Bitcoin: Navigating volatility and preparing for regulation changes

Let's start on Bitcoin because we hit 126 all-time high in October. We're down about now 22% since then, John. Explain this move to us. What's going on here and what do you think comes next near intermediate term?

Well, in terms of short-term price movement, not to be trite, but more more sellers and buyers, right? That's ultimately what happens. So I try not to we an exchange, um, care about price discovery and efficient price discovery and value transfer, not so much causality behind short-term movements, but uh, I'll remind everyone that this is an asset that is up an extraordinary amount uh over the duration of of its lifetime. Uh year on-year, we're still looking at, I haven't done the numbers yet, but probably looking at 35, 40% year on year return even with the drawdown. Um, the ability for an asset that has as much upside as Bitcoin to periodically have these types of price corrections or mean reversions, whatever you want to phrase it, uh it shouldn't be surprising. So, uh, throughout the my I think I've not been on your show, but all the shows have been on during the bull run, the advice is the same. Uh, dollar cost averaging into volatile assets is smart. Uh, if you believe in the thesis, buying at a discount, uh, in a consistent, sober, thoughtful way also seems smart.

Mark, let me get your thoughts. uh same question about these moves we're seeing. You know, I should mention, so Bitcoin down 22% from an ultimate high. I'm just looking Ethereum's down 35%, Solana has been cut in half. What do you think?

Well, I think one of the things that's been overlooked is the fact that back on October 10th, we had, uh, what was effectively a cataclysmic event for the crypto market that, uh, you know, the mainstream may not have picked up on, but we had a flash crash. And uh, in that crash, uh, we saw about a quarter of the crypto market makers go out of business. Uh, which if you think about that, you know, translate that to traditional finance, um, you know, that's all you would hear about in the news. But as a result of that, you know, we are seeing, uh, some healing that's going on with regard to the liquidity in the market. And at the same time, one of the big catalysts for crypto is the potential signing into law of the clarity Act, which would create a regulatory framework, uh, for crypto. Well, the US Senate was not going to be taking that up when there was a government shutdown going on. So you had a confluence of the larger macro with a crypto specific event, and here we are, you know, quite a bit lower than where we had been a month ago.

Dan, here's a simpler question, but honestly, it's a question I I I will get from friends and family. They'll say, what is Bitcoin? What is its point and purpose? One school of thought I've had guests on the show who say, don't overthink this, it's digital gold. It's just a hedge against fiscal irresponsibility here and abroad. Is that how you see it?

I view this more as a I mean, obviously, I think it's more of a risk asset than most people give it credit for.

Why do you say that, Dan?

Because it trades down a lot when markets are volatile, right? So, I think those movements, that volatility, you see something that trades down or up so much so quickly, and it's gone up so quickly over such a short period of time, that to me is the epitome of a risk asset. More than people give it credit for. That being said, it's a VIX on the Nasdaq. If you think about it like that and you don't overthink it, if you believe that we're headed to a great place and you know, we have our sort of official price target for Bitcoin and it's going up, then it should outperform.

What is that official price target?

I think when, you know, we cover micro strategy so we have to have an official price target. I think we're like close to like 150 by 2027. That's kind of when we published our note on micro strategy that was our sort of official stance of where it's headed towards.

John, uh, here's a question came up today on Invest. Will Bitcoin will ever be as big as the gold market? We talked to Michael Saylor. You might not be surprised that Mr. Sailor says yes. Here's what he says. He says, Bitcoin will be a larger asset class than gold. Puts a year by the year 2035. What's your take, your reaction to Mr. Sailor?

So he's a very smart guy. Um, and I read his analysis of why that would be the case. He's tying it to the uh virtual end of of of Bitcoin production and the fact it'll take 100 years to produce that extra incremental 1%. Um, he's not wrong that in terms of, if you look at other assets that are priced by the marginal unit of production, like say crude oil or natural gas, um, it's uh not uncommon for those assets to spike up when that marginal unit of production gets more scarce. So if if that extra barrel of crude oil coming out of the ground is bid after, then crude oil prices will go up regardless if there's a trillion gallons under the ground. So his analysis is is uh thematically reasonable. Um, hard to tell what's going to happen, but we view I should say I view uh Bitcoin as complimentary to as opposed to a replacement asset for for gold.

You'd own both?

I'd own both. I mean, in terms of in terms of the, look, long-term inflationary hedges are difficult to figure out. And and most large investors have not figured them out. So you can dollar cost average the global economy over time, that would be some type of inflation hedge, or you can try to pick a basket of assets that you think will perform well. Most funds that have looked at that problem, when they run the analysis, Bitcoin is a part of, maybe not the only asset, but a part of that asset. It incrementally helps inflation hedges over time because again, it could be viewed as a hedge against money printing.

What's the risk? I'm listening to this. John, I I hold Bitcoin. What's the risk it ever goes to zero?

Um if you think about the universe of things that would have to happen. Um, it's the what's the risk that the internet ceases to exist? What's the risk that the plumbing that interconnects us as a society goes away? So I I hate to I mean, look, crude oil went negative less than two years ago, right? The world's most important value commodity for a brief period of time, you had to pay someone to take it, right? So who would ever imagine that could happen? Uh obviously, it's not negative now. Um, so markets can do really weird, crazy things. So I don't I don't look at short-term price corrections when I think about the underlying thesis for why it should exist. The computational complexity that represents Bitcoin at this point, to unwind that completely, as well as the hundreds of millions of people who believe in it. Is it is it possible, perhaps? Is it likely? No.

Mark, let's give people some investment ideas. All right, here's three uh as we head into 2026. You're telling clients, got three here. Correct me if I'm wrong. Galaxy, Hut 8 and strategy.

Yes.

Is there, is there a theme or common themes that sort of join those together, Mark?

Well, with the first two, with Galaxy Digital and Hut 8, you know, these are hybrid uh firms. Now, Galaxy Digital is actually our top pick in the space, and that's because it provides two ways to win. Uh, the the company's base, what it has built since its founding, uh has been an institutional platform focused on crypto. They're basically trying to build a merchant bank Ala Goldman Sachs around crypto, and they've been able to uh get a significant first mover advantage as a as a consequence of that. Um, so as we see institutional adoption of crypto, uh increase, uh with the clarity act being uh a near-term positive catalyst in that regard, you know, that business should do very well as should the uh the institutional platform at coinbase. Um, at the same time, Galaxy Digital by virtue of buying a Bitcoin mining plant in Texas back in December of 2022 when we had just seen the FTX collapse and, you know, people were thinking this was the end of crypto, they bought this facility for Bitcoin mining. As it turns out, it was convertible into an AI data center. And so now, uh, the company is uh sitting on uh three and a half gigawatts of capacity in Texas. It's already signed uh contracts for the first 800 megawatts with Core Weve. uh and the value of that according to our sum of the parts is at least at this point greater than the value of the institutional platform. But you put the two together and there's an awful lot of upside. Again, a couple of different shots on goal.

Dan, uh those those are Mark's picks. When clients are asking you top ideas, heading into 2026, what are you telling them?

Robin Hood is kind of the ever I like two names very much, and there's another name that I want to mention here as well. So, Robin Hood is kind of your quintessential killer app, right? It I know the price has been up a lot, but I think you just had Vlad on TV here for a long interview before that. It they're just a machine. They're going after a $600 billion plus Tam. Today they're less than half a percent of that Tam and they're going to 10x the company. So that means this could be like a $30 billion revenue company in in a few years, not that far along. I also love a firm.

Why do you love a firm? We had Max on as well.

How could you not love a firm? I love my wife, and I love a firm as well. Don't don't get me wrong. My wife and my kids and then a firm in that order. But, um,

Why is the firm a buy here? Strong buy.

Because the TAM, the total addressable market for a firm is literally unlimited. When I mean by unlimited, it's basically all of credit. And they're offering a way for young people, and not necessarily poor people, but young people that don't like credit cards, don't like to revolve credit, to basically take a loan like pay as you go. Right? And I do also want to mention eToro, which we feel like is in an inflection point, right? The moat of eToro is much stronger, the valuation is a fraction of what Robin Hood is. And you saw in this quarter, this just quarter that they reported, it's starting to gain momentum. So I think that's kind of the value play in the let's call it like high valuation stocks.

This is interest I saw, Dan, I'm trying to ask you. I think I only saw one sell in your coverage universe. Correct me if I'm wrong. But I think there's only one underperform. Is that circle? Yeah.

Yeah.

Why is And I know sometimes you have sales, maybe sometimes you do. You sometimes you have strong sales. Is this a pound the table cell?

This is like a sell with a vengeance with Yeah, with a lot of passion on. We initiated, it's actually good. I'm I'm very glad you asked this. but we initiated it. I was just looking at it today. The stock was at $207 and everyone was drinking the cool aid, the stable coin cool aid and we're like, this is not it's not worth that much. It's a great company, but it's not worth $207. We put an $84 price target. And if you look at it today, it's actually, you know, touching our price target, you know, back and forth. It's rates are coming down. Their circulation is not going up much more beyond like sequentially the circulation of USDC is like in the mid 70s. And they have to pay more and more for partners like, you know, our esteemed partners here, at coinbase and others, in order to get the stable coin. So it's like a it's like a buyer's market, not a seller's market. So, you know, we we still think there's, you know, obviously like more bad news to come on on that front and we're pressing the pressing the sell on that one.

John, let me ask you this. um because we're talking about catalyst center for crypto. What are what are risk crypto investors you think have to think about broadly in 2026? Is it leverage, John, regulation, custody risk? What should I have on my radar?

So, the the macro thesis, quite frankly looks good. I mean, I I know the price action recently hasn't been hasn't been great, but um we're looking at uh massive regulatory unlocks. Uh under the radar was a recent IRS unlock where the IRS came out and provided real clarity on around tax issues around crypto, which I think was under under uh underserved point. Um we've got uh massive increase in institutional adoption, Coinbase's announcement of city partnership, JP Morgan using. So, I I think, um, the there's going to be periods of of peaks and valleys, uh, ultimately. So again, the idea of trying to time the market, I think would be the biggest risk. Um, because a sober dollar cost averaging approach, given the regulatory unlocks, given the increased institutional growth, seems smart, but I think to answer the question fully, I think market timing and avoiding trying to market time would probably be the the biggest risk.

John, you might have a line of sight here. Do who has, who owns Bitcoin right now? I mean, is it Josh? Is it institutions? Do we have a good like, know who the breakdown is?

So there are charts floating around. Um depending on whether you view BlackRock as a single institutional owner, which I don't, because their sales come through people buying via the ETF. Uh, you'll see numbers meaning saying the majority of Bitcoin is now institutionally owned. There's been recent selling from large uh old owners of Bitcoin. So I think I think the general thesis is it's moving more institutional, but again, you have to unpack the nuance of that. The ETFs have been extraordinarily popular. And so I view ETF as retail ownership even though it's coming through an institutional wrapper. Uh so um I think we're looking at about, you know, roughly 50% ownership of institutional versus versus retail.

Mark, I'll end with you. You know, obviously, no surprise, one big theme we're talking about today, all things AI. When clients ask you, Mark, help us understand how how AI and crypto intersect now and looking ahead, how do you explain that to them?

Yeah, well, um you know, I just gave one example with Galaxy Digital, another is is Hut 8, which is a uh a company which um has had as its uh basis, uh Bitcoin mining. uh and then was able to evolve into uh a hybrid company that also had AI data centers. Now, what is the common denominator there? Energy. It's the uh the energy underlying this which uh is really uh the the key underlying theme that if you can uh harness that energy, collect energy-related assets, uh then uh those can be allocated to to Bitcoin mining, uh to AI uh training of large language models, or whatever the next technology is that comes along. You know, so I think that as it pertains to uh AI and I'd say this for crypto as well, you know, you really have to be open-minded and flexible at this point because we're so early. You know, even even uh crypto, you know, uh we just had the um 17th anniversary of uh the release of the Bitcoin White paper. You know, uh Bitcoin is not even an adult yet. You know, it's still a teenager. Um, you know, we act like we're in this, uh, you know, next stage of institutional adoption when really, you know, we're in a very nascent period with regard to AI. Yes, there were folks who were talking about AI a few years ago, but not like now. Not with the the kind of uh intensity that we've been seeing. You know, that's going to be going into directions uh that that we cannot foresee at this point. You know, so it really is important to be flexible, to follow the trends, uh and to be open-minded and to find those common denominators uh such as energy.

As one as one guest put it to me today, he thinks you know, AI we're not even early innings, we're still in the batting cage. There you go. Fellas, great discussion. Thank you so much. Appreciate it.