← The Wolf Of All Streets
The Wolf Of All Streets
The Real 4,700% Bitcoin Play Exposed! (Not What You Think) | Mike Alfred
00:44:25
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- [00:00]
A
Today I'm joined by my friend Mike Alfred, investor, entrepreneur, and now board member at Bakkt. Mike has had an extraordinary week from iron stock surging over 40x since he first highlighted it here on my show.
- [00:12]
B
You know, iron is up 48 or so X, maybe a little less. And actually the exact price was right around 280 in November of 2023. On your shelf to major deals reshaping.
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A
The bitcoin mining and data center landscape to his new role guiding one of the most established names in crypto.
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B
There's some stuff, Scott, I'm going to tell you right now. When you, when you see it, you're going to be absolutely shocked. You're going to be like, holy crap. Like, I can't believe what Bakkt is doing.
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A
We discussed how miners are transitioning into AI infrastructure.
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B
Turns out Texas is actually a wonderful market. It's a great market to mine bitcoin, but it's also a great market for AI. There's a lot of cheap renewable power. It's a validation that bitcoin miners can successfully transition.
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A
What makes certain operators stand out and where bitcoin in equity markets may be headed next.
- [00:55]
B
And bitcoin, as you know, has a tendency to do that. Looks dead. Looks dead. And then you wake up one day and it's just absolutely ripping. So I think October, November, December probably be quite good.
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A
This is a conversation about conviction, patience, and spotting opportunities before the crowd.
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B
That's dope.
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A
Let's do. Is it fair to say that you've had the biggest week of any person in this space, maybe ever?
- [01:31]
B
I don't know if ever, but it's been a pretty big week.
- [01:34]
A
I mean, you and I talked at the end of last week and I wanted to schedule a live conversation and knew that there vaguely might be news coming. Maybe we can review some of the monster things that have happened. I'll. I'll go first and say iron's share price, considering I have a chart that I show on my show where it has a huge arrow that says Mike Alfred told you to buy here. And it's like $2.50 or something. Maybe it was three. It said somewhere in that ballpark. Last I checked, it was trading between $45 and $48 as we're recording. Yeah, yeah, big move.
- [02:11]
B
47 something. And actually the exact price was right around 280 in November of 2023 on your show. I don't think that was the first time I ever mentioned it on your show, but that was one of the times where I like pounded the table and I said, look, I think it's pretty cheap here, right? Like this is what the company's building. This is a generational company, right? You got to take a long view, you've got to survive a lot of volatility, but eventually It'll be a 50, 100, $200 stock. And I was saying that in Twitter spaces at A$2 and the, the kid analyst in there got so pissed and they started trolling and I had to block a whole bunch of them because they were just clogging up my replies for, for months after months. But I don't know where those guys are now. But they missed a 47, 48x off the bottom.
- [02:56]
A
So in crypto they're HFSP. I think the term is having fun staying poor. But listen, you had obviously high conviction. I think some people said he's on the board, it's, you know, obviously he has some motivation to tell you these things. But. But you and I had a long talk about it. You said it very publicly on the show. They were trading significantly at a lesser value than just the assets they literally held, right? I mean their equipment and all of these things. They literally could have sold it off and been worth more than the market cap of the company at that point. So there was a clear argument there. But the fact that it's gone to the 40s, is that on the exact same premise that you had in 2023 or have other things come to light that have sent it so high? AI narrative, you know, data Bitcoin miners effectively becoming data centers. And that narrative, was that all baked into your analysis in 2023 and earlier?
- [03:52]
B
Yeah, it all comes, it all comes back to the physical infrastructure. That was the original thesis, that the physical infrastructure would become dis. Dislocated from the digital demand curves. That included Bitcoin, that includes AI, that includes synthetic biology, includes high frequency trading. You need a lot more compute to do all of these things. And my view then, as I still have now, is that the amount of physical compute that is needed far outstrips what's going to be available. And so if you're an owner, a large scale owner of this type of infrastructure, you don't need to know exactly how it's going to be monetized in advance. You don't know exactly what news items are going to come out. You don't need to know exactly when the stock's going to go up. It's systematic. It's like being the house. It's like being the casino, right. You're going to have some variance day to day. Occasionally the gamblers are going to come into your casino and they're going to win against you for a few hours or a few days. But. But over five or 10 years, you're going to make a lot of money if you can get people to come to your casino. And I view investing with a value framework with a long duration as like the reverse casino, where you're basically systematically guaranteed to win as long as you have enough patience. And I think it's not just patience. It's like emotional fortitude. Right. A lot of people got churned out, stopped out, beat up, beat down, right by 2 or 3, 50% plus drawdown. So yeah, you look at it today and you say 280 to 47, that's a pretty good return. But like, how many people actually stayed in? How many people didn't sell it the first time it went to 12 or the first time it went to 15 or how many people didn't get stopped out multiple times? Right. So you earn every dollar and every percentage point of return that you get in public equity investing. And as I've said many times, I'll say it again, public equity investing is the most competitive game in the world. There's no more competitive game than public equity investing. And so it's not for the faint of heart. It's. It's not for the kid analysts or the chart squigglers or people that are just tourists. Like, you will not capture the excess return in a stock like iron unless you really know what you're buying and you have the right emotional makeup to hold it. And it's really that simple.
- [05:54]
A
Yeah, I held it. Seemingly all of my followers held it based on the comments. Because you came back repeatedly and continued to beat the drum, to be fair. And that's probably the reason. And a lot of my friends who we had conversations with are still holding it. So I think that there was high conviction based on the way that you presented that one. Interestingly, in the past, I think the market has viewed miners as a high beta bitcoin play. Right? It was sort of like leveraged beta to bitcoin. Bitcoin goes up, miners go up more. Bitcoin goes down, miners go down more. And it was even hard to differentiate between the quality of each mining stock. It seemed like they were all sort of following the same cycles, or one would go and then the next would. It seems like this is really the first time since I've been tracking it that you're really seeing winners stand out and it's happening while bitcoin is effectively. I'll, I'll air quote it for those who are listening. Boring or sideways.
- [06:51]
B
Yeah, like the dispersion is really incredible. I mean, I was doing the math on the cycle returns and you know, iron is up 48 or so X, maybe a little less for the full cycle since the bottom in late December. Microstrategy is only up like a little over 20x now. And it wasn't that long ago that people were screaming on the Internet that if you're, you're an idiot if you didn't own MicroStrategy and you own miners instead. And you know, I, I tried not to, to be too harsh on those people at the time and I'll try to resist the urge to beat on them too much now. But candidly, Scott, there are a lot of people on the Internet spouting off about investing that don't really have any experience investing, don't have any experience with governance, don't have any experience sitting on boards, don't have any experience operating companies. And so I warn people all the time, like, you should use Twitter X as a entertainment device and maybe as like a reverse sentiment indicator.
- [07:47]
A
I was going to say, yeah, you.
- [07:49]
B
Have to be really careful about, about using it to actually make decisions unless you really understand the mindset and the psychology and the experience level of the people that you're listening to. But anyway, like long way of saying at the bottom of the cycle, way back in December of 22, going into Q1 of 23, when nobody knew what iron was, right? They knew Mara, they knew riot, they knew Hut 8, right? Maybe they didn't know. They didn't know Iron. They didn't know Cypher. I called those two companies out specifically as probably the two best operators. And I said operational excellence this cycle will win out over hype narratives, branding, marketing, overpriced CEOs, et cetera. And here we are. And that's exactly what happened. Myron and Cypher are the top two. We'll see where Cypher shakes out today. It's in a little bit of a correction because they're launching an $800 million convertible after their $3 billion Google FluidStack data center deal today. So I think long term bullish, but short term is putting some pressure. But it's an exciting time because if you actually are a stock picker, right, if you actually know how to assess these companies, you're getting paid excess return right now for being able to do that, basically skill is being rewarded. Whereas at other parts of the cycle, basically blind luck or, you know, fomoing in or, or yoloing in or whatever. Right. Just like randomly picking stocks based on your favorite influencer like that, that kind of works during these sort of uninterrupted bull markets. But it's, but it doesn't work necessarily for the full cycle unless you're ultimately right about the fundamentals. As you just said, though, maybe the most important comment was that bitcoin still hasn't done anything right. It's still sitting at 111. Like it looks pretty weak. I think, I think we're just seeing the end of the seasonal weakness in bitcoin. And every single time the cycle starting in January of 23, where I felt like there was a dislocation or discrepancy between where I thought bitcoin's fundamental value is and where it was trading, like within days or weeks, that gap started to close. So, like, I feel like we should be at 130, maybe 140 right now. And so my suspicion is some point in October those numbers will seem like they're right there again. And bitcoin, as you know, has a tendency to do that. Looks dead. Looks dead. And then you wake up one day and it's just absolutely ripping. And so I think October, November, December probably be quite good. That doesn't mean, by the way, that the bitcoin miners that are up 48x are the top performers. Right. Like maybe some of that is pulling forward future returns. Right, but it is possible that that outperformance actually continues because the catalysts that are driving a stock like iron right now aren't necessarily bitcoin related. In fact, it's. It's the opposite. Like, the more successful iron is with AI hpc, the less likely it is to do more bitcoin mining in the future.
- [10:27]
A
Yeah, I think that obviously these are catching a beautiful bid on a nice hype wave, but it's justified. You just mentioned this cipher deal with Google in passing. Right, because it's kind of happening in real time. I'll say that that's prong two of Mike Alfred's good week. Prong three is going to be backed and we'll talk about that more. But right, obviously being proven right with iron. But Cypher, how are you involved first with cypher for full transparency?
- [10:55]
B
I'm not involved other than I own the stock and I own a lot of the stock.
- [11:00]
A
Easy there. Yeah, I know, but I know that you. So when you say you're deep in it. When we're texting, it basically means you're watching price action and trading and babysitting your position.
- [11:11]
B
Well, I have a relationship with the, with the team there too. Right. So I've been to visit the sites, like when I'm in New York, I get lunch with the CEO. I regularly text with the CEO about different things that they're doing, questions I have feedback, etc. So we have a very good relationship. But I have no like official legal relationship. I'm not an advisor, I'm not on the board. Although some people there was never.
- [11:32]
A
But yeah, I think it's somebody, somebody.
- [11:35]
B
Made a joke the other day that got passed on to me. They're like, oh yeah, Cypher doesn't need to spend any money on marketing because they have Mike. Which I thought was kind of, that was kind of funny.
- [11:46]
A
That's good. You're a true advocate. But this is a huge deal in my mind and I've only superficially read the headlines and have not dug that deeply in my mind. This deal with Google, which maybe you can tell us more about, but it really does solidify the narrative that bitcoin miners are a lot more than bitcoin miners and don't need to solely, you know, to depend on mining revenues to be profitable or effective companies.
- [12:12]
B
Yeah, I think, look, it's, it's further validation of what's already happened. So keep in mind Terra Wolf signed a very similar deal just a month or two ago now, two to three months ago. So it's a continuation of that. But, but first off for Cipher, it's specific validation of Cipher's site portfolio and Cypher's vision and Cypher's execution. Right. So that's 1, 2. It's a validation of West Texas. Right. So the biggest criticism you'd get from hyperscalers over the last call it year or two is that, oh, you'll never be able to build real data centers in West Texas. Like you got to go to cooler areas. You've got to go to areas closer to major cities. Like you got to be in the Washington, Greater Washington, D.C. virginia area. Right. And this just sort of invalidates that. And that's what we've been hearing right. At Iron. That's where what I'm hearing in the market more consistently like the demand for power is so insane right now that people are willing to go pretty much anywhere. And it turns out Texas is actually a wonderful market. It's something we've talked about for two years. It's a great market to mine Bitcoin, but it's also a great market for AI. There's a lot of fiber, there's a lot of cheap renewable power. So to me, it's a validation of West Texas. It's a validation of Cipher. It's a validation that, you know, bitcoin miners can successfully transition. And for Cipher, uniquely, they have so many sites that they'll probably announce another deal, a similarly sized deal, or, you know, another deal of substantial size right within between now and the end of the year. So to me, this is just like the beginning of a ramp for them because their site portfolio is so significant. And that's exactly what they've signaled. They've signaled that there's more coming, right? So I wouldn't view this in a vacuum and say, oh, look, today, the market doesn't like it today. And it's like, well, who cares, right? It's like 3, $300 million a year of really high margin revenue. It's like 250 million of EBITDA, right? So like pretty substantial. Like if you value that at 10, 15, 20x, like, you're starting to approach the company's market cap and it's only 168megawatts of critical IT load, 244megawatts of gross, which leaves another 56 of optionality. And importantly, on the call today with the Morgan Stanley investor call, which I, which I managed to get an invite to, he said that they're actually maybe going to plug in GPUs. So they're considering, like Ayran does with the cloud, they're considering maybe following that approach. And I would argue that's the right decision. If they do do that, they're one of the only companies that I think has the personnel and the skill set on the data center side to do that successfully. And right now the demand is just insane and the margins are amazing. So as a shareholder, I hope they end up doing that.
- [14:52]
A
The United States obviously is woefully behind some other places in the world for energy infrastructure and future plans for energy infrastructure. A lot of that people point to, obviously the regulatory environment or lack of nuclear, all these things. But you see, China, I haven't looked at the numbers of late, but I mean, seems like China is 10x in capacity versus the United States and already has probably more than 10x the capacity of the United States States. What happens when China wakes up again or already is, and says we should do this again? Because obviously, you know, we know that the last cycle Sort of ended on the Chinese ban on mining. If you believe that, what happens when China comes wholesale back into mining? Because if they have a brain they will into bitcoin mining I would imagine. Or these. Or competitive infrastructure like this with their seemingly unlimited electric capacity versus what we have in the United States. Or do you think that it's irrelevant to these companies?
- [15:49]
B
I mean I think there'll be a player in AI, but they won't be a player in AI for American companies or Western companies generally. Right. There's an ideal ideological separation now between China and the US and sort of related allies and particularly with AI. It'd be quite dangerous for American companies to host a lot of their models and stuff on, on servers that are Chinese. So like they can do whatever they want in China. Just like Alibaba and Baidu and Tencent, all these companies are quite good at what they do. Penduoduo and China like. But they're not necessarily going to be players in the US market. And my suspicion is the US market will be the most important market for AI as far as the eye can see. So I don't, can't really think that's.
- [16:29]
A
Even on the bitcoin mining side though they obviously had 50% of the network four or five years ago.
- [16:37]
B
Well, I mean Bitmain, Bitmain was a Chinese company. Bit Deer was a Chinese company. They're founded by Chinese nationals. They have significant self mining operations using their own chips. So Asian suppliers are still the primary source of ASICs. I think Bitcoin mining is going to go through periods where it's very popular again when bitcoin goes up. But I don't know if it'll ever experience the same kind of economic boom that you've seen in previous cycles. Because just systematically over time it gets harder and harder even at large scale to be super competitive in that space. It's just a brutally competitive space. So I think it's a great sort of grid balancer. Right. It's like a load balancer at the data center level if you have other sources of revenue like AI. But I'm really not sure that like as a standalone by itself there's going to be very many players left call it in 10 years that that's all they do. I think that data centers have value because there's always going to be a need for compute. I'm just not sure all that compute needs to be devoted to bitcoin. But I do think some of it should be devoted to bitcoin because bitcoin's the Only large scale compute user that, that actually can be curtailed like almost instantly with like no negative effects. Right. So I can turn off all my bitcoin miners across my whole site in two seconds. I can't do that with an AI application because maybe it's powering Waymo self driving cars or Tesla or something. Right. And like imagine you're in a Tesla, just says oh, we got to pull over because like we don't have any compute. So sorry, like you're going to pull over and you have to manually drive the car now. So like with bitcoin it doesn't matter. Like the network will be fine even if a bunch of miners are curtailing in a given moment, which we've seen.
- [18:20]
A
Many times in the past. So listen, you called this 40x plus more on iron. You directionally were completely right on miners. What comes next in that space in your mind?
- [18:31]
B
More of what we're seeing now, but just bigger. Right. So like I think iron has the potential to be bigger than core weave. Right.
- [18:39]
A
Which I started saying Morgan, was it Morgan Stanley? Somebody, somebody just sent me today or yesterday that somebody had raised their target to 70 something dollars on iron. Yeah, it doesn't seem like Wall Street's afraid it might was Bernstein. Yeah, it doesn't seem like Wall Street's afraid of this topping here.
- [18:55]
B
Yeah, I think Bernstein's at 75 and like a REIT was there too. But like the sell side analysts are always two or three years behind the curve of like really good buy side analysts. Right. So like my job is to, I read their reports to see what they're thinking, but they're always going to be two or three years behind. Right. And so like it's not really that, that valuable. I don't really put too much basis on like what, what those guys are, what those guys are saying. But look, iron could be. And I said this when iron was a billion dollar company and core weave is an $85 billion company. I said iron can pass core weave in market cap. And since then core we've come down to 40 something and then bounce back to 50, 60 something. Iron's gone from 1 to basically 13, 12. 13 billion. Right. Some combination of stock returns and a little bit of, a little bit of dilution in there as well. Right. Over time, so, so it looks a little bit more obvious that that's the case. And the path to doing that is just to keep growing the cloud consistently over time and filling up those data centers with customers. And I think iron has the skill set and the ability to do that and I think others will try to follow. As I said, I think Cypher could potentially follow some portion of that strategy. I think CleanSpark potentially could follow some portion of that strategy. I think they're getting serious. They're one of not the largest bitcoin miner in any given month along with Iron and Mara and Kango and a couple of others. Right. And like I think that's going to be the story for the next year or two is like what percentage of your total capacity do you devote to AI and then within AI, how much do you do co location versus how much of it is going to be cloud. And I think Iron right now is the clear like lead horse from a market cap standpoint because they've shown the ability to control the full stack. Owning the land, the power, the infrastructure, the data centers and the chips directly and then monetizing with an end customer. I think that's the highest revenue, it gives you the most control of the relationship. And so I suspect more people will want to do that too. But they may find that they're a little bit behind now because you know, Iron had a nice head start.
- [20:59]
A
Yeah, that, that makes a ton of sense. And do you think that it will remain somewhat untethered from bitcoin price action?
- [21:08]
B
I think bitcoin price action is going to really help all the names I just mentioned partially because of bitcoin. Sort of a liquidity barometer in general. Right. So like when risk assets are really ripping, right. When liquidity is good, when rates are falling, like if the dollar stays weak between now and the end of the year, if we get some positive seasonality, global M2 etc. Right. Like if all those things align, then bitcoin going up is going to help all small cap equities, all growth assets, all risk assets. And keep in mind like companies like Clean Spark and Iron and Cyprus, they all have today. Like if you remove all the capex and you remove some of the depreciation, right. And you remove some of the other sort of non cash expenses like they have pretty profitable looking businesses. If they just stopped investing and let those businesses kind of run off and you know Iron's already done that. I think the others basically are there even if they haven't said it. So I think bitcoin mining, paradoxically, because everybody's slowing down and investing in it. When bitcoin eventually goes to 120, 130, 150, whatever, there'll be a moment in time where there'll be a question like, should we pivot back towards bitcoin mining? Because bitcoin mining all of a sudden may be quite profitable. So it's more of the same. Everyone's going to get bigger. The best players, like Iron are going to get bigger, faster with higher efficiency, better economics, et cetera. But there are a number of other players that I think are well positioned to take advantage of this environment.
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A
Okay, so let's talk about Bakkt. You were announced this week as a member of the board of directors, correct?
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B
Correct.
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A
What does that mean for the company and what is the company focused on now? They were, man, I remember my early days that Bakkt was going to be the company that brought ICE and Bitcoin to the New York Stock Exchange and the institutionalization. Man, they were so early. So early. I mean, it was like four years or something before we started talking about microstrategy and such.
- [23:06]
B
Yeah, yeah. They were sort of incubated out of Intercontinental Exchange, Jeffrey Sprecher's, the billionaires collection of exchanges and data businesses and whatnot. And I think they had a vision to bring crypto into the mainstream via these partnerships with retailers and card companies and loyalty programs, et cetera, and, you know, through a combination of bad luck and errors, strategically and tough regulation. And, you know, they basically did everything the way Gemini did, which is like get all the licenses and do everything correctly from the beginning. And as you as you know, to get ahead in this space, historically, you basically broke all the rules in order to do it. And you could have made the argument correctly. Is better to ask for forgiveness than ask for permission? Because if you had to ask for permission, then you were waiting while other people were just running circles around you. Like firms that were offshore, like FTX and Binance, could do whatever they wanted with impunity for a while, right? Until. Until things blew up and people ended up in jail. In fact, the CEOs of both companies ended up in jail, although one of them will be there a lot longer than the other. And so look, you're regulated. If you're a regulated entity, right? Like, like ICE and you want to be in crypto, like you're going to do it slowly, you're going to do it carefully. And so what did they do? They just assembled the 50 money transmitter licenses, right? And all the infrastructure you need to clear and trade and use crypto. But they needed the regulatory environment to kind of clear up. And so what's happened now is the regulatory environment's cleared up, right? So we've got, we've Got genius and clarity and we've got all the stuff that's going to like open up the rails again. And you've got this business sitting there trading at a really low valuation where the replacement cost of those licenses is probably some multiple of, of the market cap. When I joined the board, you know, going back to the iron story, if you start with the balance sheet first, you underwrite the balance sheet. You underwrited the balance sheet of back correctly here at 220 or 230 or, you know, when I was in conversations with them, it was under 200 million. I estimate the replacement cost is some order of magnitude higher than that because if even. Look at Elon Musk right now he's trying to turn X into a super app. You know, he's still missing some of the money transmitter licenses. He doesn't even have them in all 50 states because it's actually quite hard to do that. So anyway, we're sitting on these licenses. We got the pedigree of ICE. ICE is still a 30% shareholder. We're NYSE listed. We're seasoned. We're not a Treasury company that just did a SPAC reverse merger last week. That merger sp.
- [25:37]
A
Yeah.
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B
With a, with a pipe that then is going to blow up your equity valuation and crush the shareholders. We don't have any of that. This is a clean seasoned cap table. We know what we have and we're launching into some markets that are really interesting, like AI driven finance, like stablecoin payments in 40 countries where we basically obfuscate away the complexity of stablecoins and people are just literally using a tokenized money market fund to basically send money instantly anywhere in the world. So you imagine like the disruption to the money transmitter, the traditional money transmitter business like MoneyGram and Western Union that are still charging 5, 6, 7, 8% fees. It used to be higher. They're just gouging consumers. And stablecoins are perfectly tuned to disrupt that. But you need to create an interface, you need to create a platform that allows people to use them without having to use stablecoins. As you know, if you force most people to use crypto, they won't use it. If you just give them an app that does it for them where they never see that it's a stable coin, but they're able to do exactly what they do through Western Union, then they'll do it. And of course there, there are a bunch of other things that candidly I just can't talk about yet because we've got earnings coming up. The company's in a blackout window. But there's some stuff, Scott, I'm just gonna tell you right now, when you, when you see it, I saw some of the. You're gonna be absolutely shocked. Like, you're gonna be like, holy crap. Like, I can't believe what Pact is doing. And that's about all I can say right now. But hopefully you can sense my excitement. I'm excited because the asymmetry here is pretty extraordinary where like the market still views Bakkt as this thing that signed Starbucks like four years ago or something. And the decks that I'm looking at right now, like the pitches that we're doing and the deals that we're working on closing right now, like, it's. You won't recognize it's not your grandfather's backed. Right. This is a different backed. And you know, I joined the board to help on the crypto side. Right. Because the board doesn't really have any crypto experts. It doesn't have anyone in the trenches in terms of like shaping narratives in public markets. They looked at what we've done at Iron and Candidate. It's just a perfect match. Because as they revamp the company, the new CEO is incredible, by the way. And that's, that's part of why I'm involved is like, he's a force of nature by himself. Like, I would not try to mess with Akshay. Like, Akshay will run you over. He's very smart. He used to work for Masa at Softbank as a large Nvidia shareholder when he was running his own fund. Right. Like knows AI almost better than anyone. This is not the previous leadership of back. This is like a kind of a new lease on life. And so I'm here to help assist him not only at the board level, to make sure the board is aligned around this vision, this new vision, but also to like clear the market in front of him so that he can operate.
- [28:20]
A
The stock went up over 40% the day they announced you on the board.
- [28:25]
B
41% on 19 times the average trading volume on day one. 17% on above average volume on day two. 16% on above average volume on day three and day four. Last time I checked, it had briefly gone green, but it's probably down a little bit. But it's sitting about 90% above the moment that, that it was announced. And I don't think that's accidental. I mean, it's a company that was spring loaded, it's coiled, it's sitting there trading at less than the value of the assets because basically people had given up on the company and they don't really understand the current story. Partially because the CEO is relatively new and had to do some things to fix the cap table and fix the balance sheet. And so like he just cleared all the long term debt like a couple days before I joined the board, I joined the board and now will be announcing in a successive cadence a whole bunch of new stuff that the market doesn't know about. So it's, I think the market with the mark. It's not just me, right? It is, it is true that I've had a decent track record with these smaller cap companies where I have been involved. But I think it's also just that people are smart enough to know that if I've underwritten it like I had to look under the hood, right. So once I looked under the hood, I wasn't able to buy any more of the stock. Right. So thankfully I bought a little bit before I even started talking to them. But once I saw what they were doing, I basically self banned myself from trading. Between the moment they said you're going to join the band, join the board and when I actually joined the board and now I'm totally handcuffed, right? Because blackout window, there's a all these forms of the SEC general counsel approval. It's all the stuff I have to deal with at iron. But it's worth the effort because if you could actually change the slope of the curve like you can help these companies inflect. It doesn't matter that you can't trade. You'll make way more money over time by making sure that these companies execute. Then you'll make trading around like, yeah, I could have made a ton of money if I could have traded it between 10 and 20. But that's not really where the value is. The value is can we take it from 10 to like 200, right. Or 500 or something? Right. And remember it has traded there the all time high split adjusted is like 1100 bucks or something.
- [30:28]
A
Wow, I didn't realize it was that high.
- [30:31]
B
Yeah, it was. I mean you got to go back to like last cycle or the cycle before. Like it was a while ago, but during the peak of euphoria about crypto like it spiked to obviously in retrospect completely unstable levels. And they've done reverse splits and everything to keep the stock price where it is. But it's pretty compressed now as I said, I think given where the regulation is going, it's trading it probably when I joined the board, definitely Trading below the replacement cost of those licenses.
- [30:59]
A
So, yeah, speaking of things that have had euphoric pumps, let's talk briefly about Bitcoin treasury companies and the current state of affairs there. Obviously, we had a already significant hype cycle that started, I would argue, in April, May, right before the Bitcoin conference. I think obviously MicroStrategy was first, but we know it's happened since. Well, most of these have come back to trading very close to nav. Some at discounts, some at slight premiums are right there flat. Seems like that interest has moved into the altcoin market. Interestingly, no. Obviously Salonic treasury companies seem to be the en vogue thing at the moment. What do you make of that entire trend? And having dug deeply into all the facets of this market, where do you see that going? Because obviously you usually have a pretty good gauge of what's coming.
- [31:51]
B
As you know, I was bullish on MicroStrategy at the bottom of the cycle. I was cautious of MicroStrategy near the peak of euphoria last fall. And I've never really traded most of the other ones because I think everything after micro strategy is basically like a miniature clone without a lot of competitive differentiation. And by the way, Back does have ownership of a Japanese treasury company. I think just real quick to go back to back, like, the. The strategy there is to not put the balance sheet on. Put the Bitcoin on back's balance sheet. The. The strategies only to go in geographies where there's some specific structural or tax reason why there might be value and then so successful.
- [32:34]
A
Yeah, yeah.
- [32:35]
B
And to do that activity through. Through, like not even wholly owned, but just controlled subsidiaries in those other markets. So that is something that the company's working on. It's another lever of value creation. But look, they've all come back down. Meta Planet and Nakamoto and some of these others, they've. They've all come back down. And I think a lot of people have gotten burned by that. I think you and I can raise our hand and say, yeah, we. We more or less predicted that. I think the difference was. I didn't think it was going to crash the market. And look, these things have really. The air has come out of the balloon completely and bitcoin's still at 111. So when this period of time is over and I. And I think it will end soon, like, I think actually at some point here, they'll bottom out.
- [33:19]
A
Yeah, I'm buying that.
- [33:20]
B
Yeah, you said that. I. I don't know if that's just because you. You like David Bailey and you want to get invited to his events.
- [33:27]
A
No, I think candidly, yeah. I don't think I'm. That anyone over there is too big a fan of me after all of the criticism that I've given of these. I can't speak to it specifically, but. No, it's. It's not that. It's just that I think that I like trades when things are so irrationally beat down that, you know, there's a. There's a bounce coming. Yeah.
- [33:46]
B
I mean, I don't know if Nakamoto's a rationally beat down because I don't understand the structure well enough to say that I. It could go to 60 cents, maybe. What is that now? 120 something. So 125 as we're talking? Yeah. Yeah. It could. It could go lower before it goes up, but I tend to agree with you. I don't think there's that much more to squeeze out of there. And I still think Bitcoin's heading to 1:3140, 150. And if it does, then there's just going to be a moment where a lot of this stuff comes back alive again. And you look back and go, wow, how did everybody get so bearish? So I wouldn't be. I. I wouldn't be bearish on them here. I was cautious on them, as I've. As I've said for a while. But I wouldn't. I wouldn't be too bearish. And I think the concerning thing would be if they start to trade at really high multiples again. The one comment I'd say just structurally, is, everybody shifted from M Nav, which I view as, like, a floating little fairy that, like, appears. And, like, from the forest, nobody calculated. Yeah. We don't know if it exists. We don't know, like, when it's going to show up and sprinkle fairy dust on us. So it's a fairy. So the industry realized that it was ridiculous to treat MNAV like a real thing. So then they moved to this. This new concept called bitcoin per share. Which sounds smart in theory, if you don't understand how capital structures work. But in reality, bitcoin per share is meaningless if you have anything other than common equity on the balance sheet. Think about it. If I have common equity, it's sitting at the bottom of the capital structure. Right. Then I stack convertible notes, then I stack preferreds, then I stack multiple rounds of preferred, and then I have another revolver line, whatever. Right. All of these things sit on top of common and they have obligations, right, that you have to meet, like, for example, with the dividend, right? And so those, those obligations have to be met, otherwise there's no Bitcoin per share for the common. So to me, it's smoke and mirrors and it's some combination of, like, being disingenuous and maybe a little bit of, like, magicianship. But smart investors shouldn't fall for that. Like, Bitcoin per share is a completely meaningless thing again, unless there's zero securities on the balance sheet other than common equity, in which case, how are you going to buy more Bitcoin, right? So, so like the entire model, the whole flywheel is based on stacking more securities on top of the common equity. So by, by nature, there's no way for bitcoin per share to mean anything, or at least not mean anything real relative to the common equity or anything safe. And so like, what I've said for the whole cycle is if you want Bitcoin, buy Bitcoin. If you want to try to outperform Bitcoin, make sure you understand structurally why it's possible, like with iron. My argument from the bottom of the cycle was simple, that the value of the infrastructure on the balance sheet far exceeded the current holding value, right? And it wasn't priced into the stock separately. When bitcoin prices go up, if they go up enough, the cost of mine will be substantially below the market price. And that's, that's sort of your margin, and your margin will actually expand as bitcoin price goes up. That is not true for treasury companies. They have the, they have a perverse and sort of different problem, which is that like, the more bitcoin goes up, even though it like, marks up the value of the balance sheet, it also increases the cost they have to pay in order to acquire a new bitcoin, which is their entire business model. So their entire business model gets more expensive to run the higher bitcoin goes up. Whereas the mining business model, even though it was unattractive for various points over the last two and a half years and people gave up on it and said I was an idiot, turns out it's actually a pretty decent model once, once you outrun the cost of mine by some substantial margin. So look, I personally am not bullish on really any of those companies. I'm not selling any microstrategy, right, that I've. That I've had since whatever my cost basis is 30 bucks average, right? So like, it's still, I'm still up 10x on it. I was up a lot more and I managed to trim some at 400, 450, 500, 535, etc. Which in retrospect looked great at the time. I was like, man, every day I sell and every day goes up more. This doesn't feel very good. But as you know, Scott, it never feels good to make the correct decision in markets. So, like, you have to train yourself.
- [37:43]
A
You're offside if it feels too good, feels good if buying, feels good, if look out below anyway, like, you got to be uncomfortable.
- [37:52]
B
I think we're sort of in alignment on this. And I think the fact that you're buying Nakamoto means that you're not quite as bearish as you were whenever that was six months ago.
- [38:00]
A
Yeah, well, it was 20 bucks and now it's a dollar 25. So listen, I know, you know, as we come kind of towards the end, you keep talking about 135, 140, 150 Bitcoin. Those feel like fourth quarter estimates and not tops. So I mean, how are you viewing kind of bitcoin longer term beyond the fourth quarter and beyond 2025?
- [38:24]
B
I think we've. I think we've talked about this a bunch, right? Over the last two, three years, I've always tried to sort of probabilistically wait the potential cycle top as time progresses. And at the bottom of the cycle, I was pretty confident that the. That the cycle top would happen in basically the back half of this year. I think what's happened is the institutional factors have totally changed the slope of the curve. And I also think, like, in retrospect, when we look back at every previous bitcoin cycle, the having may not have really been driving things as much as we thought it could have been. That the bitcoin cycle was so tightly coupled with the liquidity cycle and with the election cycle and some of these other forces that we managed to convince ourselves that the bitcoin mining having has more impact on the timing of the cycle top than it actually does. And so what I'm seeing when I look at macro right now is it seems like we're more like early cycle on macro, right? Like we're, we're getting an interest rate cutting cycle, the dollar still weakening. Like bond yields are sort of like, especially in the long end are starting to come in a little bit, which is nice. Like it feels like. It feels like a good time, right. And the market might, might actually be ahead. And so I worry a little bit about extrapolating the previous cycle and assuming just because it happened on this timeline before, it'll happen again. So I'm now thinking that it's much more likely that if there is a so called cycle top in bitcoin at all, that that's like clearly recognizable in retrospect. Like I'm pretty sure that'll happen in 26 or 27. Now I think the odds of it happening in 2025, given how late in the year we are and how little exuberance there is about bitcoin, I just don't see it. I think we could run to 150, maybe even 200 by the end of the year. That's possible, but I don't think that would be it. I think if, if we get to 200 in December maybe.
- [40:13]
A
Right.
- [40:13]
B
But if we're only at like 130, 140, 150 in December, my suspicion is we're going to go higher in 2026. And the last thing I'll say, Scott, is the A on this particular topic is like the AI Capex cycle is, is going to elongate for the next two, three years. Like all of the forecasts that I see show no top in AI capex spend until 2027 or 28. If you look back to the dot com bubble, which is sort of like the best large scale equity version of what's like what's happened in crypto in 2017 and 2021, the capex for Internet data centers topped out just before the market did. So like you can see very clearly capex spiked all the way into 99, 2000 and then it plummeted. And so like just because something happened a certain way before, like doesn't mean it's going to happen the same way. Bitcoin and AI are very closely linked at the data center level. At the energy level, there's a ton of Capex still going into both sectors. You just don't see major tops when there's a lot of Capex investment, when there's a lot of IPOs, when there's a lot of M and A. And so it just feels third to fifth inning to me still. Right. There's no, there's no signs you typically see of a seventh, eighth, ninth inning. And so I just think it's very unlikely that there's any top this year. I think people need to be patient and wait for actual real euphoria.
- [41:29]
A
What else is on your radar at the moment?
- [41:30]
B
Before we go, I'm buying like as you know, like the most boring stocks in the world that when they get cheap, the alcohol industry has been absolutely like clobbered. Like, it's, it's trading like, like no one will ever drink alcohol again. And maybe there's some truth to that. Like young people maybe won't ever drink the way other people do. But I really like Constellation Brands here. Down here in the low 130s, it's trading in its 200 day moving average. It's, it's trading at like a valuation level that you haven't seen since they originally acquired Pacifico, Corona, Modelo. I mean, it's like, it's ugly, right? But I like it and I don't think people are going to stop drinking Corona or Modelo anytime soon. And I think part of it is just the, the ICE raids and the, the dampening of, of Hispanic sentiment. Like a big chunk of Constellations customers are Hispanic. Like they drink Modelo and Pacifico and Corona. And so I think a normalization of Mexican relations as well as like a slowdown in some of this immigration activity and the narrative and also the action itself will boost that back up. So I'm, I've been adding like pretty heavily to it and I like the fact that it's trading in the toilet right now. I, as you know, I tend to buy stuff like when everybody hates it. And then since my time horizon is two to three years and most people's time horizon is two to three days, like I just, I win by outlasting them. So I buy Constellation here and I wait until the next recession when Constellation is the best performer in the S P. Like I'm going to call this right now. Like some stock that everybody hates right now will be the best performing stock in the S P the next time that we have a major drawdown in the queues, major drawdown in like technology, stocks, crypto, etc. Like it'll be the exact stocks that are being thrown out right now, which to me are primarily staples in health care. Those are the two sectors that I know really well. So I'm also buying like some pharma stocks that like nobody cares about right now. Nobody in crypto ever wants to talk about. But they'll all go like, how did you know to buy that two, three years from now? They'll be like, I'm getting my ass kicked in crypto and down 80% on my, my crypto token and my whatever. Like, how are you making money with alcohol stocks and pharma? And I'm like, because I bought them when you were still interested in like Solana treasury companies, right? Like it's a game as, as old as time and it just, it's a cycle. This goes around and around and around and a lot of people just seemingly operate without awareness that these patterns repeat. And I just noticed the patterns and I take advantage of them but I guess you know that that makes me unusual.
- [44:00]
A
Mike, always honor and a pleasure to sit down and chat. It's been a good week. I hope that your good weeks continue and I know that my audience absolutely loves having this alpha. So it's fun to sit down for a little longer and I get a recorded conversation once instead of waking you up at six o' clock in the morning to do it live.
- [44:17]
B
Hey man, I love your show. I love you. Anytime you want to do it, we'll do it.
- [44:22]
A
Thanks man. We'll run it back very, very soon. Appreciate you.