Bitcoin's Value as an Asset Class

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Bitcoin. It's been given up for dead multiple times since its birth back in 2009, but here we are today. And in 2021, it's hitting new highs and it's top of mind with pretty much everybody in the financial services industry. Hi everyone, I'm Steve Sandusky for Barron's Advisor and welcome to Actionable Intelligence. My guest today is Dan Held. Dan currently leads the growth team at Kraken, which is one of the country's largest cryptocurrency exchanges, and he's a longtime Bitcoiner and serial entrepreneur in the Bitcoin space. In today's conversation, we do a deep dive on Bitcoin. Dan is one of the most articulate and thoughtful speakers on this topic, and I think you're gonna come away from our conversation with some really important insights about what Bitcoin is, why it's become so popular, the challenges it faces, and the next steps to consider as it relates to your practice. So let's get started with Dan Held. Dan, I want to go back to January 2013. You're in San Francisco. You go to your first Bitcoin meetup. I would love for you to describe what was it like to be a Bitcoiner back in those early days.

You kind of felt like a crazy person, to be honest. We believed in this idea that was so antithetical to anything that existed currently. Its core purpose is to separate money and state. And to have that sort of sentiment, to believe that the whole world would eventually believe— to believe that the whole world would shift their trust away from institutions and place it in code and this decentralized system required a big leap of faith. And so the first meetup was a really cool way to feel that there was a community here, that I wasn't alone. But back in '13, there wasn't nearly as many of us. So the Bitcoin conference in San Francisco, it's kind of like a church in a way, right? It's a place you go to share the same belief with others and create that sense of community. And that's what that meetup represented was we weren't alone, that there was a community building on this new thing called Bitcoin, and that we weren't crazy.

Preston Pysh: I think I read somewhere or heard from you that at that particular one that you went to back in January of 2013, there was maybe maybe a dozen people there. I think the other people that were there, yourself included, are really a who's who list of the top people in crypto today. Do you recall some of the other folks that were with you at that particular event?

Yeah. I often joke I'm the only non-billionaire in the group. Yeah. Two of those guys today just IPO'd, including one of them who has a $20 billion net worth, Brian Armstrong, just on his Coinbase equity alone. So Brian and Fred from Coinbase were there, Jed McCaleb from Ripple Stellar, Jesse Powell from Tradehill, Charlie Lee from Litecoin. I worked at a small investment firm at the time and I showed up in business casual. I looked like an idiot. I was very much an outsider. I came straight from work because I'd worked till like 7:00 PM and go over there. I looked pretty ridiculous in my business casual, but I'm like, "Hey, I want to hang out and talk Bitcoin." But that was really cool for me.

Well, one of the things that I find really interesting about Bitcoin is that it can mean different things to different people. And the idea of what Bitcoin is, I think, has evolved over time. There's been some different narratives. So I'd love for you to describe back in 2013, or back in those early days, what were you and the other folks thinking about what Bitcoin is? And then let's go to today. Has the thinking shifted in terms of what we say Bitcoin is? When someone says, "Well, this is what Bitcoin is," is it different today than it was, say, back in 2013?

Dan Held: Yeah. I wouldn't say it's necessarily a binary outcome. It's not like there was a flip of the switch and it was totally different. It was more of which narrative was more popular at a certain time, but they both existed from the beginning. The two narratives were the payments narrative, the most common one that folks think of, which is that Bitcoin is supposed to be a cheap PayPal. It was supposed to disrupt Visa, MasterCard, and PayPal. That Bitcoin is a peer-to-peer payments system. The other narrative was that Bitcoin is gold 2.0. As most folks notice now, that is the predominant narrative because that narrative has the strongest protocol market fit. That's a terminology in product that I'm riffing off of called product market fit. What problem does your product solve for the market? For Bitcoin, what problem is Bitcoin solving for people? When we look at Bitcoin's journey, both of these narratives persisted since day one. The payments narrative was very popular in the early days. Also, there were several individuals who very, very much pushed that narrative. They felt that that was the thing to go solve for. Bitcoin actually reached a fork in the road where the community split due to this conflict of narrative, where the store of value narrative, which is currently Bitcoin today, won, and that is 99%, I would say, of the narrative. The narrative of the Bitcoin was meant for payments, they fractured off into a fork called Bitcoin Cash. Bitcoin Cash has dropped so much that it's only worth 1% of Bitcoin's worth. So basically, the Bitcoin network can fork off if there is a significant enough disagreement. I don't want to get too much in the nuance of this because it can get complicated, but essentially Bitcoin had a civil war over these conflicts of narratives and the store of value narrative won. I thought it was entirely intuitive because my background is in products. I've worked on products and marketing at small crypto startups all the way up through Uber. If you're not solving a problem for your customer, then inherently there's no reason for it to exist. The idea that hypothetically that Bitcoin could solve as a cheap PayPal was just fundamentally wrong, and the market has validated that opinion.

Preston Pysh: Now, you were in the thick of that civil war, and I think probably while you're in the middle of it, you're thinking, "This is terrible." But now looking back in hindsight, I think a lot of people would say that that was actually good for Bitcoin because it tested it?

[Speaker:BRYAN_LAWRENCE] Yeah. I think that I would agree with you that Bitcoin is stronger because of it. It certainly was the most stressful moment I've ever had in Bitcoin though. There was a lot of intense emotions with it. It was brother against brother sort of battle. For example, the individual Roger Ver, who basically negotiated the acquisition of my first company, was on the wrong side of this. There's a lot of powerful people on the wrong side. And so you had to just reconcile the fact that you were never going to be friends with this person again, I think that what we see today is a magnificent manifestation of that narrative being correct, where Bitcoin is being recognized as a gold 2.0. You've got Jerome Powell recognizing Bitcoin as gold 2.0. You've got big investment banks and you have other institutions all going, "We get this. We get that Bitcoin is gold 2.0." Bitcoin's price has, in response, risen as more and more market participants pile in. I think this is a resounding achievement and a resounding thumbs up that Bitcoin is becoming a globally recognized store of value.

Preston Pysh: Now, here's the tricky part though. A lot of the people that are listening to this are going to be financial professionals, and they've been raised in an environment where they do discounted cash flow analysis, they look for intrinsic value, they think kind of a Warren Buffett school of analysis, and you can't really value Bitcoin that way. And so how should we be thinking about Bitcoin as an investment?

[Speaker:BRYAN_LAWRENCE] I've got a funny real-life story to tell that might give some color as to how to think about how to value Bitcoin. I was at the Bitcoin conference in Munich, and there was a German central banker there from the Bundesbank, and we were all having beers, which It was an amazing conference, by the way. At 2:00 PM, they're like, "Oh yeah, this is beer time." So we're having beers. One of the German bankers comes over and he whispers to us and he goes, "My religion is bigger than yours," based on the euro. And he's right. What money ultimately is is a network effect of shared belief. Do we all believe that the euro will have value? Do we all believe the dollar will have value, gold will have value, and Bitcoin? It's all the same thing. And he was really poetic in his understanding of that, that really it's a belief system, but his religion had more believers. And so money is this network effect of participants all valuing this money collectively. And that's where I think there's just so much promise for Bitcoin. Bitcoin, if we look at Bitcoin versus other types of money, these types of money have different characteristics. Like gold is not digital. You can't send it online. We don't know the total supply of gold. There's a lot of gold that's been mined, and we don't know what the future supply of gold will be. But with Bitcoin, we have extreme precision with understanding how much supply there will be. Same with fiat money. We have no idea how much more we're going to print. We just know we're going to print probably a lot more money. So Bitcoin, from a characteristic as a new money, has awesome characteristics. It's got a 21 million hard cap that increases confidence in the protocol over time. As people put in money, we know exactly what percentage of all money I own. And then there's other characteristics as well, like transportability. I can instantly send you back anywhere in the world. Divisibility, I could break it down to 1/100 millionth of a Bitcoin versus a gold bar, I'd have to shave off a flake, and that's kind of really awkward to go validate and measure. So when we look at Bitcoin as a money, it has superior characteristics from what you would want from a money. And then the belief system around it is what gives its value over time. As people better understand Bitcoin, they start to place trust in it and store value in it. Bitcoin has a really cool mechanism that acts as a viral loop. Now, for folks who from the traditional world, you might know a viral loop as the mechanism in which you hear about a product or service. Your buddy tried out Uber, and I worked on this team, it was the virality sub-team. Your buddy tried out Uber and then he likes it so much that he shares it with a friend. And then that friend likes it and they share it with a friend. And then you can see how this goes. It's the viral loop is this self-perpetuating loop. And what Bitcoin has for that is the price of Bitcoin. Bitcoin's volatility is its calling card. As the price went higher, you became aware of it, I became aware of it, and everyone listening became aware of it. And that's why we're talking right now. If Bitcoin had stayed stable, none of us would be here. None of us would be talking about it. As the price goes higher, people become more aware of it. They buy in an expectation of it going higher. And when they buy, they tell their friends about it. And so you've got this really great viral loop that occurs that pulls new folks into Bitcoin. And we've seen this played out over the 2013, 2017, and the current market cycle, which I've been a part of the entire time. Really fascinating journey to look into human psychology and how Satoshi tapped into that. Because Satoshi actually hypothesized that this would happen, that people would FOMO into it based on pure speculation. Speculation is this loaded term that a lot of traditional financial folks like to use to put down assets that they don't like. They'll call it speculative. I mean, all assets are speculative. That's what a market is. We're all speculating as to what the true accurate value or what is the real value of this asset or this type of investment. And so Bitcoin, through these cycles, increased in adoption exponentially each cycle. From 100,000 believers to a million, a million to 10 million. In this last one, we went from 10 million to 100 million, and now we're at the 100 million era. It's estimated over 100 million people own Bitcoin. So these cycles are a great way to increase adoption, increase awareness. I think when we look at Bitcoin's trajectory and the value prop, you are essentially betting, will other folks come to the same belief that I do, that Bitcoin is the next money, that it's the next gold 2.0?

[Speaker:BRAD_STONE] Well, and I think that's really the key that a lot of people have a hard time wrapping their head around. And you hear this idea, people will say, well, it doesn't really have any intrinsic value. There's no cash flows with it. And you talk about this idea of money being a shared belief system, that if enough people believe that this is money, then they're going to deal with it as if it is money. With Bitcoin, the different features that were designed into it, as you were describing with the 21 million cap on it, the virality effects, the price of it going up gets more people interested. For Satoshi Nakamoto, we don't know how much he really pre-thought about all these different variables and could foresee the combination of these different variables in such a way that it would create this thing. The timing of when it came out, of course, was really well-timed as well. To me, I find all that stuff just super fascinating. I think we really have to understand the psychology of money and the belief system behind it for people to be able to wrap their heads around this thing that we call Bitcoin.

Preston Pysh: Totally. I think a lot of people believe that Bitcoin is code, and that they think it's a technical thing. Bitcoin really isn't about that at all. The code just reinforces a set of rules that humans, when they buy into Bitcoin, it reinforces those rules. But Bitcoin's code was actually Frankensteined together from 20 years of innovations. And it's actually very simple. For example, like the adjustment mechanisms of the difficulty adjustment of how Bitcoin mining works is actually a very primitive, but incredibly brilliant and simple mechanism. The 21 million hard cap, a brilliant monetary breakthrough. I mean, Satoshi should win the Nobel Peace Prize for economics for that. It will be regarded as one of the greatest breakthroughs ever in human history. Where Satoshi even talks about why he made these sort of decisions. But yeah, with the extreme precision in which Satoshi built and launched Bitcoin, it's almost mind-blowing that it even worked. And when we look at what all can go wrong, so many things can go wrong. And with Bitcoin, so many things went right. It launched off the launchpad without blowing up. It got through the atmosphere. We've gone past the moon and we're going to Mars. And It's just so incredible to see everything that went right. I think a lot of this flows back into folks who will ask, "Well, isn't there another Bitcoin that could come out and disrupt Bitcoin?" What's interesting is that the only way to build trust is through time. You can try to build trust with new code or fancier code, but it doesn't matter because humans are innately humans. We're not robots, and we only develop trust through believing in something through time. We rely on it. We believe in it. Bitcoin has such a huge head start in both network effect and trust. Bitcoiners have never changed the monetary policy and they never will. They haven't changed parameters that would show that there's political influence over Bitcoin. Bitcoin has demonstrated, and Bitcoin survived a civil war. Bitcoin has, I think to me, demonstrated beyond a reasonable doubt, it will be the number one successful currency in the world.

Preston Pysh: Now, if you spend any amount of time on crypto Twitter,. You'll see people making predictions about the future price of Bitcoin. You'll see people talking about comparing the current total value of Bitcoin. And as we're having our conversation here today, it's over a trillion dollars. They'll compare that against gold, for example, and Bitcoin is about 10, maybe 11, 12% of gold's total value. And this narrative that you talked about here with Gold 2.0 or a digital gold, then maybe Bitcoin is going to get to $10 trillion. And if that happens, then we're looking at maybe a $500,000 per coin price for Bitcoin. Now, I know you've also talked about this idea of a Bitcoin supercycle, so it could be dramatically higher than that. So how can we think about in multiple terms from where it is today, how should we put that in perspective?

Great question. I think this is probably the number one question on folks' minds. How high will it go or what can we expect? First and foremost, no one can predict the future. So, we're going to just be jamming on different ways that we think through it. But also, I don't think that these are that crazy of projections to throw out there. So, first, let's start with TAM or total addressable market. What market is Bitcoin addressing? What problem is it solving? So, Bitcoin is tackling this store of value problem. Now, one asset that we can look at, for market comps would be gold. Gold is worth $10 trillion, but that's just where it starts. Right now, we've got over, I think it's $18 trillion of negatively yielding sovereign debt. Bitcoin competes with that. It also competes with art and it competes with real estate. I live in San Francisco. Large portions of the city are with vacant homes of different folks from Asia or Europe buying homes as a store of value asset. New York is a quintessential place where that occurs as well. And London. There are many cities across the world where real estate is commonly used as a store of value asset. In fact, Americans often think of their home as their number one asset that they own. Bitcoin competes with all of that. It has much better characteristics than a home for as a store of value. Bitcoin competes with all of these, which makes Bitcoin's total addressable market in the hundreds of trillions. Now, what percentage of these other assets will that eat? I'm not sure. But what I do know is that Bitcoin has a huge amount of upside from here. We are just now seeing that interest that era where it's being recognized as a store of value. And so when we talk about the supercycle, I think that's an important framing to think about total addressable market. The supercycle is a concept I came up with actually in 2019. Bitcoin has had these speculative run-ups, these bull runs in 2011, 2013, 2017, and these occurred in a world where everything was fine. Essentially, the macro markets were doing great. There wasn't a recession, there wasn't a depression. And then COVID hit and everything changed. So, Bitcoin in this moment really shines. The supercycle states that, one, this time is very different. The previous market cycles were in largely a bull run. People didn't need to worry about anything. Now everyone's starting to question the nature of the reality, starting to question the judgments of their governments. Two, this is occurring during a microcycle that Bitcoin goes through every 4 years. Bitcoin goes through a boom-bust cycle, and we are coincidentally timed with Bitcoin engaging in probably one of the most intense sprints of a bull run. So we've got those two factors that are happening at the same time, and we've got a few other things. Institutions. So number 3, institutions are coming in. This is huge. Institutions bring tons of assets that they manage, and they're going to start to deploy a part of their portfolio into Bitcoin. We're already starting to see this happen at even insurance companies, which is wild. We're seeing a lot of macro traders buying buy in. We're seeing treasuries buy in. Tesla. Tesla put Bitcoin on their balance sheet. Now, MicroStrategy did as well, but I think Tesla's a bigger testament because Tesla's really well known. Elon Musk is probably the hottest tech entrepreneur in the world. I think that was a huge point of legitimacy. So the institutions coming in represent a new player in the game, a player in the game that's a much stronger bid, which makes the price go up. Now, there's even a second order effect here that I think is more interesting, As institutions legitimize Bitcoin in the eyes of the population, the population now trusts it. So the population, so the retail traders buy Bitcoin because the institutions are buying Bitcoin. So this is the first market cycle where we had the institutions be a meaningful participant. And then number 4, when people came into Bitcoin before, there wasn't a lot of great content like this podcast and also my ability to craft this narrative. Over time, Bitcoin's narrative became more and more well-defined, much easier to understand, and propagated through channels like audio, video, conferences. The quality of content has leveled up to such a degree that when people first hear about Bitcoin, before they would go research it, but it was so technical, they would go, "You know what? I'm not going to bother with this." That probably happened to a lot of people that are listening to this right now. But the narrative has gotten so compressed and so easy to understand that Bitcoin's conversion rate of someone hearing about Bitcoin to someone now understanding it and wanting to go buy it has increased dramatically. So this also increases long-term retention as a Bitcoiner, because these Bitcoiners will stick around because they understand it, whereas before they were just in it for the hype.

Preston Pysh: So in other words, it can go a lot higher.

Dan Held: So to put some price points on this, Bitcoin could be in a supercycle, and that's what I define as a supercycle. I'd say we're very much, we have the characteristics of that. What does that mean for the price? If we look at historical price patterns, so what Bitcoin has done in the 2013 and 2017 cycle, A predicted price of $200,000 to $400,000 is where everyone is predicting that we go. When I see everyone predicting something, I typically feel that that's probably not where we're going to go. So either we undershoot that or we overshoot that. My supercycle theory is that we overshoot that. Now, I am not saying this is a highly probable thing to occur, but what happens when the whole world wakes up to Bitcoin's value prop and they all pile in at once? We're not going to have a traditional Bitcoin cycle like 2013 or 2017. So that's where I think this time might be different due to all those characteristics that I mentioned before.. And so if that occurs, I think Bitcoin could shoot past that $200,000 to $400,000 price range and hit $1 million. Do I find this a probable event? No. Do I think it's plausible or possible? Maybe.

And that's why I bring it up is no one else is talking about it. [Speaker:BRAD_STONE] Well, and you'll also hear people try and refute what you just described there. And they'll say, "Oh, it's just a bubble." And they'll go back and they'll say, "Oh, look at Tulip Mania from, what was it, the 1600s?" Or, "Look at any of these other bubbles that we've had in the past. I think one of the differences though is that in those past bubbles, sure, the tulips were a bubble, but then they burst and they never came back. I think the thing here that's different with Bitcoin is that, as you just mentioned, there was the initial bubble back in, what was it, 2011, and then there was another one in 2013. The low in 2013 was higher than what peak in 2011. So each time it kept coming back and it was higher and higher each time the previous bubble was popped.

So that's not how bubbles typically operate, is it? They don't keep coming back. [Speaker:JOSH_FARLEY] I would encourage everyone to pull up a chart of Bitcoin and look at it in a log curve. It's this beautiful log curve where Bitcoin doesn't breach previous lows. It builds higher lows. It's just so disingenuous when folks talk about it as a tulip bubble. I mean, it's a completely different type of asset. If you look historically, it's like, "Okay, zoom out past this one bubble and you'll see that it survived 3 other bubbles, and those weren't really bubbles. It was just Bitcoin price discovery in a very, very intense fashion." All assets are speculative. Oil went negative and we have negatively yielding sovereign bonds. Bitcoin is almost normal.

This sort of intensity and this volatility actually feels normal in a world that's sort of lost its mind. Preston Pysh: You touched on this, and I want to just explore this just a little bit further too in terms of the uniqueness of Bitcoin. We talked about Satoshi Nakamoto, the person or persons who invented and created Bitcoin. There's this idea of the "immaculate conception" of Bitcoin.

I'd love for you to touch on that and why that is an important part of the narrative. Josh McCallen: The immaculate conception, which I wrote about in my series called Planting Bitcoin: Bitcoin's Origin Story, Satoshi's brilliance wasn't just in the species of of money that he chose to create. It was the season, the soil, and the gardening techniques that were equally as important. It was his go-to-market strategy that was equally as important as the coin itself. Satoshi, his character as a person was really interesting. This wasn't just a cryptographer. This is someone who understood human psychology intimately, economics, politics, governance, physics. Bitcoin's proof of work is largely a physics equation. It's not really about code at all. These things were beautifully woven together to create Bitcoin. He didn't do it alone. He built it based on the insights of folks who came before him, the cypherpunks. It's a group of cryptographers. When he built Bitcoin, he understood a couple of things needed to occur for it to be perceived as legitimate. One, it needs to work and it needed to be perceived fair, and he needed to get the word out there. So to get the word out there, Satoshi published Bitcoin to the only group that would've cared, the cypherpunks, the folks he drew inspiration from. And so the original Bitcoin whitepaper was published on an email list called the Cryptographer Email List. And it was published in the middle of the 2008 financial crisis. Satoshi very much waited until the moment of peak despair to signal that Bitcoin wasn't here to be a cheap PayPal, it was here to disrupt the financial system. And when Satoshi published the code a few months later, his first message after writing the whitepaper was, The whole system is built on trust, and I built something to where we don't have to rely on trust anymore. Then in the first block in the Bitcoin blockchain, he took a headline from the Times, UK Chancellor on the verge of second bailout for banks. Bitcoin is very much meant to disrupt the existing financial system from a trust perspective to rebuild it where the money supply wasn't controlled by anyone and to where you could be your own bank. Now, With the immaculate conception, this individual understood that humans needed to look at this event that occurred, him launching Bitcoin, and perceive that it had occurred fairly. If Bitcoin was to succeed and become a world money worth $10 or $100 trillion, if one individual had a huge portion of it and they just gave that to themselves in the form of what is called a pre-mine, then people may not want to use it. They'll be like, "This is way unfair." And so what Satoshi did What's incredible about this is that he publishes the source code, so anyone else on the cryptographer mailing list can mine alongside Satoshi day one. Satoshi didn't give himself a head start. He also decreased his mining activities over time as more people came into the network. He merely mined to make sure the network was alive and survived. Then finally, we don't know exactly which coins are Satoshi's, but we're pretty sure there's about 750,000 to 1 million Bitcoin that are probably his. He has never once touched them ever. I think that's an incredible testament, a sort of Prometheus figure, if you will, to give humans fire or give humans Bitcoin and sort of sacrifice themself for it. I think that was an incredible testament to why Satoshi did this. It wasn't about the money. In fact, his portion of coins makes him one of the wealthiest people in the world. For him, it was about a testament to build a new world. The immaculate conception is an important part of that because if people didn't perceive it fairly in the future, it could be detrimental to the success of Bitcoin. Bitcoin had a few other, I think, elements that made it sort of this immaculate conception, the correctly chosen parameters of proof of work, correctly chosen parameters of the issuance schedule. So Bitcoins are issued along a predetermined schedule that anyone can audit and review up to 21 million, and that will occur over a very long duration. Every 4 years, the number of newly issued Bitcoins per block drops in half, and that's called a halving. Satoshi's correctly shows all of these parameters, the 21 million hard cap, the halving schedule, the encryption used, and many other things to where it feels like an immaculate conception. Now, this idea of Metcalfe's Law, tell me what that is and how does that fit into Bitcoin? Metcalfe's Law can be used to describe the value of Facebook and the internet and other social networks. Bitcoin follows that same trajectory. As I mentioned before, Bitcoin is a belief system and it requires a network effect of folks believing in it. Metcalfe's Law essentially I think is like a regression algorithm or some sort of algorithm to look into this interplay between adoption and value or network effect and value, and Bitcoin very much tracks along that path. The larger the network effect of Bitcoin is in terms of more market participants and the more that they trust it, the more value that Bitcoin has in terms of Bitcoin's price.

Preston Pysh: Let's talk about some of the common objections that I hear people people say when they have some concerns about Bitcoin. So one that you touched on here a little bit earlier is the idea that the Bitcoin system is a trustless system in the sense that it does not rely on a centralized third party, whether it's a bank, whether it's a government, to validate a transaction. Everything is decentralized. Now, some people say, well, that's actually a bad because they want to have a centralized source, a bank that they can trust, that can reverse a transaction if something gets done by mistake. How do you think about that?

Do you view that as "a bug in the system"? Jason Williams: Yeah. Bitcoin is solving the problem of trust. The problem that we had before was that counterparties could reverse a transaction or use their political influence, as we saw during the 2008 financial crisis, to award themselves money or move money away from one party to another. Bitcoin is a very, very— I mean, it's the quintessential apolitical neutral arbitrator of who owns what. Bitcoin doesn't care who owns Bitcoin. That means folks that use Bitcoin for good activities and folks who use it for bad activities. But the premise of Bitcoin is that no one should ever have that control. And that is the value that Bitcoin brings. So I would say it's a feature, not a bug. And looking into when an everyday consumer interacts with Bitcoin. In the future, I think consumers interacting on the Bitcoin, actually transacting across Bitcoin block space, AKA like a Bitcoin transaction, there's going to be a lot of interface that has been built for a human to understand what they're doing there. Bitcoin is very confusing and folks can make mistakes easily. So Bitcoin is very unforgiving. If you send Bitcoin to a wrong address, it's gone for forever. But in the future, you could imagine there's all sorts of interfaces that you could build that would double-check things. Double-check that you're sending it to the right account, and you can build all sorts of identifiers where you could make sure that the account you're sending it to is a valid account. And then also private key management. So the idea that you manage your private keys properly, that means that you hold your Bitcoin. This is where you might hear stories about people getting hacked. The Bitcoin protocol wasn't hacked, people's vaults were hacked. So that's the way to think about it. A private key is essentially kind of like a vault. Gold isn't broken if someone breaks into a vault. It was the vault's fault, not gold. And so, yeah, Bitcoin is a Wild West kind of hazardous place to be because of how how unforgiving that landscape is, but that unforgiving landscape is what we need as the base layer of our money. Then we can always build more intuitive and a little bit softer interfaces on top of that for people to work with if they're not as technical.

Preston Pysh: Now, you mentioned earlier that Bitcoin came out of the cypherpunk movement and people that were really into cryptography. Now, a lot of those people, have a libertarian persuasion. To really get Bitcoin, to really believe in Bitcoin, do you really need to have a libertarian mindset or a crypto anarchist mindset or an Austrian economics mindset?

[Speaker:BRYAN LAWRENCE] That's a really good question. Certainly, the early community, we were all sort of that vibe, very libertarian mindset. To utilize Bitcoin, you don't need to believe in anything about the culture of Bitcoin. What its purpose is, is Bitcoin can preserve your value through time. So it has a great possibility of appreciating, but its core value props are it's hard to seize. You also know exactly how much of the supply that you own. So you have confidence that storing value in it is going to be preserved. And then finally, it's immutable. So I can send it to anyone else in the world and no one has any say in that. And that's really, really critical.

So as long as you need those value props, which almost every human in the world needs, That's fine to use that, use it for that, no matter what your political leanings are. One other objection that I hear frequently is this idea that the US government or any other country's government could regulate Bitcoin. They could close down the on-ramps or the off-ramps, or they could just shut this thing down.

Is that possible even at this point, given the size of Bitcoin? Outside of the question of where is Bitcoin's price going to go, the number 2 question is, is, well, can governments kill it? I think that we're past that era. I think we still have a little ways to go to where I'll feel very comfortable about that. Bitcoin was built from scratch by Satoshi to withstand attacks by governments. That was the whole point is that this is the separation of money and state, just like the separation of church and state. There's no reason why government should have all that power. In fact, going back to the origins of the United States, we did not have a central bank. Most founding fathers found that idea to be horrid. So we have very much gradually been in this pot of boiling water and accepted that this is our reality, but this is not a reality we have to accept for much longer. Adoption is the number one way that Bitcoin prevents it from being killed. There are more technical reasons why, but I think this is the easiest way to talk about it for this audience. As Tesla buys it, as different companies buy it and macro hedge fund traders and investment banks, These are very powerful institutions, and these institutions control a lot of wealth. As the retail population, and the majority of most folks are retail, as they buy Bitcoin, we've got about 10% market penetration in the United States right now. As that number approaches like 30% or 40%, you can't ban Bitcoin. If you do, you're going to get voted out of office, the stock market is going to tank 20%, and everyone will essentially ignore your order. Bitcoin will have become so pervasive at that moment too that politicians don't own it, and police own it, and military own it. So this idea that we can squash Bitcoin, it's really more like Bitcoin has become part of us. You'd have to chop off a leg and an arm to get rid of it. And I think we're very much— if a supercycle occurs, we might very much hit that threshold level in this next bull run where such a large percentage of everything is wound up holding Bitcoin that trying to take it out or trying to punish it would be so detrimental to career success and their own individual portfolio success that it becomes increasingly unlikely. So that's the monetary, more game theoretic aspect. There's the more technical aspect of what it takes to perform like a 51% attack. Bitcoin is basically far outstripping the ability of almost any government to attack it at a purely theoretical level. And that value is increasingly becoming larger to the tune of tens of billions to where we're quickly hitting an era where a government would have to spend an enormous amount of money to attack Bitcoin. And it's It's not sure that they would—

they wouldn't be able to do it successfully and they would likely piss off their population. I do also want to ask you, what worries you the most?

What's something that might cause you to lose some sleep at night? Maybe something really unexpected. Like, you know, there's some random things like quantum encryption, which I'm actually going to write about in my next newsletter. I write a newsletter called The Held Report and I write it weekly. And in that newsletter, I'm going to cover this quantum computing threat in Bitcoin. Long story short, I don't think it's a major concern, but there's little things like that that are more tail risk or black swan type events. I think ultimately the one thing that probably concerns me the most is the rise of socialism. We're seeing it rise all across the world, and I think Bitcoin will be the antidote to this rising socialism where you can't implement a socialist policy if you can't seize the assets. Good luck. I can memorize 12 words in my head and you can't prove I have it, so I'm not going to pay that. My concern would be though, if in aggregate people believe in aggregate that storing value is an unethical thing, or people don't believe in storing value anymore, where socialism becomes so pervasive that we essentially throw out all rules of capitalism and free markets.

I think that would be a very dismal place to live in, and Bitcoin would survive, but it's not going to thrive, and it's not going to be a very pleasant world. Preston Pysh: Now, you work for a company called Kraken, which is one of the country's largest cryptocurrency exchanges. Now, what are you seeing is happening in the marketplace in terms of facilitating or enabling financial advisors to be able to get more involved with cryptocurrencies?

Jason Williams: Yeah. I work at Kraken. We're the number 2 US volume exchange right after Coinbase, which I'm sure everyone who's listening has probably heard about the Coinbase direct listing. I think what's really great is that the career risk of recommending Bitcoin has substantially decreased. With the big macro traders coming in, with the investment banks coming in, now it's not political or career suicide to say you should maybe put a little bit of Bitcoin in your portfolio. When it comes to tools for them, I do know that there's some companies building kind of platforms or tools for financial advisors to onboard their clients into Bitcoin and crypto. Some kind of words of advice here, because I think this might be the right time to provide it, Bitcoin is very different than crypto. I would not think about it as kind of this big lumped-together sort of group. There's Bitcoin and then there's everything else. A lot of the other stuff is extremely speculative. I've seen 10,000 cryptocurrencies come and go in 8 years that I've been in this space. Bitcoin is what remains. It has a great value prop and it has a lot of upside. So I wouldn't advise a typical strategy of vast diversification That's the natural thing that most financial advisors are going to try to do. They're going to try to diversify into a wide basket of assets. Normally, that strategy works for anything else, venture capital, S&P 500, with public markets, all sorts of other areas that works. That does not work in crypto. So just keep that in mind when recommending solutions to clients. And then I think finally, this is an important moment as a financial advisor. If you're not on this train, and Bitcoin does continue to go up in value, your job might be called into question. In fact, you've missed out on the best-performing asset of the 21st century already. So I think it's critical to your career in the preservation of your relationship with your customers to understand, at least spend the time to understand it and understand the difference between that and other types of crypto assets. This is the wake-up call to learn about it. This is going to be recommended by every financial planner in the world in the next couple years. A lot of folks Most folks too will recommend a very safe allocation of like 1% of your portfolio. When we look at adding Bitcoin to a portfolio, it improves your Sharpe ratio. So your return per unit of risk actually increases. That's where you don't really have to like Bitcoin or not.

You just have to recognize it's not going away and that it has positive attributes to being added to a portfolio. Preston Pysh: I think one of the key things that financial advisors should be doing now, and I know many of you listening to this are doing this, but but it's just to continue to educate yourself on this area. And I'm also an advocate of actually buying some Bitcoin for yourself as maybe a first step as well, just to understand how does this process actually work. And once you actually own it, you're going to have a much greater interest in trying to follow through and understand more and more about it.

And so, Dan, you've got your newsletter called the HELD Report, H-E-L-D Report, How do people, do they go to danheld.com or where do they get access to that?

Yeah. So just a quick Google search, type in The Held Report. It's a Substack newsletter. Okay. So definitely subscribe to that.

I read your newsletter. It's fantastic. What other resources would you encourage people to check out? All right. I'll give off a rapid fire here. Okay. So we've got Vijay Boyapati. So type in Vijay and The Bullish Case for Bitcoin is the article that he wrote. If you want to get more bullish about it, he sets out a long-form article walking you through monetary policy and why Bitcoin solves this problem. That one's a great starting point, will definitely make your day if the content resonates with you. If you want to go down specific topics around Bitcoin's origin story, read Planting Bitcoin that I wrote. I wrote it partially because I wanted to understand it a little bit better. I also wrote something on Bitcoin's Distribution Was Fair, and that's around Bitcoin's issuance. I Bitcoin right in the beginning, where I talked about how Satoshi didn't touch his coins. If you want to know about Bitcoin's proof of work, by far my most popular article that I wrote was Proof of Work is Efficient, or POW is Efficient is the title of the article. I break down why Bitcoin's energy consumption isn't a bad thing. I also compare it to the existing financial system. Another author I'd really recommend people read is Nick Carter, is The Philosopher of Our Time. Nick is very eloquent on, and he very intimately describes various aspects of Bitcoin. Nick Carter, great resource. Check out the ones I mentioned before that are mine, and that's a good starting point for most folks. [Speaker:TREY_LOCKERBIE] And follow you on Twitter. What's your Twitter handle? [Speaker:DAN_HELD] Yeah, it's @danheld. If you want some hot takes, a little bit aggressive takes, libertarian takes on the economy, then you can follow me.

But yeah, that's where I give my quick hit thoughts. [Speaker:TREY_LOCKERBIE] Definitely a lot of action happening on Twitter. You follow Dan and read the comments to Dan's takes, and you'll start finding who else you should be following. Following. Lots of great podcasts as well. So just do a little Google search on top Bitcoin podcasts and you'll come up with a good list there.

So Dan, this has been awesome. I really appreciate you taking some time here. [Speaker:DAN_CUNNINGHAM] Well, Steve, thank you so much for having me. I had a blast. You asked really good questions. I do a ton of these and your questions were really, I think, really fun to answer.

So thanks for having me again. And to everyone else, definitely encourage you to go check out Bitcoin. My key takeaway from my conversation with Dan is what I'm going to call the poetry of Bitcoin. And by that, I mean Dan did a great job describing all the things that had to go right in order for Bitcoin to go from a white paper in 2008 to a trillion-dollar asset today. Any asset that has that type of growth is worth studying. And I hope today's podcast has jump-started your interest in learning more about about what's happening with Bitcoin in particular and the entire digital space in general. All right, that's all for today. Make sure you like and share this podcast through your favorite social platform.

And for more great podcasts, visit us at barons.com/podcast. Take care and be safe. This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow.

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