Ethereum as an Allocation: Conviction, AI, and Market Structure

Transcript

Tom Lee needs little introductions in this room. He's a superstar and I'm a personal fan of you. He was JP Morgan's chief equity strategist before co-founding Fundstrat in 2014, where he is managing partner and head of research. He's also CIO of Fundstrat Capital, which runs the Granny Shots ETF suite, One of the most successful equity ETF launches of the past two decades. And he chairs BitMine, which now holds close to 6 million ETH, roughly 5% of supply.

So he allocates capital across three very different vehicles. What I want to use these 20 minutes for is the reasoning that connects them, and what it means for the institutions sitting here. Tom, you've spent your career telling institutions what to own. With BitMine, you did something different. You built a company whose entire purpose is to hold one asset, ETH. So why does it deserve that and what does it do in a portfolio that your active vehicle cannot?

Thank you and all the work that I've done over the years from Fundstrat to Fundstrat Capital and now to BitMine, we've always thought in generation cycles. So what are the big stories, multi-decade stories? And the reason BitMine chose Ethereum starts with our advocacy of Bitcoin more than a decade ago. We thought that the future of finance and digital architectures was going to be built around Bitcoin as a store of value and superior to gold.

And ten years later, I think that story has gained a lot of traction. But when I look at the next ten, 20 years, and I see the financial institution industry, the entire banking industry really in need of upgrading to 21st century architecture, and then the innovations around AI, to us, all of this represents a huge future where the settlement rail of finance and AI is going to be on crypto. And for us, a year ago, we sort of looked at a lot of different opportunities because we could have made a bet. We could have launched a DAT for Hyperliquid or for Zcash or

Solana, but we thought Ethereum would be the bet to make for the next generation. Cool. You've said institutions are still underweight crypto, but most institutions in this room would tell you they already have Bitcoin answers like digital gold. So what does Ethereum do for an institution that Bitcoin doesn't? For those who own Bitcoin, congratulations.

I think you're very smart. You should make a lot of money in Bitcoin, especially in this next cycle, because I do think gold network value should be where Bitcoin should ultimately be valued at, so $2.5 million per Bitcoin. Bitcoin does something really well, but it is essentially ossifying around it, which is to be a store of value. But that doesn't make it the best platform to be the settlement rail of the future. Because we know the future is really the idea that one, money is becoming digital,

so it's becoming software. But a lot of other things become forms of money in the future, which is whether it's stocks, bonds, real estate, reputation or airline points. And I think in that process, it's also changing how people value assets. I think there's too much of a belief that cash flow is how you value assets. Actually, when I look at the best performing stocks or the best performing real estate or the best performing art, it's actually store of value.

And I think a smart contract platform will allow these other things to become canonized as store of value assets. So that's one huge advantage. And in fact, when I look at this next bull cycle, I do think tokenization is probably one of the big legs and it's going to help Ethereum really stand out. Of course, there's other public chains that do smart contracts like Solana, etc. I think they'll all play a role. But the second big leg is really around AI and agentic systems.

I think today people say it's kind of theoretical, but at the end of the day, the thing we have to ask ourselves is as agents get more capabilities and physical AI, you know, drones and robots have AI capabilities, they're going to create an economy and capture payments and make payments. I mean, that's literally an economy. And I don't think they're going to use traditional financial rails. And so crypto rails is probably how they're going to transact. But what we want is to keep humans in the loop.

and I think the only way to secure that is a smart contract platform. And that's why, again, I think, you know, Ethereum will be the bedrock of that future. Mm. Yeah, thanks for explanations. I think many Korean institutions in these rooms might not be familiar with the connections between Ethereum and AI agents because maybe it's too far and very long-term view. So could you explain in more detail how Ethereum is actually will be advantaged by the development of AI and many institutions might be very interested in knowing the reasoning.

Yeah, I mean, there's going to be many ways. And again, part of this is guessing. Because like for us to figure out how AI and physical AI is going to be part of our lives is not that different than going back one generation to the internet and mobile networks because that's where I started my career. In the early 90s, I was a telecom analyst covering the cellular industry. There were only 34 million cell phones when we did our first report.

Today there's 9 billion. And one of the things that we were trying to imagine back then was one, you know, how would people use cell phones? Believe it or not, a generation ago, 25 years ago, the investment world thought cell phones were just a yuppie toy. And they thought the real money was in long-distance local telephony, especially business phones and yellow pages. They just saw cell phones as this toy that wasn't going to be very useful. Number two, we knew back then that there was cellular, which was originally analog,

was switching to digital, and then there was more capacity, and people questioned, well, who would use all this extra capacity? And then people talked about cameras and data, but imagine, there was no iPhone back then, and there wasn't keyboards for cellular, and the screens were small. In fact, back then, to type words, you used T9. That's where we are today, because someone says, well, how will AI agents even be in our world? They just think it's a simple extension of what we do.

I think you're under-imagining what's going to happen. And then the bigger question is, is we already know AI is doing two things. One is that it's escaping the environments that we're creating for them. So they're not staying within walled gardens. So they're not honoring contracts. But secondly, they're starting to execute things on our behalf. So to me, the simple things to say is Ethereum can do two things. One, it can stand in the middle of a transaction to enforce that the AI is doing what we're asking.

I mean, that's a big deal. I mean, I think a blockchain might be the only way to say, if you violate what you're doing, we shut you down or you don't get paid. That's an important role that crypto will play. But the second, of course, is handling money. Because some will say, oh, well, AI agents, they'll just use your existing Chase account or your Visa. One, I don't know if anyone's going to trust AI agents because they might decide that they're better at allocating capital than you are.

They might think you don't deserve to get paid. They might withhold more of the money for themselves. So AI agents, I think, are going to be using crypto wallets. And, of course, if there's micropayments, you can't use traditional financial rails anyway. So to me, those are the two roles. But from there, that's like 80 companies, each worth a couple hundred billion. Thank you. So later today, BlackRock, Franklin Templeton, and Ethereum Institutional are on this stage, describing what they are running.

You watch allocators for a living from the outside. So let me ask some questions they cannot answer about themselves. What is the thing institutions are already doing on Ethereum that the market hasn't priced in yet? I think that there is a very gross misunderstanding about how blockchains capture value.

Because Ethereum, for instance, and let's just use Ethereum as an example, it will be the public chain where assets are tokenized. And there is a belief in the traditional world that, oh, well, even if you're going to use Ethereum, the only way Ethereum captures the value is if there's a payment made. So they're going to measure it in gas fees, like a traditional cash flow model. But I think that's a mistaken view that that's the only way something actually captures value.

And again, I'm coming back to when I ask most people about the stock market, most people say the stock market is valued as cash flow. And I would argue that that's the E component, but the biggest driver of the stock market is PE, which is your multiple of earnings. And that actually is the store of value component. I think in crypto, all these companies are not only building, doing something which is very obvious, they're taking assets and they're tokenizing them onto these public chains.

But that's only step one. I think they're now imagining a lot of other things that can be transformed when you do that. We can be simplistic and say, oh, well, something trades 24-7, so you just have more liquidity. But that's just the beginning. I think you can have now, in the future, digital representations of assets that on smart contracts are enforced, and therefore you can create value.

I mean a very simple derivative of that is, look at how oil today trades 24/7. Look at prediction markets. Prediction markets are a pretty crazy concept. It really came out of crypto, but the idea that you can bet on outcomes as binary value. In the future you can start to bet on factors or specific elements of a business that aren't in the capital structure today. And in the future, that means that what's debt and what's equity all kind of blur. So I think that there is a lot of innovation, but it really starts with really tokenizing assets.

And then, again, Ethereum benefits because it's the underlying fabric and structure. It's almost like the land or the office building that all this takes place. And if you look at the real economy today, that infrastructure is anywhere from 20 to 50 percent of all activity. I mean, look at AI today. You know, we might say it's NVIDIA and chips. But look how much money goes into bare metal and the racks and the power and the facilities.

That's really how blockchains are going to work. Thank you. Let me make this a little clearer. Two weeks ago, Korea published its tokenized securities framework. The binding annex states the securities ledgers will be permissioned, that securities cannot be transferred between ledgers, and that gas tokens with value are prohibited. In the same month, the SEC required the chain itself stay public and permissionless and put the controls at the application layer. Your thesis assumes public settlement,

so what does the country give up when it chooses the other path? Well, you know, we can understand Korea's approach, actually. Because there is, like, public policy is trying to weigh several constituencies, right? One is government sovereignty and their ability to tax. The second is economic policy protecting companies, especially companies that the government deems important.

For instance, Korea has that approach around a lot of things, whether it's internet, e-tailing or internet commerce, and even for some time, even around mobile networks and mobile standards, and they do that today with even professional designations like law. I think in Korea today, to be a practicing lawyer, you have to be a Korean citizen.

So I wouldn't be surprised if Korea's approach to tokenization would mirror that framework. But hey, I think it makes a lot of sense because Korea already has a lot of resources, a lot of smart people. They're already crypto leaders. You know, you don't necessarily need to invite the outside world to disrupt that. So I can understand the approach. But it doesn't mean that that approach is going to be the approach the rest of the world takes or everyone takes.

And also, I don't think it's going to limit tokenization globally. If you are advising Korean institutions that have to build on the rail for the next decade, what would you tell them to protect? That's a tough question. I mean, first of all, a Korean institution is a generic word because if it's a Korean bank who owns the customer today and owns the legacy system and is capturing a lot of the value, that's different than if you're talking about a Korean consumer company or a Korean tech company that says I want to have a financial

relationship with my customer because one of them is an incumbent and the other one is a disruptor. It's a really tough question because if you look at every technological wave, I mean, let's go back to horse buggy to autos or frozen food versus fresh food like canning or traditional media to digital media. Many companies had to disrupt themselves to survive.

Actually, we've seen it. Some of the Mag 7 have disrupted themselves and they're actually now leading in AI. So I think we have modern-day examples of companies essentially self-destructing legacy businesses. Thank you. Last one. Korea has an unusually large base of BitMine shareholders. I heard that more than 150,000 shareholders we do have. BitMine is really famous in Korea. What do you want them to understand that the BitMine price doesn't tell them?

Well, there's a few things. I know some people are disappointed because we had a crypto winter, and Ethereum prices fell, and BitMine's price is going to fall when that happens. But during this crypto winter, BitMine took a lot of actions to protect shareholders. Number one, we launched the biggest buyback of any crypto company and executed it. We bought more stock back than any crypto company has ever done. Two, we really strengthened the balance sheet.

You know, we have almost six million ETH with no debt. When you buy BitMine, you're not having to worry about some loan payment due. But we've also kept our exposure to Ethereum really high. In the last two bull markets, Ethereum went up by 17 to 60 times. If Ethereum goes up by 12 times, which is a low target given what we just talked about with securitization and AI, and Ethereum gets to 60,000, well, BitMine shareholders are going to outperform Ethereum.

For instance, both SharpLink and BitMine have outperformed Ethereum this year by a meaningful percentage. So I think that the crypto DATs like SharpLink and BitMine are gonna do better than the underlying crypto. Tom, thank you. There was a lot just in 20 minutes. Thank you so much. Yeah, thank you. And thank you, Tom, and thank you for a show.