July 28, 2025 • 24 mins
In this episode Jeff Chang breaks down the virtues and risks of Bitcoin, highlighting Bitcoin-linked tools and strategies that aim to generate income and mitigate downside risk.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Ryan (00:08):
Hi, welcome to this episode of the First Trust ROI
podcast.
I'm Ryan Isakainen, etfstrategist at First Trust.
Today, I'm joined by Jeff Chang, president and co-founder of
Vest Financial.
Jeff and I are going to discussthe risks and opportunities
associated with Bitcoin and newtools that investors have to
help manage some of that risk.
Thanks for joining us on thisepisode, and I are going to
discuss the risks andopportunities associated with
Bitcoin and new tools thatinvestors have to help manage
some of that risk.
Thanks for joining us on thisepisode of the First Trust ROI
(00:31):
podcast.
I'll be honest, I did not expectthat we would be here in 2025
and Bitcoin would be tradingover $100,000.
And by the time this episodeairs, who knows?
I mean, maybe it'll be.
You know, the base case that Ihave includes the possibility
(00:51):
that it's a $50,000 or a$200,000.
I mean, it could go up 100%,down 50% in my example.
I have no idea, and I thinkit's a good opportunity for us
to discuss a little bit aboutwhat we're even talking about,
because I think there are a lotof people that trade Bitcoin
that have no idea what Bitcoineven is, and so I'm glad to have
(01:14):
this conversation with you anddig in a little bit more into
what we're even talking about.
So, to lay the groundwork, whenwe're talking about Bitcoin,
what is it?
Jeff (01:25):
Yeah, it's a decentralized currency on the blockchain.
Ryan (01:30):
Those are already two words that people are like what
do you mean?
Decentralized currency on theblockchain?
Jeff (01:35):
Yeah, so it is.
There's, essentially, bitcoin,there's a digital ledger that
people can mine, or you canactually like mine it, and
there's only a limited number ofthese of Bitcoin.
I believe, in totality, about21 million is the maximum amount
I think we're close to aboutclose to about 20 million, about
(01:56):
19 and change.
So essentially, 95% of theBitcoin has already been, has
already been mined, so that'salready in circulation.
What's interesting, though,that, when all of the Bitcoin
actually will be completelymined by, I believe, 2140.
Ryan (02:16):
Okay, that's a long time from now.
Jeff (02:17):
Yeah, it's a massive diminishing part of it.
I think what makes it specialas a kind of a if you want to
call it a digital currency or adigital store of gold, is it's
just not.
Ryan (02:27):
there's no government in control of it, and that's the
decentralized part.
Jeff (02:30):
Exactly, that's the decentralized part of it, and
then it does allow fortransactions to kind of
digitally happen, but obviously,like from a cryptocurrency
perspective, it may not be asgood as some of the new
technology, but it does havethat first mover advantage and
that's why it's been so popular.
Ryan (02:48):
Yeah, and because it's already out in the wild, is it
possible to change the protocolsat all, or are they kind of set
as they are?
Jeff (03:00):
So that's why, Bitcoin being kind of the first mover,
it's not as flexible as otherdigital currencies, but because
it's been so much battle tested,it has become kind of, I would
say, like a store of value asopposed to a currency right now,
and because it's in existencethrough all of the different,
(03:23):
like you know, crises that we'veseen, people have some level
more confidence in Bitcoin thanperhaps you know kind of younger
cryptocurrencies that are outthere, yeah.
Ryan (03:33):
So okay, let's talk about it as an asset class.
And whether you consider it astore of value or a currency, or
however you want to term it orname it, it's kind of unique in
a lot of ways.
However you want to term it orname it, it's kind of unique in
a lot of ways.
So what's the case for peopleinvesting in something like
Bitcoin as an asset class?
Jeff (03:51):
I'll first touch upon why it kind of got there as far as
not really a currency.
Bitcoin is extremely slow.
You can only do seventransactions per second.
Now compare that to Visa orMasterCard you can do thousands
of transactions per second.
If you're talking about modernexchanges, you're talking
millions of transactions persecond.
And this is why they call itdigital gold, because it's very
(04:12):
slow.
Comparatively to othertechnology and the ability to
build on top of it, it's alittle bit more kind of an older
tech.
So this is why it creates moreof kind of this digital gold
effect, kind of an older tech.
So this is why it creates moreof kind of this digital gold
effect.
Now, when you're talking aboutinvesting it from a portfolio
perspective, really it servesseveral different purposes.
(04:38):
One, some folks may look at itas a speculative way of making
returns.
Also perhaps to express abullish view from forward
technology such as crypto.
Also perhaps to express abullish view from forward
technology such as crypto.
So that's a lot of people thatwill invest in that way.
There is portfoliodiversification benefits to it
because it doesn't behave like atraditional asset class that
you would say, and so that'swhere you see that it put into
(05:01):
portfolios because of thatunique characteristic.
And the last is also, like Isaid, the store of value, Given
that I think there was a surveythat for investors under the age
of 40, 77% of them preferBitcoin over gold Is that right,
yeah.
So that's why kind of the oldergenerations, while they tilt
(05:22):
toward gold, the new Gen Zers,millennials, actually prefer
Bitcoin as a store of value asopposed to gold.
Ryan (05:29):
Interesting, and so you touched on this a bit already,
but maybe you could make anothercomment on Bitcoin in
comparison to some of the othercryptocurrencies.
Is it just because it's gotthat first mover advantage and,
as you pointed out, it's alittle slower technology that
it's really taken on a life ofits own?
There's other cryptocurrenciesthat people pay attention to,
(05:49):
but Bitcoin seems to have thelead.
Jeff (05:52):
Yeah, mostly because, like I said, it's been battle tested
.
But that's not to say that froma currency perspective, other
types of cryptos can perhapsovertake it, basically from
actually a currency point.
But I think it's really takenits life of its own as an
investment, like I said, storeof value.
I think what's critical, what'sreally interesting, if you look
(06:13):
at the way Bitcoin has behaved,it does really well as the
market kind of moves along.
So, as people are bullish, itactually outperforms blue chip
equities.
So, as people are bullish, itactually outperforms blue chip
equities.
But what's also interesting isthat during times of crisis,
(06:42):
like when people lose confidencein central banks, asset class
as a tech stock during peacetimeand a libertarian lifeboat
during the storm, which is avery unique behavioral behavior
of a particular investment assetclass.
Ryan (06:58):
Yeah, absolutely, but it's not without risk.
I mean, it's clearly volatilityworks two ways, right
Volatility and it's not going toalways outperform, so talk
about some of the risks whenyou're talking about Bitcoin.
Jeff (07:10):
Yeah, I mean there's several different ways to invest
in Bitcoin.
You know, obviously you can ownit yourself and that comes with
its own risks, such as securityrisks, like you know, your
digital wallet getting hacked oryou forget your password or
something along those lines risklike your digital wallet
getting hacked or you forgetyour password or something along
those lines.
But if I were to just look atthe asset itself, I mean the
volatility is extreme as far asyour max drawdown can be upwards
(07:33):
of 80% right.
So that's part of being able tostomach that volatility over
the long term, then youpotentially could obtain the
benefits of, like I said, thetech stock during peacetime and
libertarian lifeboat during thestorm.
But you have to be able tostomach that volatility.
(07:58):
This is why I think we havebuilt strategies that actually
hedge our exposure to Bitcoin,because that's the part that you
have to stomach.
Is that volatility right?
Perhaps, like you know, as anexample strategy, putting a
floor like, let's say, a 15%floor on the strategy would be
extremely helpful, where you canstill retain a lot of the
upside let's say, 30 to 40helpful in the portfolio.
But you got to, I would say,given the volatility, especially
(08:28):
in the financial advisor,wealth management space.
Doing it with guardrails can beextremely important.
Ryan (08:34):
Okay, I want to dig into that a little bit more in just a
moment, but before we do, youmentioned the wealth management
space and you know there's beena lot of developments that have
enabled that wealth managers tobe able to allocate to Bitcoin.
Can you talk a bit about thedifferent ways, beyond just the
traditional owning a flash drive, owning Bitcoin?
Jeff (08:59):
What are?
Ryan (09:00):
some of the other ways that people can own Bitcoin
today.
Jeff (09:01):
So actually let me go in order.
The first was derivatives.
You know you could buy futureson Bitcoin and that really kind
of brought it to, I'd say, kindof the Wall Street kind of types
where you could actually tradeit through derivative form.
Then we saw the emergence ofderivative based ETFs that you
(09:22):
could access through futures,and then eventually we saw ETFs
that you could access throughfutures.
And then, and then eventuallywe saw ETFs that could actually
own the physical, physicalBitcoin.
Now that obviously there'strade-offs, risks and so on and
so forth.
Obviously in an ETF you don'thave that, that risk of losing
your password or your digitalwallet getting getting stolen
per se, but you do get stillalso the intraday liquidity to
(09:47):
ability to trade Bitcoin.
And then after that, and thenwe started seeing options on
Bitcoin, which then opens up awhole new way of building
strategies where people canaccess the asset class not only
from a hey.
I want to, let's say, on onehand, control the volatility or
basically target a particularlike hey, this is my risk return
(10:09):
objective, but also, what'seven more exciting, the ability
to actually monetize thevolatility, get paid for, like,
as an example, writing covercalls on Bitcoin.
And what's fascinating about itis that if you initially looked
at the options on Bitcoin, liketypically in most, like normal
(10:30):
stocks, they have what's callednegative skew, meaning more
people are buying puts thanthey're buying calls.
Right, but the interestingthing was in Bitcoin it was
positively skewed.
Ryan (10:40):
That means more people there's a lot of risk appetite
yeah exactly.
Jeff (10:43):
Why not sell calls to somebody that thinks up?
Because the volatility is there.
There's a lot of opportunity tobasically get paid to monetize
that volatility.
That's what's really exciting.
We build strategies being ableto do that as well, which is
really exciting.
Ryan (11:01):
So, vest Financial, just to take a step back.
I mean, what you are experts atis developing strategies that
use derivatives to achieveincome objectives, outcome
objectives.
You guys are, in my view,you're better than anyone at
that, and so you're telling methat you can do that not just on
(11:22):
equities and equity indices andfixed income, but also now on
Bitcoin.
Jeff (11:27):
Yeah, that's right.
So that's what's exciting aboutwhat we do is that we can
reshape those returns, generateincome almost on any asset class
in which we can source theoption on, and so that really
opens up a massive world of whatwe can do.
A massive world of what we cando.
Ryan (11:43):
So, Jeff, we just passed the 10th anniversary, I think,
of when somebody bought twopizzas at a Papa John's I think
it was 10,000 bitcoins orsomething like that and now
those are the most expensivepizzas ever bought or ever sold.
Do you remember hearing aboutthat?
Jeff (11:59):
Absolutely.
I mean, that's fascinating tome.
Think about how much if youlook at the chart of Bitcoin and
how much has actually look atthe chart of bitcoin and how
much it's actually gone up.
But I think what's critical forpeople to understand is is that
, while it's gone up so much,let me like I would.
The question becomes is youknow you probably heard that you
know the past uh, couple,couple years where people are
(12:20):
like, hey, the s&p is overvalued, it's got the short p.
You know it's like 27.
The question is what is the peof overvalued?
It's got the short PE.
It's at 27.
The question is what is the PEof Bitcoin?
Ryan (12:28):
That's a very good question.
Jeff (12:29):
It's null.
You can't put zero in the.
Ryan (12:32):
E.
Jeff (12:33):
There is no earnings.
The value of it is basicallyhow much the next person is
willing to pay.
You probably heard the wordirrational exuberance in the
equity market.
What does that mean in theBitcoin market?
If there is no P-E ratio, itdoes not spit off income, right?
For that matter, it doesn'teven spit off two pizzas.
There's nothing there.
So that spike is a lot of.
(12:56):
Is it irrational exuberance?
I'm not sure.
So now you're kind of in thisdichotomy of okay, the next
generation views this as a storeof value.
There's an extreme amount ofvolatility the value is
determined by.
Is this an irrationalexuberance?
I mean great example Farcoinwent to 2 billion market cap,
bigger than 1,000 of the Russellcompanies.
(13:20):
Russell 2000 companies.
Yeah, russell 2000.
Over half Farcoin.
You know what Farcoin doesMakes a fart sound when you
trade it On some of theplatforms.
What Farcoin does makes a fartsound when you trade it right,
like on some of the platforms wetrade, it makes a fart sound.
And that was bigger than 1,000of the Russell 2000 companies.
It makes me want to makeChaincoin right like.
If I had Chaincoin, you knowwhat sound it would make.
Ryan (13:39):
I'm not sure.
Jeff (13:40):
Cha-cha.
I love it, but my point in allseriousness is this is that we
don't know whether it is.
There is definitely somethinghere from a store of value
perspective, but how do youstomach the volatility,
especially as a fiduciary?
This is why we think if you'retrying to invest in the gold of
the future, investing withguardrails probably makes sense.
(14:03):
The second component is thatthere is this extreme amount of
volatility.
There's an immense amount ofopportunity to be able to
monetize the volatility and getpaid for it.
Ryan (14:13):
Yeah, I think that's a really good point because, to
your point, there's a lot ofuncertainty when it comes to
Bitcoin and there's a lot of.
I mean, most people, I wouldsay, don't understand it, but
they do recognize that, forwhatever reason.
Maybe there is an opportunity,but they need to find ways to
(14:34):
manage risk.
If you're getting involved inBitcoin, and the good news is
there are ways to usederivatives to manage some of
your downside, as you mentionedearlier, to put a floor in limit
the amount of loss that you canhave, and I would imagine
you're long a put contract.
(14:55):
Is that how you establish afloor in that sort of strategy?
Jeff (14:58):
Yeah, in our strategies.
Yeah, we would buy a put toprovide the protection.
The great way of that kind ofrisk managing is it's perfectly
negatively correlated, right?
It's not like I'm trying tomanage the risk of Bitcoin by
buying Ethereum, right?
Not diversifying, but reallyjust hedging the position itself
, yeah.
Ryan (15:18):
So strategies like that allow people to get that
diversification benefit fromBitcoin, allows them to have
some of the upside potential,but also, to your point, have
guardrails, have some sort ofrisk management, and that's
really, it seems, the newergeneration of how to invest in
something like Bitcoin.
Jeff (15:39):
Exactly Like I think the overall message is there are
there are definitely benefits toit.
Like I said, it's a uniqueasset class in which does well
when markets are going well andthen when people lose faith in
government and monetary policyand so on and so forth, it also
(15:59):
does well.
That's a very unique aspect.
And then, looking at the data,as far as where the next
generation views the store ofvalue, as far as where the next
generation views the store ofvalue, it's definitely something
that investors should thinklong and hard about, as it is
something that is going to bearound.
But, like I said, theconclusion is, while there's all
(16:20):
these benefits, there's anextreme amount of volatility and
there's definitely some riskshere, like not just the vol
itself.
Like if the largest holders ofBitcoin right, there's a mystery
person, satoshi Nagamoto, if hesells his position, it could
crash the price.
Like, imagine if, like I, putyour entire net worth in
(16:41):
something and one person makes adetermination or even some way
you know, a micro strategy,determines to unload.
What is the impact of that?
So you have all these benefits.
You have all these risks.
This is why I I say, like youknow, you got to get creative on
how you access this asset classand how you, what are the
strategies that you're actuallygetting into, uh, to be able to
(17:03):
access it, and that's why Ithink even, um, you know, from a
fiduciary perspective, it'svery important.
Ryan (17:08):
Yeah, you know, one of the interesting aspects of Bitcoin
to me that I've recently lookedat was the energy cost of
Bitcoin, and I'm not sure ifyou've ever looked at this, but
I think last year, in 2024,bitcoin mining used enough
energy.
It was something like 140terawatt hours of power which
(17:28):
was landed it between Sweden andPoland in terms of their annual
use of electricity, and it'sgrowing at like a 23% rate over
the last five years.
It's just.
It's a pretty remarkable amountof energy that's being used to
mine Bitcoin.
Jeff (17:43):
Yeah, and that's that's one of the drawbacks that if you
read it and study Bitcoin isthe amount of power that it
actually consumes, even justfrom the ledger itself.
Ryan (17:55):
Yeah, yeah, and so it's one of these areas that I think
a lot of companies are trying tofind ways to set up solar farms
in the desert so they canmonetize that you know, the
mining of Bitcoin with withsolar panels, but it's, it's.
It's really interesting,especially in an era where
(18:16):
everyone's talking about otherreasons for expanding the amount
of electrical power, whetherit's AI, data centers or
reshoring a manufacturing orthese other, these other sources
.
Jeff (18:26):
Yeah and I think that'll be more and more especially, you
have this power need not onlyfrom crypto, but also, like you
said, powering from AI.
That energy need is just goingto increase.
Ryan (18:38):
Yeah, so when Satoshi Nakamoto first introduced the
Bitcoin, I think it was 2009.
Do I have that right?
2008.
A big part of that was to becompletely separate from the
financial system because ofconcerns about debasing currency
(18:59):
and the US dollar, and youwanted to have an alternative to
that.
And now we've come to a pointwhere the US government seems
like it has become more friendlytowards Bitcoin.
And now we've come to a pointwhere the US government seems
like it has become more friendlytowards Bitcoin and you know
the Trump administration hastalked about having our own.
You know US oh, it's like astrategic reserve, kind of like
(19:22):
the oil strategic reserve thatwe have.
Jeff (19:25):
Yeah, you know what's actually interesting is the US
government actually is one ofthe top 10 holders of Bitcoin.
Yeah, you know.
You know why Seizures?
Because they seize it, right,yeah, and then they don't know,
like it's just sitting there.
Yeah, I believe, if I got itright or wrong, about 200,000
Bitcoin owned by the USgovernment, if not more.
Yeah, today, mostly throughseizures.
(19:46):
But you did touch upon a pointthat's extremely important.
There's another major risk thatpeople write about.
It's regulatory risk.
Depending on which countryyou're in the regulation and
your ability, like tomorrow, youknow any government could say
like, hey, it's illegal to haveBitcoin, or you know that's the
most extreme.
But regulatory risk is a majorrisk of Bitcoin.
(20:08):
There could be changes in justfund construction, right, like
some of the largest holders ofBitcoin are funds from you know
the ETFs to you know, privatefunds.
You see it on the blockchain.
So that is definitely a riskbecause just by changing a law
in a fund, it could cause anyone of these funds to have to
(20:31):
liquidate their entire position.
So that's definitely, like youtouched upon, it is a major risk
.
Also, lending itself on whyhedging is also probably a good
way to access this asset class,yeah, and and.
Ryan (20:44):
Because when you're owning a derivative on an ETF or
something like that, that's kindof separate from you don't
actually own the Bitcoin.
You have a contractualagreement with someone else who
sold you that or bought thatcontract from you, right, yeah?
Jeff (20:58):
So yeah, that's what's great about auction we're just
pointing at the movement ofsomething else, and that
determines the value.
Ryan (21:04):
Yeah.
Jeff (21:05):
And then the great thing is, if you know, as exchange
traded options they clear on theexchange and so you don't have
the, let's say, the counterpartyrisk of trading with one person
per se on a particularderivative contract.
Ryan (21:19):
How liquid have those contracts become?
They've been trading for awhile now.
Is it something that's veryliquid?
It's fascinating.
Jeff (21:25):
So when the I believe the iBit option came out I think it
was like late last year Withinits like first month and a half
of trading, it became the fifthmost traded ETF option.
Is that right In the market?
And so how wild is that whenyou have like SPY, gld, you know
(21:49):
, like all the Russell, theNASDAQ, all these things, it
became the fifth most tradedoption ETF option out there.
And that was just in the firstmonth and a half.
So that's how, like theliquidity of that space and like
I said, it could be a lot ofpeople speculating and so on and
so forth, but you know it's atremendous amount of volume
there.
Ryan (22:10):
And that's good.
If you want to access exposureto any of those contracts, it
doesn't matter to you.
In other words, if someone isjust scratching their
speculative itch and they'rebetting in their mom's basement
eating their mayonnaisesandwiches, as long as they're
transacting, it brings volumeand liquidity.
(22:32):
Yeah, interesting.
I love the image that youpainted of who the typical
trader is.
Jeff (22:41):
I've seen that person before.
Ryan (22:44):
All right, jeff.
Any final.
What haven't we talked aboutwhen it comes to Bitcoin and
investing in it?
Jeff (22:55):
I would say like definitely something that will
be there in the future andpeople should really look long
and hard at it, reallyunderstand it.
And hard at it, reallyunderstand it, meaning look at
the vol, understand thatcomponent and then pick the
right strategy for them toaccess the asset class.
(23:16):
Because, like I said, if you'relooking at and there's several
surveys about this that the nextgeneration, the younger
generation, views this as theirversion of gold, I believe that
it definitely has some place inthe portfolio.
If that's the case, just accessit the right way.
Ryan (23:33):
Okay, Well, we haven't talked about a lot of your other
what you're doing over at VestFinancial.
Congratulations on a tremendousamount of success in the
product line.
It seems like every other dayyou're finding new and
innovative ways to get exposureto assets, to generate income,
to manage risk on the downside,and you know you've been a true
(23:59):
pioneer in that space, and soyou know, congratulations for
all the success.
It's been a great partnershipwith Vest Financial,
sub-advising a number of FirstTrust ETFs, and so that's been
great as well.
Jeff (24:13):
That's been fantastic.
I think the partnership hasbeen phenomenal.
Ryan (24:19):
Yeah, and, of course, thank you for making another
appearance on the podcast.
It's always great to have youjoin me for a little chat.
Jeff (24:27):
Always great to be here.
Can I get your autograph?
Ryan (24:31):
Yes, when we're off camera , we'll exchange jerseys that
are autographed.
How about that?
Perfect?
Again, thanks for joining us,and thanks to all of you for
joining us on this episode ofthe First Trust ROI Podcast.
We'll see you next time.
Hi, welcome to this episode of the First Trust ROI
podcast.
I'm Ryan Isakainen, etfstrategist at First Trust.
Today, I'm joined by Jeff Chang, president and co-founder of
Vest Financial.
Jeff and I are going to discussthe risks and opportunities
associated with Bitcoin and newtools that investors have to
help manage some of that risk.
Thanks for joining us on thisepisode, and I are going to
discuss the risks andopportunities associated with
Bitcoin and new tools thatinvestors have to help manage
some of that risk.
Thanks for joining us on thisepisode of the First Trust ROI
(00:31):
podcast.
I'll be honest, I did not expectthat we would be here in 2025
and Bitcoin would be tradingover $100,000.
And by the time this episodeairs, who knows?
I mean, maybe it'll be.
You know, the base case that Ihave includes the possibility
(00:51):
that it's a $50,000 or a$200,000.
I mean, it could go up 100%,down 50% in my example.
I have no idea, and I thinkit's a good opportunity for us
to discuss a little bit aboutwhat we're even talking about,
because I think there are a lotof people that trade Bitcoin
that have no idea what Bitcoineven is, and so I'm glad to have
(01:14):
this conversation with you anddig in a little bit more into
what we're even talking about.
So, to lay the groundwork, whenwe're talking about Bitcoin,
what is it?
Jeff (01:25):
Yeah, it's a decentralized currency on the blockchain.
Ryan (01:30):
Those are already two words that people are like what
do you mean?
Decentralized currency on theblockchain?
Jeff (01:35):
Yeah, so it is.
There's, essentially, bitcoin,there's a digital ledger that
people can mine, or you canactually like mine it, and
there's only a limited number ofthese of Bitcoin.
I believe, in totality, about21 million is the maximum amount
I think we're close to aboutclose to about 20 million, about
(01:56):
19 and change.
So essentially, 95% of theBitcoin has already been, has
already been mined, so that'salready in circulation.
What's interesting, though,that, when all of the Bitcoin
actually will be completelymined by, I believe, 2140.
Ryan (02:16):
Okay, that's a long time from now.
Jeff (02:17):
Yeah, it's a massive diminishing part of it.
I think what makes it specialas a kind of a if you want to
call it a digital currency or adigital store of gold, is it's
just not.
Ryan (02:27):
there's no government in control of it, and that's the
decentralized part.
Jeff (02:30):
Exactly, that's the decentralized part of it, and
then it does allow fortransactions to kind of
digitally happen, but obviously,like from a cryptocurrency
perspective, it may not be asgood as some of the new
technology, but it does havethat first mover advantage and
that's why it's been so popular.
Ryan (02:48):
Yeah, and because it's already out in the wild, is it
possible to change the protocolsat all, or are they kind of set
as they are?
Jeff (03:00):
So that's why, Bitcoin being kind of the first mover,
it's not as flexible as otherdigital currencies, but because
it's been so much battle tested,it has become kind of, I would
say, like a store of value asopposed to a currency right now,
and because it's in existencethrough all of the different,
(03:23):
like you know, crises that we'veseen, people have some level
more confidence in Bitcoin thanperhaps you know kind of younger
cryptocurrencies that are outthere, yeah.
Ryan (03:33):
So okay, let's talk about it as an asset class.
And whether you consider it astore of value or a currency, or
however you want to term it orname it, it's kind of unique in
a lot of ways.
However you want to term it orname it, it's kind of unique in
a lot of ways.
So what's the case for peopleinvesting in something like
Bitcoin as an asset class?
Jeff (03:51):
I'll first touch upon why it kind of got there as far as
not really a currency.
Bitcoin is extremely slow.
You can only do seventransactions per second.
Now compare that to Visa orMasterCard you can do thousands
of transactions per second.
If you're talking about modernexchanges, you're talking
millions of transactions persecond.
And this is why they call itdigital gold, because it's very
(04:12):
slow.
Comparatively to othertechnology and the ability to
build on top of it, it's alittle bit more kind of an older
tech.
So this is why it creates moreof kind of this digital gold
effect, kind of an older tech.
So this is why it creates moreof kind of this digital gold
effect.
Now, when you're talking aboutinvesting it from a portfolio
perspective, really it servesseveral different purposes.
(04:38):
One, some folks may look at itas a speculative way of making
returns.
Also perhaps to express abullish view from forward
technology such as crypto.
Also perhaps to express abullish view from forward
technology such as crypto.
So that's a lot of people thatwill invest in that way.
There is portfoliodiversification benefits to it
because it doesn't behave like atraditional asset class that
you would say, and so that'swhere you see that it put into
(05:01):
portfolios because of thatunique characteristic.
And the last is also, like Isaid, the store of value, Given
that I think there was a surveythat for investors under the age
of 40, 77% of them preferBitcoin over gold Is that right,
yeah.
So that's why kind of the oldergenerations, while they tilt
(05:22):
toward gold, the new Gen Zers,millennials, actually prefer
Bitcoin as a store of value asopposed to gold.
Ryan (05:29):
Interesting, and so you touched on this a bit already,
but maybe you could make anothercomment on Bitcoin in
comparison to some of the othercryptocurrencies.
Is it just because it's gotthat first mover advantage and,
as you pointed out, it's alittle slower technology that
it's really taken on a life ofits own?
There's other cryptocurrenciesthat people pay attention to,
(05:49):
but Bitcoin seems to have thelead.
Jeff (05:52):
Yeah, mostly because, like I said, it's been battle tested
.
But that's not to say that froma currency perspective, other
types of cryptos can perhapsovertake it, basically from
actually a currency point.
But I think it's really takenits life of its own as an
investment, like I said, storeof value.
I think what's critical, what'sreally interesting, if you look
(06:13):
at the way Bitcoin has behaved,it does really well as the
market kind of moves along.
So, as people are bullish, itactually outperforms blue chip
equities.
So, as people are bullish, itactually outperforms blue chip
equities.
But what's also interesting isthat during times of crisis,
(06:42):
like when people lose confidencein central banks, asset class
as a tech stock during peacetimeand a libertarian lifeboat
during the storm, which is avery unique behavioral behavior
of a particular investment assetclass.
Ryan (06:58):
Yeah, absolutely, but it's not without risk.
I mean, it's clearly volatilityworks two ways, right
Volatility and it's not going toalways outperform, so talk
about some of the risks whenyou're talking about Bitcoin.
Jeff (07:10):
Yeah, I mean there's several different ways to invest
in Bitcoin.
You know, obviously you can ownit yourself and that comes with
its own risks, such as securityrisks, like you know, your
digital wallet getting hacked oryou forget your password or
something along those lines risklike your digital wallet
getting hacked or you forgetyour password or something along
those lines.
But if I were to just look atthe asset itself, I mean the
volatility is extreme as far asyour max drawdown can be upwards
(07:33):
of 80% right.
So that's part of being able tostomach that volatility over
the long term, then youpotentially could obtain the
benefits of, like I said, thetech stock during peacetime and
libertarian lifeboat during thestorm.
But you have to be able tostomach that volatility.
(07:58):
This is why I think we havebuilt strategies that actually
hedge our exposure to Bitcoin,because that's the part that you
have to stomach.
Is that volatility right?
Perhaps, like you know, as anexample strategy, putting a
floor like, let's say, a 15%floor on the strategy would be
extremely helpful, where you canstill retain a lot of the
upside let's say, 30 to 40helpful in the portfolio.
But you got to, I would say,given the volatility, especially
(08:28):
in the financial advisor,wealth management space.
Doing it with guardrails can beextremely important.
Ryan (08:34):
Okay, I want to dig into that a little bit more in just a
moment, but before we do, youmentioned the wealth management
space and you know there's beena lot of developments that have
enabled that wealth managers tobe able to allocate to Bitcoin.
Can you talk a bit about thedifferent ways, beyond just the
traditional owning a flash drive, owning Bitcoin?
Jeff (08:59):
What are?
Ryan (09:00):
some of the other ways that people can own Bitcoin
today.
Jeff (09:01):
So actually let me go in order.
The first was derivatives.
You know you could buy futureson Bitcoin and that really kind
of brought it to, I'd say, kindof the Wall Street kind of types
where you could actually tradeit through derivative form.
Then we saw the emergence ofderivative based ETFs that you
(09:22):
could access through futures,and then eventually we saw ETFs
that you could access throughfutures.
And then, and then eventuallywe saw ETFs that could actually
own the physical, physicalBitcoin.
Now that obviously there'strade-offs, risks and so on and
so forth.
Obviously in an ETF you don'thave that, that risk of losing
your password or your digitalwallet getting getting stolen
per se, but you do get stillalso the intraday liquidity to
(09:47):
ability to trade Bitcoin.
And then after that, and thenwe started seeing options on
Bitcoin, which then opens up awhole new way of building
strategies where people canaccess the asset class not only
from a hey.
I want to, let's say, on onehand, control the volatility or
basically target a particularlike hey, this is my risk return
(10:09):
objective, but also, what'seven more exciting, the ability
to actually monetize thevolatility, get paid for, like,
as an example, writing covercalls on Bitcoin.
And what's fascinating about itis that if you initially looked
at the options on Bitcoin, liketypically in most, like normal
(10:30):
stocks, they have what's callednegative skew, meaning more
people are buying puts thanthey're buying calls.
Right, but the interestingthing was in Bitcoin it was
positively skewed.
Ryan (10:40):
That means more people there's a lot of risk appetite
yeah exactly.
Jeff (10:43):
Why not sell calls to somebody that thinks up?
Because the volatility is there.
There's a lot of opportunity tobasically get paid to monetize
that volatility.
That's what's really exciting.
We build strategies being ableto do that as well, which is
really exciting.
Ryan (11:01):
So, vest Financial, just to take a step back.
I mean, what you are experts atis developing strategies that
use derivatives to achieveincome objectives, outcome
objectives.
You guys are, in my view,you're better than anyone at
that, and so you're telling methat you can do that not just on
(11:22):
equities and equity indices andfixed income, but also now on
Bitcoin.
Jeff (11:27):
Yeah, that's right.
So that's what's exciting aboutwhat we do is that we can
reshape those returns, generateincome almost on any asset class
in which we can source theoption on, and so that really
opens up a massive world of whatwe can do.
A massive world of what we cando.
Ryan (11:43):
So, Jeff, we just passed the 10th anniversary, I think,
of when somebody bought twopizzas at a Papa John's I think
it was 10,000 bitcoins orsomething like that and now
those are the most expensivepizzas ever bought or ever sold.
Do you remember hearing aboutthat?
Jeff (11:59):
Absolutely.
I mean, that's fascinating tome.
Think about how much if youlook at the chart of Bitcoin and
how much has actually look atthe chart of bitcoin and how
much it's actually gone up.
But I think what's critical forpeople to understand is is that
, while it's gone up so much,let me like I would.
The question becomes is youknow you probably heard that you
know the past uh, couple,couple years where people are
(12:20):
like, hey, the s&p is overvalued, it's got the short p.
You know it's like 27.
The question is what is the peof overvalued?
It's got the short PE.
It's at 27.
The question is what is the PEof Bitcoin?
Ryan (12:28):
That's a very good question.
Jeff (12:29):
It's null.
You can't put zero in the.
Ryan (12:32):
E.
Jeff (12:33):
There is no earnings.
The value of it is basicallyhow much the next person is
willing to pay.
You probably heard the wordirrational exuberance in the
equity market.
What does that mean in theBitcoin market?
If there is no P-E ratio, itdoes not spit off income, right?
For that matter, it doesn'teven spit off two pizzas.
There's nothing there.
So that spike is a lot of.
(12:56):
Is it irrational exuberance?
I'm not sure.
So now you're kind of in thisdichotomy of okay, the next
generation views this as a storeof value.
There's an extreme amount ofvolatility the value is
determined by.
Is this an irrationalexuberance?
I mean great example Farcoinwent to 2 billion market cap,
bigger than 1,000 of the Russellcompanies.
(13:20):
Russell 2000 companies.
Yeah, russell 2000.
Over half Farcoin.
You know what Farcoin doesMakes a fart sound when you
trade it On some of theplatforms.
What Farcoin does makes a fartsound when you trade it right,
like on some of the platforms wetrade, it makes a fart sound.
And that was bigger than 1,000of the Russell 2000 companies.
It makes me want to makeChaincoin right like.
If I had Chaincoin, you knowwhat sound it would make.
Ryan (13:39):
I'm not sure.
Jeff (13:40):
Cha-cha.
I love it, but my point in allseriousness is this is that we
don't know whether it is.
There is definitely somethinghere from a store of value
perspective, but how do youstomach the volatility,
especially as a fiduciary?
This is why we think if you'retrying to invest in the gold of
the future, investing withguardrails probably makes sense.
(14:03):
The second component is thatthere is this extreme amount of
volatility.
There's an immense amount ofopportunity to be able to
monetize the volatility and getpaid for it.
Ryan (14:13):
Yeah, I think that's a really good point because, to
your point, there's a lot ofuncertainty when it comes to
Bitcoin and there's a lot of.
I mean, most people, I wouldsay, don't understand it, but
they do recognize that, forwhatever reason.
Maybe there is an opportunity,but they need to find ways to
(14:34):
manage risk.
If you're getting involved inBitcoin, and the good news is
there are ways to usederivatives to manage some of
your downside, as you mentionedearlier, to put a floor in limit
the amount of loss that you canhave, and I would imagine
you're long a put contract.
(14:55):
Is that how you establish afloor in that sort of strategy?
Jeff (14:58):
Yeah, in our strategies.
Yeah, we would buy a put toprovide the protection.
The great way of that kind ofrisk managing is it's perfectly
negatively correlated, right?
It's not like I'm trying tomanage the risk of Bitcoin by
buying Ethereum, right?
Not diversifying, but reallyjust hedging the position itself
, yeah.
Ryan (15:18):
So strategies like that allow people to get that
diversification benefit fromBitcoin, allows them to have
some of the upside potential,but also, to your point, have
guardrails, have some sort ofrisk management, and that's
really, it seems, the newergeneration of how to invest in
something like Bitcoin.
Jeff (15:39):
Exactly Like I think the overall message is there are
there are definitely benefits toit.
Like I said, it's a uniqueasset class in which does well
when markets are going well andthen when people lose faith in
government and monetary policyand so on and so forth, it also
(15:59):
does well.
That's a very unique aspect.
And then, looking at the data,as far as where the next
generation views the store ofvalue, as far as where the next
generation views the store ofvalue, it's definitely something
that investors should thinklong and hard about, as it is
something that is going to bearound.
But, like I said, theconclusion is, while there's all
(16:20):
these benefits, there's anextreme amount of volatility and
there's definitely some riskshere, like not just the vol
itself.
Like if the largest holders ofBitcoin right, there's a mystery
person, satoshi Nagamoto, if hesells his position, it could
crash the price.
Like, imagine if, like I, putyour entire net worth in
(16:41):
something and one person makes adetermination or even some way
you know, a micro strategy,determines to unload.
What is the impact of that?
So you have all these benefits.
You have all these risks.
This is why I I say, like youknow, you got to get creative on
how you access this asset classand how you, what are the
strategies that you're actuallygetting into, uh, to be able to
(17:03):
access it, and that's why Ithink even, um, you know, from a
fiduciary perspective, it'svery important.
Ryan (17:08):
Yeah, you know, one of the interesting aspects of Bitcoin
to me that I've recently lookedat was the energy cost of
Bitcoin, and I'm not sure ifyou've ever looked at this, but
I think last year, in 2024,bitcoin mining used enough
energy.
It was something like 140terawatt hours of power which
(17:28):
was landed it between Sweden andPoland in terms of their annual
use of electricity, and it'sgrowing at like a 23% rate over
the last five years.
It's just.
It's a pretty remarkable amountof energy that's being used to
mine Bitcoin.
Jeff (17:43):
Yeah, and that's that's one of the drawbacks that if you
read it and study Bitcoin isthe amount of power that it
actually consumes, even justfrom the ledger itself.
Ryan (17:55):
Yeah, yeah, and so it's one of these areas that I think
a lot of companies are trying tofind ways to set up solar farms
in the desert so they canmonetize that you know, the
mining of Bitcoin with withsolar panels, but it's, it's.
It's really interesting,especially in an era where
(18:16):
everyone's talking about otherreasons for expanding the amount
of electrical power, whetherit's AI, data centers or
reshoring a manufacturing orthese other, these other sources
.
Jeff (18:26):
Yeah and I think that'll be more and more especially, you
have this power need not onlyfrom crypto, but also, like you
said, powering from AI.
That energy need is just goingto increase.
Ryan (18:38):
Yeah, so when Satoshi Nakamoto first introduced the
Bitcoin, I think it was 2009.
Do I have that right?
2008.
A big part of that was to becompletely separate from the
financial system because ofconcerns about debasing currency
(18:59):
and the US dollar, and youwanted to have an alternative to
that.
And now we've come to a pointwhere the US government seems
like it has become more friendlytowards Bitcoin.
And now we've come to a pointwhere the US government seems
like it has become more friendlytowards Bitcoin and you know
the Trump administration hastalked about having our own.
You know US oh, it's like astrategic reserve, kind of like
(19:22):
the oil strategic reserve thatwe have.
Jeff (19:25):
Yeah, you know what's actually interesting is the US
government actually is one ofthe top 10 holders of Bitcoin.
Yeah, you know.
You know why Seizures?
Because they seize it, right,yeah, and then they don't know,
like it's just sitting there.
Yeah, I believe, if I got itright or wrong, about 200,000
Bitcoin owned by the USgovernment, if not more.
Yeah, today, mostly throughseizures.
(19:46):
But you did touch upon a pointthat's extremely important.
There's another major risk thatpeople write about.
It's regulatory risk.
Depending on which countryyou're in the regulation and
your ability, like tomorrow, youknow any government could say
like, hey, it's illegal to haveBitcoin, or you know that's the
most extreme.
But regulatory risk is a majorrisk of Bitcoin.
(20:08):
There could be changes in justfund construction, right, like
some of the largest holders ofBitcoin are funds from you know
the ETFs to you know, privatefunds.
You see it on the blockchain.
So that is definitely a riskbecause just by changing a law
in a fund, it could cause anyone of these funds to have to
(20:31):
liquidate their entire position.
So that's definitely, like youtouched upon, it is a major risk
.
Also, lending itself on whyhedging is also probably a good
way to access this asset class,yeah, and and.
Ryan (20:44):
Because when you're owning a derivative on an ETF or
something like that, that's kindof separate from you don't
actually own the Bitcoin.
You have a contractualagreement with someone else who
sold you that or bought thatcontract from you, right, yeah?
Jeff (20:58):
So yeah, that's what's great about auction we're just
pointing at the movement ofsomething else, and that
determines the value.
Ryan (21:04):
Yeah.
Jeff (21:05):
And then the great thing is, if you know, as exchange
traded options they clear on theexchange and so you don't have
the, let's say, the counterpartyrisk of trading with one person
per se on a particularderivative contract.
Ryan (21:19):
How liquid have those contracts become?
They've been trading for awhile now.
Is it something that's veryliquid?
It's fascinating.
Jeff (21:25):
So when the I believe the iBit option came out I think it
was like late last year Withinits like first month and a half
of trading, it became the fifthmost traded ETF option.
Is that right In the market?
And so how wild is that whenyou have like SPY, gld, you know
(21:49):
, like all the Russell, theNASDAQ, all these things, it
became the fifth most tradedoption ETF option out there.
And that was just in the firstmonth and a half.
So that's how, like theliquidity of that space and like
I said, it could be a lot ofpeople speculating and so on and
so forth, but you know it's atremendous amount of volume
there.
Ryan (22:10):
And that's good.
If you want to access exposureto any of those contracts, it
doesn't matter to you.
In other words, if someone isjust scratching their
speculative itch and they'rebetting in their mom's basement
eating their mayonnaisesandwiches, as long as they're
transacting, it brings volumeand liquidity.
(22:32):
Yeah, interesting.
I love the image that youpainted of who the typical
trader is.
Jeff (22:41):
I've seen that person before.
Ryan (22:44):
All right, jeff.
Any final.
What haven't we talked aboutwhen it comes to Bitcoin and
investing in it?
Jeff (22:55):
I would say like definitely something that will
be there in the future andpeople should really look long
and hard at it, reallyunderstand it.
And hard at it, reallyunderstand it, meaning look at
the vol, understand thatcomponent and then pick the
right strategy for them toaccess the asset class.
(23:16):
Because, like I said, if you'relooking at and there's several
surveys about this that the nextgeneration, the younger
generation, views this as theirversion of gold, I believe that
it definitely has some place inthe portfolio.
If that's the case, just accessit the right way.
Ryan (23:33):
Okay, Well, we haven't talked about a lot of your other
what you're doing over at VestFinancial.
Congratulations on a tremendousamount of success in the
product line.
It seems like every other dayyou're finding new and
innovative ways to get exposureto assets, to generate income,
to manage risk on the downside,and you know you've been a true
(23:59):
pioneer in that space, and soyou know, congratulations for
all the success.
It's been a great partnershipwith Vest Financial,
sub-advising a number of FirstTrust ETFs, and so that's been
great as well.
Jeff (24:13):
That's been fantastic.
I think the partnership hasbeen phenomenal.
Ryan (24:19):
Yeah, and, of course, thank you for making another
appearance on the podcast.
It's always great to have youjoin me for a little chat.
Jeff (24:27):
Always great to be here.
Can I get your autograph?
Ryan (24:31):
Yes, when we're off camera , we'll exchange jerseys that
are autographed.
How about that?
Perfect?
Again, thanks for joining us,and thanks to all of you for
joining us on this episode ofthe First Trust ROI Podcast.
We'll see you next time.
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