The Crypto Bull Market: Everything, Everywhere, All At Once

32:03you know when people ask me what do you think of the structure of the bull market that lies ahead my view is probably similar to yours it's everything everywhere all at once because it is and it's building i know i completely agree completely it's right we've done we know we're going to digitize finance and everybody's working on it all of the big shops plus all the private sector we know the nfts and their applications you know and with the solana compressed nfts means you can make millions of them for cheaper than printing a ticket so that's ticketing you know there's all of these structures that are all going to come together because everyone's been building i mean you see it because you've been investing in this most people can't see it until it's in front of their faces but we all know what's coming because Everybody's been working on this shit forever.

32:53Yeah, and it's still early. I mean, honestly, I'm surprised at how early, but it's still early. I mean, the space today, and this is incredible, has, I would say, between$2 and$2.5 trillion of value in it. So again, I see Big Mac Brothers, Trap 5 with hundreds of trillions of dollars, total wealth north of$500 trillion. And then over here is the digital asset ecosystem. All the cryptocurrencies now are worth about$1.5 trillion, with$1 trillion of it being Bitcoin and Ethereum, plus a little bit. And then I think we have another$500 to$800 billion in the value of the equity of the businesses in this world.

33:40And as you know, that's what we've invested in. We've invested in 24 of the, I would call mid to late stage. So not venture of growth at the growth stage of companies in the space. Again, you know, I'm not a venture guy. It's very hard for me to, you know, make specific bets based on the quality of the code of one chain versus the other. We're really looking to invest in companies that are 50 million in revenue and greater. And so we built this portfolio now that I think is a great proxy for the space. And we're in the middle of raising our fourth, my fourth fund. And the opportunity said today, I mean, I don't want to say it's never been better, but the pricing has come in tremendously for the equity of some of the businesses that are really core to the ecosystem, like consensus.

34:38That is the stock trading in the secondary is is much lower than their previous rounds and it's not that the company is worth less it's that there are distressed sellers still there are hedge funds out there the individuals there are people who need cash right like I we did a little bit of secondary the other day for somebody who needed money to pay their taxes so you know because there are younger people in this space and they're leveraged up, right? They have everything in this space. And so some of them got a little far out over their skis. And so tremendous opportunity for us also to lead the next rounds for many of these companies.

35:26But don't you notice, to go back to the point I made earlier, there's almost nobody else doing this. It's like so bloody obvious the timing is so good. And yet none of the VCs are deploying capital. So it's crazy. I think that the fear in the marketplace, you know, the fear of the markets, the fear of the Fed, the fear of Gensler. I mean, I like, but I think it crescendoed about two months ago. But I think that that's what kept people on the sidelines. The venture, the venture to me is very different. If you're investing in the seed or hurling rounds in this space, you have a tremendous amount of risk.

36:06but you also have potentially tremendous upside. You know, we want to invest in companies that we think can make 5 to 10x over the 10-year life of the fund. And so this concept of duration that you talked about is very important. I think we both learned trading and managing portfolios in the old macro world that, you know, you can have very fidgety investors. You can have a great macro idea. and your macro idea could go up 5x, but if it goes down 30%, you know, in a three or four month period, you get blown out and then you lose the trade and, you know, everyone comes screaming and you don't know what you're doing and then you end up being right.

36:50Anyway, so, you know, after having experienced that a bunch of times, you realize that if you really want to build wealth in this space. You have to buy something that you can hold for 10 years. Whatever it is that you like, I'm not saying, oh, you should come into my fund. You do what you like. I said, whatever it is that you're comfortable holding. And so the structure of the fund is such that I don't want to say it's been impervious to the bear phase, But we've had a very little drawdown, very little because the portfolio is diversified. We have companies that are core infrastructure that continue to make money.

37:33You can see that some of the areas, I call it underneath the hood, have continued to grow tremendously. I mean, stable coins, I think last year settled$8 trillion of value. That's up from zero three years ago. And I think we're going to get close to that number again this year. The transaction value versus PayPal and Visa. And people are always shocked to see that there's more value of the transactions, right? Because Visa and PayPal will do many, many very small transactions. And you can get a$300 million,$500 million trade on Bitcoin, right? So the value that's been transacted is actually greater today.

38:21Most people aren't aware of that. You can show that if you like. So I believe, and I've said this before, Bitcoin is the invention, is the core asset. The code is the core asset of the space. Ethereum, I think, now has a cheap network effect and is the layer that many developers prefer building on top of. And you can see there are more and more developers coming to the ecosystem, even through the bear phase when Bitcoin, if you're about 50 to 70 percent, developers continue to move into the space. And so now that those two are the core assets, you know, I think you're making the case now. And I think it's probably right that Solana is the next one, maybe two years from now to achieve network effect.

39:10Um, and, but on top of all that are many different companies, many different businesses, many different, um, you know, iterations of what happens in the old world. Right. So even look at the U S banking system, right. I think that that is, you know, collapsing on itself, right. Slowly contracting there too many banks. and it's you know slowly payments and savings you know I like this concept that Bitcoin is a savings technology I I think it it is right custody all of these different areas within the overall ecosystem and I I showed you I I have a also a slide that is it's super proprietary but I mean, I'm going to share it here with you.

40:02It's a map of the digital asset ecosystem that we share with our investors. And it's a that's fascinating. It's a very it is a map. You won't see that anywhere else. I've never seen anything like it. We've come up with it because when we make investments, we want them to be leveraged to the growth in the overall ecosystem. And so in that way, during bear phases, you know, we have some stability. Right. We're not just, you know, the funds had very minimal drawdowns in 22 and 23. You know, even though we had some companies in the portfolio, like the exchange. It's quite funny. I bumped into Stevie Cohen.

40:41I was at his box at the Met. Is that right? We were chatting about you. And typical Stevie, he's like, yeah, I bet he's lost his ass in that whole digital asset VC. I'm like, no, I think he's fine. He's like, he must be taking pain. I'm like, Stevie, it's VC. there's no mark to market or it's growth it's really growth equity we i really don't think about us yeah growth equity there's a little bit of bc there well you know i i i worked for steve for 10 years and so you know we were made friends and uh yeah he's very fond of you but it was funny first thing he did was like he's got to be losing money i'm like steve he's very competitive uh let's just say that he's very competitive.

41:23You know, he's one of the great, certainly business people in that hedge fund business, you know, of all time. And probably, I mean, in terms of just being a pure equity trader, I think he does less of that now, but phenomenal hit ratio. He's like a sniper going in, but he's very short term. I mean, he doesn't, you know, he, he doesn't, you know, trade or hold investments or think about things on a five-year, at least for the portfolio. So it's a very different outlook, but that's exactly why I was there sitting next to him for five years, because I had a very different outlook and mentality. And I think that was valuable to him because he just he doesn't think in that same way.

42:11Now, is my way better than his? Probably not. He's accumulated, I don't know, whatever it is, 20 billion or whatever it is, and I'm not. So maybe his way is better. But you know what? We don't get to choose that. I think we all move towards our core strengths and competencies. Here's a question. As you're going around the world, because you've been traveling a lot this year, raising for this fund, what kind of investors are you seeing now? Is it still family offices predominantly? Or are you starting to see finally the institutions coming in? Yeah, so I would say that for most of the year, and again, I've never traveled more than I have this year.

42:56Crazy, crazy travel schedule, but mostly larger family offices. But in the last three weeks, all of a sudden, people who had said they would either come into the fund in January or who were, you know, crypto, blockchain, whatever, not a priority, all of a sudden want to have meetings. And so it actually just started in the last few weeks. And I mean, you know, very, very large institutional people that haven't. OK, this is important. That haven't invested in the space at all. So that is new. Well, as you know, we have some institutions in the funds, Texas Teachers and the Michigan MERS pension fund.

43:58And so we have a few of those. But the U.S. institutions are still nowhere, meaning that their level of understanding is not great. They're not really interested. I'm talking, you know, endowments, pensions, you know, the tens of trillions of dollars out there. Maybe with BlackRock and Franklin Templeton and Fidelity, maybe a year or two from now, they'll start to, you know, when Bitcoin's at 80 ,000, then they'll, I know, I know. However, the larger foreign institutions now, because there was never really much of a bear market in sentiment in 23. So remember, the market bottomed in Q4 22. But I was in Japan.

44:55I went to Tokyo for WebEx. 15 ,000 people there. the prime minister of japan spoke i was in singapore at 2049 you really could get run over uh by people like it was a stampede i mean 10 000 people there with 400 side events um you know in dubai every other week there's another you know crypto industry blockchain conference uh i'm going for abu delhi finance week uh at the end of the at the end of the month and then heading to Encombe for another week. So it really never stopped overseas. And it's just the US press and the drumbeat from the SEC and the Fed. It was a combination of the Fed overdoing it, scaring people on liquidity.

45:51Are you finding it's more Asian-led or are you seeing interest in Europe as well? No, it's Middle East. Remember, going back to our old days a little bit, the Middle East currencies are all just pegged to the dollar. So their savings are like essentially 90 plus percent in dollars. Every barrel of oil is in dollars. If they convert it to Durham, it's still in dollars. So, you know, think about the accumulated wealth of that entire region. They need to diversify a little bit, right? So they understand intuitively that this is an alternative. It's very different. Asia is more focused on blockchain gaming.

46:43I mean, Korea is the global hub. Japan, it's all about Web3 and how those traditional gaming companies become blockchain gaming. They see it. So I think it's very gaming focused. You know, Europe still, I'm not, you know, seeing a lot. I mean, I think that from, you know, Europe is very bureaucratic. So maybe they're moving first with the regulatory. And I think in March, something is coming out from the EU and then London, as you said, is making progress. But, you know, and I've said this before, each of the different regions around the world, they're really, you know, there are different use cases that excite them.

47:31When you go to Paris for Blockchain Week, it's really the luxury goods companies trying to figure out NFTs, right? It's not the same thing, as I said, it's more gaming in Asia, Middle East to me. It's more about actually cryptocurrency and savings technology. And I think this new area, RWAs, real world asset tokenization, this is what we've all been waiting for for many, many years. And stable coins are actually, you know, and that's the first step in the argument. They're tokenized euro dollars, as far as I can see. Right, exactly. Exactly. But it's now big. It's happened. And so I think that's sort of leading the way for tokenizing all different things.

48:20You know, one of our companies, Figure, you know, led by, I don't know if you remember Mike Cagney, he used to be in the background. Yeah, I do. And I also saw him at your events and just super impressed. Tell people about what Figure are doing because I think it's really interesting. Well, they're doing a whole bunch of things. I would say they want to be the platform for all potential things of value. So from funds, they've started to tokenize funds. I think credit instruments, their real focus is mortgages. So they're going to do a few hundred million dollars in revenue this year in the HELOC world.

49:06So they've become a prominent HELOC player. And then actually, it's really interesting. We've been doing some more digging recently. They've actually incorporated blockchain into the mortgage origination process, the HELOC origination process. And I have this chart. Maybe, I don't know if I probably can't share it. But at different places along the process of going from applying for one to actually receiving one, they have, you know, I would guess restructured, they've restructured and injected, you know, their own technology into the process such that you can save. I think it's something like they're saving two to three percentage points on every HELOC that's done.

50:04And so I think they also have a white label product. So there are other mortgage players that are seeing what they're doing and they actually are using figure prop. and so I think mortgages are complex and so they started with mortgages and I think hopefully they would be the place that potentially all mortgages would be tokenized and again I I think his vision is much bigger than that is to be a place you know where you have real estate there's a great slide wheel I think I even have a shark here yeah here it is he's asset management bankruptcy transactions, dApps, lending, asset-backed securities, fund solutions, crypto spot trading, derivatives trading.

50:56Anyway, all this is going to be on the figure markets platform. So, you know, there are too many guys that have a track record of being successful. You know, he launched, founded SoFi and brought that to its ultimate, you know, public listing. and I think he's one of the few guys that can actually execute on a vision. It's not easy and there have been fits and starts but I would call it rewiring the plumbing of the financial system. So who do you think is going to go public first? Because obviously that's going to be another phase as we restructure. I mean, nobody's IPO-ing the markets that we've got no new fresh stuff in actual markets.

51:48Is it going to be Circle, you think? Well, Circle Kraken talked about it yesterday. We own both those companies in our portfolio. I've been saying to prospective investors, look, I don't know very many things of the 99 % degree of probability. But I will tell you the 99 % degree of probability, five years from now, Coinbase will not be the only public, large public crypto Web3 blockchain business. It's impossible. And so, you know, we're investing in the companies that in two, three, four years, I think potentially could be public. Kraken, eToro is another one we have. Ledger, possibly. Derivate, potentially.

52:36You know, these are companies making hundreds of millions in revenue. And I think that's what the old world doesn't quite really realize or understand. They just think it's all venture. So it is surprising to me. We're still the only growth fund in the world that's exclusively and only focused on this area. I'm just an old-time macro guy. I think they're coming. There's just no way, I keep saying to you this, that it continues to be the case. part and parcel of this, the normie world that people call, oh, the institutions are coming. I just think broad-based adoption begins with the ETF, with the traditional players putting their stamp on it.

53:22But even a broader-based adoption comes with my companies beginning to go public. And it may be on NASDAQ, it may not be, maybe they end up being public in Singapore and London. I don't know. But I don't think, you know, you can't go from the traditional world and traditional mindset of having equity at 60, 70 % of your portfolio into DeFi, right? There has to be an intermediate intermediate step and i think everyone is comfortable owning equity in businesses and so that's one of the reasons by my whole concept with 10t and 1rt was to invest in and and be the bridge from the traditional world to the new world i never was planning to like compete in the new world.

54:15I can't compete with Polychain and Paradigm and Parafy and Andreessen. And I just don't have that level of technology expertise. I mean, Marc Andreessen, for goodness sake, like forget about it. But the bridge between the old world and the new, I think is 10 years. It takes 10 years to cross that bridge. And I think it's going to be done partially through the equity ownership. Capital will move in through the equity ownership of companies that are successful. One of the things that's very interesting is the Kraken team pinged me about that they had bought an equity exchange or traditional market exchange where they were buying one or a brokerage, whatever it was.

54:59That is so obvious where this is going as well is sooner or later, one of these Coinbase, Kraken, and everybody else will end up just tokenizing equities and or just yeah no i think that's 100 that's already i want to say baked in the cake but you know when i think about this next bull phase you know past the happening into 25 26 um i think we come out of that you know certainly bitcoin over 100 000 you know ethereum over three four I think it's not a very aggressive call. But as the normie population moves towards more full-scale adoption, you're going to see everything. This cycle is about those people moving in, and you're going to see everything tokenized.

55:57Yeah, everything everywhere all at once is the whole idea. So here's a thing for you. I did a bit of work on brokerages and their customer base. So you hear these big numbers about Fidelity and Schwab, but most of that is the RAA stuff. So you take the online stuff, i.e. for the active population. Schwab, Fidelity, TV Ameritrade, they're all about 2 to 4 million monthly active users. Interactive brokers, 5 million users, 300 ,000 monthly active users. then it goes to then the next step is robin hood which is 22 million accounts with 12 million active and then the thing that dwarfs all of them added together is coinbase it's 109 million accounts of which at the depth of the bear market 9 million were active i was at coinbase the other day in their offices uh chatting to the head of asset management i'm like where if activity goes just a normal not crazy levels back to normal he's like yeah we'll be at 40 million active wallets i mean it it's all people can't see it but it's already dwarfed the traditional markets in terms of retail i i i know i yeah let me talk is there was there a follow-up no it's just the observation i know it's the same thing when i say uh to people that you know there's two and a half trillion dollars of value already here.

57:30They just can't believe, like, what's it doing there? I still get questions routinely. They're proclamations from people. There are no use cases. This is all still speculation. Look, those people will be left behind. Yeah, I agree. It's already with us. It's already big. And look, Larry think is probably the most important comments of the year. Like even forget about the ETF. Yes, that's great. But two years ago, he was saying this is all about fraud and money laundering. And then he changes in July and says, well, it's a global asset. You know, it's an important asset and they're going to get the ETF.

58:16So if you think about it, that's about as traditional a guy as there is out there. He completely reversed. So I think it's just a matter of time, but you know, there's so much capital in the U S right. And the people at the very back of this train are U S institutional and also the big U S financial businesses. They already make so much money. Like look at Blackstone, right? It's a trillion dollars, they don't care about, I mean, that's just their AUM. They're not really caring about crypto. They're not focused on it. They should own the whole space already, right? Like the companies that I own, they should own all of them already.

59:07But when you have - That's the gift of the opportunity. business. What's the point? Like I, you know, if you already have success in your area, but like, I don't know if I'm Steve Schwartz and maybe I wake up one day and I, I say, look, I'm going to put, you know, 500, I'm going to put$10 billion here and I'm going to have 50 people in this area, move over to that area. But they're still not there. I just, but now this phase, I think at the end of this phase, everyone will be there at the 25, 26, maybe not everyone, but I think it's going to be that my companies, many of them potentially in, you know, 25 and beyond will start to become public.

59:55And then you get the brokerage reports, you get the, you know, the education gets ramped up. And that's really what we're talking about. You and I talking about this back and forth, I mean, it just seems like, you know, we're not on CNBC, or maybe you are. I'm not. I'm not on the news or anything like that. So I still think you have like FT and the Journal and all of these guys, they're way behind. Bloomberg is nowhere in terms of their understanding. So I think that's all coming in this cycle. So final question for you. Do you think that the structure of the cycle changes or does it remain the same so let's say which cycle the credito cycle is it going to be as volatile or is it going to be somewhat more smooth by the sheer number of people being involved well so i think the men everything's cyclical right we live in a cyclical world we know that yeah yeah the venture the venture side will continue to have all this volatility.

1:01:04But if you look even at our businesses, the volatility of earnings, revenues is not comparable to the space. So as an example, crack, and don't quote me 100 % on this, in 2020, they did 200 million in revenue. Then they did a billion plus in 21. Then I think they dropped down to around 522. And this year, they'll probably be 600 or more. I mean, so look, the volatility there, I mean, yes, it dropped down during the bear phase. We're still up 3x from, you know, 200. But, you know, much easier to sit with, you know, I think a business that's producing revenue. And so it's just like a bond, a bond that like a zero coupon bond that has no cash flow is more volatile than, you know, a high coupon bond that's paying you, you know, whatever it is, or a lower credit treasury, you know, instrument.

1:02:14Right. So I think that the tail end. So Bitcoin will be less volatile in these next cycles. But look, it's impossible to think that there are only going to be two or three protocols that achieve network effect, right? Arguably, and I don't want to get into this now, but arguably like Ripple, which I don't really understand, is a$40 billion asset. And then the company is worth somewhere between$5 and$10 billion. So, and they've been around for 10 years. So ordinarily you would say Ripple's achieved network effect. You don't hear many people really talking about how great Ripple is, but they're, they've been around Ripple.

1:02:58If it was going to go to zero, it should have gone to zero. Why hasn't it gone to zero? I don't know. We haven't done the work on the business. We probably should have. Um, my point is, is that the stuff that's at the early stages of invention, the pre-public protocols that are all programmers are working on, that's going to stay a small little. It'll go up 100x and then go down 99%. That's going to continue. But as these cryptocurrencies achieve network effect, the volatility goes down, period. And I think that the businesses are sort of on the lower volatility at the end. Because they have cash flow.

1:03:42Yeah, because they have cash flow. I mean, the protocols have cash flow. Ethereum, I think you probably saw, was the fastest to 10 billion in revenue or the second fastest business, if you would call it that, of all time. Right. So I but it's it's not the kind of revenue that traditional investors are used to. So I think that like our space is going to just explode. And as more capital comes in from the traditional world, this is the adoption cycle. And the other thing, the final thought for me is that one thing people don't realize, you obviously realize most people don't realize. this is the only global homogenous asset class.

1:04:33It's the same in Brazil as it is in India, as it is in Silicon Valley, as it is in London. That shows you the TAM is larger than anything else. It's more than hundreds of trillions. And I tell anybody who's sort of under 30 that if you're an entrepreneur, you're interested in building wealth, this is the space. Figure out something to do. So there are a myriad and number of things that you can do. Meaning that even if you're a, let's say you want to be a salesperson. Okay. I am a bunch of companies that need great salespeople. You have to understand the product, et cetera. If you're interested in marketing, if you're interested in programming development, and this is whatever your skillset is, it's needed.

1:05:20I'm just telling you in this space, we have board seats on 11 of the 24 companies who are invested in. And so like we really now this is sort of the next level of business for us. Our next level of focus is that we are actually getting involved in helping our companies operate. And you might like laugh a little bit like Dan going from macro PM to rolling up the sleeves, like talking to management about doing X, Y, and Z. You might be saying, well, what do I know about management? But if you focus enough and you have the right team around you, I've really built a phenomenal team. You have five partners.

1:06:04I've got six analysts now. And we're 17 people. and we really have that skill set. And, you know, to be able to go in and actually with companies that aren't doing so well, we can actually protect our downside a little bit by, you know, injecting some, I guess, strategic and governance help. One thing I would say, and this is different, again, maybe we should have talked about this earlier, But what's really interesting about some of the companies we own is that because they're private deals, we actually are able to structure them much differently. Like the companies we need, when we, you know, that we have, it's not the same thing.

1:06:54It's not similar to owning Coinbase. Coinbase, you can own common equity, right? You're common. And so, you know, you can push it on the screen and you can see it trade live. But the reality is, is in half the businesses we own, we have liquidation preferences. So we actually own calls with embedded puts, which is very different. Our downside in many of even these businesses is protected. And so that's a whole new area that I've moved into, that we've moved into, you know, that I never would have been involved with, you know, as a macro guy years ago. So that's a skill set that, you know, the team, the team has.

1:07:44And yes, there's illiquidity, but there's also quite a lot of protection. So that's why, that's why I would respond to Stevie that I'm not getting my head handed to me because we have liquidation preferences everywhere. and all sorts of other rights that we've embedded into the portfolio. Fabulous, Dan. Look, let's see as we kick off. As you said, this is just the second innings. It starts to get exciting. Then it usually pauses for a bit. And then it all starts to go really bananas. So it's all to play for. And I think we both agree it's an everything, everywhere, all at once. And the key is not to focus on anything else.

1:08:29Really. That's right. You take your eye off the ball here. I think it was over a certain period of time, if you miss the 10 biggest days in Bitcoin, your return is like de minimis or whatever it is. You have to be in, committed, long. And the only way to have conviction to do that is to do all the work and stay focused. i agree and you know i put it out i put it in gmi i think it was july and it was just titled don't fuck this up it's like just yes just don't fuck it up it's easy yeah just don't get in your own way and do stupid things just focus as you say don't take excess risk and ride it you'll be okay exactly all right my friend great to catch up as ever yeah and uh we'll i'm sure we'll check in like six months time to figure out where we are in this whole thing again absolutely so as ever another great conversation with dan this whole crypto thesis of mine and his is all part of my exponential age idea and i think those of you who are subscribers to real vision pro macro or gmi understand the journey that we're going down.

1:09:48And also the new product, the Exponentialist, covers this as part of the broader technological adoption. But when it comes down to finance meets technology in an explosive opportunity, this is the big one. This is the big daddy. So take as much time as you can to learn about these things. at real vision we have the real vision crypto academy and you really should i'll put the link below you really should spend the 350 whatever it is to educate yourself to not fuck this up the opportunity is too big we all make mistakes so learn from great people and that course is run by two ex-finance people who are also at the heart of crypto investing and nfts over Amanda.

1:10:39That$350 is well worth it in what it's going to do for you in your journey. And if you're further in your journey, then you can get some of my writings in Real Vision Pro Macro, which I think will really help you. This journey is about knowledge. It's the accumulation of knowledge and applying that knowledge. That's what Dan does. That's what I do. And I urge you to do the same. Anyway, see you next time.

1:11:10Transcription by CastingWords