Episode Transcript
[00:00:00] Speaker A: You know, over the next decade, bitcoin is on a growth path to becoming digital hard money. And the world needs digital hard money, and the world is adopting digital hard money. And therefore, you really should, should convince yourself, I mean, if you can, that this is the right thing to be involved in. Coin's a very, very unique asset. Right. You've been around financial assets, you've been around stocks, bottom bonds, old commodity, real estate. None of them would have prepared you for what bitcoin did in the last 17 years. Right. It's just been very different from every other asset. It's been very few people who've really been able to hold on from the early days till now. I'm not one of them.
[00:00:46] Speaker B: Hello, welcome to the Money Adjustment. I'm your host, Dr. Mark Kramer. I am a chiropractor who loves investing and trading. Are you interested in what's moving markets and, and your money? Bitcoin is now proof of money.
[00:01:11] Speaker A: I like Michael Sailor's quote. He said, if you can remember 12 words, you become the money. Can we leave, should we leave our audience with that?
[00:01:19] Speaker B: Yeah. Become the money. Become the money. Let's get started.
[00:01:23] Speaker A: Behavior of Bitcoin does not follow what normal, normal assets follow, which is sort of a constant growth model. Right.
So if you said, if you sort of say, how has stock, how have stocks done in the U.S. well, more or less for going up 10% a year in the U.S. it's, it's been up 10% with a, you know, volatility of, let's call it, yeah, 20% or 30%. Right. If you're looking at tech stocks, it's a little bit more, but it's, it's a growth, the growth rate is constant. If you look at real estate, the growth rate is constant too. Right. If you buy a property, you kind of expect the things to go up, you know, 4 or 5% in terms of market appreciation a year.
So you have a sort of constant growth rate. Well, the bitcoin is not that. Coin growth rate has been, if you look at the early years, it was just incredibly high hundreds of percent a year. And even today, if you really analyze it statistically, you know, on the order of 40% a year.
[00:02:33] Speaker B: So today I'm super excited to have my guest who I will be introducing in just a second here, something that I've been doing that I didn't do on the last one, but I think I'm going to do it for this one because I think it'll be fun, is I am going to introduce my guest by grokking him first. And just so the audience knows, this is going to be my first time speaking live with this gentleman. We've done some back and forth exchange on X which has been fun and you will know him from Spaces of which he is a regular and really a cool guy. So I'm going to start by reading his GROK profile here and this is my guess. Fred Krueger, a Stanford PhD and investor, champions Bitcoin as a power law asset undervalued at current levels, urging conviction amid volatility while critiquing cycle based predictions. He co hosts Bitcoin Tonight Spaces spotlighting on chain analysts and ETF experts like Eckmatey and Eric Balconis for deeper market insights. His AI focus highlights collaborative work on quantum threats to crypto security.
And there's a quote for him. But I'm going to read this part before I read the quote because now something new that Grok has done when you look on people's profiles is if you've had interactions with them, they'll try, it will try to make that connection for you. So this is what it has for Fred and I. You've traded replies with Fred on bitcoin holding strategies and video content including his praise for your Tomer Strollite edit featuring Michael Saylor's airplane analogy. He, he, he recently commended your efforts on it says in quotes really well made. While you teased his rapid follower gains as showing off which was totally a tease in and fun. So he does have rapid follower gains. He is becoming very popular on X and I'm very happy to introduce you and have this conversation with Dr. Fred Krueger. Fred, affectionately known as Fred, thank you for coming on today.
[00:04:47] Speaker A: No problem. We've been trying to get this thing done for a while so.
[00:04:51] Speaker B: Yeah, no, I appreciate it. Yeah, I appreciate it. I'm really happy to have you. And so I had to get up to speed a little bit with I reread Bitcoin to a million the Final Chapter for Fiat, which is for the audience, if you have not read that yet, is genuinely a fantastic book. It is really a good, it does gets a good macro picture and this is going to kind of lead me into why I'm having you, why I invited you on and wanted to have you on. So with Tomer, I interviewed Tomer recently and we are currently in a very volatile cycle for the markets in general and for bitcoin in particular. And forget even the word cycle, it's just the current market environment is more volatile in general. For various reasons that people are aware of, you don't have to go far. And I'm not going to highlight that here because that's not what kind of show this is. But that being said, the reason I had Tomer on was this idea of conviction. And from Tomer, he and I got into the weeds of what bitcoin actually is at its core, the mechanics of bitcoin. And so if you understand the mechanics of the bitcoin, that's one thing that's going to help you get conviction instead of borrowing it from anyone else. And the other thing is, which is my introduction to Fred and which is why I'm really happy to hear have him here is the macro lens to get your conviction. Because Fred, his approach, unlike Tomer in terms of the content that they're putting out is highlighting.
I'll just say what it is and I'll give kind of a framework for how the, how I'd like the conversation to move forward is the power law, the Kelly Criterion and in particular chapter 17 of Bitcoin to 1 million. And the reason chapter 17, it's the psychology of Hodling, which I thought was really fantastic. And my background for you, Fred? I actually, my background's in psychology and it's one of the reasons I'm interested in the markets is the collective psychological aspect of markets. So that very kind of long winded introduction, let's jump into the power law in your words.
[00:07:01] Speaker A: Well, bitcoin's very, very unique asset, right? There's all these. You've been around financial assets, you've been around stocks, bonds, old commodities, you know, real estate. None of them would have prepared you for what bitcoin did in the last 17 years. Right. It's just been very different from every other asset.
And that's why it's always, you know, it's been there been very few people who've really been able to hold on from the early days till now. I'm not one of them. I got involved in 2019 really, but it's a rare bird. Most people don't understand bitcoin.
And one of the things that is very interesting is the behavior of bitcoin does not follow what normal assets follow, which is sort of a constant growth model.
So if you said if you sort of say has stock, how have stocks done in the U.S. well, more or less stocks have gone up 10% a year in the U.S. it's, it's been up 10% with a, you know, volatility of, let's call it 20% or 30%. Right. If you're looking at tech stocks, it's a little bit more, but it's, it's a growth. The growth rate is constant.
If you look at real estate, the growth rate is constant too. Right. If you buy a property, kind of expect the things to go up, you know, 4 or 5% in terms of market appreciation a year. Maybe if you're lucky, maybe it's 3%. Right.
So you have a sort of constant growth rate.
Well, the bitcoin is not that. Bitcoin growth rate has been, if you look at the early years, it was just incredibly high.
Hundreds of percent a year. Right.
And even today, if you really analyze it statistically, it's, you know, on the order of 40% a year. Right.
Now we had a drop of 50%. So you have to really look at statistical trends which sort of take out the volatility.
Right. You'll still see that there's this, there's this high growth rate, but the growth rate is slowing down a lot.
So instead of having a constant growth rate, you know, maybe 10%. Now, 10% is a great growth rate. Right. Like if you said, I'm going to invest in an asset that's going to grow at 10% a year, you'd be like, oh, that's great. Right.
But bitcoin is like, it's slowing, but the good news is it's slowing from 40%.
You know, so the good news is it's, it's 40% now. In 20 years, it'll be 20%. You know, so fundamentally there's something different happening here, right, Than, than a mature asset like stocks or real estate or even gold. All those assets have underlying growth curves that are 3 to 4 to 5%. Okay. And, and so bitcoin doesn't. Bitcoin, if you try to model Bitcoin, you sort of say, what mathematical statistical model fits Bitcoin the best? Is it a constant growth number? And if you try, you'll see you can't fit it to a constant growth number.
But if you say, I'm going to fit it to a log log model where if you, you basically, it's. The price of bitcoin is a power of how much time has elapsed since the genesis block.
And if you say, well, bitcoin price is equal the time to the genesis block to the power six, well, that's, that's a rough approximation for what bitcoin price is. Now, of course, it doesn't tell you one year, it's going to go up one Year, it's going to go down because it's volatile, it's extremely volatile around that trend line. But that's the trend line, right? So it's fundamentally a different trend line than everything else.
Stocks don't work this way, Real estate doesn't work this way, commodities don't work this way, and no other mainstream asset works this way. But also no other mainstream asset has gone up 1 billion times in the last years. In October of 2010, when the first prices of bitcoin were observed, it was at $0.10, you know, obviously got over a hundred thousand dollars. So that's 1 million x.
Now, there's nothing else that we record that's gone up a million x.
So if you bought Microsoft at the IPO, Microsoft, it was up 3000x.
Now you could say, well, but there was a series A and Paul Allen bought some shares off, but maybe from there on it's up a hundred thousand X. Right? But literally there's nothing that went up a million x.
[00:11:52] Speaker C: Have you ever noticed how in many things, a few big events or items dominate everything else? That's the power law in action, a pattern seen in nature and society. In simple terms, it's a relationship where one thing grows or changes disproportionately to another. Like how a small increase in city size leads to way more innovation. Mathematically, it's Y equals A times X to the power of N, where N is usually not one, making growth super linear or skewed. Plot it on a log log graph and it turns into a straight line. That's the telltale sign of a power law at work. Think wealth. The 8020 rule where 20% of people hold 80% of the money is a classic power law example. Or earthquakes. Most are tiny, but a few massive ones release almost all the energy. Power laws explain that imbalance in tech. A few websites like Google get billions of visits, while most get almost none. Network effects follow power laws. Even Bitcoin's price over time fits a power law on a log log chart showing accelerating growth as the network ages. Power laws help predict trends in complex systems, from social media to stock markets. But remember, they're patterns, not guarantees.
So next time you see unequal distributions, think power law. It's how the world scales up unevenly
[00:13:19] Speaker A: because of this power law, because of the novelty of it. It's operating in something that's very, very different from everything before. Now you have to ask yourself, okay, so that's interesting, Is this power law?
How strong of a law is this?
And let's Take it relative to stocks. He said stocks are going up 10% a year, right?
How strong as claim is that? Right?
Well, it's a pretty good, it's a pretty strong claim, right? Like if you analyze it statistically, you'd say there's about a 95% chance the stocks are going to go up 10% a year for the next 10 years.
That's what the data sets, right?
Now if you look at Bitcoin, the power law maps it with equal sort of certainty. So it's not something so bizarre. If I told you, you know, stocks are going up 10% a year, you wouldn't, you would not stop me and say, well, you can't predict the future, Fred. You'd be like, of course they are. You know, that's normal. You know, if you told me real estate's going up 4% a year in major metropolitan cities, you wouldn't say, well, Fred, that's crazy. You can't predict the future. You'd be like, of course it is. Right? Real estate goes up, you know, so we have these models. They're very simple models. There's two real models, right? There's exponential constant growth and there's power law growth, right? Those are two models that, that affect things. Okay, now for financial assets, mature financial assets, you see that those mature financial assets all follow exponential rates, costs and growth rates, more or less as does population.
The population of the United States is growing at 1% a year. The population of India is growing at 5% a year. These are just statistical observations that we can say.
You said, how much is the population of India going to grow in the next 10 years?
Well, I could say it's probably going to go up 80%. How do you know that what's going to go up 50% is going up 5% a year for 10 years with compounding city about 80%.
Like that's not crazy. That's just like any high school or any grade school or be like, if you ask them, relation of India grows is gone up 5% a year for the last 10 years. Where is it going to go? Where will it be in 2036?
People would be like, well, it'll be about $1.9 trillion people.
So again, this is not crazy math. This is just, this is the way this thing's moving now. Why is it doing this, right? Why is it having this kind of de. Accelerating but super high growth rate? And the reason it is is that there's, there is an underlying thing that's growing which is the adoption of Bitcoin. So bitcoin has certain inherent advantages for people. And people like, they like the idea of bitcoin. Why? What do they like about it? They like, it is finite, right? So people aren't making any more of it.
So whether you're buying it at 60,000 or 200,000, that. That's still a fact, right? It's still finite.
You're going to, you're going to always come to that same conclusion. Even five years from now, it's still going to be finite. Nothing's going to change that. And moreover, you can, you can move it very quickly, right?
You can. So it can be unlike gold, right? Which is try to get your gold out of Iran right now. Not, not so easy, right? Getting your bitcoin out of Iran, very easy. So it can be moved very easily. It's very easy to secure. You don't need to have armed guards around your bitcoin.
But, you know, you have to take certain precautions, but you don't. Generally speaking, you can hold it and move it around pretty anonymously without, without major cost or security apparatus. And, you know, for these reasons, more and more people are inclined to adopt it in some small form. And as they adopt it and they realize it works and they want to get more of it. So there's this adoption rate of bitcoin, and that adoption rate can be measured, right? And that adoption rate turns out that it's very consistent in good markets and bad markets.
So even in a bad market, people still like bitcoin. In fact, they like to buy the dip. But if you need to get your money out of Iran, it doesn't matter that Bitcoin's at 68,000 or 120,000. You still want to get your money out of Iraq, right?
So the, the, the use of bitcoins doesn't matter. So there's a very strong adoption curve. And the adoption curve for bitcoin is very much of a power law, right?
So we have this adoption story, and as, as people adopt it, and that's not growing at quite the same speed. It's growing at, you know, more modest speeds, like 15% a year, right?
So it's going to take a long time for everybody to adopt it. But even at 15% a year, compounding does get you there eventually, right?
So 15% a year will compound out to a big percentage of the population will have Bitcoin within three decades, just because you're compounding 15% growth rates.
But if you look at Everybody growing at 15% a year, what's the price of bitcoin going to do? Well, the price of bitcoin is going to go up much more than 15% because all these people are competing for this sort of same pot.
And so there's just an effect there which is that squared. Right now you could say this is something like Metcalfe's law. You can say it's just a quadratic response curve, but it's just, it's a super linear response to a growth rate.
And that's, that's how. So we, so now we have an explanation for how all this stuff works, right? We understand there's adoption for bitcoin. There's not competition. There's not really has. Bitcoin has no competition within non cryptos. Like people aren't sitting there going, I love bitcoin, but I'm going to take my gold out, I'm going to put all my money into gold. And like that's a separate market, right? Gold is not getting new adopters. There's some more big hedge funds and stuff buying gold central bank. But the average person is not sort of moving to a gold standard right now, you know, but a lot of people are adopting a bitcoin standard, right? So, and still, we're still very, very early, so we have a very long way to go.
But I think this is kind of the picture of where we are. So I think from a narrative perspective, the power law tells you how this stuff's happening, why this thing's happening.
And now the question is, well, if it's that easy, Fred, you should just hold bitcoin.
Well yeah, but then you get, well like just hold that. It's so volatile, which is again, it is very volatile, right?
And, and that's sort of the price of admission, right? Is the volatility and kind of gets goes back to that chapter 17, which is you better and it goes back to Tomer, which is if you don't have conviction of the asset and the story and why it's unique, you're probably not going to be able to hold it through long runouts. You just won't it. When it's going up, you say you will, but then you don't, you know, and so, you know, easier said than done. And you know, a lot, a lot of us have second thoughts about all this stuff. You see a lot of people that I thought were bitcoiners who were like, liquidity's not good, the action's not good, the price, the graph looks like bad like, but at the end of the day I do think we're going. The story is the same and this. And, and, and I think that the big, the most important thing in all this is there's all these smaller stories. Like, I'm not saying I don't want to trivialize Iran. Right.
But it'll get, it'll be over at some point, right? I don't know. Trump will not be alive.
There's all these things come and go. There's always some, some thing. But the, you have to look at what is the bigger picture here. Right? Right.
And I think the bigger picture is, you know, over the next decade, Bitcoin is on a growth path to becoming digital hard money.
And the world needs digital hard money, and the world is adopting digital hard money.
And therefore, I think you really should convince yourself, I mean, if you can, that this is the right thing, to be involved in it now that that's the problem. You know, we are the problem. You know, it's like as, as like Pogo said, I saw the enemy and he is us. And that that's the problem. We are the problem. We are our biggest enemy.
[00:22:39] Speaker B: Can I share my personal story and bounce this off you? Because I, I have a feeling you can relate in it. And when I read that chapter, chapter 17, the Psychology of Hodling it, it resonated with my personal experience, which is I had a much larger stack. I tell this story. I don't even like that I tell this story anymore because I'm like, it's a warning story versus a, like, empowering. It should be empowering, but it's more of a warning in that I had a bigger stack than I have now and I didn't completely sell out because I knew enough in 2020, 2021, I'd seen enough, read enough, educated myself enough to know that something was happening, even though I didn't fully grasp all of the big picture, which is very. It is, like you said, a new phenomena. It's kind of hard to take it all in in a short period of time. So I had a, a decent sized position about four years ago. And then when we went through the FUD and people were starting to, like you said, you start to question yourself and you become your own worst enemy. I knew I did not want to sell my close out my entire position, so I just, I just reduced my position sizing, which maybe we can get into the Kel criterion based on that, but I just want to finish this one part. So like, I reduced my position sizing. And so when the, when, when the market corrected from the FUD and bitcoin again, the emergence of what the technology actually is and people's interest in it started to come back and we started to see new all time highs. I at that moment felt like, man, I did not hold enough. And then the, the whole FOMO aspect coming comes in and the, the meme comes to mind where it's like 150k bit Bitcoin. Everybody's lining up 65, 70k Bitcoin empty lines, right?
So this time around I'm like, I am not selling any and I've only been adding to my position every single day. I'm dollar cost averaging in, I'm doing a position sizing to grow and I actually sleep pretty well at night with regards to my bitcoin. And now I'm almost to the point where again I'm back to that, oh man, I don't have enough. So there is kind of like that sweet spot.
So let's get into the Kelly criterion because this is where that I think applies.
[00:25:00] Speaker A: I mean, I think the key here is, you know, can you be somewhat detached about this whole process, right?
So sometimes you, you know, they, they say that the best people's returns are dead people.
You know, they don't, they don't say, you know what I mean?
[00:25:17] Speaker B: Right, yeah.
[00:25:18] Speaker A: You know, or like I, I have a friend, her dad gave her this trust fund and it had all this, it was her grandfather who bought this deal and he bought like, you know, these stocks, you know, 50 years ago, but they all went up so much in 50 years, you know, because totally not Manners was bought, you know, shares of, you know, IBM, things like that. You know, some, you know, I think we are our own worst enemy, right. And so the Kelly criterion is, it's really an interesting idea, right? Which is it's sort of like let's assume that you had, you knew you have an advantage over the house, right? Let's assume you had this knowledge of this asset that outperforms a lot.
How much of your net worth should you asset, should you allocate to this asset? Right?
That's an interesting thing. Now you could sort of a sort of similar way to look at is let's say I'm going, I'm tossing a coin, right? And I have chance, some number of getting heads and some number getting tail. And if it goes ads, I double my money.
If it goes tails, I lose my, lose my money. Something like that, right?
Okay. So if it's 50, 50, there's no need to do anything. But what if you have a 5% shot. So let's say it's, it's 55% that you can double your money and 45% that you will lose.
Lose that, whatever you bet on that route. How much of your portfolio do you bet in this game?
Well, this is a pretty mathematically defined game, right?
So you can sort of say, well, okay, great, should I just bet it all on one, the first, on the first time? Well, that's not a very good idea because you have 45% of the time you're going to lose all your money. So that's, that's not a good idea, right? You don't want to bet 100% of your money on.
And you could, if you sort of examine this, you go, well, it has to be a certain fraction of my betting because the game is the same at the next rule. So it really has to be a certain fraction. So what is that fraction?
What is that fraction dependent? And really it only can depend on the probability. Right? And then you sort of go, well, how would I solve this? Right? Well, if you look at it, you could sort of say I want to solve the expected wealth or the expected, the lot. I want to maximize the lauder of the wealth at a time. T turns out there's this fraction that's very simple, right, that you can define and you could apply this to bitcoin and you'll get a number that says based on the past behavior of bitcoin, something like 50 to 70% of your net worth. Now that, that changes, right? So let's say you're, let's say the numbers, you say you're going up the 70% because you have to estimate where, what the long term rate of growth of bitcoin is. But let's say you say it's 70%.
Well, if you're, if you buy it at 70%, it doubles.
Well now you're going to be more like at 85%, right. In a year, right?
Well, you're too high. So now you have to sell 15% of your position and reduce that. So now you have cash, right?
And then maybe next time around it goes down.
Well, if you rebalance a year later, now you're going to have less than 70% of. Because your bitcoin's worth less.
So now you have your, you're only at 60% so you have to go buy back. Right?
So Kelly, well is sort of a buy low, sell high kind of model.
Now you can, you could say, well, okay, well how, how does that work with bitcoin can you get more bitcoin with this way you can't actually get more bitcoin, but you can reduce the volatility quite a bit, right? You can get a little, in the end you're going to have a little less bitcoin than you would have if you didn't do Kelly, but you'll have a lot less volatility.
So it, it's really a question again of a personal thing. How much volatility can you stanch?
And a lot of that depends on the size of your stack, how old you are, whether you have a job, whether you have other sources of income, etc.
If you're a retiree and you have no other source of income and you have a small stack, well, you probably can't, you probably, you know, you don't want to risk it, right?
If you're a retiree but you have a big stack, you probably can risk it. You know, you're Michael Saylor, why not just put it all in bitcoin? You don't need to optimize, right? He's going to be fine. If Bitcoin's at 40,000, it doesn't matter, right? On the other hand, if you're a young guy, if you're a 30 year old, you're working in a company, you got a good salary, well, you can go 100% bitcoin, that's no problem, right? Because you just now just want to stack.
Is any kind of money that you're making, any savings, any events, your uncle dies, leaves you some money, you can put that in bitcoin, you're just a hundred percent, right?
So I think it depends a lot on the personal profile. Other, the other thing is, do you need the money for living? Do you need that bitcoin for a living?
So if you've got, let's say you're 60 years old, you're used to work at a job, but you're, you no longer work, you're, you're, you're taking early retirement at 60 and you've got a bunch of bitcoin. Well now the question is, should you be so slowly selling that bitcoin to pay your living expenses or should you be borrowing against that bitcoin, you know, kind of event and then having that borrowing kind of fund your lifestyle? And I think the math there sort of says you're probably big, better off, except in a few circumstances borrowing against your bitcoin rather than selling your bitcoin. But again, it also depends on how much of a lifestyle you have relative to your bitcoin. You know, if you're living like, you know, a rapper, well, you're going to blow through your bitcoin anyways. Like, it doesn't matter if you're, if you're a pretty conservative kind of guy and you, you just want to have a general kind of lifestyle from your bitcoin.
You should be absolutely able to do that as long as you have enough bitcoin, you know. So Ben and I actually created a fund that actually does that borrowing for you and pays you what we think is a reasonable number, which is 10% of the value of your bitcoin. Right. So, but, you know, it's. It means the fund pays you effectively a 10% cash distribution, which is tax free because it's a return of capital. You know, we think bitcoin's going to outperform that by a lot. And so we think that there's a lot of margin in that model.
Could you do more? Maybe, but probably not super conservatively. Right.
All these things are kind of. It's an art.
[00:32:40] Speaker B: It definitely is an art. And as you were speaking, I was thinking of British Hodl, because he'll say the whole point, the whole effing point of this is to stack as much bitcoin as you can. So he makes his argument in his case for other products that are bitcoin centric but not bitcoin, for example, like MSTR's products. And we don't have to go into those because what you're describing is very similar to that. And the point being is that having a product, if you, if you subscribe to the bitcoin story and you're a bitcoin proponent and you don't want to sell your bitcoin, but you do have living expenses and you do want to have some type of return on investment. A product like you're describing that offers bitcoin exposure as well as some type of income can help you.
[00:33:31] Speaker A: Now, you know MSTR does not offer that. Right. MSTR does not take dividend. Right.
[00:33:37] Speaker B: So I didn't give the actual names because I didn't want to like talk about, like, it's almost competition in a way, but not really. I mean, we're stretch.
[00:33:45] Speaker A: Right?
[00:33:46] Speaker B: Strc.
[00:33:48] Speaker A: STRC is a high income thing, but no bitcoin appreciation.
[00:33:54] Speaker B: Right.
[00:33:54] Speaker A: So. So if you just want to get 10% a year forever off your money. Right. Could be interesting, right?
CRC is for you.
It's a good thing. I personally want to get upside as well as I see you See what I'm saying? So scr. Yeah.
[00:34:13] Speaker B: That's the distinction. That's the differentiator.
[00:34:15] Speaker A: SDRC gives you 10% a year, but no upside.
So the, like, I put a million dollars into SDRC. I'll get 100 grand a year for 10 years, roughly. Right.
Assuming there's no problems with SDRC, which I don't think there will be, But I'll get 100 grand a year. Okay. For 10 years. What do I get at the end of 10 years?
My money. Dime. I get the million dollars. Okay. Right. And I'll get a tax bill for a gain of a million dollars.
So that's kind of what I'll get with Sierra Sick. Right. With our fund, you'll get the same coupon, more or less. Right.
But at the end of 10 years, if Bitcoin has gone to a million, you'll get, you know, eight times your money.
Wow.
[00:35:05] Speaker B: Yeah, that's a big distinction.
[00:35:07] Speaker A: Quite, Quite different, you know, profile. So if you really are bullish on bitcoin, I mean.
Yeah, I don't think you. You want to be in STRC personally. I mean, that's not. Now a lot of people are like, well, I want to live. Do a little of both. I'll have my bitcoin and my S T R C.
I think. I think you will see that that's not optimal. I actually think you're better off having you either doing it yourself, just putting your bitcoin and borrowing against your bitcoin, or using a vehicle like ours, which just literally does that for you. Right.
And. But it, you know, does it.
It's complicated because it does that for you. And make sure that every month you're getting money in. In this. In your bank account, like. Like a. Like a rental unit. Right, Right. So that's. That's kind of the structure. Yeah, yeah.
[00:35:57] Speaker B: No, I've. I've started to gain interest in products like that through looking through multifamily real estate. And then I started to think about, okay, what am I going to get with these partnerships?
[00:36:06] Speaker A: You're going to get a lot less with this. I mean, multifamily, you're not going to get 10% tax deferred with pretty much an upside participation of bitcoin. You will not get there.
[00:36:19] Speaker B: Right.
[00:36:20] Speaker A: And, you know, you won't. But look, I think all these things.
All these things aside, I mean, I think that just owning bitcoin and borrowing against it, you know, you can do something yourself. You can do some version of this, do it yourself if you want you know, but I think in general that, that structure, everybody sort of realizes this at some point. If you've owned bitcoin for a while, like I have coming up on seven years, you really don't want to sell your bitcoin. You get to the point where it's sort of like selling your kids. You know what I mean? Like, you know, like there's this famous modern art picture by Christopher Woolsch says, sell the house, sell the car, sell the kids.
Now, I don't recommend selling the kids. I do recommend selling the house and the car. To buy bitcoin, selling the kids is a little extreme, but yeah. So I just think you don't want to sell your bitcoin. You know, that's the first rule of bitcoin. You don't want to sell your bitcoin. You need to hold on to this thing. You need to appreciate that you were lucky to get in in the first 17 years of Bitcoin. This is kind of like getting involved in Apple, you know, and 1990 or Microsoft in 1980 or this is, it's early. But the big mistake you're going to make is trying to trade it too much.
So you don't want to trade it. You want to hold it.
You don't want to get too smart about it.
[00:37:49] Speaker B: No, it's good.
[00:37:51] Speaker A: We have this instinct as humans, but we always, we always want to over complicate things. We always, we can't just let something sit.
It's just like that. We want to take the night. You know, the rod on Token say, do something, do something.
That's just the way our brains are wired. Right.
But actually we should just want to let it set. That's what we should want to do. Again, you don't need to borrow against it.
Unless you need the money. I would recommend not borrowing against it. It. Right, But I would recommend borrowing against it. If you are planning. If the alternative is to sell some of it. That's. That's one.
[00:38:28] Speaker B: Right, right. That and it, it goes back to the, your product that you're talking about and again with the multifamily, just as, just as a comparison. Because it is another kind of big asset that is illiquid and its illiquidity forces you to hold for long periods of time. But maybe the challenge for bitcoin is despite what some people think, because some people think bitcoin's illiquid, it is very liquid. May probably too liquid. Like, I look back and I'm like, I wish it wasn't as liquid as it was because then like to your point, if I was a dead person is going to have higher returns because they're just not going to play around
[00:39:03] Speaker A: thinking is this, with this fund is that we thought one thing that works against you holding bitcoin is that bitcoin doesn't generally pay you an interest rate.
But if bitcoin paid your rent, you would think differently about, you know, 100% Bitcoin pays your alimony for your ex wife. You're going to think different about it. You know, if bitcoin pays your lifestyle, you're going to think different about it. Right.
So I think turning bitcoin into a thing that you're going to live on today, I think changes your relationship with your bitcoin. So instead of having this bitcoin, just be this.
[00:39:45] Speaker C: Yeah.
[00:39:45] Speaker A: At a time, the perfect sale. I'm waiting until it goes to this and I'm going to get out. And then. And then what?
Then what? You're, you're just going to be a smuck and you're going to live in Cayman island somewhere like, oh, you know, like really this is a long term thing which is you discover this asset, this asset's going to grow old with you and it's going to outlive you. Okay.
So you might become very wealthy with bitcoin, but bitcoin's not going to change. You're going to change maybe, right.
You may get a second wife, midlife crisis, you may get sued. I don't know. I don't know what's in store for the person listening to me who's got a bunch of bitcoin, but bitcoin will outlive you.
Fifty years from now, some new person is going to be discovering bitcoins and be like, this is great. Satoshi gave us this creation.
It's not obvious how great it is. It is not that obvious why it's so different from Ethereum or Solana or anything like that. Takes, takes a second to kind of realize what we've got here with bitcoin. Right. And but once we realize that we. This is like owning, you know, apartment in fifth Avenue, the park. There's always somebody's going to want your vehicle.
Don't be in too much of a hurry to sell it because you won't be able to get necessarily buy it back. So that's kind of, that's kind of my view on the thing.
And then you can start thinking about your bitcoin not as what's my bitcoin worth? Oh, I took a Hit. But in terms of I own this apartment, this apartment's getting more and more valuable and New York's growing and growing. And I was here when you could buy these apartments for a million. Now they're 10 million.
So if you sort of think in terms of that way you can be prepared to really hold bitcoin for a very long time. That's kind of what interests me about bitcoin is more kind of the psychology of really long term holding. And how do you get yourself in that mode? How do you borrow against your bitcoin if needed to do it?
But just really, how do you understand really all the aspects of bitcoin? So you're mentally prepared for these dips which are, you know, they're, they're not avoidable. You cannot avoid them.
You know, even if you did the Kelly criterion and even if you were perfectly, you know, let's say you timed your Kelly adjustment perfect and you hit it on, let's say 110,000, you decided to adjust.
Well, you were still holding 70% of your net worth at Bitcoin at 110,000.
Right. So you still took a 25, 30% hit right now.
But you know, there's just no way to stop that. Right, right. And to think that you're going to get out at 110 and back in at 60, that does not work. You know, that doesn't work in practice, doesn't work with taxes, it doesn't work psychologically, I think, I think you just gotta, you gotta roll through it. You know, I don't know if that, that helps at all, but.
[00:43:00] Speaker B: No, that, that actually helps a lot. And, and I'm glad you walked me through the Kelly criterion because that was something that I was really trying to think about that strategically. And it is a strategy. And when I think about that, it's
[00:43:11] Speaker A: a really good strategy, I think. Yeah, general. And it's so simple too, right? With a set day percentage and then just say pick a, a time once a year, maybe at the, at the end of the year, kind of a good time relative to taxes. Right. And you just sort of say December 15th, I'm going to readjust my portfolio and whatever, whatever. I, I'm gonna, I'm gonna be back to 70% bitcoin.
Now you're just, you have an auto, you're flying with autopilot. Right, right, right. And so you just have to say,
[00:43:44] Speaker B: yeah, sorry, go ahead, go ahead.
[00:43:45] Speaker A: No, that's it, it's just that simple,
[00:43:48] Speaker B: I have to say, because when I first read the percentages. When I was reading that chapter on the Kelly Criterion, and I was thinking financial advisors used to say zero. It was zero percent up until like a year or two years ago. And now even bank of America is like, okay, 4%.
So then I'm reading your book and I'm thinking, okay, he's going to give us some percentages here. And I'm like, is it going to be 10? Is it going to be.
And then I saw 70%. 70% for someone who sees seven guys.
[00:44:21] Speaker A: What all these financial advisors are selling is they're selling diversification, Right? That's. That's what they're selling. Right.
They don't really have anything else to sell because they're no longer stock pickers.
They're no longer telling you, you know, we've done our research and we really think that you put your money in caterpillars because we love the new CEO. We understand the market for earth moving machines.
They're not doing that anymore. Right. All they're doing is. And they're not calling the market. They're just like, we think you should add 3% of this stuff.
And their clients go, I never heard of that. What? 3% of the Indian Emerging Equities Fund. Okay, I'll take that. Let's put a little. Okay, we like, now we have this new model, bitcoin. You've heard of it? Yeah, sure, I've heard of it. Great. Now we're allocating 2% of Bitcoin. So they're just throwing these numbers. They're doing a little. It's like cooking. They're just adding a little bit of salt, a little bit of oregano, little time. But they have no opinion on bitcoin. They have nothing. They don't. They have no conviction. They have nothing. They don't. I don't know anything.
And they're just selling.
We'll just give them a little bit.
Now the reason they also do this is that if things work out well, they go, ah, see, told you that. Bitcoin. Are you glad I got you involved in that? Now you have 3% of your money in bitcoin. It doubled. So great. Now you have 6%.
Yeah, but it's not going to really make it. It's not like you're, hey, honey, let's sell the. Let's sell the house and we'll move into our dream property on 6%. Into Bitcoin. No. So I think this is just.
They're just. Everybody's playing it super defensively. Nobody has a clue. And you know, if you're.
If you want to. If you want to, you know, no pain, no gain, you know, you. You gotta take.
You're gonna have to have big conviction. Not many people have it, right? Tomer is an example of a guy who totally has convection, totally understands what it is and why it's so special. And look, I think you do too, Mark. I think, you know, it's like. And it's a process, right? We didn't all just get conviction, right? We. We all looked at bitcoin. We all made fun of it, including Michael Saylor. Historically, you know, he was sitting there.
Yeah, this thing's not going to work. It's like online gambling. We're going to sell you now.
So a lot of everybody, every mini makes fun of it and you study it a lot. Enough. You own enough for a long period. And then you're like, actually, this thing is actually going to stick around. Actually, this thing is not going away. And I think once you get that through your mind of this thing's not going to go away, the need for. It's not going to change. If anything, our government's going to become more responsible and start running balanced budgets. No, none of that's going out, right?
So that, like, I mean, I think long term, our position is really, really good. So I think.
And I just think as much as you want to trade it and protect yourself and hedge and all these things, I think the.
Other than just a Kelly Kell criterion, rebalancing, really none of that's effective. And a lot of it, it can be really counterproductive to. Right?
Because a lot of, you know, you jump in and say, I love. I'm so bullish. I. I can't just be in bitcoin. I need to be in Nakamoto, you know, or I need to be, you know, calls on bitcoin or calls on.
Right?
And that's how you get in trouble. You don't need to outperform bitcoin. You just need.
You. You just need to be in bitcoin and just need to like being bitcoin for a very long time. So, yeah, that's kind of my.
My feeling. Whatever. Whatever it'll take to get you there is probably good. If, you know, if you need to drink coconut milk or you need to take, you know, you need to have bloody Marys at 5pm every day to get you there. I don't know, whatever it takes, get in that zone where you're comfortable with yourself.
[00:48:40] Speaker B: That's one of the reasons that I'M doing this podcast is this is a healthy way for me to express my position without trading around it or doing weird things around Bitcoin. You make this point in your book, how you want to get into communities where people understand what you're going through. It goes for anything. You know, if, like, my wife and I were talking about this the other day when we had our first child, we wanted to be other people that were going through the same experience as having your first child.
[00:49:10] Speaker A: Like, if you stop drinking, like, you know, I'm not right not to make this about a poster.
Right?
Right. So, right. One of the things is the very beginning of when you stop drinking, you're told, you gotta. You gotta break up with the heavy drinkers in your. Your area. Like, don't show up, don't go to Cheers, you know what I mean? That's. Because if that's where your friends are. No, get new friends, you know, right now if you go to Cheers, you're gonna get a drink. You know what I mean?
That's the reality. If you hang around people who are traders, you're gonna try it. You know, you kind of have to curate. Curate your environment. Right. And so.
[00:49:59] Speaker B: Right.
[00:50:00] Speaker A: I think it's. It's useful to talk to other bitcoiners and hang out and go to other bitcoin meetups.
A little shout out to my friend Matteo Pellegrini and his Club Orange app.
Basically, Club Orange allows you to meet other bitcoiners in real life.
And I think it's therapeutic to actually meet other people who are aligned with you on this idea. Right. Because it's good for the soul, you know?
[00:50:27] Speaker B: Yeah, it is.
[00:50:29] Speaker A: So I just think that's, you know, I understand why you do it. Why. Why'd I write the. You know, I wrote two books on bitcoin and for those reasons, I think it's a therapy. It's a kind of a therapy, right?
You want to do this, you do not want to do trading.
You do not want to get involved.
It's like they say there's gateway drugs, right?
Trading Bitcoin is the gateway drug to shitcoin, no doubt. One day you're trading bitcoin, the next you're like, you know, actually, this layer 2 on Ethereum is pretty tempting.
Psychot and then heroin.
Right? Right. You better watch out.
[00:51:11] Speaker B: It's like, I just thought of Kevin o'. Leary. Kevin o' Leary recently came out and said how he's just going down to bitcoin and Ethereum, but he was kind of proponent for he was doing a little bit of that s. Coining for a while.
[00:51:25] Speaker A: Yeah, yeah.
So, I mean, look, I've owned all these things in the past, but I do think as you get older and you get more experience in this stuff, no real need. You can. You can get all the excitement you need out of bitcoin. So do. Don't look elsewhere for your kicks.
[00:51:43] Speaker B: I would say I think that's a good message and I think that's a good place to land because that's kind of how I started this with you, is I wanted to. I want to help people have the conviction that you are correct. I do now have that conviction. But I had. It starts with a spark of understanding, and that's usually the number go up. People see something exciting happening and then they dive into that aspect of it.
[00:52:06] Speaker A: You know what? There's. You have to watch out. Number go up. Also other places, it goes up in meme coins too.
[00:52:12] Speaker B: Right, right.
[00:52:13] Speaker A: But then it also goes down.
[00:52:15] Speaker B: All right, let's just real quick, let's just talk about the power law relative to that other stuff, because I was really conceptualizing the power law and I was thinking about it relative to all of these other coins and why bitcoin is in a class of its.
And so like, if you look at the charts of a lot of these coins, they're kind of like spiky and then like this, they're just spiky and then down and spiky and down. They trade like penny stocks. And then you look at bitcoin, which also has a lot of peaks and valleys, but those peaks and valleys are up. Like they say, zoom out. When in doubt, zoom out. You can see the trajectory is up. So when you talk about using the Kelly criterion, your unfair advantage is understanding what bitcoin actually is, understanding how it's traded in the past, and understanding the underlying technology. When you look into what is bitcoin, actually, it's. It's fascinating. And then how it works and, and people. It is scientific in that if you test your theories on bitcoin with peers, you're highly educated.
So someone who's highly educated, they're not judged always by just the general population. They're judged by their peers. Because maybe what you're saying is right, maybe what you're saying is wrong. But again, it kind of goes back to that social aspect. If you're in a group of your peers, then it's going to be easy to see what you're saying, whether that stands to reason or whether that doesn't stand to reason.
So so hey Fred, thank you so much for coming on and doing this with me. I was. I'm really happy to have had you on.
[00:53:52] Speaker A: Yeah, we're catching my lion.
[00:53:56] Speaker B: Definitely you'll see me online. And do you have any final words? I think you've already given the audience a lot, but do you want to like parting words for the audience?
[00:54:04] Speaker A: Never. Sell you a big never.
[00:54:07] Speaker B: That's perfect. Short and sweet.
[00:54:09] Speaker A: All right.
[00:54:10] Speaker B: I love it, everybody. Thank you so much for watching this episode. I want to bring more people on like Fred. Maybe I'll have Fred back on if he's willing to do this again with me. And we'll see you on the next one.
[00:54:20] Speaker A: See you later.
[00:54:21] Speaker B: Thank you for watching this episode of the Money Adjustment. If you want more like comment and subscribe, you can follow me on X at Mark Kramer until the next episode. Stay Healthy and Wealthy have you ever
[00:54:37] Speaker C: wondered how to grow your wealth exponentially without risking it all?
Enter the Kelly Criterion, a mathematical formula from the 1950s, originally for gamblers but now a powerhouse for investors.
In the book Bitcoin 1,000,000, authors Fred Krueger and Ben Sigman apply it to Bitcoin, showing how it can propel your portfolio toward that million dollar milestone.
At its core, the Kelly Criterion isn't about maximizing average returns. It's about maximizing the logarithm of your wealth.
Why the log?
Think of it this way. If you double your money, your wealth multiplies by 2, but if you lose, half, it multiplies by 0.5. The log function, short for logarithm, treats gains and losses asymmetrically. A 100% gain adds 0.693 to your log wealth log of 2, but a 50% loss subtracts the same 0.693 log of 0.5 is 0.693.
This penalizes big losses, more encouraging bets that protect against ruin while compounding growth over time. The formula for a simple bet F P B Q B, where AF is the fraction of your wealth to wager, P is the probability of winning, Q is 1p, and B is the odds payout. But in investing, it's adapted for expected returns and volatility.
Applied to Bitcoin, Kruger and Sigmund argue Bitcoin's asymmetric upside, potentially 10x or more, makes it ideal.
Suppose Bitcoin has a 60% chance of doubling your investment annually with 40% chance of halving. Kelly might suggest allocating 20% of your portfolio. This maximizes log wealth growth, turning $10,000 into millions over decades, as Bitcoin heads to $1 million per coin. The key takeaway bet. Big enough to grow, but never so big you bust log. Wealth ensures sustainable compounding, perfect for bitcoin's volatile ride.
