#447 Ryan Sekis on Crypto Theses for 2021

Ryan Selkis is the founder of Messari, an open data library and curation tool that helps researchers, investors, and regulators make sense of the crypto industry. In this conversation, we discuss Bitcoin, Grayscale, Coinbase, FATF, Ethereum, DeFi, crypto exchange unbundling, and the final boss of the Bitcoin ascension. ======================= The Rodman Law Group is dedicated to helping entrepreneurs realize their vision by helping them operate defensibly in sectors where laws and regulations haven’t caught up to the realities of the industry. The Rodman Law Group’s legal expertise combined with its understanding of blockchain technology makes it the ideal legal service provider for the industry. http://www.therodmanlawgroup.com/pomp ======================= Harvested Financial makes options incredibly simple. They’re the first options robo advisor, where you can build and customize a personalized trading plan that gets automatically executed. Options help you speculate in capital efficient ways, diversify your holdings with market neutral strategies, and generate passive income by selling premium. https://www.harvestedfinancial.com/pomp ======================= Pomp writes a daily letter to over 90,000 investors about business, technology, and finance. He breaks down complex topics into easy to understand language, while sharing opinions on various aspects of each industry. You can subscribe at https://www.pompletter.com

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Ryan Selkis is the founder of Messari, an open data library and curation tool that helps researchers, investors and regulators make sense of the crypto industry. In this conversation, we discuss Bitcoin, Grayscale, Coinbase, FatF, Ethereum, DeFi, crypto exchange unbundling, and the final boss of the Bitcoin ascension. I really enjoyed this conversation with Ryan, and I hope you do as well. Before we get into the episode though, I want to quickly talk about our sponsors. First up is the Rodman Law Group. You guys gotta go check them out. They're a new sponsor,

• 0:45Anthony Pompliano?

  and I'm excited to work with them. One of the most critical things I've learned over the years as an investor is the importance of working with a skilled attorney. It's vital to work with somebody who not only understands the law, but also has an operational understanding of the underlying industry. That's why the Rodman Law Group is so great for these listeners. You won't find this combination of industry and legal expertise anywhere else. They've got a deep understanding of and a passion for the blockchain and cannabis industries, and it's not the only thing that sets them apart. They've also been accepting payment in Bitcoin and Ethereum since 2017 to make their services more available to industry participants. Much like MicroStrategy, the Rodman Law Group has literally put its money where its mouth is and moved a portion of the firm's balance sheet into Bitcoin.

• 1:27Anthony Pompliano?

  Their legal expertise combined with their unmatched understanding of blockchain technology and cryptocurrencies makes it the ideal legal service provider for the industry. They're dedicated to helping entrepreneurs navigate the legal complexities of issuing tokens, launching NFT platforms, and raising capital. The Rodman Law Group is dedicated to helping entrepreneurs realize their vision by helping them operate defensively in sectors where laws and regulations haven't caught up to the realities of the industries. I've teamed up with them to give you a discount for being a listener of this podcast. If you use my promo code POMP or you go to therodmanlawgroup.com/pomp, you'll get 50% off an initial one-hour consultation with the firm and 5% off legal services.

• 2:10Anthony Pompliano?

  For the first year. Again, go to therodmanlawgroup.com/pomp. You'll get 50% off the first hour's consultation and a 5% off for all legal services in the first year. They are visionaries in the legal service industry and they accept Bitcoin. You should check them out at therodmanlawgroup.com/pomp to see all they have to offer and take advantage of this discount. No brainer. Next up is Harvested Financial. Harvested Financial makes options incredibly simple. Most of you have probably heard of options, but you know nothing about them or you've never tried them before. Options are a core part of the strategy for most professional investors. Well, this is where Harvested Financial steps in.

• 2:53Anthony Pompliano?

  They know most people don't understand it. They know it can be complex and scary. So what they built was they built a options robo advisor. Think of a traditional robo advisor, but rather than investing you in traditional stocks or bonds, this is an options robo advisor. You set some parameters and it does the work for you in an automated fashion. So you can build and customize a personalized trading plan that gets automatically executed through that options robo advisor. They help you speculate in capital markets efficiently. They help you diversify your holdings with market neutral strategies and they can help you generate passive income by selling premium. I'm a real big fan of Mark and the folks over at Harvested Financial. I think that you should go check them out if you've ever been interested in options.

• 3:38Anthony Pompliano?

  Go to harvestedfinancial.com/pomp. Again, harvestedfinancial.com/pomp. Harvested Financial, the first options robo advisor. Lastly, don't forget that I write a daily letter to over 90,000 investors about business, technology and finance. I break down complex topics into easy to understand language while sharing my personal opinion on various aspects of each industry. You can subscribe at pompletter.com. Again, pompletter.com. All right, let's get into this episode with Ryan. I hope you guys enjoy this one.

• 4:13Speaker 01

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 4:44Anthony Pompliano?

  All right, guys. Bang, bang. I have a treat for you today. I've got Ryan Selkis. He decided to sit down like a psychopath and write 120-page report all about Bitcoin, Ether, crypto, and God knows what else is in this thing. So he's here to talk about it. Thank you so much for doing this, man.

• 5:04Speaker 02

  You know, it's been a couple of years since we last caught up. Back when you were a We lad. We did one of the early podcasts and it's good to do this again.

• 5:13Anthony Pompliano?

  Absolutely.

• 5:14Speaker 02

  I was actually at the Nater last time, right? So we're like, now we're moving on up in the world because I think we caught up around 4,000, like the worst part of the bear market in 2018, and now we're back on top.

• 5:24Anthony Pompliano?

  Absolutely. Let's start just with a quick overview of your background and what Messari does.

• 5:31Speaker 02

  Sure. So I've been in the industry for about seven and a half years, almost exclusively on the information side of things. So as an independent research analyst, then as a seed investor at Digital Currency Group, one of the most prolific investors in the space. DCG is structured as a holding company, so we acquired CoinDesk in 2016. I led that restructuring for about 18 months, got the business to profitability, ran the consensus conference franchise, which some of your listeners may have attended. And then in late 2017, early 2018, I started Messari. And back then, this was basically the height of the last bull market. And our thesis, my co-founder Dan and I, our thesis was this ICO boom is a load of

• 6:14Speaker 02

  crap, but there's a kernel of really interesting tokens and really interesting assets that we think are going to be big in a decade. So let's build a company that's going to Yes, satisfy the shorthand for Bloomberg of crypto, assuming that this does become a bona fide asset class and it's not just about Bitcoin Ether and then all these also rans that ultimately wash out in the next cycle. And of course, that happened, right? The market corrected, a lot of the crappy projects went to zero, but the teams that kept building, sure enough, were more often than not able to find product market fit, maybe with different applications, not necessarily with the assets, but that ultimately led to some innovations around,

• 6:55Speaker 02

  okay, how can we decentralize the economics of this killer app that we've built and actually create financial economics around it so that it's interesting and compelling to actually own a stake in these decentralized networks? And that's basically the concept of these decentralized finance assets that we'll talk about a little bit and some of the Web 3 tokens and what are now called non-fungible tokens. But if you add it all up, we've basically got this explosion of interesting financial assets that didn't exist three years ago, right? Bitcoin's 12 years old, but many of these assets beyond Bitcoin just simply did not exist even as early, as recently as three years ago, which is when we started the company.

• 7:37Speaker 02

  And so our starting point was to build out a research library that was focused on disclosures and more qualitative information, right? You know, models are only useful as their inputs, right? So getting quantitative data out of these projects and trying to make models or trying to make sense of whether there can be at all interesting was a fool's errand. And instead, we focused on things like, okay, who are the stakeholders? What are the proposed economics and design of the system and kind of the use cases of these protocols and maybe, you know, yes, their assets as well. What, you know, have they gotten security audits? Have they, you know, are they adequately represented by counsel? Where are they located?

• 8:19Speaker 02

  You know, all the things that would essentially be in a prospectus outside of the financial statement. So we aggregated all of that. We've worked with close to 100 teams now on the project side and on the enterprise side, we work with dozens of the top exchanges. Custodians, investment funds on a subscription research product that looks like the Bloomberg Terminal that and then a corporate actions alerts and monitoring system called Intel that basically helps people come up and stay up to date on all these non-quantitative updates that are happening, whether it's, you know, governance proposals, hard forks, security issues, software

• 9:00Speaker 02

  releases alike. So it's a pretty comprehensive enterprise suite that's that's built right now for crypto professionals, crypto funds and enterprise companies. But ultimately, we think in the next cycle, you know, going to kind of obviously be a massive customer step for us.

• 9:17Anthony Pompliano?

  So you write this report, I think this is year four that you wrote this report. Literally, it is 120 pages, which most people would say that is absurd. Why do you need 120 pages? I've read almost all of it. I sat down, I thought it was going to be like 20 pages and realized 120 takes a little bit longer. And I thought it was actually really concise in terms of it just covers so much material. And so maybe just talk through like, why write the report? Why sit down? I think you actually wrote it like it's not like you like hired an outside team to do it, but why sit down and write this?

• 9:52Speaker 02

  Well, I mean, first of all, I have a couple of advantages, right? One, I've, I've, I've written prolifically for a long time, so it's a little bit faster for me to do. Second of all, our team produces so much terrific content on a database and through our pro product that I was able to, you know, not only absorb that over the course of the year, but and really stay up to speed on things, but also borrow some of their graphics, some of, you know, their, their kind of better witticisms, you know, through throughout the report. So it's all original and, you know, I did spend some time doing it, but, you know, you stand on the shoulders of giants, you know, so to speak. First of all, and second of all, I, I think about this report as kind of our guiding

• 10:37Speaker 02

  document for the year ahead. So it kind of doubles as a strategy session for where, you know, we're thinking about the industry, we're thinking about taking the company in the year ahead. And to your point, It is shockingly, I think, concise, right? And I even called that out in the introduction. You look at something like this, and I think you'd expect, you know, drivel and filler and, you know, words for the sake of words. But the truth of the matter is, it's broken up into 12 sections. There's a section on Bitcoin, there's a section on Ethereum, there's a section on decentralized finance, there's a section on infrastructure trends. So they're all kind of like, you know, 10-page reports amalgamated together into this kind of giant year-end piece. And that's more of a function for just how fast the industry's growing, right?

• 11:21Speaker 02

  When I first wrote the original, it was, I think, January 1st or 2nd, you know, 2018, and it was literally a Medium post, right? And then the next year, one of my friends in the industry is now an investor at Paradigm, Arjun, actually shotgunned me, and he wrote his a few days before I was supposed to publish mine. And his was so much better than what I was going to publish, so he just like totally ate my lunch. And I was so crestfallen about it and just like, you know, I just wasted so much time. But it kind of led to actually creating this as a year-to-year product that we're going to put out, because we kind of find it so valuable, not only in framing our own product

• 12:06Speaker 02

  roadmap, but helping people come up to speed on what's going on. You know, the problem, I think, is it's with information businesses in general in the industry, you always have to keep in mind that there's someone starting at home plate, right? You know, we're like rounding second, you know? The industry is still early, so I don't think anyone's rounding third or kind of close to the finish line here, nor will they ever be. But it's even more challenging as more complexity gets added on, as more sectors get added on, to remember that like, and you have done a masterful job at this, remember that people are like getting out of the batter's box and they're asking like, okay, what's Bitcoin?

• 12:52Speaker 02

  May it like they've heard of it now, I think, right? You know, most people can can give you maybe a one or two liner, but they haven't studied it. Right? So when that's your starting point, and then you try to get into, well, you know, there was some hacks this year that weren't really hacks, but they were basically just combinations of these, you know, exploits of Oracle infrastructure using flash loans. People are like, what the fuck are you talking about? So, um, you know, we we try our best to to put it in in plain English for folks that are trying to come up to speed.

• 13:24Anthony Pompliano?

  Absolutely. So we're going to go through a couple of the topics that are in the piece, but I highly recommend everyone go actually read it. The first is, let's start with the king Bitcoin. You basically give a Bitcoin outlook for 2021. How do you kind of synthesize that down in terms of what do you think happens next year?

• 13:45Speaker 02

  Yeah, I look, I think that the the bull and bear case, just the Cliff Notes, you know, we tried to lay out pretty, pretty clearly, right? It's it's become a macro narrative story for most investors. And the easiest way to think about Bitcoin is as digital gold. I think that narrative fits. It works. It's not perfect, but it's it's pretty good. And that's the one that the institutional investors have really rallied around. Beyond that, and beyond kind of the macro environment where there's, you know, unprecedented levels of of negative yield yielding debt and unprecedented levels of of money printing and debt monetization. You've also got the fact that smart money investors knew about Bitcoin back in 2017.

• 14:30Speaker 02

  They saw the spike was very, very public, was very loud, and then it died in 2018. And now it's resurged all the way back. And I think a lot of them have appreciation for things that don't die when when they really should because it makes you take a step back and actually think, what did I miss the first time around? You know, yeah, so probably too early to invest in 2017, but now there's three years more infrastructure. There's three years more of a Lindy effect around this asset because it does.

• 15:02Speaker 02

  Has proven staying power, not just for me and my experience looking at it from 2017, but it's done this in 2011, 2013, 2017, and now again today. So I think from a bull standpoint, first of all, you know, most investors are copycats. So there's a lot of really good investors, some of whom, you know, you've had on your podcast, that have made it safe for people in institutional investments to actually make an allocation here. And remember, you know, these aren't people betting a farm. It's, you know, one half a percent, 1%, maybe a couple of percentage points.

• 15:39Speaker 02

  And I would say that, you know, when Druckenmiller and Bill Miller and Ralph Powell and some of these others that are widely followed in financial circles, talk about making significant investments in Bitcoin. It has the same impact that Marc Andreessen and Fred Wilson had on the venture capital side back in 2013. And that's obviously pretty powerful. Now, and I think we'll probably, you know, end here or talk a little bit more about this later. But the bear case is because it's so big now and because you've got all these high profile people talking about it as a macro hedge, it's on everybody's radar in DC. It's on everybody's radar in Beijing and kind of everywhere in between.

• 16:22Speaker 02

  So there's going to be a lot of questions this year over the true essence of Bitcoin and crypto and kind of how it fits, how do you reconcile the truly peer-to-peer, unregulated kind of Wild West aspects of it to the reality that for the most part, this next rally is actually finally going to be led by institutions and, you know, heavily regulated entities.

• 16:50Anthony Pompliano?

  And so when you think through that, there's kind of three key pieces that you talked about in the piece. So one is this Grayscale ETF, two is Coinbase going public, and then three is kind of FATFA or privacy type concerns. Let's start with Grayscale's ETF. Those that are listening may say, wait a second, Grayscale doesn't have an ETF. Grayscale has a trust structure. Talk through, why do you refer to the ETF?

• 17:15Speaker 02

  So I call them side door ETFs and this is a basically a function of the SEC's unwillingness to approve an ETF based on their sense that price discovery is really taking place in the East versus in properly surveilled markets in the West. And what Grayscale was able to do and kind of very cleverly took advantage of early on was rule 144 sales of restricted securities. So basically you could have this private trust as a closed-end vehicle. People could invest in it at a daily NAV, just like you would in ETF, but they'd ultimately be restricted for 12 months. Now it's down to six months for a couple of Grayscale's

• 18:00Speaker 02

  trusts, but 12 months for the rest of the family, six months for Bitcoin. And essentially, they, because of that dynamic, have a massive premium on the public GBTC shares that are unrestricted versus what investors have been able to capitalize on going directly to Grayscale based on their accreditation. And what has really kind of put this in hyperdrive is the emergence of credit markets and the ability for people to actually create shares in Grayscale on credit, just having, in some cases, they can pledge the Grayscale shares

• 18:43Speaker 02

  as the underlying collateral. And in that case, you're basically just clipping coupons on premium, which is the spread between what you'll get in six months. Typically, that's around 20 to 30% for Bitcoin and the GBTC shares. It's up to 60% now for the Ethereum trust between what the underlying spot value is and what the public unrestricted share price is. And what that's really a function of is the fact that you can't

• 19:13Speaker 02

  The redemption process is extremely inefficient versus an ETF, where this process would happen daily. Now it's constrained by this six-month lockup. So you've got a significant supply and demand imbalance in public markets. I think the most surprising thing maybe for many people is that this premium has not gone away. And in some cases, it's stayed very high over time. And in fact, you'd expect this to actually trade at a discount because Grayscale takes a 2% fee per year. That hasn't been the case. And for as long as it's not the case, you know, Grayscale is going to ramp considerably. And it's going to be a hell of a trade for institutional investors that are getting into the industry.

• 19:52Speaker 02

  It looks like free money to them in many cases because they can do this with leverage. So I'd say that is a has been a major driving factor. And in fact, Grayscale has acquired a significant chunk of the Bitcoin that's been mined this year, if you look at it that way.

• 20:12Anthony Pompliano?

  Yeah, I think they own something like around 2.5% of the circulating supply of Bitcoin, from what I've read. Let's talk a little bit about Coinbase, a different business, but obviously still a piece of infrastructure. They have plans to go public, it sounds like, based on kind of public media reports. What's the importance of that or the significance?

• 20:33Speaker 02

  Well, Coinbase is kind of the OG in the Western markets. They were, they have been the highest-profile brand at Argue in crypto, basically since day one, or at least since it came into the public consciousness in 2013. And what Coinbase has done phenomenally well kind of ties back to an early decision they made to not throw the baby out with the bathwater once other competitors emerged. And that is keeping their 1% fee as a retail brokerage versus trying to immediately respond to lower-fee competitors that followed soon after, right?

• 21:15Speaker 02

  So if you remember Circle, Circle basically came out with a competitive product to Coinbase in, call it 2014, and they said, you know, we're not going to charge a 1% fee. It's going to be, you know, zero-fee trading to enter and exit these Bitcoin positions. And then they would just kind of make money on the spread or on the OTC desk in the backend. Coinbase never did that. And they so they have basically bifurcated their product between the retail front end that that kind of the first time buyer knows and uses, which also includes a very rock solid custody product by extension. And so it's kind of like the one place that most investors can go buy their Bitcoin, forget about it and keep it

• 21:59Speaker 02

  safe. And then at the same time, they have Coinbase Pro, which is one of the more liquid exchanges, a much more competitive business, much tighter fees, much tighter spreads, you know, that kind of a traditional trading set can can actually leverage. But I would say, what has really separated Coinbase is their approach to to regulators in the US and Europe in particular, and how thoughtful they've been in that multi-year process of getting regulators comfortable with their business. And then it's kind of the just the blue chip brand that they have for security and and and and safety, right, for newcomers into

• 22:42Speaker 02

  the space that want price exposure, don't necessarily, you know, want to actually play around with some of the more exotic applications.

• 22:50Anthony Pompliano?

  Got it. And then all this leads to kind of a positive sentiment. There's lots of kind of big infrastructure being built there. All the trends are pointing in the right direction. And then we get to something like FATFA and these privacy type concerns. Explain those.

• 23:07Speaker 02

  So the Financial Action Task Force, I don't know if it's FATF, I've always said FATF, I might be wrong. I'll ask the Coin Center guys. But but the the gist is that any regulated money transmitter needs to know their customer, and they need to abide by certain anti-money laundering provisions and basically the same things that other regulated financial players, you know, have to abide by. Crypto introduces some unique challenges with something called the travel rule, where the FATF standards have gotten more onerous and potentially more restrictive

• 23:47Speaker 02

  on exchanges' ability to allow their customers to send crypto to wherever they may choose. So it's one thing to know kind of the source of funds and to file these reports. It's quite another to actually actively block exchanges and other regulated entities from allowing you or I to move money from our Coinbase wallet into a self-custodied wallet, like a hardware wallet, or to send it to a smart contract, or to send it peer-to-peer to someone that is not necessarily known. And basically FATF regulations would require that there's some knowledge

• 24:32Speaker 02

  or some tracking of who those funds are actually getting sent to. If you take this to the extreme, what that could mean is that there's a gradual march towards outlawing self-custody and truly encrypted, private, peer-to-peer cash-like transfers. This is important because, at the end of the day, Bitcoin is supposed to be this large interoperable network, not just about kind of the anarchist roots, but even if you just think about it from a tech standpoint, it's supposed to be this interoperable, global standard. And the second that you start introducing some of these extra requirements or restrictions,

• 25:12Speaker 02

  in the worst case, you can break the fungibility of the asset itself, which basically means that you've bifurcated the network into like clean coins and dirty coins, even if they're not actually dirty, right? Just like these are the whitelist of coins and these are ultimately the bad coins. And so this has been a concern for a while, and it's one of the reasons that maybe the most important core developments that are being worked on by the Bitcoin community are around privacy and how to make it less likely That will have this two-tiered system where coins can be tainted just because they've originated from a certain source.

• 25:53Anthony Pompliano?

  Yeah. And what's so interesting to me about this is like, there's always the fear and kind of the FUD, if you will, that everyone talks about versus what's actually going on. Sometimes it's literally nothing's going on, but everyone fears something. Sometimes there's a lot going on and nobody fears it. This kind of feels like it's actually somewhere in between. That is somewhat rational in terms of something to pay attention to. We're going to talk about Ether and Ethereum. That is probably the most controversial thing that comes up on this podcast. You just start wherever you want. There's a big section in the in the report on it. Kind of how do you look at that asset and that network in terms of where it's grown to today? And then how do you look about it going into 2021?

• 26:36Speaker 02

  Well, first of all, have you been red-pilled yet? What's your current style? I'm not sure where you are in your evolution on Ethereum. So I don't know if I need to red-pill you or like where we're standing today. So like, let me, let me hear from you first and then we'll, we'll, we'll talk at that level.

• 26:49Anthony Pompliano?

  Listen, I hold no Ether. We can talk about why that is. We have invested in a number of businesses that build on top of the Ethereum network for a variety of different things. We also have invested in a number of DeFi companies that are building on top of Bitcoin instead of Ether or Ethereum. And then obviously, everyone knows that I've been super bullish about digital art and kind of how that's playing out. And so I always put myself in like, everyone wants to like label me some maximalist and all stuff like, I'm actually just like pretty rational. And the concerns that I have usually aren't things that people think are ridiculous. And also, when they think about from a portfolio construction

• 27:32Anthony Pompliano?

  standpoint, I usually lay out an argument that makes the people who hold Ether look good, which is unique. But I don't hold any myself. And so we can get into all that. But that's kind of where I am is don't hold any Ether, but have kind of done probably more than most of the trolls on Twitter in terms of, you know, doing things around the Ethereum network. Just, you know, we'll see how it plays out.

• 27:57Speaker 02

  So the one thing I will say is I think you have time, right? And I'll get into why that is in a second, but I do think that Ether is probably the only other assets that you probably need to hold as a crypto investor if you're thinking about making a long-term bet on the industry. There's a few reasons for this. One, Bitcoin has absolutely won hands down when it comes to just the virality of the asset. Bitcoin is a shelling point, is a new form of digital gold, but they are getting further and further behind.

• 28:39Speaker 02

  The network is getting further and further behind in terms of being useful for additional applications. There is some that's going on. I know you've invested in companies that are kind of working on this, but in my eyes, Ethereum has become the settlement layer for all crypto applications not named store value Bitcoin, right? You have seen this with the explosion of stablecoins and the close to a trillion dollars in volume that will be processed on Ethereum, which is actually more than Bitcoin this year. You've seen this with the explosion of applications, again, almost all of which should have any meaningful value and volume are sitting on top of Ethereum.

• 29:19Speaker 02

  It has, I think, at least in order, probably orders of magnitude advantage when it comes to human capital and developer mindshare. And the clincher, and this is why I say you have time, is that Ethereum is going to be probably more risky than Bitcoin for the next couple of years because it's got this very convoluted network upgrade that the entire ecosystem, you could guess, they just got through the first milestone, which is important. But after, if Ether, if Ethereum is able to make it through this upgrade called Ethereum 2.0, it will arguably

• 30:06Speaker 02

  Be less risky than Bitcoin is in terms of its security assumptions, right? So that's a loaded issue that we can get into. But what Ethereum really needs to derisk is whether its network is secure at scale using this consensus mechanism called proof of stake. The reason that they may have an advantage is they have a perpetual issuance model that Bitcoiners hate because it's unclear whether there will be a fixed supply in the future, but it's very, very low. And you might argue that it is better to have 1% inflation in a protocol like this just to serve as rewards for the maintainers of that network, the validators of that network.

• 30:51Speaker 02

  Whereas in a couple of years Bitcoin is going to drop well below 1%. And it's very unclear at this point whether the fee market in Bitcoin is going to be sufficient to actually protect transactions. In addition, you've got the issue that 70% of hashing capacity and a good chunk of the network's power is actually being driven out of China, which we could have a full episode of conversation. I know you've probably have better guests on that can talk to the pros and cons of that, but it's probably less of a technical issue, it's more of a geopolitical issue at this point. And I think Ethereum gets away from that.

• 31:31Speaker 02

  So those are kind of the basics, but I will call out that there's maybe a little bit of like a tail wagging the dog element here as well. I think in 2021, professional, like institutional investors are going to look at the grayscale ETH product and they're going to look at that premium and they're going to salivate and they're going to say, you know what, maybe I don't love this versus Bitcoin, but this seems like a pretty good risk adjusted return for my money for holding six months if this premium can stay anywhere close to what it is. So if Ethereum just trades in its consistent historical

• 32:15Speaker 02

  Range with Bitcoin, then you should be able to print premium over the course of a couple consecutive six month periods. So that's netting out the impacts of taxes and everything like that. But you combine all those things and you're able to pull through some demand on the institutional side, which can kickstart an institutional narrative to begin with. And I think over the course of the next couple of years, that could basically have Ethereum in the conversation credibly, very seriously, as an alternative to Bitcoin. I'm not saying that my portfolio is balanced that way either, but I do-

• 32:50Anthony Pompliano?

  What do you have? What was your portfolio construction?

• 32:52Speaker 02

  So my portfolio is probably 70% Bitcoin at this point, about 10% Zcash, and then 20% split between Ethereum and decentralized finance applications. I tend to invest more in the DeFi applications because they are producing real network fees at this point. And my sense is that if Ethereum does well, it's because DeFi is doing well. So I'd rather take the higher beta. But I think if I were to move money, it would not be from DeFi to ETH, it probably would be from Bitcoin to Ethereum over time, just get into that balance. So I'm probably slightly underweight Ethereum versus where I would be if I was just looking at the market cap weightings.

• 33:34Anthony Pompliano?

  All right, hold on.

• 33:35Speaker 02

  I've come back in.

• 33:36Anthony Pompliano?

  So here's my general sense of all of this, right, is there's two different stories. I think you see it the same way, kind of what I've heard you say and also write, which is the argument that Bitcoin is money and store value and one day can grow into a medium of exchange and stable value, etc. I think you're right. It's like that pretty much has taken hold both from a data standpoint and kind of the metrics of the market, but also to that narrative is maybe not completely embraced by the institutional world, but definitely getting there, right? When you see, you know, Stanley Drucker Miller, or Paul Tudor Jones, or now JP Morgan, Citibank,

• 34:19Anthony Pompliano?

  all these people are talking about it in terms of, hey, it's a settlement network similar to a PayPal Venmo, whatever. What I think the biggest turnoff to me has always been is, you know, there's the whole DeFi crowd running around saying ETH is money, for example. And so when I was reading your report, you specifically have a section that says ETH is not money. So we can talk about that in a second. But I think part of what we're starting to see is there is activity for sure. The question is, how much of the activity is innovation versus just continued repurposing of the ICO nonsense and kind of all that? And I think

• 35:00Anthony Pompliano?

  actually, like, there's a mixture, right? It's not 100% all innovation, it's not 100% all kind of the nonsense either. And one of the areas that to me, like, just blew me away when I saw what was happening in terms of people yelling and screaming, saying like, ETH is gonna take over the world, was with all the yield farming stuff. Like, when you really look at like, what was happening, right, is basically people were creating tokens, and they were just dumping those tokens on retail investors, and some were like outright, ah, hey, I'm like, kind of rug pull on you. But very, very different models. And so for me, it was like, it's almost like developers learned about financial engineering, like that, like, essentially what was going on, right? And that's not to say it's a bad thing.

• 35:42Anthony Pompliano?

  Like, there's a lot of financial engineering that goes on the traditional markets that, you know, is very valuable for all kinds of reasons. But I think that the reason why I bring that up is Bitcoin is telling a monetary story, it's telling a store of value, a money story, a macroeconomic story, that tends to be very clear, concise, and either you believe it or you don't, right? And so if you're an institutional investor, here's the argument, here's what's going on in the macro environment, either you think this is gonna happen or not. Two, three years ago, nobody thought it. Now, I think it's going from kind of a contrarian trade to a consensus trade. But ETH is telling a different story. It's not telling a monetary story. It's telling an innovation story, right? So basically, it looks much more like a early-stage technology

• 36:27Anthony Pompliano?

  investment. And when you get into that innovation story, the part to me that I think people are confusing, right, is there's really three groups of individuals or organizations that are going to look at the asset. So you've got retail, right? Plenty of retail investors on Bitcoin, plenty own ETH, and plenty own the long tail of whatever else is in there, right? Then you've got what I'll call traders. These can be both Wall Street and kind of traditional traders, or the crypto traders, things like that arbitrage trade with the ETH grayscale trust. They're going to exploit whatever they can, right? It's kind of numbers on the screen to them. They actually don't really care a lot of times like what the underlying asset is. They just want to make money. They're pure capitalists and they're trading on a

• 37:09Anthony Pompliano?

  screen. There's a third group, though, which is what I'll call investors. They're not traders, and they're not retail, and they're looking much more long-term. I think that the obstacle that is in front of Ethereum and ETH, which doesn't mean that you can't overcome the obstacle, it's just a much bigger obstacle than, let's say, the Bitcoin community has at this point, is you basically have to tell a story that is, we're going to decentralize and disrupt the entire financial system. And five years ago, nobody believed that, right? Like DeFi wasn't even really a part of the conversation. Like, it was all about, you know, this capital formation and ICOs and all that. There's now some people who believe that, right? And whether it's venture capitalists, or even some people on Wall Street that are starting to believe

• 37:50Anthony Pompliano?

  that. But I think that where we don't know yet is, there's still a whole bucket of unknowns and uncertainties around, what does that world look like, right? And is it literally, you know, and I say this in a loving, positive way, but is it literally 20-year-olds, right, who create decentralized applications, and then throw it out in the world, and they're saying, hey, whatever happens, happens? Like, some people are like, that's awesome, that, like, long innovation, and let's go disrupt the world? Other people are like, that is the scariest thing I've ever heard in my life, right? And so I think that that's the part where there's just a big disconnect between, like, what's happening and all the activity. And really like how would I'll call quote-unquote professional investors are viewing

• 38:33Anthony Pompliano?

  the space. And I think what you're arguing, and this is where I'll shut up and you can kind of explain, is if those uncertainties or unknowns get more clarity, then that's where there's like this great wall of money almost that you think will kind of flow into the space and people will have much more comfort. Similar to what kind of has happened to Bitcoin over the last, I don't know, three, four years, that basically potentially could happen with ETH, but there's some work to be done before that. Is that generally accurate, or am I way off?

• 39:02Speaker 02

  Well, I think it's accurate. But, you know, I think you answered your own question. In some cases, Ethereum went live as a network, just Ethereum, the smart contract platform, about five and a half years ago now, versus 12 for Bitcoin. And let's give Bitcoin, let's say Ethereum should be a little bit accelerated because it has the benefit of kind of riding off of Bitcoin's cocktails in terms of red pilling people with the concept that a network like this could exist. It's still only been, you know, five and a half years from the very, very basic network launch, and only a few years since some of the application

• 39:41Speaker 02

  providers really had the infrastructure upon which to even start building, right? So I do want to talk about yield farming in particular, because I think it highlights the difference between the ICO euphoria of 2017, which we thought was bullshit to be like right out of the gates. We wrote about it, and still we built a company, knowing that we might cater to assets like that in the future because some of them would stick. 90% of them will wash out, 10% of them would stick. The difference with DeFi yield farming and with the ICO boom in 2017 is that was just unregistered securities issuance, by and large, right?

• 40:25Speaker 02

  I don't care what your white paper said, you know, like some of the worst and most offensive frauds during the time that will never get prosecuted because they raised so much money and they can just hire the right lawyers to help them get away with it, just like the banks. They literally had in their token sale documents, there is no utility, never will be any use or, you know, any reason to invest, nor is this even an investment. You're literally just purchasing a funny money token that's never going to do anything.

• 40:58Anthony Pompliano?

  They booked it as revenue.

• 41:00Speaker 02

  And they booked it as revenue. In some cases, they raised billions of dollars in the process. And everybody took those sales like wink, wink, nudge, nudge, you know, they have to write this because the SEC is watching. But in fact, what was still being done was, you're raising money, you know, with people hoping to get rich. And now, I don't feel bad for most of the people that piled in because no one cared about the tech they were investing in. No one was thinking about it like a long-term investor, just like who's going to be the greater fool on the other side of my investment, right? Okay, so that was 2017. The difference now is, most of the networks that launched this year, or sorry, that introduced tokens this year, have been working, have been functioning

• 41:42Speaker 02

  for a couple of years now, and they've seen their volumes spike significantly. Talking about decentralized exchange, I'm talking about some of the lending protocols in particular. And that's important, right? Because these worked before they introduced the concept of these governance tokens necessarily. What YieldFarming did was, it essentially introduced tokens as an incentive for people to participate more actively in these networks. For decentralized exchange, that means actually becoming a market maker, right? And the market makers can make money, just like you would in kind of traditional.

• 42:18Speaker 02

  Financial markets, slightly different design because you're talking about smart contracts, but basically the market makers can make money. How do you solve this cold start problem and encourage more of them to make money? Well, you give them this token in addition to the fees that they're going to earn by staking assets and making these markets. And those will constitute ownership interests in this globally decentralized network and they'll be able to control it. And by the way, part of that governance and control is going to be their ability to set protocol fees long-term, which will accrue to them. So there is a cash flow component here, almost like investing in, you know, if you were able to invest in a decentralized Facebook from day one and Facebook had gradually gone public

• 43:00Speaker 02

  with a data token that said, every single user that we onboard, every single ad dollar that we make, we're kind of gradually, we're going to give you, the early users, more of these tokens because you're valuable in helping us bootstrap this network, you're helping us create gravity to this system, and ultimately you're going to help us scale to a really big business. So you can price them, you know, like using traditional methodologies. Lending was the same thing. You know, when Compound issued their token, they were already scaling and doing very well. The issue was, most people didn't want to pick up pennies in front of a steamroller by lending money out through this smart contract platform for a marginal return, still better than the legacy markets, but, you know, is it worth the risk?

• 43:43Speaker 02

  Because there's all this idiosyncratic, you know, risk of Ethereum and the individual, you know, lending protocol. And so the token was a way to kind of pull forward demand again and essentially decentralize the ownership of that cash-producing network utility.

• 43:59Anthony Pompliano?

  But

• 44:00Speaker 02

  I mean, that's a, that's a big, big change.

• 44:03Anthony Pompliano?

  But I don't know the answer to this, but then that's what I'm asking. My understanding is that Compound worked perfectly fine without the token.

• 44:13Speaker 02

  It did, but it was going to scale very slowly, right? Because you're talking about, okay, how can we get people to contribute and lend in this peer-to-peer marketplace that has all of these other extracurricular risks when they're going to get like 4%? And that's why I say it's like picking pennies up in front of a steamroller. These DeFi tokens were sweeteners and they were methods of arguably protecting that worse long-term because all of these software developers that created them initially, as those networks got bigger and bigger, I think we're going to run into more regulatory risks, right? Like, what is your actual control here? And so you need to actually provably get these things decentralized just from, just basically to protect their network integrity.

• 45:00Speaker 02

  So I'd say for a subclass of like market leaders that already had useful working products that were scaling, that the unit economics made sense, those tokens also made sense. Now, were there a bunch of like bullshit projects that got layered on in August and September when the hype was going nuts, of course? And that was no different from the ICOs, right? The Ethereum ICO, very interesting, in hindsight.

• 45:28Speaker 02

  Some of the Filecoin sale, very interesting arguably in hindsight because you can actually back into, okay, what are the platform economics of these things? And because they were kind of first to market, you knew that the teams were actually thinking about these in a way that they were trying to align incentives long-term and actually scale these networks, not just get rich quick, which is what all the kind of fast followers have done.

• 45:51Anthony Pompliano?

  Yeah, and I think part of the detractor argument, right, is like Compound's a great example where really the token was pure financial engineering, right? Is, hey, we're going to create this token, then we're going to try to give it to users to drastically increase the financial return they get so that it incentivizes more people to come on to the system. And again, I'm not going to debate whether that's good, bad, whatever, it's just financial engineering. And when people hear me say financial engineering, they're going to think of it from a negative connotation. But again, almost every single thing in the Market has some level of financial engineering to it, right? So it's just that is what occurs in in financial markets. I think the part that there's a spectrum, right?

• 46:32Anthony Pompliano?

  And this is where I think the debate really happens or the controversial conversations is like that spectrum of what is being told to investors or holders of those tokens. So there's some people who are like very egregious. Literally, they don't need the token whatsoever and they use they sell it in order to get revenue. And that's basically how they survive, right? And I think that there's like very, very egregious people there. And then all the other on the other side of the spectrum is people who say like, hey, like this was working and we just use it in a very light way. And like, we were super transparent about what we were doing. And like, maybe there was some kind of vote and everyone agreed that we should do it. And and that's what we're doing. And I think that, like, again, there are people who fall all along that spectrum. There's some people who think that the most egregious thing is actually fine.

• 47:17Anthony Pompliano?

  And there's some people who think the lightest thing is like, you know, basically a crime, right, or shouldn't have happened. And so I think part of this whole, I don't know, kind of complexity of the industry is nobody yet knows where we'll be 10 years from now, right? And so it's almost like that's how the market gets made in terms of there are people literally betting millions, tens of millions, hundreds of millions, billions, you know, in some cases, tens of billions of dollars on some of these networks playing out and some of them not playing out. And that's where you get the vitriol. That's where you get the debate. That's where you get kind of all of this stuff. And to your point, like in 2017, when all the ICO stuff was going on, like, I mean, there weren't a ton of people saying it, but there were definitely some people being saying,

• 48:01Anthony Pompliano?

  hey, look, ICOs are stupid, like, you shouldn't do this. And 90% went to zero and people lost a lot of money. And so I tend to think that like the market will just figure it out. But the one thing I want to kind of bring up is I also think that the things that people are optimizing for when they're in like what I'll call like the weeds of DeFi yield farming, for example, they're optimizing something completely different than maybe the average like Bitcoin investor, right? And so what I don't know is, and I don't actually think it's possible. I don't think that we can kind of paint an entire industry with like a broad stroke of, hey, there's one size fits all as to what everyone should do because everyone's optimizing for something that's different.

• 48:45Anthony Pompliano?

  Right? And so where that ends up playing out is there's returns that are driven where people build, like somebody may actually build DeFi applications on Ether or Ethereum, and somebody may go build the same thing on Bitcoin, and then like the market will decide who wins, right? So that's why like when it comes to the debate stuff, I'm just like, like, the market will decide, right? Like, I have my own personal opinions, but like, if the market is the ultimate referee or judge, then you actually want everyone trying as many things as possible. And then like, the thing that wins is that much better because it basically built, it beat all the other competition, right?

• 49:20Speaker 02

  Yeah, I mean, the question is, are you hedging? And where are you hedging? Right? Like, some of these indices are toxic waste, that just have like straight market cap rankings down, you know, market cap weighted rankings down the top 10, or top 50, or top 100. Like, that's just throwing money away. But the question is, you know, where should you be diversifying if you want exposure to this emerging asset class? And my argument, I actually more or less agree with you that there's Bitcoin, which is an asset, and then there's Ethereum, which is basically the leading horse in the decentralized finance platform play. And then everything else is just kind of, you know, picking horses, no different than picking infrastructure winners, you know, that have catered to the

• 50:03Speaker 02

  Bitcoin industry for years, right? The exchanges, custodians. My, my general sense is that you need some exposure to Ethereum or its applications somewhere across that value stack, in addition to Bitcoin, because, you know, there, there still is a chance that Bitcoin, or crypto wins, but Bitcoin, for whatever reason, has, has a flaw that prevents it from, from winning at scale.

• 50:30Anthony Pompliano?

  Yeah, and this is the old age old, like diversification versus concentration, right? And people will all make their own, their own decisions from that. I do think that the, the one thing that will be very interesting to see, actually, I would love your opinion on this, because we're talking about DeFi. My argument the entire time has been like, I don't know, 90, 95% of these things aren't decentralized. Like, if the government says, shut it down, or you go to jail. There might be one or two, right, or five, or whatever it is that can't be shut down, but majority of them can be shut down.

• 51:02Speaker 02

  And so here's the thing, they can't, here's the thing, they, the teams that are, that spawn them could be shut down, right? They could basically be, you know, pencils down on the project, you know, we're done here, the US government knocked on our door and we're going to divest and whatever.

• 51:19Speaker 02

  But one of the beautiful things about the industry is that it's open source and we've actually seen this experimentation play out with anonymous teams forking established projects, the entire code base, the entire model, basically, and siphoning off real value, real liquidity, essentially overnight. This happened with summer with Uniswap and it's happened with a couple, you know, many other applications as well, which is why there's so many of these also ran tokens that I agree are garbage. But in theory, credible anonymous developers, which is not an oxymoron necessarily, people who have actually proven their bona fides over, you know, years of development in the

• 51:59Speaker 02

  space that are not actually known entities, they could swoop in and basically offer the same exact protocols and maintain the same exact protocols, but just fork the economics, basically create a new system from scratch. And with better privacy solutions also coming online, it becomes harder and harder to track that down. And this gets into this game of whack a mole that ultimately can happen on a global scale. I tend to think that the thing that works in the industry's favor is that the powers that be are just going to be so slow, in the West at least. In the East, totally different story, right? If they can take fucking Jack Ma off the street and say, you really shouldn't have said that at a conference and by the way, your IPO is canceled, like, no one is untouchable over there.

• 52:44Speaker 02

  Like, just, just point blank, like, let's just get that out of the way. Like, at any point in time, China could become one of the biggest players in Bitcoin and crypto, or it could just be like a nuclear threat to the entire industry for a whole confluence of factors. But when, when I think about like decentralization crypto and the regulatory sphere, I'm primarily thinking about the West and in the US and Europe, they're just not going to be as fast or as well equipped to adapt.

• 53:15Anthony Pompliano?

  I have, I have a hot take on this.

• 53:16Speaker 02

  They're going to be too slow at the game of whack a mole.

• 53:18Anthony Pompliano?

  I have a hot take on this. They're gonna go the exact opposite direction. I think that the US is gonna end up be is gonna end up embracing this harder than anybody else in the world. I think in the I think in the next 10 presidential elections, a Bitcoiner will become president. That's not somebody who's like entire existence is around Bitcoin, but somebody who understands Bitcoin, believes in Bitcoin, right? There's Congressman, there's a Senator now, like, like there's people who are understanding.

• 53:45Speaker 02

  Did you say 10?

• 53:47Anthony Pompliano?

  10 presidential elections, 40 years.

• 53:50Speaker 02

  Well, yeah, give yourself a little bit more of a fucking cushion pop. Come on, man. 10, 40 years? Like, how long do you think this is gonna take to play out? I think we'll see it in the, you know, within the next four.

• 54:00Anthony Pompliano?

  Well, it took 10. It took 10 years to get a Congressman. Right? So like, you know.

• 54:06Speaker 02

  These are exponential markets, man.

• 54:09Anthony Pompliano?

  I agree.

• 54:10Speaker 02

  If it takes 40 years, like, we wasted our lives.

• 54:13Anthony Pompliano?

  Yeah, well, but here's the thing, right? Is like, so I always zoom out a little bit and I say, okay, well, how long would it take for, let's say Bitcoin to become the global reserve currency? Like, I actually think that it is a multi-decade play now, but that started in 2009, right? So we're kind of 10, 11 years into this. Like, there's a good chance that there's another 10 or 20 years before you reach that. Now, again, you know, Bill Gates, hey, we overestimate what we can do in one year, underestimate what we can do in 10. I would say most people didn't think that we'd be sitting at $20,000 10, 11 years after Bitcoin, you know, kind of went public there. But at the same time, when you start to unpack some of this stuff, like, you know, take the DeFi stuff.

• 54:55Anthony Pompliano?

  I don't think that there's very many people who say, hey, we're not going to get decentralized applications. All the controversy and debate is where does it get built? Right? And where it gets built heavily determines the structure of how it gets built, right? Because most Bitcoiners are like, yeah, of course, there's going to be decentralized lending protocol, you know, or decentralized lending applications, but it's gonna get built on the Bitcoin protocol. Right? And some people disagree, some people agree, whatever, but the structure in which that happens, if it happens, will be very different than if it gets built on another platform. And I think that's the interesting part here is as this stuff occurs, like, do we end up in a world where, you know, take the internet, there's only four or five protocols that actually end up mattering? Do we end up in a world where there's a gazillion

• 55:40Anthony Pompliano?

  protocols that matter and there's one that's specific for certain countries or regions or use cases or whatever? Or do we end up in one where the strongest, most secure chain eats the world? Again, nobody knows, right? And I think that's the part that like, everyone has their opinion. And I think a lot of people walk around acting like there's facts, right? In terms of this is what's gonna happen. But I don't know. Right? I don't think you're saying you know.

• 56:08Speaker 02

  Well, taken taken to the extreme, I mean, we don't even need to get into too much of the esoteric of, you know, how these networks work. But, you know, you're a believer that a lot of this is going to get settled back to Bitcoin. In fact, one of my biggest regrets is that I thought that for a long time. And that's one of the reasons I knew about Ethereum from the very earliest stages. And I just couldn't wrap my head around the token sale and the mechanics of that whole process.

• 56:36Anthony Pompliano?

  I actually don't believe that. You're gonna be shocked by that. I actually don't believe that.

• 56:39Speaker 02

  Okay.

• 56:41Anthony Pompliano?

  I think I think that Bitcoin ends up revocating most of it. What I think, though, is that most of what's happening on, let's say Ethereum, take that as an example, is exactly what happened in 1996 to 2000. All those ideas, home runs, a decade later. Food delivery, streaming music, like literally every single idea that was tried then ended up not succeeding. And it was people.

• 57:11Anthony Pompliano?

  Over or like short term expectations outran consumer behavior. Really, people weren't ready for food delivery. Shit, people weren't ready for food delivery in 2019, right? It took a pandemic and now people are ready to like, oh yeah, bring me my groceries. And so I think the same thing kind of happens here where all these ideas end up getting built for sure. But it's just, you've got to allow the network to get built and you also have to allow the behavior to change. And you can get retail people to go do, you know, CDPs, for example. But like, that doesn't matter until you get like, big money to do it.

• 57:52Anthony Pompliano?

  Right? In the grand scheme of like global finance, if you really want to replace kind of centralized entities, that's who you have to get. But as we saw with Bitcoin, like, that could take years to happen. And so it's like, are the teams that are building this now going to be the ones that end up winning? Or do they basically try all the right ideas, but then other teams fill them later? I don't know, we're gonna find out, but like, we've already seen technology evolve that way in the past.

• 58:18Speaker 02

  So, so I think the two things that we're talking about though are protocols versus teams, right? You know, like communities versus, versus, you know, centralized companies. Yes, the 90s internet companies were a decade early, but the internet protocols and, and, you know, Linux was, was, you know, getting built out then as well. And that's backbone for a lot of our modern, you know, web. So I, I, I think one of the ways that you can tell most of the experimentation and most of the valuable protocol work may happen on Ethereum in these smart contract platforms versus Bitcoin, which is very rigidly focused on peer-to-peer payments and settlement,

• 58:59Speaker 02

  is that Bitcoin, the asset is increasingly getting pegged to be traded on Ethereum through this concept of wrapped tokens and these different interoperable protocols that essentially allow you to lock value in Bitcoin, lock a Bitcoin, and then create a synthetic version of it on Ethereum or another blockchain where it can actually be leveraged and used in some type of application. So.

• 59:23Anthony Pompliano?

  That's because ETH is not money, though.

• 59:26Speaker 02

  See, but yes, but I also wrote that, right? So like, we're on the same page there. That doesn't mean that a multi-trillion dollar transaction processor that's scaling exponentially is not going to capture insane economics.

• 59:40Anthony Pompliano?

  Yeah.

• 59:41Speaker 02

  And there's not going to be massive security spend to actually preserve the strength of that network. If you look at Visa, right, or Mastercard, or just the card networks, okay, they do, they do one thing at scale incredibly well. How many different applications are going to come out of like an internet of money? That's the orders of magnitude larger that Ethereum or the winning smart contract protocols are going to be. And I just, you know, I just don't see the mind share there in Bitcoin to make that particular platform that extensible. That doesn't mean that Bitcoin may not win the race in terms of, in terms of value creation. But this is why I think about, if you're going to have exposure to this industry, you

• 1:00:24Speaker 02

  want exposure to crypto and the DeFi, you know, boom, even as early as it is. And then you also want exposure, obviously, to the winning decentralized money. And I truly think that we're talking about two different industries almost at this point when people think about getting exposure to crypto, have to have a little bit of both.

• 1:00:44Anthony Pompliano?

  All right.

• 1:00:45Speaker 02

  But you can wait, and I think that you have time. But why wouldn't you clip the premium in the meantime?

• 1:00:50Anthony Pompliano?

  Let me ask this last question on Ether. Do you look at Bitcoin being back to all-time high levels and Ether? I think it's still down like 50-plus percent, right? Didn't go, I think it hit 1,400 in 2017, if I remember correctly.

• 1:01:08Speaker 02

  Yeah.

• 1:01:08Anthony Pompliano?

  So it's like around $600. How do you look at that?

• 1:01:11Speaker 02

  Well, I wrote about this in the Ether is Not Money section, right? You know, the, I think that was an anomaly in Bitcoin's history because there was a few things happening at the same time. Maybe most importantly, Bitcoin was in the midst of its most contentious community issue that forked the network. And it was unclear for a few months which direction things were going to go in terms of which chain was going to went out, which way the the community was was ultimately going to shift. The winning side ended up being the side that was ostensibly the minority fork that was not necessarily supported by almost all of the largest investors, largest miners and and largest funded infrastructure companies in

• 1:01:55Speaker 02

  the industry, which is what made it such a wild time. Of course, you know, the spike in Bitcoin's price in the all time high happened after that issue was finally put to bed and resolved. But 2017, while that was going on for Bitcoin was also the year that the ICO boom occurred. And at that point, Ether wasn't money still, but it was serving as the reserve of that ecosystem. And you had to hold Ether in order to fund these ICOs. Now with the explosion of stable coins, you know, across across the industry, and this is true for Bitcoin and Ethereum, it's less critical to actually hold an unstable reserve asset as we saw in the early days. So I

• 1:02:38Speaker 02

  don't think it's surprising, nor do I think it's an indictment of Ethereum that it's it's still 50% of its peak. The way that I look at it is it's it's maybe sustainably at a sixth of Bitcoins market cap. And exactly where that right, you know, dividing line is, I don't know. But I would I would certainly buy Ether when it's below 10% of Bitcoins market cap and maybe sell it when it gets above 50%. Where the dividing line is anywhere in between is is anybody's guess. I'm not gonna, I'm not gonna, my crystal ball is broken, man. I'm exhausted.

• 1:03:13Anthony Pompliano?

  Are you a flippanting believer of the market caps?

• 1:03:18Speaker 02

  No, I I think if that happens, first of all, that happens anytime soon, we can fucking pack our toys and go home because it like it ruins Bitcoins narrative. I think it hurts Ethereum because Ethereum is not ready for prime time yet, that type of, you know, like sovereign attention, because the protocol itself is still not, you know, ossified or battle tested, particularly with this migration to to basically an entirely new system. But I think at some point, you know, could ETH be money is is really the question. I think If Bitcoin loses fundability, basically if there's top-down regulatory crackdowns

• 1:04:00Speaker 02

  that essentially create a bifurcated Bitcoin system between clean coins and dirty coins, that would be one attack vector. There are geopolitical risks around concentration of mining, right? If China and Western states kind of came together and said, we're basically going to disallow this type of activity for whatever reasons, I think it has a much worse impact than anybody gives it credit for. I know it's more or less dismissed as FUD from the Bitcoin community. I don't think it is if it were like a true global coordinated crackdown on hashing and Bitcoin mining per se. And then the last thing, and maybe the most likely, is we will not know for a few more years how well Bitcoin's security

• 1:04:45Speaker 02

  model holds up when the rate of seniorage, basically, you know, annual network issuance of new Bitcoin dips down below 1% and then half a percent, and Ethereum has solved that problem. So there may still be time, right? And Ethereum may get less risky over the course of the next few years as Bitcoin gets potentially more risky, depending on how things play out on that last front with the fees to actually secure the network. But, you know, there's a lot that's gonna happen between now and then. So I mean, it's like almost not even worth talking about. Normally, I just kind of like, you know, I give hot takes on this, and I immediately say, literally, everything that I'm saying means absolutely

• 1:05:26Speaker 02

  nothing, because there are so many, there are so many more massively important things that are gonna happen in the interim that we have no idea how it's gonna play out.

• 1:05:36Anthony Pompliano?

  I love it. The final boss is the final thing I want to talk about.

• 1:05:41Speaker 02

  Let's do it.

• 1:05:42Anthony Pompliano?

  What is the final boss? And talk me through kind of your theory here.

• 1:05:48Speaker 02

  Every time that Bitcoin doesn't die, it gets stronger. It's just this like Nassim Taleb concept of anti-fragility. And it just won't die and it gets stronger every single year. From a combination of more people believing in it, more people using it, more infrastructure being built around it, hardening of the codebase. And I truly think that the only real threat at this point to Bitcoin is going to come from sovereigns. So this would be a combination of regulatory crackdowns and potential just outright bans.

• 1:06:32Speaker 02

  And that can come a few different ways. You can make it harder for anyone that's actually using Bitcoin and transacting the economy to get banking. You can essentially make it insanely expensive from a compliance standpoint, if not impossible from a compliance standpoint, to actually satisfy regulator demands for what they want to see in order to support any transactions that go through the Bitcoin network. And we could see as Bitcoin and related applications get more private.

• 1:07:12Speaker 02

  If we do go from pseudonymous but still traceable transaction sets through these forensics companies like Chainalysis and Elliptic and basically the ones that work with the governments and the big compliance teams worldwide. If there are solutions to basically break the utility of those forensic tools, then you've got a big problem. And I think you can see what we've started to see glimpses of, which is the DOJ, CCP, other kind of global regulators saying, "We're not sure how we feel about self custody because it's kind of like a Swiss bank account in your pocket and we're sure not sure how we feel about privacy."

• 1:07:57Speaker 02

  Like blanket anonymity solutions, things like what Zcash has introduced, basically making it next to impossible to actually trace pseudonymously or otherwise any transactions that happen on the network. And there's good reason for that. That's not... There needs to be some type of balance. And the good news is, in most cases... The folks that have built these tools have thought about that and they've been mindful of that challenge and the fact that you're always going to, you're going to need to help the regulated edges of the network, right, the interfaces on and off of these protocols. You're going to need to give them the tools to actually interface with the powers that

• 1:08:39Speaker 02

  be and, you know, catch bad guys and, you know, make sure that there's not systemic risk in these systems and things like that. So, you know, you're talking about we're at half a, half a trillion dollars now in global market cap, almost 400 now for Bitcoin. So 400 billion now. That's, that's no longer, you know, below the radar by any stretch. And, you know, I think that we'll see over $100,000 Bitcoin by the end of next year. I don't know if that's, that's on par with you or if you're even, if you're even higher than that. I think, I think we're, I think you and I are both, you know, like insanely bullish

• 1:09:21Speaker 02

  by traditional standards, but maybe, you know, not as shrill as some of the other folks that are just trying to get like the biggest number posted in the Wall Street Journal. But I do think we'll see $100,000 Bitcoin. And so at that point, you know, we're, we're well over trillion dollars in market value and liquidity in that network is insane. So you can move a lot of money if you're, if you're a bad actor or a good actor. And that's, that's got its regulatory challenges and we got to figure out exactly how it's going to work. So final boss, I am betting on Bitcoin and the good guys and the Wild Western frontier for no other reason than I just think the West is completely dysfunctional and it's

• 1:10:04Speaker 02

  going to take them forever to fully wrap their, their heads around it.

• 1:10:07Anthony Pompliano?

  Yeah. I also think there's this weird undertone of

• 1:10:13Anthony Pompliano?

  Why don't we embrace it? And it sounds crazy right now because I agree with you like there's a lot of disjointness. But when you see Brian Brooks, you know, hey, you guys can custody this, no one's going to ban it, kind of a lot of stuff going on like that. You really only need, you know, four or five more people in positions of influence and power, I think, to kind of say, hey, maybe we should take this much more seriously and not as a threat, but instead of as a almost as a parachute to some degree.

• 1:10:41Speaker 02

  Unfortunately, unfortunately, Brian might have like four, four more weeks left of the job because, you know, you have to, you know, everything that can be politicized will be politicized in the, in the US realm. And I unfortunately have the feeling that the Democratic Party is going to be more hostile to this industry than the Republicans. So, you know, we'll, we'll see how that ultimately plays out, but we gotta, we gotta get more blue, more blue reps on, on, on Team Orange if, if we're going to actually have a good time next year.

• 1:11:19Anthony Pompliano?

  Sam Bankman Fried is, you know, he's going to buy his way into the White House at, at the rate he's going, so.

• 1:11:25Speaker 02

  You know what? He's at least going to get a meeting with someone in the administration. That's a good thing for everybody.

• 1:11:30Anthony Pompliano?

  Absolutely. All right. Where can we send people to download the report, find you on the internet and find out more about what you guys are building?

• 1:11:39Speaker 02

  Sure. Messari.io. We've got a brand spanking new homepage that was basically 10 feature releases rolling into one that actually just dropped last week as well. So it's been a big, big December for us. It's a beautiful interface to catch up on, on news, basic price information by sector, charting tools. It's really become my second screen. I think a lot of others, you know, really quickly to get a full soup to nuts overview of how the market is performing day to day. You will see a link to the report, Crypto Theses for 2021, front center, right on, right on that homepage for probably the next month or so.

• 1:12:23Speaker 02

  will be the largest report that we have out at least through January, as you can imagine. So I encourage people to go there, check out the report and then sign up for our daily newsletter as well. If you're interested in getting more than just orange coin information from POM and you want to actually take the take the purple pill that that'll get you excited for, I'm just going to try to layer the innuendo on because we're recording late on a Sunday night.

• 1:12:52Anthony Pompliano?

  I I read about the other stuff. I just write about it when there's rug pulls and all the other nonsense.

• 1:12:59Speaker 02

  And you know what? You sound you sound like the Bitcoiners version of Peter Schiff now. Don't do that. Don't do that. Expand the mind, POM.

• 1:13:09Anthony Pompliano?

  Listen, like I always say, I've invested in more companies than most of the trolls on Twitter that are building on top of this other stuff. I'm not by any means not open minded. It's just I'm a rationalist, right? In terms of nobody, nobody likes to call out the nonsense. You can be successful and you can have a successful piece of technology or community and still say, hey, 80% of this stuff's nonsense. But the one thing I will say, outside of a select few people who I'll call them like the ETH heads and that'll set them all off. But there's a, there's a couple outside of that group.

• 1:13:50Anthony Pompliano?

  I actually find that a lot of the developers and people who are building in the space are very, very open minded. One and two, also very rational. And if I ask them, you know, hey, out of the DeFi applications, like what percentage of them are actually decentralized? But the answer they say would shock most people because you would think that they would just kind of be blind to everything and just say like, oh, 100%. That's not the answer. Like they actually answer honestly and very open minded. And then they lay out an argument for like, and here's how we get from, I don't know, 20% of them being decentralized to 80% of them, right? And so I, I actually really enjoy talking to a lot of those people and, you know, maybe we'll keep investing a little bit more.

• 1:14:31Speaker 02

  Bitcoin was Centralized on Halloween 2008. It's come a long way since then. So is the rest of crypto. But yeah, we'll, we'll, we'll see what happens next year. And in the meantime, I am happy to continue going back and forth with you on Twitter. I'm at two bit idiots. Pomp leapfrogged me by, I think, an order of magnitude almost since our last conversation a couple of years ago. So I got up my game in the new year. But you know what? If, if crypto takes off and you're wrong about DeFi, I'm gonna be right on your nip it at your heels, baby.

• 1:15:05Anthony Pompliano?

  We will see. We will see. All right, my friend. Listen, thank you so much for doing this. I'll do it again in the future.

• 1:15:11Speaker 02

  Absolutely. Thank you, Pomp.