Podcast Summary
Mike Alfred's insights on Bitcoin mining company valuation: Entrepreneur Mike Alfred, with a background in value investing and business building, shares insights on Bitcoin mining company valuation. He emphasizes understanding companies from a first-principle standpoint and provides valuable insights into the Bitcoin mining industry.
Mike Alfred, a successful entrepreneur with a background in value investing and business building, shares his insights on the valuation of publicly traded Bitcoin mining companies. Before diving into this topic, he reflects on his early experiences, including starting a business after graduating from Stanford and learning the value of asking for referrals. These experiences shaped his investment philosophy, leading him to favor understanding companies from a first-principle standpoint rather than being an index investor. Throughout the conversation, Mike provides valuable insights into the Bitcoin mining industry and the factors that influence the valuation of related companies.
From College Entrepreneur to Successful Investor: Ross Gerber's success in the financial industry stemmed from his long-term investment mindset, willingness to learn, and adaptability. He started multiple businesses, traded stocks, and read extensively to outperform the market. Gerber's approach involved cycling through industries and tilting towards sectors with strong long-term potential.
Having a long-term investment mindset and a willingness to learn and adapt were key factors in Ross Gerber's success in the financial industry. During his college years, he was inspired to become an investor and started multiple businesses, including a ratings business for 401(k) plans. He was driven by the desire to outperform the market and learned by doing, trading stocks and reading extensively about companies. Gerber's approach involved cycling through various industries and tilting towards sectors that were out of favor but had strong long-term potential, such as healthcare and consumer staples. His success included raising significant funding, building successful companies, and eventually joining NYDIG to work on strategy and M&A. Throughout his career, Gerber's determination, tactile learning style, and focus on value investing have been instrumental in his achievements.
The Allure of Investing: A Game of Intellect and Patience: Find undervalued companies with an edge and hold them for the long term to generate excess returns. Investing offers an intellectually stimulating and limitless game with new opportunities and challenges.
Investing in the stock market, especially in the long term, is an intellectually stimulating and limitless game. Mike and Whit, two successful investors, shared their experiences and the reasons why they were drawn to this field. They emphasized the importance of finding undervalued companies with an edge and holding onto them for the long term. In the late 1990s and early 2000s, information was not readily available in real-time, and trading came with significant costs. Despite these challenges, the fundamental principles of investing remained the same. Mike, who discovered valuable information through resources like the SEC website and Raging Bull message boards, emphasized the importance of understanding the most undervalued companies and holding them for the long term to generate excess alpha. Whit, on the other hand, described investing as the most interesting intellectual game he had ever encountered. He saw it as a multilevel, multidimensional, and constantly evolving game, with new opportunities and challenges emerging all the time. He was drawn to the limitless nature of investing, which he compared to surfing on an ever-changing ocean. Both Mike and Whit have spent decades in this field, and they remain passionate about the complexity and intellectual curiosity it offers. Their experiences and perspectives provide valuable insights for anyone interested in investing.
Market size and potential for growth matter: Entrepreneurs and investors should carefully consider market potential before building or investing in a business, as it can significantly impact the outcome.
The success of a business heavily depends on the market size and potential for growth, even more so than the quality of the team or the business model. Jason Brett, an entrepreneur and investor, shares his experience of spending over eight years building a company in a small market, resulting in a modest outcome despite significant efforts and accomplishments. He wishes he had waited for a "fat pitch" in a larger market to invest his time and energy into. Similarly, Jack Mallers shares his regret of approaching Bitcoin with a skeptical perspective based on past market experiences instead of understanding it on its own merit. These insights highlight the importance of considering market potential when starting or investing in a business.
Don't Judge New Assets Based on Personal Biases: Investors should conduct their own research and gain a fundamental understanding of new assets before making judgments. Stay informed and be open to new ideas to avoid missing out on valuable insights and potential profits.
It's important not to judge an asset based on personal biases or past experiences alone. The speaker shares his regret of dismissing Bitcoin based on his dislike for some of its early advocates and his own limited understanding of the technology. He encourages investors to do their own research and gain a fundamental understanding of new assets before making judgments. Additionally, the speaker emphasizes the importance of staying informed and being open to new ideas, even if they come from unexpected sources. This can lead to valuable insights and potentially profitable investments.
Learning from Investors, Even the Difficult Ones: Invest in what you believe in, hold long-term, and consider a range of perspectives for optimal portfolio growth.
Investing in the stock market involves learning from even those we may not get along with personally. Yahoo Finance is a valuable tool for staying informed about market news and trends, with features like linked investment accounts, analyst ratings, and customized charts. World-class investors, who may not be the most enjoyable people to be around, can provide valuable insights and ideas that can significantly impact one's investment portfolio. In 2021, the recommended allocation to Bitcoin in a portfolio is a topic of debate. For retired individuals, a 20% allocation is suggested, but for those who can afford it and have a long-term perspective, a higher allocation may be appropriate. Ultimately, the key is to buy what you believe in and hold for the long term, without the need for constant rebalancing.
Historian and Investor Mike's New Fund Alpine Fox Focuses on Bitcoin and Three Strategies: Historian Mike sees Bitcoin as the best form of money and investment, launching Alpine Fox fund with Bitcoin as long-term hold, small cap activism, and classic value strategies for unique returns.
Mike, a historian and investor, believes that Bitcoin is not only the best form of money in human history but also one of the best investments. He plans to create a new fund, Alpine Fox, with an initial investment of his own money, focusing on three investment strategies: Bitcoin as a long-term hold, small cap activism, and classic value investing. Bitcoin, as the best money, offers a long-term store of value, while small cap activism and classic value investing provide opportunities for creating value and generating returns. By combining these three strategies, Alpine Fox aims to deliver unique performance and risk characteristics. Mike's perspective was influenced by his historical background and the understanding that the current paradigm of fiat currencies is relatively new, and Bitcoin represents a better alternative for both money and investment.
Historic Investment Opportunity with Bitcoin: Bitcoin's decentralized nature and massive TAM make it a potentially low-risk investment with high potential returns over the long term, compared to traditional companies.
Bitcoin, with its massive total addressable market and unique position as base money, presents a potentially historic investment opportunity due to its uninterrupted path to significantly higher values. Its decentralized nature incentivizes the infrastructure and innovation needed for its success, making it a potentially low-risk investment with high potential returns over the long term, compared to traditional companies with their individual risks. The value of Bitcoin increases exponentially as more people adopt it, making it akin to the adoption of revolutionary technologies like the telephone. The speaker compares Bitcoin to the biggest ideas, religions, and companies in history, and believes it has no competition in the realm of base money.
Bitcoin miners serve as central bankers in the ecosystem: Bitcoin miners create new Bitcoin and secure the network, with major players like Marathon and Hut 8 leading production and holding significant Bitcoin reserves
The Bitcoin network becomes more antifragile and self-derisks as it scales, with more users, miners, infrastructure, and services coming on board. Bitcoin miners play a crucial role in this ecosystem by providing hash rate for network security and creating new Bitcoin. Companies like Marathon and Hut 8, valued at around $5 billion collectively, are leading miners with significant production capabilities, mining approximately 10,000 Bitcoin over the next year. As of now, Hut 8 holds around 205 million or 4,450 Bitcoin, while Marathon has about 6,700 Bitcoin. These miners serve as central bankers in the Bitcoin ecosystem, creating new Bitcoin and securing the network. While investing in Bitcoin miners can be complex, understanding their roles and the growth potential of the Bitcoin ecosystem can provide valuable insights.
Marathon and Hut 8 Projected to Mine and Accumulate 60,000 Bitcoin Over the Next Decade: Marathon and Hut 8, two Bitcoin mining companies, plan to mine and hold onto 60,000 Bitcoin over the next decade, potentially growing their market cap to $50 billion as the value of Bitcoin rises. They are effective HODLers, trading at 10X their current Bitcoin balance sheet, with potential for 12X growth in 6 years.
Marathon and Hut 8, two Bitcoin mining companies, are projected to mine and accumulate around 60,000 Bitcoin over the next decade, growing their current market cap of $5 billion. They plan to hold onto their Bitcoin, making them industrial-scale HODLers. With the falling cost of capital in the mining space, these companies are effectively trading at 10X their balance sheet Bitcoin, but could potentially see their balance sheets grow 12X over the next 6 years. Additionally, these miners are not just limited to their base layer Bitcoin mining operations, but have the potential to build various business lines on top of it. The best operators, like Marathon and Hut 8, are expected to increase their market share as the business grows, making Bitcoin mining a potentially lucrative investment over the next decade.
Assessing Bitcoin miners: Operational excellence and capital markets expertise: When investing in Bitcoin miners, consider both operational excellence and capital markets expertise. Management's track record, access to low-cost capital, and ability to procure mining equipment are key factors. Power source cost and sustainability are also important.
When investing in Bitcoin miners, it's crucial to consider both operational excellence and capital markets expertise. Operational excellence can be assessed by examining management's track record of meeting forecasts and actual results. However, access to low-cost capital and the ability to procure mining equipment are arguably even more important differentiators in this industry. Additionally, the cost and sustainability of the power source used by the mining operations are significant factors to consider. Ultimately, it's essential to underwrite management teams and their strategies, as well as monitor their adherence to their ethos and philosophy. A miner that publicly declares its commitment to HODLing Bitcoin, for instance, may be a more stable investment choice than one that frequently liquidates its Bitcoin holdings to buy more machines.
Factors for successful Bitcoin mining investment: operational execution and favorable location: To invest successfully in Bitcoin mining companies, focus on their operational execution and access to low-cost energy. Canadian miners have an advantage due to low energy costs.
Successful investment in Bitcoin mining companies relies on several key factors. First, the company must be able to execute their operational plans effectively. Second, the location of the mining operations, specifically access to low-cost energy, can significantly impact profitability. If a company can secure near-free or low-cost energy, it could provide a significant competitive advantage. Canadian miners, for instance, have an advantage due to the country's low energy costs. However, finding such companies can be challenging. Personal connections and direct experience, like Whit Gibbs' interactions with miners in Western and Eastern Canada, can help in identifying potential investments. Overall, a successful Bitcoin mining investment depends on a combination of operational execution and favorable geographical location.
Institutional Investors' Shifting Perception of Bitcoin and Cryptocurrencies: Institutional investors are increasingly viewing Bitcoin and cryptocurrencies as legitimate investment opportunities due to their growing understanding of the sector and specific use cases, such as hedging against long-term liabilities. Canada's abundant resources and clean power sources make it an attractive location for Bitcoin mining.
The perception of Bitcoin and cryptocurrencies has shifted significantly among institutional investors. This change is due in part to the increasing number of publicly traded companies in the space, which allows institutions to invest in the sector using their existing knowledge and frameworks. For example, understanding traditional mining and exchange businesses has helped institutions evaluate Bitcoin and Ethereum. Furthermore, specific use cases, such as insurance companies holding Bitcoin to hedge against long-term liabilities, have also gained traction among institutional investors. The shift in perception is a result of the growing recognition that Bitcoin and cryptocurrencies are not just a joke or a passing trend, but rather a legitimate investment opportunity. Additionally, the speakers expressed bullishness on Canada as a prime location for Bitcoin mining due to its abundant resources and clean power sources.
Bitcoin's integration into financial sectors: Bitcoin is becoming more mainstream and integrated into the financial system, with predictions of its inclusion in 401(k) plans and potential geopolitical experiments like El Salvador's adoption as legal tender.
Bitcoin is gaining significant traction in various financial sectors, including insurance companies, asset management funds, and even traditional banks. The ease of access to Bitcoin through these channels is expected to increase significantly in the coming years. For instance, the integration of Bitcoin into 401(k) plans is predicted to begin within the next 1-3 years, making it an automatic investment option for many Americans. El Salvador's adoption of Bitcoin as legal tender is seen as a geopolitical experiment with potential bullish implications, although its impact on everyday citizens' lives may be limited. Overall, these developments suggest that Bitcoin is becoming increasingly mainstream and integrated into the financial system.
Bitcoin as a Free Market Asset with High Volatility: Consider buying a comfortable amount of Bitcoin, secure it with Unchained Capital, and view it as an anti-inflation asset against MMT trends.
Bitcoin, as the only remaining large-scale free market in the world, offers potential for significant returns but comes with high volatility and risk. Ross Gerber advises most people to avoid using leverage due to the potential for rapid losses. Instead, he suggests buying an amount of Bitcoin that one is comfortable with, and considering options like Unchained Capital for secure storage and estate planning. Jason Brett adds that for those skeptical of Bitcoin, defining it as an anti-MMT (Modern Monetary Theory) asset and seeing it as a counter to global monetary policy's inflationary trends may resonate. Overall, while there are risks involved, Bitcoin's potential as a free market asset makes it an intriguing investment opportunity for those willing to take on the volatility.
Challenging established financial systems with Bitcoin: Bitcoin offers a potential solution to perceived issues with government spending and incentivizing poor behavior, encouraging fiscal responsibility.
Bitcoin can be seen as a tool for addressing perceived issues with government spending, borrowing, and incentivizing poor behavior. Mike Alfred, a guest on the podcast, argues that buying Bitcoin is a way to defund such behavior. He encourages listeners to engage with him on Twitter (@MikeAlfred) to learn more about his perspective, which stems from his unique background in both crypto and traditional investing. Overall, the conversation highlights the potential role of Bitcoin as a means to challenge established financial systems and promote fiscal responsibility.
