Transcript
0:00 The narrative of storing value is really Bitcoin's use case. Ethereum's use case is that it's actually going to be used. Wall Street now is going to be building its entire infrastructure onto the blockchain and the blockchain they're choosing is Ethereum. So, this is the 1971 moment where Wall Street is essentially capitalizing on tokenizing the entire world onto a blockchain. That's a huge opportunity. I'm not bearish on Bitcoin because I think Bitcoin will get to a million institutions.
0:34 Only about 5% actually own any Bitcoin, but 95% of Bitcoin has already been mined. It's a fixed supply. Welcome back to the Master Investor podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders, and politicians in the world, giving you, our listeners, the edge. This is a bonus episode of the podcast, part two of our episode with Tom Lee. He's the co-founder and head of research at Funstrat Global Advisors. and for part two, we're going to talk all things crypto. Tom, a very good afternoon and welcome back again. Yeah. What what is the bullcase before we get to Ethereum?
1:16 What is the simple bull case for Bitcoin when we're already at 111,000 price at the moment? >> well, Bitcoin has done very well over any 10-year period. And at $100,000 today, it does reflect that institutions are beginning to view this as a legitimate way to store value. because the Bitcoin blockchain is really one of the best ways to record financial transactions with 100% never failed censorship resistance, never fraudulent entry in its entire operation. So but institutions only about 5% actually own any Bitcoin but 95% of Bitcoin has already been mined. It's a fixed supply.
2:12 that's a stat from Bitwise. but that 5% that isn't held yet because the other Bitcoin is basically being hodddled. It has to be acquired by those 95% of institutions. Plus, now governments want to own Bitcoin as a strategic reserve. So, if you think about how it's difficult it is going to be to acquire that last 5%. I can see why it would replace gold or equal the network value of gold, which is over 22 trillion. And that would put Bitcoin at around 1.2 million per bitcoin. Because the network value of of Bitcoin today, I mean, people sometimes use the phrase market cap, but so the total value of all Bitcoin out there is is what, two trillion. Talk me through I mean, obviously the limited supply argument I think pretty pretty much everyone gets in a sort of fiat currency world.
3:04 in the short term, if if the president continues to to interfere with the Fed, is is that a short-term catalyst or are these strategic long-term arguments for Bitcoin what really matters? >> it's in the short term, it's probably unclear if it helps or hurts Bitcoin because Bitcoin also is correlated with global monetary liquidity. Ralph Paul at Realvision put up this chart years ago that shows M2 versus Bitcoin and it's been almost dead on ex all the bottoms and tops.
3:35 so once we would be through Fed interference and the Fed is easing of course that's good for Bitcoin but in this period of risk off I I would say it would hurt stocks >> >> and Bitcoin. >> What is the case for Ethereum then over Bitcoin? Well, Ethereum differs from Bitcoin. Actually, Bitcoin Ethereum was initially a fork of Bitcoin by the way, but with a added feature which is smart contracts. So, what they wanted to do on Ethereum was to say, let's use blockchain technology not just to store value but now to store information.
4:14 Ethereum is is as a smart contract platform actually also has something called the EVM, Ethereum virtual machine. So, you can run entire programs and conditional contracts on Ethereum. and Ethereum itself is 100% reliable. It has not had a single moment of downtime since inception. It's one of the few blockchains that has never been down. and then if you needed to do more things on Ethereum, you can build what they call layer twos on top of it.
4:41 So Ethereum is a essentially infrastructure that now is is catching the attention of two industries. The first is the financial sector. the stable coins became really viral sorry a breakaway product for crypto and that's like the chat GPT moment. You know there's $250 billion worth of stable coins. The vast majority of those are minted on Ethereum. Then the Genius Act was passed by this administration and the Cong this Congress and that greenlighted the proliferation of stable coins onto the blockchain. So banks are now building stable coin products that Treasury Secretary Besson thinks that could get to 4 trillion. That's exponential growth burning gas on Ethereum. And then we have project crypto which is the SEC building wanting Wall Street to build on the blockchain. Now all that collectively for from a Wall Street pers perspective is like 1971 for the dollar. And what I mean by that is in 1971 the the dollar went off the gold standard. So in 1971 the dollar became synthetic and gold was what people bought as a hedge against that synthetic dollar. So you had gold as a as the trade and that would be the Bitcoin equivalent.
6:05 But actually the synthetic dollar is what created the rails for Wall Street to build all their future products. The futures curves derivatives were all because the dollar was a synthetic product. If if every if the dollar was backed by gold, Wall Street would be still a very small business. Well, Wall Street now is going to be building its entire infrastructure onto the blockchain and the blockchain they're choosing is Ethereum. So this is the 1971 moment where Wall Street is essentially capitalizing on tokenizing the entire world onto a blockchain. That's a huge opportunity.
6:42 The second story arc benefiting Ethereum though is AI. because now we're moving towards an agentic AI world but with real products. Like AI is principally been trained on like internet and I don't know social media but it hasn't been in the real world. because it hasn't ingested us as we've moved and physically moved or even have independent products. That's a vast amount of new information for AI models to ingest and store. But then now you have to be sure that all the instructions being sent back to the robot are proof of the originator. You know, in other words, you need a token.
7:20 I mean, LM use tokens anyways, but now you need like a token that interacts across chains. And that's where AI is going to build on Ethereum because you essentially need what they call proof of human. We need to prove that this lawnmower got a real instruction from another chain or another vendor. And so that is all being built on Ethereum. >> And you know just to state the obvious again for our listeners clearly Tom has an interest in Ethereum. you think it could grow in value in in total network value more than Bitcoin which is as we've said at the top $2.2 2 trillion dollars of Bitcoin at the moment. I think I'm right in saying Ethereum's about 480 billion today.
7:59 >> That's right. I this is not going to be a popular statement because there's a lot of tribalism in crypto. but before this year, I would have considered Ethereum like a really good reliable chain, but without any products being built on it, it shouldn't really do well. But because of what's happening with AI and with Wall Street and you know project crypto, I think Ethereum's essentially the value of its protocol layer like you know Union Square Ventures calls it the fat protocol is now going to be more valuable because we're tokenizing everything on Ethereum rather than just gold. Like so if gold is a $21 trillion market, tokenizing the real world is orders of magnitude larger than gold, which means Ethereum probably will flip in network value versus Bitcoin.
8:49 >> flip as in outrow. >> Yeah, it'll have a higher network value. So that argument for Ethereum is really interesting to me because one of my push backs was going to be and it still will be but you've kind of half answered it is when you look at the idea that crypto is an alternative to fiat currency obviously one of the arguments is is there's limited supply totally get that as you said Bitcoin supply has already nearly been fully mined but one of the arguments I always think of back to that is yeah but there's quite a few different cryptocurrencies and what's to stop someone founding a new cryptocurrency And here's Tom, who I really trust in in some of these future-looking things, flipping his allegiance, maybe it's not quite the right the word, from from one to the next one. And and that surely is a push back to the argument that these are great alternatives to otherwise fiat currencies who have an unlimited supply.
9:42 >> yes, I I understand that. I think that the distinction I make is that I'm not bearish on Bitcoin because I think Bitcoin will get to a million. But what about all the other cryptocurrencies? >> Well, other cryptocurrencies don't have the network value because otherwise they're just software chains. Meaning, >> so you don't really believe in Ethereum as a currency. You believe in it for other reasons. >> That's right. yeah, I think that the narrative of storing value is really Bitcoin's use case. Ethereum's use case is that it's actually going to be used used and burned. So Ethereum gets consumed through gas fees and then staking is how you produce an Ethereum.
10:29 That inflation rate has been below Bitcoin actually. So if you look at it as monetary supply, Bitcoin's monetary supply is actually still growing faster than Ethereum. M so let's just touch on because you you you said the Genius Act obviously the way in which this new administration has embraced crypto. One of the reasons why and we mentioned Jamie Diamond in the last episode. I think a lot of those people were bearish crypto four or five years ago when I was on CNBC every day and certainly why I I was bearish on it then was there's no way any government's going to allow this to grow significantly because they need to be able to monetize their debts. They need to be able to control things like this and and the the US and the dollar in particular. So how big of a turning point was that that this administration has whatever the details of the act they've embraced crypto >> and was it foolish for the United States to do that and will will the dollar status diminish as a result?
11:30 >> Yeah. if I could give a little like historical perspective when Tether created the first dollar stable coin and they built it on Ethereum, their idea was someone doesn't always want to be long Bitcoin or another crypto. They want to be long something stable and crypto holders weren't really allowed banking access. so they didn't have an off-ramp. So, Tether built a dollarbacked coin called stablecoin USDT.
12:04 >> In 2017, Google and and the UT Austin wrote these papers claiming Tether was just a fraud and the only reason crypto went up was because of Tether creations. Okay? So, in other words, it was immediately tried to be viewed as something fake. But then Tether has since grown and of course stable coins have really grown in popularity. Merchants outside the US love stable coins because they don't suffer the chargebacks. You know, credit card companies make or merchants eat fraudulent transactions. So merchants, they get paid. It's just as good as getting a dollar. in Turkey, any place like India, Tether trades at a premium to the dollar because people prefer to get that over cash because it's hard to get robbed. You know, you can use a stable coin to buy real estate in Dubai now using Tether. like 20 $100 million transaction. So, it's actually being used in the real world.
13:03 Actually, stable coin usage, 80% is outside the US. But the reason the US administration starts to like it is number one crypto is a is essentially 100% quoted in dollars. GDP in GDP terms the dollar is 27% of global economy. It's 55% of central bank reserves is the dollar. It's 80% of traditional financial market pair quotes. So the synthetic dollar which happened in 1971 made the dollar 80% dominant.
13:38 In the crypto world the dollar is 100% dominant. So the US wants us to financialize into crypto because everybody prefers to get a dollar. collectively the stable coin industry is about 280 billion of treasur of outstanding dollars. They are now the 12th largest holder of treasuries in the world. Japan owns 1.2 two trillion of treasuries. Treasur Treasury Secretary Bessant thinks this market will get to four trillion. That would make stable coins the largest holder of treasuries in the world. So it'll be backstopping the entire Treasury market soon >> and and allows him obviously to issue more T bills and try and keep lower rates down and and less supply I guess of longer rates. But that's that's another conversation and always a pleasure Tom to catch up. I I love the first conversation. I love this crypto conversation and people can subscribe to Funstrat. that that'll be in the show notes and and make sure to follow Tom on on Twitter and next time you're in London, will you stop by and we can use our studio instead?
14:42 >> Yeah, I'd love to come by. >> Tom Tom Lee, the founder of of Funstrad and the the chairman of the ETH treasury company, Bitmine. Thank you so much for joining us.