JAKE MERL: Welcome to Trade Ideas. I’m Jake Merl, sitting
down with Dave Levine of Odin River.
David, great to have you back on the show.
DAVID LEVINE: Thanks for having me back. Nice to see you
JAKE MERL: So, you’ve been on Real Vision a few different
times talking about systemic risk
and the potential for a market crash. It’s a safe bet to
say you’re pretty bearish. But on the flip side,
I know you’re a long term bull, especially on
cryptocurrency. I know you’re very optimistic in the long
And it’s crypto week here at Real Vision. So, we’d love to
get your view on the asset class.
Can you please briefly walk us through your overall thesis
on crypto, what they actually are?
And how you see this space unfolding?
DAVID LEVINE: Sure. Thank you for having me back.
And you’re right, my philosophy in Odin River, there’s two
components to it.
When I talk about the river, it’s really about the cycle.
And I’m very pessimistic, as you said,
in the short run specifically both on fundamentals, but
also systemic risk.
But in the long run, I’m a massive optimist about various
And one of those trends is transparency.
What I mean by that is, technology reduces the cost of
information over time,
that leads to transparency in a variety of different
industries, including finance, including media.
So, Real Vision is an example of what I mean, reduce costs
we can now get great ideas through services like Real
Vision. But another example is FinTech generally,
and specifically, what’s going on in crypto currency or
crypto as a broader description of what’s happening
and modernizing finance and modernizing the way that
various different securities were.
And introducing new securities or currencies like Bitcoin.
So, I think of crypto generally as a theme of modernizing
I think of it as an increase in transparency.
I think because of that, I’m very optimistic in the long
run on the asset class.
However, if you look at what happened in the last 36
months, what happened is, Bitcoin’s been around
since 2008. So, it’s one of the most developed, if not the
most developed crypto currency.
But there are a number of other startups that launched.
So, we got this ICO boom and ICO bust.
What is that actually? In my mind, it was an angel
investment boom and bust.
Just like you have another startup ecosystems, we had an
just happened to be a very liquid day trading angel
investment, boom and bust.
But that doesn’t mean that in the long run, progress
hasn’t continued with in crypto. In fact, it has.
There’s been more technological developments. And as we’ve
seen lately, Bitcoin itself has started
to recover along with some of the other digital assets
that have rallied in the last few weeks.
So, it’s been a very long run. I’m very optimistic about
crypto as an asset class.
I think that within it, Bitcoin has broken away.
It’s the Uber in the sense that it was actually founded in
the same year Uber was.
It’s the farthest along in this development as a
technology. And of course, as its price shows and market
shows, it’s the farthest along in terms of market
JAKE MERL: So, you’re most bullish on Bitcoin?
DAVID LEVINE: So, I think that Bitcoin is the- it’s the
most developed and because of that, has-
I’ll call it the most stable long term outlook in terms of
what we know about it.
I think there are other emerging very early stage
technologies in crypto, they’re also very promising.
But just like any other startup, they’re more like angel
And so, it’s hard to know with any given one, whether or
not they’ll succeed.
So, I am optimistic about Bitcoin. I’m optimistic about
the asset class generally.
And then within it, yeah, Bitcoin’s probably the most
stable in terms of having a very clear point of view
about what will happen with it.
JAKE MERL: So, Bitcoin is currently trading around $9,000,
would you be buying it here?
Or do you think it’s too expensive given this recent run
up in the short term? Or would you say it’s cheap?
Because it is 50% below its all-time highs. As an
investor, how do you actually go about valuing Bitcoin?
DAVID LEVINE: So, that’s a good question. I think that one
way I think about Bitcoin is that it’s like I said,
it’s an early stage startup, it’s the ilk of Uber, given
it’s founded the same year as Uber.
And Uber is pretty well developed. It’s fairly far along
in its development.
Bitcoin’s a little bit different from Uber, though,
because there’s two dimensions of it.
One is it’s a technology innovation. And so, in a way,
buying one bitcoin is buying a bit of a call option
on the technology of Bitcoin itself, a decentralized
distributed ledger that we can have trustless exchanges
across pretty much anywhere in the world.
So, there’s a call option on tech, but Bitcoin’s different
in that it also has a put option
on fiat currency embedded in it. What’s that mean? Well,
as we’ve talked about in the past, systemic risk
is elevated because of what’s been going on in sovereign
There is an increasing doubt about the stability of fiat
In my opinion, there will be an increasing doubt about
and the implications that has for sovereign credit.
What do people do in that environment? There aren’t very
many safe options.
Personally, what I think is the right thing to do is to be
net short to seek safety.
However, there’s also this idea that maybe we could find a
place to hide.
Now, a lot of people think about gold and that
environment. And so, gold is a very well developed asset
it’s a safe haven- it’s really an asset. Kind of like a
currency. But it’s many, many trillions of market cap.
Bitcoin today is 160 billion market cap, it’s a tiny, tiny
little vessel in the sea of currencies.
However, some people- including the people who created
Bitcoin and many of my friends and others who are called
Bitcoin maximalist believe that Bitcoin is a better
currency, because it is hard money,
because it is not subject to Central Bank control, because
it cannot be printed,
there’s only 21 million bitcoins ever that will be printed
not really printed- mined is the technical term. Because
there is this notion that Bitcoin might be a safe haven,
therefore, it is a put option on the fiat system.
Now, the reason why I say might is we don’t actually know
whether or not Bitcoin will serve as a safe haven,
but because of the various attributes of it, because of
because of its inability to be mined beyond the 21
million, because of the decentralization
and the fact that it’s been resilient through various
different cycles within Bitcoin itself,
it might be the case that it is a safe haven.
So, because of that, I see is Bitcoin as two things- call
option on the technology of Bitcoin itself.
That is fairly robust in the sense that it’s fairly well
developed, put option on fiat, we’ll see about that.
The worst the field system gets, the worst systemic risk
the more valuable that put option becomes in market terms.
Now, whether on it pays off- unlike CDS, where you have a
counterparty and you know it will pay off,
that depends on behavior. So, it’s impossible to know
whether or not the production of fiat will pay off.
However, it’s increasingly likely that that has value.
Putting these two things together, call option
on the tech, put option on fiat, it seems that Bitcoin
likely has significant upside from where it is today.
The price of Bitcoin will likely go significantly higher.
But it could also go to zero because it’s tech, it’s a
volatile asset class.
So, that again, comes back to- to answer your question
about the price-
I do think it could go up significantly from here. I also
think you could go to zero.
And forms things like position sizing in a portfolio.
How much of your portfolio should be in something that has
as much volatility as Bitcoin and can go to zero?
In my opinion, not a very big allocation. However, it has
the potential to go up five times or more,
it was at 20,000 not that long ago, so 9300 today, could
it go back to 20? Of course.
Could it go to 50? I think that’s probable.
So, there’s a probability of 5X from here, let’s say it’s
roughly 10,000 today, but it might go to zero.
So, that’s my general take on it. To answer the question
about whether or not someone should be allocating it,
allocating to it depends on their personal financial
situation, depends on their personal view.
In my opinion, I do think it’s worth the 5X to a 100%
downside risk reward,
especially given that the downside has been relatively
mitigated over the last few cycles.
And so, will it go to zero? Increasingly less likely that
it will go to zero. Will it go back down to 3000?
Seems quite possible that it could go down, especially if
we have like a real crash in the markets
that it could go down to three or 4000 again in a very bad
selloff in the market.
So, I think that more likely, the downside case is 60%
from here than 100%. Although it could go to zero.
We have to remember that this is a very early stage
JAKE MERL: So, when you say the downside risk is more
likely three or 4000 than zero, what are you using?
What metrics are you using to determine that?
DAVID LEVINE: Sure. So, the reason why I say it might go
to zero is because ultimately if the price continues
to fall on a death spiral, then it could be the case that
the network dies completely.
However, what we’ve seen in recent down cycles is that
there has been resilience at a certain level.
And it just so happens that the incremental cost of mining
a Bitcoin is in this context the three to 4000
depending on how you calculate the power costs that the
incremental miner has to procure and the hardware costs
that the incremental miner has to procure to mine Bitcoin.
Remember, the way that Bitcoin is secured.
And what a Bitcoin actually is a reward for making the
network secure through what’s called
proof of work mining transactions using a shelf, the 256
So, these miners, these computers that are making Bitcoin
secure, they have a cost function
that they’re determining each time that they’re mining a
how much does it cost me to run my machines, given the
probability that I’ll actually win a Bitcoin,
I’ll be rewarded a Bitcoin for making the network secure?
Now, in a traditional commodity industry like power,
it’s clear that the incremental producer of power sets the
This is true in power, it’s true in copper, it’s true in
And Bitcoin to be totally precise, there’s a dynamic where
the difficulty reduces
if the price of Bitcoin falls. So, there is a scenario
where if the price were to collapse completely,
difficulty would fall, and therefore, the incremental cost
of mining would fall.
But most likely what will happen and what we’ve seen
if the difficulty remains somewhat resilient, the cost of
mining is also-
the incremental cost of mining or the marginal cost of
mining is also somewhat resilient.
Now, this three to 4000 context happens to be where recent
lows have been.
But it’s also that incremental marginal cost of a new
miner entering the network,
buying the newest mining equipment and competing to win
And so, that’s why it could be a four, again, there’s
potential to go to zero,
but more likely that this incremental cost of mining in
the network when it’s functional,
three to 4000 context creates some sense of a fundamental
value in some sense of a floor.
And then if you combine that with technicals, you combine
that with the resilience of the network,
that’s why I think it’s more likely to be the downside
JAKE MERL: And over what time horizon do you think that it
could reach $50,000?
DAVID LEVINE: So, I’d say over the next 36 months, 50,000
is a reasonable upside case.
Again, it’s breaking out right now, momentum in these
types of security is actually very important,
because it is a video game day traded by people on their
apps all night long.
It’s actually like the technical factors and behavioral
finance matter more for Bitcoin than they do
for traditional markets, because of the illiquidity,
because of the way that people trade it.
So, because it’s starting to break out, I think that for
it to reclaim all-time highs is seems quite probable.
I think 50,000 over the next 36 months is a reasonable
Along the way there, could it drop down 50%? Of course.
Might it go to zero? Maybe. I don’t believe it will, but
JAKE MERL: So, do you think Bitcoin’s price will rise as
these problems unfold?
Or do you actually think we’ll be conducting transactions
and we’ll be using it in commerce every day?
DAVID LEVINE: So, I think that there’s really interesting
developments like the lightning network
that are making it easier to do what’s called side chain
transactions that makes it easier
to use Bitcoin in commerce. There are other limitations
that make it very difficult.
For instance, I do not like to talk about Bitcoin
publicly, because I might get hacked.
It is very insecure, you have to have your own security.
And the user experience is still quite confusing.
So, between security and user experience, there’s a lot of
adoption. Sorry, there’s impediments that really
need to be overcome before widescale adoption can be made
for Bitcoin to be used on any normal exchange basis.
That’s even assuming things like lightning network make it
practical from a both cost and speed perspective.
So, practical issues mean that it’s probably going to be a
long time before it’s used as a medium of exchange.
However, the other aspect and element of Bitcoin that is
I’ll say relevant is it’s what people call store of value.
And the more that it’s able to be resilient,
what’s happened in the last six months has actually been
quite good for Bitcoin and that it has rallied,
has continued to show resilience. Even while equity market
volatility has kicked in,
Bitcoin has continued to be resilient. That creates more
faith in the store of value dimension.
It still takes many years for this to be resolved for
sure. But I think that that store of value dimension is
the one that really starts to matter in the context of
systemic risk or an alternative fiat.
But again, it’s still early and fully formulating that
that will turn out to be the case in the long run.
JAKE MERL: So, with all this in mind, can you please break
down this thesis in 30 seconds?
DAVID LEVINE: Sure. So, I think that Bitcoin is very
interesting call option on the technology itself.
It’s also a potentially interesting put option on systemic
risk in the fiat system.
Because of that, and because of the resilience that it’s
I think that it could potentially be at 50,000 in 36
months. There will be volatility between here
and there as a potential for it to go to zero, but most
likely a downside case is to three or 4000.
So, there’s call it 50 to 60% downside and 5X upside. So,
the risk reward base is- I think it’s interesting
over a period of 36 months, should be sized appropriately,
shouldn’t be a large percentage of anyone’s
portfolio in my opinion, very small percentage in almost
any portfolio. But very interesting, very promising.
And also, very telling of what’s coming in the context of
crypto more generally,
which I think is also still on its early days of
JAKE MERL: Well, David, that was great. We’ll see how it
plays out. Thanks so much for joining us.
DAVID LEVINE: All right, thank you for having me. Great to
JAKE MERL: So, David is bullish on Bitcoin.
Specifically, he likes buying it at current levels and
thinks it could hit 50,000 over the next 36 months.
He sees downside risk as low as three or $4,000.
That was David Levine of Odin River and for Real Vision,
I’m Jake Merl.