Embracing Bitcoin: A Conversation with Jay Bluestine of Blue Square Wealth (E2)

(logo whooshing) - I'm Phil Arman. - And I'm Douglas Borthwick. - And this is "Old Men, New Money." - Welcome to today's to have our guest. It's Jay Blustein from Blue Square Wealth. Jay, I've known for quite some time. It's gotta be at least five or six years now. I ran into him at a conference and I think we've been back and forth ever since. And I think Jay's a great guest for us because what he's doing is he's taking new money, like Bitcoin, and finding ways for people to invest in it with less volatility in paper form. But really, Jay, why don't you introduce yourself to the audience and let us know all about your background.

- Sure, Phil and Doug, thanks for having me. And I can't believe it's five years, Doug, since you and I have time flies when you're having fun. I come from the traditional investment world. I was a UBS, Smith Barney/Morgan Stanley, Merrill Lynch guy. In 2018, we started Blue Square. When I worked my majority of my career, we've always been risk managers. So we've always used sort of cash to risk manage or local risk assets through different alcoves and the manager overlays. And in 2013, a dear friend of mine was peppering me incessantly about this Bitcoin thing.

And when we started Blue Square in 2018, some of our clients were starting to invest the VCs private equities in the space. And so we started to get involved in the ecosystem and took about a two-year deep dive in learning about it. And we've spent the better part. We launched recently Digital Asset Vision. However, in 2022, we launched a risk managed Digital Asset Hedge Fund.

And we've just been looking for ways as a regulated entity to give people exposure to the underlining asset, but do so in a way that allows us to hopefully mitigate the drawdowns, which most investors aren't gonna sustain 80% drawdowns, and then participate in as much as the upside in the asset classes we possibly can. So we're extremely excited about digital assets in general. We're extremely excited about the regulated ecosystem that we've created and are creating, and we think others need to create. And so we really look at ourselves as a bridge, right? So trad-fi entity-fi, and it's been an exciting time to say the least.

So hopefully that's helpful. I'm about, I should say, I'm almost 30 years in the industry, so I've had my trials and tribulations, and I liken back to what's going on now to the internet bubble, right? So this new wonderful thing is being created, and so a few people understand what it is or what its value proposition is. And I think it's hard for us to even really know long-term what is going to be created, if we look back at the internet from 1995, knowing that Uber was gonna exist as an example.

So lots of exciting things to happen over the next 10 to 15, 20 years, and lots of opportunity in our opinion to create value and both from a financial standpoint and from a application standpoint. - I'm a Morgan Stanley Merrill guy too, so that's exciting to know that in your background. So hedge fund, right? I think a lot of guys hear that and they think, "Oh, that's only for wealthy people." People don't even know how to invest in a hedge fund because they read about them, but they don't ever know how to invest in something like that. How does someone invest in a hedge fund?

- Yeah, so just to take a step back, hedge fund was our first foray into the space because at the time when we started investing, and we started investing in Bitcoin as our first jump in, to do so in a way that would be accessible and productive for our clients to risk manage the asset. We were using GBTC at the time, which is now an ETF, but back then was NETP was somewhat of a closed ended fund and it would trade at a premium or a discount to NAV. And that's a very hard asset to risk manage. So a hedge fund is a traditional structure that traditional investors are familiar with.

And to your point, it is true that it is for a higher net worth individual. In this instance, you need to be either what's called a qualified client, which is someone who has 2.2 million or more in investable assets or a qualified purchaser, depending on what type of an hedge fund you're investing in because of these digital assets, at least Bitcoin is considered commodity. And those are the, that's the litmus test for that. I know in our instance, we're at a $250,000 minimum. And for some people, that's not realistic. And for others, it is.

But that's one of the exciting things that we're doing is we're working on creating solutions for regulated solutions that look and feel like traditional investment vehicles that people are familiar and comfortable with, where we're hopefully creating the most secure environment we possibly can. And that's where I spend a lot of my time. We could talk about like how to invest and whatnot, but that's what hedge funds are in general, a limited partnership where individuals or institutions can invest in a pooled vehicle, which means it's discretionary managed and all the money is pooled together.

And we have a fund manager who's running the capital in some strategy and the investments are typically run by what's called the general partner. And the general partner is the person who has the power and attorney to fiduciary responsibility as well to implement and hire and fire or manage the money. So that's what a hedge fund is.

And that's why that was our first step into the ecosystem once we realized that GBPC wasn't the way because we really needed the flexibility to access the ecosystem, access things like, and maybe we're going ahead of ourselves, but things like the institutional custody solutions and so on and so forth, prime brokerage, different ways of being able to trade, so on and so forth. - When people want to invest in your fund, so they've got to cut you a check for $250,000. Could they give you $250,000 of let's say Bitcoin, and then you would essentially take Bitcoin and then manage it? - Yes, they could.

So from an offshore standpoint, we would see potentially people doing that. It's a tax consideration, right? So that's really a tax question, which, you know, provide tax advice. But what I've seen is people tend to send capital to us for the fund that are US based investors and offshore and different jurisdictions. They have the capability just to provide us with Bitcoin because you're basically swapping out your Bitcoin holding for a fund holding. And you would have someone have to talk to their accountant to see if that was a taxable event or not.

But in any event, so the issue is what's really important for us with all of our investment solutions and kudos to these ETFs and ETPs that are in the marketplace 'cause they give people an opportunity to have a first step in. But what was really important for us is that people are able to ultimately own the underlining exposure. We could talk about some of our other platforms and what we're doing and what other people might be doing in the space. But with our hedge fund, we provide either cash or in-kind distributions.

So right now we're seeing people more sending in dollars and then if they are taking distributions, they're typically taking them in-kind. - So when I think about Bitcoin, I think most guys, early adopters are sitting it with the Bitcoin in a wallet and it's a very personal thing for them. They bought it, they hold it in their wallet, not your keys, not your Bitcoin. The newest investors are going out there, they're buying IBits or other ETFs, but there's a lot of volatility with that, right? You're buying something with this very long-term view, this thing's gonna go to a million dollars, Bitcoin's going to a million, even higher.

Samsung is very excited about where it's going. I think sailor is too obviously. And I think in general, the market is feeling a sense of it's gonna go higher. And I think of it as a real estate, right? I know real estate is going to appreciate in time, but there's going to be draw downs. In the '70s, townhouses collapsed in price in Manhattan and the townhouse you could have bought for $50,000 is maybe worth 25 million today. There's going to be time horizons where it's horrible. - And what you're doing is you're adding in some derivatives to make sure that the draw downs perhaps are less, so there's less volatility, is that right?

- Potentially, it depends on our product. So just to take a step back for a second. So we think there's, right now our digital asset platform is really three different components to it. So one is this hedge fund. One is what I would call a wealth management platform, which is a separately managed account platform, which has minimum $25,000 and people can access it simply and easily. And there are a number of other companies that have a similar type of platform.

And a third, which is a custom solutions where we're taking people who have concentrated positions, five million plus, and we're using commodity links flops that we can hold in cold storage, the collateral for. So everything that we're doing, we're trying to custody in cold storage and wherever possible, trade out of cold storage. Everything we're trying to do is in the US regulated ecosystem, we're a regulated company. And I think that's the crucial thing. So when we had in 2022, the big drawdown, a lot of companies had exposure overseas and we're using options.

So to answer your question from an investment standpoint, in all three of those, we have the capability to risk manage using cash. So that's our meat and potatoes, but was always identifying different algorithms. First, the technical with traditional assets and then using on-chain data and integrating to, to risk manage with cash and adjust long exposure. So that's to me the most basic and effective way.

Secondly, in our custom solutions and in our hedge fund, we're starting to use these commodity link swaps, which I think are very interesting and that I prefer to the other options that are currently listed in the United States, which are on futures, right? So it's to me, futures derivatives of derivatives, which the options under those are a little wonky to me. So I like the idea of having collateral in cold storage and third party control. And I think that's the big issue here with all these, but yeah, so options and hedging is one vehicle. And so the ecosystem as a whole right now is still unbelievably immature.

So foundationally, the infrastructure exists to, in my opinion, to properly custody and to do the type of transactions that you would want to do to add value to a long only buy hold strategy. Although for some people that's appropriate too. In my estimation, we felt that, and this is not investment advice and there was anything else that I'm talking about today. I'm just telling you my experience and what I believe. But in our opinion, somewhere along a 5% to 15% allocation depending on someone's circumstances is an appropriate place to start.

Now back in 2022 when we started investing in the space, that was like, people thought we were crazy like traditional investment firms until BlackRock came out with their white paper and suggested that 80% would be appropriate for a growth investor and 12.5% would be appropriate for a conservative investor. So the way that I look at this whole thing is from an investment standpoint. I am very comfortable long-term with Bitcoin. I think just like Netscape and AOL and 95 through 2000, these different blockchains, L1s, L2s and lots of different things that are going on. I think we're still so early in the game.

We're still looking at these things cycled by cycle, right? But from a financial standpoint or investment standpoint, we want to optimize for risk and return. We try to identify investment strategies where we can get a 50% no more max drawdown which is from peak to drop in a cycle. So if Bitcoin were to go down 80, hopefully we'll go down 40 or less, that's our objective. And then compound off of that higher level and capture between 80 and 100%. Now, hopefully we can do better.

But if we just do that, then based on our assumptions as to long-term growth characteristics, we can give someone who might take one to 2% because of the volatility and give them create a return stream that is somewhere more comfortable for them and have a 50 to 5% allocation so that they can get a greater return in their portfolios, right? And so that's how we see it on a risk adjusted basis. - Would you consider yourself a Bitcoin maximalist? It's called the digital assets. But are there other digital assets that you're looking at and considering?

- Yeah, so in our fund and in our separately managed accounts, we do have Bitcoin plus strategies. And so we do risk manage Bitcoin Ethereum and Solano right now. In our fund, we can have up to a 10% allocation of what we call Altcoins which is basically any digital asset other than Bitcoin. And we could talk about alt season and what that is in different times, different digital assets, maybe historically outperform Bitcoin and maybe they will again this cycle. But we currently have some exposure in Solano right now is the only other digital asset that we're currently invested in. But I think there's lots of opportunity out there.

And so we can talk about the different classifications, digital assets, we can talk about the different times that they may or may not outperform. So I spent a lot of my time looking at digital assets divided by Bitcoin, divided by Ethereum, divided by Solano to see which ones are outperforming at any point in time. And then considering why and whether they might be productive investments. - Now, did you get into Solano because obviously it sounds like it's the next one after Ethereum ETFs hit the market. And now there's discussion of Solano ETFs. Is that sort of like the reason or is it because it's top three?

- No, I think Solano is an extremely interesting, one might say evolution of Ethereum. They're not, I think institutionally they're not where they wanna be yet. Because I think if you're building your blockchain as a layer two on top of or your application on Ethereum, if you're not gonna lose your job as a CTO or an institutional company, right? But what Solano is doing, it's very interesting to me. Maybe we could take a real step back. Both Bitcoin, Ethereum and Solano are as layer one, the foundational blockchains.

And then what people have been doing to scale them is create layer twos, add functionality and then build applications on top of it. And maybe we'll stop there or maybe we'll have three or four layers of defense in different ecosystems, different opportunities. Having said that, what I find interesting about what Solano is doing is they're trying to create a layer one only application ecosystems. They're trying to have unbelievable speed, unbelievable capacity and have it be unbelievably cheap.

And if we wanna have something like securities trading on blockchain, global adoption in that regard, you need very inexpensive and very fast and very, a lot of animals, right? And so what you can do by having the layer one is they're created something called extensions where from a financial standpoint, they're building in the regulatory infrastructure into the layer one so that the layer twos don't need to exist so that application companies don't need to go and build it. So like as everyone may or may not know, there's a huge issue with whether these tokens are or are not securities.

And so having the functionality built into the base layer now, if I'm creating a new application and the token that I'm going to be creating is considered a security, I don't have to worry about building out that functionality or that regulatory framework 'cause it's built into the layer one. So I find these things very interesting. And then on top of that, they're hopefully going to, looks like it's proceeding very quickly and that is an upgrade called FireDancer, which is gonna make them even faster. So you're seeing a lot of adoption there.

So you wanna look at network adoption when you're looking at these layer ones and you wanna think about what the technology is that's behind them. And of course, when if I look out in the ecosystem, you asked me before, am I a Bitcoin maximalist? I would say yes, because if I look right now at the ecosystem and you ask me, you put a gun to my head and say, which one is gonna be here in 15 or 20 years and survive?

Bitcoin, to my mind's eyes, the only one we can look at right now and say, and having gone through the internet and seen so many companies and all the consolidation and the rebirth and consolidation and 5%, they say, or something to that effect of the market capitalization was accrued to, let's say 10 companies. And we were talking Netscape AOL in '95 to 2000 and those companies barely even exist today or don't exist at all. And Google didn't exist then. And look where that can happen in this sector as well. So that's what I was saying. So Solana, yes, is where we see opportunity.

I also see a lot of opportunity in what they're calling RWAs, with real world assets, which is still very nascent and is something that the Solana blockchain is looking at. I think a lot of these meme coins, although we're not invested in them from a fund level or from a separate managed account level, I think ecosystems and network effects are unbelievably important. So if you create a community of millions and millions of people, tens of millions, hundreds of millions, billions, whatever it winds up becoming, even if it's around a dog or a picture of some animal, it doesn't matter.

Because if you have a passionate group who are part of that community, then they'll back up into that functionality that will eventually create a value proposition. Now, this is my opinion. So I think there's lots of interesting things that are going on. You have real world applications, other blockchains that are creating a render where you have access to different access computer capacity on your computers, giving others who need to, need the capacity for let's say AI calculations and things like that.

Blockchains like Helium that are doing where they don't have the ability to build out extra towers 'cause there isn't a cost function to it, that people can put routers and actually expand the capacity of a wireless tower and generate value from that. Just the blockchain in general, it's just so interesting and so misunderstood by people because at the end of the day, like it's just a database, right? So Excel is just a database, right? I heard a great analogy the other day that really resonated with me. What is a blockchain, right? And why does it have value?

And we're like, hey, you go into a bank and that's like the first layer of security, right? Hey, that's any database or any Excel spreadsheet. But then once you're in the database or in the Excel spreadsheet, you can just change the data to anyone that has access to it can change. That'd be like walking into a bank and having just money sitting out there and just you could just access the money and anyone could grab it or anyone could do what they want with it versus having lock boxes where you then need the bank to have a key and you need to have a key and you need to access your information or what have you.

So there's just so many different real world applications and things that we're not even doing right now. Like I think the primary focus of what's going on is reinventing the financial infrastructure. And there's lots of different things we could talk about in that area. - They're talking now about like a strategic petroleum reserve but having a strategic Bitcoin reserve. - Yeah, that's a whole like, before we get there, I just wanted to say one of the things I like, but we have things like our health records and our identity that we wanna be able to share with others at certain points in time and then not share.

And right now that information is in custody with us, but it should be because it's our personal information, it's our personal identity. And so there's just so many different examples of this. You were saying, I apologize about nation state adoption. If we wanna talk about Bitcoin specifically, yeah. I think a lot of countries are thinking El Salvador has been in, I don't wanna say unbelievable success story, but I've been down there a few times and it's a burgeoning success story. And if you think about the United States, the current amount of debt that we have is astronomical.

The refinancing of that is happening somewhere between a four to six year cycle and it's just getting more and more expensive to refinance that debt. We're just gonna have to keep printing more and more money until we resolve that, until we have significant enough GDP growth to offset whatever debt we've created. And it doesn't look like that's gonna be happening anytime soon. That's really a 10 to 15 year story from robotics and AI and productivity enhancements and that's a whole other.

Having, if they're gonna continue to debase the currency, whether that's in the US, Europe, China, wherever, then that's the denominator of the value of assets. So if I own a home and it's worth a million dollars and they doubled the amount of money in circulation, then the value of my home goes to $2 million potentially, but I didn't really get any appreciation, just the value of the dollar got cut, right? 'Cause it's twice as much in circulation.

So thinking about ways that countries can strategically back their currencies as they are devaluing them, because this isn't just a US problem, it's a global problem that started from the financial crisis and then was exacerbated from COVID, right? Is by in some way, shape or form backing their currency with some basket of commodities, whether that be the S&P 500 securities, real estate, REITs or commodities in general, whether that be gold or Bitcoin or what have you. So for me, from a Bitcoin standpoint, it's just a very simple story. I think people get like really in the weeds on this thing. It's supply and demand.

And the ETFs and BlackRock and Fidelity and large asset managers like Templeton and going out into the marketplace and beating the drum with their massive sales forces, you would think, and in my mind's eyes, the first opportunity for individuals to invest in an asset class before institutional adoption has fully occurred. And because of the properties of Bitcoin, it's not been non-correlated historically. It's had a strong return correlation. The monetary policy, the new issuance, as you guys know, is programmed in, there's a fixed supply, 21 million.

After the next half thing, it'll be invested as an asset in the world based on stock-to-flow. It's just really attractive from a financial standpoint. I don't know that we've ever had a fixed supply asset before that has institutional adoption just starting. And it's becoming cool now to be an institutional adopter, right? Larry Finks made it cool. Yeah, I think about it a different way because I was talking to somebody about this the other day. So Blue Square is a wholly owned subsidiary. It's a division of our parent company, which is Blue Square Asset Management. So we have a wealth management business. We have an asset management business.

We have a digital asset business, right? So there's something going on in the wealth management industry right now where a lot of people, there's a lot of M&A coming along where they're trying to buy some TQ wealth management firms, roll them up and make them bigger and then try to flip the big firm because you get a better valuation for a much larger company than you do a smaller company. And when I received a lot of phone calls, which I probably get one a week, but probably speak to somebody like once a month, in all of those instances I say to them, I'm like, hey, look, wealth management business, very interesting. I'm very interested.

What I'm most interested in is how much can you invest in the hedge fund and how can we make the digital asset business that we've created that is, I'm sure there are others but one of the very few that are operating in a regulated ecosystem that provides a full scope of solutions and services that your clients might potentially need. At least today. And let it be the default for the platform. And so you'll get like the COO, the president, the CEO and they'll be like, yes, we need differentiation. Yes, all these different things. And then, but we need to talk to compliance.

They'll come back to you and say, we need six months compliance, not there yet. So there's like two or three different types of institutional adoption, right? So where I see right now is that the, if you're a balanced mutual fund manager, you are managing some balanced strategy for whomever in a separately managed account. And you're not adding one to 2% rent allocation to Bitcoin or theory when it comes out or what have you. They could lose one to 2% in any investment on any given day. But if they don't do that and these things go up five acts, I think they lose their job 'cause their underperformance is so significant.

Whereas if they lose the one to 2%, which you and I don't believe that could ever possibly happen but anything in this world is possible. Then that could be like any other investment that they have that can go down significantly. But the wealth management firms with this tremendous amount of capital tied up and they're in these asset allocation models that the clients don't even know what potentially they're investing in or they may know, but when they change it, the companies have discretion. So there's a progression there, right? Like the first progression is our financial advisors can recommend Bitcoin for our clients.

And none of the major firms have done that yet. I think one of them will sometime in the third or fourth quarter and then everybody will have to follow. And then the question is, and if you're asking, my thesis for this cycle might be that in the late stages of the cycle, they'll actually add it to their asset allocation models. And that will drive the last really big run up. But what's a little scary about that in my is because they rebalance, right? So they'll be selling on the way up and not getting all of the return on a relative basis. And then they'll be buying on the way down.

And at what point did the clients call up and say, "Hey, we're down 30% you keep buying. Take me out of the digital asset allocation models and don't ever put me in them again." And so then you could have an asset class that goes from two to two and a half to 10 trillion. And then if the asset class goes down 80%, hey, that's $8 trillion of wealth. That's let's not say destroyed, but that's been short-term eliminated. And the emotional roller coaster as it pertains to traditional assets, people love to buy high and sell low.

So in this instance, if they don't know that they're in the asset and then they find out about it, they're gonna get out. So we might have, this cycle may be a much bigger cycle, depending on institutional adoption. And we also might have a situation where the bear market is slightly more prolonged than traditionally has been experienced over the last four cycles. 'Cause as your digital asset ecosystem has had a four year cycle to it. And I think that'll still continue, but I think maybe this one could be slightly different.

Now, hopefully institutional adoption as it goes on may create and people believe it will smooth out the variability of the ecosystem over the longterm. I don't know what the longterm is, but what I can tell you is that in my opinion, it's gonna be many more cycles because it's still such a thin, thinly traded on a relative basis from a supply, right? There's only 20 to 30% of the supply is available. As more money comes in, the market cap goes up.

It's more dollar terms, but it's- - On that note, can you tell the person that maybe isn't the financial savvy investor, the significance of these ETFs getting approved and what type of signal that shows the masses that institutions are acknowledging this and that more is to come and what does that mean? What is that a signal of? - On the one hand, just because the ETF is created, it doesn't necessarily mean that institutional adoption is coming. I think Doug, you had mentioned earlier that Larry Fink was on TV the other day- - Digital gold, he calls it, gold.

By the way, that is a very good way to think about from a simplistic standpoint, Bitcoin. And we know that there's more to it than that, but as a store of value, it's digital gold. Makes a lot of sense. And that's another thing we could talk about why. So to get back to your question, what the ETFs do is A, you've got a regulatory stamp of approval. So that's one thing. So now, depending on what my investment policy statement says as an investment professional running institutional money, that opens up a wide array of people who no longer have to deal with the complexities that I was talking about before, cold storage. Oh, how do I own it?

It's a different asset. No, now it's just an ETF like any other asset. Interestingly enough though, I think what many may not realize is that whereas the insurance that we carry from an investment firm standpoint on our traditional assets, that they exclude the Bitcoin ETF from that. And as far as I'm aware, it's one of, if not the only security that's not covered by my insurance. So one of the reasons that we're seeing wealth managers having a difficult time adopting, or starting to adopt, but besides the fact that they don't understand necessarily.

And I'm talking about RIAs and not those large wealth managers, but they have to think through in their insurance, they have to think through their advisory agreements, they have to think through their EDVs, their own compliance people need to get up to speed, and the majority are not, and besides the investment professionals are not. So for one to 2% allocation, that's a lot of work to integrate that into the bundle.

But to get back to your point, the reason that it provides a gateway is because now you have the largest asset manager in the world and one of the most credible asset managers in the world, BlackRock and Fidelity, who are beating the dry, and others, we'll just use the two of those as an example, who are beating the drum and who are out there educating institutions about this asset. And it's a simple supply and demand.

And I think if people can just look at it from that simple standpoint and not get caught up in it's a new asset, it's just a fixed supply and the demand is very limited right now and the supply is limited, but as the demand picks up from ZTFs, it's a major opportunity. But then I think they start going down the rabbit hole and they understand they want to own the underlying asset. And that's what the ETF in the US doesn't afford. Maybe at some time in the future it will. - I think they're volatility busters too. Volatility, I'm from the currency world. And you found out when a central bank gets involved, volatility collapses.

The more the larger players get involved, the more volatility starts to drop. If you think of like just an OTC stock that nobody trades, very volatile. You think about that share that everyone trades, less volatile. And it's the same with currencies. I think it's the same with commodities in that as the larger players get involved, they're holding it for longer. They're not really just reading the news and what's on crypto Twitter and selling it and buying it on the back of that. And the more you get more institutional involvement and then government involvement, the less volatility you'll probably see net and bet on a day-to-day basis.

- I think eventually we do get there once the entire ecosystem matures. But you're gonna see volatility start to drop over time. - Possibly, yeah. - We're still at the start of the cycle in terms of volatility dropping. - The question is how long? Because if you have institutional adoption, what should happen on the way up is that they're selling. So that should make the peaks less. However, they're bringing in trillions of dollars and assets into an ecosystem where the flow is hundreds of billions. - Right, so now you're talking about Omega candles. - Yeah, so well, if that all happened at once, yes.

But then on the downside, which is why you're saying that the volatility gets subsides, is because then they're rebalancing and buying as it's going down and that should level the playing field. But the thing that I stress here is that these are very thinly, the supply and all assets are different. So we're just opposing and pick one out. Let's just stay there for a second. The supply is very thin, right? So massive demand will drive up the price unbelievably. And while people say they're gonna stay in it, even institutional investors, when it starts to go down, they may dump.

- Everyone says they'll stay in it until they've got an emergency event. So they're gonna pay their kids college or they gotta do whatever and they get out. - Yeah, so you don't really know is the issue. And I think long-term your thesis is correct. I wonder if in the next 10 or 15 years, I don't know when that occurs. And so I think that's something that we should be looking for. And this cycle, we've seen it so far. We've only had this last drawdown 28%, but prior to that, we had, I forget if it was four or five or six, but they've all been in the 20% range. 23% range was the target.

But if we look at last cycle, that was 40% cycle before, had 50%. Now that's in the bull market. Bear markets have been still pretty consistent around that 80% level. And we'll just have to see what happens in that cycle. And so that's why we think risk managing this type of volatility is important because you wanna stay in the asset class long-term because if you could just buy and hold, like people, they just bought and hold Amazon. If they just bought and hold Microsoft and bought and hold... - A lot of portfolios. - It's very easy looking back. It's looking back and saying that it's not so easy. The ride wasn't so easy.

- Well, I think a lot of portfolio managers as well, for whatever they put into their portfolio, they have to manage, there's probably gates that say, you can't have something that's volatility over this amount. - Yeah. - Which holds it from the portfolio. Another thing is a lot of real money firms, you'd think that they'd adopt it, but they need to go through all the prospectuses for all of their funds in order to put 2% in and change the prospectus for each one of these funds to allow for digital assets to be added to the portfolio.

And people don't understand that could be a six-month process 'cause once again, it's going to compliance at these very large institutions that need to add in these different assets. - I'm of the opinion that eventually we will, say, softwares follows the road, that we will digitize the majority of assets. Whether the New York Stock Exchange has its own blockchain that it uses for settlement or they're using one of the existing blockchains or they're building on top of it or whatever, I think everything becomes tokenized 'cause it's just a simpler, easier world and takes out a lot of costs.

And of course, with corporations that have modes, they wanna protect those modes, but once it becomes a reality that they're not gonna be able to, then they have to adopt. So I think the good thing for us as long-term believers in digital assets is that the tokenization of both stocks, bonds, commodities, real-world assets, all these things, in my personal opinion, will eventually happen and that will drive because once the primary assets that they're investing in are tokenized, then it really doesn't matter, right? Now they have access to the entire ecosystem. How long this takes? How forward-thinking are they?

When the conversations that I have, you tend to see that people are trying to recreate the modes that they have in the traditional world, in the digital world, and history would say that's not how the game is played, right? - All the tokenization companies that I talked to, and I must talk to most of them, they all talk about how there's lots of issuer demand for things to be tokenized, but the hardest part right now is to find the consumer that understands what a wallet is. The UI/UX just isn't there or everything to be tokenized yet. It's not quite as simple as going on to E-Trade and buying part of a building in Chicago.

Until it gets there, you won't have that, you need the demand there. Now, one of the reasons that Securitize is doing well with the BlackRock, but little, is because they had on-do finance on the other side that says we've got a demand for a digital treasury. We've got retail demand outside the United States, so we'll take down all of it. And that's the sound of things. You've got to find where the demand is first, find the demand of the customer, and then you're just picking and choosing which funds to tokenize. - I think, so two different things. So the intermediate steps that you're talking about are where is it interesting?

One of the areas that you might see is interesting. I was at a presentation the other day on wine, where they said it's a high-end wine, where it's a $300 billion market, it's a very hard market to access, it's a very hard market to store properly. And so if you have the proper entity or corporation that can create the operating system, or the blockchain, for lack of a better term, for or tokenize those assets, then that becomes very interesting, right? We can go through all of them.

I was having a conversation with my neighbor the other day about tokenizing his brownstone, where he rents out two stores and the other, might that be an interesting thing to do? So I think what happens with every technology is what you just said is that it's ubiquity, right? When people don't know that they're using the blockchain, but it's just being used, that'll be at the end, right? And we had no idea, like I was talking about with you before, the premise of this when Bitcoin was created anyway, was that you were gonna be your own bank, right? You were gonna custody all your own stuff and be your own bank.

But we don't know is what that's gonna look like yet. But in my own thesis, that means you have to own the underlining asset. Having a financial return on the asset isn't good enough. And so I've been speaking to some of the asset managers and some of the other application developers who were trying to create what you are suggesting, which is, hey, you wanna be your own bank, here's a way to start doing it. And these things haven't launched yet, and they're thinking about this. And so for the services that you are capable of understanding and operating yourself, great.

But for the ones that you aren't, and you'd like to offer to your quote unquote customers, we're happy to do that for you for a fit, right? I'm seeing some of that kind of stuff. But from our personal perspective, what we're really trying to do is, and what we think is important, is to create the on-ramps so that people don't feel like they're investing in anything different. Because at the end of the day, I'm buying a share of Apple. How is it any different than buying a Bitcoin? Oh, I understand what Apple is, it has a real world product.

If you ask clients and investors, and you ask them about the stocks that they own, or the bonds that they own, the majority, and I'm talking about professional investors, but the majority of individual investors, yes, they have some knowledge, but the majority of them have no knowledge, really. Who's the CEO? No idea. Where are they located? Forget about all the other stuff. What's their new product? - They're all the middlemen. Like what's the debt TCC? Nobody cares. No one cares. - Yeah, yes. Oh, where's the custody? But what is interesting about, if we're just gonna talk about Bitcoin.

So what is interesting is that at a minimum, there is no CEO, right? There is no, yes, it's impacted by macro events, but there is no board to dilute the shares. You had this thing, it's a really interesting thing. I was talking about, I wrote about a little bit, with all the other ETFs, whether you have a stock bond or commodity ETF, when the flows go into the ETF, it's an opportunity for, and there are significant flows, and the price of the assets go up.

It's an opportunity for the commodity manufacturers to make more increased production, for the bond issuers to issue more bonds, for the companies to issue more shares of stock, and the reverse for them to go on into buy or to lower. And those all have different impacts on the dynamics, the supply demand and market floods. But with Bitcoin, that's not happening. So what's going to happen to a fixed supply asset? The only thing that can happen, and we've been seeing it recently, and maybe now that's burned off, is there can be a supply overhacking for various reasons, right?

And at different point in times, people who are long-term holders, or who are holders can make a determination that the price point is in an area where they want to sell it. Okay, but you and I both know, or we know that there is a very passionate base of holders that have very long-term and very lofty ambitions, and they've written out one bear market, or maybe they've written out two bear markets, maybe they've written out three bear markets. So while they're willing to sell some to cover their short-term expenses, they don't care because they're not selling.

- There'll be financial things coming out soon where you don't have to sell, instead you can borrow against it, right? And we're already finding these types of things. Why sell and take the tax consequence if you could instead borrow against your own holdings? - Yeah, once the regulatory and framework in the U.S. is shaped and the banks can actually custody the digital assets, and whether that happens this year, next year, or five years, then what you just said will become, I think-- - A common place. - Yeah. - It's like when you have an equity portfolio, you can borrow against your own equities. - Yeah, yeah. - Do whatever you want.

- Same thing. - But I'd say, same thing. - This is why we created the custom solutions, which is, it is a high net, it is a high net war solution, 'cause you need to have, to do swaps, you need to have what's called an ISDA. And to enter into an ISDA, which is an institutional contract, with the third party, you need to do what's called an ECP, an eligible contract participant, and the requirements there are five million if you're hedging your position, and 10 million if you're doing something other than hedging your position.

But the reason that I like that structure is because, think about all these people from Celsius and what have you, that were trying to get yield on, let's just say Bitcoin, right? They were hypothecating their Bitcoin to other companies, or giving their Bitcoin to other companies. Four, two, three, four, 5% yield. And look at the disaster that it costs, crazy. I understand why they wanna be yield for the same reason you're saying they're trying to not have to borrow against it, right?

But why, I think in hindsight, and from my own mind's eye, why in God's name would you give somebody else, why would you hypothecate, give ownership of your asset to someone else contractually? It's, for me right now, yeah, for me right now, you said it, but for me right now, we could have a bad investment decision around our hedging program, I have to think right now personally, 'cause we're in the bull market, that I'm looking, by the way, none of our products, and I think this is a really important person for anyone in the ecosystem, leverage destroys people who invest in this.

So I see these two times and three times ecosystems fill back to your part, the ETFs, and I'm like, this is not productive behavior for individuals, right? And so that's why we see these sharp moves too, right? Because we have these leverage long and leverage shorts, and they can attack that, and force people to liquidate either long or short, and that creates a big run up or a big draw down, right? But if I make a bad investment decision, okay, it's perfect, you're not gonna add 100, but I just don't wanna lose the digital assets.

I don't want them to be stolen from me, I don't wanna enter into contracts with people where I'm getting some short term benefit, but in the long term, something winds up happening. And to your point, we're doing for our clients what we do for ourselves, and I think most investment professionals eat their own cooking, and if they don't, that's a problem. My thought process is right now, we're trying to get people to have meaningful exposure, 'cause we think it's gonna have meaningful appreciation on a risk adjusted basis.

But five to seven years down the road, as the blockchains become ubiquitous, as this vision of you becoming your own bank, or whatever the digital asset, and we'll say Bitcoin as a proxy enables, then there's gonna be other functionality that we're going to be helping people to enable. So I think these, we're in such early, early days right now in this ecosystem that I know people say the first inning. I don't even think we're in the first inning. - We just come on the field. - I, yeah, we just came on the field. And I think this cycle is gonna be an amazing cycle.

I think the macro tailwinds are setting up, I think this is obviously our opinion, but any of the forward indicators that we're looking at right now, there's always a possibility of tail risk, right? Of something happening either around the presidential election or possibly a lot of managed conflicts that are going on globally, and they could escalate in a way that would be detrimental. But, and there's always something that we're not thinking about, right? That always derails. But if I look at the cycle right now, I'm seeing the triple things colliding, the trifecta, right?

Which the trifecta is, I think the economy is recovering, and I see liquidity recovering, and we see deflation coming down in all our forward indicators. And so to me, that says historically, presidential election years are productive years in the markets, and we're the belief that next year is gonna be one of those unbelievable years. We could be wrong. Again, this is our opinion. - You got a president as well that is now discussing essentially a weaker dollar policy 'cause he wants manufacturing to be in the United States. That's positive for Bitcoin. The possibility of us having a strategic Bitcoin reserve, that's positive for Bitcoin.

As soon as the US gets into it, then everyone's gonna get into it. It seems to me we're certainly pointing in the right directions right now. I think it's time for us to wrap this up, Jay, but let me ask you a question. If someone wants to get involved with your fund, do they go through their RIA? Do they call up their guy at Morgan Stanley, or do they go directly to someone like yourself? - No, if someone wanted to reach out to me, by the way, I'm happy to help all the financial services firms too who are looking at getting into this. So the easiest way to reach me is just in my email. It's [email protected].

Or if they reached out to you, Doug, you could introduce them to us. But I think really the great thing about this ecosystem, and this is how I'm gonna end this, is one of the things that really attracted me to Bitcoin was when I realized that the name was 2001 Bitcoin conference. And I realized, I was talking to some of the VCs, and they were explaining to me about their companies and trying to get people to invest in them. And like, whenever you have a VC, you could have a portfolio of 10 or 20 companies, and they could all have great ideas, and none of them could work because someone else executes the idea better.

And then with Bitcoin, though, it doesn't matter who's executing the idea and winning, because the benefits coming down to the token, because any of the applications that are successful have to use the token, have to use Bitcoin. To me, that was just really incredible. So what I found in the ecosystem in general, and hopefully when Tratify gets involved, that'll stay.

But certainly to the people who have been here for a long time, is that we're all willing to help each other because the value of helping each other accrues to all of us, whether someone does business directly with us or someone else launches some sort of business in this ecosystem that allows for them to have a successful or on-ramp and create a greater demand for the digital assets. So I found this to be an unbelievably, it's so entrepreneurial right now, this ecosystem, it's so friendly, this ecosystem, and everybody's willing to help each other. And so that's one of the things I love most about it.

And at the end of the day, again, we're a professional investor. We're here because there's investment opportunity, but there's so many other good things that are going on as a result of this, whether it's banking the unbanked, whether it's lowering expenses and fees associated with financial transactions, whether it's allowing someone to have a global commodity that's neutral so that no one can take it away from anybody, allowing people to opt out of their financial system that they're in or the monetary system that they're in to a more stable one. And these are just a few of the many.

Having a global platform, it just doesn't exist anywhere, right? Like we're very segmented. And so I just think tremendous opportunity, yes, a lot of risks along the way that people need to educate themselves about, and a lot of opportunity. And I think we're all fortunate to be here. And I know for myself, personally, every day I'm just learning. I'm still spending, I learn so much every day, and there's just so much to learn. And it's just moving so quickly. Let me just say this is that, first of all, thank you for having me on, appreciate that. And secondly, more importantly, Phil, it's very nice.

You and I have a newer relationship, but Doug, it's been a pleasure knowing you. And your listeners will be served well, I believe, through your choices and the questions that you asked us, because I find you to be one of the most knowledgeable people in the ecosystem. But I love the name of the podcast. I'm a little insulted. That's why you wanted to have me on. But Whitebeard is a tell. But maybe if you have a really successful show and people are interactive, they'll guess how old I am based on my white beard, like if you want to be the question if anyone cares about it. - Thank you very much, Jay, you're so kind.

And yeah, this has been great. This is Jay at Blue Square Wealth. Thank you very much. Thanks so much for this. - Yep, and thanks for having me on. Really appreciate it. - Pleasure. - Cheers. - Cheers.