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The Master Investor Podcast with Wilfred Frost
BONUS: Tom Lee pt 2 - How Ethereum Could Overtake Bitcoin
00:20:09
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- [00:00]
A
The narrative of storing value is really Bitcoin's use case. Ethereum's use case is that it's actually going to be used. Wall street now is going to be building its entire infrastructure onto the blockchain and the blockchain they're choosing is Ethereum. So this is the 1971 moment where Wall street is essentially capitalizing on tokenizing the entire world onto a blockchain. That's a huge opportunity. I'm not bearish on Bitcoin because I think bitcoin will get to a million institutions. Only about 5% actually own any bitcoin, but 95% of bitcoin has already been mined. It's a fixed supply.
- [00:46]
B
Welcome back to the Master Investor Podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders and politicians in the world, giving you, our listeners, the edge. This is a bonus episode of the podcast, part two of our episode with Tom Lee. He's the co founder and head of research at Fundstrat Global Advisors. And for part two, we're going to talk all things crypto. Tom, a very good afternoon and welcome back again. So Tom, I introduced you just there obviously as the head of Fundstrat, and of course we talked a bit about that role. But you're also now the chairman of the, of an Ethereum treasury company, Bitmine. The ticker for that is bmnr. That's a recent development.
- [01:30]
A
That's right. I became chairman of Bitmine on June 30th of 2025. And at that time the company had announced that there was a $250 million investment being made into the company to help it transform its cash operations into owning Ethereum as a Treasury. So it still has an operating business, but now the treasury part owns Ethereum. And that group of investors was led by Mosaics, which is a hedge fund backed by Stan Druckenmiller along with Founders Fund. And there were a lot of other large firms that invested as well, including Kraken, Galaxy Digital, DCG and traditional funds like Diametric Capital, among others.
- [02:19]
B
And the price of Ethereum for anyone that wants to check, since that date has shot up. And we're going to get into that in detail in a moment. But for the layman, Tom, first of all, what is the bull case before we get to Ethereum? What is the simple bull case for Bitcoin when we're already at 111,000 price at the moment?
- [02:42]
A
Well, Bitcoin has done very well over any 10 year period. And at $100,000 today it does reflect that institutions are beginning to view this as a legitimate way to store value. Because the Bitcoin blockchain is really one of the best ways to record financial transactions with 100% never failed censorship, resistance, never fraudulent entry in its entire operation. So but institutions, only about 5% actually own any bitcoin. But 95% of bitcoin has already been mined. It's a fixed supply that's a stat from bitwise, but that 5% that isn't held yet because the other Bitcoin is basically being hodled. It has to be acquired by those 95% of institutions. Plus now governments want to own Bitcoin as a strategic reserve. So if you think about how difficult it is going to be to acquire that last 5%, I can see why it would replace gold or equal the network value of gold, which is over 22 trillion. And that would put Bitcoin at around 1.2 million per Bitcoin.
- [04:01]
B
Because the network value of Bitcoin today people sometimes use the phrase market cap. So the total value of all Bitcoin out There is what, 2 trillion? Talk me through. I mean obviously the limited supply argument, I think pretty much everyone gets in a sort of fiat currency world in the short term. If the President continues to interfere with the Fed. Is that a short term catalyst or are these strategic long term arguments for Bitcoin?
- [04:30]
A
What really matters in the short term? It's probably unclear if it helps or hurts Bitcoin because Bitcoin also is correlated with global monetary liquidity. Raoul Paul at Real Vision put up this chart years ago that shows M2 versus Bitcoin. And it's been almost dead on all the bottoms and tops. So once we would be through Fed interference and the Fed is easing, of course that's good for Bitcoin, but in this period of risk off, I would say it would hurt stocks and Bitcoin.
- [05:04]
B
What is the case for Ethereum then over Bitcoin?
- [05:08]
A
Well, Ethereum differs from Bitcoin actually. Ethereum was initially a fork of Bitcoin by the way, but with an added feature which is smart contracts. So what they wanted to do on Ethereum was to say let's use blockchain technology not just to store value, but now to store information. Ethereum is, is as a smart contract platform actually also has something called the EVM Ethereum virtual machine. So you can run entire programs and conditional contracts on Ethereum. And ethereum itself is 100% reliable. It has not had a single moment of downtime. Since inception, it's one of the few blockchains that has never been down. And then if you needed to do more things on Ethereum, you can build what they call layer 2s on top of it. So Ethereum is essentially infrastructure that now is catching the attention of two industries. The first is the financial sector. The stablecoins became really viral, a breakaway product for crypto. And that's like the ChatGPT moment. You know, there's $250 billion worth of stablecoins. The vast majority of those are minted on Ethereum. Then the Genius act was passed by this administration and the Congress. Congress and that greenlighted the proliferation of stablecoins onto the blockchain. So banks are now building stablecoin products that Treasury Secretary Benson thinks that could get to 4 trillion. That's exponential growth, burning gas on Ethereum. And then we have project Crypto, which is the SEC building, wanting Wall street to build on the blockchain. Now all that collectively from a Wall street percepts perspective is like 1971 for the dollar. And what I mean by that is in 1971 the, the dollar went off the gold standard. So in 1971 the dollar became synthetic and gold was what people bought as a hedge against that synthetic dollar. So you had gold as the trade and that would be the Bitcoin equivalent. But actually the synthetic dollar is what created the rails for Wall street to build all their future products. The futures curves, derivatives were all because the dollar was a synthetic product. If the dollar was backed by gold, Wall street would be still a very small business. Well, Wall street now is going to be building its entire infrastructure onto the blockchain. And the blockchain they're choosing is Ethereum. So this is the 1971 moment where Wall street is essentially capitalizing on tokenizing the entire world onto a blockchain. That's a huge opportunity. The second story arc benefiting Ethereum though is AI because now we're moving towards an agentic AI world but with real products. AI is principally been trained on Internet and I don't know, social media. But it hasn't been in the real world because it hasn't ingested us as we moved and physically moved or even have independent products. That's a vast amount of new information for AI models to ingest and store. But then now you have to be sure that all the instructions being sent back to the robot are proof of the originator. In other words, you need a token. I mean LLMs use tokens anyways, but now you need a token that interacts across chains. And that's where AI is going to build on Ethereum, because you essentially need what they call proof of human. We need to prove that this lawnmower got a real instruction from another chain or another vendor. And so that is all being built on Ethereum.
- [08:57]
B
And just to state the obvious again for our listeners, clearly Tom has an interest in Ethereum. You think it could grow in value in total network value, more than Bitcoin, which is, as we've said, at the top. $2.2 trillion of Bitcoin @ the moment. I think I'm right in Saying Ethereum's about 480 billion today.
- [09:15]
A
That's right. This is not going to be a popular statement because there's a lot of tribalism in crypto. But before this year I would have considered Ethereum like a really good reliable chain, but without any products being built on it, it shouldn't really do well. But because of what's happening with AI and with Wall street and, you know, Project Crypto, I think Ethereum's essentially the value of its protocol layer, like, you know, Union Square Ventures calls it, the FAT protocol, is now going to be more valuable because we're tokenizing everything on Ethereum rather than just gold, like so. If gold is a $21 trillion market, tokenizing the real world is orders of magnitude larger than gold, which means Ethereum probably will flip in network value versus Bitcoin.
- [10:06]
B
Flip as in outgrow.
- [10:07]
A
Yeah, it'll have a higher network value.
- [10:09]
B
So that argument for Ethereum is really interesting to me because one of my pushbacks was going to be. And it still will be, but you've kind of half answered it is when you look at the idea that crypto is an alternative to fiat currency, obviously one of the arguments is there's limited supply. Totally get that. As you said, bitcoin supplies already nearly been fully mined. But one of the arguments I always think of back to that is, yeah, but there's quite a few different cryptocurrencies and what's to stop someone founding a new cryptocurrency? And here's Tom, who I really trust in some of these future looking things, flipping his allegiance. Maybe it's not quite right, the word from one to the next one. And that surely is a pushback to the argument that these are great alternatives to otherwise fiat currencies who have an unlimited supply.
- [10:58]
A
Yes, I understand that. I think that the distinction to make is that I'm not bearish on Bitcoin because I Think Bitcoin will get to a million.
- [11:06]
B
But what about all the other cryptocurrencies? Well.
- [11:11]
A
Other cryptocurrencies don't have the network value because otherwise they're just software chains. Meaning.
- [11:21]
B
So you don't really believe in Ethereum as a currency, you believe in it for other reasons.
- [11:25]
A
That's right, yeah. I think that the narrative of storing value is really Bitcoin's use case. Ethereum's use case is that it's actually going to be used, used and burned. So Ethereum gets consumed through gas fees and then staking is how you produce an Ethereum. That inflation rate has been below Bitcoin actually. So if you look at it as monetary supply, Bitcoin's monetary supply is actually still growing faster than Ethereum.
- [11:57]
B
So let's just touch on, because you said the genius act, obviously the way in which this new administration has embraced crypto, one of the reasons why, and we mentioned Jamie Dimon in the last episode, I think a lot of those people were bearish crypto four or five years ago when I was on CNBC every day, and certainly why I was bearish on it then was there's no way any government's going to allow this to grow significantly because they need to be able to monetize their debts. They need to be able to control things like this and the US and the dollar in particular. So how big of a turning point was that that this administration has, whatever the details of the act, they've embraced crypto. And was it foolish, the United States to do that? And will, will the dollar's status diminish as a result?
- [12:46]
A
Yeah. If I could give a little like historical perspective, when Tether created the first dollar, Stablecoin and they built it on Ethereum, their idea was someone doesn't always want to be long Bitcoin or another crypto. They want to be long something stable. And crypto holders weren't really allowed banking access, so they didn't have an off ramp. So tether built a dollar backed coin called stablecoin USDT in 2017, Google and the UT Austin wrote these papers claiming Tether was just a fraud. And the only reason crypto went up was because of Tether creations. Okay, so in other words, it was immediately tried to be viewed as something fake. But then Tether has since grown and of course Stablecoins have really grown in popularity. Merchants outside the US love stablecoins because they don't suffer the chargebacks. You know, credit card companies make or merchants eat fraudulent transactions. So merchants they get paid. It's just as good as getting a dollar in Turkey, any place like India, tether trades at a premium to the dollar because people prefer to get that over cash because it's hard to get robbed. You know, you can use a stable coin to buy real estate in Dubai now using tether like twenty hundred million dollar transactions. So it's actually being used in the real world. Actually stablecoin usage 80% is outside the US but the reason the US administration starts to like it is number one, crypto is, is essentially 100% quoted in dollars GDP. In GDP terms the dollar is 27% of global economy. It's 55% of central bank reserves is the dollar. It's 80% of traditional financial market pair quotes. So the synthetic dollar which happened in 1971 made the dollar 80% dominant. In the crypto world, the dollar is 100% dominant. So the US wants us to financialize into crypto because everybody prefers to get a dollar. Collectively, the Stablecoin industry is about 280 billion of treasury of outstanding dollars. They are now the 12th largest holder of treasuries in the world. Japan owns 1.2 trillion of treasuries. Treasury Secretary Bessant thinks this market will get to 4 trillion. That would make stablecoins the largest holder of Treasuries in the world. So it'll be backstopping the entire treasury.
- [15:30]
B
Market soon and allows him obviously to issue more T bills and try and keep lower rates down and less supply I guess of longer rates. But that's another conversation and Tom, we're out of time. Alas. I've so enjoyed the conversation. We would keep going if we weren't using that generously been allowed to use the Risk Reversal podcast studio. And we're going to talk a little bit about that. That podcast which you must subscribe to if you haven't already. And they've got a recording coming up. Always a pleasure Tom, to catch up. I love the first conversation. I love this crypto conversation. And people can subscribe to fundstrat. That'll be in the show notes and make sure to follow Tom on Twitter. And next time you're in London will you stop by and we can. You can use our studio instead?
- [16:15]
A
Yeah, I'd love to come by.
- [16:18]
B
Tom Lee, the founder of fundstrat and the chairman of the ETH treasury company bitmind. Thank you so much for joining us. Next week on the Master Investor podcast, a double lineup. We'll be joined by podcast co founder billionaire investor Jim Mellon for his next quarterly appearance. Really looking forward to that conversation. And we'll also later in the week be joined by the former British Prime Minister Liz Truss. Lots to discuss with her. Remember that everything you've heard in the Master Investor Podcast should not be considered as direct financial advice. More on that in the show. Notes the Master Investor Podcast is produced by Paradine Productions and Master Investor Podcast Ltd. In association with Birdlime Media. If you've enjoyed the show, please do subscribe and leave us a five star review. Our thanks again to Tom Lee and to the Risk Reversal Podcast team for allowing us to use their studio in New York. I'll see you next week with Jim Mellon and Liz T.R. us. Well, for those of you watching this episode with Tomley, you will have seen that we are in the Risk Reversal Studios in New York City. My great thanks to my friends Dan Nathan and Guy Adami for letting us use their studio for this week's episodes. And guys, a, thank you. And B, I really want to push your podcast to all of my listeners. Give me a quick 101, Dan, on how many episodes you drop and the type of content, it's a bit different from my one.
- [17:44]
C
Yeah, you know, we're like the ephemeral market guys. You're having these great conversations. I've been listening to all of them and really with some like really important market participants and great thinkers in and around the market. So we've enjoyed listening to your podcast. Our podcast, Risk Reversal Podcast drops five days a week. It's Guy and myself having just kind of conversations with folks that are very relevant about the markets. And, you know, oftentimes we're talking about what happened yesterday, what's happening today, what might happen tomorrow. We have, you know, guests from strategists, investors, analysts and the like here. So for us, it's been really fun. We scratch an itch that we don't always get to do on CNBC's Fast Money. There's a lot of sound bites and that's a lot of fun for us, but this is a different medium and we've enjoyed it. And Guy, you and I, we got a good chemistry here, don't we? And we enjoy it.
- [18:33]
D
We try our best. And let me steal a line from, I think it was Eric Stoltz in Pulp Fiction. Well, our casa is your casa, if you remember the scene. So you're always welcome here. And you know, listen, you know, Fast Money has been an incredible platform for cnbc, has obviously been a great home for us. But this allows us to get a bit more granular at times, a bit more irreverent. Talk about things with some depth that we probably can't get into on, on Fast Money and regular cnbc. And it's allowed us to I think, sort of build on upon that chemistry and allow the audience to sort of get to know us. And it's been a great, it's been a lot of fun and we're approaching our fifth year. Hard to believe.
- [19:15]
B
It is hard to believe. And I've been a listener throughout that period of time. And you guys do have great chemistry. It's great fun to listen to, but from my perspective, I almost don't want to admit this because I quite like getting the unique insights and claiming them as my own. But the regularity with which you're addressing what's happening day to day can allow me not to have watched CNBC all day or not to have read the FT cover to cover, download that day and know what just happened. I'm sure you'll be talking about Nvidia earnings tonight and short term things that really matter. And Risk Reversal Podcast is the name.
- [19:50]
C
Yes.
- [19:51]
B
Find it wherever you get your podcasts.
- [19:52]
C
Yeah. Rate it, review it, share it. That's how people find it. We're also on YouTube. Thanks so much Wilf. We appreciate it.
- [19:57]
B
Thanks again for having me in the studio. And I really strongly recommend listening to Dan and Guy four or five times a week on the Risk Reversal Podcast. We will be back next week with the Master Investor podcast.