Transcript:Caroline Woods: I just want to make sure my wires aren’t showing here. OK here we go. Joining me now, David Dziekanski, CEO and CIO of Quantify Funds. David, great to have you. Thanks so much for joining me.
David Dziekanski: Thank you for having me.
Caroline Woods: So we’re talking about diversifying with Bitcoin and gold. But before we get to both of those things. Let’s talk about the debasement trade because there’s a lot of talk about it right now. Break it down for us. What do we need to know about the debasement trade?
David Dziekanski: Debasement trade is really the rationalization or understanding that our debt and our deficits are at such a high level that we really have no way to get our fiscal house in order. The only hope is really to grow our way out of it. And that’s going to come with some level of baseline inflation, much higher than what we’ve been historically used to. I think everyone was waiting for inflation to finally ticked down to the 2% level. I think we’re going to exist in a world with just a higher steady state of inflation, especially with how much our deficits are rising on a regular basis. And this isn’t booming times. I think what people are most scared about is, well, what is the response and the reaction if things go poorly in the market, right. Our only playbook is to really continue to print more and to give out money to individuals in the economy. We’re talking about UBI with AI taking people’s jobs, and all this does not really settle our finances from a government perspective. And so looking for assets that hold scarcity value, both Bitcoin and gold mine at less than 2% a year. Bitcoin mine’s at about 0.86% gold at about 1.75% And the pace at which we will continue to print debt and money is going to far surpass that for the foreseeable future. And there’s really no turning back. The us is almost acting and looking more like an emerging market economy than a developed leader in the world, at least from our fiscal perspective.
Caroline Woods: OK so the expectation is the dollar will continue to weaken and inflation will be higher for longer. What does that actually mean for stocks? Because we know they’re at record highs or just off record highs right now.
David Dziekanski: Well it really depends if it’s coming with productivity growth. So that’s like the billion dollar question. The AI market is all of this CapEx spending going to really result in bottom line EBITDA for companies. We know it might come at the expense of some jobs, but is it going to create that profit. So hopefully from a fiscal perspective, we can grow our way out of the deficits. But that still doesn’t change the equation of we’re going to be printing and issuing massive amounts of bonds, and currencies. And there’s only so much Bitcoin and gold that can be mined.
Caroline Woods: So would you say to add Bitcoin and gold to your portfolio in place of stocks or in addition to?
David Dziekanski: That’s a good question. So Bitcoin obviously is going to have more of a volatility profile of equity and gold more like bonds. We think that the entire concept of a 60/40 benchmark is being rethought right now. The 40 for most allocators has been their safety assets, and bond really hasn’t provided much safety at all. So we definitely see gold coming out of that allocation. Bitcoin definitely has higher volatility. So you can bucket it either in an alternative slice slice or in an equity slice. The beauty of stacking these assets on top of each other as our product does, offering 200% exposure to the twos. You don’t. It’s really addition without subtraction. You don’t necessarily have to make as much room in your portfolio. So especially gold where gold has gone up a lot. And people, especially younger, more aggressive allocators may have concerns that, well, it might be a good asset, but it might underperform equities. So adding it might actually detract from my returns. This is a way to squeeze an asset like gold in your portfolio without fully retracting your equity allocation to make room for it.
Caroline Woods: OK, so you mentioned your ETF stack. It’s 100% gold, 100% Bitcoin ticker symbol BTG. Dig into that a bit more. Why invest in that versus investing in gold or Bitcoin separately?
David Dziekanski: Yeah you can invest in both individually. And if you aren’t a growth or an aggressive growth allocator, you probably don’t need much leverage on your portfolio. But the best institutions in the world use some form of leverage. They don’t use it to leverage the same thing on top of each other. They use it for diversification around their riskiest assets, whether that be hedge funds or treasuries or Bitcoin or gold. Stacking allows you to get that diversification, and it also creates a leveraged ETF that is much less path dependent. So we can actually be bought and held. Leveraged ETF gets a bad rep. It’s a fantastic vehicle. You have to trade it 3 to four times a week to rebalance to your target. But essentially, we take some of that responsibility of rebalancing and embed it into the fund because we’re rebalancing between Bitcoin and gold, which are two assets that have really strong correlation benefits. They’re not negatively correlated, but over time they have about a 4% correlation. So there’s a lot of value in reducing the risk of rebalancing between the two. Even if you were to leverage both in your portfolio, you’d have to continue to make those difficult rebalancing trades between those two, because these two assets have moved independently of each other. Very much so. For most of the last year, they’ve kind of taken turns in their move up in the market. So still risk because you’re highly leveraged but a little bit less responsibility with you guys doing the work there.
Caroline Woods: I think the big question though is gold is up what, 50% year to date. How much of the debasement trade is already priced in at these levels?
David Dziekanski: And I think a lot of US investors always look at things in past cycles and they say, Oh, US stocks are up so much in the last three years. Gold’s up so much in the last three years. It is due for a pullback. But it’s a little bit different when the driving force of it is the deficits. And those aren’t slowing down at all whatsoever. I mentioned that the US is looking and feeling a little bit more like an emerging market economy. Mathematically, what does that mean. That means if you look at bouts of volatility we’ve seen this year, for example, in April with the tariffs, both stocks, Treasury bonds and the dollar all went down in unison. Typically that’s the profile of an emerging market economy. So I think these trades can run a lot further than I think people realize, because we’re almost being treated as the. From a government perspective. And the solvency of our government as if we were an emerging market economy. And you have to think about the times when emerging market economy currencies crash, their assets can run to no end because money has to find a way to go somewhere.
Caroline Woods: Why 100% bitcoin? What about some of the other cryptocurrencies?
David Dziekanski: Yeah, we think there’s a lot of value in a lot of the other cryptocurrencies. So we’re big fans of Ethereum Solana. But in our opinion, those are more like tech platforms to be built upon. So those are true beta assets in our eyes. Whereas Bitcoin especially we’ve seen in the last couple of months it almost separate a little bit from the Solana Ethereum market, or at least correlate from a correlation benefit, because its value is in its store of value and its scarcity. That’s built into the original paper that created Bitcoin, whereas Solana and Ethereum don’t have that. Scarcity characteristics are still very intriguing, but more of like a beta. A growth play like that will be much more tied to GDP growth than in our opinion, Bitcoin will in the long run.
Caroline Woods: What happens if the dollar doesn’t continue to weaken? Does that unwind this trade or what happens if inflation does come back to target?
David Dziekanski: Yeah even if inflation does come back to target we are still going to be in these massive deficits. And obviously it’s always about what is the dollar. What are you comparing the dollar against. It’s definitely possible that for short periods the dollar is going to hold up decently against other international or emerging currencies. But that’s only because they’re in the same deficit puzzle that we are where they have massive debts, they have a shrinking economy, slowing birth rates, no one to pay for this increased amounts of debts. Really, if you think about gold, everyone has always thought of gold as a store of value. And we agree historically it has been a store of value. What that means is in 1850, a gold could buy a house Cos x amount of gold bars. 100 years later it was a similar rate. We actually think that changed once we went off the gold standard. Gold became a real return generating asset once we went off the gold standard. It took a little while to catch up because the first response to that was, Oh my gosh, we can print as much as we want. We can monetize everything. Anything with cash flow had debt added to it. Right but Bitcoin and gold you couldn’t really monetize. So it didn’t have as much debt. And if you look in 2022 when interest rates rose, what everyone said about gold then was this is when gold is going to get crushed. Why? because finally, we’re going to have real interest rates in the short term debt markets, 5.25% And an asset like gold that doesn’t have any return was supposed to get crushed. But we’re on the tail end of this massive debt bubble and adding additional debt to a company or country that has too much debt no longer stimulates growth nearly as much. And this is the yin and yang. So all of a sudden, when we have too much debt that we can’t really handle, pay down, that’s when the scarcity assets really started to shine.
Caroline Woods: Do you have a price target for gold and bitcoin?
David Dziekanski: I mean, over the long run, I think gold can go as high as 6,000 to 10,000. That could definitely take a number of years. And it really depends on the time frame for Bitcoin. I think Bitcoin has a chance to run even between now until the end of the year and even next year, up to the 185 or higher mark. There’s going to be bouts of volatility in both of these assets. But at the end of the day, we’re just going to continue to print more currencies and issue more debt. And it’s just a math problem of supply and demand. In the early days of Bitcoin, Bitcoin was mining at 15% a year. If you like Bitcoin, you end up with a knock on your neighbor’s door and say, let me tell you why you should like Bitcoin too. Because you needed more buyers. You needed more demand for it because there’s so much increased supply. That’s not the name of the game anymore. The supply is constrained on both of these assets. You just need to wait because tomorrow they’re printing more assets and issuing more debt. And gold is being mined and Bitcoin is being mined at a much slower pace.
Caroline Woods: All right. We’ll leave it there. David, really appreciate your insight. Appreciate your insights. Thanks so much.
David Dziekanski: Thank you so much for having me.
Caroline Woods: That’s David Dziekanski, CEO and CIO of Quantify Funds.