Travis Kling: The Secrets of a Crypto Trader

Travis Kling is the founder and CIO at Ikigai Asset Management, an investment firm focused on crypto assets. He previously was a portfolio manager at Point72 where he traded Long/Short Energy Equities. In this conversation, Anthony Pompliano and Travis Kling discuss token structures, price movements and outlook, value accrual, the importance of BitMEX, and what needs to change for crypto to have sustainability.

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 Off the Chain, simply the best podcast in crypto. Let's kick this thing off.

• 0:16Anthony Pompliano?

  Travis Kling is the founder and CIO at Ikigai Asset Management, an investment firm focused on crypto assets. He previously was a portfolio manager at Point72 where he traded long-short energy equities. In this episode, we cover a lot. We discuss token structures, price movements, and outlook, value accrual, the importance of BitMEX and Asian algorithmic market makers, and what needs to change for crypto to have sustainability. This may be one of the best episodes we've ever recorded, so I hope you enjoy it half as much as I did. 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

• 0:57Anthony Pompliano?

  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.

• 1:11Anthony Pompliano?

  Before we get started, I wanted to tell you about our sponsor BlockEstate, a security token project in the $200 trillion industry of real estate. They've partnered with Polymath and Coinlist Comply API to create one of the first tokenized real estate funds, and they have a unique buyback and burn model. To learn more, visit blockestate.com.

• 1:31Anthony Pompliano?

  All right, guys, this is gonna be an awesome episode. We've got Travis here, who's got a pretty interesting background and jumped all in in crypto, and you probably have some of the wildest ideas of what's going on in the market and kind of some of your strategies and stuff. So I think it's gonna be fun. So thank you for coming.

• 1:46Speaker 01

  Glad to be here. Appreciate it. Thanks for having me. I'm a little under the weather right now. Sorry for the horse voice, but we're gonna be able to power through it here.

• 1:53Anthony Pompliano?

  You're gonna be just fine. All right. So let's go through background, right? Where'd you grow up? Kind of where'd you go to school, education, and then kind of what'd you do pre-crypto?

• 2:03Speaker 01

  Yeah. Grew up in Texas. And growing up in Texas, I've been out of college for 10 years, and nine and a half of that was in energy investing, right?

• 2:11Anthony Pompliano?

  You really strayed really far from Texas.

• 2:15Speaker 01

  Got out of undergrad accounting, masters in finance, got out of school in 08, took the financial crisis in the face. Uh, was doing oil and gas M and A for a couple of years out of college in Houston. Went to Magnetar Capital in two thousand and eleven, doing long, short energy equities. And non-controlled private equity and debt in the energy space.

• 2:37Speaker 01

  You know, pretty broad investment mandate, long investment horizon, highly liquid or totally liquid securities. I was there from two thousand and eleven through the middle of fifteen. Sounds like the go-go years in oil and gas. So when I joined the energy business, was managing two hundred and fifty million at Magnetar. When I left, we were managing four point six billion. Had pretty massive AUM growth over that period of time. Left in the middle of fifteen and went to point seventy-two in New York, Steve Kuntz hedge fund. And I was running a two hundred million dollar long, short book there. Energy and materials equities, little bit of commodity, little bit of options. And um, uh, probably a good way to just easily segue into crypto here.

• 3:15Anthony Pompliano?

  Why? Why? Why jump into crypto?

• 3:17Speaker 01

  Yeah, so like, I'm not a tech guy. I'm not a tech investor and I'm not like a tech person. I'm not an early adopter kind of guy. I'm not like a futurist kind of guy. Never been like that. So first time I heard about Bitcoin was when Silk Road got shut down, just from a fascination perspective, like. Look at these crazy drug dealers that made this magic internet money to go buy drugs on the internet. That's just wild.

• 3:39Speaker 01

  I joke, I joke around with my mom all the time where I'm like, you know, mom, it's a good thing that like. I wasn't into drugs when I was a kid, so I like grew up to be like an upstanding citizen. On the flip side, if I'd have been into drugs, I would have seen Bitcoin early and I would have bought that shit in two thousand and twelve. But um.

• 3:56Anthony Pompliano?

  It's true.

• 3:56Speaker 01

  Same thing with video games. When I was growing up, I said the same thing with my mom too. I was like, you know, mom, I'm kind of glad you didn't make. Let me play video games when I was a kid, which she didn't. Cause like now I read more than probably like ninety-nine percent of millennials out there. But then on the flip side, it's like if you grow up playing video games. And like, somebody pays a hundred dollars for a magic battle axe. And then you see Bitcoin come along and you're like, this makes all the sense in the world, right?

• 4:19Anthony Pompliano?

  Absolutely.

• 4:21Speaker 01

  But anyways, yeah, so I, so like, I was reading about Silk Road just because it's crazy. Bitcoin is part of the story. I probably read like two hours worth of Bitcoin and about Bitcoin. And my takeaway from that was magic internet money. There's a math problem. The math problem is really, really hard. It controls the supply, demand, and drug dealers trust it to use it as money. I'm like, that's just nuts, right? So the Mt. Gox got hacked like not long after. And to me, that was like, okay, this is like not something I need to pay attention to.

• 4:50Anthony Pompliano?

  Yep.

• 4:51Speaker 01

  Cause like, I don't have any way to mitigate or pricing the risk. I wake up one morning, somebody stole all my stuff.

• 4:55Anthony Pompliano?

  Like two strikes.

• 4:56Speaker 01

  Yeah. And like being the like non sort of like, like, like, you know, hardcore computer guy. I'm like, if anybody's gonna get their stuff stolen, it's probably me, right? So like, I'm not into this. Didn't think anything of it. Fast forward to the back part of 2016, Price starts doing his thing. I started reading more about it. Early 17, Ethereum and the ICO started going crazy. I started reading more about it. And I basically came back like from July 4th break last, last summer and fell down the proverbial rabbit hole. And just like started spending all my time reading about crypto. Go to the gym, listen to crypto podcasts, go home, sit on the couch in the dark, read about crypto to the wee hours in the morning. Wake up, do it all over again the next day. And like, I started stacking up, like, you know, you're doing the self-study.

• 5:38Speaker 01

  And like, I really liked behavioral economics and, and like game theory stuff when I was in grad school. And in grad school, I had a graduate degree in finance and like they, they hammer like efficient market hypothesis, like when you're in school. And then they like do a little bit on behavioral economics. And that made no sense to me because it was like so obvious that like the world's not, like markets aren't efficient at all. And behavioral economics is like really what makes sense because people, because of fear and greed. In the context of like economic decisions, humans constantly make mistakes, right? And behavioral economics is kind of the study of that. And so I did like a lot of self-study in school about that. So then I circled back to crypto and it, you know, it loops in a lot of those, a lot of those aspects. And so I really got sucked into it. I did probably.

• 6:24Speaker 01

  Four or 500 hours over a couple of month period of time. And I went to senior management out of the blue at the end of September. And I was like, look, this blockchain thing is going to be completely revolutionary. It's a once in a generation type of deal. And I don't want to be an equity long short portfolio manager anymore. I'm going to make a career change.

• 6:38Anthony Pompliano?

  That's awesome. All right. So let's back up. You came from what I'll call like Wall Street institutions, right? So whether it was energy trading, kind of pre point 72 and then point 72. What is that like? Right? So when you're inside of these organizations, how do they view technology? How do they view kind of these new asset classes when they kind of pop up and some of them stay, some of them don't? Just kind of talk about, you know, being a kind of more traditional institution, looking out at, you know, technology and new asset classes?

• 7:07Speaker 01

  Yeah. So I was kind of buried down in the, like, I was just doing my oil and gas thing, my energy thing. I did a decent amount of renewables as well, too. So I was like kind of focused in that one lane.

• 7:18Anthony Pompliano?

  So you're not looking at, you're pretty much not looking at anything outside of oil and gas?

• 7:21Speaker 01

  Energy broadly. Yeah. Yeah. Energy broadly was, was like basically my career. And like, you know, I was like 30 years old and knew about as much about oil and gas as like any 30 year old you're going to find, right? Like, that was just kind of what I did. And, and, but, but, but working in institutions like that, I think one of the biggest differences that I think I've definitely taken with me, you know, as I've moved into crypto investing full time is, I think people that haven't worked at a hedge fund before think that it's like an episode of Billions, where it's like Wolf of Wall Street, or it's like Boiler Room or something like that. And it's, it's actually way less sexy than that. And it's, it's, it's very, very process oriented.

• 8:02Anthony Pompliano?

  Yep.

• 8:03Speaker 01

  And especially, especially at point 72, they just, they just, like, you, you become an, an expert in how to build investment frameworks.

• 8:13Anthony Pompliano?

  Yep. It's a machine.

• 8:14Speaker 01

  Yeah, it's a machine. And like, in the same way that Henry Ford used to crank out Model Ts, like, you can crank out attractive risk adjusted returns on a repeatable basis like that. And simplistically, like, the way I think about it is, you build this framework, and then you put a bunch of processes inside of the framework, and then you put a bunch of tools, you build a bunch of tools inside of the processes. Help you execute those. And in the same way that Henry Ford used to crank out Model Ts, like you can just crank out like that. And it's like making sausage. You take a shitload of data, you stick it in the sausage maker, you turn the gears and it spits out profits and you just do it over and over and over again. And there's

• 8:49Anthony Pompliano?

  It's not, but that, just so we're clear, right? Like, that's not what people think is happening, what you just said. And then two is, that doesn't sound very fun, right? Because it's not human driven in terms of, I'm making a gut call left or right. It's much more, we spent a lot of time building what data sets we're going to do, clean it, structure it, build the machine, start stuffing the data through. There's not a lot of dependence on the individual, on the individual to have intuition, or, you know, make mistakes, or make kind of the grand slam call, right?

• 9:18Speaker 01

  Yeah. So, so generally speaking, like, humans are like, pretty terrible at investing.

• 9:23Anthony Pompliano?

  Absolutely, absolutely.

• 9:24Speaker 01

  And we have, we have so many biases, and we make tons of mistakes.

• 9:28Anthony Pompliano?

  We get tired?

• 9:29Speaker 01

  And, yeah, right. And so, like, the term quantamental got thrown around a lot at Point 72, which we've like totally adopted into Ikigai Asset Management's, like, it's at the core of how we've built our investment business.

• 9:42Anthony Pompliano?

  Explain what that is.

• 9:43Speaker 01

  Yeah. So it's just, it's just the intersection of fundamental and quantitative investing, or like said differently, like harnessing the power of big data to help humans make investment decisions. And, and like, simplistically, it's like you ask yourself the question, like, what exactly is it that a human does better than a machine when it comes to investing? And like, the punchline is, it's like, not all that much. And, and like, this war has been waging for over a decade now in traditional asset classes.

• 10:11Anthony Pompliano?

  Absolutely.

• 10:12Speaker 01

  And like, the war is over, dude. Like, the machines have, like, fundamentally beat the humans when it comes to like, traditional asset class investing. Just look at the profitability of a place like Renaissance, or Jump Trading, or, or D E Shaw, right?

• 10:27Anthony Pompliano?

  And it's because the machines are not only quote-unquote smarter, but they have the ability to do much more analysis, more consistently, over a long period of time.

• 10:36Speaker 01

  Never get tired.

• 10:37Anthony Pompliano?

  Yep.

• 10:37Speaker 01

  Never, don't make bias, no biases.

• 10:40Anthony Pompliano?

  Yep.

• 10:41Speaker 01

  You know, can crunch an incredible amount of data, then you start layering in like, you know, machine learning type of stuff, and this, that, and the other. But, but, but, but the interesting thing about that, you know, the quantimental aspect as you move into crypto is, a machine is only as good as, as the, the data that you're feeding it, right? Like, the data is like the food for the machine. And, and if, if the, if the investment decisions that, that the asset class is presenting are not like quantable, like they're not able to be sort of fed into a data stream format, then a machine's not gonna be able to make very good calls.

• 11:16Anthony Pompliano?

  Yep.

• 11:16Speaker 01

  And like, in, in my opinion, where we are in, in crypto assets, we're not far enough along, and the most, the most foundational pieces of this ecosystem haven't been put in place yet. And so because of that, machines like, don't do that well in, in that, that kind of environment, and the data has a lot of noise in it, right? And like, if I'm trying to run like a stat arb strategy, and like, a crypto stat arb strategy in like, September 2018, and I'm, I'm like, it's a, it's a strategy that was backtested against price action in like, the fall of 2017, like, what the hell does the fall of 2017 have to do with September 2018, right? This is such a drastically different market, because we're, we're so early in the, you know, these, we're still having these big seismic shifts in the way the market's acting, but, you know.

• 12:00Anthony Pompliano?

  Well, I think what you're talking about here is, there's two issues. One is, the quality of the data, or the reliability of the data, right? So there's just not that many market cycles to look at, there's not that many, kind of great data sources that you have a high level of confidence in. And then the second thing is, there's also a lot of investment opportunities that there's no data. So early-stage investing is really, really hard to quantify.

• 12:20Speaker 01

  Correct.

• 12:20Anthony Pompliano?

  Right?

• 12:20Speaker 01

  And, and, and the way that humans do early-stage investing is like, it's like, I can't have a view on Ethereum without having a view on EOS, and I can't really have a view on either two of those things, without having a view on Hashgraph.

• 12:33Anthony Pompliano?

  Yep.

• 12:34Speaker 01

  And when you think about that spectrum of investing... A machine's like not that great. It like, like, like humans are really good about taking this really broad set of data and kind of like taking this unrelated thing over here and being like, this kind of helps me think about how this is going to be and like this other thing over here that's got nothing to do with crypto at all. Kind of like, it's like, oh, I read about the history of the internet and like, it helps inform me, inform my decisions about how I think some of this is going to play out. Like, machines don't do that that well.

• 13:02Anthony Pompliano?

  Yeah, multi dimension like thought process and decision making.

• 13:05Speaker 01

  Right. And so, um, so the way, the way that we've built it at Ikigai now, um, we've got one systematic strategy. We've got algorithmic market making that's, that's run by a piece of technology. And everything else is a human at the end of the line pulling the trigger, but, but you're pulling the trigger. You know, you're making investment decisions informed by information that, that like, like, like, like quantitative type of data and, and, um, you know, things that look more like quant strategies that help inform the investment decisions that the human makes.

• 13:36Anthony Pompliano?

  Absolutely. So let's go back real quick before we jump full in into crypto here. Uh, let's talk about point 72, right? Obviously you can only say so much about it, but, but walk us through like what makes that place special and what makes, what makes that place different from the repeatability of the returns they're able to drive for, you know, decades.

• 13:53Speaker 01

  Yeah. Um,

• 13:57Speaker 01

  culture of excellence and incredibly, um, high caliber people from top to bottom.

• 14:05Speaker 01

  A, um, stunningly strong operational framework. So that as an investment professional, like the, the operations of a hedge fund or the foundation that you're standing on, right? And you're trying to build a house on top of that foundation. And like the foundation of point 72 is like the most rock solid slab you could possibly imagine, right? I mean, there's like, I think there's like a thousand employees at that firm, right? And, um, you know, I don't know what the ratio of like back office to front office is, but it's like two to one, three to one, something like that, right? So you're standing on this rock solid foundation. You've got every, every resource imaginable at your fingertips and, and, um, Um, you just, it kind of feels like you're playing pro ball.

• 14:48Anthony Pompliano?

  Mm hmm.

• 14:49Speaker 01

  It helps you kind of elevate your game and um, you know, it's a great culture and a great environment.

• 14:54Anthony Pompliano?

  Cause the person next to you or down the hallway is not only world class, but they're here to eat your lunch. Right?

• 15:00Speaker 01

  Yeah. I mean, it's not, I feel like people sometimes think it's, it's not, it was not like this, like, it wasn't like, it wasn't like cutthroat. It wasn't like, nobody's trying to like stab somebody else. It was not like that at all. So I can't speak to like old sack, right? Like early 2000s sack. You know, you hear stories about that, but I joined in the middle of 15. Fantastic place to work.

• 15:21Anthony Pompliano?

  Loved it. That's awesome. Yeah. It, it's great too. When you can leave a place like that, not only say, hey, I learned a bunch. I worked with great people, had a great culture and couldn't speak more highly of it.

• 15:30Speaker 01

  Yeah.

• 15:31Anthony Pompliano?

  Right? So that's awesome. Um, all right. So what was the reaction from, you know, either people at point 72 or just Wall Street in general? When you say, hey, mom short equity, that's great. I'm taking the full jump going into crypto. Are people excited for you? Are people thinking you're nuts? Are they trying to follow you down the rabbit hole? What's going on there?

• 15:48Speaker 01

  Um, probably a D, I'm sure probably not to my face. I'm sure many, many, many people thought I was completely insane. You know, my mom thought I was crazy, right?

• 15:56Anthony Pompliano?

  Moms always think that you're nuts until you prove that you're right.

• 15:59Speaker 01

  You're gonna do, you're gonna do what?

• 16:01Anthony Pompliano?

  They believed in you the whole time.

• 16:04Speaker 01

  All I read about is it's for drug dealers. I'm like, that's not, not true, but you gotta look out in the future. My mom's like a small town Texas mom. I grew up in College Station, Texas. My mom grew up in College Station, Texas.

• 16:14Anthony Pompliano?

  Yep.

• 16:14Speaker 01

  My mom still lives in College Station, Texas. So like, you know, it's, it's um, no, no, but, but, but, but generally speaking, um, I think people probably thought I was, it was, it was early.

• 16:26Anthony Pompliano?

  Yep.

• 16:26Speaker 01

  Um, I didn't, I didn't think it was that much of a risk to be, it didn't feel, it didn't feel risky to me. It was there. So like, again, not a tech investor, not a seed stage investor. That wasn't my career path. And um, the only other time that I felt like I did, when I really dove into crypto and started understanding it, was um, the first time I took an Uber in Chicago, when I was living in Chicago, Chicago got Uber super early. It was the second city after San Fran to get Uber. So I think the first time I took an Uber was like, January 2011 or 2012, something like 18 months after they started or something. Nobody had ever heard of it. I don't remember how I heard of it.

• 17:09Speaker 01

  Downloaded the app, black car comes and picks me up from my apartment. I go to a store, drops me off at the store. I'm standing on the sidewalk, drives away. I'll never forget it. And I remember I was like, that is going to change everything. And I was positive about it, positive about it. And sure enough, like, you know, you watch what Uber did, obviously, over the coming years. And I used to joke around like, the day I took, I took that Uber, I should have just quit Magnetar and walked into Uber's office and been like, yo, I'll push Microsoft Excel for you. Like, I'll do biz dev, whatever.

• 17:37Anthony Pompliano?

  Just sign me up.

• 17:38Speaker 01

  Pay me in stock, right? Would have been a good career move.

• 17:42Anthony Pompliano?

  Beyonce's got a line, pay me in equity.

• 17:44Speaker 01

  Yeah, yeah, exactly. Right. And I would have been probably the 25th dude, you know, whatever, at Uber. And like, that would have been a nice move. Only other time in my life I felt like that was, was when I really understood crypto and I dug into it. And I just didn't have any doubt in my mind that this thing was going to completely change everything. And specifically, I'm super unsure about how that's going to happen. It's just I'm directionally broadly, highly convicted, as bullish as you can be. And I was like, it felt like, just like, a great bet to go make in terms of like, betting my career on it.

• 18:23Anthony Pompliano?

  Yeah. It's this idea of confident in the trend, details to be determined.

• 18:28Speaker 01

  Yeah, yeah. So what it's like, what I tell people is like, there's a non-zero chance that Bitcoin could be Netscape and Ethereum could be AltaVista. And we haven't seen Google, we haven't seen Facebook, Amazon, Netflix, Uber yet. And there's a non-zero chance that Bitcoin go, go be the global immutable decentralized store of value in the world reserve currency. And one BTC could be worth 450K or 2 million or 3 million or pick a number. And everything in between.

• 18:52Anthony Pompliano?

  Yep.

• 18:52Speaker 01

  And I'm really not sure about specifically how that's going to play out. And so everything, the way we've built Ikki guy is to have malleability in our mandate and to have a clear look into how this thing is going to play out. So you can make investment decisions accordingly. And it's like, you just go with the strong opinions, weakly held thing, right?

• 19:10Anthony Pompliano?

  Yep.

• 19:10Speaker 01

  You, you, you, you intake as much information as possible. You you assess that information, you analyze it, you make investment decisions based on it. And when something new comes along, you change your mind, dude. You change your mind.

• 19:24Anthony Pompliano?

  How do you do that, though, right? So you you've got conviction on something, you've got the strong opinion, right? You know that it's loosely held, but but what are the things that you look at that would change your mind, right? Is it data? Is it conversations? Is it gut? Like, what are you looking at that that allows you to change your mind? Not necessarily on a dime, but but pretty quickly to, you know, go after a different opportunity.

• 19:43Speaker 01

  It's a great question. It's so many things. Yeah, it's so many things. I mean, I coming from from the world that I came from, I do latch on to any kind of data that I can. It's pretty natural to me. Probably done more work in that than certainly not everybody, like hats off to like a Nick Carter, right? Like, the guy's a beast with all that stuff. And, you know, Brendan Bernstein's great, a lot of those guys. But but I definitely have a tendency to just take that like anything I can quantify. Let me try and quantify it. And maybe I can't draw an investment decision from it, but let me at least have it. Let me give me as many tools in my tool shed as I as I can get, right? And then this space is very big on narrative investing, right? So you you kind of track these narratives and start thinking through that. And you and you have to understand how these things are developing.

• 20:29Speaker 01

  Like, a year ago, we were talking about Bitcoin, like, like, oh, we're going to use Bitcoin to buy a cup of coffee. Remember that?

• 20:34Anthony Pompliano?

  Oh, yeah.

• 20:35Speaker 01

  That was a year ago, right? Oh, that's what we're going to use Bitcoin for. Okay, got it. And then you're just like, like, as people realize that wasn't going to happen anytime soon, it's like, oh, no, it's digital gold. It's digital gold, right? I don't know, Austrian economics.

• 20:47Speaker 01

  And I get it, right? And like, and I get that. And then it's like, you know, Ethereum, you know, world's computer, right? Oh, it's a decentralized computer, blah, blah, this and the other. Oh, it doesn't scale. Oh, shit.

• 20:58Anthony Pompliano?

  What else can we use it for?

• 20:59Speaker 01

  Oh, oh, yeah, but it's going to scale because we got we got Casper coming. Oh, wait, we don't, oh, Casper's not close.

• 21:06Anthony Pompliano?

  Well, we can save the world's electricity because we're going to go prove a stake.

• 21:09Speaker 01

  Right, right, right, right. But but even from the very beginning, like, when I really went down the rabbit hole, just because I I am a really cautious guy, like, as a like, as an investor and as a human, I'm cautious. Like, I would never go skydiving or like, I'm not I'm not about that life whatsoever. And and as an investor, I'm like, I'm very like cautious in the way that I invest as well, too. And so. The hundreds of hours that I spent in the beginning before I quit my job, a lot of that time I spent looking at all the problems in this ecosystem. I was like, why is this thing not going to work? Why is it not going to work? Why is it not going to work? And I was looking at, you know, proof of work, like this is obviously not going to work on a large scale. And then you look at this proof of stake thing, I'm like, but it's not as secure. But then you start really digging into it. And like a lot of the cryptography,

• 21:54Speaker 01

  like people have been doing, proof of stake is a concept in cryptography has been around since the 90s. Like, it's not a brand new concept. A lot of the cryptography, like directed cyclic graphs, people were doing that work in like, the 70s, right? And now you're just trying to weave it into computer science. And so like, that gives you a little bit of comfort that, that, um, like, you're not just like trying to pull this stuff out of thin air.

• 22:16Anthony Pompliano?

  Well, it's what makes it so interesting to the smartest people in the world, right? Is it is the true like polymath type environment where you got to have knowledge and some kind of experience or perspective from a whole bunch of different disciplines, and you pull them together. And it's not just let me pull, you know, economics, computer science, geopolitics, and like the history of money on an even basis. Actually, I might only pull 10% from, you know, economics and 50% from psychology and 30, whatever. And so how do you build that into a skill set that then not only helps you understand it, but then you can deploy capital against?

• 22:51Speaker 01

  Yeah.

• 22:51Anthony Pompliano?

  Right? And, and, and sometimes those two things actually aren't the same. And I think that's part of what draws so many smart people into this space is there's problems that need to be solved, and they're not solved yet. They may never get solved, or they may get solved tomorrow.

• 23:04Speaker 01

  Right. And it's, it's the puzzle of all puzzles, right? Because there are, there are so many aspects to it. And, um, yeah, it's why, I mean, it gives you so much to chew on, right? And, um, if you figure it out, obviously, from an economic incentive perspective, right? Like, if you, if you get it right, like, you're going to

• 23:19Anthony Pompliano?

  You win the game.

• 23:20Speaker 01

  Yeah, yeah, you're going to get paid on that. And so, um, and, and, like, You know, not to get like cheesy, but like the societal aspect of it as well, too. Was super important to me, like Ikigai.

• 23:34Anthony Pompliano?

  Yeah, so let's talk about what you're doing today and kind of where the name came from.

• 23:37Speaker 01

  Yeah, yeah. So Ikigai, ancient Japanese concept that means the reason for being super old, where it's like 1,200 year old, where there's books and stuff written about it. If you Google Ikigai, it's, you see this like Venn diagram and the Venn diagram is like what you're good, what you're good at. What you like to do, what you deserve to be paid for and what the world needs. And I just came across a concept randomly like a year ago and I really liked it and like to be honest with you, I had a career in hedge fund investing, right? And I was, I liked doing it. I was pretty good at it. I made a fine living doing it, but like the world doesn't need another hedge fund manager, right? The world doesn't get another hedge fund manager. The world's gonna be just fine.

• 24:13Anthony Pompliano?

  And some people would argue we could lose a couple and be okay.

• 24:16Speaker 01

  And be just fine, right? But like, but the world needs this technology. And, and, and the technology is a platform to go affect societal change for the good. And like, I'm much more of a realist than I am like, you know, you run across a lot of like techno utopians, you know, the type of person in this space, a lot of those dudes, right? But, but, but I'm much more of a realist, but what I saw was society starting to recoil from these monopolistic abuses of power at various different levels and you start seeing these trends, right? It's like Brexit, Donald Trump getting into office, you know.

• 24:53Anthony Pompliano?

  Hyperinflation.

• 24:54Speaker 01

  NSA stuff like Facebook election ads, right? Black Lives Matter, Harvey Weinstein, Cambridge Analytica. Like there's a common theme that runs across all that and you just have to look at, at all the surveys of millennials. Millennials are the generation that have a deep distrust of governments, large financial institutions, large technology companies, right? Like it's like Facebook takes your data and they do shitty stuff with it. Google takes your data and like they do, they like don't keep it safe, right? And like, Apple like takes your data and like, you know, like makes these other.

• 25:34Speaker 01

  Products and they hook you in and they like box other people out. So it's like, it's pretty monopolistic the way they do stuff and like stuff gets hacked all into Equifax, right? Like what?

• 25:44Anthony Pompliano?

  I mean, look, if you are under the age of 40, you might as well just admit or give into the idea that your data, your personal financial data and your, and your actual personal data is floating around on the internet somewhere. And if somebody's got money, they can buy it.

• 25:57Speaker 01

  Facts, facts. You can get, you can get like 500 credit card numbers for like $5 on the internet, like on like whatever black market stuff. But, but you know, you know, you look at, you look at, um, you look at just millennials in general and, um, the same way that, that polls are showing you how much that, that distrust is, the, the older you are, the less you think Bitcoin makes sense, the more you think gold makes sense. The younger you are, the more you think Bitcoin makes sense, the less you think gold makes sense. So you fast forward a couple of decades from now and millennial, like we're all like, you know, 50. And like, what do you, like, what do you really think is going to happen?

• 26:35Anthony Pompliano?

  Yeah. I mean, look, I, uh, we go and talk to these institutional investors all the time, right? And I always tell them, I said, listen, if you, if you don't take anything else from this conversation, understand that people under the age of 35 have an amount of their net worth in this asset class that would make you just absolutely disgusted.

• 26:49Speaker 01

  Yep.

• 26:49Anthony Pompliano?

  Right? I'm talking mid double digits in many cases where we're talking, you know, 35, 40, 50, sometimes even 70, 80% of their net worth, their total net worth is tied up in digital assets. Now, some of it is they put a little bit in and it exploded in value and so it grew. But I also know a lot of people are taking, you know, 50, 60, 70% of their salary.

• 27:07Speaker 01

  Yep.

• 27:08Anthony Pompliano?

  And they're, they're still buying.

• 27:10Speaker 01

  Yep.

• 27:10Anthony Pompliano?

  Right? And they just, it's a store value. It's a medium of exchange. It's the new stocks, the, you know, the commodities.

• 27:14Speaker 01

  It makes sense. It makes sense.

• 27:16Anthony Pompliano?

  It just resonates.

• 27:17Speaker 01

  The problems are going to get solved. The hiccups with the industry are solvable hiccups.

• 27:20Anthony Pompliano?

  Absolutely. And, and also it's the opportunity cost, right? So, you know, you know, if you think of your, if you're an institution, you got to hit your six to eight percent, you know, kind of actuary assumed rate of return. In order to pay out the millions of people who are depending on you, if you're an endowment for education, or you're a pension for retirement, all this stuff. You're not hitting that today in most cases, right? Well, if you can't hit six to eight percent, where do you go?

• 27:41Speaker 01

  Yeah.

• 27:42Anthony Pompliano?

  Uncorrelated digital assets is, is one area to look. Look and so millennials are saying even if I could hit six to eight percent in the public markets, debt, real estate, all stuff, that's not interesting to me. I can take a bunch of risk. I'm young. So where do they go? They go for the six, 700, 800% annualized returns that they just saw. And so they're going to continue to do that, right? And so it's all of these forces at work that drive a huge amount of capital from a very specific demographic into digital assets. Everyone else is going to fall. They have to fall, right? It may take longer, but it's going to happen.

• 28:13Speaker 01

  Yeah, we internally, we talk about it. It's like musical chairs and sovereigns. They have their game of musical chairs that they're playing and like institutional investors, right? Like endowments, state pension funds, state plans, things like that. It's like a game of musical chairs and like Bitcoin just stopped the music, right? Or they're in the Bitcoins in the process of stopping the music and like, nobody's really sitting down yet. You hear whispers, right? Like there's some people in the Middle East buying like a lot of Bitcoin, right? You hear that, right? Like there's like, you hear whispers about stuff from a sovereign perspective. Like we know there's definitely some like large financial institutions that are definitely sniffing around and like, you know, maybe got a little exposure here, a little exposure there.

• 28:54Speaker 01

  And it's like, you know, maybe something crazy happens like, like Italy gets kicked out of the EU, right? Or and like the European Union starts looking like it's like questionable, which is like not, not a

• 29:04Anthony Pompliano?

  There's a non-zero chance.

• 29:05Speaker 01

  It's a totally non-zero chance over the next couple of years, totally non-zero chance. And then all of a sudden it's like, you hear that like the Swiss sovereign wealth fund like it's got their long some Bitcoin, right? So now, now Switzerland just sat down, right? And there, and there's not that many chairs, right? If you got 20, you got 21 million Bitcoin, a couple of million of them are lost, right? And so now

• 29:25Anthony Pompliano?

  Only 17 million have been mined, right? Game on.

• 29:28Speaker 01

  And all of a sudden it starts looking like it's, it's what we were talking about. It's irresponsible to not be involved and the reflexivity in the price action. When, when some of that stuff starts catching on, the potential, I mean, it's going to be breathtaking. If some of that stuff plays out.

• 29:43Anthony Pompliano?

  We actively tell these institutions, right? It's the best performing asset class for the last five years. If you add 1% of digital asset exposure into a global 6040 portfolio, the returns go up. By, you know, anywhere between 100 to 300 basis points, depending when it was. And the standard deviation of risk stays about the same. And you get a double digit increase in the Sharpe ratio. The second that you start looking at that, where else can you get that? Right? And so it's not about how high can it go? It's actually about managing risk of your overall portfolio. And if you have zero exposure to the asset class, you have to immediately get off zero. Right? And we literally, I mean, you can imagine talking to a, you know, 50, 60 year old CIO who manages billions of dollars and telling them, get off zero. Right? That's the message right now. And I think to your point, there's people who are starting to do it.

• 30:28Anthony Pompliano?

  But when, when it actually kind of the, the dam burst.

• 30:31Speaker 01

  Right.

• 30:31Anthony Pompliano?

  Watch out.

• 30:32Speaker 01

  Right. Totally.

• 30:33Anthony Pompliano?

  Right. All right. So let's talk about some of the things that are happening kind of pre before that happening. Right? So right now, I know that you're, you've got some really interesting thoughts around like BitMEX and some of these markets that are already here that people are already using today. Like, what do you think is so interesting about those types of companies and markets that are being built?

• 30:51Speaker 01

  Yeah. So, so earlier you were talking about like, how do I change my mind? I mean, I mean, part of it is, is you create all these processes around intaking every aspect of information that you can about the, the development of the space and assessing that information and putting it into a, you know, a broader kind of mosaic framework to help make investment decisions. And a lot of that is just thinking about market structure. And, and year to date, you know, the two, the two 800 pound gorillas that have shown up from a market structure perspective, year to date is, is BitMEX and the Asian Algorithmic Market Maker. And.

• 31:28Anthony Pompliano?

  Let's go BitMEX first. So explain what is BitMEX? Why, why do you think it's the gorilla?

• 31:33Speaker 01

  Yeah.

• 31:33Anthony Pompliano?

  Or one of the grills?

• 31:34Speaker 01

  Yeah. So, so BitMEX is a non-licensed exchange or an unregulated, unregulated exchange. They trade a synthetic Bitcoin future.

• 31:47Speaker 01

  You fund only in Bitcoin. You can get up to 100x leverage, long or short on Bitcoin. It's been around for a few years, wasn't that popular, especially in 2017, when everybody was going shitcoin hunting on Cryptopia and Kucoin and Binance. But as the markets woken up year to date and realized that all that stuff's worth zero, BitMEX has become, you know, I mean, I think they've got like a, like two or three times more volume than like the number two exchange. And you can get massive leverage on it.

• 32:20Anthony Pompliano?

  So, okay, so I really want to talk about this leverage thing, because I don't think a lot of people understand, one, what is leverage?

• 32:25Speaker 01

  Yeah.

• 32:26Anthony Pompliano?

  And how do people use leverage in a positive manner, right? And then what can they do to the market on the negative side as well?

• 32:32Speaker 01

  Yeah. Yeah. So specifically in the context of BitMEX, like, if I put, if I put one Bitcoin long with 100x leverage, that means I'm getting returns like I'm long 100 Bitcoin.

• 32:44Anthony Pompliano?

  So you, you take out of your wallet or your portfolio, you take one Bitcoin, which is whatever, six, $7,000 a day, and you put it down and say, I'm going long. I think it's going to continue to go up in value as the bet, right? But you're getting credit for actually having put down 100 Bitcoins and saying these 100 are going to go up. Why does BitMEX do that?

• 33:04Speaker 01

  Because humans love to gamble.

• 33:06Anthony Pompliano?

  All right.

• 33:07Speaker 01

  Yeah.

• 33:08Anthony Pompliano?

  And so what is the economic benefit to you when you put this 100x leverage on it? What is the potential negative side effect?

• 33:14Speaker 01

  Right. So, so if you, if the price goes up.

• 33:18Anthony Pompliano?

  If you're right.

• 33:18Speaker 01

  Right. Then you're generating returns like you're long 100 Bitcoin, only putting up one Bitcoin worth of risk. However.

• 33:25Anthony Pompliano?

  Great risk return profile.

• 33:27Speaker 01

  However, specifically on like the 100, the 100x example, the way the margin works is it doesn't have, the way normal margin works, like in traditional, like in the real world, it's a function of how much money you have in your account. And as long as you have money in your account, you continue to make like, at the end of day, you make, there's margin calls and you, you like make it up if you're losing money every day to like kind of stay even in your account.

• 33:51Anthony Pompliano?

  You can basically pay down the margin, you can keep posting more collateral.

• 33:54Speaker 01

  Your losses, right. And you can stay in the position forever. The way it works at BitMEX is the leverage is only specific to that individual trade. So if you have 100x leverage on, you lose 1%, you automatically get stopped out and you lose the one Bitcoin that you put up. Or if you're long 25%, you know, if you're long like 25x leverage, then you get stopped out at like, you know, 375 bit ups, whatever the number is, right?

• 34:21Anthony Pompliano?

  And so a great deal for BitMEX.

• 34:23Speaker 01

  Oh, yeah. Arthur Hayes, man.

• 34:26Anthony Pompliano?

  I mean, just absolute savage, right? And just printing money right now.

• 34:29Speaker 01

  One of the most savage guys in the space, period.

• 34:31Anthony Pompliano?

  Yep.

• 34:32Speaker 01

  Complete, complete Macho Man Randy Savage.

• 34:35Anthony Pompliano?

  Look, and we talked about it before. I mean, the part that I love is not only that he's created these products and he's got them out there and people are using them. But, but he is out pounding the table saying, we have them, right? So he's on Twitter and he's saying, look, you, you know, good traders go both ways, right? Up or down, let's see what you got.

• 34:51Speaker 01

  Yeah. And, and he introduced, you know, so he started rolling out new, new instruments, right? So you got directional ETH exposure, you get up to 50x leverage on Ethereum and you get paid in Bitcoin. You don't get paid in Ethereum. If you, if you make money on the short side, you get paid in Bitcoin. So you're short in Ethereum, making money in Bitcoin. Same thing.

• 35:12Anthony Pompliano?

  Which most of the shorts love.

• 35:13Speaker 01

  Yeah, of course. Right. You can, you can now go long, short on Ripple, Tron, Bitcoin Cash, EOS, Cardano. And with variances up to 20x leverage on some of them, 50x on, on others. And, and quantitatively, a listing on BitMEX has been the kiss of death year to date.

• 35:35Anthony Pompliano?

  So I was just going to ask you, what do you think this is doing to the market?

• 35:39Speaker 01

  Well, what it's done is it has given a venue to now have true price discovery, two, two-way price discovery.

• 35:47Anthony Pompliano?

  Because previously you could only go long.

• 35:49Speaker 01

  You could short on BitFenex, but you didn't have enough liquidity. And now there's, there's a ton of liquidity on, on BitMEX right now. So you can really express it. Except, which I'm glad you brought this up, it's the worst kind of liquidity.

• 36:02Anthony Pompliano?

  Why?

• 36:02Speaker 01

  Because it's, it's liquidity, except there's extremely sophisticated quantitative investors, Wall Street guys, like, like.

• 36:11Anthony Pompliano?

  Like your old world.

• 36:12Speaker 01

  Yeah, yeah, like not specifically point 72, but like

• 36:15Anthony Pompliano?

  Those types of people.

• 36:16Speaker 01

  Like those types of folks, right? Like the best in the business and from a quantitative perspective. You know, I don't want to name names. One of them rhymes with lump. The other one rhymes with B E raw.

• 36:30Speaker 01

  So these guys, so these guys are doing liquidity modeling and on on BitMEX. And the way that works is they call the network three times a second. And by calling a network three times a second, they're pulling down very minute volume data. And then I'm not 100% sure, but I think how they do it is they can see where the price gets executed relative to the specific volume at that moment relative to the bid ask. I think they can back into the amount of leverage that was put on for that specific trade at that specific moment three times a second.

• 37:04Anthony Pompliano?

  Wow.

• 37:05Speaker 01

  And then they're able to then map out where the stops are. And then you can map this out and then they see where a bunch of stops start getting stacked up on top of each other and

• 37:16Anthony Pompliano?

  Foot on the gas.

• 37:17Speaker 01

  Right. And it's just like a Jenga game, except except these really sophisticated quants are the only ones that can see the Jenga tower. Everybody else just thinks it's like, oh, we're just, there's no, there's no blocks being pulled out yet, but they see the whole thing. And then when they see all these stops that are that are could potentially get pushed over, then all they got to do is go and give the Jenga pile a little nudge and then you run through all those stops or you and and and so if you just look at the price action over the last handful of months, like it's so obvious that like that's the market structure that's going on and

• 37:47Anthony Pompliano?

  And that's when you're seeing it. If you're a retail investor, you're seeing a immediate within seconds 400 price jump.

• 37:53Speaker 01

  Right.

• 37:54Anthony Pompliano?

  Right. Basically, you're tipping it over.

• 37:55Speaker 01

  Yeah, that's right. And they and everybody gets stopped out. And then also BitMEX, BitMEX works just fine until you really need it to work and then it doesn't work anymore because it gets shut down because it gets, there's too many people trying to trade. And then all these stops get run out and then the really smart guys take all the really, the retail guys money. So that's it. That's, that's terrible for the long-term health of the ecosystem, which is why I wanted to talk about it today. Because it's really like, like, you know, those vines that wrap around the tree and they kill the tree if you let the vines sit there long enough. Like that's like exactly what like that type of stuff is happening right now. And so it's really to the detriment of the long-term health of the ecosystem. I'm guessing that it's untenable in the medium term and something's gonna happen. I don't know what's gonna happen.

• 38:37Anthony Pompliano?

  But is it more so like a regulatory type solution? Or is it just that more people come into the space that are smart? And then they all kind of start commoditizing some of this and you get some relief?

• 38:47Speaker 01

  Well, the way that I think about it is like if the quant is the bully and like the retail guys like, like the small kid in school, like every day, the small kid's like walking into school and getting punched in the gut by the bully. And he gets his lunch money stolen. After a while, like you just stop going that way, right? And like, that's exactly what's gonna happen. Like they're just gonna clear out all the retail money. It's just gonna be like quant on quant crime, which I think it's like, oh, this is all happening in traditional asset classes. Quant on quant crime's been happening for like a decade now in traditional asset classes. And so, um, so that's a problem. And the other thing I want to talk about is Asian algorithm, market making, which is like the other 800 pound gorilla, which is like also the vine that's wrapped around the tree. That's like gonna kill the tree if you let it keep going.

• 39:31Anthony Pompliano?

  All right, so let's start with just what is that?

• 39:33Speaker 01

  Yeah, yeah, so, so, um, I don't mind like.

• 39:38Anthony Pompliano?

  Let's go, let's get the names.

• 39:41Speaker 01

  Let's see here, this one rhymes with, uh, left, free, he. Yeah, there you go.

• 39:48Anthony Pompliano?

  All right, so, so there's a couple of them.

• 39:51Speaker 01

  There's about 10 big boys.

• 39:52Anthony Pompliano?

  Yep.

• 39:52Speaker 01

  There's about 10 big boys and they don't sit in the United States.

• 39:55Anthony Pompliano?

  Yep.

• 39:55Speaker 01

  They're not United States citizens. Their businesses aren't Donald solid in the United States. So they're out of the long arm of the reach, the long reach of US regulators.

• 40:02Anthony Pompliano?

  They've got some protections.

• 40:03Speaker 01

  Which, which means, which means that they, you really can do whatever you want to. And like, it's not illegal and like, we call it, can I cuss on this?

• 40:11Anthony Pompliano?

  Yeah, of course.

• 40:12Speaker 01

  It's called, we call it fuckery.

• 40:13Anthony Pompliano?

  All right.

• 40:14Speaker 01

  Cause it's not illegal, it's fuckery and, and.

• 40:17Anthony Pompliano?

  And fuckery is a combination of manipulation and.

• 40:21Speaker 01

  It's, it's like morally.

• 40:24Speaker 01

  It's like morally, it's stuff that you just wouldn't do, right? And like morals is a cultural thing.

• 40:30Anthony Pompliano?

  Yep.

• 40:30Speaker 01

  So like, I'm not trying to like, look, they've got a different set of cultural values in me. And like, I mean, if I was a Chinese guy that like, had lived in China my whole life and like, I could start printing money like that. Like, I might do it too. I don't know, but like.

• 40:42Anthony Pompliano?

  You could view it as actually, hey, I'm getting back at you. You guys have been messing with us for, you know, decades.

• 40:46Speaker 01

  Whatever, right? Like, yeah, but, but like, that's what's happening. And so like, it's one of the main reasons why the, the Asian ICO market right now, as we sit here today, has decoupled so much from the US ICO market. US ICO market is like almost ground to a halt, right?

• 40:59Anthony Pompliano?

  Yep.

• 41:00Speaker 01

  Got like a small percentage of deals that we had earlier this year.

• 41:03Anthony Pompliano?

  Well, it's almost like the, the bully, uh, you know, student example you gave earlier. It's like the teacher showed up in the hallway, right? It's like, hey, hey, knock off, knock off all the fuckery.

• 41:10Speaker 01

  Yeah, yeah, yeah. Exactly. That's a great point. That's what was happening in the US ICO market. So now you've got like, like Asian ICO, XYZ token. They go raise like $40 million in their ICO. They take like 10% of the tokens and they just give them to the algorithm and market maker. And not only do they give it to them, they also give them like six million bucks in ETH too. And then they get a coin listed on an exchange and then they start wash trading. They start wash trading back and forth with each other.

• 41:38Anthony Pompliano?

  All right. So, uh, most people aren't going to know what wash trading is, right? Uh, let's start from kind of the beginning of, uh, if you're one of these tokens, you did your ICO. When you get listed on an exchange, you need liquidity, right? So, uh, there's a couple of ways to get liquidity, uh, you know, in your token or kind of the trading volume on a daily basis. One of them is wash trading. What is that?

• 41:56Speaker 01

  Yeah. So that's, you have, you have multiple accounts set up on the same exchange and you're buying and selling to yourself from yourself.

• 42:04Anthony Pompliano?

  So you own all the exchanges or all the accounts on the exchange that are doing the high volume trading for the day?

• 42:09Speaker 01

  Yeah. Yeah. That's right. You're just executing trades amongst yourself with multiple, multiple accounts.

• 42:13Anthony Pompliano?

  Yep. And that gives the illusion of.

• 42:15Speaker 01

  There's volume, there's real buying and selling that's happening. And by the way, they're just driving price. Like you're literally just like manipulating price to get to a certain level. And these guys will contractually guarantee a volume and contractually guarantee a market price, like, like in writing. Again, it's not illegal over there. So it's like, it's fine. They get paid hella money to do, to do this. And then even crazier than that, they'll get in like the, they use like WeChat over there. We use Telegram, right? And everybody's talking about it. So in the WeChat groups and they're listening to all the technical indicators like TA guys that are talking about the different indicators that are like in this particular crypto. And they listen to whatever people are talking about and then they just start painting a specific technical indicator. So like, oh, here's a, oh, it's a bull flag.

• 42:57Speaker 01

  Oh, we got a bull flag coming up. Oh, we got a, you know, whatever, a rising wedge, like this, that and the other.

• 43:02Anthony Pompliano?

  I mean, but it really is a, it's a psych, it's psychological warfare against retail investors to some degree.

• 43:08Speaker 01

  It's terrible.

• 43:08Anthony Pompliano?

  Yeah, yeah.

• 43:09Speaker 01

  It is the vine around the tree that will poison the tree. It is to the detriment of the health of this ecosystem as a whole. Now, the scary thing is that the exchanges are in on it. CZ is in on it, right? They're in on it because in a bear market, they gotta have these guys.

• 43:26Anthony Pompliano?

  They need the volume.

• 43:26Speaker 01

  They gotta have them and they, if, if, if, you know, XYZ token gets listed and they don't have an Asian, they don't have an Asian algorithm, the market maker on the backend. Then the token, there's a good chance it's going to crash as soon as it gets listed because the private pre-sale investors that got into 80, 95% discount.

• 43:42Anthony Pompliano?

  Dumping.

• 43:43Speaker 01

  They're dumping immediately. But the crazy thing is, is, you know, you're giving 10% of the tokens away and you're giving like, you know, whatever, 10% of the raise away. To catch the volume on the backend. You see how like not good that is, right? And, and how untenable that is and like not healthy for the overall, like long-term.

• 44:03Anthony Pompliano?

  Well, and it also, it is serving the number one use case for crypto today, which is speculation.

• 44:09Speaker 01

  Yeah.

• 44:09Anthony Pompliano?

  Right? I mean, that's literally what is happening here is they're, they're taking tokens and they're creating new speculation tools or products. And people are using them, right? For speculation, but not for the adoption that actually drives long-term, long-term sustainability.

• 44:21Speaker 01

  Right. And, and, and the individuals or the entities most likely to make a profit from, from that situation are the ones that are the most sophisticated. The ones most likely to lose money. It just like. Like the more retailish you are, the more you're guaranteed to lose money in this process, which is just not good. I'm, I am hoping, and I don't know, maybe CZ, you're gonna hear this. We'll, we'll tweet, we'll tweet it to him. Does he like you? You homies with CZ?

• 44:48Anthony Pompliano?

  He, he, he retweets me a lot. We, we've never really talked too in depth.

• 44:52Speaker 01

  I hope he hears this. When we get out of this bear market, which I don't know when it's gonna be, but like, you gotta cut the fuckery, man. Like, you have to self-regulate. You have to self-regulate. And you got it, you got it. This wash trading, the, the price manipulation, painting TA signals, like, like you can't have that. And

• 45:09Anthony Pompliano?

  Here's the one thing, though, that, that I think is really interesting. So, the one, the one thing that I'll say to defend some of them, right? Because I think that you're probably right in that a lot of this is going on across exchanges, right? I think that it's just what they believe, whether they're right or not, needs to happen for the volume to be there, bear market, all that kind of stuff, right? So, let's just put all that in a box and set it aside for example, or for a second. The one thing, though, that I think encourages me that that won't be the long-term strategy is all the tokenized security stuff, right? So, you start to see a bunch of these guys saying, you know what? Look, the, the utility token stuff, speculation, it's gonna keep happening. We're making a bunch of money today. But long-term, regulators are gonna step in in different jurisdictions. They're gonna draw the rules, and we're gonna have to play by the rules. And so, they say, oh, tokenized securities. I don't know, right? And I could be wrong on this. I don't know if they're

• 45:54Anthony Pompliano?

  gonna be able to do a lot of that wash trading, etc., into highly regulated tokenized securities world, like they can do it now. Maybe they can get away with a little bit of it, but, you know, that gives me hope that there's kind of a light at the end of the tunnel. And, and tokenized securities will actually make this a much more kind of traditional market.

• 46:11Speaker 01

  I agree with that. Yeah. And none of that stuff can happen. Like, you can't wash trade on, on GDX, right? You can't wash trade on Bitfinex. And they've got all kinds of technology to catch you. And like, if you do just a little bit of it, they will kick you off, for sure. So, like, Ikki guys, so we have an algorithmic market-making strategy that makes, you know, makes money off buy, buy and sell spreads and very liquid tokens. And we also provide US regulatorily compliant algorithmic market-making as a service to tokens. So, if you wanna do it like in a regulatory compliant way and it's just buy and sell it's just a 24 right where the 7 11 we're open 24 hours a day seven days a week nice piece of technology that's sitting there and if anybody

• 46:54Speaker 01

  wants to come by or come sell we've got a piece of technology that can easily execute those types of things and you know you're not manipulating price you're not doing wash trading you're obviously not painting any kind of like TA signals or anything like that because you do need a liquidity provider I mean look at traditional asset classes they have I mean it's an enormous business liquidity providers is like a multi-billion dollar many many many billion dollar a year business and so that's not going to go away you just need to do it in a manner that doesn't doesn't bend over the retail investor right absolutely no I completely agree with that

• 47:28Anthony Pompliano?

  before we move on I want to tell you about our sponsor block estate a new security token project in the 200 trillion dollar real estate market they've partnered with polymath and coinless comply API to create one of the world's first tokenized real estate funds tokenization is the process of creating a digital token that represents ownership in a real world asset you've heard me say it before but a clear use case for this is real estate block estate aims to bring increased liquidity to this massive market we're really really thankful for to the block estate team for their support so we'd appreciate if you checked out their website at block estate.com to learn more if you're intrigued by what they're doing feel free to reach out to them or give them a tweet on Twitter thanks so much alright so let's switch for a second and talk about the valuation of digital assets right you know today I think that there's

• 48:12Anthony Pompliano?

  probably much more information much more kind of theory around how do we actually use data and fundamentals to value individual assets how are you guys thinking about this where do you think we are in terms of the maturation of you know valuation methodology for digital assets

• 48:28Speaker 01

  yes this is a topic near and dear to my heart like I I pretty much stopped doing anything other than valuing stuff when I was like 19 years old like first upper level finance class like my junior year in college like it's pretty much all I've done since then done in a bunch of different asset classes done in super liquid stuff done in completely illiquid stuff Up and down the capital structure. And so like when I came into this space, it was incredible to me to see how early it was in thinking about like if I buy a crypto today, am I paying a lot or a little for it? If I buy Bitcoin today, am I paying a lot or a little? Well, the price is $6,500. Well, that doesn't tell you if I'm paying a lot or a little for it,

• 49:11Speaker 01

  right? It's just our price. When I think about like back to my old career path, like if I'm, if I want to buy a share of ExxonMobil today, am I paying a lot or a little for a share of ExxonMobil? I've got like 30 different tools in the tool shed to help me understand whether or not.

• 49:26Anthony Pompliano?

  And the, and the way that you're coming to that conclusion, traditional markets or in the digital asset world is what is the price and what is the value of the actual asset? And is it above or below the value of the asset, the price I'm paying?

• 49:38Speaker 01

  Yeah. Price is not value.

• 49:41Anthony Pompliano?

  Yep.

• 49:41Speaker 01

  Yeah. Price is what you can buy it for today, but it, but, but you need some sort of relative valuation framework to think about, is this a lot? Is this a, am I paying a lot, you know, relative to historical? Am I paying a lot relative to other assets? So you start needing to have this like, uh, you know, a homogenized framework to start thinking about these kinds of things. And in traditional asset classes, there's all sorts of stuff, right? I got like assets, you know, metrics based on assets and revenues and cash flows and earnings and growth. And like, you know, if I want to buy a share of ExxonMobil, like, you know, I can take like my oil price assumption, plug it into my model. There's like multi-factor models where, where you start breaking apart a stock and like, it's like, you know, you know, this stock is like a function of like,

• 50:26Speaker 01

  it's a momentum stock or a value stock or it has high leverage or like, you know, there's all kinds of different valuation metrics. And then like, I stepped in this asset class and, and I've read like, you know, probably 80, 90% of the things that have been written about valuation in crypto period. Like I've read the vast majority of it. Nothing has been written about crypto asset valuation that's older than like 18 months old, which is crazy, right? Cause like Benjamin Graham wrote The Intelligent Investor in like 1949 or something. Still one of the most like important books on equities investing, period. And when people look at PE ratios for the S and P 500, you look at them like 60, 70 years back in time. And you're telling me nobody's written anything that's older than 18 months old, talking about crypto asset valuation. So I, so I, so I started

• 51:11Speaker 01

  being like, well, like, how do we think about, about value in, in this asset class?

• 51:16Anthony Pompliano?

  Do you think it's important to have the traditional market valuation understanding going into the asset class? Or do you think that there's value in people not having that historical context?

• 51:25Speaker 01

  I mean, I'm biased, but

• 51:27Anthony Pompliano?

  All right. So what do you think?

• 51:28Speaker 01

  I mean, these are, these are public instruments and they trade every day.

• 51:32Anthony Pompliano?

  Yep.

• 51:33Speaker 01

  And I wake up every morning and I can buy or sell my entire universe every day. And not being involved in a specific name on the long or the short side is in and of itself a decision, right? That's a position to not be involved. If I'm a tech guy, like if I'm like a tech bro out of the Bay area, it's like a developer or whatever, like I, I have no understanding of that framework.

• 51:55Anthony Pompliano?

  What percentage of people trading crypto do you think have read The Intelligent Investor?

• 51:59Speaker 01

  I don't know, man. Way less than 1%, right?

• 52:03Anthony Pompliano?

  Less than 1%?

• 52:04Speaker 01

  Yeah.

• 52:05Anthony Pompliano?

  Wow. Okay.

• 52:06Speaker 01

  You know, maybe, I don't know. 1% maybe. And even, and even, and look, God bless those guys.

• 52:11Anthony Pompliano?

  Yep.

• 52:12Speaker 01

  Because they had the vision for this shit that I didn't have. Like I was there, I was like slanging long, short energy equities when these guys were like all in this stuff. So like, I really appreciate that.

• 52:18Anthony Pompliano?

  Yep. Different skill set, different perspective.

• 52:20Speaker 01

  And same thing with the VC guys, right? Like I really appreciate that perspective as well, too. But like the way VCs invest is you make 10 bets, seven of them go to zero, the eighth one breaks even, ninth one you make two or three times your money, the 10th one you make 50 to 100 times your money. The best, the best VC firms in the world, they do like one and a half standard deviations better than that. Like the shitty VC firms do like one and a half standard deviations worse than that. But like that's VC math, right? And it takes three to 10 years for that cycle to play out. So just imagine the skillset that you get investing in that type of world versus investing like I wake up every morning and I can buy and sell my entire universe. And like

• 52:56Anthony Pompliano?

  And you have data to analyze and you have data to drive decisions. Whereas a lot of the venture stuff, especially early stage, you're betting on people, you're using intuition, you're going after a whole different set of criteria on a yes, no decision versus the kind of daily liquidity, data-driven, you know, liquid market.

• 53:13Speaker 01

  Right. Yeah. And so, and so that, that all feels, feels comfortable to me. And so I started looking around for how to think about crypto asset valuation. And people like to use like total addressable markets, an easy one, right? Like gold's like seven and three quarters trillion dollars. So if Bitcoin gets half of that, it's like 775 billion, that's up like, whatever, like five, five times from here or more.

• 53:36Anthony Pompliano?

  Yeah, divided by how many Bitcoin.

• 53:38Speaker 01

  Yeah. So like, that feels like, okay, that's like, kind of helpful. And then, and then people started realizing that network value should be a function of network activity and, and like transactions per day, active wallet addresses, even things like community vibrancy metrics, which is what, you know, it's like GitHub, GitHub commits, GitHub stars, lines of code written, line, you know, net of lines deleted. People were looking at like Slack channel members for a while, Telegram members, that it's, it's way too easy to game that. And there's noise in all this stuff, which is like a big problem with it, right? Cause it's not, again, back to like our quantimental approach and trying to take in as many different sort of, you gotta use all these different tools in the tool shed. So it's like, I can't

• 54:20Speaker 01

  go hang my hat on like, oh, I've got a strategy. I just wake up every morning and like, if there aren't any, if there weren't enough transactions on the Bitcoin network yesterday, I'm sure the Bitcoin, like it doesn't work like that, right? But it gives you something to try and help frame the overall mosaic approach to, to, to evaluation.

• 54:38Anthony Pompliano?

  So here's a controversial thought for you. I'm biased because I come out of this world, but I actually think that a group of people who have the best skillset for investing and trading in, in the crypto asset world is people who worked at, on growth teams at large technology companies because they're used to the multi-disciplinary approach around statistics, psychology, user interface, community, growth, you know, all the network effects, all this stuff. And they, and they brought it together to drive growth of the Assets. And so there was no price attached, right? So it's really hard to say, you know, Facebook or Twitter or whatever, hey, our network value is X and here's our stock price. And there's none of that going on. But I think that the jump from that basic understanding to what price should do is really easy compared to somebody who doesn't have that,

• 55:23Anthony Pompliano?

  that understanding from a ground perspective.

• 55:25Speaker 01

  Completely agree. Glad you brought it up because I want to unpack that because like what your background is, is a boots on the ground experience of Metcalfe's law, right? Which, which people have taken Metcalfe's and tried to apply to crypto asset valuation a lot. And

• 55:43Anthony Pompliano?

  And there's some truth there. And there's also a lot of lies in there as well, right? But by taking that one principle and trying to apply it.

• 55:49Speaker 01

  Yeah. Well, true, true Metcalfe's, which is, which is the value of a telecommunications network is directly proportional to the square of the number of users. True modified Metcalfe's has never been shown to accurately describe the value of anything. But in 2013, I don't know if you've read this paper or not, in 2013, some guys came out, I think Metcalfe, Bob Metcalfe himself was actually involved in this. They, they put out a paper, either 13 or 15, where they, they introduced this modified Metcalfe concept called the netoid function.

• 56:20Anthony Pompliano?

  Okay.

• 56:21Speaker 01

  Which is an S curve shape, which makes total sense, right? Because it's gonna, you're gonna like level out, right? Because like, if I've got five telephones in the world and you add a six telephone, the amount of value that went up is totally different than if I've got a billion telephones and I add the billion in first telephone, totally different, right? So it's this S curve, netoid function. So, so, so this academic paper introduced the netoid function and then, which instead of being true Metcalfe's, it, it takes, it introduces this virality factor concept and then introduces like the percentage, it adjusts it for the percentage of users that have adopted relative to the total number of users that could adopt. And it introduces this S curve and then

• 57:04Speaker 01

  They showed the netoid function to accurately fit the number of monthly active users on Facebook and Tencent to Facebook and Tencent's revenue growth. And that's dope. That's super dope, right? And you were obviously front lines for that, right? And so, so, so then that got super interesting in terms of thinking about crypto asset valuation because that feels like crypto, right?

• 57:27Anthony Pompliano?

  And part of it too is not just where are we today in terms of what percentage of people are using something compared to the amount of people who could use it, right? So kind of addressable market and actual users, but also a lot of things that don't get talked about in crypto is like, what's like the K coefficient, right? And things where like, you know, every person who starts to use Bitcoin, how many other people can they bring into the system? It's really hard to quantify that, right? And so there's some level of virality there, right? And as much as I joke around on Twitter about like the virus is spreading, that's really where it came from, right? Was this idea that if I tell you about Bitcoin and I tell three other friends, some percentage of you are going to say, this is stupid. Some percentage are gonna be like, I'm all in and I'm gonna go be the next like crypto anarchist.

• 58:09Anthony Pompliano?

  And some group says, I want to learn more, right? And so like, what is that growth look like as more and more people learn this? And what we find is like, it really does capture the mental energy and attention of a whole demographic of people. It can't be stopped. You cannot kill this.

• 58:23Speaker 01

  Yeah, yeah. So, so the introduction of a crypto asset, what it does is it allows for network effect to take hold in a completely different way than you've ever experienced in any other kind of, kind of instrument or anything like that before. Because in traditional network effect, you've got, you know, which is, you know, simplistically, any, any technology that derives a significant portion of its value from, from, from network effect. It's just the more people that come to it, the more the value goes up, right?

• 58:52Anthony Pompliano?

  And Each additional user makes it, you know, X percentage more valuable as a network overall.

• 58:57Speaker 01

  Yeah, yeah, that's right. And, and it's an S curve, right? And, and you get to a point where you hit critical mass where there's a certain number of users where in the network where the, the sort of average utility provided for, to each, each user relative to the status quo becomes It's compelling and then it takes off, right? And you hit that parabolic phase and then it levels off right that it looks a lot like the netoid function. And but but and so you have the bootstrapping phase problem with with everything that has network effect. And that's like, how do I get to a million users, five million users, 20 million users, where you get to that compelling utility for each user relative to the status quo? And what the crypto asset does is it allows speculators to stand at T zero, look out into the future and make a bet about what

• 59:43Speaker 01

  that utility may be one day if enough people come to the technology to use it. And by standing there at T zero and making a bet in the future, they those speculators are able to receive financial utility today. And that financial utility provided today makes up for the bootstrapping phase and they literally pull a technology into existence via speculation. That is super revolutionary, dude. That is one of the big reasons I quit my job. When I understood how that worked, I was like, I gotta, I gotta, I that's. You've never seen anything like that before ever.

• 1:00:16Anthony Pompliano?

  Yeah, the only the only analogy I can even think of, and it's completely different, is this idea of with with Facebook. So I forget the exact numbers, I'm gonna mess it up, but it was like, you know, you had to get 10 friends in the first 14 days when you joined Facebook. And so when Facebook realized this, what they saw was just getting a Facebook account, you had X percent chance to stay as a retained user over some period of time. If you got three friends in two days, what are X percent plus, you know, five or whatever. And they eventually realized that, you know, let's call it 80% of all users, if they get 10 friends in 14 days, they're gonna stay for, you know, a year or whatever it is. And so they started to drive towards that metric. And so you join Facebook, you had no friends, they just inundate you, you know, give us all your contacts, give us your email, right? Do you know this person? Do you know that person?

• 1:00:54Speaker 01

  Suggestions, suggestions.

• 1:00:55Anthony Pompliano?

  I mean, just they just overwhelm you until you start connecting with people. The second you hit that 10 in 14 days, bam, they back off and let you enjoy Facebook because they got you, right? The data shows them that the lock-in is there and and that network is gonna pull you along to be a user. I think that, you know, kind of social networks is very, very different than the technology we're talking about on the digital asset side. There's some comparisons or analogies, but the idea of on with money, right, or economic value. It's like everything that these social networks did, right, and we did for years. On steroids on a global basis.

• 1:01:25Speaker 01

  Yeah.

• 1:01:26Anthony Pompliano?

  Right? And it's just, I think that's what's pulling so many of these great minds in is just, it's a whole new puzzle. It's a whole new game. It's global and nobody has figured it out yet.

• 1:01:35Speaker 01

  Yeah.

• 1:01:35Anthony Pompliano?

  And the first groups to figure it out are going to not only personally a profit, but they are going to create inflection points in the technology that are going to be groundbreaking.

• 1:01:42Speaker 01

  So that's the thing that's actually, as a guy that was searching really hard for evaluation methodology, I got super fired up about a modified Metcalfe's, read everything that's ever been written about it, talked to like professors and shit like that.

• 1:01:56Anthony Pompliano?

  Yep.

• 1:01:56Speaker 01

  And, and started building my own frameworks around it. And the, I think the issue is that, and what really got me fired up is that the netoid function accurately representing monthly active user growth to revenue growth for Tencent and Facebook. That's what really, I was like, man, this could really be the answer. But the introduction of speculation, I think may make a modified Metcalfe approach just not really work. Because the speculative aspect of it introduces the reflexivity that we've seen. And that's a function of the velocity characteristics of speculators versus users. And like, that's a, I'm not, we can't, we don't have no time to go into velocity. I'll just, I'll just say it's totally a massive thing in crypto.

• 1:02:42Speaker 01

  Every once in a while I run across people that say it's not a thing. They're literally wrong. It is totally a thing. And it's, and the velocity characteristics of the speculator, I think may get in the way of modified Metcalfe's acting the way it would in a, in a, like in a social network setting, right? Because like, I'm not, I'm not out there gambling with like, my Facebook users, right? Like that kind of thing. And, and so that's unfortunate.

• 1:03:09Anthony Pompliano?

  Different use case. Yeah, yeah, absolutely. So, all right. So let's talk about up till today, right? So 2018, we're filming this in September of 18. Let's talk about price action from January 1st through 18, September 18. We just saw 20,000 in Bitcoin right at the end of the year. And all of a sudden we get this huge 70, 80, 90% drawdown across digital assets. What's going on?

• 1:03:35Speaker 01

  Yeah, so it's a number of things and it's kind of an aggregate like it's like it's like we're down whatever Bitcoin's down 70% off the high Ethereum's down like 85% off the high a lot of these tokens are down 90 plus percent off their highs. How do we get there? And it's really it's really an amalgamation of relatively, I think, kind of unrelated things that in aggregate sort of came to that. One, you had just a blow off top in late 2017.

• 1:04:06Anthony Pompliano?

  Yep.

• 1:04:06Speaker 01

  Price of Bitcoin went from 5,800 to 20K in 34 days, bro. 30

• 1:04:11Anthony Pompliano?

  You mean that's not normal?

• 1:04:12Speaker 01

  34 days, 5,800 to 20,000, right? And completely unsustainable.

• 1:04:19Anthony Pompliano?

  Probably one of the most epic price movements of the last 100 years?

• 1:04:25Speaker 01

  No, ever in any instrument ever. Anything.

• 1:04:30Anthony Pompliano?

  Nuts.

• 1:04:31Speaker 01

  Yeah. And, um, and so you had to back a lot of that out and and the price action got so drastically far out in front of its skis relative to where the tech was, right? Top 100 aggregate market cap tapped out at like 830 billion, dude. 830 billion.

• 1:04:47Anthony Pompliano?

  It's wild.

• 1:04:48Speaker 01

  Wild. And

• 1:04:49Anthony Pompliano?

  Because that what is that? That's like one eighth the size of the gold market?

• 1:04:52Speaker 01

  Yeah.

• 1:04:53Anthony Pompliano?

  Right? Or something like that? Yeah, give or take.

• 1:04:54Speaker 01

  And, and the tech's not even remotely close. Well, it's not even remotely close to being ready, right? Nobody using any of this stuff for anything, right? So you had to back a lot of that out. And then you've had all these regulatory updates as well, too. And the US has actually been, I would say, less heavy-handed than feared. But there's a lot of like regulatory things over and you've got China banning all kinds of stuff. You've like India's been super heavy-handed, right?

• 1:05:18Anthony Pompliano?

  I mean, the US regulators, in my opinion, have probably been one of the best regulatory bodies across the globe dealing with this. If you told me in 2016, as all this was really starting to pick up steam, that we were going to be sitting in, you know, mid 2018 and they weren't going to have really clamp down on anything other than the people who like egregiously violated a law around fraud, you know, market manipulation, all that kind of stuff, I probably wouldn't have believed you, right? And so they've allowed A lot of things to go on that were part of their learning process. Right. And really seeing, hey, what do people want to do with this? How does innovation evolve? And I think that they don't get enough credit for that. But now they're getting to the point where they're saying, hey, we got to figure this stuff out. We got to get some rules out there. So the uncertainty goes away.

• 1:06:02Anthony Pompliano?

  Now people can really sort of build businesses in the United States. And they're not kind of just, you know, looking for the regulatory arbitrage internationally.

• 1:06:08Speaker 01

  But there's been enough sort of globally. Things happen from a regulatory perspective that's been a net negative. The uncertainty, how things are going to get treated. It's been a negative. It's weighed on on prices. Lack of institutional grade infrastructure, totally a thing, right? Like there's the meme in like the back half of 2017 to like, oh, 2018, like all the institutional money is going to come into space. Right. Oh, it's all they're all going to be. It's like, how, like literally how? Yep. Fidelity, you're going to go buy a hundred billion dollars worth of Bitcoin and like, throw it on a treasure and like, keep it in a filing cabinet.

• 1:06:38Anthony Pompliano?

  Abigail Johnson's office.

• 1:06:39Speaker 01

  Yeah. Yeah. You know what I'm saying? Like, how are they literally going to do that? You don't have any of the, the, the major investment banks like, like can't handle custody. The firms that are handling custody aren't big enough to like, take massive flows. Right. Like, I mean, we use Big Go for custody, but like, if somebody is trying to do like, a hundred billion in Big Go, like they can't handle that. Right?

• 1:06:59Anthony Pompliano?

  And And also the institutions that are building it today, I really do think that they're looking at it as kind of like a commercial bank looks at a bank account. Right? So if I build custody, if I'm, you know, JP Morgan, Goldman, whoever, if I build custody and I get you to use my custody solution, now I can sell you all of my services, trading, et cetera, around that custody service. It is the kind of the Trojan horse to customer stickiness. Right? And so I think that not only do they need to build it for themselves because that's where they're going to trust. That's what they're going to actually use. But then also it's a huge customer acquisition benefit. Right? And so if they can build this stuff, the way that they're talking about building it, it may be the saving grace, right? It may actually give them kind of a foothold into the market that allows them to really play as, as real players.

• 1:07:41Speaker 01

  Yeah. I mean, we'll get there. I mean, there's, they're throwing so many people and dollars and resources at, at solving all this infrastructure problem. Dozens of projects trying to do it. Right? So it'll get solved. It's just not here in 2018. So prices have been going down. And then like, Volatility killed the store of value thesis in the near term, right? There was that meme as well, too, right? People thought you're just gonna rocket up to like $50,000 BTC and then just hang out there and you're gonna have like voila, digital gold.

• 1:08:09Anthony Pompliano?

  Yep.

• 1:08:09Speaker 01

  But like anything that goes up 14x in a year and down 65% in 100 days is not a store of value yet. People are speculating that maybe one day it will become a store of value, but it's not yet. And then like in the meantime, as people are waking up to that and like you're not gonna buy a cup of coffee with Bitcoin anytime soon either, right? It just doesn't really make that much sense to do that.

• 1:08:28Anthony Pompliano?

  Well, and time horizons matter, right? So if you're saying, hey, I need a store of value for the next year, eh, probably not that attractive, actually not attractive at all.

• 1:08:35Speaker 01

  Right.

• 1:08:35Anthony Pompliano?

  If you're saying, hey, look, I want to store a high percentage of my net worth in this over the next 10, 20 years.

• 1:08:40Speaker 01

  Yeah.

• 1:08:40Anthony Pompliano?

  Now, all of a sudden, you look at it a little bit differently or your perspective changes on, you know, what is your belief of the future store of value properties?

• 1:08:48Speaker 01

  Correct. Yeah. And then, and so it's like in the near term, BTC not really working as an SOV or an MOE. And then, so that's hurt prices year to date. And then like here come the stablecoin parade too, right? Right? And you're like, oh, that's how we're gonna buy a cup of coffee, a decentralized stablecoin. And it's not just shady Tether either, right? And it's like.

• 1:09:09Anthony Pompliano?

  You think it's backed up one to one to dollars?

• 1:09:12Speaker 01

  Whatever, like the director of the FBI like said, it was like, okay, I'm sure, I'm like, whatever happened in the past, like.

• 1:09:19Anthony Pompliano?

  So that's my, that's my whole thing is if at this point it's not, right? Just, I mean, absolute, you know, going back to your word fuckery, right? I mean, if, if people have been speculating on this for how long and then all of a sudden somebody goes to check today and it's not backed up, it's just complete stupidity.

• 1:09:31Speaker 01

  Yeah, yeah. And, and, um, you know, obviously with all the FUD around Tether, it's still like the eighth, the eighth largest crypto by market cap, like $3.3 billion in market cap in it or something like that. And so obviously there's a really strong need for something like that. So, you know, all kinds of people are trying to solve that problem and you're getting it like, it's like, what do you got like entries in Horowitz? It's like throwing down hard on it, Bain Capital Ventures throwing down hard on it, like all these exchanges throwing down hard on it. And so.

• 1:09:59Anthony Pompliano?

  I mean, what the biggest raise is probably Nater and the Basis guys, right? So they raised like 130 million or something. From the entries since Baines, etc. of the world. And then you've got on the other end of the spectrum, you've got the Gemini kind of regulated dollar, you know, stablecoin. They didn't raise any outside capital as far as I know, right? And so it's two very different approaches. One's an algorithmic central bank. The other is a, you know, we're going all in on the existing laws, regulations, you know, Wall Street, etc. The scary part is, or maybe not scary, just interesting part is both could win, they could coexist.

• 1:10:30Speaker 01

  Oh, yeah.

• 1:10:30Anthony Pompliano?

  Right? There's no, there's no kind of binary. One has to win, one has to lose, which makes it even more interesting.

• 1:10:35Speaker 01

  Yeah.

• 1:10:37Speaker 01

  Yeah. So we'll see, we'll see how that plays out, right? But I, but I think that's the introduction of the concept of a decentralized stablecoin, I think has hurt BTC prices year to date. Cause like, if you're a Venezuelan farmer, like, you know, you sold your life savings into BTC at like 19K, right? Well, what you really wanted was like US dollar, like you really wanted like a stablecoin that's like tied to the US dollar or whatever. And so, um, so we'll see how that plays out, but it's certainly hurt prices year to date. And then also you've had this, this focus on valuation and specifically token structure and like token structure in the context of value capture. And like, there was, there was sort of a general thought in 2017

• 1:11:16Speaker 01

  that like these ICOs, um, like if, if more people come to this technology, the price of the token is going to go up. And it's not that simple, right? And, um, you know, the vast, many, many, many, many.

• 1:11:29Anthony Pompliano?

  It's also what every Ponzi scheme believes as well.

• 1:11:32Speaker 01

  Many, many, many of the like 16, 17, early 18 vintage ICOs, the token structure is fundamentally flawed in its ability to accrue value over the long term. And people didn't realize that then because nobody was talking about valuation. And what really happened, what really happened was, I think, was Chris Bernitsky wrote Crypto Assets, which was like a year ago, literally a year ago. He wrote that book.

• 1:11:55Anthony Pompliano?

  Top, and probably a top five recommended book in the space already.

• 1:11:58Speaker 01

  Yeah. If you're an introductor, you gotta read it. And he, and he threw out MV equals PQ. And the people got super fired up about MV equals PQ. And then like 60 days after they got really fired up, people were like, this doesn't work at all for ABC reasons, which were valid reasons.

• 1:12:13Anthony Pompliano?

  Yep.

• 1:12:13Speaker 01

  But what it did do was it shined spotlight on the velocity problem. And people were like, ah. There's this thing called velocity, all else being equal, the faster a token spends the ecosystem, the lower the price needs to be for that token to satisfy the economic demand of the ecosystem as a whole. And we don't, and like, it's not something you plug into a model. It's not, you don't, you don't use it like that, but you just know directionally, if this thing, if people don't, if there's not a, if the mechanism design isn't such that people want to hold it, or have to hold it, or you have to stake it where you can't, you can't move it for a while, or you know, whatever reasons. If there's a tendency to

• 1:12:54Speaker 01

  move it really fast, it's gonna have a hard time accruing value over the long term. And that was kind of like year to date, people have woken up to that. And so you've just seen this big drain of market cap, specifically out of, you know, BTC dominance has been rising for four and a half months now. You've gone from

• 1:13:11Anthony Pompliano?

  Over 57% now?

• 1:13:12Speaker 01

  Yeah, I think you've gone in a straight line from like 34% to like 58% or whatever over the last four and a half months. The market's obviously telling you something there. And, um, you know, we, when I think about, when I think about like, what's a bottom in this market gonna look like?

• 1:13:31Anthony Pompliano?

  Where, where we, alright, so, so let's, that was year to date. Let's go, let's go outlook, right? So, uh, are we at the bottom? And if not, where are we going?

• 1:13:39Speaker 01

  Yeah. So, I like to look at, um,

• 1:13:44Anthony Pompliano?

  Noegras called the bottom. He, he says that, uh, he says we hit the bottom, uh, a week ago or so, or a couple of days ago. What do you think?

• 1:13:50Speaker 01

  Noegras is a nice guy. No, no comment there.

• 1:13:52Anthony Pompliano?

  Alright.

• 1:13:53Speaker 01

  Shoutouts David Namdar too. I like Namdar.

• 1:13:56Anthony Pompliano?

  I love Namdar. He's, uh, he's one of the best. Alright, so where are we going?

• 1:14:00Speaker 01

  So, so, so on coin market cap, I like looking at, um, uh, top 100 aggregate market cap minus BTC.

• 1:14:07Anthony Pompliano?

  Okay.

• 1:14:08Speaker 01

  Which I call bottom 99 market cap.

• 1:14:09Anthony Pompliano?

  Yep.

• 1:14:10Speaker 01

  Um, that number peaked in the first week of January at $547 billion, which is a wild, that is an outlandishly high number when you think about it.

• 1:14:20Anthony Pompliano?

  That's like, uh, 1/14th of the, uh, of the gold market?

• 1:14:23Speaker 01

  Yeah.

• 1:14:24Anthony Pompliano?

  For, for, by the way, 99 of those tokens, majority of the world couldn't name a single one of them.

• 1:14:31Speaker 01

  No, no. Oh, oh, and nobody's using any of this shit for anything because it sucks, right? And, uh, there's 27 tokens that have 400 daily active wallets.

• 1:14:40Speaker 01

  Just saw that stat like a week ago. That's a wild stat, isn't it?

• 1:14:43Anthony Pompliano?

  Yeah.

• 1:14:43Speaker 01

  Twenty seven tokens of four hundred folks that care at all about this thing. And so, um, so that, so that

• 1:14:50Anthony Pompliano?

  When moon, when moon.

• 1:14:51Speaker 01

  Right. So that, so that number currently is eighty nine billion for the bottom ninety nine.

• 1:14:55Anthony Pompliano?

  So it went from, we say five forty to about eighty nine?

• 1:14:58Speaker 01

  Five forty to eighty nine, but, but eighty nine just takes you back to

• 1:15:05Speaker 01

  the first week in November.

• 1:15:07Anthony Pompliano?

  Yep.

• 1:15:07Speaker 01

  So shit was still super wild before then, right? Everybody, everybody remembers that, right? Like, summer, summer two thousand seventeen was still super wild.

• 1:15:14Anthony Pompliano?

  The, the barbers, the taxi drivers, they were all talking about it in first week of November.

• 1:15:18Speaker 01

  Yeah, exactly. And so, so if I just go back and look at where that number was, you know, for example, in, on July seventeenth, that number was thirty six billion.

• 1:15:29Speaker 01

  In the first week of September fifteenth, that number was fifty billion.

• 1:15:35Anthony Pompliano?

  Yep.

• 1:15:35Speaker 01

  So, so I kind of use that number to triangulate where, where a bottom might be. Cause it's actually easier for me to think about what everything below Bitcoin should probably be worth.

• 1:15:47Anthony Pompliano?

  I mean, you're talking about a, you know, fifty to two thirds drawdown to go from here, right?

• 1:15:54Speaker 01

  Yeah, yeah, yeah. So, so I actually, I actually think there's a good chance. I'll put it this way. I think it would be healthy for the space for us to get cut in half again from here on the bottom ninety nine.

• 1:16:05Anthony Pompliano?

  Yep.

• 1:16:06Speaker 01

  Like top hundred minus BTC.

• 1:16:08Anthony Pompliano?

  And so we get, so then you can We have Bitcoin.

• 1:16:10Speaker 01

  So then you triangulate that number, the bottom ninety nine with BTC dominance. And then I've got a chart that I've been looking at for months now where that, and then that backs you into what BTC price is going to be.

• 1:16:21Anthony Pompliano?

  What do you think?

• 1:16:22Speaker 01

  So I, you know,

• 1:16:23Anthony Pompliano?

  We won't hold it to you, but what was direction, where do you think we're going?

• 1:16:26Speaker 01

  You know, again, a technical analysis is like not the end all be all at all.

• 1:16:31Anthony Pompliano?

  Yep.

• 1:16:32Speaker 01

  This would be like the first quintuple bottom in like the history of TA. Like that's not how TA works. Like, like a number doesn't get tested five times and then like it holds. It's just like not really how it works. So.

• 1:16:43Anthony Pompliano?

  And what you're talking about here is, you know, let's call it the.

• 1:16:47Speaker 01

  Fifty eight fifty.

• 1:16:48Anthony Pompliano?

  Yeah, fifty eight fifty nine, whatever it is, right? Basically, we're knocking at the door. We've knocked four times, right? And if we kind of stay at, you know, the sixty five hundred number, whatever, and we go back down, is it the fifth, is it the sixth, the seventh, however many times we're gonna knock at the door, eventually the door opens and we fall.

• 1:17:03Speaker 01

  Yeah.

• 1:17:03Anthony Pompliano?

  Right?

• 1:17:03Speaker 01

  Yeah, and it's gonna be a function of getting dragged down by that bottom ninety nine. When, when, when Arthur Hayes, the founder of Bitmex, introduced the Ethereum perpetual swap, he had a blog, a blog post called Ethereum, the, the double digit shitcoin. And Ethereum was trading at like, I don't know, like four hundred or three or three, three something.

• 1:17:23Anthony Pompliano?

  Off a cliff to what? Would it go down to one eighty?

• 1:17:27Speaker 01

  One sixty one, one sixty one on the bottom. And they, and I mean, you want to talk about a dead cat bounce that we've seen over the last couple of days, like that's kind of the definition of a dead cat bounce.

• 1:17:37Anthony Pompliano?

  It's gone from one sixty to like two fifteen, two twenty, right?

• 1:17:40Speaker 01

  And now we're sitting right now there. So like, I think we do, I think we do probably go see a hundred.

• 1:17:45Anthony Pompliano?

  Yeah. And so. A hundred, a hundred Ethereum.

• 1:17:48Speaker 01

  And that, and that puts you at ten Bs, that puts you at ten Bs for Ethereum. And then you start backing into like, okay, where's Ripple gonna be? Ripple like literally not a, like not a functional token, right?

• 1:17:56Anthony Pompliano?

  Yep.

• 1:17:56Speaker 01

  We all know that. Bitcoin Cash.

• 1:17:59Anthony Pompliano?

  By the way, the Ripple Army loves when people come on here and, and talk really highly of Ripple.

• 1:18:04Speaker 01

  Shout out to Ryan Selkis going on. Dude, that was some wild stuff, man. I love, I love two bit, man.

• 1:18:10Anthony Pompliano?

  But listen, here's why I respect the hell out of that guy is because he doesn't just talk about it on a podcast. He says, listen, Brad Garlandhouse, where are you at? Let's, let's, let's just talk about it. We'll film it, let people decide what they want to decide after that. And so, you know, look, there's a non-zero chance he's right, non-zero chance that he's wrong. I think he would be the first to admit that. I actually tend to think that the Ripple crew is, is doing what they believe to be best, right? I don't think that they're, you know, out maliciously trying to, you know, screw people over or whatever. And so I'd love to see that conversation because I actually think that there would be points scored on both boards.

• 1:18:41Speaker 01

  Yeah.

• 1:18:42Anthony Pompliano?

  Right?

• 1:18:42Speaker 01

  So, so, so as a. Like I'm agnostic in my views. I don't fall in love with any of this shit and I don't fall in hate with any of it either. And I think it's really hard to be short Ripple here because I think the senior folks at Ripple realized that their token, you don't need it for X rapid.

• 1:18:57Anthony Pompliano?

  Yep.

• 1:18:58Speaker 01

  And they, and now they know that the whole world knows that.

• 1:19:00Anthony Pompliano?

  Yep.

• 1:19:01Speaker 01

  And so at any time, they could introduce new functionality on X rapid where then you, you, you need, or like you, you like kinda, you introduce this new concept where XRP like, like there's some compelling reason for it to exist in the context of X rapid. And that thing will hit, that would be the quickest five bagger you've ever seen in your life, dude. Totally, right?

• 1:19:20Anthony Pompliano?

  Well, and because what you're talking about here is there's like price action and kind of, uh, you know, there's TA, there, there's some of the fundamental stuff, whatever. And then there's just these wild cards in this market where the, the, uh, I don't even want to call it price manipulation as much as just like the ability to evolve the code and the, the, kind of structure around these tokens in a night and completely change the landscape is unseen in almost any other financial market in the world.

• 1:19:45Speaker 01

  Right.

• 1:19:46Anthony Pompliano?

  Right? You can't, if you're Facebook, you can't say, hey, we had, you know, whatever, $400 billion market cap and we did, you know, 40 billion or whatever they're doing on revenue and overnight, oh, by the way, now we're doing a hundred billion.

• 1:19:55Speaker 01

  Right.

• 1:19:55Anthony Pompliano?

  Right? That just doesn't happen.

• 1:19:56Speaker 01

  Yeah.

• 1:19:56Anthony Pompliano?

  And so the, the difference here though is, you know, revenue isn't necessarily driving the token price. And so it could be literally how it's used. You change it overnight, bam, all of a sudden completely different ballgame and we're going up, you know, 5X.

• 1:20:07Speaker 01

  Especially for a lot of these utility tokens, right? Where people have realized that the initial token structure just doesn't accrue value over the long term. And so the way, the way that, at Ikki guy, the way that we like break up the world is, um, you kind of think about your, your web 3.0 stack, but then I think about, and, and we consider the top 150 cryptos by market cap as our universe. That's the, those are the tokens that we, that we collect data on, do analysis on, watch, everything.

• 1:20:31Anthony Pompliano?

  Yep.

• 1:20:32Speaker 01

  You have the tokens that are vying to be store of value. Bitcoin's obviously leading that. Um, I put Bitcoin cash in that bucket. All the privacy tokens go in that bucket. Decred goes in that bucket. Um, and the, the, the value, the value framework that you put those, is it's its own separate beast, right? Cause it's like, it really is like that Austrian economics type of framework, right? And it's like hard money versus soft, sound versus unsound.

• 1:20:55Speaker 01

  And and and that's the kind of framework you put around store value. And then then you have the platform level protocols. So like smart contract platforms, DAP platforms, payment rail platforms like Ethereum, EO, Stellar, Cardano, QDAM, R-Chain, Icon. I know I forgot some other ones in there, right?

• 1:21:14Anthony Pompliano?

  A bunch of them.

• 1:21:14Speaker 01

  But you get the point, right? And and the value proposition for those, they're a function of the activity that happens on top of them, right? You don't write any Ethereum smart contracts. Ethereum ain't worth anything, right? You don't, no payments going through Stellar, like it's not worth anything. And and so you think about the value proposition for those as a function of like, how have they built the specific sort of way that they've, you talk about the scalability trilemma, right? Like, like, like, how many transactions can it do? How secure is it? How decentralized is it?

• 1:21:44Anthony Pompliano?

  Yep.

• 1:21:45Speaker 01

  Where do they set those levers to to be the best home possible for the type of activity they're trying to draw onto that network? And like the analogy that I use is like when you make your own character like on NBA 2K, right? Like if he, if he, if he's, if he's like got really good hops, like he may not play defense that well. Or like if he's a great passer, like he probably doesn't dunk that well.

• 1:22:06Anthony Pompliano?

  Yeah, we're not looking for all NBA offense or all NBA defense. We're looking just for all NBA.

• 1:22:10Speaker 01

  Right. And so you gotta set the levers at a certain point to be attractive to to that certain type of activity to come on top of it. So that's those valuation frameworks. Then you got utility tokens. Specifically within utility tokens, you got productive utility tokens and nonproductive utility tokens. Productive utility tokens are like work tokens. And that's like Augur and Numerare, where you can actually model those. And you can model them in the same way that I used to do like a DCF on like a, like a, like a, like a company, like equity.

• 1:22:36Anthony Pompliano?

  Yeah, yep, yep.

• 1:22:37Speaker 01

  And so the the the valuation framework that you think about those actually kind of looks like, like the real world. So it's easier to get your head around how to think about what those look like. And that leaves you with nonproductive utility tokens. Those are the ones we haven't figured out yet. And but what we do know, generally speaking, is that like MOE tokens, they don't accrue value over the long term. Like if you're just a Chuck E. Cheese token, like you know what I mean? Like you can't, you can't put quarters in the, in the video game, right? You gotta take your $5 bill, you put it in the machine, you get out Chuck E. Cheese tokens, put the Chuck E. Cheese tokens in video But like when you're done playing Chuck E. Cheese, like you don't want to hang around with the Chuck E. Cheese tokens. Give me my, your quarters back, right?

• 1:23:11Anthony Pompliano?

  Yep.

• 1:23:11Speaker 01

  Do not accrue value over the long term. That's a big problem for many of the 16, 17, early 18 vintage ICOs.

• 1:23:17Anthony Pompliano?

  But the problem is also, this is like, this is the whole thesis around inflationary monetary supply. Right? Is that actually what they're doing is they're trying to incentivize you to spend, to, to not hold on to the cash because it loses value every single year as inflation hits.

• 1:23:31Speaker 01

  Yeah.

• 1:23:32Anthony Pompliano?

  And so the deflationary model is the exact opposite, right? This whole idea of store value, blah, blah, whatever. But on the inflationary side, what we're seeing is the, if we want you to spend, the price is artificially depressed because of the downward pressure. Right? Like, like, like it is, it is intentionally there because that's how the, the structure becomes. And so it's a, it's a really bad speculative investment if you are trying to go long on the value of the token.

• 1:23:59Speaker 01

  Yeah. And, and, and, you know, you can, we can keep going as far as, you know, you can go really far down that in terms of like, what do you need decentralization for?

• 1:24:07Anthony Pompliano?

  Yep.

• 1:24:08Speaker 01

  In that specific instance, and like, in many cases, like, don't tokenize. Like it's, it's, it's not a good idea for you. And like, um, but, but, but for utility tokens, non-productive utility tokens, we haven't figured out how to make the token structure accrue value over the long term. And so, but at some point you're going to figure it out. The ecosystem will figure it out.

• 1:24:30Anthony Pompliano?

  Too many smart people.

• 1:24:31Speaker 01

  Yeah. And, and then I think you could see a situation where if you've got a compelling piece of technology or a use case that exists today, and then, but the token structure doesn't work and it's out there, you know, down 95% year to date. If somebody goes and figures out the token structure in another token, you may see just this massive swath of restructuring of token structures. And then they're like, oh, look, we fixed it and it works better now. You know, like come use our technology. It's, it's hard to say how, how all that stuff's going to play out, but.

• 1:25:01Anthony Pompliano?

  That's really scary. If you're long or short, you don't know it's coming.

• 1:25:04Speaker 01

  Yeah.

• 1:25:05Anthony Pompliano?

  Right? I think it's really, really.

• 1:25:06Speaker 01

  It's hard to make money on the short side in this space.

• 1:25:08Anthony Pompliano?

  Absolutely. Um, all right. So let's do a rapid fire here. What do you think is the most controversial thing you believe in crypto? Right? So like something you believe to be true that you think a very high degree of other people would disagree with you on.

• 1:25:23Speaker 01

  The bottom 99 is probably going to get cut in half from here before we bottom.

• 1:25:28Anthony Pompliano?

  Yep. And Bitcoin, the relationship to Bitcoin there is you think it's getting dragged down 50% as well?

• 1:25:34Speaker 01

  No, it's going to hang in, it's going to hang in better. I mean, it's really, it's really, really hard to say. I'll just say that in that scenario, it's hard for me to imagine that 5850 holds as the low.

• 1:25:45Anthony Pompliano?

  Yeah, I think that's fair. I think there's a lot of people disagree with you. Right. Because here's the other part of this whole idea around like price action and where's the bottom? All the stuff that people were talking about.

• 1:25:57Anthony Pompliano?

  I've never seen a market where there was bull bear, you know, kind of cycle that turned over. And people still remembered the bull market and you hit the bottom.

• 1:26:07Speaker 01

  Right, right.

• 1:26:08Anthony Pompliano?

  Like from a psychological standpoint, if you go on Twitter right now, people literally think we're going to 20, 30, 40, $50,000 by the end of the year.

• 1:26:14Speaker 01

  Yeah.

• 1:26:15Anthony Pompliano?

  Right. And it's just, I can't believe that, you know, there's no blood in the street and we're going to turn it around. Right. And so like, I came out and I said this and people all freaked out, you know, oh, you're like switching your mentality around all this. And I was like, there's just not enough pain yet, right? And when the pain gets really, really bad, I mean, people are going to walk away. They're going to say this is over.

• 1:26:34Speaker 01

  Right.

• 1:26:34Anthony Pompliano?

  That's when I think, you know, we are at least near the bottom, but we really haven't seen that yet.

• 1:26:39Speaker 01

  Yeah. I mean, I was an energy investor for seven years, right? Like I've seen some major league chop in markets before. And like if what we just had was the bottom, I'm going to have to rewrite my understanding of what bottoms look like. Like, I'm just being honest, man. I'm so willing to be wrong and I'll, I'll text you when that happens. I'll text you. I'll be like, I think I might've been wrong.

• 1:26:59Anthony Pompliano?

  Yep.

• 1:26:59Speaker 01

  I'll text you and then you can tweet it out to like the millions of pop fanboys.

• 1:27:04Anthony Pompliano?

  Amazing. All right. So what do you think is the most interesting or important company in crypto other than what you're working on?

• 1:27:14Anthony Pompliano?

  I love the rapid fire. It gets the pauses and answers every time.

• 1:27:21Speaker 01

  I'm not going to name anybody specifically. I'm going to say anyone working on mechanism design and token structure. Anybody like it's like, I know some, I got like some buddies in token foundry.

• 1:27:32Anthony Pompliano?

  Yep.

• 1:27:33Speaker 01

  The consensus and like consensus is like, it's kind of a mess, right? And everybody knows that, but like I got some guys in there that are like crazy smart. Shout out Rocco, you know, Rocco. Yeah.

• 1:27:43Speaker 01

  And, and like anybody doing that kind of work, digging deep on like, where's the video game designers at? Man, where are those guys at? How are you not in this space?

• 1:27:52Anthony Pompliano?

  Yep.

• 1:27:52Speaker 01

  Right. Where's my, where's my Harvard PhD mechanism design guy?

• 1:27:56Anthony Pompliano?

  Dude, I'm telling you, this is, this is the, listen, I keep going back to this idea of, so the people who worked on growth, it was the badges, it was the streaks, it was the, you know, all of the points and tokens and all this crazy stuff that people have been doing for years are now tied to a value that can be traded. It is all of that design on steroids.

• 1:28:15Speaker 01

  A hundred percent. Oh, by the way, I'm going to, I'm going to retract my, some of my most controversial thing.

• 1:28:20Anthony Pompliano?

  Okay.

• 1:28:20Speaker 01

  FOMO 3D, one of the best things that ever happened in crypto.

• 1:28:24Anthony Pompliano?

  You got to explain.

• 1:28:26Speaker 01

  Again, complete scam, literally a Ponzi scheme. The, the regulatory little, the little dropdown, like when you click through it on like the regulations, it takes you directly to the SEC's website for definition of Ponzi scheme. It's like the, the website's called exit scam.com.

• 1:28:43Anthony Pompliano?

  Yeah.

• 1:28:45Speaker 01

  Two months before I heard about FOMO 3D, we were talking internally about how we're going to figure out this, this token structure problem for non-productive utility tokens. And I said, I was like, when we get it figured out, it's going to look like this gimmick. And it's going to look like this little, like this little thing. And when people see it, they're going to be like, that's bullshit, but it's, but it's going to work. And people are going to be like, wait, is that, is that like a, like, that shouldn't work, but it's going to work anyways. Right. And then the next thing you know, it's going to skyrocket some token to a hundred billion because it had that, that hook for mechanism design to like lock in that virality into economically juice network effect in a, in a way that accrues value over the long term.

• 1:29:28Speaker 01

  FOMO 3D, again, not supporting it, but I'm saying that concept abstracted into part of a utility tokens design could very well end up being. The key that unlocks the value accrual?

• 1:29:42Anthony Pompliano?

  The people who figured out growth hacking for the centralized internet won.

• 1:29:47Speaker 01

  Won.

• 1:29:48Anthony Pompliano?

  The people who figure out growth hacking in the decentralized world will win by magnitudes more.

• 1:29:55Speaker 01

  Fact.

• 1:29:55Anthony Pompliano?

  Right? I mean, it's just gonna be fascinating. Alright, so you've got a magic wand, you can wave it, change one regulation, what do you change?

• 1:30:03Speaker 01

  We're not doing this with the Howie test, you're doing it with something else.

• 1:30:06Anthony Pompliano?

  Okay, oh, so on the security side, right? So not the security side, but actually on the security side. What do you think needs to get put in there that? Like, what does the new one look like? What are some of the components that aren't there that maybe you think should be there?

• 1:30:19Anthony Pompliano?

  Or are we too early? We can't tell?

• 1:30:24Speaker 01

  I mean, you're just, you're using, you're using a piece of regulation that was, it was judicial precedent that was set.

• 1:30:32Anthony Pompliano?

  With 1933?

• 1:30:33Speaker 01

  Established, I think it was, I don't remember, but I know it was about orange trees, orange groves in Florida. Like, that's the law that we're gonna use to govern magic internet money, about Florida orange groves. Like, that just doesn't make any sense, right? So if I could pull anything back, then you'd get a new law specifically about this.

• 1:30:50Anthony Pompliano?

  So it's not, it's not getting rid of it completely, it's just saying, look, we need something new, right? So we still need a test, it's just what it looks like, we need to figure it out, and probably the regulators have a bunch more opinions.

• 1:31:00Speaker 01

  And who knows, maybe they're gonna end up, they're trying to like, you know, shoehorn, whatever, like round, round hole, square peg this thing into making it work. And that, you know, what's his name, Hinman, introduced the concept of like sufficient decentralization. And they're like literally gonna just like try and layer that on top of a rule about Florida orange trees. Like sufficient decentralization, okay, alright.

• 1:31:23Anthony Pompliano?

  Listen, is the orchard decentralized or not? I don't know. Alright, so one non crypto question. Look, everyone loves aliens, right? Twitter goes nuts when I talk about all this alien stuff, and I recently had the thought of, out of everything people have thought about on the alien side, do aliens have pets? Right? So are there, you know, we always think of aliens as like this equivalent to humans, right? They're gonna, you know, have some level of intelligence, they're gonna kind of look like us generally, they're gonna kind of walk and talk and communicate and do all this activity. But we never think about on the animal side, right? So one, animal aliens, and then two is, do they have pets? Are they showing up with, you know, some sort of equivalent to dogs and cats, or what's going on there?

• 1:32:07Speaker 01

  I just try and draw from like precedent transactions on this one. And it's like, I'm, I look at Chewbacca.

• 1:32:14Speaker 01

  I'm like, that was like basically like a really, really dope pet. Right?

• 1:32:17Anthony Pompliano?

  Yeah.

• 1:32:18Speaker 01

  I think, right?

• 1:32:18Anthony Pompliano?

  Yeah.

• 1:32:19Speaker 01

  Yeah. Did he have like sovereign rights Chewbacca?

• 1:32:21Anthony Pompliano?

  I don't know about that.

• 1:32:22Speaker 01

  I don't know. Anyways, like I'd take a Chewbacca right now. So I figured that if you're an alien, like that's probably how you're.

• 1:32:26Anthony Pompliano?

  That's why you're rolling up with a Chewbacca?

• 1:32:30Anthony Pompliano?

  All right. I have not heard that answer yet. All right. So I let everyone to close it out. Ask me one question. What, what question you got?

• 1:32:37Speaker 01

  Ooh.

• 1:32:40Speaker 01

  What's still, I hadn't caught up with you in a while. Like what's Morgan Creek? Like what y'all's like, what's the next like six to 12 months look like for Morgan Creek?

• 1:32:47Anthony Pompliano?

  Uh, we are running around and banging our head against the wall to get every single institution off zero. So if you think of your, if you're an institution, you've got no exposure to, you know, what is probably the best performing asset class over the last five years? There's a bunch of data that shows if you take a 60, 40 global portfolio, put 1% of digital assets, you get a anywhere between 150 to 300 basis point, you know, increase in returns, depending on when you did it. And you get a near identical standard deviation of risk. You get a double digit increase in sharp ratio. And we actually.

• 1:33:17Speaker 01

  Specifically for BTC?

• 1:33:19Anthony Pompliano?

  Uh, digital assets is defined in a whole bunch of different ways. If some people have done it, which is Bitcoins, we have done top 10s, top five, et cetera. It's that's generally, or at least directionally where it ends up. Our argument is that if you are one of, let's take a pension fund, for example, you're going to do these future payouts. You've got a future obligation to fund, you know, all of your pension plan recipients.

• 1:33:43Anthony Pompliano?

  Your actuary comes in and says, hey, you've got a six, seven, eight percent assumed rate of return. So in order for you to pay out in the future, you have to hit six, seven, eight percent, whatever your specific plan is. Most of them are unperform or underperforming that. And so if you look out over the next 10 years around stocks, bonds, currencies and commodities, it's not going to get you there. Right? Kind of with the traditional asset classes. And so by no means, so I think you should go put 100% of your assets in digital. But what I do think that you should do is you should start to get some of the, uh, digital asset exposure. Because what it shows is not only does it keep the risk profile very similar volatility, you know, everything is attractive there. You start to drive a higher return, right? And so that conversation is very, very different than like buy Bitcoin because it's going to be the global reserve currency, right?

• 1:34:27Anthony Pompliano?

  It's taking the crypto ethos and argument and speaking in a language that the institutions understand. And, you know, look, I'm new to the institutional world. And so obviously Morgan Creek's been a huge advantage in getting us in the room and having these conversations. And it helps to have, you know, folks like Mark Yusko, who's got this long track record to be one of the people saying this. And what I've found is they're incredibly receptive. They're not as receptive to the Bitcoins, the new store of value, digital gold, kind of what I would consider more of the qualitative arguments. The quantitative argument of you have to hit 7% in order to fulfill your future obligations. You're not going to do that with the current asset classes. This is a semi uncorrelated asset. And if you put some allocation here, we will get you closer.

• 1:35:09Speaker 01

  Yeah.

• 1:35:10Anthony Pompliano?

  It's just a data, it's a data argument, right? And so I think that we're making inroads there and then, you know, we'll announce a bunch of stuff over the next couple of weeks. But I think that for the next at least 12 months, I mean, that is the campaign. It is get off zero. I can't tell you what the right percentage is per portfolio. Maybe it's 10 basis points, 50, 200, but I don't know. You gotta look at each one individually.

• 1:35:29Speaker 01

  What do you put them in?

• 1:35:30Anthony Pompliano?

  So we literally say to them, look, you've got a whole bunch of different capital pools. So you've got your equity, you've got your debt, real estate, fixed income, whatever it is. We're building a bunch of products that allow them to pick and choose. So if you've got an equity bucket and you're only, you know, you got 10% of your allocation for equity, you're only 8% deployed, that means you've got 200 basis points that you can actually go and buy some equity. So let's get some percentage of that into the equity bucket. Maybe you're fully deployed on the equity side and so you've got a debt bucket and you've got some under deployment there. Hey, let's make sure we've got a debt product. And so building different products. We actually think that on the digital asset side, people are going to build portfolios. They're not going to go, you know, you never go 100% cash. You never go 100% into one real estate strategy, right? And so they're going to build this very multi-strategy approach or kind of portfolio construction

• 1:36:15Anthony Pompliano?

  in the digital world. Now, here's the counterintuitive piece of this, and I've thought a lot about it in, so take the US dollar, 1970s, you know, and before, 100% paper notes.

• 1:36:27Anthony Pompliano?

  Right? Today, 92% of the supply is not paper notes, right? So we've already had the digitization of a currency over time. The US dollar is probably the first digital currency that majority of Americans have interacted with. Right? Because it's just 92%, right? And so if you look at that Bitcoin and other cryptocurrencies, actual currencies are just another evolution of that. And then if you look at stocks, for example, it used to be all paper, right? Then went to electronic trading. Today, if you invest in a private company, most people are actually digitally signing for the documents. They're receiving it through Carta E shares, you know, Angel List, whatever. They have an electronic or a digital version of that stock certificate, right? And so the idea that you're going to have a token in your digital wallet is just another kind of evolution of that technology.

• 1:37:10Anthony Pompliano?

  So what does that mean for like capital allocators? Well, Robin Hood is actually a great example of somebody who has built asset management, capital allocation in a digital world. So it's targeted at digital natives. It's got a fee structure that looks very attractive. It allows you to buy these digital electronic public equities. And now they've added cryptocurrencies in there as well. Well, if all of a sudden tokenization of real estate becomes real, will they allow you just to hold your shares of real estate in the same wallet? Probably, right? It's just, it's just an evolution. And so, you know, when you start having that conversation with these institutional investors, I think that they, they're generally like, my kid's telling me this, right?

• 1:37:50Anthony Pompliano?

  You know, my 20 to 30 year old son or daughter is pounding the table and saying, hey, this is real. I'm interested in this, whatever. That's a little ways away though, from like, hey, here's a hundred million dollars.

• 1:38:02Speaker 01

  Yeah.

• 1:38:02Anthony Pompliano?

  Right? And so I think that's like next 12 months, we're going to see a couple of those checks get laid down. And when they get laid down, I think the dam breaks and game on.

• 1:38:09Speaker 01

  Musical chairs.

• 1:38:10Anthony Pompliano?

  Yeah, for real. All right, man, this is super fun. Thank you so much for spending the time and hopefully we'll get you on here again.

• 1:38:16Speaker 01

  Cheers.

• 1:38:18Anthony Pompliano?

  Thanks again to our sponsor BlockEstate. To check out their tokenized real estate fund, you can check out www.blokestate.com. Hey everyone, Pomp here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the apple, Spotify, and other podcast charts, please do us a favor and rate, review, and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.