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Oh my goodness, we have to do something about this. So I think the momentum is going to continue building out there and the most important thing is to get on the right side of change. Most of this volatility is algorithmically generated. Algorithms are not doing the research that we're doing. Anyone who sold during that moment of drama uh regretted it for the rest of the year.
Algorithmic selling in the market uh definitely has hurt Bitcoin because many people are not looking at to it as a a store of value the way they are looking to gold as a store of value and and safety in a time of trouble. Unlike the tech and telecom bubble, uh this is the real deal. Unlike the tech and telecom bubble, people are scared to death.
As a portfolio manager in the world of innovation, I would prefer fear and climbing a wall of worry than the speculative excesses that we saw in the tech and telecom bubble. Wood begins by acknowledging the obvious. Gold has outperformed Bitcoin decisively. In a time of geopolitical uncertainty and risk aversion, investors have gravitated toward the traditional safe haven.
Bitcoin, by contrast, has been swept into broader algorithmic sell-offs. The distinction, she suggests, is psychological rather than fundamental. Many market participants still do not treat Bitcoin as a true store of value. Instead, it trades like a high beta risk asset, vulnerable to indiscriminate liquidation when volatility spike; We have to acknowledge that gold has way outperformed Bitcoin.
Bitcoin has gotten caught up in this risk off in a certain sense dynamic where you know you're getting wholesale uh drops in sectors no you know sell now ask questions later it's uh certainly happened in the SAS space it's happened in the wealth management space uh it's happened in the trucking broker space So this like you know algorithmic selling in the market uh definitely has hurt Bitcoin because many people are not looking at to it as a a store of value the way they are looking to gold as a store of value and and safety in a time of trouble.
Uh now we don't understand that. Um because gold supply growth is um we believe accelerating. Bitcoin supply growth cannot accelerate. Uh now quantum computing we talked about that we talked about all all the uh all of the worries uh that um are going around uh in the Bitcoin community especially as the ETFs have gotten involved.
So we we had newer holders, probably weaker holders, and you know, when they're confronted with those risks, they'll again sell and ask questions later. You can see though that the uptrend higher lows in a major way. Uh sure we broke the one I guess from uh 24 but uh that that uptrend general uptrend has not been broken uh and I don't think it will be broken now could be famous last words but you know a lot of technicians are involved in the market right now in fact that's all they're doing and it's astonishing to me that some of the people um that are so steeped in the research of Bitcoin and other crypto assets have defaulted to technical analysis as this move has taken place.
Well, if you're a technician, look where we are now and you can see that's where we topped in 2017. Uh so that's kind of a marker. There's also some support. You can see there in the 2022 23 range when Bitcoin was actually a refuge for those who were very scared of the regional bank crisis turning into a much broader financial crisis uh with counterparty risk Allah 089 that cannot happen to Bitcoin.
Uh so and and definitely I encourage people to self-custody if if they want to hedge a bit uh uh against counterparty risk because we do have the ETFs now uh involved in um in ownership. Uh so it's been grueling. Uh but it's also been uh I I don't love these periods because I worry about our clients.
Um we use these periods. we've been buying uh in in the crypto space in our various strategies. Um but uh that this is the time where you know you learn about everybody's fears and I described them in the last in the no uh video and how we've addressed them. Um, but you learn uh about uh other other uh developments in the crypto asset ecosystem and um uh I have just gotten involved uh in an advisory role with uh a company called layer zero uh which is trying from a DeFi point of view
uh trying to go back to the future and not compromise the way uh the way Ethereum has and and other uh blockchains with layer twos and so forth, but actually go back to the future and develop an ecosystem for this new age, the agentic AI age, where there's going to be a lot of uh activity, you know, machine to machine uh that can uh handle two to 4 million transactions per sec uh per second.
Ethereum can only handle uh 13. Uh Salana maybe 2,000. Uh so you know it's very interesting uh that during tough times the builders in this community are heads down. And so our research surfaces some of this new activity because or this new uh these new approaches um because uh they're they're starting to talk more about them in the context of the way the DeFi ecosystem is currently set up.
Wood invokes a familiar but powerful concept. Bull markets climb a wall of worry. Last April's tariff related turmoil shook even seasoned investors. Those who sold during that panic, she notes, regretted it as markets subsequently recovered. Today's volatility feels intense. But she contrasts it with the late 1990s technology bubble.
Unlike that era when speculative excess dominated and fear was minimal, today's environment is characterized by skepticism and caution. The environment uh which has been extremely volatile recently. I think um you know we've been talking about AI since ARC was founded in 2014. We've been all over it.
That's when we took our first NVIDIA position. Uh and so um we've been doing a lot of research and we've um I think been uh doing very well in terms of understanding how this environment is going to evolve. Um in the last in the no which was an interim one I described how we did anticipate a shift in terms of incremental share away from SAS as platform as a service um basically usurp the role of SAS and really helped customize for each company uh their own platform insteading instead of using a one-sizefits-all.
So, that wasn't surprising. But as usual, uh the market throws the baby out with the bathwater. Or maybe it's the investors, uh or the speculators. And so, uh as usual, we uh uh consolidate our positions to our higher conviction names. Um but you know, most of this volatility is algorithmically generated.
Algorithms are not doing the research that we're doing. uh and so that is why we concentrate towards our highest conviction names. The market gives us that opportunity. Uh so that's been a those are our comments around the volatility. Um and you'll remember last April during tariff turmoil I was on here saying look we think this is temporary what's going on in the market.
Remember there was a sharp decline and a lot of people were freaked out. Even the even investors who typically are very calm and and and used to volatility uh they were shaken last year. Anyone who sold during that moment of drama uh regretted it for the rest of the year. The market has been up very strongly since.
This market is climbing a wall of worry. uh those are the strongest bull markets. The volatility does shake uh people up, but frankly this is so much healthier an environment than what we experienced during the tech and telecom bubble. Unlike the tech and telecom bubble, uh this is the real deal. Unlike the tech and telecom bubble, people are scared to death.
As a portfolio manager in the world of innovation, I would prefer fear and climbing a wall of worry than the speculative excesses that we saw in the tech and telecom bubble. Now, you might say AI is going through that. That's been part of the worry in the market. Uh we don't think so. We All the research we're doing uh would suggest that we are in the equivalent of 1996 uh in in the technology or the internet revolution that was taking place back then uh very very early and sure it went into overdrive.
It went crazy. But in 1996, that was the year that uh Fed Chairman Greenspan um talked about uh irrational exuberance. Uh and you know that scared people because they thought he was going to tighten to curb speculation, but effectively he said he wouldn't do that. He'd let the market work. And we all learned a lot of lessons uh because of uh what happened after that.
And the scarred tissue uh in the market today because of that is happening uh or is here because those who uh have gone through the tech who who went through the tech and te telecom bubble are are gray hairs in our business now. and they have that scar tissue, muscle memory, whatever you want to call it, and they're saying as the most seasoned investors, I am going to protect uh my firm against this risk.
And um I I think that is what's keeping uh the fear and this wall of worry going. It's volatile. It can be uncomfortable but just like last April you know uh these can be very important opportunities to invest in the next big thing and uh we're ready for prime time. We can see the explosion in AI and we can all feel the ground shifting underneath us and uh you know I can see and hear CEOs you know now saying oh my goodness we have to do something about this.
So I think the momentum is going to continue building out there and the most important thing is to get on the right side of change. In in the 70s and and 80s um the bond market was vigilant and focused on the twin deficits. One was the federal budget deficit and the other was the trade deficit. And you can see what happened to the trade deficit uh during COVID and its aftermath.
Um imports bmed and uh we went into a very steep uh deficit uh as you can see here. Uh that also is changing and many people in the foreign currency markets uh use the trade deficit as their gauge of where the dollar is going to go. And if we're importing a lot more than we are exporting, uh the fear is that the dollar will go down.
There there are de excesses developing in the market. Um and so you can see we've corrected this. Of course, tariffs um the the the steep decline there was frontr running imports because of tariffs, impending tariffs. And now we've seen the other side of that. If we're right, and and I was surprised at how how limited uh the deficit was just a few months ago, if we're right and the US is going to surprise on the high side of expectations in terms of real GDP growth and that the return on invested capital in the United States is going to go up.
um and because of tax cuts and deregulations and the tariffs. Well, then uh we're probably going to see more import growth. Uh not because of tariffs, of course, but for the first two reasons, more import growth and we will continue to have a deficit. Now we have never really worried about a trade deficit.
Um because when you when you take into account the entire picture uh the other side of a trade balance which is goods and services the other side of that is a capital surplus. Uh again, money attracted from the rest of the world because of the good environment we typically enjoy here in the United States uh from a business friendliness and capital friendliness point of view.
Uh so I just thought I'd talk about the twin deficits because uh I know people worry about them. Uh and uh we can see on the tra on the trade deficit I've just explained why we don't worry about that. uh on the federal deficit. Um we uh are seeing a nice uh a nice improvement in the deficit as a percent of GDP.
Um I also wanted to uh depict where the dollar is. I know I've shown you this chart before, but this is the other worry out there. You you hear lots of talk about the end of US exceptionalism. um whatever that means, it probably means something different to uh different people. Uh but from an economic point of view, uh I would say we have not.
In fact, we're probably we're probably going to see um an uh explosion in uh activity here in the United States because of this technology revolution. Uh the US and China are leading that charge. Uh and so I do believe that the dollar is going to turn around and move in the other direction. Sure, it's gone down be mostly for political reasons.
I I would suggest company countries are diversifying away from the dollar into gold uh and other currencies. Uh but we think this is going to change. It it reached an extreme uh especially given where the gold price has been. But look what happened to the dollar. If you look at this chart, put this into perspective.
This is not a collapse in the dollar. Uh and it's if you're a technician, you'd say, "Hey, the dollar is held where you would have expected it to hold uh uh where it last peaked uh as as shown uh in with the black line." Kathy Wood's message is ultimately forward-looking. Bitcoin's volatility does not negate its structural scarcity.
AI's disruption of SAS does not diminish its transformative power. Trade deficits do not equate to decline. Dollar weakness does not signal collapse. Instead, we are witnessing the early innings of a technological revolution unfolding amid skepticism. Markets are volatile because change is profound.
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