“Bitcoin is a great antidote to bad central banking policy. In this world where literally trillions are being printed weekly, Bitcoin shines out as this great way to store value.”
Dan Held is works as Growth Lead at Kraken Digital Asset Exchange. Held has built some of the most popular crypto products like Interchange (acquired by Kraken), ChangeTip (acquired by AirBnB) and ZeroBlock (acquired by Blockchain.com).
The COVID pandemic and the resulting government spending has woken up more people to concerns about inflationary central bank policy. The 2013 and 2017 Bitcoin runs were part of bull markets and suffered pullbacks in a speculative cycle. Bitcoin is set to enter a Super Cycle where it exists within its own local market, especially as it gains broad acceptance. “I call it the Super Cycle because we could see a more intense bull run as the whole world wakes up to Bitcoin’s value prop. Bitcoin’s total addressable market should place its per Bitcoin value at $1M to $10M.”
There have been major inflection points in Bitcoin’s evolution. The latest example is corporate treasuries’ buying of Bitcoin, ultimately creating stability for the crypto asset and moving it towards the mainstream. “To see Tesla buy Bitcoin really put Bitcoin on the map. I did not expect Bitcoin to be bought by treasuries this soon… this was a pivotal moment where people accepted Bitcoin as this mainstream idea.”
LISTEN AND SUBSCRIBE
SPEAKER
Dan Held
Growth Lead
Kraken
MODERATOR
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
EPISODE TRANSCRIPT
John Darcie: (00:01)
John Darcie: (00:07)
Everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Salt talks are a digital interview series with leading investors, creators, and thinkers. And our goal on the salt talk is the same as our goal at our salt conferences, which is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we don't think there's any bigger idea right now, whether it be in the world of finance or elsewhere than digital assets. And we're very excited to bring you the latest episode in our series of salt talks on digital assets and Bitcoin being our focus. Our guest today is Dan held.
John Darcie: (00:55)
If you are involved in the Bitcoin or digital asset world, you will know his name because he's one of the most prolific and interesting writers on Bitcoin. Uh, but if you are not familiar with Dan, you should be, and you should definitely follow up on a lot of his writings, uh, both macro stuff that he's written on Bitcoin, as well as his regular commentary through his newsletter. But Dan is currently the growth lead for cracking his former former company interchange, uh, portfolio reconciliation tool for crypto institutional craters traders was acquired by cracking in July of 2019. Uh, prior to that, he was at Uber on the rider growth and global data side of that business. And before Uber, he helped build some of the most popular early crypto products, including change tip, which was acquired by Airbnb and zero block, which was acquired by blockchain.com and the second ever all Bitcoin acquisition.
John Darcie: (01:52)
He was part of the original 2013 crypto meetup group in San Francisco, which was comprised with the founders of Coinbase ripple, cracking and others. But I know Dan is now coming to us from Austin, Texas as are many people who maybe started out in San Francisco, but Dan welcome hosting. Today's talk is Brett messing. Who's the president and chief operating officer of SkyBridge capital, a global alternative investment firm that now has I believe about $500 million of exposure, long exposure to Bitcoin. Uh, he's going to host today's interview I'll pipe in with a couple of questions maybe at the end, but, uh, with that, I'll turn it over to you, Brett for the interview.
Brett Messing: (02:29)
Thanks, John and Dan, thanks for joining us. Um, you know, I'm a big fan, you know, I subscribe to your newsletter and, uh, your, your stuff has been very helpful to me and, and us on our sort of intellectual journey. Um, we're going to get bullish today. We're going to be unapologetic about it. Um, and I want to start by saying that, you know, I've been on wall street for quite a while and I've seen, you know, many great trades and they all end. And so the trade that I think is going to is buy Bitcoin at the, having sell it 14 to 18 months later. Repeat, repeat like the Olympics. Um, you have a S uh, a Supercycle thesis. I'd like you to share that with our audience. And, um, I'll talk about it a little bit. Sure.
Dan Held: (03:19)
Uh, Brett John, thanks for having me on, uh, always fun to talk Bitcoin, especially bullish Bitcoin, um, been through a lot of different, uh, been through three distinctive bull bear cycles. You don't want to talk
John Darcie: (03:31)
FID. You don't want to talk FID, Dan, you want to stay on the other side of it. We
Dan Held: (03:34)
Can talk about as well, happy to you can throw them my way and I can, I can, I can take him. Um, but today, yeah, talking about the Supercycle theory, you know, we've got these cycles that have occurred in Bitcoin, 20 13, 20 17 are the most prominent newer ones that most people people are aware of in these, we saw Bitcoin's price go up 10 X, 20 X, a hundred X from trough to peak. And then we saw, you know, after that it go down another 80% and the proof for seeding bear market. Now with this new cycle that we're going through, going through currently, Bitcoin is far different than these other ones. Uh, the in 20 13, 20 17, the macro markets were largely in a bull run. It was a bear, it was a bull market. Uh, everything was going well. And so, you know, these speculative cycles were basically a local phenomenon, uh, based on Bitcoins, having, having the, having events that occur every four years reduce the amount of newly-minted Bitcoin that are released to the market.
Dan Held: (04:35)
So if demand stays the same or increases in supply has diminished that the price tends to naturally go up and then we see this speculative cycle occur with this moment. We've not only got a local, um, you know, traditional four year boom bust cycle that's occurring. And we're currently in the bull run part of this cycle. And this is the having cycle that I mentioned before, but also COVID occurred. And the whole world woke up to, you know, starting to question, can my government be trusted with the money with our money? And when we looked at money printer go Burr occurring, you know, during COVID in 2020, people are really starting to question, uh, will my money retain its value over time? Well, can I trust my government to be prudent, uh, to be fiscally responsible? And Bitcoin is a great antidote to bad central banking policy.
Dan Held: (05:28)
It's got a fixed 21 million hard cap. And in this world where literally trillions are being printed weekly, Bitcoin shines out as this example of a great way to store value. That is hard to seize. The monetary policy is immutable. Can't be changed. And just as a very distinctly, you know, different goal, 2.0 sort of assets. So I don't think we're going to see Bitcoin behave like we did in the other cycles where it goes up and then it dropped to 80% of the proceeding bear market. I think we could see, and this is why I call it a Supercycle. We could either see a more intense bull run as the whole world wakes up to Bitcoin's value prop, uh, Bitcoin's Tam or total addressable market should place it as a per Bitcoin value of between a million and $10 million a Bitcoin. Now, this could be one of the final cycles where Bitcoin steps in and is realized by the world as a global store of value asset. Um, we could also see a flavor of the Supercycle where we see maybe a normal bull run, but less of a bear market where we, you know, peak to trough might be only 30% or 40% versus an 80% peak to trough. So that's what I mean by the Supercycle. And that's why I think this time might be a little bit different than the previous market cycles.
Brett Messing: (06:46)
Um, there've been a lot of big events right over the last where ranging from corporate spying, which is something I never thought possible. That was certainly not in the, in the, in the coming years, uh, PayPal. So the on-ramps are becoming easier. Um, the oldest bank in America, and it seems like all the large, which one of them is they're all important. Is there one that you think we'll look back, you know, with the perspective of history and say, you know, that was a key moment that was, uh, you know, that actor played a special role in this.
Dan Held: (07:23)
I think the Tesla moment, just that moment, Michael Saylor played a great moment of, you know, making Bitcoin owned by company. Treasury's a reality, but Tesla, you know, micro strategy and sailor are much lesser known than Elon Musk, who is a legendary investor, a legendary, a product builder, a tech technological innovator. And he's considered like a Steve jobs ask sort of level, um, to see Tesla buy Bitcoin, I think really put Bitcoin on the map. I did not expect Bitcoin to be purchased by treasuries this soon. Uh, this kind of bloom blew away my expectations as well. Um, and we're only getting started, you know, how many companies are currently going through the exploratory process of adding Bitcoin to their balance sheet. You know, when will PayPal do that? When will all of these other companies that are embracing Bitcoin start to put Bitcoin on the balance sheet? I certainly didn't expect this to happen this soon. Um, this kind of blew my mind and I think Tesla was the moment when, you know, micro strategy doing it was cool, but then Tesla was like, whoa, this is a, this is a huge deal. I mean, Tesla is a huge, huge company in Elan's really well known. So I think that was sort of the pivotal moment that Bitcoin people are starting to really accept Bitcoin as a mainstream idea.
Brett Messing: (08:40)
I, I agree with that. And I think there's a, there's another element to that. That's interesting, which is, as you know, whenever anyone buys Bitcoin, they feel like they're late, right? Like they missed it. Elon Musk saw this really right. You know, he and Reed Hoffman and Peter Thiel, and those guys have been in it right since I don't know, eight, nine years. So, you know, for him to take, you know, a billion and a half dollars right up a Tesla, right at 33 34 35, can't remember what their average price was. It doesn't really matter. I think sort of addresses that, that challenge that we as investors all make in making our first Bitcoin purchase.
Dan Held: (09:23)
Yeah. I think what's really interesting about this too, is that this increases Bitcoin's protection against, um, I would say like aggressive anti Bitcoin regulation in the future. If large corporate started buying Bitcoin, it makes it very hard for countries to ban it because if they start banning it, then it immediately causes a huge stock panic where, uh, all these different equities that hold Bitcoin would start to drop. And these are popular equities. Like for example, Tesla is held by a lot of millennials. Um, you know, so I think that, you know, these sort of moments are really, really pivotal for Bitcoin to be perceived as a globally recognized money or a store of value asset it's, um, kind of a night and day sort of, uh, it's like pre corporates buying Bitcoin and post, you know, really represent distinct stages in Bitcoin's development. Um, you know, when I was thinking about the Supercycle theory, which I came out with, uh, over a year and a half, two years ago, you know, I always think he may be, oh, okay, well, the big macro traders will start to buy it. That was kind of a big check mark for me as like Bitcoin being recognized as a global store value asset. Um, but then the corporates coming in, I think this was just a really surprising, really awesome unexpected sort of movement that occurred very, very early. Um, there's so there's trillions of dollars sitting in cash or cash equivalents and, you know, all it takes, I think, um, the Ark invest folks did some research and found if 10% of corporate treasury cash moved into Bitcoin Bitcoin's price per Bitcoin would be around $400,000, the coin.
Brett Messing: (10:59)
And the thing that makes that I think even more exciting, right, is if you look at the S and P 500, most of the cash is on the balance sheets of technology companies, right. You know, apple, Oracle, Microsoft, because like energy companies are all debt financial services companies don't hold that much cash retailer. You can just go sector by sector. So the people who are most inclined to be comfortable with Bitcoin, coincidentally are the ones who were sitting on the vast majority of the cash on S and P 500 balance sheets. So that's, you know,
Dan Held: (11:33)
Yeah. I think that's a great note to make, which is that, you know, who better who's sitting with all the cash and would they be open to investing in some of that cash balance into Bitcoin and the answers as we're increasingly seeing the answer is yes.
Brett Messing: (11:46)
So Dan, I, I am a, um, uh, I guess call me disciple of your super cycle, um, uh, theory. But when you look at the, the overall cryptocurrency market, a lot of those sort of almost call them garbage. Stuff's going up also. So do you think that we may just be seeing a risk on trade? Um, when was your, what's your reaction to that? That observation?
Dan Held: (12:14)
Yeah, I think Bitcoin is still becoming, it's a Bitcoin's evolution. We've seen it be highly volatile and act like a risk on trade for most of its existence. Um, Bitcoin, however, in its final iteration or whatever it is aspiring to be as the risk off trade Bitcoin is aspiring to be a gold 2.0 risk-off sort of sort of trade. Uh, and sometimes it reflects that, for example, uh, Cyprus in 2013, when they started to do the, do the bail ends Bitcoin and started the pump in 2013, based on that, that news, that was the catalyst, uh, when Donald Trump got elected in 2016, Bitcoin moved on that same with Brexit. So Bitcoin does exhibit some, uh, you know, catalyst moments that it exhibits characteristics of a risk-off asset or a risk-off trade. However, I would largely agree that Bitcoin is sort of buoyed in this moment.
Dan Held: (13:07)
Um, based on, you know, we've seen a lot of, uh, as the commonly term, the common fund term stocks as the stocks go up, the kind of like very frothy equities market. You know, I think some of what, how Bitcoin is moving is probably because of that. Uh, as folks are looking across the world and, and looking to put money into different assets in a more frothy environment, Bitcoin is a very volatile fund asset to go trade. Um, so I'm not sure if we can like cleanly classify Bitcoin's price movement as like, oh, this is, uh, this is, uh, uh, folks piling into a more risk on or risk off sort of traded. It's kind of both, which makes it a really weird type of investment because it ultimately is gold 2.0, so it's a risk off trade, uh, but it's becoming a gold 2.0, so it's a speculative as Jerome Powell puts it into a speculative store value. So in that regard, it might be considered more risk on. So the answer is kind of both it's, it's not really a, a clean answer for what your questioning was, but I would say it's exhibiting behaviors of both.
Brett Messing: (14:09)
No, I think it's interesting, you know, I, I think of Bitcoin as being the next great tech stock, right. For the, for this, this coming decade. And I find it interesting that, that the gold narrative has really caught on it as well as it has. And, and Gold's down 20% since August. So it's indisputable that Bitcoin is sucking capital at, at of gold. But I bet if we were to take owners of gold and owners of Bitcoin and created concentric circles, we would see actually very little overlap. Um, so I think the narrative helps people intellectually, but, you know, I, I think it's limiting. Um, but anyway, move, moving along. Um, I don't want to talk FID, right? So FID for those who, who aren't on Bitcoin, Twitter is fear, uncertainty and doubt. But I do want to, I want to ask you is what are the one or two or three real risks to Bitcoin? So if you and I are talking in five or 10 years, and we're like, we got that wrong, I don't know, like we were just wrong. Right? Why?
Dan Held: (15:17)
Yeah. We're sitting down with a whiskey going, why did it all, why didn't it work out? Yeah. So I would say the number one threat to Bitcoin would be governments. Bitcoin was created as an antidote to poor central banking policy and directly undermines the authority and legitimacy of governments across the world. If the money supply is ripped away from governments, it dramatically reduces the size of government and also reduces their power. So Bitcoin inherently is, is anti-government. Um, and so governments have the capacity to limit the growth of Bitcoin. In certain ways they can ban exchanges, they can ban ownership of it. Um, they can heavily tax it. So I would say that's probably the number one threat to Bitcoin would be governments. Those are the most powerful forces that we have on earth that could change and alter Bitcoin's growth trajectory. Do I think that they have the capacity to kill Bitcoin?
Dan Held: (16:11)
No. I just think they could Swart the growth or, or stall the growth. What's kinda funny about Bitcoin though, is that it's, it's such a wild, new idea that most governments haven't taken it seriously, um, that, uh, of its threat, uh, they, they consider it kind of like a very strange, weird child. They're like, great, Bitcoin, you go do your weird thing and you be volatile and exhibit all this behavior that we consider, we consider the asset to be not a threat. Um, but Bitcoin moves so intensely that by the time governments perceive it as a threat, it may be too large to stop where Bitcoin is owned by 30% of fame. Uh, 30% of like the top tech stocks, um, maybe 40% of the population owns Bitcoin to some extent. And at that point, Bitcoin has achieved such a network effect that it becomes impossible to stop at that point.
Dan Held: (17:04)
Um, so I would say governments are the biggest threat to Bitcoin. I wouldn't say it's a killer threat to Bitcoin. Um, there's other ones as well, like flaws in the protocols zero day exploits. These would be unforeseen, uh, technical issues with Bitcoin. So with Bitcoin broke, um, or w which I would consider a very, very low probability. Um, Bitcoin has operated with 100% uptime since 2013. So Bitcoin's network is super resilient and not many changes are made the Bitcoin because changes introduce more complexity and potential for flaws to be found or exploited. Now, I think the Bitcoin community and the Bitcoin developers are very cognizant of that. So changes can occur very slowly to Bitcoin. So I would say like, you know, the, the, uh, very rare occurrence that there could be a big exploit that causes a material issue, especially as Bitcoin is being increasingly adopted by institutions.
Dan Held: (17:57)
And they might perceive that as untrustworthy. Um, you could lump in, I would say like, uh, quantum, quantum computing underneath that that's a popular piece of FID that people like to bring up. I don't think we're anywhere close to quantum computing being in reality. And I think we're going to see far ahead of time, uh, based on NSA and other NIST encryption standards, those would change before those were changed a decade before quantum computing becomes a reality that would crack like AEs 2 56. Um, but you could lump that under, like maybe we are way underestimating, how fast things are moving on the quantum side. So like a technical issue I would say is like a bucket of risk. And then we have like Bitcoin being attacked on that government level. Ultimately there could be another threat which is more societal and behavioral around. What if the world becomes socialist like very, very socialist, um, where almost everyone buys into socialism and that case people don't care as much about preserving wealth.
Dan Held: (18:57)
And if Bitcoin is a very minority sort of group, as we've seen in world war II, different minority groups can be persecuted. If they remain a minority and don't become integrated into, you know, or become such a small group that can be isolated and attacks. I think Bitcoin, in a circumstance where the world almost the entire world becomes socialist, that would be a very hard thing, you know, for Bitcoin to be able to, um, remain if it remains a minority sort of trade, if a very few percent or very small percentage of the population owns it. I don't think that's going to be the case. I think almost all humans choose to want to preserve value and preserve their wealth, no matter what income status they come from or where they come from the across the world. So, but that, that could be a threat to which would be a large behavioral shift in humankind of just people caring less and less about preserving value.
Brett Messing: (19:48)
Uh, that was a little bit of a bummer, but I asked the question, um, you know, but I do agree, I do agree with government and, um, you know, I think one of the exciting things about Bitcoin is as you think about the nature of the institutional adoption, it's happened along different verticals, right? So you've had corporations, hedge funds, mutual funds, endowments, pension funds, the one you haven't had yet as countries, right. We're waiting for it to become a reserve asset. And it's done on me recently. Well, what happens if I ran, starts buying a bunch of Bitcoin, right? Or North Korea, um, again, uh, it's probably unlikely to be sort of a country that we embrace that will go first for the very reasons, um, that there'll be attracted to Bitcoin, I guess that probably just ties back to your government risk, right? Those that agitate our government in a way that's unhelpful.
Dan Held: (20:41)
Correct. I, it, Bitcoin is the enemy of your enemy, right? And I see countries like China and Russia probably embracing Bitcoin first before the United States government, in terms of them buying it as like, we're going to hold this as one of our reserve assets, uh, you know, sort of replacing gold reserves that China and Russia have both stocked up on. Um, I do, you know, I am, I'm a libertarian, so I'm naturally critical of any government. Uh, but I do love the United States. I think the United States is a great shining example of, of how to go build and, and, you know, we, we have a lot of things that we can fix, but I, I still think we're a great country. And I would really, really love to see the U S step into owning Bitcoin and really owning this as an innovative thing, instead of like embracing Bitcoin versus, you know, bracing against it, hoping that it hoping to hold onto the us dollar dominance versus going well, we see this new paradigm of this new sound money coming out. Maybe we could use this as an opportunity to keep America great, but also understand that things are changing and that we should embrace it.
Brett Messing: (21:42)
I think one of the things that, that Bitcoin benefits from, you know, I'm, I'm a Goldman Sachs alumni and I've been disappointed at, at Goldman hasn't moved more quickly. Although I do think they're the one firm that has the capacity to catch up quickly. And I was talking to a colleague and when he's former Goldman guy, and he said, you don't understand David Solomon can't get through his emails on a day. Right. So he, doesn't, it's very hard for these large legacy. And I think, you know, yelling and Powell like, like Bitcoin is isn't on the list, right. They just don't have time in a day to really spend a lot of time thinking about it. You know, when, when I'm going to brown, Janet Yellen went to brown, I was really proud that she became, you know, treasury, but she said some stuff that was really just uneducated.
Brett Messing: (22:28)
And, and, and I thought about this sort of David Solomon line and, you know, uh, applying, but, um, I do have a question about interest rates. So rates have moved up somewhat and the, and what you hear among Bitcoiners. Again, I wearing a Bitcoin hat. I'm very bullish, but you hear some folks say, well, if rates go up, that's inflationary, that's good for Bitcoin. If the economy sucks and rates go down, that's good for Bitcoin, because then there's nowhere to put your money either. That feels like you're just looking for a bull case wherever you can find it. Um, and you know, what do you think about the back backing up of the 10 year? Right. That's not generally good for long duration assets. Bitcoin is the ultimate long duration asset. Um, I have my own thoughts, but I'd love to hear yours.
Dan Held: (23:17)
Yeah. That's a great question. And there's a joke in the Bitcoin space called, uh, you know, this is good for Bitcoin. Uh, you know, FID is printed. Oh, well, uh, people don't understand Bitcoin, which means a lot more could come realize, come to realize the value. So this is a good thing for Bitcoin. So it's a very classic Bitcoin argument that this is good for Bitcoin. Um, I think Bitcoin, I mean, as an uncorrelated asset, which was kind of a, a way that Bitcoin was framed before the gold 2.0 narrative really, really sunk in, in late 20, 20 as an uncorrelated asset, Bitcoin is kind of a weird sort of asset that doesn't really follow a lot of existing paradigms of like, oh, Bitcoin naturally will trade up or down given a certain catalyst or certain other asset moving up or down. So I'm not sure if there's like an easy answer to describe Bitcoin's behavior as interest rates climb or as they, or is it they go down?
Dan Held: (24:08)
Um, I don't think, I don't think Bitcoin is old enough yet. Uh, you know, it's only been around 12 years, but, you know, in terms of being like, even, even sort of a base level of analysis or being liquid enough to be considered like a mainstream asset, it's a very new asset. Um, so I don't think we've really seen that behavior. Now. We could look at other traditional assets like gold and be like, oh, maybe Bitcoin should mimic some of those gold characteristics. Or, uh, as people, you know, as interest rates move up, we would see as a gold is dropped, maybe Bitcoin would drop as well. But as we kind of described earlier, Bitcoin is simultaneously a risk on more technology in investment. Um, but at the same time is aspiring to be a risk-off gold 2.0 sort of trade.
Brett Messing: (24:53)
You know, this is probably where I date myself. You know, when I was in high school, you know, the tenure was at 12, 13, 14, 15% and cash was as high as 20. So to me, one and a half, half a percent to it's all the same. Right. You know, it's almost like it's ridiculously low rates. It's just, it's hard for me to get really agitated about moving from 90 basis points in the 10 year to one for, you know, it's, it, it all seems ridiculously well. Um, uh,
Dan Held: (25:25)
And if we look at rates over time, over the last couple of decades, we've seen a continually decline, you know, as, as we've just really seen, uh, quantitative easing and other central bank mechanisms distort, I would say, accurate market pricing of, of what an appropriate level of risk is. So I, you know, we we've seen sort of, uh, from, from that era, back in the eighties, we had double digit interest rates. You know, that was, that was really, really crazy. But I would say now is equally surprising with how low rates are, right? Like, you know, you look at these interest rates on mortgages and everything else, and you're like, wait a second. Why, why is risk price to so low? Uh, did, did we come up with better ways to assess risk? And, and you look at this and you're like, this is insane. I mean, um, you can go out and borrow really, really cheaply. Uh, but the world hasn't changed how risk is manifested. Um, we've central banks have very much distorted that risk reward mechanism in the form of interest rates, uh, to where I think the market's hugely mispriced.
Brett Messing: (26:27)
So, um, in thinking about Bitcoin, right, in a very fundamental way, it gets simple, right. Which is there's more demand than supply. Right. Um, now, now a big part of the demand was coming from, let's say, I would say one of the big stories of two 20 was gray scale, right? So gray scale is the investment manager who runs GBTC, which is essentially a closed end fund trades on the pink streets. And I think it started 2020 at approximately called $2 billion in assets. And it's over 30 million. Obviously the price has had contributed a lot, but their inflows were so staggering. And, you know, they were accumulating a large percentage of Bitcoin that was mine in a day. And in fact, JP Morgan issued a report that if gray scale inflows were too slow, that Bitcoin would probably fall from 40,000 to 20,000. As we talked today, it's over 50. So we know that was wrong. Grayscale. I didn't check today, but as the weekend was trading at a 5% discount and their, their inflows have really, you know, come to us ground to a halt. Um, can you just give your thoughts on, on that market mechanism, how important it is or is not?
Dan Held: (27:47)
Yeah, great question. So GBTC is a grant or a trust and the way that it functions is that it owns Bitcoin exclusively. So it's a single asset trust and owns Bitcoin and a S institutional traders or high net worth individuals who are accredited can transfer their Bitcoin in, uh, in an in kind transaction or buy it with, with dollars and they can buy at the underlying price. And then there's the market price, which is what the world is, is, is buying GBTC add on, uh, different brokerages. So GBTC, um, the, uh, retail investor level is a great way to get exposure to Bitcoin because you, you can buy it using your traditional brokerage account. And, and so for this convenience, typically GBTC trades at a premium because there is more demand for GBTC than there is Bitcoin and GBTC, and that the ability to arbitrage that away is, is, is tricky.
Dan Held: (28:44)
I'm I'm given folks who are listening a little bit more of a thank you for doing that. Yeah. I it's, it's pretty complicated to a lot of people. Uh, I've I've done a bit of digging into this and, and some people just, you know, if we're, if we just jammed on it, it's a little hard to get context. So, um, the reason why people buy GBTC, it's a great way to get exposure from your traditional brokerage account. The reason why people buy the underlying or transfer in Bitcoin is they can arbitrage the difference between the market price and the underlying price. Um, now it's not reversible, they can't, uh, you know, you can't redeem your shares of GBTC. So it's a one-way transaction. You can't redeem your shares. It'd the GBTC for the underlying asset. Um, you can contribute the underlying asset and then sell it, uh, after a brief lockup period of six months.
Dan Held: (29:28)
So with the GBTC, um, what we've seen is that there's a premium typically over time, then there's a few moments when a trades at a discount, the premium, uh, insure typically what the ensures is that more and more Bitcoin will flow into the fund. And this causes a suction on spot where it sucks away all these coins to take advantage, and they get locked up into this fund to take advantage of that GBTC premium. So, as you mentioned before, this suction from the GBTC fund was so large that it was larger than the total mind, newly minted Bitcoin per day, which is a big deal. And what we've seen though recently over the last week is that the premium has collapsed down to a discount. Now this does occur. Um, hasn't occurred very often, but it does occur for this instrument. What that means is that folks could buy GBTC on the open market and that share of GBTC is worth less than the actual underlying value of all that Bitcoin that's held by the, the grand tour trust.
Dan Held: (30:29)
Um, I expect this discount to only exist for a brief period of time. Bitcoin had a traditional, uh, during these bull runs, there's a couple of pullbacks that occur as the price climbs higher and higher. And we recently had that, and that's where this discount started to appear was during a pullback. So as demand increases again, as, as fervor for Bitcoin increases, I expect the demand to start to build again for the GBTC instrument for these traditional brokerage accounts. Um, there's also the benefit of like, if there's a discount, you technically can arbitrage that the other way, where like, if you buy it, you're buying it at a discount relative to the underlying asset. So I think GBTC discount will probably be a short lived phenomenon maybe for a week or two more now longer term, if an ETF was approved, the GBTC instrument could trade at a, at a permanent discount.
Dan Held: (31:25)
And in that case, there's all sorts of different things that could occur. Uh, the trust could be dissolved and the coins could be redistributed back to the holders of the grant or trust, um, or the fund could be converted into an ETF. So, uh, that, that's sort of my holistic view on, on how, how, why this premium or discount occurs, uh, where we are long-term with this. And then, um, you know, what, what could, what does this mean for the market? I don't think that's a hugely bullish or bearish sentiment. I think it is largely just demand for GBTC as a financial instrument dropped. Um,
Brett Messing: (31:59)
Let's make some reckless predictions. Um, uh, what's your view on an, uh, an ETF, the U S ETF.
Dan Held: (32:08)
All right. Well, I can, I can throw out a random number here. So, uh, from my understanding, so when I, when I first looked at the GBTC trade, I won on it to understand the mechanics around it, but also they reached out to a couple of buddies who are really knowledgeable with the Bitcoin ETF sector or that sector, but, um, process or the application process. And from my understanding, there's a lot of blockers there on the, what would make the sec comfortable with approving a ETF. There were some weird things around, uh, like market pricing, uh, for example, like, uh, they were uncomfortable with some dynamics of how spot prices found with Bitcoin and they wanted market surveillance installed. And most of the venues, uh, that would be used to source spot liquidity for the ETF, um, which is strange because I believe with gold, the gold has a pretty old pig spot trading market and the, and the sec approved a gold ETF.
Dan Held: (33:09)
So from my understanding, there are some blockers that will be unlikely to be resolved in the year 2021. So my guess would be probably 20 early, 20, 22. And this would be after I think we see the peak of the bull run in, in late 20, 21, early 20, 22. So the demand for a Bitcoin ETF becomes so big that the sec has to kind of reconsider some of their, their, um, you know, red Xs on the applications and go, okay, okay, fine. We'll, we'll give you that instrument that you're looking for. So based on insiders that I've talked to, it seems to be pretty far away. Um, so my best guess would be early 20, 22.
Brett Messing: (33:48)
Wow. I'm more bullish than Supercycle Dan held. I think it's definitely a 2021 event. Um, I think that the Canadian experience is an important one, so it kinda announced an ETF and it, and I think it, it serves as a laboratory that addresses, I think, concerns that we're probably well-grounded two, three years ago when the sec last took a very serious look at a Bitcoin ETF, but I think the market has just matured past them. And I also think that, you know, when you have GBTC at 30, 40, $50 billion, just from a pure investor protection standpoint, it trades on the pink sheets. It is a high fee product relative to ETFs that the sec is mission, you know, almost mandates them to, to, um, to do something. Now you may be right because the government just can't move fast so they could, you know, get on this right away. And we could slip into 20, 22, but I don't think that'll happen, but who knows? Right? I mean, it's,
Dan Held: (34:50)
I mean, I, I hope I hope I'm not right. I would prefer a Bitcoin ETF comes sooner than later because I think it's an instrument that needs to be created to allow retail investors better exposure to Bitcoin. I mean, now of course I would recommend that anyone who wants exposure to Bitcoin to buy it on spot and eventually self custody, but certainly folks will want to buy it with their traditional brokerage. And an ETF is an easy way to do that. So I certainly hope it happens in 2021. I would be overjoyed. I think that will be a, a huge pivotal moment for Bitcoin. And just to introduce a ton of new flow, uh, on the demand side to where I, yeah, I, I would be overjoyed to have it. I, I, I guess just over the years, I've, I'm a little bit more cautiously optimistic when it comes to the government moving quickly on Bitcoin regulations or Bitcoin instruments.
Brett Messing: (35:36)
No. Well, it's funny. I, you know, I'm friendly with a number of, uh, Goldman Sachs alumni. Who've been in Bitcoin for a long time. And what I think they have felt until recently a bit like, you know, Charlie brown, Lucy, and the football, where like, they've heard the institutions are coming, they, and, and I'm like, no, no, this is actually happening now. Like I know, you know, it's happening now. And, and I do think that the combination of gray scale size and the Canadian experiment, uh, being so successful are, are game-changers. But again, you always would want to bet on the government taking, you know, a while, you know, versus sort of, you know, moving quickly it, John, sorry.
Dan Held: (36:20)
And to throw a question back at you, I heard that the Goldman Goldman's considering reopening their trading desk, like a crypto trading desk, any, anything that you can share there, Brett. Cause I thought that was super interesting.
Brett Messing: (36:32)
No, I think, um, uh, you know, I think the, the Goldman Sachs CIO is on CNBC about a month ago and, you know, she was taking a sorta cautious position and I think that she sort of threw people off the scent. Um, that's one person's view and, you know, uh, I think, uh, anyone who, you know, I'm not our CIO CIO, you know, you let your CIO do their thing, but you also have to have a business to run. And, you know, Goldman Sachs I think is, is, is seeing everything that's going on. I think this'll be the first step. Um, I can tell you that, you know, I'm a client of theirs on the brokerage side, they have massive demand from their high net worth clients and other people are going to have products and they're going to have to do it. And I think they'll do it quickly. I think you'll probably see them, JP Morgan, maybe Morgan Stanley, you know, be sort of at the forefront in terms of, you know, having products, you know, probably first, uh, for, you know, people that meet certain, you know, net worth thresholds. And then, you know, eventually when the sec cooperates things that are registered and can go out more broadly, Johnny, you want to hop in here,
John Darcie: (37:46)
FID guy. My job is to come in here and rain on the parade and make Dan confront all the different elements of fear, uncertainty, and doubt that exists in Bitcoin world, because I think you do it as well as anyone. And it started with tether or it didn't start with tether, but tether was one of the main, uh, sources of FID people accused tether of essentially creating leverage in Bitcoin know, people are buying Bitcoin with dollars that don't exist. You wrote what I think is the best analysis of why that might not be a problem, but is the tether issue now dead due to this settlement with the New York attorney general or, or, uh, where does that stand right now?
Dan Held: (38:26)
Yeah. Great question. So, uh, by the way, if anyone wants to read these, we keep bringing up my newsletter. If you Google Dan held sub stack, that's where he can go find some of these longer of articles. So I write this every Thursday. Um, you can check it out there now regarding tether tether is a stable coin created by a combination of tether. Plus some entities that are associated with Bitfinex and exchange. Um, tether has been a long source of, uh, FID. So fear, uncertainty, and doubt. There's a couple of different worries. Uh, one is that tether is pumping the price of Bitcoin. Now this is largely based off of a academic research report done by two unit of university of Texas researchers who, uh, violated the core principle of any sort of data science endeavors, which is finding that correlation is causation. So they, they felt that, uh, oh, tether, uh, issuance of new tethers, uh, coincided with Bitcoins, a value rising.
Dan Held: (39:27)
So tether pumped Bitcoin, no that's like saying that umbrellas cause rain that's not the case. Um, so that was the first, uh, worry and fut around tether was at tethers using a pump, the price of Bitcoin, but that has largely been debunked as very poor intellectually dishonest sort of research. Um, there's no correlation, there's no causational analysis that's been done to prove that tether causes Bitcoin's price to rise. The second big component of tether FID is that tether in terms of trading volume and an asset in this space is so large that it could represent a systemic risk to Bitcoin. Um, we've seen a lot of different assets come and go in the cryptocurrency space that are of equivalent size in terms of like market cap percentage relative to Bitcoin, we've had outright scams. Um, BitConnect being one of the top five tokens was literally a fabricated scam and that came and went in Bitcoin's price.
Dan Held: (40:23)
Wasn't effected, uh, we've had a lots of other coins come and go. We've also had a lot in other large corn, like XRP that had a recent issue with the sec where there being a there's a there's litigation going on there with concerns over. Um, I think it's either a fraud or securities risk based on how they've launched earth or their token. Uh, ripple is a very highly traded asset and across many different exchanges, including the one I work at cracking. And we didn't see Bitcoin's value plummet when demand for tethers decreased or concerns around Heather's legitimacy increased. Um, we, so with tether the worry that this asset, which I think only represents if we look at the total market capitalization of tethered relative to Bitcoin, I believe it's under two digits. So it's, it's like under 10%. Um, I think, you know, if that went to zero, we wouldn't see this spill over into Bitcoin.
Dan Held: (41:18)
Bitcoin's not buoyed by tether. You can use dollars, [inaudible] Euro pounds to go buy Bitcoin. And there's billions of dollars a day of that good flowing in as demand for Bitcoin, um, tether. Wasn't the only instrument to use to buy a Bitcoin and neither is it a systemic risk to the space. And then finally exchanges like crack. And the one I work at our users hold together, um, just like our users might hold and another asset that, that could go down to zero, uh, as an exchange we don't have there, isn't a fundamental risk to us based on the tether. And we're not holding tether as an asset. Um, it's, it's simply the, uh, asset that's being held by some of our users, just like any other crypto assets and many of those, as we all know, go up and down in value tremendously. Uh, but we haven't seen the exchanges were all built to be, to protect themselves against, you know, highly volatile assets and even scenarios where assets go down to zero.
Brett Messing: (42:17)
Dan. So I like, I agree that the tether thing is nonsense, but the one thing I do find curious, and just given the time you spend in an ecosystem, I like your take on this is, you know, they don't audit together. Um, I, I don't think these guys are going down in the business hall of fame. Um, it's probably the case that they're not back one-to-one fault. Why are people using it? In other words, why isn't there another USDC, stable coin where the market demands, you gotta hot it. Um, I just don't understand why it's actually grown substantially while under investigation by the New York attorney general. It offers to me nothing. I don't see what the attribute is relative to other stable. What am I missing?
Dan Held: (43:05)
Yeah, that's a, that's a great question. And what's really funny here is like w when I wrote about this in my newsletter, I started out with the caveat of like, I don't find tether orbit for next to be a reputable business. I am not defending them as a place I would want to go trade personally. Um, you know, and I don't, I don't want to disparage them too much or throw them under the bus, but needless to say, yes, there have been a lot of shady things done with tether with Bitfinex that I would find very unsavory and I would not recommend folks go trade there for sure. Um, tether is used by offshore exchanges that want to circumvent the U S government regulatory environment. And they need a us dollar equivalent style asset, an exchange like this would be like Binance. Uh, the main Binance exchange, a tether is used as an instrument to essentially as a synthetic dollar or as we call it a stable coin.
Dan Held: (44:00)
And so that it replicates a dollar function for the exchange. So it's largely used by non us folks to have a dollar equivalent asset that they can use to trade with. Um, so that's either they can use it to arbitrage so they can move it between different exchanges for, for more quant arbitrage style trading. They can use it as a way to exit Bitcoin or another crypto asset and hold it in something stable. And so it, it largely replicates the dollar function for exchanges that don't want to go through the regulatory hoops of actually holding you as toddlers and having to interact with the us banking system. Okay. All
John Darcie: (44:40)
Right. We're going down the list of fun energy. So people talk about how Bitcoin, if it continues on its current trajectory of transaction volume and price, it's going to consume more energy than we create on earth. It causes the emission of greenhouse gases. It's not ESG friendly, is that correct? If it's not, why is it not correct? And what is it, what is the situation around energy usage related to Bitcoin?
Dan Held: (45:06)
Yeah. So this is a, this is a very common, very old piece of FID around, uh, concerns of environmental concerns with bees. Don't tell Janet
John Darcie: (45:13)
Yellen that it's an old piece of FID, Dan.
Dan Held: (45:15)
Yeah. I mean yelling, I mean, yelling his or her comments on Bitcoin are literally all the pieces of FID put together into one giant piece of flood. So I wasn't, I was very much impressed whoever she's talking to has literally incepted into her head. All the top pieces of FID rolled together. Um, energy FID though. Okay. People worry that Bitcoin uses a lot of energy. Well, let's look at the existing financial system and look at Bitcoin relative to the enormous amounts of energy that our existing legacy system users think about how big this is. We've got bank, uh, we've got investment bank servers. We have tens of thousands of employees that work in the investment banks that also go home to their homes and they have cars and they have food requirements. And then you have all the regional banks, and then you have all of the commercial bank, the commercial banks and all the regional commercial banks.
Dan Held: (46:06)
And then you have all the bank branches, every single bank of America, JP Morgan, chase, all those retail branches, all the physical energy use to go build those and run the air conditioning and then to pay, to feed all those people in the homes that they occupy. And then you have the court system, which enforces legal contracts or, or money-related contracts and in our, in our economy. Um, and then you have the treasury and they have printing presses that print dollars and they have servers. And then you have the fed, which I think the fed has some absurd amount of employees, like 70,000 people work at the fed or some like that. It's ridiculous. I mean, what do you need 70,000 people for, to enforce a monetary policy. It's insane. Um, and then, and then the list goes on. Then you have the military, which is also used to enforce the legitimacy of the U S dollar.
Dan Held: (46:55)
I mean, think about the atomic, uh, you know, nuclear, uh, like, uh, nuclear reactors that are on, um, submarines and in battleships and the, the, it goes on and on. And it's an absurd amount of energy that's spent on the existing financial system. So Bitcoin should never be viewed in isolation. We should always examine it relative to other energy consumption, especially another monitoring system. Um, and the dollar is a great one to look at because it's massively less efficient than Bitcoin. What happens is folks isolate Bitcoin's metric of consumption, because it's easy to do that versus the long kind of list of different ways you could calculate the existing systems, energy requirements, and because of how simple it is to distill Bitcoin's energy consumption. Folks never look at it relative to everything else. Um, when we look at energy consumption of many other activities, for example, playing Xbox or PS three here, PS4, um, the energy consumption of gaming consoles is equivalent to some countries.
Dan Held: (47:55)
Same with Christmas lights. Uh, the U S uses more energy than an entire country just to power our Christmas lights. Now, energy consumption. Isn't a bad thing. People use the energy because they want to get, they paid for it and they want to go use it for something. I want to watch the Kardashians and you want to watch Nova and someone else wants to go play baseball. Energy consumption is inherent to our universe. The universe is based on the laws of thermodynamics, and we all use energy to live, breathe and do anything we want to do. Every human activity requires energy. And so I think at the core root of this argument, not only is it absurd to look at a Bitcoin's energy usage in isolation, because it's much more efficient than the existing system, but also at the core root it's people don't believe Bitcoin is doing something useful.
Dan Held: (48:41)
That's ultimately what these detractors don't like about Bitcoin is they don't like Bitcoin itself, but how ridiculously subjective, right? The idea that you can criticize someone else's energy consumption, but you don't criticize your own. Like what TV shows do they watch? What food do they eat? Maybe a hamburger has uses more energy than a hotdog. I mean, if you went down the list of like us having a constantly championed the morality of my energy consumption per decision, I make, it would be an absurd world that we live in. Luckily we have a market mechanism that allows us to do this. It's called, I paid for it. I bought my energy. I'm gonna do whatever the hell I want with it. And there's not like an energy police that goes around and shoots me because I'm watching the Kardashians and that's considered a subjectively wasteful thing. Um, so ultimately at the core root of this argument, people just don't like Bitcoin. And they find that its energy consumption is wasteful because they just don't like it.
John Darcie: (49:36)
Yeah. And I find that because Bitcoin has some roots in libertarianism, you know, some prominent libertarians were some of the early evangelists and adopters of Bitcoin. There is this notion among people on the left that Bitcoin is somehow like a libertarian conservative instrument. When in reality it's actually a tool for economic empowerment. And Jack Dorsey has been very vocal about this. And we agree, and I know Brett is fairly progressive guy. He worked for a Democrat as the, uh, basically vice mayor of Los Angeles. And I consider myself a very progressive guy. And if you really educate yourself on Bitcoin, it's, it's a tool for empowerment and allowing people to disentangle themselves from the whims of government. And, um, so I, I hope that over time as members of the progressive movement, start to understand Bitcoin, that it can lose that stigma, uh, as a purely, you know, hyper libertarian type of tool. So it's funny.
Dan Held: (50:34)
Uh, what what's funny is, uh, in this new paradigm over the last couple of years, libertarian ideology is now considered right wing ish, which is kind of bizarre because libertarians really dislike both sides equally, right. Returns are like the weird kid. And they're like, Hey, we don't like Democrats or Republicans. Um, and they're, they're traditionally very like freedom oriented, you know, very socially liberal and fiscally conservative. Um, but which both I would say are very more, actually more liberal when you think about it. I mean, they're both about freedom and, and, and expression and ownership of, of, you know, enforcing property rights and just having basic freedom. Um, but yeah, it is. I do think it's really cool to see Jack Dorsey who's, um, you know, I would consider like more liberal and, and kind of a west coast liberal B uh, really embracing of Bitcoin. I think that changes the narrative. So yeah, I agree. The earlier narrative of Bitcoin being libertarian is being replaced by Bitcoin is kind of for everyone sort of narrative. Yeah.
Brett Messing: (51:28)
Yeah. I think we're wearing, I'm wearing my west coast liberalism. Um, I think getting Bitcoin over 50% renewable and, you know, 67, 8 will be super helpful because I think you're right Dan, but it's a nuanced argument and, you know, I just think it's easier to say it's sun it's when it's hydro, what do you care? Right. And, and I think that that will be the thing that will really end this FID Mo I don't know that we're going to win while you're right. I don't know that that's going to be the winning argument for the people that don't want to hear it.
Dan Held: (52:03)
That's tricky. I, I don't disagree with your premise. That that is a good argument to make around Bitcoin's energy mix. Uh, how much renewable energy does it use? What I have found in my experience debating folks is that even when you address that they move the goalposts. Um, you know, at first it's using too much energy and then, then you go, well, how about the existing financial system? And they go, oh, okay, well fine. But the energy it's using is bad energy. And then you give them metrics around that. And they're like, yeah, but actually Bitcoin is not, you know, I just don't really like Bitcoin. I don't think it's doing anything useful. And so I don't disagree with you, Brett, that's the logical way to argue it. Um, which would be to talk about its energy mix. Um, but I do think with these folks, what I've found is like the core root of the problem is they just don't like Bitcoin,
Brett Messing: (52:51)
Right? We've got to keep working on him, Dan, you know what I mean? It's sort of like, you know, like Martin Luther king said, you know, you gotta, you gotta keep giving people a chance and they'll eventually come around. So, um, sorry, John,
John Darcie: (53:03)
Anna's definitely the Martin Luther king of Bitcoin. And, you know, we're, we're bumping up against our allotted time here. Uh, so I want to cut it off there and I want to have you back on in the future, Dan, again, we were very excited about this talk. We have done the intellectual journey into Bitcoin. You've been a big part of that in terms of reading your newsletters. And so we appreciate all the work you've to educate people. Uh, and, and this was fantastic. So thanks. And we hope to have you on again soon,
Dan Held: (53:31)
I had a blast. Thanks for having me guys. And it does sound like you've done your research. I think these questions were really informed really in depth and a lot of fun to, to answer.
John Darcie: (53:40)
We appreciate that. We're, we're definitely, uh, you know, not, not as deep down the rabbit hole as you, but we're learning. And obviously we have a significant amount of exposure to Bitcoin. So it would be irresponsible for us not to be doing the homework, but thank you. And thank you everybody for tuning into today's salt. Talk again, we, we love engaging with an audience, which is our traditional community at salt that might not be quite as informed on digital assets and Bitcoin in particular. But we love doing these episodes of salt talks to educate people, you know, whether it be financial advisors, RAs, other alternative investors, uh, to help them learn and go down the same journey that we went down. So thank you for tuning in just a reminder, if you missed any part of this talk or any of our previous talks, you can access them all on our website@sault.org backslash talks and on our YouTube channel, which is titled salt tube.
John Darcie: (54:26)
They're all free for anyone to access. Uh, we're also on social media, we're most active on Twitter at salt conference. Dan has a fantastic Twitter follow as well. If you are so inclined, we're also on Twitter. Uh, in addition to Twitter, we're on LinkedIn, Facebook and Instagram. Uh, and please spread the word about these salt talks. Again, we love educating a broader cohort of people and growing our community, but on behalf of Brett and the entire salt team, this is John Darcey signing off from salt talks for today. We hope to see you back here soon.