Transcription
People are indifferent about Bitcoin. They're indifferent about Ethereum. The searches are down on Google. The RSI is at literally the all-time low. The fear greed index is worse today than it was after the FTX debacle. So, usually that's a good time to be buying something. We'll have to see.
>> Confident Bitcoin's price will recover because Bitcoin still remains one of the most pristine ways to transfer and store value. It is a blockchain that has never been exploited and it's [music] supported by a community that wants to ossify and protect that chain.
>> Welcome to All Things Markets. We have a guest tonight. It's a It's Friday evening just to date the show, June 26th, 5:00 p.m. Thomas Lee, a dear friend of mine, uh obviously strategist Fundstrat strategist, uh Bitmain uh CEO, uh man of uh many, many things, but a real visionary in our industry. And I just want to go over what is going on in your mind. Uh lots of people text me from time to time, Tom, about Bitmain. They text me about Bitcoin, Ethereum. I see you on TV. It's a 2-minute hit. I'd like a little more color from you that I can send out to our guys. So, let's let's let's start with the overall markets in crypto and the AI capital sucking out crypto. What do you think is going on more broadly?
>> Uh well, I mean, when when I, you know, sort of look at this from a high level, I I think this is a time of great technological innovation taking place, you know, uh in America. And it is very much an American and partly China story. And AI is making quantum improvements, you know, exponential gains. We started off with being amazed at complex reasoning and now we're talking about AI doing a lot of our job and and pretty soon robots. And that requires a lot of compute and a lot of energy. And it does require a lot of investor dollars. I I can understand the idea that if someone was tracking crypto as a narrative and then sort of comparing it to what's happening in AI, uh AI is going to on the margin capture incremental dollars. But, crypto I I think is not really a broken story, but it is going to have price lagging in the near term because the fundamental story is is compounding and crypto is still a really important downstream story to AI. I mean, I think that's really uh hasn't changed and and Wall Street has an outdated tech stack that they want to upgrade and that is going to be built on crypto rails. Um that story hasn't changed. So, to me, when I look 2 years out, I think the future is still we're tracking towards it, very important future or that's very crypto-centric. But, price doesn't have to respond today because, you know, it's you know, it's easier to buy the bottlenecks in AI.
>> Are we in a 4-year cycle for Bitcoin? Are we in a you know, the narrative was the Trump administration coming in. Uh we got the ETFs. We've got all of this stuff going on uh positively. Bitcoin's going to zoom to a price discovery zone. Uh it'll be half the market capitalization of gold. Uh that didn't happen. CZ, uh somebody we both know, colleague of ours in the industry said we're heading into a Bitcoin super cycle. Uh we're down 50% plus from the top. So, what do you think's going on there? Just the capital vacuum getting sucked out, narrative, thesis break, anything like that, Tom?
>> Well, it's it's I mean, I think there's two things about crypto that that haven't changed and that are playing out this year. You know, one is that crypto is a hyper-volatile asset. You know, so in the scheme of things a drawdown being 50% from a high, you know, as you know in Bitcoin's history, that's not even necessarily a correction. And the second is that despite crypto having a world of traders and people trading it, um the best investment decisions really have required people to have a longer time frame. And that's why I think the 4-year cycle is sort of part of that because for those that are long-term oriented and and they and and they may be tactical, then then timing is important to them cuz they they may not want to actually be even thinking about buying crypto until we get towards that early window of the 4-year cycle. So, that's really, you know, August to October. And then in people's minds, you know, that's prices, you know, it may be 50 or 60,000. Um I think that's really you know, a question for an investor. Like for someone who's new to crypto because they may be used to quarterly announcements, um you know, specific catalysts. But in the history of crypto, um we know that not only is it hyper-volatile and it's a decentralized, so there's no really there's no quote announcements. But we also know that crypto makes most of its gains in 10 days. So, the 10 best days drive almost all the returns in a year. So, if someone's trying to time their Bitcoin buys, if they've got a great model, I think it's going to, you know, that could serve them very well. But keep in mind Bitcoin has the best compounded annual return of any asset over the past 10 years or even the past 15 years. But what's interesting is if you exclude the 10 best days for each year in Bitcoin, you'd actually be down 27% per year. So, all the gains in Bitcoin basically come down to 10 days.
>> Why Why do you think that is? Tom.
>> Well, I think that's the actually um you know, in general the idea of 10 days accounting for all the gains is you know, the idea of you know, the the the mistake of timing markets. That's also true in the stock market. We've published this stat since 1929, the S&P has compounded at roughly 9% a year. If you miss the 10 best days, your return will and this is going to shock you, drops to negative. Um I believe the 10 best days average in the S&P 2,100 basis points, meaning your return drops to -10% a year. That's probably why the average person doesn't really beat the market because they're trying to time it. And if someone just buys the S&P and holds it, they're going to compound at 9% a year. So, in fact um in the last 3 years, the 10 best days have been a bigger driver. It's been over 24 percentage points. So, um last year you again you would have had a negative double-digit year if you did not stay invested the whole year.
>> Okay, so I'm a Bitcoin bull, you're a Bitcoin bull, I'm an Ethereum bull. Uh I I I think you could be the Ethereum bull. What do we say to investors here about Bit- Bitmain and Ethereum? Let's say I had a Let's say I had an $8 million position in Bitmain and it's now trading at around 3 million. What would What would your message be to me?
>> Well, you know, it's not the outcome that anybody wants. Ever- you know, if someone's buying a company that has a in a is focused and leveraged to an exponential future, you you know, you'd want the share price to go up. Um but I think Ethereum can't escape the fact that we're in a period where price is lagging fundamentals. You know, Ethereum has gained additional assets. So, more real-world assets are being tokenized on Ethereum. Ethereum the foundation is now upgrading and making quantum Ethereum quantum proof, adding privacy, all the things that are going to be future-proofing Ethereum. And I think if someone questions, you know, do we need decentralized blockchains in the future? We already know what Wall Street's doing. They are tokenizing. You know, most of the major funds and stocks that are being tokenized are being tokenized on Ethereum because it is the most widely used blockchain. And I think for someone who's really thinking about AI, you know, they need to keep in mind that the in the AI world, a lot of those engineers are also realizing that downstream of the AI story is a need to really prove identity and decentralized control. And I'll give you an example. It's probably not going to be too many years away when AI agents are going to be producing income for us. You know, they are going to be our delegated entities. And they'll be earning income, accumulating wealth. AI agents might actually become wealthier than than us. In other words, we're going to start to question whether we work for the AI agent or they actually work for us. And if if if it's a centralized system, then you get you end up with Skynet. That's why I think it's there's going to be a real focus on people relying on decentralized systems to protect humans against AI becoming too powerful. So, I I I would say, you know, there is no change to the idea that at the center of why you want to be involved in crypto is both the future of AI and Wall Street updating their tech stacks. But yeah, it's been no fun. This has not been a summer of crypto, you know, it price has been terrible.
>> You're mentioning the quantum resistance of you know, creating quantum resistance around Ethereum. Are you worried about the quantum story related to Bitcoin, Tom? And if not, why not?
>> Well, the challenge for quantum for Bitcoin is not that Bitcoin can become quantum resistant. As we know, it really has to do with how to handle the number of legacy wallets. And and we you know, the the number of estimates vary, but it's it's as much as a third of all the Bitcoin uh sits in legacy wallets that need to be upgraded. And uh everyone's weighing different solutions, right? Do they fork the chain? Uh do they burn Satoshis? Bitcoin um are there other ways to kind of whitelist or protect the coin so that if some you know, if if a quantum system starts to exploit those legacy wallets and takes, you know, 50 Bitcoin at a time uh could you make it impossible to spend? Um I don't know the answer. I do think the Bitcoin community knows that they're going to have to solve that. Um but that's probably where Ethereum has a somewhat easier time because, you know, uh they're able to both upgrade the protocol and the wallets and and and because of the the gaining functionality of AI systems a lot of the smart contract platforms are doing what they call formal verification, making sure their code is actually pristine and and and basically resistant to exploit. So, I I think I had a lot of faith that the Bitcoin community is going to figure this out.
>> So, it's it's a good segue to Michael Saylor, again another one of our colleagues and you know, somebody who I'm close to. Um I feel like he's become the Bitcoin narrative now. He feels like he is in the crosshairs of the short sellers. Uh, they're going to try to crack his capital structure. They're going to try to see if they can flush him out of the, you know, close to a million, 900,000 plus Bitcoins Bitcoin that he owns. Uh, what are your thoughts there? And how do you get the gun off of that bird, Tom? Or can you?
>> Um, well, you know, uh, for first and foremost, you know, MicroStrategy's future is tied to Bitcoin. Um, you know, and I'm confident Bitcoin's price, um, will recover because Bitcoin still remains one of the most pristine ways to transfer and store value. You know, it is, uh, a blockchain that has never been exploited. Um, and it's supported by a community that wants to ossify and protect that chain. Um, so I think as long as Bitcoin's price recovers, strategy is going to stage a big recovery in in his entire stack of pref pref and convertibles and debt. But, as we know, markets are like war. And imagine like a a formation of B-17 bombers flying over Germany, okay? And, uh, there's a plane that's falling a little behind. That's who the fighters are going to attack and try to to take down. And so, I think investors are viewing strategy's public capital structure, which is available to public markets, right? It's not like someone can go with a and exploit the Bitcoin blockchain. And they're going to test his capital structure. So, I think that's the the test he's facing right now. And I I that the best defense for him is to re-raising um and increasing his cash balance because that raising cash uh pro- pro- provides a cushion to the entire cap stack. Now
>> Raising cash without selling Bitcoin, right? Cuz I think that spoofs more because when he sells Bitcoin, he's sort of a central bank of Bitcoin. When he When he sells, it creates a spoofing, you know.
>> Correct. So, if I was Michael Saylor uh I would probably think that MSTR and raising cash through selling the common might be the best strategy, but I'm not Michael Saylor. And but you know, when I look at the cap structure, as you know that adding a cash cushion or adding more equity to the cap structure is really what protects um that fleet. And so, uh I would say to me, anything they can do to increase the the dollar amount of the equity cushion or the amount of cash is is really makes the most sense.
>> So, when I When I see Bit- Bitmain, and I want to fully disclose to people that I own some Bit- Bitmain, you know, I see a I mean, it's the largest ETH treasury. Uh Rob Yu as its chair, so I I know we have very competent management. It's producing yield, right? You have a staking association where you're getting you can call it income or additional Ethereum, sort of a flywheel that's adding to your Bitcoin stash. Uh you you know, so that's a benefit. It's also an institutionally accessible vehicle where it's easy for people to plow into. Uh you also have this piece of Mr. Beast, which I think is very undervalued, which uh I think it's a component to the story. It's also a component to the things that you're going to do once we get more uh clarity in terms of tokenization and we'll talk about the Clarity Act in a second, but so all those things make me a a Bitmain bull. If I miss something, add it. But the question I guess I have is what would it be that would make you a Bitmain bear? What would it be that would have to happen that would change your thesis on Ethereum and/or Bitmain?
>> Well, um well, that's a good question. Um you know, today Bitmain is operating in the mode that it is uh crypto winter spring. You know, I'd say more spring. And that's why we've operated with a very conservative capital structure. Uh the company keeps a very large cash position of about $600 million of cash. And we've staked um you know, about 80% of the Ethereum and that's generating over 250 million a year in staking rewards. So the company has uh free cash flow of several hundred million dollars a year and a and a huge um cash cushion available and has been making selective investments. I think we've disclosed our investment in Mr. Beast. Um and in 8 co. And we are working very closely with the spin-off entities that have left the Ethereum Foundation including E Labs. Um I think there's going to be several more entities announcing funding soon. Uh and we are taking a very proactive role. You know, we are working with entities like Sharplink and Joe Lubin and many of the core developers of Ethereum to not only strengthen and fund and grant the right sort of public goods within Ethereum, but we're also helping improve enterprise engagement and also do a lot of what I call forward deployment around AI. So, I I feel very confident that when crypto winter spring ends and the bull market starts that Ethereum is going to be a central player in all things that are going to be very relevant and you know, in that future financial services the whole industry is really becoming a tech stack. You know, money is becoming software and when you move money and makes it make it software and composable there is a a transformation of the economy and and that's really where Ethereum's going to shine because now the sudden stocks trade 24/7 but stocks trade on factors. I I think it's there's a enormous opportunity but yes, we are in the a period where price is is really disappointing and it's very frustrating as well.
>> You know, you know, Tom, we've been doing this a long time. You know, when I was sitting in the post FTX debacle and you were kind enough to invite me on a Fun Strats, you know, stream. Uh I talked a little bit about having the conviction related to Bitcoin. Of course, Bitcoin went from 15,000 to 126. I guess it's now back to like 58 or 59,000. But you know, there's times in my career where I've looked at something and said the market, like Buffett says, is manic depressive. It sometimes gets it right, sometimes gets it wrong. But tell us about your psychological constitution and your cool-headedness and what you would say to investors that are sitting on unrealized losses in Bitcoin or unrealized losses in Ethereum or Bitmain.
>> Yeah, well, um you know, I've experienced this before. I think what really has prepared me is, you know, I spent more than 35 years on Wall Street. And of those, I spent 17 years covering the wireless industry. And to me that those first 17 years really taught me about the difference between fundamental progress and price because wireless stocks subscribers grew 40% a year reliably. And tech spend and telecom cap backs and the innovation around wireless and it and its role uh was basically a parabolic rise. And um yet the stocks were highly cyclical. And in fact, they faced what I consider a huge perception issue, which is people thought wireless was just a yuppie yuppie toy. They didn't see the utility and how much value it was capturing. And so I I I saw stocks make huge moves and stocks suffer huge drawdowns, but to me um and many of my clients know this, that's really been the big opportunities. You know, it's during drawdowns that I'm reminded of the Japanese word for crisis, which is kiki. Um it's actually two words. It's danger and opportunity. People too easily focus on the danger. And in fact, that's your instinct, right? Self-preservation. But in every drawdown, you have to focus on the opportunities because just like Nvidia was range bound for several years, um and then had a parabolic move. Look at the memory stocks. They were kind of range bound for two years before they exploded. And in fact, I worked at JP Morgan 15 years. The stock was largely $17 for perhaps 13 of those 15 years. And where is JP Morgan now? You know, over $200. So to me uh I am used to witnessing when fundamentals are compounding, price doesn't follow. So, I I would say uh you know, we constantly test our thesis, but again, unless we are comfortable that we can trust the future of AI and let AI agents manage our wealth and our sovereignty, if we're comfortable with that, then we don't need decentralized blockchains because we can just rely on Skynet and Visa to control our future. But if we do care about that, that's that's why crypto is going to be extremely relevant.
>> All systems go? Thomas?
>> Yeah, I think people need to uh look, it's these are dark days and this was a very tough week for crypto. Perhap- perhaps part of this is window dressing because it is June 30th. Um and and people are circling the wagons, but you know, July is a new month, and so I I think that you know, sentiment is as bad as it can get right now.
>> All right, which in your career, 35 years, my career, 38 years, generally when sentiment has been this bad, that's usually been a good sign. You know, I went to an event today, uh people are indifferent about Bitcoin. They're indifferent about Ethereum. They're uh the searches are down on Google. The RSI is at literally all-time low. The fear greed index is worse today than it was after the FTX debacle. So, so uh usually that's a good time to be buying something. We'll have to see. I If you're cool with it, I'd like to check in with you in a month or so, uh and we'll have another conversation, but I think it was very helpful because I see on television, you're awesome on TV, but they never give you enough time to explain uh what you just did tonight. So, thank you so much for joining us on all things markets.
>> Yeah, thank you, Anthony. Yeah, let's talk in a month.