Subscribe
Share
Share
Embed
Our weekly show is hosted by Michael Nadeau (The DeFi Report) and Ryan Sean Adams (Bankless). Each week, we discuss how we approach managing our own portfolio and the data, research, and analytical frameworks that inform those decisions — for educational and informational purposes.
Ryan Sean Adams:
[0:09] Welcome to the report. Today's report, we are re-underwriting the Bitcoin thesis. It is March 11th, 2026. We're going to do a health check on Bitcoin this week. So Bitcoin has been, as you know, a core asset of the TDR portfolio. We got to make sure this foundation is strong. So we're going to take a clear-eyed view at the numbers. We're going to look at hash rate, active addresses, institutional adoption. We're also going to look at the risks ahead. Security budget decreases, minor concentration, the threat of quantum computing? How is Bitcoin holding up against NASDAQ and gold? Stick around for the end. Mike's going to give us his Bitcoin thesis summary this cycle and, of course, a recap of what is in the TDR portfolio. Mike, you start this report, today's report, talking about re-underwriting the thesis, the Bitcoin thesis specifically. I love that word. You're one of the few people who use that word, and I enjoy it. When you use the word re-underwriting the thesis, what are you talking about?
Michael Nadeau:
[1:11] Yeah, so I think one of the nice things about crypto just generally, Bitcoin generally, is just basically a feature of all the volatility of this asset class. And I view it as a feature just because it creates so many opportunities for investors. On top of that, you have this cyclicality and kind of this roughly four-year cycle that tends to revolve around the Bitcoin halving. And this just allows me to kind of zoom out like every four years or so and just sort of do a health check and that's kind of what we're doing today is just kind of go through what we think are the most important things to make sure that Bitcoin is on the path that we've been investing behind and so that's really what we're going to go through today.
Ryan Sean Adams:
[1:51] Probably all investors across all asset classes should re-underwrite their thesis on some sort of schedule, right? I guess this is a forcing function because we have a calendar, we have four-year cycles in cryptos, which just forces us to effectively do that. And you enjoy that. I think that's why your eyes glow during the bear markets because you get to do all this analysis work.
Michael Nadeau:
[2:09] Exactly. Yeah. Yeah. It's unique. I mean, this is unique for to the crypto asset class as well. You know, you don't really get these opportunities and, you know, other asset classes, other and traditional markets. So something that can help any investor just to stay, you know, stay intellectually curious and just stay, it's actually honest as well.
Ryan Sean Adams:
[2:27] Yeah, so embrace the pain of the bear market. It's a huge opportunity for us. Before we get in, I want to thank our friends and sponsors over at Galaxy. This one's for the institutions listening. If you're thinking about crypto, the future of finance, where AI, Galaxy has you covered on both sides of this. They've established themselves as a global leader, not just of crypto, but also the critical data center infrastructure that's powering the AI era. On that, they have a 1.6 gigawatts of approved power. This is at their Helio site. They're using that for AI. They also, of course, have you covered on the crypto side, including institutional trading, custody, and tokenization. You guys know the ticker. It's GLXY. You can find out more about them, about how Galaxy helps institutions invest, build, and transform relentlessly at a link in the show notes. That's bankless.cc slash Galaxy. All right, Mike, let's get into your positioning. Coming into the week, I think you're about 50% cash, 50% crypto. So you have leaned into the risk on mode during this bear market. So that's exciting. At the time we are recording, where's Bitcoin? Where's Bitcoin price? I actually don't have the chart. I want to say it's like around
Michael Nadeau:
[3:40] 70K or so. Exactly. So bouncing around, you know, we've been, We came all the way down to the low 60s and it feels like we're sort of just, you know, establishing, you know, a low and we're trying to identify where that eventually is going to settle. We're still fairly early in this process, about five months into it. So, you know, our view right now is kind of like, let's be patient. We're at risk on mode, but we're kind of patient at the same time and observing the market.
Ryan Sean Adams:
[4:07] At the same time we're being patient, we have to make sure our foundation is sound here because Bitcoin is a core position for your portfolio. So let's get into it. Let's go. Let's talk about some of the numbers that you've prepared for us today.
Ryan Sean Adams:
[4:20] First is looking at mining and network security. So this is the hash rate, the Bitcoin mean hash rate. Why is this important?
Michael Nadeau:
[4:30] Probably the most important kind of like health metric that we look at here. This is the hash rate. It's a pretty nice looking chart here. And why is this so important? This is the security of the Bitcoin network. So if somebody wanted to try to attack the Bitcoin network, they would have to take control over 51% of the hash rate. And so that would be that would mean acquiring ASIC machines and all the capital investment that goes into that. There's real estate. There's quite a bit that would have to be overcome to get 51% of the network. And so this just, it tells you that the network is as secure as basically it's ever been. And then the other piece of it is, mining is just a really, really hard business. And it's capital intensive. It's incredibly competitive.
Michael Nadeau:
[5:20] These markets are volatile and your revenues are volatile. And so when you see like just this commitment from people that want to invest behind Bitcoin, this is just telling me that there's long term capital commitment here. And it's billions of dollars of sort of investment into energy infrastructure. Into the CapEx, the machines to run the real estate, to build the data centers. So it just tells me there's still a lot of confidence from this sector, even though it's an incredibly complex and competitive sector, people still want to enter this. And so that, to me, is a bullish indicator.
Ryan Sean Adams:
[6:00] It is a bullish indicator. And so you said here it's up 4x. So Bitcoin mean hash rate is up 4x since 2023 and 7.3x from the cycle peak. There's this dip here in 2026. Does this kind of ebb and flow? And I've seen other dips here. I don't know if the dips in hashrate, do they generally correspond to bear markets? Is that when we see dips?
Michael Nadeau:
[6:22] They can. So that one that the big one kind of in the middle there that was I think around May of 2021, that was the one that came sort of at the peak of like the first in the last bull market after the April peak and it was related to like, I think people were attributing it to Elon Musk tweeting about, you know, energy costs at the time and Tesla was concerned about just the energy consumption of Bitcoin mining. And so that was like a big capitulation of the mining, but it came back. We did have a pretty big, you know, 15% or so correction after Bitcoin price peaked in this past October, and it's kind of bounced off of that. So, you know, to me, there tends to be kind of a shakeout in the mining sector. Each cycle and each bear market tends to come later in the bear market. But I think this is pretty normal to see these little corrections.
Ryan Sean Adams:
[7:18] And by far, of course, Bitcoin is the largest proof-of-work network that is powered by hash rate in this way. I don't know if you've ever seen, so some Bitcoiners have called this the energy wall because not only is it A6 and data centers, of course, but it consumes an awful lot of energy, an awful lot of power. This is a website that shows the estimated amount of gigawatts that Bitcoin is consuming right now. So it's almost 19 gigawatts. Just to give you a sense, that's about 19 nuclear power plants. That's kind of what we're looking at in terms of the total consumption here. So it's a tall order to get to this level of hashrate. It requires a whole lot of infrastructure and it's kind of spread out across the world, right? It kind of ebbs and flows in terms of where it's located, but that's the long-term
Ryan Sean Adams:
[8:06] capital commitment that you're seeing. Let's talk about a metric that's related to this, which is minor fees and block reward. So these are the metrics that incent the hashrate, don't they?
Michael Nadeau:
[8:17] Exactly. Yeah. So this chart showing the revenues that the miners are earning in that pink area there, that is the block reward. So that's the Bitcoin subsidy. Right now, there's 450 Bitcoin that are mined per day. So that's the subsidy that the miners get there. The blue is the transaction fees. And we've seen like some periods where fees have spiked up for different reasons. In 2021, it was more related to just actual activity on the Bitcoin network transaction activity. And we saw a pretty big spike in early 2024. That was actually for a different reason. That was because we started to see the Bitcoin network being used for NFTs and inscriptions and storing other types of data on the Bitcoin network. That was kind of an interesting period of time. We thought at the time maybe there was a chance that that was a use case that would stick and that Bitcoin would potentially be used to store other types of data.
Michael Nadeau:
[9:17] It appears that that was more of a flash in the pan, but the miners did very well during that period because of all those extra fees on chain. But I think, you know, the big takeaway for me here is just this is the security budget of Bitcoin. You can kind of see the impact that the halving has on the miners in these charts. So if you go back to the 2021 period there, you see a big drop off in the pink. That's the halving. And then it comes up because the price of Bitcoin is coming up, you know, after the halving. And then you go into a bear market and we saw the same pattern again in this cycle.
Michael Nadeau:
[9:56] And so at the end of the day, what that looks like to me is like the revenues are sort of flatlining, right? You know, they are very volatile with the price of Bitcoin. But if you kind of zoom out on it, it's pretty much flatlining.
Michael Nadeau:
[10:12] But what's not flatlining is the hash rate, right? So it tells you that it's just becoming more and more competitive to mine Bitcoin. And if you want to capture market share as a miner, it's all about just finding ways to scale and finding ways to gain advantages to scale. And, you know, this is, you know, I think a risk in some ways for just kind of centralization of the hash rate. I think over time, which is just sort of a natural kind of market, there's really just kind of like a natural push in that direction, I think, over time.
Ryan Sean Adams:
[10:46] Okay, so when we look at some of these numbers, like this is really the security budget type number, this is where a risk to the Bitcoin network does come in. And I want to get you to weigh in on this. So right now we have about $12 to $13 billion per year in security budget annualized. This is primarily from issuance, as you said. Yeah. 450 Bitcoin, is that per day, that block rewards per day? Yeah, yeah.
Ryan Sean Adams:
[11:09] 2028, that's going to be cut in half. And then 2032, that's going to be cut in half yet again.
Ryan Sean Adams:
[11:15] Transaction fees are just 0.4% of minor compensation. So it doesn't seem like transaction fees are going to be a durable source of the security budget. So what's happening in the background is an interesting metric here, which is security budget as a percentage of market cap. And what we see in kind of a, some people are alarmed by this, this does present a risk is as a percentage of market cap, security budget is going down over time. So it started in the very early days of Bitcoin to be about 12 to 15% security as a percentage of market cap. And now it's under 1%. And if you kind of forecast this to 2028, you know, you get another happening, maybe you get 0.4%, maybe at 0.2%. Of course, the value in billions to miners can stay the same. It could stay at about $12 to $13 billion as long as the price doubles every four years. So there's multiple dynamics at play. But the dynamic that is showing is as a percent of market cap, the security budget is going down over time. Now, we're not really sure how much you need to actually secure the Bitcoin network. And it's true, we haven't seen 51% attacks really in practice so far. But you have to think if that number gets too small, it could start to present some problems. What do you think of this risk for Bitcoin, the security budget risk?
Michael Nadeau:
[12:44] So, yeah, I think it's fair to look at this. And I guess my view on it right now is, I think it's almost impossible to hack Bitcoin based on the amount of hash rate and the decentralization of the miner base right now. So I think you're fine. And where this would become an issue is if you just saw, like, to me, the way that this would unravel is just Bitcoin doesn't do the price action doesn't do what you think it's going to do. And over time, it becomes uneconomical to mine. And then you just see sort of an unwind, you know, essentially in that whole structure where if it's not profitable to mine, you see more miners come off. There may be some equilibrium price where it sort of establishes a low. But to me, you know, there's all these risks, you know, with mining and, you know, are we going to have enough transaction fees to support, you know, the incentive to mine moving forward?
Michael Nadeau:
[13:40] And to me, at the end of the day, it just comes down to the price of Bitcoin and how people are perceiving the network. I think what has become clear over the last four or five years is that Bitcoin is being viewed as digital gold and not a payment network and not being used. The stable coins have sort of taken over that use case. And so as long as people continue to believe that Bitcoin is digital gold and they're using it as a savings technology and the price continues to rise, These are not issues, but if that breaks, then basically the whole thesis can break. So that's kind of how I think of it. As long as people view it as a store of value that has a scarcity and it has all the other properties that people care
Michael Nadeau:
[14:22] about, that's really the most important thing, I think.
Ryan Sean Adams:
[14:26] So as long as price continues to go up, we're basically fine, at least.
Michael Nadeau:
[14:31] Yeah. And then you have to ask yourself, well, why is price going up? And I think it's all of those other key attributes, the scarcity of it, the decentralization, the proof of work, the brand that Bitcoin has, how it's been financialized and all of those things. So I think you just need to keep seeing those things come through. And Bitcoin doesn't have to do much. It doesn't have to innovate. It almost has to just like not change is like the more important.
Ryan Sean Adams:
[14:54] Yeah, that's the future. Is it not changing? It is impressive to see this hash rate, particularly when there's been so much competition for energy and also data center space with AI. So that indeed is a bullish indicator. But, you know, that said, the profile of Bitcoin miners is also changing. Right here, you see two potential major changes in Bitcoin mining. Energy innovation, so declining energy costs. You've got nuclear, you've got natural gas that's maybe stranded, surplus renewables. That could increase miner profit. And also, we have this trend of governments that may be entering the mining space as a way to monetize their cheap energy. This is happening in smaller countries first, like Bhutan has rolled out a program, El Salvador has, some Middle East sovereigns are talking about it. But the more these sovereigns start to enter, that is a bullish indicator for Bitcoin because if they're entering mining, then they have a vested interest
Ryan Sean Adams:
[15:54] in the Bitcoin network and financial system. And you can also bet they're going to have some form of a sovereign reserve with Bitcoin in it as well. So these things are linked, and that's the beauty of an energy proof-of-work network, I suppose.
Michael Nadeau:
[16:10] I think so. I think this is very interesting to see how this is going to start to play out. I can't remember which one of the large, it might have been Riot, but the CEO of Riot, has talked a lot about this idea that governments, he expects governments to get into mining because this is sort of something that people don't talk about that much. But there's a chance that we enter a world where like if this becomes like a geopolitical issue where if you don't have any mining in your country, there's a chance that your transactions won't land on the Bitcoin network. And so you actually have to be able to have some mining infrastructure if you want to be able to settle on Bitcoin and that this may become sort of more known moving forward. But I think, you know, when we think about just like, when you think about why is there just such a big rush for people to be mining, why is the hash rate going up so much? I mean, one consideration might be that we are probably going to see some innovation in the energy sector.
Michael Nadeau:
[17:12] And, you know, if you end up, if you have scale, if you're a miner and you're really getting into scale at this point, and you know that the largest input cost for your business potentially is going to be coming down because you're going to be able to tap into a renewable energy, cheap renewable energy sources, maybe it's nuclear. That's interesting because now all of a sudden you have tons of scale and you're just able to really improve your margins because you can bring, your costs out about 80%, I think, of operating costs or energy, you know, for Bitcoin miners.
Ryan Sean Adams:
[17:44] Okay, so we have hash rate up only, we have security budget, basically flat, not decreasing yet, because prices has kept up so far. Let's talk about active addresses on the network. That looks like it's also been flat from about 2017 or so. So not a lot of growth there. What does that mean to you?
Michael Nadeau:
[18:03] Yeah. So, you know, again, I think this comes back to, you know, when Bitcoin came out, it was like, okay, it's digital cash. You know, we've had some innovation attempts on Bitcoin with like the lightning network and being able to turn it into a payment network. It just hasn't, it just hasn't panned out. I think it's become clear that stable coins are a better vehicle for peer-to-peer on-chain payments. And so what's become clear is like the way that people interact with Bitcoin, or at least most people, is not really on the chain itself, right? They're going to a centralized exchange, buying their Bitcoin. They're doing it through an ETF. Maybe in some cases they're using wrapped Bitcoin because they want to access DeFi. They're doing that on Ethereum. And so there's not a lot of touch points on the chain. And I think that's what this chart is reflecting here.
Ryan Sean Adams:
[18:54] Is that okay? I mean, is that bullish to you? Is that bearish? I guess maybe I look at this chart and I think, okay, that's not great for censorship resistance, self-custody, transaction fees in the Bitcoin network in the future. Yeah. That said, this chart also does show if you map this to kind of like, and yet Bitcoin price from 2017 up to now is like just up and to the right. So this does show a concentration on the store value gold type use case off chain. And that's been so strong. So it almost seems to indicate that the Bitcoin network is an app chain for one use case, which is digital store of wealth. And that use case has been so successful off-chain that maybe these numbers don't matter as much. But that said, if you had all of the supply off-chain and no one was kind of using the network, then, I don't know, that starts to present this paradox of like, well, then why do we have a network in the first place? And is the foundation being weakened by these anemic numbers on-chain? Or do you think this is just a representative of the concentration on the use case of store of value off-chain?
Michael Nadeau:
[20:18] You know, I think from my perspective, I would like to see this, you know, the chain being used for more. Like even if it's just innovation and there's people like people, what people were doing with inscriptions and NFT. Like I like to see innovation. I like to see the chain being used. I like to see people building. I like to see transactions. So I would like to see that, you know, sort of moving up into the right a little bit more. But to me, like it just it tells me that that's that's just not what's happening. What is happening is what you're saying is this is a savings technology and actually most people are interacting with it off chain I think I think, Really, the takeaway is that just even with all of these decentralized systems, decentralized networks and crypto, there are like these very strong forces that sort of centralize the access points and stuff. If you want to make these assets and these use cases available broadly to people, you kind of need to make it easy for them to interact with it. And most people, you know, are not going to go set up a wallet and go through all the steps to buy the Bitcoin in custody of themselves. And so this is, to me, just a natural like market force on centralization. But the most important thing is that the actual Bitcoin network still has all the most important properties around decentralization and censorship resistance and scarcity and all those things. So that's still sitting there. But people are just interacting with it in a way where they're not actually maybe utilizing those properties as much.
Ryan Sean Adams:
[21:46] That's right. It does seem to be very low velocity, but this is a number on chain that is actually impressive, which is number of addresses with the non-zero balance. And this number, of course, this is a cumulative number, so you'd expect it to just go up, I suppose, but it is up.
Michael Nadeau:
[22:01] Yeah, yeah, yeah. This is, you know, it's going up, you know, like you said, it's cumulative, so it's not giving us the year-over-year change. It did grow about 6% last year, It's up about 57% over the last five years or so. And there's about 55 million of these non-zero Bitcoin wallets. Hard to say if that is actually more than the amount of people that actually own Bitcoin via ETFs and exchanges. I think it's actually more on the centralized side. But it just gives you an idea of we want to see over time the holder base of Bitcoin in smaller quantities continue to grow. and then the holder base of the sort of whales,
Michael Nadeau:
[22:43] start to come down. And that's essentially what we've been seeing over a long period of time.
Ryan Sean Adams:
[22:49] The most impressive numbers here are probably around institutional adoption though, which again is that digital gold use case. So can you talk about ETFs and can you talk about the digital assets, the strategies of the world?
Michael Nadeau:
[23:02] Yeah, this is, you know, I think this was like basically the last cycle and we just like made this huge leap here by getting financialized, by bringing these products in and them being wildly successful. So, you know, the Bitcoin ETFs currently hold about 6% of the total supply.
Ryan Sean Adams:
[23:22] That's up from zero, I guess. What? Like, you know, there's nothing.
Michael Nadeau:
[23:26] There's nothing. Early 24. Yeah, a couple of years. And what's really impressive here is this is an extremely volatile asset. You've sort of just given access to mostly people. I'm assuming these are mostly people that were buying Bitcoin for the first time through the ETF. And so you've given access to basically a lot of people that are not used to the amount of volatility that comes to Bitcoin And we're down about, you know, 45, 50% or so. And only about 9.4% of the ETF holdings have actually been redeemed. So that's a really positive sign to me. And it kind of just, you know, I didn't really have a thesis for like the ETFs. I thought they would do well and they would be broadly adopted, but you kind of wonder if hedge funds are just going to kind of use it to do the basis trades and just basically use Bitcoin to make some money. But it seems like the holder base is kind of a little more diamond-handed maybe than we thought. And that's a really good sign. And like the last thing here is that, you know, I still think it's not fully like appreciated that these ETF products were the most successful products. Financial ETF products in history. They're the first, first to ever, first, fastest to a hundred billion in AUM. Like that still is underreported, I think.
Ryan Sean Adams:
[24:54] It's incredible. It's incredible. Also Bitcoin held by treasury firms.
Ryan Sean Adams:
[24:58] So you've got the Michael Saylors of the world who are pretty diamond handed as well. Do you see that as a positive catalyst or are you worried about some sort of unwind in the future here?
Michael Nadeau:
[25:08] Yeah, this is like, it's one of those things like when, you know, you see Michael Saylor out there buying lots of Bitcoin and, you know, people trying to front run him and like, it's generally a good thing. And it's putting confidence into the market to see, you know, somebody that's got that much skid in the game. So I think generally it's positive. I think if he keeps going up and he keeps getting to like, you know, five, six, seven, up towards 10%, I think it does actually start to become a little bit concerning just how much Bitcoin they own. But in this section, mostly what I'm looking at here, MicroStrategy is the largest treasury company. They've got like almost 3.5% of the supply. And really what I'm looking at here, I mean, I think it's reasonable for people to be a little concerned with the fact that they have 3.5% of the supply. Their cost basis is at 75K or so.
Michael Nadeau:
[26:02] And they have a net leverage position of 12%. And so I think it's reasonable to sort of look at that and say, okay, well, what is the risk, you know, here if we end up in a really nasty bear market, that microstrategy, you know, really gets caught off sides and has to liquidate, you know, their Bitcoin holdings. I think this risk is pretty low. And I tried to kind of lay out just how I think we should think of this. I think the main thing is that, you know, MicroStrategy is not borrowing on margin to acquire Bitcoin. So there's no like specific, you know, liquidation price or anything that comes with, you know, their holdings. They're using mostly long dated, unsecured convertible notes to make these purchases. And so really, I think the way to think about this is just the sort of equity value that they have on their balance sheet relative to the amount of debt that needs to get paid back. And it only becomes like a balance sheet issue because they have about 8.3X debt to equity on that. It becomes like an issue if Bitcoin trades down to like, yeah, $8,000 or so, which is a big, big fall. With that said, I expect, you know, most people in crypto Twitter won't go into all this nuance and you'll just start to see the FUD spreading if we start to hit like 50K or so. And like, I could see that being like, like an extreme bottom signal to me where everyone's freaking out.
Ryan Sean Adams:
[27:28] Sure. And the FUD would be like, oh, Michael Saylor's underwater, $30 billion or something. And that will be true. But that doesn't mean he's getting liquidated.
Michael Nadeau:
[27:34] Right, exactly. And there's really not much risk of him getting liquidated until things would get way worse. So I'm sort of looking for that. If we do have like another correction or so, and we start to go into the fifties, I'm looking for that as like a bottom indicator, to be honest.
Ryan Sean Adams:
[27:50] This is one of those things as well, that this is not a problem at all, just like security budget. So long as Bitcoin price doubles by, you know, 2028, right? Michael sailor will be looking like a genius yet again.
Ryan Sean Adams:
[28:03] All right, let's do some comparisons here because this is important. If the main feature of Bitcoin is price, really, it's a store of value asset, we have to look at price relative to other large store of value asset classes. The place where America keeps its 401ks essentially is US stocks. So Bitcoin versus the NASDAQ, and then let's do Bitcoin versus another store of value, which is gold. How are we performing over time against these metrics? Is the foundation strong?
Michael Nadeau:
[28:39] The foundation is strong to me. I mean, obviously these charts are volatile. So you got to time with crypto and Bitcoin. You have to be cognizant of just timing when you enter the market. But to me, what I'm really looking for here is just, I want to see higher highs and higher lows. And, you know, it looks like maybe on this Bitcoin NASDAQ chart, that maybe we are starting to hit the bottom here. So we had an 83% decline in the ratio in the first bear market. And then we went down 67% from the peak in the last cycle. That's about 80%. So the drop was about 80% of the drop of the prior drop. And now we're right at about 80% of the 2022 drop right now. So it's pretty symmetrical. We'll see where this goes. But the main thing here is I just want to see higher highs, higher lows. The story needs to be that Bitcoin outperforms Nasdaq. Like that's just, that's really important for investors to just see that and see that history. There's lots of tech investors out there. And if Bitcoin can capture, you know, what, you know, five to 10% of that sleeve of a portfolio, like that's a really, that's a really good sign.
Ryan Sean Adams:
[29:49] So it is so far. The foundation is strong and this is what you'd expect to see. Is it, how about with gold?
Michael Nadeau:
[29:55] So same idea here with gold um what's interesting on this one you know it looks like maybe we're bottoming again uh tbd actually bitcoin has uh sort of outperformed gold a little bit here over the last last few weeks um similar here in terms of the symmetry of the declines in each cycle so it looks like maybe we're starting to establish a bottom, And this chart is not as impressive as the NASDAQ one, and partly because gold has been so strong over the last few years. I think the takeaway here is that Bitcoin still, you know, it squeaked it out. It wasn't like a far and away new cycle high, but it did establish a new high against gold in this cycle, even with gold performing well. And it looks like we're going to establish a higher low as well. And that's the key thing here is just higher highs, higher lows, and basically building more and more history for investors to compare these assets and then see that Bitcoin is outperforming.
Ryan Sean Adams:
[30:52] So strong foundation on both counts, of course. Bitcoin needs to continue to improve. Let's talk about another risk that we haven't talked about, which is kind of in the air, which is the risk of Q-Day, which is quantum computers might come about. There are various estimates for when this could happen. as early as 2030, as late as, you know, many decades away, right? So no one really knows. There's kind of a mean prediction of, you know, between the US government at least says between 2030 and 2035, they want to have their systems ready. So that might be a range that we would look at. And the risk here is that quantum computers can crack the elliptic curve cryptography that underlines Bitcoin as well. So this is ECDSA. Ethereum, other networks use the same signature scheme. So it's not just a Bitcoin risk. It's a risk shared across all of these networks. And the big thing is the lost Bitcoin in circulation. So Satoshi has about a million. If you do some estimates, it's one to two million Bitcoin. So that could be about 10% of all Bitcoin supply that is lost and quantum vulnerable. And that could be taken by a quantum attacker at some point in the future if this technology arises. What do you think about that risk?
Michael Nadeau:
[32:12] Yeah. And, you know, I'll preface this to say that I'm not, you know, super technical on this. There's been a lot of work that Nick Carter's done. I would direct people to some of his. He's gone very, very deep on these topics. But, you know, the way I think of this, there's always like major risks to Bitcoin. I mean, there's always going to be at least major perceived risks. And this is part of the reason why there's still upside, right? If everybody just had already determined that Bitcoin won and it's here and it's not going anywhere, I think there would probably not be a ton of upside to it. So the fact that these risks are present creates uncertainty and can create opportunities.
Michael Nadeau:
[32:49] As far as like the quantum thing, I think the big, the risk, the way I think about this risk is like it's known, right? So we know that this is happening. We don't know when quantum, you know, it's possible that quantum comes faster than we expect and hard to predict that. And I think what people are mostly concerned about from like kind of the investment community is just they want to see like a very clear roadmap of sort of an acknowledgement from the core Bitcoin community that, hey, this is how we view this. Like this is our view on this. And then this is what we're going to do about it. And this is our timeline. So we're actually going to create a timeline and we're going to hold ourselves
Michael Nadeau:
[33:29] accountable and the market can hold ourselves accountable to this. That has not happened. And I think that is why there's fund spreading.
Michael Nadeau:
[33:38] And, you know, the problem with this is just the decentralization of Bitcoin, right? I think, you know, a lot of people will point to this and say, well, if Bitcoin is vulnerable, then the entire financial system is vulnerable. And maybe that's true, but the entire financial system is all centralized and it's much easier for them to come up with solutions. They're already doing it and they have those roadmaps and those timelines and they're reporting that to their shareholders and things like that. So the big risk here is just that you're going to have like, basically, the underbelly of Bitcoin is going to be sort of revealed in this process. You know, we've seen this during the block size wars. We've seen this at other times. It's not pretty. But at the end of the day, my view is that, you know, the incentives of sort of all of the parties involved, when you think about all of the capital that's invested, we talked about the billions that are invested into mining. All the capital that's invested in the infrastructure of now Wall Street, which is a fiduciary to their customers. And when you think about all the incentives, all the Bitcoin holders, all the developers, everyone is incentivized to solve for this, right?
Ryan Sean Adams:
[34:45] That's right, right.
Michael Nadeau:
[34:46] That's what I'm anchoring to.
Ryan Sean Adams:
[34:47] Another way to say this is like BlackRock and Coinbase and Binance and maybe the U.S. Government, are they going to let the Bitcoin network fall because you see DSA when they can upgrade something? I mean, probably not, right? Michael Saylor, I mean, he's going to have something to say about it. I agree with you there. I want to give you a thought. So my summary after reading this is, I've been previously a bit more cautious on Bitcoin about the risks. So I've always been bullish, but not as bullish as maybe some because of the security budget issue, because of the lack of on-chain scaling and no DeFi on-chain, because it's quantum on the horizon. Yeah.
Ryan Sean Adams:
[35:27] And yet the strength, those are maybe some of the weaknesses that you see in the Bitcoin network. And yet the strengths of the Bitcoin network have absolutely crushed all of those weaknesses, right? Price keeps going up every cycle. It's performed. It's done what it's supposed to do. This memetic reflexive loop of digital gold store of value asset, it's working. People are actually using it. Institutions are using it to store value. It's got this simple function, which is like a simple store gold, store wealth. It's got one simple narrative. It's a very simple network. People love that. The institutional adoption has been incredible. ETFs, BlackRock's, some small sovereign countries even. I think the final boss here is probably getting central banks to kind of embrace it, like large G20 countries to start to stack this. But if you squint, you can see that, I mean, even under US leadership. So for me, some of the risks, they loom distant in the future. They're almost like, not this cycle risk, not even next cycle risk, but things that might emerge in the 2030s around security budget and quantum.
Ryan Sean Adams:
[36:38] So from my perspective, it's just like, I don't know. It seems like you're making a good case here. And in general, Bitcoin is like a foundational asset, strong foundational asset for this next cycle for all of those reasons, because the risks are too distant in the future. There are a few cycles out. What do you think of that?
Michael Nadeau:
[36:57] Yeah, I think that's probably right. And when we went through this exercise, I was trying to kind of remind myself of like what it was like to be buying Bitcoin in 2022. And, you know, if you just think about all the progress that's been made since the price, the price of Bitcoin is the same as it was, you know, late 21. Right. And, you know, but a lot has, has changed over, over that period. And I just think like, you know, even going back to 2022, like we thought there was a chance that like the, you know, the Democrats were going to like basically kill crypto. I mean, that was only four years ago that that was happening. It wasn't clear if the U.S. government was going to support Bitcoin. You know, we still have a battle, I think, on that front. We got to get this bill through.
Michael Nadeau:
[37:45] You know, all of the FUD that you used to see, I mean, when's the last time you heard someone say that Bitcoin's only for criminals and it's going to, you know, the energy consumption is going to boil the oceans. Like these were all things that were pretty common even, you know, three, four years ago. So I think it's matured to a level where like we just almost don't even hear about those things anymore. We've talked about the hash rate. We talked about some of the other, you know, developments within the network. I'm pretty bullish when I think about that, where it's the same price of five years ago and all of this has transpired. And then you think about how many people own the thing and it's roughly 2% of the global population. So it's not really owned at all. And so I do think the setup here is still extremely, extremely bullish.
Ryan Sean Adams:
[38:31] Yeah, I have to agree with you. And you summarized it. Grown its hash rate by 6x from 2021 when it's at the same price. The most successful ETF product in history, easily maintained its dominance as number one crypto asset. That should not be discounted. Nothing's got close to flipping it. US government considering a strategic reserve, all the ETFs, all the custodians, and keeps reaching new all-time highs, even in an era where AI has been the narrative. So it seems like pretty good risk reward. I guess this is you officially re-underwriting Bitcoin in the TDR portfolio for the thesis then, huh, Mike?
Michael Nadeau:
[39:08] Stamp of approval. We still like the risk reward. When I really kind of look into the future, I just really, I like the Bitcoin brand. I like that it's global. I like this, I don't see, I just think where we have a demographic shift happening. I think as that plays out, that's really good for Bitcoin.
Ryan Sean Adams:
[39:27] We didn't even talk about that, right?
Michael Nadeau:
[39:27] Yeah, that's a big part of the story. So I just, yeah, I have a hard time seeing a future where Bitcoin isn't like a massive global asset and part of sort of what people would hold as potentially a core like macro non-sovereign store value type of asset. And like, I continue to come back to this idea, like if we're going to have fiat currencies, which I believe we will, I don't think you could transition out of a sort of debt-based credit-based system. And if you've anchored to that, like it kind of makes sense. It's like very easy to just look at that and say, okay, we have all these debts, we have to keep printing money and we're going to probably go through another one of these phases pretty soon here. Like, why would you not just as an average person doesn't even have to think that much? Why would you not just put two to three percent in Bitcoin? Like all the time, like just constantly be dollar cost averaging into that when you know the other system is just, so it just makes sense to me. It's always made sense. And now we're just kind of like checking the boxes of like all the things we have to get through. We've kind of got through Wall Street. Let's see if governments start to get more involved and sovereigns. I think that's the next sort of like phase of adoption potentially. And then just slowly kind of phasing out the boomers and kind of the millennials and Gen Z taking over.
Ryan Sean Adams:
[40:44] I mean, the thesis could just be as simple as it's gold for millennials, right? And it's what, you know, what is gold right now is over 30 trillion and Bitcoin is now less than 2 trillion, something like that. I mean, just look at that and think about the allocation. So there you have it, Mike. This has been great. So we got a lot coming up on the DeFi report. What is coming up this Wednesday? So, Mike, you publish free reports on TDR every week. If you are not subscribed to that, go subscribe. Link in the show notes. Get your email in there. What's coming out this Friday?
Michael Nadeau:
[41:15] Yeah, so Friday, on the watch list, we are revisiting Celestia. Ooh, okay. Celestia was one of the hottest projects of the last cycle, or at least early in the cycle. And it really kind of changed people's views, I think, on the sort of how this tech stock is going to be built out and more of a modular framework. They are a data availability solution, but they have really had a period of disillusionment, I would say, over the last couple years. So we're just going to go right through everything. This was a token that we actually held. This is one of the few assets that we didn't make money on last cycle. But we're going to go through all this because what I'm looking for is any sign that this is ETH in 2018 or SOUL in 2022. We've seen these massive comeback stories with assets like this in the past. So that's going to be what we're investigating for Friday's report. And then on Wednesdays, those reports are for the pro members and those are typically... BTC market structure, on-chain data, cycle awareness, and really looking for fat pitches and when we're going to start to allocate.
Ryan Sean Adams:
[42:24] So guys, go subscribe to that. I can't wait to read the Celestia report. I don't know what Mike's going to do with Celestia, whether he's still bullish or he's going to flush that one down the toilet. We'll have to see. Also, we are getting close to 100 five-star reviews on Spotify, actually, Mike. We're in the 80s somewhere. So if listeners are enjoying this, please take a minute and go give us a five-star review, comment, engage, subscribe on YouTube, wherever you consume podcasts. That's how we keep doing these episodes. Got to end with this. Of course, none of this has been financial advice. Mike and I are just investors on the journey alongside you. So until next time, stay curious.