What's Next for Bitmine after 5% of ETH? | Chairman Tom Lee

TRANSCRIPT
David:
[0:03] Bankless Nation, I am once again joined by Tom Lee, the chairman of the board

David:
[0:07] at Bitmine, the world's largest ETH holder. Tom, welcome back to Bankless.

Tom:
[0:11] Thank you.

David:
[0:13] Good to be back. Tom, it's been about one year and two months since Bitmine was first announced as an ETH treasury company. And along with that, the announcement of the intention to buy 5% of the supply, of ETH. I remember both Ryan at the time, Ryan and I, we were just like, 5%. He's never going to get to 5%. That's so high. And here we are 14 months later, Bitmine is almost at 4.9% of the ETH supply bought in 14 months. So we're basically there. How did you do that in such a short amount of time? There are many graveyards in the DAT landscape, and Bitmine is not one of them. And in fact, I think Bitmine has exceeded people's expectations with how much

David:
[1:01] ETH it has been able to put on the balance sheet. To what do you credit the success?

Tom:
[1:05] Not in any particular order. I would first of all start by saying I think the investors who followed us on this journey and have stuck with us, have told us that they really appreciated our consistent and very simple messaging. You know, we kept it very simple because we said we wanted to keep the capital structure clean and the whole endeavor was funded with equity, no debt, no convertible instruments.

Tom:
[1:35] The second is that we wanted to make this about really helping the Ethereum ecosystem. That's why we targeted 5% because we thought that was a level that was going to be enough to hold enough that would be significant, but also be important ballast. And I think that's really played out this year, especially with the Ethereum Foundation sort of reshaping and focus on crops. You know, we've been the lead investor in each of the seeds and spin outs.

Tom:
[2:04] I think the second key has been, and this has been important to me, I've treated investors as intelligent people, you know, so I wasn't trying to sell them a story that would just try to get the stock to go up. But we really focused on understanding this is a multi-year time frame. In fact, Michael Saylor even mentioned that in a recent podcast, you know, when someone asked him about the stock price, he says, you got to really think of it in four year time frames. And I think that's correct. You know, we weren't trying to sell people on this idea that the stock would go up every week because something was going to happen. So we've treated people intelligently that way. And I think a third is it does take a little bit of, you know, luck and good fortune. But I think we did time everything pretty correctly because we had been able to raise all of this capital at above NAV. So we've been accretively growing Ethereum health per share. I know from inception to now, it's up by more than 10 times. So when the original transaction was done at $4.50 a share, we've dramatically increased the amount of ETH held per BitMind share. And that's, of course, why the stock is above $450, which is really when the

Tom:
[3:20] original transaction was done.

David:
[3:22] One of the most notable things to me about BitMine is the consistency behind the ETH purchases. I think this is true, is that BitMine has bought ETH every single week since the inception of the whole ETH treasury strategy. Not even Michael Saylor and Strategy have done that. Strategy has had many weeks where they haven't bought any Bitcoin and some weeks where they've sold Bitcoin. And so that's, I think, the most astounding thing is the consistency with the cash purchases. How are you able to do that?

Tom:
[3:53] Yeah, it's been over 60 weeks of continuous purchases of Ethereum. And we have throttled down the velocity of our purchases, partly in consultation with the foundation. You know, we had spoken to them. And, you know, in the midst of this transition and sort of refocus, I think it would have not made sense for us to be viewed as a centralizing entity. So I think we've marching our way slowly to 5%. At just about 5.82 million, I think we're like 97% of the way there. But we've been able to execute purchases because I think it's been prudent capital and cash management. We don't raise money every week. And we've really wanted to, every week we decide, you know, what is the best use of cash? So some weeks we have been doing only exclusively ETH purchases, but for the last five weeks, we've done a combination of stock buyback and Ethereum purchases. So I think we judge really what is the expected future return of our deployment of that capital.

David:
[5:09] The crypto industry is watching Michael Strategy, Michael Saylor, post these announcements of like, you know, raised, you know, $100 million from an ATM of MSTR. And that's really the way that that strategy has been able to raise cash. And that's kind of people's frames of reference. But I'm curious as to how BitMine has been simultaneously raising cash and also buying back the BitMine equity, when our only comparable that we really have is strategy who is selling the

David:
[5:41] equity in order to raise cash. So where is the cash actually coming from?

Tom:
[5:44] It's several things, and I think it's disclosed in our queues as well. You know, our main source of cash is selling common equity when it trades above net asset value. But we have been doing that sparingly, partly because part of us selfishly thinks, you know, ETH, if ETH is going to make a big move between now and your end, then we do have to be a lot more tactical. Because part of it is, of course, you want to have stack some ETH. But then, of course, it makes sense to even buy back stock because now you're concentrating increasing ETH per share. So we're really weighing that every week. But something else that we have been able to do is we do selectively try to buy ETH below spot. I think that saves us a lot of capital. I think we haven't really bought ETH at spot prices for most of the last...

Tom:
[6:42] 14 months. So we've been able to buy at a discount. So that's been a creative for shareholders as well, is to buy ETH at a discount. We did do a preferred, perpetual preferred stock offering in June. That was very successfully launched. It was more than five times oversubscribed. And that was issued at 80% of par. So it was issued essentially at $80 because each unit BM&P is $100 worth. And today I think it closed at like 91. So it's been a really strong performing preferred stock offering and it's yielding 9.5% and that pays a dividend every week. So it's a week, It's the only of the 175 largest preferred stock offerings out there. It's the only one that pays a dividend every week. I think there's, you know, like we, you know, we don't reveal this, but we look at our menu of sort of capital availability. And, you know, we have a huge menu of available options. But today,

Tom:
[7:51] you know, we've kept it very, very simple.

David:
[7:53] What's the timeline for actually hitting that 5% number? I know you said we're at something north of 4.8%, and you have also said you've slowed down the actual ETH purchases. Do you have like a kind of a target timeline for when that 5% number is actually hit? And then what happens at 5%? Is that it? Will no more ETH be bought past 5%? Let's see.

Tom:
[8:14] So on the first part of your question, David, you know, it's about $350 million worth of ETH. That we need to acquire to reach 5%. And, you know, we could reach it by the end of the year. It could happen sooner. I'd say it's still one of these things that, for the moment, part of it is just making sure that the ETH narrative is actually working

Tom:
[8:44] Clear with investors. And I think it's coming together. For instance, if the Clarity Act passed, I think we would have probably accelerated our timeline to get to 5%. But now with the Clarity Act, which isn't really entirely negative for crypto, but it does push out some things that people were hoping would take place. If that's in September, we'd probably rethink in September the pace of our Ethereum buys. And as for like, should we be more than 5%, I think it's today given the re-sort of casting of the foundation's role. And I think it's now, you know, a much more sustainable sized organization and with a focus. And I think properly these new entities that have been stood up are really doing a lot of the work that should do multiple things, whether it's improving privacy or really bringing enterprise engagement

Tom:
[9:43] Onto Ethereum. In that world, I do think that the notion of Ethereum and how it's going to be used is going to evolve as well. I think there's going to be a lot in the future. I think a lot of enterprises are going to want to hold ETH as an asset if it's something that's going to be used. And in a way that they view holding something from a real estate perspective. And if that's the case, then I think for us to own more than 5% would make a

Tom:
[10:12] lot of sense. But again, I think that's probably something we're going to rethink in 2027.

David:
[10:18] Well, is there ever a scenario where Bitmine would ever sell ETH at all? Is that something to consider or is that just completely off the table?

Tom:
[10:26] From a cash management perspective, it's not necessary because ETH is an inherently yield-bearing asset and the rewards are generating cash flow. Now, at the moment, we're not turning those into USDC or US dollars at all. You know, at 5%, if we're at 5% and then we're still stacking ETH through yield, there is maybe a scenario where we're just going to not want to go over 5%, so we would sell the rewards that we're receiving. You know, that's a possibility. I think ETH doesn't need to be sold from our perspective. If anything, there's going to just be other ways to utilize Ethereum. You know, for instance, you know, today we're doing native staking and we've done that with a little bit over 5 million of the ETH. That leaves 800,000 ETH that's not staked today. Now, would we consider using this in productive ways for the ecosystem? Possibly. So I'd say instead of us selling Ethereum, we're more likely to try to find ways to monetize our Ethereum holding. So I guess in short, selling ETH would not be something that we would do out of financial necessity. And even our preferred stock dividends are easily covered by the existing ETH

Tom:
[11:50] rewards. So there wouldn't be a need for us to sell Ethereum at all.

David:
[11:55] On the Bitmine investor calls, it's been stated that Bitmine is transforming from a company that buys ETH into an Ethereum ecosystem company with real cash flow. Can you just illuminate that just a little bit more? What does it mean to be an Ethereum ecosystem company?

Tom:
[12:11] Well, I think we're already making that transition, David, because of Maven. Maven is the native staking operation of Bitmine. It stands for Made in America Validator Network. It is one of the newest, I think, and therefore one of the most secure staking protocols out there. And Maven has actually secured quite a lot of external client wins. So in total, I think Maven now is handling the staking for more than $2 billion of non-Bitmine crypto. I think at the right time, we will disclose some of the wins. But that's an example of a business that's really being stood up, partly because Bitmine, of course, wanted to have a native staking operation. But because of the many features that were built into it and the technological capabilities, you know, it's been attractive and winning mandates for other

Tom:
[13:11] people to manage their crypto.

David:
[13:13] I'm going to talk about what is next for the ETH narrative. Tom, when you came onto the scene and when Bitmine came onto the scene as kind of like the main guy behind Ethereum, the narrative that you brought with you was that stablecoins are the chat GPT moment for crypto. It was a very hot narrative, really struck a chord with Wall Street, and idiosyncratically really benefited Ethereum and Ether specifically. And I think that really worked. That really worked for that time. But nonetheless, it still feels like ETH today is looking for, it's a new narrative. It's still kind of trying to find its footing in its identity in 2026. And it hasn't quite yet found it in the modern era of crypto. Do you have an opinion or take here about how ETH ought to be positioned for

David:
[13:59] investors' portfolio in 2026?

Tom:
[14:01] Yeah, well, I mean, I'd say to me, I'd start with the macro. You know, I've been a macro markets person for more than three decades. And when I look at attribution, so, and I'm, in fact, Stan Druckenmiller has said the same thing, but if you take a stock idea, okay, and you say, how much of it is attributable to attribution?

Tom:
[14:29] Macro factors followed by industry factors, okay, that is more than 80% of the performance of an asset, of a stock. And therefore, 20% is actually stock related. In crypto, when I've looked at these cycles, I might say the attribution is 90% macro. So in other words, like the differentiation of narrative for Ethereum and how it compares to other projects is going to ultimately be only 10% of the return of ETH as an asset. And so for investors today, if they're talking about the price of ETH, then I'd say 90% of it's going to be we're in crypto spring. And even if you think it's crypto winter, crypto winter is over in less than 10 weeks. So regardless of what your bet is on Ethereum and why you have shaped a skeptical view in the middle of a crypto winter, you're probably forgetting that 90% of the underperformance over the last couple of years is because it's crypto winter.

Tom:
[15:38] So just, you know, like a little self-actualization and self-realization of that. But as far as narrative goes, like, am I optimistic that Ethereum will be a standout in the next crypto cycle? I'm very confident because stablecoins was the 2025 story. And that might have been, you know, the entire story for that bull market. And now we have we've had a crypto winter since. But in the next few years, the stablecoin story is still compounding because that's the tokenization of the dollar. And that's very important because it was a big unlock. You know, stablecoins are widely used outside the U.S. But there is a much, much larger market that's not dollar economy, but it's the movement of assets. And tokenization, to me, is so much bigger than stablecoins. And I think that's where investors are underestimating how important it is to have a really secure settlement layer. Now, of course, it may not just be Ethereum. I think there is going to be

Tom:
[16:46] I think there is going to be opportunities for Solana to benefit. But from all the conversations I've had with the large enterprises, I think that people are, there's a lot of hope and vaporware and the idea that a new L1 is going to emerge. That'll be the tokenization platform. As a practical matter, I think all the serious work, and actually we're seeing it in the headlines, is only taking place on either Solana or Ethereum.

Tom:
[17:16] Now, how big is that market? I think it can be huge. And then on top of that, and we've written about it, AI, look, AI capabilities are really growing rapidly. And I'm going to say a lot of people thought AI was a bubble last year and they missed the AI stocks. And then this year, they thought it was a bubble and they missed it. And then they thought it popped with situational awareness. As far as I can tell, to me, we're still in a discovery phase on how big that market's ultimately going to be. So to me, it's hardly a bubble until it's a bubble. But the AI world and an agentic world and an economy built on machine to machine transactions probably sees a lot less value in traditional financial settlement rails and also the security of those. In fact, they're easier to exploit in that world. So to me, crypto is going to play a pretty big role in that world. And then layering on top the complexity of adding a real world environment, you know, things that operate in the wild and managing microtransactions and instructions and taxation. It's possible this could be done on centralized systems, but why even that's, I'd argue that's actually much more complicated than running these things on blockchain rails. So I think that there's a huge use case coming that makes crypto really relevant. So I think in the next crypto...

Tom:
[18:42] Well, crypto spring, if AI is now a $10 trillion economy, right, that's the TAM, but maybe it goes to, you know, $100 trillion, you know, is crypto going to be stuck at $1.5 trillion? I mean, I'm highly, highly doubtful of that. I think it's, you know, it could end up being almost the same size as the AI addressable market.

David:
[19:05] I definitely see the vision that if tokenization or, excuse me, the stablecoinization of the dollar was the narrative of 2025, and that really worked, that really got Wall Street excited, again, idiosyncratically benefited ETH. And that's the 2D narrative to the 3D unfolding of tokenization, where, okay, you start with the dollars, but then let's unfold everything, and now let's tokenize everything else. I see that also uniquely benefiting Ethereum for all the reasons why Wall Street loves Ethereum, specifically above all the other platforms, the decentralization, the centristive resistance, the lack of a specific counterparty. I think there's another malaise in the crypto industry that despite all of that being true, our layer ones don't capture as much value as we previously thought that they did. And this is, I think, goes to the story of just like, okay, maybe institutions are going to use Ether to deploy tokens on Ethereum, but they don't need that much of it. So how would you argue that actually institutions or people or investors are going to hoard Ether as opposed to simply just using, having like a supply of Ether to spend as gas? What would the narrative be?

David:
[20:19] If we do think tokenization is coming, Why would investors buy an incredible amount of Ether rather than just a utility amount of Ether?

Tom:
[20:28] There is this view people have, which is we like Ethereum, but we're not really sure ETH has value. ETH, the token, okay? And, you know, that's a variation, by the way, of when the bank said, well, we believe in blockchains, but not crypto, or we don't believe in Bitcoin, but we believe in blockchains. Do you remember how many intelligent people made that assertion? And then they'd say, well, come on, Tom, Bitcoin literally is just software. Anyone could fork it and recreate the chain. I could fork Bitcoin today and make my own Bitcoin. And JP Morgan could make their own Bitcoin. Why would anyone use Bitcoin? Well, you know, if someone had to bet their net worth on blockchains or Bitcoin as a narrative

Tom:
[21:20] The guys who bid on blockchain actually went bankrupt because they would have lost their net worth. And money, a huge amount of money was made owning Bitcoin. So the question I would ask someone is, if you truly believe that you want to be long Ethereum, but you don't want to own ETH, then what do you want to be? Do you want to become a servicing company? Do you want to be trying to maximize MEV?

Tom:
[21:49] Do you want to try to consolidate all the nodes or the validators, you know? What would you try to do? Would you try to buy up all of the Ethereum development talent out there? You wouldn't end up with anything because at the end of the day, and I'm going to guarantee this, that narrative is going to disappear the minute the crypto bull market starts and Ethereum starts going up. I think this is all bear market conversation, in my opinion. I didn't even hear about really this view until crypto prices started to fall. So, you know, if someone tells me that the reason Ethereum hasn't gone up is because its narrative is not clear, I think Ethereum's outperformed a lot of other cryptos. I mean, of course, certain projects have stood out like Hyperliquid and Lighter because they operate almost like quasi-companies. But, you know...

Tom:
[22:51] They're also single purpose, in a way, systems. Like, you know, they're not trying to capture the entire future of what could be future settlement rails, right? They're operating in a very specific box. And I think, therefore, it works. Ethereum actually works incredibly well. Like, so despite all the criticisms and people talk about very conflicting and diametric views on how to prioritize what Ethereum is, it is incredibly effective. It's never had downtime. And look at the quality upgrades and look how secure the platform is. So to me, would people feel better if there was like a direct link, like economic link or legal link of Ethercoin to Ethereum? you know like I'm sure it would make people feel a lot better. But to us, for us at BitMind, does it make a difference in our view? It doesn't. And in fact, again, I just point to something people forget.

Tom:
[23:54] The dollar itself isn't actually exchangeable for anything. Okay? And it's actually considered the gold standard of like currency. It is literally our unit of transaction. If you took your dollar and tried to redeem it to the federal government, they would just print another dollar for you. You can't exchange it for gold. But you can exchange your dollar with anyone else who'll take it. So it just shows you that the dollar, which has no burn mechanism, in fact, look at the underlying, quote, blockchain for the US economy. It's printing huge deficits. Okay, someone please tell me, using the same model they have for blockchains and the burn mechanism, why is the dollar not collapsing when the deficit's growing?

Tom:
[24:44] Okay it shows you you should divorce your belief that an economic model explains asset prices

David:
[24:52] Do you view ether as a cash flowing asset or as a store of value and and i want you to pick one because i i don't i don't want the answer of both because i think the answer of both, is a little bit of a of a cop-out because if if you have a store of value that does cash flow then it's not a sort of value is a cash flowing asset. It's sort of value is something pure. Do you have a perspective on which side of the fence Ether belongs on?

Tom:
[25:22] Maybe I would need you to elaborate your framework. Do you think all assets in the world fall under one or two categories? Is that what you're saying? What is the stock market? What is equities?

David:
[25:35] Equities, a cash flowing asset.

Tom:
[25:37] But the best performing stocks pay no dividends. So how exactly is it a cash flowing asset?

David:
[25:42] Because it's just like pre-dividends. Like all equities, I would put in the cash flowing asset category because they make revenue. And just because they don't elect to pass that back to equity holders, then nonetheless, you value it off of the revenue that it produces, the cash that flows. You know, one day at maturity, maybe it will. Whereas there's like a store of value, which is like gold or Bitcoin, which is just inert and it just holds wealth or like the dollar, as you said, for example, it's like a hard money. I know the dollar's not hard, but Bitcoin and gold are. And so I do think there's a pretty clean line between these things. And I think this is a debate that has been in the Ethereum community and around Ether for this entire time. It's like whether Ether is cash flowing or whether it's the store of value.

Tom:
[26:32] Okay, well, I might say that I'm going to disagree that the stock market is a cash flowing asset. Well, I mean, empirically, if we, you and I measured the total return of the S&P over the last, we could pick any time frame, since 2009. Okay, that's 15 years. And the S&P 500 has appreciated by almost 10 times. Okay, so 1000%. The dividends paid over that period of time is equal to 30% of the 1000%, which means if you only use it as cash flow, you've made 30%. The 9,700% or the 9.7 times had nothing to do with cash flow.

Tom:
[27:20] The reason I would disagree to say companies that don't pay dividends are pre-dividend companies is there's a history of many companies that have actually seen significant stock price appreciation. Never pay a dividend or only pay modest dividends or no dividend. The stock market appreciates because people believe a company can allocate capital better than they can. Otherwise, they'd own a bond. A bond is a cash flowing asset. A stock is actually a store of value because investors buy it on the belief the company is going to steward their capital properly. So just to be clear, if we're using that strict definition, I would consider stocks a store of value.

Tom:
[28:08] And bonds are cash. Gold is a store of value. Real estate,

Tom:
[28:15] That's actually a both. because real estate can be rented or leased so it's cash flowing, but the value appreciation of real estate over time is actually, it's the only store value that has withstood the test of time. So then if we were saying, where does Ethereum fall? I think it's a lot more like the stock market, you know? And I think it's a lot more like land because there is, okay, I'm going to give you the author's name just because I don't, because I think people, a lot of people need to read this and then they're going to understand crypto a lot better. It's a book by Piet Eichholz, published in 1997. It's called A Long Run House Price Index, okay? And this guy is an MIT person. He studied all the transactions in a single area of Amsterdam from 1628 to 1973. So 345 years of real estate prices with the same address. The reason that's really useful is you can actually then disaggregate how much of a transaction was attributable to the structure.

Tom:
[29:32] Versus the underlying land. Because over time, the structure has to be completely rebuilt. Like, so after 20 years, the structure's value drops to zero. Over the long run, 0% of the store of value of real estate is attributable to the structure. It's worth, because it's worth, it's actually worthless at terminal value. Whereas the land goes up. I don't know. To me, doesn't that sound a lot like Ethereum, you know? I mean, or why you own any crypto? So, you know, if someone asks me again, is Ethereum a cash flowing asset or a store of value? It's, it's probably better that really anything you want to invest in is a store of value.

David:
[30:12] Your preferred lens for looking at ECS as a store of value.

Tom:
[30:15] Yeah. And actually, anyone who says the stock market is a cash flow machine, I'm going to say in my 30 years of experience, if that is someone's view, I would really wish they would show me a model that successfully picks stock on that basis.

David:
[30:33] Interesting.

Tom:
[30:34] Interesting.

David:
[30:35] I want to ask about Michael Saylor, because Michael Saylor has certainly had an arc in the last two months with MSCR stretched in the whole apparatus. Are there any lessons that you've learned just from observing strategy and Michael Saylor operating that company? What's your reaction to what he's up to over there?

Tom:
[30:56] Since Michael Saylor started his Bitcoin treasury strategy, the stock has outperformed not only Bitcoin, but it's outperformed the broader market. So in a way, MicroStrategy today as a common equity story has been a resounding success. Along the way, he has made evolutions to the strategy, including adding other instruments and then really unveiling this vision of digital credit and MicroStrategy being that intermediary layer between Bitcoin and capital markets. And, you know, he's trying to, and I understand his strategy, he's trying to monetize volatility as a component, and then use that to turn part of the Bitcoin into a yield strategy. You know, it's a very, very complex strategy. And I think it's, we'll only be able to judge it by taking another proper interval so if it was six years since his pivot to a Bitcoin treasury company, you know, it's probably, we're not going to really be able to judge the success of this until 2012. I'm sorry, 2020, 2032.

Tom:
[32:17] Yeah. Right. So six years. Sorry. Yeah. And, but I think that's the right lens. So I, I think that he's kind of earned enough credibility that people should give him time. But as you know, all of this has also been taking place in the middle of a crypto winter. And I would say, again, when prices are down, everyone starts to point to individual actions of a specific company. But in a larger respect, 90% of what's happened is really just macro.

David:
[32:48] You talked about the release of BMNP. That's the BitMind version of Stretch. But for BitMind, it offers 9%. It's trading right now at $91. You issued it at $80. So anyone who's bought that is up 12%, 13%, 14%. One lesson that we've learned, at least what I think that we've learned with strategy and Sailor is that he got really aggressive with the total size of Stretch. I'm wondering what the future of BMNP will be. Are you guys planning on expanding that offering and increasing the size? Or is it just kind of like a single one and done shot in the arm and it's inert

David:
[33:25] moving forward? What was the future of the preferred equity that you guys issued?

Tom:
[33:29] Well, I'd be glad to explain a little bit why I think the preferred makes a lot of sense for us to issue. So we issued BMNP, 9.5% perpetual preferred. And the reasons we did it is circle. Number one,

Tom:
[33:45] I wanted to set the cost of capital for a preferred stock for Ethereum treasury companies. So in other words, it's a benchmark rate. And the yield at 9.5% is about $30 million a year in dividends, $35 million a year in dividends. And our annual staking rewards are going to be close to $300 million at the current price of ETH. So to us, we can easily afford to have that. And if ETH gets to $5,000 or $10,000, then, you know, that's $30 million of obligations on more than a billion or a billion and a half dollars of staking rewards. The reason to do something where you're paying 99%, because someone will say, Tom, that sounds like expensive money. But here's why I think it's actually really cheap money. If we wanted to buy a three-year call on Ethereum, right? So think of the preferred as, hey, you're not issuing stock. You're just going to use some money. And if you wanted to buy a three-year call on Ethereum where the strike is the current price and then three-year expiry, your option premium would be close to 100%. You know? Yeah. I mean, maybe 60 or 70%. Okay. But really, if it was properly priced, it's like, it's 100%

Tom:
[35:11] Because you could be significantly in the money on that. And you can, of course, lay off the risk at any time. Whereas we're buying a three-year call option using BM&P because we're not using our equity, but we're buying the E. That's the equivalent of a call option and it's costing us nine and a half percent a year it's so it's a really cheap call option to acquire ETH that's the way I think of it and you If someone did that with Bitcoin, it's the same concept. But one difference, of course, is that because the ETH we own is generating a yield, if ETH prices triple, the yield will exceed the dividend requirements of the underlying preferred. So to us, it's kind of like a really attractive way to increase the Ethereum per common share. We don't need to have that much BMNP out there because to get to 5% Ethereum, we already earn a staking reward. We have to acquire 200,000 additional ETH. And every year we're earning...

Tom:
[36:20] You know, like over 100,000 ETH a year in staking rewards. Actually, a little more than that, like 120,000. So then we only need to raise cash for 80,000 ETH to buy, and that's 160 million. So maybe we only need to do, if we were to do it purely through preferreds, we just have to issue another 150 million preferreds. But that, you know, that may or may not be how we use it. So I don't think we're going to end up with billions of dollars of BM&P because it's unless we expect to go way beyond 5%.

David:
[36:57] In the Ethereum world, there's been this EIP recently that's been introduced, that reduces the issuance of ETH for staking. It's been called the stake targeting EIP. And it basically kills all staking yields if the ETH staked supply goes beyond 50%. So at 50%, ETH staked, ETH nets 0% with this proposal. And it's very contentious. There is a lot of pushback on this. And so I think people, if you're making a bet, this EIP does not go through. But nonetheless, there are a decent cohort of people in the Ethereum community who are proponents of this, including people at the EF and in some of these EF spinouts. I'm wondering if you or Bitmine has an opinion on this EIP, the issuance reduction stake targeting EIP.

Tom:
[37:46] We've talked to, as you can imagine, we've been having many conversations and we still haven't had all the conversations that everybody would like to have with us. So we've talked to both proponents and opponents of this idea. And I think until we've given everyone a chance to kind of, for us to have a fulsome discussion, you know, we're not going to weigh in publicly on this. But I understand both sides of the argument. You know, one, you know, are we over-rewarding the cost of security, you know? And is it unfairly burdening those who aren't staking? I think it's a fair question. I think that it is unknown where the optimization curve is. And actually, anything that you explicitly stake is no different than a Federal Reserve establishing a short-term rate, you know? Because, you know, the curve itself,

Tom:
[38:50] We actually don't know what the optimization, where to actually set the cutoff and it results in the proper amount of security. And then on the flip side, I understand the argument that, you know, there's the risk of a lot of unintended consequences and volatility because you can create a lot of new incentives to actually game or optimize where that stands. And that actually creates uncertainty on what you want to be arguably either an ossifying chain or really completely reliable chain. And now you have an uncertain optimization. And, of course, I'm sympathetic to the arguments that there's a lot of DeFi that's built. And, of course, a lot of people view ETH as inherently attractive because there is a yield. So it's a very complicated issue. I don't really want to, because I know there's a few folks that really want to sit down with us to have a conversation, and I don't want to get ahead of that. But, you know, from Bitmine's perspective, you know, is if there was no yield on Ethereum, there's still plenty of ways to generate yield. So I mean, think about like Bitcoin, you know, Bitcoin is actually, in theory, a yield bearing asset. You'd have to deploy Bitcoin in a way to generate yield.

David:
[40:17] So the amount of pushback on this EIP gives me the opinion that it's probably not going anywhere. And so the one last question I do want to ask is on the pro side, the general pro argument is that if you reduce the size of the coupon, the value of the bond goes up because you're inducing scarcity. And it's, aside from how that may or may not apply to the Ethereum economic system, do you think that that argument itself checks out? As in the reduced issuance, the reduced yield actually helps the principle. Does that check out with your understanding of like economics? Does that check out as an argument?

Tom:
[40:57] Well, conceptually that is like a store value concept in a way because you're now deconstructing more of the return to be price, not yield. The problem with all that is, you know, interest rates don't always make sense. I mean, that's why there's money to be made as a bond investor and who's good at alpha. I mean, you can even look across at countries, you know, like why, for instance, why is the U.S. Fed funds rate low? So high relative to the other G7s when inflation isn't that different, you know? Like, so I think a lot of things that I see on paper in the real world are hard to explain, you know? Like, and listen, I'm not trying to dismiss math because, I mean, you know, I went to Wharton and I took a lot of stat, statistics, portfolio theory. I was an equity analyst, I built models, but I'm just going to make the clear observation that if I had to live and by the rules of those spreadsheets,

Tom:
[42:02] I would have been a terrible equity analyst and I would have been a very unsuccessful stock investor.

David:
[42:08] I want to talk about the Ethereum Foundation because there's been some big movements in the EF since we last, since we last chatted there. EF is basically contracting and taking a step back and kind of going into just long term maintenance mode and narrowing of the focus and narrowing of the mandate to really focus on crops. A lot of the stuff that really sets Ethereum apart from the rest of many of the other blockchains. And I think one of the reasons why the Ethereum community really loves Ethereum. Bitmine has chosen to fund a handful of these new entities that have spun out of the EF, ETH Labs, ETH Systems, and perhaps, I think those are the two that I remember.

Tom:
[42:44] And ETH Institutional.

David:
[42:46] And ETH Institutional, right, yeah. ETH Labs is a non-profit, ETH System is a for-profit, and so I just want to know about what the strategy here is for the, spin-offs that Bitmine chooses to get involved with. Why get involved with them? What's the ongoing relationship like? And how does this fit into the broader

David:
[43:05] strategy that BitMine has?

Tom:
[43:07] In the next crypto cycle, and we think it's the big two arcs there are going to be a mass, mass tokenization of a lot of assets. And it's going to be also a recasting of what is considered money. I mean, I think once you start making stocks and bonds is. Digitized, and then there are perpetuals created, which can be bets on outcomes and factors, and there's prediction markets, what is considered money is going to get very, very blurry. I mean, compute, for instance, as an asset class is a genuine thing that's going to happen. And I'm sure a lot of it will happen on blockchains and smart contracts. And so that's one story arc. The second story arc we see, of course, is there's going to be a lot of reimagining of settlement layers that because of AI systems. And when you look at the last few crypto cycles, there was a lot of money made in entities that would be stood up that didn't exist in the cycle previously. I mean, think Polymarket and Kalshi and Hyperliquid didn't exist in the prior cycle, but they were created in the most recent cycle. So Bitmine believes there will be many multiple $1

Tom:
[44:33] Billion to $10 billion to $20 billion valued entities and total returns created by things that are going to be stood up tomorrow, you know, or even started today in the next crypto cycle. And so we are actively focusing our resources in that way. And so, you know, we call them moonshots now. I don't know what we're going to call in the future, but we're trying to source as many and meet as many ideas and work on our own ideas that we that we are working and very closely with either financial institutions or existing crypto companies. And I think that's why the entities that have come out of the Ethereum Foundation are things that will help actually stand up those future entities. And so part of our work is, you know, is public goods, obviously, because we want to keep Ethereum healthy. But we also want Ethereum to capture as much of the future opportunities as possible. And so that's really our goal. And I think that's the lens we looked at when

Tom:
[45:37] we were providing the lead funding for each of those three entities.

David:
[45:42] Is Bitmine trying to take an active role in the stewardship of Ethereum or is it just funding? Is Bitmine stepping up to become a long-term steward of Ethereum, kind of in the same arena that the EF used to operate in and still does, but EF has left space for alternative nodes on the network? Does Bitmine want to be a node on Ethereum's stewardship network or is it more just about funding other nodes that it thinks is valuable?

Tom:
[46:11] I think that's a TBD, David, because I think to an extent, you know, Bitmine didn't exist like a year and a half ago. So like I think there in some ways the crypto community is and Ethereum is trying to just understand what, you know, for instance, how permanent is our capital? Of course, it's because it's common equity funded. It's essentially permanent. You know, there's no redemption. You know, we have no debt due that we have to return any capital to any investor. So we are a source of permanent capital that now has been long enough to prove it probably has longevity, right? I mean, there are

Tom:
[46:53] The things that would wipe out Bitmine, in theory, would wipe out all of crypto because we're in a crypto winter and we have a lot of liquidity and actually our stocks outperformed cryptos. I mean, it's outperformed Ethereum and Bitcoin this year. So, I mean, investors believe we have a lot more longevity than the crypto itself. But I also think Ethereum has gotten big enough that the foundation can't be the omni effort for everything. It's imagine like, for instance, if the dairy industry only had everything centralized through one single group or the semiconductor industry association only had one group, you know, it's become so large that there is a lot of specialization and the efforts that are specialized. So I think that's what's happened with Ethereum is that the foundation is now kind of granting other players, three of those that you named, to play an important role in Ethereum. But they're going to rely on other entities to provide reliable funding. And, you know, that's where BitMind can step in because, you know, we have a multi-year time horizon. You know, we don't have to worry about funding their budget for just the next month. We can commit to three years or however much runway they need to get to scale. And I think that's a really important role to play because I think it has provided

Tom:
[48:20] a lot of stability to Ethereum.

David:
[48:21] I think something that I'm curious about and I think a lot of members of the Ethereum community about is what Tom and Bitmine's legacy with Ethereum will be like in the very long term. And I know a lot of this is going to be TBD, but I still think the community is looking for a semblance of an answer here. is like when we are 10 to 20 years in the future and we look back, what is Bitmine's legacy with Ethereum going to be?

Tom:
[48:47] I think that, you know, in 10 years, And someone says, all these amazing things happened with crypto, with tokenization, and with AI, and blockchains are the only thing that saved us from like AI taking over the world. And, you know, the tokenization vastly improved people's lives because it gave them access to money in forms of money that didn't exist before. And for us, the legacy would be that Ethereum is the dominant story in that narrative. You know, that's our vision, because we are really big believers in crypto and the role they're going to play in tokenization and in AI. And we made a bet that Ethereum will be the place where a lot of this will take place. So in our view, I'm, you know, I think our legacy is really helping Ethereum remain the most important of the chains in that future. I think, of course, it's a multi-chain world.

Tom:
[49:49] And that means we hopefully have delivered massive returns for our investors, and that's BitMine common equity holders, because there's just beta to ETH. So, you know, should ETH flip Bitcoin? I think it's a very plausible argument. So, you know, that's, you know, 15,000 ETH roughly. So in rough terms, that's a 10x for Bitmine shareholders from here. So it's 180 a share. But shouldn't Bitcoin go up a lot and shouldn't the TAM of tokenization and AI mean Ethereum's network value should be much much higher I think so so then you know where does ETH cap you know if it's You know, if it's 50,000 or 100,000 or 200,000, I mean, the returns to our shareholders are going to be legendary. And I think that that's going to be how we get measured in 10 years.

David:
[50:47] A lot of the Ethereum community, and I also agree with this, is that Ethereum is just this very special, very unique chain. It's got some of these properties that go all the way back to the cypherpunks that not even Bitcoin has. Bitcoin has phenomenal properties, but Ethereum has some truly legendary properties. And I think a lot of the Ethereum community thinks that Ethereum has is like manifest destiny of deliverance of the one chain that all of Wall Street will tokenize all their assets on and all the finance will come on chain. And sure, it'll be spread out to a handful of chains and a handful of layer twos. But ultimately, it will all come down to Ethereum because of the crops, because of the privacy, because of the censorship resistance. But nonetheless, at the same time, I think the Ethereum community is looking for a leader to push the ball up the hill to help make this happen. And I think that's what a lot of the Ethereum community sees in you. And I want to ask if that feels comfortable for you to be that leader for Ethereum. Is that like a safe belief for the Ethereum community to imbue you with that level of regard for the leadership of Ethereum or is that not the role,

David:
[52:05] that you see yourself having or that you want for yourself?

Tom:
[52:08] One, as you know, When a movement's taking place, which is, I think, is going to be a huge movement in crypto, everyone's going to play an important role. And Bitmine wants to play, I think, two important roles. You know, one is acting as an important stabilizing force. And I think in this crypto winter, we proved we are because we bought Ethereum for 60 weeks straight, you know, and we never had to sell it. And we're not in a position that would ever be forced to sell it. And we funded the Ethereum Foundation spinoffs with Roadway so that they can then execute their plans and not worrying about fundraising. And of course we want a vision cast and you know because we you know that's principally been the success of my career on wall street for 30 years is i've actually been outlining for investors you know the multi-year theories and views that we have you know that's the basis for granny shots our our family of etfs at funstrat that have been very successful and of course that's you know the following that we built up in the equity world. So if those are gonna be useful and important in Ethereum, we will gladly continue to play that role.

Tom:
[53:29] And, you know, but I think, you know, as you point out, Ethereum is quite special. There are so many talented people. And, you know, we want to make sure no one leaves the ecosystem for the wrong reasons. But we also want to make sure we're bringing in the right and telling the right story to make sure enterprises use Ethereum. So, you know, we are glad to play that role. But, you know, in some ways, you know, it's an informal role, David.

Tom:
[53:56] It's not something that we're, there's no campaign to, and there's no election process for that.

David:
[54:02] Right, right, right, yeah. Let's talk about just some predictions for the end of this year and next year. There's one prediction, there's one concept that I think me and Ryan are going back and forth about, is that crypto as an industry is basically uninvestable while AI sucks up all the oxygen. And kind of like the AI investment cycle needs to end so that crypto can actually gain some momentum. Is this an idea that you subscribe to?

Tom:
[54:29] I think it's largely correct in a sense what you're saying because AI is such a compelling story and it's making so much money for people. It's making money for institutional investors too that it raises the bar for everything else. I mean, can you imagine going to a meeting and one person wants to talk about AI stocks and the other guy wants to talk about

Tom:
[54:57] Apartment housing. Like one guy's going to, someone's not going to pay attention to that second meeting. And so you're right. But when the AI story, as it evolves, it's important to think about the downstream stories because that's where you can misallocate. Many people thought software was dead, but it actually software is a downstream story to AI you know in fact AI will benefit a lot of these companies and that's why as many of the software stocks are now starting to come back crypto is a very important downstream story to AI the stronger AI gets the doesn't make crypto less relevant. That's the key, right? In fact, the more AI evolves, the more important crypto is. So crypto is clearly a downstream story to AI. But from a timing perspective, I think you're right. As long as AI is done well, it's changed now. But earlier this year, nothing, no one cared about owning

Tom:
[55:57] anything else. But now that's changing.

David:
[56:00] Do you believe in the crypto cycles?

Tom:
[56:03] You know, I'm going to say... It's the same as when people talk about technicals. There's a lot of people who invest in stock market and say, I never pay attention to charts. I don't care about technicals. Yet technical strategists have called stock tops and bottoms with eerie accuracy. Okay. So it means a real investor, even if they only care about fundamentals, should never ignore technicals because it's really the technicians that get the top, the turning points correct. And so it's going to be the same with crypto cycles. I don't know why there's a crypto cycle, but I would have to, but I don't want to just be disrespectful of the fact that there could be crypto cycles.

David:
[56:50] Are we at the bottom or is the bottom ahead of us?

Tom:
[56:53] I think we've, I think we've bottomed. In fact, if you look at the past crypto cycles, the price print low wasn't exactly following the 1064 days of Bitcoin. So, but there was a local low. So I think it's very possible Bitcoin's made its local low already. And then there's just a new local low, but it's not lower than the current low. And then in retrospect, everyone will say, oh yeah, because you had to do an S&P 500 adjusted. And, you know, and that's possibility. Or it'll be NASDAQ, the Bitcoin NASDAQ

Tom:
[57:29] ratio is actually the low. So the answer is, I think if we're 90% of the way through the bottom on both time, let's say we're 95% on time and 90% on price, I'd say unless you're really a genius, you know, it's buying it here is actually going to be at a better price point than trying to buy it one month into the low. So do you

David:
[57:55] Have a price prediction for ETH in 2027 or 2028?

Tom:
[57:59] I mean, if we're thinking one to two years out and knowing that stablecoins got Ethereum to 5,000... But now we have not only AI driving demand for crypto and Wall Street building basically new settlement rails on crypto, on top of crypto being in the middle of a bull cycle, I would say just being in a new bull cycle means Ethereum should be above 5,000. But then what do we layer in on Wall Street tokenizing plus AI? You know, so I think Ethereum could easily be over 10,000 in that time frame.

David:
[58:39] Tom, thanks for coming back on Bankless. It's always a pleasure to get your perspective. And all of Ethereum, I think, appreciates your presence and what you're doing for the ecosystem. So thank you for doing what you're doing. And I wish you the best. Thank you. Bankless Nation, you guys know the deal. Crypto is risky, but that is why we are here. The institutions have landed. So we are going even further west. This is the frontier. It's not for everyone, but we are glad you're with us on the Bankless journey. Thanks a lot.