Bitcoin as Capital | EBC12

So, can I just tell you the next slide? Do I have a clicker? Hello everyone. How are you doing? Em.

It's going to be really hard for me to figure out, but I'd like to see a quick show of hands if anyone here is actually a Bitcoiner, considers themselves a Bitcoiner. Raise your hands. We have 1 2 3. Wow. Good.

So, about 15% of those present. This is great at a blockchain great at a blockchain conference. Very happy to see this. So, like Bitcoiners, excuse me for the first few slides. This will be, uh, a little bit of, uh, stuff you already know about Bitcoin.

Um, but there is...Sorry, I have to digress. There is currently a debate in the Bitcoin space about whether Bitcoin is capital or whether Bitcoin is capital or whether Bitcoin is money. And the point of this discussion today is that it's essentially both. And we are on the path of asset monetization, of Bitcoin monetization, which leads to Bitcoin becoming natural capital.

It has the functions of money, but no one will use it as money until we reach a fair price for Bitcoin. So what makes the people in this room Bitcoiners room Bitcoiners ? What does Bitcoiner mean? Bitcoiner means you are extremely focused on Bitcoin. You generally don't touch any other asset.

Um, and you're very focused on the value that this provides as the strongest asset known to mankind. Why are people Bitcoiners? Well, it's because of these six key monetary principles that have made gold money for five millennia. And rather than go into each one and explain, I think this is work that everyone should do in their own time, and typically a Bitcoiner has spent a lot of time on it . But I'll give you an example.

So, I used to work at Nomura work at Nomura . I spent 18 years at Nomura in London, Hong Kong and Tokyo. And my last boss, the global head of equities, who moved from Lehman because Lehman was acquired by Nomura in Europe and Asia. He's one of the smartest guys I've ever worked with. We became very good friends, but he just doesn't understand Bitcoin.

And I don't know if it's a matter of ego or something else, but one day we were talking in his luxury villa in Ibiza. And I said, " in Ibiza. And I said, " Imagine, I'll give you $20 million, and you have to hold onto that $20 million for the next 20 years." Or I'll give them to you in money that I can print as much as I want. I can devalue them because of COVID, because of Ukraine, because of Iran, whatever.

Or you could have algorithmically programmed money programmed money that never depreciates and is completely scarce completely scarce .” He's like, "Okay, yeah, if you put it that way, it's obvious." I'm like: " obvious." I'm like: " Understood, what?" And the bottom line is that the reason he is so arrogant is because he hasn't done the work to understand these basic monetary principles.

But he is also scared. And people say that the reason people are afraid of Bitcoin is because of its volatility. But in reality, there is nothing volatile about Bitcoin. Bitcoin is very specific. It has a clearly defined schedule for cutting supply in half.

As it emerges and becomes more accepted, this offer continues to fall and fall and fall. And the Bitcoiners here know, but I would say everyone is guessing until we run out of supply? We already have 20 million bitcoins. We have 21 million to put together a full proposal. Bitcoin has been around for 17 years.

So who thinks we'll reach 21 million in the next 5 years? Raise your hands. 10 years? No. 20 years?

Yes years? No. 20 years? Yes , okay, but more. 30 years?

But that's enough. Never years? But that's enough. Never ? Someone said never.

Okay, 50 years? Well, actually, the real answer is 116 years. Okay, it's 2140. Okay, that's because you just get this ever-decreasing number of bitcoins being released into the network. It will take 9 years to mine the last bitcoin.

So a lot of people here will say, "Well, there's going to be a better cryptocurrency." Right? Definitely. Something will happen faster. Bitcoin was the oldest.

But the key thing about Bitcoin is that it is a network. Try disrupting the internet now with a better network, a faster network, a more secure network. Try to break the TCP/ break the TCP/ IP protocol. This will not happen. It's built-in.

This is a network. And we are already achieving this with Bitcoin. It can be argued that most people would say that Bitcoin won the network race. 21,000 achievable nodes, a huge amount of computer hashrate used for it, integration into the institutional investment system, and now a million Bitcoins are already on the balance sheets of public companies. So, gold with superpowers is better money.

Another thing worth exploring is perhaps China's 900 years before World War II, when they were playing with paper money and trying to use silver as a base currency. Essentially, they just continuously destroyed China for 900 years by choosing second best money. We will reach a point where more and more people will understand the need for a hard asset and the fact that Bitcoin the fact that Bitcoin is the hardest asset. To reach gold parity, you're dealing with a Bitcoin price of 20 times, or about $1.5 million.

So why is everyone talking about tangible assets? This is because of their depreciation. 40% of all dollars have been printed since 2019 printed since 2019 , since COVID. The US debt is now unmanageable. $1.

2 trillion in annual interest rate spending. How are they going to get out of this? Oh, we're going to get out of this through growth, says Scott Bessent. He is the boss now. 1.

5% is the actual growth of US GDP, right? Artificial intelligence is helping some companies grow, but it is deflationary. Many people will lose their jobs. Many salaries will be cut. I just started my new company, Bezos Management.

We have six people. Whereas at our previous firm, we were managing the same set of people, the same set of products, with 20 people. OK? Real GDP growth faces a challenge, and that is deflationary AI. Nominal GDP growth is growth adjusted for inflation adjusted for inflation .

The increase in public debt is 6.6%. So to stay in place, we need to go beyond this growth. He told you what the plan was. We print money.

We will devalue the currency to get rid of the debt. This is how we grow. So more and more people are realizing this, and when they realize this, the distribution goes in one direction. You can start with 1% of the Bitcoin distribution. Then you move on to five, then to ten.

You're constantly looking at other assets, forestry, gold, private equity, hedge funds. There is nothing better than Bitcoin when you are considering storing your assets. I'm going to skip this slide because I have a limited schedule. So, it's more of a debate about whether it's money or capital. But I'll give you an example, and it's not a far-fetched example.

I'm starting to see this more and more. Family offices, and family offices are very well prepared for this, aren't they? They are engaged in preserving the time and efforts of their family or their leaders for generations. That's what they do. That's the whole point.

So, of course, they are looking for the strongest asset. And that's why I'm increasingly seeing family offices that are heavily invested in Bitcoin. So much is being allocated to Bitcoin that it is starting to become their base capital. So you need to start distributing that capital. This is not a recommendation.

This is simply to help you understand the four different quadrants I see for Bitcoin capital allocation today . And I'll walk through each of them, uh, with their own slide. So, cold storage. The family office is thinking about emergency protection in a situation where, you know, we have something worse than a global pandemic and the world is shutting down and, you know, everything is getting scary. More and more things are moving at a strange speed and strange things are happening.

It is important that you have a cold storage sleeve cold storage sleeve , meaning that family members have a clear map of where to go, what to do to get real money and be in a safe place. I've heard of family offices buying condos in Costa Rica, Thailand and putting up bookcases, and each family member knows which book is for them, and in that book they have the Bitcoin opening phrase with certain words circled. Again, for those who don't know what I'm talking about, it does some work related to understanding Bitcoin, but in this way it's extremely portable. Then there is third- party storage. Why do you need this if you already understand Bitcoin in cold storage cold storage ?

This is a way to start using Bitcoin as collateral in a traditional system. So, you have a qualified custodian, such as BitGo custodian, such as BitGo , that has been around for a very long time. They are starting to build products into their infrastructure that can be used. Then, of course, you have the Bitcoin ETF. Right?

These can then be used as collateral on your accounts to start borrowing money and doing other things. So, most private banks in Switzerland today provide you with an LTV on your Bitcoin ETF. So this is the beginning of Bitcoin as collateral, Bitcoin as capital. The downside, of course, is that your Bitcoins are spent here. It costs you an annual fee.

BitGo has very low fees. But, like at BlackRock and Fidelity, you're spending money. So the rest of the capital has to do the work. And I spent my entire career sitting in investment banking, dealing with hedge funds dealing with hedge funds , trading against them, selling to them, syndicating to them, and structuring for them. And I can tell you that properly allocating funds to hedge funds using low volatility strategies can be a very good way to create returns where there are none.

Bitcoin has no intrinsic profitability. So hedge So hedge fund strategies that first started to properly emerge in 2019, dollar-based strategies, are now starting to become much more market-neutral market-neutral , market-oriented, because people are realizing that this is actually a good way to generate alpha in dollar terms. And then, over the last 3 years, we really started to see the emergence of Bitcoin-denominated hedge funds . And this is where you get a completely different offer. Launching on November 1st, we will support one of the largest diversified hedge fund portfolios denominated in Bitcoin, with a target net return of 4% to 8% in Bitcoin terms, with volatility of 1 to 3, which is a ridiculous Sortino ratio, Sortino ratio, which is a risk metric which is a risk metric that gives you an idea of ​​volatility versus drawdown risk.

The team is led by the former head of Pan Asian Credit at Citadel. We are significantly reaching a new level in the field of products related to generating Bitcoin returns Bitcoin returns . And finally, bitcoin treasury companies. Again, I've said before that the allocation varied depending on what people believe and how they assess risk, but this is definitely the more volatile end of the portfolio. Nevertheless, today we have estimates that look very, very different than they did a year ago.

The micro strategy, or strategy that is perhaps the most well-known in this area, is essentially trading a one-time MNAF. This means that in a bull market, people don't really attribute much upside potential to it. They also say that, well, the company isn't something that won't get hurt badly during a bear market, but it also won't be actually destroyed by a bear market, which is implied for MNAF H100 and Metaplanet. But MicroStrategy can survive. Then there are other companies , like Connecting Actions, which is a profitable thug-hunting firm that just keeps growing thanks to its Bitcoin strategy, and Strive, which has no debt and uses a very effective perpetual preferred stock program to generate more and more Bitcoin.

So, that's a whole different topic again. I'm afraid I only have 10 minutes, so I'll just skip it. But if you think about it, the market didn't price the beta correctly. For example, H100 last May traded at a price 25 times its holdings in net asset value (NAV), its holdings in Bitcoin. Today it is trading at a price of 0.

7. So, we have a huge pendulum swing as the market tries to value these companies. So, in any case, Bitcoin is capital. Time to start distributing it. Thank you very much.

Thank you.