Loren Asmus on BMTV: Bitcoin’s Institutional Next Chapter

Bitcoin Treasury company, perpetual preferred equities, have been rallying alongside Bitcoin Strategy’s STRC sitting just above 99.50 per share, and now to talk about what's next for the digital credit space, it's our very own Loren Asmus head of investor relations at UTXO Management. I know you just flew back from New York just to see us, right?

Absolutely. Yes, yes. A busy week in New York. A lot to talk about with Bitcoin and Bitcoin Treasuries, but thank you for having me. I can say confidently now that BMTV is my go to morning news source that has taken over other news outlets I used to listen to in the past, so a great job and congrats on all the success.

We love to hear that. Thank you, Loren. And it's great to see you here on set instead of just around the office, but let's talk about the Bitcoin Treasuries conference because you just spent some time there. What was the overall mood in some of your biggest takeaways from that event?

Very constructive, very bullish. I mean, I guess everyone's maybe a little biased because everyone already understands Bitcoin and sees where this is going from institutional adoption standpoint, but I think that was really the key. Obviously, it's been a very rough year with price action of Bitcoin, price action of Bitcoin Treasury companies, but it does seem like we are out of the worst of it from a bear market perspective. And really what you saw in the room was just a lot of building and really good conversations of where is the next phase for the institutional adoption of Bitcoin.

That could be Bitcoin Treasury companies, it could be operating companies that have Bitcoin on their balance sheet, new products, new strategies that fit institutional mandates and the vehicles that they require. So it was really all the above packed room. And then on top of the conference itself, we had a jam packed a few days of meetings, me and my colleague, Dan Hillery, who I know was on the show a few weeks ago, all across Wall Street, all across New York. And so Bitcoin has arrived on the institutional stage and I think we're just getting started.

And Loren, when you're talking to these institutional investors, compared to even just a year ago, maybe a couple of years out, how big of a difference is that dialogue? Have they reframed the way that they're thinking about Bitcoin and these operating businesses Treasury companies in digital credit?

I think there is a little bit of a reframing. I think it goes back to Bitcoin being accepted as a capital asset. And so we all know that Bitcoin is money. Bitcoin is freedom tech. And I think it's kind of new of treating Bitcoin as a capital asset. And really, it was from the onset of the ETFs, the Bitcoin ETFs approved in early 2024 that kickstarted that. So I think we're still kind of through that maturation phase of Bitcoin being accepted as a capital asset. And as you know, a lot of institutions, they love to see track records.

Three years, five year track records. You know, we're only, what, two years, not even two years from the launch of the Bitcoin ETFs. So we haven't really even hit a three year track record from the Bitcoin ETFs yet. So I think, like I said, we're just [unclear] being accepted and then these other vehicles, companies adopting Bitcoin is only going to grow.

I'm curious because you came to UTXO from the consulting side. What was the biggest pushback against Bitcoin you heard when you were looking from that side of things?

It really evolved quite a bit. So I mean, we started looking at Bitcoin back in the 2016, 2017 cycle at my former firm. I worked for an investment consultant, that serviced endowments, foundations and family offices. And I couldn't even bring it up to our IC at the time, right? It was just, I would have gotten laughed at and said, hey, focus on bonds and fixed income. What you're supposed to do. You know, why are we talking about this Bitcoin thing? To fast forward, that firm actually adopted one of the Bitcoin ETFs on to their approved list manager, approved list.

So I think the talk has changed. I think what's really important is continuing to educate on how Bitcoin fits as a capital asset in a diversified portfolio. So UTXO, we're finishing up a research report that really talks about that. If you have a 1, 2, 3, 5% allocation to Bitcoin, how does it affect your risk-adjusted returns across your portfolio? The punchline is a 2 and a half percent allocation over the last 10 years. [unclear: not even counting] the early adoption of Bitcoin, but just the last 10 years of Bitcoin has produced over 200 basis points of excess return with the same level of volatility and only 80 basis points, 0.8% more drawdown across your whole portfolio.

And so at the end of the day, Bitcoin as a capital asset gives you a little correlation to stocks to bonds and positive skew. Think about as the volatility, but two thirds of the volatility of Bitcoin has been upside volatility. Meaning the price has gone higher and then the volatility has been to the upside, not to the downside. And so when you're looking for an asset to diversify the rest of your portfolio, in my opinion, Bitcoin is the perfect one because it doesn't behave like stocks, it doesn't behave like bonds, and it gives you that positive skew to increase your returns.

And you spend more than a decade helping institutional investors underwrite managers, build portfolios. So you have a really good line of sight into how these institutions are thinking about their allocation. You bring up the point of the Sharpe ratio, the non-correlated nature of Bitcoin. What other variables are kind of of key importance in the way they're thinking about it? And how is that frame maybe shifted or how has maybe education and kind of the maturation of this asset class kind of met those benchmarks over time?

It's really volatility. I said that's the most important thing. I mean, obviously the returns have been fantastic for Bitcoin since inception. But at the end of the day, you're dealing with multi-billion-dollar portfolios. And the first thing to optimize for is capital preservation. And we can think of capital preservation different ways whether that's nominal, real versus inflation versus money printing. That's a whole 'nother discussion. But at least making sure you're not having these crazy 50, 60, 70, 80% drawdowns. And so I think that's the biggest thing that a lot of these capital allocators want to get comfortable with.

And then I think the second hurdle that they want to try to get comfortable with is where do you place Bitcoin in the portfolio? Is it a real asset? Is it venture capital? Is it illiquid? Is it bonds? In my opinion, it's a liquid alternative. It's the ultimate liquid alternative, 24/7 liquid, behaves differently from stocks and bonds, it's a liquid alternative. And so I know we like to try to get caught up in this nomenclature where do you place Bitcoin? And to the second point of that, I think investors and allocators want to access it in ways that fit what they are comfortable with before.

So the Bitcoin ETFs is a vehicle, hedge funds, private vehicle structures, ability to wrap it in potentially a structured credit type product, vehicles that they're accustomed to seeing in the past. And so I think it's very tough for allocators. The majority of allocators should say, hey, I'm going to put 2%, 3%, just in the spot, Bitcoin and let it be. They want to have one vehicle that they can underwrite themselves that they're used to. And two, they want to be able to trust a fiduciary or someone else to handle that exposure for them as well.

And what kind of variation of that are you seeing on the client side with UTXO?

So it's really across the board. And so UTXO, we run a hedge fund that is predominantly equity-based Bitcoin companies, or companies that have Bitcoin on their balance sheet or Bitcoin adjacencies. And then we [unclear] this preferred income strategy, which is a structured credit fund on top of digital credit, STRC and the other perpetual prefs. And really the thought process behind those two funds is one, the hedge fund, predominantly equity, that can kind of fit your traditional long short equity bucket where we can place it in an opportunistic or event-driven type bucket.

With the credit fund, it is structured credit. Yes, the underlying is preferred equities. And the underlying from that is Bitcoin, but the fund itself is credit. And so you can stick that fund vehicle, ideally, hypothetically, into your credit mandates. And so it's really creating these mandates where you have the 60/40 split. And I know a lot of people talk about 60/40 being dead, but it really isn't. It's just shifted from public to private markets. And so yes, you have public equity, but you have a lot of private equity in allocator portfolios.

With credit, there is a lot of core fixed income, liquid public bonds, but there's been a big shift to private credit as well. And so now you're fitting Bitcoin into these buckets that allocators are accustomed to.

And you've talked before about fixed income being the bridge between Wall Street and Bitcoin. Why the bond market? And why is it important for understanding where future Bitcoin capital could come from?

So the bond market's the basis for how everything else is priced at the end of the day. And it gives us the sense of where we're going from a macro perspective, where interest rates are, where inflation is, the bond market is $300 trillion in size. And it's really the basis for everything about understanding the macro landscape. And so Bitcoin is a macro asset. And it's an asset that in my opinion will continue to grow at a very large rate, a much higher rate than equities or other risk assets.

And I would say it's even shifting Bitcoin from being a risk asset, which I think a lot of people view it as to really, we talk about this a lot on the team. It's really a credit default swap on monetary debasement. So it's protection against debasement, against money printing, against larger fiscal deficits, against larger debt loads. And so that's really why having an understanding of bonds and fixed income in the macro is so important to understanding Bitcoin and what it serves on what it helps.

Now, on the institutional side, if you look at the numbers and the metrics, whether it's a fund in their CIO or maybe it's a pension or whatever it may be, they're still not even a 1% kind of net allocation in the broader space. And you brought up good points about volatility, maybe being a problem, but we've also discussed how many products have been built and how it's easier to reach out and touch it without having necessarily be involved in spot. And maybe another problem is the investment mandate or all these other things.

What do you think are the true barriers that this kind of keeping that net allocation still so low? And do you think that those are going to inevitably be eaten up over time?

I really think the true barrier is education still. It really is. We live in a little bit of a bubble and I’d say, you know, the education level when you go out there and speak with different investors varies. And it's not a matter of intelligence or sophistication, just a matter of not spending the time or just having so many other things to worry about across your other parts of your portfolio. And then you factor in the fact that we're talking about 1 to 5%. It's like, well, I'm really going to spend 100 hours grokking Bitcoin when it's only going to be maybe a 2% position in my portfolio and have all these other things across private equity and private credit and my bonds and my stocks that have to worry about.

And so part of it's a time allocation, part of it is just the education. So I think the more that we can get out there as a community and as a space to educate these allocators and investors about what Bitcoin is and what it isn't and how it differs from other crypto and how it differs from everything else in the portfolio, you will start seeing that adoption. It has started, but we're just at the very early stages of this.

So with more institutions adding Bitcoin to their portfolios, I mean, where's the money come from? How does that change the way they're allocating capital across other things like equities fixed income?

So I think a lot of it initially comes from risk capital. So from equities, from tech, I think very little bit comes from bonds because bonds is viewed as the capital preservation low volatility and Bitcoin does not have low volatility. And so it does come from risk assets. And I think part of the draw down this year was this rotation of risk capital from Bitcoin and crypto to AI, which I know a lot of your guests have said quite a bit on the show about that.

I do think that is slightly reversing now and we're even seeing it at UTXO a lot more investors allocators willing to engage and talk about Bitcoin and where it goes from here. And it's one of those things where price kind of cures all, right? I think price drives the narrative and people trying to find the narrative, but as price moves, whether you like it or not, that gets more and more people interested.

Yeah, I was about to ask you about the temperature right now because Bitcoin still well off its all-time highs, although we're in this, you know, where I think we can say we're coming out of the bear market. Do you see that as a buying opportunity or more of a warning?

Yeah, I mean, I would say, I mean, in my opinion, Bitcoin is always a buying opportunity because I'm thinking long term at UTXO, we're thinking long term, we're thinking 5, 10, 20, plus years out. And so, you know, our thesis is that, you know, Bitcoin is going to be much higher in 10 years than it is today. And so I try not to get into the day to day, you know, price action over the next few months or where we think it's going to go or not go.

No one really knows. But, no, I think it just goes back to educating these capital allocators that invest really in perpetuity. I mean, these are foundations, endowments that have been institutes that exist for hundreds of years and they're going to continue to operate for hundreds more years as institutions. And so I think it's the reframe of saying, hey, this is not a trade. This is a structural allocation that deserves a place in your portfolio because it helps your risk adjusted returns, which is what they're trying to achieve at the end of the day.

And you talk about how a lot of these institutions have been around for literally hundreds of years and, you know, they have systems in place, right? They have modeling. They have traditional ways of conceptualizing underwriting, but Bitcoin doesn't have traditional cash flows. So how do you think institutions should actually underwrite, expected return in what metrics you think matter most when standard modeling might not exactly fit this new asset of Bitcoin?

Yeah, and that's really, I think, the reframe that is the hardest to explain because I think everyone loves to rely back on discounted cash flows and understanding kind of the terminal value by backing into the cash flows, but Bitcoin is the denominator, not the numerator. And I think it's reframing the conversation that you're shifting the denominator and when you're talking about cash flows and DCFs, you're just talking about the numerator. And so it's having that conversation of it's a new capital asset. It's a new money.

It's a new form of real estate, digital real estate. And, you know, if I look at a lot of real estate out there today, like, am I really doing a backwards DCF on a lot of it when I'm getting a 3, 4% cap rate or is the majority of my value coming from the store-of-value narrative of real estate? And so you really have to kind of ask yourself, you know, yes, it doesn't have cash flows, but, you know, there is not another asset out there that has absolute scarcity that you can verify in a decentralized way.

All right. That's a good quote. I haven't heard that one yet.

That's from Parker Lewis, [unclear book title], fantastic book.

Awesome. Yeah. I'll have to check it out. When buying Bitcoin, what I really care about is the final amount of Bitcoin I'm getting for my dollars. When every sat counts, even a small spread can make a difference. Cash App charges zero fees and zero spread on Bitcoin buys over $2000. The same applies to Bitcoin purchased through auto-invest, roundups and paid in Bitcoin. The number that matters is how much of your money ends up in Bitcoin. For a limited time, new customers can get $21 added to their balance.

Just use code BMTV21 when you sign up and don't forget this part. Send at least $5 to a friend in the first two weeks. Terms apply. Bitcoin services by Block, Inc.. See the Bitcoin disclosures at cash.app/legal/podcast. Man, Loren, it's always such a treat to have you. The way you put it, it seems like it's such a simple switch, right? But to your point, are you really going to take the time to learn and grok it as you put it for something that's 1% to 2% of a portfolio?

It seems simple, but it's kind of a profound idea of changing that denominator. When you're talking with these institutions, is that kind of the increasing conceptualization of Bitcoin as an investment, or is it still just kind of this high-vol tech beta where they're just hoping to do a quick trade and capture some dollars?

Well, I think that's why there's been kind of a, not a delay, but just kind of a reticence to really get involved because when these institutions do get involved, they stay in. This is at least a several-year investment for them, and so they're not looking to make a quick trade. And so I think that's the reason why there's a lot of education that still needs to be done of structurally, where do you place this, where does it go, and we, like I mentioned earlier, we're in New York for a few meetings and had one meeting with a well-known advisor.

They mentioned that they're doing a lot of work education on Bitcoin and asked really great questions, but the questions that they're getting from an inbound perspective from their clients is still pretty sparse. And so I think it just gets back to saying, "Hey, look, if you're thinking long-term and you really want to increase your risk-adjusted returns in your portfolio, this is a fantastic capital asset to do it." And now there are options where you don't just have to buy the spot, Bitcoin, or if you can't.

There's other things that are out there where you can fit it within your existing mandates to get that exposure.

Well, Loren, before we wrap, I want to give the floor to you. Any final thoughts you want to get out there or anything our audience needs to know about UTXO?

No, I would just say, thank you for having me. UTXO, we're really trying to bring the next wave of adoption to Bitcoin through bringing institutions, allocators, and investors who haven't had exposure before, to have exposure. And I came from the traditional finance advisory world. And I still think we're in the very, very early stages of getting this institutional adoption across. And I think you need it all to really grow the ecosystem. You need the freedom tech aspect to Bitcoin, you need the money aspect, you need the capital aspect.

And I think the capital aspect to Bitcoin has a long way to grow and UTXO is what we're trying to build.

Well, you guys are doing a great job over there. We love having you on set as well. So thanks for joining us.

Yes, thanks for having me.