Listen here or on the go via Apple Podcasts and Spotify
With recent volatility in crypto, Mike Fay wonders how much has been priced in (1:15). Trump initiatives and why it’s hard to not be bullish long-term (3:30). Solana, Ethereum and ranking the various coins (4:45). Bitcoin ETFs and understanding how to hold crypto (9:50). Futures trading and the best reason to go long Coinbase (13:10). Macro picture very compelling setup for bears (14:45).
Transcript
Rena Sherbill: Mike Fay, welcome back to the Investing Experts podcast. It’s great to have you back on the show talking crypto and seeing where you’re at in the marketplace. Welcome back.
Mike Fay: Thanks for having me back. It’s a pleasure as always, and it’s an interesting time to talk crypto right now.
RS: It’s definitely an interesting time. So maybe ground us in the present moment. We’re almost in the middle of March. We are seeing a lot of volatility in that space. Share with us what you’re thinking about how you would articulate your thoughts for investors.
MF: The market right now is behaving similarly to other markets, specifically US equities. I think a lot of what we’re seeing is driven by a risk off sentiment. I think there are a lot of reasons for that. Fundamentally, it really depends on how you view the space.
So if you’re someone who thinks that it needs to have utility, then there are concerns. If you’re someone who thinks that this area is more of a digital adaptation of some of the older tech infrastructure or digital gold in the case of Bitcoin USD (BTC-USD).
Nothing has really changed and in fact maybe the thesis is even getting stronger given some of the things that we’ve seen from President Trump with the digital asset stockpile, Bitcoin strategic reserve, these are the things that the market’s now looking at.
The question is how much of that has been priced in? I think that Bitcoin right now is behaving more as a leveraged play on the Nasdaq (NDAQ) than it would be something like a safe haven. I think that that’s pretty clear in the correlation data.
I think that’s pretty clear in that it’s essentially going down with equities rather than going inverse where gold has been performing quite well to start the year.
So my view is still that it’s largely a capital flow game for Bitcoin. You have to then think from the perspective of the people who are allocating that capital, what do they think Bitcoin is?
If they’re buying the idea that Bitcoin is digital gold, why isn’t it behaving more like gold rather than the NASDAQ? My thinking is that currently, right or wrong, it’s viewed more like leverage on the NASDAQ or a raw speculative instrument.
So in a risk off environment, which is what we’re seeing right now, it’s gonna probably go down.
RS: Trump’s initiatives – the Summit, strategic reserves, how has that affected not just Bitcoin, but also investors and sentiment? And what do you think it means both in the near term and maybe throughout this year at least?
MF: Honestly near term through the end of the year I really wouldn’t be surprised if we see markets make another top or another high I should say that may be the top for this cycle. There’s also the question of whether or not having cycle theory even still applies.
I think broadly it’s hard to not be bullish long term because, and I don’t want to get political, but I think that many in the space viewed the previous administration as being combative to the industry, and so I think it would be hard to argue against that.
I think that this new administration has overtly been far friendlier to the industry, so I think that it’s a good time to be an American crypto business if you buy the idea that this is tech and financial tech, financial infrastructure that is going to change maybe settlement works in the future. It’s hard to not be bullish long term.
Doesn’t mean the price is going to go up right away, but I think that what we’ve seen is very good.
RS: What would you say in terms of the other cryptos? How would you rank them I guess in terms of near term, long term?
MF: Good question, you’re the master. I think that where this goes is, I think that the blockchain network as an idea is going to be, if you’re an investor in this space, you really to be selective and this was kind of the thesis from my blockchain reaction marketplace from a few years ago is that there are millions of these things now.
At the time there were like 20,000, but we saw with Solana USD (SOL-USD) becoming more popular, it became very easy and really no barrier to entry at all to make a new token. So now there are literally millions of these things. Obviously, that’s ridiculous and none of them, no I shouldn’t say none, but most of them are not going to have long-term value.
So you have to be selective, you have to pick things I think that are going to offer some sort of a utility and utility has not worked well. I’ll be the first to admit that. Digital asset utility has not been a working thesis for a while. I do think that that will change.
I think that you know at the beginning of new tech, at the beginning of innovation, you see the ridiculousness happen first, you see the criminal stuff happen first, but over time these things do get used the way that they’re intended.
I love the idea of stablecoins, not everyone likes stablecoins, but I think if you can send a dollar from the United States to some other country in a matter of a few seconds and have it settle, that’s pretty awesome, and I think that these types of ideas, so specifically something like Solana has shown an ability to do that very well. Yes, it has shut down problems from time to time, but we haven’t seen that as much recently.
Ethereum USD (ETH-USD) still the absolute, you know, juggernaut for stablecoin supply within any blockchain network. Although we’re seeing based, which is an L2 that was developed by Coinbase (COIN), be more of a network for kind of like that peer to peer usage thing, whereas Ethereum’s main network is far more large value transactions.
But the thing is, and I’ve written about this for Seeking Alpha many times, is that the fundamental case for Ethereum is not maybe there right now because the fee market on Ethereum has suffered so much from Dencun that it just makes it challenging to say okay yeah buy ETH when ETH has gone back to inflationary because the fee burn isn’t working the way that it was before Dencun and a lot of that scaling is happening on the secondary chains rather than the main chain.
So even though ETH has this enormous stablecoin supply, and it should figure to benefit from stablecoin usage growth, the mechanism for how ETH has performed well over time has been it gets deflationary when it’s used a lot because of the fee burn and there’s a robust fee market because of all these transactions, and they’re expensive, to be honest.
So seeing that scaling go to secondary chains has actually hurt that, and it could mean that Ethereum as an ecosystem could thrive, but still maybe not mean that ETH as a token goes higher in price.
As an investor, as an individual finding that balance and figuring out okay, my thesis on performance of an ecosystem or performance of a blockchain could be correct, but then how do I actually even put that trade on? It might not be as straightforward as you’re saying go long ETH.
Solana seems to be looking good. I mean the price is way down, but that network has shown an ability to handle a lot of throughput, do it quickly, deal with these surges and usage and surges of users pretty well. So I think that you’re going to see the top chains do well.
Haven’t even mentioned something like SUI yet. I haven’t even mentioned something like NEAR yet. There’s going to be competition for where these users are.
The ultimate question is, is do users have an appetite for these kinds of networks? Or is it going to take building and developing applications on top of these networks and then getting those users in there without them realizing the infrastructure that they’re using?
I think it probably has to be the latter because when you start saying things like crypto and blockchain, people start to tune you out immediately. I think that I can count on one hand if I wanted to tell somebody, hey, I’ll send you USDC over base, I can count on one hand how many people would even know how to receive it.
In this industry, in this space, there’s been a fatigue of what’s perceived to be the scam like behavior. It goes back even before FTX. When I go to a place like X and I look at what the sentiment is like, people seem pretty burned out on all this, which is maybe a signal in and of itself.
RS: Speaking to that aspect, I think it segues nicely into a discussion about ETFs because that makes access a bit easier, especially for the mass population. What would you say a, I’m curious if you’d care to share how you hold your crypto and what you would advise investors and maybe what that might depend on and your thoughts on the ETF space?
MF: For me personally, I think you have to start with on chain holding, on chain usage. And the reason why I think you have to do that first is because I think you need to understand what it is you’re actually buying.
It’s very easy to just say to somebody, hey, buy Bitcoin because the price is going up. There’s more of an appreciation and an understanding for Bitcoin as a decentralized network, or a ledger system.
When you learn that those early basics, this is what it is, this is what it’s supposed to be, this is how it functions, and this is why it has value. This is why we believe it has value. From there, if you want to scale a position, then you have to think like a capital allocator.
And so keep Bitcoin on chain for the ability to use it in an emergency or if you’re needing to bring something cross border, you just need to remember your keys.
But from an investment standpoint, think like a capital allocator, what is the easiest and cheapest way to get exposure to this idea? It’s not to buy it as a retail consumer on Coinbase, it’s to go to BlackRock’s iShares (IBIT) product and pay 15 bps and have the best liquidity of any ETF, right?
So and if you can do that in a tax advantage account, then when the time comes to sell it, then you’re not going to get hit on capital gains. So that’s what I would say is start with on chain but when you’ve understood it, when you know the product, when you know what it is you’re buying, then it does make sense from a cost standpoint to look at ETFs.
RS: Anything you would say about the various ETFs? How you would, I guess, tier them up?
MF: Personally, I like Fidelity’s (FBTC) because I think that long term, this is a company where they’ve been involved in the space for a while, they’re one of the only asset managers that is not relying on Coinbase to custody the assets. So you can look at that and say, Okay, now my risk is all just fidelity.
Whereas if I buy through BlackRock, now I’m introducing second and third-party risk, third and fourth party risk, guess I’d say because of that, I like fidelity now you’re going to pay a little bit of a higher price, but we’re talking about 25 basis points annually for the fidelity products against like 15 for the BlackRock products.
If these assets are going up 50% in a year, I don’t think that the 10 extra basis points is going to kill you. Call it the insurance of I’m not exposed to Coinbase through BlackRock.
Not to say there’s anything wrong with Coinbase, but I like Fidelity personally. I think IBET’s fine. It’s fine for trading. It’s fine if you just want the cheapest route, then go for it. I don’t think anything will actually happen, but from an insurance standpoint, I like just one issue.
You know, the person who’s issued the ETF is custodying it as well. I like that.
RS: Speaking of Coinbase, do you have a point of view on their recent announcement of doing round the clock futures trading in the States?
MF: Personally, no. I don’t really do that type of trading.
For the company, is it a good thing? Can it get them an incremental revenue driver for them? Probably. Where I look at Coinbase, I look at their long-term strategy of stablecoin adoption being probably the biggest reason to consider going long Coinbase. They’re part owner of circle, which is the issuer of USDC.
They have the custody component, they have the retail trading component, they have the stablecoin component as well, they also operate probably the at this point, the most successful L2 on Ethereum.
So there’s a lot to like, the balance sheet is terrific. It’s just a matter of price, you get to the point where you say, okay, Coinbase is a good asset and I want to own it, then you have to say, am I paying the right price for it? That’s a different question.
RS: And what do you think it means for the investing community slash what do you think of futures trading slash why don’t you dabble in that?
MF: I like to keep things very basic. When I make my trades, I’m basically doing cash account, I’ll mess around with some of the leverage stuff if I’m going to time it right.
But futures options, these things really aren’t my wheelhouse. Leave that to the people who know that space really well. I try to stick with what I know. And that’s simple buy, sell, and I keep it that way.
RS: What would you say macro wise you’re most paying attention to as the weeks roll on here in terms of all this macro talk, all this geopolitical volatility, stock market volatility? How do you think about it in terms of markers along the way that you may see as good news or bad news?
MF: It’s a very compelling setup for bears because I think that the Fed, if you look at the Atlanta Fed GDPNow forecast, they’re already saying Q1 is going to be negative.
And we’re still at the very beginning of, well, I guess we’re halfway through March at this point. But I think the very real possibility that the United States could either already be in or enter a recession this year, make what you will have, you know, the DOGE government efficiency spending cuts, but where the United States has such a large portion of GDP coming from fiscal spending, you know, any real move towards efficiency in that realm is going to have an impact on what would be the government’s top line numbers.
I think the key is where it gets back to something I mentioned earlier is capital allocation. And we have recession concerns, there’s tariff concerns, to what degree is all this priced in?
I’m not sure that it is, and I think that one of the things that people have to remember is a very big problem that the US Treasury has is the refinancing that has to happen this year.
And a large portion of that refinancing, think about 4,000,000,000,000 is happening in the second quarter, the federal government does not want to have to refinance debt at 4% or higher. And the problem right now is that those yields are all above 4%.
So how do you make it so that the bond market gets a bid treasuries have to probably yield lower so that longer duration looks more attractive, you had that to get people out of treasuries and into bonds, what is the mechanism that makes that happen? So you have to get those short-term rates down, which I think really only happens if we’re in a recession.
And so then, like I said, Fed now you’re already seeing that recessionary call, you’re seeing the market go down almost on a daily basis for the last couple of weeks, which has had sort of a reverse wealth effect, the market for the last several years has just been so conditioned to expect that they’ll get saved when this type of stuff happens.
It might be different this time because the treasury has to refinance this debt, and they have to get rates down. So I think people might be surprised how far stocks could go down.
RS: Anything to say about stocks like Strategy (MSTR)?
MF: Strategy is going to be one of the great documentaries of this era. There are people who absolutely love this company, which, I think, is very concerning.
When I last wrote about it, I mentioned that they’re selling merch. They’re prominently selling merchandise on their website. So you can buy a Strategy hat and a Strategy shirt while you hold your Strategy shares.
RS: And wait for the Strategy documentary.
MF: And wait for the Strategy documentary, exactly. Look, Strategy, Saylor is a really brilliant person and I like to poke fun at him occasionally on X, but he’s a brilliant person. He’s done very well for himself. I think he found an incredible opportunity, and he’s taken advantage of it beautifully. I don’t think it can last forever, but maybe it can.
RS: Is there a moment that you get out of Bitcoin or the other cryptos that you’re in?
MF: As far as total crypto market, I’m in maybe about four or five at this point. So I’ve scaled back some of my holdings. A lot of those allocations were really small anyway.
As far as Bitcoin goes, I don’t think I would ever go zero completely. I think that Bitcoin does have a place in a portfolio. So I can’t imagine I would ever go to zero.
I could certainly see not holding altcoins. Ultimately, it depends on what purpose they serve. I’ve held Solana in the past many times. I don’t have it right now because I think that we’re still figuring out this risk off scenario that we’re in.
There may come a time and a place to put that trade back on, and I’ll certainly do it. But right now, I’m in Bitcoin, I’m in Ethereum, I still have, regrettably, Thorchain, which has done very poorly. And then a couple other things that I’ll keep to myself, but readers of mine probably can figure out what they are. But really, it’s those main three that I’m still in.
Bitcoin is the one that, I think, would be if you’re getting rid of everything, and you’re only keeping one, it would be Bitcoin.
RS: Can I ask you just for kind of clarity sake and maybe an educational lesson or nugget, what made you get into Thor and what you find regrettable about it maybe could have foreseen or maybe not foreseen maybe it’s just a lesson?
MF: No, it’s so the reason why I was in am in Thorchain is that Thorchain unlike any bridge serves as kind of like a chain agnostic decentralized exchange or DEX and so you can go into an application that has Thorchain on the back end of which there are many edge wallet is one, shapeshift is another one.
In this application, you can swap directly from Bitcoin to something like Ethereum. In the past, these kinds of swaps have not been really possible outside of a centralized exchange or without wrapped tokens like wrapped BTC.
So my view several years ago was, Thorchain solves an actual problem. Theoretically, if as more chains are brought into the network, it could even start to display something like a coin base.
The issue that has happened with Thorchain since then and to be clear as a DEX, as a cross chain DEX, it’s still working beautifully. It had a terrific February from a metric standpoint, but as a protocol, it did something, it added some things to the initial goal as a DEX and brought in some riskier behavior like ThorFi savers, which is something that I was involved in as a market participant turned into a situation because of how the rune it’s still technical again to and not it’s beyond the scope of this, but because of how the rune asset works within ThorFi, it made it so that ThorFi became a problem from a lending and borrowing standpoint and Thorchain became insolvent because of this and the ThorFi people who deposited into ThorFi essentially had their assets frozen because the withdrawals could not be taken out.
So Rune suffered, the Rune token suffered from this dramatically, and if you’ve been invested in this protocol for a while, chances are you’re down. So that’s where it’s regrettable not really sniffing out that ThorFi issue ahead of time. But these are the important lessons that you learn in this market. Pain is the teacher.
RS: Yeah, absolutely. Speaking of teaching, what would you say just to give a minute deeper about Strategy, and what would you say to the bulls specifically?
MF: What they’ve done is they’ve essentially just used borrowed capital to buy Bitcoin and the thesis is that the dollar will continue to go down in purchasing power over time and so if you can use borrowed dollars to buy as much Bitcoin as you possibly can, with the assumption baked in being that Bitcoin is going to appreciate denominated in dollars, then this is very, very interesting approach.
I think the issue that I’ve personally found with it is that when you start buying the shares of MicroStrategy, which effectively now are just a Bitcoin proxy, it doesn’t make sense to pay three times, a three or two or 3x premium over the Bitcoin value because Bitcoin it’s not like a machine, okay, or a piece of property where you’re able to produce something with Bitcoin.
It’s not like a proof of stake network. The idea, the concept of BTC yield is compelling, but it’s using unrealized gain as the yield, which is a very dangerous thing to be selling your shareholders because at a certain point that could move against you and so it could become an unrealized loss.
MicroStrategy, excuse me, Strategy has continued to buy all the way up, so their cost basis is probably a little bit higher than people realize. They’re not in my view a liquidation concern, that’s not the issue, but when you’re selling volatility and that’s all they’re doing, if the volatility goes away you’re gonna run out of people who are willing to lend you capital at no coupon just to buy Bitcoin when they can just buy the Bitcoin themselves.
I understand what they’re doing, I just don’t think that it’s sustainable, and the thing is, when you’re selling convertible shares, if those convert at a price that is lower than what Michael Saylor might want, you’re going to potentially see shareholders get diluted.
And the thing is that there are a lot of ways to play Micro Strategy.
RS: There are ETFs related to it, there’s leveraged ETFs (MSTX).
MF: There’s leveraged ETFs, there’s option strategies, there’s the preferred shares, could if you have enough, and you have the wherewithal to do it, you could even buy the convertibles if you want to, but none of that means that MSTR is a good buy.
But it’s lending to strategy directly and getting the convertibles is probably beyond the realm of most of the listeners. So for me, like, okay, you could talk me in preferred shares, that makes sense, but that would necessitate strategy actually selling Bitcoin and realizing gain because the software business doesn’t actually make money.
Remember what you are as an investor, people don’t want to hear this, but there is a difference between investing and trading. Investing shouldn’t keep you up at night.
If you’re checking the price of something every day, you’re probably not investing, you’re probably speculating and that’s fine. Just understand the game that you’re playing. When I think about an investment, I think about something in equity, a debt instrument of some sort that I’m putting in capital into something with an expected return. Okay, and that return, it’s very important. This is very important.
The return has to actually be realized at some point. Otherwise, you’re just gambling.
RS: Yeah, I mean, you know, we have three podcasts at Seeking Alpha. We have news, one Wall Street Breakfast, but our two analysis podcasts, the Cannabis Investing Podcast and Investing Experts, we try to echo that point a lot, the difference between trading and investing. And I think that’s where Seeking Alpha can shine in terms of helping investors navigate that.
To your point, you write on Seeking Alpha. Where else can investors find you, read you, get in touch with you, ask you more questions?
MF: Sure. I’m on X also. I go by Faybomb. I’m not super active on there. I maybe I check it. I’m a lurker, but I don’t post a lot. But I’m on Substack also. I’m not as active on there as I was either. So those are primarily the main places.
Most of my work now is done through Seeking Alpha. That’s probably the best way to find me, to be honest.
RS: What would you say action wise, if we’re speaking actionably, what would you say is the number one takeaway for investors relating to crypto at this moment?
MF: Nothing is guaranteed. Just because something has happened in the past does not mean that it’s going to happen again. This cycle has primarily been driven by capital flows through ETFs.
What that means is just as easily as that capital came in, it can leave very quickly. It also means that when you’re doing this speculative capital allocation through an ETF, you’re not going to take that gain or take that win and then dump it into Fartcoin because these are completely different things, right?
The brokerage account where you can buy a Bitcoin ETF and also the queues do not have a way for you to buy fartcoin as far as I know, although they may be working on that. Until that happens, just be mindful that the alt season that I think many have been expecting may not happen the same way that we might hope.
Read the full article here