Bitcoin Macro Strategy

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hi i'd like to welcome ross stevens who's the founder and ceo of stone ridge holdings group which personally met which manages more than 20 billion dollars in alternative investments around 2015 as they started to personally own a lot of bitcoin they couldn't find a custodian who could satisfy their level of fiduciary standards that began a journey that is now naidig the new york digital investment group which ross founded and is executive chairman of today nida manages over six billion dollars of bitcoin all for institutions and it's a full service vertically integrated bitcoin only financial services firm ross started his career at goldman sachs working for fisher black after earning his phd in statistics and finance at the university of chicago writing his dissertation under the direction of nobel prize winner gene fama ross did his undergraduate studies at wharton and ross is the chairman of the stevens center for innovation and finance at wharton which he founded more importantly ross is a friend of mine he's been an important partner and a trusted guide to me and to various members of microstrategy's leadership team as we navigate our own bitcoin journey so please help me welcome ross and ross thanks for joining us today i'm really excited about this conversation michael thank you very much it's a pleasure to be here and like each of the many conversations you and i have i'm sure i will enjoy and look forward to this one okay so let's get right into it in a sense let's do it this whole conference is about reserve assets it's not about property plant and equipment or other parts of a firm's business strategy or balance sheet it's about reserve assets you and i are both ceos we have a lot we need to focus on we have a lot we need to decide every single day why should we even care about reserve assets well i think a ceo has two jobs right executive but also capital allocator the first one is is obvious the second is more important capital allocation is a ceo's most important job i think all of us ceos work in in capital allocation in fact we specialize in it whether we're good at it or not we specialize in it and said differently whether or not we choose it capital allocation chooses us and i would say a capital allocation framework for a ceo used to be one thing which is how do we turn our liquid assets into illiquid assets and how do we turn our illiquid assets back into liquid assets you know are we going to buy something are we going to sell something are we going to fund a business are we going to close the business what's changed though is that it's now also about our liquid assets as their own thing your cash reserves because what used to be safe and not volatile it's no longer safe and it's highly volatile well why is this framework so relevant now i mean it's always been relevant i mean what's relevant is the urgency what's new is the urgency what's new i think is the outsized role of central banks in all of our lives and the role of central banks on corporate balance sheets i mean cash is now a liability no longer an asset and i think that has profound long-term implications for corporations i mean we can go back and start a lot of different places but we can go back i mean one of my favorite federal reserve sort of central bank persons is hayami governor hiyami from japan he's not a name you hear a lot about now but he led the boj in the year 2000 and he joined right out of college post-war 1947 it's hard to imagine japan back then but there were any hyper inflation imagine japan in a hyperinflation and those hyperinflationary years when he was out of college left an indelible scar on hiyami understandably and as he was rising through the ranks of the boj he was known for repeating the phrase if you debase the currency you debase the country in his internal meeting so that was the army he was a strident anti-inflationist now we think about japan back in 2000 right it's 10 years after the bubble burst their benchmark rate basically their fed funds had gone from eight percent to to zero and given hiami's personal background his anti-inflationary stance he thought free money was nuts right so he decided to do something about it now that he was finally in charge he took the radical step of raising rates 25 basis points i mean pretty radical so he made it he made money slightly non-free okay but he didn't just do it it's really what he what he said he kind of had this speech and he thundered risk must be priced risk must be priced which is really academic jargon for saying the market must determine the price of money not bureaucrats so what happens right very predictably first of all the prime minister goes ballistic yeah he says on this is just unacceptable it's an unparalleled display of independence of a central bank as if that's not the entire point of central bank independence and what happens in markets the nikkei gets crushed drops 20 percent the politicians predictably in japan freak out and they demand a return to zero and seven months later hayami retreats he completely capitulates and moves the rate back to zero and probably not surprisingly soon thereafter he's he's out of a job right so that we can think about the journey starting there let's fast forward 18 years december 2018 let's talk about our own country and what i think is the greatest reversal of monetary policy in our country's history and i say that when i measure it based on the swiftness of the reversal and the impact of the reversal so we're december 2018 fed meeting day the markets are down eight percent for the month so nerves are frayed and powell comes out of the meeting and he says the balance sheet runoff so coming out of qe it's on automatic pilot and with those two words the market just loses its mind it just drops five percent trump says he's going to fire him and things kind of go ballistic at that point and i don't know if you know this but fed policy is that the day after a meeting nobody in the fed's allowed to talk publicly but the day after the day after they are and at the very first opportunity that powell has to walk back his remarks he saves faces and do it himself but he trots out williams who's the fed president of new york and williams says plans are not promises we will reassess the data the market knows exactly what that means and it rockets up 15 in the next month so like kayami complete capitulation hayami took seven months pal took two days right let's do one more let's fast forward to last march the ecb christine lagarde is in charge let's talk about march 12th to be exact and she is president when spreads on italian bonds so what they are essentially over over german bonds they're blown out and she says her version of risk must be priced she says her version of automatic pilot remember what remember what she said she said and i quote we are not here to close spreads are you sure christine the markets go ballistic during the press conference spreads keep widening and widening out she actually doubles down she says it's not the function or the mission of the ecb to close spread she kind of thunders that spreads bloud even more and do you remember what happened complete capitulation except it didn't take regard the seven months it took a yami or the two days it took powell two hours it took her two hours in the press conference two hours after the speech she completely walks back her comments with the quote i am fully committed to avoid any fragmentation all is is okay turns out she was there to close spreads after all and in fact her capitulation was so complete that the ecb took the unprecedented step of revising the speech with the conference afterwards they've never taken the remarks of a press conference and appended them to the speech i think what i take away from these stories is that a central bank can control the supply of their money they can't make their people value it it seems like hayaomi powell and legard each felt they had no choice what's this tell us about central bankers well i mean i don't know i mean the sequence of hiyami powell and the guard it makes me think of the great philosopher of modernity mike tyson oh yeah yeah he was the best at philosophy um and his most famous phrase was everyone has a plan until they get punched in the face i love that one i think of it often i think of it often too and i've been punched plenty of times um i mean these bankers they got punched in the face really hard and they felt pain and they felt fear because they're human you would have and i would have also they got scared they retreated i think though what it really tells us about the world is that these central bankers as well-intentioned and as smart and as really good as they are they're just up against forces far bigger than themselves i think it tells us the economic choice they'd like to make of short-term pain for a long-term gain it's just out of scope for them i think it tells us that their choice is short-term pain for economic catastrophe and certain political extinction so they'll just keep printing i mean they're just going to keep printing and that just makes corporate reserves kind of the point of the conference just riskier and riskier and more volatile and what it really tells us though i think is the system itself is the problem the system is so over levered so dependent on free money that's just a little huff and a little puff and the whole thing gets blown down can i tell you just one more one more story okay okay so let's let's go back to jerome our guy right last march he's learned the lessons of mike tyson's wisdom he doesn't want to wait to get punched in the face and you know the markets start to fall some people start to lose some money and powell's view through his actions not his words through his actions is that no level of pre-crisis irresponsibility no level of overborrowing irresponsible overborrowing no level must be allowed to have consequences the new fed mandate is not price stability it's not full employment the new fed mandate again through his actions not his words is let's decouple risk taking from the consequences of risk-taking the new fed mandate is let's finally once and for all institutionalize moral hazard so to foam the runway for this this new this new mandate what does he do jerome goes out and he starts buying securities at a scale the world has never seen or imagined was possible he starts buying about a day's worth of u.s gdp a day's work so i want to put that in human terms all the work all 350 million of us do we wake up in the morning we get our kids to school we go to work all of the work of all of us you know i picture jerome kind of get into his desk gets the keyboard out and just like control p click all americans collective daily labor he he just prints now as i said i don't question central bankers are well intentioned i strongly believe they are but humans are not supposed to have that kind of power over other humans um you know in the same way that a stock certificate is is titled to company capital money is titled to human human time michael i mean people sacrifice their time for money which enables us to trade our time for the time sacrifices of others that's how it's supposed to work so a tool that can command human time the central bank keyboard control p that keyboard steals time and it steals time from from some particularly and most powerfully the non-asset owners the most vulnerable and it redistributes that time to others most notably the existing asset owners it adds rocket fuel to wealth inequality and it leaves the fidelity of the signal content of prices just in now i i think mark march 2020 that was the wake up call for me that you're a very sophisticated macro economist i was oblivious but that was like the massive jolt of of some kind of macro shock that caused me to stop and decide that maybe i needed to take an interest in uh in all of this and what you know what you've described is pretty sobering i didn't really know the history uh like you do but um you know it's it's clear now the challenges that central bankers face and uh it's pretty clear that we are over levered as an economy so um i guess the question is what's bitcoin got to do with any of this and what's bitcoin got to do with corporations i mean a lot i mean in my view kind of everything um i can start with the conclusion and i'll i'll work backwards um okay i like that give me the answer yeah i'll give you the answer the answer is bitcoin is not volatile that's that's the answer and let me explain okay learning bitcoin is like at least to me it's like for me it was like learning a foreign language you know you live in spain for a year or you live in france for a year and at some point you get you get good enough it takes some time but with immersion you think in spanish right you think in french something clicks for you you make that you make that switch you're no longer thinking like how do i say where's the barber in spanish and doing that english to spanish translation in your mind you just think the question in spanish i now think in bitcoin okay it's taken me eight years of morning study you are much faster than me you know i'm a slow learner but i get there it's taking me eight years of morning study and a lifetime of of of lessons studying the markets but i now think in bitcoin and it's it's very freeing and through that lens of thinking in bitcoin bitcoin is not volatile fiat is volatile the price of college is volatile in fiat keeps getting cheaper in bitcoin the price of prime real estate very volatile and fiat keeps getting cheaper in bitcoin the price of all of my long-dated denominated liabilities like a mortgage or retirement or we do a lot of work with insurance companies their long-dated fiat-based liabilities a death benefit for life insurance contracts or annuity payments those are extraordinarily volatile in fiat and they each getting keep getting cheaper in in bitcoin and so to understand really what's going on and why this is happening i think we need to ask ourselves two things one like what is money like what is it and why is bitcoin in excellent money or even is it an excellent money so so so so what's money money is technology it it it is and it always has been technology whether it was seashells or salt or cattle it's always been technology it's technology for making our wealth today available for consumption tomorrow and virtually all of us you know americans we just take for granted that there's a sharp line of distinction between what's a money and what's not but that's false there's not a line of distinction in fact throughout history various monies plural have always co-existed along a continuum of soundness meaning good money to to kind of bad money and they've always been subject to competitive network effects like any competition in fact english language and language for humans in general that was the first network and money was the second it also means that that given enough time at any given time including right now no money is absolutely the best money on all dimensions there are always trade-offs um some are better some are worse some are better at this some are better at other things it also means that all money is is is temporal no money has ever been or ever will be forever including bitcoin bitcoin will not last forever it may last 100 years or 250 years i mean maybe forever for practical terms for everybody at this conference including you and i but it will it will not last forever um because money is just a good like like any other good um but what makes what makes money as a good unique among all goods is that we value it not for its own sake but for its prospective exchange utility which means we hope the vessel whatever we choose to store our money in we hope that vessel keeps its value long enough so we can trade it in the future for stuff we actually want right nobody actually wants green little pieces of paper nobody actually wants bitcoin nobody actually wants bitcoin either what we want those things to do is to hopefully allow us to trade them for things in the future we actually want a vacation a college education property whatever right so it's not that we want the money we don't want the money we want what the money can do for us in the future what we can trade it for so so then why is bitcoin excellent money well i think that's for everybody to make up their own mind i'll tell you how i think about it though there's really two primary dimensions that i think money should be evaluated on sellability across time and sellability across space so sellability across time just means will the money keep its value through time or will it depreciate you know the oldest fiat money that's in existence today is the british pound and 371 years ago and kind of a modern british pound started it was equal to one pound of silver one british pound bought you one pound of silver today do you know what one pound of silver buys you in terms of british pounds i'm guessing that it buys you more than one british more than one a little bit 174. so you used to buy one for one now a pound of silver buys 174 british pounds and the key here is to understand what changed and what did not change okay the silver itself did not change 371 years ago it weighed a pound today it weighs a pound 371 years ago the silver had certain chemical properties it's got the same chemical properties today the silver did not change the fiat changed it depreciated more than 99 so silver crushed fiat i hate the 99 number i just hate that one yeah i just didn't want to take it out to that many decimals but you know it's 99.763 i don't know it's it's it's a lot it's basically worthless right relative to silver but you know people talk about gold what about silver versus gold and the reality is gold has been far better and far more reliable it's much better store value than silver because it's scarcer and it's got a much lower supply growth gold grows at about two percent a year silver grows about 20 30 percent a year so gold is a much better money than silver but let's compare it to bitcoin i mean gold still does grow you print through mining you print gold at about two percent a year and bitcoins on an asymptotic journey to zero percent inflation per year so two percent a year roughly times 50 years and gold essentially depreciates completely versus bitcoin so bitcoin will be worth far more than gold in the future once it clicks for people that gold is printed at a much higher rate and that compounds you know much higher 100 a year but that compounds over 10 20 30 40 50 years but there's another property of gold that makes it weak relative to bitcoin and in fact this is a property of bitcoin that makes bitcoin truly unique among any money in history which is that bitcoin is the first store of value ever in which its supply is entirely unaffected by its demand you know if we take the example of gold to prove this point if gold went to i don't know 100 000 bucks an ounce it's up 50 x overnight you and i know what's going to happen tomorrow morning the miners can get to work very early right you and i would drop the phone and start mining right we're going to start mining we're going to look around our house for gold we're going to melt it down we're going to drive up the supply we can't skyrocket the supply but we're going to drive up the supply we're going to drive up drive down the price of gold if during the course of this conversation people really feel like bullish on bitcoin and bitcoin goes to a million i'm saying that with a smile what's going to happen in supply bitcoin nothing nothing nothing that's incredible that's incredible bitcoin is the first store of value in human history where its supply is never can never will never be affected by any amount of its increased demand so the conclusion is that bitcoin is better at being gold than gold because it's more sellable across time now the other characteristic about money that's really important is salability across space like can you move the money around the world efficiently and this is another place where gold has a really acute flaw it's just hard to transport i mean if you get paper bulks and you're back in sort of fiat land and all the problems of fiat gold is just hard to to transport and this is where fiat for all its flaws and fiat's doa but for all its flaws fiat really shines here you can move it around the world and in sort of an internet world where network power is is everything this ability to sell across space is is critical however i want to clear up a pretty common misperception which is that bitcoin is slower than fiat the reality is the opposite bitcoin moves much faster across space than fiat the key though is to compare apples to apples final settlement and in final settlement there's no comparison bitcoin increases our capacity for final for example international settlement by 500 000 transactions a day and completes the settlement with finality in about an hour you know in international settlement you're talking two three four five days seven days it can be a month depends on the two countries you may not you may not get there and even within a country like ours michael don't confuse the speed of your visa payment with its final settlement because it's not finally settling when you go to starbucks and buy coffee with your visa card no final settlement occurs what actually happens is your bank and starbucks bank they have some credit risk to each other for two or three days usually it's fine but sometimes with disastrous results and then there's final settlements bitcoin settles every hour and it's a bearer instrument it's their first ever electronic bearer instrument so credit risk is not a concept we said earlier that bitcoin is better at being gold than gold what we're saying now is bitcoin is better at being fiat than fiat it's more saleable across space and because it's not debt like fiat it has no credit risk so the conclusion is that bitcoin is the best money we have maybe it's the best money we ever we've ever had and that's why i've learned the language that's why i now think in it okay i get it it's pretty clear when you say it that way bitcoin's just better money but it's not only money and i obviously agree with you however i have a related question even if we agree that bitcoin is better money it comes at a cost bitcoin's use of energy how do you think about that i mean i think about it a lot um and i think that you know if people take nothing away from our conversation i hope they take this part away about how i think about bitcoin's use of energy um let's start with some facts okay bitcoin consumes a ton of energy the the amount of energy that bitcoin consumes you can think about it as the sum of all the mining equipment in the world and there's no you know there's no central registry for for mining equipment so you don't really know exactly but i think an excellent estimate is about 10 million humans worth of energy so it's enormous and in a warming world how can this be good well let's set some context like what is the problem of energy what are we solving it's never been its scarcity we can produce tons and tons of energy it's always been our ability to channel the energy geographically that means to move it where it's needed most and before bitcoin that was always where humans lived we needed to move the energy to where humans lived but bitcoin's mining energy it's just solving a different problem solving a math problem not a transportation problem and because of satellites and wireless internet connections a math problem can be solved anywhere so bitcoin mining can be located anywhere and you know the long-term implications of this i think are are world changing so so for example bitcoin can make monetizable isolated energy sources all over the all over the world i mean think about waterfalls or running rivers we can create dams in places that are you know now entirely untapped because they would be cost prohibitive to move that energy to the electric grid near where residential or commercial uses would be possible just it's just cost prohibitive so here's the key insight as bitcoin's price rises it's high enough now but as it continues to rise bitcoin mining will be the most profitable use of energy in human history that does not need to be located near human settlement to operate that's a big deal bitcoin is going to fundamentally change the economics of energy and that's because with bitcoin mining we've got a highly profitable use of energy that's location in dependent we've never had a highly profitable use of energy that was location dependent now now we do and since fossil fuels they're already too expensive for bitcoin mining um i think the only i mean i think confidently the only long-term profitable bitcoin mining will be powered by clean energy so so imagine a future just just imagine where bitcoin mining firms unsubsidized and i think that's key are in extraordinarily isolated locations i don't know let's visualize a waterfall powerful waterfall in a population free part of an african country that's destitute people living in abject poverty and we can easily connect that waterfall to the bitcoin network we can build the energy infrastructure to monetize the local clean energy source for bitcoin mining but once we've got the infrastructure let's extend it let's build roads let's build houses let's build schools let's build let's build let's build human settlement let's move humans there and i think the net result will be more and more of humanity clustering around cheap and cheapest key clean clean as key to energy sources historically our challenge with energy has been to move the power to the people bitcoin will allow us to move the people to the power now you think about the world's major population centers i'm in new york you're in miami think about tokyo or paris or london they developed where they are geographically because of natural seaports or trade routes or water rays waterways the placement of those cities had nothing to do with energy because they were all pre-energy right they were all pre-fossil fuels with more and more of the world's population now able in the future with bitcoin to congregate around abundant energy and this is the key with extraordinarily low marginal costs of production that's the part that matters because cheap energy in out of the form equals human flourishing that that's an equation cheap energy equals human flourishing and we can we can assign all the climate accords we want we can add our name to anything we can we convert your signal whatever we want sign them all right they're all irrelevant they've been irrelevant they will be irrelevant what's relevant is this because when you have people with a profit motive and for the first time ever we have a huge pull towards clean energy with a profit motive that's when things change so from my perspective beyond the the revolution and monetary policy that bitcoin already represents bitcoin also represents the biggest catalyst the world has ever known for the development of abundant clean cheap energy and therefore you know one of the biggest catalysts the world has ever known for human flourishing it's going to take a decade or two but that's one of the things that bitcoin can do you know i never really thought about it that way before it's really pretty amazing i mean manufacturing money from clean energy sounds like a better idea than manufacturing aluminum from clean energy a little bit a little bit you got to imagine there's a lot of countries in the world that have shut in stranded energy and they have and we know you can't move electricity more than 500 miles so if you could actually literally make money off of stranded energy you could you can tap into your natural resources in order to move into the 21st century i think it's fascinating yeah yeah may take a decade or two to realize the vision but you know given the way uh the economics of mining works especially as bitcoin's price rises i think the energy vision makes perfect sense it's and it's inevitable okay so big idea big idea ross okay going back to bitcoin itself and your firm stone ridge what what what is stone ridge doing with bitcoin and uh let's break it into two questions um what are you doing as a steward of your own firm's resources and what are you doing to help others see what you see well um our own resources you know what are we doing i mean i don't know if you can read the books in the back there's a lot of tele books we like tele so i'm going to rephrase your question a little bit which is ross don't tell me what you think show me what's in your portfolio that's a that's a telephrase um our reserves are now in bitcoin it's been true since 2017 and other than what we keep you know for convenience for salaries and and rent and things you know cash we need like fiat our liquid reserves are in bitcoin um so so how did we get there you know i think i think great questions are underestimated um and i think we got there through a great question that our team asked which is what do we have to believe to be true to move to the bitcoin standard what do we have to believe to be true to move our reserves from fiat into bitcoin and our answer was that if we allow ourselves to focus only on point-to-point risk meaning point-to-point in time from today until our long-dated fiat liabilities are due and remember we're corporations so theoretically infinitely lived of course we're not actually infinitely lived but yes we have salaries in rent next week but we have salaries and rent in 10 years and 20 years and 30 years too so we can think about those liabilities if we just think about point to point the only thing we really have to believe is that over the next 10 or 20 years that the dollar will depreciate relative to bitcoin and i believe that i have no idea what the dollar is going to do tomorrow next week next month next year but i have a high degree of confidence and i voted with my dollars not certainty but a high degree of confidence that the dollar will depreciate versus bitcoin over the very long term as it has 80 percent depreciated in the last two years as it has 30 depreciated so far this year so this insight allows us to ignore us dollar volatility along the way focus on point-to-point focus on end state economics now like anything in life a point-to-point perspective doesn't make it a risk-free perspective but it is our perspective and the net result is has been and i believe will be enormous competitive business advantage it's certainly relevant to other firms in our sector and financial services i mean for us everything's getting cheaper right so paying rent paying salaries m a recruiting it's just it's all cheaper and the stock market's making new highs every day for us everything's on sale right so abstracting from stone ridge though if you take company a and company b in the same industry one adopts the bitcoin standard and what does not you know just think about the macro environment as the money printer goes bur or if it continues to i think it will as credit creation just continues to explode you know as real rates on riskier and risky assets continue to go negative when we cross the rubicon when real rates on corporates went negative recently you know consider the implications for the dollar in one year in two years and 10 years i don't know lower a lot lower certainly versus bitcoin that's that's my versus the yen versus euro like i i don't know but certainly versus bitcoin remember at the very beginning we talked about every ceo's most important job capital allocation the decision of whether and how to adopt the bitcoin standard i believe that will be the single most important decision every ceo makes in the next 10 years the most important decision whether they realize it today or not and i acknowledge well under one percent would acknowledge that's going to be the most important decision they make in the next 10 years but it will be and whether they actively make it or not they make it they make it with high consequence okay so the second part of my question is what are you doing to help others see what you see well um for a while we were trying and nothing was actually happening i i i recently learned how bamboo grows it's it's pretty to me it's pretty fascinating it spends its first five years building an extensive root system underground and basically doing nothing visible and then it explodes 90 feet in the air in six weeks that's that's bamboo it's not a terrible analogy to nydic stoneridge's bitcoin subsidiary you know we started in 2017 we put a great team together we had a bunch of capital we worked and worked and worked you know we laid our root system we operated largely well we operated in stealth it's true that we operate in stealth but it's almost as if it didn't matter that we operated in stealth because no institutions really cared and it wasn't for lack of trying we could be knocked on a lot of doors we were just too early we were just too early but you know we kept at our craft we built our root system we we thickened and strengthened the roots um and we worked quietly you know out of out of view which is our style the firm you know has had a no press policy since its inception in 2012. but if you fast forward to nydig is a full service vertically integrated bitcoin only financial services firm the first billion during that dark challenging five years it took 1200 days to raise that first billion first billion is always the hardest first billion is always the hardest 1200 days the last billion took six six weeks a year ago we had 25 institutional clients today we have 280 institutional clients we've got a pipeline in the onboarding process of 96 we can put 75 institutions through the pipe a month that's our current capacity we've got over 6 billion in bitcoin now between what's in the door and what's committed from institutions and we are vanguardizing this asset class best product best price and as we scale we're driving prices down down down our pricing today is 70 lower than it was a year ago and by the end of the year michael i am confident we'll have over 25 billion dollars of bitcoin i've just got this order book i'm not guessing i see what's happening okay 25 billion dollars um yeah that's astonishing growth and it matches what i suspected but i didn't know is going on with institutions and bitcoin given nadig's role in the bitcoin ecosystem you have tremendous visibility into what all sorts of institutions are doing and how they're adopting bitcoin so what can you tell us well i mean the the one-liner is all kinds of institutions are adopting bitcoin public companies private companies hedge funds private equity funds credit funds i mean even investors who if you asked me a year ago would they come in i'd say absolutely not the most conservative but also the most sophisticated most careful investors in the world triple a and double a life insurance companies double a p and c insurance companies today have more than 500 million dollars of bitcoin exposure through nidig and i know for sure because i'm not guessing they're just getting started and these institutions want to do more than just own bitcoin that's that's table stakes within a year america's gonna be able to get a portion of their income annuities paid in bitcoin americans will be able to get a portion of their salaries paid in bitcoin you want that poultry interest on your cd paid in bitcoin you'll be able to get that too there's going to be an explosion in bitcoin driven financial innovation another interesting phenomena we're seeing in our book is exactly zero clients have walked back their allocation and that may not be true for other firms but that's true for us so once people get off zero they either stand pat or they increase now i don't want to overstate this it's been a year but that's what we're seeing so far and another phenomena we're seeing is among family offices so a year ago we had zero family offices today of our 6 billion 2 billion is from family offices and the average account size of a high net worth individual is 7 million dollars so yeah we serve retail but the average account size is 7 million so the breadth of adoption across institutions and the increasing adoption within a given institution shocking not surprising yeah it does seem to be it's a one-way trade that's the way i see it no question you're moving in that direction so you know i don't i don't think of it as a crystal ball but what does the future of bitcoin hold and do you think it's too late to opt in and i'm interested in i know i have my opinions but what are your drivers for the price over the next few years well i definitely don't have a crystal ball but i think at least from a framing perspective i'll tell you how i think about it i think about the first chapter of bitcoin as kind of the genesis block until let's call it now and that's been all about bitcoin the asset which is really the theme of this conference and what's driving right now accelerating institutional adoption is the view of bitcoin being de-risked right and i think that's why you're just going to see a wall of money i i know it i have an order book a wall of money coming into the asset class so let me put you to sort of frame this out in the mind of an institutional investor me okay but i'll put you in my mind my partners and i bought more bitcoin in 2020 last year than in 2013 through 2019 combined okay and as our fiat businesses continue to inflate and accelerate which they are i expect we'll buy more bitcoin in the next two years and in the preview than we did in the previous aid so so what's going on we're conservative institutional professional risk managers it's what we do for a living and it's why investors including the most conservative investors in the world have entrusted us with 20 billion dollars in our alternative businesses are non-bitcoin businesses and to us conservative us bitcoin is de-risked why well when i look at bitcoin i see it above 500 million billion dollars of market cap i see millions of people using it every day with a clear line of sight to tens of millions of people using it every day and then billions i see 12 years of uninterrupted safe operation of the network when i look at all that the left tail of the zero outcome is gone and that is the key observation so when i talked institutional investors a few years ago i would get the question you know what's the chance of bitcoin going to zero and a few years ago that was an interesting conversation last week a client asked me what's the chances of bitcoin going there so what's the chance of christianity going to zero like it's just not like it's just it's just left it's left the station and so remember at stoneridge we are risk managers we do it professionally and what you're talking about here with bitcoin is an extraordinarily asymmetric upside asset um we can debate whether it's good or bad but i think we can't debate the asymmetric upside to it it's perhaps the most asymmetric potential right tail asset in in the world in history and you chop off the left tail we all know what happens right to the mean it just it just explodes it explodes you chop off the left tail the mean explosion you combine that with the macro environment the money printing presses running at full tilt i mean the blue wave in the u.s complete political dysfunction around the world um i mean for us at least at stoneridge fiat reserves are like a hot potato in our hand we make them in this business we can't get them our hands fast enough and put them into into bitcoin we can convert them as quickly as possible so yeah we're risk managers at storage but we're also capital allocators you can't eat risk management you can make you can eat making money in the markets and we believe in the power of bitcoin but if we didn't think we'd make money we wouldn't invest a penny so you're calling chapter one of bitcoin 2009 through today bitcoin asset and i guess that really is the process of going from zero to one bitcoin didn't exist now it does what's chapter two well i think chapter two is going to be incredibly exciting and chapter two builds on bitcoin the asset and it adds bitcoin the network in chapter two bitcoin the network it solely leverages bitcoin's proprietariness as an open source monetary network in chapter one we reached millions in chapter two we're gonna reach billions and we're gonna do it quickly and chapter two starts right now so i'll give you a flavor of chapter two say i want to send a thousand bucks i'm sitting in new york right now to a friend in milan italy strike jack mahler's firm working with nydig takes my dollars and delivers them to my milan friend in euros instantly and for free what like how did this happen so let's go slow first strike takes my dollars for my bank account my thousand bucks and they debit it that's a millisecond second strike works with nydig and we do a trade we convert the thousand dollars into bitcoin it's another millisecond or two third strikes work strike works with lightning labs and it zips the bitcoin across the atlantic ocean to milan we're still in single digit milliseconds basically instantly over there there's another fx trade nida converts that bitcoin into euros we're still in milliseconds and finally strike credits my friend's bank account with final settlement in euros done so what what just happened what just happened is a thousand bucks were moved from me in new york to my friend in milan and converted into euros instantly and for free how because for the first time in history we have an electronic bearer asset never had an electronic bearer asset it's called bitcoin and an open source monetary network which we've never had before it's also called bitcoin that together can achieve cash finality anywhere in the world anytime 24 7 365 with liquidity in every any currency pair you care about and notice something critical in the transaction i described critical the volatility of bitcoin the asset was nowhere to be found right why because we didn't use it we didn't use bitcoin for its properties as an asset we use britcoin for its properties as an open source monetary network now i gave you an example of two friends moving a thousand bucks from new york to milan that's that's cute it's adorable imagine the entire global import export industry with instant and free international settlement right imagine the entire global remittance market with international and free global settlement imagine the entire global credit card industry with no merchant fees right i mean use the open source networks of bitcoin in the open source networks of lightning and bitcoin the network will change the way we all interact and connect this part chapter two of bitcoin this part has nothing to do with monetary policy this point has nothing to do with central bankers with dollar depreciation zero however there will be this virtuous beautiful feedback loop between bitcoin the asset and bitcoin the network and bitcoin the asset and bitcoin to network network and working together the bitcoin the assets specialists at nydig and the bitcoin the network specialists at strike and lightning they're going to get this chapter 2 flywheel in motion and it is going to hum it's going to hum so just stay tuned for more okay that's awe-inspiring i'm really excited uh world-changing as the greatest force for good in the world kind of stuff what do you think stops so many people from seeing it well i think that it is awesome it is awe-inspiring and i think we just live in such a cynical age with with so many people devoid of feelings of all just kind of beaten it beaten out of us i mean i'm grateful for many things about bitcoin i think one of them is it's just wonderful that i need not be among the people who are devoid of feelings of awe i think that relates to another question which is why people underestimate bitcoin so much and what do they underestimate most about bitcoin and that one's easy right that's easy the ferocity of the bitcoin community for bitcoin that i can tell you that is underestimated i don't speak for the community i speak for myself but i think there are two core views of the community the first few we'll call it the individualist view is that money is not the root of all evil money is a root of all sovereignty it's the authority to act in the world as we see fit as long as we don't harm others money is a property right and since we've traded our time for money when money is printed our time is stolen and that is not okay the second view i would say is the community view money is the greatest force for good in the world today it's an arc it's designed to help the most vulnerable the most unprepared escape the accelerating fiat flood and it's it's raining outside pretty hard so let's get as many of those living on society's fringes not just in the u.s but everywhere let's get them in the arc let's get them in the arc as soon as possible and nothing is more important what i would say though is that these two views of the bitcoin community they're they're not mutually exclusive in fact every single bitcoiner i know holds both of them in there in their minds you know one of the things that really got me going and a lot of bitcoiners going was last march when kashkari who's president of the minneapolis fed he said there's an infinite amount of cash in the federal reserve an infinite amount of cash in the federal reserve you could almost hear the other 11 fed presidents saying neil you're not supposed to say that part out loud right right the american people are really smart right they may not have gone to the same schools as neil or worked at the same firms as neil but they're smarter than you and one thing they definitely can do they can do division if i got 50 000 of life savings i don't really know what that 50 000 is out of but i have a sense right and now the guy in charge of the money is telling me the denominator is infinity i don't need to know calculus or theory of limits to know that my 50 000 divided by infinity that means my fifty thousand bucks is worthless why would i hold my life savings in something with infinite supply i mean i might as well go to the beach and exchange it for grains of sand they're an infinite supply too so i think what kashkari is really telling us is that fiat should come with a warning label like cigarettes comes with a warning label but instead of the cigarette label saying you know these are bad for your health the fiat warning label would say these are bad for your your wealth right and the cigarette pack has this you know the skull and crossbones on the outside i'd like to see the treasury start printing the infinity sign on our cash so if you've got a 20 bill under each the numbers in all the corners it would just you have a red warning label that says divide this number by infinity remember as i said earlier a central bank can control the supply of money they can't make their people value it so you know i think that bitcoin is massively under underestimated i think that's understandable i mean you underestimated it i underestimated until we go deep down our own version of the rabbit hole it's it's underestimated i mean the financial establishment underestimates again i did until i didn't um you know i give them all mulligans they just haven't put the time into it i mean jamie dimon calls it uh a fraud right yet it's much more real than fiat larry fink calls bitcoin an index of money laundering i think it's more akin to an index of money printing warren buffett calls bitcoin rat poison that one's shameful that one is shameful because bitcoin is giving life not taking it it's giving life right now to tens of thousands in el salvador and pakistan venezuela it's giving life it's not taking it and soon to be millions and with strike and nydig and lightning soon to be soon to be billions so fraud money laundering rat poison bitcoin it's just intellectual laziness i think people also underestimate just how unstoppable it is it is on bitcoin is just unstoppable um i mean it'll have fits and starts as it has of course that's for sure but it is here to stay forever and that's for simple reason that it's open source it's open source i mean china last time i checked pretty powerful place they basically banned it price rallied in their face india basically banned it a lot of people lived there last time i checked basically rallied in their face pakistan banned bitcoin banned mining it all went underground usage exploded mining in pakistan after the ban exploded it was so profitable to mine in pakistan that eventually the government themselves the province started a bitcoin miner and they they changed the legality of it so you know these are the four or three of the four most popular populated countries in the world effectively kind of said bitcoin's banned we're making new highs kind of even as we speak and i think about our own country i really don't think a ban is in store because i don't think it's possible but we can just we can just go there for a second let's just say the u.s banned bitcoin it wouldn't stop it would accelerate it remember we we kind of tried this once in 1935 we we did actually ban and confiscate gold for what i said before you actually could do that you can't confiscate bitcoin you could and in the ensuing period of time till today the dollars depreciate about 85 versus gold so it just didn't work i imagine trying prohibition today right i mean that's alcohol and it would be unenforceable can you imagine trying to ban people from holding their own money you mean forget it no way and it won't happen anyway because it's it's private property and we've got pretty good rules in our country about private property and it might even be speech because it's code so it might be protected by the first amendment but regardless michael none of this matters none of this matters because with regards to confiscation if you really boil all this down what is it it's just a password it's the password to a private key and that password can easily be stored with phrase memorization in my head so confiscations off the table remember gold has a vault you can take the vault good luck confiscating my memory yeah and given all of this it seems like individuals and corporations are being forced to take action yeah look i think everybody now has a choice which is a which is a good thing and it's a choice they make you make i make and everybody gets to make on their own you can stay on the fiat standard that's available in which some people get to print new units of money in unlimited size just not you or you can move to the bitcoin standard in which no one gets to do that including you we finally got a monetary system governed by rules not rulers and given that i've made my choice you have to make yours and everybody at this conference has to make theirs i will tell you i am working tirelessly towards the future with a globally adopted inflation-proof common currency for the world one that billions can opt into as their peaceful weapon of choice you know satoshi solved the byzantine generals problem bitcoin solves the military generals problem and when you think about trends in anything you're a tech guy all you got to do is follow the brains even more than the money the brains know first where are some of the smartest people in the world shifting their careers to focus where are some of the best developers in the world going they're going to bitcoin and i'd never underestimate the power of a mass movement of developers and don't underestimate the ferocity of the emerging decentralized class us bitcoiners i mean just like early encounters with the printing press and antibiotics and aqueducts and the internet itself they were incalculably underestimated people incalculably underestimate bitcoin totally understandably but you michael microstrategy your colleagues i think you're doing everybody an incredible service by having this conference by having this talk and creating a platform for these ideas to be introduced so look you've just heard from a guy with a background in financial services and a background in background in bitcoin i straddle both worlds so i offered my perspective but it's only my perspective colored by my experience you're a fellow founder you're a fellow entrepreneur you're a fellow ceo you've got your perspective you're a tech guy you know what do you what do you think about this and what do you think i've said and what i've missed well you know ross i i think there's clearly a macroeconomic win that's blowing and i don't think any corporation can afford to ignore it anymore uh we've all got to act you've acted microstrategy's acted um the reason we're having this conference is to help everybody else figure out what they should do and uh i want to thank you for sharing all this this has just been mind-blowing it's just awesome i'm uh i'm just so inspired and and i didn't realize there are so many institutions that were moving into this space as aggressively as they are what a difference a year makes so i guess we'll wrap our session right now and uh i want to thank everybody that's been with us for this session and we'll pick up with our next session on corporate strategy and bitcoin in five minutes but ross thank you for everything great great to chat you michael good to see you as always take care likewise
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Channel: MicroStrategy
Views: 77,294
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Keywords: MicroStrategy, Business Intelligence
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Length: 59min 34sec (3574 seconds)
Published: Fri Feb 05 2021
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