WCI #263: Investing in Crypto-Assets with Hedge Fund Manager, Jeff Ross MD, MBA

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.

This is White Coat Investor podcast number 263 investing in crypto Assets with Hedge Fund Manager Jeff Ross, MD, MBA at some point in our financial lives, it will be time to buy a home A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. These loans allow doctors to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with a conventional mortgage and then later on potentially refinancing that loan to a better rate with a shorter timeframe could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com mortgage. You can do this and the White Coat Investor can help let's share our quote of the day today. This one is from Theodore Roosevelt. One of my favorite quotes he said, it is not the critic who counts, not the man who points out how the strong man stumbles or or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena. And I appreciate that quote especially. You know, anytime you put your name out there or your thoughts, your philosophy, anything online, there's always a lot of criticism that comes back. And so it's good to remember that the credit really belongs to those doing the work, even though they're also the ones who are getting all the criticism. Speaking of criticism, I had a really funny email exchange this week and I think you'll enjoy it. But I share it with you. Not just because it's humorous and it makes for interesting content, but also because it emphasizes how important the work you're doing is and how difficult it can be and what it does to you when you're tired and exhausted and you've been working all nights, et cetera. But I'll share it with you and you can chuckle with it, as I have and the WCI staff has, and as the emailer has as well. But anyway, I get this email and it reads, I was excited to pick up this book and learn about investing after getting my foot in the door by reading Rich Dad, Poor dad, you can imagine my surprise when finding out that the first pages of this book were verbatim plagiarized from Rich Dad Poor dad. Generic examples from Rich Dad Poor dad were adjusted to seem like the personal experience of the author James M. Dolly, without even having the common sense to change the numbers slightly. I will not be taking advice from this man and he should be sued if he has not been already for the blatant and lazy plagiarism I will be following up to try to report this. Well, you can imagine my surprise if you've read the White Coat Investor, especially at the beginning. That has absolutely nothing to do with Rich Dad Poor dad. So I emailed back and here's what I said. Thanks for your feedback. I'm not sure what book you're talking about exactly, but it sounds like you're referring to the original the White Coat Investor book published in 2014. I was surprised to hear you felt it plagiarized Rich Dad, Poor dad verbatim. Over the last eight years, tens of thousands of people have read the book, many of whom have read Rich Dad, Poor dad, and none has ever mentioned that it even felt plagiarized, much less was verbatim plagiarized. Neither Mr. Kiyosaki nor his representatives have reached out either. Looking at both books myself, I have no idea what you're talking about, but if you can be more specific about the plagiarized section, I'll take a look and see if something should be changed to avoid even the appearance of plagiarism. I certainly have no desire to plagiarize anyone's work and if it occurred, it certainly was not intentional. At any rate, feel free to avoid taking any of my advice and to report me to whoever you feel I should be reported to. It would be best to direct them to our intellectual property attorney who can be reached here that I provided contact information. The next email I get back says never mind, this was a mistake that I would have to take a very long time to explain. I sincerely apologize. Of course that piqued my curiosity and the next email comes in again from this doc. Actually, I will humble myself to you completely and tell you what I believe happened is that I was reading Rich Dad, Poor dad and at some point picked up your book and flipped through it. I am on nights and exhausted and I believe just confused where I read what. When I went back to pick up your book, I recognized that I already read it and attributed it to the book I just finished. I'm incredibly dumb and obviously need a different outlet for my anger. Residency has done this to me. I'm really sorry and deserve to walk away from this encounter with my tail between my legs and my head held low. I'm now continuing to read your book and find it extraordinarily helpful. Thought you deserved more of an apology after my tirade. Thanks for your understanding and patience. So I emailed back. This might be my favorite email exchange ever. Thanks for sharing the backstory. Apology accepted and hopefully our work can be of service to you going forward. At any rate, hang in there. This too shall pass. If you continue to pay attention to this financial stuff, there will come a time when you no longer work nights, nor work when you are exhausted. It's awesome. Thank you for the work you're doing. It's important. And then finally an email back. Oh same. I've told this story to multiple people who now rightfully think I am deeply absurd. I now will be the number one advocate of your book, both because of its contents and your kindness. Thank you again. You know, it's a funny exchange, but it does demonstrate just how hard it is to manage all this financial stuff when you're trying to keep all the other balls in your life afloat while working nights and being exhausted and having all the stresses of practicing medicine. It's hard work out there. So if nobody has thanked you for your hard work today, let me be the first. All right. I have a new book out. You may have heard about this. It's the White Coat Investors Guide to Asset Protection. I think it's fantastic. I reviewed it on the blog the other day. You can find that on the blog. You can just go to the menu up top on the blog and under books you'll find a link to it. It'll tell you all about the book. I think it's very helpful for any mid career or or late career docs. Anybody who's been sued Worried about being sued Thinking about Asset Protection It's a great book. It's got all the information you need, written in a manner that you can understand it, and most importantly contains a listing of all the state specific asset protection laws that you need to know about. You don't need to read all 50 states, but you do need to read the ones for your state and any state that you own property or do business in. And it's the best resource I know to do that. So check that out. It's available on Amazon. It's the White Coat Investor's Guide to Asset Protection. If you'd like to be on this podcast, we'd like to have you on the podcast. The best way to do that is to leave us a Speak Pipe message. This is where you record a message up to a minute and a half. You don't have to use the whole thing, but basically ask us a question and we'll answer it on the podcast. You can do that@whitecoatinvestor.com speakpipe all right, we've got a great guest on today. This is a guest that I had readers and listeners email me and request that I get on the podcast. And so I thought it would be an interesting conversation. It might be a little more belligerent than a lot of the conversations I've had on the podcast. We'll see how it goes. I'm looking forward to it. And let's get our guest on the line. All right. My guest today is Jeffrey W. Ross, MD, MBA. He is the founder of Valshire Capital Management and Valshire Partners Hedge Fund. He was a speaker at the Bitcoin 2022 conference, and he is a board certified radiologist. He's an interventional radiologist, fellowship trained, actually. Just retired last year in 2021. He has contributed to the Motley fool as well as Seeking Alpha. Welcome to the White Coat Investor podcast, Jeff.

Thanks, Jim. Thanks for having me. I'm excited to be here.

Now you've got a connection with one of our WCI network partners, Dr. Dahleen. Tell us a little bit about that connection.

Yeah. So ironically, Leif and I, we went to the same college and then we also went to the same medical school, the University of Minnesota. And so we had very similar projections in our lives. We both were interested in finance, as it turns out. And obviously he did what he does. He does his Physicians on Fire organization. And I created Vailshire back in 2013 because I've just always been a big fan of investing as well and teaching others how to invest wisely. So, yeah, we have very similar, almost like a parallel life that we're leading. It's pretty fun. He's a great guy.

Awesome. Well, let's talk about your upbringing and how it influenced your views on money. I mean, obviously at this point you have a lot of interest in finance, but tell us about how that occurred.

Sure. So even as a kid, I was always interested in investing. My mom always used to play things on the radio, kind of teaching how to save and invest wisely and things like that. Even from an early age it's been ingrained in my mind. When I got to college, I interested in both investing and becoming a doctor. As we all know, you have to make that decision and it's a big choice. So I chose medicine. So I went down the pre med route. That sort of whisked me away from anything, finance and investing for a very long period. Right. So med school and then did my residency in radiology and then I did a fellowship in interventional radiology. Finished all of my training in 2008 and my family and I moved out to Colorado right after that. So about within 6 to 12 months I remembered that I love investing and you know, I did, I always had it as a hobby. So about then I had a little bit more free time, finally working in private practice and I started a blog teaching people how to invest on their own. After doing that for a couple of years, I got picked up by the Motley fool and Seeking Alpha writing investment advisory articles for them. I was kind of a stock picking guy, focused on healthcare and technology. Then I had enough of a following of people who said, hey, we love the way you do things. Could you invest my money for me? I don't want to do this myself. I was like, oh no, I'm just a doctor. I just kind of do this for fun. And so. But it planted a seed in my brain and I thought, well man, if I could do this for a living, that would be kind of fun. So I thought, well, so Vailshire was born out of that as a side gig kind of thing. So fast forward a little bit. 2013 I founded Vailshire. 2014 I started managing the hedge fund called Vailshire Partners. It started out as basically a stock picking, value oriented healthcare and technology fund, long short fund. About eight months later I started managing separately managed accounts, so IRAs for clients and brokerage accounts, things like that. A few years later, got my MBA in finance, just kind of for fun. I did everything backwards. I started as a doctor and worked my way backwards and then so by the time I got to 2021, I had been doing both things for seven, eight years, kind of two careers. It was pretty intense as you know, kind of managing two different jobs. But I was able to retire from medicine in 2021, which was fantastic. And I've been doing just baleshire since that time.

Now you're young still, I mean you're not that far out of residency since 2008. You spent a long time learning to be a doctor. Was there any reason you left medicine other than the fact that being a hedge fund manager pays a lot better.

Well, that's one fallacy. Being a famous hedge fund manager does pay better. My salary has dropped substantially since I just moved to Vailshare. I was doing pretty well as a private practice interventional radiologist and I was a part in our group. I just, you know, it's funny, a lot of, because a lot of people say this to me, hey, I was in medicine. And you know, this as well. I, I went pre med back in 1994. And so from 1994 to 2021, medicine kind of consumed my life. I loved it. I really enjoyed ir. I enjoy being a radiologist. I enjoy the patient interactions. I didn't love the call. I admittedly I didn't like being on call every fourth night, and I didn't like it when my pager went off at two in the morning. And then other things. I could not shake the feeling that I was just a cog in the healthcare system and I could not fix it the way I wanted to. And it was very frustrating. I didn't like arguing with healthcare, health insurance companies. I couldn't stand the rising costs that were affecting our patients. As you know, you know, I was, you know, I'm the guy that does the biopsies and say, oh, shoot, you know, it looks like you might have cancer. And then I see these patients and I'm putting the chest ports in for chemotherapy, things like that, and, or doing, you know, cryoablation therapy for some tumor or something. They're telling me about their hospital bills costing 50,000, $100,000, $200,000, and they're kind of looking at me accusingly, like I'm the one causing these rising health care costs. And it's frustrating and it's sad. And I see those rising costs and all of the inefficiencies in the system as well, the bureaucracy of it all, all of the middlemen, all of the administrators, all of that stuff was very frustrating for me. And so that's, I used to talk about this with my partners and I'd think, man, if I could just get out and just do finance for a living, it'd be a way better quality of life. I wouldn't feel so bad about being a part of this healthcare system. I obviously love it. Obviously, I chose my career and went down that path. So I'm not anti healthcare, I'm not anti MDs at all. But there are problems that need to be fixed, and some problems may never be fixed in our lifetime. So Anyways, it was actually kind of a relief when I finally did retire. I don't regret it at all. I felt like I put in a good time and I'm ready for kind of part two of my life and the next career.

Awesome. Thanks for sharing that. I wonder how many docs listening to this podcast are thinking, wow, I wonder if I could be a hedge fund manager. I bet there's somebody that would be inspired to try something. Similarly, do you have any advice to somebody that's thinking about exiting medicine into the financial world?

I will tell you that you surmised correctly. I get probably five doctors a week on average, who reach out to me and say that they are thinking really strongly about a plan B. They're frustrated with medicine, or for whatever reason, they're thinking about moving on to something else. And could they be a hedge fund manager or could they move into finance? And what do I do? So I just tell them, you got to follow your passion. Like, if you want to do this first, I say, don't give up your day job. It is really hard to find the kind of income you get from medicine. You're highly specialized, you're very good at what you do. You get paid very well. This is not how the rest of the world works. You do not get a job that pays like a physician. Working at some, at being a rookie at Fidelity or working at a bank or something like that. So don't quit your day job. Think of it as a side gig. If you want to do it, look into what specifically you're interested in. Not everybody is cut out to be a hedge fund manager, right? It's different personalities for every different kind of specialty in medicine and in finance as well. So think about what you really would want to do. Start doing some work. Start publishing your work. I think the easiest way for people, if you want to kind of follow my route, start doing, writing articles. Start trying to get published on a place like Seeking Alpha, which is pretty easy. They're pretty inclusive and they allow a lot of people to come on and publish things. You'll find out quick, quickly if you're good or not at that. Because if you write a bad article, you'll get mocked and ridiculed. And, you know, you're either going to learn from it, from getting humbled, or you're going to get better. And so if you still have a passion for that after a couple of years, then, yeah, maybe talk about, think about managing money for a living.

Now your fund has made a bit of a transition. I mean, when you started, it was primarily picking stocks, as you mentioned, healthcare and tech stocks. And in more recent years, you've specialized a bit more in crypto assets. Tell us a little bit about that transition.

Sure. So just being a guy in finance, I'm always looking for the best Sharpe ratio. Right. Risk adjusted returns and being kind of interested in technology to begin with, that was sort of an easy segue into the whole crypto universe. So it was back in about 2015 or 2016 where I first got introduced to the space. This is all outside of Vailshare, by the way. At first it was just me trying to sort this stuff out. So I got into first Bitcoin back in 2016ish and then started getting into all of these other altcoins over the ensuing years. So I wrote up that big ramp up that everybody remembers. It was a huge parabolic move higher. In 2017, I thought I was a genius. Everybody did. People were dropping it, quitting their jobs to become full time crypto traders, things like that. Every crypto that came out was talking about being the next and the better bitcoin, things like that. And so you basically couldn't lose. You could be a monkey and you could throw a dart at any crypto and you would make a lot of money. It would go up 5x or 10x or 100x for some people. But then came reality. Right? So 2017, at the end of 2017, we had these highs. Bitcoin almost hit 20,000 and then it. And then began crypto winter. So early 2018, everything started to fall. Most of these cryptos that I had owned. So the funny story for me, especially if you know how I am now, my persuasion now, I used to own a lot of bitcoin. I sold all of that to buy all of these other cryptos that I thought might be. They're kind of shinier and better than bitcoin and they crashed very hard. So by 2018, I had taken some profits. In 2017, by 2018, my altcoin, all of those things that I own, this whole portfolio dropped by about 90 to 95%. And I got hit with just a gigantic tax bill in 2018 for my gains in 2017, those short term capital gains, huge lesson learned. It was intense. And so, and I didn't like it and I kind of checked out of it for the next several months. Early in 2019, I fell down the proverbial rabbit hole of bitcoin and did a lot of like, basically a deep dive into what makes bitcoin different. Like if it's, if it's such a terrible technology and if it's just a tulip craze, why hasn't it gone away? Why does it keep sticking around? And what is it that makes it different? So I spent a lot of time, early 2019 studying Bitcoin itself and then it started educating my Valeshire clients on that as well. And we started getting our portfolios into there and basically we went from, we had no bitcoin exposure to buy. Kind of mid 2019, we had about half of my clients in just a little bit of exposure and those who didn't, into 2020 I was able to show my clients. So a lot of my clients were very reluctant to own any of it because they're kind of scared of it. They read the headlines, they thought, well, it's used by criminals. Well, it wastes energy, the government's going to shut it down. Those kind of things, the common narratives you hear. But I was able to show them and mainly that it's too volatile. So I said, well, here's what, just a 1% allocation to Bitcoin in our portfolio. Here's the exact same Vale Share portfolio with no bitcoin. Look at the difference. There's not an increase in volatility, but we're seeing a significant increase in performance. And so that's how I started getting my clients into it and have been educating them ever since. So that's my story of how I got into it. I'm basically now focused primarily on bitcoin. I'm actually, I spend a lot of time teaching people about the difference between Bitcoin and crypto. What Crypto. Even though bitcoin is the original crypto in the common day, the modern day parlance, it does not equate with what crypto is. So I think there's big distinctions and we can talk about that if you want to.

Let's do that. Let's talk about this dramatic difference you see between Bitcoin and other crypto assets and cryptocurrencies. Cardano, Solano, Ethereum, et cetera. What do you see as the why is Bitcoin special?

Sure. So bitcoin is just simply better money. That's all it is. Bitcoin exists to be the antithesis of government fiat currency. There are many reasons why, but basically bitcoin is decentralized where whereas government fiat obviously is centralized, it's run by the Federal Reserve, it has these unknown policies that we wait every six weeks to hear what the Fed is going to Say to what the current policy is, are they going to tighten, are they going to ease, are they going to print more, are they going to start selling off assets, things like that? Back in 2017, 2018, when I was involved with it initially, I didn't know the difference. There was a big battle for what would be the new currency or the new money of the Internet. And I would say the new world's money for the digital age. The battle was between Bitcoin and then Bitcoin, cash, bsv, litecoin, all of these other things that are basically the same type of proof of work protocol as Bitcoin. Who could be the best decentralized, the most secure money? I didn't know at the time, totally on, you know, being totally honest, I had a basket of all those because I had no idea what would win. And in fact, I sold all my bitcoin because I thought, well, maybe it's going to be one of these. Maybe litecoin, the silver to bitcoin gold will end up being the best one. If you look from. And in fact, I did this just before we got on this podcast here. Over the last five years, all of those currencies at best are down 65% to Bitcoin and the worst ones are down about 98%. So to me, the world has clearly chosen Bitcoin as the primary currency for the digital age. Now, that's different than all the other altcoins, the whole crypto world. So Ethereum, Cardano, Solana, all these other things, totally different. These are technology platforms that are basically trying to be multifunctional base layer protocols to do all of these things that people like to do. So smart contracts, speculation, arts, gaming, entertainment, all of that kind of stuff that is great for what these things do. They are not meant to be money. There was kind of a false narrative going along around for a while that like Ethereum is ultrasound money, Bitcoin is sound money, Ethereum is ultrasound money. That's not what Ethereum was designed to do. It's basically a technology platform or technology protocol. I like to say, from kind of a snarky point of view, it's basically venture capital technology. Venture capital that's loosely or awkwardly glued to the blockchain. A lot of the stuff that they do, you don't need the blockchain for. It's just kind of the thing that's super popular right now, the metaverse, web3, all of this talk that's all crypto and it's totally different from just bitcoin. Which is simply better money. So that's how I categorize the two. I think I have backing with that view because Gary Gensler, the chair of the SEC clearly states basically bitcoin. He sees it, I think as simply better money. It's just decentralized non governmental money. All of this other stuff he views basically as unregistered securities. They have centralization, even though they talk about being decentralized, defi decentralized finance. They basically are centralized protocols. They have a head, they have founders, they're built on the proof of stake system which is similar to how stocks are done. Whoever owns the most controls the protocol the most and gets to make the decisions. It tends to lead to a rich get richer kind of thing because they can sort of put up, they can stake their larger stakes to earn more interest and increase their stakes. Totally different from the whole proof of work protocol of bitcoin. So two totally separate things. I think Gary Gensler sees that, I think that regulations legislation is going to see that over time. And it starts with the sec and I think we're going to see that over the next couple of years.

Now it's interesting, you talk about Bitcoin as money and back in, I don't know, the first time I heard about it, 2011 probably people talked about Bitcoin being a currency. Now I talk to people and most of them admit, okay, it's really not working out as a currency. I'm justifying it by it being a store of value or they just freely admit I'm speculating on it. I think I'll be able to sell it later for more. But I feel like in the beginning the idea was that it was a currency, a currency we'd actually be using in our day to day lives. And over the last decade plus that hasn't really panned out. I'm still not using Bitcoin as currency. I'm not buying gas with it, I'm not buying pizza with it. I'm not using it to move money around between my accounts. Why aren't we yet using Bitcoin as currency? What happened? How could so many people be so wrong about that?

That's a great question. Well, I would caveat that to say that people are so far sort of wrong, but they will be right eventually. So bitcoin. So the way that money always gets decided by a society going all the way back to, you can go back thousands of years and when people used to use seashells or limestone rocks as currency, or gold and silver, things like that it, it starts out as a collectible and then it becomes a store of value. People start to see that it's more than just a collectible. This thing actually holds value and increases in value over time. That's the same thing that happened with all of these other kind of things. And that's what I think is going on with Bitcoin as well as that gets more solidified and the world sort of starts to settle on this as this being kind of a primary functional store of value. It becomes more of a medium of exchange. And that's because what needs to happen for this, for bitcoin specifically is you need the infrastructure to be built out for it to become a medium of exchange. And I know you probably know all this. You know about Lightning. The Lightning network is getting more popular. If you listen to, if you were paying attention to the, the bitcoin conference recently in April in Miami. Jack Mallers has recently, through his company called Strike, has partnered with the organizations that do the, the scanners that you go to. So checkout lane scanners. When you, when you put your credit card in there. Right now it has the choices. Do you want to use Visa, MasterCard, Discover or American Express this year before this year is over? At most major retailers. Starbucks, McDonald's, Walmart, all of these huge players who use this technology. The fifth option is going to be bitcoin. And it's already like, it's already done this deal, so they're starting to implement that and put it out. So pretty soon over the Lightning network, you will be able to make transactions and you can do that any way you want. It's just using the bitcoin network itself. You can pay with US Dollars that then quickly gets converted to bitcoin and then back to the retailer as dollars. Or you can pay with bitcoin and you can do it in anything. And you can, you can do this around the world. I could make a transaction right now to South America, some country, pick a country, pick a person, and I could do it instantly without permission and with basically a less than a penny fee to make that transaction. So that, to me, that's very revolutionary. But we're still in the awkward early phases where it's getting built out. So the infrastructure isn't quite there yet. But for those of us who are in the industry, we see it coming. To me, it's very similar to where the Internet was in about 19, the late 1990s, where, you know, personally, I was, I didn't, I didn't get it early enough I thought, well, that's kind of cool. I can send an email to somebody. And I like it when it makes the little pings sound like, I have I got mail. But it seemed awkward and it was clunky. And I'm like, what is this ever going to be used for? There's some dude named Jeff Bezos that's going to say, you can buy books. I would never give my credit card to the Internet. You know, that's. That's kind of the phase we're in right now with bitcoin. I believe it's really hard, unless you're a visionary, to see what the Internet would become 15, 20 years from the year 2000. I think we're at that same kind of awkward, clunky, early phase of Bitcoin as well, where it's going to become so much bigger and ubiquitous than it is right now. And if I could just a quick tangent, because this is how I look at Bitcoin for the growth of Bitcoin. And the pricing of bitcoin is based on the adoption. So user adoption, it's based on this theory called Metcalfe's Law, which is basically the value of the network is based on the number of users squared. And so the Internet and things like cell phone usage and personal computers, all those things, they all follow this s curve of adoption, which on a logarithmic scale, kind of looks like this bitcoin is following that exact same schedule. In fact, it's actually a little faster than Internet adoption was. We're kind of at about. That's why I say the 90s. We're kind of about the late 1990s phase for adoption of bitcoin, but it's actually growing faster than the Internet and a little bit faster than cell phone adoption. So if you put a price tag onto that, you can kind of see the price projection of bitcoin over time. And that's what I use to value Bitcoin.

You think we're just too early?

Yes, I think we're early.

It's not. We're too early to judge that it's not working out as a currency. You think we'll overcome the speed issues, the energy use issues, the volatility of it as a currency. You think that'll all be overcome and we'll actually be using it as a currency to. To buy our gasoline, et cetera?

I do. I absolutely believe that. I think. And I think as the. As the methods for it being a medium of exchange become much more easy and more ubiquitous, we won't even think about it anymore. We won't be like having. It'll be as easy as giving a credit card to a machine or tapping a credit card. We'll be doing that with Bitcoin and I think that we'll actually see that within a year. So right now, so getting to your point, as a unit of account, right, it's very volatile. That's good if you're an owner. The volatility, it is very volatile, but it's more volatile to the upside over time. So the Sharpe ratio is still just incredibly impressive. There is volatility for sure. As it gets bigger, right? The law of large numbers, it gets harder for it to have these huge massive fluctuations. So we will reach a point eventually where it gets to be so big it gets to be like I think a worldwide currency that sort of size in the tens of trillions of dollars and then the volatile will substantially decrease. It will become a much better unit of account at that point. One other point is that right now by the irs, it's treated as property. So it gets taxed like property. So every time you make a transaction, if you sell Bitcoin to buy something, it's a taxable event. And so that's an issue as well. I think at some point, and it's already happening in some small countries right now, but I think in the US this will happen probably by the end of this decade where it will be treated also as a currency from a tax perspective as well. That will change things too. If I can just pay for things and not trigger taxable events, I think the use case of it would significantly increase at that point.

Yeah, that's certainly another barrier, the taxation of it. I mean, I haven't run the numbers, but it seems to me the volatility isn't decreasing. No, it's been 10, 12 years. It's not getting less volatile yet. But you think at some point something's going to happen that makes it less volatile.

So yes, first of all, if you are thinking of it as a long term investment, you don't want it to decrease in volatility. That's basically when the gains have been significantly squeezed out of it. If it turns into more of like a blue chip stock or the US dollar, that's when we've already gotten way up here on the adoption curve. And it's much less interesting as a kind of a life changing investment sort of thing.

But much more useful as a currency.

Much more useful. Exactly so. Exactly. So the gains will decrease over time. But use cases will increase over time. So it's good and bad. That'll be a great thing though for the world at that point. And why would it be a good thing? Because Bitcoin is a disad inflationary currency. That's the monetary policy. It's a perfectly scarce asset. There will only ever be 21 million Bitcoin as you know, versus the US dollar, mathematically the US dollar. Neel Kashkari, you know, one of the FOMC guys, he's not currently on the voting member but, but he's, he's very outspoken. He has said publicly we have the ability to create the US dollar, to print the US dollar infinitely. And as we know from math class, if you can print something to infinity, the value of each individual unit goes towards zero over time. Currencies literally go to zero over time. Historically that's just a mathematical certainty. So if Bitcoin continues just to be adopted on schedule as it is, and it's perfectly scarce over time, the value just increases infinitely over time. I'm not saying it goes to infinity, but it increases over time just with the growth of the world and the growth of productivity throughout the world. So it will be, I think basically an ever expanding price point for Bitcoin over the long run.

Let's talk about your long term predictions for Bitcoin performance and let's talk in terms of probabilities, maybe each of the three following possibilities. The first is that 10 or 20 years from now Bitcoin is worth dramatically more. Let's say $500,000, a million dollars or more per Bitcoin. Large amount, big, huge gain. The second possibility is that it's worth something similar to what it's worth now. In 10 or 20 years it's still worth a five figure amount. And the third, that Bitcoin goes to zero. What probabilities would you assign to each of those possible outcomes?

Well, you're probably not going to like this. You're going to think I'm crazy. But I would say for the first option that it's going to be at least 500,000 to a million 10 plus years from now. I would assign a 90% probability of that. I would assign a probably 9% to that. It would be flat. And then I think it's almost a zero percent chance that it goes to zero. So I'll give it a 1% chance that it goes to zero. Zero. The only thing that would make me concerned about bitcoin, so I used to have tons of concerns. I was as skeptical as anybody in the beginning. My biggest concern back in 2018, 2019 was that the US government was going to see it as a threat and shut it down. It could have been shut down by the US or by China. They could have put up the energy stack in order to do a 51% attack. And they could have done things to try to crush it. They could have pulled a China and said, all bitcoin miners are banned. You can. It's illegal to own bitcoin. If you, you know, if you own bitcoin, we'll throw you in jail. They could have done all that. But something happened. And with. From the Trump administration to the Biden administration, they switched from being adversarial to. They've noticeably, to me, have come to the conclusion that we can't do anything to stop this. But what. So what we need to do is keep our fingers in it. We need to regulate it, we need to tax it. We got to flush out the criminals and the criminal activity, make it hard for them to operate, but we can't stop it. And so I don't see basically at this point any chance realistically that it goes to zero. The bigger concern would be, do people just quit adopting it? Do they finally. Do they think Dogecoin is suddenly just. It just got better monetary properties? The world's going to choose that instead because Elon loves it, and so do we or Shiba Inu or whoever, just pick some random thing. I think the likelihood of that is extremely low because the world is already deciding. And I think the main reason, Jim, is because most of those other currencies, those other cryptos, they focus on what you're talking about, the medium of exchange. They want to be an easy medium of exchange. So they increase the ability, the capacity of the network to make lots of transactions on their base layer. The downside of doing that is that it cannot be as decentralized when you do that. It actually becomes more centralizing over time. So instead of spreading, spreading the power of the money, the monetary network, out to the people across the world and making it very easy to run a node, they make it harder to do that. So it makes it more centralized. So the bigger players tend to accumulate more of it, and they get to set the monetary policy over time. So bitcoin has those features. We do not need a better medium of exchange in the world. The US Dollar is a fantastic medium of exchange. Credit cards are just fantastic. They're super easy. They're super quick. Merchants don't like credit cards because they get the fee of 3% plus 50% or 50 cents of each transaction. Every time they do something like that, every time you swipe a card, all of those things, we just literally have thousands of medium of exchange options. That will come for sure with bitcoin. In fact, it already is coming on layer two and it will come even more on the third layer. But what we desperately need is a store of value. We have government fiat currencies that are literally designed to depreciate in value over time, meaning that we lose our purchasing power year after year. We see prices of everything rising over time. The monetary policy of bitcoin is literally, it turns it on its head. It's the exact opposite. It will make life cheaper over time. And so the longer you hold US dollars, the more expensive life gets. But the longer you hold bitcoin, the cheaper life gets over the long run. And so that's why I'm such a.

Big proponent of it now, despite being a big proponent, I understand your fund was short bitcoin earlier this year. Are you still short bitcoin as you record this in mid May 2022? I think it's down 50% from its peak right now. Are you still short?

So that's a funny rumor. I've never shorted bitcoin. I don't, I don't, but I. But people tell me that a lot, so I'm not quite sure what they're talking about. I will say though that I do. So in my fund though, I have things I call bitcoin proxies. So if you can't own bitcoin outright, you can own things that are proxies, them, Bitcoin miners, crypto exchanges like Coinbase, things like that. Ethereum. You can own the grayscale Ethereum product as well, just like the grayscale Bitcoin trust. I do short those things. So when I'm concerned that we're going to have a big drawdown, I say this sort of jokingly. When I'm concerned about a draw down coming for the price of bitcoin, I'm happy to short Ethereum or I'm happy to short Coinbase. So I do those kind of things. So I do short proxies. Right now I'm not short any of those things. I'm actually short more equity markets. I'm short technology stocks, NASDAQ innovation type stocks, things like that, which has been helpful. But I'm long bitcoin. I have a kind of a hold forever core position of bitcoin.

How do you decide whether to be Long or short on these bitcoin proxies.

So I use in my hedge fund. This is how I think through these kind of things. I have some assets that I view as hold forever assets. So sort of a Warren Buffett type approach. I just hold them. I don't care if they go up and down. I try to buy them when they're cheaper. Hopefully new cash comes in when it's cheaper. So I can, I can increase our funds allocation to them. It's not worth selling them. These are just fantastic companies that I think are going to be bigger, better, worth a lot more and provide shareholder value for the next five, 10 and 20 years. I have a core allocation to those, to those sort of things. Other things, the other half of my portfolio essentially is I call it momentum trades. So these are things that are kind of heavy on innovation. They tend to be high beta assets. A lot of them are sort of in the crypto bitcoin infrastructure space. So those are where the proxies come in. So microstrategy, lots of bitcoin miners, exchanges, things like that, and then other like tech stocks. Shopify is a good example of that. Shopify is down 75 or 80% from its highs. Thankfully we stopped out of that and we haven't had that fall. I buy those when they're in a bullish trend and when they hit a trailing stop, I sell them and we wait until a new bullish trend starts again. So to your point. So bitcoin has been down, it's down over 50% from its highs this year. It's been not performing well, but it's not too terrible compared to the bitcoin proxies. Microstrategy is getting destroyed. Bitcoin miners, some of them are down 70, 80, 90%. Those are getting to be like so, so cheap that I'm just personally very excited. The way my system works is it waits for a bottom, it confirms a bottom based on momentum strategies. And when it turns back into a bullish mode, we'll buy back into those.

Let's talk a little bit about the hedge fund space. Now hedge funds typically charge 2 and 22% of assets under management per year, plus 20% of profits. And of course index mutual fund investors view that as highway robbery because they're used to paying just a few basis points for management. So a couple of questions, one about the industry in general and then another about you in particular. About the industry in general. What's the justification for charging those fees? And about you in particular, you actually charge less. You don't charge an annual fee. You charge 20% of profits above a high watermark. And I'm curious why you chose not to do what the industry does.

Sure. So the 2 in 20 comes from just the historical precedent that was set when hedge funds first came out back in the day, in the 1960s, 70s, even the 80s, there were very few hedge funds. The hedge funds were doing things that most market participants didn't do or couldn't do and they killed it. They made some fantastic returns. That's how they justified their fee structure of the 2 and 20. So that to me is highway robbery. Right? Charging that amount of money to a client. I don't know how those people sleep at night, but they do. And for the ones who maybe kill it and they make far outpace the returns of The S&P 500 over time, far outperform what you could do just holding vanguard cheap low fee index funds. Maybe the fee structure is worth it. There are tens of thousands of hedge funds now. I would say almost none of them can perform the way they used to be able to when they were the only game in town back in the 60s, 70s, 80s. So I don't think that's a reasonable fee structure anymore. They see the same kind of fee structure in venture capital as well. My hope was to be kind of like how I was when I was a doctor. I just wanted to be a good guy in kind of a frustrating world. So healthcare gets maligned for lots of reasons, but there are a tons of good doctors that are just literally trying to do the best for their patients. I look at this, I have the same approach with finance. I wanted to be sort of a good guy trying to help people in kind of a bad guy world. Right. Wall street is very maligned and for good reason. It kind of exists to fleece people. It's sort of a middleman to take your money even though you think you're going to make money. So my fee structure, obviously I started with that narrative of a 2 and 20. I actually initially founded Valeshire Partners, the fund, and I started it with a 1 and 20 fee structure. And I literally couldn't sleep at night. I'm like, I can't do this to people and I definitely can't do this to my family and friends who are probably going to be my first clients initially. Right. That's how it kind of starts with the people you know, I just couldn't do it. And so I'm like, okay, so I'm going to charge no management fee. So I have 0% management fee and then a 20% incentive fee. That's kind of keeping in line with it. Basically the way I tell people is I don't make money unless you make money. If I don't make money and say I even lose money one year, I don't just have to start making money that next year, start from that low point. I start from the high water mark at the end of the year where I have to exceed that in order to make any money. So it's possible that I go 1, 2, 3, 4 years without making any money. If my clients don't make money from their, from their initial investment, that feels fair to me. And that's how I sell it to my clients. And my clients who are on board, they think that's great. They feel kind of good in a way. When we have a bad year, they're like, well, at least I'm not paying any fees for this. And he's doing his best and he must be hurting, poor guy, because he's not making any money at all. And it's true. I'm just paying fees into the fund to keep it going. The administrative and legal fees and things like that. That's how I think that's a reasonable fee structure. I think it's fair for my separately managed accounts. That's a different fee structure. It's a more traditional. I charge 1% of assets under management for amounts under a million, and then I decrease the fee as the amounts go above a million. And those clients tend to think that's a reasonable fee structure as well. Well, so yeah, that's how I do it. And I think it's kind of different from how Wall street does it. But I feel good about it and it helps me to sleep at night.

Let's turn the subject a little bit. A lot of my listeners are sitting out there going, well, how much of my portfolio do I put into bitcoin, into other crypto assets? What percentage of a portfolio do you think is reasonable to allocate to these sorts of assets?

Sure. So, so here's how I feel about crypto. So first of all, let's distinguish again, bitcoin and there's crypto. They're two separate things. Crypto itself I view as basically pure speculation. I think of it as like venture capital, right, that's kind of awkwardly glued to a blockchain. And it's mark to market 24 7, 365. So what's fascinating about it is regular people, Joe and Schmo investors, Ma and Pa Investors that could not ever participate in venture capital, suddenly they can't with the whole crypto world. And so I think that's kind of why they're going crazy with it and they're kind of excited about it. But there's lots of thrills to it. But it can also completely wipe you out and wreck you. I view that mostly as pure speculation. For every Ethereum that has done amazingly, there are literally 10 or 100 or more competitors that are coming for Ethereum's lunch. Ethereum is, you know, it's the pioneer of the multifunctional base layer, smart contracts, doing all that kind of stuff. But as everyone who uses Ethereum knows, it's getting very clunky, it's hard to use, it's super expensive, it's slowing down, it's having problems, and it's not as decentralized as people say they can. They wanted to, you know, the Vitalik wants to switch it from proof of work to proof of stake. They've literally been talking about this for about six years and still have not done it. It's always about two months away, but never going through. And then there's Solana and there's Cardano and there's. You pick, pick whatever chain, they're coming for it. They're better, faster, stronger, everything. All the weaknesses of Ether, they can do these better, so there's a chance that they could take over. Why do I bring this up? Because nothing is permanent in the crypto world as far as I'm concerned. Even though the crypto space is probably going to expand over time, the individual names are going to be like lighting a match. They go up and then they go down and they go to zero or near zero. I think over time, I think that's going to be the course of most of them. So what do I tell people? They're pure speculations. If you want to speculate, that's your prerogative. If you want to go to Vegas and gamble money, totally your prerogative, go for it. You can speculate and whatever, but I recommend that you save in Bitcoin. And so where does it fit with a portfolio? I would say either 0% for altcoins or if you just think it's fun and you want to do this and you think Web3 is amazing and you think NFTs are going to be incredible, you know, or the Metaverse is the next big thing. Sure, you know, Chuck, but I would not put more than 1 or 2% of your net worth into anything like that unless you just, you know, have money to burn. Bitcoin is different. And again, I think of bitcoin as savings. It's just simply better money. What I have seen from being in this space for many years now is that the more, you know bitcoin, the more you own bitcoin because you feel comfortable with it and you're comfortable with the volatility. So, I mean, I've seen people who go up to 100% of their net worth completely in bitcoin. I do not recommend that, just to be very clear. But I will say that the more you own it, the more you're comfortable with it and the more you believe where it's going to go 5, 10, 20 years from now. So for those kind of people, you know, and Vale share as a case in point, point, we were all 0%. We got them off 0 to 1%, and then we went up to about 5%. For the people who have been in for years now and who understand it, they want to go 10%, 20%. Some of them want to go up to 50%. It's just kind of a comfort thing for those people. I usually recommend that they start owning bitcoin outside of their, their brokerage account, their IRAs, those kind of things. Just buy bitcoin separately, get it off the exchanges and hold it in cold storage yourself. That's what I recommend. And it's a very personal decision for people. I view it as savings. And so it just depends. How much of your net worth do you want to have in savings? It's a personal decision for everybody. But I'm comfortable going up even to as high as 50% for some people.

Now, you talk about speculative assets, speculation, et cetera. And by definition, bitcoin, as well as a speculative asset, it doesn't produce earnings, it doesn't pay rents, it doesn't pay dividends or interest. Any investment returns on it depend essentially on convincing someone else to pay more for it than you paid for it. And that keeps a lot of us from investing in it. Do you think it should? And if not, why not?

I think there are four stages to understanding Bitcoin. I think the first stage is skepticism and kind of mockery or just like disbelief of what it is. I think phase two, step two is speculation. Stage three, I think, is as an investment or as a portfolio hedge. And I think stage four and the final stages, you just see it as better money, as savings technology. A lot of people think bitcoin is risky because it's volatile. And so what I like to tell people is I think volatility only equals risk. In academia it's a kind of a made up concept so that we can measure the volatility of an asset and put a name to it. I think what real risk is in finance is the chance of losing your purchasing power over time when you make an investment. So whether that's if you're holding the US dollar, I think that is guaranteed to lose your purchasing power over time. From a mathematical perspective and from a monetary policy perspective, I would say that's risky. But finance, the traditional finance and MBA courses would say that it's not risky, it's a risk free asset. Like the US treasury is a risk free asset. I would say you're guaranteed to lose your purchasing power if you hold that. And so therefore that makes it a risky asset. So with that in mind, I think, I think what's interesting about Bitcoin is everything about its monetary policy is absolutely knowable. The only thing we don't know about it is its short term price fluctuations. So to me that's super fascinating. We know exactly that there's going to be, every 10 minutes there's going to be another tranche of Bitcoin released to a Bitcoin miner. We know that there only ever will be 21 million bitcoin. We know that the last ones will be mined in about the year 2140. After that point it will become a non inflationary asset. It, it'll actually become slightly deflationary because if anybody loses their Bitcoin there'll be a little bit less available. So everything about its monetary policy is actually known. And for me that takes a dramatically takes away risk. So coming full circle, Bitcoin is not a company to your point. It's, it does not have cash flows. You can't, you can't treat it like it's a value stock. You can't do price to earnings, price to sales discounted cash flow models. I get all of that. It's just simply better money. This is what Warren Buffett and Charlie Munger get wrong as well. They talk about it like it's a stupid trendy tech stock, but that's like it couldn't be further from the truth, from what it actually is. It's just better money. And all it is is just money. That's the antithesis of government fiat currency. So I don't see it as a speculation really. Could I be wrong? Sure. Could the world adopt a different kind of money for the digital age? Sure. I think that's extremely unlikely. Though. And so I just would encourage people to not think of it like a stock or a company or talk about it like it is, but just think about it like what it really is, is it's just money.

Let's talk a little bit about valuing it. You had mentioned earlier some of the ways you value it. A lot of people looking like, including me, find it difficult to value Bitcoin and thus hesitate to invest in it. For example, the only reasonable way I've really found a value is to look at the cost of producing a new one. Right. Which is mostly in energy costs, something around $10,000 it's been estimated at. Then maybe add on some infrastructure staffing and security costs. But even doing that, and even after this most recent 50% drop in Bitcoin, it still suggests it's still dramatically overvalued. How do you decide when Bitcoin is overvalued or undervalued?

I alluded to this earlier, but the way I look at Bitcoin are I use valuation models that are based on Metcalfe's law. So based on demand and adoption of the technology, you can actually fit the curves. Like we talked about, when a new technology is basically world changing and it becomes ubiquitous around the world, it follows an S shaped adoption curve. Right now, Bitcoin is right at that bottom part and near the inflection point of the S shape of the adoption curve. You can actually figure out those curves from a mathematical perspective and create formulas that look at what the price should be. You can stick a price onto the adoption rate of Bitcoin similar to what you could do for cell phones and the Internet. And they're all following that exact same curve of adoption. The only caveat is Bitcoin is actually getting adopted a little bit faster than the Internet was and a little faster than cell phone adoption was as well. When you put a price tag on that, you can sort of find an expected base price of what Bitcoin should be over time based on the number of users who are using it. And that has actually followed this curve, iron or not, since about the year 2011. And so that's how I value it. There can be variations in how you create those equations, but they're all basically about the same. And so what does that say to me? So we talk about, is bitcoin overvalued? Actually, right now with this drawdown, it's almost right along the baseline of that adoption curve. This is a point where I would call it a strong buy. I'll go out Just a little bit based on these curves, the curves that I look at and how I view this for its adoption, because the adoption isn't slowing down, it continues to go at a really impressive pace. When you put a price tag to that, I have an end of the year 2022 kind of conservative price target of $50,000 for Bitcoin that actually doubles to $100,000 or around there at the end of 2023. And then you can sort of extend that out. And it depends what sort of growth rate you use. I think that from here a reasonable CAGR compounded annual growth rate for Bitcoin is somewhere between 45% and 75%. For 45% would actually be much slower than it was last decade, but more kind of in line with a conservative user adoption for worldwide adoption of this technology. Hopefully that makes sense. But those are the kind of curves that I look at to determine what price it should be.

Of course, we haven't seen the whole curve. We don't know that it's actually going to follow that curve. Does that bother you at all that at some point it may drop off and not do that? S shaped curve?

That is the risk, right? There is a risk that people could suddenly say, hey, you know what? Bitcoin sucks. I don't believe in it anymore and we're going to adopt something else, or to my point earlier, Shiba Inu or some other thing is going to be the new world's currency. I just don't buy that anymore. I think that that battle was fought and decided in 2017 and 2018. And Bitcoin has to me, become the clear winner for the world's currency. And so basically the only way for this to not happen would be just for people to lose interest in it and for adoption to completely drop off. I think that's really unlikely. But it is a possibility. I just think it's very unlikely.

Now, crypto assets are notoriously difficult to understand compared to a lot of traditional investments. Some of its fans suggest you need to spend at least a thousand hours studying it to understand it. Yet the old investing adage is don't invest in anything you don't understand. Should we avoid Bitcoin and these crypto assets if we're not willing to spend a thousand hours studying it?

Well, you can probably guess my answer to this. For crypto assets, for everything x Bitcoin, I would say yeah, I would avoid it because it's just pure speculation. At least that's how I view it. And it's very Hard to understand. You can kind of get a feeling for the industry and where it's going and the possibilities of it. But to try to understand an individual altcoin or and what their protocol stands for and what it's actually going to do and how it actually provides value, I think that's extremely difficult. And so I would tell people, yeah, I probably would avoid it. And that's kind of my policy as well. I tend to avoid all other altcoin assets. Bitcoin, I do understand it obviously at a pretty deep level. I try to keep it simple for people. I think you can grasp it in 10 seconds. If I say it's just basically money, it's better money. Why is it better money? Because it's the opposite of what the US dollar is. It's the opposite of government fiat currency. And if people can kind of click with that, if they sort of click with. I don't like inflation. I don't like it that my groceries go up every year in price. I don't like it. How much health care has increased in price, price. I have college age kids now, the same college I went to back in the 90s. The current college is four times more expensive now than it was when I was there. That's what I talk to my kids about. Do you think the quality of the education has gone up four times since I was there? And I mean, I think it's probably gone down maybe slightly since then the way other things are going. But it's four times more expensive. And like that's what inflation is. That's what the devaluing of the dollar does to us. It makes life more and more expensive. It keeps us kind of enslaved to the system where we're borrowing, where we have to keep working to pay off our debts. And it puts people like you and me in business where we can tell people about investing and tell people about wise borrowing strategies and getting out of debt and how to invest in real estate and all these other kind of things, tax strategies. Most of this industry will not need to exist in a bitcoin standard world I think because when you have a disinflation currency and things tend to get cheaper over time, all you really need to do is work hard and save. And if you have money that is actually appreciating your purchasing power over time versus depreciating your purchasing power over time, there's really nothing more to do for your kids, for your family, for future generations than to simply just save it and hold onto it.

Let me push back a little bit about this idea because I hear it a lot that bitcoin is this protection against inflation. We're now in the most inflationary environment we've seen since the early 80s. Inflation as measured by CPI is at about 9% right now and has ramped up dramatically over the last six months. Meanwhile, Bitcoin has dropped 50% in value. It doesn't feel, at least over this short time period that it's protecting me from inflation in any way, shape or form. How would you respond to that?

Sure. So I would say that you have to take a step back that basically nothing markets just don't work like that. There's not a one to one short term correlation between things like inflation pops up. So inflation goes up, inflation is down. You know, money printing is up. Therefore the stocks are up. Money printing is down, stocks are down. It's not like that in the short term. Markets just vary because of, you know, a million different reasons from day to day. If you back up though, and look at the longer term, like look at, I just popped up while you were saying that. So bitcoin in the last five years is actually up 1,644% relative to the US dollar$. I think that's pretty good inflation protection. I think it gets in the millions of percent. If you look back 10 years, it's clearly appreciating relative to the US dollar. Do I think that will continue at that rate going forward? No. I mean, right the first year it was this brand new asset, so people piled into it. We're not going to have 1000x gains anytime in the near future. But do I think it continues to basically appreciate in value mathematically the same way that the US dollar depreciates in value over the long run? Abso so. And one more case in point, the US dollar is very strong right now. It's just crushing other currencies. It's spiking. The Dixie, the DXY is spiking right now. The Japanese yen is crashing. Other currencies look very weak compared to the strength of the US dollar. Just because the US dollar is strong right now doesn't mean it's a strong currency that you would want to hold forever. You're guaranteed to lose your purchasing power if you hold it over the long term, but in the short term it's increasing. So the same thing, flip that on its head. Bitcoin is down. In the short term, yes, it's down 50% or even more since its recent high. But over the long run, it's just Again, it's like a programmed mathematical certainty to increase in value. So I think it's actually a fantastic inflation hedge over the long run.

Let's talk a little bit about worldview crypto proponents, both online and in real life. They have an almost religious conviction and sometimes a unique worldview. Not that different from gold bugs, not that different from preppers in some ways.

Ways.

For example, I had someone trying to convince me a couple of weeks ago that bitcoin is going to eliminate war from the world. What are your thoughts on this semi religious belief system about bitcoin? What are the downsides and risks of it being out there? And are there any upsides too, such as putting a floor under bitcoin pricing? Because these folks will never abandon it, no matter how low the price goes and how long it stays there.

To answer your last question first, yes. So, right, you can have zealots, you can have people who just will hold it at all. They'll die for it, but they will never sell. You know what a great example of this is Tesla stock, right? Tesla is just a terrible stock based on valuation methods. Anything you look at tells us that Tesla should be like a $10 stock and not a $800 stock. Right now there are people who will never sell Tesla and they've been very rewarded for that. Bitcoin has those same kinds of zealots that think of it like a religion. I would say, you know, I'm actually a Christian. I would say that the worship of money has been around for as long as money has existed for to use. It's in the Bible. You shall not worship money. You can only worship one or the other God or money. So don't worship money. But people always have a propensity to magnify money to worship money. And I think that's just obviously an erroneous view and kind of a goofy view. There are people who treat it like it's going to save the world, like it's going to abolish all immorality, anything unethical, abolish wars. I don't agree with that. Bitcoin is awesome. It's better money. It will create better incentives for the world, but it doesn't solve the human condition. The human condition, I would say, of sin or of immorality or of people, bad people just trying to take advantage of people. There will always be bad people, criminals who will use even a good thing, I think, like bitcoin, to take advantage of other people to steal their bitcoin. And so no bitcoin doesn't solve those kind of problems. It should not be worshiped. It's not a God. It's just money. It's just better money, I think, for the world.

Now, world governments have been a little slow determining how to regulate this, how to tax it. What problems and what opportunities has that created, the fact that they're still trying to figure this out?

Well, lots of problems initially, as people say, and I think they're right. It's basically been the wild, wild west, right? So bitcoin, it's just what it started with. And then all of crypto, because it's unregulated, you get scammers, you get people who do what's called rug pulls, where they get you to buy into their crypto. Mark Twain was famous, I believe, for saying a quote that what is a gold miner, it's a whole in the ground with a liar standing next to it. And I think that's true for a lot of altcoins and a lot of the crypto world. It's basically a liar or a marketer standing next to a white paper claiming to be able to do something. And so people buy into it, they get into the hype, they buy it, and then what does a rug pull mean? It means the founders take that money, walk away with it, and the people who bought into it are left holding the bag, which is worth basically nothing at that point. That's the downside of not having regulations. Those are coming. The sec, Gary Gensler, they're very intent on trying to fix this. They do consider, they've said many times, they consider most of these altcoins to be unregistered securities. They're saying, if you are an altcoin and you think that you are an unregistered security, and I think you are, I'm looking at you, then you need to come and talk to us, otherwise we're going to come after you. So first they've been going after the exchanges that host these altcoins and allow these unregistered securities to operate. They may start coming after the individual cryptos themselves. Or probably worse for them would just be if they had a blanket banning of all of the exchanges and said, you just can't buy or sell whatever the name of your altcoin is. You can't do that on our exchange. That would probably make them go away because there'd be no more demand for them. So that would take away the market. So regulation is coming. I would be careful if I had a lot of my net worth in altcoins I would be very careful. Even stablecoins have issues. We just saw this week the stuff going on with Luna and ust their stable coin, they lost their peg. I think the last time I checked it was like 85 cents to the dollar. The founders are doing what they can to their. They bought a bunch of bitcoin and they have given all that bitcoin back in order to try to stabilize their currency. There are lots of ways you can lose money in the crypto world. So I just like beg people to please be careful. If you don't understand what you're speculating in, please don't do it. Or consider keeping your speculation size just really small.

Let's talk about taxation. The US government has elected to treat cryptocurrencies essentially is an investment applying capital gains tax every time it's bought and sold short or long term. If you've held it for more than a year as the case may be. It's also allowed, interestingly enough, for tax loss harvesting without the 30 day wash sale rule, although recent legislation that didn't pass would have changed that. Do you think the US government got it right? Do you think they chose the right way to tax this? How do you think it should be taxed? I mean if it's digital gold, why is it not taxed at the collectibles rate of up to 28? If it's a currency such as yen or Euros, why is it not taxed at ordinary income tax rates like a forex investment?

To me it's inevitable that bitcoin within the next 10 years will be relabeled by the IRS as a currency, as basically money and it will be then treated and taxed as such. The rest of crypto, which is not money, it's different, it's more of a speculative investment per se. That's probably the best category for it. It's kind of hard. They may need to create a new category for it just because it's kind of a new type of assets. I think that's more reasonable. I think the use case for Bitcoin will go up significantly when it gets re reorganized basically or reconsidered as a currency. Especially if we want to just use it for day to day purchases. Right? If you're just holding bitcoin, what keeps tons of bitcoiners away from using it as a medium of exchange on a regular basis is it creates a tax event every single time they spend their bitcoin. If that is taken away and there are already a couple countries where that where you don't get taxed. El Salvador, the central Republic of Africa, small countries so far. But more, more and more are start come on board, then it will just be kind of seen as a currency. The wash sale rule, I think, was a mistake. I think people can take advantage of those kind of things. And for better or for worse, you know, I'm, I'm a big fan of smaller government and less regulation to begin with, but some regulation is probably necessary. I think that will probably get changed sometime in the near future and it will be more in line with kind of how stocks are treated from a tax basis. So that's probably what will happen for crypto as well. I think it'll just get treated kind of like how stocks are treated.

Let's talk a little bit about. You alluded to some hacks and some problems in the space. You know, the wild west effect. Lots of investors fear losing their bitcoin. They fear losing their Ethereum or Cardano or whatever due to hacks of exchanges or losing their keys. I mean, something like 20% of all the bitcoin that's ever been mined has been lost at this point. How realistic is this fear and what can be done to counter these security issues?

Definitely realistic. I mean, it happens. We see exchanges getting hacked. I had an exchange personally that I used back in 2016, 2017 that got hacked. And all assets have been frozen. I still don't have those cryptos back because of that. And that was, you know, we're four years into that. I see it happen to people all the time. So what most bitcoin proponents would tell you is to when you buy bitcoin, get it off of an exchange and put it into cold storage, and you can put it into a little USB kind of device where it just sort of sits there, your keys, basically, it's your password sitting there and it's secure and nobody can come and get it from you. You can't lose it unless you just flat out lose it. Right. But nobody can really take it away from you. It can't be hacked because it's not connected to the Internet. At that point, I think it's just wise for people to consider, like, look, crypto exchanges, they are honey pots people criminals want to go after that. They know that there are billions and billions of dollars worth of value in these exchanges if they can hack it and get into it, or a defi protocol. I mean, a lot of people are trusting that because you can earn high interest rates on whatever altcoin you, you have that's great. But you're taking the risk that the people who created that defi protocol, who did the code, did not have any glitches in there that can be attacked. So I would tell people to be very cautious with that and to definitely not put a sizable portion of your net worth into it. Just treat it like it is. It's a risky investment and your money is literally sitting there for savvy hackers to come and get. So make sure you know what you're doing. Take take precautions. If you own Bitcoin, I recommend actually spreading it out in multiple areas so that you're not vulnerable. Individual point, like, treat it like you would if you had, you know, gold bars. You're not just going to, like, set your gold bars out on the counter and see if somebody comes and take them. You would probably keep them hidden and take measures to make sure that they're safe. You do the same thing with cash. If you lose your bitcoin, you lose your bitcoin. There's no, nobody you can call. There's no CEO to call to say, hey, I want my money back. So take precautions, treat it like cash, treat it like a gold bar, and you'll do well.

Let's turn now back to your fund. Now, your fund's got a pretty good track record since inception, really a very impressive one. You say it's designed to produce alpha in all conditions. And when I look at your philosophy, it's first rule is, don't lose money. Second rule is, remember the first rule, but in the last year, you've lost 37%. What happened in the last year?

Yeah, it was a tough year. Well, two things happened. One is that I'm a big proponent of Bitcoin. Bitcoin actually did well and was a major part of our fund last year because I was not able to hold Bitcoin directly. I was holding the grayscale bitcoin trust. Even though bitcoin was up about 60% in 2021, the Grayscale Bitcoin trust actually went from a premium to a discount to NAV, and the performance of that asset itself was about 0%. So literally, Bitcoin went up 60%. GBTC was flat. So that was a terrible investment and a terrible way to have exposure to bitcoin over the year. The second part of it was that I was anticipating a big ramp up into bitcoin similar to the last year cycles, thinking that we'd have a parabolic move higher. So we were very exposed to that heading into the end of the year. And so just the November and December and then the first parts of this year were tough years until I finally flipped bearish and put my investments more in line with my macro views, basically. So yeah, so we've had a tough year, no doubt. I mean, a lot of our hold forever assets have been getting hammered too. Great. You know, things like most people own too. Apple, Amazon, Berkshire Hathaway, those things have all been getting kind of hammered. Some of them not as bad as a market, some of them worse than the S&P 500. Overall, thankfully we have our system in place where we're stopped out of the much more volatile assets. So that's kind of how it works for us for at Valeshire and works for me from kind of having a more growth and innovative type approach. We tend to drastically outperform when times are good and then we underperform more when times are are bad, which so over the long run we do very well. We're still significantly outperforming the S and P over three and five year stretches, which is nice, but it's been a painful year, I'm not going to lie. But these are times where I think it's a fantastic time to be buying into a lot of these assets that are down 50 to 85% or so. I think we're getting close to a bottom and that two, three, five, ten years from now, the prices that we're going to be able to get today and for the next couple of months I think are going to to be. I can't promise anything, obviously I always have to watch what I say. But it's hard for me to conceive that they won't beat the market substantially in the coming years.

Now our time is getting short, but you have the year of somewhere between 30 and 40,000 high income professionals, mostly doctors. What have we not yet talked about today that you think they should know?

Well, the first thing I would say, I'm a proponent of Bitcoin, obviously, based on our conversation, I just encourage you to think of it first of all as distinct from the rest of crypto and to just simply see it as better money and then to take the time to figure out why. It really only takes a few few hours of studying, maybe one or two good books and you'll, I think you'll be right there with me on that. If you don't have any allocation to Bitcoin, I would strongly recommend just getting off of 0% and maybe putting up to 1%, thinking of it as a hedge to the fiat system, which is, it's, I would say it's, it's almost inarguable that the system is kind of crumbling right now. We're seeing cracks in the foundation. We're living in very tumultuous times. Prices are getting higher. We're going to be, I think in a stagflationary environment for most of this decade. I think the traditional 6040 Vanguard Index Fund protocol that has worked really well for the last decade. I just don't think it's going to work very well this decade based on the prices of everything and how bonds are performing and things like that. There's a chance we could be at the beginning of a multi decade bond bear market at this point, which would make owning bonds a pretty bad decision from a risk adjusted return standpoint. So that would be my main thing. Consider alternatives to just that. If you want to know more about, and I don't mean to be be doing a plug right here, but if you want to learn more about these kind of alternative strategies, look me up. You can go to vailshire.com you can send me an email directly just infoilshire.com and then I'm always happy to answer questions about, you know, my macro views, finance, bitcoin, that kind of stuff on Twitter. I'm on Twitter a lot, so feel free to look me up there and we can continue the conversation.

All right. We've been talking with hedge fund manager Jeff Ross, MD, MBA. Thank you for your time and for being willing to come on the White Coat Investor podcast and share your views and knowledge.

Thanks for having me on, Jim. I really appreciate it.

Hope you enjoyed that podcast. It was a little different from our usual fare, I'll admit, but it's fun to do something different every now and then. You know, I'll probably get a bunch of hate mail from people that hate it and can't believe I put a hedge fund manager, much less one talking about bitcoin, on the podcast. But I got hate mail when I put a professional cyclist on the podcast too, so I guess that's just par for the course. I gotta admit, I'm not convinced to go out and buy a bunch of bitcoin, much less any other crypto assets that at this point he makes a strong case. He argues strongly for bitcoin being the winner among these crypto assets. I'm not entirely convinced of that, but I'll admit the Lightning network changes addressed significantly some of the concerns I had with bitcoin. They continue to come up with improvements on it like that. Maybe at some point we will be using it as a currency, but man, it's been 12 years. How long is it going to take before we can start using this thing as a currency? It would be great to find a way to cut down on the credit card fees you pay every time you buy and sell something. That would be wonderful. Certainly crypto assets have a significant benefit in getting assets out of a country in times of political turmoil. No doubt about it. Every time I fly internationally, I think about that when I see the $10,000 limit that you're allowed to carry with you. Obviously if you have a thumb drive with a bunch of bitcoin on it, Bitcoin keeps on it. You could take a whole lot more than 10,000. So there are some use cases for it. But I'm a little skeptical that it's going to be this currency that we're all using within just a few years, because I've been hearing that now for more than a decade and just hasn't happened yet. Maybe we are still early, but I'm starting to lose faith in it. I suppose we'll see. I hope you enjoyed the podcast though. I hope that was interesting to you and a chance to maybe hear a different viewpoint than I put on the podcast about Bitcoin or on the blog about Bitcoin and other cryptocurrencies. As a reminder, check out that book on Amazon, the White Coat Investors Guide to Asset Protection. I think it's great. I use it as a reference every time I want to look up asset protection laws because they're all in one place. It's very handy that way. At some point in our financial lives, it will be time to buy a home. A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big gift down payment. These loans allow doctors to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with a conventional mortgage and then later on potentially refinancing that loan to a better rate with a shorter timeframe could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com mortgage mortgage. You can do this and the White Coat investor can help. Thanks. For those of you leaving us a five star review and telling your friends about the podcast, our most recent one came in said some great interviews. Not every show has in depth interviews, but those that do are usually winners. It's great when Jim brings in those new perspectives. Five stars. Well, hopefully Kdog number one, you appreciate today's episode as well, which is a fairly in depth interview. For the rest of you, keep your head up, shoulders back. You've got this and we can help. We'll see you next time on the White Coat Investor Podcast.

The hosts of the White Coat Investor Podcast are not licensed accountants, attorneys, or financial advisors. This podcast is free entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.