Editors’ note: This is a transcript version of the episode of Alpha Trader that we published earlier this week. We hope you enjoy.
Aaron Task: Welcome to a special edition of Alpha Trader, Aaron Task and Stephen Alpher coming to you at the start of the Thanksgiving week. Obviously, highly shortened week for the markets, but still a lot of action, a lot of activity to talk about, and full disclosure at the end of last week’s episode, we were done recording and I said to Steven, I think we’re forgetting something big here.
I don’t know there’s something nagging at me we haven’t talked about in a while. And it was Bitcoin, which has on been a huge move in recent months really crossing 18,000 over the weekend. So to help explain all this and give us some insight on where we are and how we got here, we are joined today by Dan Held. He’s currently Growth Lead to Kraken, which is one of the largest and oldest Bitcoin exchanges. Dan’s been in the crypto space for many years. He’s worked at five crypto companies, founded a couple of them. Dan, welcome to Alpha Trader.
Dan Held: Thanks for having me, guys.
AT: So as I mentioned, it’s been a huge move for Bitcoin, passing 18,000 for the first time, last week, since it’s all-time peak in December 2017. And I think many of us in the financial media remember, the last time we were here three years ago, and there was a lot of frenzy around Bitcoin and there was a lot of coverage of Bitcoin. What do you think is the biggest difference between this latest move here in 2020 and what we saw in December 2017?
DH: That’s a great question. And I’ve been around in this space for eight years, and I’ve been through three of these cycles. When I first got into Bitcoin, it was worth $10. So it’s pretty wild to see how far it’s come. And with this cycle, it’s very, very different than the other three I’ve been in.
This one in particular has the rise of institutions coming in. Bitcoin being recognized as a Gold 2.0, that thesis is really taking hold. And that was my original thesis when I got in back in 2012. But now we’re seeing these very large macro traders like Paul Tudor Jones, and we’re seeing large institutions like Citibank and JP Morgan, writing research where they see Bitcoins, they see an appropriate price point at $100,000 to $300,000 per Bitcoin.
And this is in stark contrast to the other previous cycles where Bitcoin was largely disregarded by the existing financial institutions. And now they’re starting to embrace that Gold 2.0 narrative. And I think it’s because of, during COVID different governments across the world and central banks, engaged in fiscal and monetary policies that were largely were very heavily geared towards money printing and things that would potentially dilute the value of their local currencies and Bitcoin, given its $21 million hard cap stands in stark contrast.
AT: Yes, there’s a lot to unpack there. And I really like the idea of Gold 2.0 and want to talk more about that. Let’s just talk short term price action. We’re talking here, mid-morning, Eastern time on Monday and Bitcoin is off a little bit at 18,300 and change. Near term, there’s been a lot of talk about, we’re going to all-time highs, do you have a thought on the near term price action in Bitcoin?
DH: Yeah. So, I’ve been looking at these charts for eight years, and I’m not sure I can tell you exactly where it’s going. But, certainly the macro tailwinds that Bitcoin has are phenomenal. We are also coming off of some Bitcoin related moments that typically signal the start of a bull run that is post having.
So Bitcoin’s issuance scheduled a number, Bitcoins issuance of new Bitcoins over time, follows this very precise schedule that is known in advance. Every four years, the number of newly issued Bitcoins in each block is reduced in half. What that means is that if essentially Bitcoins capped at 21 million Bitcoins that will forever be printed, that’s the maximum amount, and they’re being printed until that 21 million limit, and that essentially happens over a very long time period.
So, I think when we look at the typical macro cycle for Bitcoin itself, the halving represents a very important moment, because the newly issued coins drop in half, which means there’s less selling pressure, and that usually leads to the rise of a bull run after as it has done the previous few cycles. So we’ve got that we’ve got the macro environment, but more locally, I think we’re seeing a snowball effect occurred.
Like locally, as in the last few months, we’re seeing a snowball effect occur where folks like Paul Tudor Jones, and Citi and JP Morgan, these are starting to really compound on each other, then you’ve got the rise of like PayPal. So PayPal cash app, Robin Hood, you can buy Bitcoin with your traditional brokerage now.
And so, this is very different than how it used to be where you’d have to transfer money to like Kraken and go buy Bitcoin at a spot exchange. Now you can buy it with your broker that you’re familiar with. So, there’s a lot more demand, less supply. And I think that’s some of the basics here in terms of what the short term setup looks like.
AT: Right. It’s also known fidelity, they set up a new unit to let their clients invest in digital assets. And you mentioned PayPal, letting U.S. users buy, hold and sell a range of cryptocurrencies. And I should also note, you mentioned the snowball effect, got me thinking about Ethereum has also been on a huge tear, sort of in tandem with Bitcoin in recent months for the uninitiated, and I count myself among them. Can you give us a quick one on one what’s the difference between Bitcoin and Ethereum?
DH: You know, I’m not sure if I can simply do that in 30 seconds, but I’ll try. So let’s see. So Ethereum was created as the idea of like, a world computer or a decentralized app platform. That was the original marketing material that they put on their website. And so, Bitcoin was created to be a Gold 2.0, Ethereum said, how about we take that blockchain technology and build a decentralized App Store, essentially?
So instead of like instead of Apple or Google, the App Store or Google Play Store, you would have the Ethereum App Store where you would require no permissions from governments or platforms to run your application on the Ethereum network. That narrative over time has changed quite a bit. Blockchains inherently have very, very narrow use cases.
You can’t just sprinkle a blockchain on it, and something magically become easier to use or more valuable. Blockchains like any other technology have trade-offs. And so they found early on was Ethereum and Bitcoin that they are scalability trade-offs. Blockchains are very, very poor at scaling. This is a good thing because it preserves what makes them valuable, which is decentralization.
Now Ethereum recently has kind of pivoted more towards Bitcoin’s direction as being money. So the short answer is that Ethereum started out to be — started out being a world computer. I think that’s what they should focus on. Now they’re kind of a blend of world computer plus money.
Stephen Alpher: I wanted to just turn back to Bitcoin quickly here. It’s kind of one thing for Paul Tudor Jones and Stan Druckenmiller, who are iconoclastic and inflationistas so to speak, they’ve been bullish on gold many times over the years.
It’s kind of one thing for them to show interest in Bitcoin. It’s a whole different story for the CIO for BlackRock’s fixed income business Rick Rieder, who also kind of gave his approval of Bitcoin, saying it’s better than gold – it’s a lot easier to pass it around than gold bars. So like I said, one thing for Paul Tudor Jones to be bullish on Bitcoin it’s a whole different story, when somebody from BlackRock says it.
Do you worry that this wave of acceptance, that at least in the short term, Bitcoin could be kind of set up for a significant pullback?
DH: Yeah, I get where you’re coming from which is really at the top of like a bullish sentiment. I think, we’re just getting started. I think, of course, we’re going to see some drawdowns. Bitcoin is historically very volatile. So, we would be remiss not to see a 20% or 30% pullback sometime. I’m not sure when, let’s put it this way if I could time the markets, well, I’d be a trillionaire.
But, and that’s where you have some like, some very funny Bitcoin cultural values like huddle. So huddle is holding on, while the price fluctuates a lot. So Bitcoin is very volatile, I think we’re definitely going to see some drawdowns. But structurally, I think Bitcoin is very well set up to be for this to represent the beginning of the bull running.
I totally agree with you. It’s one thing for Paul Tudor Jones to be into it and another thing for BlackRock to come out and talk about it. You’ve got negative interest rates on the horizon, which already exist in some countries. You see these eases giant misallocation of capital in the markets and where do people find a return and when you look at Bitcoin, if you look at like how it improves your sharp ratio in your portfolio.
And with these bigger, more well-known folks buying in, they’ve reduced career risk, which now make it acceptable to add to your portfolio, and you’ve got increased liquidity and infrastructure like Kraken-in another exchanges in this space. We are one of the largest spot exchanges out there. We’re starting to see a really, really phenomenal foundation for I would say one of Bitcoin’s biggest bull runs.
SA: Just one more that kind of the institutional angle. There’s one person who hasn’t kind of thrown his hat in with Bitcoin and that’s Ray Dalio. One of the reasons that keeps him from liking it is he thinks if it gets too big, governments are just going to outlaw it. And you had some very interesting things to say about that at the end of last week, in regards to whether governments can or cannot actually outlaw Bitcoin. I was wondering if you could talk about that a bit.
DH: Sure. So yeah, Ray Dalio, by the way, we all really, I mean, I’m a big fan of Ray Dalio. And I think given enough time, he already has started to question the system and question the decisions that have been made by central banks. And I think it’s only a matter of time before he finds Bitcoin, he probably just hasn’t spent enough time reading into it.
And that’s typically how this works, is most folks dismiss it because it doesn’t sound — it sounds like funny money, and then they start to research it. And they realize, wow, this is actually really, really cool. When it comes to if Bitcoin gets big enough, will governments ban it? I think there’s just a — at first, it’s a very dismissive way to look at something.
An idea that has come is, you can’t really stop it from eventually actualizing. You can so, for example, and there’s a few things that I dived in on in my newsletter article that came out last week. What I wrote about was, can governments kill Bitcoin? And when we look at how Bitcoin is set up, game theoretically, it becomes very unlikely that governments could ban it. And here’s why?
One, Bitcoin is very decentralized. So, the architecture with Bitcoin mining and nodes, is set up to be very censorship resistant and resistant to attack by governments. That’s why Bitcoin uses so much energy and that’s why it’s so slow. It’s built that way to resist a government. Now, as Bitcoin grows in size, governments become more aware of its impact on the world and impact on their ownership over their money.
Governments will start to feel threatened naturally, because Bitcoin does compete with their local fiat currency. The problem is, Bitcoin, governments move very slowly. Once Bitcoin is actualized and realized as a threat, the ownership level in certain countries might be 20 to 30% of the population. You can’t ban it, then because as a congressman, or president, you’re not going to get elected if you ban it, because 20% to 30% of your population won’t vote for you.
So you start to see this weird game theoretic setup where Bitcoin ownership now has now gives these people skin in the game votes to make sure that Bitcoin survives.
AT: Right. And you wrote in that post, which I found fascinating as well, and I encourage all our listeners to read it that. Furthermore, trying to ban Bitcoin will increase its visibility. This is commonly called the Streisand effect, a social phenomenon that occurs when an attempt to hide remove or censor information has the unintended consequence of further publicizing that information, unquote.
In other words, if the government bans Bitcoin, more people who maybe haven’t caught on are aware of it would say, Wait, what are they banning? What is this thing and they’ll get interested? So I think the idea that the governments might ban Bitcoin, I think is, I don’t want to call it a straw man, but it’s maybe a step too far.
But I have always been of the mindset that if Bitcoin ever really did present a threat to the U.S. dollar as the world’s reserve currency, that the U.S. government might do something to restrict its usage. And this gets into obviously policy weeds of the ways they might be able to do that through the Fed or Treasury or other mechanism, the banking system wherever it might be.
But I’m curious if you’ve heard anything from the Biden administration, the incoming administration about their views on Bitcoin and cryptocurrency in general that either gives you concern or makes you feel more encouraged that there’s going to be even greater adoption?
DH: Yeah, that’s a good question. So a lot of people think that Bitcoin is this Wild West unregulated currency. Now, the Bitcoin protocol, you can send money to anyone, there are no restrictions and you custody — if you custody your own Bitcoin, no one can take that away from you. So on the protocol level, Bitcoin has no regulations.
Now, on the Fiat to Bitcoin level, there are many regulations, for example, like Kraken, we have CFTC, SEC, IRS, they’ve all issued regulations around Bitcoin. So Bitcoin is very heavily regulated as currently also offensive. When we look at the Biden administration, if they will be better or worse, Steve Minuchin was very, very anti-Bitcoin, so you couldn’t get much worse than him.
Well, I don’t really have a good read on supposedly Biden is eyeing a few candidates for different roles. That might be more pro Bitcoin, but I haven’t seen anything definitive yet. And given that Biden is very — not really he’s basically anti-capitalist, when he’s looking at raising taxes across the Board, I don’t really see him embracing Bitcoin, because Bitcoin is a very, very free markets type protocol.
It’s not — it’s antithetical to any sort of socialist leanings. So I don’t see him being a fan of it. However, like Biden’s going to surround himself with a cabinet and folks that will want to build a brand for themselves. I mean, that’s what this is all about. They’re not actually here to serve their constituents that are here to serve themselves.
And so, they’re going to want to think about how to position themselves and they probably want to be more pro innovation than be a really hardliner, we’re going to protect the big banks. So they’re putting a bit of a quandary where they need to look pro technology and pro innovation and pro newcomers. So in that regard, Bitcoin might slip by.
AT: Interesting. And so obviously, one of the names that’s been talked about for Treasury is Janet Yellen. I don’t recall her talking much about cyber currencies when she was Fed Chair, but you probably follow that much more closely than I did. Do you have any sense of what Janet Yellen’s views are on cryptocurrencies? Generally, if she were to become Treasury Secretary, because you said it can’t get much worse than Mnuchin?
But you know, coming from the feds, she would probably have certain points of view on it, that might not be very pro.
DH: You know, okay — it’s actually pretty interesting to see like, for example, the St. Louis Federal Reserve branch, they have some pretty cool research that’s come out that indicates that the Fed really has a good grasp as to what Bitcoin is, and Jerome Powell said that Bitcoin, in 2019 he said that Bitcoin is a speculative store of value. I mean, that’s pretty wild.
Back when I was in Bitcoin, when it was worth $10, we were considered nuts. We’re considered crazy. And now we’ve got the Chairman of the Federal Reserve saying, Bitcoin is a speculative store, value is pretty wild. Janet Yellen in particular, I don’t have a good read on her affinity towards Bitcoin or not. But that’s a great question, but I haven’t really dug in on that.
SA: And speaking of Yellen and Powell, I was wondering if you could explain this phenomenon that’s been talked about a lot, central bank digital currencies. To me the whole thing of Bitcoin is, is decentralized. If a central bank comes out with a digital currency, that’s not at all comparable to what Bitcoin is in my reading, is that right?
DH: That’s exactly right. I think a lot of people must — they saw when Bitcoin came out, they thought it was just a digital currency. But it’s not that it’s decentralized. And so, when central bank digital currencies became popular, people mistook Bitcoin for competing with those. But you’re right, they’re completely centralized. And they’re actually I consider them somewhat of an abomination.
You’re talking about people being able to bank directly with their central bank. Okay, what that means, I mean, this is insane, right? Like you have a government and that is in complete control of the economy. It could censor individual transactions, it could tax a transaction.
So for example, if you pay for something, it could automatically remove sales tax. They could also penalize certain people of a certain race or region. It’s pretty scary. It’s about 1984 on steroids. I don’t even think they thought you could do things like that in 1984. So central bank digital currencies are being touted by central banks as, Hey, this is innovative, that allows us to be more efficient.
That’s a bit of BS. It’s more about its complete control over every single transaction in the economy, which is, I think, in very stark contrast to what Bitcoin is which is the absence of a centralized control.
AT: I want to take a break here and we’ll be right back with more with Dan Held. You’re listening to Alpha Trader.
Recorded Message: Take a deep dive into futures to arm yourself with knowledge to expand your strategy with confidence. See what adding futures can do for you at cmegroup.com/alpha.
AT: Welcome back to a special FOMO edition of Alpha Trader. Our guest is Dan Held. He’s currently the Growth Lead to Kraken, the largest and oldest Bitcoin exchange. He’s been in the space nearly a decade, worked at five crypto companies.
And Dan, I want to go back to what you mentioned at the beginning of this podcast and what you said got you into to Bitcoin at the first place, this idea that it’s Gold 2.0. And I think a lot of folks on the outside have looked at Bitcoin as an alternative to the dollar or a place to speculate with money that you don’t want in the stock market.
What do you see as Bitcoins relationship to gold? Because I think a lot of the philosophies that you’ve referenced on this podcast, sort of a libertarian, anti-government point of view or reason a lot of people like gold, maybe the same thing appeal to those who like Bitcoin and other cryptocurrencies, are we reaching a point where people are saying, I want to be in Bitcoin or gold? Where do you see that coming?
DH: Yeah, there’s a couple things to unpack here. One is, I would say like in aggregate like the world’s population affinity for products that are anti-government, so that’d be gold and Bitcoin, right? I think with COVID, a lot of people have been critical of the government’s response, whichever region they’re in about how they responded to the virus.
This has led people to start to question and then also the bailout programs are very poorly targeted. For example, some of the U.S. bailout programs build out very large companies, while millions of small businesses failed. So, I think that people are starting to have a moment where they start to question the nature of the reality, where they start to question their government’s policies, and why it’s beneficial to them.
Pretty soon, they’re going to start questioning their money. This happens in these sort of really very, very rare events like a pandemic, where people, it shocks people into thinking into zooming out and rethinking their world around them. So when they start to venture out and look at alternatives to store their value that’s outside of the government control, you’ve got Bitcoin and gold.
Now, gold is the quintessential store of value, it’s and I don’t think I have to explain it. Everyone knows what it is, everyone’s seen it movies represented as that. Bitcoin is a digital version of that. And here’s what’s similar; one, you don’t have a central controlling mechanism. So gold is found across the world in mind. But there isn’t a central ledger that controls all gold.
You can mine gold in your backyard, if you found some you can buy gold from someone else. There isn’t a centralized factor there. Now, there is a little bit of centralization with the custody of gold. But that’s not too big of a deal. Bitcoin was built similarly to gold, in the fact that it’s not centrally controlled. You also have a very limited issuance schedule. So gold is somewhat rare on Earth.
Now, golden spaces are plentiful which makes the gold standard, not scalable for a civilization that moves beyond Earth. And so when we look at gold issuance, we know that it’s a very that essentially, not a ton of gold is going to be found tomorrow, we know that is scarce.
Bitcoin plays into that, but takes it to a whole another level. So Bitcoin has a $21 million hard cap, no more than 21 million Bitcoins will ever be created. What both of those represent are trustworthy monetary policies. You don’t have to trust a centralized issuer that they won’t manipulate their monetary policy that they won’t change it, when under pressure.
Where we’ve seen the Fed and I mean, the Fed is talking about having a mandate to solve global warming. What did you guys see that?
AT: Yes, yes, it’s even more head scratching than centralized, central bank digital currencies.
DH: It’s insane. I mean, we have truly lost the plot in terms of our economic leaders who lead our economies and how they think through it. I mean, we’ve seen politics become so intertwined with that, you really can’t distinguish it anymore. And in that base money should have zero politics involved. And so that’s where Bitcoin is created. And by the way, Bitcoin was planted in the middle of the 2008 financial crisis.
AT: Yeah, thank you for saying because I don’t know, as we were talking about people questioning reality and the value of money today, we’re not that far from the financial crisis where a lot of people realize like, wait a minute, what is going on here with the financial system and the bailouts, then we’re obviously very heavily tilted towards the banks.
And none of the CEOs, those banks that almost ran the global economy into the ground, suffered any consequence material that we could see for their action. So yeah, I do think it’s, it’s probably not a coincidence that Bitcoin has risen from those ashes. And certainly the pandemic has, I think, reinforced as you mentioned, people’s questioning of government and reality.
And we mentioned your threat the other day about government spending Bitcoin, you had a great line in there about fiat currencies only, quote, unquote, backed by the faith of those who hold it in other words, the faith and the governments that issue it. And not to get political or conspiratorial, but obviously, we’re living in a moment where half the country doesn’t think the election is over. Right.
So, faith in our institutions is under threat right now. And you know, maybe the dollar is the last thing to fall I don’t know I don’t want to go down that you know. It’s Thanksgiving week, like I don’t want to go down that path but you could kind of see it down the road somewhere. But so again, but is that a reason for me to own Bitcoin now? Like is it beyond that in your mind? I’m guessing it’s the latter but I’ll put it to you.
DH: Yeah. So to kind of round out my thinking with gold versus Bitcoin too, because a lot of folks might not, they might go, Oh, well, I understand gold, why would I want Bitcoin? So, gold does doesn’t have a predetermined supply schedule. We don’t know how much gold will be found, we believe we hypothesize it will be scarce.
Bitcoin is perfectly predictable. It’s the most predictable thing in our universe in terms of monetary policy. Anyone can run a Bitcoin node and evaluate every single ledger balance and the feature issuance schedule, which is pretty beautiful. It means that, in terms of information being incorporated into the economy, at the base level, we can absolutely trust the monetary layer. When it comes, that’s…
SA: Right. It’s not like, who’s the next Fed Chairman? What’s the Treasury’s policy? And which fiscal stimulus is there going to be with the new government etcetera, etcetera, yeah.
DH: Yup. Isn’t it crazy how we sit here and read up like the facial expressions of Jerome Powell or something?
SA: Yes.
DH: Yeah. We’re looking for body language. And people like to do tea or coffee this morning. That might be I mean, it feels a little briefcase.
SA: Yes, exactly.
DH: It’s like…
SA: Yeah, yeah.
DH: Yeah. It’s like, we’re shamans. It’s like, he’s a shaman and we’re trying to figure out what he’s going to what smoke color is going to come out of the stack? It’s pretty ridiculous when you look at it from like an objective view of like, what should an economy look like? And how should it be predictable?
So, Bitcoin is that next evolution of money. It’s the final evolution of what money always should have been, which was completely decentralized, completely known and trustworthy. And that’s where I think Bitcoin is. It’s a — when you look at the existing system, you look at, Oh, who do I trust? That’s a — I would encourage everyone to go down their own rabbit holes of evaluating how many layers of trust they trust, and with their money.
With Bitcoin you can hold it directly, you don’t have to tell anyone about it, you can hold it on a USB drive, you can hold it in your head, you can memorize it, or you can bury it in the backyard on a steel plate. That sort of money and Bitcoin is you can acquire it from your next door neighbor, or an exchange like Kraken.
It’s a really, really different type of beast than gold, or gold is very physical, and you have to move it around, it’s very hard to move, you can’t divide it very easily. And it’s really hard to verify, most gold bugs don’t carry around like a spectrometer to go check that they’re gold valid, whereas in Bitcoin, you can do that with very, very minimal effort.
So yeah, I think in this world where people start to question their government, they start to question decisions that are made, and investors, especially the wealthy, and this is where my opinion differs from a lot of bitcoiners.
My unpopular opinion is that Bitcoin will serve the wealthy much more in this cycle than they will retail, where the wealthy will see it as a way to escape their financial system. Because as socialism creeps across the world, they will look to store their value somewhere that’s not suitable. And Bitcoin is one of the very few places that that offers.
AT: Right. We’ve certainly seen that from wealthy people in Russia and China, other places like that, trying to get their money out of those systems and Bitcoin has been a vehicle for that.
SA: But even Aaron, I would even say something like, Julian Robinson owning thousands of acres of land in New Zealand with an escape plan, the planes gassed, they wait and just in case, you hear stories like that too.
AT: Absolutely. Yeah, yeah and right. If we only had that kind of money, we could do that, too. But we don’t so, let’s bring it back to investing. And the few minutes we have left, and Dan I really appreciate your time and insights here today.
So I do not — I don’t consider myself a gold bug. But I’ve always kept somewhere around 5% to 7% of my portfolio in gold or gold assets, basically as a hedge in case something really goes wrong with the financial system. And over the years, it’s served me well. So there’s a couple of questions that I want to ask about this A, what role do you see is Bitcoin playing in someone’s portfolio?
Today, I would say a traditional investor who’s probably got most of their assets in the stocks broadly, some fixed income, maybe some gold like, what do you see as the role of Bitcoin in a portfolio today?
DH: Bitcoin does represent that that safe haven asset but what’s kind of crazy about Bitcoin is that it’s a safe haven asset like gold but has an extremely much higher, like a much higher upside, the volatility is much more intense. So, when you add it to your portfolio, it typically improves your Sharpe ratio, it depends on the other assets in your portfolio.
But Bitcoin is a when I first got in, it was $10. So it’s up to 1000X from there. So not only do you get the exposure of a safe haven asset like a gold but you’ve got a little — it’s a little bit more fun. It’s got a little bit more upside to it. Bitcoin is only around it was at a $400 billion market cap today. If it competes with gold, gold’s at $9 trillion, but Bitcoin also eat with other monies and other store value assets like real estate.
Now, I know real estate has a function of actually being a home and has some utility there but, largely real estate is an investment. So Bitcoin competes with all — Bitcoin competes with all of those at a $400 billion market cap. Bitcoin is, I would consider a very good — I think there’s an…
AT: Under-represented, yes under-represented is probably the word. So what would your advice be to someone like the co-host of this podcast, you currently don’t have any Bitcoin or Bitcoin assets to get involved today after this huge run? It doesn’t sound like you think the train has left the station, it’s too late or other cliches like that. What would your advice be?
DH: Yeah, so, first and foremost, only invest in what you know, if you want to invest in Bitcoin, read up on it. There’s a lot of great resources that you can tap into. For instance, like if you go to danheld.com, you’ll be planting Bitcoin, planting Bitcoin as your zero to one. It’ll get you from understanding why Bitcoin is created to why it’s valuable and why it solves a problem.
But yeah, understand it, get to know it, when you’re comfortable with it, then I recommend investing into it. I personally have my basically my entire net worth in it since 2013. So, it’s something to where I’m strongly convicted in it. I think for a rational investor, not one who is extremely risky like myself. Maybe something like 1% would be, I think, you’ve got exposure to Bitcoin, if Bitcoin 10X is in price, and it’s worth 10% of your portfolio, if it goes to zero, you’ve only lost 1%.
So something very small, it’s you would be remiss not to have it, though. I think, especially in this time, especially given where Bitcoin is at and its market cycle, very small allocation is what I’d recommend.
SA: And if I could just ask you one more question about kind of the recent price action before we go. The 2017 bull market was almost more of an ICO craze, initial coin offering craze. And in order for folks to participate in that, they had to buy Ether or Bitcoin to drive the runs there. Are you seeing any kind of like, return to that this year, has that been happening?
DH: Yeah, so we sort of the 2017 bubble, there is a rise in these things called ICOs initial coin offerings, so new coins that were being created in order to purchase them, you had to buy Bitcoin or Ethereum, and then transfer it to go purchase those coins.
Now, we don’t have that in this cycle. There’s not nearly the speculative fervor around new assets. I think this cycle is very different in terms of it being a moment when Bitcoin truly shines. This isn’t the rise and fall of a bunch of other speculative assets. This is Bitcoin’s original purpose and what it was created for.
It’s waited, since its inception, 12 years for this moment. Bitcoin is waiting for the moment where people start to seek a safe haven asset as their government’s start to engage in very poor fiscal and monetary policy. So, I think that’s why this cycle is so special, you’ve also got the de-risking by institutional folks coming in.
I mean, again, I can’t emphasize enough how much we were considered outsiders back when I first got in, in 2013. In 2013, there was only a dozen of us at the Bitcoin Meetup in San Francisco. This included the Founder of Kraken, Founder of Coinbase, Founder of Litecoin, Founder of Ripple and Stellar. And to see how far it’s come, to see the recognition that Bitcoin has now is truly it’s pretty honestly, it’s a bit of a shocking thing to where we were so libertarian fringe group back then, to see it become the mainstream narrative is thrilling and also a little scary at the same time.
AT: Right. Yeah, I hope the fact that we’ve talked about Bitcoin today, sort of contrary to signal that, that represents a top. Yes, and I always say that half joking, but we have — but to be fair, we’ve talked about Bitcoin with a number of guests over the last year and several of them have been bullish, Jon Najarian, I recall in summer was very bullish, JC Parets of All Star Charts. These guys are traders.
One comment, I do want to ask you about Mark Dow, who’s a macro trader made the observation that, Bitcoin didn’t really help you during the big sell-off in March. That it’s not a non correlated asset to the stock market.
So, what do you say to this idea that Bitcoin is just quote unquote, another risk asset that it’s going up because there’s a lot of money out there and people are already filled up on stocks and they’re worried that stocks are overvalued, so where else can I put my money? Is there any truth to that? Or do you — does that not concern you?
DH: So yeah, Dow was talking about the around March when Bitcoin dipped in the mainstream market stuff as well. Gold dipped in that same time period…
AT: Yes, yes.
DH: That was a liquidity crisis. So as people were getting margin calls, as the markets were dipping, every asset sold off even safe haven assets. So, I don’t think it’s very, I don’t think it’s fair to compare a bit and to go point at that moment ago, Oh, see, Bitcoin isn’t a store value because gold, the quintessential store value for 4000 years also dipped during that moment.
When we zoom out and look at how Bitcoin has performed in 2020, over the last two months, it’s largely decoupled from the market. So you could claim that Bitcoin is moving with the market, during the middle of 2020 but at the latter half of 2020, Bitcoin is truly moving on its own trajectory. It is not at all correlated with the S&P.
So for example, those folks who like trading view pop in there and throw up the S&P versus Bitcoin over the last three months. It’s very, very, very much moving independently. So yeah, I think what the selloff you saw was a liquidity crunch. I don’t think that’s indicative of it not being a safe haven asset, longer term, and especially over the last couple months, I think we’re starting to see the market price that in the markets are being priced in.
So, wait until we’ve got this magical thing called Bitcoin that I can store on a USB drive in my house, and that no one can seize. I think this is a pretty wild proposition, and more and more focused into that snowball effect, like I mentioned earlier, in the price also access to signal, the reason that you and I are talking about it right now is probably because the price is around 18,000.
If Bitcoin stay at $1,000, no one would be talking about it. So the price that access this signal to the market that is becoming validated and trusted, and more people hear about it, more people buy and anticipation of the value going up and that builds the FOMO cycle.
AT: Right. And we’re certainly in that now. And I would also note, Bitcoin is decoupled from gold in recent month or two. Gold is selling off, Bitcoin has kept going up back towards approaching its all-time high, I should say.
So, last question, for me at least. And I again appreciate your time here and all the explanation. So I mentioned JC Parets at All Star Charts. He’s been a bull on Bitcoin. In recent months, he’s a trade or technician. He wrote something over the weekend. And I want to get your response to it. He wrote, quote, owning Bitcoin is no different than buying a stock or ETF. It’s just letters and math.
Everyone thinks there’s some secret sauce to the cryptocurrencies. But overthinking can be incredibly dangerous. If you grant it more prestigious mystery than it’s worth, then you become part of a cult. And if you lose that ability to think clearly about your investments, it becomes a religion. And what happens is that you throw risk management out the window, end quote. So now, you mentioned you have your entire net worth in Bitcoin.
I don’t want to call you a cultist or say it’s a religion. But, what is your response to this idea that Bitcoin is its quote, unquote, it’s just another financial asset? And you should treat it as such, if you’re an investor.
DH: Bitcoin is distinctly different from any other asset. It’s, I mean, I don’t know but when was the last time you guys took physical delivery of your stock certificates? Yeah, exactly and even if you had those, you’d have to rely on the company in order to redeem them. And the government could go to the company and say, don’t redeem those.
Really, the only other asset that Bitcoin compares to is physical gold delivery. You have self-custody, where you have the asset yourself, you are truly in the ownership of it. There’s very few, even your home you don’t truly own. Because the government is like, cool, you live there. So I’m going to tax you on it, and you can’t take it with you, if I really started to penalize you heavily.
So, Bitcoin and gold are the only two Censorship resistant, self-custody assets that you can truly hold. So I think that demonstrates that he doesn’t fully grasp or understand what Bitcoin’s value prop is? I think it’s very disingenuous to compare it to stocks. Now, when it comes to the religious nature of it, sure, it’s very, there’s a fervor and following of it.
I mean, can you imagine what we believed in like we challenged the assumptions of state and money for a decade, like, it’s what if we’re right about this? This will be one of the biggest moments in human history. So of course, there has to be a cultural value of a very tight knit community to keep that spirit alive. I mean, we, I’ve seen my net worth rise exponentially and drop 80% three times. I don’t know how many other people have gone through that.
So, for that faith to stay alive because the faith is the only thing that keeps it all running including fiat currency, to keep the faith of Bitcoin alive, you had to have strong cultural values. Bitcoin survived things like civil war, where part of the Bitcoin community fractured off and survived that. It survived attacks by competing cryptocurrencies. So Bitcoin is a very resilient community in that cultural value.
I would say yes, it’s a little bit religious in a way. But that is a good thing, because it preserved Bitcoin’s values all the way through to here. And those values are what make it valuable.
AT: Right. And I would be remiss if I didn’t ask, do you know who Satoshi Nakamoto is, or does it matter anymore?
DH: Yeah. The Golden question, well, that’s what’s so beautiful about is that Satoshi had the maturity to stain suit anonymous. We’d never figured out who he was. By the way, he self-identified as a He. We never figured out who he was, which was brilliant because he felt that he was a centralized risk to the protocol, that if the government found him that they could potentially hurt it.
So he removed himself from the equation that was the only way to play the game. And Satoshi has never touched any of the coins that he mined himself, which, by the way, anyone was free to mine. He just wanted to support the network. So Satoshi is sort of like a — this is where we could make it a little bit quasi-religious, where Satoshi is a bit of a, he’s a Prometheus type character.
He gave a higher — he’s been penalized for the rest of his life, he’s never touched in his stash is worth makes him like one of the 10 wealthiest people in the world.
SA: Wasn’t there rumor earlier this year that there were some movement from an address that he was thought to be associated with and it sent Bitcoin down about 10%?
DH: The title was a click bait title that said, said Satoshi era coins move. Not Satoshi’s coins. So you’re right. Yes, era, yes, the era in which he mined but his coins that he mined, have a distinct pattern to them. To where — and this is hypothetical, we don’t actually know if it’s Satoshi’s coins. It was just this miner started day one. And they operated for a certain amount of time and it seems probabilistic that it is Satoshi’s.
So to be clear, we don’t know how many coins Satoshi has, but it’s probabilistic as to how many he might and he’s never moved those once. Not a penny. We’re talking 10s of billions of dollars’ worth which is pretty wild. And Satoshi built Bitcoin. He was a very ideological person. I mean, this was something more than one. This wasn’t about money for him. It was about giving people freedom.
So yeah, Bitcoin is religious. It’s got a very intense community, rightfully so and you have to right it’s going to be kind of wild.
AT: We will give you your freedom back. Dan Held is currently Bruce Lee to Kraken, a longtime player in the crypto space and a true believer. To be sure, Dan, we’d love to have you back. As a story obviously, it’s going to continue into 2021. Dan Held, thanks very much for being with us today.
DH: Guys, really appreciate the conversation, had a ton of fun. Thanks again.
SA: Thanks, Dan.
AT: Thank you, and happy Thanksgiving everyone. You’ve been listening to Alpha Trader.
Recorded Message: Ready to add futures to your trading portfolio, plug into valuable educational materials from CME Group and connect to an online broker today through cmegroup.com/alpha.
