A Special Crypto Chat With Adam O’Dell
I had time this week to do a special Q&A session with Money & Markets’ Adam O’Dell.
We talked about bitcoin, Ethereum, Web3 and other developments in the crypto space.
It’s a longer video than we normally record for Market Insights. So I was able to share my thoughts on a variety of topics.
I had a great time chatting with Adam about cryptos, and I hope you enjoy our video.
(If you’d prefer to read a transcript, click here.)
Adam O’Dell: What’s up, YouTube? I’m Adam O’Dell, chief investment strategist at MoneyAndMarkets.com.
I’m normally joined by my research analyst, Matt Clark. But this week we have a very special guest, Ian King, who’s my personal crypto expert.
Ian has a lot of interesting things to talk about related to the crypto space, and I was lucky to get him on this week to share them with you.
So thanks for taking time with us this week, Ian.
Ian King: Adam, thanks for having me. I’m excited. I don’t know if I’m an ample replacement for Matt, but I’ll do my best.
Adam: I think you’ll do just fine, especially in the crypto space. And I’ve got a lot of questions that I’m interested in getting an answer from you.
So I want folks to know a little bit about your background. But first, just to kick things off today, I’ve got five or six questions that are burning questions, and I’m going to kind of do a lightning round with you if you’re game for it.
I’m going to ask you some tough questions, and hopefully you can give me either a “yes” or “no” answer to the question. And if there’s some nuance, we’ll kind of circle back and talk about those in more detail.
Are you game for that?
Ian: Let’s do it.
Your Questions Answered By Ian!
Adam O’Dell: All right. Sounds good. So the first burning question: I read yesterday in Bloomberg that Miami, the new capital of crypto, is having a Bitcoin 2022 conference now.
I heard that they have a 3,000-pound Miami crypto bull that’s kind of fashioned after the one on Wall Street. But this one has laser eyes.
So first question is, have you seen the crypto bull? And a follow-up question is, do you think that Mayor Francis Suarez will be riding the bull and have a photo op?
Ian: I have seen the bull. It’s kind of like a cybernetic bull compared to the one that they have on Wall Street, which is actually on Broadway, by the way.
I think that, you know, Suarez could be excited enough this weekend to make his way on top of that bull. At some point I’ll be down there tonight, so I’ll look out for him.
Adam: Oh, great. Well, let me know what you think of the conference.
But yeah, Suarez is a pretty big crypto bull. So I wouldn’t be surprised to see him on the bull.
All right. So the second question: Is Coinbase a better buy than Robinhood if somebody is looking to invest in a stock with exposure to crypto?
Ian: Absolutely. 100%. No question.
Adam: Unequivocal “yes” there. Wonderful.
Third question: Is it true that less than 1% of the U.S. population currently owns crypto?
Ian: Yes, if you consider every person in the United States.
Adam: Gotcha. OK. So that’s a very large runway for adoption, is what I hear there. Wonderful.
Fourth question: Is bitcoin mining really boiling the ocean?
Ian: It’s using a lot of energy. So I wouldn’t say it’s boiling the ocean … but the network uses about the same amount of energy that the entire country of Norway uses in one year.
But there are fixes for that. And there are other protocols coming out that I’m excited to talk about.
Adam: All right. Well, that was more than a “yes” or “no” answer.
But we’ll circle back to that because I’m interested in hearing about those fixes. I know that you and I are both proponents of renewable energy and environmental issues and stuff. So we’ll get into that.
Fifth question: Will blockchain really be able to disrupt Visa?
Ian: Yes. Not only Visa, but I think the entire financial infrastructure is going to be rewritten in the next decade.
Adam: Gotcha. That’s what I was getting at. And Visa is obviously kind of the linchpin of the old, traditional finance payments system. Wonderful.
And then last question: Is it going to be a boring summer for crypto?
Ian: It’s never a boring time for crypto. You know, there’s so much development happening, so much going on that I would say, no way is it going to be boring.
Adam: All right. That was an easy question. And I’m anxious to hear more about what you think is going to be happening this summer and how investors can get in on the action.
All About Ian’s Investing Background!
But I want to take a step back and let folks know a little bit more about your background.
I mean, you’ve been in traditional finance and investments in the markets for quite a while. So how did you get into traditional finance, and what were some of the things you did in your prior career?
Ian: Yeah, I started out — oh boy, 25 years ago — at Salomon Brothers in fixed-income trading.
I was basically like a desk clerk that would just check out orders. And back then, Salomon was a meritocracy. I worked my way up. I hustled. I got to work early and stayed late.
And then, you know, after a couple of years, I was promoted to junior trader analyst.
I winded up leaving because I felt like I needed to take more risk in my life and become a prop trader on Wall Street trading equities.
Then eventually I went on to start a little hedge fund that did really well — enough for me to take some time away from the markets after the financial crisis.
And I started doing venture investing. So I was looking at basically early-stage companies, you know, and new, innovative technologies.
My focus back then was on electric vehicles and renewable energy. And then bitcoin came around about 2011.
And, you know, I was very skeptical about bitcoin at first because it was kind of, like, the libertarians’ digital currency, right? A lot of “gold bugs” were into bitcoin back then.
I didn’t think it really had much real-world staying power, you know, given the time that we were in.
But it wasn’t until Ethereum came around in 2014 that my interest was really piqued in cryptocurrencies.
Because with Ethereum, you had a currency that was programmable. So it’s going to allow for all types of autonomous smart contracts.
And I think that’s what we’re seeing right now in the crypto markets.
The big idea, really, is being able to program something of digital value that can sort of work on its own. And we can talk more about my thoughts on that if you want. But I’ll leave it at that.
Is Ethereum More Of An Adoption/Expansion Play?
Adam: Yeah, absolutely. I mean, it sounds to me that when you say “programmable,” it’s almost that Ethereum is more of a software ecosystem than it is a strict currency.
Would you say that’s fair?
Ian: Yeah. So think about it this way: Bitcoin is digital gold, right? And Ethereum is basically a new way to power the internet and digital services.
Now, would you rather own all the gold in the world or actually own the internet?
For me, I think owning the internet and all the digital services is much more valuable than owning all the gold.
That’s why I think Ethereum and other Layer 1 protocols that allow for smart contracts are the better bet in the crypto markets.
Adam: It’s interesting because I know a lot of folks that have maybe a cursory understanding of crypto see bitcoin and Ethereum as one and the same.
And the theory behind bitcoin is the scarcity. It’s the fact that there’s a set number of bitcoin that currently exist and will exist in the future.
That scarcity in a currency arena means that the value can’t get devalued the same way that fiat currency can.
But it sounds like on the other side of the spectrum, you have Ethereum, which is expandable. It’s not necessarily a scarcity play, but it’s the expandability of the ecosystem.
So it’s really about adoption and how many developers start to build on the Ethereum platform. Would you say that’s right?
Ian: Yeah, it is. But you know, if you look at currencies, currencies that are naturally deflationary haven’t worked as well because you want something that actually grows with the economy.
Fiat currencies have worked so far because they’ve been able to expand as the economy grows. And I think when you see the market for digital services that are decentralized continue to grow, you want something that expands out.
Now, you don’t want something that expands too much. And you don’t want a centralized sort of structure where there’s, like, a central bank that just prints them whenever things go wrong. And that’s not how a lot of these protocols are set up.
I’ll also make the point that a lot of cryptocurrencies have hard caps at certain supplies. It’s just that many of them probably have maybe 60% of the issuance out so far, and you’ve got another 40% coming.
You brought up bitcoin. So bitcoin has a total supply cap of 21 million. There’s about 19 million in circulation right now.
So between now and, I think, 2150, they’ll still be issuing bitcoin on a daily basis. It’s just that the number of bitcoin is getting reduced over time in terms of the block rewards for the miners.
How Is Ethereum Shifting Away From Proof Of Work?
Adam: Interesting. OK. So back to Ethereum. It sounds like that’s very much an evolving protocol.
And I asked you a tough “yes” or “no” question about bitcoin mining, or what we know as “proof of work,” where miners actually run the algorithms on their machines, and those machines take electricity.
A lot of folks are worried about the consumption of energy. So what’s happening with Ethereum as far as its kind of shift away from proof of work?
Ian: It’s a great question. And I think we need to kind of dial it back and think about the role of a traditional bank like your bank, my bank.
You make a credit card purchase or something, and the bank is there to ensure that you have the money.
And when you’ve got to pay for something digitally, the vendor or the merchant communicates with your bank, and the bank says, “Yes, Adam has the $5 on his credit card to buy the Starbucks coffee.”
Now, bitcoin changes this all around with what’s known as, as you said, a consensus mechanism.
Basically, it’s a network of computers that will validate transactions and approve them because the network knows who owns what in the system.
They don’t know that you own something specifically. They know that your pseudonymous wallet address does.
In doing this, it requires a network of computers that are crunching, you know, an algorithm that’s trying to solve a puzzle. And they’re going to win the block reward. They also have to agree with the 51% of the other miners.
That’s all very energy intensive.
This whole proof-of-work schematic was invented by Satoshi Nakamoto in the original white paper.
There are different consensus algorithms that have come about. One is proof of stake with Ethereum.
Another one is proof of history with Solana.
Avalanche has a totally different consensus algorithm. EOS has delegated proof of stake.
So these computer scientists have been coming up with new ideas to create a system where a distributed network of computers can validate transactions and agree on who owns what when you go to make a transaction.
The hard part, though, is doing this at scale. Because in order for you to do a bitcoin transaction, 51% of the miners that are out there all over the world have to agree on this.
And that’s why sometimes, you know, it can take 10 minutes, or even an hour when the network is busy, to actually use bitcoin as a form of currency.
The big news in Ethereum that’s happening this summer — this is very important for everyone to understand — is that the Ethereum network is moving from this slow proof-of-work concept, which requires lots of computers, to proof of stake.
And the consensus algorithm is different. You don’t need to be a miner to validate the network. You don’t need a computer. You just have to own a certain amount of Ethereum and actually stake those assets.
In doing so, the algorithm basically chooses a bunch of random individuals that have staked. And as long as 51% percent of those random participants agree on the latest transactions, then those will be valid.
So this is a totally different and revolutionary new way to create a network, where these decentralized computers can come to an agreement or consensus on things that happen within their network over a certain period of time.
It’s very exciting. It’s one of the reasons why most analysts, myself included, are extremely bullish on Ethereum going into the merge this summer.
Could You Earn Rewards By Owning Ethereum?
Adam: OK. So if I understand you correctly, if I wanted to get into bitcoin mining myself, I’d have to go out and buy some very expensive computer equipment and figure out how to hook it up to the network, and actually pay for the electricity, which can be expensive.
But you’re saying that with the proof of stake with Ethereum, basically as long as I own Ethereum, I can stake that Ethereum and basically lock it up in a protocol that shows I’m willing to verify these transactions. And I can actually earn rewards just by owning Ethereum.
Is that right?
Ian: Correct. And we’re looking at, like, 10% to 15% annual returns on staking Ethereum.
Adam: That’s what I was going to ask.
So if you think about this as a yield — either, you know, like a dividend-paying stock, or a bond, where yields are basically nothing, even if they’ve been going up recently — you’re talking 10% to 15% annual yield by staking Ethereum?
Ian: There’s a testnet version going on right now of what Ethereum is eventually going to become. And the early users are seeing 10% to 15%.
Now, you know, the numbers might change when you start flooding this market. Only about 10% of Ethereum right now is currently staked in the testnet.
And then in June, what’s going to happen is the existing proof-of-work chain is going to merge with this testnet chain. And that will migrate to a proof of stake from proof of work right now.
Adam: Gotcha. OK. And this is all happening in the summer.
Will The Network Be More Vulnerable To Hacking?
Now, I’ve read some concerns that when the merger happens, the network might be more vulnerable to hacking because a lot of the miners might kind of close up shop early and try to sell their equipment.
Or just that there might be a fork in the chain, where the people that still want to do mining with proof of work might make a fork of it there.
So if there’s anybody worried about this merge, I mean, what’s your sense of security over this event happening, and what should we be aware of?
Ian: Well, with technology, things always take longer. There are always hiccups along the road.
This is a brand-new, innovative technology that’s working on the absolute fringe of what we’re capable of as a society in finance and media.
So there are definitely going to be hiccups along the way.
Now, Ethereum isn’t the only chain that does smart contracts.
You’ve got Solana. You’ve got Avalanche. You’ve got Near. You’ve got Phantom. All these chains are testing out different consensus mechanisms.
And I kind of liken this to back in the days of search.
I don’t know if you remember, like, 25 years ago when we had Infoseek, we had AltaVista, we had, you know, Go.com and Yahoo.
And then, eventually one search engine, Google, just did things a little bit better. And everybody started using Google.
I think it’s different this time in that you’re going to have competing chains.
So Ethereum will have its consensus mechanism one way, and it will probably be good at certain things like decentralized finance.
Solana has a different consensus mechanism might be better at, say, NFTs. And Phantom is really building out a robust DeFi offering right now.
So I don’t think it’s going to be sort of winner-takes-all. There’s going to be a lot of competitive chains.
Another reason for that is people tend to buy one token that they believe in. Then they start investing in the sort of infrastructure that’s built on top of this Layer 1 protocol, and then they stick with it, right?
So there’s not as much switching going on back and forth as there was back in the day when Google became a verb because everyone just migrated to it because its searches became so much better by everybody using it.
I think that each chain will have different pros and cons to it. So I don’t think Ethereum is sort of the end-all-be-all in the crypto markets.
Adam: Gotcha. OK.
Is This A Decade For Smaller Investors To Expand Into Blue-Chip And Altcoins?
So I know you’ve said before that you think Ethereum is going to overtake bitcoin, probably related to this merger. That’s exciting in and of itself.
But what I hear you saying is the fact that, you know, less than 1% of the population owns crypto. There’s a lot of runway for growth and expansion.
And the mere fact that it’s a decentralized system where it’s not-winner-takes-all, I mean, that’s music to my ears because I know that there are a lot of targets on the backs of Big Tech — the Googles and the Amazons right now that kind of control everything from a centralized point of view.
So it sounds like this is a decade for the little investor that wants to diversify across not just the blue-chip crypto assets, but also some of the more alternative coins and the smaller protocols that are growing.
Would you say that’s true?
Ian: Absolutely. And if you think about what crypto actually does, it enables an owner of a cryptocurrency to actually earn rewards for participating and providing digital resources.
That can include being in a liquidity pool, right? So you can be a market maker, almost, by staking coins and liquidity on Uniswap or other decentralized exchanges.
You can also provide cloud storage in a decentralized way.
There’s a company right now called HoloPort that’s shipping these devices that you connect to the network. And people will store files on your decentralized cloud instead of having one big database somewhere run by Amazon or Google or Microsoft.
Every computer in America will have idle storage space that will be used to allow other people to store files on it.
That’s why I think owning Ethereum and other protocols that allow for smart contracts is actually owning the internet.
I think in the next 10 years, we’re going to see more people who have idle digital resources to offer. And that could be, like I said, cloud storage, or even network bandwidth.
I mean, Helium, for instance, is just an incredible experiment that happened.
it basically bootstrapped the largest telecom network in the world in a couple of years by incentivizing people to build out the infrastructure.
You think about how AT&T and Verizon have to build out their 5G. They have to invest in 5G towers.
What Helium did is it basically said, “If you provide network coverage around your given location, we’re going to pay you in Helium tokens.” And any investor that wants to invest in part of the network can just buy the token and push the token price up.
So you’re looking at a $3 billion network that was just bootstrapped from cash. And that’s a way you can build a brand-new technology from the ground up with users and not a centralized organization. I think we going to see more of that.
And that’s the hardware side. You’ll see more of that on the digital side with cloud storage, network bandwidth and computational power, which is basically what Ethereum is.
And I don’t want to be too much over people’s heads on this. So if there’s anything that I didn’t explain, please let me know.
Adam: No, I think you’re giving a great introduction.
I mean, the Helium story is fascinating to me because you mentioned AT&T and Verizon. I mean, these are capital-intensive businesses to run those lines and build those towers. And that’s basically why they’re more or less a monopoly or an oligopoly.
Is The Web 3 Revolution The “Little Guy’s” Chance To Own A Piece Of The Next Internet?
So that’s interesting. I mean, it’s crazy that a small, bootstrapped crypto setup could grow to that.
Basically, what you’re telling me is that this Web3 revolution is the little guy’s chance to own a piece of what will become the next internet. And it’s still in its infancy, right?
Ian: Absolutely. Web3 is sort of a catch-all term. Basically it’s the idea is that somebody who creates digital value will be compensated for that digital value.
And that can be anything, like I said, from providing a digital resource to someone who’s creating music and wants to share that with their fans. They don’t need a platform like Spotify or Apple’s iTunes in between them and their fans.
Obviously, you know, a lot of people are happy about this because there won’t be that kind of censorship by Big Tech along the way.
You know, maybe you agree with it or not. Maybe you just don’t listen to the music or the person that’s putting out the content.
But I’m excited that we’re actually using the internet basically as a utility rather than, you know, having some big corporate oligopoly run it themselves.
And I’m not saying it’s a government utility. This is a utility that’s going to be owned by the people in Web3.
And I just think this decade is going to bring up so much innovation that we haven’t seen before.
Adam: Yeah, it’s truly fascinating. And I think the opportunity from an investing standpoint is just phenomenal.
What Do You Recommend As The First Step For A Crypto Newbie?
So let’s say I’m one of those 99% that doesn’t own crypto right now. I’m a total crypto newbie. What would you recommend as my first step to get into crypto?
Should I open an account at Coinbase or otherwise?
What would be the first crypto to buy?
Or where can our subscribers and viewers today get more information from you?
Because I know that some of these names that you’ve dropped, like Solana, I know that you got your subscribers into them early and made thousands of percent in gains.
So where can they find more information from you on this inside track of crypto?
Ian: I’m happy you asked because we just put together a new report.
Obviously, you can sign up for a Coinbase account.
The coins that we’re highlighting in this new report are widely available. I didn’t want to do research on something that wasn’t easy to buy.
Because, as you know, there are some coins that are only available in sort of hard-to-get places like decentralized exchanges.
The easiest thing to do is open a Coinbase account, sign up for our newsletter and get the new report.
I think it comes out next week, if I’m not mistaken. And I think there are five total new ideas that we’ll be publishing next week. I’m excited to get those out there.
Adam: I appreciate that. It reminds me of something we’ve talked before, which is that, you know, you don’t want to give recommendations that not everybody can get into because I know a lot of crypto is very specific.
You have to go on some decentralized sites that are new and iffy, and NFTs are one of a kind. So I really appreciate that, you know, you stand behind your recommendations and make sure that everyone that is interested in getting into it is able to. So I certainly appreciate that.
Ian: Yeah. But I’d also add one other thing. So there is a little bit of an edge in, you know, going a step further to find something that not everybody can get to.
These assets, I believe, have such a head start in their prospective sector that I think they’re the key ones to own, and are sort of the blue chips of crypto.
And they’re definitely not household names. I mean, most people have never heard of them.
You know, most people have heard of bitcoin. Ethereum. Maybe Solana. These are ones that you’ve got a lot of venture money behind them.
That money is making things happen. And they’re basically leaders in their categories.
But then there are, you know, those micro-caps and those super small-cap plays that are very hard to find. It’s kind of liking trying to find a needle in a haystack.
And that’s what we do. We comb through the markets and talk to people, go to conferences and figure out, you know, what the next big idea is.
Adam: I know you find a lot of really interesting ideas. And it sounds like they’re in the sweet spot —you’re looking beyond bitcoin and Ethereum, which everyone’s heard about, but they’re also not the super speculative, tiny things.
Because there are a lot of rug-pulls, and there’s a lot of fraud in the market right now. So I know that you stay away from that stuff as well.
Well, Ian, thank you so much for joining the call this week. I’ll make sure our team puts links to where viewers can get that report in the next week or two. And we’ll be sure to follow up with you later this summer when things really get heated with the Ethereum merge.
How does that sound?
Ian: Awesome, Adam. Thanks for having me.
Adam: Absolutely. So we’ll be back next week with our regular guest, Matt Clark. And thanks for tuning in. Have a great week. Talk to you soon.
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