#1494 Adam Back | How Bitcoin Hits $1,000,000

Adam Back is the Co-Founder & CEO of Blocksteam, and has been involved with bitcoin since the very early days. In this conversation we discuss what is going on with bitcoin, how institutional adoption is going, the potential bitcoin strategic reserve, Satoshi, and much more. =====================BitcoinIRA: Buy, sell, and swap 75+ cryptocurrencies in your retirement account. Take 3 minutes to open your account & get connected to a team of IRA specialists that will guide you through every step of the process. Go to https://bitcoinira.com/pomp/ to earn up to $500 in rewards.=====================Bitwise is one of the largest and fastest-growing crypto asset managers. As of December 31, 2021, the company managed over $1.3 billion across an expanding suite of investment solutions, which include the world's largest crypto index fund and other innovative products spanning Bitcoin, Ethereum, DeFi, and crypto equities. Whether you’re an individual, advisor, or institution, Bitwise provides intelligent access to crypto with your unique circumstances in mind. Visit www.bitwiseinvestments.com to learn more. Certain of the Bitwise investment products may be subject to the extreme risks associated with investing in crypto assets. Visit www.bitwiseinvestments.com/disclosures/ to learn more.=====================Xapo Bank, the world’s first fully licensed Bitcoin-enabled bank, offers military-grade security with an unmatched blend of physical and digital security, as well as pioneering regulatory oversight, so your funds are always protected. Beyond secure storage, they enable you to grow and use your Bitcoin. Earn daily interest in Bitcoin, spend with zero FX fees using a global card, and make instant payments via the Lightning Network for unrivalled access and convenience. Visit https://www.xapobank.com/pomp to join.=======================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 going on guys? Today, we've got a great episode with Adam Back. Adam is the co-founder and CEO of Blockstream. He's been in Bitcoin since the very, very early days. He was one of the first people, if not the first, to get an email from Satoshi Nakamoto. We talk about what's going on with Bitcoin, how institutional adoption is going, whether

• 0:46Anthony Pompliano?

  the strategic Bitcoin reserve will occur. Is he Satoshi? Does he know who Satoshi is? All of these questions and many more answered in this episode. If you watch the whole thing, you're going to come away with some unique insights, and I promise you're going to learn a thing or three. So make sure you watch till the end and let us know what you agree with or what you disagree with. Adam and I really enjoyed the conversation. We look forward to doing it again. Here's my latest conversation with Adam Back.

• 1:07Speaker 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.

• 1:31Anthony Pompliano?

  Today's episode is brought to you by Bitcoin IRA. Are you a crypto investor with a retirement account but don't have any crypto in your retirement account? Then listen up, this is for you. Bitcoin IRA is revolutionizing the way Americans save for retirement by helping smart investors diversify their savings with access to over 75 cryptocurrencies. With world-class customer service, military-grade encryption, and a vertically-integrated licensed trust company, it's no wonder more than 200,000 Americans trust Bitcoin IRA to secure their financial future. Getting started is quick and easy. It takes just three minutes to open an account. Once you're set up, their team of IRA specialists will reach out to guide you through every step of the process, whether you're transferring an IRA IRA from a legacy bank, rolling over an old 401k, or starting fresh with new contribution,

• 2:15Anthony Pompliano?

  the Bitcoin IRA team is here to help you get access to real crypto in your retirement account. And here's the best part, as a listener to this podcast, you can earn up to $500 in rewards when you add funds to your account. That's right, search for Bitcoin IRA in the App Store, or visit bitcoinira.com/pomp to join 200,000 Americans on their journey to upgrade their retirement. Bitcoinira.com/pomp to upgrade today and you can earn up to $500 in rewards when you add funds to your account. It's no secret that Bitcoin ETFs have taken Wall Street by storm. With over $35 billion in assets in just one year, it's become the most successful ETF launch in history.

• 2:56Anthony Pompliano?

  My partner Bitwise is the first and only Bitcoin ETF provider to openly publish its Bitcoin wallet addresses, allowing anyone to verify the fund's holdings. I believe this level of transparency is exactly the kind of innovation that only crypto makes possible. Bitwise is also the only ETF issuer that is a crypto specialist asset manager, meaning their team solely focuses on Bitcoin and they have the research, education and support to help investors navigate the space with confidence. All of that is great, but what I love most about Bitwise is probably their commitment to developers. Bitwise donates 10% of their ETF's profits to Bitcoin open source developers. Bitcoin developers are the unsung heroes, working tirelessly to maintain, improve and innovate the blockchain.

• 3:38Anthony Pompliano?

  Their efforts ensure that Bitcoin remains true to its promise as a decentralized system that is built to last. Go to bitwisepomp.com to learn more about their ETF and other services. Once again, that's bitwisepomp.com, bitwise, P-O-M-P dot com. As always, remember investing is risky and carefully consider the extreme risks associated with crypto before you invest. Today's episode is brought to you by Zappo. Picture this, every time you trade Bitcoin, the spread determines how much value stays with you. That's why securing top-tier Bitcoin trading fees is key to growing your Bitcoin wealth. But what if I told you that there's a platform that lets you save up to 90% on your Bitcoin trading fees? Now, here's the kicker.

• 4:21Anthony Pompliano?

  Not only do they save that money, they also are dubbed the Fort Knox of Bitcoin. Zappo Bank, they're the world's first fully licensed and regulated Bitcoin and banking group, and they have been delivering a unique blend of physical and digital security for over a decade. From military-grade Swiss bunkers to cutting-edge digital protocols, they've got you covered. And now they're bringing you the kind of competitive Bitcoin trading fees typically reserved for institutional giants, right in the palm of your hand. With Zappo Bank's ultra-competitive spreads, more of your Bitcoin stays where it belongs, in your pocket. Whether you're trading big or small, every move you make is designed to boost your gains and fuel your financial future. Head to zappobank.com/pomp to join. That's X-A-P-O-B-A-N-K dot com slash pomp.

• 5:07Anthony Pompliano?

  All right, Adam, I thought the first place to start is, most people know you were early to Bitcoin, but early can mean a lot of different things. You actually got the very first email from Satoshi Nakamoto?

• 5:16Speaker 02

  That's right, it was in August 2008, and I have some software and papers online. And so, once in a while, you'll get a researcher or developer email you. So, I just thought it was another researcher, and that was his real name, right? Satoshi Nakamoto? But, yeah, so it was a kind of exchange, and then some more email exchanges in January 2009, when he kicked off the network.

• 5:41Anthony Pompliano?

  What was he asking, or was he...

• 5:43Speaker 02

  So, it was like a fairly brief exchange. So, basically, I'm using your hashcash work, what's the correct citation for it? And, you know, because it's not published in a journal, it's just published on my own website, it's a kind of tech report. And then I sent him some suggestions of other things to look at, including "We Die is Be Money," which he promptly turned around, contacted We Die, and added a reference to that, too, to the paper. So... And then, yeah, just, just some general email about like related systems.

• 6:12Anthony Pompliano?

  Yeah. Did, did you go and look at what he was actually building? Or was it just email communication, but you actually didn't go look at like what?

• 6:19Speaker 02

  Uh, so, so I looked at the, the outline, it doesn't seem to, I think it was like a link to some kind of download site. So I couldn't really get the original paperback later because that site wasn't there anymore. And then in 2009, Hal Finney was one of the early users and he wrote a kind of experience, like a report, like an experimental report about this is how it works. This is what I think it's doing, that kind of thing. So I read that and then.

• 6:44Anthony Pompliano?

  And what did you think when you read that?

• 6:46Speaker 02

  Well, I thought it was pretty interesting because I was involved with early electronic cash systems like Digit Cash in the mid nineties. And that one, that was an experiment to try and bootstrap value in it because they, they made a kind of promise that they weren't going to issue more than a million units. So some of the people on the Cypherpunks list, including myself, started selling stuff. You know, pretend it's worth a dollar, sell things for it. We can bootstrap it and then it went bankrupt and it was a central database. So that was the end of that, right? And so, you know, the lesson people took from that is centralized systems can fail. We need a decentralized way to get electronic cash. So people tried to figure out how to do that. Nobody quite managed to crack it. Proof of work was part of that kind of 1998, 1997 discussion after I published Hash Cash.

• 7:31Speaker 02

  That, you know, mining was part of it, but nobody had figured out how to, how to control inflation and put it all together. So it's totally put it together and so I was immediately seeing that. And it looks like he's solved a missing problem. And, you know, next question was, well, will it bootstrap? You know, because you release a bit of tech, no telling if people adopt it, if it develops the market price, that kind of thing, right? And so I thought, well, I'll, I'll, I'll wait and see. This is exciting. Let's watch, right? It took a few years before, you know, there, there was an exchange or a market price and so on. So you'd see it pop up in the news once in a while. So I remember it crossing a dollar and then a hundred dollars. And I was like, okay, like that's, that's, I mean, the total market cap is not so big at that level. But, you know, that's, that's clearly something.

• 8:16Anthony Pompliano?

  Psychological milestones.

• 8:17Speaker 02

  Yeah, something's happening. So then I got, did the usual Bitcoin rabbit hole and like read the next level. Ran out of things to read. Went to found the developers hanging out in IRC to ask them more questions, which are not documented anywhere at that point. And then I developed some ideas to improve privacy in it, which was confidential transactions. And then I tried to see if there was a way to integrate that into Bitcoin. I realized actually it's pretty hard. I've seen that more recently, right? That it's hard to make changes to Bitcoin. You've got this consensus process. So I developed a sidechain idea. It's like, okay, let's make it more modular, say. And then that's what I started Blockstream to do in 2014.

• 8:56Anthony Pompliano?

  So what's fascinating to me is most people who hear about Bitcoin today, right? If you've been sleeping under a rock, you hear about it. They really think about it from a investment opportunity. It's let me go buy some. You obviously had been working on this for a very long time in terms of different technical architectures, this kind of double spin problem, proof of work, like just all these different components. When you first see this, I don't get the sense that you were like, let me go buy some. It was more of like, what could I build on top of Bitcoin? Is that accurate?

• 9:28Speaker 02

  Yeah, I mean, you have to bear in mind the earlier e-cash systems were more like what we would call stablecoin today. So they didn't really have an investment aspect to them, right? Now, clearly Bitcoin did because the way that Satoshi actually solved it is the hot part. What was partly hard is to create stable US dollar value. With no, you know, reference to any central price fees and things like that. And so what he did is he just fixed the rate of supply and let the market figure out the price, right? And so then that indirectly creates the, you know, a hard money with a digital gold kind of phenomenon. But, you know, I was somebody that was managing my own investments and aware of, you know, the inflation hurdle rate,

• 10:09Speaker 02

  the manipulation of official inflation statistics going back, you know, before, but before, you know, hash cash and sort of in the same kind of timeframe while I was at university even. And so, you know, those kind of things made a lot of sense to me. So after Bitcoin, you know,

• 10:28Speaker 02

  got markets, it became, you know, more actively used. Then I did get into, you know, mining and buying and trading and that kind of layer.

• 10:38Anthony Pompliano?

  Now, I know people, some people think that you're Satoshi. I'm going to assume that you're going to say no. So who do you think it is?

• 10:47Speaker 02

  I don't know. I mean, I think people have a kind of rough idea of what the skillsets are needed. You know, like cryptography, some understanding about monetary economics. And you can see some of the things that Sochi's writing about, right? So he's got the Genesis quote and all this kind of thing. But, you know, there are a lot of clever people in the world. So, you know, I know, I know some people who were implementing, you know, encryption and privacy tech and digital signature things and previous electronic cash systems. But, you know, I think probably, you know, whoever it was, they kept it to themselves. So we're probably never going to know who it was, just, just because, you know,

• 11:30Speaker 02

  so many people have been fascinated by this, you know, the concept of this mysterious career that they've looked for any kind of digital data they can find. And, you know, so much time has passed now and nothing's been found. And he hasn't been active since, I don't know, when he stepped away, like 2011 or something.

• 11:46Anthony Pompliano?

  I think so, yeah.

• 11:47Speaker 02

  Then I think there's, there's nothing new to research. I think we're, we're never going to know unless there's some kind of, you know, inheritance in event or something, perhaps. I mean, I don't know. You know, it's all speculative at that point.

• 11:58Anthony Pompliano?

  Could you imagine if, you know, your, your father dies and all of a sudden you're like, here's eight hundred thousand Bitcoin or whatever it is, right?

• 12:03Speaker 02

  That'd be a news story.

• 12:04Anthony Pompliano?

  Yeah, big surprise. There's a recent rumor that I saw somebody put together a whole, you know, kind of theory that Jack Dorsey is Satoshi. Do you see that?

• 12:12Speaker 02

  I'm not buying it because coincidentally, a friend of mine sent me a chat GPT-generated, like, backfield story full of AI hallucinations about how a mutual friend of ours could be Satoshi. And, you know, I was reading it. I was like, but that's not true. That's not true. Everything, everything was false, but it looked like consistent with the hints he'd given it. And so I was like, you know, that looks remarkably like the Jack Dorsey thing. It's full of very specific things. Now, I don't know Jack Dorsey, you know, on a personal level, so I don't know. But probably you could check many of those claims and they're probably all going to be false, right?

• 12:45Anthony Pompliano?

  Yeah. It's fascinating. So you say you started Blockstream in 2014, one of the longest standing Bitcoin companies. Talk a little bit about the evolution of Blockstream to what you guys are doing today. And I think a lot of it really maps to the evolution of Bitcoin. Bitcoin started off as this thing completely outside the system. Definitely had this like anti-government or anti-central bank, you know, a kind of component to it. We now have a central bank where they're talking about Bitcoin. We have a pro Bitcoin president. We have politicians that hold this, large financial organizations, public companies. Like, it kind of feels like the mainstream adoption that everyone sought in Bitcoin has come with some trade-offs where maybe some of the kind of ethos or early beliefs in Bitcoin

• 13:29Anthony Pompliano?

  are kind of changing based on that adoption.

• 13:33Speaker 02

  Yeah, I mean, Blockstream has always had a very straight-line approach, which is, you know, want to help Bitcoin reach hyper Bitcoinization, reach full adoption, reach its full potential. And for myself, I was, you know, as I mentioned, somebody interested in managing my savings, investments, and trying to understand inflation. And, you know, the struggle to overcome the hurdle rate of inflation is actually quite hard, right? And so I think, you know, with the Blockstream Layer 2, the main technology was the liquid Bitcoin Layer 2 focused on trading. So actually, that was already contemplating, you know, Bitcoin as an asset class and putting sort of tokenized securities and using Bitcoin as a trading mechanism.

• 14:15Speaker 02

  So for me, it's more kind of straight line in the sense that I think of Bitcoin both as electronic cash for the internet, as part of the value thesis, as that continues adoption, but also digital gold and savings technology and something people would invest in. I mean, with the internet, you could invest in internet stocks. But with Bitcoin, you can invest, you know, directly in the protocol and the network in buying Bitcoin, the asset class. So, yeah, it's, and of course, you know, as we've both been in it for a long time, it's fascinating to see how.

• 14:49Speaker 02

  At the, in the, in the moment, it feels like things are moving slowly, but actually it's moved very quickly and sort of surpassed expectations where people would say, oh, you know, maybe a government, you know, a company would pay attention or a bank would pay attention in 10 years. And, you know, within five years, you know, every, every bank has got blockchain R and D lab, right? And it's just kind of moved on from there and swung to, you know, they're all bringing Bitcoin related products to market, you know, um, ETFs and different types of futures and structured products now, Bitcoin secured lending. I mean, it's all happening, right? And then the institutional wave. So we've been talking about that as the third wave, if you like. So the first wave was the general users buying or mining on spot exchanges.

• 15:35Speaker 02

  And the second wave being the ETFs providing access to a wider audience. And the third wave being the actual genuine, large scale institutional adoption. So, you know, we, we brought Sean Bill in, who's, who's quite well known for, in Bitcoin circles for being a manager of the first pension fund in the U. S. To bring Bitcoin onto the balance sheet. And I think you had some history there and going into advise that fund in 2020 or so. So we're excited to, you know, have Sean Bill join us and try to replicate that, bring Bitcoin to that audience and bring different products that sort of surround Bitcoin that are easier for them to, you know, start and get a toe in the water with.

• 16:15Anthony Pompliano?

  Talk a little bit about, um, you run a business where there's mining, you have the side chain, liquid and kind of all that. Uh, but then also asset management. How do you think about the structure of the business? Is it, you're building a Bitcoin conglomerate? You are just got different business lines? Like, how, how do you kind of visualize what you're, you're ultimately trying to accomplish?

• 16:35Speaker 02

  Yeah. So it's very straight line. And any, anything that is slowing down Bitcoin adoption or that connects with the next step of what we want to see happen is not happening in the market. We'll do it ourselves. And, you know, so the mining is a bit of a kind of separate company. And we got involved in that to sort of trying to centralize the hash rate. We bought our first financial product to market, which is a three year term product. Tokenized licensed security based on Luxembourg securitization vehicles. The second version of that in market now from the mining company. And a couple of years ago, we acquired DeMista's hedge fund, Admin Capital. And so now we're really, you know, with with a couple of things in the market, which make a good timing.

• 17:18Speaker 02

  Obviously, the sport ETFs and the Trump presidency kind of stream in streamline in the way for sensible regulations and kind of the end of friction in the way of Bitcoin adoption. I think, you know, the only thing that Bitcoin really needs is for people to get out of the way. I think, you know, it drives itself in terms of people adopting it and you know, they develop their own thesis for buying into Bitcoin. So, yeah, that's that's the next step, right, which is to help institutions get into Bitcoin, the asset class. And, you know, down the road, potentially extend that to different types of investors. For the moment, it's focused on qualified purchasers, institutional investors, stretching down to accredited investors, but for longer term.

• 18:04Speaker 02

  Because it's interesting, but a lot more complicated to make financial products available to a wider audience.

• 18:10Anthony Pompliano?

  When when you think about this push into the institutional world, you mentioned that you've brought Sean on board. But the products that you're building are not necessarily, let me, you know, help you buy Bitcoin. They're kind of unique ways to have the product fit into the frameworks that these large institutional investors have already created, but also give them that exposure to Bitcoin. Can you give us an example of what one of those looks like?

• 18:34Speaker 02

  Yeah, so we have three products that we're launching with. The one that is simplest and easiest for a conservative institution like a pension fund to digest is actually a US dollar yield fund, which is an asset loan, asset backed loan type of credit fund where in this case the asset is Bitcoin, which is a very good, you know, highly liquid asset.

• 18:58Anthony Pompliano?

  So you're lending dollars against Bitcoin to people who want to borrow against their Bitcoin.

• 19:02Speaker 02

  Right. And that's something they're going to be familiar with because they will have allocations to other forms of asset-backed loans. And now in this case, after they've got their foot in the door, placed some dollars into that, seen the interest accrue in for some period of time, we can offer the option of rolling the interest only into Bitcoin. So they're kind of dollar-cost averaging. And you know, pension funds are very long-term institutions who place money into vehicles for five years, 15 years, that kind of timeframe. So if Bitcoin continues to do what it does, as you know, the adoption curve follows, it's entirely possible that the interest could repay, you know, add additional return above the principal, like a multiple of the principal potential, right? So in effect, it kind of backdoors into a sort of form of

• 19:45Speaker 02

  a principal protected note, right? Which is the dollars they've lent with the asset backing are still there generating the interest. And unlike a typical principal protected note, which is using zero coupon bonds, the upside you can get from that is muted because you're relying on low-risk, like treasuries or something like that, right? So you're looking at four or 5% in the current market. Whereas with the asset-backed loans, those loans are a bit higher, like high single or low double-digit kind of returns. The other thing Blockstream and myself personally have always done is focused on a very low-risk kind of approach. So the other, one of the other products we have is a

• 20:30Speaker 02

  low-risk, low-return Bitcoin yield strategy. And that's staying very far away from, you know, staking and protocol and platform risk. And using some other strategies, which, you know, I've been doing personally to make Bitcoin capital work for me. So these, you know, been looking at and modeling and actually running on a personal basis. You know, long before the FTX and the, you know, the yield strategies that blew up, you know, as part of the lost bear market, right? So you could, you can see if you're involved in these markets, that the low-risk achievable Bitcoin yield is probably something in the 2% to 4% range. So when you see multiple companies in market offering, you know, 6, 7, 8, 9% of Bitcoin, you can just tell that.

• 21:14Speaker 02

  There's got to be some risk buried in there and surely enough that happened, right?

• 21:19Anthony Pompliano?

  So The two to four percent, that is in Bitcoin terms or dollar terms?

• 21:22Speaker 02

  Yeah, Bitcoin terms, actually. So it's attractive, you know, that target audience for that is more Bitcoin holder who might put an allocation into it. Of course, there are many Bitcoin treasury companies, both private and public at this point. Blockchain being one of the earliest ones, you know, we had Bitcoin on our balance sheets since 2014. Of course, you have the Microstrata phenomena, a number of other companies in that space, Metaplanet, Blockchain Group in France. Fold, public company now. So there are lots of companies with Bitcoin as treasury. Who would be in market for a low risk targeted Bitcoin yield fund. And then the third fund is Bitcoin Alpha Fund. So it's really, you know, taking a bit more risk. It might have a down month.

• 22:04Speaker 02

  Whereas the yield fund is really more like a money market type of situation.

• 22:08Anthony Pompliano?

  What is the response so far from that institutional world? Obviously, we have the ETFs that got approved, big boom for Bitcoin in general. There's a pro Bitcoin president. It looks like, you know, between Coinbase, Robinhood, many of these kind of retail type platforms. The SEC and regulators are pulling back a little bit and they're not going to be as onerous towards them. Do you see the institutional world getting more excited and kind of leaning into this stuff? Or is it still, you know, kind of a number of years of work ahead of us?

• 22:37Speaker 02

  Well, I mean, it depends on the audience. So we went to the, Sean and I attended the iConnections conference in Miami a few weeks back. And actually, reception was really, you know, very strong, much more than we expected for a new fund. You know, we actually had to stop taking meetings because we got kind of full split into two teams to even take it in. And talking to, you know, family offices, multifamily offices and different pension funds. And of course, the the interest varies, right? So the the family offices are more interested in Bitcoin Alpha or Bitcoin Yield. And the pension funds, as predicted, because, you know, from his experience.

• 23:15Speaker 02

  Getting the pension fund into Bitcoin in 2021, Sean had seen, you know, what types of products would likely appeal to them. They're actually more interested in this US dollar yield fund. And, you know, the people you're talking to, the proposer, they've got to get that passed, you know, an investment committee and so forth, which is, if you've seen yourself from your prior involvement with that with Sean, that that process can take a while. So I think the family offices are able to move, they're more agile, they can move faster, they have more risk appetite. And the pension funds were a bit slower, but I think the environment has definitely improved now as compared to where it was, you know,

• 23:55Speaker 02

  already back in 2021. So the spot ETFs helped with the kind of legitimization from a traditional finance perspective of Bitcoin, the asset class, and a regulatory clarity, I think that that helps as well.

• 24:09Anthony Pompliano?

  It's this fascinating thing where the family offices are investing their money, pension funds are investing somebody else's money, right? And so I do think that that plays into some of that risk appetite. But also many family offices, I know, there's kind of a sole decision maker, even if they have an investment committee, it's kind of like, hey, who made the money, right? They have a huge impact. Whereas obviously pension funds, and for good reason, have these very large investment committees, this very kind of onerous process. And a huge piece is like, don't mess up more so than, you know, let's hit a home run every once in a while.

• 24:38Speaker 02

  Yeah, I mean, I think with the Santa Clara VTA that Sean got into Bitcoin, which was actually the first US pension fund to put Bitcoin on the balance sheet, part of the argument was that actually having, you know, one to 3% Bitcoin allocation in their pension pool would actually reduce their risk. It's a decorrelated asset, has asymmetric upside. And so I think that, you know, the argument still applies.

• 25:04Anthony Pompliano?

  How do you look at the cycles, right? So one of the things that Bitcoin has historically been is non-correlated, it's been asymmetric, it has been fairly predictable in these kind of four-year cycles, at least in timing, maybe less than severity. But the volatility, the 80% drawdowns, all these things, I think people have said. I get that if I put Bitcoin into my portfolio, my sharp ratio will increase. I get that it is non-correlated. I just can't hold on 80% down, right? Because I might get fired or it hurts from a volatility standpoint. Do you think that those cycles are over? Do you think the volatility is more muted? Like, how do you kind of look out as we are in a bull market, what maybe the next 18 to 24 months looks like?

• 25:49Speaker 02

  Yeah, I mean, the volatility has reduced a bit. I presume the cycle timing will continue because there are some fundamentals around the mining halving.

• 26:00Speaker 02

  Some people have the theory that the halving should have a lower effect over time, but actually I believe it's sort of offset by reduction, by more and more coins getting cold stored and people adapting to the way to that they're going to interact with Bitcoin to accumulate rather than speculate. And so the proportion of mined coins that halving reduces is more constant than people would think with the amount of coins that are available to trade on exchanges or something like that. So that's shrinking and the halving shrinking. So as a percentage change, it's more constant. So you continue to see a big halving effect.

• 26:43Speaker 02

  I think one theory which is going to be tested this cycle is the diminishing return theory. And so people are drawing extrapolations from the last bull market being a bit muted. But I think there are lots of overhangs on that, the COVID, supply chain, all the economic effects around that, plus the DeFi failures and so on. And I think the other thing is, technology typically goes through an S curve. And I think we're still early. We're in the industry, so we feel we're at late stage, but it's actually still early. And so I think there is scope for kind of more rapid adoption phase. And if that happens,

• 27:21Speaker 02

  this kind of inferred slowdown may be reversed. So if we see this cycle having a much higher cycle-to-cycle increase than prior cycles, that would kind of invalidate that, possibly invalidate the power law or even stock to flow. So I think a 500,000 to 1 million cycle top in this cycle is Within, you know, within bounds.

• 27:52Anthony Pompliano?

  You think that this cycle top could be between 500,000 and a million?

• 27:56Speaker 02

  Yeah.

• 27:57Anthony Pompliano?

  That's a pretty high number.

• 27:58Speaker 02

  Yeah.

• 27:59Anthony Pompliano?

  Do you think that that is predicated on the US having to buy Bitcoin for the strategic reserve? Or that could happen without?

• 28:03Speaker 02

  I think if that happens, little bets are off because you get kind of, you know, country level. I think other countries have to react when they, if and when they see that, right?

• 28:12Anthony Pompliano?

  Talk me through this more. Hold on. This is a big number. 500K to a million. I'm not, I don't think you're saying it's gonna do that. I think you're saying it's possible.

• 28:18Speaker 02

  Right.

• 28:19Anthony Pompliano?

  Right? What are the assumptions that go into us driving a price that high?

• 28:25Speaker 02

  Well, I mean, there's a lot of things going on at the moment, right? In terms of ongoing buying demand, so the ETFs have absorbed about two times the mine supply since launch. Market strategy and the other treasury companies absorbed another two times the supply. You know, there are active traders absorbing another time. So, you know, there's retail dollar cost averaging. So it's somewhere between like five and seven times the mine supply being bought. And we're in some kind of, you know, short-term consolidation where short-term investors or medium-term investors are taking, taking profit. But I think, you know, they can only sell once, once they're gone. You know, then there's a kind of supply shock situation. And you get a lot of reflexivity in Bitcoin markets where, you know, the price is up because the price is up.

• 29:09Speaker 02

  It's how we get kind of exuberance and then the blow off top. And it's also still fairly early in the cycle in terms of, you know, six months after the halving to 18 months, two years after for the cycle. So there's a lot of time to run.

• 29:25Speaker 02

  And, you know, other metrics are shrinking, like coins on exchange and that kind of thing. Another thing which is helpful, you know, which, which wasn't necessarily predicted is the ETF holders seem to be sticky. So they're, you know, what Warren Buffett would call good investors, they buy and hold. They're not, you know, shaken out by a small move. They're there to, you know, hold a position. I think the other thing that could help this phenomena is you've got to think that when the, either people buying the ETFs. So about 30% apparently is institutional. The rest, I presume, is kind of the top 10% wealthy in the US minus the top 1%. I think they have about $30 trillion. So they have a low allocation at this point. But when they call their broker or financial advisor, they're reallocating from their portfolio.

• 30:09Speaker 02

  And so the question is going to be, well, what do you want to sell to put your Bitcoin position? The natural answer would be we'll sell the physical gold ETF, but a Bitcoin ETF. And the other phenomena is that the proportion of gold that's in ETFs is a lot smaller than proportion in Bitcoin. So I think, you know, you could see if if there's some momentum on this, that, you know, the other target I like is that Bitcoin could pass gold in market cap this cycle, which is around the same level, but it could, but that it could do that while pulling, taking the shine off gold, basically, because you, you know, prices set at the margin. If a lot of retail or like relatively wealthy US investors are selling gold ETFs and buying Bitcoin.

• 30:53Speaker 02

  Of course, it's partly upset by the offset by global macro where governments in some cases are buying gold. But, you know, I think some of the US politicians are talking about selling gold and buying Bitcoin too. So, you know, if we've seen that, that will change the game.

• 31:08Anthony Pompliano?

  Do you think that will happen?

• 31:10Speaker 02

  The latter, I'm not so sure, you know, it's it's all down to politics and that can be slower than anticipated. It's quite complicated, not not my area. So I'm just focused on, you know, a workable regulatory environment where there's no kind of unreasonable friction. And the free market doing its thing, I think, you know, the global macro helps in a way because Bitcoin is a hedge to a lot of that.

• 31:34Anthony Pompliano?

  It feels like the strategic Bitcoin reserve is probably the single most important thing for price. If it happens, I think to your point, all bets are off and, you know, there's countries around the world that will all buy. But I also think it, you know, every fund manager can't go to the like, the government's going to ban it. I don't know if they can really say that now, but some of them still, you know, want to believe that.

• 31:57Anthony Pompliano?

  Do you think that if the US came out and said, actually, we're not going to buy Bitcoin, that would be a negative? Like, could it be a headwind and actually create issues now that people are kind of expecting?

• 32:07Speaker 02

  I mean, not too much because I think if people were. You know, I think sometimes things are not priced in in the way you would expect with Bitcoin. It's not always a very efficient market. So I think there's a lot of disbelief about it happening because, you know, put it this way, if if it was priced in, you know, we'd already be in seven, seven digit Bitcoin, right? So I think it's not priced in. So if it doesn't happen or it happens in a kind of, well, let's not sell the seized Bitcoin. At least, you know, I think that that would be in range as well.

• 32:37Anthony Pompliano?

  Yeah, you've been around a long time. You've seen all kinds of people show up and say, I can fix Bitcoin. You've also seen people show up and say, I can build a better Bitcoin. And you've seen people show up and say, forget Bitcoin, I'm going to build something new with blockchain technology. The latest iteration is the meme coins. And I don't think anyone showed up saying that it's better than Bitcoin or it's going to improve Bitcoin or anything. I think they're just frankly saying that they're having fun trying to get rich.

• 33:02Speaker 02

  Right.

• 33:02Anthony Pompliano?

  What's your general take on on these meme coins?

• 33:05Speaker 02

  Well, actually, counterintuitively, because I've been watching the market for a while and kind of shaking my head like, where's the efficient market hypothesis in in like

• 33:13Anthony Pompliano?

  Doesn't exist.

• 33:14Speaker 02

  repricing those, right? And and I think in this cycle, we're starting to see some of it. And I think what's driving it is actually more is less. So the market's kind of got saturated and the sort of, you know, promoter, trying to get attention for a token and then selling out the promote, you know, the promoter or the founder shares is has been compressed so that it's, you know, buy the minute game and it is professionally kind of front run with, you know, automated trading and stuff like that. So I think that's left investors, you know, speculators disillusioned. And so actually, you know, what you've seen in prior cycles is this kind of alt rotation or alt season, right?

• 33:56Speaker 02

  Where alt coins will get compressed in a bear market and swing higher in a bull market. And that's not really happening now. Bitcoin dominance ratio is up 50% in the last 30 months. So Bitcoin's going up and the and the alts generally are not. So I think that's another kind of factor that's, you know, potentially helping and.

• 34:19Speaker 02

  I think the other thing that helps there is that, you know, even though the Bitcoin dominance index is like seventy percent, I think if you take out stable coins, that's the, you know, the full market. If you look at the institutional investment composite of it and ETF buyer component, the dominance index can be much higher because, you know, there aren't that many ETFs and the typical, you know, government, uh, state, local government, uh, you know, fund managers, it's very heavy into Bitcoin versus alternatives.

• 34:50Anthony Pompliano?

  There are a number of corporations, obviously, MicroStrategy or Strategy being the first um in public markets, but now Meta Planet was the single best performing stock in the world last year. Uh, there's a whole host of these that are starting to put Bitcoin in their balance sheet. Um, how do you look at that phenomenon? And do you think that that is something where like every company eventually puts Bitcoin on their balance sheet? Or is it something that maybe there's uh kind of a certain type of business that does it, but uh the average business will, will refrain?

• 35:17Speaker 02

  Yeah, I mean, I think it's, it's a phenomenon that's here to stay and now, and you know, of course, that strategy works until Bitcoin has reached type of Bitcoinization and everybody who wants Bitcoin has got the allocation they want. And then, you know, maybe you get into some more gold like kind of volatility after that. Um, and so, you know, the way, and of course, some people are skeptical about the whole phenomenon, right? But I think it makes, you know, I've uh been in, you know, invested in a number of them personally. And the way I get my, you know, thinking around how to price, you know, what is a fair market? And now like the multiple of market cap to treasury, to Bitcoin treasury is that, you know, look, this,

• 36:03Speaker 02

  this company has got the ability to borrow zero percent for five or six years and buy Bitcoin, which is, you know, Generally gone up in any kind of timeframe of that duration. And so that's a good deal. You know, if you could get those terms yourself, you would like you would take the learn, right? But it's it's difficult to achieve is the operating company. And so, you know, with the convertible notes, it's even better, like a 50% conversion price on a convertible note, you're only taking two thirds of the dilution while you're getting the money to buy Bitcoin now. So in a way, it's bringing forward some Bitcoin demand, sort of accelerating Bitcoin adoption a little bit.

• 36:40Speaker 02

  And, um, you know, the phenomenal way they can sell at the money shares to accelerate it, or a balance of convertible notes and at the money shares is is interesting, but I think it's just, um, the market telling us that it's a dislocation between the fiat world and the hyper Bitcoinized, a hyper Bitcoinized future, right? So, um, I think it's part of that phenomenon. So we'll see more of it. And I think it's, you know, it's it's got some longevity and you can model what you would think of as a fair price for the MNAV based on, you know, how many, what percentage rate of Bitcoin per share you can expect to achieve on an annualized basis, like last year, Microsoft, you did 73%.

• 37:25Speaker 02

  Uh, based on the 6.9% announced today, I guess, that's annualized 57%. And so you can see if they can compound at any kind of those rates, then, you know, a reasonable MNAV is is quite plausible. And even if it compresses to one, you know, let's say you say, well, it's hyper Bitcoinized in 10 years. At that point, the MNAV drops to one, let's say, all conservative assumptions. Then you can just kind of back out while you're buying it at like 1.8 times MNAV. Uh, you know, how much, how much, how fast can they accumulate Bitcoin between now and then, and assume that you, you know, you back out the two, the back out the multiple at the end. It's very plausible to have a reasonable MNAV in between now and then, I think.

• 38:10Anthony Pompliano?

  You mentioned hyper Bitcoinization. Um, Satoshi's white paper said peer-to-peer electronic cash.

• 38:19Anthony Pompliano?

  Bitcoin seems to become digital gold, very successful digital gold. You mentioned Bitcoin passing gold. I think that will happen at some point. Do you still think that Bitcoin will become a kind of a digital currency that's used every day to buy goods and services? And do you think that it must become that in order to be successful?

• 38:38Speaker 02

  No, I mean, I think, you know, you can certainly see in some players that they are more focused on the gold. And I think Bitcoin can become vastly successful, even just as a, you know, kind of ETF or savings or

• 38:52Anthony Pompliano?

  The store value.

• 38:53Speaker 02

  Yeah. But I think that misses some of the potential because some of the value is driven by the peer-to-peer electronic cash. And I think, you know, if you look globally, the number of proportion of the working population that is informal economy, it's about 50% of the global workforce, right? And so for many of those people who don't have banking relationships or maybe only via their employer or upstream reseller, it gives them access, global access to the markets. And so I think that is actually, you know, has a very large target audience. And there's lots of escape for adoption. And, you know, open permissionless networks tend to innovate faster as well. It's kind of lesson from the internet, right? That's why the internet became such a huge thing and innovated so quickly.

• 39:38Speaker 02

  Where previously typically state-controlled telecoms monopolies were really slow in terms of innovation.

• 39:47Anthony Pompliano?

  What are you most worried about? What do you think the biggest risks for Bitcoin are right now?

• 39:51Speaker 02

  I think most of the risks have receded. I mean, certainly the early days, we were, you know, a block stream and many individual individuals involved, either as developers or investors, were concerned that, you know, a government would ban Bitcoin. And I think that the transition has actually been quite smooth. You know, of course, some countries ban Bitcoin, but, you know, those same countries ban Facebook and Twitter and so on, right? So it's sort of par for the course. And, you know, I think as safety and says, you know, it's not really optional. You know, the people, you know, the individuals, the countries, the companies with the harder money will win.

• 40:33Speaker 02

  And the capital will get reallocated, so everybody will ultimately have to participate.

• 40:39Anthony Pompliano?

  When you see the president or others in politics talking about Bitcoin the way that they do, do you feel validated? Do you feel like we've won? Or are there other things that you feel like are milestones that Bitcoiners can't yet celebrate and say, we were right?

• 40:57Speaker 02

  Well, I guess we were very right so far, right? Let's say that.

• 41:01Anthony Pompliano?

  Directionally going pretty well.

• 41:03Speaker 02

  Yeah. And I think, you know, actually, it's, it's okay if, you know, governments don't adopt too quickly, or not at all even, because it gives more time for individuals to buy Bitcoin. And I think, you know, part of what helps in the world is the thinking that comes with self sovereignty. And, you know, even though Bitcoin is a piece of sort of neutral technology, ultimately, it seems to prove to not be neutral. Like, people get interested in it a number of different reasons, because they've got an electronic cash need, or because they made an investment, and they get philosophically interested and start to change their, the way they interact economically with the world. So I think, you know, it's actually good, in

• 41:44Speaker 02

  a way, if people have, you know, some more years' opportunity to buy. But I'm kind of feeling that it could be gradually, then suddenly, a moment this cycle up pretty soon. But we'll see how this cycle plays out, right? Whether we get, whether diminishing returns is broken or not, whether we see a kind of extracting value from gold via ETFs at the margin phenomena coming in later in the bull cycle. So.

• 42:11Anthony Pompliano?

  When, when you look at the market today, it feels like there are what I'll call Bitcoin companies, which are focused on, you know, layer one, what Bitcoin originally was. There's been a rise of L2s, side chains, and many other components. Some of it is focused on scaling, some of it is focused on bringing the R and D that's happening in altcoins over to the Bitcoin market. What's kind of your evaluation of, you know, these things being built beside or on top of Bitcoin, and everything from the Lightning Network, Liquid, you know, these NFTs, etc.?

• 42:45Speaker 02

  Yeah, I mean, I think it turns out that blockchains don't scale very well. And so layer twos are sort of inevitable to at least be able to manage the retail payments and the trading and like share transfer and share settlement kind of use cases. Now, one thing which is not ideal, but you know, technology is what it is, right? And everybody's trying to push the envelope on this is that you get the best security assurances by holding your own UTXO and UTXO is a hard scale. And you know, layer two UTXOs are not as hard assurance as layer one.

• 43:26Speaker 02

  So really, ideal world, everybody wants one should be able to get a layer two UTXO, but we don't really know how to do that, right? So, so I think that's, you know, that's something that is in the mind of technologists is, you know, if the active user base goes from a hundred million to a billion people in the next few years, not really ready for it. So, you know, it always spills off into something else, right? So they end up using custodial, some of them buy ETFs, some of them store it in layer two or, you know, partly store in layer two. I've seen it phenomena emerge where people will kind of do their dollar cost averaging into lightning and then fold some of it into liquids. And then when it built up to a bigger amount, they'll store it on the main chain.

• 44:06Speaker 02

  So, you know, I think the economic forces keep people using what scalability there is in a different technologies in a sort of natural economically rational balance. And that's the best we can do, you know, to sort of adapt and use technology that proves the work in the market.

• 44:27Anthony Pompliano?

  When, um, when you look at, uh, the entire Bitcoin ecosystem, it feels like it's probably the biggest melting pot on earth. You have people who come from different countries, different languages, religions, wealth, education, everything. And they're all united by this kind of common ethos or value of Bitcoin.

• 44:51Anthony Pompliano?

  Now that the Wall Street political, you know, kind of world etc is all embracing Bitcoin, does that mean that the ethos and values have really kind of assumed a position of importance? Do you, you know, I used to say all the time that like, we'll have a Bitcoin president. They're not going to run on a Bitcoin platform. They'll just like own Bitcoin, like they own stocks or whatever, and they'll be the president. I was wrong, like, yeah, the current US president literally ran his summer, protect your Bitcoin. You know, I'm gonna be the Bitcoin president.

• 45:19Speaker 02

  Right.

• 45:20Anthony Pompliano?

  And so I don't know if he in particular is like a hardcore Bitcoiner and could like, you know, espouse the different values and ethos that maybe somebody on, you know, X would. But it does feel like, uh, if you look around the world, whether it's Bukely in El Salvador, or, you know, Malay in Argentina, or, you know, name other examples. It does feel like the values are kind of permeating into these organizations as Bitcoin rises in popularity as well.

• 45:46Speaker 02

  Yeah, I mean, it's, it's fascinating, but it does, you know, because if you, if you come down to it, it's a kind of inner protocol that was launched in 2009. But the values that arise from it is sort of social phenomena. And I think at root is that, you know, hard money, uh, works and incentives matter. And so, you know, being able to rely on hard money affects a lot of things about how you think about the world economically and how you interact with it. So it turns out that that phenomenon scales upwards so far without limit, right? In the sense that first of all, it's enthusiasts, the first wave. And then, you know, ETF buyers and now institutional and looks like more governments.

• 46:31Speaker 02

  I mean, already several governments involved, right? And, you know, I think in Trump's particular case, um, getting de-banked kind of gave him a reason to understand why people would want self-sovereign store of value, right? So I think, you know, once you've learned that lesson the hard way, you're not going to forget it in a hurry. So I think that that brings a lot of sympathy. And, uh, and Bukely actually, you know, originally when that story came on the scene. People's assumption was, oh, somebody did some business development with them. But actually, no, it seems like it's homegrown and Bakayle himself, you know, was the Bitcoiner or the patient zero for El Salvador, which is pretty cool.

• 47:09Anthony Pompliano?

  Crazy, right?

• 47:10Speaker 02

  Yeah.

• 47:10Anthony Pompliano?

  I mean, that is probably the last thing you would have expected is that the actual president was the one who came up with the idea.

• 47:17Speaker 02

  Right. And that's, I mean, you know, that and other, you know, well executed, uh, policy changes and actions from the government actually really transformed that whole country in terms of, you know.

• 47:29Anthony Pompliano?

  Do you think that they're like the next, you know, superpower? Or how do you think this plays out as Bitcoin becomes?

• 47:35Speaker 02

  Well, yeah, I mean, I think it's pretty interesting to look at countries undergoing a rapid transformation, starting from a point of, you know, having a problem. And so you can see that with Singapore, didn't really have a lot of natural resources. They managed to turn that into a global financial player. Uh, maybe Dubai, they didn't have any oil, turned into a real estate boom, attracting a lot of kind of international companies to operate there, became an economic success for, for the region. I think another country is, which doesn't necessarily have a lot of natural resources of Switzerland, you know, immensely wealthy and capitalist country typically, you know, at the top of the economic efficiency rankings globally.

• 48:16Speaker 02

  So it shows that, uh, you know, efficient government and the right incentives, uh, can, can work for regions. So, you know, let, let's see, but I think El Salvador is already seeing a dramatic increase in external money coming in, both through tourism and companies incorporating and operating from there, employing people and the trickle down economy. So I think it's actually a, a real effect. So we'll see how that progresses.

• 48:46Anthony Pompliano?

  Yeah, it's fascinating. Where can we send people to find you on the internet or find out more about block streams? Some stuff you guys are doing with the institutional world?

• 48:54Speaker 02

  Yeah, if you look at blockstream.finance or just go to the Blockstream website and click around and @blockstream on social media and myself, I'm @adam3us on Twitter and other social media.

• 49:08Anthony Pompliano?

  What was the 3US? Where did that come from?

• 49:10Speaker 02

  It was originally a pseudonym and then I kind of changed it, like swapped the letters around so that it was less likely to be namesquared.

• 49:21Anthony Pompliano?

  Amazing. All right. So blockstream.finance or go to blockstream.com and that's where people can find everything.

• 49:29Speaker 02

  Yep.

• 49:29Anthony Pompliano?

  Amazing. Well, thank you so much for doing this. I'm super excited to talk again in the future.

• 49:32Speaker 02

  Yeah, thanks for having me on.