Mark Yusko: Bitcoin's Rise is Programmed - The Path from Speculation to Global Money

Well, Bitcoin and gold may be moving more closely together, but are investors actually starting to treat them the same way? And if Bitcoin is increasingly behaving like a macro asset, what does that mean for its place in a portfolio? Well, there's no better person to ask than our next guest, Mark Yusco, the founder and CEO of Morgan Creek Capital. Mark comes to Bitcoin to Bitcoin with decades of institutional investing experience. Mark, thanks so much. So, Bitcoin no longer just a speculative trade here. How has that fundamentally changed the market structure and how does it make this cycle different from past ones? >> Great question actually. So when you think about um the history of a BTC, you know, we're a late teenager now uh having been founded, you know, 17 plus years ago. And the problem as I see it is, you know, it began pretty innocently as this, you know, transactional medium, right? The pizza and and all that good stuff. And then we had the aha moment that no, this was a better form of money, right? What is money? Money is an asset that exists in the absence of a liability. Everything else that we think of is currency other than gold. And so it was digital gold. And and why was it digital gold? Well, gold is this perfect money, a single ounce of gold for 5,000 years has bought a fine person's suit from Cleopatra to a suit of armor to a zoot suit in the 20s to Savile Row today. You guys are both looking natty today. So thank you Bitcoin for your for your threads. >> And that's interesting because gold never changed. Well, what changed? the money, the currency that that is denominated in. So if you think about gold though, if I had a bar of gold, like if I were Kyle Bass, Kyle's a buddy of mine, under his desk, he keeps a 26 kilogram gold coin from Australia, and I don't have that under here, but if I did, and I could bring it up here, I'm not strong enough to break it, right? So it's kind of hard to divide. It's not very divisible. Even if I could break it, I couldn't stuff it in the computer and send y'all some. But all the Bitcoin in the world sits right here. Now, I don't have any on my phone. Don't SIM swap me yet. People have tried. I don't keep it on my phone. It's in cold storage. But all of it could fit right here. And with a couple taps of a button, I can send to you one Satoshi, 1/100 millionth of a Bitcoin because it's incredibly divisible and incredibly portable. So, it's equally scarce to gold. It is better than gold. And one Bitcoin is one Bitcoin. Everybody says, "No, Bitcoin is now $75,000." Well, it takes 75,000 paper towel kind of green pieces of paper, you know, toilet paper to buy one. But that's not how it started, right? It started at a fraction of a penny. And what's happening is the Bitcoin doesn't change. The money just gets worse as we print more of it. The stat that just blows you away, and this is why people thought it was a speculative asset, is for 245 years, we've been a republic for 250 years. In the first 245, we've printed $10 trillion. And in the last five, we printed $10 trillion. Remember, one trillion is we'd have to stay here on the air together for 31,710 years, which would probably be pretty unpleasant because I'm not that fun. Okay? Okay. And we got to spend a dollar every second for 31,710 years to get 1 trillion. So $10 trillion was printed. And so Bitcoin price went parabolic multiple times. Oh, it's speculative. No, it's not. It's a perfect store of value. Well, then why doesn't it track M2 perfectly? Because humans are going to human. Humans tend to be attracted to things that move. So when the price is moving, people come in and buy it. And it's a long answer to your question, but the the biggest challenge is in every cycle. So we're on this four-year cycle. Why is it a four-year cycle? Well, it's because it's hardcoded into Bitcoin's code. Every four years, the block rewards get have the having. And if that happened and nothing changed, half the miners would go out of business. their costs are fixed, their revenues go down. So what happens is naturally the price has a built-in escalator. It's kind of nice. And so long story short, as the price fluctuates around the fair value, then people get interested. There are investors like myself, I think of myself as an investor. I like to buy things when they're below fair value. So the fair value of Bitcoin today based on Mechaf's law. Tim Peterson runs a model that that tracks this really nicely. It's about $105,000 but it's 75. Great. So it's on sale. So you should accumulate things that are on sale. You should like to buy a dollar for less than a dollar. Well, as the price starts to move, then the traders come in. Traders don't care about value. They just want movement. Up, down, long, short. As you hit fair value, what happens? This hedgers come in. Well, what's a hedger? A hedger is someone who owns an asset like an oil producer, a gold producer, a Bitcoin miner. When the price exceeds their cost of production, they sell forward in the futures market. That's a hedge. And you need a speculator, someone who doesn't care about anything other than taking a position opposite a hedger. They come in. Well, that starts to push the price even more. But then what happens unfortunately is the gamblers come in and the gamblers use leverage and they push the price way above fair value and then we have to have a crash. So we are at this point we're almost at the end. October 5th is the 364th day post the peak. That has historically the last three times not a huge sample but three is pretty good number. Precisely 364. That's the weird part. Every single time. So by October 5th, it's likely that we head back toward the accumulation phase of the cycle. And and but back to gold, it's not a speculative asset. It's a store of value. It's a better form of money. But when the correlation is high to speculative assets, people think that matters. Well, short-term correlations, like when people quote monthly correlations or or you know, weekly correlations, they're just spurious numbers. The long-term correlation of Bitcoin to stocks is 0.15. The bonds is 0.0. That's an uncorrelated diversifying asset. It's just a better store of value. >> So, we've seen >> Oh, go ahead. >> No, I was gonna say sorry for the long answer. >> Oh, no. That was fantastic. I was taking notes over here. Um, we've seen spot ETFs, corporate treasuries, and other institutional vehicles bringing Bitcoin into traditional portfolio. So, if that's the first wave of institutional adoption, and it's been underway, where do you think the next major wave of demand comes from? >> Man, you you're another amazing question. This is awesome. Um, you know, it's interesting. I was on a a podcast with a buddy of mine, um, Scott Melker, and he said, "You know, the uh the key to a good podcast is you ask a question and then you shut up." I said, "No, no, no. The key to a great podcast or a great interview is not just ask a question and let the speaker speak." A great interview is when you have a question, you listen actually to the response, and then you ask a better follow-up question, which you just did. So that that that's amazing. >> I appreciate that. >> And so I I think the um the issue is where do we go from here or or quadis, right? Um to use a little Latin that no one does. And if you think about adoption of any technology, it always starts on the fringe, right? Who was the first user of pagers? Drug dealers. We're the first users of the internet. Porn. How about Bitcoin, drug dealers? And it it makes sense. Why? Because the fringe is excluded from using the good stuff, right? If you sell cannabis, you can't get a normal banking account. So, you have to find a better way to to uh do business. And so, it starts all technology innovation starts at the fringe and then it slowly becomes adopted by the early adopters and then ultimately the masses. And so we're at this inflection point where we've had the, you know, the fringe and the early adopters and now we're getting into the early majority. And so people like Black Rockck, right? This is funny. So June, two years ago, you know, everybody's talking about doing an ETF and and Black Rockck's like, "No, absolutely not." And then Larry Fank says, "Well, hell yeah, that that's a big business. I can make lots of money." So they created the biggest one and so and if Black Rockck does it then other people are like huh okay now it's legitimate so I can do it. Now the one little problem with this and this is this is the danger of of where we are in this institutionalization cycle. Like yesterday clarity didn't pass and everybody's freaking out and the price is down a little bit and people are like oh it's such a big deal for for crypto and for Bitcoin. I'm like, "No." The whole point of Bitcoin is that it doesn't need permission from legislation or regulation. It is a permissionless asset. If I want to send y'all money, I have to have a bank account. You have to have a bank account. I have to ask permission of the bank to use my money. In fact, here's a crazy this true. So, when I first tried to send money to Coinbase, we were early investors in Coinbase. I wanted to fund my account. Bank of America said, "Nope, not going to do it." Like, "What? What do you mean? It's my money." No. Well, technically, it's not your money. It's it's our money. And and if you read the fine print, you know, I didn't read the fine print. We have 10 days before we have to send that transaction, and we're going to take all of it. And I really So, I debanked myself from Bank of America and I went to Truist Bank. Well, truest requires me physically to go to a branch. I had been in a branch in 20 years. I have to go to the branch and talk to a human to get them to transfer money, which is ridiculous, but it is what it is, but you know, I left Bank of America. So, that permission system is silly. If I have a Bitcoin, which I do, and I want to send it to you, I can send it with no permission. You don't have a bank account. I don't have to have a bank account and we don't have to spend the seven trillion. There's that T word again. Every year banks, brokers, insurance companies, auditors, etc. skim 7 trillion dollars from us on a global basis for the permission of using our our money, our money, which becomes their money when we deposit. So, Bitcoin fixes that. And so, but the problem is remember then when Bitcoin got classified a commodity, everybody went, "Yay, we're not a security." Oh, be careful what you ask for. Okay, you might get it. We didn't want that. Why did we not want that? Well, if you watch this interview from Leo Melamed back in 2017, he was the chairman of of Chicago Merkante Exchange. He said, "Don't y'all worry about Bitcoin. We'll tame Bitcoin. Tame? That That's a funny word. What? What do you mean tame? Well, what he meant was if something's a commodity, then you can issue futures contracts against the commodity. Remember, let let's say oil. Let's say I want to sell you oil. Well, in the old days, I used to actually have to have oil. Fancy that. I had to have the oil to sell to you. Well, when futures came along, I can now write a contract saying,"Well, I promise to sell you some oil on a certain date if it's convenient for me. And if it's not, we'll just cancel the contract, and I don't have to sell deliver any oil." Well, what does that allow someone to do also? Well, it allows them to short something literally out of thin air. So, we've seen this in the gold market. The gold market kind of sits like this for years. It's just getting spoofed every day by JP Morgan. They're clamping down the price and then like a beachball, it has one of these parabolic moves like it did last year because the shorts have to have to cover. Same thing happened with Bitcoin since the Bitcoin futures were created and they happen to be created. It's on interesting days. So remember back in 2018 2017 we hit went from 10,000 to 20,000. Everybody's like yay. December 18th, we started to fall like a stone. Why December 18th? The day Chicago market exchange introduced futures. So then we recovered through the next cycle and things are going great. Black Rockck creates the ETF and then bang, November 21, we go down again on the exact day Chicago merchant exchange expands the number of futures. interesting because if there are futures contracts and they're large, you can naked short against you're not supposed to do that, but you can naked short against assets and cause price pressure. So, we're in this funky zone where we thought we wanted to not be a security, should have just been a security. Now we're a commodity, but now we're stuck in this world where the big institutions can control through the paperation, the word I just made up, paper of assets in the futures market. So my hope is that the next wave, to answer your question, which again is a really important question, the next wave of adoption will be people who say, you know what, I have three buckets. I have my liquidity bucket to fund my lifestyle, right? If I need to pay my bills or pay the mortgage or pay a tuition payment, I have to have a certain amount of money that needs to be fixed income or actual income. I immunize those liabilities. That's good. Then I've got my second window, which is kind of 5, 10, 15, 20 years. That's my saving zone. I'm I'm I'm looking at my goals and and there I need equity. equity, common stocks, preferred stocks, private equity, real estate equity, commodity equity. I need equity because I need it to grow and and and achieve my goals. But the problem is over a 30-year period, equity, 85% of companies disappear over 30 years. It's amazing stat. So, you don't you're not guaranteed to make a return by investing in equity. There's risk and volatility. So, what you really need is something to protect your value. And historically, for 5,000 years, there was one asset, gold. Actually, there were two or three. Gold, silver, platinum, maybe. Diamonds worked until the lab grown and now they've been disastrous. But there were a handful of stores of value. Gold was the best. Now, we've got gold and Bitcoin. And so the next wave of adoption people who say you know what when I need to secure my family's future and to preserve my purchasing power like my wealth like if I earn a dollar and I put it in the bank 10 years from now I'll take it out it'll be worth less because there'll be too many dollars. If I put it in gold or Bitcoin, it'll be worth the same or more because those assets stay the same while the currency devalues. Anyway, long answer. You know, Mark, one of your previous answers and part of that one that you tied in, you talk about adoption cycles and you talk about what's driving these cycles and speculators and and it kind of gets magnified as as we get into the early adoption phase and go through these different phases of adoption. One of the thing, one of the prevailing narratives of, you know, for example, it was massive in the 2021 cycle was rates go to basically zero and money's free and these speculators come in and just drive the thing skyhigh. Now, Bitcoin is in a whole new environment, right? We're seeing Treasury yields remaining elevated. >> Uh, as Bitcoin is trying to recover, can Bitcoin, in your opinion, continue to see normative appreciation throughout its bull cycles? uh where the 10-year Treasury yields stay above 5%. Or do you think that rallies look a little bit different until that situation gets figured out? >> Again, fantastic question. And the and the the key point here is that anomalous period, right? From 2009, March 2009 till basically, you know, a year and a half ago, we had an anomalous period just like we did in the 1930s. Like people think QE and zero interest rates were invented in 2009. Oh, go back and read a little history. In 2029, in 1929, we had the crash. And then in 1931, we cut interest rates to zero. Because remember 1931, America was an emerging market run by a gang, right? If you've seen the movie Gangs in New York, right? They got the tall hats. I mean, it was not a really safe place. It wasn't the dominant superpower. The UK was the dominant superpower. The pound sterling was the world reserve currency and we were a little emerging market that was on our way to ascendancy. And it wasn't until 1944 when we became the superpower. So what happened is in that period we had a bunch of debt, okay, following the crash and no one would buy our bonds because we were an emerging market and we were probably going to default. So we had to buy our own bonds. That's what QE is, right? No one will buy your debt, so you buy your own. So, we did it. We learned Japan's been doing it for the last 20 years. They and they they are unbelievable at it. Like the Bank of Japan now owns about 70ish% of their outstanding government debt. And when they get to 90ish, they'll just cancel it all. It'll be amazing. So, America's starting that, right? Scott Besson said, "We are the house. Wave it in. If China won't buy it, if Japan won't buy it, then we'll just buy it. A Ponzi scheme actually. But but okay. So the issue here is that period of excess when interest rates were zero, money was free, people would borrow money and they would buy appreciating assets. The problem is if you borrow money at zero and you buy a a stock that yields 4% and it's very safe and it's never cut its dividend, pretty good arbitrage. People do that all day long. If you buy something that has a 12% yield, that might be a little risky. It might be a high yield bond, you know, closed end fund or something. If you buy something on margin, let's say you have Amazon stock and you margin it, if you margin 50%. Reg, no problem. Why? Well, because Amazon, interestingly, Amazon and Bitcoin have the same volatility. Amazon has been a public company for 30 years. Every single year, they have a double-digit draw down, including this year. The average, this is crazy, the average is 31%. Average on average every year for 30 years you've lost a third of your mind. When was the right time to sell? Never. Who actually bought at the IPO and held to today? So there's five people in the world. Jeff, mom, dad, ex-wife, Bill Miller. That's it. Because everybody else gets shaken up by the volatility. Same thing with Bitcoin. You should have just bought it. Or I I was on TV back in in 2017 and while I was on the show, it was only like six minutes. the price went from like 10,000 to 8,000. And Melissa Lee looks at me and says, "Well, what should we do?" They're like, "Buy it." And her face like literally she just she just like, "What? What? Yeah, you'd always say that. Yes, I would. Buy it today. Buy it tomorrow. Buy it next week. Buy it next month. Don't don't buy it all at once. Accumulate ownership of the most powerful computer in the world. The Bitcoin blockchain is the most powerful computing network in the world by a factor of 1,500 times more powerful than the CERN supercomputer. It is the most powerful asset that you want to own a piece of. So all that said, um when you can borrow money cheaply and you buy a speculative asset, there's risk because there's volatility and you get a margin call and they take your Bitcoin. I have a friend called me up said they stole my Bitcoin. What are you talking? Says, "Well, I borrowed a bunch at at Bitfinex." I'm like, "Stop." No, you're an idiot. You put, you know, 50 times leverage on an 80 vol asset, didn't make the margin call, and they seize the collateral. That's not stealing. Now, maybe if if their intent was to steal, maybe that's a little different, but but no, that's just dumb. So when people use too much leverage as they were in zero interest rate environment, you'd get bad outcomes. Today with a 5% treasury, I think you don't have as much leverage, which is I think why instead of going down 84% this time, we only went down 51. And why I think the next rally won't be as big. We won't have a 10x or a 20x, but we're still going to accrete value. And again, go go to Tim's chart. It's a parabolic parabolic chart, okay? Based on metap's law. And if you think about it, it's one of my pet peeves of long-term charts. You know, everybody looks at these charts that go like this and they make this big parabolic move, right? But that's a long-term chart, right? It has to be logarithmic, right? Going from 0 to 100 is the same as going from 100 to 200, right? But 100 to 200 is only 50% move. 0 to 100 is a is you know a lot of percentages. So you have to use logarithmic charts to get the smoothing of that effect and the same thing of logarithmic relationship to network value in metaf's law you get a parabolic move. So our first move and our first window was big 20x. The next one's going to be 10x. Then it's going to be 5x. Then it's going to be 2 1/2x. And it's just but it's just going to keep accreing value. The total value gets larger, but the incremental move is going to be small. >> Markus, founder and CEO of Morgan Creek Capital. Thanks so much. That was awesome insights. I hope we can have you back soon. >> Oh, anytime. I appreciate it, guys. And appreciate uh the great question. >> Yeah, appreciate you. Have a great rest of your day.