James Check: Spot Buyers Saving Bitcoin Amid Time Pain

Hi everyone, welcome back to Stefan Lovera podcast. Rejoining me on the show today is my friend James Check, aka Checkmatey from the website Check on Chain, which is a great newsletter, I'm a subscriber myself, and, yeah, I'm interested to, get, get into your thoughts, James, on, you know, where things are at. so yeah, welcome back to the show, and, look, we're in this bear market, I know you have your framework where you talk about price pain and time pain. So Let's just start there. Where do you think we are?

Yeah, I mean, it's good to see you again, mate. It's been, it's been a long time. yeah, so my, my framework at the end of the day, market cycles, the way I try to analyze things, it's all about human psychology. And a lot of the metrics we look at in the on-chain world, I, I think people fall down the wrong-- and I get it, it's very natural. They're looking for predictions, they're looking for something or some metric to Not how it works. So the way I look at things is by human psychology. And bear markets, they go from euphoria to utter despair. There's a journey obviously between here and there. But I've said this before that the last day of a bear market is the worst day, and it's actually the first day of the bull. Doesn't feel like it at the time, but we're trying to understand that spectrum. So, twenty twenty-five was an interesting year. We didn't have the bull off top most people expected. We didn't get to the price most people expected. And I think the other thing that people may not have understood at the time as much, Bitcoin entered a bear market versus gold and silver and AI stocks from about January twenty twenty-five. It was the best performing asset in the world, above everything else. And just to give people a, a sense of scale here, going from the twenty twenty-three bottom, and why I think that's a very fair, so the first January twenty twenty-three, that's a very fair starting point because it was at the ass end of the twenty twenty-two bear market, everything got hit, right? Everything, bonds, golds, stocks, the whole lot, so everything's coming off the fastest rate hiking cycle, blah, blah, blah. Silver's parabola, which had bitcoiners losing their mind, absolutely losing their mind on the timeline, silver's vertical parabola, literally, including Bitcoin's drawdown at the time when it peaked in January twenty twenty-six, matched Bitcoin's performance to that point. So that just gives you a bit of a sense of scale that Bitcoin did really, really well up to January twenty-five. But then everything else started to run, so we kind of entered this bear market or this, parabola euphoria, I like to call it, where we were watching all this other stuff going up and like, "Yeah, Bitcoin got to a new high, but, you know, from a hundred and ten to a hundred and twenty-five," and it just wasn't enough for people. Then we had what I call the price pain capitulation. So in, in November we sold off from one twenty-six to eighty. That is when I think most people realized, "Oh, hang on a second, that's not a dip, that feels different." And then when we got to sixty K in February, that was what I call the price pain capitulation. Everyone who owned Bitcoin at that point in time, who was like a, a fleeting buyer, a "fair weather, I'm here for the good times," suddenly they get hit with the bad times, they go, "Nah, I Now, there's still a ton of people who are like, you know, they're not as experienced or they keep thinking, "Don't worry, it's gonna come back." And then you go through what I call the time pain phase after the price pain capitulation, and I, my equivalent level to this in twenty twenty-two was June. June, I think, was now February, that's when Three Arrows blew up, Luna's gone, but FTX hasn't blown up yet. We bought, we hit like seventeen six, seventeen thousand six hundred, and then we chopped sideways for like And then we had FTX. Now, FTX was a lower low, got to fifteen six, like in the grand scheme of things, when you zoom out, is there much difference between fifteen thousand six hundred and seventeen thousand six hundred? No. Like in the grand scheme of things, it's, it's the same price, but the difference was the eight months that separated them, and that's painful because, I'm often reminded, I forget the numbers, but there's that beautiful Bitcoin tweet from way back in the day, it's like, "Bitcoin has finally stabilized at like a hundred and Get my money back and sell. And I was like, "He's selling right before the start of the bull market, right? But he got bored of the time pain, that choppy nothingness, you just lose your mind." So, I'm of the view that the time pain phase, it's, you know, back then it was FTX, for, for this, I think strategy was always gonna be the scary thing in the room. it was kind of the only big animal large enough to spook people and be like, "Hang on a second, what if We've kinda gone through, I mean, there's a whole topic there about what happened with strategy. I think they've more or less waylaid a lot of those concerns. Doesn't mean the market's gonna just start ripping higher from there, but I believe we're in this time pain phase, and you can see it and realize losses. February was the biggest. That's where we just had an absolute puke. Everyone just puked out coins at the same time. This time pain phase, it's not as bad. FTX, if you can believe it, the losses that we're getting exact same as right now. And why? Because you shake out the majority, and then you gotta get out the laggards, the folks who think it's gonna come back or they just-- they think they can handle the bear, but they can't actually handle the boredom. That just grinds them out, and then they go, "Ah, no, I'm out, I'm done." And they all usually sell pretty close to the bottom.

And I guess another way to think of it is like, y- as you, as you were mentioning, like the tourists kind of leave, they're not here, then, you know, the hardcore people who've been like multi-cycle people, they're kind of alright with it 'cause they've already been through a few cycles, they kinda know what to expect. And so I guess maybe it's like people who are just sort of just starting to get serious, they're kind of in that middle, right? They're not the total tourist, but they're not like a multi-cycle OG kind of guy.

it's, it's their second cycle, and they're like, "What if my thesis is actually wrong? " You know, like, "What if I..." And that, that challenges their conviction. You've seen this, I mean, people start to crash out. They go, "I just, like, I just can't do this anymore. What if Bitcoin's... What if gold is actually gonna eat Bitcoin's lunch? " It's like, just Take a step back for a second, we're down fifty percent from the highs. It is in every measure the shallowest bear market we've ever had. There's a bunch of, on the on-chain side, very similar to previous bears, but like the drawdown is nowhere near as bad. Bitcoin isn't-- like, you went through the twenty fifteen bear from memory, I wasn't there, but I've studied it enough to know that that was a bear. That is a bear market. That was the

worst. Not even, yeah, still not

even close to that. It was a year Back from that. So twenty eighteen has its own characteristics, twenty twenty-two, I was talking about this to some of my clients the other day, the narrative is always that Bitcoin is dead for a prolonged period of time. And that prolonged period of time, let's go to FTX, it was dead for a decade. That decade lasted from the 18th of November until the 1st of January. That was how long that decade lasted, like people just lose their-- they lose their conviction right at the end because they can't deal with the sidewaysness. That time pain is brutal.

So, but, but eventually, right? And you run out of sellers, right? Like you run out of people who are willing to sell because you've kind of ground down to like those really, you know, diamond hands, And, you know, that is sort of the-- and then the, the colloquial DCA army, whether that is kind of everyday, you know, hodlers and, you know, treasury companies and ETFs and whatever, like they all start to, you know, get their accumulation. Now, I guess I'm curious to get your thoughts because you're also looking at this in terms of Who is making up a split, right? Because people would just be like, "Oh, it's all Michael Saylor, or it's this, or it's ETFs, or it's..." You know, how would you kind of break down the cohorts a little bit here in terms of who's still here and who's doing the act, who's really buying?

Oh, this is such a great time to bring this up because the narrative has been for the TradFi critic, Saylor is the only one propping up the price. I'm like, okay, he just sold three and a half thousand Interesting because we've never seen, like, the ETF is a new cohort. There are a ton of retail hodlers in there, people who put their retirement accounts, blah, blah, blah. But we're watching right now the biggest outflow that the ETFs have ever seen. They're doing it when they're down twenty-five to thirty percent from, like, the out-- we can't perfectly measure the cost base of the ETFs, but it's about eighty-five K, eighty K, they're down twenty-five, thirty percent, and, if you price every inflow, it How many coins are currently in profit or in loss? How many dollars of inflow? Eighty-seven percent of them are underwater, so that's brutal because like fifty percent of the coin supply is underwater, and then eighty-seven percent of the ETF inflows. To me, this looks-- I think we're gonna look back at this current last like two months And we-- and there's two things we'll observe from it. One, this is the ETF capitulation, the first time we've got to see one of these, so that's one cohort. But isn't it funny how the narrative was that Saylor was the only one propping up the price, ETFs are only propping up the price? They're both sellers. So who on earth is buying this thing? Why aren't we at zero? Because it turns out, hey, look, there's a pool of spot buyers out there. There is a natural pool of spot buyers for Bitcoin, there No, look, they're big and they're meaningful, but even with all of their buy side, they're four percent of the coins, right? That, that's-- there's ninety-six percent that aren't in sailors' treasure, right? So people, people just get lost in the source of, of, of worrying about these individual named entities But you gotta remember that, like, there's just this pool of natural buyers, the spot markets that existed before Ibit, before the ETFs, before the derivatives, before the stablecoins. The spot markets have always been there. And Bitcoin spot, buyers, they were the biggest sellers in twenty twenty-six. Everyone's trying to blame paper Bitcoin and treas-- now, Treasury guys had a role, but, they're trying to blame derivatives and all this stuff, and I'm just looking at hodlers selling on chain. I'm like, I mean, look, you-- yes, Some funny games, but like, have you seen the three billion dollars worth of sellers yesterday and today and the day after? They might have something to do with killing this bull, and then you flip it over and everyone's saying, "Oh, strategy's gonna sell us down to zero," and the ETFs are puking, it's like, "Yeah, but we're not at zero, are we?" So there's a pool of buyers out there. People forget the spot market 'cause you can't put a name on it, you can't put a nice clean label, but that's ultimately what

Your analysis have focused on what are the long time, you know, OG people doing, right? Now, there's been different narratives on that, like so, for example, people might say, "Oh, hey, look, the Bitfenix whale is accumulating," and typically, the Bitfenix whale, or whoever, he or they or whatever, they typically are a countercyclical kind of indicator. Yes. They're sort of, they're sort of taking a little bit off in the, in the highs, and they're, they're kind of rebuying the lows. So are you

Just the on-chain story itself, like I, I think about who these people are, and, and at market extremes, you get a different lens on stuff. So for example, we often talk about the short-term holder cohort, coins bought in the last five months. Now, that cohort at the top are disproportionately people who are fair weather, right? They're speculators. There are going to be hodlers in there who are just doing their daily DCA, price insensitive folks. But there's gonna be, if you just like re- reason about this, there's a ton more tourists in the short term holder cohort at a hundred and twenty five K. It's just fact. Who are those people who've bought in the last five months? We consider them speculators, but who are they right now? The last five months have been terrible. We're down fifty percent, there's a war going on, oil's through the roof, AI's gonna eat its lunch, Quantum's gonna hack the com-hack Bitcoin, and, you know, Satoshi's gonna come and take all these coins You gotta be kinda high conviction to be that person. So the short-term holders right now are actually the smart money. They're the people who are stepping in right now, and you gotta kind of flip your cohort bias a little bit and think about who these people are. another lens to this Profit taking. Mr. Bidfinex Whale, he's taking some off when the market's rallying. when you look at realized profit, you see huge spikes of it in a bull, naturally, it's what ultimately kills the bull. However, in the bear market, and since November, certainly since January, January's where it just went off a cliff, so basically this whole year, realized profit just fell through the floor. So the interesting thing about that, if, if people who are in the money, let's think about Quantum for a second. whether you agree or don't agree on how big the risk is, if a very large pool of OGs, like in the money, bought their coins at a thousand bucks, at a hundred bucks, if they were really thinking on mass that I think Bitcoin is gonna die because of this thing, whatever the risk is, they would be taking profit now to get me the hell out of this thing. We're just not seeing it. It's been dead quiet since January. So amongst all the narratives, the strategies, the quantum, the this, the that, the guys who are in profit- Just sitting on their hands, and, you know, having been in this market long enough, when people are sitting on their hands, we can't tell what they're doing, right? Because you can never tell what someone who isn't spending is doing with the rest of their capital If they kinda sold the top and they're now not taking profit, what do you think they're doing? They're either in wait and see mode or they're in accumulation mode. So both of those things are, I've been describing it a little bit like the London weather in April, right? It's still wet, it's still cold, it's still miserable, but it was worse yesterday, you know? And you get that gradual momentum, it's just getting less shit every day, and I think that's like the right framework to think about where we are in the bear right now.

So I know you've done some analysis on like the timing, like the typical timing of how long a bear cycle goes. What are you seeing on that?

Yeah, so, the first thing is we never know how long it, markets are a little bit like physics, I forget it's like particles. You can see the speed of the particle, but you can't tell where it is, or you can look at where it is, but you don't know how fast it's going. It's kinda like that, right? You can estimate price, but you'll never get the the most simple answer is we topped in October, on the sixth of October at six PM UTC, therefore I'm gonna buy my whole stack at six PM UTC, October sixth, right? That's what the four year cycle perfectionist are looking for. Now, that's one framework. I look at other things and go, "Well, okay, because I don't know, what are some very just like obvious market signals that people look at, or that I look at to try and understand like when things change?" So as an example, technical analysis. When do we break below the five? 50-week moving average, because generally speaking, you break below the 50, you're headed towards the 200-week. So we know in every previous bear market when we broke below the 50-week moving average and when the final bottom was. Now for this, I'm talking about the time-pain capitulation. So in 2015, that's not the first sell-off, at the start of 2015 is the one at the end. It's that last week, in 2020, it was COVID, that was the final We know when the time pain was, and we know when we broke below the fifty-week moving average, okay? Now we have a duration for each of those bears. So there's method one, take an average. method two, when did we break below the true market mean, which is a on-chain level that's kind of the midpoint? when did we break below that? When did we lose the power law trend? when did we-- Like, I used eight different methods to just try and understand, like, based on these eight methods and the average across all the bear And say, well, I've got eight different methods, I don't wanna put too much bias in any one. Let's take an average, take a median, take a mean, try and understand where is like a typical timeframe. And my study said probably somewhere in around July, and here we are in July going through what I think is the time paying capitulation. So, you know, we'll see how the thesis plays out, but at this point in time, it feels like we've actually done the only model really that says we have considerably more time ahead of us. Is the model that goes, we topped on October six at six PM, therefore we must bottom at-- Right. The four-year cycle,

bro, kind of the four-year cycle of perfectionism. Yeah. And, and I can look at their calendar and be like, "Oh, it's not October yet, I don't buy it yet." Sure. And,

and when that finally happens, right? Even if that-- I've thought about this a lot, even if it does happen, I would love to understand the mechanics of why it happened, not because it was the calendar. The calendar didn't cause A more rational, reasonable piece of logic, and the way I frame it up, I wanna spot that piece of logic, whether it's in October or July, that's what I'm really looking for. I don't really care what the calendar is when the event, when the event happens, I wanna go the other way and say, "Show me the thing, " and then I'll check the time.

Yeah. in terms of, I know you, also had a good piece recently on the return of the fifty-eight K gang, which was, a great meme. I was a fan of that meme even last cycle. I know you were talking a little bit there. Now some of these numbers might have changed since then, but you said, at that point, I think the realized price is like fifty-three K and the bottom might have been somewhere between that and the two hundred-week moving average, which is about sixty-two K, which as we speak, we Today, so are you still seeing it in a similar way, in the price pain, sense that we, you know, it can be somewhere in that range?

Yeah, my, my general framework is that we should be bottoming. My thesis been, I mean, I wrote a piece in- I think when we just hit a hundred K, so January twenty twenty-five, I think it would have been, somewhere there, I wrote a piece called "Rethinking Bears," and people like, "What the hell are you writing a bear market piece? It's like euphoric bull." I'm like, "I think we're gonna need this at some point in time," and my thesis was-- and I developed this way back in twenty twenty-two. The realized price, so for those who are a bit more technically inclined, there's a bit of a problem with the realized price. The realized price is, in the numerator to ratio to the realized cap, every coin in the whole supply, satoshi to you and me, every coin valued at the price when it last moved. So let's just use satoshi, but you could put all the early miners, the lost coins, the quantum risk coins, all of those coins have the same problem. They were moved at a price of zero, so in the numerator, they contributed zero, nothing to it. In the denominator, we consider them in full, which is the circulating supply. So you've got the realized cap, every coin valued by the price when it moved, and then you've got in the denominator, all the supply. So we're kind of punishing the numerator and over-diluting the denominator. So in theory, as Bitcoin gets bigger, those coins hold a huge amount of unrealized profit. So let's, I think at 60k, Satoshi alone is like a hundred and ten billion in unrealized profit. In order to hit the breakeven level, which is fifty three k, that's the realized price, a hundred and ten billion that Satoshi doesn't take, does, it stays static, whereas the guys who bought the top, they have to carry a hundred and ten billion dollars in losses just to break even. But what do they do? They panic, they sell, they capitulate. So the losses can get flushed out of the system, but the profit can't. So as Bitcoin gets bigger, Satoshi's unrealized profit gets bigger and bigger and bigger, but the humans who buy at the top are still alive and they still respond to human incentives of price down. so in that instance, the realized price should no longer, over time as Bitcoin get bigger, we used to go below it every bear, we should stop going below it. Over time, it should become like an underestimate of the floor. So fifty-three K to me, we-- not that markets care what I believe, but I think over time we deserve to be above it. We shouldn't be going below it. And the correct-- We

deserve it. We

deserve it. We deserve it. We deserve it. Now market doesn't care what we deserve, but, that's my framework. So as Bitcoin gets bigger, we should be visiting the realized price less, if at all. and my thesis is we've already seen ETF capitulation, we've seen price pain, time pain, like from an on-chain sense, it TX just blew up. In all, in all my metrics it looks exactly the same. Supply and loss is the same, like just, the capitulation pressures, it's all the same. So from that perspective, we've kind of got the bottom As you would expect to see it playing out, we're only fifty percent down. So, oh yeah, and fifty-eight K is the bottom. I love that, I, that meme because the reason I wrote that piece the way I did, I think it was a video actually, but it doesn't matter. for that piece, I talk a lot about KGA. So KGA is this like terrible metric. I, I mean, I'm a civil engineer by trade, background, and, I look at all these tradfi metrics, I'm like, "Bro, this 9th of July. What was the price on the 9th of July compared to now, and what's the compound growth to draw that straight line? It's like, yeah, but what if we're a day before a big sell-off? So for example, price has gone down in the last month, but the four-year Kager has ripped from twenty percent to thirty-two percent. How is four-year Kager going up? It's because the tail end of it is measuring the decline in twenty twenty-two, right? Lunar implodes through May, and then June three arrow implodes. So what I love about that fifty-eight K gang, the folks who bought fifty-eight K four years ago, five years ago, they bought the top, that's why it's the meme, because they bought tons at the top. They get a second bite of the cherry at what I believe is the bottom. So what's the difference there? Well, your keger from the top is zero, 'cause you're the same price, but your keger from the bottom right now is thirty-two percent. What is the two hundred-week moving average rising out, which we tend to intersect the bottoms, about thirty-two percent. So keger is like inflation rate. If you don't buy anything, your inflation rate is zero. If you're an Aussie trying to buy the Australian housing market, your inflation rate is ten percent a year. If you're buying tops, your keg is gonna suck. If you buy bottoms, your keg is bloody tremendous, right? But you gotta have the conviction to be there and, and actually buy those bottoms because, you know, you get a second bite at the cherry.

Yeah, and, I mean, that's the psychological challenge for most people, right? Like just to buy, to be buying the bottom and buying these dips, that, that's the hard thing. Most people kind of leave at this time when paradoxically that is the time you should be most interested in trying to stay. Absolutely. but, you know, that's, and I think people,

they get caught up. We started with this, people try to predict the future, and you gotta let that go. The sooner you let go of being able to predict anything, the better Buying the perfect bottom. No one's gonna send you a medallion or a medal for buying the perfect bottom. The right way to do it is just to be like, are we in a discounted territory, right? And I call it like, you can measure a whole bunch of things, but like, we're in the bottom ten percent, fifteen percent of all the distribution across every metric we're in the bottom ten, fifteen percent. That means you got an eighty-five to ninety percent chance of being right, just DCA. You know what I mean? Like, stop overthinking it, just buy that It doesn't feel like it right now, but, you know, people fixate on trying to buy the bottom one percent, and it's just not a real thing. You will lose your mind trying to do it. Just buy the bottom twenty percent, it's great.

I'm curious your take. I think I did see you comment similarly, because of, you know, some of the infighting and whatever. We don't have to get into like the exact, you know, soft fork stuff, like, but just infighting in general. You wanna go there, don't ya? Nah, You were also commenting on this also that like maybe it's just OGs were selling a lot more than people were anticipating. Is it fair to say that?

Oh, big time. And, and I've, I've been trying to work out what the reasoning for it is. Honestly, I've settled on what I think is just the most, sensible and obvious. We got to a hundred K. We got to a hundred thousand dollars. It's, it's a really big number. Michael Sullivan's been doing some tremendous work on like just studying sentiment. He's got this like heat map A hundred K is just the-- for, for all the Bitcoin's history, it is the level people talked about. So I'm like, it just makes sense that we got to this like incredible two trillion dollar market cap. It was so big, there was Saylor buying, there was ETFs buying, like, for the first time ever. A dude was able to liquidate eighty thousand Bitcoin at the top, for a nine billion. By the way, people made fun of him at the time for doing that, and then they didn't believe that OGs were selling. You know, don't, it's a tremendous thing to happen, a hundred K? By the way, what I love to think about is like, at some point in time, we're gonna blast through a new all-time high. It's gonna happen. And what are the critics gonna say? Can't blame Saylor, can't blame the ETFs, can't blame the president, can't blame the ICOs, can't blame anything. Like, if the next all-time high, you're just wrong. You're just absolutely wrong about this asset. and I think it's gonna be just absolutely glorious for the people who are there for it.

Yeah, I think it's just a, it's just psychological, these, these big round numbers. Like, I'm sure the same thing will happen at a million dollars too, right? Because there'll Like I've been waiting for that time, whatever, right? People will all have their own little stories, their own reasons for it, but I think it's kind of funny because the narrative online is different to what kind of the reality of what's happening, kind of on chain, right? Because online, objective truth, people are like, "Oh, I'm staunch, I'm a hodler, I never sell," da da da, and then like actually in reality, yeah, there were OGs selling, so it's just kind of the narrative and then the reality can,

can Look at the sell side, and this is normal in all Bitcoin cycles, but, coins that were just six months to one year old, right? We call them long-term holders, people like, "Oh, it's not long-term holder," it's like, "Yeah, but it is because you've got an opportunity cost there." What happened in six months over twenty twenty-five? You went sideways in Bitcoin and you missed a four hundred percent up in any other asset. Choose your other thing. The amount of opportunity cost that you carry for six months, there's a very conscious decision to own something that long, because you could have sold and done anything else with that capital, and the world is a relative place, increasingly so these days. So a lot of the sell side were people who just bought for a year, for six months, and then they go, "You know what? It's not working for me, I'm gonna rotate, move into something else." That Bitcoin is still being sold and satisfying new inflowing demand, and that dude who sold it probably isn't a A sell side event. So yes, there was a lot of OGs, but there was also just like a lot of just like general sell side, just overall sell side. And this is why I look at metrics like just straight realized profit. Show me the volume of profit that's coming out of the system, because that's people who are selling because they think it's overvalued. It's just kind of that simple.

So speaking to this kind of idea of, as you said, relative trades and other things, w- how are you viewing the whole AI trade now? Like, are you seeing it Reason for why Bitcoin is not as shiny, bright thing, and everyone's looking at AI and, you know, that kind of thing?

Yeah, so I think first things first, there's no doubt, no question at all that it has been a black hole. there's been points in time when I've been like watching markets play out, and I got various tickers and things that I track every day, and you can just see a true black hole of money getting sucked into this trade. it is a transformative technology, man. I was using AI today, it's incredible, absolutely incredible so, you know, I'm not, not a developer, me understanding like the general nuts and bolts and what it can do, it's incredible. However, there are still a lot of real world constraints, and I'm no equity analyst, so I'm not gonna pretend that I can predict when this is gonna happen, but, AI is a lot like Bitcoin mining, huge CapEx, ongoing OpEx, currently, I mean, not for Bitcoin, this is true, but, currently quite subsidized in terms of the models and the costs and all that stuff. There's shortages, there's like physical shortages of metals and copper and data center construction. These things take years to build, there's permitting, there's gonna be social pressures, there's just a thousand and one things. I was talking to a mutual friend of ours, Peter Dunworth the other day, and he was like, "What's the chance that like AI just sucks all the air out of the room?" Like, look, Pete, my view is what am I gonna do? Spend my life hunting around the, the South Korean stock market to find some stock that produces RAM, and then suddenly, like, what does every-- What, you know, the cure for high prices? I mean, what I'm describing is a commoditizable business. The cure for high prices is high prices. If RAM goes through the roof and memory is just super expensive? What do you reckon is gonna happen in the next five years? Tons of it, tons of it. It's gonna be an absolute oversupply and a glut, and we will take, like the dot com bubble, it will take years to recover from. and now certain industries, like this industry of rolling bubbles. Now, people certainly can rotate and move money and actively manage and all that kind of stuff. But I just don't think that that trade is-- I, I don't think most people wanna do that. Most people don't wanna be on their phones trading in and out. I know it's like a, it is a part of modern society, just kind of very much a gambling culture, but the vast majority of people are investors, right? They really just wanna put money in something and just let it go. it's like saying like gold. To be fair, Bitcoin has rode off gold for a long time, and then it came screaming back to life. granted, Bitcoin still kicked People wrote off gold, and yet here it is becoming another bedrock of the financial system again. So everything that is old is new again, things rotate through. the AI trade is gonna have its moment, but it also is a commoditizable business. you know, we're gonna produce so much power, we're gonna produce-- there's gonna be the build-out phase, it's lucrative. But then we're gonna have so much RAM, we're gonna have so many chips, we're gonna have so much compute, we're gonna have so much energy, we're gonna re-build all this stuff, and then eventually that trade's gonna be, that's dead money for twenty-five years because we built so much of it, and it's gonna be get more efficient. They'll find new ways, like bottlenecks and constraints breed innovation. I'm not gonna bet against engineers come up with a clever way to be more RAM efficient, and you can just see this happening. I don't know when it It has no moat. It's probably the best way to simplify that whole thing. Bitcoin and gold are really one of the only two assets to have just a permanent moat. There isn't no, like, there isn't no competition, which is a very interesting trait that I think only those two assets really share.

Yeah, fascinating. And then, in terms of the breakdown of inside the AI industry, as you mentioned, we're kind of touching on different aspects there, 'cause you've got the models, you've got the semiconductors, you've got the energy side of the house, and then like maybe apps, and maybe it's like not all of them are where the money is made, or maybe some of them end up being more like a commodity and other ones be-- like, it's like the money's made over there. Yeah. so how do you kind of look at those different,

General thoughts, like very high level, I think the models, there's no money in it, because every CFO in the world, like you've seen all these headlines of, you know, hire a hundred thousand dollars or

whatever, yeah.

Yeah, yeah, you hire a, a dev for hundred and fifty grand, and he goes and spend a million dollars worth of tokens, you're like, all right, sorry guys, turn it off. So they're gonna have to go down the path of open source models, cost cutting, all that kind of stuff. That's just going to happen. You know, I, I, I still use Opus, right? Claude Opus for a lot of my stuff. I've used Fable, it's great, it's good for some things, but I don't need that level of firepower for a lot of stuff. I don't need Fable to sort out a spreadsheet for me, you know what I mean? Like, you can use the lower level models, wind the clock forward. If Fable is where it is now, or Mythos or whatever, Opus can already do a ton of stuff What is the Opus gonna be? The one that's two generations old in five years time? It's gonna be tremendous, and it's probably gonna be running on your phone. You know what I mean? So like, I think the models are probably not where the money gets made. a lot of VCs are gonna try and IPO and just get their, their money out, but I think that's gonna be, probably dead money. for the power infrastructure stuff, I think that's gonna go on for a long time. I think this is all part of the US reind On the data centers. You think about the oil situation. Take Australia. Australia got caught to not even own any pants as the US-Iran war broke out. No storage, no, no fuel. We are going to have to build a stockpile, and they're gonna have to fill that with, with oil, so, with, you know, petroleum. So I think that just the infrastructure of like reshoring and like coming back around and saying, hey, yeah, we kinda can't have China producing everything if we're gonna have any kind of conflict with China. You kinda need to have some and then I think you mentioned the applications, again, I have no edge in this whatsoever, but you imagine some of these companies that have got like IBM, imagine the amount of data IBM's got from just like, or any of these medical companies, just decades and decades of data, and then you go and give it to one of these frontier models and say, "Go and find something." I mean, man, they're gonna, they're gonna come up with all sorts of crazy stuff there. So, I think, look, I can't price where that's gonna be, but I don't think the models are it. I think the commodities of like the RAM and the chips, they're probably gonna get commoditized, I would say. You know, in, in many ways, the internet has changed everything. What were any of the hardware manufacturers worth up until this point? You know, they're companies, but they're not, they're not on the top. You know, you get some of these companies, Sandisk and the like. Sandisk wasn't a trillion dollar company or Samsung or whatever, like, they've exploded because of this newfound thing. Nvidia, they made graphics cards, right, for video games. They kinda got lucky in terms of AI just happens to need GPUs, and they just happen to be in the right place at the right time. so yeah, I think that a lot of it's a commoditizable business, but it's gonna take years for that to actually play out.

Yeah. So switching to the treasury companies, I know you've also been writing and speaking a bit about those, so yeah, I mean, we were touching a little bit on, on this earlier, but, I guess the narrative, the popular conception was, oh, you know, MSTR, they're gonna have to sell Some of them are kind of, let's say, treading water, some of them are accumulating a little, and then a bunch of them are selling. how are you, how would you, if you kind of zoom out and give a broad view on Bitcoin treasury companies, and to be clear here, what we're talking about isn't the SpaceX, Tesla, you know, Cash App, Block style, but the Financial, yeah, the, you know, strategy, Metaplanets Drive, this kind of thing. How-- what's your view on that class of Bitcoin treasury companies?

Yeah, so I think the, the long tail was always destined for not much we're seeing more like every week or so I see a headline, if I'm lucky, you know, this company is pulling out of their strategy, I'm like, "Yeah, good, good." I mean, it was, it was stupid. It was just a complete mania. It was silly. it's got no future for the vast majority of them. strategy is its own beast. there's a handful that have seemed to have survived, you know, your Metaplanet and your Strives, I think they're gonna be around for another cycle or, you know, who knows how long. I think they've probably got some legs, some staying power. I don't know if their MNavs go back to the crazy Euphoria, the five X's, ten X's, twenty X's I'm struggling to see how strategy gets too far above one point five again, so I think a lot of the levered part of it probably comes out of the market, to be honest. there'll be a handful that will perform, no doubt. But, I think, and I wrote about this at the time, my view was, and I mean, strategy has had a two thousand eighteen bear market, it's eighty-five percent down from the high, whilst Bitcoin's down fifty. That's a brutal, brutal state of play. their preferreds, I mean, most of them, I think almost all of them, except for Strife on a total return basis, Strike and Stride are trading below their IPO. So if you bought the IPO, which was like eighty-five bucks or whatever, you received all the dividends, you are still down below your IPO price. It's, it's just a kind of a damning reality. Strike, sorry, Stretch, which is the big one, that's the variable rate preferred, I think you're still below a hundred bucks if you accumulate all your, all your dividends Dividend. So most people who bo-bought Stretch are currently underwater, which is kind of tough. I think there's like, I, I don't think strategy's in trouble. I do believe that wind back the clock about two weeks, in around the time when they sold the thirty-two Bitcoin, that kind of window of time I think perception is reality, and I think the market perceived, "Ooh, they've got rid of way too much of their cash when they bought that convert, bought their convertible bond back." I'm sure there was plenty of logic as to why they did it, but I think they now realize it was a mistake. Because they brought down their cash runway to six months, and the market goes, "Nah, that's not enough." So they then sold a ton of MSTR, got themselves back up to seventeen point four months, then they sold three and a half thousand Bitcoin. Now, I don't believe they did that because they had to, or the market forced them to. I believe they did it 'cause they wanted to send a very clear signal. They're slaying the sacred cow. They are very convincingly saying, "I-- It was like a blood sacrifice. They had to take an L Treasury now. So what that does, it actually shores up the whole balance sheet. For MSTR holders, it confirms that Bitcoin is at the bottom of our capital stack MSTR is above it, because you're shareholders, and then the prefers are above you, and then the debt holders are at the top. So it very much confirms the capital stack. To the preferred holders, it says, "Hey, we've got seventeen months of, of coupons of dividends, yep, which we've, without board approval, can only be used for dividends, so there's no playing around with that anymore." And they're saying, "That thirty years of Bitcoin coverage that we keep talking about, that's real. We will, we are demonstrating right now So you have thirty years worth of dividends plus seventeen months. Preferred holders win. Bitcoin holders ironically win, because now we're not worried about Mr. Market taking strategy to the cleaners, 'cause just imagine that the market goes, "No, I think you're lying. Let's say they didn't top up their cash reserve or they didn't sell the Bitcoin." They would say, "Alright, what about we take Bitcoin to forty?" And then, oh, you gonna, you gonna keep holding? Alright, let's go twenty-five. Now, MSTR mathematically is worth zero, 'cause at twenty-five K, the treasury is worth the debt plus the prefers. So technically speaking, there is zero equity left in the business at a liquidation type event. So the market is trying to go, "Well, how low are you gonna take this thing before we hit your pain threshold?" And the strategy goes, "There is no pain threshold. We'll sell it now because we choose to. I'm sure they get some other benefits with Those things, but I think they're sending a very clear message. So in my view, strategy came from, perception is reality, the biggest risk to we're no longer a risk. They've just taken a complete backseat, and the fact that the market absorbed that sell side and went up, I think is fantastic news. it just shows that they're not the only buyer, right? Nor are the ETFs. The natural pool of buyers is now back in control, which I think is a great thing to see.

So Do you see a future then for, like, as you said, they've taken these corrective actions to, let's say, shore up the balance sheet to provide confidence to the markets, whether that is the SDRC holders and, let's say, TradFi, S&P, and kind of hoping for index inclusion and credit ratings, like these are kind of maybe that's where the focus is for them, a-and maybe rightly so, right? Like they're trying to, they're trying to attract fiat capital, right? Because all the Bitcoin Maxi's, they're kind of already holding Bitcoin And so they're, they're, I see it as they're just trying to expand the reach out to get more fiat in from, Saylor doesn't owe Bitcoiners

anything, he owes his shareholders and preferred holders and debt holders everything. So, that is his foc-- has to be his focus. It's, it's just fiduciary duty, he's got to look after his shareholders and Bitcoiners, and Bitcoin is at the bottom of that capital stack.

Yeah, but I, I think it's all aligned in a way. I mean, not fully aligned, but, you know, we all want number go up, right? Like everybody wants that. but, I guess I'm curious where you see it with some of the smaller ones, like the non-MSTR ones. Do you see it like there's only gonna be a handful of those, or there could be like a few dozen of those around the world, like where you-- or you think it's just, it's too early to say?

No, I think that's about right Distribution. There'll be a strategy with eight hundred, nine hundred thousand, there'll be a couple with forty, fifty thousand, and then there'll be like a handful that have, you know, a thousand Bitcoin. But, you know, if you got five thousand Bitcoin, I forget the exact math, but you got five thousand Bitcoin, Bitcoin goes to a million dollars. Like a million dollars, Bitcoin has, it's, it's gone through a lot of its monetization. You're a five billion dollar firm. What are you gonna do to change the bond market with five billion dollars? You know, strategy might be able to change the bond market by that point, but you can't change much with five bill, you know? You might register on the ASX stock market somewhere, so it's just not a big number, at the end of the day. So I think there's gonna be a long tail who just, they-- what do they offer? Not much. but yeah, I think it's gonna be a very, very strong Pareto distribution.

So I'm curious then, do you don't see the, the whole levered or amplified, angle to it or, that general idea of like leverage in, embedded in the structure of the company? Is there not value in that to you, or what do you see there? No,

there, there is, there is, but I just think that it's a very small pool, small pool of firms and teams who can pull this off. Bitcoin, if there's one thing that Bitcoin teaches us every bear market, it's that someone's going to the woodshed, and it It's always leverage and it goes there brutally. So, it's very hard to lever in any way, shape, or form this asset and not get completely wiped out. You need a very, very strong team who can really think about how Bitcoin trades and be willing to handle some serious downside. You know, like part of the reason why Stray, Saylor moved to prefers is because he doesn't have to pay them back. There's no debt cliff that he's gotta actually-- They're, they're perpetual and they just sit- Out there and their equity not dead, even though they look like dead. So there's a bunch of these things that like he has structured it in a way because he could go through a very deep, dark winter and just do nothing and survive, right? So, you know, I, and I think it's what the market was basically saying is, why it panicked. His number one tool for getting out of every bind has been, I mean, sell MSJR. But then the market took MSJR to a never one, so now it's dilutive to sell, so it kinda took away the keys for his failsafe, and I believe that's why he did one big final sale. Got his one and a half billion, bought himself two and a half billion worth of cash reserve, then he sold some Bitcoin, 'cause he's basically saying, "No, now we're gonna dip into the treasury because we can't sell MSTR now." and the market at least goes, "Good, now we understand the clarity. Now we understand how your capital structure works, how you're gonna handle it. Great, excellent. Now we have certainty, you're no longer on the agenda of things we're worried about." So that's, it's kinda counterintuitive, people like, " This thing forward now, and it doesn't seem much of a risk.

Yeah. Now, the other interesting idea, I had an episode recently with, Adrian Morris for listeners, you might be interested to check that out. but, I think the point he was making is that actually a lot of it is driven by sentiment, right? So he was looking at his analytics and his kind of correlations and things like this, and he was basically saying, "Look, M-navs are very much driven by sentiment, and basically that sentiment is very much driven by the direction of Bitcoin price, Level, even for the STRC or the Sada level, like that number is often going up and down based on Bitcoin going up and down. And so it makes me wonder, like, I, is there just an element of some of those, you know, some of these treasure companies, like basically if they can at least, quote unquote, tread water and like not, you know, spend too much and just like hold out till the next bull run? And basically sentiment turns, and then numbers go up again, and then at that point, there'll be a premium. Maybe it won't be as crazy as, you know, the, the hype last time, but I could, I could see, a bunch of these treasure companies all getting into a premium, but just not as much as last time. What do you think? Yeah,

yeah. No, no, I think that's more or less. Yeah, that, that makes sense. and that's the thing, most won't survive, right? You see these companies that You got into Bitcoin trade for six months? Get out of here.

Yeah, so I think, I think you're right there that there were many companies, and I think that's the thing, like, I, I am pro-trouche companies, but at the same time, the good ones will make it and the bad ones won't, right? And there were a lot who- Maybe they weren't structured the right way, maybe they took bad terms on their debt, maybe they, you know, they, they kind of weren't committed to the strategy, so they kind of bought some coins and then sold most of them, and, you know, it's sort of a two-step forward, one step back. This stuff is hard. This stuff

is hard, you know what I mean? Like people forget that, they think that they're just gonna jump on the bandwagon late in the piece and be like, "Oh yeah, we'll jump on this 'cause it's, it's Some angry emails and can you handle the heat in the kitchen? Because if not, you're gonna get cooked.

Yeah, it's, sort of reminiscent of, if you remember the twenty seventeen cycle, there was a famous one, I think it was Long Blockchain Iced Tea, right? Like they, they renamed Blockchain or something 'cause they wanted a pump from that, and, you know, it's kind of a bit like that. But there'll be companies like that, but then there'll be the ones with actually a competent management team, a plan to survive a bear market, maybe In that way, but, you know, it's, certainly you have to survive the bear markets, and I think that's, that's the thing, like if you've been around Bitcoin, like that's just number one, like you just have to survive the bear market, and once you're through to the bull, then you have options, and you can, you know, you, you can maneuver more easily that way. And something I do think, which is a

bit of a, it's, it's, it's hard to really put the numbers to this, but Selling. I do believe we're gonna have a bear market in the future that will be driven by treasury companies. It will be because they levered up too much, and it will be because they're puking, like, I've, I've heard some, they're puking out the coins like miners did. Yeah, exactly. Like, they are genuinely gonna be the sell side and the reason that we're getting crushed and continue to. I don't think there's a lot of leverage in the system yet. maybe the next, and the next, the next bull, They sold eighty-eight Bitcoin, I'm like, "Oh no, terrifying stuff, right? Eighty-eight coins? " you know, come on, these, these, these are small, small fry.

Yeah, I see. but then I guess back to your point before, because you were saying you see it as like obviously a, a strong Perito kind of power law thing to it, or Perito distribution rather, and that if there's like MSTR up there with whatever, nine hundred K or a million coins by then Or more, and some other smaller companies that maybe they got fifty K, maybe there won't be that many who kind of have enough to really move that needle

Yeah, but then also the, the insatiable-- what has CryptoTortoise? It's Tortoise a lot, but one of 'em is that there is an insatiable demand for high yield. Strategy issues high yield stuff. They might issue a bit too much, might issue a bit too much.

Yeah, so maybe, I guess, are you saying the scenario there would be maybe some of these companies offer a preferred, like a stretch or a seeder kind of thing, but with the interest rate too high, and then they can't make the payments on it in the bear or something like that?

A strategy might issue too much and not be able to make the payments in the bear. You know what I mean? Because like, if the market now knows we're gonna take away the keys to your stock Right? Because in the next bull, people learn lessons from-- This is why crypto died, because everyone learned the lessons like, "I got scammed in that bull, I got scammed in that bull, this meme coin just took all my money." Yeah, I'm gonna go buy stocks. You know what I mean? They're, they're just done. So with the treasury companies in the next bull, we won't see the big premiums. Well, I agree with you, we'll still see a premium, but I don't think we're gonna see like the twenty x's and the thousand x Just disappear. So the keys are gonna get taken away from your equity issuance, Quicksmart, and then these companies are gonna find themselves with a bunch of dividends that they were probably riding a little bit too close to their comfort level, to the edge, to the edge, as the bear turns, they're gonna realize, oh shit, now I gotta sell the Bitcoin to fund my, and then, you know, this thing can really start to cascade quickly.

Gotcha. Yeah, so that's how you see a bunch of them getting, let's say, washed out if they're not managing things correctly. And, yeah, maybe a few, there'll be a few that, you know, are good and they survive 'cause they're structured well, and others who maybe they don't. And look, one big positive out of this whole

thing, it's like Bitcoin mining. There are no bailouts. Bitcoin handles the storm. There's no bailouts for these companies. Critics can laugh at them, bitcoiners can laugh at them and say, "Look, you did a dumb thing." Creative destruction. It's great to see, honestly. Find me another market sector where you get creative destruction even when it leaks into Wall Street. Wonderful.

Yeah. All right, well, any, any closing thought, anything else you didn't, we, we didn't touch?

No, mate, look, I think it's a, it's an interesting time in Bitcoin. The narratives are dire, the, the people are bearish. I mean, let me ask you a question. You've been through, I think probably a cycle or two more than myself. How bad is the sentiment from your lens? From my perspective, it's, it's worse in some ways, but not in others. there's definitely a bit of a bifurcation. I think people who've been around this market a while are a lot more sanguine about things, but folks who are relatively new are just distraught. I'd love to get your perspective on, like, what's your view on the sentiment right now, 'cause it feels bad. Yeah. I would say,

as you said, the-- This bear cycle has been more muted, right? We As, as we were talking about, so on the numbers, it's not actually that bad, like just drawdown wise, but subjective feeling wise, to me, this is like, if I, I would say the sentiment I'm picking up in the broader kind of online social media feels worse than the other bear cycles, except for the twenty fourteen, fifteen, right? That was like, to me, that was the worst. We haven't gone to that level, right? We're not there, and I don't think we're going there. That's a bear

market, yep.

Yeah, that was the real tough one because at the-- In the twenty fourteen, fifteen bear cycle, it wasn't clear that Bitcoin was gonna come back, you know? People were pivoting out, people who History per se. so that in a way, I was thankful and grateful for that, right? For not being-- because like it was layoffs, people were pivoting to crypto this and blockchain that and whatever, like

there wasn't even that many altcoins, like the altcoins really hadn't even had like a, hey, maybe there's something here. Yeah. Because that

was really a sixteen, seventeen phenomenon, like mainly. Yes, there was Ethereum and Litecoin and a bunch of Bitcoin forks, but that's

about it.

Yeah, exactly. So, yeah, so I don't know, I think, and, to kind of the whole, I know you were, you've collaborated a bit with Michael Sullivan, and in fact, I should get him on as well. But I know, this kind of sentiment of everyone's fighting, right? Like even, you know, this obviously the soft fork stuff and just even treasury people fighting about treasury companies and this, that, and the other, whereas like Yeah, I don't know, I, I, at the same time, I'm seeing it like it's a big tent approach, and we're just trying to get more people in. They're not all gonna come in the perfect way, you know? So, you know, it's okay, like just try to onboard as many people to-- Obviously, DCA self-custody is first and foremost, right? That's what everybody, just about everybody should be doing if they can, but, you know, I see it as like, look, people gonna come in through ETF I would say the collateralization stuff is much better this cycle, right? Like that is way, way better now than like historically. So that's actually useful for people, right? Like we're seeing more products and like they're getting better and better. It's, you know, it's not quite par with fiat level of credit, obviously, but it's, it's on the way, and you can see that story improving. So I'm, you know, I'm constructive on that, so yeah, like you, I think it's kind of, we got, you know, waited out You know, if you've been through a bear cycle before, you know what it's like. You just, it's gotta hold, keep stacking, and that's it. So, that's it. Yeah. So, yeah, so I guess we'll leave it there. but yeah, I will, yeah, listeners go and check out James's work over at checkonchain dot com. as I said, I'm a subscriber, it's great stuff. And, James, thanks, thanks for joining me, and

I'll, I'll see you around