This week we were joined by two Dans: Dan Tapiero, the founder of DTAP Capital and 10T holdings, and Dan Matuszewski, previously Head of Trade at Circle and a member of the early Kraken team). Dan Tapiero is a gold bug investor and entrepreneur who has recently become bullish on Bitcoin, and Dan Matuszewski is a Bitcoiner who has built his career helping source, route, and provide liquidity for the Bitcoin market.
In this episode we discussed Bitcoin’s apparent correlation to traditional assets, generational differences in owning Bitcoin, posting Bitcoin as collateral, and the recent increase in Bitcoin’s liquidity. As always Brady Swenson, Swan Bitcoin’s Head of Education, hosted the discussion.
1:45 Pump up video
3:45 Most suprising story of Bitcoin 2020
8:16 Thoughts on Microstrategy news
14:29 What are you looking at in the Macroworld
23:58 Posting Bitcoin as collateral
33:09 What happens to all the money being printed?
39:29 Generational differences in Bitcoin ownership
47:44 Bitcoin’s liquidity
57:20 Bitcoin vs Gold
1:09:55 Wrap up
Hey, everyone and welcome back to Swan Signal Live. This is a production of Swan bitcoin at swanbitcoin.com. We have a great show for you today. I think it’s a very intriguing pairing. It should be a fantastic conversation between Matt, sorry Dan Matuszewski and Dan Tapiero. We’re going to go with Dan M and Dan T throughout this episode. We have the two Dans on right now. Before we jump in, we’re going to take a quick look at what we’re doing here at Swan. We built the safest way to accumulate bitcoin with automatic recurring buys. You can be confident when you send your friends and family to Swan, that we will treat them well. We’re laser focused on accumulating bitcoin for the long term. No distractions from altcoins, or trading. We’re dedicated to bitcoin education in our effort to help your family and friends become confident hodlers.
Before you do start sending them our way though, enlist in our referral program Swan Force at swanbitcoin.com/enlist. You’ll stack 25% of Swan’s fees on all of their purchases for three years. You can stack some meaningful sats that way for sure, and your friends and family will get $10 of bitcoin droped into their accounts when they start stacking. All right, let’s get into this one. Dan Matuszewski, the principal and co-founder of CMS Holdings. He is the former head of Circle Trade and before that, he was on the early Kraken team. Dan, welcome to the show, man.
Thanks. Glad to be here.
All right. Then we have of course, Dan Tapiero. He’s a well-known global macro-investor. Co-founder of 10T Holdings and Gold Bullion International and the founder of DTAP Capital. Really great to have you on Dan, thanks for being here.
Nice to be here.
All right. Brekkie, we’re going to kick off the show by rolling a video actually. It’s a hype video that dropped earlier this month. I thought we’d get everybody hyped up and excited, and then we’ll roll into this one. Brekkie, can you roll tape on that?
All right, that was fun. I feel like I’m at a pro sporting event and I’m ready for the team to come out. The team here today is of course, Dan M and Dan T. Guys, I’m going to start with you Dan T. It’s been quite a year for bitcoin. That video showed us a lot of, I would say pricing developments for bitcoin this year, of course, starting out with the very big shift in the macro environment due to the economic shutdowns. So, I would just like to kick off with talking about what for you is the most surprising story for bitcoin this year.
Yeah, most surprising. Unexpected for you.
You know, I don’t know that there’s that much that surprising. We had the wipeout in March and I thought that was pretty much of a gift to get right back near the level, the lows of last … With a macro backdrop, rate’s at zero, the economy impaired for a while, I think the end of fixed income or at least government bonds as a proper or functioning asset class, all the things that happened this year pretty much are supportive. I don’t want to say that … I don’t want to be disappointed in the price movement. I think 10,000, 11,000 is a great place to be.
Just the other day I saw that for this time of year, this is the all time high. If you go back and let’s say this is September 30th of last year versus September 30th the previous year, record number of days over 10,000. I think everything is according to plan, going well. Macro backdrop just became more supportive and if you want to be surprised by anything, I guess you could say the price should be higher, but I don’t think you play that game with bitcoin. I think you own it, and you sit with it, and you’re patient and it’ll do what it’s going to do, when it’s going to do it.
Yep, being patient is absolutely key, of course. Dan M, did you have anything surprise you this year? There are several events I think you could point at, one in particular that I’m going to bring up if neither of you guys do.
Surprise wise? I think the biggest thing that surprised me market wise is the stickiness of the equity correlation post March. When the world was falling apart and everything was just getting grab for liquidity, it made sense, I got it. The world goes to zero, at the same time, everything’s beta one. But it’s really persisted post. And I get the recovery aspect of it and all that mania, but I mean, we’re like three or four months out of that now and it’s still been pretty tightly correlated to equities larger than it used to be. It’s not a one for one lockstep anymore, but it’s definitely a lot higher than it was pre, and I don’t know if that’s the new normal or what’s going on with that. I don’t know if that’s any indication that there’s larger institutional participation on the trading side like and CMEs growing. Maybe that’s why it’s sticking, but that’s been a little shocking to me mostly because I thought bitcoin would be far bigger before it had such a persistent correlation to larger macro markets. It’s happening a little sooner than I predicted it.
The other thing is just the vol has been very low post March, and especially the last couple of months. It has been exceptionally low in my opinion. Implieds right now are low 40s. I think that’s pretty crazy given what’s going on in the macro backdrop, yet bitcoin is somehow shaking that off. Those are the two big things that I’ve seen. I mean, also we had the halving and that seemed to be a non-event to people. Not that it won’t have structural differences and supply demand imbalances going forward, but I don’t know. That whole thing happening very quickly, quietly, I feel like we don’t even talk about it anymore. But yeah, that would be the big things I see from the market.
Yeah, yeah, okay. Well, what do you guys think about the MicroStrategy news? Did you think that we’d see a major public corporation take bitcoin in as a reserve asset? Dan T?
Well, I guess you could say that was a little surprising, but I think we’ve all been waiting for that. I think the degree he’s put on, especially relative to his company size, it’s a very gutsy move. I mean, I certainly applaud it. I mean, we’re all impressed with how quickly he’s come along. I mean, probably a year ago he was nowhere there. He was nowhere near where he is today. And when you read the statement, I the analytical framework that he used to get himself there. The Paul Tudor Jones piece was very important this year, but Paul was still I think looking at bitcoin through a little bit of an old lens, the old global macro framework.
He still calls it a speculation. It acts a little bit as a hedge for him. Saylor takes it to the next level and says, “I love it, I own it. I’m here big. I’m not selling. It’s the new standard.” I think he’s very, very early. The world that I’m from where there are older guys and more asset allocation people, older portfolio managers and then CEOs of big corporations, they’re nowhere near that. But look, there always has to be a first and I think he’s a great spokesperson, and he’s got tremendous passion. So, I’m thrilled that he’s done it.
Yeah. I think that’s what surprised me about it, was that he went in and called it a bitcoin standard, a corporate bitcoin standard. I mean, putting bitcoin on your balance sheets, yeah, I think we expected that to happen with some corporations coming up sometime in the nearest future but the way that he went in, the size and the absolute conviction that he developed in a short time in bitcoin was surprising to me. Dan M, what’s your thoughts on the MicroStrategy move?
It’s a lot. It’s a material amount of the corporate treasury.I don’t remember the numbers offhand, but it’s shockingly large when I looked at it in comparison to the size of them. I don’t think it really was shocking that a corporate, especially a US public corporate had put it on their balance sheet. I thought it would’ve been a Twitter or a larger tech company that would’ve put a material amount, maybe even the same amount as the MicroStrategy dollar wise was in, but their balance sheet would’ve been much larger. It is very gutsy as Dan T said given that. I mean look, bitcoin is volatile. It’s very possible that this doesn’t work out great for the short term for them, so I don’t know. I mean, it’s very concentrated. That being said, I do think we’ll see more of that. This is not the first time I think … It’s not going to become one and done. I don’t know if it’ll be the same conviction level, but I could see there being some allocation to it, amongst specifically tech companies. I think that’s where the natural fit is.
Yeah, yeah. Dan T, you posted a tweet about the MicroStrategy news and you included a table that had the top, or three of the top I should say investors in MicroStrategy, outside investors. One is the BlackRock Fund, the other is the Vanguard Group. Obviously, two massive asset holders and fund managers in the United States. Then the Norwegian Government Pension Funds you pointed out as a an overlooked aspect of this news. Could you talk about why that might’ve been overlooked and why that could be significant moving forward?
Yeah. I mean look, they don’t have direct exposure, and maybe they weren’t even aware. I’m sure they’re aware now. It’s very small exposure, but I think it’s something. Look, the Norwegians have been very cutting edge. They’re a large sovereign wealth fund that other sovereign wealth funds follow. A lot of mega institutional people, fund managers follow them. So I’m just thinking, look, if the Norwegians wake up and they say, “Hey, we own a chunk of this company, look what they’ve done with all their cash. They own all this bitcoin. What’s that about? Let’s put 10 research people on that and figure out what that’s about.”
These large organizations have almost unlimited capital or unlimited resources and if you want to put five to 10 guys on this who are young guys and say, “Figure this out. Is this something we should have one or 2% of our portfolio in?” You’re really going to set off quite a storm. Because look, for the Norwegians that would be … What did we say? They’re about a trillion? So, that’s a $10 billion dollar position. Then you get other people following them, and then that’s the path to adoption. Now, I think that’s still a bit of ways, but it’s a toe dip and I think it’s something that could happen and we could see in the next year or two.
Yeah. I mean, it’s definitely putting bitcoin if it wasn’t already, I’m sure it was already, on the radars of these investors. The Norwegian government’s pension fund is over $1 trillion, BlackRock and Vanguard manage $15 trillion combined. That’s the kind of size that we’re looking at of companies that are being exposed to the idea of bitcoin, and I’m sure watching very closely, especially after this move from MicroStrategy. So the macro environment is changing quickly right now. There’s a lot going on, a lot to watch. I’d love to hear Dan T from you, what you are watching right now and in the coming months to … Let us know, or give us a little insight to what might be happening in the nearest future in the macro world.
Yeah, thanks. Look, I think March, April, May, my shorter term vision was very clear. My focus has been bitcoin and gold. A substantial part of everything I have is focused on those two things, and the move in the equity market also. I think it was relatively clear. Every central bank, almost every government of significance around the world added an unprecedented amount of liquidity, took rates to zero, or negative in the case of Japan. It really is all hands on deck by the authorities, the monetary authorities. So that was very supportive, but we’ve had over 50% move up in the equity. We’ve had a nice move in bitcoin and Ethereum. There’s been a whole fire lit underneath the subsection of the bitcoin world. DeFi has exploded. Dan M probably should get into that.
I mean, the liquidity conditions are very supportive. I would just say in the short term … And actually look, I thought we would have this big move into the election primarily because Trump has been, I don’t want to say manipulative of the market, but when it goes down he’s been very supportive. And if there was ever a time for him to be supportive, it’s now. I thought that was clear. I think the next six months to me are not as clear as they were in March. I mean, I could see consolidation. The gold price at 2000-ish could consolidate for months. I don’t know. I think what is very clear, at least to me, is the long term. Again, March was short term and long term clear, but the long term is very clear because I think there has been a structural shift after COVID.
I think work-from-home is semi-permanent. The move to everything becoming digitized, companies being able to function remotely and in a decentralized way is totally new. Zero rates, and extremely low rates on bonds has been something I’ve been focused on because, look, I mean, if you’re a global macro guy in the 90s and 2000, you made a vast chunk of your money in the drop in interest rates. And even if you’re an equity fund manager or holder, the drop in the rates exploded the multiples. So everyone has benefited, and I think that trend is done. I’ve been saying that the most important trend of the 20s for asset allocators, money managers myself is, what are you going to do with that portion of your portfolio that for the last 30 years has been in bonds?
The traditional portfolio is 60:40 or 70:30, that’s equity or assets to bonds. And if you’re holding 30% government bonds at 30 basis points or 50 basis points and you’re a pension fund and you have liabilities, your dead and you got to get out. One other thing is that the hedge portion of that old traditional portfolio, meaning that when you had a recession, or things slow down or the equities took a pause, you always had that fixed income to kick in for you that supported your portfolio. Now you don’t have that. If things soften again, and in the next few years we’re likely to have some softening, the bonds aren’t going to go much below zero and you’re going to …
In my view, the first thing people are going to go to is gold. Gold does have those hedge characteristics, and look, it’s super liquid. I think eventually they’ll go to bitcoin to, but look, gold trades $50 trillion a year. It’s a trillion-dollar asset. Bitcoin is a $200 billion asset that trades 4 trillion. I think the total cryptocurrency volume last year was 4 trillion. So if you’re one of these large funds like the Norwegian in fund and you’re thinking about, “What do I do with $100 trillion globally that’s in fixed income?” Again, I think gold and I think eventually you move to bitcoin. There are other alternative assets, but … That’s why the long term for me, the macro is very clear. I think equities can also do better, but equities are going to get way more overvalued in the years to come just because I just don’t see any momentum for rates to go up and for them to stay at zero. I’d stopped there. Sorry Dan M, I went on a little bit there.
No, don’t worry about it.
This is what we brought you on the show for, man. Don’t worry about going long there. Dan M, what do you think, man? What do you see, future actions, the Fed over the long term? Are we committed to this path at this point? What’s the inevitable conclusion of this fiat money experiment in your mind?
Yeah. I’ll preface this all with, I don’t follow it to the same level of granularity that Dan T does, mostly because I care about it in the context of crypto and bitcoin. But bitcoin in particular, the factors that I see that moving in around the timelines that we’re trading in particular, they’re not as dictated by those larger macro factors, but you’ve still got to pay attention to it. Like I said, the correlations have been going up more and more, so it’s becoming more and more of something we have to pay attention to, which I find unfortunate but I think it’s the reality of the asset class growing up.
But anyway, I’m going to generally agree with what Dan T is saying where I think you have just tremendous easing and liquidity being pumped into the system that really pushes everybody out the risk curve. You see a movement from bonds to stocks and then stocks to, call it private equity, to venture capital. It’s just like everyone’s pumping out in terms of what their risk tolerance is because they’re getting no yield further up that stack. That naturally is going to force money to flow into crypto. There’s also just the fact that it’s expanding so quickly, that money is going to land in bitcoin regardless.
And I think in particular, a lot of people will be drawn to it, like in gold there’s the same framing. There’s always this argument like, “Well, I can just get X for my money as interest. Why would I put it in this thing that doesn’t yield anything?” But that doesn’t really matter anymore because nothing yields anything so you’re like, “Well, all right.” So I guess it’s not necessarily like, “Oh, I can get this fixed rate interest payment on it, whereas gold which is giving me nothing or bitcoin which is giving me nothing,” to, “Oh, I can actually just treat these on par, and this one doesn’t inflate.” I mean, bitcoin does have inflation but it doesn’t have the … It has a fixed plan on it all, but it doesn’t have this unknown inflationary aspect to it that fiat currency can have.
I think also, you see there’s yield in crypto too and bitcoin as well. You can earn interest on your bitcoin. I remember talking to the guys at BlockFi about this. When they opened up that bitcoin interest account, they had a lot of people that were coming to them specifically going like, “Oh, so I can buy bitcoin and then I can lend it out, and I can get this yield?” They weren’t even drawn to it necessarily from that first initial, “Oh, this is something that’s free from fiat currency.” It was more like, “Oh, I can own this and this gets yields. This has underlying value that will stick to it.” I would not be surprised if that actually has some sticking power to pull some people into that asset class as well.
And look, you can roll GBTC and just make like 15, 20% a year anyway. That’s not a bad trade. People are going to see that, and you’ve seen huge inflows move into that specifically on that trade. So yeah, I don’t know. I think that trends, they’re very much going to continue. But, I’m bid all risk assets through all this. There’s going to be some nonsense through the election, there’s no way there’s not, but you zoom out on this thing, I don’t see how this trend slowed down at all. I don’t see any end in sight for this increasing of liquidity and also just inflation in risk asset prices. And in that, I very much include bitcoin.
Yeah, yeah. You mentioned something there Dan M, about yield, bitcoin yield. I know that Raoul Pal has talked about this in last month’s GMI newsletter. He called bitcoin pristine collateral and talked about the future development of a yield curve on bitcoin as collateral. Dan, I saw you tweet about this, Dan T. You referenced the pristine collateral quote from Raoul, and you also had called it in another tweet impossibly perfect collateral. Can you talk about that idea, bitcoin as collateral and how you see it developing in terms of yield on posting bitcoin as collateral?
Yeah. I mean look, I love BlockFi’s business. I think the yield thing is great, it’s a bonus. In fact, they’ve just I think it was a week or two ago, they are partnering with Paxos on PAX Gold and offering 4%. I think in the next few years you’ll have … Again, I have a physical gold business that I started 10 years ago. We sell and store physical gold. I think though … And I’m also a holder. I think that there’s some portion of people’s portfolios that they’ll be maybe happy, I don’t think they’ll move all their physical gold or maybe gold that they have in futures or GLD. But to be able to pick up 4% with a PAX Gold token, lending that out on BlockFi, I mean, I think that’s a huge innovation. Part of the reason I love this space, what I’d call the digital asset ecosystem, there’s real innovation going on. I think you’re taking a little bit more risk than if you just have it in a vault in Zurich. There is a little bit of credit risk, but 4% is a lot.
That was just to address something Dan M mentioned. I’m also excited about that, the beginning of these yield curves as they say, as Raoul said. In terms of pristine collateral, I mean look, I think that gold is a pristine collateral. Not quite as pristine as bitcoin, but gold is considered a triple A piece of collateral. It’s large and liquid, et cetera. But, I think bitcoin is a lot more than gold, because gold is a store of value and I think it’s fantastic as that. And if you have a big portfolio, you should have five to 10% in it. But, bitcoin is a lot more than just a store of value. It’s this security apparatus, it’s the monetary protocol for the internet, or at least I think it will be.
Jack Dorsey recently said he thinks by 2030, everyone transacting everything on the internet will be on bitcoin. And whether it is bitcoin, or on bitcoin, or whether not every transaction needs such incredible security and other lesser chains develop, it’s unclear. I mean, certainly bitcoin, and I know Swan’s very focused just on bitcoin, but it’s the most important asset. Yes it’s a store of value, but again, it’s this security mechanism for all things of value on the internet. Now, what’s that worth? I mean, I’ve talked about that. And, how much would it cost to actually build that from scratch if you had to? I mean, it’s trillions of dollars.
When Paul Tudor Jones says bitcoin is the fastest horse, I think that’s right. I think bitcoin does outperform gold, certainly $5 trillion. It’s at 200 billion now in the next 10 years. And it’s because it is pristine collateral, the scarcity, all of that, that we know. But for me, that value of this truth machine that I talk about, this almost self-levitating security apparatus, I mean, it’s genius. So yeah, I undersell bitcoin often. I don’t want to get two crazy people to think he’s lost it a little bit, but that’s how I see it. What can I tell you?
Isn’t that part of the problem, though? It’s an interesting point that you just said there Dan T about how you don’t want people to get this thought process on you of that. That stigma still very much sits with it, and I think that is in itself one of the issues that comes up with it as collateral. People judge it on it and we’re still not past that stage. Sorry, it was just the point I wanted to make. You probably didn’t even realize you’re making it.
Yeah, I think it’s very early. I think the fact that the language that we use to describe what bitcoin is, is still, I mean, I don’t say it’s confused, but bitcoin’s value is different things to different people. It just shows you how early it is. It hasn’t even … And forget about then discussing Ethereum and some of the other things that are maybe less pristine and that are more experimental. Without even getting into them, because that I would say is as clear macro assets. But even Vitalik in one of these recent interview said, “Yeah, Ethereum is more experimental, whereas bitcoin is not.” I think that’s important. It’s not to take away from these other things, but bitcoin has become a macro asset in my view.
And that’s part of the reason why you see some of the correlation going up, because there are all kinds of traders and hedge fund guys that are trying to trade bitcoin off of little macro events here and there. I’m not really too focused on the squiggles, and so that correlation is only short term. The asset’s gone up. We looked at it the other day. It’s up 236% annualized for the last 10 years. That to me doesn’t have a correlation with anything ever in the history of financial markets, or really in the history of assets. Anyway, I’ve got to hold back. Sometimes you get a little too excited.
That’s all right, we like to get bullish here. I’ll just say for our viewers, especially people newer to bitcoin, we have quite a few watching. Swan brings in customers who are new to bitcoin all the time, and they watch the show to figure out what’s going on. When you do put bitcoin into a yield producing product like BlockFi, you are taking risks, of course, and you should make sure you educate yourself on those risks. If you’re looking for a bitcoin based loan, you could go to a company like Unchained Capital. You can put your bitcoin into a multi-signature account where you still hold one of the keys that are required to spend that money, so you can see that your collaterals is safe in there. There’s a lot of research there, but watch for risks and do your own research. Dan M, let’s-
Yeah, I mean, things have an interest rate for a reason. No one’s just giving it to you for no reason. Keep that in the back of your mind. There’s always a cost there. There’s not zero risk. It’s a good point to bring up, especially people getting into this new. Especially getting into crypto in particular, there’s just a lot of traps because it is … It’s just free and you can interact with anyone and anywhere in the world, and that can open things up for exploits. So, always be careful and vigilant.
Yeah, absolutely. I’d love to talk a little bit more about the macro environment here, and Dan T has been posting some good stuff. You should definitely follow Dan on twitter, @DTAPCAP. He posts some great analysis. There’s one here that stood out to me in your recent tweets and it’s about excess liquidity in the market. It’s reached an insane level in terms of past excess liquidity levels against the S&P 500 Index. What does this mean to you? What’s going to happen to this excess capital? Where’s it going to go? I know that you’re bullish on residential real estate, bearish on commercial real estate, et cetera. Where do you think this money goes?
I’m sorry, I missed a little bit of that question there. You were chiming in and out.
Okay. I was asking about this chart that you posted on Twitter.
That’s okay. This chart that you posted on Twitter about excess liquidity. It’s at an all time high against-
Oh, you mean the M2?
The M2 chart?
Yeah. I mean look, as a macro hedge fund manager and portfolio manager for over 20 years, you spend most of your time looking at data and trying to understand data, and what that means for the future of the markets. Trends and data sometimes start earlier than trends in markets. That’s why Twitter for me is like a diary of some of the things that I look at. I’m looking at all of this stuff for my own portfolio, and you find something that really sticks out that’s really interesting, and macro nuggets. My analysts used to be … I always used to say they’re digging for nuggets. Almost gold nuggets, but just digging for nuggets and that chart just shows you how extreme the situation is.
It’s the M2 year over year increase that for the last 20 years, we’ve been in the zero to call it 10% range, and then all of a sudden, the chart has gotten destroyed meaning that it’s moved to a new realm. It’s so extreme, and so different from everything in the last 30 years, which is the length of my career. It’s forcing me to say to myself, I have to think about everything that I think about or that I have thought about in a new framework. I’m not exactly 100% sure what that framework is but if I thought that liquidity drove markets, and this is something Druckenmiller talks a lot about, measures of liquidity and changes in liquidity.
Then, this is a three X or a five X because you have not just the US of being this aggressive, you have the whole world. I mean, look at what happened up in Canada. They’ve had a fraction of the cases of COVID we had, but they’ve injected … Their central bank balance sheet I think is up 500% to ours, which is up I think only 100. I think it was the central bank balance sheet. Anyway, the point is you have the whole world doing this. So that chart, it’s breaking you into a new world. I think that certain assets can go to places that people can’t imagine. Gold to four or 5,000 in the next five years, bitcoin can go to 300,000-plus, the equity market can go up still quite a lot more over the next five years.
So I think we’re really entering a period that could be the booming 20 kind of thing. And again, I think about the next five years. As I said, I’m a little unsure in the short term, the next six months, but that liquidity, yeah, residential real estate, I mean, I think you’ll probably have a housing boom that’s bigger than anything we’ve ever seen. Throw the millennials in there and borrowing at 2%. Commercial real estate is a problem for a while. I guess what I’m saying really is that I think that there are areas that are going to develop and grow in the next five years that we’re not quite aware of just yet. It’s because that money will go somewhere, and I don’t think it just stays in bonds at a zero yield.
I wish I could be more specific for some of your listeners. What I will say is that every time I find myself thinking the way that I used to, I’ve stopped myself. I think that’s the old framework. Get yourself out of that. Part of the way I do that is by throwing myself more into the bitcoin, cryptocurrency, digital asset world. Reading or engaging on Twitter and conversations, just learning more and more because I do think that this world is growing up side by side with the legacy world and that at some point, they’ll be, I don’t want to say a switchover, but I do think that it’s going to become much more prominent. Yeah, much more, much bigger.
Dan M, we have this excess liquidity on the sidelines, historic levels. Another chart that Dan T posted and I pulled out to talk about shows that those aged 55 and over owns 75% of US equities in 2020. That figure was 52% in 1990. Meanwhile right now, the under 40s hold just 4% of the equities in the United States, which is an absolutely astounding difference. There’s a generational divide here clearly in asset accumulation, wealth accumulation. The millennials have suffered historically in the United States, the worst generation in terms of economic performance through their early earning years. What does this reality indicate to you for the futures of equities versus crypto, which is the industry that it seems like you are placing your bets on in terms of career, and I’m sure investments?
Yeah, definitely got that bet on. That pretty much just tells you pace at which assets have just grown relative to wages for, I don’t know, 30, 40 years. I’m sure Dan T’s got some great stats on it. But the end result is, the asset prices have moved so much higher, faster, that you just kept falling further and further behind if you already didn’t have some level of wealth, or some assets that you could accrue value on. I think that’s the big separator there. Now, obviously you can’t take your assets with you when you pass on so that wealth has to move down and back generations. It’ll probably just happen a little bit later in the life of that generation, but I don’t know.
I mean, I think there’s a real argument there. I don’t think this means anything in any short duration. This is a longer thing, but there’s clearly a demand for bitcoin amongst this generation. It was that great … I think it was Charles Schwab, or Fidelity that put out that chart of the top holdings of GBTC by age and it was all skewed basically 35 under. That to me was just saying that there’ll be a rotation into bitcoin. Asset class rotation will most likely happen at some point. You’re taking something that’s huge and you’re pushing it into a much smaller asset class, they’re going to level out, but you’ll get so much more of a multiple on the one that obviously has to catch up to the larger one.
But that doesn’t really matter in the short term. This isn’t something that’s happening overnight, but I do think it’s going to cause some more social angst. If we do get this housing boom, which I actually by that entire thesis that this has money has got to rush into the system somehow and you’re going to keep pricing out an entire generation, that doesn’t really sit very well. There’s going to be people that continue to opt out of the system, or just priced out of it indefinitely. But as it pertains to bitcoin, yeah, I think that’s a huge bullish narrative that’s going to stick out the back. That’s always going to be there, but I don’t let that dictate shorter durational trading activity.
Yeah, fair enough. Dan T, what are your thoughts on this generational divide in wealth accumulation?
I mean, I think it’s integrally tied in with bitcoin and the digital asset ecosystem? I mean look, the young people have a much greater facility with technology. I mean look, if you believe it or not, in high school my senior year, I wrote my history thesis in pencil. I mean, on paper because there was nothing to … It wasn’t until I got to college that you had the Mac. Anyway, the point is that, look, I think the generational shift is woven into the bitcoin adoption thesis. I think look, anyone over 50, certainly over 55, 60 has a hard time with bitcoin. They just can’t conceive of it, and I’ve spoken to many, many people in that age category. And under 40, even not in the financial business, I get it. There’s just something intuitive about, “Yeah, of course this makes sense. Why hasn’t this existed already?”
So, I think the big shift happens, Dan M, I think the big shift happens when guys who are 35 now, in the next 10 years become the heads of the Norwegian Oil fund, or the guy around 40, 45, you get younger guys moving into important positions in that big institutional allocation world and I think they’ll start to move into it. I work on an investment committee for an endowment and I was able to convince the committee to put 1% of the overall endowment into bitcoin and a little Ethereum too. The point is that those older guys, they’re very thoughtful. They thought about it. 1% is not a crazy allocation, it’s a toe dip. And again, I’m in the middle on that Gen X. So, it starts with once this is … Just get off zero, go to 1%, and once this is about my age, so it’s that group.
The next group is going to be, they’re managing the fidelity fund a guy 10 years from now and he’s going to say, “Well, we got to have 5% in,” or, “We got to have 10%,” or whatever it is. That’s another beautiful thing about this, is the wind really is at your back and because the millennials have not grown up in this equity culture, their first instinct is not to allocate to equity. Their first instinct is, “Okay, let’s look at the options. I’ve been screwed a few times before. I couldn’t get a job after 08 wait for three or four years,” COVID again. I mean, there are a lot of things that have hit that generation, and so that’s made them question what is the best allocation for them, and bitcoin fits right in there. So, I do think it’s really tightly connected.
And look, for me, again, I’m a little … But people 10 and 15 years younger than me are thinking out, and there’s no better way. And the talent in the space is much higher than in any other space that I’ve seen. Just the raw intellectual capability, entrepreneurship, desire to make money. I mean, the true capitalists are in this space, they’re not really … I mean, under the age of 35. They’re not really in the hedge fund business. They’re not really guys I don’t think, working at … The 30-old-guy working at Goldman Sachs or Morgan Stanley. Those are super traditional organizations that are not on the cutting edge. You’re not going to be able to make a killing like you can make in this space if you’re focused and paying attention.
Yeah. Dan M, let’s go over to you. You have been working in this space. You’re one the major talents of your generation that’s moved into crypto and bitcoin, and this is where your career has been. You worked with the early team at Kraken, and you obviously ran the trade desk at Circle, you’ve got your own holding company now. The trading and liquidity infrastructure of bitcoin has come a long way in the past, well, 10 years since there was literally no trading infrastructure in the pre Coinbase days with Mt. Gox and the other very unprofessional exchanges. That’s professionalized over time and it’s gotten to the point in the last couple of years that there are trusted exchanges and liquidity providers to the point where someone Michael Saylor can trust to come into the space and deal in bitcoin in a professional manner. So, you’ve been in the space and seen this happen, can you talk about the evolution to this more professional trading and liquidity infrastructure that we have now in bitcoin?
Yeah, totally. I didn’t have any great foresight that any of this would get to where it is. I just took a pretty big risk pretty early, in particularly just going to work for Kraken, though I drifted into moving this thing as my career choice probably right around late 2012, early 2013. So, I’ve seen a lot. I’ve seen the evolution. I’ve seen a lot of bad, I’ve seen a lot of good happen. But, it’s actually interesting you brought up the Saylor thing, because he bought what? All in I think it was like 400, $450 million worth of bitcoin. It doesn’t really matter the exact amount, but there’s not really a super noticeable market impact on that.
You can’t look at the chart and be like, “Oh, that’s where he bought it, it’s clear,” and that’s wild. That is a very large notional to move through in a pretty short timeframe relatively, and the market was able to source that liquidity for him. That’s a big step forward to where it’s getting. In terms of how this has really evolved, the big thing that’s changed is everything used to be spot. Everything was a spot transaction. Dollars, bitcoin, swap them, that’s how it all happened. The exchange side is the intermediary on the whole thing. They were of marginal quality, especially in the beginning of trustworthiness and it was get in, get out.
Maybe you can keep a little on there and provide liquidity if you’re looking to make a little scratch on the trading side, but in general these things were super toxic. They were going down every other month, and you were … It was really something you had to do and you weren’t super looking forward to it. That’s changed. The custodians, the exchanges, they’re a lot more trustworthy. That being said, bitcoin’s great and you don’t have to trust anybody if you don’t want to so you really have no reason to keep that custody with those exchanges if you don’t, which is a very important point to make. But that being said, you can now keep real balances with these places.
There’s real trading desks that are operating in this. Every large Chicago prop shop has an arm on this thing where they’re pumping liquidity into the markets, and futures got really liquid. CME in particular was a turning point because that was a traditional market not blessing it, but saying that, “We think this is warranted enough to give access to all of our clients to trade.” I think that was a really big point for a lot of traditional liquidity providers that normally were like, “Look, this exchange sits in a domicile that I’m not super happy about. I have to fully collateralize this thing and I got to keep a lot of exposure to it, and I don’t really understand my risk profile looks because my collateral can just be yanked out from me at any given point in time.” To something where they were like, “All right, we can trade this, we get this. It sits in our risk systems. We get CME, we get our FCM, this is a model that makes sense to us,” and the liquidity has gotten really good.
And now you have a lot of offshore venues offering derivs too, like Huobi and OKEx. OKEx has been doing it forever. You got FTX, you got BitMEX, you have Deribit. There’s a lot of venues now where you can get real access to margin and liquidity and that has made it possible for things like what Saylor where you can go into the market and grab half a yard, 100 sticks of risk and not just move the market indefinitely, or have to do it in the spot market, which is super expensive and can really blow the price around. So, t’s night and day. This is not even a recognizable world from four or five years ago. This was an unfathomable thing that you could be moving this kind of size in and out, and that you could have access to this liquidity.
It’s still bad though. I’m not I’m not saying that this is like, “Oh, we did it. It’s finally fixed.” It’s still not great, and it’s not great because all these venues you have to collateralize independently. If I have bitcoin on Coinbase, I can’t trade against the price on Bitstamp, or I can’t access liquidity on BitMEX. They’re all disjointed. There’s no real prime structure. You can access all the different markets at any given time, but you have to collateralize every one of them at the same time. That makes what we do very difficult, but it’s also one of the reasons we have a role in the market, is that we’re shifting all those flows around and keeping things tight and efficient. But, that shows where the market is still very nascent, and that’s very small. That’s a solved problem in larger mature markets that we just really haven’t gotten to yet.
So there’s still a good deal of work that has to get done, but it’s very liquid now and it’s a real testimony of the entrepreneurs that moved into this space and took a lot of risk and built a lot of things that didn’t really make sense at the time. If you were at Kraken in 2013 I could tell you, even if you had all of the trading activity in the world at that point, the business didn’t make sense. You weren’t going to ever make enough money to justify it. You had to have this belief that the asset class was going to grow tremendously, and the trading volumes would grow and this is going to be a much bigger thing, and that really worked out for that vision.
And even when we were running the OTC desk at first when I was at Circle, if we would trade like five or $6 million a day, in the beginning we’d be like, “Wow, this is great. This is crazy. I can’t believe there’s $5 million worth a bitcoin that’s changing hands with us.” Then by the peak we were doing three, 400 million in a 24-hour span, and I was like, “This is bonkers. This is huge. This is unfathomable that you could ever have this much notional moving around.” It’s really, really grown on that side but I said, there’s still a ton to do though. This is not by any means done.
Dan T, you are obviously a professional investor. What’s been your experience with the development of bitcoin’s trading and liquidity infrastructure?
Well, I mean look, I haven’t been in it as long as Dan M. I mean, my introduction to it was through my gold company in 2014. Gold Bullion International, GBI integrated that year with a firm called Bitreserve, which today is Uphold. We were the first place that you could buy and sell physical gold to buy and sell bitcoin and Ripple. That business took off. It actually still exists today. Liquidity was very tough back then. But I didn’t really engage again until Q1 ’19 when the price had collapsed. I didn’t participate in a real way in the move up in ’17, and then I saw an opportunity when the price came down a lot. But, I’m not in and out trading it. I allocated what I wanted to allocate at that in Q2, ’19, and that’s it basically.
For what I needed to do for DTAP Capital, liquidity is fine. I mean, I have it spread out in eight different places and I’m happy with that. Again, I’m not in there trading it day to day and … Sensitive to the liquidity issues that Dan M is. I would just say that for the rest of the world though, bitcoin is still not that liquid. There are entities out there that will take 30, $40 billion orders. You can buy a few billion dollars, certainly in a day easily. Again, 50 trillion annual volume. So for the big money, bitcoin is still too small. I mean, it’s more of a novelty. But I think that’s changing and as the market cap goes up, it’ll of course change as well, and that’s the way it is with all bull markets. Things always start at a low price, they’re always liquid in the beginning and the liquidity is always greatest at the very top. So, I know we’re nowhere near the top.
Good point. All right, Dan T, we’re going to start with you on this one. How do you think of gold compared to bitcoin? Are they complements to each other both as a hedge against fiat inflation, or are they competing against one another for that role?
Look, I think, and the theme of the things I talk about on Twitter is you really should own both. Gold owners are the original hard money advocates. I think that bitcoin people denigrating gold owners is a mistake. I’ve said before, they’re like cousins. I think you’re first adopters amongst the institutional, or just large pools of money are people who understand gold and understand that one aspect of bitcoin is that it’s a digital form of hard money. So, I think they are connected. Maybe over time some people who might’ve bought gold … buy bitcoin, but I also think that there … who own bitcoin, who might look at gold and say, “Well you know, there are some interesting attributes to it. It is hard money, and it is a hedge to the equity side of my portfolio.”
I don’t think bitcoin, I mean, it can act as a hedge, but I think bitcoin is really doing its own thing. As I said, any asset up 230% annualized for 10 years in a row is doing its own thing. So I don’t really think that bitcoin is a hedge to a institutional portfolio. I think it can act that way, but it’s not as clean as gold. Also, look, there’s some risks to owning physical gold. I mean, first of all physical gold is not [inaudible], so it’s free of certain types of regulation. Physical gold can be completely private and bitcoin is not completely private. I mean, there’s record there of all the transaction. Companies like Chainalysis have gone in the deep dive. So, that’s another aspect of gold.
There are also benefits in certain jurisdictions to owning certain types of gold … Get down in the weeds of physical gold there, especially globally, there are a lot of attributes. I mean, I’ve just mentioned of them. But I will say that, people are saying, “Oh, gold’s … away.” The network effect that exists is just something that will take any asset a very long time to get to. Just think about this. I mean, any person who are in the world, whether they’re in the desert or in the jungles in South America, or in China, anywhere, they know the sun, they know water, they know food, and they know gold. Every person on this planet knows what gold hold is, and that’s very hard to dislodge. It’s embedded in the psyche of human beings.
Bitcoin maybe eventually can get there, but it’s not getting there tomorrow. I think it’s cutting edge and as I … Bitcoin is really much more … Gold, because it’s itself a security apparatus. And it could be that as I said, transactions of major … transactions. There’s a decent chance that it will get done using bitcoin or on the bitcoin network in coming years. I think honestly for someone today if someone just asked me off the cuff, I think you have to have at least 1% in bitcoin, at least fivefold if you’re a little younger. I mean, maybe it’s 10% in bitcoin and 7% in gold. I don’t know what it is, but I think you have to have it and that’s the first stage.
One last thing I would say, and I don’t think bitcoiners are often aware of this, is that … really don’t own any gold yet. Globally I think it’s like one to 2% of institution’s own gold. So, I think that this is just the beginning of a bull market in gold, and I’ve said other places … I did an interview in February or March. I hypothesized that this is the first real bull market in gold, because gold is going to become used as a proxy for cash, or cash plus duration, which would be bonds and we’ve never seen that before. Bonds have never been this unattractive versus gold ever.
So, I think the first wave of capital that’s coming in will come into gold first, or in bigger size into gold. It’s almost funny because bitcoin people think gold is more prominent than it is. In the traditional world, it’s not really considered part of the asset allocation mix. That’s another reason why it’s still very early in bitcoin, early for bitcoin. After they’ve bought the gold, I think then they’re more amenable to bitcoin, and that’s among older people, too. I would say it’s easier for younger people to go straight to bitcoin because they probably don’t have the liquidity problem that institutions have.
Right, right. Dan M, do you hold gold or are you all bitcoin in terms of your hard money assets?
I’m goldless, but that’s not any … I would be a gold holder, I just am more tied to the bitcoin side of it. That being said, I think the Venn diagram of those two pools of people is pretty overlapping. I think there’s a lot of noise that gets made about it. I think also it gets … I think bitcoin as a community in general tries to tie to being a better version of gold, or gold 2.0 or whatever, digital gold, whatever the narrative is because gold’s so valuable. It’s like, “Oh, we want to get to that level. This is something we should be pushing.” So if anything, it’s like I don’t know, what’s the saying? You copy something is the greatest form of flattery or something that? Not that it’s copying it, but you’re just trying to tie yourself into it. I think that’s the big aspect going on there.
That being said, I think the big difference between the two of them in particular is, there’s a ton of legwork you have to do to really get yourself familiar and operating, or really wrap your head around bitcoin. I think it’s a lot harder to take as a stepping stone versus gold, which is just innately taught to you from a child like, “Oh, this is valuable. Pirates want it,” kind of thing. It’s part of cultural lore. It’s been around since people have really been around. That’s a lot easier to just wrap your head around initially versus like, “Oh, there’s 21 million of these and they’re minded,” and like, “Every block’s 10 minutes,” and like, “This is how you get a wallet.”
That is a big burden on somebody to pick up out of the gate and I think that’s why you probably see a skewing a lot of times towards people who are technically savvy, or people who are younger and have time pick it up who get into that, as opposed to gold which is just a much larger, broader … I mean, gold’s been around forever. It’s got that on it. That matters a ton but I don’t know, I don’t find them to be communities that are in conflict as much as I think gets pushed as a narrative out there.
Yeah, I hear that man. I too am goalless at the moment, but I have been looking closer at it especially in this macro economic environments.
Yeah. I looked into this because I was like, “How would you get a gold bar if you really wanted to do it?” I put the question on Twitter and I got a ton of craziness. But a couple of friends of mine actually gave me a real answer. I haven’t done it though, but I do. I do want to take that ride. I want to see how you-
See, it’s very-
It was the other way too, Dan.
I mean, it’s very easy. That’s why I co-founded GBI in, it was late ’08, early ’09, was to make it very easy for people to own physical in the best possible way and also to hold that outside the banking system. I mean, there are only one or two places that I remember back then outside of the bank. I thought, “Well, you’re owning gold is a risk to banking systemic risk. Why would you ever hold your physical gold at JPMorgan or Morgan …” It just didn’t make any sense to me. That’s why we founded GBI. We store in seven vaults around the world. We lease space from Brinks and Loomis. I think we’re the highest quality institutional provider in the space, institutional just meaning white glove. And on pricing, I think we’re very good too. So I think it really is easy but if we haven’t reached people you, we still … on marketing. The company, frankly, has been really more of a technology and ops company because we built this platform and we integrate with other firms that have distribution.
As an example, if you had an account at Merrill Lynch, if you had a financial advisor … Again, this traditional world. 3 trillion in assets at Merrill Lynch Wealth Management, 15,000 FAs. If you wanted a bar of gold and you wanted it stored in Singapore, your Merrill FA would just call up his system and push his button, and then that’s us. We built that platform for them, and then we’ve white labeled that business to a whole bunch of other clients and we also own direct to consumer businesses. So I don’t know, we are doing our best effort to make it easy for you, Dan M, and but I guess we haven’t done it well enough, so still some more work to do there.
It goes both ways, though. People get into gold and they find bitcoin because of the ideas of sound money, it goes the other way too. People get into bitcoin, the ideas of sound money lead them to gold. So yeah, it goes both ways. And maybe bitcoin will supplant gold as pirate money at some point here in the future.
I didn’t mean that. I feel that’s taken out of context. Literally every child knows about it. It’s just ingrained. You get where I’m coming from with the whole thing.
Totally get it. I totally get it. I just had to jab there a little bit.
Yeah. I know that’s the clip that’s going to get played now and it’s …
All right, well this has been a fantastic discussion guys. I knew this would be a fun pair. You can follow Dan M, or Dan T @DTAPCAP, D‑T-A-P-C-A‑P. You can follow Dan M @cmsholdings on Twitter. Swan Bitcoin is @SwanBitcoin. We do have daily buys coming soon. We have weekly buys. We’ve had great demand for us to move to daily buys. You can catch those tips even better. Accumulating bitcoin slowly over time with the dollar cost averaging strategy has proven to be the most effective method to accumulate bitcoin and establish a good cost basis for 99% of people, all the non professional traders out there. Speaking of making it easy to acquire, we make acquiring bitcoin as easy as possible, as safe as possible at Swan Bitcoin. So go to swanbitcoin.com/Satoshi and you’ll get $10 of bitcoin dropped into your account when you start stacking at Swan. Okay guys, thank you so much to Dan and Dan. It was a lot of fun. We’re out. Take care of there.
Episode 8 –Andy Edstrom and Ansel Linder
Episode 9 –Rockstar Developer and Jeremy Rubin
Episode 10 – Bitcoin TINA and CK Snarks
Episode 11– Gigi and Knut Svanholm
Episode 12 –Adam Back and Preston Pysh
Episode 13 –Alex Gladstein and Matt Odell
Episode 14 –Robert Breedlove and Tuur Demeester
Episode 15 –Isaiah Jackson and Max Keiser
Episode 16 –Gigi and Udi Wertheimer
Episode 17 –Aleks Svetski and Jimmy Song
Episode 18 –Stephan Livera and Marty Bent
Episode 19 –Mark Moss and Ben Prentice
Episode 20 –Samson Mow and Parker Lewis
Episode 21–Lyn Alden and Jeff Booth
Episode 22– Robert Breedlove and Cory Klippsten
Episode 23 — Saifedean Ammous and George Gammon
Episode 24 –Jameson Lopp and Eric Martindale
Episode 25 –Preston Pysh and Andy Edstrom
Episode 26 –Lyn Alden and Nic Carter
Episode 27 — Erik Townsend and Yan Pritzker
Episode 28 — Max Keiser and Tone Vays
Episode 29 –Preston Pysh and Andy Edstrom
Episode 30–Raoul Pal and Vijay Boyapati
CMS holdings–Dan’s company