speaker-0: Good morning everybody and welcome along to another episode of Bitcoin and Beyond. Today we're going to be talking about the evolution of Bitcoin's personality. Now, let's just think about this for a moment. know, Bitcoin started with the whole concept that it was a rebellious product, something that just the Bitcoin owners would end up trading amongst themselves and generating wealth outside the realm of Wall Street. But the Wall Street Giants, have joined and along the way Bitcoin has changed its personality multiple times. And that's what we're to talk about today. The fact that Bitcoin's personality and its dynamics are changing consistently. And by the way, when that happens, so does its profitability, its tradeability and its ongoing growth dynamics change. So of course with me today is Greg Galton, our CIO at Portal Asset Management and Greg. Let's chat about the changing personality from what was originally a rebel to what's starting to become a Wall Street sweetheart.

speaker-1: Yes. Good morning, Derek. And good morning to all our listeners. Bitcoin was born in 2009 during the, just right after the global financial crisis, the GFC and Satoshi Nakamoto's white paper was really designed to offer an alternative to money being, that was controlled by banks or governments. Bitcoin was originally conceived as a peer to peer electronic cash system that was decentralized and censorship resistant. Early adopters were clearly using it for cross border remittances. And look, it still works really well for that. You can send hundreds of millions of dollars of Bitcoin anywhere in the world to any wallet in the world for a handful of dollars in gas fees. So still incredibly useful for that. But what we did then see is a transition around 2017 and really into 2020 where Bitcoin became an inflation hedge. That was amid massive global money printing as governments were forced to simulate their economies due to the impact of COVID. And Bitcoin really gained traction as a hedge against that fiat debasement. And obviously, the main reason for that, its cap supply of 21 million tokens made it very appealing to investors when central banks were inflating their own currencies. Now fast forward a couple of years into the narrative solidified around Bitcoin as digital gold, a store of value like precious metals, but with better portability and divisibility. And then you saw institutions like MicroStrategy, now Strategy, bringing Bitcoin onto their balance sheets, really emphasizing its scarcity. Now it's become an institutional risk asset with the Spot ETFs approved in the US in 2024. Bitcoin has been integrated into portfolios alongside stocks and bonds. It's now traded as a high beta asset, as a high leverage risk on asset, typically correlated with tech stocks during bull runs. but offering some diversifications in downturns. So this evolution has brought liquidity, but has also tied it to traditional markets. And one of the interesting factors of that has been, and we've talked about it before many times, this ⁓ increase in depth of market has enabled a lot of the early OG whales, the Bitcoin whales, to monetize some of their Bitcoin holdings because the demand for Bitcoin has been there to do that. that's been... potentially a good side of that, that we've seen that shift from OG whale holders, individuals now into sort of corporate institutional hands. So this maturation has broadened adoption, but it's also diluted its anarchist roots. know, Bitcoin is no longer just for cypher punks. It's also now become a Wall Street staple.

speaker-0: That's the thing that people have to understand that when they turn around and say, well, I thought Bitcoin was a store of value. I thought Bitcoin was a hedge against inflation. I thought Bitcoin was, you know, was the replacement of gold or digital gold along the way. And in the answer to that is, yes, it has been each one of those things through its career so far. each time these change, it changes. It's the methodology of generating return out of it. It changes how you invest in it. One of the giant changes is the fact that the concept that there are only 21 million coins out there and it's capped at 21 million. Hey, that stands true, but there are now synthetic derivatives that sit on top of it. And those in synthetic derivatives could be three, four in the future, five, six times the amount of the underlying physicals as the term used to be. Well, if that's the case, it's going to be fairly volatile for some time going forward. If that's the case. then we're going to expect to see a lot more of the insurance houses, investment platforms, et cetera, starting to use it to hedge. Is that where you see it heading for the next iteration of its life, Greg?

speaker-1: Yeah, absolutely. think the derivatives market have substantially changed Bitcoin's personality again. And you're right, the 21 million cap is still there, but it's very easy to take what, know, for someone to lend someone a Bitcoin and then that then becomes re-hypothecated effectively into perpetual futures and options. So there's lots of way that institutions can touch Bitcoin without ever sort of going on chain. This effectively expands the supply boat beyond the 21 million. you know, the derivatives trading now already dwarf spot trading. For example, the open interest in Bitcoin futures often exceeds 30 to 50 billion, which is well in excess of what you see traded on centralized exchanges. This can create leverage bubbles and it can amplify volatility. you know, it does allow institutions to gain exposure without custody risks outside of an ETF. So yeah, on the upside it boosts liquidity and price discovery. the downside, it does undermine that scarcity. So supply can feel kind of infinite in those derivative layers, potentially leading to over-leverage crashes. And it also shifts power from the miners or hodlers to financial engineers. You know, it has become a financially engineered Wall Street product. that's, unfortunately, that was always going to be the case when Bitcoin became an institutional risk asset. I think we should expect more synthetics and make the will make those supply ⁓ dynamics much more complex than Satoshi envisaged.

speaker-0: I think maybe if he's no longer around, he might be kind of rolling in his grave now, or he might be saying, what an extraordinary thing now we've been adopted by Wall Street. I do think it'll be the later. However, what has occurred along this way is we've seen different opportunities for the sort of the large institutional investors to utilize Bitcoin in a manner that it wasn't utilized before. And that is in a weekend hedge. or a weekend play. And it appears to me that all of Donald Trump's very special ideas tend to occur on the weekend and often between midnight and two in the morning. And we've seen that a number of times. And in which case, Greg, what do institutions trade? It kind of limits what they can trade over the weekend, but they can trade the highly liquid Bitcoin futures options, et cetera. And so we're seeing that occur too. Does that mean that the weekend are going to be sort of periods when Bitcoin just gets crashed? Or is it going to grow and survive over those weekends?

speaker-1: Well, I think it's a combination of factors. think what happened over the weekend when Trump's announcement came out at the time, the announcement of strikes on Iran, it hit when traditional markets were closed. US stocks, futures, FX, even commodities were all offline, which really exposed legacy finances vulnerabilities. And really that's when you saw platforms like Hyperliquid, they exploded with volumes on perps for crypto and real world assets. their oil contract, you can trade oil on hyperliquid. that was the only ⁓ market that was trading at the time of the Iran strikes. ⁓ And that was actually cited by Bloomberg as the key price signal. So they weren't sort of waiting for the CME to open or the CBOE. ⁓ They were taking it from the impact from hyperliquid. So I think that's really, I think, sped up the potential tokenization of on-chain assets. But then, know, Bitcoin also, it dipped from about 66,000 to 63,000 over the weekend, but very quickly rebounded, ⁓ holding some key technical support level. So it wasn't, it wasn't a meltdown like you kind of expected to see. And in a retesting new lows, the current low is 60,000. It got close, but it didn't retest it or even move lower. So was a bit of a sign of maturity. And I think that's kind of a, common risk asset behavior markets hate uncertainty. So the market was concerned about the US striking Iran. And then when they got confirmation that they struck Iran, it removed that uncertainty. then they could sort of, so that initial sell-off reflected the fear. But then once events unfolded, the clarity sparked a bit of a rally. And Bitcoin followed this playbook with a bit less extremity than in past events. And I think, you know, despite this tragedy, tragedy didn't hit those new local bottoms, which does suggest to us that we're now seeing seller exhaustion. They just simply don't have any more Bitcoin to sell or they don't have enough collateral to continue shorting it. And also the potentially incoming buyers. And it does point to a potential macro bottom, especially if it does hold this 60,000 level amid sideways movements. And look, you did, as I said, you did see buyers emerge. You did have a mix of corporates and MicroStrategy bought 3000 Bitcoin. at an average price of $67,700 and you did see one of the strongest inflows into ETF during the day of over $450 million. So that resilience does, amid this geopolitical ⁓ chaos that has screamed at the bottom is in or close or near to being in. The fact is in a world of 24-7 risks, Bitcoin's non-stop trading and global access make it a a go-to hedge, really as it evolves over time as well.

speaker-0: Yes. And what's interesting is that when Bitcoin and its 24-7 hedge wasn't available, then all things were equal. And the CME and others could sleep at night when you couldn't trade oil and the traders would wait for the early morning trade and they'd trade it. But Bitcoin has been a disruptor and that has occurred. And all of a sudden between that and Hyperliquid and other digitized markets, we're seeing this 24-7 trading. which also goes a long way to show you how the tokenization of real world assets is likely to unfold. In other words, it's not likely to unfold primarily in residential real estate that everyone gets excited about. It's going to be in this world of bonds, equities, et cetera, so that they can trade 24 seven. And you'll see, well, maybe more volatility in the markets because of that, but you also see probably more efficiencies appear in the markets too. So from our point of view, like I think many of our listeners, What does this mean, this change of personality? I often view it as a human being and it's gone through its tiny baby phases. It's grown to a point where it's becoming vaguely, it can speak, it's got literacy, et cetera. And that's probably sort of mid-2015s. And as it's getting to the late 2015s, you're getting to a point where it's that charming or lovely 12 year old that still loves you and you can still work with it during that period of time. And then it also goes into that period of time that it's... that's a teenager. And I think it's quite a teenager at the moment. It's setting its future, it's setting its personality. It's rebellious to a degree and that means it's volatile to a degree. Our view still strongly in the longer term is that Bitcoin is going to be a growth asset. And I think one of the reasons both you and I have seen that is we know generationally that generations X and Z, et cetera, are heading towards becoming the major investors. And as they do, They are more likely to be investing in digital gold than they are in physical gold. And we've seen that from the cultural interpretations of younger generation going, gold, it's a boomer rock. Why would I want to buy that? And so you do see this culture coming, but right now also the great wealth of the market is still held by 60 year olds plus. they've, when push comes to shove, they've returned to gold as their safe haven, leaving Bitcoin to be traded more vigorously by the institutional investors. So we think in time, it'll head towards Bitcoin being a safe haven investment again. We think it'll decouple from marketplaces along the way to a degree, but we do acknowledge that the 21 million underlying physicals, as they say, is now able to be traded by two, three, and in the future, possibly four, five and six time multiples. of what Bitcoin's underlying is. And if that's the case, then as investors, we have a new path forward than just the old narrative of hedge against inflation or store of wealth. And next week, we're going to talk a bit about that. Thank you for that bit of research and history of Bitcoin. It's fascinating from the view of investors' point of view of what Bitcoin's change of personality is, Greg. From our point of view, it's challenging, but you have to pivot. And you have to recognize change and simply don't throw your arms up in the air and saying, ⁓ who can predict it? No, it's changing. And so accordingly you change with it. Anything else from your side? Terrific. We look forward to chatting with everyone next week, talking about really what this might mean going forward, how we see entering this marketplace ⁓ and maybe what 2026, 2027 may look like considering its new personality along the way. Until then, goodbye, trade well.

speaker-1: I think that's...

speaker-0: Be safe. See you soon.