Evaluating Crypto and Other Emerging Blockchain-Based Assets

March 25, 2020

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Dara Albright is joined by Jack Tatar, Managing Partner of Doyle Capital Management and co-author of the best seller Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond.


Transcript

Dara Albright:Thank you and good morning everyone and welcome to another episode of Bagels & Blockchain. We're glad everyone is able to join us virtually this morning and hope everyone is staying safe and healthy. We're honored to have with us here today Jack Tatar, managing partner of Doyle Capital Management and co-author of the bestselling book Crypto assets: The Innovative Investor's Guide to Bitcoin and Beyond. This is a picture of the book. The book has become known as a definitive resource for anyone who's looking to understand the rise of crypto assets, the significance of Blockchain.

It covers everything really from the birth of Bitcoin, the emergence of the Blockchain technology, its various uses evaluating crypto assets, and importantly as well, their role in modern investment portfolios. The book which was published two years ago was really written to provide investors with a good guideline and provide them with a variety of possible futures and the book truly stands the test of time. Today we're going to take a deep dive into the book and we're going to speak with Jack also about some recent events and how they're impacting the markets.

We'll take a little bit of walk down the future as well and see what that might potentially look like. So essentially, I hope everyone really gets a great grasp of a little bit of the past, the present and the future of Blockchain based assets. So with that, let's just jump right in. Jack, maybe you could start, just talk a little bit about yourself your background, your experience in financial services and investing in Bitcoin, about what led you here and what even made you decide to write the book.

Jack Tatar: Okay, thank you so much, Dara. First of all, I just want to thank everyone for taking the time today to join us. Obviously, our thoughts and concerns are with everyone during this trying time and so I appreciate you making the time for this and obviously as we get through this all together, we can all show a little kindness and compassion towards each other. We'll get through this together. To get to this topic, Dara, thanks for having me. I wrote the book, co-authored the book, Crypto assets: The Innovative Investor's Guide to Bitcoin and Beyond two years ago when I wrote it with Chris Burniske, who you might, if you know Chris, you might realize that Chris is actually 30 years younger than me.

So we came at it from a couple of different angles and mainly my perspective was as a financial professional. I had spent over nearly three decades in the financial services area, I was a financial consultant with Merrill Lynch, I was actually a corporate executive with Merrill Lynch. Then I ran a market research firm that worked very much with the financial services industry, and actually just take another step. During the time with the market research business, I wrote a number of books on retirement and retirement planning, personal finance and those types of things.

So that led me to become an online journalist, primarily with MarketWatch writing about retirement. As part of our work with the market research business, back in 2013 our role was to keep financial service companies, let them know what's out there ahead. What are the types of new technologies, new competitive types of things that they should be taking a look at and about 2012, 2013 we started to hear a lot about Bitcoin.

So I had mentioned to one of the associates on my team, I said, do me a favor, just take a look at Bitcoin and get back to me on it. The person, Ryan Lancelot, took a deep dive into it and came back with about a 60 page report on it, and I was just blown away. I had known something about it, but I didn't know in depth to the level that Ryan had detailed.

The report was so good that we actually turned it around and wrote a book called What's the Deal With Bitcoins, which is actually the very first book that's been written on the subject. We put that in the public domain So anyone can actually download that for free, And we can get to that later on. It was at that point that we really started to realize there's something here. So in writing for MarketWatch and writing on retirement planning, as I kind of merged the two worlds of Bitcoin and retirement planning, I started to realize that Bitcoin because it was trading on exchanges, it was an essence an investment, or could be perceived as an investment.

So I started to take a look at how can I incorporate Bitcoin into my investment portfolio. I did this from the perspective of a retirement accountant, as somebody who was writing on retirement, and I began a journey to try and figure out how can I integrate Bitcoin into my retirement portfolio and find the proper allocation and utilize tools like modern portfolio theory, Sharpe ratio, all of those types of things that I'd been using for years on stocks and bonds and regular portfolio management, how can you utilize those tools with Bitcoin.

I went through a process and I detailed this in MarketWatch and we actually wrote a small eBook about this, which is just a compilation of all the articles, but essentially, we invested early into the Grayscale Bitcoin Investment Trust, which at the time was not publicly traded. You had to get into it as an accredited investors, but whatnot. So I basically went in myself and invested money into it and from there, I just really fell down the rabbit hole and I've been involved with this space since really the, what I would consider to be the early days, when they were few conferences, few people speaking about it.

The people who were speaking about it, were mainly saying it's just nonsense and all of these types of things. So it's interesting to see where it stands right now. Then just to kind of come back to the book with Chris, at a consensus, which I don't know if many of you know the consensus conferences in New York, Chris and I met each other there. We had known of each other's writings and it was at that point that we had a discussion saying, there's really a need for a book out there that talks to people about investing in Bitcoin and crypto assets and that's what led us to write the book together, and we went through that process and published it about two years ago.
DA: That's great and, and 2013, so just to give a reference to people listening, where was Bitcoin, where was the market, the size at around that time?
JT: Well, what's interesting about it is as someone who was writing about Bitcoin in 2013 people say to me, wow, you must own a bunch of Bitcoin and have invested in it back then. At that time, it was not easy to invest in Bitcoin. There was a couple places, there was a place actually down on Wall Street, which was like a Bitcoin meetup, where you would go and it was actually a physical trading of money and Bitcoin. There was really no exchange. The first exchange was Mt. Gox, which many people had heard of and Mt. Gox went bust.

So, even if you had invested in Mt. Gox at the time, you might have lost your Bitcoin. They're now actually paying back those people now but at the time, people lost a lot of their Bitcoin. What's interesting about Mt. Gox, people may have heard the term Mt. Gox, and it was considered when that happened. People were like, all right, bitcoins dead, what a fiasco, what a joke, those types of things. Mt. Gox actually stands for Magic: The Gathering Online Exchange.

So basically, somebody had created a website that allowed people to trade Magic: The Gathering Cards Online, and they turned it into the very first Bitcoin exchange. So it's kind of an interesting aside, and that's what Mt. Gox stands for, but that's the type of world you had back then. The people who were really involved in it were the miners and these were people who had mining devices in their basement, regular folk who just kind of had these devices and were mining Bitcoin, keeping the ecosystem working.

Those were the people that really were the early hodlers of Bitcoin. Then as it grew, then there were other exchanges out there and it became more widespread. So it was easier to buy and sell, but back then, Bitcoin was trading in the dollars type of thing.
DA:It's interesting, you talk about the history here. I did not know that there was that meetup downtown where it was almost like the Buttonwood tree, where stock trading initially, here, the stock exchange initially started. So that's really fascinating. So that's actually a great intro and that could just enable us to really kind of dive a little bit into the history and kind of the emergence of crypto assets. So how did they actually come to be? Maybe you could talk a little bit about that.
JT:Well, so you had Bitcoin and Bitcoin worked off an ecosystem or platform or structure that was known as a Blockchain. The concept of the Blockchain was out there. This was really the first demonstration of a Blockchain technology, and Blockchain technology is something where, rather than getting into all the details around, there's been enough written about it, but it's a network of essentially nodes computers throughout the world, where there is a ledger that is kept on everyone's computer, updated, so that every computer on that network has the latest updated ledger.

So if your computer is down, when it comes back up, it will have the latest ledger. It is a decentralized network. There is no central point of authority, there is no central point fault point. It is a decentralized network. It is up and running worldwide. That is a very, very compelling concept. Everyone can see every transaction that's ever been done on it, it is totally transparent. It is permanent, no one can go in and edit it.

So that whole concept of using the Blockchain was something that as we saw Bitcoin succeed and integrate into that ecosystem, other crypto assets came along and said, we want to create something similar, we want to create a side chain off of it or we want to do something that is also decentralized as well. Then we started to see the growth of different other crypto assets, Litecoin which was something that was essentially a fork off of Bitcoin. So it acts very much like Bitcoin. There are some other features to it.

Transaction speeds were a little bit quicker at the time. So that was created to be more of a transactional type of asset. Then you have things like Ethereum, where Ethereum is very different from Bitcoin because Ethereum is in essence a platform that people develop on. It was almost referred to as a worldwide supercomputer. So in essence, you can get on, you can develop on this in a decentralized manner. You can utilize the Ethereum platform, eath as a way to build applications.

What is interesting about Ethereum is a number of years ago, there was this thing called the DAO, the distributed autonomous organization, which was something that was really building upon this whole decentralized network and was a way for people to kind of come in and build applications under this concept. The DAO was hacked and people lost, including myself, lost money that they had put into it. At the time, there was a person, brilliant person, still a giant in the whole crypto acid field, Vitalik Buterin, who was running Ethereum and the decision was made to, in essence, backtrack Ethereum so that people would get their funds back.

A number of people saw this as something that was not in the concept of what Bitcoin was created for. It was created to be a decentralized network where there were no controls and things of that nature. So when that was backtracked and the reverse fork happened, Ethereum actually split into two. It split into Ethereum and Ethereum Classic, but it created a lot of discussion among developers and philosophical viewpoints on the whole crypto asset area. Very interesting concept. There's a lot out there. There's a lot of ideology, viewpoints around crypto assets, and this was kind of a point where people really kind of voice their own opinions about it.

As many of you know, Bitcoin was created by someone who we don't even know if it was a person or whatever it was person or an entity by the name of Satoshi Nakamoto. We've never really known who that is. There is a gentleman Craig Wright, who claims that he is that person, but it's unclear. So there's kind of this whole aspect of we don't really know who created Bitcoin, but with Ethereum we know that it was a team that included Vitalik and some others that had created Ethereum.
DA:Well, two things are interesting. Well, first, it's interesting because Bitcoin was created out of the collapse in 2008, which is really fascinating and what I really enjoyed in the book, because you really had a terrific way, I think of really bringing it down to the layman and really making it understandable. You talk about, because Bitcoin and Ethereum are the two probably most well-known crypto assets and you distinguish them by talking about how Bitcoin was established to really transmit money digitally, and Ethereum to transmit data and change the way that information was transmitted.

So I thought that was really fascinating how you kind of distinguish and describe between the two of those. I was wondering, maybe we could take a step back for a second and just, there's so much I think, confusion out there when people talk about crypto assets. Is this an equity, is this a security, is this a currency? What exactly is this? So I thought first we could take a step back. What I thought you also did great in the book was you categorized crypto assets and you place them into different buckets. So maybe, let's give a little bit of a picture of what exactly crypto assets are and how they're classified.
JT:Sure, sure. One of the things that that Chris Burniske had done prior to writing the book, he had written a white paper with Adam White called, basically bringing out and declaring that Bitcoin was a new asset class, and they used the concepts of how we quantify other assets and basically saying, what we're looking at here with Bitcoin is a new asset class, and it is very different from equities. It is very different from bonds, but it is something that in essence today, you could go and you can exchange your Fiat and buy a Bitcoin or 3,000 other crypto assets and in essence either, buy that to use on the networks that they were built for or to use for investments.

So because of that, just at its most basic level, you've got to kind of assume that there's something there in terms of an investment, in terms of an asset. What we tried to do in the book, and I think it was the first time that it was attempted was to take a look at the world of what we called crypto assets. What's funny is I'll just take a quick step back, when Chris and I had originally written the book, the working title was, Blockchain Assets and many people don't realize that it was as we were writing it that Chris and I both, we really were compelled by the whole concept of cryptography and what went into these assets and how they really are more than just Blockchain assets and that's why we came up with the term crypto assets.

In the book we try and define them in such a way that as the universe of these assets were growing from Bitcoin to Ethereum and what we saw in 2017 with a lot of these other tokens being created, and projects being created and money being thrown at ICOs in these different projects, is we wanted to put together a taxonomy that defined these because what we kept hearing a lot was everyone was referring to all of these assets as crypto currencies. They would call Ethereum a crypto currency.

They would call Factom a cryptocurrency, they would call Bitcoin and we saw that for years and years on CNBC and other outlets and they're really not, they're very different. Bitcoin is very different from Ethereum and if you're going to invest in anything along these lines, you have to recognize the differences that are there. So Chris and I set out to create a taxonomy and the taxonomy was structured very simply into three parts. One was crypto currencies, which was Bitcoin because, in essence, you could use Bitcoin as a currency. Same thing with Litecoin.

Then you had crypto commodities, which were Ethereum, something where you could be building on it. A platform that can be developed within, and then the third aspect was called crypto tokens, which was kind of a catch all for a lot of these other projects that we were seeing where they were creating these cryptography tokens and running their infrastructures based on these other types of tokens. At the time, the number of crypto assets were increasing.

Now if you go on to CoinMarketCap, I think it’s worth to three, 4,000 of these crypto assets and Bitcoin is only one. So after we did that, put that out there, there have been a number of people who have stepped up and done some more detailed taxonomy. I've seen some reports where they break crypto assets up into 20 different categories and those types of things. So it's still an evolving discussion point, but what Chris and I tried to do with the book was to create a foundation, a basis for other people to develop upon and that's why at this point, we'll let those who are potentially smarter than me, come up with taxonomies as the crypto asset universe grows and evolves.
DA:I think you do that really well because I think there really is a lot of confusion around that and that really is one of the things we really need clarity. We need to define What everything is so we could understand you kind of, getting back to Bitcoin for a second, what I thought was really interesting as well in the book, I think there are people out there, a lot of naysayers if you will. They talk about Bitcoin being anonymous and ripe for fraudulent activity and et cetera, illegal activity but you really describe it is more of a synonymous transactions. So could you talk a little bit about that? Why this is not done in the dark and the relevance of that because why Bitcoin truly would be a poor currency for illegal activity.
JT:Yeah, this is something that has been discussed a lot and a lot of people point to, those who aren't aware of how Bitcoin works point to Bitcoin is being used for illicit activities solely and the reality is the currency of choice for money laundering and for the bad guys is still cash. That doesn't mean that we don't get ransomware for Bitcoin and those types of things but let's step back for a second. I mentioned before that Bitcoin is built on the Blockchain.

The Blockchain keeps a ledger, it is a permanent, immutable, transparent ledger of every transaction that's ever been done on there. So anytime someone sends Bitcoin from one person to another, that transaction is identified on the Blockchain. Now, what ends up happening is what's recorded on the Blockchain is in essence, your address, Which is kind of, think of it almost as your checking account number

So you would see a transaction that would say, from one address to another address. What we don't have on the Blockchain is we don't know who that person, who that address is associated with but we do know where that address went to, we do know where that address was transferred to. What has happened is, when we've seen exchanges like Coinbase, and Binance and a lot of these other exchanges, where you can go in and buy Bitcoin, you get a web address and you typically now have to go through a KYC process, AML process where you have to give your personal information.

So your name on these exchanges is associated with your web address, but there is a lot of activity that's being done with just web addresses that don't have names associated with them. However, what ends up happening is because of the forensic work and the talents of those people who are out there actually tracking these illicit transactions, they're actually able to, because of the transparency of the Blockchain, they're actually able to find those people who have done certain things.

We've seen busts around child pornography schemes, different dark web types of things were ultimately, because of the forensic work, they've gone back and they've identified this address did this transaction, did this transaction, did that transaction and ultimately, they do find the bad guys, most of the bad guys are found. Now there are times where the bad guys they may find them and it may be an apartment in the Ukraine, or it may be a Joe Smith in New Brunswick or something, but because of them what's called a pseudo anonymous aspect of this, you don't know the exact name of the person, but because the ledger is permanent, transparent, you can track through it and most of the bad guys have been caught by great forensic work, which is getting better as more and more people are able to connect the dots there and see who's being sent to where and those types of things.

So, it really is a better tracking system than cash, because it's all on the ledger and everything else. So as much as they say that this is the way for illicit activity, which it is, I understand, you can catch the bad guys. Now, there are some currencies out there, such as Monero and Zcash, that utilize a different technology that actually protects the anonymity of the user and there are a lot of people within the Bitcoin world who say that we don't like the government tracking what I'm doing with my money.

So they may use things like Monero and Zcash and those assets, we're seeing more and more being used for different illicit activities. Similarly, there's ways that they can get around that or track that, but I think those projects, Monero and Zcash, as much as they get criticized for being an anonymous coin being used for illicit activities, the underlying technology is very, very important technology that can be used for a lot of different applications.

This is what's exciting about the space is that we have some of the greatest developers and technical people right now working on projects within the crypto asset world. It really is the new Silicon Valley. It's where we really have the best and the brightest working and they're using technologies that are going to impact the way we do business all around. So that's probably a little bit more than you wanted, but that has been an argument that people have made that really is not correct about the use of Bitcoin strictly for illicit means.
DA:Yeah, it's a fallacy. So the other thing interesting, you talk about Bitcoin and crypto assets in general. They have two components to it there. There's the utility or usage component where you're using it to purchase goods and services, and then you have the investment component of it, where people are, and as you called, you said in the beginning hodlers. You might want to describe what a hodlers is to people who may not know, but talk a little bit about the utility asset versus the investment aspect of crypto assets, because then we could jump in a little bit to knowing that how we could evaluate these things.
JT:Yeah, and just in terms of hodler, and I didn't mean to use a term that potentially many had not heard, but it was actually something that people don't know whether it was a mistype or something on some, I don't know if it was Reddit or something else but, whereas Bitcoin was being volatile as it often is, somebody said just hodl, your Bitcoin and misspelled it, H-O-D-L. That has been called, now people say I'm a hodler because I'm holding on to my Bitcoin I'm not selling it. I'm just really holding on to, I'm not trading and I'm going to use it. Let it fly and see what goes on with it. Others have, which I felt myself, felt that hodl, stands for hold on for dear life because of the volatility.

To get to the point about speculative value and utility value. This was something that, we talk about in the book and I remember in the early days of talking to people and doing conferences around the world, sometimes to very small groups and sometimes to very large groups as the years went on, was to try and, everyone wants to try figure out how do we value crypto assets. How do we value Bitcoin and those types of things. Chris has done a fabulous job of trying to put some tools out there for valuation, and I would refer you to the book and I would refer you to Chris's continuing work on the topic as well as others.

One of the things that we tried to do simply to explain this to people was that there is, as with assets, like during the.com days, when you had Amazon and Microsoft and assets like that, people buy into these assets on what we feel is a speculative value. So you think of when Amazon came out, Amazon was going to sell books online and at the time anything being sold online, people like I got to get into this and what did we see?We saw the price on that speculation go up for many of the .com companies. The price went up strictly on the speculative value, that somewhere down the road, everybody's going to do everything online. Then what ends up happening is then it reaches a point where people are saying, okay, we priced into speculation. What's there, what is the real underlying value? What we end up seeing is investors stopped and say, okay, what is the value in this? Where's the utility value for this?

What we saw with the .com is once it reached a speculative value, people started to say, well, what is this really worth on a utility perspective? And then we sort of go down and many of the .coms went down to zero. What we started to see with something like Amazon is it went down, but then people started to say, okay, well, we're now selling books when now selling this, we're now selling that, we have more clients, we have blah, blah, blah, and then all of a sudden the utility value started to rise as well.

So there's that speculative value that comes in first, and then the utility value and then ultimately, the two of them can lead to a rise in price. So with Bitcoin, initially, there was a lot of speculative value in it. This is going to change the way we transact money, this is going to change everything. So it ran up in price. Well, then people started to say, all right, well, where is the real utility for this, and it kind of dropped

Then we had to look at things that detailed the utility value, such as how many transactions are going through every day, how many new wallets are being created, how much mining is being done and all these different stats and when you start to see the increase in those aspects, the utility aspects of Bitcoin, that was where now we started to see people recognize there is more utility in this, and the price started to run up. Similarly, that happened with a lot of the ICOs that came out.

We saw the ICO boom, initial coin offerings, where people said, I'm going to do this project that is going to store everything on your computer and we're going to pay you and tokens and everybody was like, wow, that's great. I could throw a dart and make four times your money on an ICO on the speculative value. Then so it ran up, but all of a sudden, it was like, well, it really can't do what it's saying, can't do what it's saying, boom, and it goes down to zero because there's no utility value.

So that whole speculative value and utility value is something that we saw with a lot of the technology companies that we utilized with Bitcoin and a lot of crypto assets as a way to try and get at least early stage valuations around these assets. As you say, we discussed that in the book and outline that in the book. Now we have much more sophisticated manners of valuing these assets, and we have a lot of people who are now working in the space, who are a lot smarter than me, who are looking at data and finding better valuation models than initially were out there a few years ago.
DA:Well, I thought it was interesting because, unlike equities, these are very different. This is a whole different animal altogether and I thought it was really interesting in the book where you really do go into detail about ways and people could read about this, but there you really go into detail and you really specify different types of analysis being used and ways to use fundamental analysis versus technical analysis. I thought that was really interesting because we're talking about a completely different asset class.

So traditional fundamentals that you look in equities doesn't work. Supply and demand, it's just a very different, even something as, you kind of jumped in a little bit talking about mining or reference mining. Maybe it's a good time to jump in a little bit to the halving event that's coming up, because that kind of, I think fits into what people are looking at the value right now of Bitcoin and there's this big event called the halving event that's going to come up in the next couple of weeks. So talk a little bit about what that is and what that means.
JT:The halving is something that I have been very focused on. I've been writing a lot in my newsletter about this and let me spend a little bit of time here because I think it's very important because we're, in essence right in the middle of it right now. What ends up happening is, I'll take a step back. Bitcoin was created to generate 21 million Bitcoin, period. That is all the Bitcoin that will be created. It is not like the dollar, where we can basically be unlimited in everything else and gosh, we're really seeing that right now. But Bitcoin has a defined number of 21 million, and Bitcoin is created to the software-
DA:You can't print or create anymore, right?
JT:Nope, nope, nope. The way and the way it's created is through miners working on the ecosystem and running that process. So everything is built into the software, everything is this is all running, this is all happening. Within the software, there was a system that said every four years, we will half the number of Bitcoin that we will release to the system.

In this way, we get to the 21 million, which will happen 100 plus years from now, where we ultimately the last Bitcoin maybe created is about 100 years from now, but it halves the amount every four years. So we're now looking at the 12th year of the history of Bitcoin. Correct, Bitcoin has been around since 2008, the last financial crisis and as Chris and I pointed out in the book, we believe it was created out of that financial crisis, but when we take a look at the price of Bitcoin and try and find some keys and some ways to evaluate the price of Bitcoin, it gets tough with assets to take a look at past data.

Now as we have 12 years of data of Bitcoin, we can evaluate Bitcoin more on a technical basis and more on past history than we ever have before. I mean, we could spend a lot of time talking about fundamentals and technical analysis. My team right now does a lot of our price modeling of Bitcoin based on technicals and we're seeing the market really, really trade very, very, on a very technical basis at this point. Let me come back to the halving.

So every four years, the amount of Bitcoin halves to the miners. So, one day the miners might be receiving four a block and the next day they received two. Four years later, rather than receiving two they receive one. So, that amount gets halved. When you take a look at the price activity, and this is very, very interesting and this is something that my team did and people have, this is all open data, the data is out there, but when you take a look at past history around the halving, the halving happens in May, and the actual halving event will happen, May, of 2020 as it happened in May, of 2016 and, and so forth. 2012.

What we found is one year before the halving, before the actual halving event, one year before the halving event and this happened, the same thing happened for the last two halving events. One year before the actual halving events, the price of Bitcoin reaches a bottom. It forms a base, then a year later, the halving happens and then a year after that, Bitcoin hits an all-time high. That has happened the last two halving events. So, this is a three phase thing. A year before the halving, it reaches kind of a bottom, it reaches a base.

The halving happens, the halving is not the big pricing event. The big pricing event is a year after the halving. Okay, so then you reach an all-time high. The thing I will tell you though, is the year after, that year has been a negative for Bitcoin and then we start to see the same thing happen again. So we saw that happened for the last two halvings. So will it happen again this time?

We don't know but it's something we're very interested in watching because what we see, as we get to May, if you go back to the price of bitcoin in May, of last year and you take away, we actually had a couple of flash crashes in the past week with Bitcoin where they went down drastically and right back up, and if you pull those out of there, you will actually find that in May, of last year, we bottomed out with Bitcoin at about a four or $5,000 range and right now bitcoins trading in the high 6000s.

So did we see a bottom a year before and now as we go into the halving and many people say oh, the halving is priced in. It's not priced in. The point is a year from now is when the actual pricing event will happen. So if you have Bitcoin, and if this works out, you could potentially see a new all-time high in May, of 2021 if it follows the last two. Now, I was a financial adviser. I worked for major financial firms, past performance is no guarantee of future success, but it's very interesting that this happened similarly the last two times.

So as we go through this right now, it is something to pay attention to, and it's something to watch. Just before I get off of the halving aspect of it, I think one of the consequences of this or I don't want to say consequences, but one of the aspects of this, is that as we get to a situation where miners will now receive half of the amount of Bitcoin, we're starting to see a lot more larger miners step in and a lot more money being thrown into this.

They've almost forced out the little miners and now we're seeing a lot of money going into this with the concept being that if this follows through, we've got these big mining companies. In fact, I think there was a company that just recently went public, that's a mining company and I think Peter Thiel has actually funded another company that's going to be doing mining, but on a large scale. So those days of the individuals mining in their basements may soon be over, because people are throwing a lot of money at this, and it just shows the maturation of it.

Anyway to come back, yeah, they can't compete. So it's an interesting thing to watch for the halving. We've been following it. It was something to keep an eye on as we get closer and closer to May, but whether or not it's going to happen similarly, that happened the last two times, we don't know but at least is Something to keep an eye on.
DA:Well, and it's interesting because I think we, it definitely going along that path and then all of a sudden kind of the world changed a couple of weeks ago, just out of nowhere. So we're kind of in, I just think the financial markets overall, uncharted territory here. So I want to kind of talk a little bit about how current events are impacting the space, because I think it's really interesting. First, you even talk a little bit about hodlers holding on for dear life, the holders out there.

Now I have this theory that in 2019, is we saw a pretty significant rise in Bitcoin during that year. I think that we saw a lot of institutions more than dipping their toe into crypto waters. I think that they were playing in it more than, Swimming in it may be even more than they were letting on. The interesting thing is just if you look at the mindset between hodlers or the folks that have, the true believers in the crypto world, they are holding on for dear life, they're not really trading and the mindset of the typical, conventional, institutional trader.

It kind of see that, and you really, I thought this was fascinating in the book, where you really talk about correlation and you focus on, in the beginning, this was a completely non correlated asset class to conventional assets, because it was just such a niche group that that was really playing in the space and you actually forecasted it in the book. You said as more and more people become aware of this, as it does become more mainstream, we're going to see that it's going to become more and more correlated either negatively or positively and it'll be interesting to see how that plays out.

I think that, I guess my theory is that, 2019 these institutions were coming in, buying and when the market started turning a couple of weeks ago, the overall, the financial markets to the situation, they were the ones that were really selling out of their crypto portfolios where the hodler is still holding on for dear life. Now we're kind of seeing a little bit of a turn, where we're seeing a little bit more of the, we're seeing a turn now even when the equity markets are now going down, it looks like the Bitcoin crypto markets are not following sweet as they were just even two weeks ago last week.

So can you talk a little bit about the correlation, where do you see that, have we reached this inflection point now where maybe these are more negatively correlated? Could Bitcoin be that safe haven that people have talked about in the past? What are your thoughts there?
JT:Let's think back to what happened in 2008. In 2008, we had the financial crisis, not dissimilar to what we have right now and people saw both stocks and bonds go down in tandem. Initially, people thought, well, I'm going to invest 60% in stocks and 40% in bonds. That was the 60-40 portfolio model because they move differently. Equities go up, bonds go down. Well, what we found in 2008 is everything went down at the same time. So what happened in 2008 was you started to see the investment firms out there, start to say, we need to put something in here to give people something in their portfolio that's uncorrelated to these assets to protect their portfolios

We saw a real rise in something called the alternative asset class, and the alternative asset class was made up of non-correlated assets. So, the firms went back and they created new portfolio asset allocation models, which said okay, 55% equities, maybe 25% bonds and the rest in alternative assets to protect you.

Whatever it was, all of the major firms started to add alternative assets into their portfolio mixes and in the book, you know that I talk about Bitcoin as strictly being viewed as an alternative asset. It is something that I feel at this point, does not provide correlation. It's amazing to see people jump and write oh, it's correlated, it's correlated when stocks go up and Bitcoin goes up and then all of a sudden a week later, it's been disproved.

 do not see them as correlated assets at this point. I think they're very different. I think had things been, liquidity needs recently which have potentially led to some short term correlation, but ultimately, they are non-correlated assets. I think what you're going to see now is you're going to see the investment firms are going to take another look at this and say, you know what, we need to start protecting our clients’ portfolios and putting in alternative assets.

You already see this with gold. Gold is right now the alternative asset of choice for people because you can buy the GLD ETF, and easily put it in there and advisors can grow their assets under management and can buy and sell these things on the exchange. So it's easy to say, let's just put some GLD in there. It's not so easy with Bitcoin, because there isn't an ETF to do it and advisors don't get paid on convincing people to put something into Coinbase.

So I think this will expedite the need for an ETF, a Bitcoin related ETF because I do think that this will be a point where people will start to take a look at adding in once again revisiting this alternative asset, whether it's 1%, 5% or up to 15%. I advocate a one to 5% addition of Bitcoin to your portfolio and the results over the last few years have been amazing. It's been phenomenal. We've written about it, and there's enough out there that says even just adding 1% of your portfolio into Bitcoin will not only protect you, but will give you such higher returns.

So I think you're going to see that happen more so with all of this. That needs to happen when we have a Bitcoin ETF or an easy way for the retail investor to buy into Bitcoin and I think that's going to be the challenge that we have right now. I know up in Canada, I've been working with a firm up there that has gotten approval from the regulators up there, the SSC, the Ontario Stock Commission, which has basically approved and exchange traded product that people are now putting into their portfolios.

Advisors up there starting to look at this as an alternative asset class, adding it to their portfolio and I think that's going to be a real point of discussion. Look, what we saw during this crisis and I mean, the crisis is still going on, and let's hope that it ends soon, but what we're seeing is as badly as Bitcoin got hurt, it didn't go down to zero, which I think says a lot, and it is still almost 50% higher than it was at the beginning of the year, a year ago, year to date.

Not beginning of the year, but a year ago. It's holding up very, very well. Whether it's a store of value, whether it's a safe haven, I don't know. I think the jury's still out in that. There's been a lot being written about that. Gold has a long history. Gold, you could potentially say, is a safe haven. Bitcoin is getting there, but the one thing I do want to point out is after the halving happens, the inflation rate on Bitcoin will, for the first time ever be less than that of gold.

The inflation rate meaning, that We don't know how much gold there is out there in the world, but we have estimates, and that is about a 2% increase every year. After the halving the inflation rate on Bitcoin will be one and a half percent. It'll be the first time that it will drop below that of gold. You will start to see more and more discussions and more and more analysis of Bitcoin versus gold as an alternative asset and rather than them being one or the other, I think they can be complimentary, and they can feel that alternative assets leave, but we probably need to see an ETF or an easy way for investors to invest in that.

Whether or not it's an ETF, we may not even have to worry about that. Fidelity is already doing stuff with their own custody. You may be able to buy Bitcoin in a Fidelity account, but for advisors to get on board, they've got to be paid on those assets and have those fit under their assets under management, and that's why I think an ETF is necessary to have advisors start to talk about this as an alternative asset.
DA:It's interesting that you say that because, firstly write a lot in the book about accessing Bitcoin and crypto assets through more conventional investment products and means, through your financial advisors, et cetera. I think we're seeing really now, I think, especially 2019 was a big turning point where advisors really started looking into this more aggressively and you're talking, two years ago advisors were saying stay away, and now they're saying, it's too risky.

Now, they're saying it's too risky not to have even just a small percentage in your portfolio as a hedge, exactly what you're saying. So it's going to be interesting. We'll take a couple of questions. So if anyone has, because we've got a few minutes left, feel free to send those over the wire. Any idea for an estimated time on when we'll see a Bitcoin ETF approval?
JT:Well, I've only made two predictions in my time with Bitcoin and one prediction was back in 2015, I said that we would see 20,000 in Bitcoin in the year 2020. You can take that for what you want to take, and I'm not really a big, I don't really do predictions about price, but I did it back then. Somebody really pushed me on it. The other thing was last year, I did predict that we would see an ETF last year, that didn't happen.

However it did happen up in Canada and I do believe that given all of this that has happened, given how Bitcoin is held up, given the fact that we have such great research out there some really, and a lot of institutions, in fact, your point before Dara about the institutions getting involved, our research team is now taking a look at something that we think may be happening, which is that we think institutions are buying into bitcoin on their own for some allocation models

We're seeing some things, we're evaluating that. So there's something there, but there's nothing that we can prove at this point, but because of institutions getting involved there, I think they are getting involved in adding Bitcoin to their portfolios. I do think with this crisis and with a need for people to take a look at their portfolios, we're going to revisit this whole asset allocation, alternative asset perspective, and I think you'll start to see more pressure being put on to the SEC to approve this

The questions, and I went through the process with the OSC. The questions that the OSC had, are the similar questions that the SEC had and I think many of them have been answered. They just need to step up and do it, and I think because the firms see a business model there where they can put this under their assets, under management and make some money at this, I think that will be the tipping point for where we'll start to see an ETF over the next year or so, but I think we're getting close to that. There's going to need to be an easy way for investors to invest in this.
DA:Yeah, I couldn't agree more. So I know people are asking where they could access your newsletter, where they could download the book. I just want everyone to know that we have a resources page here where we put links to everything. So they could feel free and then after even this is over, we could send out a follow-up email to everybody listening with links for that as well. So we could put that in.

So just I have a couple more questions because I see we've only got about, I'm getting the two minute mark here. So, in the book you also, in the back, you put a ton of resources in here, which was great. It was really helpful. Are those still your go to resources for you, or I mean the industry has really evolved and expanded since the book. So, are you going to put out an updated resource list or any plans to do that?
JT:We were updating it on our website and trying to keep up to date with it. It's not something that we've really kept us up to date as we want. I do think that there are some amazing resources out there that people can go to, a lot of great websites that are out there. I try and keep up to date with it through my newsletter. I know that Chris through his Twitter posts, keeps things updated. Chris does a lot on Twitter. So if you want to follow him, it's @cburniske at Twitter.

Most of my stuff comes through my newsletter, which I know we had a question on the newsletter, but if you want to take a look at my newsletter, you could go to forbes.com/newsletters, and then I'm one of the people there that you can get into there, but you can take a look at that. That's been primarily where I've been putting my information, but just a couple of things that I would like people to know.

If you'd like a free copy of this book, What's the Deal with Bitcoins, it's more of a statement in time, you can go to the bitcoinist.com and you can download it for free there. It is something we keep in the public domain. At this point, Chris and I do not have any interest, although we've been asked to do an updated version of the book, it's our belief that we'd like the book to stand in its place in history and let others kind of build upon it.

Plus, we want to maintain our friendship and writing a book between two people can often be a bit nerve racking. So it's, at least for me, it's more important to preserve my friendship with Chris than to write another book, but I think if you follow Chris on Twitter, you'll be able to get a lot of great information there.
DA:Yeah, that's great. One final question and just a quick one, but this is a fun one, and you can be as creative and use your imagination. What would you like to see personally as mankind's next great invention?
JT:I would like to see, just as you have a pregnancy test that says easy to use, that we have a test like that, that identifies whether or not you have coronavirus. I can't see past anything but this crisis and someone figuring out an easy way to identify who has it and who doesn't have it, I think once we do that, I think we'll make a big change here. The next big invention should come to solve this crisis and get people back to work and get people feeling safe and boy, it's going to be a hell of a party when this is all over. It's all I can say.DA:Yeah, I couldn't agree more. So on that note, I just want to say to everyone out there, stay healthy, be well, and thank you so much for participating in this, and jack, this has been really enlightening, and I really appreciate it. Again, thanks for writing the book because it really was fabulous. I think it's a must read really, for anyone getting into the space and especially financial advisors.
JT:Thank you, Dara. I really appreciate it. It's been great to do this with you and thank you so much for you and your firm for being involved in this space and helping out so many people.
DA:Thanks so much again.

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