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:++https://x.com/Amitisinvesting/status/1941184140969378170?t=731++

Compiled by: ChainCatcher

ChainCatcher Editor's Summary

Tom Lee is the co-founder and head of research at Fundstrat Global Advisors, and one of the earliest on Wall Street to systematically research Bitcoin and emerging asset allocation. He served as Chief Strategist at JPMorgan for 16 years, known for his data-driven and contrarian predictions. While most institutions were bearish, he anticipated the bull market rebound, favored Ethereum's underlying value, and successfully captured multiple cycle turning points. His judgments not only serve as references for institutions but have also become crucial for countless retail investors making counter-trend allocations.

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

ChainCatcher has organized and compiled the content (with edits).

Key Points Summary

• The era when people cared about stocks in the 90s will return. Our research indicates that millennials are the largest generation in history, with a total population of 98 million, 40% more than the previous generation. This generation will eventually refocus on the stock market.
• Retail investors treat the market like a stock market; for example, holding Palantir and Meta, they won't turn bearish on these companies due to tariffs. Institutions, however, get caught up in macro narratives.
• Institutions say that a breakout above 6141 points signifies the start of a bull market, but retail investors entered at 4800 points. They are the ones who truly bought at the bottom.
• The Federal Reserve's release of liquidity only went to banks; if banks don't lend, it doesn't help. The real driving force behind the market is retail money; at the April low, the only net buyers were retail investors.
• For instance, if the U.S. government raises taxes on gasoline, the CPI will rise, but that just means consumers' wallets are thinner. Money flows to the government and is then spent again; this is not inflation, just a transfer.
• Stablecoins are the ChatGPT of crypto, while Ethereum is their infrastructure. It has minted over 50% of stablecoins, accounting for 30% of Ethereum gas fees.
• The number of Ethereum in ETFs is fixed, but treasury companies can increase the number of token units through premium issuance, convertible bonds, staking, etc., achieving compound growth.
• Tesla is like a Da Vinci painting; valuation models may tell you it's worth 12 cents, but if 100 people in the market are willing to pay 100 million dollars, that's the logic of a scarce asset.

1. Contrarian Predictions and Financial Philosophy

Amit: From 2022 to 2023, you predicted the market would bottom out and the bull market would begin. Your judgments are data-driven, not conspiracy theories, impacting millions of investors. How does it feel to know your voice can change the financial future of a generation?

Tom Lee: This is actually the reason we founded Fundstrat in 2014. I worked at a large investment bank for many years, serving nearly 16 years as Chief Strategist at JPMorgan. I was always thinking: can we build a company that provides institutional-level research but is also understandable to ordinary people?

In 2014, retail interest in the stock market had clearly declined, and the market was almost entirely dominated by institutions. But I remember the 90s when the public was very focused on the stock market. I always felt that era would return, so we were essentially betting that the public would come back to the market and be willing to listen to what we had to say.

Amit: How did you make such a judgment before the Robinhood generation arrived? What data or logic supported it?

Tom Lee: 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 published a white paper pointing out that millennials are the largest generation in history, with a population of 98 million, 40% more than the previous generation. From an intergenerational cycle perspective, every generation will start to care about the stock market at some point, while the previous generation may lose confidence due to certain events.

Many of my peers at the time thought 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 this generational shift as an opportunity. In fact, I had suggested to executives at a JPMorgan management partner meeting to try entering the retail brokerage business, but they thought it was a sunset industry and not worth pursuing. But looking back, that would have been a very smart strategic move.

We were small at the time and didn't have the support of large platforms. So we had to learn how to actively connect with people and expand our influence. That's why we started using Twitter early on and frequently accepted media interviews. You could say we built the company slowly using a guerrilla warfare approach.

2. Federal Reserve Policy and Inflation Interpretation: Tariffs, Interest Rates, and Housing Market Dynamics

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 and over 300 hedge funds. In the research reports we send to clients, we usually present the data and evidence and then ask for their opinions. But if I were to analyze what the Federal Reserve should do, what indicators they are watching, and what is reasonable, let's look at a fact: if we use the European Central Bank's measurement, U.S. core inflation might actually be close to 2%. This is because the European Central Bank's core inflation measure excludes housing costs. If we also exclude housing, U.S. core inflation would drop from 4.5% to 1.9%, which is lower than the European Central Bank's current 2.5%.

So why does everyone feel the Federal Reserve is more hawkish? From this perspective, the Federal Reserve is 200 basis points tighter than the European Central Bank, simply because housing is included in the statistics. But does the Federal Reserve really try to suppress the housing market? I don't think so.

Amit: But it does seem confusing.

Tom Lee: Yes, this does confuse me. Another point is that the Federal Reserve recently indicated that it might delay interest rate cuts this summer due to tariff impacts. They are concerned that tariffs will lead to inflation. We recently wrote an article for clients on this topic and shared some views 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 a $6 tax on every gallon of gasoline, resulting in a significant rise in the gasoline CPI index, would the Federal Reserve raise interest rates because of that? Probably not. Because they know that it's not due to an overheating economy, but because people's wallets have been taxed by the government.

So in this case, cutting interest rates would actually be reasonable, because consumers' actual purchasing power has been affected, and that money is just taken by the government and then flows back into the economy in another way. This is not true inflation; it's just a redistribution of funds.

Amit: But from Powell and the Federal Reserve's perspective, they might think that companies have raised prices in response to tariff pressures. Although part of that expenditure will be redistributed by the government, from the CPI perspective, it still counts as inflation.

Tom Lee: Yes, but the problem is that this is actually a disguised tax. It is not caused by strong market demand or supply bottlenecks leading to price increases; it is directly driven by policy. It's like we know traffic fines are a form of tax; tariffs are too. No matter where it appears in the supply chain, it is essentially a tax. Therefore, if the Federal Reserve treats the CPI increase caused by these types of taxes as true inflation, they are misjudging the root of the problem.

3. Are Data Models "Outdated": JOLTS, ADP, and Market Signal Mismatches

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 vacancies, far exceeding expectations. Do you think their data collection methods are outdated?

Tom Lee: I think these data reflect reality very incompletely. Especially the response rate is crucial. Some CPI-related settings are also quite strange; for example, cost reductions due to technological innovation are actually deflationary, but they never treat it as deflation. The problems with JOLTS are even more obvious; its response rate is only 40%, and it is not synchronized with other data sources, such as Rackup or LinkedIn.

Amit: It is indeed confusing. Most of my audience consists of retail investors, and they see the government saying there are 400,000 new job vacancies yesterday, but today the ADP data shows a decrease of 33,000 jobs, with expectations still positive at 99,000. What is going on here?

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

And today, the ADP data shows negative growth in several categories, including financial services, professional services, and education. The education category is likely affected by the summer break. The decline in professional services and finance may be related to a contraction in consulting businesses. For example, didn't McKinsey just lay off 10%? These changes are often related to government contracts and reductions 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 Determination: Who Bought at the Bottom?

Amit: You mentioned on April 2 that despite retaliatory tariffs, you didn't think Trump would violate the core principles of capitalism. Yet the reality is that the stock market fell back to 2022 levels, hitting 4800 points. You said there would be a V-shaped rebound. So I want to ask, why didn't your institutional clients realize that Trump's statement about imposing a 90% tariff on Zimbabwe was just a scare tactic and unlikely to be seriously executed?

Tom Lee: This is indeed quite ironic. Sometimes he throws out some very outrageous numbers, but you know, institutional investors are bound by rules. For example, when the VIX index rises, they have to reduce their positions; when the market is volatile, they also need to cut risk. So once the market shows a downturn or volatility, they are often forced to sell due to rules rather than making proactive judgments.

Amit: You have previously said that rebounds after such large declines are usually V-shaped. Why are you so confident about this?

Tom Lee: Because we studied data from the past 100 years and found that as long as there is no recessionary impulse triggered, most rebounds after large declines are V-shaped. This is a very regular market behavior.

Amit: So why do you realize that relying on the Federal Reserve to save the market is actually an illusion?

Tom Lee: I think this is indeed a misunderstanding. The Federal Reserve releasing liquidity only gives money to banks, but if banks don't lend, that money just sits as reserves and doesn't enter the market. So the real driving force is actually retail money.

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

Tom Lee: I believe 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 hedge fund views, and they tend to be more pessimistic. Corporate stock buybacks are another form of participation. However, at the April low, the only real buyers were retail investors.

Amit: In March and April, retail net inflows were $40 billion, right? And the reason they dared to buy in was partly because they listened to your analysis. Why do you think retail investors see things more clearly?

Tom Lee: I think it's because retail investors focus on specific stocks. They might think, "I bought Palantir and Meta; they won't go under just because of tariffs, right?" They focus on the companies themselves, not the macro sentiment. In contrast, institutional investors get caught up in macro worries, like whether Trump will lead us into a crisis or whether the Federal Reserve will 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 the rebound is foolish, and only retail investors are buying. But they don't realize that they are holding cash while missing the entire V-shaped recovery. This is also why this rebound is called the most hated V-shaped rebound.

5. The Start of the Bull Market and Market Differentiation

Amit: You have now clearly expressed your position that we are in the early stages of a new bull market. I guess when you tell institutional clients this, they might be a bit shocked. Can you briefly explain why you have this judgment?

Tom Lee: This judgment is actually based on facts. We experienced a pullback of over 20%, and now we have reached new highs again. From the perspective of commodity trading advisors, as long as there has been a deep pullback followed by a new high, it can be defined as the start of a bull market. For institutions, this means the bull market actually started on the day we recently broke above 6141 points. But retail investors had already entered the market at 4800 points, while institutions are just beginning to acknowledge the arrival of the bull market.

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

Tom Lee: I believe today's stock market is undergoing a profound structural change, and retail investors are playing a very positive role in it. In fact, I attribute the rise of this force to Twitter, as it allows the best companies to turn shareholders into customers. Let me give you a typical example: MicroStrategy. Many people choose to hold MicroStrategy 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 attracts a large number of loyal users. These changes are altering the relationship between investors and companies, and they are part of the momentum of the bull market.

6. Tesla's Scarcity and Disruptive Valuation Perspective

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 that a bubble? Yet some retail investors are staunch believers, those who might drive a Tesla every day, experiencing full autonomy firsthand, and can even articulate its features and updates. What do you think about this way of understanding companies through experience? Is valuation less important?

Tom Lee: You asked this question very rigorously. My view is that the group of people who still rely on price-to-earnings ratios for investment decisions is actually getting smaller. Let's think from another angle: do you own luxury watches? Or have you ever collected art? Because for me, Tesla is essentially a scarce item, like a Da Vinci painting. It is not just a car company; it is a unique existence in the world. You can find other electric vehicle companies, and you can find companies that make robots or autonomous driving, but it's hard to find a company like Tesla that combines all of these and has a passionate user base. For example, if you have a painting in front of you and you evaluate it based on its material, saying its value is only 12 cents, but there are 100 people nearby eager to bid, saying, "No matter how much the paper is worth, this is a Da Vinci piece, and I'm willing to pay 100 million dollars for it." That is the value logic of Tesla.

Amit: In other words, from the perspective of the holders, it's not just a car; they believe this company will build the future. And those who have experienced Tesla have more confidence in its future potential.

Tom Lee: Exactly. These users are no longer ordinary consumers; they are evangelists for Tesla. They use full autonomy every day and know a lot about the product, Elon, and the entire company. They might not create valuation models, but they understand what they are buying. This represents a new valuation logic: viewing the company as a platform, as a scarce asset, which is more real and persuasive for them.

7. The Future of Ethereum and Cryptocurrencies

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

Tom Lee: I believe most viewers have some understanding of Ethereum. The reason I chose Ethereum is that it is a programmable smart contract blockchain—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 developing.

Amit: Companies like Circle have already become unicorns valued at billions of dollars.

Tom Lee: Yes, Circle can be considered one of the most successful IPO cases in the past five years. Its valuation has reached 100 times EBITDA, significantly boosting performance for some funds this year, even helping some enter the top 1%. From Wall Street's perspective, Circle is a god-tier stock. And stablecoins are the ChatGPT of the crypto world; their popularity also proves a trend: traditional finance is striving to securitize assets, while the crypto world is pushing for the tokenization of equity. Circle is actually a typical example of tokenizing the dollar.

Amit: But in terms of price performance, Ethereum has lagged behind Bitcoin. Why do you think that is?

Tom Lee: I think the cryptocurrency space has always been narrative-driven, with trust at its core. 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 they not only want a programmable coin but also hope that this coin operates on a sufficiently large network. And Ethereum, with a market cap of $300 billion, is currently the largest smart contract chain. That is where its huge opportunity lies.

Tom Lee: Although I won't specifically talk about BMNR, I can explain why the treasury company model is meaningful. Many people will ask, if I want to invest in Ethereum, why not just buy an ETF or buy directly on the chain? But the problem is that whether it's an ETF or on-chain holdings, you own a constant number of Ethereum. The treasury company provides five very key options—it is not just storage; it allows you to participate in this network in more ways.