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0:03 Bank Nation, I am once again joined by Tom Lee, the chairman of the board at Bitmine, the world's largest ETH holder. Tom, welcome back to Bankless. >> Thank you. >> Good to be back. >> Tom, it's been it's been about 1 year and 2 months since Bit Mine was first announced as an ETH treasury company. And along with that, the announcement of the intention to buy 5% of the supply of ether. I remember both Ryan at the time, Ryan and I, we were just like, 5%. He's never going to get to 5%. That's so hot. And here we are 14 months later, Bitmine is almost at 4.9% of the ETH supply bought in 14 months.
0:46 so we're basically there. how did you do that in such a short amount of time? There are many graveyards in the DAT landscape and Bitmine is not one of them and in fact I think Bitmine has exceeded people's expectations with how much ETH it has been able to put on the balance sheet. How to what do you credit the success? >> Not in any particular order. I would first of all start by saying I think the investors who followed us on this journey and have stuck with us have told us that they've really appreciated our consistent and very simple messaging. You know, we kept it very simple because we said we wanted to keep the capital structure clean and the whole endeavor was funded with equity, no debt, no convertible instruments.
1:39 the second is that we wanted to make this about really helping the Ethereum ecosystem. That's why we targeted 5% because we thought that was a level that was going to be enough to hold enough that would be significant but also be important balance and I think that's really played out this year especially with the Ethereum Foundation sort of reshaping and focus on crops you know we've been the lead investor in each of the seeds and spinouts I think the second key has been and this has been important to me I I I've treated investors as intelligent people, you know, so I wasn't trying to sell them a story that would just try to get the stock to go up, but we really focused on understanding this is a multi-year time frame. In fact, Michael Sailor even mentioned that in a recent podcast. You know, when someone asked him about the stock price, he says, "You got to really think of it in four year time frames." And I think that's correct. you know, we weren't trying to sell people on this idea that the stock would go up every week because something was going to happen. so we've treated people intelligently that way.
2:52 And I think a third is, it does take a little bit of a, you know, luck and good fortune. but I think we did time everything pretty correctly because we've been, we had been able to raise all of this capital at above NAV. So we've been accreatively growing Ethereum held per share. I know from inception to now it's up by more than 10 times. So when the original transaction was done at 450 a share we've dramatically increased the amount of ETH held per bit share and that's of course why the stock is above 450 which is really when the original transaction was done. Well, one of the most notable things to me about Bitmine is the consistency behind the ETH purchases. I I think this is true is that Bit has bought ETH every single week since the inception of the whole like ETH treasury strategy. Not even Michael Sailor and Strategy have done that. You know, Strategy has has had many weeks where they haven't bought any Bitcoin and some weeks where they've sold Bitcoin.
4:00 the and so that's the I think the most astounding thing is the consistency with the cash purchases. How are you able to do that? >> Yeah, it's been over 60 weeks of continuous purchases of Ethereum. and we have throttled down the velocity of our purchases partly in cons consultation with the foundation. you know, we had spoken to them and you know, in the midst of this transition and sort of refocus, I think it would have not made sense for us to be viewed as a centralizing entity. So, I think we've marching our way slowly to 5%. We're at, you know, at at just about 5.82 million. It's I think we're like 97% of the way there. but we've been able to do execute purchases because I think it's been pr prudent capital and cash management. we don't raise money every week. and but we've really wanted to every week we decide you know what is the best use of cash. so some weeks we have been doing only exclusively ETH purchases but for the last 5 weeks we've done a combination of stock buyback and Ethereum purchases. So I think we judge really what is the expected future return of our deployment of that capital. the crypto industry is watching Michael Strategy Micro Michael Sailor post these these announcements of like you know raised you know hundred million dollars from an ATM of of MSTR and that's really the way that that strategy has been able to raise cash and that's kind of people's frames of reference.
5:49 but I'm curious as to how how Bitmine has been simultaneously raising cash and also buying back the Bitine equity when our only comparable that we really have a strategy who is selling the equity in order to raise cash. So where is the cash actually coming from? >> It's several things and I think it's disclosed in our cues as well. you know our main source of cash is selling common equity when it trades above net asset value. but we have been very have been doing that sparingly partly because part of us selfishly thinks you know ETH if ETH is going to make a big move between now and your end then we do have to be a lot more tactical because part of it is of course you want to have stack some ETH but then of course it makes sense to even buy back stock because now you're concentrating increasing ETH per share. So we're really weighing that every week. But something else that we have been able to do is you know you know we do selectively do tried to buy ETH below spot. I think that saves us a lot of capital. I think we haven't really bought ETH at spot prices for for most of the last 14 months. So we've been able to to buy it at a discount. So I that's been accreative for shareholders as well is to buy ETH at a discount. We did do a preferred perpetual preferred stock offering in June. that was very successfully launched. it was more than five times overs subscribed. and and that was issued at 80% of par. So was issued essentially at $80 cuz each unit BMNP is $100 worth and today I think it closed at like 91.
7:53 So it's been a really strong performing preferred stock offering and it's yielding you know 9 and a half% and that pays a dividend every week. so it's a week, it's the only of the 175 largest preferred stock offerings out there. it's the only one that pays a dividend every week. I think there's a, you know, like we, and I, you know, I we don't reveal this, but we look at our menu of sort of capital availability and, you know, we we have a huge menu of, available options, but today, you know, we've kept it very, very simple.
8:27 >> What's the timeline for actually hitting that 5% number? I know you said we're at something north of 4.8%. 8% and you've also said you've slowed down the actual ETH purchases. Do you have like a kind of a target timeline for when that 5% number is actually hit? And then what happens at 5%. Is that is that it? Will no more ETH be bought past 5%. Let's see. So on the first part of your question, David, you know, it's about $350 million worth of ETH that we need to acquire to reach 5%.
9:02 And you know we're we could reach it by the end of the year. it could happen sooner. I'd say it's still one of these things that for the moment part of it is just making sure that the ETH narrative is actually clear with investors and I think it's coming together. For instance, if the Clarity Act passed, I think we would have probably accelerated our timeline to get to 5%.
9:33 But now with the Clarity Act, which isn't really a ne entirely negative for crypto, but it does push out some things that people were hoping would take place, if that's in September, you know, we'd probably rethink in September the pace of our Ethereum buys. And as for like should we be more than 5%. I think it's today given the re sort of casting of of the foundation's role and I think it's now you know a much more sustainablesized organization and and with a focus and I think properly these new entities that have been stood up are really doing a lot of the work that should do multiple things whether it's improving privacy or really bringing enterprise engage engagement onto Ethereum in that world. I do think that this the notion of Ethereum and and how it's going to be used is is going to evolve as well. I think there's going to be a lot in the future. I think a lot of enterprises are going to want to hold ETH as an asset if it's something that's going to be used and in a in a way that they view holding something from a real estate perspective. And if that's the case, then I think for us to own own more than 5%. would make a lot of sense. But I again I think that's probably something we're going to rethink in 2027. I've been trading crypto for almost a decade and I've used so many different wallets, exchanges, aggregators, different frontends over the years. And I'm always kind of looking for the same thing, just one interface with deep liquidity across a bunch of chains and assets where I can access all the markets like per earn yield, trade confidentially, and still control all my own funds. And I've never really found this experience. And I'm always switching wallets, juggling gas fees, and just getting eaten by slippage. Near.com is not that. It feels fundamentally different to me. I can do everything I want from any chain, and I keep all my activity confidential. I can even earn yield confidentially.
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12:42 Bankless Nation, we've built something for you. Introducing the Bankless MCP. Chad, GBT, and Claude are great at a lot of things, but ask them anything beyond the basics of crypto about protocol mechanics, tokconomics, or just what happened last week in crypto, and the gaps will start to show. The problem is context. Bank list, on the other hand, has spent almost a decade building one of the deepest archives of crypto data anywhere. More than 2,000 podcast transcripts, 10,000 articles, and countless conversations with the people actually building this industry. And now we've structured all of that data into the bankless MCP. So you can go and connect it to your claude or chatbt and suddenly your AI can answer your crypto queries with the entire banklist archive behind it and every new bankless article or episode gets added automatically so the context keeps staying up to date.
13:26 The bankless MCP is exclusively available to banklist premium subscribers. So you can go to banklist.com, upgrade to premium and connect the MCP in just a few minutes and all of a sudden your crypto queries to your AI LLM, whatever you use will get a thousand times better. So go check it out. There is a link in the show notes and once you become a banklist premium member, you can hop into the Banklist Discord and let me know how you like it. Cheers. Is there ever a scenario where Bitmine would ever sell ETH at all? Is that something to consider or is that just completely off the table? From a cash management perspective, it's it's not necessary because you know, ETH is an inherently yield bearing asset and the rewards are generating you know, cash flow. Now, at the moment, you know, we're not turning those into USDC or US dollars at all.
14:19 you know at 5% if we're at 5% and then we're still stacking ETH through yield there is maybe a scenario where we're just going to not not want to go over 5% so we would sell the rewards that we're receiving. You know that's possibility. I I think ETH it doesn't need to be sold from our perspective. If anything there's going to just be other ways to utilize Ethereum. You know, for instance, you know, today we're doing native staking and we've done that with a little bit over 5 million of the ETH.
14:55 That leaves 800,000 ETH that's not staked today. Now, would we consider using this in productive ways for the ecosystem? Possibly. So, I I'd say instead of us selling Ethereum and we're more likely to try to find ways to monetize our Ethereum holdings. So I guess in short selling ETH would not be something that we would do out of financial necessity and even our preferred stock dividends are easily covered by the existing ETH rewards. So there wouldn't be a need for us to sell Ethereum at all. On the Bit Mine investor calls, it's been stated that Bitmine is transforming from a company that buys ETH into an Ethereum ecosystem company with real cash flow. Could you just illuminate that just a little bit more? What does it mean to be an Ethereum ecosystem company?
15:45 >> well, I think we're already making that transition, David, because of Maven. >> Mhm. >> Maven is the native staking operation of Bitmine. It stands for made in America validator network. It is one of the newest, I think, and therefore one of the most secure staking protocols out there. And Maven has actually secured quite a lot of external client wins. so I in total I think Maven now is is managing sorry is handling the staking for more than $2 billion of non- Bitmine crypto. I think at the right time we will disclose some of the wins, but that's an example of a business that's really being stood up partly because Bitmine of course wanted to to have a a a native staking operation, but because of the many features that were built into it and the technological capabilities, you know, it's been attractive to and winning mandates from other for other people to manage their crypto. I want to talk about what is next for the ETH narrative. Tom, when you came onto the scene and when Bitbine came onto the scene as kind of like the the main guy behind Ethereum, the the narrative that you were brought with you was that stable coins are the chat GPT moment for crypto. It was a very hot narrative really struck a chord with Wall Street and idiosyncratically really benefited Ethereum and Ether specifically. And I think that really worked that really worked for that time.
17:19 but nonetheless, it still feels like ETH today is looking for it's a new narrative. It's still kind of trying to find its footing in its identity in 2026 and hasn't quite yet found it in the modern era of crypto. Do you have an opinion or or a take here about how ETH ought to be positioned for investors portfolio in 2026? >> Yeah, well I I mean I'd say to me I'd start with the macro. you know I've been a macro markets person for more than three decades and when I look at attribution so and I'm in fact Stan Duck Miller has said the same thing but if you take a stock idea okay and you say how much of it is attributable to macro factors followed by industry factors.
18:17 Okay, that is more than 80% of the performance of an asset of a stock and therefore 20% is is actually stock related in crypto when I've l looked at these cycles I might say the attribution is 90% macro. So in other words, like the differentiation of narrative for Ethereum and how it compares to other projects is going to ultimately be only 10% of the return of ETH as an asset. And so so for investors today, if they're talking about the price of ETH, then I'd say we're, you know, 90% of it's going to be we're in crypto spring. And even if you think it's crypto winter, crypto winter is over.
19:05 in less than 10 weeks. So, regardless of what your bet is on Ethereum and why you have shaped a skeptical view in the middle of a crypto winner, you're probably forgetting that 90% of the underperformance over the last couple years is because it's crypto winner. so just, you know, like a little selfactualization and self-realization of that. but as far as narrative goes, like am I optimistic that Ethereum will be a standout in the next crypto cycle? I I'm very confident.
19:41 because stable coins was the 2025 story and that might have been, you know, the entire story for that bull market and now we have a we've had a crypto winter since. But in the next few years, the stable coin story is still compounding cuz that's the tokenization of the dollar. and that's very important because it was a big unlock. You know, stable coins are widely used outside the US. But there is a a much much larger market that's not dollar economy, but it's the movement of assets and and tokenization to me is so much bigger than stable coins. and I think that's where investors are underestimating how important it is to have a really secure settlement layer. Now, of course, it may not just be Ethereum. I think there is going to be I think there is going to be opportunities for Salana to benefit.
20:41 But from all the conversations I've had with the large enterprises, I think that people are There's a lot of hope and vaporware in the idea that a new L1 is going to emerge that'll be the tokenization platform. It's as a practical matter. I think all the serious work and actually we're seeing it in the headlines is only taking place on either Salana or Ethereum. Now, how big is that market? I think it could be huge. and then on top of that, and we've written about it, AI, like look, AI capabilities are really growing rapidly. And I'm going to say a lot of people thought AI was a bubble last year and they missed the AI stocks.
21:27 And then this year they thought it was a bubble and they missed it and then they they thought it popped with situational awareness. as far as I can tell, to me, we're still in a discovery phase on on how big that market's ultimately going to be. So to me it's it's hardly a bubble until it's a bubble. but the AI world in an agentic world in an economy built on machine to machine transactions probably sees a lot less value in traditional financial settlement rails and also the security of those in fact they're easier to exploit in that world. So to me crypto is going to play a pretty big role in that world.
22:07 And then layering on top the complexity of adding a real world environment, you know, things that operate in the wild and managing microtransactions and instructions and taxation. It's possible this could be done on centralized systems, but why even that's I I'd argue that's actually much more complicated than running these things on blockchain rails. So I I think that there's a huge use case coming that makes real crypto really relevant. So I think in the next crypto bull crypto spring if AI is now a 10 trillion economy right that's the TAM but maybe it goes to you know a hundred trillion you know is crypto going to all stick you know be stuck at one and a half trillion I mean I'm I'm highly highly doubtful of that.
23:00 I think it's, you know, it could end up being almost the same size as the AI addressable market. >> I definitely see the vision that if tokenization or or excuse me, the stable coinization of the dollar was the narrative of 2025 and that really worked that really got Wall Street excited. Again, it idiosyncratically benefited ETH. The and that's that's the 2D narrative to the 3D unfolding of tokenization where okay, you start with the dollars, but then let's unfold everything and now let's tokenize everything else. I I see that also uniquely benefiting Ethereum for all the reasons why Wall Street loves Ethereum specifically above all the other platforms, the decentralization, the centers resistance, the lack of a specific counterparty.
23:45 I think there's another malaise in the crypto industry that despite all of that being true, our layer ones don't capture as much value as we previously thought that they did. And this is I think goes to the story of just like okay maybe institutions are going to use ether to deploy tokens on Ethereum but they don't need that much of it. So what how would you argue that actually institutions or people or investors are going to hoard Ether as opposed to simply just using a having like a supply of ether to spend as as gas? What what what would the the narrative be is like if if we do think tokenization is coming, why would why would investors buy an incredible amount of ether rather than just a utility amount of ether? There is this view people have which is we like Ethereum but we're not really sure ETH has value.
24:40 ETH the token. Okay. And you know, that's a variation, by the way, of when the bank said, "Well, we we believe in blockchains, but not crypto, or we don't believe in Bitcoin, but we believe in blockchains." do you remember how many intelligent people made that assertion? And then they'd say, "Well, come on, Tom. Bitcoin literally is just software. Anyone could fork it and recreate the chain. I could fork Bitcoin today and make my own Bitcoin. Why? And JP Morgan could make their own Bitcoin. Why would anyone use Bitcoin? Well, you know, if someone had to bet their net worth on blockchains or Bitcoin as a narrative, the guys who bet on blockchain actually went bankrupt because they would have lost their net worth and and and money a huge amount of money was made owning Bitcoin.
25:34 So the question I would ask someone is if you truly believe that you want to be long Ethereum but you don't want to own ETH then what do you want to be do you want to become a servicing company you know do you want to be trying to maximize me do you want to try to consolidate all the the nodes or the validators you know what would you try to do would you try to buy up all of the Ethereum development talent out there, you wouldn't end up with anything because at the end of the day, and I'm going to guarantee this, that narrative is going to disappear the minute the cryptobull market starts and Ethereum starts going up. I think this is all bare market conversation in my opinion.
26:29 I didn't even hear about really this view until crypto prices started to fall. So, you know, if someone tells me that the reason Ethereum hasn't gone up is because its narrative is not clear, I think Ethereum's outperformed a lot of other cryptos. I mean, of course, certain projects have stood out like Hyperlid and Lighter because they operate almost like quasi companies, but you know, they're also singlepurpose in a way systems like you know, they're not trying to capture the entire future of what could be future settlement rails, right? they're they're operating in a very specific box and I think therefore it works. Ethereum actually works incredibly well like so despite all the criticisms and and and people talk about very conflicting and diametric views on how to prioritize what Ethereum is. It is incredibly effective. It's it never had downtime and look at the quality upgrades and look how secure the platform is. So to me, would it would people feel better if there was like a direct link like economic link or legal link of Ethercoin to Ethereum? You know, like I'm sure it would make people a lot feel a lot better, but to us for us at Bitmine, does it make a difference in our view? It doesn't. And in fact, again, I'd just point to something people forget.
28:12 The dollar itself isn't actually exchangeable for anything. Okay? And it's actually considered the gold standard of like currency. It is literally our unit of transaction. If you took your dollar and tried to redeem it to the federal government, they would just print another dollar for you. You can't exchange it for gold and but you can exchange your dollar with anyone else who'll take it. So, it just shows you that the dollar which has no burn mechanism. In fact, look at the underlying quote blockchain for the US economy, it's printing huge deficits.
28:53 Okay, someone please tell me using the same model they have for blockchains and the burn mechanism, why is the dollar not collapsing when the deficits growing? Okay, it shows you you should divorce your belief that an economic model explains asset prices. Do you view ether as a cash flowing asset or as a store of value? And and I want you to to pick one because I I don't I don't want the answer of both because I think the answer of both is a little bit of a of a of a copout because if if you have a store of value that does cash flow, then it's not a store of value. It's a cash flowing asset. A store of value is something pure. Do you have a perspective on on which side of the fence ether belongs on?
29:43 >> You know, maybe I would need you to elaborate your framework. You know how do you do you think all assets in the world fall under one or two categories? Is that what you're saying? Like what is the stock market? >> equities and profit >> a cash flowing asset. >> But the best performing stocks pay no dividends. So how exactly is it a cash flowing asset? >> Because it's just like pre- dividends. Like all equities I would put in the cash flowing asset category because they make revenue and just because they don't elect to pass that back to tok to equity holders that nonetheless you value it off of the revenue that it produces the cash that that flows you know one day at maturity maybe it will whereas there's like a store of value which is like gold or bitcoin which is just inert and it just holds wealth or like the dollar as you said for example It's like a like a hard money. I know the dollar's not hard, but Bitcoin and gold are and so like I I do think there's a pretty clean line between these things. And I think this is a debate that has been in the Ethereum community and around Ether for this entire time is like whether Ether is cash flowing or whether it's a store of value. Okay. Well, I might say that I'm going to disagree that the stock market is a cash flowing asset. Well, I mean empirically if we and I measured the total return of the S&P over the last, we could pick any time frame since 2009.
31:14 Okay, that's 15 years. And the S&P 500 has appreciated by almost 10 times. Okay, so a,000%. the dividends paid over that period of time is equal to 30% of the 1,00%. Which means if you only use it as cash flow, you've made 30%. The 9,700% or the 9, you know, the 9.7 times had nothing to do with cash flow.
31:50 The reason I would disagree to say companies that don't pay dividends are pre-ividend companies is there's a history of many companies that have actually seen significant stock price appreciation that never pay a dividend or only pay modest dividends or no dividend. the stock market is appreciates because people believe a company can allocate capital better than they can. Otherwise they own a bond. A bond is a cash flowing asset. A stock is actually a store of value because investors buy it on the belief the company is going to steward their capital properly.
32:33 So, just to be clear, if we're using that strict definition, I would consider stocks a store of value. >> and bonds are cash, gold is a store of value. Real estate, it's that's actually a both because real estate can be rented or leased. So it's cash flowing but the value appreciation of real estate over time is actually it's the only store of value that has withtood the sto the the test of time.
33:10 So then if we were saying where does Ethereum fall, I think it's a lot more like the stock market, you know, and it's I think it's a lot more like land because there is Okay, I'm going to give you the author's name just cuz I don't because I I think people a lot of people need to read this and then they're going to understand crypto a lot better. It's a book by Piet Ikez published in 1997. It's called a long run house price index. Okay.
33:42 And this guy is an MIT person. He studied all the transactions in a single area of Amsterdam from 1628 to 1973. So 345 years of real estate prices with the same address. The reason that's really useful is you can actually then disagregate how much of a transaction was attributable to the structure versus the underlying land because over time the structure has to be completely rebuilt. Like so after 20 years the structure value drops to zero. Over the long run 0% of the store of value of real estate is attributable to the structure.
34:29 It's worth because it's worth it's actually worthless at terminal value whereas the land goes up. I don't know to me doesn't that sound a lot like Ethereum you know I mean or why you own any crypto. So you know if someone asked me again is Ethereum a cash flowing asset or a store of value. It's it's probably better that really anything you want to invest in is a store of value. >> Your preferred lens for looking at ETH is as a store of value.
34:58 >> Yeah. And actually anyone who says the stock market is a cash flow machine, I'm gonna say in my 30 years of experience, if someone if that is someone's view, I would really wish they would show me a model that successfully picks stock on that basis. Interesting. Interesting. I want to ask about Michael Sailor because Michael Sailor has certainly had an arc in the last two months with MSR stretch and the whole apparatus. Are there any lessons that you've learned just from observing strategy and Michael Sailor operating that company? what's your reaction to to what he's up to over there? Since Michael Sailor started his Bitcoin treasury strategy, the stock has outperformed not only Bitcoin, but it's outperformed the broader market. So, in a way, Micro Strategy today is a is as an as a common equity story has been a resounding success.
36:04 along the way he has made evolutions to the strategy including adding other instruments and then really unveiling this vision of digital credit and Micro Strategy being that intermediary layer between Bitcoin and capital markets and you know he's trying to and I understand his strategy he's trying to monetize volatility as a component and then use that to turn part of the Bitcoin into a yield strategy. You know, it's a very very complex strategy and I think it's, you know, we'll only be able to judge it by taking another proper interval. So, if it was, you know, 6 years since his pivot to a Bitcoin treasury company, you know, it's probably we're not going to really be able to judge the success of this until 2012.
37:05 >> I'm sorry. 2020 2032. >> Yeah. Right. So, 6 years, >> sorry. Yeah. And but I think that's the right lens. So, I I think that he's kind of earned enough credibility that people should give him time. But as you know, all of this has also been taking place in the middle of a crypto winter. And I would say again, when when prices are down, everyone starts to point to individual actions of a specific company. But in a in a larger respect, 90% of what's happened is really just macro.
37:42 >> You talked about the release of BMNP. That's the Bitmind version of Stretch. but for Bitmind, it offers at 9%. it's trading right now at $91. You issued it at $80. So anyone who's bought that is is up 12 13 14%. one lesson that we've learned, at least what I think that we've learned with strategy and sailor is that he got really aggressive with the total size of Stretch. I'm wondering what the future of BMNP will be. Are you guys planning on expanding that offering, increasing the size, or is it just kind of like a single one and done shot in the arm? and it's inert moving forward. What's the future of the preferred equity that you guys issued?
38:27 >> Well, I'd be glad to explain a little bit why I think the preferred makes a lot of sense for us to issue. so we issued BMNP 9 and a half% perpetual preferred and the reasons we did it is circle number one I wanted to set the cost of capital for preferred stock for Ethereum treasury company. So it's it's in other words it's a benchmark rate and the yield at 9% is about 30 million a year in dividends 35 million a year in dividends and our annual staking rewards are going to be close to 300 million at the current price of ETH. So to us, we can easily afford to have that. And if ETH gets to 5,000 or 10,000, then you know, that's 30 million of obligations on a more than a billion or billion and a half dollars of staking rewards. The reason to do something where you're paying 9% cuz someone will say, Tom, that sounds like expensive money, but here's why I think it's actually really cheap money. if we wanted to buy a three-year call on Ethereum, right? So, think of the preferred as, hey, you're not issuing stock, you're just going to use some money. And if you wanted to buy a three-year call on Ethereum where the strike is the current price and then three-year expiry, your option premium would be close to 100%.
40:07 you know, I mean, maybe 60 or 70%. Okay. But really, if it was properly priced, it's like it's 100%. Because of the you know, because you, you know, you could be significantly in the money on that, and you can, of course, lay off the risk at any time. Whereas, we're buying a three-year call option using BMNP because we're not using our equity, but we're buying the E. That's the equivalent of a call option and it's costing us nine and a half percent a year. It's so it's a really cheap call option to acquire ETH. That's the way I think of it. and if someone did that with Bitcoin, it's the same concept, but one difference of course is that because the ETH we own is generating a yield, if ETH prices triple, the yield will exceed the the you know the dividend requirements of the underlying preferred. So like to us it's kind of like a really attractive way to increase the Ethereum per common share. We don't need to have that much BMNP out there because to get to 5% Ethereum, we already earn a staking reward. we have to acquire 200,000 additional ETH and every year we're earning you know like a over 100,000 ETH a year in staking rewards actually a little more than that like 120,000 so then we only need to raise cash for 80,000 each to buy and that's 160 million so maybe We only need to do if we were to do it purely through preferreds, we just have to issue another 150 million preferred. But that, you know, that may or may not be how we use it. So I don't think we're going to end up with billions of dollars of BMP because it it's unless we expect to go way beyond 5%.
42:14 >> In the Ethereum world, there's been this EIP recently that's been introduced to that reduces the issuance of ETH for staking. It's been the called this stake targeting EIP and it basically kills all staking yields if the ETH staked supply goes beyond 50%. So at 50% E staked nets 0% with this proposal. It's very contentious. there's is is a lot of push back on this and so I think people if if you're making a bet that the IP does not go through but nonetheless there are a decent cohort of people in the Ethereum community who are proponents of this including people at the EF and in some of these like EF spinouts. I'm wondering if you or Bitmine have has an opinion on this EIP the ETH issuance reduction stake targeting EIP. We've talked to as you can imagine we've been having many conversations and we still haven't had all the conversations that everybody would like to have with us. So so we've talked to both proponents and opponents of this idea and I think until we've given everyone a chance to kind of for us to have a wholesome discussion, you know, we're not going to weigh in publicly on this.
43:35 But I understand both sides of the argument. you know, one, you know, are we overrewarding the cost of security? You know, and is it unfairly burdening those who aren't staking? I think it's a fair question. I think that it is unknown where the optimization curve is and actually anything that you explicitly state is no different than a Federal Reserve establishing a short-term rate, you know, because, you know, the curve itself we we actually don't know what the optimization what where to actually set the cutoff and it results in proper amount of security. Okay.
44:32 and then on the flip side, I understand the argument that, you know, there's the risk of a lot of unintended consequences and volatility because you can create a lot of new incentives to actually game or optimize where that stands and that actually creates uncertainty on what you want to be arguably either an oifying chain or really completely reliable chain and now you have an uncertain optimization and of course I I'm sympathe sympathetic to the arguments that there's a lot of DeFi that's built and of of course a lot of people view ETH as inherently attractive because there is a yield.
45:17 so it's a very complicated issue. I don't really want to because I know there's a few folks that really want to sit down with us to have a conversation and I don't want to get ahead of that. but you know, from Bit Mine's perspective, you know, is if there was no yield on Ethereum, there's still plenty of ways to generate yield. So I I mean, think about like Bitcoin. You know, Bitcoin is actually in theory a yieldbearing asset, but you'd have to, you know, deploy Bitcoin in a way to generate yield. So the the amount of push back around this EIP gives me the opinion that it's probably not going anywhere. And so just the the one last question I do want to ask is on the pro side, the general proar argument is that if you reduce the size of the coupon, the value of the bond goes up because you're inducing scarcity. and it's aside from how that might may or may not apply to the Ethereum economic system, do you think that that argument itself checks out as in the reduced issuance, the reduced yield actually helps the principle? does that check out with your understanding of like economics? Does that check out as an argument? well conceptually that is like a store value concept in a way because you're now deconstructing more of the return to be price not yield.
46:50 the problem with all that is you know interest rates don't always make sense. I mean that's why there's money to be made as a bond investor and who who who's good at alpha. I mean you can even look across at countries you know like why for instance why is the US Fed funds rate so high relative to the other G7s when inflation isn't that different you know like so I I think a lot of things that I see on paper in the real world are hard to explain you know like and listen I'm not trying to dismiss math cuz I mean you know I went to Wharton And I took a lot of stat, statistics, portfolio theory. I was an equity analyst. I built models. But I'm just going to make the clear observation that if I had to live and by the rules of those spreadsheets, I would have been a terrible equity analyst and I would have been a very unsuccessful stock investor. I want to talk about the Ethereum Foundation because there's been some big movements in the EF since we last since you last chatted there. EF is basically contracting and taking a step back and kind of going into just long-term maintenance mode and a narrowing of the focus and narrowing of the mandate to really focus on on crops.
48:11 A lot of the stuff that really sets Ethereum apart from the rest of many of the other blockchains and I think one of the reasons why the Ethereum community really loves Ethereum. Bitine has chosen to fund a handful of these new entities that have spun out of the EF, ETH labs, ETH systems, perhaps. I think I think those are the two that I remember. what is the strategy? >> And Ethan Institutional, right? Yeah. Mhm. Ethlabs is a nonprofit. ETH system is a for-profit. and so I I just want to know about what the strategy here is for the spin-offs that Bitine chooses to get involved with.
48:50 Why get involved with them? What's the ongoing relationship like? And how does this fit into the broader strategy that Bitine has in the next crypto cycle? and we think it's, you know, the big two arcs there are going to be a a mass mass tokenization of a lot of assets and it's going to be also a re casting of what is considered money. I mean I think once you start making stocks and bonds digitized and then there perpetuals created which can be bets on outcomes and factors and there's prediction markets what is considered money is going to get very very blurry. I mean compute for instance as an asset class is a genuine thing that's going to happen and I'm sure a lot of it will happen on blockchains and smart contracts.
49:47 and so that's one story arc. The second story arc we see of course is there's going to be a lot of reimagining of settlement layers that because of AI systems and when you look at the last few crypto cycles there was a lot of money made in entities that would be stood up that didn't exist in the cycle previously. I mean think poly market and kshi and hyperlquid didn't exist in the prior cycle but they were created in the most recent cycle. So, Bitine believes there will be many multiple one, you know, billion to 10 billion to 20 billion valued entities and total returns created by things that are going to be stood up tomorrow, you know, or even started today in the next crypto cycle. And so, we we are actively focusing our resources in that way.
50:55 And so, you know, we call them moonshots. Now, I don't know what we're going to call it in the future, but we're trying to source as many and meet as many ideas and work on our own ideas that we that we are working and very closely with either financial institutions or existing crypto companies. and I think that's why the entities that have come out of the Ethereum Foundation are things that will help actually stand up those future entities. And so part of our work is, you know, slight is public goods obviously because we want to keep Ethereum healthy, but we also want Ethereum to capture as much of the future opportunities as possible. And so that's that's really our goal. I think that's the lens we looked at when we when we were, you know, providing the lead funding for each of those three entities. Markets don't move one asset at a time. One day it's Bitcoin, the next Nvidia, then gold, and then the S&P, but most traders are still managing their portfolio across different platforms, different accounts, and different pools of capital. Bit just changed that. Their new stocks 2.0 product lets you trade tokenized equities directly with USDT, all inside the same app you already use for crypto.
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52:52 I've been following him for years and this year we started recording weekly podcast episodes. Each one we get into his portfolio, what he's holding, the market structure, entry targets, fair market value of Bitcoin and Ether, and where we are in the cycle. There's new episodes that are released every Wednesday. They're 30 minutes. They're short. They're punchy. I think this crypto cycle is harder to navigate than most. So, let's do it together. Go subscribe to this podcast. Search the DeFi Report wherever you get your podcast, YouTube, Apple, Spotify, or find a link in the show notes. There's a new episode waiting for you. Now, is Bitmine trying to take a like an active role in like the stewardship of Ethereum, or is it just funding? Like is is Bitmine stepping up to become like a long-term steward of Ethereum kind of in the same arena that the EF used to operate in and still does, but EF has left space for alternative nodes on the network. Does Bitmine want to be a node on Ethereum's stewardship network or is it more just about funding other nodes that it thinks is valuable?
53:52 >> I think that's a TBD, David, because I think to an extent, you know, Bit Mine didn't exist like a year and a half ago. So like I think there in some ways the crypto community is and Ethereum is trying to just understand what you know for instance how permanent is our capital. Of course it's because it's common equity funded it's essentially permanent. you know there's no redemption. You know we have no debt due that we have to return any capital to any investor.
54:23 so we are a source of permanent capital that now has been long enough to prove it probably has longevity, right? I mean, there the the things that would wipe out Bitline in theory would wipe out all of crypto because like we, you know, we're in a crypto winter and we have a lot of liquidity and our actually our stocks performed outperformed you know, cryptos. I mean it's outperformed Ethereum and Bitcoin this year. So I mean investors believe we have a lot more longevity than the crypto itself.
55:01 And but I also think Ethereum is gotten big enough that it's the foundation can't be this can't be the omni effort for everything. it's imagine like for instance if the dairy industry only had everything centralized through one single group or the semiconductor industry association only had one group you know it's it's become so large that there is a lot of specialization and the efforts that are specialized so I think that's what's happened with Ethereum is that the foundation is now kind of granting other players three of those that you named to play an important role in Ethereum and but they're going to rely on other entities to provide reliable funding and you know and that's where Bitmine can step in because you know we we have a multi-year time horizon. You know we we don't have to worry about funding their their budget for just the next month.
56:00 You know we can commit to 3 years or however much runway they need to to get to scale. And I think that's a really important role to play because I think it has provided a lot of stability to Ethereum. I think something that I'm curious about and I think a lot of members of the Ethereum community about is what what Tom and Bitmine's legacy with Ethereum will be like in the very long term. And I and I know a lot of this is going to be TBD, but I I I still think the community is looking for a semblance of an answer here is like when we are 10 to 20 years in the future and we look back, what what is Bit Mine's legacy with Ethereum going to be? I think that you know in 10 years and someone says this is all these amazing things happened with crypto with tokenization and with AI and blockchains are the only thing that saved us from like AI taking over the world and you know the tokenization vastly improved people's lives because it gave them access to money in forms of money that didn't exist before And for us, the legacy would be that Ethereum is the dominant story in that narrative.
57:13 You know, that's our vision because we are really big believers in crypto and the role they're going to play in tokenization and in AI and we made a bet that Ethereum will be the place where a lot of this will take place. So in our view, I'm I'm, you know, I think our legacy is really helping Ethereum remain the most important of the chains in that future. I think of course it's a multi-chain world. and that means we hopefully have delivered massive returns for our our investors. and that's Bitmine common equity holders because there's just beta to ETH. So, you know, should ETH flip Bitcoin? I think it's a very plausible argument.
58:03 So, you know, that's, you know, 15,000 ETH roughly. so in rough terms, that's a 10x for Bitmine shareholders from here. So, it's 180 a share. but shouldn't Bitcoin go up a lot? And shouldn't the TAM of tokenization AI mean Ethereum's network value should be much much higher? I I think so. So then you know where does ETH cap you know if it's you know if it's 50,000 or 100,000 or 200,000 I mean the returns to our shareholders are going to be legendary and I think that that's going to be how we get measured in 10 years. A lot of the Ethereum community and I also agree with this is that Ethereum is just this very special very unique chain. it's got some some of these properties that go all the way back to the cipher punks that not even not even Bitcoin has. Bitcoin has phenomenal properties, but Ethereum has some truly legendary properties. And I think a lot of the Ethereum community thinks that Ethereum has this like manifest destiny of deliverance of the the one chain that all of Wall Street will tokenize all their assets on and all of finance will come on chain. And sure, it'll be spread out to a handful of chains and a handful of layer twos, but ultimately it will all come down to Ethereum because of, you know, the crops, because of the privacy, because of the censorship resistance. But nonetheless, at the same time, I think the Ethereum community is looking for a leader to push the ball up the hill to help make this happen. And I think that's what a lot of the Ethereum community sees in you. And I want to ask if if that feels comfortable for you to be that leader for Ethereum. Is that like a safe belief for for the Ethereum community to imbue you with that level of regard for the leadership of Ethereum or is that not the role that you that you see yourself having or that you want for yourself? one as you know when a when a movement's taking place which is I think is going to be huge movement in crypto everyone's going to play an important role and bit mine wants to play I think two important roles you know one is acting as an important stabilizing force and I think in this crypto winter we proved we are because we bought Ethereum for 60 weeks straight, you know, and we never had to sell it. And we're not in a position that we'd ever be forced to sell it. And we funded the Ethereum Foundation spin-offs with Roadway so that they can then execute their plans and not worrying about fundraising.
60:54 and of course we want a vision cast. and you know, cuz we, you know, that's principally been the success of my career on Wall Street for 30 years is I've actually been outlining for investors, you know, the multi-year theories and views that we have. you know, that's the basis for Granny Shots, our our family of ETFs at Fundstrat that have been very successful. And of course that's you know the following that we've built up in the equity world. So you know if those are going to be useful and important in Ethereum we will gladly continue to play that role. and you know but I I think you know as you point out Ethereum is quite special.
61:40 There are so many talented people and you know we want to make sure no one leaves the ecosystem for the wrong reasons, but we also want to make sure we're bringing in the right and and telling the right story to make sure enterprises use Ethereum. So I I you know we are glad to play that role. but you know in some ways you know it's it's an informal role David. It's it's not something that we're there's no campaign to and there's no election process for that.
62:11 >> Right. Right. Right. Yeah. let's talk about just some some predictions for the end of this year and and next year. there's one prediction, there's one concept that I think me and Ryan are going back and forth about is that crypto as an industry is basically uninvestable while AI sucks up all the oxygen. and kind of like the AI investment cycle needs to end so that crypto can actually gain some momentum. Is this an idea that you subscribe to?
62:39 >> I think it's it's largely correct in a sense what you're saying because AI is such a compelling story and it's making so much money for people. It's making money for institutional investors too that it raises the bar for everything else. I mean like can you imagine like two imagine going to a meeting and one person wants to talk about AI stocks and the other guy wants to talk about you know like apartment housing you know like one guy's going to someone's not going to pay attention to to that second meeting and >> so you're right but when when the AI story as it evolves it's important to think about the downstream stories because that's where you can make you can misallocate you know many people thought software was dead but actually software is a downstream story to AI you know in fact AI will benefit a lot of these companies and that's why as many of the software stocks are now starting to come back crypto is a very important downstream story to AI the stronger AI gets it doesn't make crypto less relevant that's the key, right? In fact, the more AI evolves, the more important crypto is. So, crypto is clearly a downstream story to AI, but from a timing perspective, I think you're right. As long as AI has done well, it's changed now, but earlier this year, nothing no one cared about owning anything else.
64:14 But now, that's changing. >> Do you believe in the crypto cycles? You know, I'm going to say it's the same as when people talk about technicals. There's a lot of people who invest in stock market and say, "I never pay attention to charts. I don't care about technicals." Yet, techni technical strategists have called stock tops and bottoms with eerie accuracy. Okay? So it means a real a real investor even if they only care about fundamentals should never ignore technicals because it's really the technicians that get the top the the turning points correct and so it's going to be the same with crypto cycles.
65:01 I don't know why there's a crypto cycle but I would have to but I don't want to dis be disrespectful of the fact that there could be crypto cycles. >> Are we at the bottom or is the bottom ahead of us? I think we've I think we've bottomed. In fact, if you look at the past crypto cycles, the price print low wasn't exactly following the 1,064 days of Bitcoin. So, but there was a local low. So, I think it's very possible Bitcoin's made its local low already and then there's just a new local low, but it's not lower than the current low.
65:41 And then in retrospect, everyone will say, "Oh, yeah, because you had to do an S S&P 500 adjusted." And you know, and that's possibility or it'll be NASDAQ, the Bitcoin NASDAQ ratio is actually the low. So, the answer is I I think if we're 90% of the way through the bottom on both time, let's say we're 95% on time and 90% on price, I I'd say unless you're really a genius, you know, it's buying it here is actually going to be at a better price point than trying to buy it one month into the low. So, >> do you have a price prediction for ETH in 2027 or 2028? I mean, if we're thinking one to two years out and knowing that stable coins got Ethereum to 5,000 but now we have not only AI driving demand for crypto and Wall Street building basically new settlement rails on crypto on top of crypto being in the middle of a bull cycle. I I would say just being in a new bull cycle means Ethereum should be above 5,000. But then what do we layer in on Wall Street tokenizing plus AI, you know? So I I think Ethereum could easily be over 10,000 in that time frame.
67:04 >> Tom, thanks for coming back on Bank list. It's always a pleasure to get your perspective and all of Ethereum, I think, appreciates your presence and what you're doing for the ecosystem. So thank you for doing what you're doing and I I wish you the best. >> Thank you. >> Banklistation, you guys know the deal. Crypto is risky, but that is why we are here. The institutions have landed, so we are going even further west. This is the frontier. It's not for everyone, but we are glad you're with us on the bankless journey. Thanks a lot.