Bitcoin Whale Watching | Timothy Peterson | Hot Wallet

Timothy Peterson  
Turns out I was at a firm that caused the global financial crisis in Europe. 

Scott McGregor  
That's so crazy! 

Timothy Peterson  
I won't name the name but I didn't even know it at the time.

Scott McGregor  
Timothy Peterson has over 30 years of global investment experience and is a Chartered Financial Analyst, and Chartered Alternative Investment Analyst. He is a published expert on Cryptocurrency Investment and Valuation, and is the Investment Manager at Cane Island Alternative Advisors. He's also the author of "When to Own Stocks and When to Own Gold", and my personal favorite "Bitcoin Spreads like a Virus". This is his second time on the podcast. Timothy also gives away a ton of information out totally free on his Twitter's. Be sure and follow him on Twitter, @Canedigital, @Canemacro, and @nsquaredcrypto. Links for everything Timothy Peterson will be in the show notes. Tim, man, thank you so much for being so generous with your time with me, you were gracious enough to invite me to see you speak in Las Vegas last year, I had the opportunity to meet your lovely wife, get to know both of you a little bit and hear you on some panels. And while the audience was a bit sparse, I think that's what you expect in the depths of crypto winter. But I had a really good time. I even won some money at the slots. So I'm just wondering, what are we going back man?

Scott, thanks. Thanks for having me on the show again up. You know, anytime you want to do a podcast from Las Vegas, I'm up for it.

Fantastic. Well, my friend, there's so much to discuss. I almost don't know where to start. Let's just kind of recap your thoughts on 2022. And what you're looking at going into 2023 

Oh, well, it can'tget worse. I mean, really, Gosh, 2022 was was horrible. I mean, it was horrible for me, financially, personally. But you know, I think for a lot of people and I hear stories from people who have lost quite a bit of money. I know sort of secondhand round around 2020 or 2021. I know somebody that took all their retirement savings and decided to plow it all into Facebook. And, and Bill Miller came out in January of 2022. And he you know, he's a self made billionaire. And he said, "Well, half my words in Bitcoin." Well, it's probably not half now. So, you know, it's it's misery loves company. And so this was a crowded room in 2022. I don't think we were in the same place now. I mean, fortunately, 2023 is a completely different outlook than what 2022 was.

The Federal Reserve, you know, had said this year that they are "looking at data", and we tend to get new reaction from the markets when it comes to data in terms of your investment style. You know, we're getting some data this week. What kind of things are you looking at? And what do you think is most important for investors to care about when it comes to do with the Federal Reserve? And the new data that we seem to get?

Yeah, you know, it's a great question. One of the things I really strive to do with my Twitter outreach, is to convince people to stop looking at price as indicative of what's going to happen in the future, because price reacts to stuff. And my personal method is to look for relationships, I'm interested in what's synchronized, what's working asynchronously. But what are the causes and effects? And and is there something out there that can give me an assessment or a confirmation of what the price is and where the price is going to be? And I've put a lot into that this year. I mean, it's sort of my, my forte, and the two things I'm looking at right now are High Yield Interest Rates. You could say Interest Rates in general, but I think High Yield in particular, has relevance to Bitcoin and equity markets. And the other thing I'm looking at is The (U.S.) Dollar. And I actually came up with a metric this year that lets me see the cycles in Bitcoin and equities and High Yield and The Dollar and Commodities and we are at a cycle though now. So you know, if you want to bottom call, it's not a bottom call in terms of price but it is a bottom call and in the sense that, you know, the lows aren't you know, 50% Lower from here, most likely, there's more upside potential and downside potential over the next three to five years. I don't know about this year, I think this year is probably gonna be flat. But yeah, those are the two things I'm really focused on. Where's The Dollar going? And where do High Yield Rates go?

I think a lot of investors when they think, "Oh, well, things are bad", or "...yep they're still going to raise rates", etc. Everyone immediately goes to well, this is it, we're going to crash now. You know, in fact, this week, stock market crash was trending. So how do you kind of gauge sentiment as an investor and kind of match that with, you know, maybe some contrarian data that you're seeing?

You know, it's funny, you bring that up, because I don't think I ever felt more bearish than I did last Friday. And I'm usually pretty good with keeping my emotions in check. But this was just nagging on me as like, something's not right. And my I could sense it. I couldn't articulate what it is. And then we, you know, yesterday was a bad down day, but it's not a crash. And I still haven't worked through where those emotions came from, and why I've got that I know, other people have that too. But other people don't. It's a really mixed bag out there. Right now, in terms of sentiment, because there's a mixed bag in terms of data, there's, there's many reasons why North American stock markets will outperform Okay, doesn't mean they're gonna go up, you know, like to have, but they'll definitely, you know, be a good place, look at the world environment. And out of all the places, where do you want to put your money, Europe's got issues with Russia, right? Australia, and Japan had issues with China. Everywhere else is a little bit more developing market and the risk environment there isn't really good, especially with an energy crunch going on. And so you get to North America, Canada, and maybe even Mexico, and the US being the cleanest dirty shirt. And so there is a case to be made for US equities are not going to crash, even if we have a recession. It even if it's a global recession, because the money's got to go somewhere. And if you had to pick a place to put it in the Apocalypse, my guess is a lot of it would come into North America.

Yeah, I saw this one tweet today that I thought was really interesting. And it was something about, you know, those guaranteed returns of, you know, some of these fixed term investment ideas. And one thought was okay, yeah, you're gonna get 5%. But what if the market doesn't crash, you know, you can make that 5% and a stock in probably a short amount of time and not have your money locked up.

That's a big if, though. This is I've been thinking for a long time I haven't really articulated this is the first time I'm gonna say it. I've been thinking about a double dip, a double dip crash and a double dip recession. The comparable to what there wasn't in 1982. And part of that is because the fast part of this was the Fed raising rates, and that brings the market down because the market was really overvalued. I mean, it was all the markets, all around the world were overvalued because we had this huge money injection and low debt are low interest rates for a long time. So that part's corrected. Alright, so that was the first dip. The second dip is. Now what does the new economy look like? Because the world has restructured and it's still restructuring. And we haven't had the effect of high interest rates hit the economy yet. I mean, it takes a long time for that stuff to seep in. We're not even done raising rates. And just like interest rates compound up those those discount rates when applied to earnings, they compound also. And so you get this compound effect of the decline in earnings, where it tends to fall off a cliff, right? It's not so bad. But that that negativity does compound mathematically, and you get a dump in earnings. And that happened in 1970. And that happened in 1982. And it happened in 2001. So we're not out of the woods yet, because I don't know what the earnings picture looks like all the fundamental analysis that I do says markets are still overpriced, and they're not like they were, but we haven't figured out what the earnings need to look like. And my book earnings probably shouldn't be 30% lower than where they are now. Which means the market should be 30%. Lower than winners now.

Yeah, we had Walmart and Home Depot guide lower this week. And I think that that kind of took the market by surprise as they are big retailers, you know, you think of Home Depot, you think of home improvement, you know, the housing sector, just generally. And so if they are guiding lower, you know, technically contractors are probably not signing as many contracts to to build houses, et cetera, et cetera, and you can kind of build out from there. So I think what you're saying what you're saying makes total sense.

Yeah. But I remember 2008 and 2001. Those aren't those earnings downgrades and those forecasts, they don't just happen once, right? We're gonna get this again in June, we're gonna get again in September. And that's why, you know, these bear markets, structural bear markets lasts so long because that correction takes a long time to occur. So, you know, something like Walmart, guiding, lower is bothersome, that's a discount retailer. So if they're saying, hey, on the cheap end, it's not going to be very good. That doesn't bode well for for anything.

Yeah, imagine how, you know, Restoration Hardware is going to guide in that case, and all these higher end stores. So makes total sense. I do remember a few pictures that you posted on Twitter, matching different bear markets, you know, here's our bear market compared to other bear markets. Is there a previous bear market where you think investors can look for, you know, maybe an outcome of this is what we're expecting, you did mention, you know, some previous decades, what decade or previous bear market are you most attached to, you know, in conjunction with this current market?

There's nothing that stood out. And I've looked at it really quality quantitatively and just said, look which one's got the best correlation and so forth like that. This is a mix of, of two things that have happened. One is it's like 7374, where there was an energy crisis, there was high energy prices above average energy costs. And we see that in quite a bit of the world shortages and energy. And that strains the food supply. And then there were elements of the.com bubble, I think that those elements are gone now. But there was a bit of 2001 in there as well, so that the 2001 piece is gone. Now. Does it look like the 70s? Does it look like the 80s it has tracked those pretty well. It certainly does not look like any of the other short term recessions. Okay. All of those are the recessions that occurred in the 60s, like 9891, the 50s, the 40s, those all had recovered by now. Right? They we were making new highs by this time. The fact that we're still well below that all time high tells me that there's not necessarily more downside, but we're not in a recovery yet.

You posted a video that was about I think, maybe 15 minutes long or so about the next 10 years in the stock market being quite rough. I'll post a link to that video in the show notes. Can you take us through why you think that is? You kind of touched on it a bit, but also what some potential alternative opportunities are that you see? 

Timothy Peterson  
Yeah, everyone talks about cycles. And I've spent quite a bit of time trying to understand cycles better because it wasn't something that I learned in school or was in the CFA program, but I think it's a huge, huge part of the way markets operate. And if you look at data going back 100 years plus, you know, the cycles become really obvious and and Dr. Shiller at Yale is the Princeton is a Yale Princeton, I can't remember but he's the pioneer for this. And, you know, he won the Nobel Prize and and I took some his work, and I related it to gold. And I found out as other people had, that there's this counter cyclical movement, long term, over 10 year cycles between stocks and gold. Alright, so I wrote a paper on it got published. Did did very well, in terms of the the outreach. And there are other indicators that say the next 10 years are really good. Alright, the Buffett indicator says that the Shiller P E ratio says that asset allocation says that, and my ratio says that and they all said that same time, they all point to a zero rate of return for stocks for the next 10 years. That doesn't count inflation. You put inflation in there, and you get a negative return for stocks. Historically, gold's done well, during those times, alright, you move out of paper investments, like stocks and bonds, and you buy golden energy, golden energy do great during these hard times. And if you were looking for a better place to put your money, golden energy would seem to be it. My preferences on energy, just because of what's going on in the world we can talk about that's a whole separate topic. But I think energy's got quite a bit of potential. And, yeah, so that's it. That was what the video is about is just to educate people. Now. I think that there could be a disruption to this 10 year cycle. There was one that happened when the internet came out. We had the the.com Boom, the whole 90s. And you know what AI may do the same thing. We may have an entirely new boom come out this year caused by AI and what AI does.

Scott McGregor  
You know, that's funny. You said that because when I was watching that video, I thought of AI, crypto, you know, that kind of thing. And I'm like, Huh, I wonder if, if, if something like that could break that cycle? I do want to talk about AI we will hear in a moment. But first off, just focusing on gold. How do you recommend people invest in gold? What's your preferred way? Do they buy gold bars? Are they buying the paper? GLD? Or do you like Gold Miners?

Oh, so the physical gold paper gold or gold miners? Now, it depends on how much of a prepper you are.

And I know you are a prepper by the way!

Timothy Peterson  
I am a prepper. But you know what, I don't own any physical gold, right? Just because I it's just the preference. I think I have a safe to keep it in. But I'd rather just on paper gold. So my my business management, like the constraints of regulation forced me into securities, right. So I don't take trade crypto, I don't trade commodities, I don't have any commodity accounts. I just work with ETFs. And stocks. I could buy bonds. But my preference is to just not buy bonds, I'll buy an ETF. And that just simplifies things for me. So when I look to an ETF, I don't like paper ETFs things that are futures driven. Look at the Bitcoin futures driven ETFs they're terrible. So as the US oil ETF, it's terrible. And the reason is, every time you buy a future forward based ETF, you're paying this extra money for what's called the carry. And it's sort of like a fee that's built into the economic costs of this paper investment because most investments go up. So they don't charge you what it is today, they charge you what they think it's going to be in the future. So you're always paying a premium for what you're buying when you get a paper ETF. And over time, they do terribly, right all that the fees just eat up. And that contango eats up all your profit. So I like ETFs that have physical backing. So there are some physical gold ETFs they'll go out buy gold, stick it in the fall, you own the company, or the trust that has the gold in the vault, grayscale Bitcoin Trust works the same way. And so they're trusts, you don't have that eating away of the profit from futures. The disadvantages, you don't always trade it net asset value. So you can be paying too much or too little. For the asset right now grayscale, you can get to $2 with a Bitcoin for a buck. And if you've got a long enough time horizon, maybe that's attractive to you.

Scott McGregor  
You know, let's let's get into AI. Tim, recently, we've seen this huge rise in the use in interest of artificial intelligence via, you know, artificial intelligence, a picture generators, you type in a picture and the computer will make it. And then of course, with ChatGPT and Google coming out with their own I think it's called Bard, how are you thinking about AI? And how do you think it'll affect markets and trading?

Well, let me talk about ChatGPT first, because I've spent quite a bit of time since December messing around with that. And I've used it to even write a few things. Chat. GPT is really fun, as an AI tool, but it's also really, really dumb. It's just, it's a stupid brain. You know, it's a little bit surly. And it's got an attitude when it talks back to you sometimes. My experience was that it couldn't do proper math. Like I really couldn't do basic multiplication, sometimes. Most of the time it could. But I was I was trying to work through it certainly couldn't do some of the calculus that I was having to do. And I caught some mistakes. And I asked it, I said, Hey, you're missing a minus sign here in this formula. And he goes, Oh, yeah, that's right. I'm sorry, I missed the minus sign. I'm like, Oh, how did you how did you get that wrong? And it goes, "well, I forgot to, I forgot to move the parentheses around". I'm like, "Well, can you do this without making mistakes?" And (ChatGPT) goes, "No."

HAHAHA!

Timothy Peterson  
It said... "Everybody makes mistakes. You need to check your work.."

Scott McGregor  
AMAZING! 

Timothy Peterson  
A.I. of the future, right!? (Laughs) So yeah, I was shocked. So the ChatGPT is not gonna take over the world. You don't need to worry about that version of AI doing things. You know, it wrote buggy code for me to I couldn't get the code to debug. However, I think that there are some firms I know I'd say BlackRock and Goldman and a few others are rapidly developing AI trading capability. And they're going to come out with something that they will offer their best clients initially. And it will trade the hell out of anything that anybody's ever seen. Okay, it will, it will know what you're thinking, you, Scott, me Tim, it'll know what we're planning to do, it will look at all the market data that will assess market sentiment, and it will act in its own best interest to maximize its own profit. And it'll do it faster than we could ever think about. It'll make fewer mistakes, it will be unbiased in its approach. It doesn't have to be right all the time. Right? It only has to be right 60% of time 70% of time. If you build a casino where you win 60% 70% of the time, you're making all the money like Yeah, and so AI is going to change everything dramatically, especially in the financial markets. But it's it's a little bit frightening because I think AI can break the financial markets as we know it.

Scott McGregor  
That's interesting because we all, like as active investors, a lot of people will complain about the algos. "Oh, the algos are at it, again", you know, looking for liquidity gaps, looking for little moves down. And sometimes in equities, you'll get these sharp moves down, and then a rip, you know, kind of rip your face off rally back to the upside. And so if AI is going to make things happen faster, then I feel like active investors need to be even more diligent or find a way to leverage this technology for themselves.

Timothy Peterson  
Yeah, the interesting thing is, I've sort of thought through what what the progression of AI trading looks like. And eventually you would have, if you want to make money in your firm, you would have an AI ETF. So you'd say it's actively managed, but to be actively managed by this computer. Right? And I expect to see several of those come out in the next few years. There's only going to be one best one, right? Definitely there can only be one best. And they're probably gonna be better than anything else that that anybody else has done. So if you're an investor, you should put your money into one of these AI driven things, because that's where you're gonna get the most money out of it. The thing is, the AIs are smart. So they can look around and say, well, who's doing what? And if it was an objective AI machine, it would say, I'm not the best AI. Alright, I'm ranked number five, I should take my investment money and I should invest it in AI number one. All the other AI's would draw the same conclusion, right? If they're objective and unbiased, I'd say it's best for me to take this money and not do my algorithm. But just to invest it in this AI number one over here. If everybody invests in AI, number one, guess what happens? The market collapses because everyone is invested in one place, and there's no more trading. Now, if you want to go another step, the AI would know this too, right? If I can think about it, the I can think about it, there'll be a step ahead. And I'll say, Well, I can't be the super best, because that would collapse the market. So if I'm a smart AI, I've got to inject noise into the system and make bad trades, such that I don't collapse the market. And then you'd get into all kinds of ethics. Could Blackrock make an AI that intentionally injects noise and false information in the market in order to profit from the mistakes that you make? Right? So it feeds false market data out there in the form of price movements or volume movements? And you act on that and then it goes, "Haha!", you know, it's a rug pull. It's an AI rug pull. It's possible to do that. How would the SEC police that, how would any government police that? 

Scott McGregor  
Oh, impossible. 

Timothy Peterson  
They're so far behind. Like they don't even know what a cryptocurrency is, right? You want to get even more sophisticated? All the Cryptos right now they're all obsolete. Okay, smart contracts. I don't need a smart contract. I'm going to take AI and I'm gonna stick that in a smart contract. Now my cryptocurrency that's AI driven, can do anything yours doesn't do it better and faster. Right? Because there's no there's no hard coding. I just have a basically a sentient coin. Have we thought about that? Have we thought about sentient cryptocurrency in effect or AI Cryptocurrency? I don't mean this stuff out there that's the AI like they slap a label on hey, we're the AI crypto. That's like, you know, putting a banana label on an apple and saying I'm a banana and yeah, I think all these Cryptos are in trouble, right? Any smart contract based coin is in trouble. Because you could make an "everything-coin" and it's just gonna be better.

Scott McGregor  
That's why I love talking to you, Tim because you think four steps ahead. Like you really have thought this thoroughly. So in terms of winners in AI, you know, we saw a negative reaction because of Google posting fake information. You're talking about Microsoft's, you know, ChatGPT, or open AI that's partially owned by Microsoft. Everyone is looking at Bing saying, Wow, Bing is the new leader. What do you think? Is there going to be one winner? multiple winners? Is Google dead in the water? How are you thinking around that?

Timothy Peterson  
Usually the first mover is the final winner. Okay. It's not always the case. But the the first mover is the one that's literally first because you can look at things like MySpace and Blackberry. And those all crashed and burned. They weren't the first that people really wanted. The first thing people really wanted was an Apple iPhone, like that kind of interface. Excuse me, Facebook was what? What people really wanted not MySpace. I don't think chat GTP is or GPT is what people really want yet. And I haven't looked at Bing. So but I think Microsoft may get there first. I'm kind of surprised that I'm saying that. But I do think Microsoft sees an opening. And I think they were the first to jump on it. I think Google did get caught flat footed. And I Microsoft's, Microsoft's got their hands in a lot of stuff. Just look at micro, I said this at the conference, the Microsoft Office, Microsoft Office is a 30 year old technology. It's ubiquitous, we're still using Microsoft Office products, without any major innovation to them, simply because they're interoperable. And because of the network effects. When you put AI on the Windows platform and the Microsoft Office platform and do nothing else, you've already got the majority of the world share of your audience right in front of you. And nobody will catch up to that.

Scott McGregor  
What do you think are some alternative investment ideas for investing in AI? If someone is interested in AI, how do you consult people in terms of Well, here's, you know, some some things to think about in terms of where to put your money.

Timothy Peterson  
Boy, you got me there, Scott? It's really scary. This AI thing. I think we're playing with a little bit of fire. You know, it's sort of like, hey, let's invent our own god and then see what this God does. You know, the Terminator comes to mind.

Scott McGregor  
I was thinking Skynet, how can we invest in Skynet?

Timothy Peterson  
That's a that's exactly what I'm thinking about is, is Skynet. You know, my home network is named Skynet. By the way, in honor of that movie...

Scott McGregor  
Of course, it is. Fantastic. Well, I mean, you've given us a lot to think about in terms of AI. And would like to circle back with you, you know, maybe six months or a year and then see what else has developed, see if there are any upstarts. Because I do agree with you first mover advantage, you know, we definitely see that in terms of Bitcoin and Crypto. But in terms of search and apps, you know, you think of like, I remember, metacrawler or something like that, or for search, or Ask Jeeves...

Timothy Peterson  
Ask Jeeves...

Scott McGregor  
And that kind of thing. So that's an instance where first mover advantage didn't really matter, Google just came out and, you know, made it better. So I think it's really exciting to see what can happen. And, you know, really quick, maybe one final question on AI. What other areas other than search? Do you think AI will disrupt?

Timothy Peterson  
Medicine is a big one. And I think there's some good use for AI in medicine. Medicine itself has actually gone through a revolution to become a lot more data oriented. And it has a lot of problems. Because I you know, when I was teaching a blockchain class at university, some of my students would get up and had to design a Blockchain project. And some of them chose medical, like, projects with medical record keeping, for example, one of the things I learned is that in the United States, there's no single patient identifier. Okay? So when you go from one doctor to a different insurance company to another place, you get a whole, you get a new identifier, and consequently, there's no coherent record of your medical history. That's problematic from a treatment perspective. Now, with AI, you don't need that, right? What you have is an assessment of what you are in your medical history as well as your parents. And that can all be stored and maintained in a way that's still secure. Or we're more likely it's not necessarily that it's stored. It's identified by the AI mechanism. "Tell me about your parents". "Tell me about your grandparents", right. You put some basic information and it will know Okay, here's your risk areas, not just because you said, you got diabetes over here and cancer over here, but you know, it will draw from a vast array of data points and be able to do what's literally called treating the whole patient. And that's it's a rare thing in medicine now, because the insurance gets in the way, right, the dollar piece of it prevents some of that care from taking place, ironically, but I think AI can make assessments about your condition in a way that doctors never could.

Scott McGregor  
Mm hmm. Well, I mean, you think of the rise of TelaDoc during the pandemic, right, as as this like new technology and stuff like that, and so I definitely think that area is ripe for disruption. Earlier this month, Timmy Piplup, you published an article called Bitcoin whale watching, which by the way, I can say you are great at making titles like Bitcoin spreads like a virus Bitcoin. It's beautiful, man, I love it. So in the article, you describe net flows into Bitcoin, being on par with those of us equity funds, and then you go on to describe that there were more there's more investment into bitcoin in 2022, than there were into gold oil and agricultural funds combined. Can you please take us through this report? And give us your analysis? And I can share the screen? If you want me to?

Timothy Peterson  
Oh, yeah, go ahead. I was surprised. So I went and looked at growth in addresses. I knew that Bitcoin had gained addresses net, but I wasn't really sure what the amounts was. And I was curious where that growth takes place. And I was, I was pleasantly surprised, I saw that small addresses did not grow nearly as fast as large addresses. And by large, I mean, pretty large. $30,000. Plus, while you're starting to get into high net worth institutional investing, and certainly on the institutional side, things grew at the fastest rate than they had since I believe 2017. 

Scott McGregor  
Wow. 

Timothy Peterson  
And that that was surprising to me. I thought, you know, this was being a down year in terms of the price, that this was an asset that would be sort of shunned. And what I discovered is that every major, you know, every whale, if you will, and large player bought as much Bitcoin as they could in 2022. It was the small ones, small groups that sold accounts with less than $300 or $30. They tended to sell. Now, there's millions of those accounts, millions of those addresses. So you certainly do get the price declined, because that's only the last few people that trade it. Right? So you know, if somebody trades $5 with a Bitcoin that becomes the market price. But if you look at what the activity was, that money had to come from somewhere, okay, it wasn't newly created in just a newly minted coins, it was capital inflow. And I keep track of some fun flows through I.C.I., which is the Investment Company Institute, they publish an estimate of what the fund flows are and, these are just funds is not the total asset class, but mutual funds and ETFs. had roughly I think it was $11 billion in 2022. net flows in and out, and Bitcoin had $10 Billion Dollars. So that tells me that as much money went into bitcoin as it did in the US equities.

Scott McGregor  
Wow, that's massive. So how does this information change your view on the current market? Does it does it make you more confident about Bitcoin despite the macro economic stuff that's going on? Or is it just another data point?

Timothy Peterson  
Infinitely more confident, when I saw this happening, that you know, these are not day traders out there and this is not price manipulation, okay. This is genuine investment in chunks of millions of dollars into Bitcoin. And it happened in a year, it was horrible. Okay, this is a risk off year, if there ever was one. Bonds had their worst year in 150 years. Bonds, right. And yet, Bitcoin is just ticking all the boxes and blowing it out of the water. I don't think it's related to inflation or money supply or anything like that. I think that smart investors saw an opportunity. Here's a chance to get this asset at a small price, at a low price. And they took advantage of that. The average acquisition price was somewhere around 27 or $30,000, which is only slightly higher than where we are now. And, you know, these are long haul investors. So typically they will buy when it's low, and they will sell to the small investors as the price goes up. But they certainly bought now and it was this was the most buying by whales that we've seen in years. And probably the second most we've seen in a 10 year span.

Scott McGregor  
Wow, what is the most important part of of this chart here that we're looking at?

Timothy Peterson  
Oh, this is a pretty complicated chart. So you pick the, the most complicated when

Scott McGregor  
I want to go deep with you, Tim! Haha! 

Timothy Peterson  
Okay. So this is, the way to look at this chart is to look the thin line at the top of those of the small investors. And if that, if it's on the top end their momentum investors they're buying when the price goes up, and they're selling when the price goes down, okay, we just, that works, okay, it does work sometimes. And then if you're at the bottom of this chart, that's where you're a contrarian. You're buying when the price goes down, you're selling when the price goes up, and I broke this out by address size, just compared it to price. And small investors in 2022, were momentum investors, they bought when the price went up, and they sold when the price went down. Small investors probably less than $300. Everybody else bought Bitcoin throughout the year, as the price went down, they added to their positions, or more. More importantly, they didn't just add to their positions, new investors came on as the price fell. And that happened with the medium, small, or sorry, the medium large and the whale size investors. And the correlation, the lower you are that chart, the more they're buying, as the price goes down.

Scott McGregor  
And then you have the bubble indicator down here. Can you talk about that? How do you How does someone who is active in the space know Okay, price has gone too high. And now, you know, maybe the whales are selling to me,

Timothy Peterson  
You have to compare the price to something, even price to 200 Day Moving Average works. And it's worked very well. And so this would be just that ratio. So that's that Mayer Multiple. I use price to the adoption curve estimate, which was a different formula they use, it's basically price to addresses, it works out to be the same. You can look at price to difficulty price to hash-rate, they're all going to tell you the same thing. And they're all going to come up with these peaks at the same time. And when you start to see it get above that price to value ratios below 50. That's probably a warning sign. It doesn't mean it's going to crash. I mean, in 2013, it went from 50 to 100 to 200 to 300 to 700. Okay, there's a reason for that. Matt CarPlay was running some bots on the Mount Gox exchange, they're forced that up. But at other times, so I don't I don't use this to time anything because you don't know where that top is going to be. You do know where the bottom is, because that's where the fundamental value sits. Right? That's where that's your when when price hits the 200 Day Moving Average, you're probably close to bottom.

Scott McGregor  
That's really interesting. Yeah, this is a great read. And you can get this through the Cane Island website. And again, I'll put the link for this in the show notes. Definitely something that when I saw this, Tim was like, Okay, I'm gonna tell my wife that I was really smart for buying some of that dip, because I'm buying with the whales.

Timothy Peterson  
Absolutely. And you know, this should have made a lot more press. The fact that so many institutions bought in 2022. Is is overlooked for sure. 

Scott McGregor  
Definitely. Also want to go on to another article that you had written, Tim, you know, I posted a question from Bloomberg that I saw when I read my email yesterday. And it was about retirement in terms of how much money you need to retire. And interestingly enough, it was quite a range from a million to three to 5 million. And then some people even said that they would need 20 million to retire. But you have a great article as well. "Retirement on Bitcoin". Could you walk us through your thoughts? Maybe on the Bloomberg article? Because I did see that you commented on that as well. And then what anyone who wants to allocate to Bitcoin for retirement should be trying to do.

Timothy Peterson  
Yeah, I, have a rule of thumb for retirement savings and how much you should say have saved at retirement. And it's based on generations. All right, it's really easy to remember, if you're a boomer, it's $1 Million. If you're Gen X, it's $2 Million. If you're a millennial, it's $5 Million. And if you're a Gen Z, it's $10 Million, right? And it roughly doubles right one to five and 10. 

Scott McGregor  
Why is that? 

Timothy Peterson  
Because inflation goes up and the cost of living goes up. And there's a long time for Gen Z to retire, and, lifespans are getting longer. So a Gen Z, like, they might not be looking at retirement till they're 80. Right? So you've got a long, and I don't know what if even if it was less than that, let's say they retire at 72, their lifespan maybe went into 105. So you got a long time that you got to fund. And what's a Big Mac gonna cost in 2050, like 50 bucks? I don't know. But, probably a lot more than it is now. And you can run those numbers out, and I'm being really conservative here. If you've got that amount, you're probably you're probably squared away, you don't even need traditional retirement, but I say have that on top of your traditional retirement system, whether it's social security, or your pension, or, or anything else. And then all you have to do is just break down that that number and discount it to what Bitcoins growth rate is going to be. And again, when I make this report, this is done with some ultra conservative estimates, and I assume that Bitcoin is going to grow slower than it has in the past, and you're going to live longer than you probably will. And you're going to need more than you probably will, so that you come up with a number of you know how much Bitcoin you need to buy, in order to retire. And like I say, on top of what you should have. So this is to supplement what you already get. I've done all the math, and I talked about it, and I put out there, if you're if you're currently age 25 And you want to retire early at age 45, you need you know, 2.5 Bitcoin. Well, that's that's to get started. I wouldn't say there's not dollar cost averaging in here. This is a lump sum, when you do the dollar cost averaging, it gets way more complicated. And I can't do that on a PDF ...

Scott McGregor  
For sure. 

Timothy Peterson  
And this is based on a higher price. I think this was based at a $45,000 Bitcoin, Bitcoin's, half that. Now see, you gotta double this number. So now you need like 5 Bitcoin. 

Scott McGregor  
Gotcha. Okay. 

Timothy Peterson  
Okay. And I update this report once a year, I'll try to do this again in June. Ideally, I'd like to get this put online as a calculator. But that's a lot of work. But if anyone's a super duper programmer, and they want to donate their time to help me put this online, I'd be happy to share the zero profits that we're gonna get from doing this together.

Scott McGregor  
Hahaha! Fantastic. Well, it definitely gave me a lot to think about, you know, the reading that Bloomberg bit about retirement generally, and the fact that most people think they're going to need 3 to 5 Million Dollars to retire. You know, my comment on Twitter was like, let that sink in. Because I think that's way more than people are prepared for at least the general population.

Timothy Peterson  
It's definitely a lot of savings. And you gotta and you're not going to get there in a bank CD. So Bitcoin's probably going to be a part of that picture.

Scott McGregor  
One thing that you're really good at Tim is talking about Metcalfe's Law and Network Effects. You touched on this in Las Vegas when I heard you talk. You know, you mentioned the Tesla Supercharger Network. Do you have a thesis about Tesla or electric vehicles?

Timothy Peterson  
Well, I do have a thesis about Tesla, and I've put a report together, which is something that you can buy because it's a it's pretty valuable. It values Tesla using network effects and Metcalfe's Law, based on the growth of their supercharger and other network locations and that growth rate. And from that you can derive what their revenues are going to be and therefore you can get their stock price. And I do a genuine scientific CFA Level analysis of Tesla, using Metcalfe's law. And I sell that. The good thing I'll say about this is, Tesla stands to be one of the fastest growing companies in the world as part of revenue. They are a first mover. If I had to pick two networks that I would buy and there are several right? The all the top firms in the S&P and globally are all networks, okay? Even Alibaba, you throw Alibaba in there. Even Aramco. Okay, well, oil is a network. That's definitely a network. But Microsoft, Amazon, Apple, Google and Tesla are the top five and Facebook if you want to throw them in there. They're all networks, like every single one of them is a network and they all have identifiable Metcalfe's Law network effects going on. And they were all first movers. So when you have a first mover that's a network, it's pretty much game over, they're going to dominate for decades. Elon Musk tweeted: "Tesla is going to be the most valuable company in the world". I don't think that's hyperbole. I think there's a genuine chance and in fact, they even calculate when that date is going to be in the report that I sell the It'll become the most valuable company in the world. Now lots of things have to happen. You know, the past says the look, or the future has to look something like the past. With with respect to energy, I don't think that's that big of a problem. Tesla's got some hurdles, right? Tesla was great in 2017. And guess what's happened to the price of lithium since then, oh, it's gone up by a factor of five, I think, or three at least. And so there's some production costs in there and those batteries at a time when there's increased competition at a time when you've got higher interest rates and lower financing available for high end automobiles. So Tesla's got some tough times coming right there. Things aren't moving in their direction with respect to at least the automobile production side of the business. But in the long run, I mean, Cathy wood and I agree on a lot of things. She's a little bit more optimistic than I am. But, you know, it's, it's somebody asked her what's the one company you would just want to buy? If you only buy one? She said, Tesla, I think I would say the same thing.

How can people check out and buy some of these reports that you put out, Tim? 

Yeah, so it's on my webpage, which is Cane-Island.digital And here's the here's the thing, once you buy the first report, for me, you're on my mailing list, and I don't spam anybody. But I do tell you, Hey, I've got another report out, I give all of my prior customers a discount. So by the time you buy three reports you've paid for your first one, maybe even if you only buy two reports you've paid for your first one. And I have a lot of repeat customers. So I must be doing something right. The Tesla report is out there right now. And it's on sale. The Bitcoin report will be out next week, I believe. I only do a formal analysis of Bitcoin, once a year is a two year forward look of what the price ranges are likely to be at the end of each year. And it's, again, it's based on scientific principles. It's not me pulling up numbers out of my head or anything else. And it's a realistic view, supported by science and math as to where those prices are headed. And also, what the hurdles are that have to be overcome.

Scott McGregor  
Very cool. Definitely. I'll put the link for that in the description as well. Tim, I'd like to wrap up just talking about you, you know, one of the things I loved about Vegas was getting to know you and your story, you know, you had a front seat to the 2008 financial crisis. And I have a feeling that it influenced your investment style. So I'd love for you to share with the audience some of your history, and how you developed your style of investing.

Timothy Peterson  
I was, you know, I sort of modeled it after Buffett like a lot of people do when you first get started. I mean, I always wanted to be an investment manager. And so I went through the CFA program. But there was a book called "The Warren Buffett Way" that that sort of set the foundation for the initial philosophy. And then I went in the real world that was in the investment management business. And I turns out, I was at a firm that caused the global financial crisis in Europe. 

Scott McGregor  
That's crazy! 

Timothy Peterson  
I won't, I won't name the name, but I didn't even know it at the time. So I had left that firm in 2001. And the crisis happened years later, but I knew the guys that cost it. And I didn't realize it until I was at a CFA conference in Orlando. And I can't remember his first name, but love it, who wrote Freakonomics was the keynote speaker. And he told a story about a guy he knew. And some research he was doing on how did the financial crisis started, what were the causes, and it was from him that I put all these different pieces together, as well as my own experience. In buying a home, I refinance my home through one of these shady mortgage brokers that you see in The Big Short guys that lose their job at the end. I went through that, right, that was me. And I got one of the option arms that everyone that they were pushing, but I was I knew better, right? I actually made money on my financing. And the mortgage bank lost money. Because I knew I was doing and I had the timing right. So I'm very proud of that. Anyway, so back to the story. These credit default swaps, if you watch The Big Short, it's a really good story about how this happened. I'll put some names to it. AIG was selling these credit default swaps. They were one of the major players in it. And they were selling to my former employer in Germany. That happened to be in Dusseldorf. And I only knew that they were interested enough because of The speech that I heard in Orlando when the guy said that his reporter was talking to the guy who's trying to get some information, and he said, Where have you been in because he wouldn't say what he was doing. But he said he was in Dusseldorf. And I was like, Oh, my God, there's only one bank in Dusseldorf, and I worked there. And so I knew the fixed income guys in this banking disregard for large, mid sized, European Central Bank-ish kind of place. And it's, it's funny, they were very quantitative, right? And AIG was selling them these credit default swaps. And they were buying, like candy, because real estate was doing so well in the 2000s. And AIG actually went to them and said, "Okay, it's overbought, you need to unwind your positions". And they said, "No, we want more, we want more". Okay, have more, and you sold them more. And then the collapse happens. And I read in the paper, that Germany, a country, the size of Texas, with a population that's a little bit larger than that, but physically, the size of Texas had a bailout, a government bailout, the size of the US bailout, alright. You know, it's a fourth of the economy. And it's got the full size bailout package of the United States. And I'm like, wow, what happened there. And it was only later I learned it was my company. What's the one that got them in that mess from overextending on these, credit default swaps, and that bank no longer exists. They died a slow, horrible death over several years after the financial crisis until they were eventually broken up. And poof, 

Scott McGregor  
wow..

Timothy Peterson  
 I saw what was going on. I thought about writing a book about it. But it's still a fun story to tell that they single handedly, not intentionally, but single handedly caused the European financial crisis.

Scott McGregor  
They were just doing what worked in the past, right?

Timothy Peterson  
That's exactly what it was, you know, and they had their quantitative models. They didn't know, these guys are computer guys working in an office building in Dusseldorf. They don't know that don't TV in America, there's shows like flip my house, where you just go buy any property, you put 2000 bucks in it, you can flip it and make 50,000 Because that's where the market was going in the United States. And there were tons of these TV shows. So everybody was going out, Hey, I'm a house flipper, you know. And then of course, if there's lots of buying of houses, then there's room for mortgage brokers to come in real estate brokers to come in. So there was a big industry there. But it was built on not a lot of stuff. sitting in an office in Dusseldorf, you don't realize that there's a bunch of this shenanigans going on in the US. And it's not a sustainable enterprise, that this was not demand for housing. This was demand for a quick buck.

Scott McGregor  
Yeah. Is there anything out there? Like the current or like the 2008 financial crisis out now that has you scratching your head? Like, I don't know, this looks a little shady. A lot of people were talking about...

Timothy Peterson  
Like, FTX!? 

Scott McGregor  
Yeah, FTX or Credit Suisse, you know, all of these things. And I know, Twitter and you know, Twitter and how it can get and so is there anything out there now, Japan that may, you know, cause an unforeseen crisis in the future that people should, should study up on?

Timothy Peterson  
Honestly, no, nothing really comes to mind. It may surprise you that I don't have anything. It's like, hey, it's there's there's still some of these exchanges. I think some of these crypto exchanges are way worse than FTX ever was. Alright, so I don't know who you've got your crypto with. But there's probably only two or three companies that I think are legit. And they're not necessarily the biggest ones.

Scott McGregor  
I always recommend to people hardware wallet, put it on a hardware wallet.

Timothy Peterson  
I think the SEC is going to come down pretty hard on some of these exchanges, too. They've been hinting that you know, we're going to come after you eventually. And I think that day is coming soon.

Scott McGregor  
Yeah, I'm interested. I know, man, I could talk to you forever interested to know what your take is, when it comes to the SEC. And and I know we're kind of jumping around here because I did really want to get that great story about 2008 financial crisis. But you know, we're seeing grayscale and the SEC kind of in a battle right now. Do you have any thoughts on on how that could end?

Timothy Peterson  
Well, it's going to the DC Court of Appeals. I think they will lose that case. I think the SEC will win and and the Grayscale will lose and then I want to see what happens. I I think that Grayscale has a case to be made in front of the Supreme Court. I do think and I hope that they do appeal their loss at the at the circuit level and or the appeals level and go to the Supreme Court. And I hope the supreme court grants the case. The Supreme Court doesn't have to take the case. And often, the Supreme Court will not hear a case if it's a hot topic, because they don't want to be the referee. They want to be justices and administer the constitutional law in this sort of elitist fashion. They don't want to be the referee for the school playground fights. And this is a playground fight. That said, there are some questions that Grayscale raises about whether this makes sense. Logically, the SEC has no case. Legally, they might have a case. I don't, I don't know. But I think it was John Deaton, who's on the Ripple team came out and said the SEC has lost four out of their past five cases in front of the Supreme Court. And they have and with good reason SEC has completely overstepped their bounds the past several years, in interpreting their mandate, well beyond what it was and enforcing well beyond what they could do. And these were major cases. And there was even another one hasn't gone in Supreme Court, which was in the Fifth Circuit, which is Texas, and Louisiana, that said, "yes, the entire SEC judicial system was unconstitutional". That hasn't made it up to the Supreme Court yet. But they said none of these judges are lawfully appointed. So the SEC has administrative judge system, which is where Ripple currently sits, we have at least one circuit that says that's not the way it's supposed to be. So the SEC is fighting a lot. The truth is, I don't think the SEC cares that much about Crypto the way people think they do. We get in our own bubble, right? Like it's important to us. It's important to everybody. If you look at the SEC task list of what their priorities are, it's like 30 pages of administrative garbage, right? It's all stuff like computer upgrades and personnel and like Office....and furniture and like, it's like, just pure administrative minutiae. That's their, their priority list.... XML reporting...... I mean, they've got a big mandate, right? All the financial reporting from every public company, (in the) United States, every financial advisor, every broker, they're maintaining those databases, they have a huge data management mandate, and just that in itself, it needs to be maintained. And my guess is they've got infrastructure problems at the SEC, that need to be addressed. And some of these legal issues we all get caught up in, I just don't think that commissioners put that much thought into it when they have what's on their plate is things are broken in their office, right. I can't I can't get a typewriter to work. Stuff like that.

Scott McGregor  
Tim, we could go on for another hour just about the SEC and crypto and and it would be great but I think we should save that for another time. It's I've taken so much of your time today. Thank you so much for everything today my friend. Be sure and check out Timothy Peterson all the links for everything Tim is in the show notes. Another great appearance on the Hot Wallet Podcast my friend. 

Timothy Peterson  
Thank you Scott.