Bitcoin Outlook

This session is a “must-see” for people looking to better understand the state of bitcoin in the world—with a focus on economic, regulatory, political, and technical outlooks.

This session is a “must-see” for people looking to better understand the state of bitcoin today in the world. View the discussion between Lyn Alden—an investor, engineer, and writer who runs a research service for both retail and institutional investors—and Michael Saylor, CEO of MicroStrategy Inc. Their wide-ranging conversation covers four areas core areas:  

• An economic outlook detailing the range of likely market outcomes in today’s inflationary environment 
• A regulatory outlook as the US government reconsiders its approach to digital property, digital securities, digital exchanges, and other emerging areas of interest 
• A political outlook detailing the trends and considerations of bitcoin adoption in the developing vs developed world 
• A technological outlook with a focus on new opportunities for miners—plus how the Lightning Network will allow organizations to easily plug into bitcoin and transform products and services

Speakers:

• Lyn Alden, Founder - Lyn Alden Investment Strategy
• Michael Saylor, Chairman & CEO - MicroStrategy Inc. 

Welcome back to Bitcoin for corporations, and I'm here with Lynn Alden, one of the industry analysts I most respect in the space, in fact. Len was instrumental in microstrategy's decision to put Bitcoin on its balance sheet. And when I was studying Bitcoin and when the corporation was, we were looking for strong independent voices with macroeconomic backgrounds that understood Bitcoin that understood the economy. And Len is one of the thought leaders that I came across in the space. So I'm really delighted to have her with us today. The subject of this final session is going to be the Bitcoin outlook. And Lynn, welcome. Thanks for having me. Happy to be here. Leon, I've got kind of a four part objective today, I'd like to look at the Bitcoin outlook and I'd like to start with the current economic outlook and then talk about regulation and what's the regulatory outlook for Bitcoin and then move on to politics and talk about the political outlook and political drivers. And then finally, and with views on technology and how technology is driving the Bitcoin outlook. And I can't think of anybody more qualified to join me in this discussion than you. So without further ado, let's start with the first question.

You know, what's your current economic outlook for bitcoin? It sounds good. Yeah, we'll dive right in because it can be hard enough to get all this into a span of time we have. So because it's such a broad concept. So if you back up for a second, you know, Bitcoin is still characterized as a risk asset by a lot of pools of capital. And so, you know, that might not be the case for some investors that put 1,000 hours into it to understand at a deep level. But due to its high volatility, it's still very much in the risk on bucket as far as most assets are concerned. And so when we take a step back for a second, we can look at these, you know, these rate of change of economic growth. And so some of the near-term outlooks for Bitcoin are, you know, somewhat challenging, somewhat uncertain, even as the longer term outlook still remains very strong. And I think that, you know, basically as we go forward, as more analysts come into the space, there's more and more coverage of Bitcoin and the broader ecosystem. And I think that's only going to strengthen over time.

And so, you know, something I've been kind of, you know, Warning my clients about recently is that, you know, as the data comes in and shows that in the United States and much of the other, you know, kind of Western countries, we're seeing somewhat of an economic deceleration in 2002 compared to the, you know, kind of the sugar high we had in some ways for 2021. And if you look back, historically, Bitcoin's major bull runs are actually during these periods of economic acceleration. And when we look at this chart here, it's the US purchasing Managers' Index and we see that, you know, back during the, you know, the period in 2020 the period in 2017 the period in 2013. These major, you know, kind of upward inflection points in economic growth were also tied into Bitcoin's bull runs. And that could eventually decouple. We could eventually see, you know, a changing of that, that kind of correlation that goes on. But historically, that's been the case both for Bitcoin and other risk assets. And so as we look forward, most of the leading indicators continue to suggest that this is softening. And I think that comes down to not necessarily making decision points for Bitcoin related on that, but it's about managing expectations and about understanding the range of outcomes that could happen when we take like a bigger step back and look at the really high level view, though, we can see that even if Bitcoin as a choppy period for a year or more, the more structural outlook remains very good. And that's largely because one of its, you know, biggest competitors, you know, what do you want to hold on your balance sheet, either as an insurance company, as a corporation, as you know, as a hedge fund, as a retail investor, you know, what do you want to have in your balance sheet?

You know, right now, cash is a very expensive form of optionality. You know, it obviously gives us volatility protection. We need it for our working capital. We need it for a variety of different purposes. But it's near the high end of how expensive it is in terms of losing purchasing power over time as you hold it. And so, you know, the chart I have here on the left shows federal debt as a percentage of GDP over time, and we see that whenever it gets to very, very high levels, you tend to run in these persistent periods of negative real interest rates for cash equivalents. So that can include cash in the bank that can include T-bills. Basically a variety of these risk free, low volatility ways of storing value. And that's, you know, if we look at, you know, we broaden this to other countries, you generally see that's the case. Whenever you have very high debt levels, you start to run into these financial repression scenarios, where central banks have a tough time raising interest rates to positive real levels, you know, compare to CPI, let alone compared to the growth of the broad money supply. And so you see many of the high quality assets, you know, going up in value even faster than CPI. And the chart on the right there kind of shows another way of looking at this. So those green areas are positive real rates and those red areas are negative real rates. And so the fed, you know, the Federal Reserve and other Western central banks kind of find themselves in a tough position right now because on one hand, they've never been further behind the curve in terms of inflation, at least going back to about 1951. So in modern history, they're about the furthest they've ever been behind. But other hand, when you have the, you know, the prior slide showing economic deceleration, you know, they find themselves historically. You know, they tend to raise rates and tighten policy into stronger periods, and so, for example, the last tightening cycle they did, you know, they tightened through 2017 and entered into the, you know, into 2018 but they started to run into turbulence towards the end of that when PMIs were rolling over and they didn't have the inflation levels we have now. And so this, you know, when you're looking at the different options for what kind of assets you can have in your balance sheet, this gives the, you know, the high level view of why holding cash and cash equivalents is so expensive.

At least, you know, when you're looking at longer term and they can look back, you know, in history during prior inflationary episodes in the market, and we see that there are very different types of responses depending on how much debt is in the system. And so when we think of high inflation, we often think of the 1970s and the chart on the right here shows the fed's, you know, basically I used I used three month Treasury bills as a proxy for short term short term rates here because the data set goes back really far. But essentially, what you had here was the Federal Reserve was consciously trying to tighten and raise rates to rein in inflation, and they were able to do that in large part because debt as a percentage of GDP, both in the public debt and private debt, you know, including household debt, corporate debt, all the different, all these different types of debt outstanding.

They were pretty low. And so they were able to raise rates. And you know, it cause economic weakness, but it didn't necessarily cause like a solvency event. Whereas back in the 1940s, which as you go back to here was the last time debt as a percentage of GDP was as high as it is now. You had a pretty big decoupling in terms of inflation and interest rate policy. And so I think a lot of macro indicators show that the 2020s are shaping up to be very similar. And we've already we already had this big spike here. We had, you know, the largest ever decoupling in terms of inflation and rates since the 1950s. And I think we're going to get probably more cycles of that going forward. And so that's another good kind of, you know, backdrop for having Bitcoin as a way to protect against that. It doesn't necessarily hedge you the moment you get different CPI prints, but it's basically a structural way of holding something that has intrinsic scarcity compared to something that is, you know, intrinsically not scarce and that for which the yields are no longer keeping up with inflation.

So we could summarize that is expansive, expansive monetary policy and kind of loose fiscal policy that we can expect for the better part of the decade, you think? I think that's the longer term backdrop is basically I think we're, you know, I have been using the 1940s to characterize this era more so than the 70s, which is kind of the popular conception right now. And there will be counter trends. I mean, you know, even in the 40s and the 70s, you had these disinflationary periods and you have, you know, as we look at economic cycles, we see these periods of strengthening and softening. And so I think that as long as we manage our time frame expectations, that's what I do see. Even though it won't be a straight line, at least that's I think that's the way the data is looking now. So in the seventies, like people stampeded into gold, right? What did they stampede into in the forties? What was the response to, you know, inflation in the forties? Did they have a technique or a primary asset? They had fewer assets available to them because gold was illegal to own for Americans. Many, you know, foreign pools of capital went into went into places like gold where they could.

Commodities did well, broad commodities, you know, silver oil equities were very volatile in that period because you obviously had a lot of uncertainty and equities are long duration assets. And so it's hard to price them appropriately when you don't, you don't know the economic outlook. And so there really weren't that many places for them to hide and to protect themselves from that. And so they were capital controls. There are a lot of challenges. Back then they had a lot more challenges than they had in the 70s. And luckily now, I mean, you know, even though we're in some ways going through a similar macroeconomic cycle as the forties, investors have more tools available to them, including bitcoin, to protect their protect their capital against these.

These periods of currency devaluation that you can go through when you have that combination of high debt with some degree of inflation. OK um, and I guess so for two more slides is to finish out this section. You know, that's the macro backdrop. So then we can look at some of these cycles we go through in Bitcoin. And what I have here is the, you know, the 1 plus year hodl wave. You could also call it the Bitcoin distribution cycle. And what we see here, so the blue line is Bitcoin price and the yellow line. The orange line is of coins that have not moved on chain in more than a year. And so, of course, Bitcoin can be held in multiple ways. Some people hold it on chain, some people hold it on exchanges, some people hold securities that are, you know, tied to Bitcoin in different ways. And this is looking at the very large snapshot of on chain, which is a very big part of the market still.

And what you generally see is that during these major bull runs, all this new capital comes into the space and some of those longer term holders start to sell into that strength. Basically, they experience 5x 10x, 20x gains. In some cases, they have these, you know, they have these life changing amounts of capital appreciation. They want to rebalance. They want to consume. And so they distribute into some of that strength and a lot of that new capital pours in. And then you generally see during these, you know, more consolidation type of markets, these bear markets, you generally see the reverse. You have the longer term, more knowledgeable, higher conviction holders go back to, you know, they become a larger and larger share of the market over time. And so what we see now is that we're back in this distribution cycle where, you know, during the early kind of bullish period of 2021. And you know, the whole phase there, those longer duration holders are willing to sell into that new strength. But then throughout this consolidation that we've been in for the better part of a year, those longer term hands have not been willing to sell these prices.

And, you know, many of them are still accumulating at these prices. Dollar cost averaging coins are continuing to go from kind of those, you know, those faster money hands or those weaker hands into those longer durations, stronger, less liquid hands. And so that's generally what sets up kind of the next cycle you have the macro events you have basically you can separate into demand and supply. So on demand, you have what we covered before things like risk on or risk off periods. How much liquidity is in the macro environment. Those types of factors can determine how much capital comes into the space or leaves the space. Meanwhile, the other side of it is the supply side. How much? How much of the existing coin base is available for liquid purchase versus how much is locked up into very strong or illiquid hands? And what's made this cycle rather unique is that in these prior periods, when you had these peaks in demand, that was the top of the cycle. Whereas actually in this time so far, we had a slight new high later in 2021, not because demand was as high as early 2021 but because you had moderate demand and really, really tight supply.

And so there's really two sides of the market to keep monitoring, you know, basically different analysts. I think folks maybe too much on just the demand side or just the supply side, and we put both together. Basically, what we're seeing is right now we're in kind of a weak period for Bitcoin demand, as you would expect from, you know, economic deceleration, liquidity being pulled from the market, while the supply side is one of the most bullish setups we've seen. And so that kind of can segment our expectations about maybe the longer term outlook versus that, that intermediate term uncertainty. And for the last slide, you know, this is a chart from Yuri and Timmer of fidelity. I think he's been doing really great coverage of this space. And so he has a demand curve model. Basically, you can model Bitcoin as though it's a network effect as though it's similar to internet adoption or mobile phone adoption. And so you have this kind of, you know, this the monetization of this asset over time that this asset acquiring a monetary premium. And so you occasionally go way above the demand curve, you get that you get momentum traders dropping, jumping on board. It's not like this.

It's not this very smooth adoption. But you go through these periods of fast or quick adoption. You can kind of model it over time. And of course, we can't predict the future, how fast things could go, what sort of inflection points, what sort of geopolitical events could accelerate or decelerate that. But it shows that, you know, based on that model, we're towards kind of the value side of that. We're not necessarily in capitulation mode. You know, the last time we had a capitulation was March 2020 during the COVID crash. The prior time was that late 2018 period, which was when the Fed was trying to tie it into declining pmis, declining economic acceleration. And so, you know, we absolutely could have a lower capitulation. But I would say that we're already in what is historically at least been a valuation kind of an accumulation phase kind of a value opportunity.

And you can look at all sorts of indicators like dormancy. It's basically another way of measuring our long term holders, selling their coins or not. And most indicators keep showing the supply side remains very tight. And so I think we're in this, you know, kind of, you know, to to, you know, repeat the point that I think we have to manage our expectations, maybe about the next 12 to 18 months, understand that, you know, Bitcoin is treated as a risk on asset by many pools of capital, but that the long term story looks very favorable now and that if people basically are looking to get into the space, you know, the network just went through a 50% plus correction. And that basically, I think that the supply side is still kind of long term bullish.

Yeah, I mean, it feels that way. It feels like we're in a consolidation. Can you can you? What are your opinions about institutional views of this asset class versus equity bonds and property? Has it changed any in the past 12 to 24 months? I think so. We can kind of segment into different milestones. And so as Bitcoin went through this, this, you know, this process of network adoption, this monetization in the really early stages, it was retail to retail, you know, the friction points for even getting into the space. Actually, remember hearing about Bitcoin in 2010, and I kind of just thought about it, you know, I could have figured it out, but because there's so many friction points, I just kind of lost interest that that's true for a lot of people. And you then in, say, the next cycle, the next cycle of demand adoption, you had exchanges come in and make it easier for people to get in. It still was kind of a, you know, the industry that was back in the Silk Road days. You know, some of these companies had trouble getting banking relationships. It was still very early days. Then the whole 2017 period was more the mainstream adoption. That's where you had these, these more regulated exchanges.

They had banking connections. You know, there's more, you know, built up infrastructure around that and you had some of the early institutions really get into the space. But I think they built a lot of their framework throughout this, this bear cycle we went through in 2018 2019. That's where I think a lot of the foundations were laid. Some of these big institutional grade custodians really built up their product offerings in that environment. And so when we had this, this demand increase in 2020, I think basically we described that this was kind of the year of institutional adoption after we already had the institutional buildout. Now we have insurance companies coming in. We have a couple of early pension funds coming in, basically these larger pools of capital being more interested. And it's kind of important that know, that the custodians built that foundation in the years prior. How do you see anything differently or how are you looking at in terms of, say, the outlook going forward, economic wise? Yeah, I think about, you know, the key institutional milestones or milestones for Bitcoin and and, you know, as you went through your historical review of jog my memory and I thought fidelity started offering digital asset services like late 2019. Right and I think that the entry of fidelity into this space was a big game changer. You just showed a chart by an analyst from temor from Fidelity.

And of course, fidelity manages $10 trillion or more worth of assets, so I thought that was an important endorsement. I think that when MicroStrategy bought Bitcoin as a public company and we went, I think we were looking, we saw there were only like $2 million worth of Bitcoin in any public Treasury anywhere in the world. And so we smashed through a barrier there in August of 2020. I think the Coinbase IPO was another big barrier, I suppose. Microstrategy then Square's application acquisition of bitcoin, then the Tesla acquisition, then Coinbase. These were all interesting milestones for Bitcoin adoption as an asset class. I think because we saw this legitimized and then, of course, all the macro hedge funds. What's interesting here is looking back to the comments on Bitcoin by Paul Tudor Jones, Stanley druckenmiller, Bill Miller. Those were all, I think, instrumental data points. I think the. The willingness to discuss Bitcoin on public television, by the CEOs of Goldman Sachs, by the CEO of jpmorgan, by the CEO of Morgan Stanley.

You know the fact that Abigail Johnson would talk about this and on Bloomberg, I think that those were interesting milestones, all very important to the maturation of the asset class. And so I guess. Before we end this discussion of economic drivers, what do you think? Are they going to be the key institutional or the key economic milestones looking forward that will drive Bitcoin adoption? So I think we're seeing early signs of it. Basically, I think that the banking industry is still in the early innings of interfacing with the Bitcoin network. And so we've seen, for example, you know, after the institutional grade custodians came in, you started to see some of the investment banks come in. You started to see custodian banks like Bank of New York Mellon get into the space. And now there's firms like nydig that are making it easier for commercial banks to offer Bitcoin related services.

Basically, a lot of banks have been seeing that, you know, people would pull their capital out and send it over two places like Coinbase or other exchanges and banks, saying, how can we retain more of that in our ecosystem? And so I think basically now you're seeing more and more integration. And so I think there are milestones to watch about more banks getting involved, maybe more insurance companies getting involved. I think another big thing that's really early is the Ria space. So you know, there's Tens of trillions of capital managed by aria's and they, you know, they have these they have all sorts of reporting requirements, rebalancing, you know, needs they need certain interfaces in certain things. And there are companies now like swan, Bitcoin and others that are starting to roll out more and more services aimed at them. And I think that that, you know, that's going to be a pretty big, I think, adoption story over the next three to five years as well. And that's still, you know, that's, you know, behind the curve of some of these other pools of capital.

So I think as we go along, there's just more and more kind of tentacles going out through the various types of capital that have their needs met in terms of bringing their capital into the space. Yeah, I feel like one interesting economic milestone we hit was just a few months ago when every government in the world acknowledged large amounts of consumer inflation, CPI and producer inflation and and it was acknowledged as an issue. I feel like a year ago it wasn't acknowledged, but today it is acknowledged. And probably the big economic driver that will continue will just be inflationary public policy. And if we acknowledge that we've got 5 or six or 7% inflation, there's no central bank in Western Europe or the United States that has articulated a plan to raise interest rates to 5% or 6% or 7% So we're sitting on his own for the next three to four years where it looks like we've got negative real yields. We've got continuing inflationary policy and that the discussion has moved into the mainstream, the discussion of stagflation. And I think I guess what we saw, which was interesting in the past month, was we saw a crisis of confidence in the equity market, right, that brought it used to be. Bitcoin was a very volatile asset that may or may not be an inflation hedge. And now equity looks like a very volatile asset that may or may not be an inflation hedge. And so.

So you've got the mainstream apparatus, mainstream media, mainstream investors acknowledging crypto and Bitcoin as an asset class versus property versus bonds versus equity. No safe haven and a mutually agreed problem. And I guess one last point I make is I hear rumors from all my contacts that there's an avalanche of macro hedge funds coming into this space, setting up accounts like an increase by almost an order of magnitude. It used to be there was one or two macro traders, and now I think a lot of hedge funds are setting up accounts and their view is we have to trade this stuff. Whether or not they'll stand up and say, I want to hold a billion or $10 billion of it for a decade while we're still waiting for that. But it seems like at the end of the year, at the end of 2021 I heard all sorts of stories that, you know, conventional macro funds yielded 3% or 4% Roi in the year, and crypto hedge funds had 500% returns in the year and 200% returns and some of the 1,000% returns on 100% returns. So there's anything that people understand on Wall Street. It's money that someone made 10 or 100x as much trading that volatility, whether or not I'm ready to marry this asset, I'm sure that I want to trade and I want to be engaged. I can't afford to ignore this. And that's kind of the message that we're hearing even from the big bulge bracket banks on Wall Street that, you know, basically the I'll paraphrase them, this is not going away. We need to figure it out.

Yeah, I think one of the other milestones to watch around that topic is the introduction of a Bitcoin spot ETF, because we've seen that in Canada now. So it's not it's not really a new concept anymore, but the United States still is in the earlier phase. We have a futures ETF. We have spot, you know, closed end fund type of assets, but still no spot ETF. And I think that's going to be a big part of getting more pools of capital into at least the trading side of it and possibly the Arias and other ways of holding it longer term. And I know that. I mean, you focus a lot on the regulatory front as a publicly traded company. So I don't know if you see developments there or if you have thoughts on the shape of that over the next year or two. Yeah yeah, I mean, regulatory drivers and regulatory outlook. I think if you look at the market versus two years ago, two years ago, there was crypto and the regulators were too busy to deal with it. No one wanted to deal with it, and it was like a fringe thing. And I think that with the new Biden administration and and with the new set of financial regulators, we had a lot of very crypto sophisticated regulators come into the administration and.

Now, I think there's a consensus amongst politicians, both in the administration and the Senate and Congress. That the crypto economy is here to stay, that they need to master and figure out what this means to the future of the finance industry, maybe the future of the end of the world. What does this mean to america? What does it mean to Western europe? What does it mean to any country? I feel like it wasn't on the agenda 18 months ago. Like you could have just dismissed it and said, well, it doesn't matter, right? No public company owns this stuff. It wasn't. It wasn't important, and it was an offshore retail phenomenon. And so I think that the fact is the regulators now have it on their radar. That's the first important point, I think. The second point is now instead of just calling it all crypto or cryptocurrency, which is a misnomer. I think that people are realizing that what we have here is digital property, digital currency, digital exchanges, digital securities, digital arts, digital commodities and digital derivatives.

And they're breaking. They're breaking this into a taxonomy like an NFT is digital art. Well, you know, a small token issued by a group of people as a digital security, a stablecoin as a digital currency. Bitcoin isn't a digital currency. A crypto exchange or a DeFi exchange is an exchange. And so now you've got the question of what's the definition of every single type of digital asset? There's not one. There's many. How are we going to treat them? The answer is differently, right? And it crosses every regulator, the CFTC, treasury, banking regulators, securities regulators. I don't even know who regulates art's intellectual property rights, you know, in cyberspace. Probably we'll find everybody will have a part of this. And so. In terms of things that have happened, right? I think that if we look back playing our little milestone game again, what were the milestones that took place on a regulatory front? I think the fact that the SEC started to opine at all, that's a milestone. The fact that we seem to have we've had a series of congressional hearings and senatorial hearings, and the consensus out of the hearings that is that Bitcoin is property and not a security. I think that's a milestone.

I think the denial of the spot ETFs and the approval of the futures etfs, both of those are milestones in their own way. The approval of an ETF and now we've got multiple ETFs to trade futures was a milestone. I think that caused the CME to embrace trading of Bitcoin and derivatives and the like to a much higher volume than before. I think that's brought a lot more institutional money in the space. So I think that those are interesting milestone stones. I think that. You can look at the Crenshaw memo as a milestone. The if you look at the testimony we've seen from various regulators, I think there is a consensus. The consensus that's forming in the past six months is. The world has a demand for stablecoins, US dollars or crypto dollars. There's a demand, there's a use for them. I think that that's a consensus. I think that the world needs crypto property. That's a consensus in the form of Bitcoin. I think the benefits of 24 365 high speed trading is viewed as an innovation. It would be good if we were able to do more of that.

I think the need for clarity around crypto securities and crypto exchanges, I think that's a consensus and the idea that the crypto exchanges will be brought into some kind of National Securities Exchange program. I think that is forming. It's becoming clearer that that's going to happen at some point. I think the regulators have made clear that they and that in the spot Bitcoin ETF denial, they made clear that they want crypto exchanges to adopt the principles and the protocols of a National Securities Exchange. And I think that's on the agenda for the coming year. So I think that all of those are kind of regulatory milestones. One of the impediments to adoption from a regulatory point of view is the current FASB accounting for digital assets, which is indefinite intangible. That's been an impediment. Another impediment is FDI. Fdic hasn't given guidance on how a bank might hold Bitcoin without having a one to one reserve ratio for the asset. So, so lack of FDIC guidance, lack of a spot ETF, the indefinite intangible.

Those are all negatives, but they're all on the agenda right now. The FDIC has taken up this as an agenda item. Faseb has taken up digital asset accounting as an agenda item and the spot ETF is obviously something that people feel very passionately about. They all are on the radar of regulators. They also all have reached the degree, the level of visibility in Congress And the Senate and the administration. We know that there is an executive order that's being prepared to accelerate crypto regulation and clarity. And so I think we're waiting to see what that says, but I think that regardless of what it says, it's going to be a milestone to accelerate institutional adoption of Bitcoin. Because although there's some murkiness about who will be able to issue a digital currency and who will and what constraints exchanges will have and what the path is to issue your own token. I think there's questions about that. There's not really any question about the use case of Bitcoin as digital property. If you hold it as a long term store of value and you disclose when you transfer it and pay a capital gains tax on it, I think that's kind of a regulatory safe harbor or clear clear zone of behavior for public institutions and public investors. Yeah, I think over the next couple of years, kind of the big things that will probably getting more clarity on is stablecoins, basically what sort of collateral they have to hold, what institutions can, you know, introduce them and manage them?

Basically, we've seen that kind of go, you know, they're increasingly getting regulated. We've already seen changes around companies, you know, making them entirely based on cash and T-bills rather than having a variety of assets, you know, like some of the other ones did. And I think, you know, more and more, we're going to clear down that and then to basically what sort of tokens exchanges can offer the public. Basically, what is we already have kind of pretty clear guidance on what is and what is not a security, but there still are some gray zones that they can clarify. And we know, for example, that Bitcoin does not meet the definition of a securities property. Many other ones clearly do meet this definition of security. And I think over the next couple of years, we'll probably have more separation and more clarity around the different assets in the space. And it's also it's the US is, you know, the US is a really big piece of that.

But there's also that whole international component. We see, for example, countries have, you know, to some extent flip flopped on how they're going to manage the regulation around the space. And it's in large part because governments are not these monoliths. There's different there's different interests in the government. They represent different parts of the economy, you know, there's different levels of education, you know, throughout the government on the space. And so we see, for example, you have, if India say, propose a ban, but then walk that back, it gets challenged. Another group says, no, we need to regulate it. We need to provide clarity. Essentially, I think they started to see that as the industry got very large, rather than banning digital assets, they're essentially banning themselves from digital assets there. And in Russia last week, right? Yeah, we've seen that. I think that's an interesting point.

Exactly yeah, I think we're quicken the pace of turnover for India, took it, took months and for Russia, it took days. And you see that there's different groups in that government that are more or less opposed to it. I think so far, obviously Western democracies have been more open to it because we have, you know, a stronger foundation of property rights to begin with. And I think they're also less threatened by it. Whereas some of the more know, say, you know, countries that have more risk to their currency, countries that have, you know, higher scores on authoritarianism, they generally face bigger challenges in terms of Bitcoin and these digital assets in general. But even they, I think, are, you know, we're going through this process of having different countries articulate their, you know, clarify and articulate their policies on digital assets.

And it generally, for the most part, I think moving is moving in the right direction, but that there's still a lot of uncertainties. And as those get addressed, it allowed. It allows larger pools of capital to come in. So key regulatory milestones looking forward. Right, I guess my list would be fast be counting if we see digital assets go to a fair, fair value accounting, that'll be a catalyst. Fdic guidance to FDIC insured banks for holding Bitcoin as a piece of collateral that would be a catalyst. Approval of a spot ETF would be a catalyst. Those are my big three. Do you have any particular milestones? I think those are the big ones.

I think I'm watching stablecoin space pretty closely. And then I'm watching the international area. I'm watching what Europe does and watching with India does some of these larger markets. And I think so far it's moving in the right direction. I think we also, you know, it's we also need to see clarification around, say, how regulators view Bitcoin's energy policy. I think, you know, there's still a lot of education happening in that space. So Bitcoin faces less of the risks around, say, being Label Security like some of the other tokens face, but it's kind of uniquely singled out for its energy footprint. And I think as we, you know, now we have multiple publicly traded miners. I think also one of the things I would look for is more, you know, announcements from utilities about integrating bitcoin, say, a load balancer as a way to monetize stranded energy production. Because you know, what we've seen is, you know, you have the Bitcoin mining council quarterly updates and there's been a number of them. No, the CEOs of mining companies talk about that.

Utilities are interested in the space that they're researching the space. But we have not seen a lot of utilities come out with announcements and things like that. And I think that's still I think we're going to see more and more co integration co-location between Bitcoin miners and utilities, energy producers. And I think that's something on kind of the it's passing regulatory, but it's also partially technological. Yeah so Bitcoin mining gets integrated as part of the sustainable and environmentally friendly or renewable energy initiatives and policies of regulators that would be abolished thing and a big catalyst. We're right on razor's edge there. Yeah, I think it's interesting because you see it from multiple angles on one hand, say stranded natural gas instead of being flared or vented in the atmosphere can be used for for, you know, productive purposes. And then too, we see that, you know, in these kind of, you know, these intermittent sources of of, you know, renewable production like wind, solar, you know, Bitcoin is a way to stabilize and monetize their periods where there may be producing more energy than is needed compared to having less energy that is needed.

And I think that that's still it's still being kind of worked through, I think, in terms of the public's cognition of that. But I think as we look out a couple of years that's another milestone to watch is how energy regulators, policymakers and and mainly, I think the companies involved, you know, treat Bitcoin and kind of work with Bitcoin and use it for their purposes. Good point. And I think it leads us to the next question, which is what's the current political outlook for bitcoin? Why don't we start with the developed world versus the developing world? What do you see as the political drivers and the developing world versus developed with regard to bitcoin? Well, in the developing world, it's interesting because if you look I mean, nydig and others, you know, they've shown, you know, I think Chainalysis did this. Nydig had it in one of their reports showing the level of adoption in different countries. And generally, you see that some of the higher inflation developing countries have some of the highest levels of Bitcoin adoption, which shouldn't be that surprising. I mean, you know, we were talking about inflation being at 7% while yields are at 0.

And that's, you know, that's one of the better currencies out there, the dollar. So imagine if you're in an environment where your underbanked or unbanked and you're dealing with double digit currency inflation, but you have a mobile phone as, as you know, over $4 billion people have now. And so you know, they can, you know, hold bitcoin, for example. And for them, you know, obviously they're still dealing with the volatility of Bitcoin. But you know, they have a stronger incentive to latch on to that type of property. I think then, you know, it's more apparent to them. It's quicker hitting them than it does in some of the developed markets that I think, you know, they feel they have. It's less kind of in their face some of the challenges that people are facing in those countries the developed world has advantage of, you know, you know, like we said before, the Western democracies have these stronger histories of property rights, these stronger legal foundations. And so, you know, we've been pretty quick to adopt those and different countries that are handling at different speeds, different ways. And you know, we went through this cycle early on. People said governments would ban it. But of course, what we're seeing over time is that, you know, obviously if some countries ban it, but the majority of them, their main question is, how do we regulate it? How do we protect people? How do we incorporate it? How do we make sure that our industries are not left behind and our public is not left behind? Yeah, my and my thought on that is that I think a lot of people in the United states, they haven't lived under hyperinflation and also they erroneously think that their real estate holdings or their equity holdings are not currency derivatives.

They think that they think that their exposure to inflation might be holding currency or holding low yielding bonds. But they don't really think about their other assets as having a currency risk. Whereas if you live in Argentina or Venezuela or Zimbabwe or any, or if you live through a currency collapse, you realize that the currency is exposed, the sovereign debt is exposed, right? Those countries default on their sovereign debt all the time. Argentina, you know, in essence, renegotiated $50 billion of sovereign debt a week ago, you know, so they're always defaulting on debt. But it turns out that if you have all your assets in a local business or local stocks, those get crushed to when the currency collapses because their revenues and cash flows are in the local currency. So if you've got a 50% inflation rate, the cost of not embracing Bitcoin is 50% of your assets would be lost to you, or 50% of your currency derivatives in 12 months. So the cost of doing nothing, you know, the hurdle rate or the risk rate is 50, 60, 70 or 100% in those environments. So you're a fast learner. And I think that and it's pretty obvious I can't hold the currency and I can't buy a market basket of local stocks.

And a lot of the people in those countries can't buy S&P indexes. They can't, you know, because of capital controls, you know, pretty difficult, you know, to get past your capital control to invest large sums of money in another nation. So I think that the political dynamic here is the hyperinflation and the rampant inflation in the non-Western European US developed world is actually a massive, aggressive catalyst for Bitcoin adoption that it's not going to stop right any time soon. And this is the first currency crisis where Bitcoin existed a decade ago and every other currency collapse right in the developing world. They never had a Bitcoin. So we don't really have any experience with what happens, except that we have anecdotal evidence to suggest that in Nigeria and Venezuela and Argentina and turkey, people are getting sophisticated crypto sophisticated at a pretty rapid rate, and we know that two things they like. The one thing they want is they want US dollar stablecoin. We went from $30 billion to $150 billion of stablecoin in 12 months. So we know they want that right. They want to go from weak currency to strong. And the second thing they want is they want to go from weak property to strong property, and the strongest property would be Bitcoin. So I think that that's a driver.

Let's talk about see any differences in views in the US versus Western Europe or Middle East or in Asia toward Bitcoin. Well, I think we've seen some divergence. I think one of the biggest things about Bitcoin in 2001 was the migration of mining hash rate going from East to West. And so, you know, for years now, China's been the major hub for Bitcoin mining. And that's, you know, they overbuilt their electricity, right? So basically all these overbuilt hydroelectric dams that were not being utilized, Bitcoin miners could go there and soak up a lot of that excess power. You also obviously have a very big electronics industry. It's very, you know, able to manufacture. They're able to maintain their facilities. But, you know, with the crackdown that they had on the miners there and closing up some of their capital controls and basically making it harder for, you know, their mainland people to trade or own Bitcoin and other digital assets on exchanges. We've seen a really big migration of all that equipment to North America in particular. Also other parts of Asia and parts around the world. And so I think that's a huge thing because, you know, for years, people considered it kind of a Chinese asset in some ways. And now it's centered around North America, which I think is useful for optics. 

Basically, as China closes themselves off in the world, the West can then turn that around and say, well, we're going to be at the center of this. We're going to open up to the world, we're going to regulate it, but of course, allow it as property. And so know the major regional dynamic is this migration of digital property from the East to the West screaming home run for North America. Right devastating economic loss for China. What it kind of speaks to their lack of respect for property rights and the capital controls. But I hear that you can't actually own land in China. You can have a 70 year lease on land or you're leasing everything at the pleasure of the government or you have your business, you have your land, you have your property at the pleasure of the government. Now, if the Chinese and that entire regime dismisses digital property, presumably that's going to hold back their economic growth over the next 100 years, but not that they care. I suspect they might do a 180 and turn around at some point, just like certain other regimes have. But I suppose right now the primary dynamic has been just this China exodus and massive dislocation. But I think about yeah, I think basically, yeah, I think they're maybe sacrificing some long term, you know, optionality for short and intermediate term management, and that might prove to be very short sighted in the long run. I mean, they love the idea of a cryptocurrency or at least a stable CBDC currency and the CNY, although I don't think that they have credibly put forth one that is being used as a medium of exchange outside of China.

And on the other hand, the clear winner of cryptocurrency is the US dollar stablecoin, either in the form of tether or a circle. And I suspect that if you look at the 8 billion people on the planet, everybody wants dollars. Even everybody in China, I bet you that in China, the $2 billion people in that sphere of influence, they would also take stable USD. And the way we know this, actually the acid test is the fact that the Chinese have capital controls. And if they drop the capital controls, the CNY would go awry and huge amounts of capital would flow out of their country. Right that you wouldn't have to fight to keep people from transferring capital if they didn't want to. So, yeah, I think game theory suggests that basically countries that don't need capital controls or have looser capital controls are in a much stronger position to embrace Bitcoin and basically than say, check to you, China. And so, you know, basically that it's their problem if they're unable to or unwilling to open up certain things to the rest of the world. Yeah so the growth of Bitcoin and the growth of a stablecoin dollar, both of those are going to create more pressure, more financial pressure on China and isolate them in a way like isolating yourself from the internet. Except it might be worse because the network effect of. Trillions of US dollars and trillions worth of property on the Bitcoin network is going to be a pretty powerful network to fight against. You know, I don't know. I think it's more powerful than simply doing your own Google Maps. I mean, they blocked Twitter and they blocked Google and they blocked Facebook, and they created their own stack. But this is something which is potentially 10% to 100 times more valuable to block. It could be 10 to 100 times more painful. I agree. Let's talk about left or right. What progressives think about Bitcoin. What a conservatives think about Bitcoin. Well, I mean, I think the good news is that there's no unanimous view, right? So you have bipartisan support across the board in some cases, even though you have, I think, different percentages. And so there are conservative politicians that embrace Bitcoin.

There are progressive politicians that embrace Bitcoin. You know, early on in its history, libertarians were, you know, quick to identify Bitcoin as something useful for their ends. But of course, as it became a larger and more mainstream asset class, you know, it got enough to caught the attention of other types of politicians in the United States. I think so far we're seeing more interest on the political right. And so, you know, countries like Texas or Wyoming have been quicker to embrace Bitcoin. You know, some of the early proponents in the Senate and Congress were more from the Republican side. But we do see, you know, when, for example, we had the hang up with the infrastructure bill and how they were going to touch on digital assets. You had bipartisan politicians chiming in on that because it's really more about, I think, education versus that, that kind of, you know, strictly polarized political view. Bitcoin itself is not really Republican or Democrat. And so I think different sides see different things in it. You know, there have been, you know, there are humanitarian, you know, for example, a human Rights Foundation emphasizes Bitcoin a lot, right? And so I think from the left side, I think that, you know, over time, I think they'll see more of that, probably. And I think that, you know, going forward right now, we're in an environment where it's a little bit more right leaning, but I don't think there's necessarily anything intrinsic about that and that over time it becomes have situations where, say, to people running for governor, they both embrace Bitcoin and they have other differences that they work through. And so I think the biggest question right now is maybe how the left views Bitcoin's energy usage.

I think it's more of a talking point more than maybe substantive, but it's something I'm watching, I think as that gets sorted out. And especially, I think as Bitcoin gets recognized for its co integration with the grid, its ability to soak up excess energy if that narrative dissipates. I think that's maybe the last big stumbling block as a political issue, at least in the United States. And then as you look as you look elsewhere, all the, you know, the political axes are all different. And so again, it's interpreted different ways of different, different sides. Well, it strikes me as being bipartisan to and on the other hand, opposing it seems to be political suicide because there's such a passionate group of believers. You're you're not going to win any votes by opposing either Bitcoin or generally the crypto economy. And, you know, reading the tea leaves, you can see that politicians on the left and the right know this is here to stay, and it's a politically important issue that drives a lot of passion. So I think that. I think we'll continue to see politicians on both sides embracing Bitcoin because it's so popular and it takes us to generational issues, youth versus seniors generation. You know, the millennials versus the baby boomers. It seems to me like the millennials, of course, are incredibly passionate about crypto assets in general and Bitcoin in particular. Like I oftentimes I meet, I'll meet people in their 50s. They'll say, oh, my sons told me that I need to talk to you or I'll meet any business leader or a politician to say, oh, my kids said, I got to go talk to you. So the children of the institutional investors and the politicians and the leaders are totally up on this stuff and they're dragging their parents along. Yeah what do you see in this regard? So the younger generations had the advantage of growing up in an environment where, you know, digital assets intrinsically make sense to them, right?

So you can play a video game, for example, and there's, you know, there's items or currency in that game that are of value to you, even though they have no physical embodiment in the world. And so when you have a digital currency that I think it's quicker of a gap to jump over and understand how that works and what its use case might be, basically the ability to do self-custody. You know, this digital asset is quickly understood, I think, by that generation. But I really, I think, comes down to someone's technological understanding. So people in older generations that are more technically savvy are also, you know, quick to jump on it generally. And so obviously, there's no there's no inherent stumbling block for any one generation.

Getting it over another is all just about probably, you know, percentage wise and speed. And I think that's another thing that politicians are seeing is that you generally don't want to fight the demographics trend as it relates to any sort of political topic. And so if you look at the percentages of what each generation owns, you know, the percentage of say, whether or not they own Bitcoin or digital assets, the numbers go up the younger you get as you segment the population. And so politicians, you know, unless they want to shoot themselves in the foot, they wouldn't really fight that trend. And so I think that that's an important kind of observation going forward. I guess it has impact on marketers, too, like everybody wants the up and coming consumer and the up and coming voter. So let's talk about milestones. What do you think are the key milestones looking forward and the political spectrum that are going to drive Bitcoin adoption? I think a key thing is to see more clarity from different countries about their regulation policies, right? So when you in the span of days, or years, or months, whatever the case may be like India versus Russia in terms of the speed with which they talk about banning it versus regulating it, you know, we're still obviously early innings here.

And so as more countries articulate a policy about how they're going to enforce that, how they're going to say protect the consumers from scams, things like that, but in other hand, how we're going to allow institutions and people to invest in the asset and participate and for companies in their jurisdictions to build on top of it, to innovate. So I think that's the key thing to watch. I think also, you know, basically stablecoins being issued by banks or integrated with banks in some way, Bitcoin being more and more integrated with banks. I think any sort of clarity around that. Any in the United states, any pro, bitcoin, governor, pro, bitcoin, senator, congressperson, mayor, potentially presidential candidate, as if you were to map out over the past several years, say the percentage of explicitly pro Bitcoin politicians, you know, start out at virtually none. might have say some state level, you know, legislatures that are in on it, but you know, we started getting up to the National level. Nationally, recognized names start to have a position on Bitcoin that has spread like wildfire and it's still kind of early to middle innings, I think. And so I think basically everyone you check off the list of, OK, here's another here's another politician.

Each one of those represents a milestone, and I think there's, you know, there's 100 to go. Yeah, I suppose, and in the congressional midterms, the upcoming midterms will be the first where Bitcoin was a campaign issue for anybody I see in gubernatorial campaigns is becoming a campaign issue. Maybe the next election will be the first election of a president of the United states, where it was a campaign issue. And certainly nation state adoption is key. Watching watching the policy of the more progressive nation Singapore, uae, they'll be leaders in this. Normally they are leaders and in free market financial technology innovation. I would expect the UAE given its track record. They pride themselves on being very forward thinking, mobile internet savvy. I think that you might see some kind of clear guidance from them. And of course, the 800 pound gorilla is what happens on Capitol Hill in the United States with regard to this. But but, you know, I think we can look forward to a lot more, a lot more political conversations that include discussion of Bitcoin and and by inference and by implication, they're all accelerating the adoption of the asset class. No one's talking about things that are irrelevant to life.

So speaking about relevant, let's move to our last subject technology. What's the technology outlook for bitcoin? You know what's top on your radar? What do you what do you think about the influence of the technology players on the space and what's happened and what's going to happen? So I would say two things are really apparent to me the most. One is the migration of the hashrate United States and the, you know, the introduction of publicly traded Bitcoin miners has been really fascinating to watch financing, you know, to make, you know, basically allow those companies to access capital has really improved in the past two or three years. A number of providers in the industry have tapped into that market. Now they have, in many cases, public capital to work with. And so I think that's a huge thing. We also see some of the mining hardware. That's so a lot of that is still made in China. But we're seeing announcements from companies like blockstream, block and Intel about getting into that space more directly, the hardware side of it from a North American point of view. And so I think that's one of the exciting things to watch. And then to. I think the Lightning Network is really fascinating.

I think especially Elizabeth Stark and Lightning Labs has done a lot of tremendous work building out the back end, all the infrastructure that allows all these companies to integrate it into their offering. And you know, the way I would describe as that lightning now looks like Bitcoin looked in 2013. So we have this build out of a secondary layer, and it's a rather small team of individuals. You know, Lightning Labs has, say, dozens of employees, the people at Blockstream working on it, there are independent developers. But you know, it's tremendous how much they've been able to build because the technology itself is so enabling and basically there's so much energy in the space. And so I think basically last year, lightning reached kind of critical mass in terms of liquidity and stability and getting, you know, now it's getting key integrations, so exchanges are integrating with lightning. You know, Jack talked about Cash App integrating with lightning and, you know, Salvador obviously integrated with lightning. I think that, you know, Bitcoin went through this phase of it went through this early period where, you know, retailers would say, hey, we accept Bitcoin now. That didn't really catch on because base layer Bitcoin transactions are not really meant for buying coffee and people don't really want to part with, you know, such a high power asset. They don't want to do a taxable event every time they do something like that. But I think as lightning builds out, that enables a lot of technologies and basically sets this foundation. And you know, I talked before about friction points, right? So early on, it was hard to buy Bitcoin.

It was hard to interact with bitcoin, and lightning has gone through a similar pattern, of course, several years delayed. And so as, for example, Lightning Labs. And these other providers rule out better, they roll out better and better tools. It becomes easier for companies to integrate it with it. It becomes easier for consumers to use it. And it could be used not just for transferring Bitcoin. It can also potentially be used for transferring other assets. It can be used for transferring information. And so we see, for example, impervious is building on it. And so I'm kind of watching all these different milestones in the Lightning Network in particular. Yeah, I think lightning is a game changer. I think when lightning can move other assets, when it can move bitcoin, but when it can also move a stablecoin, a US dollar stablecoin, I think that makes it something you would want to plug-in to billions and billions of devices and spread to 8 billion people in the world. And so that's a big deal. I think the idea of an open, permissionless, non-custodial monetary payment network, which is what lightning represents, is maybe just as profound as TCP, IP or HTTP or SMTP or something. So it's a big deal and it will then wake up the big tech companies, the apples, the facebooks, the Googles of the world. I don't think you can have a competitive mobile app if you don't build lightning into it. You know, if you're old the clock forward a few years, it's just a matter of time.

The Intel miner is a big deal. Hardware wallets and hardware miners are big deal and may be one of the themes is publicly traded companies and the United States shipping Bitcoin hardware with Bitcoin devices, Bitcoin services, Bitcoin software. That's a big deal that will accelerate adoption dramatically. And we've seen block, Paypal, coinbase, robinhood, their catalyst. If we start to see some of these offshore exchanges like Binance and FTX, start to do more business in the u.s., that's a catalyst. I think there's $20 billion of crypto, VC or more. That's massive amounts flowing in the space in the past 12 weeks. That's a catalyst. I agree with you on Bitcoin miners. I think I count about 20 for publicly traded Bitcoin miners by the end of the quarter. And so as I've said before, you get that many public companies, they're all holding their bitcoin, they're not selling it. In fact, they're raising capital.

So they don't have to sell any. So the stock to flow is leaping. The amount of Bitcoin available for sale is falling. And I think that'll continue until the Bitcoin mining sector flips the stock to flow negative and they start net buying more Bitcoin. Than that is being mined, and that makes this a really scarce asset, and it's something you can do with a scarcity like Bitcoin. It would make no sense with silver or gold or a commodity or oil because those things are commodities and they're unlimited. But Bitcoin is not. So it makes sense to basically recycle your production into your Treasury and hold it. So looking forward, and we'll end on this note. What are the key tech milestones that you would look forward to that you would say? Well, this is a really key seminal event that will accelerate Bitcoin adoption. So I think so right now, we had the announcements like we talked about for some of these North American hardware producers. I think the launching of some of those, those hardware would be key milestones. You know, it's harder to launch than it is to talk about launching. And so I think those are milestones to watch. I also think that, you know, any sort of new offering that happens on Lightning or things that catch on Lightning or worth watching. And so, for example, you know, like right now we think of Bitcoin is one thing. But Elizabeth Stark and others have pointed out for years that you can separate the idea of a bitcoin, the asset and Bitcoin the network.

And so these different technologies that harness bitcoin, the network like, for example, transferring, transferring dollar value, for example, I think that's a use case is still underserved, and I think it's worth watching. I also think that, you know, basically like I think you pointed out basically more and more kind of hardware design. So you made the example of having a phone that has kind of a hardware wallet built into it just, you know, instead of a mobile wallet, maybe a hardware wallet, things like that, more integrations. I'm interested to see, you know, products that block might do and these other companies that have talked about, you know, catering to that market. And so I think anything that launches and that seems to be successful is a milestone worth watching. Yeah, million user products coming from well-capitalized companies, and they've been able to and they've been able to raise capital. So even though right now kind of the Bitcoin price is in this consolidation pattern, a lot of companies have been able to raise capital. So basically every year say, unlike a commodity, you know, there are countless developers working to make the network better, both in terms of, say, Bitcoin Core developers and then lightning developers and then surrounding ecosystems. So while it's in products, so every year, it gets easier to use Bitcoin and more things that Bitcoin can be used for. So the future looks bright. Lynn, thank you for joining me today for our Bitcoin outlook conversation. I think we got a ton of interesting milestones to look forward to. I think we've checked off a bunch of milestone checklist items. And do you have any final words for the audience? I think that covers it. I think basically we're in kind of this accumulation phase, and I think it's important to maybe manage expectations around near term whilst, you know, emphasizing the long term, looking out at maybe structural risks weighing those risks. I think, you know, obviously one of the impediments to more large amounts of capital coming into the space is volatility and volatility feeds on itself negative and positive. So as more people hold bitcoin, the volatility can go down over time.

We've already generally seen that cycles get a little bit less explosive to the upside and the downside than they used to be. But then that has a feedback loop where if it gets less volatile, people can or, you know, pools of capital institutions and people themselves can allocate a larger holding to it, which then kind of starts that virtuous cycle. And so I think as Bitcoin matures and acidified and basically gets less volatile, it can, you know, entrenches itself more and more as a percentage of, say, global assets. When you look at how much dollar values in all global assets, what tiny fractions in Bitcoin. I think it can grow from, say, a negligible fraction to a tiny fraction to a small fraction to medium fraction as that volatility goes down. Yeah, I couldn't agree more. OK, that concludes our day one coverage of Bitcoin for corporations. I want to thank everybody for being with us today and want to thank Lynn for sharing the stage with me for our Bitcoin outlook. Tune in tomorrow. We'll have eight really good sessions by institutional grade Bitcoin vendors to show you how you can do commercial banking and we've got an investment bank. We've got exchanges. We've got Costco.