Transcript+
Thank you for joining us today. We're excited to bring you a brand new show from the On Ramp Media umbrella. Wake Up Call is a weekly show that will be streamed live on LinkedIn every Monday morning. To catch the premiere of each episode, follow On Ramps LinkedIn page and add Wake Up Call events to your calendar. After the live premiere on LinkedIn, we will distribute each episode across On Ramp Media's podcast channels and YouTube page. Wake Up Call aims to educate financial professionals on the merits of the Bitcoin investment thesis, how this asset represents both a threat to legacy financial service businesses and an opportunity to differentiate oneselves and retain and attract new clients. Hosted by Mark Connors, Onramp's Head of Global Macro Strategy, and Rich Kerr, Onramp's President of Managed Wealth, this show seeks to provide financial professionals the wake up call they need, prompt them to have an open mind with respect to Bitcoin, rethink their prior assumptions, become more educated on the topic, and learn from others who are already farther down this path. Mark and Rich bring a combined 60 plus years of experience across traditional markets and financial services and will share their unique perspectives and how their peers and colleagues can approach the realm of Bitcoin. Wake Up Call will feature guests from various backgrounds and industries will also share their own journeys to Bitcoin and how others can get up to speed. Now time for the show. Right. Well, good morning everybody and welcome to a special Tuesday edition of Wake Up Call following our Labor Day weekend. I'm Rich Kerr, President of On Ramp Managed Wealth joined by my Co partner Mark Connors, who is our Managing Director of our Global macro. And today we have our special guest Jackson Mikaelic, who is the Vice President of Strategy and Sales on the institutional side. And so we're delighted to have Jackson back and we're going to discuss a little bit about the 13 F filings from Q2 and give some insights on that and talk a little bit about some broader themes that are happening in the space. I think yesterday, Mark, we saw some announcements about Russia taking a little bit more of a proactive stance with Bitcoin and potentially allowing certain companies to make cross-border payments in order to kind of combat some of the sanctions that they're dealing with. But at the same point in time, I think in November, November 1st, if I'm not mistaken, Russia is going to be able to go live in Bitcoin and crypto mining under I think some level of regulatory oversight. But nonetheless, that's a big step forward for Russia in in a pro Bitcoin, pro crypto stance. And so I think there was an Ernst Young report that was talking a little bit about some of the things that are happening in India relative to their framework or policy framework that they are trying to push out this month around Bitcoin. And so it's a lot of interesting things happening in large players around the globe. And so we'll maybe we'll talk a little bit about that. And I know, you know, last week we kind of hinted at some, you know, earnings dialogue and and I think that there's some really important insights that maybe we might be able to discuss on that front as well. So Jackson, before we kick to you, I just want to say welcome and thanks for coming back. But we're going to kick over to Mark and maybe hear a little recap of how he's looking at the world this Tuesday morning. Awesome. Thanks for that Rich, and remind me to come back to that Russia comment. We we have some data on our terminal we're going to touch on about maybe why Putin at all are are highlighting the need to add Bitcoin to their economy and free it up. So yeah, I, I think you know, it was the best of times. It was the worst of times, depending who you looked at. But the the two earnings releases last week that I think show what has been going on and what will go on is comparing Nvidia's release with its mild disappointment in the aftermath on the price, but numbers that were just spectacular comparing that to Dollar General. So think of it, you know, old economy, new economy. And with this comparison, we're going to talk about, we're going to show you where dollars are going into, where the broader consumer, what the sentiment is of the broader consumer and also how corporations are constrained, how they're managing with lower managing through lower margins. And Jackson's going to tug on that a bit and discuss maybe how some treasuries are using Bitcoin to offset margin compression. So back to NVIDIA quarter over quarter, sorry, quarterly change on the year. Revenues were up 122%, earnings were up 168%. On the flip side, Dollar General's earnings were down about 20%, pushing the stock down 33% on the day Rich yesterday, I mean last week after the earnings release. So let's look at the two companies. It's like go big or go home. NVIDIA is a $2.3 trillion market cap, up 149% on the year, logging $30 billion of quarterly revenue. Dollar General is an $18 billion market cap. That's almost half of the revenue that NVIDIA logs in a year. And what what I wanted to talk about for a second is how are they generating that revenue or, or revenue of $10 billion that aggregates to an $18 billion market cap. They have to fund and manage 19,000 stores across the US and Canada, and they're adding hundreds more in this environment. So as prices go up and although we know headline inflation is dropping, we all know that the price, the cost to insure, as Warren Buffett reminded us, is going higher. In some places, property insurance is up 50% on the year. So these folks are just scrapping and clawing in order to just, you know, maintain a positive earnings, which they had at Dollar General. But their business certainly requires things like pushing out payables, pulling in receivables, letting inventories rundown to the tune of $800 million year over year in order to generate cash. They're doing all the right things, but they are constrained. But the line that I think, Rich, you highlighted to me, which I loved only because, you know, these folks at Dollar General, again, they've been in forever. We're not malign the management at all. It's just, you know, it's a tough slog to generate revenue by enticing people to come into one of your 19,000 stores to hopefully have the inventory available that they want at that moment. And the line that you bubbled up to me was we are feeling the pinch of an investor that feels constrained. So their consumer at the lowest level, the Dollar General level, if they can't, they are constrained to come in and spend a dollar on an item. That's that's not overstating it. I don't think rich is it. Yeah, no, it, it was fascinating. I think the CEO was was really transparent about what he was seeing in the in, in the earnings call. It just struck me, you know, that people were forgoing necessary consumable purchases, right? Necessary purchases inside of his, you know, customer base in in such a significant way. If they're forgoing those small purchases, right, You know, one could say, well, is it a necessary expense or a discretionary expense? Either way, they're forgoing that dollar purchase because they are concerned about, you know, being able to one, fill up the gas tank to be able to get to work, pick up the kids, do whatever they need to do to, to live and two, to, you know, pay their mortgage or their rent and ensure that that's happening. And so if people are really, really being being compressed to the point where they're walking away from their Dollar General purchases, you recognize right away that the consumer is really in trouble. And this is a a Canary in a coal mine in many respects. Perfect. You know to what? To what? You know. You and I were speaking about Mark off camera. It. This is, this is a consumer that plays a very important role in our economy and it all, you know, it funds, you know, these small purchases, you know, fund greater purchases and manufacturing and, and distribution and everything else. And so it's a, it's a real problem that we need to pay attention to when people are really struggling on that. You pulled on the Economy one O 1 thread there by talking about the necessity of this bottom quintile, bottom 2 quintiles wage earner. So even though these folks aren't the large asset purchases, whether it be homes or consumer durables, the, the role of that bottom buyer, the bottom quintile buyer in our economy, the the low wage earner is critical. As you said, there's something called marginal propensity consume. So I'm going to, I'm going to take a risk here by going a little bit deep into, into wonky words. The lower income cohort is more likely to spend a dollar than any other higher or mid wage earner. And when they start pulling back, the economy feels it. So that may be, you know, what we're seeing here with Dollar General. But if that's the case, there's more to come and and there are other sides. Mike Mcglone at Bloomberg did a piece over the weekend he does commodities talking about deflation. So yes, we have, you know, NVIDIA stocks still up, 150 technologies going up, you know, gold's up, bitcoins up. But there's also deflationary pressures and that comes from when people withhold spending and and we had these two forces at work clearly here through dollar generals, declining margins, declining earnings versus NVIDIA still knocking it out of the park. So it's sort of tech versus old school. And you know, with that, I don't know, makes sense, Rich to bring in what Jackson's been gleaning from the recent 13 F filings on Bitcoin. 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. Onramp 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 setup. For more information, check us out at onrampbitcoin.com. Yeah, I think it does. So Dex, and you know, we kind of teased at the beginning, you know, you, you follow 13 F filings, you know, fairly closely, especially inside of on ramp, you know, in, in developing institutional strategy, but also in your sales, you know, conversations that you're having with, with various institutions. And so, you know, you kind of are the resident expert inside of on ramp as it relates to 13 F. And, and you know, we'd love to hear some of your thoughts in the latest report. You know, I, I did take a quick look and I, I was, you know, relatively pleased, right? You know, and you saw 262 new institutional positions, but you also saw significant holdings coming into play from, you know, the traditional wire houses with the approvals for solicitation happening with I believe Goldman Sachs. And then you know, also Morgan Stanley. And I can't recall if I saw Wells Fargo has approved that or not. But you know, maybe I'll let you kind of talk a little bit about that. Yeah. Well, thank you, Rich and Mark, good to be here with you guys today. Appreciate the opportunity to join. Certainly tough to follow up and act like we had in the first quarter where Bitcoin was up I think over 60%, I want to say, and it's up about 45% year to date. I know we've spoken about it before, but Q1 was just a really exciting time for the adoption and maturation of Bitcoin as an asset class with the ETFs being approved in the US and then soon after starting to trade. And Q2 is a little bit less exciting. The price action was playing a part in that a bit with the Bitcoin price being down, I believe about 13% for Q2. So it was not really anything alarming or anything that we're not used to is just kind of business as usual in terms of Bitcoin being a bit more of a volatile asset, just given its nature as a a nascent asset class, something that's only existed for 15 years and the market is still trying to sniff out. So wasn't as exciting as Q1 is, but obviously hard to top the quarter where these long-awaited financial products were approved and began trading. I believe we're at about $50 billion of assets under management for the ETF complex as a whole. One thing I do think despite the, you know, a little bit of a slowdown in quarter over quarter growth and inflows, it is still worth noting that despite the price correcting a bit in Bitcoin, it was still in positive net inflow to the Bitcoin ETF complex with actually investment advisors leading the charge as it relates to net inflows, which is encouraging to see. So they had about $1.1 billion of net inflows across investment advisors. And then the second largest cohort in terms of new purchasing was actually retail investors. I think it was about $600 million or so in terms of the breakdown and still largely a retail product. I think first quarter we were at 80% ownership of the Bitcoin ETFs was attributed to non filers and then in Q2 that was 78%. And you know typically non filers going to meet an individual investor. But with that it's still the other top three in that cohort would be hedge funds, investment advisors and brokerages. And like it said, investment advisors were the largest net inflow for Q2. And that's in my opinion a positive thing because investment advisors are fiduciaries for their clients. So they're only placing client assets into these products when they believe it's suitable for a portfolio. They're not incentivized to be pushing product on client. So it really means that the advisor is starting to understand the use case for Bitcoin in a portfolio and recommending it as it's needed for clients in their broader traditional asset mix. So that's encouraging I would say. And investment advisors, Rich, you'll know better than any of us in the room today. But yeah, investment advisors, they take a long term strategic asset allocation as relates to their clients portfolio. So if they're making an allocation in portfolios, it doesn't mean that they have necessarily a bullish outlook the next month or next quarter on Bitcoin, but maybe they find it suitable for the next 5-10 or even longer amount of a longer time horizon for their for their clients assets. So I could take a pause there. I can keep going, but not sure if there's any initial reactions to that data. Yeah, no, it's you're, you're spot on relative to the strategic asset allocation in the registered investment advisory space. And and you know, it was interesting. I was reading some, some data points and, and it just kind of confirms, you know, you know that point that you were just making, right. 45% of the institutions or asset managers who have already entered into the ETFs have have increased their their positional allotment over the you know from Q1 to Q2, which I think is fairly significant and I think it was close to 25%. Let me see I might have it here. 22% of those held firm and only 13% exited the position completely based off of the the volatility that we saw in. And so that just tells you that largely, you know, directionally that's that strategic asset allocation holds true and that they will continue to cost average clients into a position that represents what in, in maybe their eyes, you know, volatility being a challenge. They want to step into it and mitigate that for clients and continue to add to positions during, you know, these modest kind of choppy, you know, sideway polls that we have post a post having event. So very interesting. Yeah, I agree, certainly was encouraging to see the, you know positive inflows for the quarter despite the price action bridge. One thing that you mentioned kind of teeing up the conversation around 13 apps was the wire houses and larger broker dealers. What one thing that was announced, it might have been after the second quarter, but it was announced recently, was Morgan Stanley opening up the solicitation of Bitcoin ETFs to their clients. And this is like big headline news. I know on LinkedIn and on Twitter and other circles where people like to follow industry news and Bitcoin, it was talked about quite a bit. But there was actually a little bit of nuance or fine print as related to that statement that I think is important to flag here. And if maybe in my opinion, goes to show that they're still a bit of a misunderstanding of Bitcoins value proposition and position in a portfolio. Because what Morgan Stanley ultimately greenlit for their advisors was solicitation of Bitcoin products and and solicitation meaning that they can bring it up to their clients, right versus unsolicited would mean that the client has to bring it up to the advisor for for there to be a conversation. So now Morgan Stanley advisors can solicit some of their clients, but the keyword there is some and it and it requires them to have a net worth over one and a half, $1,000,000 and it requires them to have like a state. I believe it's a stated aggressive risk tolerance and an interest in I think they deemed maybe speculative assets that I forget the exact language, but that was maybe it was desire to make speculative investments. So while it's ultimately a good thing to hear that Bitcoin will be brought up in more conversations and advisors, you know, will become more educated on the topic to have those conversations, there is a bit of a nuance there, right? Where it seems that Trav Phi as a whole still is coming to terms with what Bitcoin is as an asset class and viewing it as a very risky or highly speculative investment that may not be suitable for clients that don't have over one and a half $1,000,000 right and in my do. They allow them, do they actually allow them to buy Treasuries, Jackson? Yeah. That's, that's not a good point, Mark, because we should talk about that because. Sorry, I think. No, no, it's, it's great. I think you know, one, one thing to highlight there is I would argue that folks that are, you know, of retirement age or nearing retirement age, Mark, to your point, they need Bitcoin to some degree. Doesn't mean that they need to have an outsized position, but they need to have some allocation in my opinion, to offset the fiscal realities that we're we're grappling with, right? Like isn't it, is it not a mathematical certainty that over the long term horizon, U.S. Treasuries will have to pay a negative real return because of just where we are as a nation over encumbered by debt? So I think that there's a strong case for conservative investors to be allocating some portion of their assets to Bitcoin. And on the flip side, if you don't have a one and a half million dollars, I think that those people are also people who really need Bitcoin because, you know, advisors as they bring on maybe some millennial clients and eventually Gen. Z as these become clients that are advised, they are buying into all time high valuations of every other asset class and they've effectively been priced out. I mean, the median home in the US is almost a half $1,000,000. So forget about buying even, you know, a lot of people can't buy their first home, let alone a second or third vacation home or investment property, right? So Bitcoin offers an opportunity to buy into an asset class. It's still emerging. It still could play a part of kind of levelling the playing field for maybe a generational difference in wealth that we're seeing, I think the greatest of all time in the US. So, Mark, maybe it'd be a good time for you to just speak about, you know, your thoughts, Bitcoin U.S., Treasuries and, and how you think about that from a global macro perspective. Yeah. So our, our thesis is simple that there's a problem in tradify and in traditional investments and it's terminal. If you ask any, any seasoned person in the industry and saying, all right, if you could fund you, your life, your 55 year old self right now for the next, you know, 30 plus years. Do you think putting everything into a 3.9% or 3.7% treasury, you're set. You think that you will not eat into your principal and it's a question of how fast to the bottom. Everyone says they know that. They know their insurance, their housing, their taxes is all going to grow higher and it's 3.9%. There's not a single person I've spoken to that says no. You know what? My lifestyle, insurance, healthcare, all of that, no problem. It's only going to grow 2% a year. Nobody thinks CPI at two and a half, 3%'s a real number of their cost of living. It's maybe their cable bill will not go up as much. Maybe they can eat some low nutritional value meals, you know, at the supermarket and pay the price later. But they all know, as you said, Jackson, treasuries don't fund you. The real rates are negative. So we're going to push that to the side a bit because we have a lot of bodywork and every kind of agrees to it. The hard part is getting people to say, well, what else can I do? And I'm going to pop on our terminal for a second. I know we practiced here in the. Yeah. In the green room. And so let me make sure I can do it here. Yes, I can. While you're pulling that up, maybe. I'll just help. Everybody understand what you're referencing. So this is the Bitcoin terminal and, and all of our clients have the ability to access this, this tool, which is a wonderful resource and being able to look at various components that may affect your Bitcoin holdings and, and, and different, you know, capabilities. And Mark's just pulling that up to just share this with you all. And so this is our our main page look at Bitcoin over the last year, how it's done. It has some some, it has some data that at least you should ask questions about what's open interest? Well, they're also futures. So you have some Tri 5 folks trading futures. There's also something called dominance bitcoins, $1.2 trillion, that's 56% of the entire digital asset market. So just just familiarizing yourself with it may help adoption, may get you more comfortable with introducing into your own portfolio or just asking questions to get there. So where I'm going to now is on treasuries, corporate and government treasuries. We'll hit, you know, we hit government first just to show you, Rich, you, you said that Russia was changing some of their approach to Bitcoin. And so, you know, ever trying to poke the bear, literally the Russian bear. Maybe it's because Ukraine has 46,000 Bitcoin. It ranks in the top five as, you know, shared holdings across sovereigns, Obviously not obviously, but the US being the largest #2 China. So are other people going to join the parade? Sounds like you know, you think or you know that Russia was but let's go into corporate treasurers and asset managers. These are companies that own Bitcoin. So Jackson just went over some of the ETFs. These are the largest non sovereign holders. You have iShares that's obviously Black Rock Fidelity here with 180,000 coins tokens. You have another asset manager and any block one, but let's go over here to the Gray. We moved from asset managers into corporations. MicroStrategy is a corporation that four years ago adopted it when they started issuing debt and equity a buy it. At the time they did it, I think they were a billion dollar enterprise value, $500 million of equity value and I, I believe a $500 million in cash, a billion dollars of enterprise value. I think, I think there may be about 12 billion right now in total value on the order, but Tesla's another entity. So in other words, we're just bubbling up data that may not be readily accessible. It's not something that Gen. Pop is readily made Privy to. You know, New York Times is not printing this economist, obviously, I'll say obviously because they have misinformation. But we curate it on chain and from corporate filings. We have a team that's dedicated to this and it's live on our terminal, as Rich said. So with that little promo on our resources, I want to, you know, push it back as we're running up a little bit on time here to say great information. We know Dollar General's given us a window on a declining appetite of the standard consumer. Nvidia's an idea that, well, if you don't have a technology solution, you know, you're not going to have a 75% gross margin or earnings grow 160%. But what does that mean for Bitcoin adoption guys? You think in the next, you know, 3 to 12 months, where's it going to come from? We had the ETFs. What's next? Yeah. Well, Mark, I would say that Bitcoin is a technology solution for individuals as it is for institutions to protect themselves against a rapidly debasing dollar or other Fiat currency, right. Like you'd mentioned earlier in the conversation that no one really believes that they're, their costs are increasing at, you know, 2 1/2 or 3% CPI. So everyone, whether you're a publicly held company, a private company or an individual or an asset manager, everyone is facing the same realities that costs are increasing and there needs to be a way to preserve and grow that wealth. And Bitcoin ultimately is something that we've all come to agree on as a great store of value over the long term. I think to your direct question, it's always exciting for me to just be able to follow quarter over quarter what's happening in the ETF world and what what I think will continue. As we started 80% retail ownership of the ETFs in the first quarter dwindle down to 78%. So not a material change, but I believe that that is the trend that we'll continue to see is retail investors will decrease as a percentage of ownership relative to institutional investors entering the space. Like I said, Morgan Stanley is just one example of a larger firm in the wealth management space. And even still, they are cautiously approaching Bitcoin and solicitation of these new ETF products with their clients and some of the larger pools of capital like pensions. For example, we saw Michigan announced that they have Bitcoin ETF holdings, but as a whole, pensions are very slow to allocate to new asset classes. It could take several years for for them as a cohort to do due due diligence around Bitcoin and hopefully they started it years ago so that that would put it in a put Bitcoin on a near term horizon. But these conversations take a while. There's an investment consultants that they have relationships with and rely on for a lot of investment research and due diligence. So I think that we'll see largely as a theme, decreasing retail ownership relative to the managed wealth space and institutional investors. It might happen at a little bit slower clip than one would hope, but this is just the nature of conversations. These firms don't tend to rush into new decisions or new asset classes. They cautiously and thematically approach them and that's a good thing ultimately because as people become more educated on Bitcoin as as the three of us have don't want to continue to increase their appetite and exposure for the asset class. That's a, That's a great summary Jackson. And and you know, maybe maybe we can close down on, on, you know, some of the things that you're talking about. I know that you are hosting a webinar coming up in I believe September 10th. Yes. Yep, a week from today. So if somebody is on this call or listening to the, the replay and they're interested in learning more about, you know, not only, you know, Bitcoin, but but more importantly, the custody implications and how to think about the evolution of, of Bitcoin and, and custody and how to access and properly secure the asset. You know, where would they go? How would they sign up to be able to attend this webinar? Yeah. So on our homepage on Ramp Bitcoin Comm, there's a recently published report called The Evolution of Bitcoin Custody. Our Chief Strategy Officer, Brian Cabela has put that together just recently. So anyone's free to check out our website and download that report. We'll have links in the show notes across socials for the upcoming webinar next week. So you'll be able to find that easily on Podcast Player and generally, if you just want to get in touch to learn about what we're doing here at Onramp, you can book a consultation directly on our website as well on the homepage or always could reach out to any three of us on this call and we'd be happy to, you know, engage further from there. That's awesome. Well, thank you Jackson, we, we appreciate you joining us today on the wake up call and, and sharing some of the insights with the the exchange traded products in particular for Bitcoin and, and helping us understand the adoption is still steadily moving up. I think we're close to 1200 different institutions were were spotted in this filing. So that's, you know, showing, you know, good traction and of course, the assets under management in the space has been stunning over the course of the past eight months. But thank you for the heads up on, on the webinar. And the one thing I would just leave with our guests over the course of the next 4 weeks, I think Mark and I have a really exciting docket of guests that are going to be joining us that are actually registered investment advisors and or banks that have adopted Bitcoin. That bank in particular, I believe is up in Canada and they've been actually in the space for over over 3-4 years now since Canada was able to approve their products ahead of the United States. But that being said, we, we have three different Rias here in the, in the United States who have actually developed a, a, a wealth management offering that includes Bitcoin and, and the way that they are attracting new clients and, and growing their business and, and, and empowering their clients to weather some really interesting times as we've talked about today. So that being said, Mark, always a joy to kind of get your insights and pick your brain on the things that you're keying on. And you always have such a tremendous level of education to share, not just with our audience, but I, I pick up something new every single time I get a chance to speak with you. So thank you for that. And Jackson, we appreciate it. And we'll see you all back on our Monday calendar next week. And, and, and we'll get busy talking a little bit about practice management elements and how to integrate Bitcoin into your business so. Thank you. Thanks, gentlemen. Thank you, Rich. Thanks, Jackson. Take care, everybody. 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 Onramp 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.
Transcript source: fountain