But Bitcoin is going to go down for me, my opinion, it’s going to be like having an original Andy Warhol, one of those prints. It is a piece of art. It’s amazing. Frank Holmes is the CEO and chief investment officer of US Global Investors, a fund that manages over two billion dollars worth of traditional assets. In this interview, see what happens when a mainstream money manager turns his eyes toward crypto.
What insights can he uncover? You know what’s interesting? The DNA of volatility of Tesla is the same as Ethereum. Welcome to another exclusive Cointelegraph interview. My name is Jackson and I’m your host and head of video at Cointelegraph.
I have the pleasure of welcoming today Frank Holmes, who is the CEO and chief investment officer of US Global Investors. How are you doing today, Frank? Outstanding, Jackson. Awesome. It’s great to have you here.
So let’s just jump right into it. In an interview that you took on December 7th, you said that you were quite surprised by the rally that Bitcoin and Ethereum had throughout the year of 2020. But since then, Bitcoin has more than doubled. So how are you feeling now that Bitcoin is even carried above those prices in such a short time? We always get worried when things go up three standard deviations over 20 days, in 16 trading days or in one year.
And it just means that we get a big pullback short term.
But long term, no, I’m very bullish and very constructively believe that the Metcalfe’s law helps explain this sort of movement as more wallets are being opened and they’re buying fractions through Robinhood investing of Bitcoin and Ethereum, that this universe is going to continue to grow and you will get these exponential moves just like we got in Tesla. You know what’s interesting? The DNA of volatility of Tesla is the same as Ethereum. How so?
Could you explain a little bit further? So when we talk about the DNA of volatility, so what is 70 percent of the time it’s a non-event or Ethereum to go up or down 5 percent. The stock market, the S&P 500 is 1 percent, gold is 1 percent. Gold stocks are 2 percent. But Tesla is 5.
Ethereum is 5. Bitcoin is 5. So they’re all disruptive. One is disruptive to the car industry. One is disruptive to the global financial sector and a sort of evolution and revolution of the financial sector we’re seeing with the car industry.
So the adoption process of naysayers and yes, people fully bullish on that creates greater volatility. So essentially what you’re saying is there has to be some sort of significant technological disruption that creates, that influences the industry essentially. Metcalfe’s law suggests that as more adopters start to buy in, then you start to get a higher price appreciation. This came out first with cell phones and then it’ll peak. But I think we have at least another 3 to 4 years in this run for Ethereum in particular, because it is unique, because you have, you have a proof of work dynamic and then you have a proof of stake dynamic and then you have the growth of DeFi.
So they’re all using this protocol and a lot of stablecoins are using Ethereum protocol to create something that’s really special. And that’s where we’ve maintained this sort of thought process, that proof of work will be around for the next 3 to 4 years in Ethereum.
So do you see Ethereum as more of a front runner than Bitcoin or do you just see them as different entities? I think they’re different. Let’s take a look at Ethereum to Bitcoin is like silver to gold.
Silver has, in addition to a monetary asset, its central bank don’t use it as a monetary asset. However, silver is used for solar panels, as only the demand for silver is highly correlated now with the growth of solar energy. And so you have these other applications that has a greater volatility. Historically, gold goes up 10 percent as silver goes up 15 percent. What did we see last year?
Bitcoin went up 300 percent, Ethereum goes up 400 percent, 430 percent. But just giving you an idea that it’ll have greater volatility. Bitcoin fell in the last cycle, Ethereum fell even more as percentage wise. So the DNA of volatility of Ethereum is greater than Bitcoin, because Bitcoin is really a financial transaction.
It’s pure, it’s really looking as an alternative asset class, as a financial asset class .
Whereas Ethereum has all these other applications in addition to being an asset class, such as silver is the solar panels and silver is the jewelry. Well, Ethereum is also to people that’s using economic transactions, but it’s also used for stablecoins. It’s also the backbone for Docu, when you look at DocuSign it’s building on the Ethereum blockchain. You touched upon something interesting there, which I think a lot of people, when they look at the large scale moves between Bitcoin and Ethereum and other altcoins, they kind of see Bitcoin as the driver of the rallies and in bear markets and such, and they see Ethereum more as the follower.
Do you agree with this sentiment?
Do you think that Bitcoin drives the market and Ethereum’s just kind of the more volatile little brother, essentially? Or do you think that Ethereum will eventually differentiate itself enough through these use cases that you’re describing, which are wholly different than what Bitcoin’s purpose is, to allow itself to kind of break away from the shadow of Bitcoin? I think in 3 years, 4 years it’ll break away from Bitcoin, but Bitcoin is going to go down. For me, my opinion, it’s going to be like having an original Andy Warhol. One of those prints, such as if you look at the Mao and the five different colours that came out, I think it was one thousand, a thousand dollars each, but they go to a quarter million dollars each.
Because there’s a limit, pure limited supply. Ethereum’s supply is capping for one hundred million, but it’s really not. It’s not iron clad like Bitcoin is.
So I think that is going to be a collector’s item, especially if you think all that 64 digits, that you have a genesis coin that’s going to become more valuable over time. So let me tie this into one of my questions here, which is that we’ve been discussing gold and silver and how they kind of form this analogy between Bitcoin and Ethereum.
And the media often brands you as a gold bug, you run a gold ETF called US Global Go Gold, which specifically targets gold and other precious metals. And there’s another famous or infamous, I guess, gold bug in the crypto space. Peter Schiff, you probably have heard of him and he is, he very lively tweets anywhere, he’s expressed his strong opinions against Bitcoin.
He made one such tweet recently where he said: “Stocks have earning, which are used to pay dividends or buy back shares. Real estate pays rent and bonds pay interest.
Commodities can be consumed or used, or in the case of gold, stored indefinitely for further use. Bitcoin earns nothing, pays nothing, and is used for nothing.” And I’m bringing up this tweet because you just said that you think in a few years Bitcoin could become more of a collector’s item.
So do you kind of agree with Schiff here? Do you think that Bitcoin doesn’t actually have a use case in the future or how do you line up with Schiff’s view here?
There’s no doubt it’s going to have a use case, but what will drive it to 400,000 dollar valuation, is because it’s going to become art. It’s going to be classified as a collector’s item. And its ability now to create fractals, which are doing per shares of public companies, that technology is pretty stealth. That will allow more and more retail to come in to buy a fraction. And that will create an underbelly of support for Bitcoin.
But I think it’s going to have both an economic transaction and the value is going create, well, they say it doesn’t have any value, Peter Schiff says. Well, I disagree. I think it has incredible value. It has the same value for someone that wants to buy an Andy Warhol piece of art. Maybe he doesn’t like Andy Warhol, but other people do.
And I think that that’s where the driver is going to be. It’s an interesting take on it, because I’ve heard a lot of coders, when they look at Bitcoin, they say the code is beautiful. The white paper is beautiful. Mathematicians say the same thing, because it solves this long standing logic puzzle, essentially, of creating consensus anonymously or not anonymously, but privately.
So in that sense, yeah, I like that the analogy to art, because in a way, I think a lot of people do consider it beautiful.
It is a piece of art. It’s amazing. Yeah. And there’s a limited supply. So that makes it more valuable.
And you can’t really transact easily your piece of art. You’re Andy Warhol for simplicity, as a Warhol or a Monet, you can’t, or any other great artist, it’s really hard.
But Bitcoin, you can turn around and convert it to a currency or different currencies. And so it has even a better medium of converting into something else. It’s liquid.
Liquid. I know. So you mentioned before, that you had heard some of these price predictions, such as $ 300,000, $400,000 coming in the next few years. Do you agree with those price predictions? Do you have your own target that you’re eyeing for what Bitcoin could reach?
Well, I’m much more quant-driven, and I just I look at the DNA of volatility of an asset class over a rolling 12-month period. And so you go back 5 years for Ethereum and you go back a decade now for Bitcoin and you look at what that DNA of volatility. So it’s a non-event, that can go up or down 200 percent for Ethereum. So we can go to $2,000, $3,000 next year, this is just the DNA of volatility and Bitcoin itself. So I look at it that way as a shorter term, like 12-month prediction.
And two, is longer term. I’m a big believer on as more people adapt to it. So I’m very bullish on the Ethereum right now, because we’re going to have the CME all of a sudden start being a futures market.
Well, what does that going to do is going to have more hedge funds, institutions that are reluctant to go on an exchange and buy for a wallet. What we saw last year is a lot of hedge funds came in and use the CME to buy Bitcoin.
They use the futures market, even though it’s not very leveraged compared to gold, but they use that as their tool to get into the space. I think we’re going to see more institutional family offices, etc. They are reluctant to go and buy, as I said, on an exchange, in case they get hacked, they buy the futures. Yeah, I think it’s one of the biggest narratives in the crypto space at the moment, and it has been for a while, frankly.
But the wave of institutional money that I guess is, as you’re describing, is just looking for that secure gate, that secure access into the space.
So do you think that this wave of institutional money, as we call it, do you think this is one of the main factors that could drive Ethereum and Bitcoin to new highs? Do you think this is the most significant driver behind these cryptocurrencies at the moment? Adopters and the limiting supply – the higher the price. It’s really simple. We can look at copper supplies like metals.
OK, well, copper is in an eight year high. Why is that? Supply. Supply is being constricted. Issues out of Chile, mines are not as productive as they used to be.
There’s less supply, but the world continues to grow. And now we have this big green push around the world. Well you need more copper! And therefore supply demand imbalance demand stronger. Up you go.
I think with Ethereum we are gonna see stablecoins are using the protocol, Ethereum 2.0, basically 2 percent of all the Ethereum over the marketplace, where people are going for earning an income on their Ethereum.
And then we have DeFi last year going from, what, 3 billion to 20 billion? Some of the numbers. What is taking supply of faster than every 15 seconds you’re getting, 16 seconds, some new Ethereum coins in the system.
So I think from that end supply is being restricted. Demand is growing. This basically says the price is higher. And I’d like to get into your philosophy a bit more. In one of your recent interviews, you said that US Global Investors believe government policies are a precursor to change, and that’s one of your fundamental investing philosophies.
So how does that philosophy apply to Bitcoin, which is an asset that is global, decentralized, automated? And these characteristics allow it to exist outside of the reach of localized government policy. How does that philosophy apply to Bitcoin? Very much so. If you look at government policies, how they fast track a futures market for 2017 to put a cap on Bitcoin, there’s no doubt the futures market was used as a mechanism for these institutions that did not want to go on exchanges.
And then, two, you can see the narrative from the Bank of International Settlements.
It’s always anti, whereas many of the central banks are exploring digital money. So I think if you look at that whole bear market we witnessed, we had JPMorgan trashing Bitcoin and crypto and Ethereum. You had Facebook also trash talking and stopping any advertising money that the bottom took place in Bitcoin in February of 2019, I would say, well, that bottom was when JPMorgan came up with their stablecoin . All of a sudden they stopped talking negative about this industry.
And then we saw the Libra coin come out and Bitcoin rallied to 14,000 dollars. Central banks around the world attacked Facebook. What happened to Bitcoin? It fell right back down to 5,000 dollars. So government policies are really important.
So there’s going to be a hearing by the Congress or the Senate or the seeing on their concerns on Bitcoin. These coins will sell off, trying to figure out, navigate what those government policies are. We’ve seen some big downdrafts when all of a sudden Japan goes negative, then they change the tune.
But we can see these big downdrafts. So I don’t think we’re out of the woods on this sort of governments all around the world.
They’re trying to catch up to this concept. They’re all trying to come up with their own digital money. So government policies are a precursor to change, both positive and negative. Are you looking for any specific policy decisions made by governments that would affect Bitcoinor Ethereum, like the creation of a Bitcoin ETF, for example? Are there specific things that you’re looking for?
That you were saying that you think like, OK, if this happens, then this is going to be great for Bitcoin or if this happens, this is going to be terrible for crypto. What specific policies do you have in mind that you’re looking for? On the negative side is that they come out and say that’s illegal.
That’s pretty negative. I was thinking that they may come out with a policy, because most of the mining is out of China for Bitcoin.
That and you can now with technology know of any coin was mined in China, basically saying no one in America is allowed to own any Bitcoin is from China, mined in China. Only bitcoins mined in America. They come out with the policy like that, that would be really disruptive. It would create two price levels for Bitcoin. So you have to think this way, that government policies, when they become too fearful over it, they will make great changes.
I guess, to the negative. However, I think they want to get away from paper money and they want to be able to track every penny, tax every penny. And the best way is digital money.
So I think that that is going to be the big push by governments running as fast as they can to get their arms around it. So I’m sure they can see how they can apply and use it.
And also, the proof of Lehman Brothers, the disaster of Lehman Brothers wouldn’t have been so exasperating, wouldn’t have cost the Federal Reserve the billions it did had they been on a blockchain mechanism. They would have been able to determine exactly what that liability was, wrote a check, and it was a couple of billion dollars, not ten billion dollars. And so I think it was going to, there’s a big push for that. And the real thought leaders of Fidelity, Fidelity has their own Google labs.
They have one hundred people in that department and they want to see all these transactions, securities, transactions, everything on blockchain.
So therefore, there is going to be no illegal shorting. There’s going to be no failed deliveries. So there is a big secular trend on the applications of blockchain. PayPal – you can now buy Bitcoin on your PayPal account. So these are, that really adds the PayPal to Metcalfe’s law.
Yeah, those are some really great things to watch out for. And I think now our audience is going to be watching those things as well. So thank you for that. And so you were mentioning before that you have, in terms of, you look at price targets in terms of 12 months and you approach them from a quantitative angle in terms of volatility. And you mentioned, I think, that you could see Bitcoin, I mean, you could see Ethereum reaching potentially 2,000 or 3,000 dollars, is that correct, in the next 12 months?
Yeah, it would be a non-event for it to go to $2,000 over the next 12 months. It would be a non-event to go back to $500. That’s just DNA of volatility.
I’m curious, what’s your volatility range for Bitcoin over the next 12 months? Well, I think it’s quite similar, you know, Bitcoin can easily run to 80,000 dollars and it can fall back to 20,000 dollars.
It’s just DNA of volatility. It’s hard to relate to it, but I can show you on visuals of how this volatility, how it helps you understand that, how to trade these markets. So last year in February, Ethereum had a spectacular move to almost $300 and then quickly fell back to $110.
I know for sure, we sold a bunch of our coins and then we remined them as it fell down and replenished all of our reserves, because we always want to own on our balance sheet Ethereum and Bitcoin. In addition to trading it out when we get extreme moves to pay for cash or buy more equipment.
We have a thought process at Hive, that we are looking at like factors do for oil and gas in particular. You have to always be spending money to upgrade and you don’t have to go spend big checks for big well. It’s how you manage your cash flow and you continuously set up that each month that you’re buying more equipment, you’re upgrading your equipment. And right now we’ve been upgrading all of ur Ethereum chips from a four gigabyte to an eight gigabyte. And then we can choose like today we announced that we’re really happy that it was by the year of 2021, we hope to be up to a 1000 petahash.
We did that in the first two weeks of January on that performa.
So we’re now think we can go to 2000 based on our cash flow forecasts. Are there any final points you’d like to leave our audience with? Yeah, I think that investors have to recognize that as you’re my age, you should have a much smaller portion of your assets in Bitcoin or Ethereum. And a simple rule, rule of thumb, is that if you’re 65, you should be looking at income and investments, 65 percent.
And make sure you’re not just totally speculating in this new industry. If you’re young like you, Jackson, that’s where all the action is. And you should be looking for growth and speculation and understanding the dynamics of growth and speculation.
Read books on venture capital, just get involved with it, because you should be investing in this type of space. Well, thank you very much for the advice, Frank.
Thank you. And wish you nothing but an abundance of prosperity and good health. Absolutely. It was wonderful having you on. Thank you again.
Thank you, everyone, for watching. That was Frank Holmes, who is the CEO and chief investing officer of US Global Investors. My name is Jackson. And if you enjoyed the video, please hit that like button and subscribe to our channel.