#1471 James Lavish | Will Bitcoin Strategic Reserve Happen?

James Lavish is a Managing Partner & Portfolio Manager at The Bitcoin Opportunity Fund. He is also the author of a newsletter called ‘The Informationist.’ In this conversation we discuss the current state of the US economy, how we fix it, economic changes Donald Trump will make, inflation, why bitcoin should be added to everyone’s portfolio, tailwinds for bitcoin, bitcoin strategic reserve, global game theory, investing opportunities, and what James looks forward to in 2025. ====================== Consensus is where the industry does business. Join global leaders, innovators, investors, founders and brands in Hong Kong from Feb. 18-20, 2025. Curated by CoinDesk, Consensus Hong Kong offers unparalleled networking opportunities, exclusive access to top decision-makers and the chance to secure deals that will shape the future of Web3 and digital assets. Take 15% off registration with the code POMP. Register now at coindeskpomp.com ======================= BitcoinOS is bringing Bitcoin into a new era. For the first time, Bitcoiners can access real DeFi across the entire crypto ecosystem, powered by revolutionary zero-knowledge technology. No more trusting sketchy bridges or giving up security. BitcoinOS reunites all of crypto around the chain where it all began. Follow BitcoinOS on twitter @BTC_OS and Be early to Bitcoin again. ======================= Pomp writes a daily letter to over 265,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/ ======================= View 10k+ open startup jobs: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone. This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. What's up guys. I've got an awesome episode today with James Lavish. He is the co-managing partner of the Bitcoin Opportunity Fund. And in this conversation, we talk about what the heck is going on with inflation, what the true state of the US economy is, where we think Bitcoin potentially could go, how the Trump administration could be a tailwind,

• 0:45Anthony Pompliano?

  what the other tailwinds could be, what maybe some of the risks are for Bitcoin in 2025. And then we even talk about what the National Strategic Reserve could look like and how other countries are responding. This conversation is packed with unique insights and will make you think more critically if you listen to the whole thing. So I appreciate you guys tuning in. And here's my latest conversation with James Lavish.

• 1:03Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 1:28Anthony Pompliano?

  Today's episode is brought to you by Consensus. Crypto's most influential event is coming to Asia. Consensus Hong Kong. It's happening on February 18th through the 20th of 2025. It's where the industry does business. From Bitcoin's expanding role in global finance to the latest innovations in Web 3, connect with global leaders, innovators, and investors to forge partnerships, secure deals, and drive the future of digital assets. With unmatched networking opportunities and exclusive access to top decision makers, this is the event you can't afford to miss. And because you listen to this podcast and watch this show, you get 15% off registration if you use the code Pomp. P-O-M-P. Pomp. You can register now at CoinDeskPomp.com. Again, CoinDeskPomp.com. Use code Pomp and you'll get 15% off.

• 2:14Anthony Pompliano?

  Today's episode is brought to you by Bitcoin OS. Bitcoin OS is the ultimate upgrade to Bitcoin. Bitcoiners can now experience the magic of the entire crypto world, including DeFi, scalability, privacy, and more. But you don't have to give up control of your hard-earned sats. Bitcoin OS is powered by revolutionary zero-knowledge technology, and they let other blockchains plug into Bitcoin, offering their service to the world's largest digital asset. This lets Bitcoin holders securely move their coins across the crypto landscape, turning Bitcoin into a productive, programmable asset. Putting your Bitcoin to work once meant trusting centralized companies and bridges to protect your assets, a model that's lost crypto owners billions to hacks and fraud. Bitcoin OS lets you be your own BOS, using a system based on cryptography rather than trust, the way Satoshi intended.

• 2:58Anthony Pompliano?

  Using Bitcoin OS, altcoins are returning home, eager to plug into Bitcoin's security, network effects, and $2 trillion capital base. Bitcoin is the first and final BOS of all digital assets, and will soon be reborn as the foundation of the united crypto world. Follow Bitcoin OS on Twitter, @BTC_Os. Again, that's @BTC_Os, and be early to Bitcoin again.

• 3:27Anthony Pompliano?

  So James, I thought a great place to start the conversation is when people usually ask me about Bitcoin, I don't talk about Bitcoin. What I do is I start by explaining what the problem is. And then, once they wrap their head around the problem, and they realize we need a solution to that problem, then only do I introduce Bitcoin and kind of explain why it's the right solution. And so I thought maybe we could do that today, which is, let's start with the problem. The US economy, depending on who you ask, Larry Fink recently said it's in really good shape. But if you go and you look at the national debt, if you look at inflation and many other kind of data points, it doesn't look so great. And so you have spent a ton of time talking about kind of these two different economies that people are experiencing. How do you evaluate, like, where are we with the economy? And how good a shape are we actually in?

• 4:06Speaker 02

  Yeah, that's a good question, Pomp. The, you know, the issue here is that we're on a debt-based system, and we can get into that in a moment. But what we're experiencing here is that you've got, like you just said, two economies that are happening right now. And we've had massive asset inflation from when

• 4:24Speaker 02

  The Fed printed money during the pandemic. They printed about $5 trillion. And a lot of that went into the economy, into people's checking accounts, directly into their accounts. And it ended up in in the system and it caused asset inflation. Stocks were rising, of course, you know, hard assets, like gold and Bitcoin rising, real estate rising, and then they also had cash just sitting in money market accounts. And which you see in the reverse repo got to over $2 trillion, $2.5 trillion. And that's money that was just making interest every single month for people. And they were taking that and using discretionary spending.

• 5:03Speaker 02

  So you've got one economy that we are seeing that has benefited from that inflation. Their stocks are going up, their their houses are getting to be valued higher in dollar terms. They're using some of that capital and and some of that excess capital they have to go out in the in the economy and do things. The services business have been crazy and they're traveling, they're out to restaurants and buying things. And so that's one part of the equation. The second part of the the second economy is the economy of people who the lower demographic doesn't. They don't own assets and those people have been hurt from this consumer inflation. So goods have rise have been rising.

• 5:49Speaker 02

  You know, yeah, there were supply chain issues and all of that, but that should be resolved at this point. Yet prices are still rising. We saw today that the CPI number came in a little bit lighter than was expected or feared. And so assets are rising because people are optimistic that the Fed is not going to cramp down on interest rates more. That they're going to either they're going to start lowering rates more again this next year. And so. But it's still that those prices are rising and it's hurting that lower demographic. And so if you look at the picture of it and just one stat that just gives you an idea of how bad that is and the separation of wealth that's occurring because of what we call

• 6:31Speaker 02

  the Cantillon effect, the Cantillon effect, which is people closest to the money spigot benefit the most, right? And so in the, in the last four years, the top 1% of, of asset, the top 1% of the demographic, of wealthy demographic, they gained $16 trillion in wealth. And at the same time, the lower 50%, all 50% together gained 1.8 trillion and they have to share that between each other. So it's just a stark reality of where this economy has gone from that manipulation of money and from the expansion of the money supply.

• 7:13Anthony Pompliano?

  What's interesting to me is inflation in asset prices leads to more capital available for those individuals that then go spend it. And so they're actually like creating the consumer inflation to a degree that they're contributing, maybe not creating, but contributing to it. And so there is this relationship between asset inflation feeding into consumer inflation?

• 7:31Speaker 02

  Absolutely. And then that, and we keep seeing it. And that's why that you, you hear people talk about the boomers, the boomers, the boomers. Well, they've got all that capital sitting in their bank accounts. They're making that interest, they're using that, they're borrowing against their houses, they're, they're selling stocks at high, you know, all time highs and they're living. And so it's, it is creating that, that consumer inflation on the backside of it. And so, and that, and that's been the, that's the part that is confusing people because you hear, and I've got friends who are, you know, they're just middle class, there's regular people and they don't have a ton of savings, they don't have big IRAs and big retirement accounts and they're struggling because.

• 8:12Speaker 02

  The amount of earnings, right? The earnings always lag inflation. So their wages have not kept up. Even if they are technically keeping up, they're lagging. So they're always behind that inflation. They go to the store and the grocery store and they're, and it's just taking up so much their paycheck that they can't do things anymore. They can't go on vacations. They can't buy things they want. They can't replace things they want because so much of their, their everyday earnings are being taken up by those needs. And that's the problem that we're seeing in the economy is that you've got those people who are struggling. And that's why they're voting, they voted for this change in the administration and they're hoping that Trump can come in and solve that. And that's the next problem is

• 8:56Speaker 02

  that that's not really solvable because we live in such a debt laden society. It's debt driven society. And that's the problem.

• 9:04Anthony Pompliano?

  Well, explain more about kind of these policies and why you think this isn't a solvable thing?

• 9:09Speaker 02

  Well, okay. I mean, to get into just the reality of it, you've got Elon Musk, you've got Vivek, they're talking, they've got the Doge Commission, right? The Department of Government Efficiency and they're, they're aiming to bring down the, the government spending to a point where hopefully we can get into a surplus. Okay. We haven't been in a surplus since, for you, for the listeners who haven't been around and investing for as long as you and I have, we haven't been in surplus since the Clinton years. And it was a very small blip and it came back down. So we've been in deficit for a very long time, which is why the US now has over $36 trillion of debt. And that's just the debt that's out, that's held by the public. That's not including unfunded liabilities like social

• 9:53Speaker 02

  security, Medicare, Medicaid, that's, that's owed to future obligations for people who are alive now, which is over 200 trillion, that's about 215 or 220 trillion dollars on top of all that. So the debt problem is so gargantuan, it's hard to even put like people's minds around. So, but the, let's go back to first principles, like debt in and of itself, that's not a bad thing, right? If you use it responsibly, you know this, you can borrow, you can, you're basically pulling future earnings into today. So if you want to start a business, say you want to start a restaurant, In New York, right? And probably a terrible idea, really hard place to make it as a restaurant here.

• 10:36Speaker 02

  But if you want to start a restaurant, you either need to have hundreds of thousands of dollars saved up in your bank account to go and buy the equipment, get the lease on the building, get the lease on the space, build it out, get all your equipment and all of your silverware and diningware, all of that stuff, hire the people, start paying them, buy the food, make the food. You either have to have that money right now to fund that in equity, or you can borrow it. You can borrow it and you can start buying things and do that, and then you'll start generating revenue and paying back that borrowing. So all you've done is you've taken that future earnings and pulled it in today, and that's okay if you do it responsibly.

• 11:20Speaker 02

  But the United States is not doing it responsibly. In fact, most sovereigns, most fiat-based sovereigns are not doing it responsibly. And we've seen it since 1971, since we got off the gold standard officially with the Nixon shock, is that now there's unchecked spending, and it doesn't matter who's in office, it's unchecked. So going back to that question about the efficiencies and can it be solved? Well, the problem is so big now that if you just look at last year, and we'll get to this year in a second, but if you just look at last year, we spent $7.1 trillion, or just over $7 trillion, right?

• 12:05Speaker 02

  And that we know of. But our problem is that our tax receipts were only $4.9 trillion, okay? We'll break it apart. You think, oh, you just need to cut spending like Elon and Trump and Vivek are talking about. Just cut some spending, we'll get out of deficit into surplus. The issue here is that of that spending, $4.1 trillion of that $7 trillion was spent on the things that are signed into legislation, they're mandatory expenses. These are things like social security, Medicare, Medicaid, other programs that are signed into legislation. They have to be paid $4.9 trillion, or that's $4.1 trillion.

• 12:50Speaker 02

  Remember, your tax receipts were only $4.9. So now you've got $4.1 gone, you can't be changed. Now you've got $800 billion left that you can spend. Well, we spend all of that on military. So now that's gone, right? Again, that's not, those are not mandatory. Those are technically discretionary, but long-term contracts. We know what the war machine is like. They're not going to stop spending on, on defense. And then the next piece is interest on your debt. So we know that we're paying over a trillion dollars of interest on debt. Net-net, when you, because there's intergovernment loans and, and debt.

• 13:34Speaker 02

  It's about $900 billion. Okay, now you're at, what, add it all up? 5.7. Yeah, you're, you're way over the 4.9. And then on top of that, you've got the trillion dollars of discretionary spending that's going on. So the issue is that where are you going to cut? Are you going to cut the entitlements to spend? The, the social security, the Medicare, Medicaid, the people have already paid into. Are you going to cut defense? Are you, are you not going to pay the interest on your bonds? Of course not. So those, even if you can cut, there's, there's just not any place to cut enough to get down into surplus. So we understand that. So that's one thing you could do.

• 14:17Speaker 02

  The second thing you do is you raise taxes, right? Which we don't expect Trump to do. We expect him to lower taxes. But as you and I, I think we discussed on, on one of your shows recently is that there's a Laffer curve, right? And back in, in Reagan days, the Laffer curve was basically what it, what it said was, this is the trickle-down economics where you had, if you raise taxes up to a certain point, it, it tops out to what the, the earnings are for the government and tax revenues. Because it, it starts to, it starts to crimp on productivity. And so companies don't reinvest in R and D or in, in expand profitable lines or, you know,

• 15:02Speaker 02

  hire more workers. So your tax receipts come down. So that's the second thing you do. The third thing you can do, which we've been doing all along, is just issue more debt. Pay the maturing debt with new debt, pay the interest with new debt and just borrow more. And that, right there, if you were a company on the floor of the New York Stock Exchange, you would be called a zombie company because you have to borrow money to pay interest on your past debt and you're dead man walking. And that's literally where we are.

• 15:37Anthony Pompliano?

  I always say it's like taking out a second credit card to pay off your first credit card.

• 15:41Speaker 02

  Correct.

• 15:42Anthony Pompliano?

  Not exactly good for personal finance, not good for a company, probably not good for a country either. So in this scenario, it's structural, right? I actually don't think that any one president can stop it or necessarily make some massive change. I think of us much more as kind of a cruise ship than a speedboat, if you will, in trying to make some of these changes. And so I think a lot of people saw inflation go from sub 2% up to 9% and then has come down and it seems they were kind of stuck between like 2.5 to 3% in the official CPI metric.

• 16:16Speaker 02

  Right.

• 16:17Anthony Pompliano?

  But here comes Trump and Trump has a number of policies. He's got the tariffs, a number of other economic policies that his critics would argue are going to be inflationary. They are going to drive consumer prices higher and there is a very real risk of inflation reigniting. How do you evaluate maybe his policies and then also kind of the structural thing with inflation? Do you expect inflation to go back up to 4, 5, 6% or how do you view this?

• 16:43Speaker 02

  So the way I see it is tariffs can be inflationary, of course. We understand that. But we also know that Trump, he's bombastic. He uses the tariffs, we've seen it, he uses the tariffs as a big sword, you know, and it could actually work in our favor in some areas. So it's not certain that tariffs are definitely going to cause inflation. Is it likely? Probably more likely than not. Well, let's see. Okay, that's number one. Number two, he's also said drill, baby, drill numerous times, which he is very interested in energy policies that will free up regulation, likely allow for build out of refineries

• 17:25Speaker 02

  that we don't have to refine the oil that we pull out of our own ground, which is just insane, that we, we need to have regulatory, like, regulation, you know, limited regulation, and maybe peel back some of that red tape in order to help energy companies expand and for us to truly become energy independent, right? So, that's one thing. And if you bring, if you allow for an influx of, of oil production or refining, then that brings the cost of energy down. Okay, that's deflationary. That actually helps inflation because the number one, number one driver of inflation, the

• 18:08Speaker 02

  impact of it is energy cost, right? So, we know that. So, that's another thing. So, and then the last thing is that he bringing, like, getting rid of a lot of that red tape for smaller companies, it's, it's massively helpful to these smaller companies, especially ones that are public. Just the, the amount of, of the, the regulations that cost companies mindlessly, the, you know, just to get over this bureaucratic, you know, tape, it, it'll, that'll help too. It'll bring down, down those costs. It'll raise their margins. They'll be more profitable. That raises tax revenues. That, that would be helpful too. So, all

• 18:48Speaker 02

  of those things can help. But let's go back to the reality. The reality is that we have $7 trillion of debt coming due this year.

• 18:59Speaker 02

  We just got the first quarter 2025 because remember that the United States works on a on an October fiscal. So we just got the first quarter of spending and it was we are operating a $711 billion deficit the first quarter. Okay, so remember last year, the deficit was 2.1 trillion, $711 billion times four, you're at a $2.8 trillion deficit. That's 35% higher than last year. So now we've got $7 trillion of debt that's coming due that we have to refinance because we don't have the money to do it. And we've got another likely over 2 trillion,

• 19:41Speaker 02

  looks to be close to $3 trillion of debt that we have to issue this year. So now you're seeing that bonds are going up. So as the Fed has lowered rates by a full percent, the 10-year has gone up by over a percent. It's gone, the yield has gone up.

• 19:59Anthony Pompliano?

  Explain this to people because I don't think a lot of people understand kind of the relationship between interest rates and the 10-year yield and then how also this idea of the annual deficit is playing in.

• 20:09Speaker 02

  Right. So the benchmark treasury for the entire world is the 10-year US 10-year treasury, right? So it's kind of the it's the bond that everybody wants to own. That's not too risky, but it gives you enough yield that if you need dollars, it's going to be a good thing to own. And so that's kind of like the benchmark around the whole world. So when you when the Fed was lowering rates, they've been lowering rates, they they'll probably pause this this month because of the data we're getting, but they've lowered rates from five and a half to four and a half percent. That's the shortest term rate, which is the Fed funds overnight rate, basically. Well, all the other rates are supposedly keyed off of that, right? So if those rates are going down, then the entire curve should go down, meaning that all the

• 20:54Speaker 02

  yields of all the bonds should go down, right? But instead, the 10-year yield went up at the same time that those Fed Fund rate, that Fed Fund rate was coming down. Why is that? Well, because you have bond investors that are very concerned that they're going to see inflation long-term. So partially, maybe a little bit of the tariff, you know, conversation, maybe. But really, what it is, is what we just discussed, which is term premium, where investors are, they're concerned that going 10 years out, I need a better yield than 4.5% to compensate

• 21:35Speaker 02

  me for this massive amount of bonds that are going to come to the market, because that's going to be inflationary. Why is that inflationary? Because the more bonds you bring to the market, the more the United States needs to allow for inflation, right? And that's the issue.

• 21:54Speaker 02

  And we can talk through that. So.

• 21:55Anthony Pompliano?

  So what's interesting to me is bonds have performed horribly, both in terms of, if you look at like TLT, you know, I think it's iShares, like 20-plus-year bond ETF, it's down like 40% in the last five years. If you just think theoretically about a bond that is paying less than 5% yield, you get hit with taxes, and then you've got inflation. So you're probably at a zero real rate of return, possibly negative, probably negative.

• 22:25Speaker 02

  Probably negative.

• 22:25Anthony Pompliano?

  And so you say to yourself, okay, like, who's buying this? Like, why are people holding bonds that are a negative real rate of return?

• 22:34Speaker 02

  Yeah, well, I mean, pension funds, endowments, they have to own bonds. It's kind of like in their mandate. So that's, that's one reason. But they don't really, they're looking at CPI, you know, even professional investors, they're just looking at the CPI and saying, well, I'm making a real return because CPI is 2.5% to 3.5%, I'm getting 4.5% or 5.5%, I'm making a real return, I'm outpacing inflation, all is good. But the reality is inflation, if you look at the cost of goods and over a long period of time, and you look at the stock market, and if you look at homes, it's much closer, like more closely tied to the expansion of the money supply, which is somewhere around 7%, 6.9% to 7.1% since 1971. That's a real kind of,

• 23:19Speaker 02

  that's, that's the real rate of inflation. So if you're not making that, you're losing money in real terms.

• 23:25Anthony Pompliano?

  And when we look at this like 6040 gold portfolio, I recently wrote and said, maybe the new 6040 portfolio is actually 60% equities, domestic equities in particular, and 40% Bitcoin. And when I looked at all the data, and so, you know, if you look at our last 25 years, gold has outperformed US stocks. Pretty shocking to people. If you look at gold and bonds, and you replace the bonds in a 6040 portfolio with gold, it's basically no change. But if you were to take 60% domestic equities, and you were to put 40% Bitcoin with those domestic equities, the return over the last five years was like 430 something percent.

• 24:07Speaker 02

  Yeah.

• 24:07Anthony Pompliano?

  Right? So you say to yourself, okay, hold on a second here. By having 60% domestic equities, combined with something that is supposed to store value, right? Even though, yes, the bonds have yield, all this stuff, but still, it is supposed to hold the value, Bitcoin destroys.

• 24:29Speaker 02

  Destroys it.

• 24:30Anthony Pompliano?

  So what I use that as kind of a proxy for is like, well, maybe what people start to say is, hey, this like 1% to 2% thing. I kind of had to say that at first because, you know, I wanted to be very prudent, and I didn't want to really risk this. Maybe I'm not going to go all the way to 40%, but maybe I'm going to go like 60, 20, 20. Maybe if I go 60% equities, 20% bonds, and 20% Bitcoin. How do you see these institutional type investors, you know, kind of allocating and thinking about Bitcoin when it starts to get to, it's got a higher sharp ratio than gold, bonds, and equities? It has a lot of properties that when you put it into your portfolio, it actually makes the portfolio better.

• 25:05Speaker 02

  Right. Well, and we've had these conversations. And to start, just, look, the institutions are not there yet. Widespread understanding of crypto and Bitcoin, how Bitcoin is different. They're just not there yet. They're learning, and they're being forced to learn. This administration talking about having a Bitcoin reserve, that's forcing some people to get up to speed pretty quickly. Because like, wait, if the United States is really like, even if it's Trump, and he's bombastic, if they're really considering this, this is a big deal. I better get my head around it. Okay, so they're starting to wade in. And we're seeing it at the Bitcoin Opportunity Fund. We're starting to see a lot more interest from family offices, high

• 25:49Speaker 02

  net worth investors who have IRAs they want to put into the fund, you know, so.

• 25:55Speaker 02

  Why are we seeing that? Because of exactly what you just said. People are waking up to the fact that, okay, if I add Bitcoin to my portfolio and there's, you know, you can do this, you can do the math out. There's a, there's a website called Nakamoto Portfolio that you can actually put in there different parameters and different allocations to different things. And if you put in there the 6040 portfolio that you're talking about, then the, let's back up. If you put in the traditional 6040 portfolio, that you have your 6% equities, 40% bonds, and then you layer in Bitcoin on top of that. So you look at that, just adding 1%, 5%, 10%,

• 26:39Speaker 02

  it's exactly what you just said, is that over the last 10 years, the, you know, the rate of return, the IRR just skyrockets as you go from 1% to 10%. It really enhances your return, your overall return. That's number one. Your volatility doesn't really jump that much. Your drawdowns don't jump that much on your overall portfolio. So what it's telling you is that, and exactly what you said, is the Sharpe ratio goes up. And if you add 10% of Bitcoin to that 6040 portfolio over the last 10 years, your Sharpe ratio jumps over that special, that key 1.0, which is kind of mind blowing to people. And when they start to see that and they start to realize that, hey, this actually, that's a, the Sharpe ratio is the risk adjusted return.

• 27:23Speaker 02

  That means that your risk adjusted return is higher if you add Bitcoin to your portfolio. And institutions are starting to key in on that and think, maybe there's something to this thing. I really need to think hard about exactly what you just said, which is taking some of my allocation, not just from equities and putting it into Bitcoin, but from bonds and putting it to Bitcoin. And so when you look at that whole universe of investable assets, there's $900 trillion of investable assets when you add, you know, real estate and, and bonds and, you know, gold and just the cash money. And you put all that together, it's $900 trillion.

• 28:04Speaker 02

  Well, Bitcoin at this point is just a sliver of it. It's $2 trillion, you know? Gold is at 18 trillion. So it's just a, it's just a fraction of, it's like 20, 30 basis points of the entire, you know, pool. And people are waking up to the fact that this is going to grow as a separate asset class, and I should allocate some to it now because when it goes from just, if it goes less than a quarter, like a quarter of a percent to a half or 1% of those total investable assets, I mean, it's going to go from 100,000 to 400,000 to $1 million as it grows and becomes 2, 3% of that total universe.

• 28:43Anthony Pompliano?

  When you think about all of the tailwinds, there's a kind of economic or portfolio construction argument that you can make. There's definitely a money printing and kind of undisciplined fiscal and monetary policy argument. What are the other tailwinds that you think are driving some of the institutional interest in Bitcoin?

• 29:00Speaker 02

  Well, the ETFs are huge, you know? Ibet was launched by BlackRock and it gained $50 billion of assets in less than a year. It's just such a, it's such a blowout ETF launch. It's a record set, you know, by far, nothing even close. And so, why is that? Well, there are institutions, there are hedge funds and small family offices and, and, you know, smaller endowments that were looking to buy some Bitcoin, but they just couldn't. They just, there was just no way to do it. Why is that? Operationally, it was, there's so many hurdles. Like, the hurdles of trying to figure out, you've got this key issue, like who operates, who's going to hold the keys and what's the hierarchy there? And like, how do we make sure that if you have the keys and I have, and like,

• 29:45Speaker 02

  how are we going to, like, there's no way a general counsel would sign off on that. Like, it's just, they're just, the risk, the personal risk and fiduciary risk was too high. So that's just, who's going to hold the keys? Who, like, where are you going to, if you're not going to custody yourself, who's going to custody it? Are you going to, are you going to leave it at Coinbase? Are you going to put, like, where is it going to be? And then you've got things like, you know, where are you going to trade it? Am I going to trade on Coinbase and Kraken? Like, what is this Kraken thing? Like, imagine going into your chief investment officer and saying, I got an account over here at Kraken. We're ready to buy some Bitcoin. They'd be like, you're out of your mind, right? So, I mean, these are old school, traditional investors. So that's another issue. And then you've got your mark-to-market issue.

• 30:29Speaker 02

  Like, do you market at midnight? Do you market in London time? Do you market at New York Stock Exchange? I'm like, where is this thing going to get marked? All of those issues, all of those hurdles were completely solved and just completely solved with the issue of the creation of the ETF. Now you have an ETF that has to hold Bitcoin in it. So you know that it's a spot-based ETF. You buy and sell it just like any other stock in your portfolio. You know exactly what the leverage or the margin will be on it. And you settle it with, you trade it with your same trader. You settle it with your same prime broker. You custody it with your same custodian. It's made it so easy. So that's been a huge driver.

• 31:11Speaker 02

  Then on the backside of that, we just had the ETFs, the options open up on them, which allows for those institutions to use those options to manage their risk around their holdings, which is an important aspect of owning, you know, some sort of a security. Then you had the GAAP accounting. So with GAAP accounting, like in late 2022, they changed a rule. It used to be that if you bought, if you're a company, you bought Bitcoin, you put it on your balance sheet. Well, if Bitcoin went down, you had to market at that lowest value it went to and hold it as an impaired asset. You couldn't hold, so you're either holding at cost. If it went up, you had to hold it at cost. If it went down, you had to market down to that impaired value.

• 31:56Speaker 02

  And then if it went up again, you had to hold it at that impaired value. If you wanted to get that value back up, you had to literally sell it in the market. Well, so they repealed that and now the accounting, the accounting for it is straight mark to market. And so now companies can buy it and not be afraid that it becomes impaired. They can actually hold it at fair value. That's been a big driver. And then you've got the Trump administration coming in. They're clearly very pro crypto. This last administration was terrible. They were, they were antagonistic at absolute best. They didn't give us clear regulatory clarity, like it was just, you know, choke point 2.0, all of that stuff.

• 32:35Speaker 02

  So, but that's gone. And now you've got Senator Lemos and, and Trump himself talking about a Bitcoin reserve. So that's huge tailwind. Even if it doesn't happen this year, they're talking about it. It's in the conversation. They're trying to create legislation around it. They're, they're, they're figuring it out. And if, and if that happens, I mean, I, I don't even want to put a price prediction on Bitcoin.

• 32:58Anthony Pompliano?

  Do you think it will happen?

• 33:00Speaker 02

  I think it's a low probability this year because there's just so many regulatory hurdles they've got to get. There were so many legislative hurdles they've got to get through. There are things that Trump may be able to do on executive order, but it's a little bit different.

• 33:11Speaker 02

  But I do think they're going to work toward it. I think that the chances are rising with every single day. And so interestingly enough, if you asked me this question three months ago, right when Trump was elected, I would say, or two months ago when Trump was live, I was like, ah, I'm not really sure. Pretty low probability, but now, you know, they talk about it just about every day. And so this is real. They're trying, they're pushing for it. And so do I think it's a probability not quite more than 50% now, but it's getting closer to that, that, you know, coin toss.

• 33:43Anthony Pompliano?

  I think that people are drastically underestimating the odds. I don't know exactly percentages, whatever, but like whatever everyone thinks the odds are, it's probably a higher percentage than that.

• 33:50Speaker 02

  I agree. That's right. Because if they did, then Bitcoin would be way higher.

• 33:53Anthony Pompliano?

  Higher, exactly. What do you think about, there's a Bitcoin strategic reserve. I think that's a huge deal. The other one that I've mentioned is repealing SAB 121.

• 34:03Speaker 02

  It's a big one.

• 34:05Anthony Pompliano?

  What do you think the impact there? Just a lot of these people who hold Bitcoin or other assets, they want to put it with the banks and the banks want it because now they can have a new financial. Asset to kind of lend against and you know, do the things that they do or what is the impact of repealing, you know, kind of this accounting rule that really is preventing the banks from custoding these assets?

• 34:24Speaker 02

  Yeah, that's another tail one. It's a great one that the banks can now custody, instead of having to hold it as a liability, now they can hold it as an asset. And like you said, they can lend against it. They can do things where they can, they can use it in the financial system and it makes it mainstream. It just, it just creates more of that mainstream adoption where, you know, right now, like you said, if you go to, you know, Chase or whatever, you can't do anything with your Bitcoin. You've got to either custody yourself or you custody at another place that is, you know, that, that only does this kind of business like a Coinbase or, you know, like a swan or a river or something like that where they're, they're custing it for you. So that's, that's going to be a huge

• 35:06Speaker 02

  thing. It's just, again, it creates more mainstream adoption that allows for that and allows the banks to actually start you like really working around it and, and promoting it to allow their, their customers to buy it, hold it, and they'll get the benefit of it too. So that's a really big deal. The, the reserve, the Bitcoin reserve, like if, if you're an intelligent sovereign, you're not going to go and just announce you're doing this or you're going to be in the background doing, you know, buying some of the background first. I don't know how that could work legislatively with the United States, whether they have to pass it first. And it seems like they have to pass it, announce it, and then go buy it. So it's like, almost like you're allowing the entire world to front run you.

• 35:51Anthony Pompliano?

  Well, we see countries like Russia, maybe as a good example.

• 35:54Speaker 02

  Perfect.

• 35:55Anthony Pompliano?

  They recently came out and they said, hey, we are mining Bitcoin. They've talked about it as this kind of like non-censorable, you know, currency or transaction system. They didn't come out and explicitly say Russia is holding Bitcoin on our balance sheet, but they pretty much said in every other way they possibly could without explicitly saying it.

• 36:13Speaker 02

  Yeah.

• 36:14Anthony Pompliano?

  And so how do you read into countries like that? You know, they're obviously the, on the other side of pretty harsh sanctions, given the, the Russia-Ukraine conflict, et cetera. And so like, what does that do to this kind of global game theory of these countries adopting something like Bitcoin?

• 36:30Speaker 02

  Yeah, we keep hearing about like the BRICS, right? Brazil, Russia, India, China, South Africa, that they want to create a new currency. And I don't think, really think that's what's happening. I think they want to get away from the dollar system and just have some way to operate around it because of what you, what you just pointed out, which is we made a, we made a strategic mistake, you know, sanctioning Russia, seizing their treasuries, kicking them off swift. So they are like, well, if any country out there that's not a, that perfect ally with the United States is thinking, do I really want to hold treasuries if they can seize them? They can kick me off swift? I gotta have another way to transact. So you have heard Russia say things like, we'll accept crypto

• 37:12Speaker 02

  and Bitcoin for purchases of goods, you know, they, they, they move a lot of oil around the world. So that's a big deal. And I do expect that, that, that sovereigns like Russia, like China, maybe some other much smaller ones are accumulating Bitcoin quietly. Do I know this? No. But why would they announce it? Of course they wouldn't. They would just be accumulating quietly. And if you're, if you're a sovereign, if you're, if you're issuing debt in your own currency, for instance, why would you not issue that debt, issue that debt in your own currency? That's debasing, use that, those debasing, you know, euros or, or whatever they are, right?

• 37:55Speaker 02

  To go and turn around and buy something that can't be debased. Of course you would. It doesn't, it makes perfect game theory sense. So is it happening for sure? I don't have any evidence of it, but I would expect that it's happening in some corners.

• 38:11Anthony Pompliano?

  El Salvador.

• 38:14Anthony Pompliano?

  I think is a really interesting case where I think they own five or $600 million now if Bitcoin has been growing. They continue to buy, you know, one Bitcoin a day, but they've gotten Tether to move their headquarters to El Salvador. And it feels almost like you kind of get on the Bitcoin standard or, you know, start to embrace Bitcoin. And other things start to happen like tourism is up huge there. They kind of have plugged themselves into the Bitcoin network, not just financially, but in many other ways. So do you think that that serves as a model for some of these other smaller countries that start saying, hey, you know what? It's not just a financial argument. There's things that we can do to incentivize hundreds of millions of people around the world that are sympathetic to this asset

• 38:55Anthony Pompliano?

  and kind of have a certain value alignment to come to our country, to come and build businesses, to come and, you know, employ our people.

• 39:02Speaker 02

  Yeah, I mean, Bucelli is blazing a trail, you know? Well, first thing he did is solve the crime issue there, right? So, you know, it's likely much safer in their cities than it is in any city in the United States now, which is just mind blowing. So that's number one, but using Bitcoin as a way to enhance their balance sheet, strengthen their balance sheet. They're mining Bitcoin off a volcano. This is just, it's incredible. And so is it a model for smaller countries? Absolutely, absolutely. You've got emerging market, you know, South American, Central American countries that have struggled with hyperinflation. And this could be a way for them to kind of solve that.

• 39:46Speaker 02

  It's painful at first, but, but it can be a way if they use Bitcoin as a, you know, as a strategic reserve themselves, like you're talking about. And they use it as a, as a base currency as well. I mean, that's a big deal. So I would expect more countries to do that in the near future.

• 40:04Anthony Pompliano?

  When you think about our adversaries, North Korea, many other countries, they seem to be using some of these cryptocurrencies, whether it's Bitcoin or others, and the fact that no one controls them, their bearer assets, et cetera, to their advantage, is it just, hey, you know, bad people do bad things with dollars and bad people are going to do bad things with Bitcoin? Or how do you kind of balance some of this stuff?

• 40:28Speaker 02

  I mean, if you're, if you're a criminal using Bitcoin, you're, you're probably not that smart, or you just don't understand Bitcoin, because everything is, is available to see on, on the blockchain, right? So, or the time chain. You know, we saw, we saw reports of Hamas saying, "Do not transact in Bitcoin. Please don't." They're, you know, they can follow all of it. Much easier transaction in US dollars. Just give us the cash in suitcases, it's easier. So, but yeah, I mean, cars don't drive themselves into crowds, you know, knives don't stab people themselves, you know, there, there are things that, you know,

• 41:10Speaker 02

  can be great to cook with, or to travel with, and have good uses for, that nefarious purposes will be, like, you'll find people using, for nefarious purposes, it's just what it is. I mean, but the reality is that Bitcoin being used for illegal activities is far lower. It's a fraction of what the activity is for US dollars.

• 41:33Anthony Pompliano?

  One of the other things that I think the Trump administration could do that would be pretty interesting is repeal the tax treatment for Bitcoin as property, and instead let it be treated as a currency. And you probably would have to decipher the difference between, are you spending the Bitcoin to buy a good or a service, or are you selling the Bitcoin for dollars, or, you know, some other crypto asset in terms of a trade? How do you think about the likelihood that, you know, we're allowed to spend Bitcoin for goods and services without getting hit with that capital gains happening?

• 42:02Speaker 02

  I think they'll, they'll probably create a threshold. Don't know what that threshold would be. It would likely be higher than $600, you know, but that's, that's what I think is most likely. Again, these are legislative things. Things that we're gonna, I think we're gonna finally get some clarity on and that's, that's what's most important. And that's what's gonna drive institutional adoption. Because institutions are like, well, I don't even understand how, exactly what you just said, you know? I don't understand how this, how this is going to be seen on my balance sheet or how I'm gonna work. Like these, like these are big deals that I think are gonna get ironed out over the next four years. And it's, it's gonna drive that adoption, widespread adoption. And it could happen rapidly in this cycle, so.

• 42:46Anthony Pompliano?

  And what are the things maybe you're excited about in 2025 that people aren't talking about? Is there anything that you're like, you know, I think this is a big deal and no one's really paying attention to it? Or are there things maybe that people are really excited about that you're like, eh, I don't really think that's as big of a deal?

• 43:00Speaker 02

  That's a really good question. You know, I, I think that there's, as, as an investor in this space. I mean, just in the last few years, we've seen it evolve so rapidly. And one of the things that we're excited about at, at the fund and we're over at the, at the conference down the street. As we're, you know, we're talking to these CEOs from mining companies and look, hash rate has been going through the roof. To buy miners, it's, it's super expensive now. They're, they're, they're, the efficiencies of the miners are getting, they're, they're, they've grown so much in the last few years that if you're not replacing those miners, you're not keeping up with the hash rate, you're not keeping up with the generating the Bitcoin.

• 43:44Speaker 02

  One of the things that, that we're seeing that I think is really important is these, these companies that are, the public companies in particular, that are miners, that have, they have these energy assets. And energy is so important. And people are, they're, they're getting tripped up with the, you know, the growth of, of some of these companies. Rather than the strategic use of those energy assets and what it can mean as you get high-performance computing built out, AI-driven computing built out. Like they're big companies that are looking around that need. Massive operations of computing, operations and high performance computing.

• 44:29Speaker 02

  And you know, some of these energy assets are exciting and we've been seeing that on the private side. So you're starting to see it, you know, in the, in the public side, you, you hear a lot about these, the miners talk about, oh, we're going to do HBC, we're going to, you were going to convert. Okay, that's, that's great, but let's start at ground zero. Let's start first principles. What do they need the most? These companies need that, that power. They need the energy. They need the energy contracts. And if you have those, it's a really big deal. If you have that, that infrastructure that you can build out easily, that's a really big deal. So it's kind of separating that growth versus, you know, it's not really a pivot. It's more of a graduation. It's evolution into something that we think is important. And that's, that's something

• 45:13Speaker 02

  that we're looking at. And we're looking on the private side, too. We see great deals on the private side for companies that are able to get energy and power that the larger companies just haven't, haven't dipped into yet.

• 45:24Anthony Pompliano?

  And when you think about the opportunities, so you run, you know, the Bitcoin Opportunity Fund, I think you guys have deployed two funds previously and now raising a third.

• 45:34Speaker 02

  One fund that we're raising a second, yeah.

• 45:36Anthony Pompliano?

  Okay, all right, there you go. So one fund and now a second. What, what do you look at in terms of the opportunity set, right? There's public markets, there's private markets, there obviously just buying Bitcoin, that does pretty well. How do you look at like where, you know, there, there are areas to perform well and maybe even like, what is the benchmark? Is it just, hey, we're trying to outperform Bitcoin or is there some other benchmark?

• 45:56Speaker 02

  That's a great question. So when we raised the fund, that was a couple of years ago, we started raising this fund in, like it was a bear market raise, like it was the worst market to try to raise a Bitcoin fund in, because nobody wanted to touch it, you know, Bitcoin was languishing around 18, $20,000 and, and it was a really difficult time to raise money. We originally thought, well, we're going to come in and we're going to look at these distressed assets. You had a lot of companies that were going into bankruptcy. You had assets we could buy. And so we structured the fund to be able to do anything, right? So public, private, you know, we could do early stage, we could do late stage, we could do all the way up and down the capital ladder. The capital structure, we could buy equity, we could buy private equity, we could buy venture capital,

• 46:39Speaker 02

  we could buy, you know, converts, preps, anything, doesn't matter. We could do derivatives around them. What we want to do is we structure it in a way that anywhere we see opportunity in this space, because space is pretty small. So all you see right now is venture capital funds, pretty much. You've got some hedge funds that are dipping in there and doing things, but not focused like this. So what we said was we want to have a Bitcoin opportunity fund that allowed us to take advantage of anything that's out there. And so the way we look at it is that we migrated those assets as they came in into Bitcoin. And so we kind of, we operate on Bitcoin standards. So our treasury is in Bitcoin.

• 47:19Speaker 02

  And then as we look at opportunities, we weigh those opportunities one by one against holding Bitcoin. Where it is, what the, what the risk reward of holding Bitcoin is, and we've got our calculations, what we believe that is. And then we look at the, that opportunity and say, is it a better risk adjusted return that we're projecting than holding Bitcoin? And so that's, that's really what, what the fund has evolved into. And so now the second fund, and that first fund, you know, like I said, it was a really hard market to raise, but we've done well. We've, we've doubled the fund size on organic growth just through, through returns. And then the second fund, like I said, we're, we're getting a lot more interest.

• 48:00Speaker 02

  You know, high net worth investors who have IRAs, we can take IRAs. That's a great way. That's how I did it. And so you, you can invest that way, or we'll take stable coins, whatever. It doesn't matter. We take that capital and we'll put it into Bitcoin and then look for those, those risk adjusted returns that are better. So which should answer your question is that overall, we're looking to deploy capital in a way that will give a better risk adjusted return. Than Bitcoin. Will we outperform Bitcoin? I cannot guarantee that. We have these long-term private investments that are in the portfolio that could way outperform Bitcoin in the long run because it's basically a leveraged play to those Bitcoin, to just

• 48:44Speaker 02

  underlying Bitcoin. Will that happen? I don't know. But that's the way we look at it is that we're just trying to outperform on a risk-adjusted basis. We're trying to give really solid risk-adjusted returns. And it's more for those family offices and high net worth investors that understand they want, they want exposure to Bitcoin, but they don't really know how to get it themselves. And they want exposure to the space. They want to help to grow the space, but they don't really know how to, or they don't get access to those deals. We get, you know, like you, I'm sure you get 10 calls a day, you know? So just being out there, we get a lot of flow. And so that's been helpful. But that's our goal is for those investors who are, they're, you know, they're intelligent, they're

• 49:28Speaker 02

  sophisticated, they understand that they're trying to do well in this crazy world that we just talked about with this insane inflation and relentless inflation. They're trying to outpace that. And they know inherently that Bitcoin can be an anchor to that and in that performance to keep up with. And that's what we're trying to deliver.

• 49:48Anthony Pompliano?

  What has been the most surprising area of opportunity that you didn't expect when you started the fund?

• 49:54Speaker 02

  Well, that's a good question. I think it's, it's what I just talked about is that just that underlying energy. At first, we thought that the opportunity was going to be these distressed situations. But it turned out as we were digging in deeper in both the public and the private side, that owning this energy is a really big deal. And the, that surprise came when the language models, you know, the LLMs were, came, came out and suddenly this drive to high-performance computing. Now, we're not high-performance computing investors. That's not what we do. But we've got, we've got companies that are invested

• 50:35Speaker 02

  in, in, in working the mining space that are using that and are going to use that to augment their profitability. And in the end, Investors want to make money and so do we. So that was, that's been a little bit of a surprise to us.

• 50:48Anthony Pompliano?

  Yeah, it feels like the miners are also realizing there's a bifurcation, right? Like you either are a miner, you stick to being a miner, put Bitcoin on your balance sheet and go mine as much Bitcoin as you can. Or there's kind of this other track, like I do a lot of work with the Huddite and they're saying, hey, look, we're energy dealers. Right? We're going to deal energy to the Bitcoin miners and we're in that business and that's great business. We're also going to do it for AI data centers and there's probably going to be three, four, five other different examples, you know, over time as well. And then we have Bitcoin on our balance sheet, right? And so we want to be, you know, in the Bitcoin industry, but also we want to have some diversification. And there's, you know, an argument of, hey, you might be able to insulate yourself from the cyclicality of these markets and stuff. But also maybe AI or something else has cyclicality as well, right? We just don't know.

• 51:32Speaker 02

  We don't know. We don't know. But we do know, the one thing we do know, and we can, what we can anchor ourselves on is that the debt is expanding. The, all these governments and the US government, they must debase the currency to pay down that debt. They need cheaper dollars, cheaper future dollars to pay down past debt. We know that's happening. It's going to continue to happen. So that gives me incredible confidence in Bitcoin as an asset to store, a store of value, just a digital asset that is, it's premier. That we can store our value and I can store my value and I work, I make money, can store it in Bitcoin

• 52:13Speaker 02

  and know that it won't be de-based. And that's what, that's what we look to as our anchor for the future.

• 52:20Anthony Pompliano?

  Do you have a prediction for how high inflation could get in 2025?

• 52:23Speaker 02

  Oh, you know, in 2025, I mean, look, if you look at, if you look at the 1970s and you overlay that chart, I'll give it to Matt so he can put it up as we talk here. But when you look at 1970s, we've tracked it and you've seen this chart. We've tracked it pretty closely. And so it's a little bit

• 52:42Anthony Pompliano?

  There's a resurgence.

• 52:43Speaker 02

  It's a resurgence coming into the late 70s and the 80s. And we're doing that right now. If you look, it's almost lockstep. The way that it surged, it came down. It kind of stabilized at this level and it looks like it's going to surge again. So the question is, what happens when, if that does happen?

• 53:03Speaker 02

  That means that we will have a surge of inflation. How high it goes, we don't know. But the difference is, back in the 70s, we had 30% debt to GDP. Now we have over 120% debt to GDP. It's a completely different world. So what I believe, Anthony, is I don't know where inflation will go. But I do believe that they will allow it to run hot enough to keep the charade going. And whether that's 5%, 7%, 9%, I don't know what it is. It's either higher, like 3% to 5% for an extended period of time, or just a surge of maybe 8% to 15% for a shorter period of time, just to manage some of this debt. There's really no other way around it.

• 53:48Speaker 02

  Like, every single road leads to inflation, and that's just reality.

• 53:52Anthony Pompliano?

  Where can we send people to find you online or find out about Bitcoin Opportunity Fund?

• 53:55Speaker 02

  So I'm on Twitter, James Lavish. And you can find out information, just go to www.bitcoinopportunity.fund. And if you're a credited investor, just, you know, reach out to us. We can send you information.

• 54:10Anthony Pompliano?

  Amazing. Thank you for doing this. I think that you're all over it. I think more people should pay attention to inflation, so I appreciate you doing it.

• 54:17Speaker 02

  I appreciate you having me, and I look forward to the next time.