Fundstrat investor Tom Lee talks about stablecoins, ETH, and TSL: the group relying on fundamentals as the basis for investment is shrinking.

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 previously served as the Chief Strategist at JPMorgan for many years, becoming well-known among American investors for his numerous accurate predictions of market trends and frequent appearances on media outlets like CNBC, but he has also been controversial for his consistently "bullish" viewpoint. He also discussed the changes in the era of retail investors in a podcast—one reason is the prosperity of self-media, namely "the rise of Twitter," where new startups have gained broader attention and influence through independent media channels. Another reason is the change in demographic structure; he found that "every 20 years, American retail investors become optimistic about stocks again."

Tom Lee is also a staunch supporter of digital assets such as Bitcoin and Ethereum. Recently, Tom Lee was appointed as the chairman of the board of Bitmine and participated in the company's launch of a $250 million ETH vault strategy, which has attracted widespread attention from the market.

"I like Ethereum because it is a programmable smart contract blockchain, but to be blunt, the real reason I choose Ethereum is that stablecoins are exploding. Circle is one of the best IPOs in five years, with a price-to-earnings ratio of 100 times EBITDA, bringing very good performance to some funds. On traditional Wall Street, Circle is a god-tier stock, and it is a stablecoin company. Stablecoins are the ChatGPT of the crypto world, having entered the mainstream and serving as evidence of Wall Street's attempts to 'tokenize' equity. Meanwhile, the crypto circle is 'tokenizing' equity, such as the dollar being tokenized." Tom Lee described the logic behind it during the interview.

The following is an edited version of the interview content compiled by "Mingliang Company":

Hitting the "Robinhood Generation": Every 20 years, U.S. retail investors will refocus on stocks.

Amit: ... In 2022 and 2023, you were one of the very few who dared to go against the mainstream media. You said, "I don't think the market will drop 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 and millions around the globe listened to your advice and seriously studied the research you presented—these are not conspiracy theories, but are backed by facts and data—resulting in a change in their lives. ...

Tom Lee: Thank you very much for your compliment, I really appreciate it. This was exactly the intention behind our creation of FundStrat. We founded the company in 2014, and it has been 11 years since then. Before that, I worked at large banks, serving as the chief strategist at JPMorgan for nearly 16 years. I wanted to create a company that could provide institutional-grade research while being understandable to everyone. At that time, the judgment was that in 2014 the public was not really interested in stocks; trading was mainly dominated by institutions, and retail trading volume was declining. But I remember in the 90s, people were very concerned about stocks. I believe that kind of era will return. So our bet was that people would be interested in what we have to say.

Amit: Impressive. You foresaw the arrival of the "Robinhood generation" in advance; did you have any data to support that?

Tom Lee: Our evidence-based research will focus on demographic structure. We have written many white papers studying behavioral changes across different generations. We published a white paper indicating that the Millennials are the largest generation in history, totaling 98 million, which is 40% larger than the previous generation. Moreover, if we define a generation every 20 years, each new generation will refocus on stocks because the previous generation may be left reeling from market setbacks.

For example, after the internet bubble burst, many peers kept their distance from stocks. However, those who started making money after 2000 found stocks to be great. So we bet that this scene will repeat itself. In fact, during my time at JPMorgan, I advised executives to enter the retail brokerage business, but they all thought that industry was "dead." Now it seems that was actually a strategically good investment. So this is our choice. Our company is very small and lacks the support of a large platform, so we also need to learn to build connections and amplify our voice. We started using Twitter and various media early on; this is the "guerrilla warfare" of our company's growth.

Amit: Embracing new media at that time was actually quite risky, as social media was nowhere near as developed as it is today. Do you think using social media back then was a natural choice, or was it a struggle?

Tom Lee: In the first few years, it was indeed a bit difficult to find my own voice. Back then, Twitter only had 255 characters and wasn't as powerful as it is now. People didn't really use tweet threads, and there were fewer 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 this natural expression is exactly why our audience likes you. Whether you are on CNBC or on an independent podcast like mine, your words carry a lot of weight. Do you ever find it strange that every time you say something, there are thousands of people weighing in?

Tom Lee: Yes, it is indeed a big 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 will be unhappy. Moreover, in the public domain, people only look at whether your most recent prediction was accurate or not. On Twitter, there are always 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 interesting. I don't mind it because I know that's the nature of this platform.

Amit: When you don't make many mistakes, you forward those tweets that question you, which is actually quite good, as it effectively conveys your viewpoint to the world.

Discussion on the Fed's interest rate cuts: Which U.S. employment data is true?

Amit: Next, let's talk about some market-related questions. Let's start with something simple, not too difficult. Do you think Powell should lower interest rates now?

Tom Lee: You know, I actually almost never directly comment on this issue, even in reports written for clients, I rarely express personal opinions. We probably have about 10,000 registered investment advisory clients and around 300 hedge fund clients. I usually just show them the evidence and then ask for their opinions. For example, which indicators the Federal Reserve should pay attention to, and then see what policies are appropriate. For instance, we know that if we use the European Central Bank's calculation method, the core inflation in the U.S. has actually reached 2% because the ECB excludes housing. Just excluding housing, the core CPI inflation in the U.S. drops to 1.9%. Now the ECB's interest rate is 2.5%, and the Federal Reserve's is 4.5%. So why is the Federal Reserve tightening 200 basis points more than the ECB? The difference actually lies in housing. So is the Federal Reserve intentionally suppressing the real estate market? Actually not.

Amit: But this really raises doubts.

Tom Lee: Yes, this does raise doubts. Another issue is that the Federal Reserve said tariffs will bring inflation in the summer, so they want to wait a bit longer before cutting interest rates. We recently wrote to clients analyzing this issue and shared it on Twitter. In fact, tariffs are essentially a tax because the money goes into the government's pocket. In other words, if the US government says I want to impose a $6 tax on gasoline, the gasoline price in the CPI will skyrocket. But the Federal Reserve will not raise interest rates because they will feel that the public's wallets have been impacted. So we might cut interest rates because people's money has been taxed by the government and this 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 a tax. Powell and the Fed's view is that companies will raise gasoline prices as a result, although some of the revenue can offset it, technically it's still...

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

Amit: Or rather, if it is something that appears suddenly, or something that, although not fictional, actually happens, but is offset at a later time, then it ultimately 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: Yes, if I were not biased and were analyzing it just like I did in my undergraduate studies at Wharton, I would say this is not inflation because there are no inflation signals. If it is merely a one-time event, then it is not inflation. If it is essentially a tax, then it is not inflation. Anyone who claims this is inflation is actually constrained by the concept of CPI, ignoring the larger context. The CPI is not even a good tool for measuring inflation; for example, the Trueflation metric is much better.

Amit: Do you think the way we currently measure inflation, such as the methods used by the U.S. Bureau of Labor Statistics, including the data released by JOLTS (Note: Job Openings and Labor Turnover Survey), for example, an increase of 400,000 jobs, are these models and data collection methods outdated?

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

Amit: I'm very confused, Tom. Our show's audience is retail investors. Yesterday, the government said there were 400,000 job vacancies, but today the ADP employment data showed a decrease of 33,000, while the expectation was 99,000. My audience is all puzzled. What exactly is going on?

Tom Lee: In fact, if you look closely, the significant rise in JOLTS job openings is because restaurants are struggling to find staff, so they have increased their recruitment ads. This is actually due to the risk of deportation, which discourages many people from coming to work. The three industries with a decrease in employment today are financial services, professional services, and education. Education is only seasonal, while professional services and finance are mainly due to layoffs in consulting firms. This is not a tariff issue; it is a structural problem.

Amit: Do you think AI has impacted employment in the service industry today?

Tom Lee: It's possible that a reduction in hiring will certainly have 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 Microsoft is the same. Imagine, the highest-paid software engineers in society are no longer important; that’s quite scary and will definitely impact inflation. On April 2nd, the "Liberation Day", many people were confused. That day, the reciprocal tariffs were introduced, and the stock market fell to 40,800 points in 2022. You were quoted saying that you didn't think Trump would violate the core contract of capitalism. You also said that regardless, there would be a V-shaped rebound. My question is, why didn’t your institutional clients realize that the guy on The Apprentice wouldn’t actually impose a 90% tariff on Zimbabwe?

Tom Lee: Hehe, yes, some of the data at that time was simply ridiculous. Institutional investors have their own "safeguards", such as having to reduce positions when the VIX index rises or when the market declines. So when the market is volatile, institutions cannot just hold on; they can only passively sell. The reason we say there will be a V-shaped rebound after a "waterfall decline" is because in the past hundred years, as long as there is no economic recession, the market has always rebounded in a V-shape. Our judgment at that time was that this was just a growth panic, 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 will still rebound in a V-shape. But many people say that since the Federal Reserve is not cutting rates, the market will continue to decline, yet the result is still a V-shaped rebound.

Amit: Why can you tell 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 the banks. If the banks do not lend, the money just circulates within the banking system. More importantly, the actual funding comes from retail investors. There are currently 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 and Institutions: The best shareholders of a company are its users.

Amit: So why do you think retail investors can see through it? I know institutions have a fiduciary duty to sell, but why aren't they buying in as aggressively as retail investors?

Tom Lee: I think retail investors treat this like the stock market. For example, I like Palantir, I have Meta, should Meta really crash because of tariffs? Is it reasonable for Palantir to drop to 80? Retail investors look at specific stocks, but institutions tend to think more macro as they go higher. They feel like Trump is going to take us off a cliff, and the Federal Reserve is going to ruin us. These thoughts create biases, and when the actual economy or market performance doesn’t fit their framework, they think the market is crazy. This rebound is only being bought by retail investors. They are forced to hold cash and missed the V-shaped rebound, which is the "least liked V-shaped rebound."

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

Tom Lee: Yes, compared to 2020 and 2023, institutions are more pessimistic now. They firmly believe that the economic cycle is about to turn; one point to note is that if we look at the political leanings of the stock market, 65% of fund managers voted for Biden, which I didn't know before. In contrast, the bond market has historically leaned more towards the Republican Party. Therefore, most people think Trump is crazy because they didn't vote for him.

Amit: Is this one of the reasons why everyone is 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 suggested we shouldn’t sell, even though I don’t know where the bottom is, I know there will be a V-shaped rebound." Whenever the VIX exceeds 60 and then falls back below 30, it's always 100% the bottom, but they say this time is different because the Federal Reserve won’t rescue the market. Everyone can find a reason 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 also unpleasant.

……

Amit: Do you think it's a good thing for retail investors to participate overall?

Tom Lee: In fact, the stock market is currently undergoing a huge transformation, and I think 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 (the former CEO of MicroStrategy) can help me acquire more Bitcoin per share. Another example is Palantir, whose CEO Alex Karp represents a "cult" of personality. Tesla is also an example; buying a Tesla is essentially betting on Elon. So the capital cost of these stocks has been effectively discounted because they have turned shareholders into customers. I think this is very healthy, and it aligns with Peter Lynch's philosophy – buy companies 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. Retail investors today are actually quite knowledgeable, so saying "dumb money" is completely wrong; retail investors know what they are doing.

Amit: Many institutions will say that Tesla's price-to-earnings ratio of 200 times is too crazy. Those who can articulate FSD (Full Self-Driving) well actually don’t understand valuation. But your point is that these people might actually drive a Tesla themselves, have practical experience with FSD, and can use their imagination to predict the company's future, so valuation may not be that important. Does that mean that the valuation crowd thinks a 200x PE is outrageous, while the 'believers' would say, I drive this car every day, you really don’t understand what you’re talking about?

Tom Lee: You asked a very good question. In fact, one issue is how many people really need "fundamentals" as an investment basis? This group is shrinking. For example, do you have a luxury watch? (Amit: No) Do you collect art? (Amit: No). In fact, Tesla's scarcity is like that of an artwork. ... 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 just by the materials, you might say that painting is worth 12 cents, but if a hundred people say there is only this one piece 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 scarcity should be priced at a premium.

Amit: I never thought of it this way, this metaphor 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: Yes, for example, can you name the CEO of the largest non-tech company? We can't name one. This also proves that there is only one Tesla, and once it's lost, it's gone. Their manufacturing capability is very strong; making cars is one of the hardest things in the world, and they can still be profitable. Elon said he wants to do aerospace, and now SpaceX holds 90% of the market share. He said 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: It's indeed difficult to explain solely using valuation. Is this also the reason why you say Tesla will lead the V-shaped rebound?

Tom Lee: Yes. We made a list of "washed stocks". It's simple; we took April 7 as the low point and screened 3,000 liquid stocks that institutions can trade. How many of them did not hit new lows on April 7 and had lower trading volumes? There are about 37, including Tesla, Palantir, and Nvidia. These stocks have actually been sold out; everyone had sold them by April, so they did not hit new lows again. This is our logic.

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

Bet on Ethereum, as I am optimistic about stablecoins.

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

Tom Lee: In fact, Ethereum... I believe the audience generally understands Ethereum. I like Ethereum because it is a programmable smart contract blockchain, but to be blunt, 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 multiple, bringing very good 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 are evidence of Wall Street's attempts to "tokenize" equity. Meanwhile, the crypto space is "tokenizing" equity, for example, the dollar being tokenized.

Now JPMorgan, Amazon, Walmart, and Goldman Sachs are all looking to create their own stablecoins, which is a good business model and friendly to consumers and merchants. However, these all need to operate on the blockchain, and most stablecoin transactions occur on Ethereum. ETH once approached $5000, then dropped to $1400, $1500, and is now back to $2400. The total amount of stablecoins is currently $250 billion, which only accounts for 30% of Ethereum's gas fees, but Ethereum has minted over 50% of stablecoins. U.S. Treasury Secretary Scott is very optimistic, believing this represents a $2 trillion market, which is a tenfold growth. The U.S. government also hopes for more stablecoins, as they collectively represent 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. Therefore, Ethereum is the biggest beneficiary of Wall Street's 'equity' crypto assets and 'tokenized' equity, sitting right in the middle. So I believe Ethereum will be rediscovered this year, and now Robinhood has just announced using Ethereum layer two to achieve stock tokenization.

Amit: Robinhood is "tokenizing" Wall Street, and the government also supports stablecoins because this will increase the demand for US Treasury bonds, 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 now the 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 value of 300 billion dollars, is the largest smart contract blockchain. Therefore, Ethereum has the opportunity to completely change the landscape.

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

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

But the treasury company has five important options.

If you buy ETFs or purchase ETH on-chain, the amount of Ethereum you hold remains constant, and ETFs also charge management fees. However, the goal of the treasury company is to increase the number of tokens per share, and MicroStrategy uses such metrics to measure itself.

First, if the company's stock price is higher than its net asset value (NAV), it can issue additional shares to increase the NAV per share. This is called "reflexive growth," and there are very few things in the stock market that are so reflexive.

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

Third, you have the difference between market price and net value, stock attributes, and other vault companies conducting market-to-net value arbitrage externally. If a company's market price is three times its net value, you can merge with or acquire other vault companies, which presents an arbitrage opportunity. Fourth, you can operate a company, for example, providing services for the DeFi ecosystem.

Amit: For example, lending services.

Tom Lee: Yes, this can't be done on Bitcoin, but it's very useful on Ethereum.

Fifth, you can create structural "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 will skyrocket the price; it is better to acquire MicroStrategy at a premium directly—this is a "sovereign put option". The same goes for the Ethereum world; if a treasury company holds 5% of Ethereum and is extremely important to the Ethereum ecosystem, their valuation should be higher. For instance, if Goldman Sachs wants to issue a stablecoin on Ethereum, they need to ensure the security of the Ethereum network and may ultimately buy a large amount of ETH or directly acquire these treasury companies. Therefore, treasury companies have Wall Street "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, we have two companies in the Fundstrat Granny Shots ETF that the audience is particularly concerned about (Palantir and Robinhood). Shall we start with Palantir?

Tom Lee: Palantir is redefining the relationship between companies and enterprises, helping enterprises to become better. Generally, such companies are either consulting firms or tech companies; Palantir is both, but with fewer people. Palantir is like providing a "wizard" to Fortune 500 companies, and of course, the government is using it too.

Amit: One thousand employees, less than 800 customers, revenue of 4 billion dollars. The second company with the largest position 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 the 1980s on Wall Street, when new brokers emerged to serve the baby boomer generation, like Charles Schwab, which was just a media outlet (Newsletter) at the time before it became a brokerage. E*Trade and Schwab are the brokers of the baby boomers, and Robinhood is its modern equivalent. I think Robinhood is very clever, with a good product experience, an understanding of the importance of UI, and very agile actions.