Some of the world’s top venture capital and hedge funds are pouring billions into blockchain technology…they’re all-in on a specialized crypto opportunity that will revolutionize money as we know it. Our newest advisory service, Cabot SX Crypto Advisor, will show you how you can make money in this exploding sector.
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Webinar Transcription:
Brad Simmerman [00:00:03] Everyone, welcome to today’s Cabot Wealth webinar, “why the crypto and blockchain world is about to completely disrupt the market”. I’m your host, Brad Zimmerman, Web Editor here at Cabot Wealth Network. With me today is Ian Beaudoin, Chief Analyst of our Cabot SX Crypto Advisory. Today, Ian is here to talk about the growth of cryptocurrencies, the emergence of blockchain technology and how to profit from these new technologies. This is an interactive webinar, which means we’ll be fielding your questions after Ian’s presentation concludes. So if you do have a question, feel free to ask it at any time, and we’ll try to get to as many of them as we can. Just keep in mind that we cannot offer individual advice in regards to your own personal investing situation or portfolio. First, let me introduce Ian. Ian is the chief analyst of Cabot SX Crypto Advisory. He provides deep insights into emerging disruptive technologies, covering cryptocurrencies, blockchain, play to earn gaming, fintech and the venture ecosystem. He’s independently invested in and traded cryptocurrencies, securities and derivatives since 2015. Actively seeks to identify asymmetric investment opportunities in both public and private markets through fundamental research, event driven strategies, mean reversion and arbitrage. He also serves as a senior analyst at Hyperion Capital Partners. Joining Hyperion Capital Partners near its formation, he’s helped build the firm from zero to one. Mr. Beaudoin initiates, evaluates and assists to structure transactions, coordinates and conducts due diligence, and actively participates in the oversight of Hyperion portfolio companies. Previously, he led intelligence efforts at Ventoux International Holdings, a middle market investment company, and prior to that he was employed at America’s Growth Capital Partners, a Boston based investment bank specializing in technology transactions. He holds a bachelor’s of Business Administration and Finance from the Isenberg School of Management. His publication, Cabot SX Crypto Advisor covers blockchain technology, cryptocurrencies and the traditional tech companies that power them for attendees. I just like to note that these slides will be made available after the presentation so you can focus on in and don’t need to worry about taking notes, so Ian, take it away.
Ian Beaudoin [00:02:25] Thanks so much for the introduction, Brad. I appreciate everyone who is taking the time out of their day today to attend the webinar. Thank you so much for being here. Thank you as well to add Brad, shiv and everyone in the Cabot team for helping make this webinar possible. I’m really excited to be speaking with all of you today. And again, as Brad mentioned, not only will the slides be posted, but I’ll be disseminating some of my materials as well. I have some notes and some talking points, so again, don’t don’t worry, we won’t go too in depth. We’re going to keep a high level overview and give you a very nice introduction and explanation of the value that we’re trying to create with this publication. So without further ado, I’m going to start the presentation.
So the main purpose of why we’re giving the presentation today is to introduce all of you to blockchain and to cryptocurrencies, two nation topics that not everyone is an expert on. And so we’re going to give you a high level overview of both of those, and we’re going to explain how crypto and blockchain are currently disrupting many current markets. So to start, I want to give an overview of why we launched Cabot SX Crypto Advisories and how is it differentiated? What’s the value proposition and what kind of fundamental research do we do? So I think the first point that I want to make to all of you is if you do choose to subscribe to Cabot as Crypto advisor, you have 24-7 access to me personally via email. We’re also exploring different communication channels in the future, like Discord and Loom to provide short videos to you so we can interact in a web and video format, much like today’s webinar. Really excited about those tools, but you have 24-7 access to me via email. You can ask questions we can dove more deeply into topics crypto, blockchain, Web3 and NFTs really any topic of your choosing. And I think a tremendous amount of value is created in those interactions, so it helps me refine my publication and provide new content to you, the readers and listeners, so that we can really cover the topics that you want to learn more about. And I get to meet you personally to grow a personal relationship together. So those are the things I’m really looking forward to.
And with the launch of this new issue, and again, how is it differentiated? So I want to go through the investment process a little bit, how I formulate investment theses, the vetting process, what’s transferable from traditional securities or private company analysis and what’s different for crypto and blockchain. So to start, I want to give you an overview in the types of companies, types of markets that we’re looking at and right now. So we’re only investing in platform companies. And what do I mean by that? Well, they can’t be a one trick pony where they’re only serving one very niche. A niche market is okay, but they must have significant utility to their users. They must be creating real economic value. They’re often scalable. They often have significant moats or management teams that have a proven track record. And we’re also able now through blockchain data and new emerging software solutions like Glassnode and Dune Analytics to actually really dove deeper into the numbers, the data and and really rely on data science to drive some of those investment decisions. Because because everything is open sourced and verifiable through the blockchain, which is public information, we really have unprecedented access, much like public companies, to the real numbers. And so by leveraging those data sources and those tools, we can make more informed, independent, really data driven decisions.
And so that’s how we does that the projects here at Cabot, because there’s actually over 6000 different cryptocurrencies, and that can be a very daunting process for someone who is new to this space and really is just beginning to get their feet wet. And so building off that point a little bit and just staying in the side for a moment. We actually are Cabot crypto advisor. We’re running two model portfolios in real time. So what does that mean? We have a pure play crypto asset portfolio that we invest through things like digital wallets like King of Coinbase or MetaMask. And then we also run a traditional equity portfolio, so there’s multiple ways to gain exposure to this overall sector. And I want to demystify the sector a little bit and talk about different asset classes and verticals that are embedded within crypto as a whole. Because often when people allude to crypto or web three, you know, people really don’t break it into different verticals. And some of those verticals include gaming, as I mentioned, and we have layer one blockchains, we have scaling solutions. We have things that act more like commodities in the case of bitcoin. So store of value. And then we have stablecoins, which are truly digital stable currencies, just like their name suggests which it was are not unlike the dollar that we use today. That’s inherently very digital now. Not not many of us are really carrying wads of cash. And so those types of verticals are things that we cover through fundamental proprietary research. We build models and we run two different model portfolios. So that again, you the readers listeners can better understand the ecosystem and see how I approach the process, how we’re vetting these things through a matrix. And really, we’re focusing primarily on on layer one blockchain. So I think that that’s a pretty helpful overview.
And that brings us to the next slide. So, so really, what is cryptocurrency? I mean, that’s that’s kind of what this is all about, right? You have to you have to first understand what’s crypto. So crypto is digital currency, and it’s very important that it is actually a currency. It’s not securities. And so what is crypto and what is currency? Well, crypto is, as the name suggests, it’s rooted in cryptography. And so cryptography and blockchain are really the underpinnings of what keeps cryptocurrencies secure, decentralized and verifiable, and that’s what makes it unique. So it’s really the underlying blockchain technology that powers cryptocurrency and makes it possible. Otherwise, it would just be something like a rewards token like you have. There’s certain examples to check out roadblocks or in-game currencies where I gather you eludes you with a. First side, you have the process of putting money fiat currency into a game, but not exchanging it back out so you can buy something that’s in-game, but it’s not a two way marketplace. And so a crypto currency is doing is unlocking and creating two way marketplaces where the users have control and custody of the assets and the ability to transact independently of centralized governments. And that’s that’s really interesting. I think this is really the first time in history that we’ve seen something like this that’s really returning the custody and control of money back to the users. And so what is currency will currency as a medium of exchange? And so currency allows you to transact.
And as we’ve seen over the past, you know, definitely within the past two years, unfortunately, because of corona virus, there’s been a significant acceleration of e-commerce. But that trend has started honestly back in the 80s. And so thematically, you have a huge secular trend of everything being digitized and everything moving online. And so originally, you know, with the advent of the internet, internet was not set up to handle and process payments. And so it does make sense that a new embedded monetary layer of the internet be developed. And so we’re going to we’re going to talk more about that later in the presentation. But cryptocurrency is is digital currency. When bitcoin was created, it was designed as an incentive for decentralized participants, so anyone with a computer to validate, participate in a network and get rewarded in bitcoin. And so really, they created that demand and that participation and leverage what I would call a fintech flywheel or network effects as more participants participate. The value of that asset, cryptocurrency security really transcends all asset classes that increases in value with time. And so that’s why you’ve seen things like bitcoin with a very low fixed supply go from basically worthless to being worth, you know, exponential increases in value. So hopefully that’s helpful.
And again, I’m happy to answer any questions you have on on what is a cryptocurrency at the end of the presentation. But again, as a reminder, it’s a digital currency. It is not pegged to any fiat currency. No central government. It’s used to incentivize network participation and adoption validation. Improve security, and it all runs on blockchain. So next slide is what is blockchain technology? So again, I think it’s helpful to deconstruct the word itself, block and chain. And then I like to think of a treat because actually the cryptography is a Merkle tree. And so that is helpful in explaining understanding blockchain. Just like the name suggests, lots of transactions must be valid, validated and secured before being added to chain the overall ledger. And so blockchain is a distributed ledger. It’s a decentralized network, and those two words sound kind of scary. So those two terms? So what does that really mean? It means that anyone, anywhere with a computer can participate in these networks. That’s changed a little bit over time of some of these projects have scaled tremendously. You have to have a little more computing power and a little more resources. But you know, at the advent of this technology was bitcoin. And so bitcoin was the original cryptocurrency and the creator of blockchain technology. And the intent of that was to provide a decentralized system. So anyone with a computer could validate and compete to earn bitcoin rewards. And so in doing that, you have to in order to update the state of the overall ledger that has to be validated by multiple third parties. So in this case, I like to use public accounting firms as a good example for blockchain because I think we’re all familiar with companies like Deloitte or U.S.. And if you’re not, you feel free to check them out online. But what those companies do and how they provide value really is through auditing financial statements to make sure that all of those numbers that are publicly traded companies present are in fact correct and verifiable. Well, that’s the same process that happens as blockchain.
Many, many and more than four independent third parties are constantly every minute, every hour, every day, validating the transactions to ensure that things like double spending don’t take place to make sure that in fact, you are actually transaction with the right person. And all that has that they compete in the case of mining for rewards before any of those validated, unique and verified transactions are added to the general ledger. So I think that hopefully that demystifies blockchain a little bit for you, but it’s decentralized, distributed anyone with a computer taking part, validating transactions, using cryptocurrency and cryptography to create a network where the users are custodians of their own individual assets in the form of cryptocurrencies. So we’re going to move on to the next slide. So why is blockchain disruptive? Well, anything that is fundamentally new and this is, I think, a very strong case, this is a whole new economic model, a whole new economic system that has the potential to disrupt traditional other companies, other industries, other economic models. And again, I’ve been I’ve been harping on gaming, but I do think that’s a useful one. So we’re going to get to that in a second.
But really, what why blockchain is disrupting industries is it’s empowering the creator economy. It’s unlocking new forms of earning royalties. In the case of artists and music creators, producers, publishers, it’s really digitizing somewhat of traditional economic systems and really in a whole new way. And all of that is is powered by the blockchain, right? Because in order to have that permissionless, trustless programable system, it all runs distributed across a very large network. And so gaming is is a really good use case to highlight here. And I think that’s one that I definitely want to touch on. And I think blockchain, if anything is, is already really disrupting gaming. So again, if you think about traditional gaming like Fortnite, where you and your friends can all join together and you may want to do better at the game, maybe want to perform better. So you’re going to purchase an endgame asset with real fiat currency, the dollar you’re going to buy something that’s going to make you better in the game. But again, that’s a one way transaction. You’re not going to be able to actually accrue real economic value in the game. That value is going to be trapped within that ecosystem. And so what blockchain is doing is it’s allowing you to get that personal economic value that you created in the game backed out of the game. And how is that possible? We’re creating it to a marketplace. That’s something that’s been very successful in the past with other public companies like Airbnb and Uber and creating, you know, the sharing economy, a two way marketplace where there’s multiple ways to take custom transactions and create and accrue real economic value. And so that’s certainly what we’re seeing across the blockchain ecosystem. Specifically, I think within gaming is a clear cut use case for blockchain technology. And that’s why many content developers, gaming developers, there’s licensing a lot of content, traditional publishers licensing, a lot of licensing, a lot of content to the Explore blockchain because they see the power in distributing and they see the power of enough TS to unlock things and then also just briefly want to talk about new ownership and ecosystems.
So one of the main and the first company that really pioneered not only player to earn decentralized applications, but what is what it means to be a layer one? Blockchain is a theory, and that’s probably a name that you’ve heard before, but a theory, really. They’re the creator of not only their own blockchain, but their own virtual machine. They developed something called smart contracts. If you’re more interested in all that, I’ll definitely be doing another webinar where we do a real deep dove into the technicals, the fundamentals of cryptocurrencies, the underpinnings of the technology. But we’re going to keep it high level right now. So Ethereum is a leader on blockchain. They develop their own chain and they’re powering a whole new ecosystem on top of that. So think about decentralized applications so you can think about the Apple App Store. Well, Apple is the operating system with iOS. They powered the App Store, and so they empowered the advent of a whole new realm of social media of productivity, apps of everything that we use on a daily basis. And that’s basically what a theory is doing in real time today. They’re creating the next operating system with, you know, helping powered by tools like alchemy and fear and other things are connecting a whole new ecosystem of apps through APIs, and it’s really it’s really impressive. And so those type of investments are what we are covering in the paid newsletter, and we go into really into depth about about projects like a theory and Solana, because we think that there is a huge potential investment opportunity with the right time horizon over the next five, 10 years. We’re still very much in the early innings of widespread blockchain adoption. And even people understanding cryptocurrencies, blockchains and also institutional adoption.
There’s a lot that goes into actually raising committed funds, having the support and the compliance associated with being able to invest in things like blockchain and crypto. And there’s some really interesting things happening right now, but we’re still at such an early stage in all of this that it makes sense. And I’m so happy that you guys are all here today learning about this now because there’s really time for you to harness that information and leverage it, make strong independent investment decisions of your own and have the potential to unlock your own financial freedom and generate wealth that way. So next, after the webinar, I really just want to take the time to take a sip of water that’s going to quickly. Give you guys a chance to catch your breath. Jot down some questions. Well, we’re going to be going into crypto myths, which I think is a is a fun part of the webinar. So for this section, we’ve highlighted some common talking points and news articles, things that, you know, even I might have believed when I first started, and I’m still a healthy, healthy skeptic of crypto and blockchain. So you have to when you’re constructing the investment thesis, you have to take a very rigorous and analytical approach through first principles thinking, so we definitely do that here, Cabot. But I want to highlight a few myths and in this next segment of the webinar. So myth one, as I alluded to, is that it’s too late. You know, bitcoin is at 40 K. You know how in the heck am I going to invest in bitcoin at that price? And basically, you know, when is all this going to come crashing down?
So briefly, I just wanted to touch on bitcoin because that is the seminal and first cryptocurrency. It’s one of the only cryptocurrencies that’s been given an official position by both the FCC and the CFTC, labeling it as a commodity. So that’s something we’re also touching on later in this webinar. Is this regulation? So I’m going to take a moment to highlight bitcoin because it’s deservedly so. So really, why bitcoin has reached 40k is is pretty simple. It’s just supply and demand which people talk about all the time. But there’s a fixed, finite supply of bitcoin is twenty one million bitcoins outstanding, and there’s only really two million left to be mined over the next hundred years. And so if you think about that proposition as a very scarce asset, it’s now a very highly coveted asset like gold. Based on my own research, correlation analysis and some work done by other folks like Pantera Capital, you know, generally cryptocurrencies and bitcoin does trade at a lower correlation than other asset classes to the broader market. So typically over a period of two months, when there’s broader market corrections, you see cryptocurrencies like bitcoin trade more in line when there’s big movements up or down in the broader markets. Bitcoin does is more correlated, but it has traded very independently of broader indices like the S&P 500 over a much longer time horizon or time periods. So it does certainly serve, I think, a valuable place in your portfolio because of many of its inherent properties. So bitcoin is I, as I mentioned, is very scarce. Supply is decreasing, supply is fixed, unlike gold. We see the popularity of gold with over $10 billion market cap, you know, millions of dollars, notional value traded every day, thousands of futures contracts. And so traditionally we even add our own fiat currency tied to gold. Right. So that’s kind of an interesting thing to think about and would definitely be doing more webinars in the history of money and going over that in our publications. But really, bitcoin, it’s even been labeled as a commodity by CFTC and SEC. So in my mind, it’s very much a store of value. The intent of bitcoin was peer to peer electronic cash, but the scarcity in the properties, it’s not inflationary, it’s ugly, deflationary. So the properties of bitcoin make it much more like a digital commodity and not like a true currency. So that’s why really, bitcoin has reached this unprecedented heights of over $40000.
Because with such a finite and low supply and actually millions of bitcoin going out of circulation because people have either locked them away and store them to never sell them again, or they just simply been lost because in the early days, people didn’t really understand the the potential for this type of project. Really, it’s just it’s so scarce that once you had institutional adoption and this industry continuing to build itself out in terms of exchanges like Coinbase, FCX and then other decentralized projects, they’ve been buying a lot of bitcoin for their own internal reserves. You’ve had Tesla Block, I think even, you know, MicroStrategy is pretty famous for buying a lot of bitcoin. So you’ve had many public companies now adopt bitcoin purchases. The reserve assets are really what bitcoin is becoming is it’s becoming the reserve asset of DeFi. Yeah, it’s not necessarily the the payment layer, but it’s the collateral. And so bitcoin is now highly coveted, and with that low supply, you just see an unprecedented rise in price. And that’s that that concept, that trading concept transcends just crypto and bitcoin. If you look at data or movements in traditional stock prices and the ability for a stock to move if it has a low number of shares outstanding and then even further, a low public float where the number of shares that are tradable in the marketplace is relatively low, you can get some very violent moves. And so you know that that is certainly, I think, what many traders also see with bitcoin and have definitely taken advantage of that as well. And so on this thought, I also just wanted to highlight that it’s early, it’s early days as well. So in 2021, we had significant venture capital interest and investment that’s honestly hasn’t slowed down despite other late stage VC deals seeing multiple compression. This investment is just been staggering. I think Moon Pay raise the $500 million series a week ago. Just talk to your investors like Sequoia Andresen and others. You know, we had three give sixty nine deals in 2020. One was up 70 percent year over year, which has been a steady exponential growth trend. But yeah, it’s really, really. It’s exciting, but it’s it’s staggering the amount of money that’s currently being being raised in venture capital right now for these decentralized financial projects. I think that a lot of it has to do with the success of some of the early, early winners like Ethereum, Coinbase certainly propelling new market entrants.
And they may have a more difficult rise to U.S. adoption than they realize. But it’s certainly an exciting time. And with the advent of financial support, you see the iteration and the improvement of all kinds of new projects. And so, you know, in real time, we’re seeing an industry develop, and that’s pretty exciting. It’s definitely something that it’s one of the reasons why we launched the publication, and I’m hoping to very clearly distill that information from hours of research down to you, the reader or the listener, so that you can have a more informed insights into crypto. Let’s go to the next slide. So you admit to crypto has no real value. That’s the one that you hear a lot. I think it really, really is. I think, you know, because crypto is not it’s not intended to be a security. You can’t do all the same intrinsic analysis of a security with cash flows like crypto has no real value. But, you know, I just want to take the time to highlight the current situation in Ukraine. My heart goes out to everyone affected by the Ukraine crisis, but it does, I think, kind of cut deep and provide a real, clear cut example of why crypto has value. I mean, people were able to raise millions of dollars in Ukraine, literally in minutes because they were willing participants that had cryptocurrencies that were willing to send them in real time and deliver that aid to people in need. And so that is incredibly different than sending a check or sending Iselle that has a limit or even a Venmo. There’s there’s limitations and there can be difficulty and friction. And so because this was, you know, more frictionless and more efficient, it was able to be the transactions could happen much faster. People were able to actually access scarce resources and provisioned themselves. And so I think that’s that’s the one that I really want to highlight because clearly there’s value there if it’s helping people right now in Ukraine. So then we also wanted to highlight payment networks kind of the advent of more traditional finance and kind of contrast and compare crypto with those types of networks.
So really, I think a widespread digital payment adoption has been accelerated significantly by like Visa and MasterCard, because with credit card and credit card network processing, we were able to process a lot, a lot more online transactions. Stripe and greatly improved and accelerated this with their APIs. So now that you could basically connect apps and web apps to these credit card processors in a more efficient and seamless manner. So that was a really important advent of total internet GDP advancement and and shrike is a tremendous job. I think crypto, the intention is very good and the intention is, again, it’s the same thing. It’s to help build out new methodologies, new economic systems and new payment models to fundamentally increase the GDP of the internet. So this is definitely something that it has real value. These are real networks with real participants, real validators, real projects, very strong management teams. And I want to highlight the global talent pool. I think, you know, if there wasn’t any real value, you wouldn’t see some of the smartest minds, some of the best developers taking a really strong look at this ecosystem and actually putting their money where their mouth is not investing in it or moving to it. And that’s that’s a big risk and a big sacrifice. So there there definitely is real value ahead. It just has to be creative. It’s really comes down to the intent of the project, the intent of the management team and the community and the ecosystem. And it comes down to what they’re building. And that’s where again, I’m trying to distill that information down so you can make better informed investment decisions of your own because it is difficult to do that. Different projects at those surface, they claim to be creating real value, but they may not be. And so I just wanted to quickly dispel that that myth and also highlight the current situation in Ukraine.
So myth number three is crypto is going to be banned. And that’s another one that I think people and to a degree rightfully so, are very fearful of impending regulation and things being banned specifically in the United States. But I mean, really, if you look back in the history of crypto, I think since bitcoin has been around since 2009, it’s it’s actually has pretty tremendous staying power. And so the longer it stays around, the harder it’s going to be to crush this industry as a whole, as I alluded to, with $32 billion invested only in 2021. Real actual projects are being developed now. And so we’re really kind of seeding through and thinning out the herd and finding. So so I personally welcome regulation. I think many of the industry leaders do as well. Coinbase has been very vocal about this. They’ve only listed some very credible projects and there’s some, some very strong industry leaders like Sam Bankman-Fried that have taken positions on this as well. And so, you know, I don’t think that crypto is going to be banned. It’s going to certainly be regulated. And I think that’s actually a net positive because then projects, you know, we can have a framework, a legislative framework in place and and investors as well will be able to more actively make make concrete and robust decisions. And so, so talking about that, moving on a little bit, you know, we have the CFTC. So the CFTC, the Commodity Futures Trading Commission, they’ve they have taken a public position on both Bitcoin and Ethereum, which is why you’ve seen the adoption of bitcoin futures, ETFs and other derivatives, but you haven’t seen a spot ETFs because traditionally spot ETFs, where securities and they were more heavily overseen by the SEC. So there’s currently kind of ongoing discussion between the CFTC and the SEC about specific projects, specific use cases and what is what is deemed a security and what’s been deemed a cryptocurrency. And so how they’re making that judgment is also something that I don’t see talked about all that much, actually, which is the Howey Test. And so that’s really a Supreme Court case that determines how we kind of carry about securities law in our country. And so on.
The next slide, I’m going to be talking more about the Howey Test so your listeners can kind of have that in the back of your mind when you’re looking at certain projects, if you’re looking at them on your own and basically thinking about, you know, what is a security versus what is a currency, what’s a commodity? What’s a cryptocurrency? And a lot of this comes down to not only how was the project constructed to its inception, but what is the current intent of that project? And so in that case, I want to highlight Ethereum because I think it’s a really interesting one. So at the advent of Ethereum, when the creators were trying to launch the project, they sold the Ethereum for Bitcoin. So that’s how they finance their initial operations. And under the Howey Test, based on some public positions and some public statements by regulatory officials, that that was kind of skirting the line a little bit right where you did have the sale of one thing for the sale of something else is that a commodity is out of currencies as security. It was, it was. It was a little bit of a gray area because bitcoin at its inception sold nothing. There was literally development of computer code by people that we don’t know their actual names.
There is no founder of bitcoin that we know of. It’s a an alias Satoshi Nakamoto. So that’s really interesting. So. So bitcoin is taking a step back for a moment off of Ethereum. Bitcoin really is the only truly decentralized project that we’ve ever seen. It’s the first cryptocurrency. It has no founder. It’s dispersed across many computers across the globe. There is no, you know, it certainly does not meet the Howey Test. But getting back to Ethereum because there was a sale of something for something else that that may have failed the Howey test, but what regulators decided was what is the current intent of the project with the current structure of Ethereum? What does it really look like today, almost over ten years later? So basically, that is also a big factor. And that’s an interesting point to highlight because it’s not only necessarily what was this project at its inception, it’s what are they actually doing today? Is it a centralized entity like a corporation? It’s benefiting from the sale of a digital asset? Or is it really a dispersed, distributed decentralized community that’s building economic value and returning that value to the users? So. So we’re going to go to the next slide and talk a little bit about the Howey Test just briefly, because I think that’s important just to have in your in your mind. And as you go through this process of some getting some investments, maybe on your own and trying to buy your first cryptocurrency. So. It’s also just kind of interesting, actually, because I wasn’t too informed in this specific Supreme Court case when I was doing a national security analysis, so.
So the Howey Test has a certain framework, and it’s it’s for specific points that I’ll highlight for you briefly and then at the bottom of the slide. That’s the 16th Amendment. So we’ll get to that after. So the Howey Test is an investment of money. This is what determines what is the security in the United States. So it has to include an investment of money in the form of a common enterprise, the expectation of profit to be derived from the efforts of others. So what happened was was there was a growth down in Florida in a company called I Believe W.J. Howey Co. was trying to get very clever and make some money, and they wanted to sell their tracts of land that were very fertile and had oranges growing in different fruits growing. They want to sell that land to investors to free up some liquidity, get some cash, and then they were going to those investors as part of the agreement. They’re going to lease that land back to that company, W.J. Howey, in exchange for W.J. Howey, tending those crops and selling the fruit and splitting the profits. And it’s kind of a no brainer now if you think about it, why that you know that while that sounds like a Cipel, the now ETFs, because that sounds a lot like a traditional business and sounds like a lot like an investment contract and possibly the sale of securities. So it’s an interesting case. I urge you to check it out on your own, but that’s basically what the standard of securities law is today in our country. And so if you look at each of these, it has to include and it really determines what is an investment contract, an investment contract include, you know, a specified amount of money. There has to be a common enterprise. There has to be the expectation of profit has to be derived by the efforts of others. And so if you use that framework in that lens to look at certain cryptocurrency projects, it’s pretty interesting. It’s really interesting. And I’ve been doing it a lot lately. So, you know, with bitcoin, there was no investment of money. So right off the bat, number one, it doesn’t meet the Howey Test, it’s not a security. And so because of that, it’s one of the if not the safest cryptocurrency investment that you can make today because it’s already regulated by the United States in the world. It’s not a security. There’s a ETFs right now that you can purchase in the future. You may even see a spot ETFs, which would be further, you know, I think, a further bull case for bitcoin.
But yeah, bitcoin was developed without any investment, any outside investment. It was literally just computer code. So, so it already failed Howey test. So we don’t need to go through the rest. Ethereum, as I learned, she’s a little more interesting. Number one, they did receive an investment of money, but then it comes down to if this was litigated in court, how do you define money? Because Etherium did not receive Fiat dollars, they did not receive USD. So there was a common enterprise. An expectation of profit could have been made, but that was not the intent of the development of Etherium, and no for it to be derived from the efforts of others. It comes down to, I think, the word intent. And so really Ethereum and the public position of the CFTC is that it today in its current form, is not a security. It doesn’t meet the Howey Test because it’s really not a common enterprise. There’s not the way that the cap table looks in the shareholder base looks. It’s it’s decentralized. There was an initial investment of money, but that would be a tricky one. I mean, if it was in the core is how you define money that would kind of unlock all kinds of new things, but it would probably still uphold that one, but there was no expectation of profit. Really, really interesting case. I read you check it on your own.
There’s actually now that round the topic is the case going on right now against Ripple Labs, a very, very massive cryptocurrency that we’re not currently recommending any investments in. But it’s XRP, it’s ripple, and there’s an active court case going on. I urge you to follow that as well. It’s very interesting. There’s been some favorable rulings actually for Ripple in terms of but this exact Howey test is playing out in court today. We’re really in real time determining whether or not Ripple sold securities. And so because all this is actually actively being litigated and has been playing out since, honestly early, I’d say early 2016 with many, many projects like Telegram UK that were actually found to have sold security, we really actually started to believe that these projects significantly so. So Bitcoin, Ethereum, really to see if crypto investments I want to highlight because they’re already being regulated as commodities by the CFTC. And kind of as the fun part, I wanted to give away a free trade recommendation today. So you, the listeners, thank you. I know this is kind of going to be a long road yet half over half an hour. So I appreciate you listening to me and tuning in. Look forward to taking your questions. But I do want to get to the fun part and to talk briefly about a trade recommendation that I have for all of you. And it may not come as a huge surprise, but I’m recommending you purchase the Pro Shares Strategy. Bitcoin ETF ticker is BITTO. No, it’s it’s a new investment product, actually. It was launched in 20 21 October of 2021. It’s based on futures contracts that are traded on the Chicago Mercantile Exchange CME, so it’s fully regulated, fully approved by both the SEC and the CFTC. It’s very easy to use. You can purchase this in any traditional investment account through your regular broker. You can purchase in a retirement account a brokerage account. Roth, you name it. It’s there. It’s a regulated ETF. But the underlying asset in that ETF is is bitcoin futures. And so we’ve seen huge bullish inflows, even when crypto is consolidating much lower, you know, around thirty six thousand. A huge open interest in the futures, despite, you know, and a lot of over 60 percent of bitcoin now is is not actually being actively traded. It’s held in either hot or cold wallets not being traded on daily basis. So, so very large investors are continuing to accumulate bitcoin. That includes traditional companies like Tesla, exchanges like Coinbase and then just large retail or institutional investors. So really wanted to highlight this ETF today. It’s doing very well today. Bitcoin seen a bit of a rally along with the broader markets. I think it’s a it’s a good place to hold a place in everyone’s portfolio because especially given the macro backdrop that we’re experiencing today with high rates of inflation, bond yields, real bond yields are negative. Housing has been hot with raising rates. There’s other alternative asset classes that I don’t think are going to perform as well over the next not only two years, but if you look out over five years, longer time, longer hold period. I certainly recommend taking a look at not only bitcoin, but this ETF because as I alluded to earlier in the presentation, and this ETF is twenty five dollars. And so not many of us can purchase a single bitcoin in a single trade, and it’s a very it could be a stressful process, you know, setting up your wallet, you know, no matter where that is, whether it’s at Coinbase, I’m in a mask and purchasing some bitcoin. It’s not easy for everyone.
So I want to recommend today a more traditional investment strategy. And if you have an advanced pro tip, if you really want to get crazy with it, you really want to do a pair of trade. You can even consider on some of the next all time highs betting against a company like Mara, which is a bitcoin miner. And I’ll be covering a lot of that based on the fundamental cash flow profile of that company in some. So my newsletters, but that’s a free trade update for today. Thank you so much for listening to my webinar. I’m really looking forward to some of your questions answering them. And I guess the last night we have I kind of forgot us as we do, doing some technical analysis here. So what I was looking at prior to today’s bullish move in the Ibeto ETFs was this chart here. So if you look at this chart and I know that’s kind of a lot of process, possibly for many of you, but we really only have a few indicators set up here. We have Mac DX, which is the moving average convergence divergence line. It’s looking at more recent moving averages of prices over a longer period of twenty six days. So it’s the twelve point twenty six crossing. Something that I like to do is I like to buy when price is tight to this line. It’s a it’s funny how things like this. It’s almost like monkey brain, but it works if you buy. If you buy when when price is tied to the zero line here, it’s it’s a very high success rate and you’ve seen that with a near term bottom back around again. The twenty four or forty level, it looks like around back. It was a little higher, but we could go, but it’s still bottoms right around there. That big, that big candle dropping down. But you see a double bottom here and then the price moved back higher. You know, technical analysis is certainly not a perfect science, and it’s only one piece of formulating an investment thesis here for myself and a Cabot.
But because other traders use in algorithms are programed around it, it’s definitely a useful tool to set your charts up a certain way. You know, I use the 21 day moving average line. I use a tightened squeeze indicator on the bottom here, which is it’s interesting how it’s astoundingly really simple, but you know, math and indicators work. And so when you have things flipping to negative the positive, you have near-term bullish momentum crossing know price does not lie, so prices is moving higher. It’s it’s continuing higher today. So we we like this one. We recommend that you take a strong look at it. Obviously, you’re gonna want to make those investment decisions on your own. If you are interested in allocating a percentage of your portfolio to cryptocurrencies, I think this is a nice place to start. You, of course, can take the time to research the ETF or the publication of materials or online, and it’s it’s a lot cheaper than $40000. So I hope you consider adding it to your portfolio. Thanks again for tuning in today. Really, really appreciate. It was kind of overwhelmed by the not only the support, but the amount of attendees that decided to actually come to my first webinar here at Cabot. So thank you again. Thank you to Tina Cabot. Here’s a brief slide and then turn it back over to Brad to talk about some of the things that we’re working on with the new launch of Cabot as crypto Advisories. So thank you, guys.
Brad Simmerman [00:43:09] Thanks again. Take a break, another drink of water, then we’ll open it up for questions after that. So I want to talk a little bit about special promotion that we’re running right now. Normally, Cabot ASX crypto advisor wouldn’t be eligible for a trial offer because it’s a particularly high end service. But I think between the presentation you just saw and what’s coming for the world of blockchain technology, it’s probably something you’ll want to stay a member of for years to come, not just the next 30 days, 90 days. It’s really transformative technology that offers the potential for decades of significant growth. Normally, the price for a full year of Cabot ASX crypto Advisories 1000 997, which you know when you talk about the opportunity of scaling wealth exponentially, it’s really a bargain. But for a limited time, we are offering a trial offer for a massive discount. That’s a special charter member only deal. Instead of paying nineteen ninety seven for a full year, you can become a full member at a 50 percent discount, which means you only pay 997 today and you receive a full year of access. As part of that, you’ll also get three free reports, one of which the reserve currency of the digital age explores the brand new digital marketplace and identifies de facto reserve currency. You’ll also receive the blockchain bottleneck, which will introduce you to layer two solutions and will open up the blockchain to faster adoption and layer one solutions that are are purpose built to avoid transaction bottlenecks. And you’ll also receive blockchain blue chips, which highlights the regular pick and shovel companies that make blockchain technology possible. And if within the first 30 days, not completely 100 percent satisfied, just let us know and will offer a full refund. This the first time we’ve brought our blockchain research to the public, but will happily give you the next 30 days to try out Cabot SGX crypto advisor. If you’re not happy, you’ll receive a full front, full refund and you keep the special reports. So really, really incredible deal right now. Want to go ahead and open it up to some questions? The first, you know, I think we’re going to answer a couple of questions at once. Now, the first being, if somebody has never invested in crypto before, is there a wallet that you recommend? And then the second part of that is it’s a question from Jim. It’s difficult to manage cryptos on different exchanges. Is there any way to consolidate assets? I think those two questions sort of go hand in hand.
Ian Beaudoin [00:45:44] Yeah, no. There are great questions. And thanks for the overview, Brad. Again, appreciate that. Yeah, let’s let’s dig into that a little bit. I think for someone starting out, it’s there’s varying levels of expertize needed for a wallet set up and an active management of your your new cryptocurrency account. And so why I recommend Coinbase to everyone is that’s where I started. I think they have a very intuitive UI design, so the user interface is similar to other apps that you’ve utilized before. I would I would download Coinbase. I’m not selling products. I have no affiliation to Coinbase, but I recommend it because of how easy it is to use. So that’s the first thing. And there’s actually two different products offered by Coinbase. There’s Coinbase dot com and there’s Coinbase Custodial Wallet, which I’m happy that I’m going to be publishing more free information about signing up for those types of things as well. So please be sure to follow up after the webinar. Check Cabot website out, because we’re going to be going through how to set up a wallet. But I do recommend using Coinbase just to start if you’ve never invested in cryptocurrencies before. The second piece is something that I already alluded to, which is, you know, try out a Bitcoin ETF, try out, be it, look at other ETFs, look at their expense structure, their fee structure, look at the liquidity in those products, look at who is running those products, look at how they’re set up and that’s that’s difficult. But just go with the IPO. If you want to buy some crypto, I recommend that one right off the bat. Building on that a little bit if you want to take over a custodial wallet. So not an exchange. As I was alluding to a truly decentralized where you have you’re the custodian of your assets. I recommend MetaMask. I use MetaMask. I again have no affiliation with MetaMask, but you know, check out that wallet. It’s also not as difficult as it may seem on its surface. Just to set up and to begin to utilize, I think many of the kind of core tenets of digital wallets are similar. There is, you know, there may be a seed phrase for digital law, but you’re familiar with a password, you know you’ve got to in that case, you have to keep all that information secure. And that’s the risk that’s different from a managed custodial exchange like Coinbase. And so that’s why to start before reading about any of these things are really spending some kind of extensive time talking to myself, others reading online, watching YouTube Watch videos. Very helpful for you. Do any of that? I recommend just using a traditional exchange. Now let’s get to I believe it was Jim. I hope he got it right to get to your question. Yes, you can consolidate your assets. So what you’re going to want to do is right from that exchange. You can send those assets to your wallet, to your address. And so if you’ve never done that before, you know, I’d be happy to speak with you at some point. Help you do that. But take a look again at a video. Take a look at some literature. Familiarize yourself with the process if you’ve never done it, but you absolutely can consolidate your crypto holdings into one account. You can use an exchange. It really depends on your preference or risk tolerance, whether you’re going to be investing in alternative coins. Because again, as I mentioned previously, Coinbase is very vigorous in the types of projects that they on board. And so they really have gone after the US market share, which is the most highly regulated market. And so they don’t list all of the other alternative projects, alternative cryptocurrencies on that platform. So you may have to use something else. And so that’s something we’ll be covering extensively in our publication. But I hope that provides a little bit of insight and helps you. It helps to answer your question. Yes, just transfer your assets to a wallet from that exchange. And if they’re giving you any difficulties in doing so, or if you have any questions, I urge you honestly just to contact that exchange. I think the exchanges have support and help desks. They should be able to talk you through that process personally, not unlike a broker like Fidelity.
Brad Simmerman [00:49:26] Great. Thank you. Let’s see. Our next question is, I think, relevant to the pick up. If it’s a question of just holding bitcoin or investing in Bitto, what would be your preference? All other factors being being equal?
Ian Beaudoin [00:49:43] Yeah, all other factors being equal in line, recommending the pick as I would purchase vital, I would purchase the traditional ETF. There’s a few reasons for that ease of use for many of us listening. It can be a stressful process to again set up these wallets do this type of thing. We’re helping listeners and readers through that process, but if you aren’t familiar with it, take the time. It is a little bit of a learning effort, so I urge you to do so. It’s worth it. I think this is a really exciting investment space, so it’s worth it to do so. But again, short answer all us equal. Just buy video or another Bitcoin ETF. I urge you to buy an ETF, not necessarily a mutual fund, because I think there are some properties that are beneficial from the advent of ETFs. So I would say go with that and allocate accordingly, depending on your risk, your time period, your whole period, your portfolio size. But I do think it holds a place in everyone’s investment portfolio, especially given the macro economic climate that we’re currently in. Wasn’t a big macro market webinar today, but there’s I could spend an hour talking about the current environment. So go for it.
Brad Simmerman [00:50:42] I assume the follow up to that one question asked, How would you compare Osprey Bitcoin Trust? And then a second? How do you feel about what Grayscale GBTC Bitcoin versus?
Ian Beaudoin [00:50:58] Yeah, it’s a good question. The reason so those both of those, to my knowledge, I’m familiar with GBTC. Those are trust their mutual funds, their investment trust, they’re not the ETF structure. And so there are some mechanics and market mechanics and flows that dictate why I prefer ETFs. Typically, ETFs actually offer a lower expense structure. So what that means is you’re going with a mutual funds. In many cases, throughout my investment experience, I see higher fees with certain mutual funds because a lot of them are actively managed and there’s a different expense structure. So that’s why I prefer to ETFs. Beto is the first of its kind in terms of its an actual Bitcoin futures ETF. I like that because of the fundamental characteristics of futures and option pricing. It’s a little more advanced, but it’s more forward looking. And so it’s a little bit of different structure. But that’s why I recommended the one I did. Again, I think it’s also comes back to net asset values of nav. So because of the structure of something like GBTC or the one that you mentioned, it may be a little bit delayed in updating its net asset value in its prices relative to bitcoin and bitcoin is something that moves more frequently, which is why I’m recommending the IPO because of the structure of how the fund is set up and again, the regulatory oversight. But that’s why I go with the idea.
Brad Simmerman [00:52:13] OK, thank you. What do you feel about an ETF like Q, which is Bitwise Crypto Industry Innovators ETF? Just as a brief run. And it’s ninety nine point seventy five percent in stocks, biggest individual holding is MicroStrategy than Coinbase, Silvergate Capital, Riot Blockchain Marathon, Digital Hive.
Ian Beaudoin [00:52:39] Yeah, yeah. Um, all else equal. I’ll be honest, and I’m not giving specific recommendations here. I would take a strong look at Coinbase. If you really if you want more of a pure play, that’s that’s again, it’s a traditional stock. It’s not a pure play cryptocurrency like I was mentioning with getting exposure through an ETF instead of probably choosing that ETF. And again, I haven’t studied extensively and I’m not making a recommendation. I would probably given today’s marketplace and current valuation of Coinbase. I would take a strong look at that company just as a standalone. There is some fundamental cash flow. Now the profile, the growth profile, everything top to bottom is very strong at that company, whereas with MicroStrategy not to pick on them and Maura and some of the other companies that are included in that ETF from my research and my analysis of the actual cash flow generation and growth of those companies based on their business models themselves, I don’t think that they’re as favorable as Coinbase. And so because of that, given the knowledge they have right now, I urge you just to take a look at Coinbase stock because based on the composition of that, the assets in that particular ETF. But I will take a look at that and I will get back to you. I’ll publish some stuff online about it. Free reports. We like free reports.
Brad Simmerman [00:54:01] So what I’m hearing is that it’s sort of dilutive to intent, right? Or if you want the want the exposure, you get the exposure directly through somebody like a Coinbase or the currency, more so than something that’s got, you know, the 50 percent smaller investments.
Ian Beaudoin [00:54:18] That’s a great way to put it. I think it’s almost dilutive. Some of those other things, right? Because you have MicroStrategy, you have more, which is a bitcoin miner. If you want to own bitcoin, you’re better off owning bitcoin, you’re better off buying VIDEO And then all of a sequel you look at. If you like some of the other individual assets that are comprised of not ETFs like Coinbase, just you’re better off, I think, taking a reasonable position in that particular asset. Obviously, that’s up to you as your decision, but that’s my, you know, that’s something that I am currently surveying and looking at. That’s how I was thinking about the space.
Brad Simmerman [00:54:47] OK. I think we probably have time for for one more question. Can you talk about this from Carlos? Can you talk about crypto’s use of energy as a factor in determining what crypto assets to buy?
Ian Beaudoin [00:54:59] Yeah, that’s a great question. That’s something we’re touching on a lot in our research and we’re publishing information about that. So there’s some exciting new developments in terms of more sustainable mining from folks like Tesla and Locke. They recently partnered together. I think they’re doing a lot of solar based mining in Texas, which is one of the reasons I mentioned Mara. I’m less bullish on something like Mars compared to those new entrances to competitors that are, you know, Jack Dorsey is very passionate about bitcoin. He’s very passionate about new, sustainable ways to do mining. Bitcoin and Ethereum currently operate on proof of work, which is a more rigorous and competitive computational exercise that earns Bitcoin or Ethereum rewards. Many projects, including a theory, are moving from that model to proof of stake. And that’s something we’re touching on a lot. So it’s a different system. It’s using validators, not miners. Some of the competencies are similar, but in order to validate the blockchain transactions, it’s using staking and mining or staking and validating versus mining. So I think Ethereum has publicly stated on their website to my knowledge that by moving from proof of work to proof of stake, they’re going to cut their energy consumption by 99 percent. And so the new kind of way of doing things, and I think the new industry standard, certainly for both environmental reasons and security reasons, is to build this layer on blockchains, likely using proof of stake. But that does not invalidate bitcoin, and I think the community is actively looking at new ways to incorporate more sustainable mining. I think that’s also being spearheaded by the EU. The EU is generally several years ahead of the United States in terms of the environment. We’ve seen that play out significantly throughout history, and they are actually looking at regulating mining in certain ways to make sure that it’s sustainable. So I don’t know if that’s your question, but I hope it does.
Brad Simmerman [00:56:49] Well, I don’t know, I can’t speak for for Carlos, but I think that’s a fairly exhaustive response. So I think that’ll do it for us today. I don’t believe that we have any more questions to get to. I just would like to thank everybody for attending. There’s a link there that you’ll see at the bottom of your screen. If you wanted to take advantage of the half-price special Cabot Wealth dot com slash crypto, and we’ll be making the notes available to you after this presentation is after the recording is made available as well. So feel free to revisit and we appreciate you for for joining us and Ian. Appreciate your time.
Ian Beaudoin [00:57:27] Thanks so much. Thanks, Brad. Thanks to everyone who came out. Thank you very much. Appreciate it.