TOM LEE: Hello. I'm going to spend the next, I guess, 20 or 25 minutes giving a presentation on crypto. And that's one of the reasons why I didn't want to answer the question earlier in the session. And before I do that, I do just want to introduce a little bit of the Digital Asset Research Team. I don't think I see any of them here.

Henry's there. But of our 23 research team, a very large portion of it is dedicated to digital assets research. And it's an effort we've had in place now for seven years almost now. When we first did our first research pieces on Bitcoin, we had recommended that investors allocate 1% of their portfolio to Bitcoin or half a percent to Bitcoin and half a percent to Ethereum.

And if they had just made that initial small insurance purchase at the time we had published it, today would be 40% of their portfolio. But if they had followed the Ethereum in Bitcoin, it'd be 80% of their portfolio. So you can see the importance of understanding crypto, not because you're trying to understand the technology-- I mean, not everybody understands how their iPhone works. But they use it. And I think have to remember that's how digital assets work.

So the presentation I'm making is really like three parts. The first is, I think, there is a lot of crisis engulfing both financial markets and crypto. But this is the Chinese characters for crisis. And Ken, tireless Ken, who many of you may know as our head of data science research, he points out that the word crisis is really two words. The first word is danger. And the second word is opportunity. And I think what's always important to remember is that, every crisis, you have to focus-- you have to protect yourself from the danger, but you have to seize an opportunity.

  1. So let's think about the dangers first, and I think the most important danger is that the Fed is fighting an inflation war and central banks now. This is really important, because see, I'm not starting by saying that we're talking about monetary cycle and central banks raising rates. The world isn't focused on trying to contain a business cycle. They are fighting a war on inflation, and as you can see, the inflation problem is not just in America. It's everywhere.

And what does that mean? Well, that means that the Fed had to embark on the fastest ever tightening cycle in history, and that is also like trying to give the economy and financial markets a heart attack. So if monetary policy is tight, it is very difficult for anything that is sensitive or positively linked to financial conditions easing to do well. So guess what, if the Fed's tightening, it's not great for Bitcoin.

  1. Now, I have a few slides here, because I did this presentation when I was in Turkey. And it's kind of, a little dated now, because I was trying to prove the case that the stock market had bottomed. But I'll just walk you through this really quick.

There's a lot of people who still think we're in a bear market, and I just want to point out, the reason we're probably not in a bear market is that we're over the 200-day moving average and the 20-day moving average. And in the GFC crisis, all the way through 2011, the stock market didn't recover its 200-day moving average, until well after the low, and same thing during the dotcom bubble. So this chart is super dated now, because the S&P here was much lower.

But and then many of you think the Fed is going to tighten, until something breaks. And that's why maybe you're bearish, and you don't even own any FAANG. And you don't own any equities, and you may not only in a Bitcoin. But this is not necessarily true. The Fed won't have to tighten until something breaks, if he's fighting inflation.

  1. Now, as a consequence of what the Fed is doing, on top of a regulatory hammer, which I'll cover, there are many people who think crypto is dead in America. And this is one of many headlines, but I've talked to many people from traditional financial world that agree with this, that they think Bitcoin is pretty much dead, but here's the interesting thing. Bitcoin is at 26,000. It got to 70,000, but the low of the last cycle was around 2,000. Bitcoin is still holding 10 times higher than it was at the bottom of the last cycle. For something that's dead, it's still at 10x.

But the reason crypto is in a bit of trouble here is the hammer is coming from the SEC, and we've seen this. It's Operation Choke Point 2.0, and there is many, many pieces of evidence here from SEC actions. And I've got a table to show you this.

But one of the victims of this Operation Choke Point 2.0, believe it or not, which is a crypto crackdown, is Silicon Valley Bank. I think, in a lot of ways, in the crypto community, there's many believe that what happened to Silicon Valley Bank in its collapse actually had a little bit to do with the SEC's crackdown on crypto. It may not be as well-known, but there's a few reasons.

Number one, some of the largest depositors at Silicon Valley Bank were stablecoins, and also, some of the largest depositors were Chinese and foreign investors that had crypto funds. And so as all this was taking place, it actually robbed liquidity from SVB. So I think an unintended consequence of the SEC's actions against crypto has actually been the collapse of some regional banks.

Well, here is my team's list of all the actions, since the start of Operation Choke Point 2.0, and it started in November. It led to the collapse of FTX. It led to Binance leaving. And actually, most recently, because this is only through March, there's been now a Wells notices and litigation against Coinbase and Binance. The SEC is trying to, essentially, deliver its most powerful weapons against the crypto industry.

Now, the SEC's goal is obvious. I'll just tell you. It's they want the crypto industry to be regulated, just like a traditional financial system. So they want all the customers to be KYC, Know Your Customer, and they want to protect against money laundering.

But here it is again. I just want to make an observation. This is probably the biggest hammer coming down on crypto, and Bitcoin's at 26,000.

So the question you have to ask yourself is, what will take Bitcoin down to a lower level? Because Choke Point 2.0 has robbed Bitcoin miners from getting financing. Some have gone bankrupt. A lot of the banks no longer bank crypto. Binance has left the US, and Bitcoin is still 26,000. Again, it's just showing you the resilience of the digital asset blockchains.

I'm going to skip a little bit here, and so then I want to flip this around to talk about opportunity. And actually, there's an opportunity that's not here that I do want to mention, because it was filed today as well. But I think the most important thing is that, in the face of all that's been happening in crypto and all the pessimism, it looks like Bitcoin bottomed at $15,000.

And take a look at how crypto has performed in prior cycles. So in one of the earlier cycles of 2011, Bitcoin went from $31 to $2, and in the second cycle, it went from $1,300 to $200. And in 2017, you can see one from $19,000 to $3,000, and in this cycle it got to almost $70,000, and it fell to $15,000. But now, we're emerging from this crypto winter, and so to me, if you've not owned any crypto, and you don't think need to have any exposure, that's fine. But if you want to hedge yourself against things like fiat currency risk or disruption across governments, I think now is a good time to be thinking about allocating to digital assets.

And these year-to-date numbers speak to themselves. Bitcoin is actually keeping up with FAANG this year. So for something that has had the SEC Operation Choke Point 2.0, Gary Gensler has filed charges in circuit court filings and litigation against the major players, Bitcoin is still up 54%, year to date. In fact, it's keeping up with FAANG, and again, this is at a time when the news is almost at maximum negativity for crypto.

And take a look here at the long term. If you look at the last nine years, Bitcoin is your single best performing asset class, 153% annualized return. Let me just try to give you this number. So if you put $1,000 into Bitcoin, you'd have $100,000 today. That's just in 10 years. The next closest thing is the NASDAQ that gave you $5 back.

OK and something to keep in mind, when you look at performance of crypto. The best years to own Bitcoin is actually when the equity markets are up. So if you look at the years when the S&P is up 20%, on average, Bitcoin has posted its best years.

This is a scatter. The x-axis is the S&P performance. The y-axis is Bitcoin. So the reality is that Bitcoin is a risk on asset.

Now, the correlation-- again, I'm just emphasizing again. Bitcoin is correlated to the QQQs. It's actually somewhat correlated to gold and inversely correlated to yields, but at the end of the day, if you're confident about owning equities, or you think we're at the start of an expansion cycle, or the Fed is easing, these correlations tell you that you need to be long. Bitcoin.

And let's see, I'm going to skip here. Just going to jump ahead. I'm actually going to spend a second here on this, because there's a lot of people who were hearkening in today's session about how this is the '70s and '80s again.

And they may be correct. I was not trading markets in the '70s. I studied the '70s, and I read the Bernanke's book, Money in the 21st Century, which he talks in depth about the '70s and '80s. But here's something we have to keep in mind about the inflation war the Fed was fighting, back then.

This x-axis is 1968 to 1982, and the red line is what prices should be doing, if they were rising at 2% a year. And then the dark black line is the actual rise in consumer prices during that entire 13-year period. By the time Volcker became Fed chair, the price level of consumer prices was 217 or 72% above trend.

So for a 10-year period, Americans lived with prices that were double where they should be. And by the time he won the inflation war, in '82, prices versus trend had gone up to 112%. So you had almost half a generation-- like if someone was born a baby, they were 13 by the time the war ended. You almost spent like half a generation living with chronically high prices. That's what made inflation so pernicious back then.

This blue line is where we are today. So Powell is going and initiating the fastest rate hike in the history of the Fed, when prices are 7% above trend. So think about that, that the Fed is engaged in a level of inflation warfare tactics that Volcker employed when prices were 72% above trend. We're only at 7% above trend. This is why I think it's an easier war to win.

And here's another interesting thing. At this point, CPI was running like 3% or 4% under Arthur Burns, but he was running positive interest-- sorry, 3% or 4%, and he was running positive tight monetary policy of almost 300 basis points. So Arthur Burns was keeping monetary policy tight, and prices were surging.

This blue line, today, is occurring while the Fed's been actually easy. The Fed only started the inflation war here. The point I'm making is, it's a lot easier, I think, for the Fed to defeat inflation again. I mentioned it in an earlier session.

UMich consumer survey about one-year inflation is back down to 3.3%. We're already back down to normalized inflation levels. So that's why I don't think Powell has to go full Vulcan, and there's many people who think Powell is the hawk in the FOMC. He may be, but look, you guys heard all these stats, like what the FOMC thought interest rates were a year ago and where they are today, their forecasts have not been accurate. So we shouldn't ascribe a lot of clarity and lucidity and accuracy to their forecasts.

So why does that all matter? Well, if it's an inflation war, stock markets bottom when inflation peaks. I think this is, again, the most important chart. This applies to crypto as well.

Volcker becomes Fed chairman in '79. He embarks on a massive, massive inflation war, and you can see the S&P fell 27% in 430 days. Like that's roughly-- I don't know-- however many months.

And then the stock market bottomed, in August 12, 1982, and he's still fighting an inflation war. But then in October 5, Paul Volcker, for the first time ever, publicly suggested that they might shift inflation tactics. And then in 21 days, the market went up another 20%. The entire 27% bear market was erased in 4 months.

But do you see, this is not a flat recovery. This is literally a vertical liftoff. So if the inflation war is ended, the stock market is going to go parabolic. And I don't know, it feels like that's happening now.

And then here, this is something from our digital assets team. That if you look at crypto, we're sort of tracking with the current cycle, with past cycles. So again, I think it is confirming that Bitcoin is in a new uptrend. And then just some rules I would pass on, and then finally, I just give you some new developments.

But these are five rules of Bitcoin. These are simple things, like you have to focus on what's happening in the US, and that's been true. Bitcoin misery index and this rule about trading-- only buying Bitcoin above the 200-day moving average and it's a risk on asset have been our rules of thumb for timing.

And then I think one of the more important rules we have to remember is have to HODL, because the 10 best days of Bitcoin explain most of the gains. And that's what we highlight here, that if you look at the top 10 days of Bitcoin in any single year, it accounts for almost all of the gains for Bitcoin. So if you don't own Bitcoin in the 10 best days, your average return is negative. So you have-- don't want to time Bitcoin. You just want to HODL it.

  1. A couple of things here that I do think are important. I actually think crypto has done a terrible job of capitalizing on really important opportunities. During the pandemic, I think crypto really could have become quite relevant in a world where there was a lot of fraud.

I don't know if you remember, but of that stimulus plan, during the pandemic, almost 10% of it was fraud. And that's [INAUDIBLE] she had fraudulent ventilators or masks or mispricing of products. This is where digital assets and blockchain could have played a huge role in limiting fraud. Industry didn't capitalize on it.

And I think today, it still has to be seen whether the crypto industry can play a role in AI. I'm speaking to a lot of companies. Sean and I have been doing some calls with companies that are involved with generative AI and making specific tools for some industries. Where they might use blockchain to protect intellectual property, but again, we'll have to see if the crypto industry can actually leverage AI and play a central role.

Because again, in AI, it's raising all the issues that makes crypto relevant. Crypto is censorship-resistant. It's immutable. It's-- well, if it's proof for work-- consensus-driven, but it's also going to protect smart contracts. These are all things that are going to matter in a world of AI and authenticity.

So the last thing I would just note here is-- I'm sure you've seen it-- which is that BlackRock filed for Bitcoin ETF. Now, look, might just say, oh, that's a neat headline. Here's the 10th company trying to file for an ETF, and all the other ones have failed.

But remember, BlackRock has a great track record. I believe they've filed for 457 ETF applications, and only one has ever been rejected. So what does it mean? I think, one, BlackRock wouldn't file for a Bitcoin ETF, if they didn't think they would have a chance for success, naturally, but here's the thing.

If BlackRock gets into an offering, a Bitcoin ETF, and they are the largest asset manager in the world, managing over $10 trillion, here's just an observation, and it's not a prediction. But the average first week inflows for the 10 most successful ETF launches was $50 billion, in a week. So annualized, you'd be in the hundreds of billions of dollars of demand in the first year.

Bitcoin is what you call a reflexive or network-value asset, if you add-- now, the multiples could change, but historically, it was a 20 multiple on price to inflows. If you get $50 a week one direction HODL into Bitcoin, I think it's going to come back to this price cycle, that this could be the catalyst that gets Bitcoin into the next cycle, which again, is here.

It could propel Bitcoin well above its prior highs, and I think it'd be consistent with some of the price predictions made by the Cathie Wood's out there. She sees Bitcoin in the 250,000, 500,000 range, but again, think about this. How many opportunities to make a small allocation do you have, where it's fairly asymmetric?

Because Bitcoin's at $25,000, right now. It is absolutely getting hammered with regulatory actions by the SEC, and it's still 25,000. Yet, BlackRock filed or an ETF. So I'm going to stop that there, and are we going right into Q&A?


AUDIENCE: I have a question. You mention that Bitcoin-- I don't need that. I'm loud enough.

SARA SILVERSTEIN: Yeah, but for the video, you do it [INAUDIBLE].

AUDIENCE: Yeah. You mentioned that Bitcoin follows the S&P pretty close, and you're thinking the S&P is going to keep going up. What if you're wrong, and the S&P in the last six months flops? Are you saying Bitcoin flops also?

TOM LEE: If-- yes. I might say, maybe I'll start with saying, what could cause S&P to go down?

AUDIENCE: I'm saying if it did.

TOM LEE: Yeah, and I think it's important to think about why. If the S&P is going down because we're in a bubble, then Bitcoin is going to go down. Now, if it's your belief that the stock market is a bubble right now, because there's a lot of people who claim that we're in a bubble, or we're in a drunken bubble.

One, they must have said this for much of the last 35 years, because I don't think there's the conditions in place today that describe a bubble. In fact, JP Morgan's flows and liquidity team did put out a piece that, if you define a bubble as a percentage gain over a specific period, we wouldn't-- whatever's happened in the FAANG doesn't even show up on the map of a bubble. There's nothing that looks like a bubble yet in America, yet.

But the S&P could fall, because we have a recession. Look, if we have a recession, the stock market is going to go down. It's out of like 14, I think, instances of a recession, only two you didn't go down. So you'd be really fighting the odds.

If we enter a recession, the stock market's going to go down. If the stock market's going down because of a recession, I don't think Bitcoin is going to do that well. If we're in a bubble, and it's bursting, that would be worse for Bitcoin. So I think the market going down, it could either be really bad for Bitcoin or mildly bad.

But again, I would just caution, just because you hear people say it's a bubble, it's a bubble in people saying we're in a bubble. Because I think our team will tell you, almost everyone tells us, this is a bubble. But this is the most widely telegraphed bubble ever, because everyone thinks it's a bubble.

AUDIENCE: But a recession is different.

TOM LEE: Yes, a recession-- yeah, look--


TOM LEE: A recession could happen. None of us can predict a recession, but for those who are predicting it with certainty, you have to question their certainty. Because you know what, that was what people were saying 18 months ago. Let's say they're right in five years, and the S&P is at $10,000. Are they right, or is that a pyrrhic victory, because they just sat out 6,000 points or something?

AUDIENCE: I have a question. A lot of the problem with Bitcoin, for people like me especially, is how to buy it, where to buy it, where you store it. And I realized after the last issue we had with the banks, a lot of people lost their money based on how they bought it, where they bought it, and where they held it. I assume that's going to be taken care of with BlackRock, or do you think they'll have the same exposure? And even without the exposure, how do you navigate to make sure that you buy it and hold it properly, so that you don't lose it?

TOM LEE: Yes. I think the answer to that is actually based on age. I think young people are really good with technology and personal security, and I think many of them should own their own Bitcoin. So they can buy it, stick it on a ledger, wallet, don't keep it on a crypto exchange. And why do you want to do that?

These are bearer assets, and let's say were living in Turkey, or you live in Venezuela, do you know, the only people who are surviving are the ones who own crypto. Remember, Bitcoin is saving lives right now, because if you owned it in Lyra, or you own the Venezuela currency, you went from being a doctor to dead broke. But the ones who own Bitcoin are actually now the upper class, and outside the US, crypto is incredibly expensive.

In the US, if you use OECD data, 4% of all GDP is given to the banks as your cost of using the banking system. That's your tax. So that's why I was being a little snide when I said banks know how to make money. They get a 4% off the top of the economy, no matter what, no matter what interest rates are doing.

So if you own crypto yourself, you're protecting yourself from all that, from the calamity. But for someone here in the US, in the developed world, where they already have access to banks, and there's regulation that could protect them, I'd recommend a Bitcoin ETF. Because ETFs are very simple structures. You can own it in a lot of accounts.

It's very easy to trade, and because you're not worried about taxation, you're going to be subject to taxation. I'd completely recommended to do it through an ETF, if you can, and it's not easy today. Like if you're a JP Morgan private bank client, they have restrictions on what you can buy that has the word digital assets on it.

AUDIENCE: Tom, has your team done any work on the relationship of crypto and gold, either as a substitute? Or what type of investors would prefer to buy gold versus crypto for their nonmonetary assets?

SPEAKER: Yes. It's-- I don't have the presentation here, but we've shown that gold is a generational preference. That people over a certain age prefer to own gold. In fact, you know that a single generation is responsible for most of the purchases and holdings of gold?

So like let's say take-- the youngest person in America is age 0 and the oldest is 110, and you broke it up into 25 year slivers. One generation is primarily owning gold. Most people-- like Gen X doesn't own gold. If they do, they're the exception.

Most people who have wealth that are Gen X have ARK or hedge fund investments, and younger people have a huge preference for digital assets over gold. So to me, gold, Bitcoin represents the same scarcity and censorship resistance that gold represents to another generation. In fact, that's why gold's parabolic move actually is limited to almost like a 13-year period. It was one generation that bought it. I'm not against gold. I'm just saying it's not-- the people who talk about gold are probably, y'all notice, they're probably all about the same age.

AUDIENCE: So Tom, with your forecast going at INAUDIBLE you still remain at 1% of a person's portfolio to be in Bitcoin?

TOM LEE: Yeah. I think we might have changed it to 2% for the average person. For a younger person, it could be 5%. But the reason we're using those numbers is there are a lot of young people that have 40% 50% of their money in crypto. And that's fine, but that's-- who wants to have a 300% annualized volatility asset is half your net worth? It doesn't make sense.