Alright, hey Fred, how are you doing?
I'm doing great. How are you Kyle?
Not too bad. I took a couple extra minutes
to get the space going. My apologies.
But let me just start off by saying good
evening to everyone out there welcome to another multi-chain Monday I love these
Bitcoin ETF spaces they're a little bit off-topic for multi-chain we typically
focus both I chain on apps that can leverage multiple blockchains in a single
app but these are some of the most fun conversations in our last one Fred you
really crushed a lot of the material as as the last two months has proven out and
I want to tap into that before so let me just introduce Fred Krueger and give you
a chance just to kind of recap your background Fred and and what basically
led you to becoming essentially the voice of authority on Bitcoin ETFs okay
well first of all I'm not the voice of authority but I'm you know I'm certainly a
voice that people are following on this I would also just say people that you
should absolutely follow on this as Eric Belchunas and James Seifert from
Bloomberg I think there are must follows there's a bunch of other people who
are following these ETF flows that I would like to pull Thomas from a Apollo
was doing an amazing job Alessandro an Italian guys doing an amazing job at
this and there's others so there's a number of people are following closely
what's happening in ETF land and so I just don't want to say I'm the only guy
at all I was one of the early people and what really kind of led me to this
is that you know I have a finance background as well as a as well as a
sort of crypto Bitcoin background I'm not completely anti crypto either although I
am a you know I do believe Bitcoin is kind of the ultimate winner in everything
in terms of value but I'm for example I'm not at all anti wrapped Bitcoin I
think it's a great idea and recently I've also been talking a lot about Thor
chain and they're sort of lending so I think I think Bitcoin lending is
important I think wrap Bitcoin is important but ultimately I'm kind of
aligned with the idea of Bitcoin being the ultimate winner in kind of the value
wars and so so that's kind of where I come from and so I you know I saw the
ETF you know back in December 1st when I started putting out some videos I said
and this is gonna be a really really big deal much bigger than people think
and I think I think it's you know people even in January were thinking
maybe it won't be such a big deal maybe it really was a sell the news event and
then February and March have basically proved that it's just an amazing it's a
very important thing the ETF really is gonna be the next phase of Bitcoin
adoption so Kyle that's that's sort of my background and where I come from and
you know in a nutshell I'm just an observer of the beat you know I say on
my YouTube channel that I think the big Bitcoin ETF is the atomic bomb and
I'm just kind of here to document it you've got the Oppenheimer glasses on
you're keeping a safe distance but you you know what to expect I guess I'm a
little bit of shrapnel you know the Friday we had a little bit of a sort of
secondary explosion you catch a little shrapnel you know but uh but yeah
there's there's definitely this this is definitely a major big thing that we
haven't seen ever in in you know in crypto since the beginning yeah and now
your your background you came from a traditional finance background I think
which helped helped you kind of see the writing on the wall for the ETFs right
yeah so I mean listen I was I was a prop trader on Wall Street trading the
account of the firm of actually the largest firm on Wall Street at the
time Solomon Brothers so you know back in my day there were two major firms on
Wall Street Solomon and Goldman Sachs and Solomon kind of got taken down
through the Treasury bond scandal and that was the sort of the beginning of
the end in Solomon and then got it got absorbed into city corporate it no
longer is that you know the the giant that it was but you know at one point
we were quote-unquote the masters of the universe and so there's a few of us
who are sort of left in and on Bitcoin Twitter sort of hiding out a little bit
you know but yeah so I saw that and kind of once you're in that world you
kind of look at the world in a different way right so you follow you know you
follow you follow all the you know that that's just the way you look at the
world every day you start you know I look I look at two stems and spreads and
bonds and currencies and everything I keep track of that stuff every single
day and so you know when I saw the CTF coming I was like ooh this is gonna be
a lot bigger than people think so that just gives you my my background and
sort of you know and so I've taken that that view of that sort of trap five
you and I'm sort of looking at it going okay how is how is Wall Street changed
since I was there it's changed tremendously right you know the for
example index funds were not that big in you know 2000 right ETFs were not that
big right and to give you an idea in 2003 the entire size of the ETF market
was 300 billion dollars worldwide and now it's 10 trillion dollars worldwide
so you know in the last 20 years we've brought up 30x in terms of the volume of
ETFs so passive it passive index management's gone up enormously ETFs
have gone up enormously and you know active sorry active management has gone
down hedge funds have gone down and you know so we've seen a real change in the
way capital is deployed and of course we've also seen a tremendous amount of
money printing by the central banks and you know all this has led to a world
where people are deploying assets and classes more or less passively with
active met with with advisors who are taking sort of a small fee to sort of
just place these assets in various buckets and that's kind of where we are
now and it's it's phenomenal to think that Bitcoin is now one of those assets
that is getting placed in the buckets and not only it's one of those assets but I
think a lot of people on Wall Street are in for example Fidelity just put out
today something where they said you know is retweeted by you know my friend
Larry Le Pard who's just a great follow by the way if you don't follow him you
should follow him and he retweeted this and he said listen I mean this this
Fidelity post was saying if Bitcoin is an asset unlike anything else we've ever
seen in TradFi and in terms of risk return it's just off the curve it's off
the chart right and so it's not just another asset right and that's that was
the mistake that everybody in TradFi was thinking because you have to understand
they do one ETF per week sorry per day there's a new ETF done every single day
so they're like well this crypto ETF could be pretty cool the things that
plays much crypto bros who might be interested in that you know we'll do
that one next you know that'll be a that'll be Friday's you know oh there's
gonna be actually 11 of these things that are applying well okay well you
know and it turned out to be ending ending being nine new applicants so
there's nine new ones and great well that's kind of interesting that might be
you know well we'll have a good month and then that'll die down right well
that's not what has happened you know we did not see one month of spurry of
okay we'll get a little tiny bit of Bitcoin allocation and then that we're
done with that let's move on to the AI ETF that's not what happened yeah I
think I'd love to kind of recap because the last time we talked back in January
I don't want to say was the sky was falling but there was certainly a vibe
of it was a sell the news these ETFs aren't going to do anything for Bitcoin
it turns out and then and you you came on the space you were gracious enough
to give your time and you said look it's just a matter of time here's all
the numbers I'm looking at and and anyways so and since then you I mean it
was almost maybe that next day you started being proved right and so give
us kind of a recap since late January like what changed to now produce this
you see I mean you see it on well here here's what changed okay part of it is
the change in perception what that what's actually changed not much has
changed right if you look at sort of I bit which is the BlackRock ETF they've
had very steady and growing flows since the beginning right that's just what it
is they launched it it's doing fantastic you know they're doing you know 30,000
bitcoins a day now that are being added to their fund it's very simple and it's
very straightforward and it's very monotonic right they you know it there
is no there's no question right now that there's there's been there's not been any
difference in like well it wasn't working out was working what what has
changed a little bit is that there was initially a ton of selling out of GBTC
that was sort of drowning out the very beginning flows from the from the ETFs
so depending on how you did your accounting it sort of looked like well
okay you know maybe this thing is a net negative right maybe people are just
selling GBTC and there's not even going to be enough you know inflow to match
that so I think a lot of this was just you know accounting if you did your
accounting right you you you saw that the flows were just going to be
continuing and overwhelming and if you did your accounting wrong you it looks
like you know this was a failure do you do you have a take on essentially like
what the ratio of that GBTC selling was between it just being the FTX estate
which obviously would run out of Bitcoin at some point versus I'm sorry
would run out of GBTC versus like people who didn't want to pay the 1.5%
grayscale fee and do you have a great question I think initially I sort of
had estimated it as one third of the selling was sort of you know sort of
recycled back into GBTC I don't know if we really can get those numbers at this
point you know I had some debate with James C for Bloomberg who's kind of
looked at that a little bit closer than I had and he was sort of like I'll take
the the the over on 30% so maybe 40% you know it sort of doesn't matter right
because at this point is pretty clear that there are a lot of net inflows it's
so there are net inflows you don't need to worry about GBTC selling I mean if
you just want to spend your life trying to differentiate between the GBTC and
the other ones great you do that but it's pretty clear just looking at iBit
and FBTC that there's massive Wall Street demand for ETFs and that total demand
right now is not you know ten billion dollars if it's ten billion dollars a
month okay that's how much demand there is from Wall Street right now now
could that stop next month yeah I guess it could but right now that's what
that's what it is it's just a relentless amount of demand you know 500 million
dollars per day of new money demand that's coming in to these funds have we
seen any signs that maybe that demand is waning or has it maintained for the last
two months this it's increasing that's that is phenomenal I mean it's to the
scale of what like 8,000 BTC a day yeah I mean that that's kind of roughly kind
of what we're talking about but look it's definitely increasing and you're you know
again you don't need to I mean I you can look and spend a lot of time trying to
figure out if the second derivative is moving down or not but it's clearly not
right and you know there's there's a couple of great people who follow me who
are tracking this stuff even more closely with me at this point and you
know one of them was posting this chart and he was like look it's gonna be at 80
the bitcoins gonna be at 80,000 by this Friday just based on these funds and
I'm like and I can't dispute your your math I mean your math seems correct you
know is that one of the things we know is that there's this multiplier effect
right and you can sort of estimate this multiplier effect in different ways is
this guy named sins S-I-N-Z and he put it in this way every 200 million dollars
of new money that comes into the Bitcoin ETF moves the market by 1% very simple
so if you get 500 million dollar days without any kind of counterbalancing sell
that's a 2% move daily right daily so you know it just you know does that mean
the market can't go down no as we've seen on Friday the market could go down
a lot right but you know that's that's a different sort of thing and you know I
think we know now why that happened but that's it just shows you that it's not
just a it's not just a monotonic increase up with with these funds but
there is that pressure that by pressure now on the market I don't think that's
gonna I look I mean obviously yeah let's it's I love here in that the flows are
actually increasing a walk us through because I saw a tweet from you and and a
few other sources about what happened Friday do you want to walk us through what
what happened with that trade so so let's just let's just back down a second
let's you know because not everybody is kind of dissected micro strategies that's
kind of like some of us have but MSTR micro strategies is the it's the
holding company of Michael Saylor started out as a software business but now it's
almost really a just a holding company for Bitcoin they have 200,000 Bitcoin
more or less at this point right now you know those 200,000 Bitcoin today right
today are worth 13 and a half billion dollars kind of that kind of $67,000
for Bitcoin but the market cap of MSTR is 27 billion dollars so it's twice that
right now if you if you look at that you know and are kind of an arbitrage or you
know typical I wish there is a bunch of them on Wall Street right that's kind
of what I did arbitrage what you tend to want to do is you go okay I'm going to
buy the cheap asset which is Bitcoin and sell the expensive assets sell it
short MSTR now short selling things can can get you into a lot of trouble and
this is what happened on Friday so and we know this from I know this from a
couple couple places one is the Twitter account of Andrew Kang which is worth
following it's a great account and second is another person who I followed who
follows me is this guy Andrew from AP Abacus and what we know happened is that
there was a fund that had a billion dollars of this trade I'm assuming it's
a billion dollars per side of this trade that means I'm long a billion
dollars in Bitcoin and I'm short a billion dollars worth of MSTR or
something something along those lines and that fund basically had to go buy
up a billion dollars with the micro strategies at the close on Friday and sell
the Bitcoin that it held against that so it got blown out that mark that crashed
the market which then now triggered everybody who is long you know leverage
long Bitcoin on a not necessarily in the ETF but there's long Bitcoin on places
like Binance with Perpetuals now they get stopped out and there are four sellers
and then you get this sort of cascading cascading road down with all
these four sellers and yeah we've we had the amount of leverage in the market
just went from you know 70% to 20% overnight in it so that that's what I
think happened this kind of liquidation stuff happens all the time in crypto
normally the ETF people are you know they're like what happened you know it
doesn't happen so much with with regular ETFs and you know regular things like
gold or other commodities but here here it absolutely happened and it could
happen again right yeah I mean that's a hallmark of it's always been a hallmark
of crypto in terms of I mean that's a great place to start with like risks you
know you mentioned how these ETFs are just seeing daily inflows that are
increasing but they've still comes with you know the price of Bitcoin isn't
going to just kind of take it take the stairs up forever there will be some
some hiccups and so what kind of risks do you anticipate you have like this
example of the the Friday leverage event are there additional risks that you
anticipate over like let's say the next 12 months well look I think the you know
I think that the the first question is who's buying these ETFs right are they
kind of the same kind of D gen trader that you know that is typically traded
you know the last full cycles of crypto and I would argue no right they're
retail mainly okay there are people who put Bitcoin in their retail accounts but
they're probably most likely people who have a little bit of Bitcoin in their
401k or a little bit of Bitcoin in their regular stock accounts right so if you
have one or two or three Eric from Bloomberg have a great example he goes
look if I'm telling my wife hey I've got 1% of my net worth in Bitcoin and it
goes down you know what it's 1% what do I care you know they mean it even if it
goes down 50% I've lost half a percent of my net worth that's you know that's
not a showstopper conversation you know I can live with that you know and it
goes up it doubles or quadruples great I now have a little bit more money for you
know Jimmy's retired Jimmy's College Fund right so I think I think that these are
more diamond hands as opposed to you know some crypto D gen who's just you know
trying to ever looking at the screen a hundred times a day and also looking at
potentially flipping it into some mean coin because you know he's hearing from
his friends that that mean point is hot so I think it's different right I think
it's more stable buying and I if I would if I could sort of handicap it I would
say this is probably gonna drive the market quite a bit higher because you
have these you know general asset allocators buying this stuff it's still
not really across the board it's not you know the advisors have got kicked
in this is still in the early phases and yet it already has moved the market
quite a bit higher so I think the risk right now is not being involved and not
taking this seriously that's a bigger risk than getting involved to us to a
small extent you know to a partial extent I think most people you know they
need to get off zero right they need to they need to not be at like I'm gonna
sort of see how Bitcoin plays out no I think that the simplest strategy for most
people is but 1% of your net worth in Bitcoin see how it goes that's what I'd
say is the lowest risk it does seem like kind of talking about who's buying these
ETFs especially if they're less likely to be you know to flip bearish real
as quickly as a crypto degen would would you anticipate the flip side of that is
maybe we see less volatility in bitcoins price you know typically like a bull
market would have you know multiple 30% drawdowns maybe we're looking at less of
that in moving forward look I think you know one of the one of the things
that I'm really fond of is this power law that you know this guy Giovanni first
discovered and he is a really interesting thing it says if you look at
the power law and you look at it relative to the average you know the
average you look at the average price of Bitcoin over the moving average I think
it's over you know a couple months then you really see that the volatility
already has been going down over time right so I think you know I think we
are gonna see volatility decrease generally over time as this thing becomes
more of a mainstream asset and I think I think that was happening even before
the ETF and I think it's gonna happen now even with the ETF even more so I
would expect less volatility I would expect more dip buy and I would also
accept expect a little bit of reallocation on the upside right because
bear in mind a lot of these accounts you know once you get into a managed account
somebody's got a percentage target for their their allocation let's say they say
okay I'm comfortable with you know 1% allocation to Bitcoin well
Bitcoin doubles yeah they're their allocations now 2% they got to sell some
right so that kind of that kind of like dampens the volatility on the upside as
well yeah that definitely makes sense and probably is a sign of a maturing asset
right yeah I mean I I don't think we're in a mature stage for Bitcoin you know so
my gut feel is you know that you know we we're at the very beginning of
Bitcoin's growth curve so you know you know Michelle from Kitco asked me kind of
where are we in the curve is that you know are we in the you know 30% range so
you know how close are we to the end I'm like 1% you know you know that's kind of
my gut feel right because I you know you saying maturing asset but you know how
many people on this you know on this planet own you know own a significant
percentage of their net worth in Bitcoin I'm asking you what would you say that
number is a significant amount was I mean let's just say 10% have 10% of their
net worth in Bitcoin right how many what percent of world population has 10% of
their net worth in Bitcoin I'm just thinking through my own social network
and again my social networks could be skewed towards crypto and I would say
that that's definitely less than a percent yeah so definitely less than a
percent right yeah there's definitely we're definitely under 1% major I mean
significant penetration like if you take how many people have a crypto wallet okay
yeah maybe probably probably 10% have something you know what I mean and not
maybe not 10 but 5 in America you know maybe it's 10 in America you know but
that could be a coin-based wallet with 10 bucks in it you know mm-hmm right so
I think we're still if you really think about how many people are really using
crypto to store their net worth okay it's 1% you know it's something like 1% you
know how many people have one Bitcoin no you know a Bitcoin is $70,000 it's it's a
lot of money for most people but you know a lot of people have $70,000 in
savings you know how many people have a Bitcoin well I don't know maybe half a
million people maybe you know on this planet of a planet of 8 billion so you
know I I just don't think I don't think I don't think we're we're I think and I
think so I think 1% is probably a good number to think about and you know in
this 1% range we could go from 1% to 10% over the next 10 years that would be
amazing right and so I don't think that we're quite in the mature asset I think
we're in the early growth phase still it's a I would imagine a lot of people
listening to this space come from a position of feeling like the coins
probably I mean almost the term is boomer coin right like oh it's it's it's not
where the actions at anymore and and essentially what you're saying is we're
still only we've only started this this journey like we've always here's the
thing I mean people there is this temptation right to to think of when you
see something like Myspace just think of Facebook's like killer of Myspace right
or you know Google is the killer of Yahoo right we've seen it in in tech you
know things don't last more than a decade right before they get replaced by
something else typically right you know most of the tech stuff even like
Instagram was big and now it's tick-tock right so you know I think you know I
think people have that pattern recognition where if it's over 10 years old it's
probably boomer coin or whatever you want to call it right but I think you
would be mistaken there I think that Bitcoin is different I think it is
likely to be the next version of money on this for humans and you know I think
that's my thesis is that you know 20 30 years from now we'll all be we will be
using other blockchains for various things because Bitcoin does not it does
not do everything and can't do everything right and but I do think that you know
we're gonna have a standard currency right now the standard currency for most of the
world is dollars I mean it's between dollars and euros and yen and British
pounds and you want so you have a bunch of them but you know for dollars the
world sort of reserve currency right now it's that it's the currency for exchange
of payments it's it's it's how international trade gets settled it gets
settled in dollars I believe that 20 or 30 years from now it'll be settled in
Bitcoin I think Bitcoin is going to be the I think you'll be able to buy
anything you want on Amazon in Bitcoin I do believe that I think most most
Americans will own Bitcoin in their in their accounts and it may it may even be
the majority of their assets will be Bitcoin so that's my general sort of
you know philosophical belief I believe that you know Bitcoin's going to be that
numerator of value it'll be it'll be the asset it'll be the numerator it'll be
the store of value the numero the unit of account as they say and and where I see
things like ICP and other chains potentially right like Ethereum their use
is going to be as a transport layer in a part of their use is gonna be as a
transport layer for Bitcoin right making it very easy and efficient to move
Bitcoin around making it possible to program Bitcoin to do smart contracts
using Bitcoin making it easy to borrow against Bitcoin and land against Bitcoin
and you know this is gonna be we're gonna need these layers right you know in
a in a Bitcoin world right so we're gonna need layers I think Bitcoin is the
fundamental layer it is the base layer of value of the human race and I think
it's gonna be a fantastic investment I mean fantastic store of value for people
as long as they're patient you know I think they're it's gonna be it's gonna
it's gonna work out really well over the next decade I mean I'm not I'm not this
is not financial advice I will say but you know this is where I'm placing my
bets is I do think Bitcoin's gonna do exceptionally well over the next decade
or two and I do think that there's gonna be this role for other block
chains to efficiently wrap it and to to program it because that's not gonna
happen in Bitcoin itself yeah I mean for sure and I would almost hope it wouldn't
happen only because that would require such protocol changes to that would by
nature introduce additional Bitcoin doesn't it doesn't need that to have its
value right Bitcoin is its entire value is that it is incredibly hard money right
that's its entire value the value of Bitcoin is that we have this you know
you know this network of you know 500 extra hash you know that that that
protects it you know that is cannot be replicated even by you know state actors
cannot stop it is it I'm wondering I'm hesitant to go down this this train of
thought but I'm gonna ask it anyways just in case you have some thoughts on
it but I've heard a lot of conversation about the idea of what might make
Bitcoin the I don't want to say reserve currency but basically maybe the
Internet's currency is the idea that AI agents one day will want will will
require the ability to to conduct financial transactions so for example
maybe my personal assistant AI agent is booking me a vacation and it's actually
just interfacing with you know travel agent AI agent and Bitcoin or like a
CKBTC on ICP could be used as the medium of exchange that basically gets
that instant finality the two agents can can engage in whatever negotiation
that they need to and then and then the transactions all handled in a second is
that I don't know I'm gonna I'm just gonna throw that out there to see if
you have any thoughts on that or I think if you don't if you don't see
that AI is gonna take over the world in the next 20 years you're on a
different planet than me because it's it's pretty clear to me that the world
is gonna be run by intelligent machines in the next 20 years and you know
we may be their pets or we may or they you know we may be their prisoners I'm
not sure you know but but AI is definitely taking over the world and and
you know we definitely need to have a standard version of money right that the
AI uses it's really about standards right so the question is right now
is the standard going to be the US dollar I can I can say right now I don't think
so because I think giving the US the ability to print infinite amount of
dollars and nobody else has that ability is not something the rest of the world's
going to accept much longer so doesn't mean that the US is doomed in any way
it just means that this particular advantage that they've had since 1971 is
kind of we're nearing the end of it right we can't we can't have this
complete access to the printing press forever I don't think and so I do think
we're you know if you VJ boy a potty had this fantastic chart where he's looked
is that you know for the first couple thousand years of civilization you have
the gold standard right hard money and then you have like this inter inter
regnum period you know where fiat happened right that's maybe a hundred
years been like that you know and then and then we're gonna move again to hard
money which is gonna be Bitcoin that's probably I I think that I subscribe to
that general view I think that's that's probably the case and we really need to
separate out you know the roles of these currencies these blockchains right
because I think Bitcoin is the hard money that gold was but it's a better
version of hard money it has you know it has a couple key advantages versus gold
and versus fiat and I saw this one graph and it's like fiat is is easy to
print right it's it's it's not hard but it's easy to move but you know Bitcoin is
hard money you know but it's also easy to move so it has in gold you know is hard
money but it's hard to move so if you look at kind of that that that that
framework Bitcoin kind of wins on all sides it's hard money and it's easy to
move it's also easy to audit and it's also easy to secure personally so I think
it really is just a better form of money that was invented by Satoshi Nakamoto
and you know and it's it's slowly not even slowly it's quickly getting
integrated into the rest of the financial system and into the rest of
the technological system right so I think you know the integration into
like ICP is like the integration of this new standard of what money is into other
chains you know or WBTC you know I mean but there's all these different you
know integrations or the integration into the financial system as we know it
through ETFs right so I think this new version of hard money is getting
integrated into the rest of the world through number of different integration
points and the net effect of this is going to be that Bitcoin is going to
continue to grow as a power law versus time and Bitcoin price is going to grow
as a power law hash rate is going to continue to grow as a power law and
Bitcoin addresses are going to continue to grow as a power law so these power
laws are present completely in all different parts of Bitcoin and they
really just show that Bitcoin is taking over the world right not taking it over
day by day but month by month year by year it's taking over the world it's
almost an unstoppable force I love that it's taking over the world without
essentially without like a large sponsor too right like it's just organic I would
really think of it as a virus I mean it really is like you know I like to point
out you know that this is very similar to COVID you know what I remember when COVID
came out actually I had this group on Facebook which I subsequently left but I
had this enormous group on Facebook that I started just for tracking in the
mathematical growth of COVID and you know you know become being a kind of
math guy I was like let me let me let me do some charts and stuff and and it
was like me and Balaji were both doing this stuff right but I had you know I had
a lot of I saw all these patterns I'm like wait a second everybody's gonna get
COVID and everybody's like no you're crazy Fred everybody's not gonna get
COVID well everybody did get COVID right I'm sure if you did a poll on this
group 80% of the people here have had COVID that they know and the other 20%
probably got it but they don't know they got it right it's just it's a virus it's
it's it's the perfect virus it viruses like this just infect everybody it's
it's an awesome way to say Bitcoin is a virus again actually it has it has a lot
of virus like properties but you keep mentioning power law and that brings me
to it's not necessarily a power law but I wanted to essentially ask I know you've
you've taken a harsh stance on stock to flow Plan B stock to flow model and want
to give you kind of like a space to explain what you think is the downfall of
stock to flow and and why you think the power law is a much better way to
think through okay so there's a subject I love because look I had I you know I
remember power law when it came out in 2019 2020 right and then it was very big
for a couple years and then in 2022 it was sort of was not predicting the way
things were and I just sort of lost interest in it as did most people and
then you know I I kind of got into this power law thing and I sort of saw
it and then and this guy Giovanni kind of messaged me it's like oh by the way
that's my law and I'm like what and he goes yeah no I first discovered this in
2014 nobody nobody nobody you know nobody paid any attention to me and I'm
like well Giovanni this is like amazing so we talked a lot and you know he's
he's a fellow math guy and so you know we're kindred spirits and so you know he
walked me through it all and everything I met look and I have another friend
Stephen Perron I was also an astrophysicist and also you know has
done all his own work on these power laws and so the bottom line is the power
law is very simple and you can you can everybody here should do their own
homework on it because it's not hard to do yourself and you will realize
yourself that it's a fact it's not it's not it's not a theory it's you
just graph the price of Bitcoin in log space against the price the time since
Genesis also in log space and if you do that and I've encouraged everybody to do
that and I posted you know examples of everybody who's successfully done that
and you know Twitter and basically you will find that it's a straight line
there's a straight line and you know the the variation around that line is you
know is within one standard deviation is 95% of the time is within one standard
deviation so the R squared is 94 the correlation coefficient is 96 and this
this is not by chance now how did stock to flow get so famous well stock to flow
got so famous because first of all it was promoted very well right so it came out
and it basically came out with an idea that resonated very well with Bitcoin
rate which is that Bitcoin price is very influenced by the happening right and
there's been three of these things so far there will be a fourth one that
happens in 30 days and it's almost achieved a mythical kind of quality
around Bitcoiners there's having parties you know it's like the
happening is coming in 30 days everything blah blah blah and so everybody
everybody in Bitcoin loves the fact that there's 21 million coins which I love as
well and they they're fascinated by this idea of scarcity like I've got some
now there's it's scarce and so when the stock to flow came out and said wait a
second the stock to flow of Bitcoin is going up mathematically everybody's like
oh maybe that single variable can explain the price of Bitcoin and you know
plan B came out and said yes it can in fact everything that you've seen with
Bitcoin can be explained by stock to flow now and then they said by the way
stock to flow is going to increase over gold and you know now basically in the
in the next 30 days that will substantially be higher in gold the
stock to flow well the problem is first of all stock to flow is a terrible
predictor of the price of gold for example it doesn't apply at all to the
price of gold you know you look over the last 20 years the stock to flow on
golds been more or less zero flat and price of gold been very volatile and
moved from 400 up to 1800 down to 1200 and back up to 2100 right so
stock to flow is not a great indicator of the value of gold and the only reason
it works for Bitcoin is that it's a monotonic function of time and Bitcoin is
a power law in time Bitcoin price so just the mathematics of it mean that
it's an okay fit in the past but it's probably not going to be a very good fit
in the future in fact right now if you look at this stock of Bitcoin it's
pretty much fixed it's 20 million 19.6 million Bitcoin so the stock of
Bitcoin is not going anywhere and the flow of Bitcoin is going down by a factor
of two every four years so the stock to flow model from here is just saying
we're gonna double every four years that's that's the entire entirety of the
model and that's just played like placing brains on the chessboard and
you realize that that's not sustainable so listen the model it from a
mathematical point of view you know all I can tell you is that it's a it's
a flawed model from a mathematical point of view but even more important it's just
it is not the case that the stock to flow of things like gold or silver dictates
their price it's not the case so it's a flawed logical thing it's a flawed
mathematical thing we just need to stop thinking about this thing and I know
it's hard because so many Bitcoiners are like yeah it's part of the mythology
of Bitcoin at this point and so yeah I hate it's like telling people that
astrology doesn't work you know you know there's a lot of people here probably
believe that you know I'm a Libra so you know they go Wow friends a Libra okay
that means something no it means nothing yeah I know as a statistician in a
former life I I took some fault with some of plan B's methodology part
primarily the more he adjusted his model the more it got away from he
didn't even have multiple versions of the model it's sort of like which versions
they use in them people like well Fred you should use the original version okay
you mean not the version that he's putting on the website now and you know
they used to be the old version the old version is better because it's older
I'm like well you could sort of say the new version is better because it's
newer I don't want to get into it too much but it's just look it's just a
it's a it's a thought a wanky janky kind of model it's it's not I just I just don't
think that I think people have put over emphasis on this model and you know the
model that is on the plan B website says that the price of Bitcoin is going to
14 million in five years okay that's the model you can go to the website
right now that's what it tells you 14 million in five years I think that's
just a little aggressive to be promoting the idea that Bitcoin is going to be
going to 14 million in five years I mean I I couldn't be more happy if it does
you know and I'm certainly gonna own a quite a bit of Bitcoin in five years
and if it goes to 14 million you can all kind of visit me on my private island
okay I'm buying you know you know what what maybe a large private island maybe
I'll buy you know a version Gordo from from Richard Branson you know and we'll
call it Kruger Island you know at 14 at 14 million I can probably afford it at 14
million Fred I'd be happy to accept an invitation to your private island and
and just mention we can laugh over how we were both wrong and and enjoy the life
of being wrong like the movie Trading Places and I'll be looking good Kyle and
you'll be going feeling good Fred is there something to be said about so it
you know in traditional economics you would have you have supply and demand and
oftentimes those two variables are confounding variables and so it's almost
impossible to really truly get a good model for an asset based on supply
demand but with Bitcoin you have a supply schedule that is fixed is there
anything to that in terms of being able to maybe maybe the better word to say is
understand demand based on supply and price action well look I think the the
demand for Bitcoin out of these ETFs in particular over the next four years is
going to be so much more than the difference in supply between 900 Bitcoin
a day and where we're going which is 450 Bitcoin a day I don't see that that
450 Bitcoin a day is going to make it that much of a difference right now you
know it it it's it's hard to really try to estimate things just based on that
not that having number I I think it's it's a rough and here's kind of my
diverge a little bit here which is if you look at the power law of hashrate you'll
find that it goes at T to the power 12 okay and if you look at the power law
of of prices it goes at T to the power 6 so how come we have T to the 12 power
12 for hashrate and T to the power 6 for for prices I would say the reason
for that is there's two variables there that you have to consider one is Moore's
law right which says that the number of the chips on transistor doubles in two
years right and then the second is how much money is being put into miners right
you know because if if if Moore's law and sorry so the second is the is the
halvening schedule right which is a drop of half over two years over four years so
the Moore's law is is a 4x over two years right the halvening is a 2x over
four years so the combination of those two things kind of works out to kind of
a 2x over four years and so I think that 2x over four years combined with the
price being T to the power 6 is what you would get to the T to the power 12
roughly so you know that's sort of a general kind of view of kind of the
the halvening the halvening with Moore's law it's clear to me that Satoshi put
in the halvening number one to get to a finite supply but also to fight Moore's
law but he could have gone to he could have said I'm gonna have happening every
two years not every four years right which would have been exactly Moore's
law yeah that is that is an interesting thought experiment that T to the power
12 versus T to the power 6 just I think captures precisely how challenging it is
to be in the mining business I mean it's a crazy business right like if
it's sort of like this if imagine that there was no halvening right and imagine
that there was no Moore's law right how much would you be willing to invest in
mining I would argue you should invest exactly as price goes up right you see
what I'm saying because you're gonna you're basically gonna invest you know
if price doubles you probably want to double the amount of money you invest in
miners right but now you have this additional problem because you know as
as price doubles well you know the the the hash rate the sorry the it over a
period of four years okay the the the hash rate is gonna go up the processing
power is going up by 4x right and and you so you've got these companies things
and if you're not playing these things exactly right you're gonna lose money
it's not to say some people smart guys can make money but it just seems like a
very very very tough business and as the guy's done a very small amount of
mining himself I just I'd to me I'd throw my hands up and I'd say why are
people doing this I as opposed to buying Bitcoin I don't know if they're
just too short-sighted in my opinion yeah yeah you could see it in the
actions of the miners as well where you have marathon for example a few weeks
ago announced I believe it was Arduina essentially trying to generate revenue
through through exactly what you're saying of side chains and L2s and
scriptions are gonna potentially generate a lot of fees for them and look maybe
yeah they may be right for the next year or two or whatever you know but
it's just to me if you if you believe that Bitcoin price is a power law you kind
of don't need to think about owning a miner you just need to think about not
selling your Bitcoin yeah right I mean this is that simple right if you think do
you think Bitcoin price is going to a million dollars if the answer is yes you
you know exactly what to do you just hold Bitcoin until until the million
dollar number hits that's it you do not need to mine anything you know and
that's kind of what Michael sailors doing right you'll notice that Michael
sailor is not buying a mining company right now where he could he's got the
money but he's not mining he's just holding on and getting more Bitcoin yeah
is there so you mentioned I'm obviously with the having it's gonna take though
the having coming up next month I actually almost exactly a month from now
is gonna take 450 Bitcoin a day out of supply but earlier you mentioned that the
demand just from the ETFs is on the order of magnitude of thousands maybe even
close to 10,000 per day and so it from that perspective the having probably is
less not really even it's almost like a bucket in a pond in terms of its impact
is it more just now a cultural like a cultural celebration rather than a
something that drives Bitcoin behavior I think so I think so but I think look you
know it's sort of like you know the they say that you know if you if you believe
in the thing then the thing will exist yeah so I do think that the cut means
are kind of important I think the having is part it's it's all part of
the mythology of Bitcoin that's kind of reinforcing to people why they should
be have some allocation to Bitcoin so I think the memes are important just like
you know the origin story of Bitcoin is very important you know all this stuff's
important as part of our know Bitcoin is valuable because people think it's
valuable so this is all part of the the brainwashing that you know we're
brainwashing ourselves to believe that this thing is valuable you know and and
and as a result of our collective brainwashing we are going to create
something that's very valuable we're going to use that thing as the kind of
oil that's lubricates the world economy but we gotta all believe in the you
know we it's kind of like in that that book sapiens you know we all it's kind
of a global hallucination that we all have to kind of start believing in you
know and so if we if we all believe in the hallucination the hallucination is
that is a phenomenal reference and a and a very good book to read that opened my
eyes of just how to think through exactly what you're talking about of humans are
very good at believing things that that don't necessarily have any any basis in
reality before I know we're wrapping we're coming to the end I want to be
respectful of your time but we had a last time we talked we talked about the
ETH ETF I think when we talked about it it seemed like it was almost dead on
arrival just because of basically the way the Bitcoin ETF was communicated from the
SEC sounded like they were shutting the door on their way out but now it's still
it's still kind of in the lexicon like what are where are you at right now on
a on an ethereum ETF I don't think we're gonna get one this year okay you know
will we see one next year possibly right but you know I have no idea who's gonna
be president of the United States next year I mean I really don't you know and
so I find it very hard to predict you know what the SEC or the powers that be
you know look all I can feel is there's people now writing letters you know
senator saying that we shouldn't have an ETH ETF because you know this Bitcoin ETF
already went out of control so I just don't think we're gonna get one I think
that you know if this thing went from this is a 70% chance to it's a 35%
chance that's where the Bloomberg guys are in terms of their you know they're
handicapping it and they were right on the Bitcoin one so yeah I mean they're a
little they're better than me it's kind of handicapping this but I just don't
think it's gonna happen this year and I think that's gonna be probably very good
for Bitcoin because I think the Bitcoin if we get one year one more year kind
of to solidify the position of Bitcoin on Wall Street I think that year will be
you know that's it that's a that's a big head start you know so you know it
could happen but I would it would surprise me if we saw an ETH ETF in May I
think that would really surprise me okay no fair enough and and again it
definitely seemed like the SEC wanted to shut down that conversation before it
even got started it felt like Gary Gensler went out of his way to say we
don't want to do an Ethereum ETF does not want to do an Ethereum now will he
be his hand be somewhat forced like it was with the grayscale lawsuit maybe
I don't know I just kind of think that overall he's gonna punch it down the
road even with some court challenges he'll punch it down the road past the past
the election yep makes sense definitely makes sense well this has been an
awesome and amazing conversation probably great and I didn't realize you're you
have you you know so training as a statistic that's fantastic yeah I just
love talking to anybody who's coming I a background that's just I love that so
I'll even one up and I didn't go down this road when the conversation came up
but I spent 2020 and 2021 working for a COVID vaccine company so so those the
power law you're talking about for a virus I know it from a deeply
mathematical perspective but so everyone listening I want to thank you for your
time definitely give Fred a follow throughout this conversation Fred
mentioned a lot of good experts and and people with a diverse set of opinions on
Bitcoin and Bitcoin ETFs I recommend given all those a follow and Fred I'll
give you the the microphone to close this out well Kyle just thank you for
for having me and you know look I'm a supporter of kind of these rap chains
and how they handle Bitcoin a lot of people may say that that doesn't make me
a true maxi but listen I mean my my thing is I feel like bitcoins won the
big battle but I think there's you know there's there's room for all these
other chains and approaches and so I would just encourage everybody who's super
pro Bitcoin to also be a little bit more open-minded with respect to you
know some of the impact of the intersection of Bitcoin with other forms
of crypto that's it I love it thank you so much Fred I appreciate it having you
on here and I hope you do it again thanks Kyle bye