Episode 89: Bitcoin is Sound Money with Rob Price

Ben Lakoff, CFA
October 24, 2022
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Today's interview is with Rob Price.

Bitcoin. Sound Money or just another Risk asset? Globally there is likely a Monetary Regime change coming… What we change into is anyone’s guess, but Bitcoin could (who knows… keep that in mind) be a contended.

Rob is a rational thinker here, which I appreciate, so it’s nice to have a level head when thinking about this stuff. In this episode we cover all things bitcoin, including the current market update, positioning, crypto v. bitcoin and his investment thesis.

Rob Price on Bitcoin.

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Show Notes

0:00:00 Welcome and context

0:02:30 What had happened with Bitcoin in the past 2 years?

0:05:25 What had happened with gold in the past 2 years?

0:09:30 What are the value propositions for Bitcoin to you?

0:15:41 What is the perfect setting for Bitcoin as a store of value?

0:24:39 What common pushbacks people have against investing in crypto?

0:27:45 What are your measures for getting people over the line?

0:34:21 What is going on with Bitcoin now?

0:42:18 How to think through the macro economic situation?

0:49:07 What catalysts could push Bitcoin regardless of all other trends?

0:52:32 What scenarios can crash Bitcoin even further?

0:57:05 What keeps you up at night about Bitcoin?

Show Links

Episode 9 with Rob

Follow Rob on Twitter

Sound Money Capital

Helpful other Alt Asset Articles

Episode Transcript

[00:00:00] Ben: Welcome to the alt asset allocation podcast, exploring alternative investment opportunities available to the everyday investor. Here's your host Ben Lakoff. 

Hello and welcome to the alt asset allocation podcast. Today's interview is with Rob Price. Bitcoin, is it sound money or just another risk asset?

This is the question. Many are asking themselves these days, but globally there's likely to be a monetary regime change coming. What we change into is anyone's guest. Nobody has a crystal ball and who knows, but Bitcoin could in fact be a. You never know, Rob is a rational thinker, which I really, really appreciate.

So it's nice to have a level head when thinking about this stuff, there's a lot of noise out there, especially around these topics. In this episode, we cover all things, Bitcoin, including the current market update, positioning crypto versus Bitcoin and his investment thesis overall, before you listen, please don't forget to like, or subscribe to the podcast or even leave a review.

If you're watching this on YouTube, hello, please subscribe to the channel and, or give it a thumbs up. These things really help. And I appreciate it. All right, Rob price on Bitcoin. Enjoy Rob. It has been nearly two years. I had you on in September, 2020. So episode nine. Welcome back. Sirer good to see you on the alt asset allocation podcast.

[00:01:33] Rob: Yeah, it's good to, good to see you. And it's funny. Most people say it, you know, it's good to see you like in person, but we see each other in person the time. Well, it's funny, funny to see you on zoom. I? Yeah, 

[00:01:43] Ben: this is the thing, actually. You were the first and only in, in real life interview. And even though we both live in LA and we see each other, at least once a week, we co-host crypto, Mondays, LA, which anybody in the LA region come check it out.

We're in Venice every Monday. There's about a hundred of us. Yeah. We decided to do this virtually again because the audio I think is a little, a lot better. So yeah, I'll see you. Every Monday, you know, multiple times CFA meetups, all the things. Good to see you virtually, sir. 

[00:02:14] Rob: It's good to be here. 

[00:02:16] Ben: So September, 2020 is crazy and we were just catching up about this before, but a lot has happened since then.

And for my listeners, you did a great job of like listening through that, that podcast and taking some good notes. So Bitcoin was at 10,000 gold was at 1,800 where we are today. This is being recorded early August. So gold, roughly flat Bitcoin, 23 K or so. What was the most surprising aspect that that has happened since with Bitcoin?

Since that interview two years ago? 

[00:02:53] Rob: Yeah. So thanks for that, that context. And I said, I, I really enjoyed listening to the, the old interview. You know, what what I had to say in the past, you know, there's always some things that you you're proud of and other best that need, need some need some work. And what surprised me the most and particularly in the context of the interview was actually more related to golf.

Cause we, you know, in the, in the interview we spoke quite a bit about store value as a concept monetary regime change the value of store of value type assets, that gold Bitcoin. And we just, I guess, explained it a lot from the context of gold. And you know, I was quite bullish on gold. I still am reasonably polished on gold, but I think what's fascinating is that, you know, gold as an asset has been well, you know, it's gone up a little bit, but also been flat down over that period of time which is, which is really interesting.

And I think what we've seen is that the competition posed by. Bitcoin and the broader crypto ecosystem, I think, you know Bitcoin is a much better comparison relative to gold, but the competition post there has been even stronger than I expected. So, I mean, I always thought to myself that Bitcoin was a big risk to gold and we didn't probably speak about that and in that interview, but I remember speaking to clients in the in the subsequent months and telling them, listen, you know, Bitcoin is a big risk to gold because at the time I was working for an institutional asked allocator, they didn't have any exposure to Bitcoin, the exposure to gold.

Anyway, that's just a bit of a backstory, but yeah, that is it's caught me by, you know, surprise. And it's good to reflect on that essentially. You know, what we have seen is that, you know, Bitcoin and crypto has competed a lot of that store value interest. Away from gold. And you know, it's just, it's fascinating how quickly that has developed and that's, that's both compelling for Bitcoin, but also we maybe get onto some of that later in the, the interview, but it also does raise questions about the risks to Bitcoin and what competition could be posed by other assets.

And you know it's a reminder not to get too complacent because it is very easy to get complacent when you have, you know, strong long term views, which, you know, I said might be accurate in terms of philosophically and theoretically, but execution is a, is another thing. And, you know, markets can can do things you don't.

Humble you quickly.

[00:05:08] Ben: No, that that's very, very much well said. And the, the crazy thing is that like Bitcoin taking market share from gold, this was almost a meme and like uttered by like Bitcoin maximum list, but it's, it, it probably shows in the data. In this podcast today, I mean, wanna talk at length about Bitcoin, where we are now, where we could be going, but since we did touch on gold so much, and I think that actually helps kind of paint the picture. 

let's talk a bit about Gold's performance and, and just kind of riff on at kind of a gold update before jumping into more Bitcoin related topic. 

[00:05:47] Rob: Yeah. So, I mean, essentially I think what you've seen there is that yeah. When one, one aspect is, is, is Bitcoin certainly has competed. Some of that, yeah.

The, the speculative components of gold you know, gold bull markets historically would tend to, you know, gather steam in a, and have that kind of that retail speculation component, driving them you know, a lot of the, the early long term investors, or, sorry, the long term investors, the institutional investors, the guys that really understand gold, really understand the concepts of store value.

They'd be holding for long periods of time and then, you know, price would tick up and then retail get, and then push, you know, that gold ball market further, you know, much, much. And you know, basically, you know, gold did pounds above its, its all time eyes. And then it it just kind of petered up from there, which was which was surprising.

So yeah, I do think that that, that, that retail speculation component was competed away by, by Bitcoin. And the other component that is, that is there was a real impact from traditional financial markets, is that you have seen that real real rates did increase not necessarily, you know, straight after we were, were speaking you know, they, they were flat for a period of time, but they kind of bottomed, you know, real rates.

If you look at, you know, the real say real five year bond yields you know, five year bond yield less five year, five year inflation expectations, something like that. They did start to shift higher through 20, 21. And that does have an impact on the, the viability, the attractiveness of of store value assets that it always has done.

And Bitcoin has eventually felt that impact , but it just you know, it, it, it was more acutely felt on, on gold and earlier on, on gold. Listen, I still do think that there is a, is a place for there's a place for gold. But yeah, when now that I'm sitting in a seat where I'm no longer constrained in the choice of assets you know, when making recommendations to to, to, to allocators, I mean, I definitely would focus more on, on Bitcoin relative to gold.

But as I said, there's still always, always a case. We can go down that rabbit hole of, you know, there are so potentially some advantage of having some physical but anyway, I'd, I'd much rather argue for the other side of that, of that, of that case than having this truly distribute, you know, much scarce asset.

That's on a global network that you can actually you know, use in you. You can also use technology to make it you know, effective on a day to day basis. And you, you can use BI Bitcoin. It might not be perfect, but you, there are all sorts of technologies to actually be, be able make it able, make you able to execute on a payment on a day to day basis.

And that's obviously very tricky with, with gold. But anyway, that's a, that's kind of the theory again, but yeah, I think the gold, the two main factors here is being competed again, competed with. Bitcoin. And the rise in, in real rates that actually did start taking place in, in early 20, 21. And they now have peaked out in the other direction, but you know, that certainly had an impact on, on gold markers.


[00:08:59] Ben: That, that damn shiny yellow rock, right. It's been around store value for thousands of years. It's probably not gonna disappear any anytime soon, but there's a contender in the ring these days. Bitcoin, I feel like, I feel like the narrative has changed quite a bit. Satoshi's white paper when it first came out in 2009 was peer to peer digital cash. And now it sounds like it's, you know, more of a store of value, but they're still use it for the day to day transactions. It's this infl inflation heads. Just kidding. It's a 99% correlated with the NASDAQ. There's a bunch of different like com. Repeating narratives with what Bitcoin is, why it's important.

Let's go back and like talk about the value proposition of Bitcoin to you. Why it's so important which people can listen to our last episode, I think it's great to like recenter on that and then we'll go into an update of where we are now leading into, like where we could be going.

Does that, that sound all right? 

[00:10:02] Rob: Yeah, for sure. And yeah, I'll allow you to pull on these different threads. Cause there certainly are many of them, but yeah, for me, the, the short answer here is that I see, you know, what governments have done to our money is the biggest problem we face in the 2020s the cause of so many economic social financial problems that we, that we face this corruption and just continued distortion of our money.

And we can get into those reasons if you, if you like, but I'll keep it short there. But it's just the biggest challenge that we, that we face and that we do genuinely need. A alternative monetary system actually you know, the world does historically go through phases of of well goes through different monetary regimes.

You know, even in the last a hundred years, we've had numerous monetary regimes, you know, pre world war II. We had a gold standard post world war II. We had a pseudo gold standard post 19 72, 19 73. We've had this dollar reserve standard. So there's historical precedence that the Ram regime will change. And there is clear evidence that we are at some sort of, you know, precipice at, at the moment, you know, with debt levels at the most extreme levels they've been since the world, since world war II, interest rates, probably at the lowest levels they've ever been ever in history of, of, of humans.

And so we had this preci, we had the we've got monitor regime change in my perspective, it's the cause of the cause of a lot of the problems we, we, we face. History tells us that it will change. But what's it gonna change too? And I think one of the reasons why it's not changing maybe as dramatically as one might think, given how extreme the conditions are is, you know, what do you know, we're not gonna change to a UN standard or a Euro standard or a pound standard.

You know, those monetary systems are no better than than the dollar. And and so, you know, what, where do we go? And I do see, you know, Bitcoin in that position and, and the rest of the crypto, you currently see ecosystem, but for me, you know, a monetary system is always based on a very sound foundation.

And it's, we can, we can get onto talking about in other crypto assets and I'm not you know, a Bitcoin Maximus that I think that there's no value elsewhere, but I do think that the center of monetary. Regime monetary system. It, it makes sense to have something, you know, very secure, very sound, very scarce, very, very clear, very simple and very low risk and Bitcoin kind of fits that bull.

So it, you know, it is, this is this scarce digital ass asset that is decentralized and, and secure and, and, and, and could play the role as the reserve asset of some sort of, you know, future financial system. And I, and I think it kind of plays that role as the reserve asset of crypto today. But I mean, that maybe is a bit more of a contentious point.

But I do think it, it plays, plays that role, but to your point, I mean, that is a, that is a narrative I I'm aware of that and that it wasn't, you know, it wasn't necessarily what Bitcoin was created for you know, Toshi and, you know, all the subsequent developers. They were just trying to create a, a digital cash, a digital asset.

And they obviously did create that, you know, but in order for that asset to have any value, it needs to have scarcity. James, why the scarcity principle is there. And I mean, this is, you know, a slightly different point, but you know, when, when thinking about these different narratives of, you know, store of value versus medium of exchange, for me, it's quite clear in the world today that we need a store of value more than we need a medium of exchange.

So, you know, when I think back to the choices made in, you know, Bitcoin development over the years, it makes a lot of sense to me that developers prioritized store value and security scarcity. And the decentralized nature of Bitcoin, which obviously feeds into the the security and the the ability to remain scarce over, over long periods of time.

Cause it's difficult to change the protocol because it is de decentralized and distributed. But yeah, that prioritization of the, of the scarcity and the decentralized nature makes sense to me relative to to medium of exchange because we don't while medium of exchange is, you know, you would prefer Bitcoin to be a better medium of exchange, like kind of all else equal.

But it's much more important than it's a good store of value than it is a good, you know, a good a good medium of exchange, you know, dollars. Aren't a terrible medium exchange. And of course that's also where the rest of the cryptocurrency ecosystem comes through in creating some of these other innovations, which solve some other problems that Bitcoin hasn't necessarily solved.


[00:14:46] Ben: Yeah. That peer-to-peer permissionless, censorship resistant that value transfer it. It's, what's so, so powerful with this, but I wanna kind of double click on the like monetary regime change. You're exactly right. Like you on Euro pound yen, like, what the heck are you gonna abandon the dollar for one of these?

Like, you know, as, as an American, sorry, but like, you know, Probably better than these other ones. So it's like jumping from one boiling pot of water into another. But like, if there's a complete collapse of us dollar and Bitcoin replaces everything as the global reserve currency, I mean, it's basically pitchforks and torches and I'd rather have a shotgun and a bunker probably than like a whole bunch of Bitcoin in that scenario.

So what's kind of the ideal, like what does a transition look like? Or, or what's like the perfect, perfect storm for Bitcoin as, as it fits into like this new, whatever ex it comes out on the other side of like a monetary regime change. 

[00:15:48] Rob: Yeah. So just before getting to that question of the transition, just one point to add there that like philosophically or the way I.

And maybe slightly less with the one, because they do have a, a slightly different kind of financial system to the west, but thinking about the, the Euro and the yen and the pound and the CAD and the Aussie dollar, I almost, I see them as almost part of the same monetary regime as the dollar anyway. Right.

They're all part of this dollar standard. They're all interlinked. You know, the, the, the dollar is the reserve currency of the world, and it is kind of the reserve currency for all these other currency regimes around the world. So the idea that you're gonna shift, it's like, that's, they're, you know, Euro and pound and CAD and Aussie dollar are like layer two currencies on, on, on top of, you know, us dollars as layer one.

You're not going to choose, you're gonna shift your layer two as now, your reserve asset that's, it's never gonna happen. So on this question of transition, I, I, I mean, I'm certainly not a full hearty enough to think that I know the answer, all I know is that, you know, people will slowly gravitate towards better technologies.

That's already what is happening. And those people, you know, families, communities, companies, societies that gravitate towards the sound acids, put themselves in a better stead. and I completely hear what you're saying in terms of like collapse of the monetary system that would be disastrous in a world that we kind of don't want to live in.

But I do think that, you know, Bitcoin and crypto they, they really are this lifeline. They are this transitional asset. They're giving people an opportunity to already be on a different monetary standard. You know, some people are actually on a different monetary standard. They, you know, they denominate their, their wealth in Bitcoin and other crypto assets.

They transact mostly in these assets. So if you were to get some sort of crash in the monetary regime, which I, I, you know, I don't think that we will have have, but I mean, that's, I guess, possible, but at least those people would be protected because they would have you know, they, they would have some assets in order to, to function in a different monetary standard.

And as time goes on, You're gonna have more and more people in the crypto standard. And so at least there is actually a competing alternative. So that, I mean, is it, I don't know exactly what the, the, the future holds, but I just know that over time you're gonna have a greater share of people on this new standard.

And that's actually, that's, that's robust that provides us with this, this lifeline. And you know, hopefully the transition doesn't look dystopian but you know, the world has seen lots of dystopian times in the moment. In fact, we could look back in 20 years time and think that, you know 20, 22 was pretty dystopian.

There are some pretty dystopian things going on already. So but yeah, anyway, I dunno what that future holds, but I think this provides us with a reasonably robust, a transition period that wouldn't have existed elsewhere. I mean, Imagine how depressing things would be if we didn't have Bitcoin and crypto.

 You know what 

[00:18:49] Ben: well, I think we live in our echo chamber at times, right? Because for me as well, it provides like this new hope, but there's a lot of people that just could give two shits about crypto. So like that hasn't been in their like lexicon of what they're going through day to day at all.

[00:19:04] Rob: Agreed. And that makes sense. But also, I mean, think about the, the newcomers that do that come to crypto, learn some foundational principles and think about the, the light in their eyes when they pick up and you meet person. I love it. You know, they're dealing with all of the stress in their life, you know, it's not that it solves your problems immediately, but intellectually it gives the, gives people an opportunity to.

To, to, to make some connections between some of the problems we deal with and our monetary system, they piece that together like, oh, okay. And there's this asset that could potentially not necessarily, we don't wanna speak about it, you know, a utopian sense that it's gonna solve all of our problems, but it has the potential too.

And I mean, humans need some hope. Oh yeah. It's very powerful. It's you know, and, and this has, it's, it's hope based on, I think some some sound foundations and principles and philosophies. 

[00:20:00] Ben: No, I, I, I agree. And that's part of like what these, like crypto Mondays and things like it, you know, you see people for the first time that are just falling down the rabbit hole and just come ready.

So eager and hungry to learn for knowledge, for new things that are moving around just to like, be this sponge, to absorb everything that's happening. And it it's energizing for guys like us that have been in for a while, you know, to see, see it through new eyes and also like. Makes you realize how kind of early and, and easy and, and not easy.

It is for people to like, understand it, right. Because you've like end up in this, like the weeds of definition soup, and you, you like lose the forest from the trees because there's a lot of stuff. Mm. So yeah, it also is helpful as like a potential educator and thinking like, okay, put, put your feet back down on the ground.

These are the principles you have to understand. These are the important things. Ignore everything. At first and then you can get there, or at least in my, my 

[00:20:59] Rob: experience. Yeah. And I'm interested to get your thoughts on this, but is it, would you think that it's more difficult for newcomers and there's more educational content obviously today than it was five years ago.

Yeah. But 

[00:21:08] Ben: is it more's paralysis by over 

[00:21:10] Rob: analysis, right? Like, yeah. And, and, and there's more, and there's, there's, there's many more use cases for crypto now and many more crypto projects. So does that make it more difficult for a newcomer to determine what are the key principles? Definitely. 

[00:21:26] Ben: I mean, I, I think it makes it both op more open because now if you're a musician, you have a clear, like use of crypto and how it could be used, but also more intimidating because that person has found themselves into music NFTs and how it disrupts this.

And then they start finding out about everything else. So It's it's an interesting one, cuz it, it onboards a lot more people, but it also just makes it so like insurmountable and, and even somebody like me who used to take pride in kind of knowing what was going on on all these different blockchains and all these different niches.

And now it's like I could spend 30 hours a day on my computer, which is impossible and I still would be completely behind on everything. Like, so it's like you gotta kind of niche down of, because every global 24 7, 365, like you have people kind of iterating on different things on different blockchains.

And like we were talking the other night, we Rob hosted a CFA meet up in LA and there's a team that has been building games on Bitcoin Satoshi's vision BS, VV, which most people believe is like a complete ghost chain and nothing's happening. I had no idea there was a whole ecosystem. So it's like you kind of stay in your own lane.

[00:22:42] Rob: No. I mean, I think you, you you've summed it out. Well, it, it, isn't, there's definitely upsides to all of the new use cases and the way they're bringing in new people particularly, you know, creatives, the NFT NFT world. But yeah, you know, I, the other side to this coin is that I do worry that people don't get the, the key principles innocent.

I'm obviously biased, but , I think that you know, understanding money and the monetary regime is, is definitely the, the most important thing in the world and is, is you know, crypto's number one use case. Yeah. And if we, we don't, we ignore that use case, then I, I do worry about our future, but that's me.

[00:23:18] Ben: Since in the last two years, you've, I mean, You have your CFA, you're been always kind of talking to institutional clients about crypto or, or, or gold, like, you know, in that same character, but now you, you have your own fund. So I'd be curious, just you're talking to people all day long about allocating a portion of their net worth into crypto.

Like based on these sound money principles, what sort of common pushbacks or misconceptions do you have most when talking to these institutions about allocating to crypto? Yeah, I would think 

[00:23:57] Rob: that the, the, the biggest misconception just in general is probably still this question about like, what is it useful for?

I think it's still, flummoxes numerous different people. You, you, you know, and I, I do understand why, you know, cause you coming back right to the start of the conversation, you're talking about monetary regime change. And then in that context you're like, well, it's, I mean, yeah, I see your point. We could be moving to a different monetary regime.

You maybe I need some Bitcoin, but it doesn't feel very useful. It's definitely the long term risk mitigating measure, but that has that useful on the short term. And I guess maybe that's the challenge of this technology is that conceptually it can be difficult to like understand the different layers.

But yeah, to me, and it's not just about Bitcoin, it's the, it's the same thing, you know, think it's just actually the same argument with stable points. So people ask, you know, why, why a stable coin is useful? I mean, I could use dollars, right. But stable coins are on a global network. Dollars are not actually on a global network.

You have to go through all of these intermediaries in order to make transactions. And then if you wanna send, you know, dollars to somebody, you know, in just a non dollar denominated country, particularly if they're outside, you know, the Western world doesn't necessarily need to be an underdeveloped country, just, you know, maybe like outside of Europe and Canada and, and the UK.

And it's more of a challenge, right? Like some people like, like how do they receive those dollars without having a us bank account? Well, with stable coins, you can just set up a you know, a crypto account and you can receive dollars. So you've got access to this global payments network. And of course, you know Bitcoin does have that, those, those characteristics and other characteristics, but that's one of the ones that I, I find is.

Is is incredibly interesting. How still I have these conversations all the time about you know, what is this thing actually useful for? I mean, it seems so obvious to me the use cases are abundant all the way around the world in, in numerous different jurisdictions. And you don't need to think about once again, I'm not saying that these other use cases in crypto are not useful, but you don't need to use cases in like defi and options and futures and, and NFTs.

It's just, just something like, you know, stable coins and, and Bitcoin having a global payments network is very useful and we don't actually have that. So that's one of the biggest misconceptions that I, I, I see out there today. Yeah. And what, what sort of. 

[00:26:27] Ben: Aha moment. Do you typically have for, for people to like get over the line, do you send them a little bit Bitcoin and you see like the instant finality or is there, what kind of trick have you found or not trick that sounds negative, but you know, what sort of yeah.

Thing had to kind of gets 'em over the line? 

[00:26:44] Rob: There's no easy answer to that question. I mean, I, you know, I'd love to know your, your answer, but for me it's about, you know, it's a, it's about speaking to people, building relationships, having, having, having a, like a, you know, one on one relationship with somebody making sure that you're available and trying out all the, I mean, you know, all the, all the tricks of the trade.

And obviously I, that's nothing nefarious about it. Yeah. Speaking to them, sending them Bitcoin that often helps and just giving the, the ideas time and, and following up with, with videos. But yeah, just bowling those relationships and, and coming back, you know, specifically to. To institutions it's still actually the same.

So it's the same thing. They are understandably more conservative. You know, they're not , you know I often say that you know, FOMO is one of Bitcoin and cryptos and maybe it's, it's it's best marketing tool because people just respond to FOMO, they see price going up, they eventually buy some, and then they're in the, you know, they're in the market and they tend to learn more about it.

Listen, I don't want people to respond to FOMO. I'm just saying it happens like that now with institutions. Well, I mean, they are, they're not so receptive to FOMO because they, you know, they've been in, in financial markets for a long period of time and they, they, they will refuse to make decisions purely based on on FOMO grounds.

But they are, you know, they, they are, as you know, in voodoo people always say they are coming, but they are coming. They just take a bit more time. You know, they want to do all of their. Due diligence. They want to due diligence on the, the actual fund. They wanna see long track records. They, they, they of course are, you know, interested in the, the asset class.

How does this asset class perform during, you know, numerous different regimes you know, they, they they're deeply skeptical and they are you know, maybe if there's one actual, the biggest stumbling block I see is the reputation of damage. So a lot of, you know, large institutional allocators are quite conservative by nature.

And they are concerned about the reputational impact that could be created once they make an allocation. And so that's just another stumbling block. And so I think that, you know, overcoming that once again, it's just building this familiarity over time until they get to such a point that , she black removed all of the, the hurdles 

[00:28:58] Ben: Well, is there a few ideas it's just mind persistence at this point, right?

 I was talking about this at your meetup last week. And again, this was a chartered financial analyst meetup. So CFA, top money manager designation in the world. And these guys just have like a healthy, most of them they're, you know, 30 people, so small, small segment, but like just a healthy, healthy skepticism of Bitcoin in general.

And, and, you know, I'm just like, guys, aren't the stakes getting too high. Like the reputational damn rep risk at this point is like so low. You have sovereign nations and massive corporate companies with billions of dollars of Bitcoin on their balance sheet at this point, like other pensions have gone in, you're no longer just that loan guy out there.

Like, Hey Bitcoin, you know, it's, it's, it's gotten to this point where now, I don't know, you put 1% in and it blows up like, Oh, no 1%, but like there's a lot of other people betting a lot more than 1% on it. So think reputational thing is like gonna, gonna get less and less. And it almost it reputationally to not irresponsible, not to have any Bitcoin or, or crypto starts, starts kind of taking its place 

[00:30:14] Rob: hundred percent.

And I mean, not just speaking another one just to think about here is they are, they definitely are regulatory consequences on, on some types of institutions. Yeah. So maybe I'm thinking about, you know, I am mostly focused on family office space where they aren't as constrained a regulatory. But if I think back to you know, some of the guys we spoke to in a few weeks ago at the CFA.

You know, working for highly regulated financial institutions, 

[00:30:41] Ben: they can't even do high yield bonds. Right? exactly. 

[00:30:44] Rob: Well, they can't, they can't access, you know, alternatives. So it's not on the list. It's not on the suite of, of potential products. And then even for ones that aren't constrained like that, if I think about the institution I used to work for, they are still a highly regulated pension fund.

And often in a way an institution runs that has got so large like that they are more concerned about The reputational damage and the, you know, losing clients that are necessarily the best risk adjusted returns. Like if you look at the risk adjusted returns of having small amounts of crypto to a portfolio, it's an absolute, no brainer.

Like it's, you know, it really is a no brainer, but for them, they're not always thinking about the risk adjusted returns as they should be. And this is one of my frustrations at a large institution like that. And it's no blame at the one that I was at. I, I really do think they're, they are all like this.

It's like part of the problem with the industry. But because they are aligned in such a way, they, they, they're more thinking of, of, of, you know, it just doesn't, it doesn't pay us to go out on Olympia. Am I gonna, am I gonna lose my job? Is that fi, is that client gonna fire us? You know, we have this big contract with that government you know department, are they gonna kick us out now because we've spoken about Bitcoin.

And so. As you're right. We will get to the point where there's some sort of tipping point for some institutions, but for the very conservative ones, even if it's only like 1% of their clients, if they think that is the case, they'll make a decision based on that. Even though that's actually not logical and they expected value of the decision, doesn't make sense, but that's the way they think through it.

Cause cause one advisor, one senior advisor saying, no, no, but my client will fire us if if you put this into the portfolio and then the, the people on the, in the investment team are like, okay, cool. Well, we won't do it. So they, they almost, they're often looking for reasons for in action. Yep. That, that happens at large institutions that they become, they, they, they become like biased towards inaction.

Yeah. No, 

[00:32:50] Ben: that that totally makes sense. Alright, so. Talked about like the long term bowl for Bitcoin. Why, why it's important, which I think is super, super important, but a bit of like, you know, lost in the noise. Everybody's always asking, I love it. Actually. I hate it. But you know, as being a crypto person, people are like, oh, what should I buy?

Where is, where is it going? So talk a little bit more about short term. You do track these things you know, current price where we are in the cycle, kind of more near term and pick whatever timeframe makes the most sense, but like Bitcoin is down off 60, 60 plus percent from its ties per the usual with these booms and bus, you know, lots of people buy in right near the top.

And then they find themselves, you know, down 50% and kind of ignore it for the next couple years. no bit goes up, but talk to me about where we are in like the cycle in terms of price and adoption or whatever's 

[00:33:45] Rob: relevant. Sure. And I must always just, you know, say before going into those comments, obviously none of us, none of this is financial advice.

Yeah. Where are we in this cycle? I think that the key factor that you know, people do forget when they get deep down the crypto rabbit hole is, you know, Bitcoin is still a macro asset and, and crypto is part of that same ecosystem. And so, you know, the tightening of liquidity by the fed and other central banks was key, obviously a key factor in, in causing this bay market that, that we've had.

And I do think that is starting to turn you know, We are seeing that the yield curve looks like it's starting to bottom. If you look at long, long dated rates, they look like they're starting to turn over. Inflation is, is obviously starting to be some sort of, you know, downside risk to inflation.

So the cycle is turning from that respect, you know, a macro indicator for me, hasn't like 100% confirmed that we are on the other side of that cycle. But, you know, that's what it's looking like. It's gonna show that over the coming months. And you know, once that turns, that that, you know, will be a much bigger headwind will a much bigger supporting factor towards towards, towards towards Bitcoin and crypto.

So that's, that's critical. And then looking particularly, or specifically within crypto markets themselves. And I, listen, I do focus my investment pro process because it is a, a macro focus pro process on the kind of the macro variables. And I do think that. As I mentioned earlier that Bitcoin is the reserve asset of, of crypto.

And so if you look at below the surface in, in Bitcoin markets, you can see that there has been a fair amount of capitulation. You know, we talk about capitulation and you see you know, institutions like, you know, Celsius in three hours, capital you know, capitulating on their holdings, but you can actually track that below the surface.

And you can look at realized losses on on, on, on chain with, with Bitcoin. And we we've seen deep realized losses. So clearly there's been a lot of capitulation, forced sellers. And it's good to obviously to analyze that within the news, but it's, for me, it's always good to see it in hard data. And you know, capitulation does often mark the end of a, a cycle because if, if you've had so many for sellers, like who else is, is left to.

And then the other component that's related to that is course is is Bitcoin minors. It's something that you have seen people speaking about in, in recent months. But once again, the data is starting to show us that, you know, hash rate in, in Bitcoin is, is declining. That means that mins are taking their, their minus offline, that they aren't as profitable as they used to be.

And what you find historically is, you know, Bitcoin, mine is a very procyclical force in crypto that they during a bull market, ju just like other participants, right. They're forecasting this thing to carry on far into the future. And so they sit on a lot of Bitcoin. They basically like, you know, basically like leverage.

And you can see that in the price of the performance of, you know, these shares you know, the ones that are listed. So they sit on that Bitcoin and then the cycle turns and they still have these POS positive expectations. But as the cycle deteriorates, you know, they lose hope on those expectations.

And eventually they capitulate on their, on the holdings, which is right about now. So, you know, a lot of Bitcoin mins are now selling down their holdings. And of course, once they reach a certain level or zero , they they've got no more to sell. So also another, you know, signal of capitulation. And it's another of the factors that I've mentioned here are, are gonna, you know, predict a button with certainty, but you're seeing that bottom body of evidence emerge that a bottom is, is clearly forming.

And that's just, that's a really important piece of information. And of course when managing a portfolio, you can't what you shouldn't just rely on on one piece of information and, and just, you know, act. Act on that alone. Because also just because a bottom is falling doesn't mean that we are, you know, going up to new all time highs immediately.

I think there's still a lot of risk in the markets. And, and one of the things that I do think is particularly interesting is the, the uptick in leverage that we've seen maybe less. So the, the kind of hidden leverage, cause I think a lot of the hidden leverage in crypto was washed out over the last few months, kind of the hidden leverage in places like Celsius and block five and three hours capital.

There was a lot of leverage there that I probably, I wasn't properly taking account of, but the, the leverage in like futures markets has, has, has risen aggressively over the last in a couple of months particularly on Ethereum. And that just is something to be cautious about. You know, it's something, you know, leverage can can be liquidated even quicker than it was created.

So that's just, you know, something to keep an eye on. But as I said, I mean, this, none of this is, is financial advice, but for me, when I'm thinking about the cycle, you know, we are approaching a button you know, this is not a time to be to be looking to sell down all of your holdings, but yeah, sure.

Maybe there's profit taking on the way up, you know, if leverage gets, you know, overheated you know, the, the, the probability of, of retesting the lows is, is certainly not certainly not zero. And, and while traditional financial markets look like we are approaching some sort of, you know, macro bottom, it also doesn't mean you can't get a washout at the end of the day.

If you look at things like, you know, libel, OIS, which, you know, assesses interbank liquidity in, in, in traditional financial markets, it's ticking up you know, that ticks up far enough. Well, then you get a, you know a March 20, 20 March, 2020 type event. And of course crypto's not gonna be spared at all in that type of event.

Then a dip down to, you know, 14,000 on Bitcoin is, is definitely in the, in the realms of possibility. mean, no one knows exactly what the future holds, but yeah. In the balance of probabilities, we're clearly approaching bottom. 

[00:39:15] Ben: Yeah. But I mean, important, like you were saying is like, there's still a possibility of this thing.

Newing by 50%, negative 50%, if there's some massive macro issue. Right. Because it's still highly, highly levered. But I, I think the frustrating thing for me is like, you know, these these maxims, like don't fight the fed, it's all one trade, like all of this, that it it's just the, the, the tail wags, the dog in terms of macro and crypto.

I mean, so are you. When thinking about this and the bottom, how much of this are you, like what percentage monitoring macro versus like actual on chain data in terms of Bitcoin and, and how are you, how are you thinking through this? Cuz there macro is the big dog in the room, right? 

[00:40:08] Rob: Yeah. Yeah. And maybe even one, like maybe a way to even like rephrase that question is cuz the question that I often do get is about the correlation basically between tra fi and, and and, and Bitcoin and crypto, well between you equity markets, the NASDAQ and and Bitcoin or, or Ethereum you know, doesn't matter which way you slice and dice it, you know, the correlation is strong.

So yeah, the way I think about it is, I mean, Bitcoin is a macro acid. It is driven by macro cycles to, you know, dismiss that would be. Would be full hearty and the evidence suggests otherwise. But that doesn't mean that you know, that, that there aren't idiosyncratic drivers and history confirms as much.

If you look at the historical correlation and the correlation is obviously that's, you know, the, the, the quantitative outcome of this concept that we are talking about. So the correlation between, you know, Bitcoin and the S and P 500 has oscillated over time. And it, it, it averages about zero, 0.1.

So it's pretty correlated. Of course the correlation has been stronger recently. It makes sense, right? As soon as the asset class becomes more adopted the penetration is higher, you're gonna get. In the investors that are holding you know, both assets. And so they're gonna trade them on, they can trade them on, on similar factors, but still there's historical precedence that the correlation oscillates.

I, and I think that there's, you know, reason to believe that that will continue for, for a few different reasons. One, if you also look at other asset classes, you know, something like gold and equity markets, they also have been times when gold and equity markets have been strongly correlated with each other and there, and there's reasons why that would exist.

As a simple example, you know, liquidity can drive financial markets and it can drive gold and equity markets higher at the same time and gold and equity markets and Bitcoin all higher at the same time. And the correlation can be strong, but just because the correlation is high for a point of time, doesn't mean that that's gonna persist indefinitely.

I mean, I think that that. That's a mistake because you know, the historical precedence doesn't suggest as much. And then if you look at actual like, fundamentals, okay, so why is this correlation gonna gonna break down? But I think that there's also reason to believe that that will take place. I think the two key factors that come to my mind is one, if you look at that correlation between Bitcoin and the S and P 500, it tend to be stronger when equity markets are weak.

So, you know, when liquidity is kind of being pulled out at traditional financial markets, everything kind of weakens, obviously there's some assets that can do better in those conditions, but it comes to your point about it all being kind of one trade, particularly on the downside at score one trade 

[00:42:52] Ben: when you actually need it as a 

[00:42:54] Rob: hedge.

Damn. Yeah. And that's maybe that's something to dig into, you know? So I still think that, you know, Bitcoin can be an correlated acid, but it's clearly not. It's not correlated on the downside, which is from a from a sales perspective and marketing perspective is, is, is it reduces the attractiveness of that component, which is, you know, something of course to consider, but yeah.

Then the other component to consider, well, just, I guess, completing that thought, I don't think we're gonna be in like an equity down market indefinitely. I don't think liquidity is gonna be tight indefinitely. So as a result, there is opportunity there for that liquid, for that correlation to, to break again, at some point in the future.

And then another fundamental factor that I think is potentially the most important one is that the whole does of Bitcoin do change over. and that's something that you can actually get quite good data on. So, because you know, we've got blockchain data and you can, you can see how you can't see exactly who the holders are and you can see their addresses.

But the aggregated data that is useful to look at is, you know, when is the, the last time that these addresses kind of saw movement, which can give you an assessment of how liquid or e-liquid those addresses are. And basically what you see in Bitcoin markets at the moment is that a lot of holdings are shifting towards long term holders, right?

The more illiquid holders than people who are less likely to sell. And that's the same dynamic that you've seen during every Bitcoin bear market, that holdings move to these long term illiquid holders. And as that takes place, that is clearly a factor that. Drive the kind of the short term change in short term market structure.

Right. You know, because it's moving away from those more short term specul spec speculator type, you know, investors, and therefore the, the, the overlap of people who are trading both Bitcoin and Ethereum and equity markets, all kind of together and therefore driving the strong correlation that is, you know, that the, those people are a much smaller share of the market.

Listen, they'll probably grow again. And the, the equity. Market correlation between Bitcoin, sorry. The correlation between Bitcoin and equity markets will probably pick up again sometime in the future. But I think that there's strong reason to believe that it can break down again. So, I mean, that's a, a long answer to your question, but I, I think it is important to go some of that, that detail, because I do get that question so often.

But yeah, when thinking about investments, unfortunately, there always are these different factors to take into account both the macro conditions, as well as the the internals within crypto markets themselves. 

[00:45:37] Ben: Yeah, no. And unfortunately, in these down markets correlations kind of trend towards one with many assets.

Right. Like leaving out perhaps the macro cause I don't think we have time to go into too much of that and that's a very deep subject, but in terms of like within the Creek crypto ecosystem, what sort of catalysts could we see to kind of see us to new highs or like this next leg of the bull market or kind of what's the most bare bullish scenario for Bitcoin in terms of 

[00:46:09] Rob: price action?

Yeah, I mean, I think that the, the most bullish outcome would be, you know, something like, you know, nation states option you know, more nation states that would be, I think that would be a powerful narrative you know, towards this kind of, you know, this, this, this reserve acid outcome that that, that people, you know, speak about is I think that it's also possible that, you know, Ethereums move to proof of stake.

Could. Offer an investment case narrative of you know, E being this this like kind of this yielding asset, some sort of like pseudo crypto bond. I mean, as you know, you know, for me, I'm just like a skeptical heart, so I want to see, I wanna see the proof in the pudding that they've actually got there and it's all, it's all working you know, fine.

But from a narrative perspective, I can see how that is compelling. And you're clearly seeing a number of people talk about it, you know, in, in the market at the moment. And and then clearly, I mean, it's, you know, tying in everything we've spoken about here, of course, if the fed loosens aggressively, I mean, that is gonna be incredibly.

Positive for, for, for crypto, for Bitcoin, because I said, these are at the end of the day, they are they are macro assets, they're driven by liquidity. And so until such time, as we see some sort of loose and in loosening in liquidity, it's difficult to see us in a sustained bull market. You know, at the moment, you know, what's driving the market is just existing holders who have cash on the sidelines reallocating that cash into crypto at lower prices predominantly and less so seeing, you know, big, large new flows.

And, and that's the best point that you're getting at is that you, you, for that you need, you know, some sort of new compelling narrative and those would be the ones that I would be watching our for nation state adoption the you know, potentially E post post post the, the shift to proof of stake.

And and of course, you know, fed, fed, loosening, and just people. I, I think a lot of investors when that happens will there's potentially even like consensus that, you know, crypto is the fastest horse in that, in that race. So that, that, that is the most compelling of all of them. And it, you know, it could be very powerful when it, when it does emerge.

[00:48:24] Ben: Well, it's frustrating, like being in a bear market, I mean, like. Coinbase and BlackRock announcement. This is the type of thing at a bull market. Like the entire market would've jumped by like 30%, you know, just trillions of dollars of value. Like, you know, the institutions are coming. It's like, these are the plumbing and the big moves that we need.

And it's just like, oh, you know, Coinbase partnering with BlackRock, no big deal. like 

[00:48:50] Rob: very, so 

[00:48:51] Ben: tho those sorts of things I would think would be the catalyst to bring on like massive amounts of liquidity and new entrance into the space. It's kind of like, Foundational pieces that need to be set, but you know, narratives kind of, kind of run a muck in, in crypto.

What, what about the the reverse, so like bears scenario for Bitcoin, obviously like liquidity tightening, but would be curious your, your thoughts. Yeah. 

[00:49:17] Rob: I mean, that, that is that, that's the key one and it's, that's also a very interesting one, cause it's both you know, bear is short term, but also actually bullish.

Right? Because I think that as soon as you actually do see a sharp tightening liquidity, it won't last very long. So there'll be very, bear is short term and potentially bullish, you know short even also short term, but just a little bit longer term because you know, these central banks have no appetite for for true liquidity crises.

And then structurally, I mean, of course, some sort of return to monetary normalcy. I mean, you know, we have gotta always point out that that's a possibility, even though it's clearly a very low probability, I mean, just, don't just, don't see how we get there. And you could speak for hours about that, but yeah, where's the political appetite to have some sort of, you know monetary and fiscal rectitude that just, no, no one, no one talks about that and that we don't even have like a Ron Paul anymore.

You know, speaking about those and then with, with regards to, you know, Bitcoin specifically you know, maybe this is less relevant for crypto, but I do. It's something that does increasingly. Take my interest is of course, you know, something like Bitcoin maximalism and the potential. And I, I'm not you know, fully I haven't fully con not fully convinced in my mind that it is you know, like the death of Bitcoin.

Cause I do think that Bitcoin is based on principles and you know, a group of people who are, you know, maybe more, not maybe are clearly more dogmatic and more militant. Of course they can have an impact, but do they determine the end state outcome of that asset? I'm I'm not entirely sure of that. I still think it's a, it's an asset based on principles and those principles are compelling to lots of people, but I, I'm obviously thinking about the risks and it's clear that it's increasingly clear to me that the, you know, maxism does close people's.

Receptiveness to innovation and that is a concern you know, culturally, that's a concern. I just think that, you know, people should be open minded to new ideas, even, you know, you can still invest all of your money into Bitcoin if that's what you want. But still be open to the potential ideas that other technologies could bring.

It just seems ridiculous to to completely push them away. And that's what a lot of Bitcoin maximalist to do these days. They , they completely dismiss anything that happens on any other protocol, just because it's happened on some other protocol, which is, I mean, that's just nonsense. So anyway, that's something you know, certainly to consider from a Bitcoin perspective, as I said, I'm still not convinced that maxism is the death of Bitcoin.

Even if it persists, but it's definitely a, a risk. 

[00:51:49] Ben: And actually you, you just had a good post on that. So I'll link your, your last blog post going into a little bit more detail on that. It's fascinating and maximalism. We, we see it firsthand like at, at these meetups, right? You have the like the eighth crowd, the Solana crowd, the Bitcoin crowd.

And like, they don't really play well with each other at times. And it's, it's, it's, it's more of the, like total dismissive of whatever's happening over there. That's, that's the real problem because whatever your Allegion is, is to one group. So like, obviously you think that's the best stuff that's happening, but when you completely write it off for the sheer fact, the only fact that it, it is existing over there that's when it gets.

Pretty pretty 

[00:52:34] Rob: difficult completely. And I mean, you know, we said this at the start, but this is why I do think, you know in person meetups are so important because you know, like my, my bias is towards Bitcoin. I'm happy to, to say that for certain reasons, you know, I, it doesn't mean I dismissed everything taking place elsewhere.

I have my concerns about proof of stake. I'm not sure if it's the, the best consensus mechanism. But I'm not gonna just dismiss it out of, out of hand. Anyway, the point I was making is that that's why it's so good to meet in person and really, and, and, and ask people these questions numerous times and be open minded at just listening what their answer might be.

And, and I mean, it's something we're speaking about recently is that when you are having these conversations, you build a, and you can actually build an openness to the ideas. You can build a familiarity and just be like, well, you know, maybe it's not a terrible idea. Maybe, you know, cuz. Life is uncertain.

The future is uncertain. Investments are uncertain and you've gotta kind of look at things in a balance of probability perspective. Not just be entirely dogmatic. And as I said, you can still be in that position and hold all of your capital in Bitcoin if that's what you want. But yeah, it's useful to, to consider the, the, the other other perspectives and yeah, what some of the things I said in that post that I would think was just interesting, looking at the history of this this block size war.

And I think it actually had a lot of good impact for Bitcoin. Cause I do think it was good to confirm the protocol rules and focus on store value and scarcity and decentralization and security. But I think that the potentially unintended consequences consequence was this militancy that developed and potentially AISM within some of the culture.

[00:54:18] Ben: So. We've we've touched on a lot of things like bullish and bearish scenarios, but I'd be curious, what keeps you up late at night when thinking about being bullish on, on Bitcoin, like what's the most terrifying thing that kind of eats at you about being bullish on something like crypto and Bitcoin?

[00:54:38] Rob: I mean, maybe I, maybe I'm not quite worried enough, but yeah. Well, the things that I worry about is more like just managing, you know, managing liquidity appropriately, actually over, over the short term. I, I feel like you know, I feel like all of these big picture things I obviously think about and I debate you know, we've spoken about them, some of them here you know, what is the, the risk of alternatives?

What's the risk of you know, some sort of monetary collapse you know, what would you do in those type of conditions? But yeah. At the end of the day you know, worrying doesn't doesn't do people too much. Good. So I think, you know, more, what worries me is it is the short term volatility and just managing that appropriately because I'm clearly very bullish on the asset class and I wanna hold as much of it as possible.

But you need enough kind of liquidity in the short term to make sure that you not exposing yourself to any UN undue financial risk. And yeah, that's my, you know, my honest answer is that's probably what worries me the most, just managing that effectively. I don't, I don't wanna be, I wanna hold enough.

I don't wanna be short this asset class. But yeah, you also don't wanna be too leveraged to this asset class that you, you incur your yourself, you know, self personal financial risk. Indeed, 

[00:55:52] Ben: Rob, it's been a pleasure. I will link up all of these things we've talked about in the show notes, but where can my listeners find out more about you sound money wherever you would like to send them?

Let them know now. 

[00:56:05] Rob: Yeah, I mean, I have a, I thought I handle sound. I think it's sound money. M but I don't spend a lot of time on Twitter these days. You can also go into my website, which is sound But yeah, and you can send me a message on Twitter or on the website, Senator mailing list on, on the, on the, on the website is, is a good place.

And, you know, I'm always keen to get people's questions and queries and corrections. So please shoot them through some, and you're 

[00:56:28] Ben: a deep thinker in the space and I appreciate your thoughts and insights. And I know my listeners will as well been great having you and I'll, I'll see you later tonight, man.

[00:56:36] Rob: Nice one. Thanks Ben. 

[00:56:38] Ben: See you, Rob. There you have it. Thank you for listening. I really appreciate your support. Show notes, transcript links, and more can be found on our [email protected]. If you'd be so kind, please share this with anyone you think might be interested or get some value from this conversation.

If you have any questions or comments, please reach out. I'm always happy to hear them. Lastly, if you're on YouTube, please like the video or subscribe to the channel. If you're listening to the audio version of this, please subscribe to the podcast and or leave a review. This really helps more people find the podcast.

And I really appreciate it. Thanks again, and hope you have a fantastic day. Happy investing.

Ben Lakoff is an entrepreneur and finance professional. He has developed strong global finance experience through 10 years of international assignments in the US, Brazil, Afghanistan, Southeast Asia, Czech Republic and through the award of his Chartered Financial Analyst (CFA) certification.