Charles Edwards - DOUBLE THREAT: Quantum and the Treasury Bubble - TOKEN2049 Singapore 2025

Hi everyone. So, it's easy to talk about the value proposition of Bitcoin and crypto and all the benefits. And I'll leave that to everyone else. Everyone who knows me knows I've been an ultra bull on Bitcoin for like eight years. But now it's time to talk about the elephant in the room, and that's the two biggest threats to Bitcoin and crypto today.

as treasury companies and the quantum computing industry. So treasury companies, first thing to note, if enough of the treasury companies are trading a discount to their NAV, it means they can't issue equity to raise capital because it's diluted. It's bad for the shareholders. So that can cause incentive structures for force selling on a down cycle. So leverage up and down.

Then we got the quantum threat. probably the biggest uh risk factor to Bitcoin and crypto today. Within two to eight years, the quantum machine will break the existing elliptic curve cryptography of Bitcoin. And I'll explain why. So, first the treasury company bubble.

Very briefly, you may have heard of the investment trusts of the 1920s. The way they worked is in the box on the left here. Basically, they raised money from investors, bought equities, listed on exchange, traded a premium, and then used that to relever up. On the right, we got the treasury companies. There's not a lot of difference.

Uh the main factor is we're buying Bitcoin or altcoins. So, to me, it looks a very similar picture. So, if we look at um Micro Strategy, is it just a rebranded investment trust? So, what were they saying in the 1920s? They were saying we were running out of common stocks.

They were saying they were uh trading a bit of a scarcity value. They were also listing at two to three times the premium on the value of their underlying. Sounds quite similar to me to what we see today. We know what happened in the 1930s. Everything crashed 90%.

1940s the Investment Trust Act came out for companies and uh basically lured this out. Just history repeating. On the left, we got the count of the investment trusts in the 1920s. On the right, we got the count of the Bitcoin treasury companies. It looks pretty similar.

Obviously, moving a lot faster today given it's a modern world. Uh we can see that the number actually ended up peaking at about 600 companies in the 1929. We're at about 200 almost for Bitcoin and alt coins today. So, why how did we get here? How is this possible?

So, there's many reasons. If you want the full details, check out the article. But uh I'll focus on the main point which is obviously the success of Micro Strategy. And their wins have basically driven more capital and exposure to this. They basically leveled up by arbitrageing the low cost of debt in traditional markets and putting it into the highest performing asset and voila, they outperformed everything.

I want to point uh to this quote by Warren Buffett in 2000 just after 2008 about the uh credit default swaps and what brought down the whole world economy at the time. Basically he said first come the innovators then the imitators and then the dumb idiots people don't get smarter about things like greeds that a few parallels. How is this allowed? Well, basically the only reason they can get away with it is a loophole that the investment company act only applies to securities and Bitcoin crypto is currently not classified as security. So what are the risks?

There's two main risks a leverage unwind and collapsing MNAVs. First one is leverage. Um this is a no-brainer. If they take too much leverage and unwind to the downside, we have a big problem. The good news is today the leverage multiples are still relatively healthy.

So we're tracking a few of these live debt to Bitcoin ratios, debt to enterprise values, etc. We're in the sort of 10 to 25% range right now. So not concerning, which is good for now, but definitely a metric to watch the spikes as the bubble grows. The other factor is trading at a discount. If too much of this market trades at a discount, which is an MNAV less at one, the value of their company to the Bitcoin, you have problems, right?

As I said, it's diluted to issue shares. So, what do you do? You can uh issue debt and drive up leverage and the risk factor we just spoke about to buy more Bitcoin. How else can you buy more Bitcoin? Well, well, you could just sell some Bitcoin to close the MNAV gap and try and uh approach fair value.

Or you could just abort your strategy. All of these options are basically bad for Bitcoin, drive down price, and of course, leverage to the downside. You can see the chart at the top right here is the average MNAV or the premium discount for these companies over time. and it's a straight line down. So that's a concerning trend.

And on the bottom here, we have the Grayscale Trust, which was people around 5 years ago know the number one trade at the time. It's similar dynamic. You could invest in this trust. It was like an ETF, but it was trading a premium. Everyone thought it's free money.

Put your Bitcoin in, you make more money. Obviously, the premium collapsed and it brought down the whole market with it. However, things are rosy for now. things are good because the demand is outstripping the supply. So the blue line here is how much Bitcoin institutions are buying per day on average.

The red line is the mine Bitcoin supply and currently it's at a about a 400% multiple. So as long as that happens, you can see the green here you price goes up a lot. So things are healthy for now, but this is something to watch because it will swing very aggressively the other way I believe at some point. There are many other risks to monitor and data points. If you want to learn more, you can scan that.

But basically tracking things like the buy sell ratio. You know, some of these companies are already selling some of their Bitcoin over time. You can track the MNAB percentiles, etc. Okay, the next one, the quantum threat. This is the biggest threat to Bitcoin crypto today in my opinion.

Within 2 to 8 years, a quantum machine will break Bitcoin's current encryption and Satoshi's coins will be market dumped. Even quantum years away. If you ask Chat GBT or Grock, it'll tell you 10, 20, 30 years away. It's rubbish. I'll tell you why.

Already quantum machines are deployed on all major cloud infrastructure, AWS, uh, Google, and Azure. It's used in many industries today. Astroenic user used in drug discovery, defense, in optimizing bond yields, etc. McKenzie, probably the most renowned uh consulting firm in the world and think tank says it's going to generate trillions with an S of value within a decade. What about Jensen, our friend from Nvidia?

He's gone an interesting journey this year. In January, he said it's 15 to 30 years away. Within 24 hours, the whole quantum industry collapsed 60% overnight. I think he then got the tap on the shoulder and got educated because a couple months later, he said, "I was wrong about the quantum timeline. Then in tune he said we're at an inflection point for quantum.

What's he been doing this month? He's been spending billions buying quantum companies. So as always follow the money. We've seen this before. Jamie Diamond, all the trad etc.

and are now printing with Bitcoin. Right. Qday is the day in which a quantum machine will break classic encryption. So RSA and that breaches security uh financial systems, sensitive data, all that sort of stuff. and of course Bitcoin.

So how will that unfold for Bitcoin? Well, multiple sources of reputility converge on a sort of four sorry a 2 to9year horizon to break Bitcoin. Jameson Lot Bitcoin developer OG 10 years in security in the space 50% risk in four to nine years. Yeah, look math PhD doctor specializing in quantum 2 to six years for Bitcoin. McKenzie again biggest consulting firm in the world they say Qday which is breaking RSA is in 2 to 10 years and remember RSA is stronger than elliptic curve cryptography of Bitcoin so Bitcoin breaks years earlier than that so we've got between 2 to 10 or less for that perhaps the most robust paper on this is the Bitcoin quantum paper 2017 they found you only need 2300 cubits logical cubits to break Bitcoin's ECC written by who three doctors principal Microsoft BP INQ biggest corner company in in America and Meta.

So these are four official statements of some of the biggest corner companies in the world today. The red box is highlighting all the regions they're expecting to converge on multi,000 cubic capability which is more than sufficient to break Bitcoin. Again, you're looking at the 2028, 2029, 2030 region is a high probability. So it's a bit of a bell curve. high probability in four to five years, some probability in two years, and obviously it grows.

We're also in a quantum arms race. If Qday is going to happen and break secrets and information, what does that mean? Well, it means the governments have to be have they have to have quantum supremacy to protect information and have competitive advantage. So, they're investing billions. We've had 55 billion committed into the quantum industry uh in recent times.

China is spending double the US. So a tsunami of money is starting to flow into this industry. So they're spending double. What happens if they're solving things in privacy and we only have two to three years. So Qday is coming.

This chart shows the trend of Qbits which is the processing power of quantum over time. And it's basically a straight line in a log chart. It's progressing faster than Moore's law which as you know has worked for 100 years and projecting the processing power of computers. So imagine 2021 uh and thinking about AI and would you be using it in a year? You couldn't, right?

You thought it was years away. So chat GT happened. I think we're in a similar moment with quantum. It's ignored today, but it's coming. There's solutions to protect crypto.

There's a few bips for example like this one. You can check it out and coach look at it by Jameson Lop. So there are solutions. We can solve this but there is an urgency to it. The other reason of there's urgency is we have long lead times to upgrade Bitcoin and crypto assets in general for Bitcoin itself it takes at least a month if you ignore all other transactions on the network to simply move everyone across to new wallets based on the limitations of throughput.

So we're looking at at least basically 6 to 12 months to to fix this. So we need to be solving this really next year 2026 in order to get in a solution before 27. So Satoshi's coins will probably be market dumped. Why? Because who's going to upgrade his wallet?

Who's upgrading? He's going to move those coins to a quantum secure wallet when the time comes. Michael Sailor recently said he's going to do something ethically proper and burn his coins. Well, actually burnt the lost coins the highest risk because no one has maintained that infrastructure. We want to keep active wallets.

You know, it's good for the network, but it's also good to maintain security upgrades and relevancy of the tech through time. So quantum is the biggest threat now, but who knows what it will be in 10, 20, 30 years, right? So this is an existential threat to crypto. So what can you do? Firstly, encourage you is to speak up.

Uh get get talking to community, your social media, get involved in the Bitcoin improvement proposals. Uh review them, give feedback, just get talking. I think that's really important is we just need to start taking action very soon. And you know, if you're like me, you might think about doing some kind of quantum hedge. Uh for me, as a a relatively large crypto holder, I think it's important for me to have an allocation in quantum stocks to try and hedge that risk in the worst case event at this point.

So now, is it a hedge or is it alpha? This is something I want to discuss. You might recall a few years ago and even today people saying to Tradfire Finance uh you know just put 1% in Bitcoin maybe 5% and you'll see a massive performance improvement riskadjusted return benefit to your portfolio and that was true and I think we're at a similar place with quantum today. Why? If Bitcoin goes to 20 trillion or a million dollars a coin in 10 years based on a relatively fair um conservative assumption for quantum of 100 billion from McKenzie and sort of standard PS ratios from Stern University, you get to about 50% higher annualized returns for quantum over the next decade.

So it's not just a hedge, it's a bit more in my opinion. So it's a bit like Bitcoin in 2000, sorry, in 2017 at $2,000. The whole market cap of quantum assets is priced about 50 billion today. So if you want to consider that, how do you do it? It's not an easy question to answer to be honest because there's a lot of quantum assets out there.

There's about 50 around the world. Uh half of them are private. There's four known big names in the US there. Um which obviously very liquid being US-based, but you've also got the big tech, right? Amazon at um Google, Microsoft, IBM, etc.

So who's going to win the quantum race? I don't have that answer. For me, it's important to have a diversified approach and kind of rebalance to capture the for winners over time. So, which is why we've created a quantum index to try and solve that problem. If you're interested, check it out.

But the main thing I want to get across today is that we have a really big threat in the room and it's growing every day with quantum and we need to solve on it really within the next two years. We can't afford to be one day late or the whole trust in this network will collapse. Bitcoin's value at the end of the day is built on trust in code. Can't trust the code? What's it worth?

And if Bitcoin goes down, you can imagine what will happen to everything. So, I encourage you to just basically get out there, speak, take action, and help us try and progress this, implement a solution in 2026 before it's too late. Thank you.