Exclusive interview with Fundstrat Research Director Tom Lee: How will the rise of stablecoins reshape Ethereum?

Guest: Tom Lee, Co-founder and Head of Research at Fundstrat Global Advisors

Host: Amit Kukreja

Podcast Source:*

Compilation and Editing: ChainCatcher

ChainCatcher Editor Summary

Tom Lee is the co-founder and head of research at Fundstrat Global Advisors, and one of the earliest people on Wall Street to systematically study Bitcoin and emerging asset allocation. He served as Chief Strategist at JPMorgan for 16 years, known for his data-driven and contrarian forecasts. While most institutions were bearish, he predicted the bull market rebound in advance, was optimistic about the underlying value of Ethereum, and successfully captured multiple cycle turning points. His judgments not only serve as a reference for institutions but also become an important basis for countless retail investors to position themselves against the wind.

This podcast delves into topics such as whether the current bull market has begun, why institutional investors missed the opportunity to position themselves at low levels, and the new role of retail investors in the market.

ChainCatcher organizes and compiles content (with edits).

Core Point Summary

• The period when people were concerned about stocks in the 90s will return. Our research indicates that the millennial generation is the largest in history, with a total population of 98 million, which is 40% more than the previous generation. This generation will eventually refocus on the stock market.
• Retail investors treat the market like the stock market, for example, holding Palantir and Meta; they won't short the company because of tariffs. However, institutions are caught up in the macro narrative.
• Institutions say that a breakthrough at 6141 points marks the beginning of a bull market, but retail investors entered the market at 4800 points. They are the ones who truly bought at the bottom.
• The Fed's release of liquidity is only for banks, and if banks do not lend, it is useless. What truly drives the market is retail investor money; at the low point in April, the only net buyers were retail investors.
• For example, when the U.S. government increases taxes on gasoline, the CPI will rise, but that just means consumers' wallets are getting thinner. The money flows to the government and is then spent again, which is not inflation, just a transfer.
• Stablecoins are the encrypted ChatGPT, while Ethereum is their infrastructure. It mints over 50% of stablecoins, accounting for 30% of Ethereum Gas fees.
• The amount of Ethereum in the ETF is fixed, but the treasury company can increase the number of token units through methods such as premium issuance, convertible bonds, and staking to achieve compound growth.
• Tesla is like a painting by Da Vinci, the valuation model tells you it's worth 12 cents, but 100 people in the market are willing to pay 100 million dollars, that's the logic of a scarce asset.

1. Predictions and Financial Concepts Going Against the Tide

Amit: From 2022 to 2023, you predicted the market bottom against the trend, and the bull market began. Your judgment is based on data, not conspiracy theories, affecting millions of investors. I want to ask: How does it feel when your voice can change the future wealth of a generation?

Tom Lee: This is actually the original intention behind establishing Fundstrat in 2014. I worked for many years at a large investment bank, serving as the chief strategist at JPMorgan for nearly 16 years. At that time, I was always thinking: Can we create a company that provides institutional-level research while also being understandable to the average person?

In 2014, retail interest in the stock market had significantly decreased, and the market was almost dominated by institutions. But I remember in the 1990s, the public was very focused on the stock market. I have always felt that such an era would return, so we are essentially betting that the public will return to the market and be willing to listen to what we have to say.

Amit: How did you make such a judgment before the era of Robinhood arrived? What kind of data or logic supports it?

Tom Lee: At that time, our research was very evidence-driven, especially in terms of demographics. We wrote many reports analyzing the impact of different generations on the market. We had published a white paper pointing out that the millennial generation is the largest in history, with a population of 98 million, 40% more than the previous generation. From an intergenerational cycle perspective, each generation starts to pay attention to the stock market at some point, while the previous generation may have lost confidence in the market due to experiencing certain events.

Many of my peers thought at the time that the stock market was no longer worth paying attention to, but for those who started investing after 2009, the market was full of opportunities. So we saw the opportunity for this generational shift. In fact, I once suggested to the executives at a management partner meeting at JPMorgan to try entering the retail brokerage business, but they thought it was simply a sunset industry and not worth pursuing. However, if you look back, this would actually have been a very smart strategic move.

At that time, we were very small in scale and did not have the support of large platforms. So we had to learn how to proactively connect with people and expand our influence. That’s why we started using Twitter early on and frequently accepted media interviews. You could say that we gradually built the company using a guerrilla warfare approach.

2. Interpretation of Federal Reserve Policy and Inflation: The Game of Tariffs, Interest Rates, and the Housing Market

Amit: Next, let's talk about market-related topics. Do you think the Federal Reserve should cut interest rates now?

Tom Lee: To be honest, I almost never directly comment on what the Federal Reserve should do. We have about 10,000 registered investment advisor clients, as well as over 300 hedge funds. In the research reports we send to clients, we usually present the data and evidence and then ask them what they think. But if I were to do an analysis, such as what the Federal Reserve should do? What indicators are they focusing on? What is reasonable? Let's look at a fact: if we use the European Central Bank's measurement method, the core inflation in the U.S. might actually be close to 2%. Because the core inflation indicator of the European Central Bank does not include housing costs. If we also exclude housing, the U.S. core inflation would drop from 4.5% to 1.9%, which is lower than the current 2.5% of the European Central Bank.

So why does everyone feel that the Federal Reserve is more tightening? From this perspective, the Federal Reserve has tightened a full 200 basis points compared to the European Central Bank, simply because the statistical method includes housing. But is the Federal Reserve really trying to suppress the real estate market? I don't think so.

Amit: But it can indeed be confusing.

Tom Lee: Yes, this indeed confuses me. Additionally, the Federal Reserve recently indicated that it might delay interest rate cuts this summer due to the impact of tariffs. They are concerned that tariffs could lead to inflation. We recently wrote an article on this for our clients and shared some insights on Twitter. The core point is: tariffs are essentially a tax, because the money ultimately flows to the government. In other words, if the U.S. government suddenly announced an additional tax of $6 per gallon on gasoline, resulting in a significant increase in the gasoline CPI index, would the Federal Reserve raise interest rates because of that? Probably not. Because they know it's not due to an overheating economy, but rather because people's wallets are being taxed by the government.

In this case, lowering interest rates is reasonable because the actual purchasing power of consumers has been affected, and this money is just taken by the government and then reintroduced into the economy in another way. This is not inflation in the true sense, but merely a redistribution of funds.

Amit: However, from Powell and the Federal Reserve's perspective, they may believe that companies have raised prices for goods in response to tariff pressures, although part of this expenditure will be redistributed by the government. From the perspective of the CPI, it indeed still constitutes inflation.

Tom Lee: Yes, but the problem is that this is actually a disguised tax. The price increase is not fundamentally due to strong market demand or supply bottlenecks, but rather driven directly by policy. It's similar to how we know that traffic fines are a form of tax; tariffs are too. No matter at which link in the supply chain it appears, it is essentially a tax. Therefore, if the Federal Reserve treats the CPI increase caused by this type of tax as real inflation, it is misjudging the root of the problem.

3. Is the data model "outdated": JOLTS, ADP and market signals mismatch

Amit: What do you think about the data models we use to calculate inflation and employment now? For example, the JOLTS data from the Bureau of Labor Statistics, which we just saw yesterday, showed an increase of 400,000 job openings, far exceeding expectations. Do you think their data collection methods are outdated?

Tom Lee: I believe that this data is a very incomplete reflection of reality. The response rate is especially critical. Some of the CPI-related settings are also quite strange, such as the cost decreases brought about by technological innovation, which are actually deflation, but they never treat it as deflation. The issue with JOLTS is even more apparent, as its response rate is only 40%, and it is completely out of sync with other data sources, such as Rackup or LinkedIn data.

Amit: It is indeed very confusing. Most of the audience I face are retail investors, and they saw the government say there were 400,000 new job vacancies yesterday, but today the ADP data shows a decrease of 33,000 jobs, while the expectation was still a positive 99,000. What is going on here?

Tom Lee: If you delve a little deeper, you'll find that the increase in job vacancies in JOLTS is due to many people not showing up for work in industries like restaurants. Therefore, they have to post more job ads, but this is actually a reflection of labor shortages, not new positions.

Today, ADP data shows that several categories are experiencing negative growth, including financial services, professional services, and education. The decline in education is likely affected by the summer vacation. The downturn in professional services and the financial sector may be related to a contraction in consulting business. For example, McKinsey did lay off 10%, right? Such changes are often related to government contracts and cuts in U.S. aid, which affect the real demand in the service industry rather than just tariffs or macroeconomic shocks.

4. Institutional Hesitation VS Retail Firmness: Who is Buying at the Bottom?

Amit: You mentioned on April 2 that despite the retaliatory tariffs, you did not believe Trump would violate the core principles of capitalism. The reality is that the stock market has fallen back to 2022 levels, touching 4800 points. You said there would be a V-shaped rebound. So I want to ask, why did your institutional clients fail to realize that when Trump said he would impose a 90% tariff on Zimbabwe, it was actually just to scare the market and was unlikely to be seriously implemented?

Tom Lee: It's quite ironic. Sometimes he throws out some really outrageous numbers, but you know, institutional investors are bound by rules. For instance, when the VIX index rises, they have to reduce their positions; when the market is volatile, they also have to cut risks. So once the market experiences a downturn or fluctuation, they are often forced to sell by the rules, rather than making a proactive judgment.

Amit: You mentioned before that the rebound after such a big drop is usually V-shaped. Why are you so confident about that?

Tom Lee: We studied data from the past 100 years and found that as long as there are no recessionary impulses, most rebounds after a significant decline are V-shaped. This is a very regular market behavior.

Amit: So why are you aware that relying on the Federal Reserve to rescue the market is actually an illusion?

Tom Lee: I think this is indeed a misunderstanding. The Federal Reserve releasing liquidity simply gives money to the banks, but if the banks do not lend, that money just becomes reserves and will not enter the market. So what really drives things is actually the money from retail investors.

Amit: So who do you think are the real participants in the market now?

Tom Lee: I believe that the current market participants can be roughly divided into four categories: institutional investors, non-U.S. investors, high-net-worth individuals, and retail investors. Institutions and high-net-worth individuals often refer to the views of hedge funds, and they tend to be more pessimistic. Corporate stock buybacks can be seen as another form of participation. At the low point in April, the only real buyers entering the market were retail investors.

Amit: In March and April, the net inflow of funds from retail investors was 40 billion dollars, right? And the reason they dared to buy in is partly because they listened to your analysis. So, why do you think retail investors see things more clearly?

Tom Lee: I think it's because retail investors are focused on specific stocks. They might be thinking, "I bought Palantir, Meta; they won't crash because of tariffs, right?" They are concerned about the companies themselves, rather than macro sentiments. In contrast, institutional investors get caught up in macro worries, like whether Trump will lead us into a abyss or whether the Federal Reserve is going to destroy the market. These sentiments can easily lead to biases. When the real economy doesn't collapse according to their framework but instead rebounds, they think the market is crazy, that this rebound is too foolish, and only retail investors are buying. But they don’t realize that they are holding cash while missing out on the entire V-shaped recovery. This is also why this rebound is called the most hated V-shaped rebound.

5. The Beginning of the Bull Market and Market Differentiation

Amit: You have clearly expressed your position now, and we are at the beginning stage of a new bull market. I guess when you say this to institutional clients, they might be a bit taken aback. Could you briefly explain why you have such a judgment?

Tom Lee: In fact, this judgment is based on facts. We have experienced a pullback of over 20%, and now we have reached a new high. From the perspective of commodity trading advisors, as long as there is a deep pullback followed by a breakthrough to a new high, it can be defined as the beginning of a bull market. For institutions, this means that the bull market actually started from the recent breakthrough of 6141 points. However, retail investors had already entered the market when it was at 4800 points, while institutions are just beginning to acknowledge the arrival of the bull market.

Amit: Do you think retail investor participation is a good thing? Why do you say that?

Tom Lee: I believe that the stock market is undergoing a profound structural transformation today, with retail investors playing a very active role. In fact, I would attribute the rise of this power to Twitter, as it allows the best companies the opportunity to turn shareholders into customers. Let me give you a typical example: MicroStrategy. Many people choose to hold MicroStrategy's stock not because they are optimistic about its securities business, but because they believe Michael Saylor can continuously bring more Bitcoin value. A similar situation exists with Palantir; Alex Karp is a very charismatic founder, and his vision for the company has attracted a large number of loyal users. These changes are altering the relationship between investors and companies, and they are also part of the bull market momentum.

6. The Scarcity and Disruptive Valuation of Tesla

Amit: Let's talk about Tesla. Many institutional investors believe that Tesla's price-to-earnings ratio is nearly 200 times, and its market value is over a trillion, isn't this a bubble? However, some retail investors are steadfast believers, and those people might drive a Tesla every day, personally experience fully autonomous driving, and can even discuss its features and updates in detail. What do you think about this way of understanding a company through experience? Does valuation become less important?

Tom Lee: Your question is very rigorous. In my view, the number of people who still rely on the price-to-earnings ratio for investment decisions is actually a shrinking group. Let's consider it from a different angle: do you own luxury watches? Or have you ever collected art? Because for me, Tesla is essentially a type of scarce item, just like a painting by Da Vinci. It is not simply a car company, but a unique entity in the world. You can find other electric vehicle companies in the market, and you can also find companies working on robots or autonomous driving, but it is hard to find another company like Tesla that integrates all of these and has a passionate user base. For example, imagine there is a painting in front of you, and you evaluate its value based on the material, saying it is worth only 12 cents, but there are 100 people nearby competing to bid, saying: "No matter how much the paper is worth, this is a work by Da Vinci, and I am willing to pay 100 million dollars to buy it." This is the value logic of Tesla.

Amit: In other words, from the perspective of the holders, it is not just a car; rather, they believe that this company will build the future. Those who have experienced Tesla have more confidence in its potential for the future.

Tom Lee: That's right. These users are no longer ordinary consumers; they are evangelists for Tesla. They use fully autonomous driving every day and have a deep understanding of the product, Elon, and the entire company. They may not draw valuation models, but they know exactly what they are buying. This represents a new valuation logic: viewing the company as a platform, as a scarce asset, which feels more real and convincing to them.

7. The Future of Ethereum and Cryptocurrency

Amit: Let's talk about the new initiative you launched this Monday. You are now the chairman of the board at BitMine and have raised $250 million to purchase Ethereum, effectively creating an Ethereum treasury. My first question is: why Ethereum?

Tom Lee: I believe that most viewers have a certain understanding of Ethereum. The reason I chose Ethereum is that it is a programmable smart contract blockchain – it sounds a bit technical, but the core behind it is that it provides greater flexibility for building financial systems. More directly, one key reason I chose Ethereum is that stablecoins are rapidly evolving.

Amit: Companies like Circle have already become billion-dollar unicorns.

Tom Lee: Yes, Circle can be said to be one of the most successful IPO cases in the past five years. Its valuation reached 100 times EBITDA, which greatly boosted this year's performance for some funds, even helping some people break into the top 1%. From Wall Street's perspective, Circle is a god-level stock. And stablecoins are the ChatGPT of the crypto world, with their popularity proving a trend: traditional finance is striving to securitize assets, while the crypto world is promoting the tokenization of equity. Circle is actually a typical example of dollar tokenization.

Amit: When it comes to price performance, Ethereum is still somewhat lagging behind Bitcoin. Why do you think that is?

Tom Lee: I believe that the cryptocurrency space has always been narrative-driven, and its core is trust. We all know that the logic behind Bitcoin is digital gold and value storage, while Ethereum represents programmable money. Now, people are gradually realizing that it's not just about having a programmable coin, but they also want this coin to operate on a sufficiently large network. And Ethereum, with a market cap of 300 billion, is currently the largest smart contract chain. This is precisely where its enormous opportunity lies.

Tom Lee: While I won't specifically talk about BMNR, I can discuss why the vault company model makes sense. Many people ask, if I want to invest in Ethereum, why not just buy an ETF directly, or simply buy on-chain myself? But the problem is, whether it's an ETF or on-chain holdings, what you own is a fixed amount of Ethereum. The vault company, on the other hand, offers five very key options – it's not just storage; it allows you to participate in this network in more ways.

Source: ChainCatcher