SPEAKER_01: 0:02

Welcome back to Finance Friends. I'm your host, Fabian, and this is season four. This season we're diving deep into the world of investing. Not just where to put your money, but how to think like a professional investor. We are bringing you conversations with highly intelligent, incredibly motivated investors with weekly episodes. Make sure you stay tuned in. Today's guest we had someone a bit unique. A bit of a quant guru, but also more importantly, a bitcoin guru. Now I'm I can't say I've invested in Bitcoin as yet, but after today's episode, I'm all in. Our good friend Jonas Benner, originally from Germany, studied in Australia, now lives in Australia. He is the data genius and he is reshaping the way super funds think about Bitcoin. He breaks down everything from blockchain, which I had no idea what it was, to Bitcoin miners to where he feels the Bitcoin price could potentially go. Listen in. Good afternoon, Jonas. How are you? Good afternoon, Fabian. Good. How are you? I'm good, thank you. I I did have a uh we've never met before, so first time meeting, but we did have one of your colleagues on the podcast. I can't remember what episode it was, Diana Musino, who's the uh deputy chief economist at AMP, is that right?

SPEAKER_03: 1:29

Yes, that's great.

SPEAKER_01: 1:30

So you were close with each other?

SPEAKER_03: 1:32

Uh yeah, I mean we're basically in the in the same broader team.

SPEAKER_01: 1:36

And uh I do hear an accent, so maybe it might be good to start with. Where where did you grow up?

SPEAKER_03: 1:42

Uh so I grew up in a small town in Germany, um, close to Frankfurt, basically lived my whole life there, then went to university in the Netherlands, studied business there, then came to Melbourne for a semester abroad in 2016. And you fell in love. Studied at Monarch University, fell in love with the Australian lifestyle. Yeah, but did go back to Europe to study uh masters in finance in Milan and Italy before then coming back to Australia. And now I've been here for six and a half years.

SPEAKER_01: 2:09

So grew up in Germany, university in the Netherlands, semester abroad, yeah, to Italy, now back to Australia since then. Is that right?

SPEAKER_03: 2:19

Yes, yeah, yeah.

SPEAKER_01: 2:20

And um you you could pass as an Australian. You think I if I'm looking at you, I'm thinking this guy's a surfer from you know Byron Bay.

SPEAKER_03: 2:30

I should have come, yeah. I was actually in Byron Bay until Tuesday. It's funny you say that. Because I was walking around with the hair down in Byron Bay, and like people probably thought I was just a local.

SPEAKER_01: 2:39

Yeah, playing uh playing a guitar and making some money, but you're the complete opposite. You're a quant analyst, is that right?

SPEAKER_03: 2:45

I'm a quant. Yeah, quant researcher is the official job title, but yeah, quant is just a quant, I guess.

SPEAKER_01: 2:50

Yeah, so what what what what does that mean? What is a quant person do?

SPEAKER_03: 2:54

Yeah, that's a good question. I think most people who don't work in finance, if I say, if they ask me what I do for work and I say, Oh, I'm I'm a quant, they usually just nod their head and are like, oh yeah, okay, then I'm gonna ask any further questions. Well, what that basically means is just within finance, quants are like the the math guys, the statistics guys, the data nerds, the people who like crunching numbers, writing code, usually they're programmers as well. So we we combine a few different skills. It's programming, it's math statistics, doing some machine learning, um, doing the risk modeling for financial firms and trading uh strategies and those sorts of things.

SPEAKER_01: 3:35

And where did you get your interest for I guess data and numbers? Does it come from your parents?

SPEAKER_03: 3:42

Uh I mean, maybe if I I've never actually thought about that. Maybe from my dad, because he was always good with numbers and good with math, but he was a doctor. Um, and my mom is a doctor as well. So um grew up with two parents that are doctors, but never went into that field. And they never forced me to, they never expected me to become a doctor as well. Um, I think for me growing up, I just math just always came sort of easy to me compared to other subjects. Um, like I never had to study much for it, and just I don't know, working with numbers and learning about calculus and linear algebra and stuff like that was never that hard. I think I just have a very logical mind. And there's like different types of intelligences, I guess. Like there's the logical thinking, then there's emotional intelligence, there's like creative intelligence in a way as well. Maybe I was just a bit more gifted with the logical thinking.

SPEAKER_01: 4:33

Yeah, well, the left side of the brain or the right side of the brain. It's quite interesting. I'm I'm the same. I can't say I ever got excited by calculus, but um, but I've always been a numbers person and and love numbers and not so much English and and emotional intelligence I've had to work on over the journey. So so you went to university, came here. What was your first job in Australia?

SPEAKER_03: 4:54

Uh, first job in Australia was working at EUI as a data analyst in their like finance and economics. Um, or I guess I did a bit of accounting as well, but it was like a finance team.

SPEAKER_01: 5:05

How did you find that first?

SPEAKER_03: 5:07

It was good, but man, it was hard to land that first corporate job here because I came to Australia on a working holiday visa. Because that was the only way to get to Australia after doing my master's back in Europe. And the problem with the working holiday visa is that usually people who have that visa go and work on like a farm and do fruit picking, or they work in hospitality or stuff like that. But I came over here with a master's degree, like fully determined to get a corporate job at like a big four consultancy firm or maybe in in finance and in some other space. And I was sending out dozens of applications, but nobody wanted to hire me because I didn't have a permanent residency or permanent working visa. So it was actually pretty hard to land that first job. Once I got my foot in the door, it then became a bit easier to get other jobs.

SPEAKER_01: 5:52

So then did you get sponsored or did you apply for PR? How did that work? Because I'm sure we've got a lot of listeners that and I see it a lot where people come on to work in holiday visa, and unfortunately, my clients aren't open to considering them.

SPEAKER_03: 6:05

Yeah, yeah. Which is which totally makes sense. Like as a firm sponsoring someone, and you know, first of all, there's a lot of money involved, and then second of all, if they're from overseas, there's also high risk that they go back overseas at some point and they invest all this money into them and then they go. So it's completely understandable. Um, for the people that are listening that do come from overseas, that that want to do something like this as well. I guess um it will be a bit harder. It was hard for me for sure, but I guess what you really have to do is to prove that you're first of all committed to staying here and committed to staying with the business, but also that you have skills and you provide skills that are valuable enough for a company to be willing to sponsor you. Yeah, um, and it's it's hard if it's your first job out of university, but if you've worked in the corporate sector back in Europe or in America or wherever people are coming from, um then I guess you you've got something to show for, and then you just keep networking, meeting people, putting yourself out there.

SPEAKER_01: 7:06

Yes, and that's what a lot of people forget. You might only go in on a contract for six months, but try and get to know as many people as possible and make friends with those people, and they'll want to go out of their way to try and help you. Yep. Um, so you did that for how long at EY?

SPEAKER_03: 7:22

Uh the whole story is a bit of a mess, but EY was only for around six months because then COVID happened. Uh I know when EY hired me, they fully had the intention of then sponsoring me after six months. So after my probation period was over, the idea was that they would sponsor me. Then, literally, as we were finalizing all the documents for the sponsorship, like I just I collected everything that they needed, all the police checks from different countries and all the documents. A week before we were going to submit that COVID hit, and everybody went into lockdown. Companies stopped hiring, but also EY stopped um sponsoring Australia-wide. So I got a call from one of the partners that I was working under Out of the Blue, and she basically made me redundant with two days' notice. Oh no. Right when COVID started. And at that time, I was like, oh shit.

SPEAKER_01: 8:15

I don't know if I can swear on here, but we have a nurse very powerful allowed on this occasion.

SPEAKER_03: 8:21

Um I was like, oh damn, what like what the hell am I gonna do now? Like now I'm back to just being on the working holiday visa, still in Australia, only have six months working with EY. But the biggest problem was that at that point nobody was hiring people like me. Like they were. So that's actually an interesting that you asked that because at that time I said I was working as a data analyst at EY. There was a lot of Excel and Power BI and stuff like that. Yeah, but I didn't actually know how to code at that time. So then I was stuck in Australia. I had a little bit of savings, so I knew that I could probably do live six months of my savings. Yeah, I always had the option to go back to Europe to find work there. Like I would have probably gotten a job even during COVID, somewhat easily over there, but I didn't want to give up living in Australia. So I just decided to stick around here, did a few online courses on programming in Python, um, bought a few books, read through all of those, did all the exercises, then started working on my own projects, and really noticed that the finance knowledge that I had, especially in terms of the investment space, combined with the programming that I was now able to do, was actually, first of all, something I really enjoyed, but second of all, a skill that was way more valuable in the marketplace because that combination not a lot of people had at the time, and still to this day, not that many people have. Yeah. Um, so I then started going to be able to do that.

SPEAKER_01: 9:47

They don't know how to talk to people.

SPEAKER_03: 9:50

That that is the one other thing. I found that because my next job then was at Deloitte here in Melbourne in the quant finance team. And I think one of the things that they really liked about me was that I had the programming skills, I had the finance skills, machine learning skills, but I could also talk to people and was pretty good with clients.

SPEAKER_01: 10:09

Interpretate the data as well. So how long are you at uh so Deloitte you said after EY? How long were you there for?

SPEAKER_03: 10:15

Uh I was there for a year and four months. Yep. Okay. And then went to AMP.

SPEAKER_01: 10:20

And then AMP. And you've been at AMP for how long now? Three and a half years, basically, exactly. Yeah, okay. And and what's your role at AMP at the moment?

SPEAKER_03: 10:30

So at the moment, I'm a senior quantitative researcher, is what it's called. Um, just uh a more senior quant, I guess. So what what we do as the quant team um within AMP. So we sit in the investment team. The investment team are basically the people that manage all the different superannuation funds that we have.

SPEAKER_02: 10:49

Yeah.

SPEAKER_03: 10:50

So and and investments as well, but superannuation is the biggest part. Um, so we work with a lot of the portfolio managers. Um, we actually work under the head of portfolio management. Um, Stuart Elliott is his name, he's he's our boss. Um, and what we do is we manage what's called the dynamic asset allocation, which is like this active overlay that we have within some of our super funds that tries to generate um a little bit of active return, a little bit of alpha for the super funds on top of the money that they already make based on their underlying allocation. So we we've built trading strategies for equities, bonds, commodities, and Bitcoin as well. And with that um yeah, generate a bit of return.

SPEAKER_01: 11:32

Yeah, so it's interesting to touch on Bitcoin because you know financial advisors and and most retail superfunds have sort of avoided cryptocurrency. So from my understanding, uh AMP super is the only retail super fund that that has an allocation to Bitcoin or any crypto, is that right?

SPEAKER_03: 11:50

Yes, that's correct. Uh it's Bitcoin only at the moment, at least. Um but yeah, we're we're the only ones that have invested in Bitcoin. Um, I think I I don't know if other users are thinking about it, but um after we announced that we invested in Bitcoin, a few other of our competitors actually came out and said that they're not thinking about going anywhere near Bitcoin or crypto at the moment. I think they actually said crypto, which is the first mistake because one thing that I always do, so I I would classify myself as a Bitcoiner. Um I strongly believe in Bitcoin and I understand the investment thesis and everything around Bitcoin quite well. I have a pretty good understanding of other cryptos as well, but I make a hard distinction between Bitcoin and the rest of crypto. Like to me, those two things are completely different things, and they have a completely different investment case as well. We can talk about that if you want to.

SPEAKER_01: 12:40

Yeah, well, because so just to confirm, is Bitcoin a cryptocurrency?

SPEAKER_03: 12:45

Is that right? It it is a cryptocurrency, but the the name crypto, I think, is a I mean it it technically falls into the bucket of crypto, but putting Bitcoin in the same bucket as all the other ones um confuses people a lot. And they then think that other cryptocurrencies like Ethereum or Cardano or XRP or Solana are basically competitors to Bitcoin or they're similar to Bitcoin, which I actually don't think is the case. Like I think there's a lot of different use cases for different crypto assets, and even within the crypto bucket, I think you can distinguish between things like Ethereum, um, Solana, Cardano, which try to be decentralized finance platforms in a sense where you can do things like smart contracts on their DeFi applications, Web3 things, the Rails for stable coins, and all of those things. They're more like tech platforms, but in a decentralized way. Whereas Bitcoin is really only trying to be what economists call sound money or hard money, but in the digital space. That's why a lot of people call it digital gold, because it's very similar to gold in terms of its monetary properties, yeah, just that it's not physical but digital. Um, and that's all that Bitcoin tries to be, and that's all that it ever will be. But the interesting thing about that is that it's probably actually the biggest use case in all of crypto as well.

SPEAKER_01: 14:09

Yep. And is it the first crypto to market?

SPEAKER_03: 14:13

So, yeah, Bitcoin is the first cryptocurrency that was launched, but even leading up to Bitcoin as we know it now being launched. It was launched in early 2009 by Satoshi and Nakamoto, someone or a group of people that we still don't know who he, she, or they are. Um, there was 40 years of research and people trying to launch something similar leading up to Bitcoin. So it wasn't like Bitcoin was the first time people tried it and then it worked instantly. There were people trying this in the 80s and 90s, early 2000s. But the problem with everything that was launched before Bitcoin was that it didn't figure out how to become truly trustless and decentralized.

SPEAKER_01: 14:56

Yeah, okay. So so what are the the characteristics of Bitcoin is decentralized? Um there's a code that no one can crack. Is that right? Like I I I still don't understand the whole who you you talked about how it's created, but you don't know who's created it. So if someone it has been created, then can it be ultimately cracked, if that makes sense? Or can you give us a bit of insight? Because that's the the part that I still struggle and understand a little bit.

SPEAKER_03: 15:26

Okay, so with with Bitcoin, I think the way to understand this is that the the reason why people say that it can't be cracked, what they usually mean is that it can't be changed. Um and they also mean that it can't be hacked in the sense that its cryptography can't be mathematically broken. Um but let me unpack that a little bit, why that's the case. So okay, so to explain why people say that. So the the reason that Bitcoin is decentralized or the way that it is decentralized is that the code of Bitcoin is actually publicly available on the internet. It's just open source code that anybody can go on GitHub and find. And technically technically anybody can copy their code and make changes to it as well. But that would just create a different version of Bitcoin, which a lot of people have done. But the reason why it's decentralized is that there are tens of thousands, if not hundreds of thousands, of computers all over the world called nodes that are running the original Bitcoin code, and they all make up the Bitcoin network. But because this code is spread out over let's call it hundreds of thousands of nodes all over the world, um, and all of them communicate with each other all of the time and reach consensus by agreeing on the most recent transactions, the most recent blocks in the blockchain, and all of those things. That's why the network itself can't be hacked because or cracked because it's decentralized in the sense that it's distributed all over the world and they all run the same code and come follow the same rules and come to the same agreement on what's the truth within this network. The reason why it can't be cracked in the sense that it can't be hacked and coins can be stolen is because coins within the Bitcoin network and most other cryptocurrencies, or I think probably all other cryptocurrencies, are protected by really sound cryptography, which basically just means that there's um a mathematical cryptographic way that um private keys and public keys which become your Bitcoin address are linked in a way where that can't be reversed and back solved, essentially. Like we we haven't figured out a way that um we can crack cryptography. And that's a good thing because not only Bitcoin and other crypto networks, but the whole world, any time that there's sensitive data on the internet, within the military, within the government, within big organizations, but that data is protected by cryptography. So if if we were to break cryptography, which a lot of people are saying, oh, what about quantum computers, for example? What if they can crack Bitcoin one day? Then that would be a problem, but it would be a problem for the entire world. And the good thing with Bitcoin as well is that we can make changes to Bitcoin if the whole network agrees. And this is comes back to its decentralized nature because it takes the entire network of hundreds of thousands of nodes all over the world to come to agreement. The Bitcoin code can only be changed if everybody in the world who's running Bitcoin agrees that they want to make that change. As soon as there's a few people that don't agree with that, what happens is that the network splits into two different networks where you've got one network that's still the old Bitcoin network and one that's the new Bitcoin network. Um, but the the original Bitcoin network wouldn't change in in that case. But if we ever got to a point where quantum computers become powerful enough that they can break the cryptography that Bitcoin uses, it would be in the best interest of everybody in the Bitcoin network to upgrade Bitcoin to be quantum resistant. Yeah. So everybody would agree with that, and those people who don't would get left behind on the old network, which would then become compromised.

SPEAKER_01: 19:06

Um and you mentioned blockchain. So can you give a 101 on what blockchain is?

SPEAKER_03: 19:14

Yes. And this is actually it's a good question because oftentimes we brush over that because it's a relatively simple component of Bitcoin. Um, and and a lot of people have heard of blockchain, so we we I guess we just assume that that's prior knowledge, but you're right, it's for a lot of people it's not Fabian right here, so no idea.

SPEAKER_01: 19:33

So tell me, share it with our audience.

SPEAKER_03: 19:35

So the reason that is called blockchain is that the way that Bitcoin maintains a record of ownership is that every 10 minutes um a new block is added to the blockchain. So the blockchain is basically just um a long sequence of data blocks that gets added to the Bitcoin blockchain every 10 minutes, and these blocks contain transactions that have been verified by Bitcoin miners within that 10-minute window. So basically, when Bitcoin started, the blockchain contained zero blocks, or I guess the first block was then mined by Satoshi. So it started off with you know the first block or the Genesis block is what it's called. Technically, it's block zero. Um and then as soon as transactions started happening on the Bitcoin network, miners started getting to work and put that trap put those transactions into a block. And what happens when they put transactions into a block is they basically check that the transactions that are happening in the network follow the rules of the network. And it's very simple. Basically, all you need to do to check whether a transaction is valid on the Bitcoin network is to check whether the person sending a certain amount of Bitcoin has at least that much Bitcoin, and then making sure that that's basically transferred over to the new address that that bitcoin is being sent to. And if if that is all correct, if the person sending the bitcoin has at least that much Bitcoin, then the transaction is valid, gets added into the block, and then every 10 minutes a block is basically finalized, added to the blockchain, and then they move on to the next slide. So it's a block of transactions. It's a block of transactions, exactly. And the the reason why it has to be done this way is that there are many people sending Bitcoin transactions all the time. Um, but you in a decentralized way, you you don't have a centralized party like a bank that that handles you know what's the settlement that happens. How do you actually do that in a decentralized way? And that's where Bitcoin miners come in. So miners are just people that also have a node, so they also participate in this network, but they have a special node where they basically get all of the incoming transactions from the network all the time. So what happens when you send a Bitcoin transaction is that that transaction then through one node gets communicated out to the whole network of other nodes that it's connected to, and they then publish it to all the other nodes that they're connected to. That's how it propagates through the network. And then once it reaches a node that's also a Bitcoin miner, they collect all of the transactions that they receive and they then constantly try to mine those transactions into a Bitcoin block. And the way that they do that without making it too complicated is that they basically have then a list of, let's say, 2,000 transactions. And then what they need to do is they need to solve a mathematical puzzle. It's basically just a really large guessing game. They need to guess a really large random number. Once they guess the correct number and solve this mathematical problem, they will compute the correct hash for this block, and then they can add it to the blockchain. And once that's done, they send out that block to the whole network, and every node verifies that this block is correct, that every transaction in that block is correct, and then everybody moves on to the next block, and that's how it builds.

SPEAKER_01: 22:56

So these are the miners. Are they individuals or is are they computers?

SPEAKER_03: 23:02

Well, they're computers that can be run by individuals, or most of the mining is happening by big companies that specialize in Bitcoin mining nowadays. And they usually, because it's super electricity intensive, like it takes a lot of energy to mine, they usually locate somewhere where they can have access to really cheap electricity or where there's a lot of stranded electricity, uh, usually renewable energy that has overcapacity or stranded energy that they can find in Iceland or in Nigeria or something like that somewhere.

SPEAKER_01: 23:34

Yeah. So and and who is paying the miners? Like how do they generate income?

SPEAKER_03: 23:41

Yeah, that's a very good question as well. So when you send a Bitcoin transaction, you always have to pay a little bit of a fee to send that transaction, which is paid in Bitcoin as well. So let's say I want to send, I don't know, 10,000 Australian dollars in Bitcoin from one address to another. There will be a small fee attached to that. At the moment, it would probably be a few dollars that that would cost, um, but paid in Bitcoin. So you basically have to send a little bit more Bitcoin than what's worth 10,000, so that what arrives at on the other end is 10,000. And so they get the transaction fee, but at the moment, um, they also get a block reward, is what it's called for every block that they add to the blockchain, they get 3.125 new Bitcoin that are issued to them as an incentive for them to keep mining. And the interesting thing about this block reward is that Satoshi, who created Bitcoin, coded that up in a way where every four years the amount of Bitcoin that miners get for adding a new block to the blockchain gets cut in half. So when Bitcoin launched in 2009, miners were getting 50 Bitcoin for every block that they added to the blockchain. Then 25 four years later, then 12.5, then 6.25, and then 3.125 now. And in 2028, they will halve to 1.56, whatever the numbers.

SPEAKER_01: 25:05

So uh there is a is there a limit on how many bitcoin are ever going to be available available? Yes, and that's 21 million.

SPEAKER_03: 25:13

And the the way that we will get to 21 million is through this mining process. So the only way that new bitcoin come into existence is as a mining reward to the miners. Um, but what happens is because this mining reward is cut in half every four years, if you look at the graph of how that moves, it basically asymptotically approaches 21 million. And we're not going to get to 21 million until the year 2140.

SPEAKER_01: 25:40

Okay.

SPEAKER_03: 25:41

But we've also already mined almost 20 million of the 21 million Bitcoin.

SPEAKER_01: 25:46

So then the the incentive to mine reduces substantially in bitcoin terms. Unless but not necessarily in fiat money terms. Yeah, unless the Bitcoin keeps going up a lot, then the value of one Bitcoin is is obvious could be worth more than 50 bitcoins back then.

SPEAKER_03: 26:04

Which it now is. So that's the beautiful thing. So in terms of the the new bitcoin that miners get issued, they get much more in Australian dollars or US dollars now than they got when they were getting 50 Bitcoin, because back then Bitcoin wasn't worth anything almost, it was worth a couple cents. Um, so that's and it that's the beautiful thing about this whole network. It's almost like Satoshi had the foresight to understand that if this really becomes something that becomes valuable and that people start to value, it will start off with a really low valuation initially. So he needs to incentivize miners with more Bitcoin as a reward, but he also needs to make sure that he halves that every or reduces that number, not necessarily halve it. I mean, that's just what he picked, but that he reduces that over time. So okay, and and the the the other thing that that does is that because he also knew that computers would get more powerful over time, there's uh Moore's law, I think is what it's called, where our computer chips get um like twice as powerful every couple years. He knew that if he didn't have what's called the difficulty adjustment in mining, which I'll explain in a second, that all the Bitcoin would be mined too quickly. So basically, how how that happens is that this mathematical puzzle that I mentioned, which is just a large guessing game, um, becomes more and more difficult as more and more computing power goes into mining Bitcoin. So in the beginning, it was, in terms of computational power, actually quite easy to mine Bitcoin. You could do it with your personal laptop, and people were doing it that way at that time. But then as more and more people started doing that, what happens is they were solving this mathematical problem more and more quickly. But Satoshi built something into the code of the network where every roughly two weeks the network checks how quickly people were finding new blocks over those last two weeks. And if it's faster than 10 minutes on average, the difficulty of solving that mathematical problem gets adjusted upwards. So the more people mine Bitcoin, the harder it becomes to mine Bitcoin, and that way we maintain this issuance schedule up until 2140, which is unlike any other commodity or any other asset that we have. Like if gold goes up enough in value, people will go out there and mine more gold, and they will just find more gold, and then we'll have more supply. With Bitcoin, it's the only thing where that doesn't happen because the more people try to mine it, the harder it gets to mine. So it has a self-adjusting.

SPEAKER_01: 28:39

So I assume we're not gonna be around in 2140. So keen to understand when that comes about, there's obviously no incentive to mine. So who's gonna process the transactions? Miners will still get the transaction fee.

SPEAKER_03: 28:57

So at that point, um, the incentive will move completely away from new Bitcoin that's issued and will be purely paid by transaction fees. So that does also mean that Bitcoin would have to become valuable enough, you know, in 115 years from now, um, that people and people would have to be willing to pay high enough transaction fees so that it's worth for miners to continue mining Bitcoin. But I think if Bitcoin really fulfills its prophecy and becomes what Bitcoiners think it will become, which is a new monetary alternative, or maybe by then it will be the base money of the whole world, then you will have central banks, uh, banks, um, governments, and you know, big institutions transacting in Bitcoin, and they will be happy to pay a decent fee to make sure that you know if they send billions of dollars, yeah, it gets around. They don't mind paying a thousand dollars, um, make making sure that it's secure.

SPEAKER_01: 29:52

And do you do you have a is there a way where you can predict Bitcoin pricing? In the future.

SPEAKER_03: 30:02

There there are models that try to do that. I think just like with any model that you build, you know, nobody knows the future. You can try to model the future. And we we at AMP we actually have some investment models on Bitcoin that are like momentum models or sentiment and things like that, which basically just look at the current market conditions and how favorable we think that they are for Bitcoin and how like how high our exposure from zero to 100% should be in Bitcoin. But by definition, because you can't nobody has a crystal ball, nobody can predict the future. If you have a model that perfectly predicts the Bitcoin price 10 years from now, you would have just gotten lucky, and it's not because you you actually have all the answers.

SPEAKER_01: 30:51

But ultimately, if it if it does become the base currency, global currency, and there is limited supply, then the price will go up.

SPEAKER_03: 31:00

Yes. Yeah. That's uh yeah. I mean it's super simple, but that I guess is the thesis for a lot of people. And I think one really good way to look at this is to look at the addressable market of Bitcoin. So I spoke about digital gold earlier that people compare to gold because it shares a lot of the properties of gold. Like gold, for example, is also very hard to increase the supply of because you have to go out and mine.

SPEAKER_01: 31:25

Yeah, and it's a lot to like 10 years before you find a mine and get the mine, the gold out of the bigger. Exactly.

SPEAKER_03: 31:31

It's very capital intensive. And it's similar with Bitcoin. That's why it's called mining in Bitcoin as well, because you have to you know build mining farms, um, you you have to invest in all this, um, these computers, these specialized computers to do bitcoin mining. And it costs a lot of electricity. So there is a direct cost in the real world connected to creating more Bitcoin, just like there is for gold. But it's not the case for fiat money. So the mut Australian dollars, euros, US dollars, there's no cost attached to creating more of those. The central bank can just hit a button and create a trillion more and just closing government for a month and then eventually print more money. Exactly, exactly. Um coming back to the addressable, total addressable market, though, if we first only look at gold and say, okay, gold is at, I don't know, 26, 27 trillion US dollars right now, total market cap, Bitcoin is at 2.5, I think, roughly at the moment. So even if it only breaks even with gold and replaces gold as the dominant non-sovereign store value and reserve asset that central banks hold and that people see as a hedge against monetary debasement, but also as a safe haven asset, that would still be roughly a 10x from here. So that would be more than 1 million US dollars per Bitcoin. If we then go even further than that and say, well, but Bitcoin has the potential to not just be digital gold, it can also actually become a currency that people use and a store of value that everybody uses, then you can probably even look at other store of value markets like real estate. So a lot of people are storing value in property right now, which is why property prices are so high. Basically, people are trying to take their money out of bank accounts where they low, where they earn low um interest rates and invest it into something that maintains purchasing power better over time. Real estate is really good for that. And here in Australia, it's been amazing for the last 40 years. Shares have also been good for that. Um, people also use gold, art, cars, and other collectibles to maintain their purchasing power better over time. But then if Bitcoin is potentially a better store of value than all of those assets because it doesn't come with any of the complexities and risks associated with uh you know owning real estate and having an investment property. For example, you have to manage tenants, you have to abide by local regulations, um, you've got maintenance costs if anything breaks in the house. None of that happens with Bitcoin. So then you could expect it to also capture a lot of the the value that's currently being stored in these other assets. So maybe it's a bigger market.

SPEAKER_01: 34:03

And then the only thing I would say is obviously because Bitcoin is what 160, what's it, uh US dollars? 108,000. 108,000 US. So so when you people think, okay, well, um, how much is if you go to a shop, how much is that gonna cost me? It's gonna cost you 0.0000016 of a Bitcoin. Do you think is that like just that the mindset around like understanding the the decimal of the costs of that in Bitcoin terms? Whereas I think the thing about currencies in Australia, or sorry, global currencies, Western currencies, especially, like you know, one US dollar, one Australian dollar might buy you, I don't know, well let's say ten Australian dollars buys you a burger, right? But Bitcoin it might cost you 0.000. Do we then become smarter and understand decimals if we if we move to that? Because or does like the because can you change can you like you know they do a share split where when the you know say Apple goes to a thousand, they say ten to one share splitting and get it to a hundred to give people more accessibility. Is that possible with Bitcoin?

SPEAKER_03: 35:10

It's a very, very good question, actually, because I think you're right, the denominating everything in very small fractions of Bitcoin would be very confusing for people. But the beautiful thing is there actually already is a solution to that, which is what is called Satoshis, which is the subunit of Bitcoin. So one Bitcoin is technically 100 million satoshis that's on the Bitcoin blockchain and in the Bitcoin code itself. We actually don't really think in bitcoins, we think in terms of Satoshis, and one Bitcoin is a hundred million Satoshis. So right now we're roughly at the point where one dollar is like a thousand um Satoshis. So at the moment, if we were to move to Bitcoin um as the unit of account that we price everything in, then the burger would cost uh a thousand satoshis. So there's a lot of room for Bitcoin to go up in value. And so then if if one satoshi becomes equal to one cent or something like that, um then we're still fine. And technically, you can also subdivide one satoshi even further on the Bitcoin network. Um, but that's uh very technical detail.

SPEAKER_01: 36:25

But yeah, yeah, okay. And in terms of adoption, which countries are adopting Bitcoin the most?

SPEAKER_03: 36:32

I think the US is very high up there. Um, they they've got at least a lot of nodes that are running the Bitcoin network, they've got a lot of the miners that are mining Bitcoin. And now, since uh Trump was elected president, they obviously have the first administration in the US that is really pro-crypto and pro-Bitcoin as well. They have a strategic Bitcoin reserve, they haven't technically bought any Bitcoin yet, but they took all the Bitcoin that they seized from criminal operations and said we are now creating a strategic Bitcoin reserve, which is something that they only have for like gold, um, oil, and like a few other assets that are actually really important to national security, but also to the financial security of a country. Germany, interestingly, has if you just look at the number of nodes that are running all over the world, Germany is really high up there.

SPEAKER_01: 37:22

How many do you use it? Because in this little town in Frankfurt from you?

SPEAKER_03: 37:28

Well, there's definitely a few nodes running there because my brother and I are running some. I'm not sure if there's any other Bitcoiners in that town, but uh the German Bitcoin community is pretty big in general. It's very interesting because the German government is still very skeptical of Bitcoin, and the German government actually actually sold 50,000 Bitcoin last year that they had seized from um a criminal operation in 2014 or something.

SPEAKER_02: 37:53

Yeah.

SPEAKER_03: 37:54

Um, but Germans, the population, are pretty pro-Bitcoin and pro-freedom, I guess, in a way. Um, then there's other countries like Nigeria is pretty high. There's, I mean, El Salvador, for example, like a lot of developing countries have high adoption in Bitcoin and also crypto assets because they have a higher need for it, because they don't operate in a financial system like we do here in Australia, where we have a pretty stable currency, everything works very well, like we can trust our banks. But a lot of keep people all over the world can't trust their banks because the money might get frozen in their accounts, or in Nigeria they devalued the currency overnight by 50%, and you all the money that was sitting in your bank. Zimbabwe, Venezuela. Um if you've got hyperinflating currencies, then you're looking for a way out, you're looking to store your money in something else than your currency. And you can go to the supermarket and buy rice and pasta and like I don't know, uh food that you can then sell at some point or exchange for other things, or you can try to adopt uh a money that everybody has access to now through smartphones and the internet, like Bitcoin or stablecoins.

SPEAKER_01: 39:02

So, would you say is is Bitcoin more of a currency or more a commodity?

SPEAKER_03: 39:08

Ooh, it yeah, very good question. It's a money, I would say. Um and the I make a distinction between what money and currency is as well, which uh is confusing for a lot of people because we uh use those two terms as synonyms nowadays. Like when people talk about money and currency, they usually think it's the same thing. But the the concept of money is actually something that's much broader than just currency. So currency is what we use nowadays to pay for things, it's like Australian dollars, euros, US dollars, and all of those things. But money historically wasn't that. Like we used many different things as money in the past. We used seashells at some points, glass beads, um, even like limestones, uh gold as well.

SPEAKER_01: 39:57

Exactly. Then gold and silver at some point, as well.

SPEAKER_03: 40:00

Salt, salt blocks, cattle was used as money at some point. So money in and of itself is just an abstract representation of value in a way. And historically, before we before governments created currency and forced us all to use it, um, people always converged on some form of money that they would use within their small economies by themselves. Like no government was centrally controlling the process of what gets used as money. People always naturally converged on something that was the most tradable good, that was the most desired good good by other people that they would they would accept um as you know exchange for value that they provided or to buy something off of them. So money in and of itself is basically stored value or purchasing power. Currency today is just the units that we use to denominate that money. But then when you when you distinguish between what money is at its essence, like that, and what currency is, you can also understand why a lot of Bitcoiners and gold bugs as well say that governments and central banks can actually never print money, they can only print currency because they don't provide any value when they create more currency. So all that they do in that case then is they take the existing money or the existing value that is already there in the economy and they divide it over more currency units. They dilute everything there exactly, and that's one of the problems that a lot of people see with the current monetary system is that because money isn't linked to something scarce like gold anymore. Um, now governments don't have anything that keeps them in check in terms of how much they can actually dilute the the money that's out there, and a lot of people also don't understand that that is a big driver of inflation. That's a big reason why housing is getting more expensive, why when you go to Woolies it's costing you more and more homeless people on the street as well.

SPEAKER_01: 41:54

Exactly. It's because they just print more and more money to they too. Yeah. So did you introduce Bitcoin to AMP, or was this something that AMP already had and you just are the subject matter expert on Bitcoin?

SPEAKER_03: 42:11

So I I mean I I've been talking about Bitcoin at AMP since I joined in 2022. And usually there were always a few skeptics um, you know, within the the broader team that would shut down the idea of Bitcoin um basically straight straight away. And and to be fair, I mean I was a big skeptic of Bitcoin when I first heard about it myself. It took me a really long time and like hundreds of hours of studying this thing to wrap my head around what it is, and like I still haven't fully understood it. Like I'm still learning new things all the time, which is fascinating. But um when the ETFs launched in the US last year, so the in the US um in January last year, there were 11 spot Bitcoin ETFs that launched. BlackRock um has the biggest one called iBit. Um, that was really the the green light for the institutional investment space to say, hey, like Bitcoin is an institutional great asset now, like BlackRock has an ETF and they're putting their full weight behind this ETF. Institutions in the US are already adopting it. That's when we within the investment team started taking a serious look at Bitcoin. But I wouldn't say that I was the one who introduced Bitcoin at AMP. We we were talking about Bitcoin before then already, but the head of portfolio management, my boss Stuart Elliott, he's a pretty big Bitcoiner as well. He he was then making a lot of noise about, and because you know he's the head of portfolio management, his word carries a lot more weight than mine just uh as a quant within the team. Um and he he played a very key role in getting our initial allocation um within the super funds going. Um and then our CIO, Anna, was really supportive of it. She had a good understanding of Bitcoin, maybe not the in-depth understanding that Stuart and I had, but she's really open to innovation and really open to embracing new technologies. And if she can see a case for embracing something, she's not afraid to act on that. And like our allocation is to this day very, very small. Like it's like 0.1% of the funds under management that we have. Um, but we we made that first step with the first ones in Australia. We got into Bitcoin in like the mid 60,000s US dollar. By the end of last year, we saw almost a hundred percent return on that small allocation. But also also the space has developed so positively. Like you've got Larry Fink, the CEO of BlackRock, being uh on TV, interviewed about Bitcoin all the time, like CNBC, MSNBC, um basically shilling Bitcoin like a Bitcoiner. Um Ray Dalio, who a lot of people respect, he recommended um a 50% allocation to Bitcoin or gold in a portfolio as a hedge against currency debasement and what he sees as a debt crisis in the US. Um Paul Tudor Jones as well, you've got Scott Bissent, who's the treasury secretary in the US, comparing Bitcoin to gold and saying it's a new store of value. So the the narrative is shifting a lot. The Overton window, I guess what you call the acceptable um narrative in the mainstream, is starting to shift towards Bitcoin becoming this new reserve asset and store of value. Um, and I think we we made the right move and we keep looking at it, we keep thinking about ways that we can embrace it further. Yeah. Um, and yeah, that that's how it all happened. I I just happen to be the Bitcoin uh expert or the guy who the guy who's most obsessed with Bitcoin and has spent thousands of hours on the bottom.

SPEAKER_01: 45:27

Well, you can tell by your passion, and uh I've learned more in the last 45 minutes from you talking about Bitcoin than I have my brother trying to talk to me about over the last five years. Uh but thank you very much, Jonas, for coming on. You shared a lot of extreme important insight to Bitcoin, and um you know, I'm I'm ready to jump on. I'm on board. I'm glad to hear you.

SPEAKER_03: 45:54

And the funny thing is, we only scratch the surface now in this 45 minutes. You learned a lot, uh, I'm I'm sure you did, and I talked about a lot of stuff, but there is so much more to explore. And in the Bitcoin space, we often call it falling down the rabbit hole. Yeah, um, and I've been stuck in that rabbit hole for like three, four years now and haven't found the bottom yet.

SPEAKER_01: 46:12

I just maybe wanted to get you back on to season five. We'll get some feedback from our audience. Uh, but thank you very much for coming on. It's great. We've had uh two AMP's on now. So thank you and look forward to following your progress. Thanks, Vivian. Thanks for having me. Thanks for listening this week. Stay tuned for our next episode and keep up to date with us by following the Finance Friends podcast on Instagram and TikTok. Plus, connect with us and our guests over on our LinkedIn page, all linked in the show notes.

SPEAKER_00: 46:50

Disclaimer This podcast exists for informational and entertainment purposes only. The personal opinions of the speaker and guests do not represent the view of any other party. If this recording contains reference to financial products, that reference does not constitute advice nor recommendations and may not be relied upon.