in August of August 29th. I'm like, she just opened the door for the ETF. That's why we were very convicted on the price target. I've seen this movie. The regulator is going to be against it. The law provides it and the market will slowly realize it. And that's why I think we're all to the racist. I love these, uh, these stories of pattern recognition of you have this example from your past of digging in deep enough to have an information asymmetry and understanding like, okay, this is, this is pretty solid and this thing is mispriced and this is an opportunity and I'm going to take action. And you have that in your past and you're seeing that again. And, and, you know, we talked to people. who lived through the tech bubble or the early internet era in the 90s. And the pattern recognition right now for them is just firing. This is the same thing all over again, the same story. And Michael Saylor is an example of this, of he saw the internet unfolding and he was going to build a business in it. and invest heavily in it. And then, you know, he saw Apple coming and he made that his his big personal bet in his portfolio and made a killing off of that when, you before the iPhone took over the world. And so we have we have quite a few folks who are early to Bitcoin from the traditional system right now are the people who have for whatever reason have this pattern recognition, recognition, technology in their head. Brian Cubellis (59:36.718) of like, I'm going to connect dots, and then I'm going to build my personal conviction that I have an edge based on the facts of the matter and the reality that people don't seem to see it. Yeah, the one that comes to mind. That's what you've done here. The one that comes to mind for that also is Amazon. But what's funny is it's less tech if you really think about it's just a proxy for global liquidity. Which is what Bitcoin is, right? Like everybody looks at the Amazon chart and then it fell and then it just literally goes up into the right. And is it like underlying fundamentals or is it just based on like, you know, the amount of dollars in the system, which is effectively like what Bitcoin absorbs. It's a very similar like macroscopes, the one that talks like about Amazon and Bitcoin from its like charts. Anyway. Yeah. I think there's two things on that. Like I'll do the analogy of Hussein Bolt, which I love. They're like, look, look at the guy, Ron. He's brilliant. He pulled away every time. And you're like, he actually accelerates as you get towards the finish line. And that's not what he does. It's just that everyone else slows down more than he does. He's slowing down after whatever is 40 meters, 90 meter dash, something like that. So that's that in your Amazon story. It's like, yeah, Amazon is a liquidity play. But what happened is the rest of retail just failed. They just couldn't keep up. Their capital allocation model was poor. So Amazon did do something better and they were a better source of or haven for the growing liquidity. But you also had to feel fall. And back to New York Community Bank, which supposedly just raise a billion dollars from somebody, you know, all these banks are failing. They're just behind. They're going to fail. And you have to have a better. way to transfer store money. And I think we have it. I'm going to let you guys figure out which protocol I'm talking about, but I think we have a better one here. Brian Cubellis (01:01:37.134) Yeah, I mean, let's look at it. We talked about the banks are failing. New York Community Bank seems to be done. The government's printing $1 trillion of fresh debt every 100 days. Egypt, the Egypt pound depreciated by 50 % today. Yeah. In one day with one interest rate. Was a re -pegging? They've just like changed the exchange rate? They changed the interest rate and then I think the market... the exchange rate was reflected, is reflective of the market's reaction to that interest rate manipulation that the Bank of Egypt did. Mark, it is glaringly obvious I have more conviction than I ever have had in Bitcoin, and my conviction has been quite strong for some time. And then you factor in just a pure, outside of those macro tailwinds, you look at the pure demand supply dynamics playing out. We talked heavily about the ETS, we didn't even mention it, and maybe that's a good... topic to wrap up with in the last five minutes here is Michael Saylor just issued $700 million. He announced $600 million and then he came out today as a you know, actually we're going to do $700 million of this convert offering that we're going to use explicitly to buy Bitcoin. He's done this many times in the past. He's continuing to do it and looking where MicroStrategy's stock price is now. You have to imagine there's other public company executives looking like, hey, maybe we should tried the strategy too. And so like you're looking at the macro factors and then all these demand supply dynamics that only seem to be accelerating. And if you're not convicted in this trade, I don't know what you're looking at. It's in the taking your point on NYCB and its failure, it's heavy into commercial real estate. I don't know the exact amount, but that's that is a portion of the losses that they've had to increase the reserve for. And in real estate lending, you can go in and do credit work and say, I think I like the asset, I like the market. But when you lend against a hard asset, what you can't really deal with if you're a fixed receiver of fiat is inflation. And imagine if you're, you know, can you think of a way, Marty, where you can, if you're a real estate lender, how you can deal with that? How you can offset that risk? Would Bitcoin be one way of helping? Brian Cubellis (01:04:04.622) Yes. And we have, yeah, there's many companies out there, some of which were invested in at 1031 that are really thinking heavily and focusing on this problem because this is a massive problem. You look at the amount of buildings, whether it's commercial or retail or residential that have been built across the country. You look at interest rates. It's look at the bank's balance sheets. It's not a good situation for a of these people Going back to the The mstr I was telling jesse we're on a call before this um, I have some screenshots of like uh I gotta send them to you a call of the mstr like confessionals and have like a lot of friends i'm sure we all do but like these are pretty it seems degen to the upside of uh One friend said that their their wives 401k last year two years ago was in and then silently put the other half into it like six months ago or three months ago, whatever, before this recent run up. And then another friend that orange -pilled his colleague that's like worked his whole life and it's 3X their pension. And like in MSDR, there's just no shortage of people that are like, that's been their proxy via their like traditional brokerage account to get exposure to Bitcoin. Yeah, and they're on the cusp of becoming an S &P 500 company. They're on the cusp of, or they may have done it today, who knows, surpassing their all time high set during the dot com boom back in. Maybe Mark, like that's a good question for you, like just playing the mark. It's like, how, how long can somebody not pay attention to that before they do it? Like somebody else. I think it, Oh, somebody else for that. I was going to go the index side. People are so heavily indexed that that is the killer app. People look at the S and P as a momentum fund. They're like, it's a momentum fund. They capture momentum, whether it be in video or otherwise, they love indexes. So MSTR going in there would be a big deal. But to answer your question, geez, I think it's going to be a little slower. To be that early innovator, people are not incentivized. If you're a treasurer and you've got a fixed income and you're not a partner in the larger firm, why would you risk this asset going in? So I'm going to be... Brian Cubellis (01:06:24.718) I have no visibility to say, I see where that domino is going to fall and we're going to have acceleration. I don't have that visibility on that. I like the idea of maybe the one -offs, you know, I'm going to shift that to answer the question that Jesse had about the osmosis. and it goes to real estate. Remember 70s pop for like 500 Alex. Guys, I don't know if you remember the, there was a movie called or a show called the Beverly Hillbillies about a poor, a poor family that struck oil, you know, seventies. And then we had Dallas, the show that came out in the early eighties about Dallas, Texas and oil. It happened because oil went from two bucks to I think 35 bucks during the seventies and people started drilling. And that was like the mimetic of wealth. Armament of wealth is going to be who sat on Bitcoin. So maybe, Michael, to answer your question, we can get people to think about how their company made money 20, 30 years ago and slot in Bitcoin as being the next thing to germinate on their portfolio. So hopefully I circled that square enough to bring it back to your question. No, it's perfect. Yeah. But zero on Beverly Hillbillies, guys, right? That was not on your Bingo card. When that domino falls, I think I agree. I don't know if it's gonna happen this year, next year, how soon or how much longer it will take to happen. But when it falls, you have five, six reputable publicly traded companies employing the micro strategy. Strategy. full on speculative attack. It's like this crazy, like if they're able to issue $700 million in a convert note, the interest rate was what? 65 bips? Yeah. Yeah. 62 and half bips. Brian Cubellis (01:08:25.229) until 2030, it's insane. I put price targets out there. I'm in a regulated entity. We don't tell people what to do, but our price targets tell you how we feel about the reflexivity dynamic, about the asymmetry, about the supply demand. I've never seen it as, in my career, I can say that, I haven't. I've observed no opportunity like this, given the facts, given what's happened, and of course. Things can change, absolutely. I've never seen this type of opportunity, even outside of that, even including that Westbed opportunity. So I agree. Get curious, folks. Get curious. And we've got to wrap here. We're going to leave all you listeners with Massifomo. Gentlemen, we'll be back next week. Thank you, Mark. Thanks, Mark. Thanks.