Okay, first things first, I want to talk about orange juice.
We're seeking to build a company that has a Bitcoin treasury
rather than a Bitcoin treasury company.
This is a permanent capital company that buys and holds businesses
and then intends to retain part of the cash flow into a Bitcoin treasury.
Companies that go through this process,
one, we're not flipping them, we're holding them,
and two, instead of levering them and kind of making it
so that they're one mistake away from failure,
these companies were already running great
and now they become part of a diversified set of companies.
I still think individuals owning their own coins is the best type of Bitcoin usage
and using it for money.
But I think...
I do want to talk about the general cyclical nature of Bitcoin
and sort of where you think we're at.
I would be surprised to see us break anywhere below like the 50s.
They're all like diamond hand psychopaths at this point.
That's how you start getting a floor in most likely.
Lynn Alden, welcome back to the show.
Always good to talk to you.
I think we've got a lot of stuff to unpack.
So excited to have you on here as always.
Happy to come on as always.
All right.
Well, so, okay, first things first.
I want to talk about orange juice
because this, I think, is a breath of fresh air
in the, quote, Bitcoin treasury space,
given that what you all are doing is not really a Bitcoin treasury play
in the sense that we've become accustomed to it,
but rather just companies making money and then saving in Bitcoin.
A novel concept, apparently.
But can you talk about that a little bit?
What is it you guys are doing?
You got orangejuice.com.
We were just talking offline.
What a great domain snipe on that.
What is Orange Juice and sort of what is the core thesis behind this?
Yeah, good question.
And I think you already actually described it well, which is that we're seeking to build a company that has a Bitcoin treasury rather than a Bitcoin treasury company.
You know, there's space for pure plays.
It got very crowded and very kind of, you know, euphoric.
It's obviously been some crash outs.
We've actually been working on this since early 2025.
Okay.
And we kind of explored a couple of different formulations, like going straight to public or building in private with an intention to eventually go public in a number of years.
One thing we saw, because we kind of saw the behind the scenes action on some of the Bitcoin treasury space or even just the broader digital asset space by the end of it.
I mean, they were bringing altcoin treasuries to market.
And a lot of the investment bankers, they were just very kind of mercenary-like in, you know, you have an idea.
It's like, let's get this to public.
Let's flip it.
Let's get traders in it.
And, you know, they have no intention of caring about the long-term vision.
Anything that complicates the message, like, oh, you want to do something other than just a pure, like, digital asset treasury.
And, you know, it's like, so we were very kind of conscious about the control we wanted over the company.
Because if we're seeking to buy companies from founders that put a lot of work into them, they don't want to sell to something that we say, you know, for example, might have minimal control over and not be there in a year.
So we wanted to do it right from the start.
Basically, the thesis with Orange Juice is that, even just put Bitcoin aside for a second,
one of the hardest things that people can sell is a business.
Because it's a large thing that only a few types of entities can buy.
You know, rich people or entities, basically.
Two, everyone's unique.
And it's an illiquid market.
and the biggest kind of filler of that gap
has been private equity funds.
And so what they do is they go out
and they buy a company,
like, you know, it depends on the type of PE fund,
a kind of small to medium company,
even a kind of sometimes a failed large company,
they'll buy a company
and they will generally gut the expenses.
They will generally lever it up
and then they will try to flip it
back out into the market in some capacity,
either find a strategic buyer or IPO, depending on the size of what we're talking about here.
And historically, we look at the statistics, companies that emerge from that PE process have higher than average failure rates.
And it's often because of that leverage.
There's also cases where people would say, you know, I really like my veterinarian clinic.
And then it just went to shit all of a sudden, you know, and you look back and say, well, basically what happened is a private equity fund bought it.
people that don't care anything about animals are just looking at the spreadsheet here and
they're now they're just cutting staff cross-selling you know veterinarian like pharmaceutical xyz and
just because it's good for numbers um which can work in the short term i mean p funds have this
kind of roughly a three to seven year mandate let's say they have a 10-year fund life some
portion of it's raising capital some part of it's kind of winding down the fund there's that middle
period where they're really, you know, for a given opportunity, they're trying to get it,
spend a couple spend a few years on it and flip it And so they don care about the longevity of that company They care about maximizing near returns for their shareholders
And so you can have good people with a bad incentive structure.
And there's a market for it.
I'm not saying like all PE is bad.
There's a market for buying companies and figuring out what to do with them.
It's better than if there's just no opportunity to offload a business
other than your kids running it or strategic.
Basically, you need some liquidity for that.
but it's not a one-size-fits-all thing.
The rare alternative is permanent capital,
which is some entity or person buys it saying,
I actually like this company.
I want it to run similarly to how it's already running
and maybe around the margins help improve it.
Maybe a lot of founders,
they've been running it a certain way.
We say we want to keep it running like that,
but maybe more capital could help it grow a little bit more.
Maybe, you know, we can update your technology backend or something.
You know, there's ways to improve it.
And the incentive structure is just different because you're not optimizing for, you know,
a flip, you know, kind of a three to seven year flip.
You want to hold it for 10, 20 plus years.
I mean, there's no exit for that in mind as long as it's still in a category that exists.
You want to hold it indefinitely.
The biggest example, this is Berkshire Hathaway.
you know, Warren Buffett's company, you know, they're, they're known for owning public stocks
as well, but they actually buy dozens of whole businesses and just hold them indefinitely.
Um, and you know, they're backed by the fortress balance sheet of the parent company.
Uh, and, and they're allowed to keep running, like imagine that.
Um, and so what Orange Juice seeks to do, uh, and that we, what we raise capital to do,
and we're not a fund, we're, we're a company.
That's the thing.
We're, we're a permanent capital structure.
There's no end date.
There's certain situations where a fund makes sense.
Like EgoDeath Capital, we run venture funds because a startup, that's a different ecosystem.
But this is a permanent capital company that buys and holds businesses and then intends to retain part of the cash flow into a Bitcoin treasury.
So the business, like you will own these businesses and then basically have one overarching Bitcoin treasury for them. Is that correct?
Yes, the parent company level will hold that.
In addition to any sort of financing we use,
because we want to maintain a very strong balance sheet
with assets compared to liabilities,
but you can make use of financing to acquire businesses
or basically it's around the margins.
If you have a bunch of collateral,
high-quality businesses, some Bitcoin,
you can short-fee a currency to do that,
and that'd be at the parent company level.
And so companies that go through this process,
one, we're not flipping them.
were holding them, and two, instead of levering them and kind of making it so that they're one
mistake away from failure, which is often the case in post-PE, these companies were already
running great. And now they're part, you know, the way we kind of intend this to go is that they
become part of a diversified set of companies with a strong parent financial balance sheet.
So, you know, if one company runs into a seasonal issue or a challenge of some sort,
it's backed up by the cash flows of the other companies and by the, you know, the hopefully
is the strong financial situation of the parent company.
It's super interesting and I'm curious too,
as much as you can say about it and feel free to shut me up
if you're not at a place to talk about this now,
but I mean you mentioned you wanna buy
obviously like cash flowing businesses, right?
Is there, are there specific verticals
that you guys are looking in, specific types of businesses,
specific sizes even that you kind of have benchmarks for?
Or is it sort of an open field in terms of look,
we're just looking for businesses that make money
And it could be a dentist or a veterinarian, or it could be, you know, some sort of a software, you know, business.
Like, do you guys have kind of a specific format that you're looking for, or is it pretty open?
So great question.
We have certain metrics that we're looking for.
So there's a size category that we're looking for, kind of that one to 10 million EBITDA range.
Generally speaking, they're going to be lower, multiple, lower growth types of businesses.
because that's how you get a lot of cash flow for your money
is by you're buying that lower growth business
because when you buy a mature business,
maybe not a huge growth prospect,
but it's a healthy business and you buy it at the right price
and then you're retaining your earnings in Bitcoin
or using it to buy other similar companies,
it can put you in a pretty good space.
Generally speaking, we obviously want to buy AI-resistant businesses,
things that might not have explosive growth,
but we don't want them to be going away tomorrow either.
So we don't want to buy value traps and things like that.
Generally speaking, we don't want to buy
super capital-intensive cyclical business.
We don't want to buy a copper mine in XYZ
with 10 years from now, it might make a lot of money.
So just more consistent cash flow types of businesses.
And the main variable we willing to sacrifice is growth because we get growth from reinvestment into other businesses and into our Bitcoin treasury And in terms of industries
we're kind of industry agnostic,
especially when we start out.
The way we expect this to go
is that the early acquisitions we make,
one of the key themes will probably be
that they're business owners
that happen to understand and like Bitcoin
and that have an interest in having their company
kept together rather than sliced up and diced and sold out to the market with a higher than
average failure rate.
And part of the incentive structure for that is that when we look out to buy companies,
we can buy them in all cash and financing.
We also, we intend to have an option where, you know, because a lot of business owners,
they're selling for a variety of reasons.
A common thread is generally that they want liquidity for some reason.
Maybe they are looking ahead and their heirs don't want to run this business.
They wanted to go do something else or they want to diversify or they want liquidity, whatever the reason may be.
But they don't always want to stop working at that company.
They might want to keep doing what they're doing, but with that diversification or that liquidity kind of extracted from it.
So they're not just the sole owner anymore.
And they kind of have now a long-term plan for what happens with the company when they're no longer around to run it or no longer desiring to run it.
So we actually have an option where we can keep the operators on.
And instead of buying it 100% in cash, we can offer some of our orange juice equity to the business owner so they can continue to be a partial owner in their own business and other businesses that we acquire.
and obviously that would work better if the business owner happens to like bitcoin because
you know the company's intending to have bitcoin on its balance sheet once it has acquisitions under
its belt uh so we generally think that early on companies that meet our size and and just other
you know quality uh metrics we we intend especially given our audience we've already had pipelines of
companies looking to sell to us they're generally going to be bitcoin aligned early on we then we
expect that as we've gotten a couple you know a handful of acquisitions under our belt and
hopefully we have a demonstrated, you know, decent execution and returns and all this,
that we can appeal to a broader business seller space that might not care or know anything about
Bitcoin, but they see this permanent capital structure as an alternative to what their other
options are. And so once we have acquired a number of companies, there's a decent chance that we
would then focus more on a vertical to say, okay, we got this company and this company,
and they clearly work together.
So if you buy a third company,
we can really bridge that.
It's kind of like there's certain games
or depending on how your opening hand goes,
you develop a strategy from there
rather than starting out with a strategy.
And I think that's how we're approaching it
with the difference being
that we do have that early strategy,
but it's less vertical specific
and more owner type specific
and size specific and quality metric specific.
Again, super fascinating on this.
Are you geographically constrained at all
in terms of acquisitions?
Like are you looking at just North America, for example, or are you guys looking global?
So we initially are starting with U.S. businesses, which is a pretty obvious it's a pretty big market.
There's there's nothing that would in longer term prevent us from going international.
And if anything, in some international markets, you can buy a similar quality business at a lower multiple just because it's a less liquid market or you're taking on a little bit of, you know, just local jurisdictional risk.
which will vary by company.
You know, one of our leading investors
has very strong ties in Mexico.
That's, I think it's another market
that we'd be looking at.
But our initial approach is the United States
and hopefully expand from there.
Yeah, definitely makes sense.
And did I hear correctly,
did you say you are looking like
that the goal is to take this public as well
or this will remain like private?
We intend to go public in a number of years.
Obviously, that's very, you know, it's market dependent, it's execution dependent.
And the reason for that is because, like I mentioned before, we anticipate using our equity as part of the currency of kind of keeping and retaining highly incentivized owners, you know, prior owners of the companies that are, you know, maybe continue operating it and become partners with us, you know, shareholders with us.
and that is a you know you want to have a destination in mind for when that equity might
be liquid for them uh you know they're getting part of their payout in cash and and you know
their remaining part they they might want to eventually sell that as well down the line um
so yeah we do intend to eventually go public at that point that'll unlock similar things that you
see with bitcoin treasury companies but again not in that pure play approach so we'd have an
you have better access to capital markets.
So there's, there's, it can be times where you can, like,
like we get investors reaching out now saying, can I invest in the, you know,
fortunately when you're a private company,
you're looking at a credit investors who can invest.
But being public gives you a bigger investor pool that can participate It gives you more liquid you know options It gives you generally speaking you going to get lower costs of debt as well
when you need to deploy that,
you know, want to deploy that strategically.
So we think there's multiple advantages to going public,
but obviously you have to reach a certain scale
for that to make sense.
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right? This to me seems like a more low time preference play just on multiple levels,
because you're not just trying to sort of, let's say, you know, use various forms of financial
engineering to, you know, to acquire Bitcoin and hope that people are going to pay you,
you know, a multiple on whatever your, your asset value is, but you're actually having cashflow.
And like, I feel like cashflow is something that's a lot of Bitcoiners may, may look at this as like
some like fiat thing but it's like well if for anyone that runs a business you know that cash
flow is like kind of the it's kind of the thing right it's kind of what allows you to keep the
lights on and keep your employees paid and everything else so i i find it super just
fascinating and one other aspect of it i wanted to explore a little bit was you mentioned the ai
resistance piece so is is the thesis here to really go after let's say for lack of a better
word like brick and mortar type stuff or let's say things where people are actually either building
things or doing like things that are outside of the software realm essentially uh in general i
i wouldn't rule out software as ai resistant in some categories uh but yeah in general uh we're
looking at a lot you know a lot of real world businesses i mean the other the
the veterinary clinic is not far off kind of the meme in the PE space is you know you you get out
of New York and you go roll up a bunch of HVAC businesses in the Midwest or something and HVAC
is kind of the meme um but yeah basically like businesses with with recurring customers uh that
are doing a real world thing that is beneficial uh that has uh some degree of economic moat like
the cash flow is durable it can't just dry up you know next month um uh and just generally speaking
what you're sacrificing is growth.
So you get a low multiple cash flowing business,
but that is durable.
And in terms of long time preference,
basically during that whole period
while all those kind of companies were coming to market,
those treasury companies,
it wasn't hard to just rush something to market
if we wanted to go like that.
I mean, the reason we took so long
to actually come to market with this
is we really wanted to do it right.
And we've even structured it so that
of all the founders of the company,
company, none of us are taking a salary, except for the one managing partner that's running it
day to day. So one of us is actually taking a salary, the rest of us are not. And we've structured
the liquidation preference so that we can't even cash out our equity unless early investors end up
doing well. So obviously, there's risks to anything, including this. But there's really
a scenario where we benefit, but our investors didn't. And that was pretty important to us,
is to structure this longer term. And then even like you mentioned, orangejuice.com, I mean,
that came out of the founder's capital before we even raised the funds. We injected our own time
and money into this for 15 plus months or whatever the exact starting date was. And it was all about
every single step of the way. It's like, we could make this shortcut and get this out,
or we could do this and get this out
or we could do this and get bigger
or we could do this.
And it's like,
when you're asking business founders
who build something for 10, 20, 30 years
to find a buyer of their business
and they're not flipping to PE
so they actually seem to care about,
you know, maybe wanting to still run it
or maybe, you know,
just wanting things for their employees,
maybe wanting their community to still be good.
They like that idea longer term
or they want to continue to participate
in the upside with, for example,
the equity of the parent.
it's important that a bunch of founders
didn't just rush something to market
in a structure that was kind of,
what was available at the time
rather than tailor-made for it.
In terms of founders,
if the founders didn't own controlling stakes
and making sure that the company keeps operating
as its intended structure,
there's risks to that.
So we kind of did our best
to kind of bring this to market
in kind of the low time preference way.
The other kind of angle with AI
is that we are, so that, you know, we're currently hiring after we made our announcement.
And one of the positions, basically the CTO, when we acquire a company, we're going to help
them with an AI strategy. Because, you know, a lot of us are, a lot of us that are terminally
online, especially on Twitter and elsewhere, just founders and tech or whatever, they work in
finance. We're like way into AI as a general rule. There's a long tail of people that just,
we're still in that kind of actually early adopter phase for AI,
not in terms of like people who've ever used AI,
because that's a pretty big percentage now,
but it's like,
are you actually making your business more efficient with AI?
And if you are a little bit,
like what can you do to make that more so?
And not in terms of, again,
like the PE hack and slash,
we come in,
replace all the humans with clankers
and, you know,
like you have that thing where like the business sucks now
because it's like you can't get a person on the phone.
Instead, it's like,
You know, there's so many small and medium businesses.
It's just the founders not had time to implement an AI strategy,
figure out what back-end costs can just be simplified
so that you can grow more while hiring slower.
It doesn't mean firing your staff necessarily,
but it just means doing more with what you have.
Having AI figure out where you can maybe find new revenue, for example.
There's a lot of things that can just be automated or improved
and made more efficient.
kind of the upsides of AI while minimizing the downside.
And so one of our approaches is, you know,
when you bring in a company,
the couple of things you can do,
you can streamline the backend.
If you buy a couple, you know,
if you buy a handful of companies,
you can unify the backend.
At least certain backend systems
can benefit from economy of scale,
as well as having, you know,
professional AI people that actually know
how to apply that to a business,
not in a way that you want to flip it in three years,
but in the same way you want to run it for 20 plus years.
And so that's actually one of the services or value adds
that we intend to do with the portfolio companies that we acquire.
I mean, it makes a ton of sense just because these are also,
you know, the types of businesses that you're looking at
that are going to be more let say AI resistant are also sort of necessarily the ones that maybe haven implemented too much AI yet Because again they are like AI resistant from their own business model perspective because of the nature of the work that they do
And they're probably more likely to have not implemented any sort of, you know, AI driven optimizations, automations, whatever, you know, whatever it may be.
and I'm curious too I mean the timing of this feels quite appropriate just given the fact that
we're about to like the boomer wealth transfer is very real a lot of boomers built businesses over
20 30 40 years and as you said not every boomer's heir wants to take them over they don't always
again want to have it hacked and slashed by PE and so this seems like you guys are pretty well
positioned right now? I mean, I'm trying to think of other companies. There are obviously other
companies like Harris Computer comes to mind in the software space that does sort of this,
you know, permanent investment. They're not trying to hack and slash. It's decidedly not PE.
But I mean, is there a lot of competition right now for what you guys are trying to do? I mean,
obviously not in the Bitcoin treasury space, but just more broadly.
Yeah, we have a number of comparables, but it generally is a pretty small market.
uh berkshire hathaway is the most well-known one um there's a company called illinois toolworks
um which is a uh it's worth tens of billions of dollars it's a publicly traded company for
for many decades and they're an engineering company that specifically acquires other
engineering companies in a strategic sense folds them into their parent company and just does that
dozens and dozens of times over decades um uh there there is a handful of software companies
that do that uh there is a an ai play that will buy companies and and do that ai strategy i mentioned
but they're marketing that angle a lot more substantially than we are.
You know, it's kind of like we're the AI experts that are going to go in
and do that.
That's kind of how they're marketing that.
But so there are, basically there's enough examples
that this can be a very successful model,
but it's a very uncrowded, unused space in large part,
I think because it's that long time preference approach.
And then also there's two major,
one like there's a demographic trend which you mentioned and there's another one so the demographic
one uh and you know this is part of our research when setting this up is that exactly like you said
due to demographics a lot of business owners are in their 50s or 60s um and you know that some of
them are just are looking to eventually get liquidity maybe not right now but they want to
have a plan for five ten years down the road if not now uh and that's where that even that hybrid
approach can make sense you know getting liquidity but continue to working on what you've built and
what you're the expert at um uh and so there's there's a huge amount of that and then two so we
just ended this 40-year period of falling interest rates just just you know higher like lower lows
and lower highs of interest rates we've ran you know pre and during covid you hit pretty much rock
bottom uh and you know we're in this well you can't predict the future per se but we're in the
sideways to up interest rate pattern now we're you're no longer declining just deep past zero or
anything. And there's actually like private equity is running into issues because, you know,
their whole model was a lot of its financial engineering because the parent, the fund is
closer to the Cantillon printer than the small businesses. So they have better, they have cheaper
cost of capital than Ma and Pa HVAC in Ohio, right? So they come in, they buy it, they can
finance it better, they can combine it with their larger scale and they, you know, they have all
these tools that they can do and that works really well when interest rates just keep going down and
down and down but when they're not anymore that model runs into some headwinds it doesn't just
stop working but it just it's some of the magic goes away uh so there's actually a lot of uh pe
companies that like i mentioned that three to seven year flip like a lot of them were kind of
like on year seven and they're like guys like uh what where are we going to do with this like
company we gutted and like what do we do now uh because i'd say there's there's too high a ratio
of flippers and not enough places for those companies to permanently end up unless they're
big enough to go public. Which again, companies that emerge from PE have a higher than average
failure rate. So even public is not always the best approach, but that's what big companies can
aspire to. But especially in that smaller space, if there's too many flippers and there's not
enough permanent buyers, you get distressed sellers that might have still a fine business,
but they just have to get it off their hand.
It's like a overstock sale.
And so we,
we think that will benefit us that,
that,
you know,
there's,
there's just plenty of these,
they have a time sensitive bomb attached to what is otherwise probably a
decent asset.
And if,
if we're time independent,
you know,
we can go out and say,
well,
we'll take that off your hands.
We're going to get a pretty low multiple,
you know,
we're going to pay a pretty low multiple from them.
But if,
if,
if someone's a distressed seller,
it's a buyer's market.
So that's what we're looking to,
uh,
to do. The other, I think, kind of brilliant piece of this just to me is looking at this,
you know, you're mentioning, okay, yeah, we're going to be buying these companies. We're not
really looking for we not looking at their you know their explosive growth potential We looking at their steady cashflow right But then you still have as part of the umbrella you still have that explosive growth potential because of Bitcoin Is that basically the thesis It like have steady
cashflow and get your overall growth because you have an incredibly fast moving. Sometimes it goes
down. Yes. Most of the time, you know, it goes down or sideways, but when it goes up, boy, does
it go up? Like, is that, is that the idea basically? Like, Hey, let's be steady and stable in the
present, knowing that if our thesis with Bitcoin is right, which we believe it is, that takes care
of the growth part of the equation. That is true. I would actually answer this in two ways. So I
think even putting Bitcoin aside, you can actually, it's unintuitive, but you can achieve very strong
returns with low growth if you're buying at the right price. As an example, if you go out and buy
cash, like let's say companies with no growth, and you go out and buy them for five times earnings,
uh so you're you're buying a 20 earnings uh yield basically uh if you buy one and then you you take
that earnings yield you accumulate into another one and another one and another one you're actually
internally compounding at a 20 rate of return compared to the stock market at say 12 right now
that's obviously that that's blank sheet of paper great math i mean you have to account for some
companies are going to fail so you're going to run into frictions so on and so forth um and kind of
one of the magic sauces of PE is, you know, they'll, they'll, they'll find a buyer, you know,
they'll buy something for maybe six times cash. Uh, and then when they, they got it, they, they do
all this and they kind of are able to kind of spruce it up. They might be able to get it out
of their hands for eight times cash or whatever the case may be. In addition, there's like a
liquidity premium, right? So, so like, what is a company that has five dental practices worth
in say, you know, Michigan or, you know, wherever that is.
That's a very specific business
and a buyer is taking on a lot of risk
by just buying that business.
And so, you know, it's,
but if you were to look into a company
that has 10 of those types of businesses
across different verticals,
an investor might be more comfortable
paying a higher multiple for that collection of businesses
because that's a diversified, larger,
more resilient type of business as a whole.
The sum of the parts is better than any one part.
So we generally expect that there's a multiple expansion
that comes from that.
So if you buy a bunch of businesses
for say six times cashflow,
I think the market will be more likely to assess that
as higher than six times its cashflow
because the collection of those businesses
is a more stable thing,
especially when the parent company has good finances,
it has access to cheaper cost of capital
because of its larger scale,
than those smaller businesses had.
They're able to bring in the top AI talent.
They're able to bring in the top financial talent
in a way that those individual pieces could not do.
So one is just even putting aside the Bitcoin component,
if you execute well, which is the harder part,
but if you execute well,
you can generate very strong returns
from low multiple, low growth businesses.
Like the Illinois Toolworks I mentioned
outperformed the S&P 500 over a multi-decade stretch.
I mean, right now with, say, semiconductors going vertical, probably if you take a five or 10-year snapshot, it's not as much as, you know, kind of the Nasdaq in that slot.
But during the course of its lifecycle, it's done very well, for example, and it's a company no one ever heard of because they just keep doing what they do well over and over again and just operating like an efficient machine.
Now, the Bitcoin treasury component gives us a couple options.
And the way I generally phrase this is when you're buying businesses like this, you generally need some sort of edge.
And for PE funds, their quote unquote edge is that flipping aspect.
They're like our edge is that we're so short term focused that if we just keep doing this over and over like a mercenary, if we're really good at it, we can generate excess returns for our shareholders.
If you're Berkshire Hathaway and you're buying them to hold indefinitely, you're like near the source of the Cantillon printer.
You have like the lowest best debt in the world.
They have their insurance float.
And a lot of people outside of the finance space
don't know how powerful that is.
But by having huge insurance companies,
they have the best source of debt in the world.
In addition to their traditional bonds,
they're so big, they're a fortress.
So they have the lowest cost of capital.
So they can have that really long-term time preference
because they have that just structural advantage.
And something like Illinois Toolworks,
their advantage is they're the best in their niche.
They're the biggest and best at tucking in various tooling and engineering companies into a conglomerate of those things.
And what our edge is that we like Bitcoin and we think Bitcoin's going to keep appreciating.
And we think that much like how adding sound money to an individual balance sheet makes that balance sheet better and improves your finances, we think that adding it to most types of companies makes it better.
And it gives us kind of a counter-cyclical approach.
So one is we have all these in theory once we get to the future we made acquisitions we have these kind of lower multiple lower growth businesses hopefully resilient cash flows
We always have the option of acquiring
more and more businesses we intend to do.
But in addition, by collecting it
into that scarce liquid asset,
we're building that fortress balance sheet
that can't be duplicated and can't be printed.
At certain times, it can be used as collateral
to get lower costs of financing.
I mean, all speaking equal,
if you have a collection of businesses
or you have a collection of businesses
and you're backstopped by a big Bitcoin treasury too,
borrowers are going to,
lenders are going to look at you and say,
well, that other one's a lower risk
because they got financial assets
and they have a diversified set of operating cash flows.
So if they want to borrow a little bit
to make the next acquisition,
then pay it off over the next six months.
And it's a low leverage ratio.
why wouldn't we lend to them at a pretty low efficient rate?
And so we think that will give us an edge
and it gives us options.
Like if Bitcoin is in a bear market
and we think it's in the bottom decile
of sentiment and valuation metrics
and fast money's out and it's mostly in strong hands
we can lean more into accumulating Bitcoin
for a period of time.
On the other hand, if Bitcoin just had a really big run
and it's euphoric and it's really high
and our, let's say, our business seller pipeline
happens to be very strong at the moment,
we can lean into buying more businesses
and reinvesting cash flow that way.
So we have the kind of latitude to make
what are hopefully counter-cyclical decisions
around how to deploy capital.
And, you know, it's funny because, I mean,
like before I was into Bitcoin,
I was into value investing.
I've been into value investing for 20 years.
So it's really cool to kind of marry those two together,
you know kind of the the the low multiple low growth business um with a with a you know kind
of the bitcoin kicker attached to it so we think it's a good combination i'm glad you brought up
the bear market piece because that was one of the things i wanted to ask you about is this seems like
in contrast to the uh let's say the pure play treasury companies which we are we have seen i
mean we have seen a lot of capital get absolutely incinerated um in in a lot of those right like
they are down bad as the as the kids say I don't know if the kids still say that or not you know
that's I'm probably dating myself there but this seems like okay as you said you guys are you know
you have the cash flow these businesses are not dependent on the Bitcoin cycle it's not like you're
buying Bitcoin businesses that are also negatively affected when Bitcoin takes a dip or an extended
bear you're buying businesses that are immune to that and so you will continue to have that cash
flow. You're well positioned to be able to buy Bitcoin, as you said, during the lows or, you know,
buy businesses when it's high. But it just seems like this, and again, I'm kind of contrasting this
with the pure play treasury companies. It seems like that, I don't know, let me ask it this way.
Do you think that we're going to see a continued sort of a breakdown for a lot of these treasury
companies? I think let's set aside micro strategy, because at least in my opinion, I think it's,
you know, it may have been hit pretty hard by all this, but also like they just, they just have so
much Bitcoin. Like they just have, and they still make what 500 million a year in, uh, in their
operating business. So technically, you know, there's still a cashflow, a cashflow in business,
but do you think that these treasury plays, the pure play treasuries sort of either fizzle out
or do we just get new versions of them every cycle that spin up, you know, raise a bunch of money,
buy a bunch of Bitcoin and then kind of drop out?
Or what's your feeling on that?
Yeah, it's a good question.
I think there's a space for some pure place in,
you know, if you're the leader in your market,
so whether it's the US or Japan or Brazil
or, you know, a handful of pretty deep capital markets,
if you're the leader at it,
like liquidity is a economic moat.
It's a network effect.
So if you have economy scale,
if you have better capital access, better liquidity,
you do have a kind of a defensible advantage.
assuming you execute reasonably well.
So there's a market for it.
I think the long tail of lower quality ones,
my expectation is, I mean,
some of them you see return capital to shareholders.
We might see mergers or acquisitions
where a company's trading perpetually below MNAV.
It's bleeding out cash because it's paying its executives
and it's not making money.
A pool of capital can come on
and just buy that for 70 cents on the dollar
and kind of put it out of its misery
and attach it to something
that doesn't have that bleed attached to it.
So I think there are consolidations
that are likely to continue happening to some extent.
I don't think that the scale that we saw
will repeat in every cycle.
I think we can kind of learn from the altcoin space
that you get this really big hype cycle
with a new idea, whether it's ICOs,
whether it's DeFi, whether it's NFTs,
the meme coin cycle.
And, you know, the echoes from that in next cycles,
they do happen, but they're not anywhere near the initial size.
Because now people, I think, are wise that if you're buying
buying a tertiary treasury company,
there's no like edge there.
There's no, you know,
you don't want to buy like the sixth biggest,
you know, treasury company in your market
that just not really doing anything different.
It's just kind of a more levered version of something.
So I think that while,
I mean, much like how strategy,
I mean, strategy has been through two cycles
and, you know, any,
the other ones that survive through this bear market
and get to the next one.
I mean, I think there will be another period
where they have positive MNAVs
and they're issuing some equity
and capital says, hey, owning levered Bitcoin
that doesn't really have like a callable date on it
is pretty interesting, right?
So more capital can flow in and they can issue more equity
and issue more debt or preferred to buy more Bitcoin.
But I don't think you'll see that explosive just flourishing
of all these companies coming to market
because I think the market is, they know where that ends.
And I mean, it's funny because early on
when strategy bought Bitcoin,
They held these conferences like Bitcoin for Corporations, which is the shocking idea that a company that has nothing to Bitcoin might just put Bitcoin on the balance sheet.
And they're advocates for companies doing that.
And I think that's where the real market is, at least in this space.
I still think individuals owning their own coins is the best type of Bitcoin usage.
and using it for money.
But when we're talking about, you know, companies with Bitcoin,
I'm more interested in companies with a Bitcoin treasury
than Bitcoin treasury companies,
other than, again, the handful of leaders that are, you know,
able to kind of maximize the economy of scale and liquidity
and execute it really well.
Yeah, it's companies with a Bitcoin treasury
versus Bitcoin treasury companies is a nice little turn of phrase there.
And I think that that ultimately makes sense, right?
I think for for most people, at least, if you believe that Bitcoin is going to do what we all think it's going to do, if you have that conviction, well, then you necessarily need to believe that eventually every company, like from the biggest to the littlest mom and pop is going to have some Bitcoin on their balance sheet because it's just the prudent thing to do.
Like, of course you need, like, yeah, you need Bitcoin just like, you know, currently, you know, you need some cash and, you know, you need some other assets on there. And so like, I think it just, it naturally follows that. Yeah, we're going to see that, uh, the early, like you guys are obviously kind of a early mover or first mover in this particular blending of kind of old school fiat.
and I don't say that as an insult in this case,
just for lack of a better expression,
but, you know, like this sort of
fiat world acquisition strategy
without the private equity hacking and slashing
paired with, hey, let's just own
the only provably finite asset in the world as well
and use that to our advantage.
So, I don't know, I like it.
I think it's a refreshing,
like very refreshing change of pace
from what we've seen in the treasury company space.
Wish you guys all the best with it.
You've got a great, great team there.
So, yeah, have we drained orange juice enough? Have we drank enough of the orange juice? Because I do have some other questions as well. But I wanted to make sure we hit this hard because it's fascinating.
I think we have.
I think the last point I would make is that the cool thing is a lot of small companies
are already doing this.
Just companies that have a Bitcoin treasury that are not Bitcoin treasury companies.
And for example, River will frequently say, here's a list of companies we onboard.
They will say the names.
We'll say, hey, we onboard a dental practice, a veterinary clinic, a trucking company.
They'll put out tweets like that.
And I know firsthand a lot of companies that just in the private sector, they're doing
something unrelated to Bitcoin and they hold some Bitcoin on the balance sheet. So, you know,
we're looking to make that happen in a larger collection and then bring it to public markets.
We think that's where the there is compared to just trying to do a pure play at this point,
if you're not kind of already the leader in that space. And it's going to come down to execution.
I mean, there's risks and everything, but, you know, we're in this for the long haul.
and we want to do what's good for Bitcoin
and what's good for companies and their communities.
Well, I love it.
I've not drank the Kool-Aid, but I've drank the orange juice.
So yeah, big fan of it.
Switching gears a little bit,
you mentioned the counter-cyclical nature
of what you guys are going to be doing with orange juice.
And I do want to talk about the general cyclical nature of Bitcoin
and sort of where you think we're at.
I will not ask you for price predictions or for exact dates or anything like that more so just
general gut vibe check on you know I talked to folks like James check with checkmate at check
on chain and I talked with Michael Sullivan as well who's doing some really cool sentiment analysis
and they sort of combine that together to put together this awesome piece called peak apathy
which was really interesting so we did a pod about that and they're both basically looking at
different sides of this equation but one with the on metrics one with the sentiment analysis and both of what they seeing seems to be pointing to nobody cares about Bitcoin but the on stuff is showing us that we probably in at least the bottom range
And I'm curious if you think that we are, if that is indeed a fair analysis,
like if we're a couple of points either way from wherever this bottom is,
and if going forward we still continue to follow like this.
the four-year cycle kind of looks pretty intact right now, right? Like it looks, you know, for
whatever it's worth, it looks like it's holding. Do you think we maintain that going forward?
And do you think we're sort of in that bottom range now? Or do we, does it go down to 40K,
20K, negative, negative zero, like Peter Zeyhan or whatever Zeyhan said back in the, back in the
day? What's your kind of gut, gut check on all of this? Yeah, good question. I mean, I think they
did great analysis. That's generally how I look at it. I think, and also I think they take a
healthy approach of instead of trying to bottom tick the absolute bottom, it's basically trying
to identify the probability that you're like in the lowest decile, roughly speaking. I think that's
the healthy way to do it. Basically, like, are you in an accumulation zone or are you in a
distribution zone or just kind of a void zone? And I do think we're in the accumulation zone.
And I, you know, I, when we hit that kind of February low and we're recovering from that for
while. I kind of had like a base case that that might be the low, but it wasn't super high
conviction. We ended up, you know, some months later, like that helped for a number of months,
then we hit a slightly lower low, the 58k gang, you know, kind of came up on us. So, you know,
we hit a slightly lower low. And, you know, it's not with high conviction, but I'm again,
I'm kind of treating that like that might be the low. But it's more of that broader scope of are we
in what is, I think, a bottom-y type of area, rather than trying to say that we absolutely
won't get a lower low than we already got.
I would be surprised to see us break anywhere below the 50s, personally.
I'm not saying it can't happen, but I would be generally surprised if that were to happen.
So I generally think that the downside, at least the reasonable downside, in my view,
is somewhat capped, whereas I think there's still plenty of room to the upside for the
next cycle.
As far as the four-year cycle goes,
I think that fundamentally,
there's really no reason to believe in it
in the sense that the halving cycle
in terms of how much that's affecting new supply
coming to market is now so minimal
compared to earlier cycles
where it represented a much larger percentage
compared to existing coins.
But obviously, it's still intact from a price standpoint.
It might be psychology still matters.
So not to say that it won't for sure happen
on four-year cycles,
but I wouldn't look to that as like a driver per se.
I think a much bigger factor is basically what can get inflows in
and what price levels do existing OGs start to sell some of their coins?
Because that's kind of the limiter.
People often, I mean, they point out correctly that Bitcoin is scarce
and there's the whole meme of exchanges are running out of Bitcoin and stuff.
But if you go up enough in price,
you unlock liquidity from otherwise strong hands
that have maybe been holding for one, two, or three or more cycles.
And they might have a family now compared to what they had
when they bought it for seven raspberries.
And they want some liquidity,
and they are distributing some of their coins.
And so I think it's more about has Fast Money exited?
What does the remaining holding profile look like?
Are they all like diamond hand psychopaths at this point?
Then that's how you start getting a floor in most likely.
And then how can you rise above that is getting some external capital want to come in again.
And it generally feeds off on itself.
So sometimes just stop going down is like the early phase.
And I mean, a funny example is like, say, Latin American bank stocks or just Latin American emerging market stocks.
Eventually, just like so much capital for a long time just flowed out of that.
Emerging markets have these really big cycles.
So much capital flowed out.
But it kind of hit to the point where the multiples were super cheap.
They had really positive real interest rates.
Things just kind of weren't getting worse anymore.
And so some investors say, wait a second,
I'm a value investor in that I can buy that bank
for like four times earnings.
Maybe I'll put a small position in it.
And then it starts to not go down anymore
and then maybe starts to go up a tiny bit.
So then you get chartists and momentum traders.
They come in and say, well,
that actually looks like a pretty good chart.
So they jump in, the chart gets better.
So then it starts going up and up and up.
and similar things happen with bitcoin this the first step is just it kind of just doesn't go down
anymore all the people that would sell you know a lot of the pools of capital that would sell just
are gone so it's just it's just people that are like ride or die and then it just stops going down
like you mentioned peak apathy uh and then that starts to be noticed and people accumulating
taking more coins off the market uh some people see that the chart is is not half bad and that
gives you know the
momentum traders come
in i think the other
thing is that um there
is that of course that quote like bitcoin the fastest horse to paul tudor jones uh and in recent years AI has been the fastest horse And so it like if you not first you last kind of
Like, it's like, of course, all these funds and investors in the world are allocated to AI, and Bitcoin becomes an afterthought.
Now, the AI, like the semiconductor industry alone is now like a $20 trillion market, basically.
uh it's hard you know it's easy and like the crazy thing is like that that number was like
in the market lows of 2022 that was something like 2 trillion so like 10x that that like market
like basically when you when you add like nvidia amd the memory stocks uh some of the semiconductor
equipment makers you can define the bucket but if you get a pretty broad bucket you can have this
a set of companies that went from you know two or three trillion to to 20 trillion uh and it's a
lot harder to go to 40 trillion and then 80 trillion from there right so uh not to say that
that trade's totally done but i think the the explosiveness is done um and as that starts to
just run into just you know lull of large numbers um bitcoin's over here cheap uh still functioning
still doing what it does uh and i think that's that's what kind of eventually sparks the next
the next run i'm curious too because you know you mentioned a lot of this capital going into
ai and just related uh related industries right for the past couple years and you know i've seen
a lot of people make the argument that look the reason that bitcoin is suffering so much right now
is for that for that exact reason that you know that nobody cares about bitcoin again the capital
chasing other things but at the same time we had from a bear market perspective at least so far
i can correct me if i'm wrong but i believe we've still had less of a severe drawdown than any prior
cycle so those two things are and i don't know if they're you know those are not like mutually
exclusive per se like i do think that obviously like it's true that people really don't give a
shit about bitcoin right now uh even though it's you know bargain bin prices and people have very
much been piling into the ai trades um or just you know you look at the spacex ipo and how much
capital floating around that. But do you think that those two things are related? Like,
was Bitcoin dampened by the liquidity flowing into these other areas? Or was it just that,
you know what, there's a lot of liquidity sloshing around out there, wasn't necessarily
a zero-sum game? Do you see what I'm getting at there? Was Bitcoin suffering because of AI froth?
or is it just that look we're kind of heading into a bear anyway and somehow the bear wasn't
actually as bad as the bear could have been so you know take uh count your blessings while you can
good question i think i mean it is a growing pie but i think the pie is still in competition
um and so i do think a lot i think that you know the presence of ai as explosive and large as it
was uh was a competitor for for the marginal dollar going into bitcoin um uh and um
More broadly, I think, I mean, to some extent, the Bitcoin treasury companies took off some of the froth, right?
So at the peak, instead of Bitcoin maybe hitting 200K, you had, you know, like strategy at three times MNAV.
You had, say, Metaplan at eight times MNAV.
Some of the ones that barely own Bitcoin at like almost infinite MNAVs.
The chart we've all seen where it's like you're a SPAC and then it goes vertical and then you kind of melt for the next few years.
So that's where like a lot of the kind of blow off top portion was.
I think what made this Bitcoin cycle disappointing.
so on one hand it is good that we didn't have as big of a draw at least so far we didn't have as
big of a drawdown and percentage wise uh but you know say in the 2017 cycle if you go up 20x
you know it's fine to have a 90 drawdown because you're still higher than where you started
if you only went from say 16 to 125 you know it's a small it's a smaller up cycle especially when
you compare to the prior high if you go you know you peak at 69 you roll over to 16 then you go up
to 120, you know, it's like less than a doubling from the prior high.
So it's not one of those cycles you, I mean, it'd be really bad to have a 95% correction
when you've only doubled from the prior high.
So I think the bear market was kind of in proportion to the bull market.
And I think what has disillusioned some investors is that now two cycles, you had this more
of a rounded top rather than a blow-off top.
and just the overall ratios were not as explosive
as some investors thought.
And, you know, I think there's different reasons for that.
I mean, I think the 2021 was crowded
because you had altcoins, you had just,
I mean, everything Cathie Wood was investing in,
all these kind of like SaaS companies,
like the kind of the unprofitable,
but like high growth stuff,
all that was just going vertical with Bitcoin.
so it does eventually crowd it
when there's tons of
at least temporary options
I also think this cycle
Bitcoin is
and this is like a long term or short term thing in the long run Bitcoin should benefit from the broader alt coin space kind of melting away um because it it noise and and uh just it competition for
capital uh but in the near term uh there was no altcoin season this time really that the narratives
kind of exhaust themselves you went from icos to defi to nfts uh to just straight up meme coins
like just kind of admitting there's no there there uh and then even that you're past that now
uh i guess the latest one was the treasury companies where that you know if you're not
the leading one you kind of also ran in a way um uh and it's kind of like they exhausted their
narratives um and that kind of whole air is gradually stagnating and there is some cross
ownership with bitcoin um there is marketing spend that you know in many ways hurts bitcoin
because you you know you pull retail into other things rather than bitcoin but when that whole
thing's booming and the money's flowing, Bitcoin probably in the near term does some benefit from
it. Whereas when the whole thing's melting, Bitcoin has to hold up despite all that structure
falling apart around it. So I think it's a combination of AI is taking off, crypto is
melting. Bitcoin's this good thing that's not currently the fastest horse, but it's a super
valuable thing. It's the best in class of what it does. I think it's still very small relative
of this total adjustable market,
meaning that there's still a long-term
appreciation potential there.
And I think it's hard to thread that needle
in the near term.
The investment case is a lot of what I just said,
which is not the shortest elevated pitch.
Like, hey, it's not going to go as fast as the eye of stuff,
but you actually own it.
And unlike this broader crypto thing,
it's not fake decentralized or super low liquidity
or changes through hard forks all the time.
And, you know, it's like the case is more nuanced when it's not just like, hey, it's the best chart for the past five years. Buy it.
The crypto side of things is pretty interesting to, you know, to watch that dumpster fire.
And I think at least just personally, what I noticed was around the same time, all of the biggest crypto exchanges also implemented.
And I'm talking like Robinhood, Coinbase, Gemini, and probably others implemented prediction markets like at the same time.
and I have to imagine that took,
because it's like, well,
we'd already gotten to the phase where it was meme coins.
We were just admitting that there, you know,
there was no there there.
But then it's like, well,
why not just even cut out that part
and we'll just go straight to the gambling?
Like, we don't even need to pretend
there's a blockchain innovation happening here anymore.
So why do we even need the token?
So I'm curious, do you think that that is a fair thesis
that the prediction market kind of hype right now
has sucked any remaining wind out of the crypto sales,
let's say i do yeah yeah i think so i think the ai trade the prediction markets um you know anything
that has that either gambling component or is just like in ai's case pretty fundamentally growing
sucks the wind out of it kind of leaves crypto is kind of like player's player melting ice cube
um spacey outside of bitcoin outside of stable coins um it's just it's there's not a lot of
they're there and i think the markets kind of realized that uh in a in a zero rate environment
um you know it was able to kind of it just kind of caught investors in tension for a while
but now that there's physical stuff to build again uh and there's some some degree of cost
of capital uh the market doesn't really want to be in that that long tail of of altcoins and
everything yeah and i can't blame them uh i speaking of rates i do want to get your take on
kind of what you expect, what your thesis is for our cabal of banker bureaucrats at the Federal
Reserve and what they may do next under Warsh's leadership there. Obviously, it's so far just sort
of been status quo for the most part. I mean, Warsh has talked about his favorability towards
different metrics for looking at inflation, like that trimmed mean PCE and things like that. I think
He was also the one who mentioned that all of this stuff that we're seeing right now with AI is going to be a very deflationary or disinflationary force.
Interesting things to hear out of a Fed chairman.
Where are you at with this?
What's your current thesis in terms of do we continue to just kind of tread water?
Do we, in fact, get more kites, hikes, excuse me, if we start to see inflation prints coming in hotter and hotter?
or do we sort of, let's say, massage the metrics, change the basket, hedonic adjustments, et cetera, et cetera,
and find a way to cut rates down again?
Yeah, good question.
The short answer is that, I mean, to some extent, he's trying to not be super clear because,
and this is part where I would agree with the new chairman on,
is that when the Fed is just always giving information about what it's going to do,
it's almost like the tail wagging the dog.
And so they're just doing less forward guidance in general.
And they make a decision and they give some degree
of expectation what they're going to do, but then just make decisions. The market just has to work
around those decisions that are just always trying to manage the exact thing that they're going to do.
In general, the Fed has a tendency to look through energy-driven inflation because their tools are
mainly around getting banks to lend more or getting banks to lend less. There's less they can do about
fiscal dominance. There's less they can do about oil shocks. And their kind of tools are somewhat
limited. So when you have rapid money supply growth and that's contributing to inflation,
they look at that and say, well, let's try to raise industry rates to slow down bank lending
and make housing more restrictive and all that. Warsh is already on the record right now saying
that the housing market is restrictive. Obviously, inflation is still above target.
They're watching the Middle East.
That's where you get that energy risk.
Right now, money supply growth in the U.S. is not above average.
It's kind of in the ballpark of average.
The issue is they really don't have the deflationary offsets.
They don't have the globalization offset that they did for a long time.
They don't have the other offsets.
The Middle East war is not helping the inflation situation.
It's kind of this recent bump.
So what Warsh might have done if you had this kind of Schrodinger's outcome of what if we didn't attack Iran? What would Warsh have done over this kind of first year in office versus what is he going to do now? Because we have these higher sticky inflation prints because you have energy inflation.
My general assumption that he's kind of neutral to slightly hawkish for a bit,
where he's not looking to cut right now because you have above target inflation.
But inflation is now off of its official year-over-year highs.
So May was a higher year-over-year print than June.
That might reverse if the Estrada Hermosa is closed again.
So we'll have to see what happens when we get July and August figures in and all that.
but I think right now
is in more of the credibility building phase
and they've reiterated
that they want to get inflation down
so I think in the near term
it's kind of signaling
that they're not going to be super hawkish
but that they're kind of leaning toward neutral
to maybe a hike or two here
depending on what happens
with some of this other stuff
but I wouldn't expect much more than that
on the hawkish side
on the balance sheet side
I've been in the gradual print camp
really since kind of autumn of last year
which is that the balance sheet stopped going down
they kind of ran into their functional limit not their absolute limit of how much they can
reduce the balance sheet under current kind of bank regulatory conditions but they got pretty
close they're now gradually increasing it I as a base case I expect that to continue
just gradually expanding the base money supply now Warsh has historically been a hawk on the
balance sheet ever since 2011 because he's actually been on the Fed before he wasn't the
chairman, but he's been on the Fed before. And he's been a hawk on the balance sheet. Now,
some of his remarks recently has actually been kind of dovish on that, which he's like, okay,
I'm a hawk, but we're going to, you know, it's a committee. We're going to make sure banking
partners are well aware of what we're going to do. We're not going to surprise markets. Everything's
going to be, so he's easing the market to make sure that they know he's not like an ideologue on
this. And so I think that they're going to make tweaks around the margins to, you know, maybe
all else being equal, I think he'll probably grow the balance sheet slower than Powell would have,
which already would have been slow, in my view, at least in this kind of post-2025 and present
and forward environment. And most of the tools he has at his disposal is to try to find ways to get
banks to hold more treasuries. So it's like you're almost like you're doing QE either on the central
bank side or the commercial bank side by kind of easing their restrictions to let them circulate
their existing liquidity a little bit more get a little bit more fractured reserve in there
and so i think that that he's more likely to have say a flat to up balance sheet
and i still kind of lean toward the mildly up direction okay i mean i i agree on the like that
seems to be trying to do as much credibility building as possible right now, given, I think,
the narrative from folks on the other side of the political aisle was that this is a Trump puppet.
He's just coming in here to do Trump's bidding. And if he came in and was just like, all right,
rates to zero, like, no, money printer go burr, that probably wouldn't have looked too good.
So, you know, it makes sense. I'm curious if we know that Trump wants to juice the, you know,
He wants to squeeze the juice. He wants to see that money printer go bird. This is just speculation, but do you think that it ends up getting a little bit contentious as it was with Powell at the end, where he's like, you're not doing enough. Inflation's down. We should be lowering rates. Do you think we kind of reach ahead there again?
I think it's possible.
I think he will at some point probably try to find areas to blame where possible But I think I would expect less than against Powell you know when you when you you have two years left in a term it different than uh and wars isn going anywhere anytime soon uh so that different than powell as he kind of
nearing his exit trump already knows he's not going to reappoint powell so he's able to criticize
him more um criticizing such a recent uh pick would be a challenge um and yeah i'm on the record
into like my reports where I was like,
you know, Warsh is not going to be a puppet
in that kind of more direct sense.
Like I think partially where the market got that concern
was Stephen Myron, who was appointed,
you know, for a period of time,
he came in with like dovish outlier dot plot stuff.
Like, you know, the whole,
the rest of the Fed would be in one direction,
he'd be like the super dove.
And so, and I wouldn't necessarily,
like, you know, he made his own case for rates
and he had a case before he was appointed and after,
and it was what it was.
He wrote that paper on trade,
which was, I think, a pretty good paper.
So it's not to throw him under the bus,
but he was just objectively an outlier
compared to the rest of the Fed on rate policy.
So I think some part of the market thought that.
But I think that Warsh is more of like
the Secretary-Treasury Besant type pick,
Besant pick,
not necessarily like a Trump pick per se.
So it's kind of like that camp of the administration.
There's always kind of multiple camps within an administration.
I think this is more of like the camp that kind of was like, you need a credible guy in here to run this and make sure the markets feel like it's credible.
So I think that's the direction they went in.
I think also Trump picks people like this that have a TV, you know, they have a reasonable charisma score.
They're not bad on television because it does in some ways reflect the administration in a visual sense.
So I think the combination of he got the approval of kind of his finance guys is really not someone that anyone would object to on, you know, from inside the industry, like inside the banking industry, inside this, there's really no one saying that this is not a qualified candidate.
So, yeah, I think that it's possible that he'll get aggressive toward him.
But I think it's just going to be kind of business as usual with the Fed for a while.
And if he does get aggressive toward him, I think they're going to kind of just shrug it off and just kind of just tunnel vision on we're trying to, you know, get inflation down.
we're trying to xyz and there's going to kind of tunnel vision kind of like how powell was doing it
for most of the end they're just kind of like just kind of almost pretending certain certain
attacks aren't happening i'm curious what you think about just the uh
technology's deflationary as uh our friend jeff booth has done a great job of trying to make
people understand ai seems to be extremely deflationary uh on on many levels and perhaps
a, you know, I don't know if it's a novel way per se, because technology is always deflationary,
but it seems like it may accelerate the productivity gains that accrue to society.
Do you think there's a risk of the Fed still assuming that we're in an old world when the
world is actually changing faster than they'll be able to react to?
Like the Fed's always by nature a bit reactionary, right?
Like they're not typically not proactive, right?
They're looking at, they always say, you know, we're looking at the data and we're making our decisions.
But what's your read on that?
Is there a, like, is the risk there pretty large that they really miscalculate this and things, prices start dropping a lot faster than they can handle and they're still operating in kind of an old world mindset?
Or what are your thoughts?
I mean, I think that, like, to the extent that you get faster than average deflation, I think they're always able to cut and they're always able to print.
And it's always harder for them to stop high inflation than it is to reinvigorate inflation, especially with the fiscal situation is what it is.
I also think that the worst, they're kind of on record, at least the chairman is, is saying that, I mean, they are paying attention to momentum, which is that if you have inflation that's above target but falling, that's a signal versus just what is the number right now, right?
So I think they are looking at that.
And so all technology is, you know, basically most technology is deflationary.
There are certain periods of time where you have like a Cambrian explosion of technology, which is more deflationary than other times, either in tech like stagnates for a period of time.
uh and so for example late 1800s in the u.s like when you had just railroads and electrification
and you know just all all this stuff kind of hitting hitting around the same time that this
industrialization electrification everything and eventually factories in the early kind of 20th
century that was just a massively deflationary time from technology standpoint um and then we're
you have other people like in in post-war japan you just had this massive productivity boom just
this is a very organized tech focused situation that was just massively deflationary in a good way And you know right now China a deflationary force because they built out all this excess industrial capacity
So they're able to just spin out cheap
and increasingly reasonably quality cars,
which is a very deflationary force.
Like here in Egypt, my background's different
because I'm in Egypt right now.
You know, every year,
the percentage of Chinese cars on the road is going up.
And it's partially because Egypt
has this very inflationary money situation.
So the number of hours it takes an Egyptian to buy like a Volkswagen compared to five years ago is generally more hours.
So a Volkswagen is more out of reach than it was five years ago for many families here.
Same thing for a Hyundai.
Hyundai was pretty popular here and still is.
But the rise of Chinese cars comes along and says, hey, you can get a similar quality for half the price, two thirds of the price.
and five years ago it might have been you know the quality difference would have been bigger and
over time the same thing happened when honday for example hit the market it's like oh that's the
cheap one and after around they go through a couple reps and now they're actually you know
decent cars chinese cars have done that so that's a deflationary force in a good way it says okay
you might not be able to buy that that volkswagen for the same number of hours but with the same
number of hours you can buy a chinese equivalent which is you know 90 is good in some case depending
what model you're looking at.
And so, yeah, you have that kind of period of time
where you have more rapid tech deflation.
And I think AI is that right now.
Now, the interesting thing is
it's not yet really showing up in those broad data, right?
So on an anecdotal scale, I mean, I'm in the venture space.
So I see how our portfolio companies are implementing AI
and how much they can do more with less.
I see other businesses from other verticals say,
you know we're hiring so much slower because you know just like our legal bills are way lower
it solves this it solves this it solves this uh the bat you know the the amount of code we can
write per employee just like exploded um uh but it's not slowing up with like nationwide data yes
like that i think that goes back to many companies are still pretty slow adopters
not in terms of say give you know giving the equivalent of chat jbdc their employees but in
terms of how do we actually run our business leaner that there's still a really big percentage
of the economy that hasn't gone through that funnel yet uh and the build out of ai is at least
temporarily inflationary i mean when you're when you're fighting over power and you're ironically
fighting over like chinese parts like transformers uh to to get the power into the into the type it
needs to be and all that and and so that's that's inflationary replenishing missiles is inflationary
So building out all this physical stuff is kind of temporary inflationary.
And that's coming before we've really seen a lot of the deflationary impacts.
But yeah, in the longer run, this is a productivity boost.
And I think that at least the Fed chair is kind of considering that.
I mean, like you said, that was one of his narratives for a while.
And I think it still is.
If he's looking for ways to be dovish, that's the narrative that they're probably going to latch on to,
which is that we expect tech deflation.
So even if we have these other inflationary areas, maybe we can not be as hawkish as, you know, they, I think a lot of times they do try to find ways to be a little bit on the dovish side.
they all their finger just naturally wants to go towards that you know that big red print button
they can't help themselves i want to be conscious of your time here and one thing i want to just
make sure we we get into before we wrap is also on the ai side but as it relates to sort of the uh
the geopolitical nature of open sourced versus closed source right now which i think is really
fascinating we recently saw kimmy come out of china it's open source uh you know open weight
I know there's various classifications there, but you contrast that with what's happening in the U.S. with these very much walled off frontier models from open AI, from Anthropic.
And I think a lot of people are looking at this and scratching their heads a little bit.
Like, hold on, I thought like the U.S. was supposed to be the one that was more open and, you know, those commies over there, they were not.
Can you break this down for people, at least like what you're seeing and sort of if there's an apparent contradiction there?
Yeah, good question.
I mean, you can have a whole podcast on that subject.
I know, I shouldn't have said it for the end, but I wanted to make sure we got in a little bit.
Of course. Yeah, I think, so I'll start with the U.S., that in general, when a country enters fiscal dominance, it generally becomes less of a free market, in a sense.
They get more toward industrial policy.
You know, we have, like, J.D. Vance was talking about Hamiltonian type of politics, you know, going forward, which historically, like, would be more on the, maybe the center left of the political spectrum.
right so they're kind of different flavors of that somewhat more top-down
approach and you know so we have that kind of industrial policy I mean we have
like the the government's taking really big shares of certain companies and is
a little bit more forceful at telling companies what they can or can do and so that interesting there also just in general the AI companies themselves i mean that this is a whole rabbit hole there but they kind of hype up ai fears um but what
we're often trying to do is build a regulatory moat around themselves like once you're the winner
you want to kind of pull up the the ladder behind yourself and make it hard to to kind of follow
and i think what was revealing is like you know they were hyping up fable and and how dangerous
it could be but as soon as Kimmy came out they were like actually Fable will make it way more
accessible uh to our subscribers than we were going to before it's interesting what money can do
um and with China so I mean there are people that like study China for a living and are like really
their pulse on the on the culture there uh I I studied to I studied like their engineering side
more so uh than than to their political side with a you know a handful of key to political decision
points they made, for example, when they purposely wanted to invest less in real estate and more
toward industrial policy. That's a really big pivot that they made and are still making.
One of the things that they might be doing is that they know that if they make AI very cheap
and accessible, then the rest of their economy has access to very cheap and accessible AI.
And China's killing it on cars. I mean, now they're starting to do like, they're working
on like vertical rocket landings.
You know, they're ramping up their semiconductors.
They're, I mean, they generate tons of electricity.
So they have really good kind of foundation
for data center growth and all that.
And you can service a lot in the region.
So I think they're,
I assume that they're strategically realizing
that this is an edge that's working for them
and it's taking market share.
And you have a situation where, you know,
someone will write code with Claude
and it'll save them time,
but like a human code,
it'll inadvertently introduce some bugs,
security risks,
and then you go and say,
hey, Fable, can you fix these security risks?
It's like, actually, I can't do that.
That's a cybersecurity threat.
So it's like, you can't fix the bugs you introduce,
like the security things you introduce,
you can't fix,
and it's like, yeah, no.
So then it's like, well,
I'll go pay Kimmy to do it.
So Kimmy fixes the things that Claude did,
like Kali on Twitter,
probably Anastasia is pointing this out a lot.
And that's, I mean, it's an upside down situation we find ourselves in.
It kind of blows open the decelerationist camp that's like, you know, hey, we need to slow down AI development.
And then China just kind of like does its thing.
And it's like, well.
Leroy Jenkins.
Yeah.
So, I mean, I think it's, yeah, I think that.
And as soon as that happened, we saw a pretty big call from, say, a bunch of VCs that has the administration's ear saying, hey, this current approach is going to shoot itself in the foot.
So we'll see how they adapt.
But that's my current model of understanding that China seems to see that allowing AI to be kind of cheap and accessible benefits their other industries.
you know anything else they're doing all their back ends are getting more efficient any code
they write is able to be cyber secure because they can have ai help them with that so i think
they realize that do you think there's an antagonistic piece to it too meaning like
everything you said makes sense but also from a hey let's try and destroy the the moat of these
frontier model companies that have had all this capital pumped into them because we also know
simultaneously like i don't know how much you've looked at the some of the research that people put
out around who has been funding these anti-data center campaigns and like a lot of it looks like
it might be trickling back to china do you buy into that do you think there's some good evidence
for that and you know how much like is this a two-pronged approach where it's like
try and reduce the moat that these big frontier uh u.s companies have while simultaneously make
the U.S. population averse to data centers, you know, not in my backyard type of thing.
It's possible. Kind of like how if you're selling a lot of gas to Europe, you might want to have them
like not want to build a lot of their own gas or nuclear, right? For example, you know, there is
precedent for that kind of thing, like that kind of like strategic, you know, kind of playing around.
In general, I think that China is more focused on kind of defense in a way. Not to say that they're
not doing that but i think they're more focused on like they're they're it's like if they're going
to steal ip anyway it's like why not have that ip be pretty decent right so um you know the ai
companies are going out stealing everyone else's ip and then china's like nice model you got there
uh yeah you know we'll kind of copy it um uh i think that and again i mentioned before like the
20 trillion dollar like semiconductor company uh metric kind of rough rough order magnitude i mean
But if you add the private market valuations of open AI,
anthropic, kind of the AI portion of SpaceX
and then the AI portion of Alphabet,
you're talking like a trillion a piece, really.
So it's not, I mean, after a few trillion,
they kind of add up, but it's not as though that 4 trillion
like a kill shot for the U S I think the ironic thing is like the AI models
don't have a giant moat really against each other.
I think that there's just, there's just low switching costs.
That's not where the moat is. The moat is in semiconductors. Um, uh,
the moat just maybe to some extent is in hyperscalers and especially the ones
that have really, you know, the long-term energy contracts and, and all that.
I mean, that, that's where I think the moat is, uh, more so. Um, and you know,
when the best models are only a handful of months ahead
of cheaper open source models,
that's a really hard moat to sell.
So I think that it's less about disrupting that per se
and more just saying, hey, we're going to keep building data centers.
We're going to keep getting any IP we can.
And we're going to keep, you know, kind of just make a model
that's almost as good for much cheaper.
um and it's it's it's you know i think they they want that competitive advantage um but yeah i think
there certainly could be foreign influence on on data center stuff kind of like how you can have it
on energy stuff and and all that a last related question and a somewhat briefer one but do you
think that this the to the ai arms race playing out the proliferation also of open source in these
models, do you think this is ultimately something that is more individually empowering?
Like as the yeah, where there's a lot of stuff going on at the nation state level, we can
theorize as to the intent there.
But does this ultimately all just kind of serve to benefit the individual citizen in any country Because once open source is out there it like the genie doesn go back in the bottle that how i view it yeah i think that the open source part is really important uh and i mean
and there's you know there's obviously the just in like china's ironically helping with this but
even just more broadly for example they're like the href for example has focused on say okay
you recognize obviously that ai can be dangerous like if a government uses it for like big data
of big surveillance backed up by AI.
I mean, even my novels touch on that, right?
So Stolgard Incident, for example,
touches on, in that fictional world,
they've already done that
and they ran into problems because of that.
So they actually dialed it back a little bit
and it's like a contentious spot
that it finds itself in.
And so, you know, obviously AI can be used for harm,
you know, kind of get a database and everything,
kind of the whole Palantir approach
and, you know, can do all that.
But it also empowers people
and basically says, you know,
that the overall cost of starting a business
obviously depends on the type of business,
but basically if these tools are cheap and abundant,
you really have a lot of tools
to just change your situation in life
globally across borders and all that.
I think that that's really powerful.
So it's less about,
there's all the talk about
kind of permanent overclass or underclass.
It's more like it really works
awards the combination of ability and willingness to use all these tools versus the either the
inability or the unwillingness to use those tools and that's how you get that i think that really big
diverse separation of outcomes um uh because yeah the tools are incredibly powerful and i think it would be a problem if they were somehow centralized in a handful of companies But I think just economically speaking
the moats just aren't as good
as companies that rely on network effects.
You know, it's really hard to make a Twitter clone
that actually has users, for example.
But it's much easier to just,
your own weights of, you know,
AI is competing with that other company
and both ones are running an arms race
and they're always like months apart.
that's a that's a narrow narrow moat and i think that's a good thing i think that the ultimate
beneficiary then is is the businesses and the individuals that use these tools and and especially
when they have access to private versions i mean not not every company wants their business seekers
stolen by the ai companies i think it's important to have kind of private alternatives yeah no uh
amen to all of that i've kept you a little bit over time so i do apologize orange juice.com
people should go to
it's lynnaldin.com
is your site
if they want links
to everything correct
and then people should
check out the Stolgard
instant either read it
your genetic engineering
sci-fi thriller
as I believe it's
technically listed
in the categories
Carl and I did
the audio book for it
was really glad to see
some of the solid feedback
on that just today
shout out to Brad
for the kind words
but anywhere else
you want to send people
anything else that you want
to bring their attention to
No, that's it. I think that's a good list. And I would double click on the fact that the
audio book narration was incredible. I think you and Carly did an amazing job. And I'm not just
saying that because it my book but just objectively the approach that was done was special because you use the advantages of being a husband and wife that can work together on this and both being in the field It a really special product that really kind of came together And
I wish you and Carla the best of luck with everything.
Thank you so much, Lynn. And thank you to everybody who tuned in on Noster for this
live. And thank you for the zaps. They're very much appreciated. And I appreciate all of you guys
joining on the sovereign side of social media.
So, Lynn, thank you as always.
Best of luck with Orange Juice.
I'm really excited to see what you guys do with it
and looking forward to talking to you again soon.
Thank you.
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