By Anthony Pompliano

Compiled by: Vernacular Blockchain

In this podcast, Anthony Pompliano talks with Matthew Sigel, head of digital asset research at VanEck, to discuss investment strategies for crypto-related stocks, new staking regulations, and market cycles.

The NODE ETF he manages has achieved a return of 28-30% in less than four months since its launch in May, far exceeding Bitcoin and the S&P 500. It adopts a diversified "barbell" strategy covering traders, infrastructure and fintech companies.

During the interview, he disclosed in detail the current NODE ETF's investment portfolio and specific targets, analyzed the potential of companies such as Entergy and TEPCO in Bitcoin mining, emphasized the leverage risks in investment, and the impact of the SEC's pledge de-securitization decision on Ethereum, Solana, etc.

He believes that Bitcoin's four-year cycle may continue but be more moderate. He shared market top indicators such as funding rate and unrealized profits, and expressed his views on the current regulatory dynamics in the crypto market.

The following is an excerpt from the conversation, compiled by Vernacular Blockchain.

Q1: NODE ETF has been launched for more than three months and has achieved a return of 28-30%, twice that of Bitcoin and far exceeding indices such as the S&P 500. How do you construct a portfolio of cryptocurrency-related stocks?

Matthew Sige: Thank you for the invitation. We've been running crypto-equity strategies for nearly five years and have observed that they are extremely volatile. Highly leveraged stocks perform best and experience the largest gains during market tops, but leverage is toxic to cryptocurrencies, as demonstrated over the past few cycles.

At market peaks, cryptocurrency stock indices are often laden with highly leveraged assets, leading to significant declines during market shakeouts. Many cryptocurrency stock products underperform, and from an investor's perspective, investing heavily in Bitcoin-related products presents a disappointing return. Therefore, the NODE ETF aims to invest broadly, encompassing companies that clearly profit from the on-chain economy, such as exchanges like Coinbase and Bullish, as well as infrastructure providers.

Bitcoin dominance is approximately 65%. Large infrastructure companies involved in power, electrical equipment, and industrial infrastructure have significant potential for EPS growth and valuation multiples. Furthermore, fintech and e-commerce companies, such as Magnificent 7 but focused on Latin America or Asia, are beginning to adopt stablecoins at scale, generating cost savings. Our portfolio includes over 150 companies with digital asset strategies.

We adopt a barbell strategy, with one-third of the fund invested in pure cryptocurrency stocks, as well as peripheral sectors such as e-commerce and fintech, as well as low-volatility sectors such as utilities, energy, and infrastructure to provide stability.

Avoid large drawdowns through high diversification, especially as Bitcoin approaches its all-time high. A rising tide lifts all boats, but you might miss out on ten-baggers—this was our strategy from a year ago. During market pullbacks, we sell low-volatility positions and increase volatility. Since our inception, outperformance has been accompanied by lower volatility, with returns twice that of Bitcoin and lower volatility—our sweet spot. We can't guarantee repeating this performance, but that's our goal.

Q2 : You mentioned utilities and electrical hardware companies. What are some specific examples? Do they only serve Bitcoin miners, or do they have other intersections with cryptocurrencies?

Matthew Sige: Some utilities operate in areas where Bitcoin mining is growing, like Arkansas, Oklahoma.

This approach is similar to how public equity investors think, examining the vertical integration of the entire system. The growth of Bitcoin mining implies demand for hardware, energy, and geographic locations. We analyze the supply chain, identify growth regions and power providers, and evaluate their businesses. The cryptocurrency sector is an overlay to help identify opportunities, followed by fundamental analysis of the company to determine whether it's expensive or strategically aligned.

Unless a company explicitly mentions Bitcoin, blockchain, or cryptocurrency as a business driver, we won't invest. We manage our portfolio based on volatility relative to Bitcoin and the S&P 500, monitoring the entire supply chain. For example, Solaris SEI manufactures generators suitable for data center co-location, enabling hybrid Bitcoin mining and AI applications. Bitcoin miners are shifting from pure mining to allocating some of their production capacity to AI, requiring equipment upgrades, an area we're also monitoring.

Q3 : What other companies in the industrial and energy sectors are included in the investment scope? What are the screening criteria for cryptocurrency companies?

Matthew Sige: We tend to hold companies we like because of our optimism about the cryptocurrency sector and a diversified approach that provides investors with a more moderate volatility experience. Screening criteria include the leverage ratio of the company relative to profitability.

For example, MicroStrategy represents 10% of the pure cryptocurrency stock index, but we hold only 3% or less due to its high leverage. During market tops, the index is over-allocated to highly leveraged companies, posing the greatest risk. In the previous cycle, many tech companies went bankrupt after becoming Bitcoin banks. This cycle, leverage generation is more professional, but bare assets like Bitcoin remain more volatile than stocks. We pursue compound growth and minimize drawdowns by identifying companies with strong balance sheets, which is our fundamental investment philosophy.

Q4 : TEPCO's stock price recently surged 50%. Is this driven by Bitcoin and cryptocurrencies, or by Japan's growing demand for AI? What are your thoughts on its potential?

Matthew Sige: TEPCO has invested in the Bitcoin mining company Agile X, but information is limited and media coverage has been minimal. France's EDF has also begun Bitcoin mining, with Marathon acquiring three-quarters of its data center operations. The French parliament has proposed formalizing Bitcoin mining to repay debt, and France has previously exported excess electricity to Germany. Japanese lawmakers are also discussing increasing Bitcoin mining, and the story of nuclear power restarts is heating up.

TEPCO's market capitalization has fallen from $30 billion to $6 billion, posing a high-risk, yet low-priced, stock. With increasing French acceptance, TEPCO could benefit if Japan follows suit. Even without such a trend, the risk-reward ratio remains attractive.

We tweeted encouraging TEPCO to discuss its mining business, believing it would boost its valuation multiple. The fundamental story, combined with Bitcoin integration, suggests that if the business expands, the stock could surge. We leveraged our in-house utilities and energy expertise, collaborating with analysts in our natural resources strategy, to great effect.

Q5 : You mentioned leverage as an investment risk, especially in digital asset treasury companies (DATs). If we enter a bear market, what pitfalls should we be wary of?

Matthew Sige: Leverage is the primary risk. Our digital asset exposure demonstrates that position sizing is crucial, especially when dealing with assets with 80%, 90%, or 100% volatility. We back some companies, but more cautiously than our competitors. Within public equity funds, we look for valuation arbitrage opportunities. Valuation is crucial for DATs, especially small-cap companies, as management can influence market signals through actions like buyback authorizations.

I'm not particularly bearish. Some companies will succeed, like MicroStrategy, and continue to trade above their net asset value. But many will fail, leaving capital trapped and executives drawing millions in salaries. Trading at 0.8x NAV makes it difficult for shareholders to make the right decisions. We may explore this further in future corporate governance discussions.

Q6 : The SEC has clarified that pledges are not securities. What impact will this have on the pledge strategies of individuals, private equity funds, and public companies?

Matthew Sige: The Solana ETF is launching in the fall. We are working hard to support staking and in-place creation and redemption. Market makers can use Solana to create shares, reducing friction and professionalizing staking. Due diligence on ETF collateral is high, requiring organizational approval, regulatory attention to partners, and SOC certification. This may require a US-based validator pool. Three years ago, overseas validators were more secure, but now domestic validators may be more advantageous.

The importance of staking has not changed significantly. Many altcoins have high inflation rates, diluting investors and requiring them to lock up stake to maintain network share, with returns only offsetting inflation. The US dollar has depreciated by an average of 4% annually over the past 50 years, while Treasury bonds have had flat or negative returns. Staking Ethereum or Solana only offsets dilution, while non-stakers suffer losses, resulting in near-zero returns. Ethereum and Solana offer positive returns on active blockchains, making their positions reasonable. This sector is in its early stages, with most blockchains having low fees and immature token holder mechanisms, similar to highly liquid venture capital assets.

Q7 : The government has a positive attitude towards Bitcoin and cryptocurrencies, with the Treasury Secretary mentioning "budget-neutral" purchases. What regulatory developments in Washington are you following?

Matthew Sige: I've been paying less attention to Washington lately because the foundation is already laid, and the investment banking case shows a catalyst for capital formation. I have low expectations for the federal government to purchase Bitcoin. Bessant's comments may reveal the truth: they won't sell. A large-scale, budget-neutral acquisition of Bitcoin would require legislative support, and even a budget-neutral acquisition of Bitcoin would require legislation for major financial issues.

Q8 : There is speculation that the government may nationalize companies like MicroStrategy that hold large amounts of Bitcoin. What do you think of this possibility?

Matthew Sige: Someone on Twitter mentioned that he was buying Bitcoin for the government. This may happen a generation later, and rational investors would not invest based on this. We consider this possibility, but we do not buy or sell companies or Bitcoin based on this.

If the government considers Bitcoin important, US public companies and ETFs hold significant amounts. A century ago, governments demanded the surrender of assets, but today, the internet and the relationship between government and the public make this difficult. The Treasury Secretary's proposal to use confiscation as a criminal procedure is prone to misunderstanding in the internet age. If Bitcoin were to support 20% of new Treasury bonds, it would be reasonable to consider moral hazard, such as a 99% decline. Currently and in the coming years, governments are more likely to profit from financial repression, such as by taxing Bitcoin mining royalties or self-custodial transactions, which are much simpler to implement.

Q9 : Stablecoin issuance may partially privatize "money production." What related opportunities or risks are you concerned about?

Matthew Sige: The opportunity lies in the clearing of stablecoin transactions. The federal government will not issue a stablecoin, and laws or regulations make CBDC impossible. Individual states may try, with Wyoming leading the way.

Merchant acceptance is an issue, such as whether the Wyoming stablecoin would be usable in Miami. State-chartered banks can issue dollar-backed stablecoins, similar to branded electronic dollars. VanEck Ventures poached a team from Circle, and Wyatt invested in a next-generation stablecoin clearinghouse.

Q10 : Will Bitcoin’s four-year cycle continue, or will it change due to ETFs and corporate purchases?

Matthew Sige: I think it will continue, but at a more moderate pace. The cycle is long-standing and trustworthy. With the midterm elections heating up next year and little progress in Washington, a rate cut may already have been implemented. It's still early, but I'm watching for a down year, when the cycle will resume, with ETFs and corporate buying providing the balance.

Q11 : What data points do you use to determine if the market is nearing a top? What are your unique indicators?

Matthew Sige: We use funding rates to predict short-term tops. If the cost of leveraged positions reaches double digits for several consecutive weeks, it signals the end of the trend, and historical data supports this. We haven't seen this so far. Occasionally, there have been spikes in fees followed by a market shakeout, but these haven't been sustained. The percentage of unrealized profits in the blockchain sector has increased slightly, but hasn't reached the danger zone. Anecdotal data, such as app downloads or text messages from my ex-wife about Ethereum, also indicate risk. I received one, and it's a bit concerning.