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- [00:00]
A
Foreign. Welcome to the report. The question today, it's an important question. Has bitcoin entered the buy zone? That's what we're going to try to answer today. Is it time to buy bitcoin? Mike, I'm going straight to your opening note for this because I think that sets up the context and background just about perfectly. I'm, I'm reading now on Friday, June 5th. That was last Friday. Bitcoin fell to 58.9k. That's 53% off the 10, 6, 26 high. That's the third 25% plus drawdown of this crypto winter. We're eight months into the bear market. The NASDAQ rolled over as well, down 5.2%. The war in Iran drags on. The market started to weigh rate hikes later this year. The sentiment is back at extreme fear. Almost every ETF holder is now underwater. The no coiners are dancing in the streets. Mike, have you actually seen no coiners dance?
- [01:02]
B
That's a key indicator. That's a key indicator right there.
- [01:04]
A
Oh my God. So I gotta say, first of all, the last time I was here was not last week. And we were talking about some recent bull market sentiment. And the question was, was that a false flag? Was that a false bull market? I gotta say you said that it was at the time. It certainly looks like it was a false bull market now. I gotta say, congrats on calling this dip again. You've had a pretty good trap track record here. This is another notch on the belt. What did you get right about the false bull flag cycle?
- [01:40]
B
Yeah, I think, I think what I got right, I mean, it was not easy, I think, to navigate that period primarily like after we extended past two months of that rally. So we kind of had a quick capitulation early February. We sort of V bounced out of that and then sailors started buying and we started slowly seeing the ETF position start to accumulate again.
- [02:06]
A
People were saying it's over. A lot of people. That was sort of the sentiment turn on crypto Twitter, people were going after
- [02:12]
B
Ben Cowen for still calling for weakness.
- [02:17]
A
Were they coming after you too?
- [02:19]
B
A little bit, I think. I think some people are starting to question some of what we were looking at. And we kept saying, hey, just be patient. Right? We're following the market structure. We're following how coins are rotating out there. We're following all these high level KPIs that we're tracking. And it's kind of hard to see what's going to be the catalyst to force this new sentiment to the market. And that tends to be what then causes, you know, the behavioral side of things and you know, panic and fear and things like that, that force the selling. So I think we just went through basically the third, you know, phase of kind of fear based forced selling, like, of this, this bear market. And I think the question moving forward now is like, are we, are we, you know, comfortably in that zone where, you know, the people that were patient for the first eight months or so of this bear market where, where now the ball's in their court, they, they have the kind of ability to sort of buy up coins at really depressed levels, get into good positions. You know, if you've got a long, you know, time frame, a long, long, long time horizon, I think it's a pretty good environment to be in investing as a liquid investor right now. So excited to, to get into it. It was only eight months ago that we were kind of shifting risk off. So now we're, we're starting to shift into a more a risk on stance.
- [03:40]
A
It's certainly a more exciting environment if you have cash and if you follow the TDR advice to be patient. I think a lot of listeners and readers are glad they did. Before we get into this, and by the way, I should mention at the end we're going to dig a little bit into your portfolio and try to find out how you're playing it. Did you buy Bitcoin yet? Are you waiting for a little more of a pullback? What's happening there? And if you're waiting, what are you waiting on? But before we get in, we got to thank our friends and sponsors over at Galaxy and this one will be for the institutions listening. A lot of institutional interest in crypto. If you are an institution, you're looking at the future of finance or if you're looking at AI, the next industrial revolution. These are the two technologies, of course, that are leading the way. Galaxy is the name you need to know in both of these. For crypto they do full stack trading and custody. For institutions that's tokenization, trading, custody, the full gamut. Also on the AI side they have a massive data center, an HPC ready data center, including their Helios site. That's a staggering 16 gigawatts of approved power. They are publicly traded. The ticker is glxy. You know it. If you want to see Galaxy, how they help institutions invest, build and transform and doing all of this relentlessly, go check them out. There's a link in the show notes. All right, Mike, so you are Positioned, you still got some cash, but you did make some deployments. I came back this week to a slew of TDR Pro alerts. Portfolio alert, Portfolio alert. There are about five or six of those. Let's wait and talk about what you did with your portfolio to the end. And can we start with where the heck we are in the cycle? I feel like this bears a recap. Where are we with respect to the fair value KPIs that we've been tracking on a weekly basis?
- [05:32]
B
Yeah. So you know, as I was saying, you know, we've had, we've now had three plus 25%, you know, drawdowns and that is pretty consistent with kind of where you would be, you know, eight months into the bear market. And when we look at kind of these high level KPIs and compare what we see today relative to the lows that we saw back in 2022 and then also back in 2018, you know, for the most part the, the, these, these, these KPIs we track are telling us that, you know, we're pretty close to, you know, at least we're within fair value. And like, we're getting closer to like what you would call deep value because these metrics that we're showing for 2018 and 2022, those, those numbers that we're showing, those are the deep value numbers, those are the lows of, of the cycle. So the, on the right side, you know, we're getting, we're getting close. So mvrv, that's the one that's a little bit elevated relative to the prior cycles. And that's the measuring the market value to the realized value. Realized price is kind of a proxy for cost basis of coins in circulation. That's about 54k right now. So that's the one that we, we haven't quite reached but across like supply and profit, long term holder supply and profit, 12 month RSI, you know, we've, we've now touched and dipped below the 200 week moving average. So I think, you know, from a high level I think you can kind of comfortably say that coins have rotated, top buyers have sold. You know, the market has had eight months to digest this. We've had three, you know, 25% or more sell offs. And the, I think the way I sort of think about like who's in the market and what does the market structure look like? It's, it's, to me we've now, we're now resetting that base. You know, we're resetting the base of stronger holders, the people that, that, you know. If you're a bitcoin investor today and you're buying and you're looking around and you're, you know, who are you buying with? You're buying with people like you that have a five year, you know, horizon that are, that are long term holders of the token. You know, if you go back and you think about who you bought, if you're buying bitcoin In January of 25, who are you buying with? It's a different, it looks like a different group of people that are surrounding you. And so I think that's an interesting way to sort of think about the market and the market structure. Are there potential risks moving forward? We can certainly get into some of that. It's not like totally clear that we've hit that sort of low. But I think generally speaking we're in the kind of phase of the market where you can be comfortable with a longer term horizon, time horizon as an investor.
- [08:09]
A
Okay, so the KPIs were close to hitting deep value from the previous cycles. You said we dipped below the 200 week moving average. I should say at the time of recording Bitcoin's about what, 62k? Something like that. 62, 321. Exactly. Right now, um, what is the 200 week moving average?
- [08:30]
B
It's 61, 9k. So it is, it's continues to rise up. So we're above it, you know, and we closed last Sunday. We had the weekly close actually above it as well, which was, was kind of important to see. So that is a definitely a key number to keep an eye on. If we do end up having a weekly close or a couple weekly closes below that, then we may start to sort of just kind of chop around
- [08:50]
A
and then further breakdown.
- [08:52]
B
If we have a further breakdown if we have a close below more multiple closes below that 200 a week moving average, which is about 62K. I could see us sort of like bleeding down, maybe chopping around into the 50s a little bit for a while. So that's something to keep an eye on.
- [09:07]
A
The February lows seem like a long time ago. Help us recall what did fair value KPIs look like then? What was the price we were lower before we dipped below the 200 week in February, is that correct?
- [09:20]
B
We, we did not. Did not.
- [09:23]
A
Is this the first time in the bear cycle we've dipped below the 200 week?
- [09:27]
B
Yeah, and we, and we hit a lower low as well. So we got to 58.9k? I think last Friday and we really kind of only came down to like 60 and it was really a V shaped bounce out of that back in early early February. So this is a little bit, this is different. Like this feels different to me. You're not getting the V shape bounce out of it. We don't see what's interesting on like kind of the funding markets and what's happening in the, in the futures markets. I'm not seeing like traders that want to get aggressively short right now at these levels. So there, there's some differences here. And you know, the other thing is like the, actually we went deeper on sentiment. So fear and greed went deeply, deeply negative in February is actually worse than what we see now. But the price actually has dropped to
- [10:15]
A
a lower level worse. We are in more extreme fear territory than we were in February.
- [10:21]
B
We are less so. So actually February, people were more scared February, even though the price has come down more now we are in like kind of that extreme fear zone. But it's just not as like, just not as far, far down on that metric.
- [10:35]
A
I was thankfully not checking prices on Friday. That's when we hit the lows, right?
- [10:40]
B
Yeah.
- [10:40]
A
Was that July 5th?
- [10:42]
B
That was the June 5th.
- [10:43]
A
June 5th?
- [10:43]
B
I believe it was the 5th.
- [10:44]
A
Yeah, June 5th. Okay, so how low did we go?
- [10:47]
B
So we got all the way, I think intraday got down to 58, 9. 58 8, 58, 9 or so. And then we recovered from that and got above 60k. We're now above the 200 weeks.
- [10:59]
A
So were there any reasons for this? Was this just part of the broader NASDAQ sell off Iran where scared?
- [11:05]
B
I mean, so, you know, I think what, what's happening with strategy, you know, just with their, you know, balance sheet issues, cash, you know, management and debt management. I think that's sort of getting a lot of the attention and creating maybe some of the fear. I sort of think that that's more of a story that, you know, if you're a, if you're an MSTR holder or if you're an STRC holder, like you should be really paying closely attention, close attention to that. I don't know if that's like that big of a story for just bitcoin holders. It is a narrative and it is creating, I think some fear out there. And the challenge here is we talked about this last week with David. The challenge is that Saylor doesn't have a ton of cash left to pay dividends on the scr.
- [11:57]
A
Six months, right?
- [11:58]
B
Roughly six months of cash there. And know we've seen that STRC start to trade off of the off of par, which is a hundred. And when it's doing that it's sort of like the STRC holders are saying we need a higher yield, which it's already 11 and a half percent. You know, we're getting skittish because bitcoin price is coming down. You don't, you, you don't have enough cash. You might not be able to raise if you're not at par. This gets like a weird, you know, there's a weird sort of doom loop that, that could, could happen if the markets just keep getting really, really fearful. You know, I don't know how this is going to shake out. There was some speculation over the, over, you know, Friday or over the weekend. You know, there was so much selling activity, it looked like forced selling activity on Friday that maybe micro, maybe strategy was one of those sellers and they're just unloading some bitcoin to shore up the cash needed and then they're going to come out on Monday and Saylor's going to announce that hey, we sold, you know, a billion worth of cash, you know, bitcoin or so we've locked up the next 18 months of dividend payments for STRC holders. Maybe that calms down the market and STRC trades back up to par. That's not what happened. What, what happened was he, they actually, they bought some bitcoin. So he bought like 15, he bought like 1500 Bitcoin or so.
- [13:19]
A
Does he have to tell you though when he sells? He doesn't have to, right? I mean in disclosures later he does, but at the moment does he have to.
- [13:25]
B
I don't think he has to tell you in real time. I don't think we, I don't think we. In real time when he's buying either. It's usually like a couple days later or whatever. So you know, we don't, we don't really know what's going on. The fact that he didn't panic sell actually was able to buy some bitcoin and use some of the, and that was because they issued MSTR shares. That's how they got the cash. They bought some bitcoin and I think some of that cash can be used for the dividend payments. I mean it's not a perfect setup and there's definitely some risk here to pay attention to. But I think if you're a bitcoin holder, like what matters more to me is like the high level KPIs, everything else that's going on right now this is like a little bit of a side story and I think if you're an MSTR holder or an STRC holder, you need to be paying more attention. But for bitcoin holders, the air is mostly out of the market. And yes, this is like a final risk, but there's always a risk that's going to still be there.
- [14:23]
A
I kind of agree with your broader point here, but this is an interesting scenario for Michael Saylor in that he's got a lot of masters to kind of serve because it strikes me that there's some disalignment between STRC holders and also MSTR holders and then Michael himself has another set of alignments. Maybe this all gets worked out in the long term, but you're playing a lot of dodgeball on the court here while this is happening in the bear market. Let me just ask this question, high level. If there was some type of ugly unwind at strategy that caused some bitcoin price action market dislocation, how would that happen? If you can envision something like that? Because that could be part of the final capitulation type story. I think you talked in today's report a little bit later how it's kind of weird how the sins of the cycle haven't really been paid for. And what are the possible sins is taking on a little bit of. I don't know, he doesn't like the word margin, leverage, debt, something on the strategy balance sheet that could be a sin that we see. If there was an unwind, how can you imagine that unwind would actually look or, or do you not think that's even possible?
- [15:35]
B
So yeah, I think, I think the unwind sort of played out last week. You know, I think like there was so much selling activity last week and I, when we, when we published our report on Wednesday, I think I even sort of use like the past tense. Like we just had a capitulation and it sort of sells strategy online.
- [15:54]
A
He only sold like 32 Bitcoin, right?
- [15:56]
B
Yeah, he only sold like 32 Bitcoin, but, but there was so much selling activity and bitcoin went to I think the lowest level ever on the 14 day, the short term RSI. So like just. And it went to extreme level in February and that was the lowest ever. So. So just a ton of poor selling, a ton of fear in the market. And you know, the, the view is like, I think that that was probably peak fear related to this. If you wanted to like sort of go doomsday and, and say like what would the, what would the real unwind look like, I think it's just like that never ends like that. That fear just like, keeps cascading. And then Sailor, like gets caught up in it himself and starts coughing up bitcoin. And like, I don't know, it's.
- [16:43]
A
It's kind of like every few months he has to sell more bitcoin in order to pay strc like, or shore away cash to pay STRC holders. And that's just continuous.
- [16:52]
B
Yeah. I think what you don't want is like, the market to be like, just in this like, state of unease about them being able to pay that. And then. Then they have to dump bitcoin because then you sort of incentivize people to like sell bitcoin in front of you. Like, it's like a similar. We get it on the upside as well. People want to front run him. So you create this weird incentive where people want to potentially front run him. But I don't think bitcoiners want to front run him right now. I think they mostly want to buy bitcoin at like, these. These more depressed levels. And that's why, like, I just. It's hard because of if you really deeply understand, like, who's holding the bitcoin right now, it's harder to kind of get into that mindset where you get this panic thing. Like, I think most bitcoiners have been through these. These drawdowns over years. We're already, you know, about 50% off of where we were. So I just, I just, I have a hard time seeing that. That play. Play out. I think. I think Sailor's pretty good at this, honestly, like, I think he's pretty good at it. Yes. He's in a bind right now. Bitcoin's. We're in a bare market and he's got. He's kind of got to like, steal from, you know, Paul to pay Peter, whatever that. That saying is on his. On his cap table. And that's not a pretty thing. But again, I think it's like more just like if you're. If you're actually on his cap table, like, you probably need to pay some more attention.
- [18:10]
A
Let's look at these cost basis clusters then to try to answer some of that question of who's selling bitcoin, who's buying? You write that top buyers of last cycle. This is the people that purchased in the 108-126k Bitcoin price cohort. You write that they're just about finished selling. That's what it looks like from the on chain data, which means, you know somebody is also buying. And you said earlier that if you look around and see who else is buying, hopefully that's the smart money. By the way, if you're in a cohort and it looks like dumb money, then it's a bad cohort to be in who is on the other side if they're passing their coins to someone else. This sort of new money type cohort that we've talked about so often, who's buying it? Is it the old money cohort or do you expect, do you see any like net new buyers at this level?
- [19:05]
B
I think, I think you probably always have a little bit of some net new buyers. I think the success that the ETFs have had in the past cycle is one of the most, you know, widely adopted ETF products we've ever seen. There's definitely a lot of like institutional investors that have come into that. They are you know, underwater. Like we've talked about the ETFs and how we really weren't breaking down below like kind of the average cost basis of the ETFs and there just like hadn't been enough pain there. So like I think we're going to see now is like are those like really long term investors that like have cash, they want to actually really, you know, double down on the asset now. So I think you'll have some of that. I think you have every cycle. Like you know the people that were the top buyers of this past cycle, roughly half of them have sold their bitcoin. Right? So that's a lot. But you're hardening up some kind of diamond handed bitcoiners now. At the same time I think some of those people are probably doubling down and getting their averaging into their cost basis. And then you have people that are playing the long term cycles that are really bullish on the asset class over a 10 year ARC or so. Like maybe the way that I kind of invest. And so I think you have some of those people that are coming into the market and institution like the family offices, those types of buyers will come in at these types of levels. So I think it's a, it's a kind of mix of who's coming in and you know, at the same time there's not a lot. Right. When you're at the bottom of a bear market it tends to not resolve with on the demand side of the equation. It sort of resolves on the sellers being exhausted on that side of the equation. And so I would say we're like kind of in that process of finding where the sellers become exhausted. The bottoming process happens that way rather than like demand really coming in and overwhelming the supply. But if the sellers become exhausted, then eventually the price will start to move at some point. What I would love to see is like that start to play out after maybe we've had a little bit of degrossing and on the AI side maybe NASDAQ has sold off a little bit. Now that gets interesting and people are starting to look to reallocate capital, maybe diversify out of AI. Bitcoin is starting to move a little bit and that's where I start to get excited about where crypto's going over the next year, year or two.
- [21:34]
A
I can tell that's kind of a case you think is probable at this stage.
- [21:38]
B
Yeah, yeah, yeah.
- [21:40]
A
Can we see some of that seller exhaustion in these two charts? I really enjoyed this chart. This is bitcoin realized loss by age 7 day moving average from 2026 compared to the same metric, same chart from 2022. And you could see the charts look very similar. I guess where you have the, the indicator here and the line pointer, you're seeing a similar pattern from 2026 that we saw in 2022 which was kind of a later bear market cycle spike in realized losses. Can you explain what you see in this chart and what does this indicate about seller exhaustion?
- [22:21]
B
Yeah, so I've been trying to, you know we do the market structure updates every week and I also, you know, we'll go a little bit deeper, just try to get a feel for who is, who's the seller out there. And what you can see in the first chart there and that's showing the current bear market. That first big spike, you see a lot of orange, you know, mixed in, in there. And that's really like much short term, shorter term holders. People that probably bought, you know, they were selling that big spike was in December of last year and they, that
- [22:52]
A
was like a panic sale of new, new buyers. Right.
- [22:56]
B
Probably just bought over the last three months or so and aren't super confident what they're holding. They saw the price go down, they just panic sold right away. And like you tend to see that type of activity early in a bear market. And then in the later stages we, we see things kind of trail off, but then a big spike. But, but the range is slightly different there and that color range is just longer term holders. Some of those are just new money that came in that aged into the longer term holder cohort but it tells a little bit of an interesting story just in terms of like, you know, you have these people that will cough the coins up very quickly and then some of them maybe wanted to cough them up quickly, but then the price, right, we have those retracement moves and it sort of changes your mind. You get comfortable again and you don't sell. And then later on you get another, you know, capitulation down. And we see those, you know, in the, in the one to two year aged coins start to start to realize some losses. So I think that's kind of a, it's interesting from a market psychology or just a market structure perspective how that plays out. But you can see that it, it kind of played out similarly in 2022 as well. And we had a big spike after the FTX unwind in like November of 2022. So it kind of, when I was looking at these numbers and just getting a feel for like the size of, of the realized losses and comparing it to the one that we had it in late 2022, it looks kind of similar. We did a big realized loss analysis a few weeks ago and we're going to revisit that now that the smoke is starting to clear here. So we'll have that next week. But it's kind of just giving me some more conviction that like, it looks like we're in kind of that later stage of the bear market where it's, you have a little bit more of a all clear.
- [24:44]
A
I think this is, you could see it brilliantly in the visuals here, right? So the orange is much smaller. They have fewer coins to cough up. This is the, the, the cohort, you know, coin shuffle that you've been talking about where, you know, there's exhaustion clearly in, in these charts. It's great, it's a great visual. Let's talk about maybe the AI trade and how that factors in. So one key point that you have made in these reports over the last couple of weeks is during bear markets, there seems to be a pretty high correlation between the NASDAQ and our crypto assets, in particular Bitcoin. It's where a lot of your analysis is coming from. And we're in a bear cycle, so we're seeing high correlation. So when nasdaq, you know, gets hit, crypto gets hit, it feels like much worse, much more significantly due to that correlation. So right now at this point in the cycle, where, where the AI trade is going will show us where crypto is going and could capitulate, tell us what you really think of the AI trade because markets are still hyped on this. NASDAQ been hitting all time highs. Last week, it looks like was a pretty rough week. What are your thoughts on what's going on in the eye world? Because whenever we've talked about the bear case for equities, we've talked about liquidity, we've talked about late cycle stuff, always the retort from, from me would be or the pushback for me is like yeah, but Mike, what about AI? Because that's the next industrial revolution and the old regime and old rules may be broken. This time is different. What do you think of the AI trade? You spell it out in today's report and I love it. Give us the takes.
- [26:34]
B
Yeah, we went into this pretty, pretty deeply in the report today. Maybe before I get there, you're correct about this NASDAQ BTC correlation, but I want to just double click on the fact on the part that BTC is the leading indicator here. So what we've identified is that Bitcoin tends to be leading nasdaq.
- [26:58]
A
So Bitcoin is the tail that wags the rest of the dog, huh?
- [27:01]
B
And I think a lot of people think, well wait a minute, what if AI goes down? Is that going to pull the crypto markets down? It's like, no, the crypto markets are already down. Air is already out of the crypto markets. What you should be paying attention to is, is, is that the leading indicator for on the AI, on the AI side? So I don't know, I feel less like we go through this and I think there are some risks here, especially if there is like a significant unwind which I'm not necessarily projecting, but I think there could be some concerns. But I think, and the data tells me that Bitcoin tends to lead that, not the other way around. So yeah, I guess on the AI stuff, you know, I've just been thinking about this a little bit more. I'm not an expert in this field or spending a ton of time investing here. My exposure to the AI is largely like just through index funds. But what I sort of like kind of just high level look at everything. Like I see a lot of interesting similarities between crypto and maybe it's just because I kind of see the world through crypto as a crypto focused investor. I see a lot of similar similarities here with AI in 26 versus like crypto back in 2021. And I think like when you think about the build out of the crypto, you know, infrastructure layer and you're what we're, that that was in 2021. We have a similar, you know, infrastructure capex cycle that's, that's happening on the AI side. And if you kind of like just focus on what, what happened, what was true about crypto and like are any of these principles potentially going to apply to the AI build out? I think something that you know, we, we observed is that like there was a rush of demand right, for, for compute. This is, it's gas right in the crypto world. But there's a rush of demand for that and that most of that happened on the Ethereum network. And when that happened it created this reflexive thing where lots of entrepreneurs rushed into the crypto world to solve that problem.
- [29:04]
A
Guys, like if you don't remember, we literally ran out of block space in 2021. There's no block space left.
- [29:10]
B
$150 to trade on Uniswap. Right.
- [29:13]
A
So what we thought we needed was more infra, more infrastructure, more and more block space. So that's what we created.
- [29:18]
B
Right, and the free market will, will solve that for you. Right. So what, what happened? We had Solana and Near and sui and sei and. Right. So, so VCs will throw layer twos, infinite layer twos. And we solved that problem pretty quickly. And what that did was lowered costs for users. Right. It allowed the technology to scale, it makes it better for builders and apps. But the infrastructure is not really capturing the value. We've seen Ethereum really struggle over the last since really, since really the 2021 peak. So you know, if you kind of take that framing and then look at what's happening on the AI side, you can sort start to see that like hey, there's like this, like the inference is the thing that matters. That's like the gas of like the crypto networks. That's what's driving all of the revenue. And there's a massive incentive for entrepreneurs and investors to come in and find a way to lower those costs. And so we're starting to see if
- [30:21]
A
you look at the growth of anthropic revenue and compare that to the growth of like transaction fees on Ethereum in 2021, you sort of see where you're getting this story, right?
- [30:32]
B
Yeah. And, and, and then if, so if you think about, okay, well if the, those costs have to come down, so anthropic OpenAI there are new models that are coming out, open source models in China. There's tons of money that wants to be thrown at this problem because we could see all the demand for inference. There's even, you know, interesting things like what Venice is doing with crypto interaction there. There's different ways to decentralize access to compute. So there's like lots of money being thrown at solving this problem to lower the inference costs. At the same time, the sort of physical constraints and all the capex that's been invested, I mean some of these companies are building their own nuclear energy facilities. This is massive, massive asset heavy infrastructure that's going in here. And those are fixed cost. And so you have all this competition reducing inference costs. You have all this fixed cost in a very capital intensive business which are not. I don't like capital intensive businesses myself. That's a weird structure that the market may start to look a little bit more at this I think.
- [31:43]
A
And that's just the supply side. The other side of this equation is demand, which has been fever pitch. But the question is, is that demand translating into white collar jobs being eliminated, real productivity? I think you make the point later on in today's report that that's definitely true. On the software development side of things, we are seeing massive productivity increases in software development. But will that translate to other areas of the economy and how many before the distribution challenges get in the way? Regulation, you know, legal, healthcare, all of these other fields. And so right now it does feel very much like demand is off the charts, partially because companies are fomoing in here, right? They're like, spend more tokens, spend more tokens because we can't get left behind. We have to see if this is going to be useful for us in changing our model. But is that sustainable demand or will that like, will that decrease to something that is, you know, less than the market predicts?
- [32:48]
B
Yeah, I think that's, that's the question. You know, when I talk with my friends who work at large, you know, publicly traded corporations, Web2 companies and you ask them like what's going on with AI? You know, it's, it's kind of, it sounds kind of chaotic and like not that much is happening and there's lots of legal blockers and it just doesn't feel to me like, like it makes perfect sense to me that the people in Silicon Valley that are sort of building the AI labs and, and the software developers that are actually like actually using AI to like develop some of these products and models and say it's pretty incredible, like it totally makes sense, like that's very, it's being disrupted. And these are the people who are sort of providing the messaging around how powerful this technology is, but they're giving you the perspective that they're seeing, particularly in your field. It's almost like a crypto founder who's like running a stablecoin company and like sees all the potential of stablecoins and is going on CNBC and telling you about all that. But then, you know, there's all this regulatory stuff and there's, there's a lot of friction in the real world outside of just like software engineering and other types of jobs where there's legal, there's regulation, there's, there's, there's different workflow issues. So I just think it makes sense, the narrative makes perfect sense and who it's coming from makes perfect sense. It's just more of like, there's a lot of inertia to the way the world works and the way corporations function. There's customer preferences. You know, there's been some interesting reports somebody put out. We linked to it in our report today. Just on like agentic AI and E commerce. There's a lot of struggles on the implementation there. There's really not a ton of demand and there's just a lot of challenges because of all this friction related to laws and regulations and verification and all of this. So it feels like it's just going to go the way crypto. We were so excited about crypto in 2020, 2021. But you need regulation for it to really work and you need everybody to come on board. And so that's, you know, it's, I see it in my business, right. I see how it's driving productivity. I think it's really helping small businesses. I think it's helping software development. The cost of like being curious has just come to zero. Right. It's so easy to be curious and I love that. But how does this really extrapolate into like ROI at like a large insurance company is a little bit more confusing.
- [35:17]
A
That's right. And you could also, you talked about the political kind of backlash which you're seeing signs of. It's, it's almost like I may need to still go through its Gary Gensler type moment of political backlash. Bernie Sanders just last week calling for ownership, I think of 50% of AI companies, public ownership. I mean, that's kind of unprecedented. Might need a Gary Gensler type era. And then it might need a clarity act on the other side of this. So the 2022 analogy, 2021, 2022 analogy does somewhat hold for me. But again, I have the crypto goggles on too. Yeah, let's, let's nuance this a little bit with your macro takes, which are interesting. I thought you are not bearish on the economy. So why don't you give us the macro picture here. How would you summarize your positioning on this and thoughts?
- [36:06]
B
Yeah, so I think when we went risk off last September, October, part of what we were pulling into that framework and why we wanted to be risk off was we, we sort of have a different view on this, like run it hot. People were saying the economy was in a run it hot state. Gold was doing very well last year, silver and it looked like it was a environment where we got negative real interest, interest rates and run it hot. I sort of didn't buy that view because I was mostly focused on tariffs and how tariffs were pulling capital out of the real economy back into the government. That was actually reducing the budget deficit, you know, still, still high and still tons of, you know, government spending. Not saying we're balancing the budget or anything like that, but just on the margin the budget deficit was dropping. I think that view was largely correct. So the budget deficit, I think in 24 was 6.4%. It was 5.9% in 25 and it's like 5.1% now, which is still high. But you're on the margin, you're coming off a little bit now. You know, this is all the framework here is really shifting because tariffs were shot down in the Supreme Court back in February. There's about $180 billion of tariff revenue that needs to be repaid.
- [37:23]
A
I think we've already increased the deficit. Right.
- [37:25]
B
This is increasing the deficit. Right. So now this is like a fiscal impulse. So tariffs were pulling money out of the economy. Now that's coming back to the private sector. And you can sort of think of that as potentially like a fiscal impulse. You know, maybe not the same as, you know, cutting checks to people or whatever, but, but there's money going back to really importers. How does that get pushed through the economy? Do they actually pass it back through lower prices? I don't know. Are they going to hoard it? Like, it's kind of weird how this whole tariff refund, it's hard for you
- [37:54]
A
to see sort of recession with conditions like this.
- [37:58]
B
That's kind of the takeaway is the, you've, you've got tariffs, capital coming back. There's less being pulled out of the economy because about 50% of the, the section, I think the section 232 tariffs were removed. Trump is still trying to pursue tariffs. You know, we'll see But I think the worst of this is over. And, you know, when you, when you factor in that, that is playing out while the AI Capex story is playing out. A lot of capital being injected into the economy there. We had higher than normal tax receipts or tax refunds this year. And so I just think there's a lot of money swirling around out there.
- [38:38]
A
Sure, there's a lot of money swirling around, but we also have CPI inflationary pressures. And I think you told me prior to recording the numbers for May. Am I right? Just came out. CPI numbers. What were they?
- [38:48]
B
Yes, 4.2. Yeah, that just came out today.
- [38:50]
A
4.2.
- [38:51]
B
Yeah, it was 3.8 last year.
- [38:53]
A
When's the last time it was 4.2? That was back during, kind of, you know, Covid.
- [38:57]
B
22. Yeah, we have to go back to 2022 when they were hiking. So, you know, that's not a good sign. I haven't had a chance to really dig into that number and see what's going on there. But we'll get the PPI number tomorrow. That tends to be a little bit of a leading indicator of where it's going as well. So I think the markets. I think the NASDAQ's sort of selling off a little bit on, on this news and, you know, we'll see. I think it's a tough setup here for, you know, for Warsh in his first meeting. I think he's the first chairman coming in during, you know, rising inflation environment since. Since the 70s. And we're gonna kind of find out how. How this is gonna play out. He's there to lower rates. His boss, the president wants lower rates. We are not in an environment where you can really rates.
- [39:50]
A
One thing you can do, though, is you had this line here, which I need to do some more research in. You could change the definition of what CPI inflation actually is. You said that Wash seems to favor the Dallas Fed's trimmed mean PCE, which disproportionately removes the top 31% of rising costs. As such, this would show lower inflation rate compared to what, the 3.8% of something like 2.5%. You just changed the definition around. I didn't know. I didn't know Warsh was kind of so like, easy money. I thought he would be a little. That was not his previous supposed to be tenure.
- [40:28]
B
And we've talked about him on this show of like, when. When we, when he first was approved, we took a look and he looked hawkish and he was very outspoken.
- [40:36]
A
He looked hawkish. If you're changing the definition of inflation. Right. That's like changing the, the moving goal
- [40:42]
B
post gaslighting is what that is. Yeah, I mean, we'll see. I mean, that's what he's hinting at. And what that does is like, it basically trims like the, kind of like the, the stuff that's driving inflation. The hot stuff on the, on the top side takes 31% of that off, but then it doesn't trim as much on the downside. So it just kind of gives you like a disproportionate, you know, kind of lower inflation figure. And that's fine. I mean they can look at that and maybe there's a reason for that, like a legitimate reason to, to focus on that. But you know, he's not, he doesn't just run the Fed. He can't just unilaterally make that decision. The Fed is run by committee. So he has to get all the other governors on board with that if that's what they want to be the official stance of the Fed. So it just kind of had the setup to me looks like it's going to be a little tricky. It's going to be interesting to see if Trump gets on him, if he's not cutting rates or if he kind of lets it, lets it go for a little while. But I think the setup here is like the market kind of potentially forcing the Fed's hands. You can, if you, and, and the way to sort of look at that is just to focus on a two year Treasury. If that's rising significantly above the, the Fed fund target range, it's kind of the market saying, hey, the rates are too low for this, we've got to run it hot economy. Right now there's a ton of, ton of earnings growth. There's tons of capital swishing through the economy, budget deficit's high. And this tariff thing was I think, helping the bond market sort of say, well, wait a minute, like the, the budget deficit's coming down a little bit, maybe we don't need to be as worried. And if you're, if that's getting reversed at the same time, to me it would just make sense for the bond market to reprice a little bit off of that and that could impact equities in the AI trade.
- [42:34]
A
Well, we don't have to solve for all the assets. Let's zoom back in on what all of this means. AI trade, macro setup, cycle, current place in the cycle and the coin rotation. What does that mean for the TDR portfolio, which is of course A crypto portfolio. And I think the report promises to help answer is it time to buy bitcoin yet? It seems like for those who are still bullish on crypto assets, of which if you're listening to the TR podcast, that's you guys, or you wouldn't be here. The question now is do we buy now if we have any cash, or do we wait for some sort of final capitulation and buy a little bit later? What side do you come down on? What are you doing with the TDR portfolio?
- [43:23]
B
Yeah, I think the, you know, the probabilities of going lower to me are maybe like 50% or so. It's not, but I, but I think most of the air is out and so I kind of think if you were dollar cost averaging Bitcoin in 2022 when we were below the prior cycle high. So if you were dollar cost averaging in around 20k or so and below that when there was plenty of time to do so, then I think that turned out to be really nice trade over the next year.
- [43:55]
A
So this is like the equivalent of 20k.
- [43:57]
B
I think we're in like the equivalent of like 20k when Bitcoin's trading around 60k or really underneath 66k or 67k which is the prior cycle high.
- [44:07]
A
Can we talk about some other numbers? So there's the weekly average which is 62K. Now in previous cycles were we under the weekly, the 200 week moving average for very long. How many times and did that last?
- [44:20]
B
Yeah, so we did, so it, it, we did. We dropped about 30%, maybe a little bit more than that below the 200 week moving average in 2022 and we stayed down there for a little while. So would that put us in the
- [44:32]
A
low 50s or that's how you get to.
- [44:34]
B
Exactly. So if that, that's how you get to, you know, if we go to the realized price, which is 54k, if we drop, you know, below the 200
- [44:43]
A
and we did go to the realized price in previous cycles.
- [44:46]
B
We have. Yeah, we have.
- [44:47]
A
And below.
- [44:48]
B
And below it. Yes. So, so that's how you get, you know, we talked about, you know, what's the doom loop with Saylor, like if, if these things play out, don't have strong conviction really either way. But I think this is how you get to that 50k level. Potentially all the way down to the 40, 45k level would be like an extreme, you know, risk off, you know, setup. So I don't know what would be the catalyst or how we'd get There because I think the air is mostly been removed from the, from the markets largely. And I would say, like when I think about the air being removed from the markets, like, it's very clear that that's the case for bitcoin, for eth, for soul, for like the major assets. And also very clear that that's the case on some of the other stuff that's in our portfolio. We've got some stuff access to stablecoins. We've got some access to sort of like what I call retail social, consumer fast trading.
- [45:47]
A
For people who aren't TDR Pro members. Portfolio is getting a little interesting. All right. There's been a lot of moves here on the past week or so. So if you've not looked at what's in the portfolio and why Mike is making the moves he's making, you should go become a TDR Pro member just for that. It's worth it for that. But anyway, continue.
- [46:05]
B
So, yeah, so identifying sectors. So it's kind of like what, you know, the work that we've done over the last year or so, all the fundamental research, all the data and we have dashboards and people can, people can follow any of this work and we do the watch list every Friday. But all of that work culminates in a view on what we think are the primary sectors and categories and themes that we want to have exposure to. So we've been, we've been building positions in these types of themes that can be defi perps on chain options, things like that. It can be consumer social, retail fast trading. You know, I think there's sort of two types of segments actually within that, that category, consumer social, there's sort of meme coins themselves and, and betting on communities and that type of thing. There's also retail kind of fast trading. There's a social element there. I think that's one of the most misunderstood potential things for the next cycle. So we have some bets there, we have some bets in defi. We are focused on stablecoins. I think stablecoins, if we get regulation. So we're separating out the categories. Store of value, bitcoin, eth. And then we're also thinking about exposure to small cap, mid cap, large cap. I want to have a little bit of exposure across the board on some of that stuff. So there's a lot of thought that goes into this. And when I think about the air being out of the markets, we try to only be allocating and stuff that I have high conviction on that. And what's interesting right now Is you look at the altcoin space, the assets that have been that. When we talked to David last week, I was talking about how this is the most fascinating market I've ever seen because of the dispersion and how there were so many assets that were just, you know, trading independently of what bitcoin was doing.
- [47:53]
A
The hype, zcash Venice type.
- [47:55]
B
I've sort of changed my mind on this because, you know, I had a chance to kind of go back and look at these things. Yeah, this is zcash Hype Venice near the. I, I kind of have strong conviction, maybe I'm wrong on this, but I have kind of strong conviction that those assets are going to join the rest of the space. And there's just, it's all a speculative derivatives trade on those right now and there's a lot of open interest that has not been cleared just yet. So keep an eye on that if you're, you know, I apologize. People that are holding those assets, we'll see how that plays out. Even we, we own a few things that have been performing relatively well considering other stuff. And even those assets have some, you know, some froth I think still in them.
- [48:39]
A
So I think I saw Chris Bruninsky kind of shares your take. It's, it's hard for some of those assets to continue to outperform when there's still inertia there.
- [48:48]
B
You know, zcash has a lot of inertia to a hype, has a lot of inertia to it right now.
- [48:51]
A
So let's end this by talking about bitcoin, Bitcoin specifically and kind of the buy zone. So you write this, our strategy moving forward is dollar cost average into bitcoin at levels below the prior cycle high of 67k. So you like Bitcoin below 67k, but I'm getting the sense that you're not. I mean I know you've done some larger lump sum purchases below this amount, we've talked about that before and. But you're using the term dollar cost average below 67k. Does that indicate some time based, you know, allocating in to a bitcoin position like you like it under 67k. But does that mean, oh, you wait for the, you actually wait for the 50s to do large buys or are you just like weekly basis, hey, it's still under 67k. Snap it up.
- [49:41]
B
Yeah, I'm not, I'm trying not to overthink it too much. It's kind of a DCA type type strategy and I think if you're doing that and you're just kind of patient. You can, you maybe you can get a little more conviction and buy some more if it keeps coming down into, into zones. But I think from my perspective, I don't want to overthink it too much. I kind of want to just be buying when we are underneath the prior cycle high and then keep some cash on the sidelines in case this, like, sailor thing or is, you know, we have to pay for the sins. I don't know, you know, that type of thing. And maybe we already have. We've had these three, you know, big, you know, capitulations. So, so I don't know. But always kind of keep a little there and then if, if we don't go down and you still have that and you didn't deploy it, you can always, like once the bull market starts and there's always opportunities to deploy, like once you have confirmation as well. So I, I think that's kind of how I'm thinking of it. And like, I know I'm not going to get this perfect. Right. You know, this is like impossible to get it perfect. What you're trying to do is be able to scale in that when at some point we will have seen the lows. You want to be in a position where, you know, hopefully you're not down 50% on that position there, and you're in a position where you've scaled in, you've done it, you've done it with patience, and that position can be up significantly before the market broadly starts to accept that you're even in a new bull market. Right. And then you have all of the communities, all of the, you know, I call it the marketing departments. As a crypto investor, if you're in at the right levels, those, those marketing departments work for you if you, if you're in the right assets. And so that's kind of how I think about trying to get this right. We know we're not going to get it perfect, but get into a good position and then hopefully be in the right assets. You know, it's not, it's not easy. If it was easy, everyone would do it, but it takes a lot of work and, you know, I think we've done a pretty good job of being on the right side of things here.
- [51:41]
A
Yeah, you've called it really well, best in the biz, best I've seen. Maybe Ben Cowan is the other one. But you guys are doing incredible work here. So I think we've answered the question, is it time to buy Bitcoin for you. Your answer is yeah, dollar cost average. Keep some cash for capitulation though. That's how Mike is playing it on the week. If you want access to this report, guys, you know what you need to do. Become a TDR Pro member. This episode went on a little longer than usual because it was almost like three reports in one. Yeah, you did cycle awareness. We talked about AI trade, we talked about macro. It's all in this report. It's one of the longer ones Mike has done. Just go become a TDR Pro member just for this report alone. There's a lot of material we didn't cover. You'll find a link in the show notes. As always, none of this has been financial advice. You guys know that. This is our investor journal. We're just on the journey alongside you. And until next time, stay curious.