WBD286 Audio Transcription
MicroStrategy’s Bitcoin Moonshot with Andy Edstrom
Interview date: Friday 11th December
Note: the following is a transcription of my interview with Andy Edstrom. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
In this interview, I talk to Andy Edstrom, the Head of Institutional Investment at Swan Bitcoin. We discuss MicroStrategy's Bitcoin moonshot, ETFs, mass awareness & adoption and the race for corporations to own Bitcoin.
“This is the one asset in modern history, where average people have had a shot at it before companies and before hedge funds and before billionaires… that window may be ending.”
— Andy Edstrom
Interview Transcription
Peter McCormack: Andy, we finally got this tech shit working; how are you?
Andy Edstrom: I'm great, Peter. Haven't had to spend half an hour troubleshooting before, but we're on and it's awesome to be with you; really looking forward to this.
Peter McCormack: Well, it's long overdue. We were meant to do it a long time ago and we're going to do this again, because I do want to talk about the topic of your book. But, we've got something a little bit more pressing to get into, because Michael Saylor has been doing what Michael Saylor does and turning upside down the world of Bitcoin. And I didn't realise, when that happened, somebody, maybe Preston tweeted it out, like a few people, "This is what Andy said. Andy predicted this. Andy said this was going to happen".
So, I want to go into this, but you know what my show's like; I'm going to want to keep it simple. I want you to explain all the concepts that people don't understand. But, take me back, because you had this idea, you had this concept of something they could do; where did that come from?
Andy Edstrom: Yeah, I mean look, I think it came from personal experience, right? I'm no smarter than anyone else out there, but I started my career on the high yield bond desk at Goldman Sachs. The convertible bond desk, by the way, sat right next to mine, so it was like, whatever, ten of us on the trading desk effectively with offices around, and then the convert guys were nearby.
So, I started in corporate finance and I'm familiar with that market, and the idea popped into my head because everyone was saying, "Oh, this is such an aggressive move. I can't believe he's spending all his balance sheet cash on Bitcoin". And then I was thinking, "Yeah, but the company has no debt, so why not come over the top, issue some debt and buy even more Bitcoin". As it turned out, that's the way it happened.
Now, the example that I tweeted out and that I talked about on the Swan Signal episode with Preston was just a straight-up high yield bond deal. And, the framework, or the idea I just put out there was, what if they borrowed $200 million in the bond market, maybe a 5% interest rate; that would be $10 million of annual interest expense, which they could easily cover because they've got $30-50 million for cash flow. So, as it turned out, they went to the convertible bond market and they did a much larger deal, so I'm happy to go into the details! I mean, I'll turn it back to you for the moment, but yeah, lots to say about that.
Peter McCormack: Okay, so me as somebody who doesn't understand this stuff, I would say, okay, the only flaw in this strategy is if Bitcoin price doesn't go up. If the Bitcoin price halved, they would still owe $200 million, plus their interest, say it was $400 million; so, that's kind of risky. What happens at the end of the period of the bond; they would be due a $200 million debt and they wouldn't be able to pay it?
Andy Edstrom: Yeah. And, let's talk about the structure a little bit, because I think it's useful and interesting. So, standard maturity in the convertible bond market is five years, and that's the deal they did. So, they did a five-year maturity. Now, it's interesting that that's the standard, because that's very convenient, in my opinion, if you're buying Bitcoin. What's interesting about five years --
Peter McCormack: You get through a halving?
Andy Edstrom: Exactly. You get through a halving and, not only that; we're right in the sweet spot of the cycle, having just come through the halving. As you know well, usually that results in a massive bull market in the next 12 to 18 months. So, yeah, he has bought himself a full halving, plus hopefully the bear market, this round and the next round.
So, my original thought was that they would do an even longer maturity, which would be standard if it had been just a standard bond deal, rather than a convertible deal; but, I think the five-year maturity sets them up really nicely, exactly, to capture this bull market and possibly, the next one.
But, to your point about how can this go wrong, yeah of course, if Bitcoin doesn't perform, this is problematic potentially. But remember, one thing about the convertible bond market, and we can get into the structure if you'd like, is because there's an equity component to investors, you get the debt component; the debt is usually more than half of the total value. So, if you think about a convertible bond, a $100 convertible bond is maybe 70% debt and 30% equity effectively, because there is an embedded stock call option.
Peter McCormack: Hold on, we're going to have to go through this, because you're talking about things, like, I know it. Let's go step by step, and I mean real step by step. Okay, so when you say part equity, part debt, explain what's going on there. So, say it was $100 million, just for the sake of this; 70% is debt, so you own $70 million back; and what, $30 million is converted into equity?
Andy Edstrom: Yeah. 30% has the option to convert into equity. So, how it actually works as an investor -- let's say I'm an investor. I'm saying, okay, Michael Saylor wants to raise money. Do I want to write him a cheque or do I not want to write him a cheque? How do I think about the instruments that I get for the cash that I'm giving him?
Well, I get a bond, okay, and it has a maturity and the bond is senior to the stock. So, if it all goes belly up, then the equity gets paid after the debt. So, I have a debt claim; that gets paid first in bankruptcy before the equity, so that's item 1. The equity piece is actually in the form of a call option, and they did a pretty standard strategy, which is the embedded call option is based on a higher stock price, so it only becomes valuable if the stock goes up by at least 37%.
This is common in the convertible bond market. The idea is, if the stock doesn't go up, then you're just going to get your money back. You lend them the money; you got paid your interest along the way; then it matures and you get your money back. It doesn't work out that great, because the interest rate tends to be pretty low on these things.
So, the way things work out well, as an investor in a convertible bond, is if the stock goes up by a lot, then you get some participation in that upside.
Peter McCormack: Right, so you can make the choice to claim that?
Andy Edstrom: Exactly, and that's literally the conversion option. And the way the maths works is, if the stock doesn't go up, then you don't convert and you just get your principal back at the mature of the bond. But, if the stock does go up enough, then you convert into shares and you make more money.
Peter McCormack: But, what if the stock doesn't go up and they can't pay back the loan?
Andy Edstrom: Then you're in a bankruptcy, or at minimum you're at a default situation, right? So, there are two ways that can work, as I think you alluded to. One is, can they even cover the interest expense; in other words, are you making enough income to pay your mortgage, to pay that monthly interest?
Okay. Now, the good news for MicroStrategy about the say they've structured this is, the interest rate is under 1%; it's 0.75%. So, even on the $550 million deal that they did, they announced $400 million, then they upsized to $550 million and there's an option for investors to fund another $100 million. Even at those numbers, you're only talking about a few million bucks annually in interest. The company generates at least $30 million cash flow, so that's easy to cover the interest.
But, you asked the right question which is, "But, what if they can't pay it back in five years when it matures?" Now, I would argue that five years of free cash flow, you know, five times $30 million is at least $150 million, probably more, but that likely won't cover the maturity, because it's hundreds of millions depending on the ultimate size of the deal.
Now, there are some features in the bond. There's a call feature, there's a put feature; these are complications and they're not fully disclosed, but I'll leave it there.
Peter McCormack: So, to me this looks like a moonshot, right? This is, "Okay, put $450 million already in of MicroStrategy money; I've put [whatever it was of his own] $200 million; and then another $50 million. I have absolutely conviction and personal belief". But, we just don't know. Yes, we all believe every halving cycle is like the last one, it will grow, and certainly the indications are great; but, we still don't know.
One of the things that's going to happen over the next probably cycle is the realisation of what this is from the state. Yes, the state already realises; there's a certain growing desire for regulation, we've seen that in the US; we don't think it will be banned; but, let's just hypothetically speaking, let's just, for the sake, let's game this out. Let's just say there are regulatory issues. Let's say there is some big regulatory issue and say the price crashes. Just say, for some reason, the price is $14,000. The only way they can pay off this debt, unless MicroStrategy, as a business, has outperformed, they would have to sell Bitcoin to pay off the debt, right?
Andy Edstrom: Yeah, I think it's fair to say that -- and by the way, it's funny that you say the price crashes to $14,000; that doesn't qualify as a price crash to me!
Peter McCormack: Yeah, I know!
Andy Edstrom: But, if the price of Bitcoin goes down, I would agree that as structured, they're not likely to have generated enough cash flow to pay down the debt. Now, I think this is crucial. It's actually one of the topics that I cover in my book, but I'll try to keep it short.
There's this economist named Hyman Minsky, who was completely unknown until the global financial crisis. He had a framework which talked about debt, and he talked about three categories: hedge debt, speculative debt, Ponzi debt. Hedge debt, by his definition, is the kind of debt that you can pay off just generating cash flow before the maturity of the debt. So, this type of debt doesn't qualify, right; there's not enough cash flow.
The second category of debt assumes that you can refinance later. I would argue that even if Bitcoin underperforms, I'm assuming it doesn't go to zero, but let's say it underperforms, the price goes down, I would argue that MicroStrategy still has the business intelligence software, recurring revenue business that is financeable. This is a real business; it generates cash flow on a recurring basis; it may not be growing much; but, it's still there and it's still a pretty decent business. So, somebody will lend MicroStrategy money when this thing matures, I would argue, on the basis of the cash-generating power of the business itself.
Peter McCormack: Right, okay. So, they would likely get out of that situation. So, the other thing is, when it matures, so say it matures in five years, the way they're possibly going to have to pay off the debt is, unless they've generated a huge amount of cash to cover it, they'd likely have to sell out of part of the Bitcoin position?
Andy Edstrom: Yes, agreed; if they can't get finance, right, if no one will lend them money to refinance.
Peter McCormack: Well, yeah, because the other situation is that they refinance it based on them owning a huge amount of Bitcoin and being quite trusted. Actually, we don't actually know the situation of the dollar at that point; we don't know that.
Andy Edstrom: That's true.
Peter McCormack: But, it does feel like a moonshot?
Andy Edstrom: Look, I agree. I mean, he has made it very clear that he's a Bitcoin Bull Bull Bull, and that he's willing to bet the company on it, because he came out with the news that he was going to buy Bitcoin, then he did the tender offer to take out the shareholders that didn't want to be involved in this, and he came over the top and bought more Bitcoin; and now, he's coming again raising debt plus equity to buy even more, and then upsizing the deal. So, yeah, there's no question. I mean, he's all in; he believes in this thing.
Peter McCormack: And, one of the interesting things is, he is sending a message to other companies about things they should do, could do and could consider. He's close to already owning double the original investment. So, he's sending a message to the market, "Oh, by the way, that $425 million we put in is now worth $750 million", or whatever, "we just did that in three months". A lot of other companies must be looking going, holy shit!
Now, he's showing this alternative strategy of raising money to put more into Bitcoin. To be the first to do it to incentivise a number of other companies to at least consider this, I think it's a calculated moonshot?
Andy Edstrom: Oh, absolutely. He started the clock. It's no accident that he's been on your show, two episodes I think you did, and he's been all over the podcasts. He's been going on basically the mainstream media, doing conference appearances. I mean, he's all over the place promoting it.
And, even just to underscore his confidence here, what you said is absolutely correct. The two initial purchases that he made are already very profitable because the price has gone up. But, his last purchase was over $19,000, right? The last purchase was, I think, $50 million.
Peter McCormack: Yeah, just a small amount!
Andy Edstrom: It's just a small amount, but what he's telling you is, "Look, whatever price I'm paying, whether it was $11,000 or $11,500 or $19,000, this thing is still cheap. I'm going to keep ploughing money into this thing, I'm going to raise money to buy more". Yeah, he's moving hard into this thing, no question. And, he doesn't seem too price sensitive, right? It seems like he's going to bid, he's going to pay whatever the market is offering him, and I don't know what his maximum purchase price is; maybe we'll find out.
Peter McCormack: He's a multi-million dollar-cost averaging. He is going for it.
Andy Edstrom: I like that!
Peter McCormack: All right, so listen, a couple of things that stood out to me. Firstly, when it first was announced, the $400 million, I saw some of the commentary of expected interest rate. And then, within 48 hours, it was upsized to $550 million, the interest rate of 0.75% which surprised some people. Also, the fact that it's essentially oversubscribed, which says to me a couple of things and I'm way out of my depth here; but, the majority of the deal was pretty much done in advance.
So, it kind of had me thinking two things. It sounds like there's somebody who wants to invest in Bitcoin, can't traditionally, therefore this is a vehicle for them to do it; the whole MicroStrategy as an ETF thing, so we'll come to that. And, I suppose the other thing, my second here was, it's a pretty confident bet on Bitcoin, we've already covered that, but let's go back a step.
Some people listening will have heard about ETFs but won't really know what they are. Just explain what an ETF is?
Andy Edstrom: Sure. ETF stands for Exchange Traded Fund and in the world of financial markets, it's somewhat new. I mean, I think that structure is only about 20 years old. What it does is, it used to be that if an investor wanted a diversified portfolio of assets, let's say stocks, they could either buy them individually and they would pay a commission to buy each one of those stocks; you want to buy some Netflix stock, you want to buy some Apple stock, you want to buy some IBM, you've got to do each of those trades.
So, the solution to that was the mutual fund, which is, I don't know, 60 years old or something; but, there are problems with mutual funds. Mutual funds only settle transactions with the investors at the end of the day. So, if you want to invest in a mutual fund, you buy it at the end of the day based on the assets that are in the fund, and you can't get in and out over the course of the day; you can't trade in and out.
The ETF solved this problem. So, the ETF is similar to a mutual fund; it holds a basket of assets generally, although not all do. The gold ETF just owns gold, and we'll get to Bitcoin. But, it creates this fund vehicle whereby you can sell or buy over the course of the trading day, rather than just getting in after hours, basically based on the net asset value of the fund at one point of the day. That's the main thing.
Peter McCormack: Right, okay. But, the ETF allows certain companies to invest in Bitcoin who can't go out and just buy the asset. Why is that; what is that scenario?
Andy Edstrom: So, I think a good precedent for this is some of the commodities, so like gold; gold is the classic case, right. It used to be that to buy gold was a pain. You could buy mutual funds that held gold mining stocks, but if you wanted to own actual gold, you either had to contract with a private vaulting service, or you had to go and buy the bullion or buy the coins and store them yourself, or put them in the bank in a safety deposit box.
The ETF created a structure whereby there is gold held in vaults, you know; like, underground in London, for example, is a major location for gold storage. And then, you have this fund structure that is a claim on that gold; that is the gold ETF. That product has been hugely successful, even more so since the money printer's been going brrr.
But, the idea for Bitcoin is, oh, if we have one for gold and we have one for copper and we have one for oil and various other commodities, why not Bitcoin; and, I actually think that is coming. I think there are a couple of interesting scenarios to think about with MicroStrategy.
One thing that's done generally in corporate finance is this concept of a tax-free spinoff. So, you can have a company, maybe it has two or three divisions, or two or three businesses held under the same holding structure, and that holding company trades publicly. If the company wants to divest, wants to get rid of one of those businesses or one of those assets, they can sell it outright, but often that results in Capital Gains Tax at the corporate level.
This other way to manage it is do a tax-free spinoff. Basically, you've got the existing stock. It says, ok, this asset, this business, or company, or whatever that we don't want, we spin it off as its own ticker; it will trade on the stock market; and, there's no tax effect for that.
Now, it's not obvious to me why that couldn't happen with MicroStrategy at some point, where you've got the cash-flowing software services, business intelligence business and at some point, you've got enough Bitcoin on the balance sheet that it just spins off the Bitcoin piece. He personally and all shareholders will own their equal shares, their pro rata shares, of both those entities and, I don't know; now you've got a business that's just a holding company for Bitcoin.
Would the SEC object to that? I don't know; we might find out.
Peter McCormack: Well, that's on my list of questions, because it feels like, so the company that's been raised here is RenTech, right? They forexed their position before -- was it before the announcement?
Andy Edstrom: Yeah, I'm not sure actually; I haven't been following RenTech.
Peter McCormack: So, they forexed their position, but whether it's them or somebody else, it clearly looks like somebody wanted this deal to happen; this is a way for them to get exposure to Bitcoin via MicroStrategy's share price.
Andy Edstrom: Yeah, and I think the way to think about what's been going on with these Bitcoin proxy companies, because MicroStrategy's not the only one, right? You go to bitcointreasuries.org, NVK's website, and you can see most of these things are "crypto companies", right. Not that many of them are just focussed on Bitcoin, but they do have Bitcoin on their balance sheets and they are in businesses, let's say, that involve Bitcoin.
These stocks have been going bananas. I mean, sure, Bitcoin has gone from $12k to $18k recently, but these stocks have gone -- a lot of them have doubled or more. So, it's apparent that somebody in the market wants or needs Bitcoin exposure and hasn't got setup yet to buy Bitcoin directly. Maybe they haven't done the legal work, haven't done the accounting work, they haven't done their due diligence yet on the Bitcoin custodians and exchanges that can basically get them the exposure; that takes, as Michael Saylor indicated, a period of months.
So, in the meantime, they're saying as a placeholder, "I've got to buy me a basket of these proxies. I think MicroStrategy's one of those, but it's not the only one". And, what companies are doing; MicroStrategy's smart about this too, because the stock went parabolic basically, I can't remember if it was last Thursday or Friday, and what happens with companies is any time the stock gets too expensive, management says, oh, we'll just dilute you, we'll issue equity. Like, "You want to buy my stock at three times the price that it was trading a couple of months ago? Okay, I'll supply more. I will increase the supply of my stock", which in effect is what a convertible bond deal is, I mean it's part debt, part stock.
But yeah, there's an old saying in finance which is, "When the ducks quack, feed them". When the ducks want something, supply it; supply more. Bitcoin is this asset that has limited supply, but a stock, or equity claim on Bitcoin does not have unlimited supply.
Peter McCormack: Yeah, so what happens to the businesses in terms of just business when they end up sat on, I don't know; imagine they end up sat on $30-40 billion of Bitcoin; where's the incentive?
Andy Edstrom: Yeah, what happens there? I mean, for the company, it's like I say. I'm of two minds on this. Some shareholders will raise hackles. They'll ask the question that I think it was Melissa Lee on CNBC asked Michael Saylor last week which is, "Are you a Bitcoin company, or are you a business intelligence software company?" One could be both, but activist shareholders don't really like it when you're two of something.
I would say that if and when Bitcoin, let's say, reaches its potential, we can talk about how to define that, but when it's basically a more established store of value monetary asset, then it will be normal to have it on the balance sheet. In the intervening time, I think most investors, most analysts, most portfolio managers who run large portfolios of stocks, are going to say, "These are really two different things; I'd rather you split them up".
I definitely anticipate some activist investors are going to get involved and say, "Look, this is two different things; split them up because some people just want to own the software business; some people want to own the Bitcoin exposure". I'm not saying that will necessarily happen with MicroStrategy itself, but it's going to happen with some of these companies that have it on the balance sheet.
Now, the question of what does the world look like when a company that used to have a $1 billion balance sheet now has $10 billion or $50 billion as you suggested; I mean, yeah, talk about purchasing power. If you're a smaller or medium-sized business within whatever industry you're in and now you have a much larger balance sheet, maybe you buy your competitors; maybe you fund new products faster than you would have otherwise; you invest in your business, make yourself more competitive. I mean, it's very possible that these businesses that had these enhanced balance sheets from gains on Bitcoin are going to be much more formidable competitors than they had been prior.
Peter McCormack: Well, I guess also you can borrow, you can increase your debt against that position as well?
Andy Edstrom: Yes. And, this will be really interesting too, I agree. It will be interesting to see how the corporate bond market treats this asset. I think ultimately, we will see lenders saying, "Okay, yes, this Bitcoin asset clearly has value, it's been going up. However, I'm a lender, so I don't participate in the upside, unless it's a convertible bond structure; I only have to worry about the downside. So, how much am I going to lend against this asset; what's going to be the loan-to-value?" and that's a standard calculation with any debt market. I mean, it's the same with your house and your mortgage.
With a house, where you're pretty sure that the value's not going to go down too much, maybe you'll lend 80% of the value. I think with Bitcoin, which is less volatile than it used to be, but still pretty volatile, the loan-to-value is going to be much lower. We're seeing that right now in the personal loan space.
Peter McCormack: It's like 50%, isn't it? Like BlockFi do 50% LTV?
Andy Edstrom: Exactly.
Peter McCormack: I was going to say, I wonder therefore if that means they will take custody of the Bitcoin to issue the loan, the way the likes of BlockFi do?
Andy Edstrom: Yeah, it's an interesting question. I think you could see two potential structures. One is what you describe which is basically, the lender has the right to liquidate. I think more likely, in the corporate market, you're not going to see that; you're going to see companies just say, "Look, we're in control of the keys. Pick the loan-to-value that you're comfortable with", and maybe it's lower, maybe it's not 50%; maybe it's 20% or 30%. I think that's more likely the way it goes. But on the other hand, who knows; maybe we'll see both structures in the market. That would be interesting.
Peter McCormack: Well, the other thing is, I'm wondering what this is doing to other companies. There've got to be a lot of companies looking in and seeing this and thinking, "We need to be getting in on this"; there's got to be?
Andy Edstrom: Yeah, and some people have made statements, like Jeff Booth has outright said, "I'm on a bunch of boards and people are talking about it". Now, they may be more likely to be talking about it because Jeff Booth understands Bitcoin and has for a long time and has been whispering in their ear for a while; but, yeah, whatever the reported number of board level discussions that are going on right now, you know that the actual number is some multiple of that. It's unknowable what that is, but there is some percentage of companies that are thinking about this.
And then you start to think, well, what's the scale of the bid under Bitcoin that's needed to support it; because, MicroStrategy itself is buying 2% of the 900 Bitcoins that are getting minted every day, let's say roughly. How many companies do you need to start sucking up the entire flow, the entire supply; plus, you've got the retail coming in via PayPal, via Square, and the Bitcoin trusts continue to hoover up more supply. It makes you think; it could be interesting next year!
Peter McCormack: What we're really seeing right now is the early stages of the FOMO from 2017, yet it's being driven by billionaires, companies and hedge funds?
Andy Edstrom: Yeah. I'm excited for it, and I'm also sad about it, because when you think about the retail wave and you think about this is the one asset in modern history where average people have had a shot at it before companies and before hedge funds and before billionaires and corporates, that window may be ending. This may be the end of the cheap corn for your average pleb, unfortunately, and that's a shame; but, that may be where we are.
This cycle has so far surprised me in how corporate driven it has been. It will be a mix, but I hope it's not, but it may be the last bite of the apple for the average Bitcoin buyer.
Peter McCormack: You say that, but do you know what, and I'm usually a pretty sympathetic person, but over the last two years, I've done a number of panels and conferences. It's usually the path to mass adoption, or what do we need for mass adoption and, for the last year, I keep saying we have mass awareness. I don't go anywhere now, Andy, and if people say to you, "Oh, what do you do?" you say, "I wrote a book; it's a book about Bitcoin"; how often to people go, "What's Bitcoin?"
Andy Edstrom: Yeah, not anymore; that has changed completely. And it's even changed in the last couple of months.
Peter McCormack: Well, I would say, when people ask, "I've got a podcast", and they're like, "What's it about?" and I say, "It's about Bitcoin", I never get, "What's Bitcoin?" I get, "I don't understand Bitcoin". But, we have mass awareness. Everyone's had the chance now to research it and look into it. Some people discovered it earlier, some people got it earlier; I discovered it in 2013 and all I did was spend some money on the Silk Road and I didn't properly get in until 2017 and I would say, it's only this last year I truly get it enough to think, I wish I'd put everything I owned into it. Other people have got it earlier.
But, I think most people have had their chance now. It is what it is; it's a free-for-all and you're rewarded by your risk appetite. Ray Dalio's going to pay a lot more than he could have, because he's put it off for so long. So for me, it's just like, okay, it is what it is. I think a lot of people may have missed out on the opportunity to buy cheap Bitcoin, or relatively cheap Bitcoin, and profit from it; but, this may accelerate the move to a Bitcoin-based society, which should be, could be, might not be, could be better for everyone, but that, we don't know.
The hyperbitcoinisation; it's to be seen if that happens, the impact on people, but I just think everyone's had their chance now. Now's the race; now's the global race.
Andy Edstrom: I've got a few thoughts there. One is, why do I Bitcoin? Obviously, it's an investment opportunity, but it's also what you describe which is, I'm in the same camp as the Austrians, I'm in the same camp as Breedlove; the world will be better on a Bitcoin standard and that will accrue value to everyone. So, it's incremental whether you get in sooner or later and whether you make a multiple on your investment.
I'm not saying that, you know -- I say that this is the last chance at cheap Bitcoin. I'm also of the Matt Odell view that it pumps forever. I think it will, or at least for a very long time, it will go up, and I think there will continue to be cycles. I'm not too "worried" about hyperbitcoinisation in this cycle. Is there some probably that happens; sure. I think it's somewhat low, but a couple of cycles away, or three cycles much more likely. And, you're never too late and I'm still tugging on people's sleeves.
I still send emails to folks saying, "Look, the reason I've been a pain in your arse talking about this for the last few years is because it's still cheap. Now, we're basically at the all-time high, or near it; it's not too late. There's still a multiple ahead. All expectations are for a repeat of the halving, opposed to having bull cycle, and so I'm not saying it's too late; I'm just saying that the really stupid cheap Bitcoin may be behind us. Now, it's still cheap, but not crazy cheap, so don't wait".
You mentioned conference and stuff; so, I gave a talk yesterday to the CFA Society of Columbus. CFA is a professional designation and it's no joke, I mean it's three years of exams; it's pretty hard. The average pass rate all the way through is under 10%; most people fail at least one level going through. And, these folks are I think finally interested, finally paying attention. They had a shot. They saw it in 2017; they called it a bubble; 90% of them probably ignored it; a few figured it out. But I think now, at this point, the smart money, the legacy finance, the guys that were born on the dark side of legacy finance like me are finally starting to pay attention.
I'll be really surprised if we don't see a lot more legacy finance people not only buying it either for themselves, for their funds, for their firms; but also, making the career jump, realising that this is the future of finance, this is where the action is. The legacy banking system and financial system is in slow and painful terminal decline and I'd rather get out of that. That's not where I want to be for the next 10 or 20 years of my career.
Peter McCormack: Do you remember when you first discovered Bitcoin or heard about it?
Andy Edstrom: Yeah, so I've got the usual three-touch story.
Peter McCormack: Yeah.
Andy Edstrom: First, 2013, I was on vacation in Eastern Europe and I had the Economist Magazine in audio format, podcast format, listening to the Economist, driving from I think it was the Czech Republic to Hungary on this little dusty road in the middle of the Hungarian countryside, and there was an article about Bitcoin and I totally missed it. But, I definitely remember that moment.
The second exposure was 2016. It was actually Ethereum. There was an article, I think, in the Wall Street Journal about the DAO hack; the hard fork. And then, it wasn't until 2017 when I got an email from a friend, I think it was Arun Rao, who had forwarded me info from a friend of his; I think it was Ari Paul actually who had been pinging people about crypto. And he was like, "Hey, look, this guy's running a crypto-focussed hedge fund" and I was like, "What; what is that? There are whole funds dedicated to this stuff?" And, that was when I really started paying attention. That was the second quarter of 2017.
Peter McCormack: Yeah, so everyone has that kind of three-touch thing, which is really interesting.
Andy Edstrom: Exactly.
Peter McCormack: I don't remember my first one, but I used to work in digital, building websites and SEO, and I can't even tell you when I heard about it first, but I knew I'd heard about it at some point. Then I had the Silk Road 2013, and then 2017 for me. But, I would even say, even though I discovered it, well, what was it; end of 2016 when I was like, I had to buy again; yeah, early 2017. I still would say, now I've been headlong into this by doing a podcast, it's genuinely only the last year or so it's only started to click with me.
But, in some ways, even the last three or four months, a lot of things have fallen into place where I'm like, "Okay, I get it because of that; that makes sense", like really started to click for me. So, we've got these kind of billionaires' hedge funds. I think they're at that stage where they're like "Shit, I need to get some of this because it's going to make some money" and they're probably going through the learning phase right now. What was it Jack Dorsey allocated; was it $50 million? I bet he was thinking, "Shit, I should have done a lot more", and I think a lot of that's going to happen.
Andy Edstrom: That's it; you're spot on. I still am learning every day, as you suggested. The obvious framework here, there are going to be a lot of people who talk about the pandemic and digitisation of everything and all of us spending our time staring at our screens, talking through tubes on the internet; that was the catalyst for me; that was when I got that digital money was the thing.
However, as we know, a year ago when I published my book, all the factors that really drive Bitcoin were really already in place. There was too much debt; it was clear that the debt was going to have to be monetised; it was clear that governments were already running big deficits and that was just not going to end well; we were in the later stages of the eight-year long-term debt cycle.
So, it was already going to happen, but I think what you said which is, a lot of people who had been ignoring it will say, "Oh, for me, the pandemic was the catalyst; that's what started me doing my homework", and yeah, that's fine. Different people pay attention at different times.
A guy like Saylor, it's interesting, there's the classic tweet. It was 2013 when he downplayed it; somebody dug that up! Some diligent cyber hornet dug up that old tweet, so he at least had had that exposure. So, I don't know if it was his second or third when he jumped down the rabbit hole. He moved quickly; it only took him a few months.
Now, considering his background, it's not surprising because he's a very smart guy, right. He got into MIT on merit; was an aeronautical engineering major, what most of us call rocket science; was running a billion-dollar capital expenditure programme for a big chemical company at the age of, I don't know, 22 or something; and then, he's been in software for a couple of decades. He already understood the scarcity value of digital assets, right, because he's speculated and made money on domain names in the past.
Then he wrote this book, The Mobile Wave. By the way, I've just read it; it's really good. He published it in 2012. He does two things: he talks about some history of science and history of technology and the ground-breaking things like the printing press, etc. But then, he makes specific predictions about the future, again this is from where he was sitting in 2012. A lot of those predictions have come to pass.
When he talks about how he made these big investments in the internet giants, I can't remember which ones he said he bought, but he bought the stocks of, I don't know, Facebook, Google, Amazon, maybe Microsoft, back in 2012, and made a multiple, because those stocks have done really well in the last eight years, he understood network effect at this point.
I think what's also interesting about his personal history is he was a child of the internet bubble in the early 2000s. Now, I was talking with Bitcoin Teen about this and a lot of people got rich and then got ruined. MicroStrategy had, I don't know, a crazy multi-billionaire dollar valuation at one point there, and then it all crashed. And then, he foresaw what was going on with these network-effect based companies and he bought the stocks.
But, he didn't get filthy, stinking rich. I mean, don't get me wrong, he's plenty rich, right; he's a multi-hundred millionaire dollar guy. Now, he may be a billion dollar guy with the pump for Bitcoin, but he wasn't Mark Zuckerberg rich or Sergey Brin rich or Jeff Bezos rich. So, I think for him, this is his bite of the apple, this is his shot.
Peter McCormack: That's what I mean.
Andy Edstrom: This is his shot to make it really huge, to make it deca-billionaire status.
Peter McCormack: Yeah, this is what I mean. This is why I said, "the moonshot", because he's rich enough. He's at the stage whereby he can buy anything he pretty much wants, but this is the moonshot to absolutely go and make that top 100, maybe top 10 richest people, whatever. I don't know, there might be some bitcoiners already hold enough that he can't exceed that, but he could still be a top 100, top 50 richest guy; also, somebody who actually educated and showed people the way, what you could do with this. I find it fascinating what he's doing.
I sit back, part intrigue, a little bit of intrigue to see what's going on, but also in awe of it at some point. I do think there's a big lens on him now though, which is quite interesting, and I feel like we're obviously talking about him so if he hears this, "Hi, Michael"! But, there's a lens on him now, so --
Andy Edstrom: I'm sure he will and there's going to be -- sorry, I cut you off. There's going to pushback, right. Like, I think it was Citigroup downgraded his stock last week and they talked about how, "Oh, he's not as focussed on the core business, he's spending all his time on Bitcoin", and there's some truth to that. I mean, one does have to spend a certain number of hours to crank out that many podcasts and all the conference appearances, etc.
Peter McCormack: Well, in his defence, $30 million a year profit, he just made 12 years' profit in three months!
Andy Edstrom: Look, I'm not saying he's doing the wrong thing! What I'm saying is that there are some investors out there who have yet to do the homework on Bitcoin, who haven't figured it out, or sceptics; there'll always be perma-sceptics, you know, permabears. We know and love them in the Bitcoin space, although some have been changing their statements a little bit.
I loved when Niall Ferguson, in his op-ed on Bloomberg a couple of weeks ago, called out Nouriel; he called out his "good friend", Nouriel Roubini, right, who's basically had to eat his words! He called it, "The greatest conversion since St Paul", or something, from a nocoiner to, "Oh, maybe there's something there; maybe it's kind of a store of value"!
Peter McCormack: Well, there are a few conversions. It's when Peter Schiff turns round and says, "I got it wrong"! Although, I got a feeling, like people are saying, I wonder if he's just sat there on a big pile of Bitcoin; he's trying to get as much as he can and when it flies out, he's going to go, "Yeah, look, I had you all. I was holding it".
But, Ray Dalio was another interesting one. What I thought he did that was really interesting, he came out with a tweet and said, "You know what; I could be wrong. I want to understand this". He's clearly gone out and done that. If he hasn't taken a position yet, he clearly is about to take a position, and that's a really interesting conversion.
So, the thing I'm really interested to watch is, look, I understand the value of scarcity, but what's going to be really interesting is that what actually happens when there's a supply shock, that there are so many people coming out; there are essentially 900 a day and anyone else who's willing to sell. How mad does this actually go, because it really could go kind of crazy bananas here?
Andy Edstrom: Yeah. So, my expectation, and by the way, every month or so, I jokingly tweet that I've checked my Bitcoin inventory and none are for sale, right! There are plenty like me who are strong-handed hodlers and we have ideas in our minds where we'll peel some off, right, maybe somewhere in the six figures; but basically, we're not selling between here and $100k, along those lines. It's different for different people, but that's the basic idea.
And then, you've got the new investors who are like, "Well, I came into this because I want to make a multiple, so I'm going to make my multiple [or] I'm going to see this out". I think you said that you're holding for at least a couple more halvings, or maybe three halvings?
Peter McCormack: Three halvings, yeah, I said three halvings; I'll tell you why for a couple of reasons. I'll tell you my investment thesis. So, when somebody says to me, "At what point are you selling; during the next cycle, at what point are you selling?" I'm like, how are you meant to know. If it goes to $50k and you sell and then it goes to $100k, you're going to be like, "Oh, wish I'd held". You sell at $100k and it goes to $300k, "Argh!" I don't know where the top of the market is in this cycle.
So I'm like, why am I going to try and play one cycle when I know I don't need the money now; this is essentially my retirement fund, right? I'm going to play three halvings. I've been through one; I'm going to go through this one and I'm going to go through the next one. I'll maybe sell a small amount here or there. I might go, "Do you know what; let's go and have a nice holiday, kids", or I might finally get myself a Lamborghini.
But, strictly speaking, I don't need the money; it's not going to change my life materially; I have what I need; me and the kids have what we need. But, I'm going to ride this one out. So, yeah, three halvings for me; I'm through one; I've got nine years of my thesis to go.
Andy Edstrom: And this is where you get, to your original question, "How crazy could this get; how far could this bull market go?" and there are two pieces to that. One is, how hard are the hodlers hodling; and then the other piece to that is, how much capital is flowing in? And of course, with every four-year cycle, your orders of magnitude larger market cap; so obviously it takes a hell of a lot more money flowing in to move from $300 billion to a couple of trillion than it did to get to $300 billion from the prior high-water mark.
So, the analysis that I've seen, which I think makes some sense is, people talk about how many incremental dollars are needed to result in price and market cap going up; and, I would say that the general consensus is it's between 5X to 10X, or something, price move per dollar in. I mean, it depends basically on how hard people are holding. If nobody wants to sell, then price goes up infinitely as money flows in, but as a practical matter, people sell at different prices; facts and circumstances change; there are news events.
But, I do think that it's probably, let's say, to get to $2 trillion, $100k Bitcoin roughly, then that's an incremental, whatever, $1.6 trillion or $1.7 trillion from where we are here, so how much capital has to flow in; maybe a couple of hundred billion. And, a couple of hundred billion is a couple of hundred billion; it's not a small amount of money. But, in the scale of global capital markets, it's not that much money. I mean, stock markets globally are tens of trillions of dollars, or bond markets. There are at least $100 trillion of investible, movable, liquid capital that can sell and flow into Bitcoin.
And then of course, there's the potential demonetisation of much larger asset prices, like real estate, which is hundreds of trillions globally. I mean, yeah, so it could get wild. Six-figure Bitcoin; that's kind of my base case, to be honest, and probably overshoot that. Does it overshoot to $1 million? I think that's kind of unlikely, but multi-hundred thousand dollar Bitcoin? At least for a moment in the blow-off top, like we had at $20k last time in 2017; very possible.
Peter McCormack: Well, there are a lot of people ranging in between $200,000 and $300,000 now. There are a lot of people I've spoken to ranging between now and then. I mean, I don't know what the blow-off would be like, I don't know how much liquidity comes in the market, I don't know how much interest there is then. But, I read the Pierre Rochard article, The Speculative Attack, on Nakamoto Institute and actually, there could be a significant amount of inflow from people just wanting to exit their currencies.
I'm not holding a lot of pounds right now. I used to hold a certain amount of savings and also, my podcast is a business, on the balance sheet. I'm not now; I'm holding a very low amount because there was always that thing, "Money flows through the best currency", and I kind of would repeat it and agree with people. I get it now and I really understand it is and I'm over the volatility issue. If we're in a bear market, it's slightly different, but I'm over that issue now.
So, that's going to be really interesting to see what happens. And when you say $200 billion, Michael Saylor's done 0.5% of that already, and MicroStrategy is a successful business, but there are a lot of bigger businesses. I mean, just look if someone like Apple went, "Hold on a second. We're sat on a $200 billion melting ice cube?"
Andy Edstrom: Yeah. And, what you mentioned before about people flowing out of other weaker currencies, I agree with that completely, and that's part of the beauty of how this could play out, which is the stablecoin angle, you know, basically the stablecoin USD. It won't be the dollar that gets totally rekked first. The dollar will be probably the last to go.
I happen personally to be bearish on the dollar for the next year, but I'm not talking hyperinflation or anything like that; I'm talking the DXY Index could down by 10 percentage points or something; it could go from 90 to 80; that's very possible. That's not a disaster by any stretch. But, some of these weaker currencies, for sure, people that have phones that can access their crypto wallets are going to be like, "Okay, Bitcoin has some upside, but also I can buy this stablecoin", as we know, there are several, "and that will give me protection against short-term volatility, in addition to my protection against long-term volatility that may come for Bitcoin".
So, I see incremental demand; I see an incremental bid for dollars over the next couple of years, which will be very supportive, I think, while some of those really weak currencies could suffer. And those are the countries where you may first see real significant attempts at clamping down on crypto in general, whether it's Bitcoin or not, and it will be more probably on the wallets, because the local government will see, "Oh my God, my currency was depreciating 10% a year and now I'm on 40% a year. It looks like Argentina during one of its many depreciations, and so I've got to take some action to try to stop people from doing this".
Ultimately, that probably won't succeed, but there'll be plenty of headlines for us to read over the next couple of years as this plays out.
Peter McCormack: Yeah, that wallet to wallet, KYC thing, I was thinking about that. I was thinking, "What's going on here; what is the interest here?", because the French are looking to do it as well. Is this about trying to track nefarious characters and criminals and terrorists or actually, is this about knowing where the money is because at some point, if they're not getting the tax returns they need, or if their own currency's failing, do they need Bitcoin?
Wouldn't it be a fascinating scenario where the government's like, "Shit, we need this Bitcoin"; they need it themselves!
Andy Edstrom: Well, there is still the minority view. I think it was Raoul Pal a little while ago who said, he thinks it's NSA or CIA. At some point, he stated that he thought it was some government agency that was Satoshi, basically, that had launched it. I think that's possible but unlikely, pretty unlikely, but yeah, of course.
For me, the obvious move, and I think that seems to be how it's playing out so far, what we're seeing so far, is mining. In other words, governments, let's say, fostering but also tightly monitoring and/or controlling mining operations within their borders, are sort of the obvious way, I think, to accumulate Bitcoin; not least because those are clean coins; those are relatively anonymous.
It's different than, I don't know, the government of XYZ country opening an account with BitGo or Gemini, or whoever else, to both accumulate and custody Bitcoin. Moreover, those professional custodians are predominantly western country domiciled. So, if you're a country and you want to accumulate Bitcoin, it seems like the best way to do it is get some mining rigs set up, tax at the appropriate rate and accumulate with less visibility there and, yeah, hold your keys at the government level.
Peter McCormack: It's just funny if the government realise, "Crap, this is a good asset". I mean, look, the Venezuelan Government have realised this; they've realised it's a good asset. But, it's whether the US government thinks, "Hmm, we need some of this", and then it's kind of admitting that scenario. Well -- go on.
Andy Edstrom: No, I was going to say, this is the story, this is the narrative that all bitcoiners need to promulgate, we need to support which is, the approximate story is "Rogue nations like Bitcoin", and that's bad. But, the real story is, if regulations hadn't been changed appropriately then, as you know, running a website in the United States 30 years ago would have required that you get a licence from the FCC, and the internet never would have taken off in this country. And all these giant internet companies, like them or loathe them, they've generated huge wealth for the United States; and, they'd all be European right now. Some of them might be British; honestly!
Fortunately, for Americans, fortunately for us on this side of the pond, our government didn't screw that up; they allowed innovation and it's pretty evident, I think, to me and anyone who does the homework, that this is going to be a hugely innovative and value-creating space. We need to not screw this up in the west, not only in America, but ditto Europe.
I mean, Europe's got a second bite of the apple here in terms of the wealth creation of the internet. I'm generalising, right. There are a precious few European software and internet giant companies, but really Europe and the UK have got another bite of the apple here. If they get this right, they could allow innovation and growth for Bitcoin in their countries, and that's a competitive advantage.
Peter McCormack: I do agree. I do want to get back to the MicroStrategy thing, because you put something else out. You put out that tweet where you said, you think there's more room on the balance sheet for them to borrow more. So, you said they could terminate leases and work from home, issue ten-year bonds at low rates, use proceeds to buy Bitcoin, stock goes up, return to step 2, clockwise rightwards and leftwards, open circle arrows! They got the Chi code, right; they got the Chi code.
Andy Edstrom: Yeah, exactly; the cycle.
Peter McCormack: So, what is it you were actually saying here?
Andy Edstrom: I mean, I put that out in September right around the same time I had that conversation with Preston Pysh on Swan Signal and yeah, he's doing it. I mean, whether it's in the form of outright debt, or whether it's equity, issuing stock, or it's the hybrid; that's his recent convertible bond deal where he announced $400 million, upsized to $550 million and has an option to add $100 million to $650 million if investors want to buy it.
What we saw in the first cycle was, he announced new treasury policy, this was back in August; and then also, the tender offer to take out shareholders that didn't want to come along; and then, bought more Bitcoin; and the stock went up a lot. So, the first cycle has sort of played out, right? So, he's doing what any wise CEO, shareholder CEO, would do which is, "Oh, this seems to be working; let's do some more of this". And that's the second cycle; borrow/issue to buy more Bitcoin. We'll see how the cycle plays out.
I see an analogy to Greyscale, to the Bitcoin Trust, which is because it trades at this premium, you've got to pay $1.30 for $1 worth of Bitcoin, if you're just buying it in your brokerage account; that sucks in new money to invest it in that asset value, which is locked up for six months, which then exits at the premium; and, it's hoovering up the capital in this feedback loop. So, I see two major self-fulfilling feedback loops sucking in capital on Bitcoin in the market today: one is MicroStrategy; and one is Greyscale. Greyscale is bigger and is ahead, but MicroStrategy so far is doing its best to catch up.
Peter McCormack: Is there any risk with MicroStrategy, if they did keep doing this loop; is there anything that becomes partly Ponzi about it, in that they need the price to go up for them to be able to pay off the previous loans? Because, in the end, if they did this a few times and it ends up being not $550 million, it ends up becoming $2 billion, yet the analytics business isn't big enough to borrow against, is there any risk there that it becomes a little bit Ponzi?
Andy Edstrom: Yeah, of course there is. What's interesting is there's no bright line. I could say the same of the commercial property market, for example. Real Estates Investment Trust, REITs, okay; there is no more indebted asset class in the world than property. These are companies that borrow 80% plus of the purchase price of the property that they buy, and the price has gone up and up, so they borrow more and more as they acquire properties.
Then, you have the shock from the pandemic and these stocks get absolutely murdered. Some of them are down 80% and some of them will be zeros. We won't know until we figure out how much of this shift to work from home is permanent or is temporary, but that's a case where the price of the assets, which had a bunch of debt against it, in a public markets investment vehicle has blown up.
So, could the same thing happen with Bitcoin? Of course it could. Bitcoin goes down by 80% on a regular basis. I'm not saying that it necessarily will this time but honestly, that could be one of the mechanisms that feeds the extreme price movement that you were hypothesising earlier which is, "How far could this go?" and the answer is, quite far, when you include capital markets and you include money flowing in and in particular, when you include debt flowing in.
One of the classic hallmarks of almost all investment bubbles is there's a big debt factor, right; there are a lot of people borrowing. Now, I think it's better that he's using equity rather than debt; I think it's better that he's using convertible debt rather than pure debt. Nevertheless, there is some level at which one would be concerned about this.
Now, the counterargument would be, yeah, but if Bitcoin does what we think it's going to do, it's likely to be multiples higher; he'll easily be able to pay off the debt. My guess is he understands the four-year cycle. So, my guess is that he delevers the balance sheet at, whatever, $50k Bitcoin, $100k Bitcoin, whatever the number is; he starts to back off the debt; he starts to pay some of it down. We'll see how it plays out.
Peter McCormack: God, it's so fascinating, isn't it? It's like, the next 18 months could be absolutely wild. I feel like there are a lot of companies now getting ready to go. From your experience, what's the lead time to be able to start making serious investments? People who have heard about MicroStrategy, they're not going to be immediately next week say, "Okay, let's buy a bunch of Bitcoin"; what do you feel like the lead time is; and, what are the hurdles that these companies have to go through and can think about?
Andy Edstrom: I think Saylor is right because a) he just did it, and b) he's talked about it. I can't remember if he talked about it on your show; he talked about it on someone's show. First is legal, right; talk to the lawyers in-house and outside counsel; do we have the ability to do this; is this going to run us afoul of the SEC, which is the regulator in the US?
Then the second is, okay, how does the accounting work; do we understand how to account for it? He's talked about this. I think Square actually published the materials on this; Jack Dorsey published materials on how they went about it. You've got to get your CFO and your treasurer on board, because they are the ones that are going to actually execute the thing; you have to do your due diligence and then onboard with a professional custodian.
You've got to decide, "Who am I going to hire? Am I going to hire Paxos, or am I going to hire BitGo, or Coinbase, or Gemini, or Kingdom Trust? Which of these various qualified custodians am I going to use to actually hold the stuff; and then which exchange am I going to use to accumulate it, or which OTC desk or groups of desks, etc?" So, yeah, there are all those steps. I think he said that it took a few months; maybe he said it was like six weeks. I can't remember if it was six weeks to two or three months, and I'm sure he did it in an expedited fashion. He was primed to understand Bitcoin and once he bought Bitcoin, I'm sure he wanted to move as quickly as possible.
So, other companies will probably be slower, I suppose. Some of them are doing year-end work, they're closing the books on 2020; they're saying, "This is 2021 business, I'll think about this in January", so we'll see. I think the fastest someone could follow is a few months. A company like Square, obviously, which already had Bitcoin in inventory because they were already selling it, it was easier for them to get it going. Someone who's not already in the Bitcoin business, not already holding it, it's going to take them a little longer.
Peter McCormack: Do you think, with these companies that are looking at this now and getting their own FOMO feeling like, "Crap, we need to do this quick because the price is $19,000", or a lot of these companies, do you think they're looking to go, "Doesn't matter if we do it in three months, doesn't matter if it goes to $30,000; this is a long-term investment"? Do companies get their own kind of FOMO?
Andy Edstrom: I think it's a range and I think it depends. By the way, I just want to state, I don't have a list of known companies that I know are in the process of doing this; this is speculation, right?
Peter McCormack: I do!
Andy Edstrom: You do have a known list of companies? Public companies?
Peter McCormack: I know of some; I shouldn't really say!
Andy Edstrom: So, I think it's a range and what factors is it going to depend on? Okay, number 1, it's going to depend on how familiar management and the board are with Bitcoin; that's number 1; how much learning do they have to do? How many What Bitcoin Did episodes do they need to listen to to get up to speed?! Second is, are they already set up; are they already a financial company; do they have some hook into the system already in that they can basically get up and moving? Another is, how much risk are they willing to take with shareholders?
So, if you have a really successful business which is already at a very high valuation; if you are a software service company that's trading at 30 times revenue, maybe you don't want to upset the apple cart, because your valuation's already so high that you have apparently a very bullish high conviction investor base that's saying, "We really like what you're doing and don't screw it up", and they don't really want to risk 20% or 40% of the shareholder base saying, "Oh, we don't like this move; we're out; we're going to dump the stock".
So, I think it's actually the less successful companies, relatively speaking, companies that are down on their luck. I mean, it's a little bit the story of the last bubble of the 2017 cycle where you had, what was it, Long Island blockchain, or whatever?
Peter McCormack: Yeah, all that bullshit.
Andy Edstrom: And you had crappy businesses that weren't doing that well, they were like, "Let's pivot to this thing". So, I think it will be more of that on average; it will be the dicier, sketchier companies on average, if I had to guess. So, yeah, those are some of the factors that I would say, if I was just randomly sampling companies out of a hat; which are more likely to make this move.
Peter McCormack: Well listen, man, this has been really fascinating. We've got to do this other show as well; I think we'll do it in January. How pumped are you, then; how are you feeling just generally?
Andy Edstrom: Peter, Bitcoin is the most fascinating thing I've ever seen in my life so far. I'm 39; I've been an investor my whole career; this is obviously the biggest asymmetric trade, investment opportunity I've ever seen in my life, otherwise I wouldn't have gone to the trouble of writing a whole book about it. And, I am excited to see, after a long, painful, grinding bear market, not that this one was any more long and painful than the prior one; but I wasn't in the prior one, so this one I got to feel first hand.
It feels really good to finally see the thesis starting to play out. It feels really good starting to hear responses from people that I've been pestering about for years now, and I mean, I couldn't be more bullish. I don't know what else to say.
Peter McCormack: Yeah, my first proper bear market; the last one didn't really count because I wasn't really properly in it. I had my doubts during it, "Did I get this wrong? Maybe this is screwed; maybe no one will care", and I think you have to go through at least one. Next time, I'll be like, "Okay, how long's this going to take?"
Andy Edstrom: That's right. Do you know what I also think helps, Peter, and I'm curious for your view on this?
Peter McCormack: Go on?
Andy Edstrom: For me, I think working on Bitcoin made the bear market easier, right? In other words, if I wasn't doing anything involved in the space, if I wasn't writing or podcasting or anything, then I think the time would have gone slower. I think I would have just been watching the chart, watching it grind away, having a stiff drink every night and not that it wasn't painful anyway, but I think that working in the space, attempting to be doing something productive, all the while learning more about it, actually made the bear market less painful. Was that your experience?
Peter McCormack: Yeah. But, it was also different. So, during the last bear market, so in 2013 when I was using the Silk Road, I was also trading Bitcoin CFDs on Plus500, right; it was a bit of fun. The only annoying thing about that is, you'd have an open position, and they're always leveraged, and you'd go to bed and sometimes you'd wake up in the morning and it was like, "Shit, I've made £3,000; this is cool!" And then another time, you'd wake up in the morning and you've been wiped out, because there was just a sudden drop in the price, you get stocked out, and it was just like an instant drop.
I made and lost a lot of money very quickly, like tens of thousands. I didn't lose in the end; I was up, but I wasn't as up as much as I could have been. Then I stopped doing it. The only time I ever owned the asset was when I was using the Silk Road. So what happened was, at the end of that, I stopped trading, I was like, "This is too emotional". I remember one night specifically, I lost thousands and I was like, "This feels crap. I feel terrible". So I was like, "I'm done" and my ex at the time said, "Yeah, you probably shouldn't do that", and I just forgot about it. I wasn't into the thesis of Bitcoin; I didn't know anything about it.
Then, what had happened was, occasionally I'd look at the price and I was like, "Shit, it's $800. Crap, it's at $500. It's at $300. Oh, this thing's screwed. Oh, it's gone back up a bit. Oh, it's going up again" and so, I just followed that in the distance but didn't really care. But, because I work on it, like you, I've got a lot of interest and rather than looking from a distance and going, "That thing's screwed", I spent a lot of time building my conviction by speaking to really smart people who understand Bitcoin.
So, I think you're right now. I feel there's a bit more of an inevitability about it now, whereas before I was a bit like, "Is this going to work out; is this really going to be okay?", because I wasn't too sure. But, yeah, I think you make an interesting point there.
Andy Edstrom: Yeah, you build your conviction the more you learn, the more you work on it. I think that helped me get through this bear market personally, for sure; there's no doubt about it.
Peter McCormack: Yeah, man. Well, this was great, everything I wanted, hoped and expected and I'm really looking forward to doing our other show; I think we're booked in for January, right?
Andy Edstrom: Yeah, that's right, me too.
Peter McCormack: I can see your book in the background, Why Buy Bitcoin? If you're listening to this, go and buy his fucking book, man; go and buy Andy's book, Why Buy Bitcoin. It's up on Amazon. How much is it?
Andy Edstrom: Look, the eBook's only $10 and the paperback's $15.
Peter McCormack: Listen, go and buy that book. But, I look forward to doing this again with you in January. We'll go into a lot of detail about what you covered in the book; we'll rip another show; and, it will be interesting just to reflect on this one, you know, in about three or four weeks and go, "Shit, where are we now?"!
Andy Edstrom: Yeah, there's going to be so much news. I mean, it's just going to come like a fire hose. Look, this has been a blast, Peter, I really appreciate it. I look forward to that round 2 in January with you.
Peter McCormack: All right, brother. Well, listen, if I don't speak to you, have a great Christmas. I'm sure I will, but yeah, thanks for doing this.
Andy Edstrom: Likewise, Merry Christmas to you. Thanks again. Talk soon.
