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Bitcoin Explained – How Cryptocurrency ACTUALLY Works

Confused about Bitcoin and Ethereum or other cryptocurrencies in general? Parker Waldron with Skybridge explains what cryptocurrency is, how cryptocurrency works, the positive and negatives or cryptocurrency and how cryptocurrency can be used.

Steve Wolff, Catherine Magaña and Parker Waldron dive deep into the hype behind cryptocurrency and how it came to be such a hot topic.

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Full transcription below:

Steve Wolff:

All right. Welcome everybody to another podcast, and today’s podcast is going to be about cryptocurrency. We’re going to try to demystify what this thing is really about. It goes up by leaps and bounds. It goes down by leaps and bounds. lot of the people who we talk to have no idea what cryptocurrency is. So, we have an expert on today and I’m with my partner, by the way, Catherine Magaña.

Steve Wolff:

Hi, everybody.

Steve Wolff:

Who’s Certified Financial Planner and best partner on the planet. And we now have an expert on, Parker Waldron, who is from SkyBridge RIA, and they have created an ETF that moves around the crypto world. So, I’m hoping, Parker that you can tell us first, a little bit about yourself, maybe about your company, and then we’ll get into what crypto’s all about.

Parker Waldron:

Absolutely. That sounds like a good start. I appreciate the time Steve and Catherine and everyone joining today. My name is Parker Waldron. I’m a partner with SkyBridge Capital. We are a $7 billion alternative asset management firm based at a New York City. Historically, have always thought of ourselves as cross asset allocators where we’ve found a focal point in the alternative asset space, but by definition, if there’s a unique new idea, a unique new opportunity in the investment world, we’re going to do a lot of our homework and a lot of diligence. If it makes sense to us, we’re going to put our resources and our capital behind that and try and create a commercial user-friendly platform for our investors to gain access to that asset. So, to Steve’s point, we have over the last two years now started to build out that footprint quite wide. Today, of our $7 billion, we’re pushing about a billion in assets in the crypto space. The majority of that is in the Bitcoin space. But we certainly look at everything and anything in that sector.

Steve Wolff:

Great. That’s just a little bigger than my checking account. That 1 billion, I think you mentioned.

Parker Waldron:

You and me, both.

Steve Wolff:

Yeah. It’s about a billion more than what I have anyway. So, what we’re trying to do is make this simple for people who really don’t understand cryptocurrency. If you could do kind of a crypto one on one type thing for people and explain what Bitcoin and Ethereum and all that, tell us what it’s about so that we understand it?

Parker Waldron:

Absolutely, absolutely. So, I think this is… Any news station, any paper, any article you read, there are people talking about cryptocurrencies and there are new name coming out every single day, and it becomes overwhelming and confusing. I think just to very quickly start off, we need to take a step back and look at what is money as an asset and how money is actually a technology at its very core. Humor me for a minute and take a step all the way back to the earliest of civilization, right? The way that you and I would transact with one another was through the barter system, right? So, if I were taking you and Catherine out to dinner, I would pay for that steak dinner, and I would barter-

Steve Wolff:

Is that an invitation, by the way?

Steve Wolff:

I know, right?

Parker Waldron:

… Yeah, it’s an open invitation, I will be out your way in the next month. So, hopefully if this goes well, you’ll let me repay you for the opportunity, but I would pay for that.

Steve Wolff:

That sounds pretty good.

Parker Waldron:

Yeah. I’m always a fan. We would pay for that dinner using the barter system. Naturally, we realized as a society that that is an inefficient way to transact with one another. We evolved and we moved on to what we thought was the next most efficient way, whether that was seashells, beads, gold coins, printed paper dollar bills with dead presidents printed on them. We’ve now moved to electronic money. So, cryptocurrencies are the next stage of this evolution where we are trying to create a more efficient and a more kind of user friendly way in how we transact with one another.

Parker Waldron:

Bitcoin, which is the largest cryptocurrency today, it is also the oldest that was created really back in 2009. Bitcoin is a borderless, permission less, direct peer-to-peer network. It’s the first of its kind… The reason it’s so special is because it’s the first of its kind that allows a direct peer-to-peer payment without a middleman, without a third party intermediary confirming or approving or taking a fee on that transaction. To use a live example, if you were buying a stock for a client, on average, there’s anywhere from five to seven stops before that transaction is complete. Each one of those stops is associated with a fee, an inefficient layer. Bitcoin and the blockchain technology is a way to de layer peer-to-peer transactions, day-to-day transactions to create a more efficient way for us to transact with one another.

Steve Wolff:

Well, it’s interesting you say that because I just saw a couple days ago with MasterCard partnering with cryptocurrencies. So, here we are talking about maybe not having a middleman, but then it seems like they’re really trying to get more involved, but that might be a whole nother story.

Parker Waldron:

No, it’s something that we’ve… I don’t want to pivot quite to the product space yet, but no, that’s exactly that the concept behind a lot of what we’re doing is where when you think of… Let’s just focus on Bitcoin for a minute. Bitcoin has a market cap of $2 trillion at this point, gold has a market cap of $10 trillion. Bitcoin’s the fastest asset or network to reach that type of scale. Naturally, if you are a traditional bank, if you are a traditional finance institution, you have to take notice at that type of size and that type of user-base globally. Right now around the world, there are estimated 180 million people who use Bitcoin today, 45 million-plus in the US alone.

Parker Waldron:

If you’re Visa, if you’re MasterCard, if you’re Square, if you’re PayPal, it is incredibly difficult for you to see that type of growth as a network, and as a customer base and not realize that it is the next stage where you have to evolve, grow your business line in order to compete, not only with that network, but with one another. You mentioned MasterCard, Visa rolling out a credit card whereas opposed to swiping your Visa credit card for that steak dinner, that the three of us will be on and I get Marriott or Delta points, I’ll swipe my credit card and I’ll get Bitcoin as a reward. That’s just one clumsy example of how Visa, a blue chip financial almost kind of FinTech name is now evolving to adopt this evolution of crypto.

Steve Wolff:

You said that there’s about 180 million people who are using cryptocurrency. My question is what are they actually using it for? Who’s taking cryptocurrency?

Parker Waldron:

This is where we’ll have to differentiate a little bit between the coins. When you look at cryptocurrencies to date, there are over 6,000 different types of cryptocurrencies today. That is… I would very strongly stand behind, that’s too many. It’s a distraction. You’re seeing cryptocurrencies not making any investment advice, but like Dogecoin, which is a very popular name that’s kind of come up alongside the meme stock phase earlier this year. The creators of Dogecoin said they created it as a joke and that’s not to scare people off, but unfortunately, if you take what crypto is today and compare it to that of the growth of the internet in the late nineties, early 2000s, every company at that point in time was trying to adapt their name, change their business line, to hitch their wagon onto the dot-com boom.

Parker Waldron:

And that’s what you’re seeing with cryptocurrencies today. People are seeing the growth of cryptocurrencies and they’re trying to create the new big cryptocurrency. Unfortunately, it creates a distraction. Our prediction, 10, 15, 20 years down the road, that 6,000 coin plus today is going to be a lot smaller and maybe you’re left with 5% or less of the top coins today. SkyBridge as an institutional investor, we have invested in three different coins today, but we’ve put our most of our work towards Bitcoin because it is the largest from an investment thesis, we do see the most of value in some of its defining characteristics, which we can go into, but how we’re viewing Bitcoin is really, A, as a very attractive adoption story and B, as an institutional safe haven for currency debasement. We can kind of go into some of the characteristics if you like on how that plays out for us, but it’s not today being used as a peer-to-peer transaction just yet, because it is still in the earlier stages of its kind of evolution.

Steve Wolff:

But you think that’s what’s going to happen?

Parker Waldron:

You are seeing it. Yeah. So, you can look at real life examples around the world. El Salvador, not the most dominant economy today, but an economy of roughly six and a half million people. El Salvador is a dollarized nation. They’re a nation that pegged their currency to the US dollar. They’ve now adopted Bitcoin, the first nation to adopt Bitcoin as legal tender as a way for them to detach themselves from what our government is doing to their essential currency. In El Salvador, every single citizen, if they want were given a crypto wallet and in that wallet, they were given a small amount of Bitcoin, and they can use that Bitcoin to transact on day-to-day services or as a way to store their family’s life savings and not be subject to further currency debasement like they’ve experienced forever.

Parker Waldron:

So yes, there are real life examples of that being done today. There are some companies, Tesla being a notable one who are accepting Bitcoin as payment. There’s kind of this famous story of when Bitcoin was first created, someone spending five Bitcoin on two pies of pizza because Bitcoin was worth nothing at that point. When we look at Bitcoin today, it is a cryptocurrency, we try and divide the currency from that aspect of it, because it is still an evolving asset. It is still very volatile. Because it has a fixed supply of 21 million… Which is a point we should definitely kind of discuss a little bit as well. If I’m using… Going back to this infamous steak dinner that hopefully we can now achieve at some point, if I’m using cryptocurrency or if I’m Bitcoin to buy that dinner today, one of us, either myself or that steak restaurant are going to leave in five years with the short end of that steak, because Bitcoin is so volatile.

Parker Waldron:

It’s hard for us to understand that a $100 steak dinner, paying one Bitcoin for that could make very little sense down the road because Bitcoin could go to $200,000 or you could have the left tail outcome. We don’t agree that that’s the case, but it could be. So, it doesn’t make sense as a currency yet, it’s more as a store of value network effect kind of adoption story for us right now.

Catherine Magaña, CFP®:

So, what do you think the number one misconception is or myth about investing in Bitcoin in some of these cryptocurrencies?

Parker Waldron:

The number one hurdle or number one kind of misconception that we see is that cryptocurrencies are tied to nefarious activities, that it is used for drug trafficking, weapons, smuggling. You saw it in real life here in the US with the kind of the oil hostage. When you think of the actual numbers… And there’s a really good book that I can send you guys after this, it’s estimated that less than 1% of those type of activities are actually done through Bitcoin and done through the blockchain where it’s estimated that over 10% is done in Fiat currency globally.

Parker Waldron:

The reason for that is when you look at the blockchain technology. Not to jump around, but the blockchain is a ledger, think of it as like a blueprint that tracks and stores every transaction of Bitcoin around the world. Every single day, if you were to buy Bitcoin today, your transaction would be imprinted onto the blockchain, and it could be visible by anyone for as long as time goes. So, yes, you can. It’s a borderless, permissionless way to transact from another, but when those nefarious groups are using Bitcoin, it creates a very, very easy way to see where the Bitcoin is moving or who is buying or selling that Bitcoin transaction. So, it makes it very easy for them to actually trace where it’s going.

Steve Wolff:

This sounds like a government dream, especially like a Chinese Communist government, or perhaps our own, who knows?

Parker Waldron:

We can get into regulation, because I think it’s an important piece, but yeah. So, I think the number one hurdle for investors is that its signs and nefarious activities, but it’s a bearish case view that unfortunately, just doesn’t hold much ground. Steve, you brought up regulation. I think regulation for anyone considering a cryptocurrency investment, it needs to be triple underlined and starred from a consideration of a risk standpoint. Any new asset has to be understood that there is a regulation adoption phase and whether it’s the US or China or anywhere around the world, regulators need time to get up that level of understanding and education. You saw it with Facebook, Mark Zuckerberg was in front of Congress not too long ago as they were trying to wrap their heads around what the Facebook network was and how they’re using that technology. Cryptocurrencies are going through that exact same thing right now. We would encourage more regulation for what it’s worth.

Parker Waldron:

The more regulation you get, the more that nefarious activities storyline gets in the rear view mirror, and the brighter spotlight you can point on cryptocurrencies in Bitcoin from a regulation standpoint, the more institutional adoption you’re going to see. When you had the likes of Gary Gensler, SEC chair or Jerome Powell, two weeks ago coming out saying, “We are not going to ban Bitcoin. We understand it’s here to stay.” That is from an outlook perspective as good of a move forward as we could see from our seat.

Catherine Magaña, CFP®:

It’s interesting. You talk about regulation, and when I look at this, I think of, there’s the investing aspect of this, then there’s a transactions are using buying goods. Then I know we’re not covering on this topic, but we had a podcast that we talked about taxation, because that’s definitely something we’re recording and making sure that you understand the implications of some of this, because it’s not just, “Hey, I’m going to go buy something.” Now, you have to also factor in the tax part of it. There’s a lot more moving parts. I think that people don’t realize, but definitely something I can see more regulation down the line.

Steve Wolff:

Yeah. You talk about Bitcoin and part of what’s hard to understand is what is mining? How do you get Bitcoin, it’s not like you take your pick and shovel and go out and get some gold somewhere. So, explain a little bit about what mining of these cryptocurrencies are all about?

Parker Waldron:

Correct. Okay. To keep it more kind of clean and black and white, that mining is done differently depending on which cryptocurrency you’re dealing with. But to your point, you are not going out to a mining field with your pick and your shovel and mining actual Bitcoin, as cool as that would be, they don’t exist in physical presence. Everything in cryptocurrency world, including Bitcoin is digital. Miners are all around the world. There are a handful of US miners, publicly traded companies that are Bitcoin mining companies. What these groups are doing, they are very large built out computer systems, not the computer that the three of us are using today, but a computer probably the size of maybe two of our offices in New York, and so they’re very complex, very big computers.

Parker Waldron:

These computers are what are approving those transactions. So, we went back to earlier, Steve, if you were buying Bitcoin today, before you could actually make that purchase and that Bitcoin could go from the open market or from Catherine to your ownership, there are miners. The way that they are approving these transactions is they’re essentially solving complex equations. That requires a lot of computing power and these supercomputers to do. When they complete and solve those transactions correctly, they are basically confirming that transaction that X amount of Bitcoin went from Catherine to Steve, it’s now in Steve’s ownership. They are adding that transaction to the blockchain or to that blueprint of all transactions. And they’re rewarded with Bitcoin, they’re rewarded with segments of Bitcoin themselves. The process is that’s how mining and that’s how Bitcoin goes into the open market.

Parker Waldron:

Those mining companies are then actually keeping that Bitcoin on their balance sheet as a revenue generator, or they’re selling it into the open market, and that’s where the circulation, if you go into Coinbase or Genesis or any crypto exchange, you’re buying that crypto from the open market, and that’s the origination of that Bitcoin. It’s starting at the mining process. Miners are approving transactions on the blockchain, they’re rewarded in Bitcoin, and then that Bitcoin is being to the open market. The way that this is drawn out… If we’d like, I can kind of go into a little bit of the thesis behind us for Bitcoin and where we’ve seen the value add from an investment standpoint. But one of the most important characteristics of Bitcoin is this idea of a fixed supply. There are only 21 million Bitcoin that will ever be in existence.

Parker Waldron:

When you think back to the origination of Bitcoin, it was created coming out of the GFC in 2008. When you understand kind of what’s going through our economy today, currencies around the world including the US are being debased. When you debase a currency, you essentially debase the country. When we look at the US in particular, we believe we’ve lost roughly 80% of its purchasing power over the last 50 years. 1971, not to go a history lesson here, but we remember Nixon removed the US dollar from the gold standard and right there and then, there’s no longer anything backing the US dollar. That single activity enabled the printing presses. Those printing presses accelerated tremendously out of the GFC, have only picked up further after the pandemic of last year. There was more money printed in June of last year than there was in the first 200 years of this country’s existence, right?

Parker Waldron:

There are 38% more dollars in existence today than there were in June of last year. A concept that I’m sure many folks on this call and you two speak about every day, just the concept of the M2 money supply, it’s up over 30% year-over-year. Right out of the gate, we need something that is going to combat that debase in currency. Traditionally investors have sought after hard assets like real estate or gold or other commodities that have more fixed supplies to hedge against that currency debasement story. Bitcoin has emerged as an institutional safe haven for investors looking for that debasement hedge. Considering there’s only 21 million, there is no central body, there is no federal government that can create more Bitcoin and devalue or decrease the amount you own today in your wallet. From a macro backdrop has been one of the leading drivers for why Bitcoin has emerged as this safe haven, this store of value kind of gold 2.0, if you will, asset for generational wealth and generational transfer.

Parker Waldron:

The second piece of that is that adoption story, and that’s where Bitcoin is a network. Its value is tied to the amount of people who are owning it globally and who are using it transactionally. We like it a lot… I mentioned this earlier, Bitcoin to the internet. The biggest difference between the two is that by a networks perspective, Bitcoin has grown far faster than the internet ever grew in the late nineties, early 2000s. If you think about the number of people I mentioned today, 180 people around the world who own Bitcoin, that number has grown by over a million per week. It’s not just on the retail side, it’s finally shifting through to the institutional side. The second thesis, macro backdrop being the first, the second thesis for us at SkyBridge is really this adoption, this network story.

Parker Waldron:

If you look at the institutional backdrop today, right now, there are 40,000 public companies around the world. To our knowledge today, 32 of those companies own Bitcoin on their balance sheet. We have to kind of pose the question to ourselves is, do we think that that number is going up? Or do we think that that number is going down in terms of public companies owning Bitcoin on the balance sheet? We believe it will go up, but it doesn’t stop at the public company front. Some of the largest college endowments in the US, Harvard, Brown, Yale, Michigan, Stanford, all publicly own Bitcoin in their portfolios.

Parker Waldron:

Some of the most conservative institutional investors in the world, historically being insurance companies, New York Life, MassMutual, Axa Insurance, all publicly have adopted Bitcoin from their portfolio allocation standpoint. It’s the same question, because of that fixed supply of 21 million, do we think that that number is going to go up or down? We believe it will continue to go up. You’ll see more countries like El Salvador adopt Bitcoin. Because of that, very, very core aspect that supply is impervious to demand with Bitcoin as an asset, that growing network is where we see really a ton of interest from a near term opportunity state.

Steve Wolff:

Okay.

Catherine Magaña, CFP®:

So, do you mind just talking a little bit… You mention Bitcoin mining, can you just elaborate a little bit on the kind of the ESG community about mining, if you have any comments and ESG is environmental, social and governance, so our listeners know.

Parker Waldron:

Yeah. Absolutely. This is something that is critically important has gotten a ton of press and focus for all the right reasons. If you think back to Bitcoin’s last biggest drawdown, which was in may of this year, this was one of the driving factors to this for a number of reasons. Our friend, Elon Musk who is very much personally and professionally adopted Bitcoin between SpaceX, Tesla and personally, he is well allocated to Bitcoin, but given that he’s running a renewable energy company, there was a big focus on how Bitcoin going back to the mining process requiring these super computers which burn a lot of energy. It’s not as enviro-friendly as we would like today. He publicly came out saying that, “Bitcoin needs to become 50% renewable energy before I can allow people to buy Teslas with it, before I can continue to promote it.”

Parker Waldron:

A lot of that was true, but a lot of that was kind of an evolving process, just like any new asset. Bitcoin is working through that process of becoming more efficient in terms of how they mine and how they are created. You’ve seen that transact over the last call it four or five months, and it’s hard to become much cleaner than it was previously. One of the biggest things that happened to get us on that path was the country of China banning Bitcoin mining. This is not a derogatory statement, but by definition, China had some of the dirtiest miners around the world. Meaning they predominantly used coal energy to run their mining farms, which as we all know, coal is some of the worst producing energy to use in that sense. By China drawing the line in the sand and immediately shutting down mining for their country. Overnight, the global mining footprint from a ESG perspective was cleaned up tremendously.

Steve Wolff:

Just so people understand, when you’re talking about they’re using coal and all that, you’re talking about the power that powers the computers that actually are mining things?

Parker Waldron:

Exactly. Correct.

Steve Wolff:

Okay.

Parker Waldron:

Exactly correct. They are using coal to produce the energy to run as opposed to other renewable sources like wind, water, et cetera, solar. Where fast forward to today, over 50% of mining for Bitcoin is done by renewable. You have companies in the US, in Canada, parts of Europe that are well over 90% renewable usage for mining today, some of the biggest miners in the world. Talking about, again, our friend Elon Musk, he actually co-created the Bitcoin mining committee. Which is a committee consisting of him, Michael Saylor, who was one of the largest institutional investors in Bitcoin today, and five or six US mining companies, and their mission was very concisely to expedite this mining process to create a more clean energy and environmentally friendly process. That is a very big story and a very big narrative for Bitcoin, and it already has become much better.

Parker Waldron:

Just quickly, you mentioned the ESG aspect of it. The environmental side is improving vastly and has, since that May sell-off period. The S, I think for a lot of investors is equally as important, the social side of this and what Bitcoin is creating to do. Very live example for anyone watching this, or for Steve and Catherine, whenever you have downtime after work or whatnot, Google, “Twitter Strike Jack Maller”. It discusses what Jack Maller Strike is doing in partnership with Twitter, and it is quite impressive and quite, I think important on that social aspect. Right now, if you are an El Salvadorian person who has immigrated to the US or to the UK or wherever country you want to say, and is sending money from your paycheck back to your family in El Salvador. The most commonly used way as we commonly use here is through Western Union.

Parker Waldron:

They are going to the Western Union, they’re transferring their money to El Salvador back to their family so that their family can use that money for them back in El Salvador. Western Union, that process ranges from 7% to 30% in actual fees, or what they’re taking from that paycheck. That process alone is already going back to the efficiency of how we transact, how we send money, how we do business with one another is already incredibly… We would say unbalanced from that perspective. What Twitter and Strike are doing, if you download Twitter and you have an account, you can DM your family member in El Salvador using Twitter and Strike, and-

Steve Wolff:

DM, meaning what?

Parker Waldron:

… Direct message.

Steve Wolff:

Thank you.

Parker Waldron:

I apologize. You can send a direct message via Twitter. And you can take your USD if you’re working in California or New York, wherever in the US, you can take your USD. Twitter and Strike convert it into Bitcoin, send it across the blockchain network, it lands in El Salvador at your family’s account, who also has Twitter downloaded. They then have the choice to either maintain that exchange in Bitcoin, because keep in mind, El Salvador has adopted Bitcoin as legal tender, or they can convert it back to USD. But it takes a fraction of the time, and it costs them $0 to make that transaction from that family member outside of El Salvador to in El Salvador. A very early stages here, but that is I think a very real example. It is very interesting to take a look when you have time of how Bitcoin and how cryptocurrencies are enhancing the lives from a social perspective, people around the world.

Steve Wolff:

It’s interesting, you said zero cost, but do you think pricing’s going to change if this gets adapted more? And I just… Yeah, at some point, I just-

Parker Waldron:

Of course.

Steve Wolff:

… brings to get people involved, but down the line, there’s always ways that businesses make money, and so.

Parker Waldron:

Of course. I think any realistic investor would understand that possibly down the road, there will be some fees associated with that. Ideally, not 30%, because that’s what they’re trying to accomplish from removing, but yeah, of course, down the road, possibly, always new fees.

Steve Wolff:

I’d like to go back to something you said earlier, because I always have an issue with this. When people say that the cryptocurrencies are a store of value. With cryptocurrencies price movement being so volatile, how does it make it a store of value?

Parker Waldron:

Yeah. That’s a very good point. I’m happy you called me out on that in terms of a potential allocation solution, because it is a good point and it is something people should be aware of. When I say a store of value, I reference it really as it’s not a currency that’s going to be transacted day-to-day, but it is a asset that you can hold in a portfolio that cannot be debased by a federal government. It’s more easily transferable, more divisible, more fungible, more secure than gold. There are plenty of arguments to be made that this is again a gold 2.0. It far surpasses gold as a store of value asset. Now, when we think of the volatility, you are absolutely correct, Steve. In that we are in the earlier stages here. Bitcoin is still very much in its infancy.

Parker Waldron:

Just like any asset that is an emerging asset, which is how we would characterize Bitcoin today, not down the road, but today, it is going to be a more volatile to asset, but that’s… To be fair, that’s not to say that that’s not the case for any other stock or any other asset out there. If you were to look at Amazon, for example, if you bought Amazon at its IPO, I think it was like $10,000 on its IPO if I believe, and if I’m wrong, please correct me. But if you held it at that point to where it is today, that $10,000 would now be worth $21 million. I think anyone on this call would agree that if they could buy Amazon back then, they certainly would. But during that period from IPO to where it is now, you would have been subjected to eight periods of substantial volatility where that stock dropped by over 50%, eight different times.

Parker Waldron:

One of those drops being as much as 90% from the value of that stock. It is an emerging asset just like Amazon was, as the user base continues to grow and you see more adopters globally, naturally, that volatility should level out as you get more retail users, more smaller users around the world. That store of value narrative should hold more value right now, to your point, absolutely too volatile, but more conceptually down the road as a replacement or a substitute to gold. That is the store value kind of definition that we’re referring to.

Steve Wolff:

The real reason, it sounds like to own the cryptocurrencies and maybe Bitcoin, maybe Ethereum, I don’t know, is that someday down the road, everybody’s going to be using this instead of perhaps Fiat currency. Is that what you’re saying?

Parker Waldron:

We don’t think Fiat currencies are going away.

Steve Wolff:

That’s good because those dead presidents that you talked about. If you have a lot of extras of those, I’ll be more than happy to take them.

Parker Waldron:

I’m sure you will. I’m sure many people will. I slowly don’t want that to be the takeaway from the conversation, but no. By the way, we… Talking about the very beginning of the conversation, the evolution of money. You’re seeing it happen in China now, the digital Yuan. That’s why they’re banning Bitcoin. That’s why they’re banning cryptocurrencies. The US dollar is not far behind that. The Pound is not far behind that. The Peso probably not too far behind that. We believe that there will be a digital dollar, a digital Pound, digital Peso, just like they’re trying to create the digital Yuan now, because that is a more efficient way to use it. That doesn’t mean that that and Bitcoin can’t live side by side.

Parker Waldron:

Think of it almost as the US Postal Service and FedEx, right? Working side by side, they have different use cases, they transact with another in different ways, but a digital dollar or a paper dollar, the US government still has the ability to debase that. As opposed to hitting the print and press, they’ll just hit the add button on their computer and make more digital dollars, and they’ll still debase the currency. Bitcoin still has the ability to not be debased. We don’t think that that’s the elimination of Bitcoin or elimination of cryptocurrencies, but we do believe that it is an expansion from a network and from a technology perspective. When we think of how Bitcoin and how these other cryptocurrencies live in a portfolio, it’s important to understand that. We focused a lot today on Bitcoin, and I apologize if I guided the conversation that way, but we do invest in Ethereum.

Parker Waldron:

Ethereum is the second largest cryptocurrency today, very different use case than Bitcoin. That is more of a… Like, there’s more use cases from a technology standpoint. NFTs which are non fungible tokens. That’s a business that’s becoming more and more popular. That’s built on Ethereum’s network. In terms of like transaction speeds, Ethereum has a quicker network than Bitcoin. We like Bitcoin because of the fixed supply and because of the macro backdrop and how that ties into the adoption story. There are other networks that are run differently, other cryptocurrencies that are run differently that have different use cases. From an allocation perspective, we would say it’s important, just like it was for people to understand what the internet growth was and how that changed our day-to-day lives. This is we believe the next stage of finance and you’re seeing banks and financial institutions adopt that as well, understanding that the blockchain network, cryptocurrencies. They’re making day-to-day transactions, stuff that we do every single day more seamless, more quick, cheaper, and that is where that technology’s going to go.

Parker Waldron:

It doesn’t mean it’s going to replace, eliminate a Fiat currency, but it is a technological advancement that’s happening right now, and you’re seeing companies across the world take notice of that and try and improve in that. I think it’s important for people to understand that there are many different cryptocurrencies. A lot of them do have different use cases. We felt most comfortable investing in Bitcoin to start, and we’ve built the largest backing to Bitcoin, but that doesn’t mean that the others don’t have some value. It takes some time to understand it and do your research on where you think the best fit might be.

Steve Wolff:

Okay. So, from a standpoint that we don’t want to get in trouble with the law here, when we’re talking about this stuff, this isn’t necessarily a recommendation, because this particular podcast is going out, not just to our clients, but to the millions of listeners that we have. We want to make sure when we talk about any of this, whether it’s a stock or the Bitcoin, whatever, we’re not necessarily recommending that, you should talk to your financial advisor or whoever.

Parker Waldron:

Absolutely.

Steve Wolff:

Correct. And I was going to elaborate just doing financial plans for our clients and those that are doing plans out there, it just really has to tie into overall with your objectives and what you’re trying to accomplish. Once again, we’re trying to educate you on this investment, but this is definitely not a recommendation.

Steve Wolff:

Right. But having said that, you guys have an ETF that… Well, why don’t you explain a little bit about what your ETF does?

Parker Waldron:

Yeah, yeah, absolutely. I appreciate that, and probably much more appreciate from the compliance standpoint the important disclaimer there as well, halfway through here. We, as I said, we’ve built out a pretty big footprint at SkyBridge and continue to do so. We’ve been fairly vast in how we offer clients exposure to cryptocurrencies and what we’ve found more times than not is that both from a financial advisor, someone in your two seats or an end client, cryptocurrencies and Bitcoin, they are very new. They’re very interesting. There’s a very big fear of missing out component to this. Even with that level of fear of missing out, baked into how much press this adoption is getting. There are still hurdles and the number… I would say the top three hurdles we get are volatility, which we talked about earlier, security, and just how to access it.

Parker Waldron:

If you are a financial advisor, how do you access that cryptocurrency? How do you access Bitcoin? Or if you’re a client, do you want to go to Coinbase and purchase X dollars of Bitcoin on some app on their phone. For a lot of our more traditional investors, there’s a kind of a psychological hurdle to that that they can’t get through where it’s not, it’s very different from how they allocate in the rest of their portfolio. The idea of what we built with this ETF is to try and create a 30 stock concentrated equity portfolio. Fairly concentrated around aggressive growth equity names. The idea is to try and build a side door access, or kind of a stepping stone investment to Bitcoin and to the broader digital asset ecosystem.

Parker Waldron:

30 stocks broken out into four separate categories, it’s infrastructure. These are companies like AMD or Nvidia. These are the leading semiconductor or chip making companies that is required for those mining computers we were talking about. You have the mining bucket, which are some of the largest North American and European mining companies that are mining Bitcoin or Ethereum, et cetera. You have financial services companies. Coinbase, the leading retail, soon to be institutional trading platform for over 60 cryptocurrencies or Square, PayPal, Visa. Again, FinTech predominantly companies that are spending literally billions of dollars at this point growing, evolving their business lines to allow cryptocurrencies into their network and into their customer’s hands. Then the last would be balance sheet plays. These are simply… We talked about those companies, those publicly traded companies that own Bitcoin on their balance sheet. These are companies like MicroStrategy, which is a computer services company run by Michael Saylor out of DC.

Parker Waldron:

It’s about a six and a half billion-dollar company. He owns roughly 40%-ish plus of Bitcoin today on their balance sheet estimated. That’s a very indirect way to get exposure to the asset without having to own the actual coins themselves. You tie it all together, the goal of the mandate is to give clients access to the broader digital asset ecosystem. You’re trying to touch and feel each stage of life, kind of the day-to-day movements of the cryptocurrency adoption we’re seeing today, but with a high correlation to Bitcoin.

Parker Waldron:

Right now, it has a correlation of about 0.78 to the price of actual Bitcoin. Investors like that, we are not getting a one for one core relation, so that volatility aspect is kind of removed. You’re getting a diversified allocation and you’re getting that access through 30 publicly traded companies, as opposed to just owning the coins directly. It trades under the ticker CRPT, fairly creative with the ticker there, crypt. We’ve kind of designed it as a way for those investors wanting to participate in this adoption and growth story. It just creates a little bit easier first step or first kind of toe in the water for those investors.

Steve Wolff:

Now, there is an ETF that just came out, that is a futures ETF, I believe, is that correct for crypto?

Parker Waldron:

Yes. That is correct. Very different. This is the futures ETF, which we are very excited about. Going back to the regulation side of this conversation, that is a ETF that allows you to buy futures contracts for Bitcoin. That is an ETF that you’re actually buying Bitcoin directly. So, you’re buying it directly in an ETF form. That makes it a little bit easier for those investors to buy ETF as opposed to going to a Coinbase or something like that and buying it. It’s not a cash ETF, right? It’s very different than a direct cash ETF as opposed to a futures contract, but this is the first stage where from a regulation standpoint, the SEC was comfortable granting that ETF structure. The cash ETFs, Canada has two, I believe three Bitcoin ETFs.

Parker Waldron:

There are about 12 that are in application process right now in the US. We are one of them, that’s SkyBridge, that has not been granted yet. Best case, best estimate would be maybe late next year, but that’s definitely a moving target. Needless to say, in the meantime, one, to have the SEC and the Fed backup, there are statements made by Gensler and Powell, and actually allow something through is a great step forward to actually have meaning to that statement. But then two, it’s growing that network. So, the first futures ETF, it surpassed 1 trillion in assets last week. It was the fastest ETF to ever hit that mark. Going back to the investor base, that network, if you can offer an easier solution via an ETF, it’s going to grow that retail network quicker than it would be elsewhere. It’s good news across the board. So, yeah, that’s definitely a big catalyst to the move up in Bitcoin, you’ve seen over the last week and a half.

Steve Wolff:

To me, it sounds like it really just validates this whole cryptocurrency thing.

Parker Waldron:

Yeah. I would say it definitely, it becomes a point where it’s very hard to see at this stage of growth and adoption, how you can go the opposite way, and even from a regulation standpoint. Like the US, call it what it is, compared to other countries, we try and be pro-business as much as we can, I would say is a fairly accurate statement. Going back to keep circling back on the internet kind of days, but if we had banned or turned our back on that internet adoption in the US from an economic perspective, we would’ve of closed ourselves out to how many blue chip Fortune 100 company names today.

Parker Waldron:

Same concept, I think applies for the cryptocurrency world today. We don’t want to turn our backs to that, and that was where Powell’s statement saying, “We’re not going to ban Bitcoin.” You can’t have these companies like Visa, PayPal, Square, Facebook, Twitter, just really rolling out their business line to adopt this and not… I think for us, that’s even kind of the bigger realization point, actually, Steve. It’s that like when clients hear that, “Oh, these names that I’ve actually invested in traditionally, they’re actually focusing, so this really is happening. This really is moving forward.” This is at a stage of kind of peak velocity where it’s the beginning stages, but they’re clearly building the foundation here.

Steve Wolff:

Okay. Once again, we want to tell people that we’re not necessarily recommending any individual names or anything else, these are things you should do your homework on, talk to your advisors. I hope compliance loves us for this statement.

Parker Waldron:

I would echo that and yes, please consult your advisors like Steven, Catherine on any consideration for this base.

Steve Wolff:

Okay. So, is there any last thoughts you’d like to leave us with?

Parker Waldron:

No, I think that it’s a space that we’ve certainly grown fond of obviously, and would love to continue to educate as many people as we can on. That’s definitely the number one required piece is just the time and the energy on understanding it. We are doing a… We’re kind of relaunching our weekly Bitcoin review sessions, which we host every single Wednesday at 4:00 PM Eastern. We talk about kind of what’s going on in the cryptocurrency world. If you have any interests, please let us know.

Parker Waldron:

From a book perspective, if anyone likes to read, two books I would recommend. One is the Bullish Case for Bitcoin really goes through kind of the currency side of it and this evolving kind of currency space. The second is Inventing Bitcoin, and that really talks about kind of how it was created, the mining process, both cost around, I would say six bucks on Amazon and they take… I’m a slow reader, and take probably about a couple hours to read. But both very, very educational and helpful books. I would say something probably worth reading if you’re trying to look at getting further educated in the space.

Steve Wolff:

All right. Well, Parker, we really appreciate all your time. Catherine, thank you for your help. And again, it was Parker Waldron with SkyBridge, and he was talking about an ETF that they have. It would be interesting to take a look at that and see what it’s really all about. Hopefully, we’ve explained a few things for people, that maybe they didn’t understand before and now they do. Thanks a lot.

Catherine Magaña, CFP®:

Thanks Parker.

Parker Waldron:

No, thank you very much. Thanks everyone for the time. And please let know how else I can help and hope everyone enjoys the week.

Steve Wolff:

All right. Take care.

Catherine Magaña, CFP®:

Right. Thanks.

Steve Wolff:

Bye-bye

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