"I choose Ethereum because stablecoins are exploding."

Author: MD, Bright Company

Last week, Thomas Lee (Tom Lee), Managing Partner and Head of Research at Fundstrat Global Advisors, shared his thoughts on the differences between the "new generation" of retail and institutional investors on Amit Kukreja's podcast.

Tom Lee is well-known among American investors for his years as Chief Strategist at JPMorgan, where he accurately predicted market trends multiple times and frequently appeared in media such as CNBC. However, he has also been controversial for his consistently "bullish" views. He discussed the changes in the era of retail investors, one reason being the rise of social media, specifically "the emergence of Twitter," where new institutions have gained broader attention and influence through independent media channels. Another reason is the demographic shift; he noted that "every 20 years, American retail investors tend to become optimistic about stocks again."

Tom Lee is also a staunch supporter of digital assets like Bitcoin and Ethereum. Recently, Tom Lee was appointed Chairman of the Board at Bitmine and participated in the company's launch of a $250 million ETH gold vault strategy, which has garnered significant market attention.

"I like Ethereum because it is a programmable smart contract blockchain, but to be frank, the real reason I choose Ethereum is that stablecoins are exploding. Circle is one of the best IPOs in five years, with a 100x EBITDA valuation,** bringing excellent performance to some funds.** On traditional Wall Street, Circle is a legendary stock, and it is a stablecoin company. Stablecoins are the ChatGPT of the crypto world, having entered the mainstream, and they are evidence of Wall Street's attempt to 'equity tokenize' tokens. Meanwhile, the crypto space is 'tokenizing' equity, such as the dollar being tokenized." Tom Lee described the logic behind this in the interview.

Below is the interview content translated by "Bright Company" (with edits):

Hitting the "Robinhood Generation": Every 20 Years, American Retail Investors Revisit Stocks

Amit: …In 2022 and 2023, you were one of the few who dared to go against mainstream media. You said, "I don't think the market will go down any further; it should have bottomed out, and now is the beginning of a new bull market." Because your voice is different from others in the world, people like me, along with millions around the globe, have listened to your advice and seriously studied the research you presented—these are not conspiracy theories but are backed by facts and data—changing their lives as a result. …

Tom Lee: Thank you very much for your praise; I truly appreciate it. This was exactly the intention behind creating FundStrat. We founded the company in 2014, and it has been 11 years since. Before that, I worked at large banks, including nearly 16 years as Chief Strategist at JPMorgan. I wanted to create a company that could provide institutional-level research while being understandable to everyone. At that time, the judgment was that the public was not interested in stocks in 2014; trading was mainly dominated by institutions, and retail trading volume was declining. But I remember that in the 90s, people were very concerned about stocks. I believed that such a period would return. So our bet was that people would be interested in what we had to say.

Amit: Impressive. You foresaw the arrival of the "Robinhood generation." Did you have any data to support that at the time?

Tom Lee: Our evidence-based research focuses on demographics. We have written many white papers studying behavioral changes across different generations. We published a white paper pointing out that the millennial generation is the largest in history, with a total of 98 million, which is 40% larger than the previous generation. And if we define a generation as every 20 years, every generation tends to revisit stocks because the previous generation may have been beaten down by the market.

For example, after the internet bubble burst, many peers shied away from stocks. But those who started making money after 2000 found stocks to be great. So we bet that this scenario would repeat itself. In fact, when I was at JPMorgan, I advised executives to enter the retail brokerage business, and they all thought that industry was "dead," but it turned out to be a tactically good investment. So that’s our choice. Our company is quite small and lacks the support of a large platform, so we also had to learn to connect with people and amplify our voice. We adopted Twitter and various media early on, which became the "guerrilla warfare" for our company's growth.

Amit: Embracing new media back then was quite risky, as social media was nowhere near as developed as it is today. Did you feel it was a natural choice to use social media, or was it a struggle?

Tom Lee: The first few years were indeed a bit challenging to find our voice. At that time, Twitter only allowed 255 characters, and it wasn't as powerful as it is now. People didn't really use tweet threads, and there were few images. Later, we realized that the best way was to tweet as if we were chatting with others. So we started posting some short tweets.

Amit: I think that natural expression is why our audience likes you. Whether you are on CNBC or on independent podcasts like mine, your words carry weight. Do you find it strange that every time you say something, thousands of people respond?

Tom Lee: Yes, it is indeed a significant responsibility. I have been a stock research analyst for 34 years, and I used to frequently give buy ratings on stocks, so I understand that feeling—putting your name and target price out there, and if the stock price drops, everyone is unhappy. Moreover, in the public domain, people only look at your most recent prediction's accuracy. On Twitter, there are people who will never forget your mistakes. So most of our interactions on Twitter are actually people criticizing us and calling us bad, which I find quite amusing. I don't mind because I know that's the nature of the platform.

Amit: When you don't make many mistakes, you retweet those who question you, which is also good, as it effectively conveys your point of view to the world.

Discussion on Federal Reserve Rate Cuts: What is True in U.S. Employment Data?

Amit: Next, let's talk about some market-related issues. Let's start with an easy one. Do you think Powell should cut rates now?

Tom Lee: You know, I almost never comment directly on this issue, even in reports written for clients. We have about 10,000 registered investment advisor clients and around 300 hedge fund clients. I usually just show them the evidence and then ask for their opinions. For example, what indicators should the Federal Reserve focus on, and then see what policies are appropriate. For instance, we know that if we use the European Central Bank's calculation method, U.S. core inflation is actually at 2% because the ECB excludes housing. Excluding housing alone, U.S. core CPI inflation drops to 1.9%. Currently, the ECB's rate is 2.5%, while the Federal Reserve's is 4.5%. So why is the Federal Reserve 200 basis points tighter than the ECB? The difference lies in housing. Is the Federal Reserve intentionally suppressing the real estate market? Actually, no.

Amit: But that does raise suspicions.

Tom Lee: Yes, it does raise suspicions. Another issue is that the Federal Reserve says tariffs will bring inflation in the summer, so they want to wait a bit longer before cutting rates. We recently analyzed this issue for clients and shared it on Twitter. Essentially, tariffs are a form of tax because the money goes into the government's pocket. In other words, if the U.S. government says it will impose a $6 tax on gasoline, the price of gasoline in the CPI will skyrocket. But the Federal Reserve wouldn't raise rates because they would think the public's wallets are being impacted. So we might cut rates because people's money is being taxed by the government, and that money flows back into the economy. This is not inflation; it's just a transfer of funds. That’s the essence of tariffs. Someone pays, the money goes to the government, and then it flows back into the economy. This is not inflation; in fact…

Amit: It's taxation. Powell and the Federal Reserve's view is that companies will raise gasoline prices because part of the revenue can offset it, but technically, this is still…

Tom Lee: You see, it's like saying if price increases occur at different stages of the supply chain, then that's inflation. But in reality, no matter where it happens, it's essentially a tax. Mathematically, a tax is a tax, regardless of where it occurs. So what is inflation? Is it a pretended tax?

Amit: Or, if it is something that suddenly appears, or if it is not fictional but something that happens in reality, but is offset at some later time, then ultimately it is not inflation. This is also something Trump often says—if we cut taxes, people will have money to pay for higher gas prices.

Tom Lee: Right, if I were to analyze this without any partisan bias, just like in my undergraduate studies at Wharton, I would say this is not inflation because there are no inflation signals. If it is just a one-time event, then it is not inflation. If it is essentially a tax, then it is not inflation. Anyone who says this is inflation is actually constrained by the concept of CPI, ignoring the larger context. CPI is not even a good tool for measuring inflation; for example, the Trueflation metric is better.

Amit: Do you think the way we currently measure inflation, such as the U.S. Bureau of Labor Statistics' methods, including the JOLTS (Job Openings and Labor Turnover Survey) data, which reported an increase of 400,000 jobs, is outdated?

Tom Lee: Yes, or these data do not reflect reality well. For example, (the response) rate is very important; there are many strange concepts in CPI. For instance, technological innovation is actually a deflationary factor, but they never handle it that way in their statistics. JOLTS data rarely aligns with other data, such as LinkedIn data. The response rate for JOLTS is only 40%, but it does not match with other data.

Amit: It's confusing, Tom. Our audience is retail investors. Yesterday, the government said there were 400,000 job openings, but today the ADP employment data shows a decrease of 33,000, with an expectation of 99,000. My audience is baffled. What is going on?

Tom Lee: If you look closely, the significant increase in JOLTS job openings is because restaurants are struggling to hire, so they are increasing recruitment ads. This is actually due to the risk of deportation; many people are not coming to work. The three sectors with job reductions today are financial services, professional services, and education. Education is just seasonal, while professional services and finance are mainly consulting firms laying off employees. This is not a tariff issue; it is a structural problem.

Amit: Do you think AI has impacted today's service sector employment?

Tom Lee: Possibly, if hiring is reduced, it definitely has an impact. For example, Salesforce said today that half of their work is done by AI.

Amit: Meta says that 30% of their code is written by AI, and so does Microsoft. Imagine a scenario where the highest-paid software engineers in society are no longer important; that is indeed a bit scary and will definitely have an impact on inflation. On April 2nd, "Liberation Day," many people were confused. On that day, the imposition of reciprocal tariffs caused the stock market to drop to 40,800 points in 2022. You were quoted at the time saying you didn't think Trump would violate the core contract of capitalism. You also mentioned that there would be a V-shaped rebound regardless. My question is, why didn't your institutional clients see that the guy from "The Apprentice" wouldn't actually impose a 90% tariff on Zimbabwe?

Tom Lee: Haha, yes, some of the data at that time was simply absurd. Institutional investors have their own "guardrails," such as needing to reduce positions when the VIX index rises, and they must also reduce positions when the market falls. So when the market is volatile, institutions cannot just hold on; they can only passively sell. The reason we said there would be a V-shaped rebound after a "waterfall decline" is that over the past hundred years, as long as there is no economic recession, the market always rebounds in a V shape. At that time, our judgment was that this was just a panic over growth because high-yield bonds were not reacting; only the stock market was moving. Another point that made institutions very pessimistic was that they felt only a rate cut from the Federal Reserve would save the market. Our view is that this is actually an illusion. Even if the Federal Reserve does not cut rates, the market can still have a V-shaped rebound. But many people said that since the Federal Reserve is not cutting rates, the market will keep falling, and the result was a V-shaped rebound.

Amit: Why can you see that relying on the Federal Reserve to save the market is actually an illusion?

Tom Lee: Because when the Federal Reserve injects liquidity, the money is actually just going into banks. If banks do not lend, the money just circulates within the banking system. More importantly, the real funding comes from retail investors. Now there are four main types of participants in the market: institutions, high-net-worth individuals, family offices, who usually follow hedge fund operations. Then there are corporate buybacks, and finally, retail investors. Only retail investors are buying into the market.

Retail Investors and Institutions: The Best Shareholders Are Users

Amit: So why do you think retail investors can see through this? I know institutions have fiduciary responsibilities to sell, but why aren't they buying as actively as retail investors?

Tom Lee: I think it's because retail investors treat this as the stock market. For example, I like Palantir, I own Meta; should Meta really crash just because of tariffs? Is it reasonable for Palantir to drop to 80? Retail investors look at specific stocks, but institutions tend to be more macro as they go up. They feel that Trump is going to lead us off a cliff, and the Federal Reserve will ruin us. These thoughts create biases, and when the actual economy or market performance does not align with their framework, they feel the market is crazy. This round of rebound is only being bought by retail investors. They are forced to hold cash and missed the V-shaped rebound, which is the "most unloved V-shaped rebound."

Amit: Money in a money market fund earns 4%, but Meta has risen 40%… What is the dialogue like between you and institutions? I remember you kept saying in 2023 that institutional clients did not believe in the market, which became the reason for your "Wall of Worry," indicating that there is still room for the market to grow. When you communicate with these people, do they ever want to curse at you? But at the same time, would they thank you for letting them know it was time to buy?

Tom Lee: Yes, institutions are more pessimistic now compared to 2020 and 2023. They firmly believe that the economic cycle is about to turn; one point is that if you look at the political leanings of the stock market, 65% of fund managers voted for Biden, which I didn't know before. The bond market, on the other hand, is the opposite, historically leaning more Republican. So most people think Trump is crazy because they didn't vote for him.

Amit: Is this one of the reasons why people are not buying in?

Tom Lee: We often write in our research that the stock market has partisan colors. These conversations have been quite awkward this year. They would say, "Tom, we can't not sell; you suggest we don't sell, and although I don't know where the bottom is, I know there will be a V-shaped rebound." Every time the VIX exceeds 60 and then falls back below 30, it has always been a bottom, but they say this time is different because the Federal Reserve won't save the market. Everyone can find reasons to prove that a recession is coming. Economists are all shouting recession, so how can you, as a stock investor, say there will be a V-shaped rebound? So they feel trapped, and our conversations are not pleasant.

……

Amit: Do you think retail participation is overall a good thing?

Tom Lee: Actually, the stock market is undergoing a huge transformation right now, and I believe it is thanks to X (formerly Twitter), because the best companies have turned shareholders into customers. **For example, MicroStrategy (MSTR.US). They have "orange-pilled" everyone, and people buy MicroStrategy not because it is a safe business, but because Saylor (former CEO of MicroStrategy) can help me acquire more Bitcoin per share. Another example is Palantir; (CEO) Alex Karp represents "cult" behavior. Tesla is also like this; *buying Tesla is essentially betting on Elon.* So the capital cost of these stocks has been practically discounted because they have turned shareholders into customers. I think this is very healthy; it aligns with Peter Lynch's philosophy—buy what you understand. For instance, if you talk to a Tesla owner, they can tell you about Optimus Prime, FSD (Full Self-Driving), and they know the company inside and out. They know what they are buying. Today's retail investors are actually quite knowledgeable, so saying "dumb money" is completely wrong; retail investors know what they are doing.

Amit: Many institutions would say that Tesla's price-to-earnings ratio of 200 is too crazy. Those who can articulate FSD well actually don't understand valuation. But your point is that these people might actually drive a Tesla themselves and have real experience with FSD; they can use their imagination to predict the company's future, and valuation may not be that important. Is it to say that the valuation camp thinks a 200x PE is absurd, while the "believers" would say, "I drive this car every day; you don't understand what you're talking about"?

Tom Lee: You ask a very good question. Actually, one issue is, how many people really need "fundamentals" as an investment basis? This group is shrinking. For example, do you own a luxury watch? (Amit: No) Do you collect art? (Amit: No). In fact, Tesla's scarcity is like that of art. … Can you name a second company like Tesla? There is only one Tesla in the world. It's like a painting by Da Vinci; there is only one. If you value it only based on materials and say this painting is worth 12 cents, but a hundred people say there is only this one painting in the world, I am willing to pay 100 million dollars. That is Tesla. Some say Tesla is just a car company, but more people say Tesla is Da Vinci. There is no second company like Tesla in the world, and this kind of scarcity deserves a premium.

Amit: I never thought of it that way; that analogy makes a lot of sense. For example, Elon’s brand has surpassed many company brands. I don’t even know who the CEO of Procter & Gamble is.

Tom Lee: Exactly, can you name the CEO of the largest non-tech company? None of us can. This also proves that there is only one Tesla; if you lose it, it's gone. They have strong manufacturing capabilities; making cars is one of the hardest things in the world, and they can still be profitable. Elon says he wants to do space travel, and now SpaceX has 90% of the market share. He says he wants to do AI, and Grok is valued at 130 billion. He just knows how to create companies. And there is only one Tesla in the world. Some say it is a company that sells mass-market goods, but I don't see it that way.

Amit: If you only use valuation to explain, it is indeed very difficult. Is this also the reason you say Tesla will lead the V-shaped rebound?

Tom Lee: Yes. We made a "washout stock" list, which is very simple; we took April 7 as the low point and screened 3,000 liquid stocks that institutions could trade. How many did not make new lows on April 7 and had lower trading volumes? There were about 37, and Tesla was among them, along with Palantir and Nvidia. These stocks had actually been sold out; by April, everyone had already sold, so they did not make new lows. This is our logic.

Amit: These are all unique brands, like Nvidia, Palantir, and Tesla.

Betting on Ethereum Because of the Optimism for Stablecoins

Amit: Let's talk about your new move on Monday. Now you are the chairman of the board, and you have raised $250 million to buy Ethereum, essentially establishing an Ethereum vault. The first question is, why choose Ethereum?

Tom Lee: Actually, Ethereum… I believe the audience has a general understanding of Ethereum. I like Ethereum because it is a programmable smart contract blockchain, but to put it simply, the real reason I choose Ethereum is that stablecoins are exploding. Circle is one of the best IPOs in five years, with a 100x EBITDA valuation,** bringing excellent performance to some funds.** On traditional Wall Street, Circle is a legendary stock, and it is a stablecoin company. Stablecoins are the ChatGPT of the crypto world, having entered the mainstream, and they are evidence of Wall Street's attempt to "equity tokenize" tokens. Meanwhile, the crypto space is "tokenizing" equity, such as the dollar being tokenized.

Now JPMorgan, Amazon, Walmart, and Goldman Sachs are all looking to create their own stablecoins; this business model is good and friendly to consumers and merchants. But all of this has to run on the blockchain, and most stablecoin transactions are on Ethereum. ETH was once close to $5,000, then dropped to $1,400 or $1,500, and now it has returned to $2,400. The total amount of stablecoins is now $250 billion, accounting for only 30% of Ethereum's gas fees, but Ethereum has minted over 50% of stablecoins. U.S. Treasury Secretary Scott is very optimistic; he believes this is a $2 trillion market, which is a tenfold growth. The U.S. government also hopes for more stablecoins because they collectively are the 12th largest holder of U.S. debt and promote dollarization. 80% of stablecoins are used overseas (in the U.S.). If stablecoins grow another tenfold, Ethereum's gas fee revenue will explode. So Ethereum is the biggest beneficiary of Wall Street's "equity tokenization" of crypto assets and crypto "tokenization" of equity, perfectly positioned in the middle. Therefore, I believe Ethereum will be rediscovered this year, and Robinhood just announced using Ethereum Layer 2 to achieve stock tokenization.

Amit: Robinhood is "tokenizing" Wall Street, and the government also supports stablecoins because this will increase demand for U.S. debt, with ETH being the underlying asset for stablecoins. The price of ETH is clearly lagging behind Bitcoin; why do you think people haven't realized this yet?

Tom Lee: Because the crypto space is driven by trust and narrative. The story of Bitcoin is trust; it is digital gold. And the current story is programmable money. People will find that not only do we need programmable money, but we also need to do this with the largest network, and Ethereum, with a market cap of $300 billion, is the largest smart contract blockchain. So Ethereum has the opportunity to completely change the landscape.

Amit: In 2021, the only application of Ethereum was NFTs, and many entities doing smart contracts may have already failed, but now this direction has become more sustainable and has received government support. BMNR (Bitmine Immersion Technologies Inc) saw its stock price rise from $4 to $40 (Note: as of the time of writing, BMNR.US stock price is $111.5), and everyone believes in your vision. Do you think buying this asset offers a better risk-reward ratio than buying ETH?

Tom Lee: I don't comment on BMNR itself, but I can talk about why treasury companies like BMNR are meaningful. Some might ask, if I want to bet on Ethereum, why not just buy an ETF? Why not buy ETH directly on-chain and self-custody?

But treasury companies have five important options.

If you buy an ETF or buy ETH on-chain, the amount of Ethereum you hold is constant, and the ETF also charges management fees. But the goal of a treasury company is to increase the number of tokens per share, and MicroStrategy uses this metric to measure itself.

First, if the company's stock price is above its net asset value (NAV), it can issue more shares to enhance the NAV, which is called "reflexive growth." There are very few reflexive things in the stock market.

Second, because the underlying token is highly volatile—Ethereum's volatility is twice that of Bitcoin. If you buy an Ethereum ETF and want to leverage it, banks will charge a 10% interest rate, but treasury companies, as enterprises, have lower financing costs and can "sell" volatility through convertible bonds or derivatives; for example, MicroStrategy's financing cost is zero.

Third, you have the difference between market price and NAV, stock attributes, and other treasury companies can arbitrage the market-to-book ratio externally. If a company’s market price is three times its NAV, you can merge or acquire other treasury companies, creating arbitrage opportunities. Fourth, you can operate as a company, such as providing services for the DeFi ecosystem.

Amit: For example, lending services.

Tom Lee: Yes, this cannot be done on Bitcoin, but it is very useful on Ethereum.

Fifth, you can create structured "put options." For example, MicroStrategy holds 600,000 Bitcoins; if the U.S. government wants to buy 1 million Bitcoins, buying directly from the market would drive the price up, so it would be better to acquire MicroStrategy at a premium—this is the "sovereign put option." The same goes for the Ethereum world; if a treasury company holds 5% of Ethereum, which is extremely important to the Ethereum ecosystem, then their valuation should be higher. For instance, if Goldman Sachs wants to issue stablecoins on Ethereum, they need to ensure the security of the Ethereum network, which may ultimately lead them to buy a large amount of ETH or directly acquire these treasury companies. So treasury companies have Wall Street's "put options."

Amit: This line of thought is very clear. If you believe in the macro logic of Ethereum, then you indeed have a lot of leverage.

Fundstrat Granny Shots ETF Holdings (Source: Granny Shots website)

……

Amit: Finally, our audience is particularly concerned about the Fundstrat Granny Shots ETF holdings companies (Palantir and Robinhood). Can we start with Palantir?

Tom Lee: Palantir is redefining the relationship between companies and enterprises, helping businesses improve. Generally, such companies are either consulting firms or tech companies; Palantir is both, but with fewer people. Palantir is like equipping Fortune 500 companies with "wizards," and of course, the government is also using it.

Amit: A thousand employees, fewer than 800 clients, and $4 billion in revenue. The second largest holding in Granny Shots is Robinhood.

Tom Lee: Robinhood is impressive; I think it is the Morgan Stanley of the younger generation. Let's not forget, in the 1980s on Wall Street, new brokerages emerged to serve the baby boomer generation, like Charles Schwab, which started as a media company (Newsletter) and later transitioned to brokerage. E*Trade and Schwab were the brokers for the baby boomers, and Robinhood is today's equivalent. I think Robinhood is very smart, has a good product experience, understands the importance of UI, and is very agile.

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