00:00It's painful. This is a Bitcoin bear market. Relative to historic bear markets, it's somewhat
00:05modest. If you look at past deep bear markets, we've seen 75% plus corrections. Bitcoin fell
00:11from 126 peak in the fall, and it reached about 60,000 in February. So about a 50% drop
00:19down. So
00:21relatively modest compared to past Bitcoin bear markets, but obviously always painful in that
00:27moment. Who is selling? Sweeney asked this question the other day. I'm stealing it from him. Who is
00:32selling? Primarily people who have acquired Bitcoin in the past year and a half. So some of the metrics
00:38that we track are the cost basis for ETF holders or ETP holders. That's about $83,000 today. We also
00:45have a metric for the average cost basis for any holder of Bitcoin. And this is called the active
00:51investor cost basis. It does not include what's been rewarded to miners. And so that's about $78,000
00:57today. The average Bitcoin, excuse me, the average bit dog cost is $78,000. So if you think about it
01:07from that perspective, people in the past year and a half or so, they bought Bitcoin, they experienced
01:14a quick rally up to $126,000, and then quickly saw their entire investment get cut in half.
01:19Wow. So who is, explain to us who the market is. Who is a Bitcoin or the crypto investor base
01:27here,
01:28professional retail, speculative? How do you guys look at that?
01:32So this is primarily a individual market. It's historically been driven from individuals.
01:37You are seeing some institutions come in, but it's very early stages. To put some context around that,
01:43there are hedge funds in the space. About 30% of the spot ETP products are owned by hedge funds.
01:50The caveat there, it's market neutral. They're doing the basis trade. They're not taking directional
01:54views. Is crime in the space? Is crime still using Bitcoin?
01:59Probably, yes. But to be fair, crime is using every currency. And there's arguments for and against
02:07cryptocurrencies in this regard. Those who view it as a way to commit crime or be useful in crime would
02:15point to the fact that there's no KYC. Anyone can use it. Those who would defend it against that would
02:20also make the point that it's not the best instrument to use for crime. There's literally
02:25a public record of every single transaction you do. So if you know what addresses are associated with
02:31individuals or entities, you're literally creating a permanent paper trail.
02:35How is AI impacting crypto broadly defined?
02:39So the biggest trend in the past couple of years that we've seen is Bitcoin miners pivoting some
02:44of their operations to high performance computing for AI data centers. So these miners, they can
02:51contract out inference and earn higher revenue per megawatt hour than they would for mining Bitcoin.
02:57And so historically, what we've seen is the network hash rate has had a high correlation with Bitcoin
03:03prices. The more miners are on the network, the higher prices have gone. And so typically, those two
03:09things rise together. Pivoting operations to my AI inference, it's better for miners, you don't have
03:19to time Bitcoin sales, it's more stable revenue, and it's more profitable. But the thing with inferences,
03:25people aren't using these models 24 hours a day, they're primarily using them during business hours.
03:31And so we actually think this is a long term benefit to the Bitcoin mining industry. Instead of having
03:37people permanently pivot during business hours, you when it makes sense, you can do that inference.
03:43I got to get this in here to get back to Bitcoin at 101. Jim Furrier really killing it with
03:48us with
03:49Charles Schwab this morning. Raphael Auer and his team in Geneva at Bank of International
03:54Settlements is definitive on this terse six, seven, eight page, hugely research papers on speculation,
04:03mining, whatever. Let me go back to Raphael Auer 101. What's the underlying? Apple's underlying is the
04:12expectation of free cash flow. The underlying of the Knicks is Brunson's going to get it done.
04:18What's the underlying of Bitcoin? Energy. It costs money to produce Bitcoin. And every,
04:26our entire framework for investing in Bitcoin and cryptocurrencies comes down to minor metrics.
04:34There are energy costs and infrastructure costs associated with producing Bitcoin. In any product,
04:40theoretically, the price of a product should be at a premium to the cost of producing it. And so we
04:46can see this. We know for the best miners, those that have the cheapest energy costs, and the most
04:52advanced fleets of ASICs, they produce Bitcoin at about $60,000 per Bitcoin. Really? Yeah. So
05:00historically, I haven't heard that data point ever in my discussion. So what does that mean within the
05:05the Chicago price theory? Well, the Seton Hall price theory of this? If $60,000 is my manufacturing
05:12cost, what does it mean for price? Are we going to go under $60,000? The answer is yes.
05:17Well, first, let me point out as a Seton Hall grad, it's important to think about what this has done
05:24historically. In deep bear markets, for those top producing miners, their cost of production has
05:31served as a bottom. The average miner today, it costs them $95,000 to produce Bitcoin. They have
05:38higher energy costs, they have less efficient ASICs. And so they temporarily shut down operations when
05:43it becomes less profitable. Interesting.
Comments