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What you're telling me is that music is about to stop and we're going to be left holding the biggest bag of odorous excrement ever assembled in the history of Doctors 1974. 198792972000 and whatever we want to call this, it's all just the same thing over and over. We can't help ourselves. I say when we sell. Hey, OK, I say when we sell. All right, welcome back to the last trade. This week we have Mark Connors, Managing Director, Head of Global Macro Strategy here at Onramp and also joined by my Co host Jesse Myers and Michael Tanguma. Mark, really excited to have you on because you've just dropped a bombshell of a report going into Bitcoins unique attributes as an asset class. Why this is a timely place to be looking at Bitcoin for institutional investors and traditional finance and really a lot of insights and alpha that are not widely covered in the space. So Mark, how are you doing? Thanks for joining us. You bet. Jackson thanks and Jesse, thanks for joining and Michael as well, because this is a thick document. You call it a bombshell as we are building it up. We called it a beast because it had to be tamed. We had to RIP a lot out. We had to make it cohesive and understand understandable to to people about why we spent all this time and effort to produce something that could be deemed wonky. So that's what we want to do here is trying to chip away at it so we can make bite sized pieces to folks. So they read it, they understand why we think it'll drive price and adoption. And that's the main goal. I think unless you you know, you folks have other. Ideas as well Yeah, what what I think is really cool about what you did here, Mark is it's totally data-driven and you know I think most Bitcoin investors only think about what kind of returns has Bitcoin delivered and, and that's about, you know, the only metric that people seem to care about but for institutional investors, for portfolio allocators, they care about a few other metrics too and. And and Mark, you kind of help school me on, on some of the things that matter to institutional investors beyond just performance. And then you dug into the details, the data that Bitcoin shows with regard to those particular metrics and it tells a hell of a lot deeper story about how attractive Bitcoin is as an institutional asset class at this point in time. So I guess it'd be great to hear you tee up. What are those other metrics that institutional investors care about besides just performance? Yeah. Thanks for that, Jesse. It is. It's not just how much, but it's also how you got there. Because if you look at a narrow person like a college endowment, colleges want to say that they're able to fund 80% of, you know, first generation college students. They want to do a lot of good with their money, but they also have to have the money be there. So they don't like something called drawdown. They don't want to all of a sudden make 50% one year and then lose 30% the next year. They can't afford that, that downside. So what Bitcoin has, and this is a, this is a money shot. We can kind of, if we had to clip it, we clip it here. Bitcoin has more good volatility than bad volatility. It has more upside risk or uncertainty than downside risk or uncertainty. It's a weird concept because that 900 trillion in assets that you framed in your report, Jesse of bonds, equities, art, etcetera that makes up the monetary premium or investable universe, that whole universe of assets surprises to the downside. So that little nugget of Bitcoin on the right is a high pressure value savings mechanism that is slowly drawing value from the others because those other segments, as we'll show here later, have more downside risk. All of a sudden you're like, Yep, I'm clipping 80 basis points, clipping 80 basis points up. I lost 5%. So in trader speak, we talked about taking the escalator ride up in opportunity, but we wake up to that elevator shaft ride down on a fraud, on a default, on an earnings miss where they're all of a sudden down 8 times more than they've been up over the past, you know, three or four quarters. So that's why this is a weird concept because those other assets are mature. There's no new adoption. Bitcoin is gain adoption and that adoption is creating a unique profile that as we'll share, BlackRock wrote about Fidelity has mentioned aspects of bitcoins favorable risk adjusted returns. I'm not putting words in anyone's mouth. That's just what people have stated, but it's not something the average Joe or Jane really cares about. But that $900 trillion in assets, the people who manage those assets, they care and they're coming. At Onramp, we believe that Bitcoin is the most important asset of the 21st century. The hard part is securing it right There are shortcomings with keeping your coins on an exchange, but also with setting up your own self custody arrangement. Onramp solves for these concerns. Our multi institution custody solution maximizes security and minimizes counterparty risk, ensuring that your Bitcoin remains securely in your possession and provides built in inheritance planning to ensure your family is protected as well. On Ramp provides Peace of Mind for your Bitcoin journey, whether for your whole stack or for part of it as a compliment to your existing self custody set up. For more information, check us out at on rampbitcoin.com. Yeah, Mark on that, a lot of alpha already and I do want to get into the volatility story because. But hold on Jackson, how wonky was I? We had to have a wonk check on it if I get too far in the in the. No, that was that was perfect. And we're going to get more into the weeds because there is this misconception about volatility and that being only bad. But I think before we do that, Mark, let's zoom out for just a second. I know you've been working on a lot of these ideas and research not only during your time at on ramp, but this is kind of like coalesced through I think years of data that you've analyzed probably the past two or three years. And this is ultimately I think what's been compelling to you and why you wanted to get involved in the space. I'm curious because the report is Bitcoin, the emergent asset class has arrived and the subheader for that is Bitcoin boost returns and dampens volatility in traditional portfolios. So why could you give like the audience a little bit more context as to the main goal of this report? And really, why were you motivated to put this all together? Because it was a beast. It did take a lot of your time and resources. So why are you? Why do you think that this is so important and an idea that people would need to start paying attention to now? That's a good start. Thanks for redirecting me here, Jackson. The reason I spent so much time you guys gave me the leash to do it is because I think it's a, it has a persistence the best when doing research. It's not worthwhile doing something like building sand castles on the beach where the next day your insights gone and washed away. This is persistent. It has precedents and the reason we spent time on it is because I think we'll be able to use this report to then speak to what's happening next quarter and next year in equity markets with behavior of Rias. So I think we'll be able to drive opportunity for our firm and for clients. That's one thing, it's persistent and the other thing, the reason I spent time on it, you know I've been in the markets for a while. I've been in a risk practitioner for 15 straight years at different hedge funds across multi assets. When I came across this aspect 3 years ago of the up ball versus down ball or good versus bad, it was so weird. I called up my old boss from Credit Suisse injured at Barden and and Andy's now doing independent work for companies. But he's a man. He was at Merrill. He's written operational and market risk white papers, got, you know, more letters after his name than a than the alphabet. And I, I called him up. I said, I I need you now because I want you to go check my work. And he was the first person I used others. They all said I that it was unique. They hadn't seen it. So the reason I spent time on it is because I've channel checked people either aren't incentivized or don't understand it. But the ones that do understand it said, yeah, you're right, this is accurate. And as we share in the report, some other institutions are are coming to the same realization of this attribute that can really enhance and improve the otherwise moribund, sloppy, less performing, more volatile to the downside assets that Jesse highlights in that report of 900 trillion. Yeah, I appreciate that market. It's great context. And so thinking about where we are right now, we're in October 2024, last quarter of the year, earlier this year, there were the ETFs that were approved and since launched they've been wildly successful. I think they was, Ibit and FBTC in particular were the fastest ever ETFs to accumulate $10 billion in assets under management by a very wide margin. So when you think about Bitcoin as an emergent asset class, is it really, was the ETFs a big part of that? Or are there other considerations as to why like 2024 or even last year 2023 were part of this or or or what needed to happen for Bitcoin to become seen as a reliable and legitimate asset class within traditional finance? Yeah, it so Jackson, the ETFs were critical and as you know, some of our friends who are Bitcoin focused are saying, you know, it's it's not great because it's paper Bitcoin and yeah, and their qualities of it that aren't, aren't desirable that that you're giving up as opposed to owning the token outright through something like multi institutional custody. True, but the more people being aware driving adoption and we all know it. You know, we some of us may not have gone to Bitcoin right away. Maybe someone bought Ethereum first, who knows? I'm not saying it was me, but you know, we we all have our journey. So buying the ETF and understanding adoption, that's expanding the awareness of it. So ETS, we're good, but if I was going to look at an analog to what's happening with Bitcoin now, I'll go back to the 70s because people are drawn to Bitcoin. You know, they come from the returns and they stay for the integrity. The returns will continue, we believe because of what's happening with the growing debt load and debasement. Going to put that topic to the side for a second. It's deeper. It's part three of our report coming out later this quarter. But the ETFs are second to what I said is an analog for the 70s. In the 70s, gold, another commodity, analog commodity, not digital commodity, saw its volatility increase from I think 5 or 6 annualized to over 70. It had upside volatility as its price went from $35.00 right before Nixon broke the peg to gold in 71 to over 550 by the end of the decade, not even accounting for the $800 blow off in 1980. So people are going to Bitcoin because they're seeing the problem in Triadfi. They're like, you know, Canadian stocks. I worked for Canadian firm. The TSX is up single digits. It's not even near the basement. You're losing money by holding there. Europe, the SSXP, the stock 600 is not keeping pace with the basement. Bonds are down this month. They're down the past couple years. So the traditional assets aren't the best way for an endowment to say I need to fund the higher insurance costs, the higher cost of building the new facilities for the next generation. Where am I going to go? They're waking up and they're saying I can't go to what got us here because I can't keep up with the increasing debt loads. That's why we can't look at the last 20 years to say was it good returns. We have to go back 50 years to say when was another stepwise function in markets? It was when Nixon broke the peg to gold and people realized there was a new asset to capture that debasement. And that's the analog I think that I would use. Yeah, I love that comparison, Mark. And what strikes me about that, I think you're dead right that the 70s in gold is the closest analog. And I think a big part of that story for me is that the reason that gold rallied so hard in the 70s is because suddenly it, we went off this, this, this sort of arbitrary gold peg that the US government was saying, here's the value of gold and sort of suppressing free market price discovery for the value of gold. And, and you go off of that and then suddenly you allow price discovery to take gold to a place where it, it should have been, right? Like it, it naturally was able to rally up to an equilibrium where it should have been the whole time. And so there's this, this stark moment of gold being unleashed. And with Bitcoin, it's a different sort of a set of circumstances, but the same kind of phenomenon of, of Bitcoin didn't exist and now it exists and you you have to go from zero to where is the right valuation for this type of asset in the global asset landscape. And so it's not going from like prohibition to, to free market price discovery. It's going from not existing to free market price discovery. And what's playing out is that process of of Bitcoin continuing to drift towards where it should be in the global asset landscape. In my opinion, a much larger asset than it currently is, as you know, since it's currently only one one thousandth of the world's value. Yeah, that's such a great point because because it doesn't exist, the 6040 or the notion of volatility is one piece. This notion of the volatility is opportunity. I think the other two pieces that are missing and why there's so much asymmetry is the opportunity is understanding Bitcoin versus digital assets because people are effectively, they lump generally them all together. And so they're still don't even know how to look at the singular asset in its volatility profile and come to this conclusion. So it's a big part of the education of like, let's look at it as a singular asset, its own asset class, as Larry Fink is now coming out to say. But then the last part is the opportunity is this notion of custody because if you get those other two right, you're still worried about, well, what do I do and how can I size this appropriately because I may lose all the assets if I picked the wrong counterparty. So all these things are almost like are is a perfect confluence of this next kind of like uptrend in figuring out custody with regulated custodians, actors that are there understanding how to price or size it proportionally to the volatility profile. And then also just why you're looking at a singular asset versus a basket of cryptocurrencies, which we would all agree probably look more like a venture style bet. And that's not what we're talking about here. Yeah, that that's a great point, Michael. Mark, correct me if I'm wrong, but you had you had some information about that in the report as it relates to just Bitcoin dominance and how you, how do you think about that Bitcoin versus the broader digital asset space? And just what we see in terms of the concentration of value in Bitcoin versus the rest of the ecosystem? It's like kind of unlike what we've ever seen before in traditional assets. Yeah. And so the Bitcoin versus crypto, what Michael just talked about, about the venture side, which is a side and people are looking at it. Bitcoin has four year cycles and it has a halving and it's price behavior follows it. So let's use that as a as a as epochs or as segments to look at in each of those four year segments. Bitcoin has dominated since it came out as the first one. There were no others. Price discovery Jesse started when like in 2010. I don't think it was O 9. Yeah. I mean, the first markets were 2011, yeah. Yeah, So Bitcoin, you know, was was in existence in O 9 and then pricing in 11 and then other coins came out in you know, 1617, but an E cycle, some of them did well and then they receded. If you look at the top ten, they rotate a lot faster than what you'll see in the S&P 500 where there's a more of a persistence. So if you want to look at investing in something, sure, you can try other things, but Bitcoin has remained the most dominant and its persistence or its dominance as a part, as you know, what is it? Today, 57% of the entire $2.3 trillion digital asset market is Bitcoin and it's been as high as, you know, 80. And what I think, and this is a fundamental part that is a, you know, fundamentally based, but it's, it's based on data and a model. I think that in this space, the criteria, when people look at blockchain, they say, OK, how secure is it? You know, thumbs up, it's the most secure network. But the biggest part is how decentralized is it? Can someone come in three people wake up on a Sunday night, you know, and say August of 1971 and say we're going to change things. Or on Ethereum, you know, we're going to go from proof of work to proof of stake because feedback is we should change it. That mechanism is very different with Bitcoin because of the decentralization, because of the setup. So that that aspect of it I think is why it's dominated because it's playing the long game and the scale and utility is only growing over time. So that that went into the fundamental side. But Bitcoin is different and I think it's a difference, just like how I said, I did the report, because this feature of volatility has been persistent. It's been persistent because it's in its DNA. No other coin has this type of. Codified supply cap or the escape velocity of being decentralized, you can't do it going forward. Everyone's watching. So that's why there won't be another Bitcoin and that's why it's Bitcoin, not crypto. And that's why we got excited about writing this, because it's go time on figuring it out. Yeah, I love that, Mark. And it's also not even just Bitcoin versus digital assets, right? Because if you look at Bitcoins dominance from a return perspective against traditional assets, it's very clear that Bitcoin dominates across equities, real assets, venture, you know, private markets. And there's some really good data in the report around that as well. And I believe what the if you look at the worst four year period of Bitcoin, right because we we could talk about all the upside and how meteoric Bitcoin can be in both cycles. But even in bear cycles, Bitcoins lowest four year period was I believe 22%, right. So we're still looking at a pretty attractive rate of return there as it relates to or compared to traditional assets, which is very impressive. You would think that it would be much lower given some of the downside volatility that we do see in the market. Yeah. And I'm, I'm going to jump in quickly on that one. I think I can really make a good tight point here. That's why people like Michael Saylor who was just on with with you, Jesse, I believe a couple a week ago, he's figured it out and he'll say don't lever it, hold on to it. It's still hard for people to weather the up and down. But to have that number out there to say if you hold it, you will not you will. You have only realized a 22.9% annualized average return over any four year period. So the data is there. The math is there. It still might be hard to do, but we invite individuals to explore, to do their own hodling. This report goes somewhere else. This report says most people might not want to do that or it's too volatile. So use a little bit of Bitcoin, put it in your portfolio and something very unique happens. Your returns go up along the lines of what you said, Jackson about its unique return profile of the long run is positive. Your returns go up and your volatility goes down. There's effectively no price to pay. In fact, drawdown between 1 and 3% is virtually the same and a 5% allocation by our study. There's some positives and negatives. It's almost a push as well. So on an outright basis, it has a positive case on a mix with the multi asset portfolio. Like I think people are unnoticed to why they didn't have this in there and that's why we're having Part 2 of it. Rich Kerr who runs a wake up call is writing a report Part 2 about how this is perfect for Rias who are, what do we call them, disruptors to gather value. So thanks for that intro. That's the distinction about yes, it is good for the individual Hodler because of, as you said, pull it back. You only had +4 year returns 22%. But even the day-to-day volatility is absorbed and you know, Bitcoin jigs when the rest of the market Jags. That's why the wavelengths offset each other. You know, that diversification benefit that that, that Ralph wrote about last week in our in our report. That's why they're coming. They're not coming here because it's, you know, they're, they're, they're on the mission and they think it's a good idea. They're here because it helps their existing portfolio beat others. Mark, curious on, on that. It's kind of like a unrelated related in the sense that you mentioned Rich and, and the RA community is just very fascinating in that independent advisors looking to gain market share in fear of losing market share, being ultimately altruistic. I remember somebody came in was like RA is a very form of like decentralized finance in itself because they're, they're all over the place and they're working with independent, you know, their clients and wanting to protect their wealth. But that made me think of like pensions and the unfunded liabilities and individuals. And it's, it's just a, we all know this was a very beautiful system that impacts everyone. And that is very, we have Larry Fink now very aligned. Like, I know you've never seen something like this. And, and I would imagine you've never seen anything like this in your career in traditional finance and everybody having this like alignment, what they want exposure to it. But do you have any like anything to comment on there? Like what would be the closest coral area? I know you mentioned gold in the 70s, but like how everybody needs a piece of this and we'll ultimately have a piece, you know? Any thoughts on that? Just brought there's nothing like this on that emergent asset class and how we all have to wait for it to be blessed unfortunately by Larry Fink and you know God bless him for for for for advancing it. We're not trying to say so the the only back to the Rias, the only thing in the closest analog is what Rias did in the last 20 years by adopting alternatives, a much broader asset class where they said, hey, you know we're going to create new products that damp involve, you know, whether it be illiquid alts or liquid alts. That's the advantage because you guys don't understand it's too complex. It's almost like the fund of funds of the 90s to investors who said, listen, I've, I've done the work. I know the best 10 managers. And then it went, the RIAA said, I'm going to bring that same model to you the the individual investor. I've been in the market for 2530 years, RIAA number, you know, 1-2 or three. And I'm going to look at alternatives. So it went from hedge funds to maybe some illiquid private equity, certainly private debt now. And that is something goodness gracious, it may work out, but the price discovery in that animal, you know, I prefer the 24/7 price discovery of Bitcoin to to that. So, so Michael, I think alternatives in every RAA would, I think 60% would agree that just the adoption of all turns broadly, but they're still trapped by the same debasement risk or reality that the rest of the market is. Yeah. Mark, you made a comment earlier as well about Bitcoin being a diversifier. And I think there's a misconception out there as it relates to Bitcoin being highly correlated with equity, specifically the NASDAQ. And I would love for you to just shed a little bit of light there because I see it all the time that people will refer to Bitcoin as just a high beta NASDAQ exposure, right, tech exposure. But in reality there are different return profiles and Bitcoin isn't moving with the NASDAQ and it happens occasionally, but it's not like a it's not a high correlation is my understanding. It can be at times and and so can bonds and everything else in in a time. But we have data that shows and we have data. It's wrong Jax. Let me just not bounce around it. It's not highly correlated based on a one year, three-year, five year, 10 year period, it averages less than 40% I believe on all of those. Maybe one of them is 41%. It's in our report. So over the last year, I think it's below 30. So 30 is not high. And then if you want to do rolling whatever measure, I'm not cherry picking here. So that's part of our report. The reason it's data intensive, as Jesse said, is because I don't want anyone to dismiss this saying you only chose this. And we're also following up with another addendum that goes over 12 years of rolling daily data. All right, Yeah, this one. OK, so how can you call NASDAQ and Bitcoin highly correlated or call Bitcoin a three times levered ETF or play on NASDAQ? If, and I'll show you what you're looking at here. Some people like the graph, some people say it's not intuitive. We're looking at, we say what's the 63 day or three months return for Bitcoin. We chose three months because it smooths out the return. It's also how people allocate data or portfolio rebalancing often quarterly. So what's the quarterly return, let's say for the most recent period in our report, which is July, maybe Bitcoin returned 22% and I believe that number is about flat. That means NASDAQ returned about 22%. So call it even, Steven, there's no difference that dot is at 0. But if you look at the day before, it was actually less. NASDAQ outperformed and in say June, maybe it was lower. But if you look at the next day and the next day in the entire what, 7 year period here on balance Bitcoins 63 day return was two times more that of NASDAQ. Our data shows that I think one point. Yeah. So, so in other words, you know on this chart, the weighted average of this whole time period is significantly above 0 when you're comparing Bitcoin versus NASDAQ. Yeah, it's 40 if if you clip all the numbers above that zero line when Bitcoin made more than NASDAQ, I think it's something like 44%. And if you look at all the numbers below and some will get below as much as 50% for a 63 day period, not often, but it does. That average is 18% loss for those periods below the line. And, and we also show that not only those numbers there, but NASDAQ underperformed Bitcoin more of the time than Bitcoin outperformed. So you, you have this favorable asymmetry, which is effectively what good ball versus bad ball is. That's what you're seeing. You're seeing the good volatility manifest in that in that graphic. Yeah. So, so for, for more of the time than not, Bitcoin is outperforming the NASDAQ and when it is outperforming, it's outperforming significantly. Whereas when it's underperforming, it's it's underperforming by a small amount. Yep. That. Looks like option that was looks like an option portfolio that you have to pay premium for. Right. And funny enough, in in this case the premium you have to pay is just understanding Bitcoin. And said we're we're we're we're helping you guys, right? We're, we're, we're trying to reduce the cost of entry here. Yeah, you know that. That's why Team Tangum and Meyers started this place. 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If you believe your Bitcoin is going to be worth a lot someday, don't jeopardize that future by exposing your coins to hackers on exchanges, $5 wrench of tax in the real world, or perhaps most importantly, the risk that you might screw something up with a highly technical self custody set up on ramps. Multi institution custody eliminates single points of failure, reduces your personal attack surface and technical burden, and provides access to financial services that allow you to confidently secure your Bitcoin, including inheritance planning, insurance backed warranties for all balances and transactions, low cost trading and more. Bitcoin is a once in a species asset. Secure it right. Learn more at on rampbitcoin.com. So can we talk about the idea of volatility then, because you know, we're talking about good volatility, we're talking about bad volatility. Could Mark, can you define or explain how you think about volatility as it relates to portfolio allocation? And then from there we could talk about the, you know, the positive skew and the unique attributes of Bitcoin that has more good volatility. But I think it's really important to explain how you think about it because in the traditional finance space, standard deviations volatility is almost always categorized as a negative. But there's a lot more to unpack there. So I think you're the the best person to do that all. Right. Good. And let's let's look at that just if everyone can put that last graph in their head as, as we're doing this, as you said, Jackson volatilities measure that people use as standard deviation and it's great standard. It just simply says, all right, how have returns for a single asset been over the past year, months, whatever. And they say, OK, just like are they in fact, can you switch back Jackson to the distribution of returns that we have, I think, I don't know if you've showed those yet. I can't do that. Let me just give me a second here and I'll get it pulled up while you're talking. Yeah, Look, bring up the Equity 1. So standard deviation takes in both the returns whether they're good or bad, up or down over a period of time. And it says OK against an average return over the period. So here we have Bloomberg's US large cap equity, which is effectively a proxy for the S&P. We chose that because it's it's the index that they use to make up their 6040 portfolio. So they can be apples to apples in our report. And the return there on average is 3.7%. So all those returns over that period averaged 3.7%. But what was the journey like? Because that's what people care about. Because RIA's members are going to get calls saying, hey, why is My Portfolio down on this day? They don't call to say why is it up? Thank you. They say they, you know, people write bad Yelp comments, not good ones. So what this shows me is that it looks kind of evenly distributed, but it's not. There's more punches to the left or to the downside than to the right. So this has a negative skew. So it's standard deviation, its volatility measure would be something like, you know, the VIX is call it 14 to 18, and that means that on any given day, the volatility will be plus -14% but it doesn't distinguish between good or bad, just says that's what it is. Because I'm standard deviation and I don't care about whether it came more from the downside or the upside. I average it and give you a single number. Not great if you have two different qualities that are driving us, but it's good enough for government work. In fact, we have a link to what William Sharp said in 19, I think 97 in a paper saying all these measures, volatility, even my Sharp ratio that everyone bows to and uses. Man, it's got holes in it. God forbid you're bringing in a negatively or positively skewed asset, you're going to have to do more work. So people know it, but they don't care because they look at it as negative because bonds, equities, private debt, all of these assets have this type of character. They are more negatively skewed. They punch more to the right. So standard deviation is now interpreted as being bad because it usually is. So that's a that's a it's wrong, but they've been right in using high Vol with loss. That's that's the landing on this statement. High Vol usually equates loss because of what you see here, a lot bigger numbers to the left, loss of the mean. So I'm going to stop there. I want you guys to kind of bring me back center to see if it what I make sense to the audience here. Oh, yeah, I think that's, you know, again, you're, you're in the details here, you're a bit wonky and that's good. So to, to translate, I think what you're saying is that historically a higher volatility more often than not means a bad day. And that's what this reflects, you know, the, the skew to the left side of the distribution here. So people, traditional investors, traditional asset investors have a fear of volatility because it, it's associated with with bad days. And, and so volatility is typically something that people are trying to avoid. And that might be part of why there's a reflex reaction to Bitcoin and seeing the high volatility that comes with it and saying like, oh, I don't want to be a part of that because volatility is bad. But that's, that's simply because they're, they're bringing over their assumptions about what volatility means from stocks and bonds. And and then I guess we maybe that Tees up the the next chart of showing this, this, this distribution in contrast with bitcoins, which tells a different story. Yeah, yeah. And you know, even on that equity bucket, if you saw the the instances of -16 to -19 percent, it was like 27 instances where you could have lost 16 to 19% and only 17 or so instances where you made 16 to 19%. And let me see if I had that had that right. Yeah, 16 to 14 percent, 27 instances. And then you know, in the, you know, 16 to 19% area it was like 16. So if, if you aggregate the all those numbers, I know I just cherry picked there. But what we don't show here is that in statistics, this has a negative skew of .6 I believe or 9 -, .7. So when people see that statistically, they say on any given day, I'm going to have a some bad news more than good news. It's like a bank. Imagine if you had a bank statement. And every time there was an error, it was because you know, there was a, a loss like, you know, they somehow you, they, they, they took out more money. But when do you ever have a surprise positive bank statement day? And that's what Bitcoin gives you. Bitcoin is a bank error in your favor on given days. And and so that negative .6 is specifically the a negative .6 standard deviation shift from the center of the bell curve to where the the the average is on that bell curve, right? Like it on this in this example that that 3.7 average performance over the time period is to the left of the center of the bell curve and meaning it's point .6 standard deviations to the left of what? Conceptually, yes. And, and I believe the math is a little more, it's more like calculus where it's more of a differential. We have a link to a man report that goes into it and they call it the third moment of data. So, you know, we're not dancing with third moments on this call. But it, it is akin to that, Jesse. It's not as clear as a .6 change in deviation. But the reason I like the pictures is 'cause we can stay away from the math and just be like fat tail. So I think even, you know, Rias and everybody can understand what Nassim Taleb wrote about with the Black Swan and about unusual events, things that aren't in the data. You know, the Black Swan on the lake, it's there. Just because you don't see it doesn't mean it doesn't exist. What we're trying to show you here is that these things exist in Bitcoin. To the upside, this is a fat tail. There's an average, but there's a lot of geography to the right of that that explores things like 100, two 100% gains versus only a down 60 or 55 worst quarter on the downside. So this shows you what you want to have in your portfolio. And at a minimum, Jackson, what you were saying about diversification, at a minimum, this thing is very different than what we just saw. So that's a part we want people to get curious about. Forget the math and the skew. This thing's different. This is just looking at the actual returns numbers that you can gauge each day. Put in a histogram in Excel. You can do this. And and that's one thing that I like about data. I mean, I'm not a quant by any stretch. To learn about risk management and statistics, I had to go through the data and create and go through it and it really helps me understand it when I go through and create the statistics and go and and and generate them and then talk about them. We suggest you do the same. And so for for the listeners, the context is we we had a chart previously that showed equity performance distribution and it shows as Mark said, a very fat tail to the left, meaning that there are more, there's more of a distribution toward negative returns, which as Jesse explained is kind of informing the bias that traditional investors have as it relates to volatility being bad. And now what we have on the screen is bitcoins performance distribution, which is showing a very heavy skew, long fat tail to the right, which means that there are more, there's more of a skew toward large outsize positive returns rather than negative. So this is really critical in understanding why volatility is not only bad as a lot of the folks in the traditional space typically associated, not that there's any, there's nothing wrong with that, right? Like that's just effectively how people have been trained in this environment because there's not a lot of asset classes that look like Bitcoin and have this higher skew or this positive skew to the right, which shows good volatility and outsize returns. Bottoms. Awesome. Now. So Mark, maybe what we could talk about now, go ahead. And Mark just. Sorry to to Jackson if you could pull up that chart again. It strikes me, as you know, sometimes you hear about if you held Bitcoin everyday except the top ten performing days of the year, you'd, you'd I forget if it's be flat or lose money, which is to say that, you know, most days Bitcoin doesn't do much. But there's a few days a year that or a few time periods a year where Bitcoin sees serious upside volatility. And that's represented here on on on this long tail to the right. And so, you know, the process of holding Bitcoin is holding through all of this, like knowing that your, your, your mode day, your typical day is going to be flat, but you're going to get a few days, a few time periods a year where there's a pretty sharp volatility to the upside. And that's what that's the whole game of of holding Bitcoin. And you just defined a positively skewed profile. So to the what we're looking at dead on the average is 18.3, but look at the mode Jesse, it's to the left. So things frequently hit around the mode is zero to -15. Right, right. It's pumping there, pumping there, pumping there, and then boom, green candle, boom green candle and green candle is not the lexicon. Before I came into Bitcoin for 2032 years, you know we didn't have them because it was it was red candles. Downside. Excellent explanation. That's it. Mode to the left of the mean is the definition of a positively skewed profile. Yeah. Now we can take a look at another chart that I think nicely positions Bitcoin enhanced 6040, right, with a 3% allocation to Bitcoin in a 6040. And then you have your traditional 6040 portfolio, US large cap equities and then US bond aggregate index. So Mark, maybe we could talk through this bar chart here and just give, if you can, just a little bit more of a visualization and explainer here, especially for those that are just listening what we're looking at. This really, I think, encapsulates the idea that we've just been talking about over the past 10 minutes. Certainly and thanks for the proud about the describing the visual. So what we're looking at here are is a chart with four different assets and I'll start with the equity asset. It's a large cap equity index by Bloomberg, which is effectively the S&P. They just create their own for their own purposes. And then we're looking at the US bond aggregate and this to fixed income folks is the old Lehmann AG that was around since 87. Barclays took it over when they assumed Lehman in bankruptcy and then Bloomberg either Co opted or is doing a JV. It's the Bloomberg Barclay bond aggregate. It's got corporates in it, mortgages, it's the bond proxy that everyone knows. We choose these two because they make up the Bloomberg 6040. So it's neat to see the two constituents and how they impact the the broader portfolio of the traditional 60 fourty, which is a mainstay for advisors, endowments, etcetera. They may have exactly a 60 fourty or a variant. That's why we choose it because the animal is used still with 10s of trillions of dollars in basically indexed assets. The 4th asset is a variant of the 60 fourty. In our study, we allocate 3% of Bitcoin by pulling away 1 1/2 from bonds, 1 1/2 from equities and we rebalance the portfolio every quarter for five years, total of 20 quarters. In this instance, we do another one which you can read about. We won't talk about this, but we do another longer study as well. So those are the four assets. Let's look at the constituents. Well, let me stop there. Was that clear as far as what we're looking at? And does anyone have any questions here on Jesse or or Michael or Jackson about description before I go into what differences these 4 assets show on good ball versus bad ball? Yep, exactly. That was clear. And then so each, each one of these assets, each one of these 4 assets has 2 bars, the gold one being good volatility and then the green one being bad volatility. Perfect. All right, so let's look at the US large cap equity, which we saw it had a not quite a normal distribution, but a negatively skewed profile. So it's returns punched a little bit further to the left than to the right. So not surprisingly, when we look at two different types of volatility, bad volatility being let's look at the not standard deviation, but the down deviation. Let's do a metric where we look at how variable the negative returns are against the mean of the returns. So on any given day, you could, you know, make her make her lose money. But the variation of losses here is about 14.8%. And when we look at the good volume, excuse me, yeah. And when we look at the good volume, it's only 10.9. So the upside or the variability of positive returns is lower than the variability of bad returns. That goes back to the elevator shaft down. In fact, it's pretty neat because it looks like an elevator shaft because it's the tallest far on the chart. So that's what we do wonky stuff. But look at this. We take all the returns, we say, OK, how about the bad days? They are much more volatile. The good days, not so much. Now let's look at bonds. Bonds are supposed to be a safe haven and a mainstay. And you know they have been for a long while, but less so now. And they also exhibit more downside ball 4.4% versus upside ball in the goal 2.5. So the reason why this is critical and I love talking about it because I didn't even make this in my this conclusion or observation in my report that I'm going to do now. These are the two things that are supposed to provide diversification with each other. Both of them have more bad ball than good ball. So you mix them together and not surprisingly, that 6040 portfolio has more down ball than up ball, more elevator shaft than escalator, you know, and then only an escalator on the way up. Think it's 8.2 versus 7 point O 8.2 of downside volatility and only 7 of upside. So you put those two together, you know the apple doesn't fall far from the tree. They say when you're a parent, well, here you go. Same thing in portfolio management, but we introduce a new animal, a new variant in that last in the final chart that we show here on the Bitcoin enhanced 6040, again, take out 1 1/2 percent of the equity allocation, take out 1 1/2 percent of bond allocation, put in 3% Bitcoin rebalance every quarter and the upside volatility is 8.6 and the downside volatility is only 7.9. You have more upside volatility, Jackson, than the 6040 where you started and you have less downside deviation. So I'm going to stop there because that's the that's the home run. That's a money shot. This is, this changes absolutely everything for portfolio construction. Cause, Mark, what you've just shown here is that you can go from a world where volatility is bad, volatility is not your friend and there's no way to hide from it because bonds and equities share that characteristic to a world where volatility becomes your friend just by taking 3% of your portfolio and putting it into Bitcoin. So you're not, you're not changing all that much, but suddenly you now reap this massive benefit of volatility is now good on, on that. It's now your friend just by, by taking 3% and putting it into this different asset class. And, you know, I'm your focus here is on volatility, but we also know that that performance, it enhances performance significantly as well. And that's going to be I, I think, Mark, what you, what you've hit on here is this is the entire story of how Tradfi makes its way into Bitcoin over the next decade by, you know, shops on Wall Street waking up to the data that you've just surfaced. That's it. Clip that one, Jesse. Thanks for. That's why I come on here to figure out what I'm trying to say. And, and Mark and Jesse, you know, thinking through this live as as we're chatting through all the data, what this really speaks to me is that Jesse, it might have been a point that you made about how infrequently, but how material these moves can be in Bitcoin to the the positive right skew, right. So what that means to me as an investor is that you want to be allocated in the market and you want to have a secure way of owning Bitcoin, right? Because if you're out of the market on the wrong days, if you're trying to time the market, you're more likely than not going to miss the most important days of the year where Bitcoin is generating most of its upside. Likewise, if you don't have a secure way of owning it and we could talk about what exists out there, we don't have to. But if you don't have a secure way to own it and something does happen to your allocation, You think of like hedge funds, investment managers that were impacted in FTX. Well, they were out of the market for a long period of time and they're just starting now to get their capital back. They missed the entire first couple innings of the bull market here. And that is really something if you're an investor, you need to be paying attention to, right? Because if you're out of the market those wrong days and you've effectively neutered a lot of the return that you should be getting from owning Bitcoin. They're not. I mean you, you can't be out of the market and as hard as it is for people to understand the volatility because they've been ingrained with Vol being bad as opposed to evolving only about uncertainty and now you have a asset that gives you more upside surprises and downside. What you just brought up is it's also a bearer asset. So by choosing FTX, cuz you know, Tom Brady was on board or it could or they had good commercials was a bad decision because you lost your, your coins on November 11th, 2022 when Bitcoin was at 16,400 and the courts just said, no problem, we're giving you back 100% of your lost assets in dollars. So you got $16,400, maybe a little bit more than that, but Bitcoin's at 68,500 and rising because you lost that upside. So you're, you're, it is true. And we do this for a living here at, at onramp. But it's why I came here because I got the macro thesis down. But what I don't understand or didn't understand until I came here and talked to you folks is how important it is to hold it. So as thick as this topic is, it's important to know, Custody is more important to know, because if you don't do that right, then this entry point almost doesn't matter because you're not going to have it to realize those updates. Absolutely. And so, Mark, want to be mindful of your time here. We're almost an hour into this. Are there any other topics that we should discuss before wrapping up here? Obviously, we do want to encourage people to check out the report that's on the website, free to access. And we also did record a podcast with Fidelity Digital Assets, Chris Piper, the Director of research there on the wake up call with with Mark, Jesse and Rich. But maybe as a place to to leave it. Any thoughts that we didn't cover or any thoughts about just how do firms kind of now utilize this data that we've shared in the research on the podcast? How do they utilize that and implement it as part of their investment strategy or or for their clients? Sure. If you want, you want to call us, I think we, I'll check our compliance, but we may be able to share some of the data in soft form in case you want to repurpose and and attribute it to us. I would suggest just emailing us. We, we try to make Nuggets and we're coming out with some on social media to act as, you know, easily accessible, digestible Nuggets that will lead you to more insights. But it's an RIA. All you have to think about is I think adding a little bit doesn't disrupt what your client sees on on bad days. That's the biggest take away. I don't our data suggests that adding a small amount of Bitcoin to a traditional asset portfolio or to a multi asset portfolio will not prompt bad calls from your client because it has more upside than downside. And we think it'll help you differentiate from all the other competition or or your, you know, the other advisors who are still playing by yesterday's game with more downside than upside. That's the biggest take away. So call us up. It's there. I've spent time on it, I've channel checked and I don't think this is widely known is why we're spending a lot of time on it. Yeah, that's a great point Mark, to push out to the market. Rich and the team have a lot of conversations with institutional investors, Ras and it's something that comes up often is, you know, effectively the air cover, right? If you if you're understand Bitcoin deeply, but you're at a large organization, it's somewhat daunting, if not possible to bring this up without the appropriate documents team behind it. So we're happy to lend those resources, whether it's the documents or our team at On Ramp that has backgrounds in supporting things like this. So yeah, please reach out and we're going to be opening up more of these research papers and just things to help make the ultimate case for where an individual all the way to an institution needs exposure to Bitcoin. Absolutely. Well, Mark, excellent work on the, on the research. I know that's been a slog for you and it's, it's just extremely well done. So I would encourage anyone who wants to dig deeper into the data. We have about 50 pages of research of charts for you to leverage in your conversations to help, you know, make a case within your firm as relates to allocating to Bitcoin. And as Mark said, you know, we're just a call or e-mail away. If you do want to get in touch to discuss the report itself in the findings or if you want to discuss implementation and how to think about allocating to Bitcoin and the various products out there, we have you covered. So Mark, thanks again. Just fantastic work and really excited to see what conversations we have that that are brought about from the work that you've been doing on this piece. Great. Thanks, Jackson. It was really helpful to to RIP through this with you guys, Jesse and Michael, because you're, you're seeing things that I don't because I'm so close to it. So thanks for that. Awesome conversation, Mark I, I think everyone should go check out the report. It's really cool that the graphics, the charts that Mark put together tell the story very cleanly. So, you know, add that to your quiver of arrows for making the case for Bitcoin. Thanks, Mark. Appreciate. That Take care folks. Thanks for listening to this week's episode of the show. If you found the information valuable, please share the episode with a friend or leave a rating on your favorite podcast app. All the links we discussed in today's show will be in the show notes inside your podcast app. Before we finish, a quick reminder that On Rat Media is for informational and entertainment purposes only, and nothing should be construed as investment or legal advice. Regardless of where you are on your Bitcoin journey, we'd love to hear from you. Visit onrampbitcoin.com/contact to schedule a consultation with one of our private Client Advisors.
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