Bitcoin Is the Hedge Against a U.S. Default Nobody Sees Coming

0:00 And the way I put it is it for the entirety of US history there's been financial crises that have come from the banking system or other industries like agriculture and then rolled up through the banking system. This is going to be started in DC and it's there's not no one can bail us out and I think the rest of the world sees this. >> All right. Vanek is very large. Can you give us some numbers in terms of the size of the firm today? about 235 billion under management. a bunch of that actually is outside the United States. We have half of our inflows over the last couple of years come from Europe and and Asia. about 550 people. We mainly do ETFs as everyone knows, but we also have our I'll call it legacy mutual fund business. and we've been getting involved in private markets, so early stage tech investing and some later stage stuff with the SpaceX's of the world. Now, when you think about the rise of some of these themes, you have ridden some, but you've also avoided some. What's the framework for deciding when you guys are going to play versus not? I know you have this kind of 10-year macro framework that that you use to think about investing more generally.

1:18 >> Yeah. well those are almost two separate questions so I'll take them. so Vanex overall investment philosophy I guess I would say is it's really impossible to know what's going to happen on a day-to-day basis. So what we tend to like to look for is big 10-year trends as you said 10ear macro. So because asset allocation is really the most important thing to your portfolio. So what are those trends? What do we look for? We look for big changes in government spending, big changes in monetary policy, regulation as a third thing and then technology. So let me explain regulation because people don't understand that. when China pivoted to a price-based capitalistbased you know basically economy that was a big dereg the biggest deregulatory move of you know of our career or my career that's happening now in India or it happened in India so now it's just a matter of it playing out so I have very high conviction that India is going to be the size of of Europe in 10 years so very simple three three 10-year trends and we get into detail AI India and then government spending is the biggest risk to your portfolio. as far as what we do as an ETF issuer, it's all judgment. we haven't figured out the AI yet. How do you look at sort of trends or industry segments that will come in and out of favor and some things that are just fads. so it's it's it's it's hard.

2:52 >> Let's take each one of the trends. Let's first maybe start with India. what is driving your conviction that it will be as big as Europe over the next 10 years? >> I mean Modi did two basic things. One is the digitization of their economy. So everyone in India effectively can afford a mobile phone. It's so dirt cheap. It's like a couple of dollars a month. And the government put all identification online as well. So they've sort of digitized your government ID. So for example during COVID they said we don't need you to fill out to open a brokerage account a paperbased thing just do it online there were I met with brokerage firms that were opening a million accounts a month now I mean it wasn't with a you know the average account was low but that just shows the lack of friction that digitization has caused in India and then the second thing is just taxation and you know lots of rules like they had labor laws that if you had them a company with 100 employees or more, you'd have different rules. Or a thousand employees or more. So all companies, Anthony, were either nine, you know, nine people or 999, right? It just, it doesn't make any sense. So they've just done a lot of that, you know, sequentially, bankruptcy laws, all kinds of different things. and you know, I think it's sort of very high conviction. That's why I focus on the 10-year stuff. Very high conviction that that will play out over time based on history. Almost a decade ago, I went to India for the first time. I spent two weeks and as I went around the country, I kept meeting all these founders and they would come up to me and say, "I built this mobile app. I have a 100,000 users." I was like, "Oh my god, these guys are all killing it." And then somebody pulled me aside and said, "100,000 users in India is like a hundred in America. There's just so many people, right? So there are a lot of people." talk about >> but but you know I don't know if you have staff or do operations in India but almost every major tech company has a very major and not just you know trivial you know automation kind of tasks but really product creation that that's happening there >> talk about the AI theme and there's a lot of different ways to play this the last two three weeks people have been concerned there's been a little bit of a slowdown or selloff how do you see maybe the the decadel long themes that people should just tune out the noise and focus on.

5:16 >> Yeah, I mean it's it's just a leaprogging of better software as I call it. I don't use the word intelligence because I don't know what that is but it's just a better faster smarter software that can that can write software and that's the first part. So I think the tra the the the trade is changing Anthony. So it used to be very simple. I'm the simple think demand's here supply is here right and there will be a lot of dynamism within the ecosystem like I say a year ago fourth quarter of last year coreweave and Oracle were down 50%. So the public markets are are merciless right when they smell financing problems or tech changes or whatever. So there's a lot of change within the trade but the overall was obviously huge amount of demand relative to supply. I think right now we're getting to a stage we were talking about this before where you can project token demand going forward. So for every other segment, every other company, you can say, "Oh, they're going to sell x number of hamburgers or you know, x number of Netflix subscriptions, we're now I think going to be able, we have enough visibility that we can start projecting token demand." And what we've did is take our user base and said, what is our adoption by user? and basically in the first year, your token usage goes up eight times and then it grows about 25% after that annualized.

6:47 But a lot there's a lot of van people that don't use it a lot. So that's a rolling process and we kind of pushed that forward to the industry and came up with the same industry estimates of total token demand that that other people did from a macro perspective. So I think that's going to be the game going forward. >> I'm sure most of the people who work in the ETF industry would love to understand how VANC is using AI internally. Have you figured out novel use cases that are like ETF specific or is this still claude is like you know either for coding or like a Google on steroids?

7:23 There's nothing magical I would say to me it's I always say AI is just data software and people and you know 18 months ago you AI couldn't read a PDF right six month seven months ago now I've been kept yelling in my IT department why can't these agents read my email and my calendar and make my life more efficient now that's table stakes right so it's just a a sequence of accessing more and more databases within VANC and making enabling giving the power to the user and then what we're trying to do is make sure that someone builds an application not five people build the same application or agent so we're trying to promote that sharing but it's a lot of just education and communication yeah >> and have you hired people specifically to manage like the AI spend or the AI intelligence side of the firm or is this just the people you had are now adopting the new technology? I think the IT department has been completely repurposed from no really writing code which they need you know like maybe 20% of the people that you know for the code that we do we rely on a lot of third party applications so that repurposed to doing what I just said I love I love this stat I I've quoted it before but the CEO of PNC Bank was quoted interviewed about a year ago and he was frustrated because they do a lot of tuckin acquisitions and he said it's so expensive. I want to make this process better. So they normalized their data and to do that they spent $2 billion a year for 10 years just to clean up the data. So I think that's where corporate America is now is and that's why Accenture stocked I don't know if you saw it completely bounced after a massive correction is oh yeah you know it's very expensive to organize data. So, >> and then have you limited people's usage or you want them to use this as much as possible?

9:29 >> Not yet. >> Is that a maybe coming? >> My CFO is like, "Yeah, do you realize how much money people are spending?" I'm like, "I don't want to throttle people." And our our CTO is like, "Make them fill out a form." And I'm like, "No, don't create friction for the adoption of this technology." Like, it's that's their first instinct is to make it harder. And I'm like, "Oh, yeah. you're going to build a little database app where they have to fill in five fields. They won't understand three of the fields and that's that.

9:56 >> That's my that's my philosophy. >> Have you publicly said how much you guys are spending on AI? >> we did a couple of quarters ago. I mean, it's sort of in the $2 million range annualized. >> So, it it's material, but it's not like you're spending 20. >> No, it's starting to like I'm not saying that that's throwaway money, right, at all. But I'm just saying in if you need to encourage adoption, you have to be very careful about the signaling.

10:22 >> So, >> okay. >> A lot of need for management, Anthony, between the IT people and the business people. And it's just, you know, really promoting the champions and it's a lot of education. I would say the one big hire is like a COO type of person who's just floating around and connecting dots for people. >> Makes makes sense. Let's talk about the third theme. You and I were brothers in arms on this one. The government's never gonna stop printing money.

10:49 >> Yeah. it's really a frustrating from an investor perspective because I don't think we ever know when it's going to hit the financial markets. It could be in 3 months. It could be in 30 years. So I say that upfront and I also in our third quarter review really believe that the rise in rates recently was not credit driven. I think it was, look, it's either inflation concerns, economic growth, or credit concerns. And again, I like to oversimplify. So, which which one is it? Which one is it? Inflation, economic growth, or credit concerns.

11:27 I think it was economic growth. Nominal GDP went up. I I don't think people for a while the 10ear traded with the price of oil. But if you look over the bulk of this war or conflict with Iran, you know, the tenure didn't go up. The tenure rallied in the beginning of the war. So, I don't think it's just strictly oil prices that are driving it. but it's pressuring the rest of people's portfolios. Today's episode is brought to you by ABRA. Bitcoin holders know the long game, but sometimes you want liquidity today or a way to pursue more Bitcoin over time. That's why Abra caught my attention. It offers two different ways to make your Bitcoin holdings work harder depending on what your goals are.

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14:13 That's simplemining.io/p. Go check it out today. What are you guys doing to help investors insulate themselves from this >> from the from the government spending? I mean, every time I have an opportunity, I'm like, you have to have real assets, gold, and Bitcoin in your portfolio. You don't know if it'll pay off. But those times, you know, my dad started Van and he started the first gold fund in the United States in 1968.

14:43 So I he was a gold bug. I'm not a gold bug. You know, most of my career, gold's been going down. You know, it bottomed at $250 an ounce. which is when the central bank of England sold it, by the way. Good, good, good timing. so I am not a gold bug. It's hard to believe, but I do think this is just a structural risk. And the way I put it is for the entirety of US history, there's been financial crises that have come from the banking system or other industries, like agriculture and then rolled up through the banking system. This is going to be started in DC and it's there's not no one can bail us out and I think the rest of the world sees this.

15:22 China's holding of treasuries is down by half from its peak and they are buying almost half of all gold production this year. The private market you hear about central banks at nauseium. This is private Chinese investors. So the world kind of sees that we're doing this and they're like backing off. And when you're thinking about this in terms of gold or Bitcoin's price, you said maybe it will pay off. Do you have a probability that you would assign to either one of those?

15:53 >> Listen, I'm in long-term bull, so I definitely think it'll be higher in 10 years, significantly higher. I just I just don't know. I just can't imagine. You know, I ask people, Anthony, when is the United States not going to honor its obligations? Some people call that a default. And then I say it's going to happen in the next 10 years. And literally 99% of the people say no. And then I say, "What about social security?

16:15 What's going to happen?" 2032, 6 years from now, they're going to cut payments to Social Security. You know, people would be very, very unhappy. And then people say, "Well, they'll make up the money from somewhere." I'm like, "Really? Are they going to do that without in causing massive inflation or or other kinds of risks?" And you see how people have punishing politicians for inflation, right? I think that's partially got Trump elected I think in the midterms. So what we're going to have massive we're going to inflate our way out of our debt. It's it's there's no easy answer and it's not going to be pretty.

16:50 >> How does AI and maybe the deflationary you know impact of AI affect the government spending? Is there a world where they can keep spending but AI bails them out? >> No. I mean they're writing checks to people right for health care or other I mean unless health care well retirement by definition can't and then health care I I can't see health care costs coming down so much because there will be new technologies like GLP1s that people want to spend money on so no I mean and people say oh AI is a new kind of technology it'll it's deflationary I'm like what do you think the PC was what do you think the internet was right Amazon has cut the cost of getting goods to your home. So, all technology is deflationary. There were there was great technology in the 70s, but we had runaway inflation. So, I think they're not not the same.

17:40 >> Let's talk about the crypto ETFs. You guys have the Bitcoin ETF, but you also have really pushed to kind of pioneer a number of the other altcoin ETFs. What's kind of your analysis of that right now? >> it's we have and we have 13 crypto ETFs in Europe. So we before the US government allowed it, we got pretty aggressive. I I think the days of sort of more crypto ETFs are basically over. what we what we have push pushing is active management. We have an actively managed I know you interview Matt Seagull. most advisers can't pick Avalanche versus Ethereum or or these kinds of things. So, we did some layer 1 blockchains, right? The foundational ones will survive, I think, and then the exchanges, I think, will survive. Now, I don't know if Hyperlid survives or, you know, I I know the BNB token isn't a direct play or perfect play on on Binance, but the Binance ecosystem maybe, but those are the two categories, Anthony, that stick in my mind. Otherwise, go with an index or go with an actively managed fund.

18:48 >> now a lot of the promise of crypto is they're coming for you. You know, they're coming for Wall Street. they're going to tokenize things. Hyperlid is going to use PERS. There's all these kind of new variations. Do you see this stuff as a headwind for the ETF industry or do you actually think the ETF industry can just embrace the new technology and figure out how to how to kind of stand on its shoulders? I think there are a couple of leading firms right now like I I'll say Franklin Fidelity and others that are really in this move towards changing the back end of Wall Street towards a 247 environment.

19:26 So Franklin just announced that they offered a money market fund that Uber can Uber users can use to put savings in. Well, to do the the plumbing to offer a fund that's accurately priced over the weekend is, you know, that's that's pushed by blockchain. That's really enabled by the people that understand blockchain. So, I think it's happening. It's just happening behind the scenes. You know, I think the dream actually of most blockchain enthusiasts is you don't know that you're using it.

19:56 It's just in the background making your life easier, making it 24/7. I think what's interesting, the most interesting thing for the ETF industry that you asked about is sports, these sports ETFs that are coming. I don't know how you don't do that on a 247 basis because the sports games are at night and on the weekend. You want to trade this thing at 10:00 a.m.? No, of course not. You want to trade it when, you know, USC beats Ohio State.

20:22 >> No comment. >> Don't mention the name. when you look at the 24/7 trading, will that just lead to record inflows, record volumes, and this is like a very good thing for ETFs, or do you look at potential issues by now moving and expanding the market hours because there's still humans involved? >> Listen, couple different answers. First of all, our VANX core business is not to do stuff like that. And that's more fun than it is investing, I would call it.

20:54 Not that's wrong, it's just that we don't typically get involved directly with that stuff. So, I think there I mean Hyperliquid has basically proven that there is a demand for individual investors to trade hot things over the weekend and that's the debate in the in the in the ecosystem right now. So whether it's the price of anthropic like is it going public or what's it worth? The same thing with SpaceX. So the prices of private companies or commodities gold was traded very heavily in Q1. So people want to you know put their money in and allocate risk. The big debate is the entrenched players like the CME are suing the CFTC.

21:35 They're really fighting because they own the institutional customer not that kind of retail and global customer. And so that's that's that's what we're going to watch for the next year year or two. Another aspect that I find interesting is the AI agents. People want to start letting them trade for them or make allocation decisions. The number one request we have at Sylvia is people saying, "Let the agent loose. I just want to give it some money, not my whole portfolio, but maybe 10% and let it go trade for me." How does that change flows into these funds? Because let me give you the counter example.

22:10 There's now talk of like an agentic bank run. If all the agents start moving from, you know, low yielding kind of deposit accounts into high yield savings, all of a sudden you could really have some pressure on some of these financial institutions. Is there an equivalent concern in the ETF or fund management business? >> not in the ETF business, I would say. yeah, I saw that. I mean, we could have figured that risk out. I think you know my view is that banks actually provide services, you know, for the checking and all that kind of stuff.

22:42 they provide a lot of fraud protection, right, which people still will want. So, I'm not so sure that that that I I'm a skeptic of that bank run kind of situation. I I am as well. But if you look at the maybe positive impact, if agents are going to be making decisions and especially allocation decisions, do you all have a big effort internally to go and become more agent friendly either, you know, optimizing AEO or trying to figure out how to get the agents to pick you over some of the lovely people in this room. It's it's so funny, you know, Q3 ended and we do these Q3 business reviews and our web track traffic around the world is is stagnant or falling and then people just want to flip the page. I'm like, don't you see what's happening? Right? It's AI, right? And so you just have to maximize the feeding of information to agents. We just tried something with one of our RAIA clients is we gave them an MPC connection to all the data in our on our website in all our documents.

23:43 So that's our first experiment. and our salespeople are a little nervous, but that's that would be the one example. But I also believe I want to just put on the record, I think that people are going to want to give their agents access to accounts with money in it. I mean, when you get when I have the auto renew for my cable bill, that's the same thing, right? It's effectively an agent. It's just the the that company's software that's, you know, triggering that payment. They they basically own access to my bank account. That's not a big step, I think, to give agents that kind of >> explain this pilot that you're running with the RAA. So, you create an MCP connection. They can now get access to VANIC information, data, etc. And the idea is that they can talk internally at the RA to their agent and the agent can more easily access van information to give them better answers, >> right?

24:37 >> And >> instead of calling a salesperson >> and the sales people are >> using Google. >> Yeah. And the sales people are worried because they're saying, "Hey, is that the first step of automating away my job?" >> Yeah. I I don't think so. I'm just saying people It's It's a change. You asked about how we're doing it. I guess I've heard Black Rockck is doing that as well. So, it's just changing and that's why Google's earnings were interesting, right, with their their potential decline in in adbased search revenue.

25:07 I think that that makes sense. That's going to be a different way for those of you who don't really know what I'm talking about, right? Just very simply, AI itself doesn't have access to data. So we you have to add connections and and related skills but connections to the different databases at VANC. So at VANC we have a connection to our custodian at State Street. So RPMs can write all kinds of crazy reports because they see everything that's held through that database at State Street. and it that kill it just really kills a huge part of the IT department.

25:41 >> Let's have a little bit of fun. Have you vibe coded anything? >> I have not. >> No. Are you sure? Yeah. >> Yeah. >> Okay. if we come and do this again five years from now, what are the biggest changes to the ETF industry? >> To the ETF industry. So, I I think the biggest change is going to be, and you're playing right into it, which is more of the business will come from individual investors. So right now we we get the you know our biggest clients are financial adviserss and I just think that more individuals but also individuals with a greater percentage of their wallet will just be buying directly through lowcost broker dealers.

26:25 So I think that will go I don't know I don't know people don't publish those numbers. but I'm going to say from a quarter to a half of our business. >> Interesting. So 25 >> I don't even know but yeah >> with like a material increase in direct to consumer essentially distribution. >> Yeah. >> Okay. What are you doing to accelerate that or be better positioned to be the recipient of those funds? >> We just do a lot of content. I mean me being out there you know webinars you know a lot of individuals participate in the content that we provide. I think the content game I mean if you look at yourself right you're a content creator the Rit hold company no but but it's a you know and Horowit started you know pioneered it for the venture capital business it's how you communicate with people want to hear sincere opinions right they don't want to hear product pitches and you have to earn their trust right and that's that's hard but that's the that's the playing field that we're on I think >> all right last question are you the one tweeting from the intern account?

27:34 >> I can't tell you that. >> You'd have to torture me. >> Amazing. Yan Van, everybody, >> thank you.