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- [00:00]
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- [01:31]
Tom Lee
Rejuvenation of interest around any token or any token platform, it also rejuvenates people's creativity and an interest in making it more usable. So to us, this chatgpt moment, which is converging around Ethereum, I think is going to also help unleash a wave of innovation.
- [01:55]
Jen Senassi
Hey everyone, I'm Jen Senassi here with Fundstrat Capital, co founder and CIO and Chairman of Bitmine, Tom Lee, and this is your weekly look at the crypto markets on Coindesk. Hey Tom.
- [02:07]
Tom Lee
Hello. How are you?
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Jen Senassi
I'm doing well, thank you. How are you doing?
- [02:12]
Tom Lee
Good. It's been well. Surviving the summer heat. It's been a busy year, but glad to see crypto is doing well.
- [02:21]
Jen Senassi
Crypto is thriving this week, Tom. It was a little bit of a stagnant period. Of course we know that Bitcoin hit a new all time high recently, but I want to start with eth. It is flying after remaining dormant for some time and I know that you've said that Ethereum is positioned for a significant breakout as stablecoins create a chatgpt moment, I want to unpack that A little bit with you. Let's talk about eth first. Talk to me about what we should expect next.
- [02:52]
Tom Lee
Well, I think Ethereum, you know, is a chain that I think is, is getting a second look. You know, I know that there have been criticisms of it in the past because of either how layer twos and layer ones interact or just really sort of progress and upgrades to the network. But to us, I think the real thing we have to as recognize as we look at what's happening in the real world is that Wall street is converging onto crypto and they're choosing to do a lot of this work on Ethereum because stable coins have completely changed Wall Street's mind about what, how, how useful crypto can be. You know, as we said, the stable coins have created the chat GPT moment for crypto because we're seeing consumers really use it in a viral way. Merchants are beginning to really love it, especially outside the US and now banks are realizing it's actually a decent business model. We just saw Citigroup even just say that they're looking at creating a stable coin, even if it's just to manage deposit base. But still it is really Wall street converging onto crypto. And at the end of the day, a couple things are going to be important. You know, Wall street wants to find a chain that's operating compliantly in the US and they want to find a, a big one and where there's already a lot of real world assets, you know, tied up and on the layer one. And that's why Ethereum, we think it's going to become extremely relevant over the next decade.
- [04:25]
Jen Senassi
Well, you mentioned some of the, I guess, critiques that Ethereum has faced in recent history. And I want to talk a little bit about, about those, you know, two of them is that, you know, Ethereum has become a little bit slower, a little bit more expensive. And as more Wall street giants start looking at how to interact on the chain, how do you, I mean, do you think that Ethereum can keep up?
- [04:50]
Tom Lee
Yes, and they just have to create the right incentives, you know, between the layer twos and layer ones and, and make sure there's just not too much gas out there and, and that we can absorb that supply. But I, I think that's where, you know, these treasury companies are playing a pretty important role and they're earning money staking. And I think the reality is, is that if there is a rejuvenation of interest around any token or any token platform, it also rejuvenates people's creativity and, and interest in making it more usable. So to us, this Chat GPT moment which is converging around Ethereum, I think is going to also help unleash a wave of innovation. It's no different than when Chat GBT first swept across Silicon Valley. And this is after everybody had invested decades on SaaS. But guess what? Now there's many, many, many venture funded businesses around using AI and chat GBT that are exploding and getting to 100 million dollar run rate so quickly. Well, I think that's what's going to happen in crypto. I think this is a really big moment for the industry to realize that as Wall street converges and they're bringing a lot of interest and bringing a lot of new users and a new, a lot of new applications that this could transform actually the importance of smart contracts and Ethereum. So I think Ethereum's sort of, you know, dominance could actually grow dramatically.
- [06:21]
Jen Senassi
Everyone's talking about price this week. You know, I think last I looked ETH was up over 10%. What's your price target for ETH as we head into the second half of the year?
- [06:32]
Tom Lee
Our price objectives at Fundstratch. So I wear a couple of hats. You know, I'm the chairman of Bitline but I'm also the head of research at Fundstrat and actually I have a third role which is the CIO of Fundstrat Capital. But at Fundstrat, Sean Farrell is the head of Digital Assets research and he's given me some informal sort of targets. One way he thinks of this is that if we look at circle and it's free cash multiple which now is like 130 times EBITDA on an equivalent basis, Ethereum's closer to 15,000 and that makes sense. I think the layer one as you know, as you get into layer one you should apply a higher multiple to like sort of theoretical usage because it's the same reason software companies get higher multiples than retailers. Right. The more you're getting away from the customer and the more it's pure signal you get, you apply higher multiples to that business. And so I think in the near term our technical strategist Mark Newton thought we could be seeing 4,000 for the end of the month for Ethereum. But that's not where it peaks. He just think that that's the first target. And then I think something, you know, if Sean Farrell's math is correct, you know, then I think 10 to 15,000 actually makes sense too.
- [07:51]
Jen Senassi
By the end of the year could.
- [07:54]
Tom Lee
Yeah, it could be end of year, could be sooner, I mean it just really depends. But that, and again that wouldn't be the cap, but that just shows you that's really, you know, a level above 5,000. It would be a decisive, you know, all time breakout for Ethereum. So I think that's a significant level to watch as well.
- [08:07]
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- [08:39]
Jen Senassi
Want you to put your bitmind hat on for just a second. I know I mentioned at the top of the interview you're the chairman of the board there and Bit Mine has really taken on the Ethereum treasury strategy. I was going to say following in Sharply's footsteps, but I imagine you're probably building up the strategy for this around the same time. Talk to me a little bit about bitmind's playbook when it comes to the Ethereum corporate Treasury.
- [09:08]
Tom Lee
A lot of what our strategy is has been disclosed in our press releases so I'm glad to talk a lot about it. But to us, you know, oh, that at the core is our belief that Ethereum is dramatically undervalued. As a token that, and for the reasons I described, that crypto is seeing its chat GPT moment and really the second order beneficiary there is Ethereum. And so acquiring an asset that can appreciate by 10 times or more is a really good use of, of a Treasury. In fact microstrategy. When they began their treasury Strategy, Bitcoin was 11000 and it's 120000 today. And so I, I think that's foremost where we're coming from and some people say well why don't you just buy Ethereum outright? Well, an Ethereum treasury company can actually increase your ETH holdings per share by taking advantage of capital markets and volatility to raise capital. And they can also earn money from staking and for instance, Bit Mine initially funded with $250 million of ETH and then, and that was closed on July 9th or July 8th and then three days later bit Mine increased the treasury holdings by an additional 250 million. So in just three days doubled the amount of treasury holdings and that was as of Friday last week. So you can see that there is an advantage to a Treasury company because what you thought you had was of ETH relative per share just doubled in three days based on just the company acquiring more eth. And, and you know of course that that activity continues. So I think that there's an advantage to owning a Treasury company that is using capital markets to increase your ETH holdings per share.
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Jen Senassi
I mentioned Sharplink there. We covered that news on this show earlier this week that they've come out and, and said that most of the eat that they're holding is being staked. Is that true for bit mine?
- [11:21]
Tom Lee
Well, I think we haven't disclosed exactly the plans for how ETH is going to be. The ETH is actually being held today in treasury but whether or not it's going to be done through direct staking or using liquid tokens, that hasn't been disclosed yet. So I would say you should just.
- [11:44]
Jen Senassi
Stay tuned for investors who have already maybe allocated into Bitcoin, the Bitcoin ETF or a Bitcoin treasury company and are now looking at similar products for Ethan, how would you explain the differences? Because is a little bit more of a complicated story. Right. So if you were talking to an investor, how would you differentiate between the two?
- [12:05]
Tom Lee
Yeah, and I think it's important for people to kind of have some framework in mind. You know we, we're, we're still adamant fans of Bitcoin because to me bitcoin is first of all it, it is really the ultimate form of trust at the moment. And it is digital gold in an easy way. And if, you know, if someone says well what does that make it worth? Gold's you know, 22 trillion network value. So Bitcoin should be worth a million. And there's plenty of future businesses that can be built around Bitcoin because of its, you know, stability. Ethereum is a smart contract enabled platform and so it is unique because you can actually store real things onto the blockchain, you know, whether you use layer one or layer two. And I think maybe the, the real killer app, and this is what stablecoins are showing is that as we move into a world of like AI and we're trying to create, you know, units of pricing and, and to simplify the movement of goods and things. Simple examples of like tokenizing things from the real world onto a blockchain, you couldn't do it really on Bitcoin because that's not what Bitcoin's designed to do. So I think as you're thinking of Wall street converging onto crypto and then AI innovations taking place and, and the idea of using even tokens or stable coins around that, well then that's really when it comes to saying, well, Ethereum really is the largest smart contract platform in terms of network value. And that's what makes it attractive.
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Jen Senassi
Now we're sitting in July. I know that you've said it's the best month of the year in the first year of a presidential term. If we, if we think about that through a crypto lens, talk to me about where we are and where we're heading.
- [13:58]
Tom Lee
Well, yeah, it's, you know, I, I generally agree with people who say crypto responds to global liquidity. And so if central banks are easing, then we should see it in crypto prices first. And, and that's why crypto actually is a leading indicator for the stock market. And the fact that bitcoin broke out to all time highs is actually bullish for the S P. But the interesting thing is that crypto is still not that widely held. So I, I think that, you know, bit, bitwise has a great stat. They say 95 of Bitcoin's been mined and you know, only 95 of the traditional finance world doesn't own Bitcoin. So there's a real mismatch. And so I think bitcoin continues to be the leading crypto asset to watch. But to us, as risk appetite recovers, Ethereum and small caps are pretty highly correlated. And I think that that's why Ethereum in percentage terms has more upside for the next few years.
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Jen Senassi
Now we're wrapping up the week here. We've been talking all about crypto. It's crypto week in Congress. There are three bills on the docket. Talk to me. Most are, are saying that these three bills are going to get signed. Whether that happens by the end of the week or a little bit later I think is still up, up in the air given recent events in Congress. But is the signing of these bills priced in, do you think? And if they don't get signed, how do you think that's going to reflect in the markets?
- [15:33]
Tom Lee
Well, you know, there's always going to be an initial reaction, but then, you know, the long term reaction. I, I think, you know, nobody can really ever correctly predict how Washington, what path it chooses and what bills pass. But I think the reality is that crypto regulation is vastly improved over what we saw for the last eight years and 12 years. And so I don't think anyone should be too discouraged by developments in Washington. But they should, of course, watch it closely and then keep in mind that you can always have some things fixed through either reintroducing items or executive orders. So I wouldn't get to. I wouldn't read too much into whatever happens out of Washington.
- [16:17]
Jen Senassi
Is there anything that you've been closely watching this week that I haven't asked you about? I know bitcoin and ETH have been the real standouts in the headlines, but is there anything that you've been watching that you wish someone would ask you about or that you think is quite interesting that not enough people are talking about?
- [16:34]
Tom Lee
Well, I've just, I've been paying a lot of attention to the. To earning. We're in the middle of earning seasons and financials start to report in earnest. Well, this week and next week. But there have been a lot of comments from these financials about stable coins. And they're. Stable coins are frenemies for the financial industry. So I think that's just something people have to watch out for because they are both a opportunity, but it's also a threat to their legacy business. So you have to keep in mind that in some ways the financial industry is one of the strongest and savviest lobbying groups, that they have a role in how crypto regulations can pivot in either direction.
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Jen Senassi
It's so interesting that you, you bring up this term frenemy, because I think in a lot of the conversations I've had, they've been very positive. It seems like institutions, Wall streets are really coming around to stablecoins. But you bring up a really good point there, that it does kind of threaten traditional financial systems. What's already been built? What is the, I guess, enemy side of that? What is there anything that we should be watching out for when it comes to the adoption of stablecoins from the traditional financial sector?
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Tom Lee
Well, I mean, I can give a simple analogy and then we can think about how it applies to the financial sector. But let's take social media and Facebook and let's say Facebook was the cash cow for Facebook, which it is for Meta, but then came along Instagram, which was a very different way for people to interact. And then Tick Tock came along and as you know, Tick Tock completely caught Meta by surprise. And if Meta had only invested in Facebook, the company would be a dwindling business. But they of course, correctly made the pivot both to WhatsApp, Instagram and then to Tick Tock, you know, with reels, etc. Well, in financial terms, the banking industry has not necessarily been that quick to recognize that an increasingly digital world means money is increasingly purely digital and it's actually breaking barriers, you know and then if we look at the next iteration it probably blurs. What is the definition of money? You know we've already seen that blurring with loyalty points etc. And so banks make a lot of money from traditional financial systems. You know, it's 4% of global GDP is earned by the banking system and whether you look at interchange, visa earns 2 to 3% for being in the middle of a merchant transaction. These numbers drop dramatically in a digital world where trust is established through the actual blockchain itself. So that's, that's what we have to realize is what is like the TikTok moment for Facebook.
- [19:48]
Jen Senassi
I think that is a great note to leave our audience on to leave our audience pondering on the future of financial systems. Tom, thanks for joining. Our weekly markets wrap up this week and we'll chat to you again soon.