Jeff Park on why the world is changing in Bitcoin's favour

Transcript

GM, good morning. Welcome to the Milk Road Show, the daily crypto show that won't make you say, "If I had just cashed out earlier." I'm your host, Kyrie Head, filling in for Jay while he sips pin coladas somewhere far from the mic. He's turning 40, so happy birthday to Jay. Uh, but today we are joined by Jeff Park, the head of Alpha Strategies at Bitwise. Probably the coolest title. I'll figure out what that is in just a second, but the coolest title in in investing, I think. Today we're going to discuss how the world's changing, what that means for your portfolio, and at the end we'll dive into some discussion around crypto treasury companies uh and something that uh Jeff has called the radical portfolio. This one's going to be a banger. Uh but first, a few notes the Milkro team wants me to say. Macro

is confusing and we've fixed that. The Milk Road Macro newsletter is your shortcut to understanding how the big picture moves the markets. It's delivered straight to your inbox twice a week. Hit the link in the show notes below to subscribe. Today's episode is brought to you by Letin Get Cash without selling your Bitcoin. In meanwhile, ditch dollars insure in Bitcoin. All right, Jeff, welcome to the Milkro Show. As I said, head of Alpha Strategies. What the heck is that? It's a s It's a sweet title. I just want to know what does that actually mean? What do you do? Yeah, let's get into it. First of all, Kyle, thanks for having me here and I hope Jay, you're having a wonderful 40th and that you're doing much more interesting things than that we can navigate otherwise through the crypto markets. 40th is a big deal. I also just

want to say I'm a huge fan of Milk Road and the fact that you guys are launching on Macro channel really feels personally the moment that I feel I've been waiting for in my own journey professionally where crypto meets macro at a level that everyone wants to learn more and level up. So I feel especially privileged to be a part of this journey. So I just wanted to get that out there. Thank you. Uh but no importantly the dying question. What does it mean to be head of alpha strategies at Bitwise? As you know, uh, Bitwise is mostly, uh, known for all the amazing suite of products we have across the index funds, the spot ETFs, including the Bitcoin products, uh, as well as a suite of other indexed strategies. I lead the investment leadership for all the suite of strategies that are more actively

managed, alpha-driven strategies. So, in practice, what that means is we have a multistrat uh, solutions that we offer. We also have volatility harvesting ETF strategies on crypto equities that investors have come to embrace and seize the opportunity on what volatility can be uh if you were to monetize. And then the third is we also work with a variety of Bitcoin whales on their desire to achieve a certain yield and we help them navigate all the different uh three-pronged approaches to uh find yield that are Bitcoin denominated assets.

Interesting. Very cool. Uh, we also just launched a Milkro DGEN newsletter and it feels like maybe that's a little bit more in your lane. In the end, macro and DGEN all intersect. That's actually perpetual path to heaven. So, I love that. We're going to talk all about this. Um, look, you've uh I've been following on Twitter for a long time and you have some incredible takes. Um, you've recently been on some pods uh as well, so I've got to learn a little bit about kind of how you think uh about the world. And I'd love to before we get started in more of the details. I'd love to zoom out and get your sort of like highle view on what's going on in the world. You talk a lot about how the world's changing, the 6040 portfolio is dead. Just zoom out with us and help the

audience understand like how you think about the world. Um, and you can take that from whatever level you want and then we'll sort of dive in deeper and and and get into the details. Absolutely. So 6040 is definitely dying and more people are becoming aware of this as a phenomenon. But what they don't quite understand is why. And the thing that we all have to study and appreciate is how did we get here? And so the reason 6040 is challenged is because they're actually 100% of something. And what it is actually 100% of is the amazing abundance of liquidity that has come to financial markets. And part of that is fiat to basement. But the other part of it is in general it's

been decades of low yield across different parts of the globe that has promoted a kind of financialization of assets that historically was not possible. So for example today a lot of sovereign funds and treasuries across the world will own equities as part of its balance sheet in a way to uh participate in what I would imagine is uh a con construction to hedge for inflation. And so Japan famously owns a lot of US assets. They own US property. They own US equities and all of it is is a is a bit of a flywheel and a circular flywheel effect of how capital flow has now become full circle between a lot of different dynamics uh in in this

geopolitical way. And and because of this abundance of liquidity, the thing that tends to drive price is not really driven by judgment of value anymore. It's actually more likely that it's technical in nature where there's incredible crossber flows by a sovereign actor or a big institution or there's a liquidity gap that unfolds because of certain things that are happening the financial services system where equities and credit are in fact tied hip to hip in the surplus asset that they are to be an inflation hedge. Uh, and so 6040 is essentially dead because it's 100 of the same thing which I call being long the

global carry trade. And why I think Bitcoin is so interesting and many of us are focused on the desire to diversify away is because there are assets that actually is not part of that compliance system of the global carry trade yet. And those things can actually be the diversifier that the original 6040 portfolio meant to be. And so Bitcoin is of course one of them, but there's a slew of other assets that I imagine talking through where they can serve those kinds of roles that I think investors have gravitated towards and and that's essentially the start of, you know, what I think the Bitcoin journey ultimately is about. So do you see that this this long global carry trade is sort of like unwinding or it's ending?

And if so, why is that? Like help me understand what's changing for this to no longer be bullish for you or no longer be like where the trend is going. like help me kind of connect the dots here. Yeah, absolutely. So, um the era that we have experienced generally as we've grown up is broadly known as global trade liberalization. It is when the WTO has entered and to create an environment for competition for uh the current capital markets that we have today which is really in the idea of promoting trade to find um comparative advantages across different nations where everybody can be better off. Mhm.

I think what people are now realizing is that the quote unquote everybody is actually not good enough to describe the average versus the dispersion of outcomes that is still possible within one's own local economy. And so the instinct that the populists have had which is that what's good for China is good for the United States tends to have an asterisk which is what's really good for the US capitalists tends to be really good for the Chinese capitalists but the population may not actually be a beneficiary nor the US population and so this idea of trade liberalization having generally been the thing to drive growth is the fundamental barrier that we are experiencing and the unwind potential essentially in uh in in in a

protectionist mode that the world is entering and so what this ultimately means is the relationship of trade in itself being a relationship of finance is being challenged. The only way you can run a trade deficit is if you run a capital account surplus. And if you unwind the trade deficit, by definition, you have to unwind the capital account surplus, which the US gets to enjoy its exorbitant privilege for. And so when we talk about the interest rate going up and it's remaining high today at, you know, it's sticky around 5% for the 30-year and people are like, oh my gosh, like when is rates going to come down?

Like 5% is unaffordable. Well, it might actually be the normally correct rate for a world where there's more protectionism, right? And so there's this bias we have as to imagining what the past would be reflected in the present. But this only works over a long period of time where there isn't like an inflection point. And the unique opportunity geopolitically today is there's a lot of changes happening. One of the challenges that I think we're seeing is that this trade deficit can be a profitable and worthwhile endeavor, but it may be that you want to do it with someone who's not directly your geopolitical rival. So, the United States is on a journey. Obviously, still wants to run a trade deficit at some

format because the dollar hegemony wouldn't survive without it. But maybe you actually have to run that surplus with different countries, right? Countries you consider more to be your allies. Maybe it's more like Vietnam and Korea and others and decouple away from the geopolitical construct here in which the Chinese can also control and exert a lot of might on the capital account side and I think that's kind of the structural journey we are all on and it's affecting all of us because we're used to having low rates uh for a long time. uh you would say Japan has had decades of very low rates, even negative rates for a long period of time and for the first time ever now they're having inflation. You can't imagine what that means if you're a Japanese person,

right? Because if you're in Japan, the norm was like your salary went down every year. Like I'm not even joking. Like you would norm you would literally get pay cuts because like prices going down. It's like an upside down world and you get used to that. And then for the first time it's like oh wait price is going up and then you got to like adjust for all these things. Uh and and then if you see Japan as kind of the source and the um kind of the litmus test for where the temperature of the world is uh it is extremely important to focus on the Japanese yield curve to see the direction of where we're going to land across the the geopolitical dynamic.

Interesting. So, do you see what Trump is doing right now and Besson and and the rest of the team with these trade deals? Is this sort of the end of the world trade order and moving into something new and this is kind of one of those inflection points that you're talking about or like when you think about or you've seen what Trump has done over the last few months, what's your take on that and what's what's he really trying to do here in your opinion? Yeah, it's funny you say uh the question about tariffs in general in the context of Trump, but you know, if you take a step back, actually, tariffs have actually been a bipartisan uh industrial policy tool. The average tariffs on Chinese goods actually went up uh post 2018, even under Biden's administration, too.

And it actually remains elevated now already uh in that 20% range versus the single digits that it was. Um so, it's actually not a Trump era anomaly. It's a bipartisan effort and it's become almost like a structural feature and not like a temporary tool for negotiation even though it is being leveraged as some but it's been around with us for some time now. So what we're seeing is like the emergence of like a truly durable protectionist like regime as a mindset. Uh so so I think we have to get used to it. Um and there's of course like implications for that for the consumer. Generally we'll have to tolerate higher prices. But the other context to this is well what what's the benefit? The benefit is like we're going to reshore and nearshore for like a new industrial

boom, right? So this whole manufacturing construction spending, it's gone up over like 100% since 2021. It's driven by the chips act. Uh you may have followed kind of the inflation reduction act with clean energy. And these things are now driving like a domestic capex super cycle too, right? In the semiconductors industry. And so the the the things that are happening is is more structural than people think. And China actually no longer is the top US trade partner. Many people still think it is the case, but it's not. Mexico and Canada has overtaken it. And that decoupling is a de-risking that uh is likely to continue especially if it if you want to go on

this friend shoring uh even amongst those uh Asian countries like Vietnam and and uh Korea and Malaysia as I mentioned. So as you think about I mean one thing is when there's change I think people have a lot of fear which I think we saw over the last last few months. Now markets have have rallied and and you know we're back at all-time highs in a lot of assets like Bitcoin. Um, so we've we've sort of gotten past that, but I'm curious on your sort of outlook of where we're at, right? There's a lot of change happening. Like you said, 6040 is is kind of dying. We're sort of changing how we think about trade and the relationships with countries around the world. So, there's a lot going on and I think there's a lot of confusion, right?

Everyone's like, I don't know what the heck is going on anymore. And I mean, there is an obvious trade over here with Bitcoin. I think we both agree with that. Before we get into Bitcoin, I'm just curious like when you think of macro and you think of markets that pertains to that, whether you think of I don't know if you think of like the business cycle or how you sort of think about the market structure, where do you think we're at today and kind of where are we going let's say for the rest of the year in I don't know whatever time frame you want to go with. Are we structurally remaining in a bull market in terms of risk assets and things look good from here? Is what Trump's doing and and this new change going to be a bad thing? like how do you sort of gauge

what's happening right now? Yeah, it's a uniquely challenging time and it's highly volatile time and there's a lot of uncertainty and some of the challenges is uncertainty is bad for business overall, right? Like it's actually one thing to put tariffs on and say it's a permanent fixture, but it's very hard for businesses to invest and actually do things if you thought you were preparing for a moment and it's unwounded and then actually the next administration can come over and put out different executive order and so you don't know how to invest. And once you can't invest, you can no longer manipulate the yield curve in the uh in the construction of what capex is. And so that growth model is being challenged and and uh that that is that is a real feature. I think that the idea of rates being higher for longer is something

that is entering the public conscience more realistically. And the truth is you can control the front end of the bond market easily because there's a short amount of duration. But the long end it's actually very difficult to control by the Federal Reserve. It's controlled by the holders of it and it's controlled by essentially our foreign capital account um suppliers like China. And so you've already seen this tension where people want rates to go lower, but actually you can't demand that to happen like with a wand. And actually if the US credit gets downgraded, well that's the thing that people care about in the long-term durability of getting paid back 30 years later. So yield will remain elevated. So what you're starting to see is like a little bit of a loss of

control in the ability to like shape the yield curve the way that we might want to exert pressure on. And and and if and and the the reality is like the bond market is always right like you know the market is what it is because there are people who are making bets on both sides and it's generally pretty efficient and so you can't fight it. Uh you can try and banks have and they have succeeded in different measures and failed spectacularly on others but generally the bond market and the vigilantes are correct. Um, so I think we have to accept that possibility and what this really ultimately matters is also the role of the dollar because I think ultimately the problem that the United States has is that post Brettton Woods this construct of the dollar being the world reserve currency that is backed by

nothing but really its words is at the core the central tension that is unfolding in its creditworthiness. Because everybody really wants dollars because they perceive it as a store of value, but dollar strength is directly adversarial to the export economy of this country. So the Triffin dilemma highlights this very particular tension which is that what's good for foreigners who are demanding dollars may not be good for domestic consumers and citizens that are also demanding dollar. And so the ability to have like a neutral interest rate policy is a false fiction.

Actually, there is no neutral interest rate policy because one person's benefit is the other person's cost. And it's almost impossible to fulfill those dual mandates because they're at odds with each other. And that trifan dilemma exists because the dollar as a store of value is contradictory to like the role it serves for the inside economy and the outside economy in a and that's why I think everyone is revisiting the idea of like hey how do we imagine a more neutral asset right where there's a real mechanism to uh value its richness and poor uh cheapness based on the trade deficit and surplus. in the past under the mechanism where you had gold

repatriation that was the entire point like gold acted in a way to be an exhaust relief valve to let the currencies behave the way it's meant to uh and and that function is gone. So the reason Bitcoin is really interesting is because Bitcoin is a lot like gold and it's got better uh better features than gold many would argue. Uh, and so if you can imagine Bitcoin tying back into a new version of a monetary order where there's a certain amount of credibility to the value of the fiat that is not deterministic by central banks, you can imagine it's actually going to be a more free floating uh and competitive environment for like that price discovery even even amongst the

conflicts that can exist. And so that's why I think Bitcoin remains at the core of this conversation. Uh, and then stable coins of course is a part of that conversation as well. Selling your Bitcoin should be a last resort when you need cash. That's why there's Leen, the trusted platform for Bitcoin backed loans. You can unlock cash in as little as 18 hours with no monthly interest payments and no prepayment penalties. They've issued over 9 billion in loans and never lost a single satoshi of client funds, even during the chaos of 2022. If you're a long-term hodler, this is the move. Get liquidity without selling at milkroad.com/letin

spelled ledn. Meanwhile is the world's first licensed and regulated life insurance company built for the bitcoin economy. They do everything in BTC. You pay in BTC. They pay claims to your family in BTC. You take out policy loans entirely in BTC when you need liquidity. Protect your family from life's uncertainty and a broken financial system. Build intergenerational Bitcoin wealth while the cost of living skyrockets in dollar terms. Plus, get all the tax and legal benefits of life insurance now in Bitcoin. Visit milkroad.com/meanwhile to join the wait list and get early access to the world's first Bitcoin life insurance. Is your just based off that I'm curious. Is your long-term vision,

and I don't know how long that would be, maybe it's 10 years, 20 years, whatever. Is your long-term vision that Bitcoin replaces the dollar as the global reserve currency or do you think they remain kind of working in tandem as they do today, but obviously Bitcoin becomes probably a more important piece of the puzzle or like how do you envision this working out? I think that Bitcoin uh will change also in 10 years that we don't quite know what the final form of Bitcoin in itself may be uh to to be able to know soly. But in the current state of what Bitcoin is, a store of value, the thing that people want to have as collateral that they consider it to be pristine just in that context alone, right? And nothing beyond for payments um is I think a a

way to imagine like a multi-asset collateral pool. So back in the days, the IMF had the construct and and they still do the SDRs, special drawing rights, where it's a combination of different world currencies to have one neutral like trade weighted reserve asset that everybody holds as a way to kind of balance each other out. Uh, and dollar is of course the biggest component of it, but like there's other currencies in there too. You could imagine Bitcoin being a part of it or other assets that are a little bit more censorship resistant towards uh central bank policies and domestic agendas where it's more valuable as a result of being a part of that complex.

And so the the the thing that's most interesting to me is that Bitcoin is never going to replace the dollar. Uh because the dollar is the way in which the US can still control its own economic productivity and uh and its cycles, right? But having Bitcoin as collateral to um the trade dynamic across currencies to to anchor valuation, I think could be a world that is more likely than not. Interesting. And you're already kind of seeing it where like different countries are emerging to basically reimagine avoiding the dollars to conduct trade because essentially like what they're just looking for is trade. like they just

want to get goods shipped across and dollars the settlement currency because it's everyone agrees on the value but it doesn't have to be like it actually doesn't have to be if if people found credibility in something else and the petro dollars it doesn't get enough attention but the whole idea of like the petro dollars in itself was that entire point uh and and and you can imagine a different currency being used for that in the future too I mean it makes sense what you're explaining like just for example and this is obviously completely different than what you're saying, but when the whole tariff situation happened, um just me as an investor was sitting there going, "Okay, where should I park my capital? Like I don't know what's going on." You think about like most people have their money in stocks in mainly US stocks and you're like,

"Okay, these businesses are getting completely disrupted with like 100% tariff or whatever and you're kind of like where is a safe spot?" And the only answers during that moment was like, okay, gold or bitcoin. And it was like well even gold had a there was a moment they were like is that going to be tariffed? you know, so like a bunch of people moved it in before the tariffs came because people were afraid that their gold was going to be tariffed, which is wild to think. And it was like when you really think of it, Bitcoin was the one answer. Now that's me as an investor, but also I would imagine companies and countries, as you just said, like they're looking for an answer, too, right? There's a lot of things that have happened over the last few years that are kind of making I

think countries realize like, hey, maybe holding US dollars or treasuries or whatever isn't the smartest decision. um like when they sanctioned Russia. And so I think as time goes on, we're finding more and more reasons why you might want to move out of the existing financial system and into something that, as you said, is kind of separate from that. Um so I I definitely I I can completely understand that. What's interesting as I think about what you're saying is I think a lot of people today think of Bitcoin as just like the crypto version of the NASDAQ or the S&P 500, just this risk asset that moves along with stocks. And in the world you're kind of envisioning or you're you're sharing, it would be very different. I think that would that would when that happens or if that happens, that's a world where Bitcoin continues to go up and yet

stocks maybe go down. We never really have that. Do you think that that's a world that's coming in the near future or whenever that world you're talking about exists? Yeah. So, let me see if I can answer this question in peace meal. One is there's a common belief that like Bitcoin is a risk asset um and therefore it's heavily correlated with equities. It goes down together, it goes up together. Uh and it almost points the finger at like Bitcoin being a risk asset. But actually I think what is happening more likely than not is equities is following Bitcoin's lead which is equities is just as much an inflation hedge in this world of global abundant liquidity where people are chasing a way to store value. The reason this is now palpably noble in my opinion

is because when you look at the actual constituents of the companies that make up the indices in the way that we've experienced these uh new levels uh the S&P and the NASDAQ once you take out like the big like 10 companies almost the rest of like the Russell index or whatever has not performed actually it's it's actually pretty flat and and so what you're seeing is these tech companies are becoming dominant. Yes, but it's also because people perceive these tech companies as a worthwhile store of value. These tech companies are inflationproof because they're so integrated in our way of life where they actually have so much control over like their business principles to be the inflation hedge. Uh and and so in a

normally healthy stock market actually everything should rise a little bit more equally. And what we're now seeing is it's actually not a normally healthy stock market. So, this points to me as the evidence that people are not buying Fang and Max Evans because they're like in utter uh belief of how much they're going to grow. It's like actually there's nothing else to buy. Uh and so that is more than like Bitcoin. And so I used to say uh Bitcoin will go up in value because people are going to find demand for it. Um and the marginal buyer will move the price. And this is true.

Uh but the way I think I maybe had misunderstood that is now becoming more clear is Bitcoin doesn't have to do anything actually. Fiat will debase by itself and that alone will actually just accelerate Bitcoin's price from a relative perspective and that's the piece I think people are now realizing. If there's such like deficit spending across the entire world and that debasement is unstoppable then Bitcoin doesn't have to do anything. the the fias just have to keep going down and that's not gonna stop. So that's for sure. Yeah. Yeah. It's um so it's very interesting. This is my first time hosting the Milk Road Macro podcast. I obviously listen when Jay's doing it.

And for the listeners, this is supposed to be about macro, not about crypto. And yet every single macro podcast we have done so far, we always come back to Bitcoin. Not because that's even like something we're trying to do, but we're bringing on the best macro guests you can find. and Jordiv Viser, Dan Tapiier, Mark Yusco, Jeff Park, the list goes on and on and every single one we're like, let's talk macro and it moves into Bitcoin because what I'm realizing here and what you actually just explained it in a really good way is like Bitcoin literally is macro. Like when you think of the world and what's happening and the way it's all changing, the answer to it is Bitcoin. And so it's it's very difficult, in fact impossible, I think today, to talk about macro without talking about Bitcoin because it

literally is like the greatest macro asset probably we've seen in school. That's right. You know, maybe taking a step back, um, one way to reframe this conversation is revisiting the radical portfolio theory that I've been using, which is not so much about Bitcoin, but about the complex system of investing for your modern portfolio. the the thing about like the 6040 and the 100 of it being compliance assets and therefore we need 40 of something else comes down to this feature which is scarcity and so it doesn't have to be Bitcoin. a lot of things that generally tend to be scarce and that's a very important feature to diversify your wealth from the things that are being manipulated otherwise by uh financialization because all of these compliance assets uh stocks equities all

these things I call it basically based on three things it's it's it's got a lot of leverage in the system which is actually how you juice the returns of it being very low in yield and that entire happening is by the manipulation of time. And then you have these scarce assets which is exactly the opposite. These assets are um by definition very volatile uh because they're generally not super liquid. Bitcoin being the exception. And then the second feature is because it's so volatile, you actually can't put that much leverage on it. So it's the opposite of the global carrier. The third feature of it is these assets come to be born not by the printing machine by the manipulation of uh time but actually by the manipulation

of energy. So very scarce things require real energy to create. Bitcoin again not to come back to it is ultimately a battery that exists because of the energy consumption and proof of work. But there's a lot of other things that I would say in the same way are good stores of value because it takes energy and it's very volatile in price. But actually, what are some examples by the way that you're talking about outside of Bitcoin? Just want to know what you're as you say. Yeah. Yeah. Yeah. Yeah. So, um, one category that I think all ultra high net worth billionaires already know is timeless, timeless art, right?

Culture IP. In other words, cultural assets also by definition are very scarce and they actually have a finite life, right? If you have a painting and it burns, it goes away. You'll never get it back. And eventually over time, all these paintings will probably deteriorate, making each one more scarcer by the grand masters that exist. And that means this art is valuable. It's a culture asset. And the price is probably very volatile, right? So if you bought the Jeff Coons balloon dog puppy thing and it was 10 million when Stevie Cohen bought it and then someone might buy it for 40 million later, the the price is whatever the price is. But the point is there's a scarcity value to that culture asset where people will buy it if there's a demand for it. Um and and that thing can exist in many form factors. Other things that I would

allude to would be uh like you know the Birkin bag, right? Like or like expensive watches from PAC like things that people crave demand. They're scarce. It takes a lot of energy to make it. Uh and and it can't just be printed. It's not a poster. And those things retain value, too. All of those things in many ways have actually outperformed the S&P 500 based on like a 20-year timeline, too, which is really, really impressive. Now, you're not going to buy like a bunch of bags and put it in your vault, but right, but you could imagine it could be a strategy for those who want to imagine what tokenization might look like in the future if we ushered in that era for those things becoming more liquid and tradable as an asset class.

There's other things that like uh if you follow generally what billionaires do, they're buying those things. That's actually what you got to pay attention to. So when you buy like a sports team for example, why are they buying sports team? Like people know sports teams are not like the easiest thing to invest in. Well, it's tax advantaged in many ways, which means you're outside of the compliance system. It also is scarce. There's not that many, right? And it's also um culturally important. So those things retain value in different ways, right? If the stock market goes down, like yeah, maybe like the whole growth indicator is suffering, but the sports team is the sports team is a sports team. Uh it'll be around and people have a value for it and and that fandom is

still worth something and so it retains value in a different way. Uh and so there's categories of these things like part of why people buy real estate is to store value too. And then more specifically, if you want to be super pure about it, you just go buy land. And that's why farmland also has been like one of the best performing asset class ever because there's tons of it and it's productive and it just is indexed to its like scarcity and inflation hedge for what it represents. Uh and so you see all the billionaires buying loads of like farmlands like most famously Bill Gates having done a bunch. And so you know it's Bitcoin's one way to do it.

It's the easiest and most accessible way for uh folks to do it. But but the reality is billionaires have been doing this already for a long time. They are not buying the S&P 500 in their portfolio. I mean they are, yes, but the thing they're diversifying are these things. Farmland, sports teams, uh yachts. Yachts are super advantage with tax credits. Uh they're also like the perfect hedge because maritime law is different than any law that you can ever have on shore. uh and they provide different kinds of censorship resistance which you can't if you buy things on shore. So that's why yachts are important. Uh you know, folks like Peter Theal buying land in New Zealand, all it's all the same category of like censorship resistance assets that store

value that's outside the system. It's all the same trade. And what I think is a good thing for all the listeners is you don't need to have the amount of money you need to buy a yacht or this land if you want to buy Bitcoin. You can buy it in any amount, which is that's right. I think one of the best unlocks of Bitcoin and what makes it such an important asset not just for billionaires, right? It's an important asset that makes sense for literally everyone in the world. Um, which I think is what's so cool about it. I want to talk about and this is part of your your radical portfolio which I think part of your we didn't really fully get into so maybe you can explain a little bit further, but part of it is Bitcoin. I think part of it is also something to do

with Micro Strategy. Walk me this is what I cut you off on now I remember is you were kind of talking about this radical portfolio. walk me through what that is and then we'll get into micro strategy and the all the copycats that are coming out and everything going on with the sort of the treasury asset companies. Yeah. So radical portfolio theory again it's meant to imagine a new 6040 uh away from fixed income and equities as the anchor and it is a new perspective that is driven by the cultural moment to demanding what assets should be and so 60% of it is the compliance assets everything from public equity private equity public credit private credit everything even in the category of alts I actually put it in compliance assets and the 40% are the things that are not

part of the financial system and therefore they behave differently. The flows are just not related and so the the the the prices of like these assets we just described are not likely to be cross to the same flows of an unwind of a thing that is happening from the other side of the market. And so that's that's kind of how you really want to diversify portfolio, right? You want things that are uncorrelated that push out the efficient frontier. So I have shared uh if you wanted to have like a very simple two security version of like a 60/40 portfolio and you only just want to own two things in your life what could that simple portfolio be and the simple portfolio that I shared was you can own um 60% of STRK which is Micro Strategy's

preferred equity that was the first to come online and then 40% Bitcoin and to me that represents the ethos of what I'm trying to deliver 40% % Bitcoin. We talked about it. 60% of Micro Strategy Preferred is because Micro Strategy is still a security, right? Preferred equity is still a construct that is within the confines of Wall Street's financialization and it pays a yield. And so that is actually more like a compliance asset than Bitcoin, right? If the world blows up, you're probably not going to get your money back from STRK, right? I mean, maybe you would. I don't know. But in a way of like what censorship resistance and, you know, self-custodial things mean, like it is part of a system that is Wall Street.

And so STRK happens to pay a very nice dividend. And if you believe that Micro Strategy is valuable because Bitcoin's valuable and therefore this is a permanently valuable capital uh balance sheet, then it will continue to pay its rich dividend which at pricing was 10%. So, uh, the simulation that I ran was if you buy 60 of that and 40 of Bitcoin since the STRK, uh, product launched, I think through like June, the first week of June, I forget the exact date. Um, that 60/40 portfolio was up over 20%.

Unreal. And that's valuable, right? Because that actually has nothing to do with like the rest of what 6040 uh assets could look like. And so, you know, I would never suggest people to just buy two things in their portfolio and go to sleep. That's not financial advice. But the ethos that I'm trying to push here is to think outside the box. Think outside of like what would a traditional financial advisor tell you? And if you were to doubt that and go a different direction, what would that alternative look like? And it will be things like this that I don't think today at least any financial adviser would really recommend. Jeeoff, I thought for a second there that we were going to need to get get you on the Milk Road DGEN channel uh because of that portfolio.

I'm kidding, but I love it. Look, um help the listeners. There's a lot of confusion around what Micro Strategy is doing and now there's MetaPlanet and there's like so many and and there's not even just Bitcoin ones, now there's these treasury companies coming for Ethereum and Salana. Let's just start on the Bitcoin side, but help the listeners just kind of understand the is this a good thing overall? Like you're saying to put I mean 60% you didn't actually say that, but uh it's part of your radical portfolio. Help them understand is this a good thing for Bitcoin, a good thing for what um you know we're trying to do here in the crypto world. Um and maybe try to understand the the benefits and then maybe like the risks associated with just want to understand how you sort of think about this this asset and

this trade. Yeah, sure. So um I think one caution that I have shared with our investors is that um when you want to really diversify the goal you're trying to achieve is that they have to behave differently over a long period of time. And the number one uh uh trend I've seen is a lot of folks buy Bitcoin and then Bitcoin like adjacent risk that is actually very correlated and they think they're diversified but they're really not. And so the one thing that I do um challenge is if you buy a micro strategy, the stock and Bitcoin, like you're actually probably more correlated than you think, right? And of course there's different risks, but directionally it's the same thing. And

so if you then go one step further and say, "Hey, I have a really diverse portfolio because I have 10 of these Bitcoin treasury stocks and I have MetaPlanet and and 21 Capital and whatever." And and you think it's a diversified portfolio. You know, my advice is think again. like it's actually not that many degrees of freedom from the risk factors you want to protect from. So on one hand, I think that is a little bit of a of a of a disservice where the illusion of choice makes it feel like you have diversity. Uh but on the other side, I'm a very big believer that Bitcoin treasury companies are going to stay and they're going to be meaningful contributors to the industry. Um, part of it is because it is absolutely a fact that operating companies can do things that you and I

as humans cannot access, including financing at a different scale, at a different cost, at a level of different jurisdiction. And then they can do things on the asset side that actually could deliver value that many uh retail investors may not choose to or know how to navigate. So there is a final form factor in which a permanent capital vehicle that is holding Bitcoin and then delivering a value added service on top could actually be valuable or more valuable than Bitcoin itself. There's of course different risks, right? It's an operating company, so so it's a corporate structure, not a not a, you know, ETF rick fund, but or or a spot asset, but but you can imagine there are trade-offs to be made where people still find that to be a useful thing. That's

why I think the journey that we are on for the revelations of these different Bitcoin treasury companies coming online is super fascinating. every I think foreign jurisdiction that has a robust capital markets will demand one because it's still not possible to acquire Bitcoin in certain countries where it is actually easy to acquire a company that owns Bitcoin, right? Japan for example, very easy to buy Metoplanet, impossible to buy Bitcoin. And so you could you could imagine MetPlanet is actually playing a little bit of a role as a substitute good that is worthwhile. And then you're going to see a lot of these endeavors happen across the world. But then they're also, I think, gonna level up to do more things beyond hopefully just acquiring Bitcoin uh and putting it

to some productive use. What sort of productive use are you thinking about with Bitcoin? Like I know we have sailor sort of like yield, he says, but that's just the ability to buy more uh Bitcoin, right? And have more than you had per share than previously. Um I think what you're referring to is there's some starting to come out where they're actually trying to generate real yield. whether they're sort of lending it out or I'm not sure what else they're doing, but interested to hear your take on like what other things that these companies are doing or or you think they're going to do. Yeah. So, if you believe Bitcoin is a financial asset and it's going to be financialized, there's going to be a credit market uh and the credit market is going to be fairly robust and there is opportunity then to earn yield. Uh if

you believe Bitcoin is actually going to be a volatile asset forever, which I happen to think it will be, then there's an options market for which you can generate yield off of the derivatives that can be traded against those assets. Uh and that's monetizing the velocity of its volatility in itself, which is actually the conversion of energy in my opinion back to something valuable beyond just time uh repression to put it back to the radical portfolio context. And then if you believe there's actually onchain opportunities to emerge out of Bitcoin where you're starting to see inklings of people wanting to advance the dialogue to it being more useful than it currently exists today, then you will find Bitcoin to actually be a little bit more dynamic than I think it

is. And all of these elements, you have to have an open mind to those being value ads. And the fixed income market in the end is extremely extremely large and and there's a lot to be imagined how Bitcoin can bring value to those through different kinds of uh programs whether it's in the insurance world or whether it's in um the securization world there there's components of financialization that can happen in an operating company that you couldn't really do it yourself. Right. Right. Interesting. So, a lot of different um a lot of different things that you can do with Bitcoin, but I think the average person probably won't do, but instead you can get a company to do it for you. Um and of course there are risks that come with that. I know

most the industry is scarred from last cycle on on lending out Bitcoin. Um but obviously we're getting better regulation. There's going to be we're definitely going to get all these different financial instruments and services for Bitcoin in the future. We just need some some bills in place. We need more rules, more structure around that. And then like look there's always gonna be risk but I think the opportunities are are endless for what this they can do here. Question outside of Bitcoin. So we're starting to see that you know the copycat and this is happening now for I mean there's soul strategies. There's that just came out for ETH. There's I've been hearing rumors for a whole bunch of others on even smaller tokens which maybe that's a good thing maybe that's a bad thing. I have no idea. Curious your thoughts more specifically on on ETH and maybe on Soul

Strategies as well. These are sort of like the the two other major crypto assets, not macro assets like this whole show has been about. So they're very different, right? You have Bitcoin over here as a macro asset. Just because ETH and SOL are crypto does not mean they are also a macro asset like we just discussed the show. So I want to be clear there. Um but they're obviously I mean ETH is sitting at I don't know 350 billion. Salana's I don't know whatever close to 100 billion. So like they are somewhat important assets in the crypto world. um curious on your thoughts around them becoming uh companies doing these sort of treasury um buys with with these assets because interestingly with ETH and Soul you can stake and generate sort of real yield within the ecosystem.

There is DeFi that you can actually lend out that maybe has less I would call it smart contract risk than trying to move Bitcoin onto something like Ethereum to to lend out on chain. curious your thoughts on this whole idea because I think it's going to be whether good or bad a thing that's really going to come into the crypto space over the next let's say six months or so. I think that it is inevitable whether people have a view on it or not. And I try to be neutally objective to the trend and not infuse my own feelings first and foremost. Um and when I when I when I when I say from an objective level there there's there's basically a tension and an opportunity. The tension is most of how Bitcoin became financialized happened because the macro community decided this is a good store

of value that it's actually pristine collateral and that there's a bid for it at all kinds of prices especially if there were draw downs uh and that in fact it's not a death spiral that this is there's a permanent floor a permanent bid and so uh the credit risk of uh default is actually contained. The only way you could bring financialization in these structures is you do at first want to access cheap financing and the only way creditors will lend against assets is they have to believe the asset is good. So, Bitcoin's unique because I do believe it has crossed that river in the institutional memory and experience to serve that role. Ethereum and Salana I think are on the journey but I'm not totally convinced yet that people think it is.

But there's other things that is actually going in Ethereum and Salana's favor too, which is they're actually more volatile, right, than Bitcoin. And volatility is equally important in these financialization structures because volatility is actually how you bring cheap financing through the convert market and other kinds of manipulation that is possible within the realms of finance. Volatility is a source of energy. So Ethereum and Salana actually have one leg up versus Bitcoin from that domain. The question is as an underwriter, what do you value more? Do you value the volatility more and therefore it's good or do you value the pristine collateral uh LTV dynamic more and so that therefore it's good. I think

we're all going to find out. Um but the reality is it's a different trade but they can both work for different reasons. And hopefully in a world where people think that Ethereum and Solana are actually valuable and pristine collateral, then you could imagine actually it's almost perfect built for proof ofstake tokens where the yield that you and I just discussed that it's not possible in Bitcoin yet is actually already very advanced with Ethereum and Salana where there's actual yield that comes from the productivity of securing the underlying consensus mechanism. Right. Right. Very interesting. It's a good take. You know, it's interesting when I look back when when um Sailor first bought Bitcoin, I think it was around a $300 billion uh market cap, so about the same as what ETH is today. And

so I would argue probably in 2020, Bitcoin was not the like, as you said, the chosen one yet. You know, I don't think everyone was like, "Yeah, this thing's definitely a store of value." I think when he did it, everyone was like, "What just happened?" Right. Uh it was a it was a confusing time, an exciting time for those that held Bitcoin, obviously. Um, but then you know I think you said at the beginning of this these treasury companies are going to become a very important part of the entire ecosystem and I would argue like they already have been a massive one. Like think of what Sailor's done over the last five years and what Micro Strategy has done and the amount he has taught other companies in the Trafy space etc. I think he's made a big impact and so hopefully uh you know we'll see similar

outcomes with Ethan Soul. Obviously, nothing's guaranteed, so who knows what's going to happen here, but um it's just interesting. It's around kind of the same the same market cap when um uh when it happened with with Bitcoin. So, we'll see. We'll see what happens. Um look, we got to wrap up there. Uh before we do, where can people learn more uh from you? You got a ton of insight and I love, you know, everything you're teaching. So, where can the listeners um find more and learn more about you? Yeah, absolutely. Uh I'm active on X. My handle is DGT100011. And if you go to my profile, you'll also see I have a substack. Sometimes I'll post some more long- form uh writing and amusing ponderings there. Uh so that's also a channel for us to connect. But otherwise, I'm here near and far on Twitter. So give me a ping and I

generally uh will be able to respond uh unless unless um unless I'm unable to for compliance reasons. So reach out when you can. Awesome. Jeff, uh thanks so much for joining the Milkro Show. We'll have to get you on again. Maybe maybe a little bit more frequently. We have the the Bitwise boys, we call them, on uh quite a lot on the Milk Road show. So maybe we'll get you on as a as a frequent guest for uh for Milk Road Macro. I think that would be great. Uh for the listeners, if you'd like that, if you like what Jeff was talking about today, please let us know in the comments. That'd be super helpful for us. Uh and go give him a follow, check out a Substack, all those things. Jeff, again, thanks so much for uh for everything. This was great to have you

on the show. Great to learn from you. Everyone else, have a wicked awesome day, and we'll see you in the next episode tomorrow. Thanks again. Nice to see you, Kyle. As always, if you liked today's episode, please hit subscribe and make sure you follow us so you don't miss out on the next one. There's also a link in the description to our free 5minute daily newsletter where we simplify crypto for you while making you laugh. And if you're willing to step up your crypto investing game, we're going to also leave a link for Milk Road Pro. You get access to our portfolio where you can see exactly what we are buying.

This is your number one resource to help you invest successfully in crypto. One final note, this show is for educational purposes only and nothing we say is financial advice. Investing in crypto or any asset is risky and you should never invest more than you can afford to lose. Thanks so much for listening in my friends. Have a wicked awesome