Nigel Hannaford, Senior Portfolio Manager at Wellington Altus Private Wealth Canada joins me to talk about Bitcoin and the possibility of a new Bitcoin reserve with the US government, the Bitcoin Act, and much more.
00:07:40.260Yeah. So, you know, if one were to say compared to, let's say, a house purchase even.
00:07:46.000So if you have a house that's, say, worth a million dollars and, say, somebody had to borrow a million dollars to buy that house, most people consider that fairly risky because the house does not have to drop much at all or, you know, for that borrower to be underwater, where effectively the value of their asset is less than the value of their loan.
00:08:10.960And that puts the loan into some obvious financial peril.
00:08:14.280Well, conversely, somebody who owns a million-dollar house, but they only have a $100,000 mortgage, that doesn't seem like such a big deal.
00:08:22.240I mean, at the end of the day, the million-dollar asset, $100,000 mortgage, worst case, sell the house, pay off the mortgage, there's no problem.
00:08:30.740So the thinking is similar on this account.
00:08:33.240So if you have this $36 trillion debt, and if you have little reserves or reserves backing that debt that are not necessarily growing all that fast, then you have this growing, growing, growing debt, but the reserves are not growing commensurate with the debt.
00:08:51.460So that puts them in a worse and worse fiscal position.
00:08:55.760But what if those reserves were something like a Bitcoin?
00:08:59.040And what if that Bitcoin were to grow greatly over the next 10, 20, 30 years?
00:09:06.140And what if that Bitcoin were to grow at the same rate of growth of the debt, such that
00:09:11.760the reserve is growing commensurate with the debt?
00:09:15.120And if that happens, then all of a sudden, the debt doesn't seem so bad.
00:09:19.340Or even better, what if the Bitcoin actually were to grow faster than the debt and you have this faster growing reserve asset versus a slower growing debt?
00:09:30.240Theoretically, at some point, it's possible that the value of that reserve could even match the value of the debt, which would render it nothing, essentially.
00:10:08.340um certainly um you know holders of cryptocurrencies bitcoin um you know um you know um you know people
00:10:16.100who are involved in their businesses in the crypto sphere if you want to call it that could benefit
00:10:20.260tremendously the u.s government could benefit tremendously uh however uh there might there may
00:10:25.540be entities that might be serious losers in in this in this endeavor um and we don't even know
00:10:32.180fully who that may be because we haven't fully hashed all this this out but but for instance
00:10:38.500it is possible that certain commercial banks may be opposed to this as it may hurt certain
00:10:45.220significant parts of their business it's also likely possible that if this were to work
00:10:50.500this may put other countries who are not doing it in in some state of disadvantage versus the u.s
00:10:58.180which could create tensions on that side too as well so there's a lot and of course because
00:11:04.100of all that this may not pass congress it may not pass the appropriate legal channels
00:11:09.300like i said there's there's legislation that's being floated around right now which may or may
00:11:13.780not pass so those would be some of the primary obstacles it's a fascinating prospect the
00:11:21.140I cannot imagine why an American legislator of either party, unless they were deeply embedded
00:11:31.300in private interests outside, wouldn't want this to work in the way that you have described it.
00:11:40.460Apart from the fact that Senator so-and-so might actually be getting his campaign contributions
00:11:47.140from an affected party, which we all understand how that works.
00:11:51.140are there any other solid reasons why this might not be a good idea
00:11:58.100on touching your first point um you know when you look at the biden administration
00:12:02.980um they were vehemently opposed to this uh they went through great links actually to
00:12:08.580to not only suppress the price of bitcoin uh bitcoin's a cent over their term uh but they
00:12:15.620They even went through the links of essentially, and this is now coming out in the news slowly, going after, you know, owners of businesses or CEOs of companies that were involved in cryptocurrencies and basically trying to make life very difficult for them.
00:12:32.160which may include things like debanking them, you know, audits, so to speak, with the intent to, you know, possibly dissuade them from going down certain paths.
00:12:46.380So so for whatever reason, whatever the reasons may be, the Biden administration was very much against the proliferation of.
00:12:54.760Well, that actually is a point I don't want to skate over. They could have been against it for ideological reasons or for reasons of self-interest. But what else could it be?
00:13:09.140Well, I mean, it could be something simple. You know, I painted a possible picture here of something that may seem nefarious. It may have not been nefarious. It could be something as simple as a lack of understanding. I mean, let's face it, cryptocurrencies, blockchain, Bitcoin, it's complicated.
00:13:26.400And for someone to truly understand this, they have to really immerse themselves and read books, learn a lot, and in people's busy schedules, and that includes the schedules of senators and congresspeople.
00:13:44.100So it literally could be as simple as Bitcoin is a crackpot idea.
00:13:49.200It doesn't belong in government or in the U.S. financial system.
00:13:56.400move on to the next thing good good yeah but obviously trump has totally seized with the
00:14:03.040idea i believe that he and melania have issued their own uh uh bitcoin what's what do you hear
00:14:11.120about that uh not too much i have no involvement nor do i want to in any of these uh meme coins as
00:14:19.440as they're called meme coins meme meme meme um i mean literally these are uh the this is uh
00:14:27.680these are highly speculative assets that have uh very little to no use case scenario um that are
00:14:35.360there essentially uh to speculate on and uh but it's and it's almost actually too bad because i
00:14:42.000I think the news surrounding those meme coins probably takes away from people's eyeballs to focus on something that's a little more constructive
00:14:52.620and save learning about blockchain technology in general and some of the more secure cryptocurrency assets like Bitcoin.
00:15:01.340You talk about meme coins, that one with the dog.
00:22:02.220And that, the idea of that is all stable coins that are based in U.S. dollars, I'll explain what a stable coin is in a minute, must now keep their dollar reserves in U.S. treasury bonds.
00:22:20.680So a stable coin is, like, say you wanted to start buying Bitcoin and you open up an account that's, say, one of the major Bitcoin brokers like Coinbase, you would, you maybe send them some money.
00:22:32.220whatever amount of money you'd like to send them you send it to them so where does that money
00:22:35.500initially go because it doesn't buy bitcoin immediately it only buys bitcoin once you decide
00:22:40.060to buy bitcoin or any other cryptocurrency uh initially it goes into something called a stable
00:22:45.180coin which is just simply us dollars it's simply a cryptocurrency that holds nothing but us dollars
00:22:50.540think of like a money market fund almost um historically those stable coins uh were just
00:22:55.980took those dollars and put them on deposit at banks commercial banks around the united states
00:23:00.700But now they're being potentially directed that they must buy U.S. Treasury bonds.
00:23:06.860And as Bitcoin grows in value, stablecoin market grows in value.
00:23:11.460And currently it's about $200 billion in size, but it can grow much, much, much bigger.
00:23:17.160So conceivably, if you have a situation where, say, Bitcoin grows to some very large market capitalization, stablecoins could grow to a trillion, two trillion, ten trillion.
00:23:27.920who knows what the limits are and they would be buying treasury bonds with all that money
00:23:34.160essentially replacing the demand uh that we previously had from the petrodollar
00:23:42.400and giving the u.s a perpetual buyer of their newly issued debt that's the plan will it work
00:23:51.600peter we're just about out of time and that's a good note to go out on with one last question yes
00:23:57.280i know you i know you like gold what are you telling your investors about this yeah so um
00:24:04.640again everything that we talked about today is all things that are being proposed it's still
00:24:08.480highly speculative at this point in time because we don't know for sure what's going to happen but
00:24:12.400it's certainly ideas that are being floated around that we see them in these acts that have been
00:24:16.560produced um so for for investors uh and again every investor uh has different risk tolerance
00:24:22.800they have different goals so this does not apply to everybody but let's just say you're a typical
00:24:27.520investor with a you know medium risk tolerance and above so you can tolerate some risk at least
00:24:34.320so you know a well-rounded portfolio that has growth equities inside them that invest in
00:24:42.640innovation so companies that are investing in innovation and productivity growth mixed with
00:24:47.840With gold, I know your sponsor today, you know, was a gold company.
00:24:55.240You know, we are firm believers that portfolios should hedge the risk in their equity portfolio with holdings in gold, but also some Bitcoin.
00:25:04.660It was well, because if this goes through, if this happens, probably going to want to own some Bitcoin.
00:25:13.000And then for liquidity and just rounding out a portfolio purposes, have some, have a liquidity sleeve where you have some cash and or government bonds or fixed income securities, just in case there's a rainy day coming up.
00:25:27.120Sounds like great advice from Wellington Alters.