The Last Trade E077: The Institutional Case for Bitcoin with Daniel Batten & Samuel Roberts

Jackson Mikalic (00:01.347) All right everyone, welcome back to The Last Trade. This week we have my co-hosts Michael Tanguma and Brian Cabellus and we're joined by Sam Roberts and Daniel Batten. Gentlemen, nice to see you all. How are you all doing today? Sam, Daniel, thanks for joining us. Michael Tanguma (00:17.325) Doing well. Daniel (00:18.55) Doing great. Good to be here. Jackson Mikalic (00:21.783) Excellent, well Daniel, Sam, how about the best place for us to start would just be to get the audience a little bit more familiar with both of your backgrounds. Sam, you have been on the show before, but it has been some time. And Daniel, this is a first time appearance for you. So Daniel, why don't I hand it over to you if you just want to share more about your background, what you're focusing on these days and how you got into Bitcoin and then Sam will let you do the same. Daniel (00:47.634) been focusing mainly on the overlap between Bitcoin and ESG. So it's environmental and social benefits, ESG benefits, for the last two years. How I got into that was I was running a impact investment fund and then a climate tech investment fund and the opportunity to look at Bitcoin came across my desk and I initially didn't think the person was serious, but I had a second look at it and ended up doing due diligence and that led to me to realise that she had some really positive ESG attributes and that's led to the work I do today. Sam (01:25.026) I came at it from a very different direction. So I came at it from a very much an institutional investment point of view. Although I was first learning about Bitcoin some years before that on a personal level because I just found it interesting. What is this strange internet money? How does it work? And then it was about two and a half years ago that with the confiscation of or freezing of Russia's assets, realised that actually that's a bit of an inflection point and therefore institutions need to be more aware of Bitcoin and also potentially investing. And we'll get into some of this detail I'm sure as we go but it was all very well saying that institutions should think more about buying Bitcoin but how do they do it in practice? Michael Tanguma (02:01.652) you Sam (02:19.66) So that's very much that institutional side was where I came from. Jackson Mikalic (02:25.793) Excellent. We'll appreciate both of the backgrounds and to your point, certainly will be getting more in the weeds there. And maybe before we do, I'd be curious to hear from either Sam or you Daniel, just how maybe how has your personal thinking evolved on Bitcoin since you first came across it and where you are today? I'm sure that will really shape the discussion around your professional work, but maybe what's most exciting to you today and how are things changed for the two of you over the past couple of years? Michael Tanguma (02:32.218) you Daniel (02:56.242) When I first encountered Bitcoin, honestly wasn't that interested in it. I didn't see how it solved any particular problems. I couldn't see its use or value. And I think that's an affliction that a lot of people have coming from the West when we have what looks like good banking rails. We don't tend to get deplatformed. Although as Sam mentioned recently what happened with the freezing of Russia assets now you can but at the time that wasn't really a consideration to me. That freezing of Russian assets did open my mind considerably but the more I researched it the more I realized that Bitcoin solves some fairly fundamental problems in terms of freedom from hyperinflation, freedom from the ability for third parties to be able to freeze asset transactions and freedom to be able to live in a country which may not have a set of rulers who play nice. In other words if you say the wrong thing do the wrong thing the financial system can be weaponized against you. So I started to see how both in the West but also in the global South how Bitcoin provided a form of freedom money that was extremely interesting to me. And then at the same time, Bitcoin mining, the more I researched, I could see that it solved a lot of energy problems as well, and particularly energy transition problems and grid stabilization problems. So I became fascinated both in Bitcoin mining first, and then laterally, Bitcoin itself as an asset. Sam (04:33.508) This is great because we're coming at this from completely different directions so I think it's very complimentary. So my background was more coming through, sort learning about Austrian economics following the global financial crisis which led me to gold and the benefits of a sound money on well actually the environment but society generally and that's what that's where I came through and then Brian Cubellis (04:37.318) You Sam (05:02.702) When I first found Bitcoin I was like well yeah but it probably won't survive or won't work as well as it's intended. And so for me the journey was with some ebbing and flowing along the way was to realise that Bitcoin is here to stay. And to succeed all it needs to do is to survive. Because everything else will then follow in its wake. So that was, yeah, so that's where I came from. Brian Cubellis (05:39.779) You bring up a good point, Sam, in that I think a lot of the reason and rationale why a lot of institutional allocators and even some high net worth, but just generally large pools of capital have remained on the sidelines is because there is this element of Bitcoin and this has been said before, but it feels too good to be true when you first hear this digital sound money, hard capped, similar to gold, but improves upon gold in all these ways. Michael Tanguma (05:40.04) Yeah, that's Brian Cubellis (06:09.555) there is this general sort of gut reaction to like that can't be, there's no way that this is gonna work. So I'm curious like, when you had that first initial response, what were the next steps you needed to take to effectively codify and form a real thesis around the robustness of the network, why it will persist and just getting your arms around, while it may seem too good to be true on the surface. There's all these fundamental dynamics which actually allow it to be this ultimate sort of network of trust in the sense that you don't have to trust any other entities that are using it, but you can trust that it's sound and it's transparent and we know the monetary policy. That is always a journey for everyone, but I'm curious what specific steps you took as an allocator to say, okay, I need to know more about this. I need to test my own conviction here and get up to speed. Sam (07:07.128) the main thing was time actually just spending time on it and when there's a million things to do it's difficult to know what to spend time on and then at some point I realized I need to spend some time on this or you know got naturally drawn in and then you find one thing and then another thing and then at least you another thing and you learn more and more and I don't think this is a unique journey by any means but you still get dragged in and suddenly find yourself, you know, however many hundreds of hours deep and realise that there is something to this. So I think that's what we see quite often in my industry is where people just simply haven't spent the time to understand it and if they did then I think they'll be having similar thoughts, at least some of them. and was probably there's probably a couple of other things which helped which were probably I mean it's probably about three three and a half years ago now for me in my journey and it was understanding in more detail why gold has failed us as a sound money and also understanding why cryptocurrencies generally are not sound money and not the army, they're not money really, but they're why they're not the answer to these and that then pulls in things like the benefits of using lots of energy to maintain the network, the benefits of proof of work along with lots of other things, the benefits of it being permissionless. So both those things when we think about them in the environmental and the social context, I think get to the nub of why they're so useful. And then you start thinking of what it could be used in this area or that area or for this to help this problem or that problem. And then you can get carried away and end up with a very long list. Michael Tanguma (09:16.729) Yeah, this is a, so there were a couple things out there that were said. So part of this discussion and having Daniel and Sam join is the news of the first UK pensions allocating to Bitcoin that Sam participator was very heavily involved with and then Daniel's interest in that area of the market. But we couldn't have scripted better your different journeys to come to this asset class, which are very emblematic of like effectively everyone, that it's very multidisciplinary and we all have different frames of reference. And Sam, something you shared is after having thousands of conversations with individuals about Bitcoin and when they came in, that reference of time in 2020 as the big moment that they really recognized what was happening here and took whatever was a small allocation and increased it to a material allocation. And it wasn't necessarily the function of the amount of capital that was printed. It was the fact that they had so much time off the rat race, because to your point, everyone is so busy doing all of these other things. that they don't actually have the time to take a step back and look at this for what it is. And once you see it, it's like everything, know, everyone that's come down this journey, you can't unsee it. And so it's a real big component of where, you know, Brian has been so integral in coming from the private banking sector and then leading institutional research at Coinbase and taking leadership here of creating this research, because at the end of the day, like, Nobody can get to the end state of our products or how do you allocate in the right way unless the research is there because the education is so asymmetric and there's we're still so early in this monetization of Bitcoin that unless that is done for the in the right way, this is where the past 15 years have shown losses that have occurred because your counterparty is effectively where the alpha is. Right. And if you don't have the right counterparty, you basically might be holding a zero on a long enough time horizon and nobody can get that. coming from a traditional world unless they're educated properly and that takes time. Jackson Mikalic (11:10.201) Yeah, one thing I'd add as well, Sam, to the points that you made and ties into what Michael just described as well is time is incredibly important in the investment management world, right? Having a track record of a strategy is ultimately how you build credibility and demonstrate your acumen at managing money in the space. And Bitcoin's a little bit different, right? Because we at OnRamp and with your work at Cartwright and how we view the market is Bitcoin is the market and the alpha is in the beta in the sense that you want to have exposure to Bitcoin. So it's a bit different in the sense that The way you can think about it as an allocator is you're measuring Bitcoin's track record as an asset versus measuring a manager's track record trying to invest in other Bitcoin and crypto assets. And as it relates to Bitcoin's track record, it's incredibly impressive. It's 15 years, about to be 16 years since the network first went live in 2009. And it's monetized from not having a price 16 years ago to be nearly a two trillion dollar asset as of the all time highs last week. So I think that track record is really what investors should be paying attention to and should be asking the questions about why has this happened over the 15 years? Will it persist going forward? And what might change? Right. So that's how I at least think about it as it relates to time in the market is Bitcoin has almost two decades now of a track record and it is the best performing asset that we've ever seen. Sam (12:38.798) Yeah and there's various things that we need to sort of explain and give training on to trustees that are interested and you write some of that is to do with if it's gone up a lot in the past does that mean it's going to go down or sideways in the future and so it's thinking about things like Michael Tanguma (12:57.971) you Sam (13:04.866) fixed supply compared to the increasing supply of the number in which it's denominated whether it's pounds sterling or whether it's dollars or whatever so that's part of it another part is the total addressable market and understanding where it could the concept of the black hole of Bitcoin sucking out the monetary premium from other asset classes and guess what? Pension schemes invest in equities and property and bonds and cash and so those are the asset classes that are at risk from Bitcoin becoming a global money. So in some senses you could say that from an institutional investment point of view Bitcoin is a hedge against Bitcoin succeeding. But that and you don't need much. You need a small allocation to enable that. Jackson Mikalic (14:05.925) It might be worth unpacking as well the idea of a monetary premium, right? Because at least in my case, before coming to Bitcoin and reading some work in the space, think Parker Lewis being one person who's really explained this well is, what is the idea of a monetary premium? Because if you're sitting in the traditional investment world, you're allocating to asset classes, and specifically in the Western world, right? If we focus on the North America, Europe, UK, et cetera, we've been fairly privileged as of the past hundred years or so with somewhat or fairly stable monetary policy when you compare it to other parts of the world. So I think in many senses we haven't had to go back to first principles as much as people who have been outside of the West and there's this unspoken recognition as it relates to capital allocation that Michael Tanguma (14:38.589) you Jackson Mikalic (15:00.899) you invest in assets, right, because you need to get a certain return. And the idea is why do you need to get a certain return? Well, it's because you need to outpace inflation. And so this idea of monetary premium, I think is often discussed, but... usually not explained at least fully in the sense that investors are, and this is how I understand it, I would be curious to hear any differences, but investors allocate capital to asset classes like equities or real estate, and they assign a premium above the utility value. So for equities, you're looking at fundamental metrics related to cash flows of the business, and then likewise with real estate, you may be looking at where it's located, demographics, cash flows, et cetera. But then there's this market that exists above that utility value, and that's effectively what the Michael Tanguma (15:39.315) . Jackson Mikalic (15:45.804) premium is where people are allocating capital into those markets because they don't want to have a reduction in their purchasing power over time. Is there anything that any of you would add to that? Daniel (15:58.942) think that's well said. Yeah. If you look at gold, for example, a lot of people say, well, gold has utility value and that's why it has a price. But the reality is that the industrial use case for gold drives very little of its actual value. And if gold no longer existed as a store of value, then the price of gold would crash to a fraction of what it is. And people have postulated that the utility value is roughly between one sixth and one tenth its current price. Sam (15:59.524) Thanks, but good-bye now. Daniel (16:28.252) So that additional value which gold trades at is because of supply demand dynamics in the marketplace where there's so much supplied and inflates by roughly 2 percent every year. We don't know exactly how much because it's not fully transparent. But that's how much new gold is mined and sent into the gold network, if you will, every year. And then there's supply and other supply demand dynamics dictate how much it's worth. And it's the same with real estate as well. I know people who have, you know, upwards of 10 properties. I don't live in. 10 properties, they live in two of them. But why do they own the additional eight? Well it's because they need somewhere to store their money and as you said they need somewhere to outpace inflation. I would say not just inflation but actually outpace the growth of new dollars that are being printed which is it's a higher bar to have to rise above. So unless they invest in real estate or equities they're not going to outpace that. So most of the value you see in the stock market or in the real estate market or in gold is because of the monetary premium because people are looking for somewhere to store their value. And Sam made a really great point which is that we've had this concept that Bitcoin is risky so therefore I shouldn't invest. Well it's actually flipped on its head now. It's high risk not to invest in Bitcoin because where's the money going to come from that pours into Bitcoin? It's not going to come out of nowhere. It's going to come out of traditional instruments. It's going to come out of equities. It's going to come out of gold. It's going to come out of real estate and to a lesser extent from bonds. So all of those as the monetary premium gets sucked out of those things we can reasonably expect all other things being in equilibrium, that they'll have a downward impact on price of those assets. So if you're a pension fund or a sovereign fund and you hold predominantly equities, bonds, real estate, gold, then you're suddenly at risk. so Sam said, it's a brilliant comment. I've never heard anyone say it before. But holding Bitcoin is actually a hedge against Bitcoin succeeding, because it's a hedge against the value of all those other assets which you have invested in going down in value. Sam (18:30.148) Yeah, I just entirely agree. Quick point there I was going to add. So it was to do with we did some analysis on looking back over 100, 150 years and we looked at the relative valuations of. Michael Tanguma (18:30.455) Yeah, that's good. Sam (18:47.12) those key different asset classes compared to what might be considered their intrinsic value so their utility value I should say. for example we were looking at the property real estate prices compared to a multiple of salary, we compared equities, we're looking at CAPE ratios there and If the monetary premium is only built up over the past let's say 50 years or so then very approximately around half of those asset classes could be monetary premium. Now no one actually knows what the monetary premium is all we have is the total price but there's a chance that it's around 50 percent and so if you add together equity markets, real estate markets, bond markets Gold and cash you get to roughly nine hundred trillion dollars equivalent and if you take half of that that's 450 trillion so then you can do the maths on that to say well if and it is an if because i don't expect all of these other things to go to zero monetary premium anytime soon then you can divide that 450 trillion by 21 million to see what bitcoin price might be now we're a long way from there so i'd want to be taking some pretty hefty margins off that number Michael Tanguma (19:52.827) Okay. Sam (20:13.934) to be prudent but it gives you an idea that if Bitcoin succeeds then we are a long long way from the potential price it could reach. And of course that's before any further devaluation of the dollar, the pound, the euro etc. Michael Tanguma (20:31.982) Yeah, and there's one very visceral and tangible thing to call out where, because a lot of times the numbers get very ephemeral and lofty when we talk about trillions and market caps. But to Daniel's point, A, Bitcoin has been an emergent phenomenon from the retail sector. And to his point, there's 10, his friend that has 10 properties. When we see real estate investors get in, the thing that they notion this is a proxy for everything downstream of it is Bitcoin doesn't call me at 2 a.m. on Saturday mornings with a leaky pipe. And so it's this understanding of that monetary premium that taking out, that's what individuals at the very emergent side have been allocating from gold to equities all across the board because they look at its superior monetary properties. And now we're just naturally seeing that start to move up to larger pools of capital, but it's still, to Sam's point, still very early. You have to not only be able to It's not one person you're describing and has to get educated. Now, committees have to get educated and large institutions have to move their ship. And so it takes time. But that's to that direct point that this has been happening at a micro level since Bitcoin's inception. And now it's just getting into larger pools of capital. Jackson Mikalic (21:44.965) So as it relates to those larger pools of capital, maybe we should talk a bit about why institutions are adopting Bitcoin and should be adopting Bitcoin. And I would be keen to hear if you think there is a recognition, Sam, to your point and Daniel, as you emphasize that Bitcoin is a hedge against Bitcoin succeeding. And do you think that some of the ideas that we've discussed in the past 20 minutes or so are in line with how institutions are thinking about Bitcoin or... Maybe should we take a step back and are there other ways that you're seeing just from your respective roles within the institutional space? Are you seeing other ways that endowments, foundations, pensions, family offices are approaching Bitcoin? Sam (22:31.032) Shall I start on that one? Do you want to come in after us, Daniel? So I think there's three key reasons why pension funds, endowments and charities are looking at, and in fact you could include companies in there as well, are looking at Bitcoin potentially. Now it is still a relatively small percentage of those institutions that is seriously looking at Bitcoin, at a Bitcoin allocation. but they are there and they are increasing. So those three reasons would be first of all diversification so that leads to following on from the monetary premium and the black hole argument there. Inflation protection, having a hard asset for the reasons that we all know can help to, and reasons a lot of people know because they use property and gold for similar reasons. So protecting them against potential inflation in the future. And then thirdly, the asymmetric risk profile and return profile. So it's that ability to only have a small allocation typically we might be talking about 2 % to 4 % of a portfolio whereas it's got so you're only going to lose 2 to 4 % but you could gain many multiples of that so Those are think the key key reasons. One factor that comes in on the asymmetric return profile is that that's all very well but we warn everyone that it's going to be volatile in the meantime. So the way to mitigate that is to make sure you've got a long enough time horizon to bear that risk. Sam (24:22.702) And that means that Bitcoin is not appropriate for, well in the UK maybe half of the defined benefit pension schemes that we've got here. But that also means then it could be appropriate for the other half. Daniel (24:39.974) I think Sam's way of looking at this is really important because he's got a way of nuancing it and saying upfront that Bitcoin is not right for every portfolio allocation. One of the points Sam made on another podcast was if you're a pension fund which has one year left to run, then you don't want to get Bitcoin because you might be in the wrong part of the market and it goes down. So Bitcoin is a great asset to hold, I would say for four years minimum. Because if you've held it for four years minimum, if you look at the four year moving average, it's always going up and to the right. So that's the sort of the timeframe. And with some of the conversations that I've been having have included family officers who have a multi-generational timeframe. So it's the perfect asset, for example, for family officers with a longer time horizon, which are looking at how do I be a custodian of intergenerational wealth? To give you an idea, I was in Amsterdam recently and I had a private meeting with the principals of 21 family officers. And... All of them were interested in investing in Bitcoin, but most of them believed they couldn't. And reason they believed they couldn't was that they had an impact investing mandate, which said that we want to do things which are not only going to be financially sustainable, but also socially and environmentally sustainable. And they had some concerns that Bitcoin didn't tick those boxes. So my presentation was presenting the results of my due diligence as an investor, as a climate tech investor and as an impact investor, talking to other impact investors and saying, look, I can give Daniel (26:22.036) your reassurance that not only does it tick this box but I have good reason to believe and the data backs us up that it's going to be the most prudent ESG investment over the next 10 years. In fact most of these funds have a challenge right now in that they're They don't have a lot of great options which are both going to give them a healthy risk return profile fit the asset allocation requirements of that fund. And at the same time they're going to tick that ESG box really strongly. Now half of them they want to tick that box because they have genuine values that align to it and others it'll be frankly optics. They want to be seen to be doing the right thing. But in both cases they need to have a reassurance that Bitcoin is going to be taking those boxes strongly. Long story short, at the end of that presentation, every single person Not only did they no longer have an ESG concern, but they could see that it was possibly the best performing ESG asset simply from an ESG point of view that they could possibly invest in. So there's a lot of re-education to do as well and this is fairly common what happens when you have a nascent because Bitcoin is not only an asset class, it's also a technology. So it's quite unique in that respect. My background is in tech entrepreneurship. So I look at it from a technology adoption lens and I look at how technologies get adopted over time and how You've never really had an asset or a technology where retail have been able to invest in it and the institutions have actually been shut out for about 15 years. So this is quite unique. So it flips a lot of things in its head completely and now finally institutions are having a chance to be involved. Michael Tanguma (27:47.922) Okay. Daniel (28:04.944) Now the reality is that any nascent technology always has quite a lot of volatility to it on a given day because it's a reflection of the emotions of the marketplace. It's just that at a company such as Facebook or such as Google, it wasn't until it went public that you got to see the expression of that volatility. Now Bitcoin is still relatively early on so it has a lot more volatility in it which is again why if you're looking at a longer term horizon that volatility starts to iron out over the long term. If you look over that four year moving average, it's always up and to the right. Michael Tanguma (28:41.523) Brian, maybe to throw you a little bit on the spot, can you highlight a little more of the notion that I think we all agree here that there's nothing probably more ESG than Bitcoin, but how you would describe it from your private banking and research days at Coinbase and articulating to investors why that is. Brian Cubellis (28:58.694) Yeah, I mean, it's a fascinating one because I think I was trying to make this argument as early as two, three years ago when really a lot of the FUD and misinformation about Bitcoin's energy usage was extremely prevalent, way more prevalent than it is today. And I think thanks to folks like Daniel who have really been out and telling the truth and the real story here, I would also say Alex Gladstein has done a great job of this. To break it down, you could just go through the components of ESG, environmental, social, and governance. The environmental one is you have to look past effectively, OK, this thing is using a ton of energy. So maybe on the surface of a very cursory understanding of what's happening, could say, OK, use a lot of energy. That's bad. But when you dig a little bit deeper into why and how it's using the energy, it For one, it's actually critical to the functioning of the network and what Sam was alluding to earlier around the mechanics of proof of work and how effectively if you're going to create a new form of money, there should be some sort of tie to the physical realm of you need to expel energy in the physical reality in order to create new units of this thing. Very similar to if you just think of Bitcoin mining as a synthetic form of gold mining. Very similar idea there, right? You have to pull the gold out of the earth. You have to expel energy via these Bitcoin mining ASIC machines in order to create new units. So that's sort of the first stage of understanding here is like, okay, this is fundamental to the thing existing. And then you take it a step further and say, well, how is it actually doing it? And then you come to the realization that for the first time in human history, there's no such thing as stranded energy. i.e., we can now monetize energy in a location agnostic manner. Never before possible in human history, pretty remarkable. And so then what you start to understand is over time, Bitcoin is just going to use more and more otherwise wasted or stranded energy. And you're already seeing that play out over the past several years because the main input in terms of a Bitcoin miners balance sheet and profitability is their input costs and the main input costs Brian Cubellis (31:20.895) cost to consider is the price of energy at which you're mining. And so naturally what happens over time is these miners will seek out lower and lower costs of energy. And in many cases, those are sources of energy that would have otherwise not been profitable or feasible to get to a grid, get to a population or city center. And so they are generally wasted or stranded. And so that is a amazing dynamic that You know, most people, again, if you're just looking at it at the surface level, uses a lot of energy bad. Well, no, let's look a little bit deeper. How is it using the energy? It's doing it in a very unique way that actually can't be done with any other technology. If you want to move to the social side of things, this one is a little bit more straightforward in my mind. And I think, you know, kind of remarkable that this was ever a question whether or not Bitcoin was good in terms of social dynamics. But, know, There are billions of people around the world who are entirely unbanked or under some level of financial repression. And if they have access to the internet and a smartphone, they can access this open permissionless network and they can protect themselves from hyperinflation or debasement of their local currency. So that one's pretty straightforward. This is good for humanity. It gives people a open monetary network that they otherwise wouldn't have had. And then on the governance side, it's sort of this just elegant understanding of, know, this is an open network with, you know, it's a set of rules without rulers. That's sort of the ultimate form of governance in the sense that you don't have to trust fallible humans in terms of maintaining this thing. It's math, it's code, and it's this shared distributed piece of software that is really the ultimate form of governance. But I want to hand it to Daniel because he's done a fantastic job of articulating these points over the past couple of years. so yeah, anything you want to add to that? Daniel (33:20.434) Yeah, you said it well. In terms of the social side, there's been 19 documented use cases of Bitcoin and most of them impact people who are currently in the global south. So again, it flips things on its head. Normally we're used to a technology such as mobile phone technology impacting the West first and then when we've sucked the profit premium out of it, then we think about other parts of the world. Bitcoin has been adopted as a store of value in the West, absolutely, but it's been used as a method of transacting. predominantly in the global south where previously you couldn't to get remittance payments to your family across borders without middlemen in the middle. It's just phenomenal how it's been used. On the environmental side what's interesting is that the media has latched onto this it uses a lot of energy which is absolutely true but the really important thing to recognize is that that does not mean it's bad for the environment. In fact, if you look at the consensus of the environmental movement, well maybe not the consensus, but I'd say 75%, you kind of have the split. And people often think that the environmental movement is degrowth, they want to use less energy. That's actually a false notion of the environmental movement. There are definitely some people in the environmental movement who believe we should use less energy, fewer resources. However, most of the environmental movement, the other 75%, are pragmatists. There people like Saul Griffiths, who wrote the book Electrify, who said that there's no way we're going to have a green energy transition and create more supply of renewables on the grid if we don't have demand for it. So the worst thing you could possibly do is to try to limit our energy consumption because then there's no demand. Who's going to set up a new bakery business in a street where people are buying less bread? It's not going to happen. So similarly, people aren't going to set up more renewable generation. are using less energy. So what becomes important there is the form of energy that they are using and there's been a lot of peer-reviewed research lately that's shown that because bitcoin is incredibly flexible as an energy user it's able to use renewable energy that otherwise would have been wasted, would have been spilled into the ground because it was produced in the middle of the day in the case of solar when nobody wanted it or in the case of wind it was produced in the middle of the night when no one wanted it. Daniel (35:37.788) and Bitcoin can soak that up and that means the renewable generator is more profitable and what does any prudent business operator do when they get more profit? They expand their business which means more solar, more wind. So it has this flywheel effect. And then the other great thing about it is because it can very easily ramp up and ramp down. The biggest concern that grid operators have and why you get these huge interconnection cues, I believe in the UK they're spanning out to, if you want to get new solar and wind on the grid, sometimes you're given a date in the 2050s. And the reason for that is that these grid operators cannot handle more intermittent power sources. So if the sun goes behind a cloud, you've lost your power. Well, what happens if you've got peak demand at that time? Or the wind stops blowing as it has in Germany right now and the grid operators are freaking out because they don't have enough power on the grid. You have to have consumers of energy. You have to have two things. Number one, you have to have what's called a gas peaker plant which can fire up very fast and supply more power. Or you have to have consumers of energy which can very quickly ramp down their energy consumption. And so the paradox has been as we've put more variable renewable onto the grid, we've also had to put more gas peaker plants onto the grid as backup, which is generating fossil fuel and they idle through the year, releasing carbon dioxide into the atmosphere just for those 10 % of the year when there's peak demand and they can counterbalance the variability of renewable energy. Well, now with Bitcoin mining, you don't have to do that. You don't need those gas peaker plants anymore. In fact, in Texas, this is exactly what had happened. For three years, Berkshire Hathaway had been Composing eight to ten billion dollars of new gas pika plants, but the grid operator discovered Bitcoin mining Which meant they could just ramp down the consumption of energy. They didn't need them So it's been absolutely incredible once you look into the nuances beyond it uses too much energy you start to see these amazing completely accidental ways that because Bitcoin miners are the only people in the world who 80 % of their budget the operational budget is electricity they are positively Daniel (37:43.744) incentivized to cheap this cheapest sources of energy to seek the cheapest sources of energy in the world and they are Generally going to be renewable energy, which has been what's driving it to be the most renewable and most sustainable using energy User in the world today with more than 50 % coming from sustainable sources and rising by 4 % plus every year Michael Tanguma (38:06.428) Yeah. This is probably an episode on itself. Well, one last thing, just a reference on the ESG argument is it one discounts the utility of Bitcoin, meaning like there is no utility value, which fundamentally a sort of value and economic activity coordinated from it has some value and we can make the case it could be all the value when you break it down. It ties into the monetary premium that we discussed here. And if you don't necessarily need to produce more houses because of that, well, then there's that side of the energy. But then there's also this thing that the one that's probably the most relevant here is nobody talks about AI and data center usage. They talk about Bitcoin usage. And what effectively happened is to Brian's point, because there's no such thing as stranded energy and Bitcoin miners and the data center operators of that recognize that they are this like canary in the coal mine and energy markets to find the cheapest source of energy where now the AI data centers are effectively I don't know co-opting is the right word, but they're purchasing, they're co-locating, and they're ultimately becoming the most more profitable or they're switching off from mining to actually powering GPUs, which now pushes the Bitcoin miners to go find another cheaper source of energy to the point that's renewable or to stranded gas and other sources of energy. So it's the most perfect energy access point that the market is starting to recognize. So that's, think, a part that goes underscored. Brian Cubellis (39:35.25) Yeah, the other way I would describe it, just at a very high level, is like, it makes us more efficient as a species in terms of how we're leveraging all the different sources of energy that we have available to us. If we can instantly monetize on location a source of energy that otherwise would have been wasted or stranded and not profitable to get to a grid. So at a very high level, all else equal, it makes us more efficient as humans. and should over time be sort of deflationary in the sense of we're just getting better at using all of the available energy sources on earth. Jackson Mikalic (40:14.285) Excellent. And Daniel, I believe you gave a presentation before about Bitcoin being the world's best ESG asset. I'd encourage, we could include that in the show notes, but I can encourage anyone who wants to take a deeper dive into the topic to check that out as well. I feel like... Michael Tanguma (40:14.341) side. Jackson Mikalic (40:30.777) Daniel and Brian, both very much, very well articulated the point there and would encourage people to check out that presentation. And Sam, I want to pivot back over to you as well to talk a little bit more about your decision making process at Cartwright because you had described three characteristics as why institutional investors are honing in on Bitcoin as an investable asset class. And the three were diversification, inflation protection, and asymmetric return profile. So when you were starting to evaluate Bitcoin in your seat as a pension consultant, Were any of these three characteristics more important than the others or were any three more urgent than the others as it related to helping your pension schemes navigate this changing investment landscape? And then from there, maybe we could talk a little bit more about the manager research process and the process that your team went through as it related to trying to seek out Bitcoin exposure for your pension schemes. Sam (41:34.146) Yeah absolutely and maybe also afterwards I could, given Daniel's on the call, could touch briefly on how pension trustees in particular think about the ESG situation and how they incorporate that within their investments. So out of those three the most relevant one I think was the asymmetric return profile and that's because you want to take an idea to a client that they can see the benefit. Now there's always risks with anything but they can see that the reward is worth taking for the risk and so accepting that there's some volatility in the price but it's got this asymmetric return profile is then makes it very attractive. But then you need to sense check it. And that's where the diversification comes in. Because I think, you know, sometimes there is a concern, well, we don't want Bitcoin because it's too volatile. Okay, well, we're not talking about putting everything in Bitcoin. We're talking about putting a small percentage in Bitcoin. So let's not focus on, we don't focus on a particular equity you invested in and worry about that volatility. We consider the portfolio as a whole. And so you produce that analysis and of course everything then makes a lot more sense and is more sensible. So that's probably that. You mentioned then, think, Jackson, the process that we went through. Which process did you mean? Did you mean the process to advise on the Bitcoin allocation or something else? Jackson Mikalic (43:22.713) Yeah, so the process once you understood and the team had decided that Bitcoin had a role within the pension portfolios, what was that process like for you to start evaluating managers and what were the most important characteristics and I guess selection criteria that you thought through as a team? Sam (43:44.099) Well so was so we obviously do a lot of research and a lot of different asset classes and fund managers and as I think Michael might have alluded to earlier We spend, if we take an equity manager, global equity manager, we spend a lot of time thinking about what's their worldview, what's their process, their philosophy of when do they buy, when do they sell different equities, is there a bias within the portfolio? You've got all these kind of things that you're thinking about. And then there's a bit of a sense check at the end. You're making sure, are their custody arrangements okay? Okay, yeah, they've got good custody arrangement in place, that's fine. Whereas... researching on ramp. We spent about the same amount of time doing it all but of course most of the issues were not relevant at all so we could put them to completely to one side and really deep dive on on the custody and obviously that's extra important because it's an asset class which clients are not used to so it's actually was really important that we went the extra mile or extra hundred miles on the custody side because we had to be you know we had to be ticking every box to give them the reassurance reassurance for a new asset class so that was that was fascinating process to go through. I think the other key aspect that was important to us was having a firm that was willing and keen to work with us. It makes things so much easier. There's always things that come up aren't there that you think well you know could we do this could we do that and maybe the answer is yes and maybe the answer is no sometimes but the point is it's about that working relationship and being able to pick up the phone. Sam (45:38.232) and have those conversations that's incredibly important. Michael Tanguma (45:41.593) Yeah, maybe Sam to add to that. the founding of the firm, we had experienced building infrastructure at this point now for close to half a decade at the time. was called two and a half, three years. And we looked at the market and generally in a newer market or existing market, you see the leaders and you assume that they have it all figured out. And in 2022, we realized that wasn't the case. And we looked at GBTC at the time. This is pre ETFs. And we looked at this product that had over 600,000 Bitcoin. So it was objectively providing product. allocators exposure, but at the same time, understanding the space, we looked at it as not the best product from some of the things that we were founded on that I think you can share more that my understanding you guys found valuable, which was the custody and the counterparty risk, the in kind redemption. So Bitcoin is a unique asset that you can take delivery. And you've talked about previously, I think on our last podcast that we did about your experience with the GFC and the recognition that when counterparty risk is bid, the fact that you want to be able to take delivery or hedge out those bets and moving the asset. And then the education, which was a big component because historically, allocators of all shapes and sizes have been exit liquidity in this space. They chase the momentum and then they go with asset managers. don't really understand what's happening. And when that volatility inevitably ensues, you need somebody to be able to sit in the trenches with you to describe what's happening. And so that was how our firm was founded. And I think that was a lot of the things that we found most valuable to you and was really exciting because at the end of the day, pensions consultants are the most sophisticated investors in the world and we built this product and this firm for those investors with the market catching up. That's why we focus so heavily on education and this podcast as an example. Sam (47:25.476) Yeah, that's brilliant and I agree entirely all those things were important. Two that particularly stood out from that list are the the counterparty risk and being Bitcoin only. So just a little bit more detail on each of those. So counterparty risk or exposure. this is to do with, in many ways it comes back to the diversification point in that A part of that diversification associated with Bitcoin is that you can hold it without it's a bearer asset as we know. You can hold it without counterparty risk. So why wouldn't you? It doesn't really make any sense to not do that. And that flows in there some of you go some great examples there Michael, but that leads to ruling out single ports of failure It comes down to you know working with someone who's not tempted Well, if we lend it out, we can get a bit more yield or any of that nonsense Well, it's got its place, but it's not got its place for institutional investment when all they want is an allocation to Bitcoin so That was important and the Bitcoin only was important as well because again it's about ruling out distractions. So it's not getting distracted by trying to earn some yield by taking on some counterparty risk. It's ruling out distractions about other cryptocurrencies which are not money, they're dot-com companies or technology companies or scams. So it just simplifies things dramatically. and means you've got a nice clean allocation with no counterparty risk and it just makes life so much easier when you're explaining it to to people on why they should invest in this way. Jackson Mikalic (49:24.453) critical thing to highlight even a bit further too in the sense that Bitcoin is about at maybe 1.8, 1.9 trillion dollar asset today and it's about 60 % of the broader digital asset market which, so that comes out to I don't know, three and a half trillion or so but. The point being that custody has been a pain point for the industry of its entire existence. So for bitcoins about 16 years and then since then over the past decade or so the proliferation of other digital assets and in that time there's been about 600 billion dollars of losses of capital, permanent losses, and that's due to having a counterparty that is not acting in your best interest or may not have security that's up to snuff or has some sort of single point of failure. And this is really important to highlight as we're speaking to institutional allocators because... When we think about custody and SAM, it ties into your point with if you're looking at an equity manager, right? You want to understand their alpha in the market as it relates to where they focus region-wise, maybe sector specificity. What is their underlying strategy? they long only? Are they long short, market neutral, et cetera, if they're in the alternative space? And none of that really matters in the Bitcoin space because you want to have exposure to the underlying assets. So then the question becomes then well, what does matter? And I really wanted to emphasize the point on custody because with traditional assets Jackson Mikalic (51:02.061) Sam, you kind of mentioned that custody, it's still important, but it's not a defining characteristic of the due diligence process. If I understand it correctly, I don't want to put words in your mouth. And the reason being is because these custody of other assets is effectively record keeping, right? You have records kept with the custodian, they're likely backed up in several different places, and you lose the record, you haven't lost the asset. That record is kept somewhere else, and it doesn't mean that the company no longer exists or the piece of property is no longer there. Whereas with Bitcoin, the custody is critically important because if the keys are managed improperly, it's likely resulted in a permanent loss of capital. And it might have been before we hit record, but we were talking about the idea that if you are an institutional allocator, you can be wrong about an idea potentially and have, you know, a quarter percent or 1 % of your portfolio go to zero or experience a significant drawdown. And you could be wrong about the investment thesis, but what you don't want to be wrong about is the underlying custody or the exposure that you've gotten access to that asset class, right? Meaning you wouldn't want to lose your Bitcoin because you picked the wrong counterparty, whereas you might be okay with losing a quarter percentage of your portfolio. on the underlying investment thesis. Is that how you think about it as well? And Daniel, I'd offer that up to you as you're just given conversations that you've been having with family offices and other institutional allocators. Daniel (52:30.674) Yes, Sam, do you want to go first? Sam (52:32.688) Yeah, I mean you're spot on Jackson. so that having that counterparty risk removed is essential and also the transparency that can go along with it. So the Bitcoin address in which it is held. So I've given that address to the trustees in question and they love the fact that it's transparent. In fact, it's more transparent than any other asset they've got. So that's one of the great things about Bitcoin. think, well, maybe if it's just as good as everything else and then suddenly it's 10 times better. And you think, well, okay, it really underlines that new technology really takes off when it's 10x better than what is already in place. Michael Tanguma (53:01.988) Sleep. Daniel (53:24.306) Yeah, the thing I had just bringing in the family offices is one of the big considerations they have is inheritance, is transfer of intergenerational wealth. so that's actually quite a messy process, just even in the traditional fiat system. And so if you can almost address two issues at once, you address the custody issue, but you also address the wealth transfer issue together at one time. It can turn a potential perceived problem with Bitcoin into an even better solution for a lot of people who are looking to answer that question and to whom that question is tremendously important. So I've seen family offices, they're very interested in the question of what happens with that intergenerational wealth transfer with the custody of the assets. So I think what you're creating together and when I found out about OnRamp, I'm like this is actually an ideal solution for family offices as well. Michael Tanguma (54:18.087) That's exactly right. We just got back to the team on this call. We were visiting Dallas family offices, institutions that we had historically met with since, you know, 2020, 2021 that hadn't had allocations. And it kind of got it emboldened in the sense of, you know, we used to talk for very often about, why is the asset have value? Why isn't it going to zero? And I basically reframed it. So like, if we want to talk about value and, you know, scarcity, like that's a conversation we'll set up a different call. I want to explain why it's not. $10 trillion. And it breaks down what both Sam and Daniel both have references. You have this notion of, know, Jackson said 600 billion, our slide I can pull up has 400 billion just because of the price of Bitcoin's appreciation recently. But the point being is from the very simple perspective of Daniel, like a patriarch of a family office, and we experienced this intimately, they cannot get their exposure of 50 to $100 million because they both, this is just a real example, they, father, son, fly together. And what happens if they have to, they can't trust a third party because you can't put that amount of capital because they're managing their family's wealth. And so if they mess up the custodian, well, then they lost the asset, but then they can't manage these private keys because if they go down and like, they can't tell anybody about the private keys from an inheritance perspective because well, then that defeats the purpose of setting up the security model. So these are just small examples that have kept individuals out of this asset. And once you solve for that, you allow for its appreciation. And so just, anybody watching, there's two really good slides here that describe what we're talking about. This is the old slide that has the $400 billion that is now $600 billion given Bitcoin's close to $2 trillion market cap. And then what we're describing on custody and Daniel's referencing is really this notion of multi-institution custody, which inserts governance effectively into the protocol requiring multiple institutions. to validate with the asset manager or the end client, depending on how it's constructed to move the asset. This has never really existed in Bitcoin. It's nothing that's technically changed. It's more of the legal governance that's built on top of it. It's part of where Cartwright's working with us. think Daniel's been interested in where we're seeing so much traction in the market because as the price gets to six figures, you can't actually afford to be on the slide anymore. So people just will stay out of the market rather than put material allocations because the alternative has effectively been Michael Tanguma (56:39.795) you know, end up on this slide. And so now you can start to get folks in. but the, one of the key thoughts here is we're still so early that this is asymmetric information, like that the reality is most people will look at the ETFs and think of them as the most sophisticated products. In reality, over a course of 15 years, we've seen centralized custody has not, you know, well for the underlying holders. We hope it'll be different, but we can't plan for that when it comes to an asset that is holding two trillion and eventually $10 trillion, if not greater. And so that's kind of why we structure these products in this way. Brian Cubellis (57:17.724) Yeah, it's exactly right. I think, you know, just going back to what that slide really demonstrates with those, losses is, you know, effectively the first 16 years of Bitcoin's history, you didn't mess it up via the thesis, right? The thesis Bitcoin has money continues to be validated. That's not how any investor has lost money in this asset class. The only way people have screwed up is via custody. and that whole 400, now 600 billion are all a function of some version of a single point of failure. And so the reality is for the first 16 years, custodying Bitcoin without a single point of failure has been extraordinarily difficult, if not impossible. Whether you're doing self custody yourself, you yourself, the end client, then become the single point of failure, or you're trusting a single entity, that's a single point of failure. And... really what we are just trying to pioneer and sort of incept into the market structure is there's a way to build fault tolerance and redundancy into the protocol governance as Michael alluded to. And so that is just objectively a better way forward in the sense that you can eliminate a single point of failure, which is again, the only thing that has tripped people up in this asset class historically. And that speaks to just the unique custodial nature of the asset in that you cannot afford to screw up the custody because it's just gone forever, it's finite, and you can't recreate new Bitcoin. So it's very different than any other asset class, and for that reason, you have to think about it differently. Sam (58:56.909) is one of the things. Sam (59:04.08) Sorry Brian, was just going say it's one other thing that's tripped people up and that's their emotions and panic selling or particularly. And then that underlines going in with eyes open and making sure that decisions are made in a methodical way, which is what we can help with. Brian Cubellis (59:11.784) Mm-hmm. Michael Tanguma (59:25.878) That's exactly right. I think one thing that tied, not that we have to go back to, but to the social side of the ESG is the democratizing nature that technology has, right? I ain't care, it's kind of a funny statement, but the presidential election post it, you saw Trump with like Elon and a few other people all holding this device that we all have. The most powerful influential people use the same device that we use in the same way where you think about sovereigns or pensions or large pools of capital would have armed guards and all the things associated with holding hundreds of millions, billions of dollars in assets. This form of custody is technology in the same way that a pension can leverage it is the same way as individuals like me and you can leverage it. And there's this democratic nature of sparking all your wealth and getting that industrial grade security. that you never saw for somebody to hold one million and the same as a hundred billion, if not a trillion dollars. So it's very powerful in that respect. And to Daniel's point, market structure around inheritance, tax advantaged accounts and insurance have all been missing from this in an actual way that makes sense. And these are things that multi-institution solves for. Daniel (01:00:34.034) Yeah, having people like Sam, Sam's too modest to say this, but I'll say it on his behalf, is tremendously important because if you extend out what it means getting your emotions too involved, there's three big mistakes you can make. One is trying to time the market or panic sell. The second is that you think, what's this cool nascent altcoin slash NFT? Let me diversify into that and you get wrecked. And then... There's a third issue, which is you start trying to trade on leverage. I've made all three mistakes. And a lot of people in Bitcoin have in their first cycle and they've lost money and then they've learnt that they're probably better off to do what some OG or some prudent advisor told them to do in the first place, which was to hold the asset and not sell it for a long period of time. And so it may sound like simple advice, but it's actually hard won advice. And it's tremendously important to have people like Sam who can say from experience, this is the way to preserve wealth over a long period of time and to guide them through the processes, because there are distractions. And in the media in particular Bitcoin and crypto gets conflated all the time. Even within the Trump administration it gets conflated and people think they're the same. They're absolutely diametrically opposed. The only thing that they have in common is they use the same technology base but beyond that the assets are different, the technology is different, the ESG profile is different. Everything is completely different about them and so it's really important to understand those distinctions. Jackson Mikalic (01:02:01.413) That's a critical point, Daniel. And just to go a little bit further on it, I think there's an increasing recognition that Bitcoin is different from crypto, but I totally agree with you that there's still a lot of conflation. And it ends up being detrimental to allocators because they're thinking about Bitcoin and the rest of the crypto space as these very... speculative, not that speculative is inherently a bad thing, but they view them as speculative with no sort of value underlying it. And they view them all as the same thing, right? So naturally people gravitate toward maybe a top 10 weighted, know, market cap weighted exposure to digital assets, or they want to allocate to venture funds that are investing into ICOs and other things, right? And there's a difference there though, that Bitcoin is, and Sam, I want and Daniel, I'd want to hear both of your takes on this. Bitcoin exists as its own monetary network. So if you think about the traditional financial system, you have equities and bonds, currencies, real estate, and they're all in some way tied, in some more than others, tied to this existing banking rails and fiat currencies. And then you have this other technology that exists totally outside. of that system and it ties into Sam your point about the great financial crisis and having the optionality to, with gold particularly, having the ability to take that bear instrument and have access to a form of money or an asset or a form of capital outside of the banking system. And I think we're starting to get to a point now where there is that broader recognition within institutional circles and within investment committees where particularly after the 2022 You know, the Russia sanction of assets and now these heightened geopolitical tensions that we've seen in 2022, 2023 and 2024. I do think that it is becoming more clear to allocators, still not clear as it should be, but we're getting to the point where folks are getting more educated in the space and they're starting to view Bitcoin as a more risk-off strategic asset allocation where they're viewing the rest of the space to be more, again, speculative or risk-on or almost like a Jackson Mikalic (01:04:16.631) know, a lottery ticket within a portfolio that's maybe 25 bips or a percentage of their portfolio. Any thoughts there? Sam (01:04:26.412) yeah I don't think we're there yet in terms of making that difference clear between Bitcoin and everything else. I think we're getting there. I mean, so for example, I was having various different debates or discussions on LinkedIn when we announced about three weeks ago that first allocation to a pension scheme and there's still a lot of confusion there and they say well what about this that or the other and I well that's I mean that's not Bitcoin so you're talking about a complete so it's still this element of people talking past each other but every opportunity I get and I'm sure every opportunity you get as well it's always mentioning Bitcoin is not the same as crypto or some other similar phrase and the message is slowly getting there I think but it's still going to take some time there's still Michael Tanguma (01:05:29.461) Thank Sam (01:05:30.864) Well, it comes back to what I was saying earlier. A lot of people haven't spent much time on this topic and therefore that's one of the first things that hopefully people can learn. In fact, when I speak to someone for the first time they say, this is interesting about your crypto exposure. say, no, it's not crypto, it's Bitcoin. And in fact, if they're just learning, so if they've engaged and they want to learn more, I okay, well, the first thing is I'll give you a shortcut of two years and tell you that Bitcoin is not crypto. and hopefully hopefully take that on board and that will then accelerate their learning process but yeah there will still be some casualties along the way I'm sure Brian Cubellis (01:06:11.196) Yeah, I think that's the first and sort of primary route that we get sort of this divergence in terms of understanding Bitcoin versus everything else. It's just literally people taking the time to dig a little bit deeper than their existing sort of cursory view. The other component I've been thinking about is more just like the market's going to tell us over time. Part of that is like what Jackson referenced earlier, like Bitcoin dominance, you know, slowly just grinding upwards at 60 % of the market and growing. And then the other component too, more recently is like, well, you know, the corporate adoption and now sort of the nation state level adoption is occurring for a very specific asset, Bitcoin. You know, sort of those upper tiers of these new... forms of adoption is not occurring for the long tail of crypto assets. So that in and of itself is a market signal from the market in terms of new adoption that Bitcoin is fundamentally different than everything else and represents this sort of pristine collateral reserve type asset. Whereas if I'm being very generous about the rest of crypto, it's speculative tech plays more or less, which is just fundamentally different than a long-term sort of sound money reserve asset. And so I think that that, while it seems slow in real time, that it is definitely shifting just in terms of the signals that we're getting from the market, that these things are very different. Daniel (01:07:52.638) There's a common theme that's come up three times so far, which has been investment of time. That's where the alpha is. The alpha doesn't exist by taking a very blunt view of an asset class. The alpha gets exposed when you start to get an out-of-focus view and you bring it into sharp focus. In the same way that we look at energy and we think, well, that doesn't sound good, you put it into sharp focus, you realize that certain types of energy consumption are environmentally net positive. Michael Tanguma (01:08:06.348) you Daniel (01:08:22.82) Similarly, you look at cryptocurrency and you think that includes Bitcoin, but then you look into it deeper and you go, hang on a minute, Bitcoin has no founders, it had no ICO, it has a fixed cap supply of 21 million. It has the Lindy effect, which is working over 15 years. It has 60 % market dominance. It's the only thing that nation states and corporate treasuries and family offices and pension funds and sovereign funds are looking at. That makes it fundamentally different. To give you another analogy, But what often happens is that things get conflated together before people get an intelligent understanding. So in another market, we saw this exact same thing play out as what happened in cryptocurrencies. So we have a fund right now. Michael Tanguma (01:09:02.103) Thanks. Daniel (01:09:05.692) that invests in Bitcoin mining companies who are using landfill gas as their energy source. And we provide the infrastructure financing. And we also get some juice on the top because we also earn carbon credits because it's reducing carbon emissions because methane is 84 times more warming to the planet than carbon dioxide over a 20 year period. Now, you may have heard that over the last couple of years, the price of carbon on voluntary markets crashed. And there's a very specific reason that it crashed. And that's that a lot of people were behaving fraudulent. excellently. And what they were doing is they were registering these schemes, these forest-based carbon credit schemes, and they were saying that it was mitigating a certain amount of carbon emissions per year, and either the numbers were wildly overestimated, or they were trying to claim projects which were not legitimate projects because the projects were there anyway, and they didn't need carbon credits in order to justify their existence. And there was a big expose of that, and what happened is the entire carbon market, voluntary markets, crashed. And then people looked a little bit more deeply, and there was still a demand for carbon credits and people said well hang on there must be some other alternative there must be a way for verifying whether these carbon credits are genuine whether you can measure them or not and people discovered yes there are there are technology based credits as well and that's things and that played into our hands because if you're looking at carbon credits that come from a landfill as opposed to from a forest you can use telemetry to show exactly minute to minute exactly how many methane emissions that it's avoiding and therefore how many carbon equivalent emissions it's avoiding so what happened to the markets then is then you got this bifurcation where the forest-based carbon credits are still trading low because people had lost faith in them as an instrument. But people's faith rose in this particular type of carbon credit that was measurable up to the minute. you could tell. So science-based credits they called, and they're now trading at a 50 % premium. And the same thing happened with a couple of years ago with FTX collapsing and everything else collapsing. That brought down Bitcoin. Daniel (01:11:05.17) for the same reason that it was tied with the same brush and people didn't understand it was different. And then people started to go, hang on, FTX was nothing to do with Bitcoin. In fact, the founder of FTX, Sam Backman-Fried, hated Bitcoin and railed against it and funded politicians to speak against it. He said in the Financial Times two years ago that Bitcoin has no future as a payments network. So this had nothing to do with Bitcoin. This had to do with the fraudulent behavior of one person who is running an exchange. And as people started to understand that was not Bitcoin, then you saw Bitcoin start to rise, but the other forms of cryptocurrency did not rise. If you look at how Bitcoin is trading relative to Ethereum over the two year period, it's trading up and up and up and up. And I think that's because there's this increasing market sophistication, which is starting to distinguish, but there is still more work to be done. And that really points to the importance of investing some time to understand these nuances, because that's where you gain that alpha. Michael Tanguma (01:12:03.266) Yeah, what we've seen is everything that you guys just described, it takes the time, but it also takes multiple people's time in these organizations. And these facts are objectively true. There's no shortage of research that if anybody spends the time comes to the same conclusion. And what ends up happening is something that I just like really felt viscerally is that 21 million is a very, very small number when you really break down kind of the fact to Sam's point. that nobody's really here yet from an institutional perspective. It's still so very early that they're still trying to figure out like the through the fog of war of what's happening in digital assets and how do I just get my bearings so I don't end up in this, know, FTX situation. And it takes so much consensus, so much committees like sitting in these large pools of capital that we're still so amazingly early and that 21 million number is so very small, especially when again, for we know this, but maybe new listeners or institutional listeners that like four to five million of those coins will never be seen again just by nature of loss of those. Daniel (01:13:07.218) most of the rest of the 20 million no one wants to sell them. Jackson Mikalic (01:13:07.449) Yeah. Brian Cubellis (01:13:12.7) That's exactly right. Jackson Mikalic (01:13:14.853) So gentlemen, maybe as we're kind of coming up on the tail end of the conversation, be curious to hear any viewpoints on what could accelerate or what could potentially decelerate Bitcoin adoption for institutional investors, businesses, family offices, high net worths into 2025. Are there any specific? catalysts you could see either positive or negative? Are there certain catalysts have happened in the past weeks or months that you think are worth emphasizing further? Just curious to hear outlook as it relates to the investment case for Bitcoin for these types of allocators. Sam (01:13:56.628) So a couple of things that spring to mind. Well actually I guess the first one maybe covers both because the first one is we've talked about the human emotions about Bitcoin. The Bitcoin network just the whole tick-tock next block meme and the bitcoin network just continues every 10 minutes or so to to confirm those transactions so nothing changes there what changes what impacts the price is the human emotions around whether it will succeed will it not succeed how much will it succeed etc and that i think will be the key determinant of whether we see what the next year has in store in terms of the price. Do we see human beings be more receptive to, and institutions in particular, to this as an asset class? And are they going to be more willing to dip their toe in the water? So, mean, none of us know the answer to that. I mean, in our own way, we're all trying to... to encourage that for the right reasons. But we don't really know. I think there's the other example I was gonna just mention was that when I was last on your podcast, I think it was February this year from memory. So I think I said then, which is always a bit risky. because you're trying to predict the future. But I think I said, given what we're seeing in the market, this is markets generally, not Bitcoin specifically, and in terms of where we are thinking about things from an Austrian economics point of view, which tells you nothing about timing, but does tell you that we're on shaky ground as far as the economy is concerned. Sam (01:16:01.934) then maybe we'll be having a recession in 12 to 18 months. remember saying that. So thankfully we're not yet at the 12 or 18 months because it hasn't happened yet. And of course things can change. You'll know better than me what impact the Trump administration could potentially have next year. I think we are still on rocky ground economically and therefore if we do get a big hit to markets, think that'll, particularly after the Covid one in 2020, I think that will mean that people look around again and think, okay, what's worked? What hasn't worked? And what will be interesting is if we see Bitcoin as a risk on assets due to its lack of counterparty risk rather than a risk. risk off asset rather than a risk on asset as it has been in the past but yeah so there's a couple of examples there. Daniel (01:17:01.886) I think the other thing that's really going to drive adoption amongst institutionals is exactly what you're doing already. And that is by solving these custody issues and by getting the first cab off the ranks, the first ever pension fund in the world that's had a 3 % asset allocation. There's been other pension funds, but it was much smaller. This is the largest percentage allocation ever. Then, Others are more willing to follow because one of the big hesitations has been looking around at your peers and going, well, no one else is doing it. And that's no longer an objection now. And so people are going to be leaning in. And I know, Sam, you've had a lot of inquiries, right? And I'm sure they're only going to continue. So that's tremendously important. And For example, now, three years ago, MicroStrategy was the only company in the world that had Bitcoin on its corporate treasury. Now there are more than 60 companies who have Bitcoin on its corporate treasury. So I see a very similar trajectory for pension funds, for sovereign funds, for family offices, where as soon as you have that first one who gets involved, others will follow. And unlike corporate treasury, it's actually easier. Michael Tanguma (01:17:54.04) Okay. Daniel (01:18:08.99) To have Bitcoin on your corporate treasury with the board structures with publicly listed companies is pretty hard. For institutional investors to get Bitcoin as an asset is relatively, it's not straightforward, but relative to the process of a pubco going through getting Bitcoin on its corporate treasury is actually easier. So I think we'll see that follow much faster, particularly now that we've had the first one who is allocated a significant level. Now we've got three pension funds in total around the world already just within six months who have allocated. Jackson Mikalic (01:18:40.197) That's a great point. Sam (01:18:40.272) What I quite like about this is that historically Bitcoin has been a grassroots movement. It's your typical man on the street, woman on the street, who has bought first the retail investor rather than the institutions. And there's something quite elegant about that. And interestingly, we're seeing the same thing with institutions. It is the smaller institutions that are more nimble and able to take these decisions quicker. and understand the issues quicker that can take advantage of this before the big firms come along. Jackson Mikalic (01:19:17.007) think it's a great point, both Daniel and Sam, that you made about the comparison between the work that you've done at Cartwright and recommending a three-person allocation, which is really a demonstration of, again, the time, conviction, and understanding of Bitcoin and its difference against the broader digital asset space and really viewing Bitcoin as, as you mentioned, an asymmetric return profile, a risk-off investment within a portfolio versus some of the other larger institutional adoption that seen particularly in the US, just because that's what I would know better than other markets, is typically see 10 basis point allocations or 50 basis point allocations. And I'd imagine those will grow over time as a percentage of portfolio. And we'll certainly see more people follow that lead. But I think that speaks to the leadership at Cartwright, and Sam, you and the team understanding Bitcoin very deeply. And because of that, able to understand the merits, not only from a reward perspective, from the absolute performance that Bitcoin can generate, but also from a risk-adjusted basis. There's a ton of data that you can back into now that demonstrates that a 1, 3, 5, even 10 % allocation can enhance the risk-adjusted return of a portfolio that's predominantly comprised of traditional assets. So I think we will see larger allocations. is just a function of institutional investors starting to have a more gradual exposure. And it also is likely that maybe these pension plans don't have people who are as convicted on the investment thesis of Bitcoin and haven't done as much work and had not as much time in the market as the two of you have. Brian Cubellis (01:21:00.082) Yeah, the other the other thing I wanted to highlight is just zooming out a bit and reflecting on Just how much sort of the overton window has shifted within the past call it two to four years You know Daniel you sort of alluded to this nobody in the institutional world wants to to put themselves out there first and do something So it was always going to be this sort of gradually then suddenly type adoption from these these different cohorts but just Michael Tanguma (01:21:18.713) you Brian Cubellis (01:21:29.948) Just thinking where we're at today in terms of both at the federal and the state level, we have multiple proposals for the United States government to be accumulating Bitcoin as a reserve asset. Just think about that fact relative to where we were four years ago when a lot of the institutional crowds main worry about Bitcoin was that the government was going to ban it. It's like, well, OK, what if the government's not buying it? How does that change? your priors on this thing. So I think it is important to just zoom out and contextualize how far we've come in terms of literally just the narrative shift and really what that enables in terms of air cover for institutional allocators to actually make some moves into the space. It's just a totally different environment than it was even two, four years ago. Michael Tanguma (01:22:01.97) it's Jackson Mikalic (01:22:23.705) Gentlemen, appreciate the two of you carving out time. Daniel, first start with you. Do you want to give a handoff to folks where they can get in touch with you to learn more about the work you're doing? And then Sam would ask you to do the same. Daniel (01:22:37.886) I have a newsletter which is called the Bitcoin ESG Forecast for obvious reasons. I am sub-stack newsletter. They can find me on Twitter slash X at DS Batten. Those are the best two places. And my investment Bitcoin mining company infrastructure fund is ch4capital.com. Sam (01:23:01.3) So the best place to get hold of me is either through our website www.carterite.co.uk or I'm on LinkedIn so you'll be able to find me there. Jackson Mikalic (01:23:13.783) Excellent. Well, Daniel and Sam, thank you both for the time today. Really insightful conversation. We'll have to do it again soon. Michael Tanguma (01:23:20.152) Thanks for joining us, guys. Brian Cubellis (01:23:21.47) Appreciate the time. Daniel (01:23:21.5) Thank you. Sam (01:23:22.97) Thank you.