#1284 Danny Masters | Investing Legend Has BILLIONS In Bitcoin & Crypto

Danny Masters is a bitcoin pioneer and the Executive Chairman at CoinShares, a European leading alternative asset manager specializing in digital assets. In this conversation we talk about prior bull markets, bitcoin outlook for 2024, bitcoin ETF, regulation, macro economy, CoinShares, and Danny reveals a surprise at the end. ======================= Auradine, a leader in web infrastructure solutions including blockchain, AI, and privacy, has unveiled the world's first 4nm Bitcoin mining systems, featuring breakthrough EnergyTune™ technology, setting new standards in performance and energy efficiency. The Teraflux™ product line from Auradine offers best-in-class performance, efficiency, and total cost of ownership (TCO), positioning it as the optimal choice for Bitcoin mining needs. With EnergyTune™, a patent-pending technology, Auradine's Teraflux™ systems enable rapid demand response and optimal energy usage, fostering a symbiotic relationship with electrical grids, and contributing to sustainable energy practices. Designed and manufactured in the US, Auradine's Teraflux™ product line not only ensures cutting-edge technology but also mitigates supply chain risks and provides increased supply chain resiliency. Visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠www.auradine.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ for more information the Teraflux bitcoin mining systems. ======================= Cal.com is leading the charge of scheduling platforms in the open-source sphere, offering you the chance to harness the efficiency previously reserved for elite corporations and tech gurus. That's right, Cal.com is transforming sophisticated calendar management into an accessible tool for all via a user-friendly interface. Discover how countless users are optimizing their time in unprecedented ways. Use code “POMP” for $500 off when you set your team up with Cal.com. ======================= Pomp writes a daily letter to over 250,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

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

• 0:02Anthony Pompliano?

  What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Danny Masters is a Bitcoin pioneer and the executive chairman of CoinShares. In this conversation, we talk about what's happened over the last two years, how much of it was due to the macro environment, what Danny is thinking about over the next 18 to 24 months, how important the Federal Reserve is to Bitcoin and cryptocurrencies.

• 0:46Anthony Pompliano?

  And then we go deep on CoinShares, a publicly traded asset management firm focused on the Bitcoin and cryptocurrency industry. We talk about their principal investing, their asset management products, and much, much more. Danny, at the very end, saves a surprise for everyone. He quite literally takes off his shirt and shows a brand-new thing that he's been waiting to reveal publicly. I always enjoy talking to Danny, and I learn something new every time. This conversation was no different. Here is my conversation with Danny Masters.

• 1:14Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 1:38Anthony Pompliano?

  This episode is brought to you by Aradine. They are a brand-new startup led by a number of Silicon Valley legends who just raised $81 million to build the future of internet infrastructure. You're probably wondering what that means. Let me explain. There are numerous new disruptive technologies that are being adopted simultaneously, from blockchain to artificial intelligence to zero-knowledge technologies. In order to ensure that these technologies thrive in this new world, we need new infrastructure, and that is where Aradine comes in. They just launched their first product line called Terraflux, which is a A Bitcoin miner powered by the world's first four nanometer silicon chip technology. These air-cooled, single-phase and dual-phase immersion cooling miners have unrivaled speed and efficiency.

• 2:21Anthony Pompliano?

  They have superior uptime and they leverage a brand-new innovation called Energy Tune that allows miners to dynamically adjust the energy consumption and Bitcoin hash rate based on demand response needs of the electrical grids. Auradine is an ambitious company working on hard problems. I'm really impressed with them. And if you want to check out more, you can go to Auradine.com. That's A-U-R-A-D-I-N-E.com. Go check them out at Auradine.com today. This episode is brought to you by Cal.com. What do I have in common with Chad Hurley from YouTube, Toby from Shopify, and Alexis from 776 and the co-founder of Reddit? We all use Cal.com instead of Calendly, and we are all early investors as well.

• 3:06Anthony Pompliano?

  Cal.com is leading the charge of scheduling platforms in the open-source sphere, offering you the chance to harness the efficiency previously reserved for elite corporations and tech gurus. If you like to have your calendar organized and be able to have an efficient exchange when scheduling, but you love all of the benefits of open-source technology, then Cal.com's for you. They are transforming sophisticated calendar management into an accessible tool for all via a user-friendly interface. You can customize it and you can make your calendar work for you. Use code POMP for $500 off when you set up your team with Cal.com today. Again, go to Cal.com, C-A-L dot com, and use code POMP to get $500 off when you sign up.

• 3:49Anthony Pompliano?

  Cal.com, an open-source tool that allows you to take back control of your calendar, be efficient when scheduling, and make sure that no one can steal your time.

• 4:01Anthony Pompliano?

  All right, guys. Bang, bang. I've got Danny here with me. Danny, last time we talked was about two years ago. A lot's happened since then. Prices went up a lot, then they went down a lot, seem to be recovering. How do you evaluate, maybe from the top of the 2021 bull market to today, what's happened, and more importantly, why it's happened?

• 4:20Speaker 02

  Well, great to see you again, Paul. And yeah, it's been two years since we last spoke, and it seems like an awfully long time, but a lot has happened. So I guess we've probably been both occupied with the developments in the marketplace. Like me, you've been through multiple crypto cycles. Believe it or not, this is my 11th year in the crypto industry.

• 4:45Speaker 02

  And, you know, the industry has changed, you know, in a dramatic way over that period of time. As I first recall, it was populated almost exclusively by computer scientists and startups called blockchain.com and Coinbase. And we've come a long, long way since then. You know, I think at the CoinShares level, you know, our approach, and we can get into the company, I think, a little bit later, but our approach was to build something very solid, very robust, something which would be fit for a public market, you know, at the top end of the listing spectrum. And accordingly, you know, we built our business quite slowly and carefully, and we have no choice. But some of our peers and competitors

• 5:28Speaker 02

  built their businesses extremely rapidly. And as you will well know, and our audience will well know, we saw a dramatic rise and fall for companies like Bitmex, for companies like Celsius, Three Arrows. You know, the list is very, very, very long. And those companies were both, you know, very fortunate to grow as rapidly as they did. But as we were going through that period of extremely rapid growth for those companies, my impression certainly was they were running a little bit too fast. And I don't think the governance was there. I don't think the risk management was there. I heard some extraordinary stories about, you know, people extending credit that no one in their right mind would extend.

• 6:13Speaker 02

  All looks great in a bull market. But then, you know, you have the inevitable unwinding. And I actually posted something on my LinkedIn at the bottom of the market, pretty much as soon as SBF was arrested. And that was, you know, the low in psychology. It was everybody was not just forced liquidated that was liquidated. Then there was a sort of a delayed reaction where it wasn't you going bust, it was your counterparty going bust that made you go bust. And the sentiment just became maximum negative. And, you know, that was the low of the move, sixteen K or something like that basis Bitcoin. I have seen this multiple times, you know, in my career on Wall Street,

• 6:55Speaker 02

  where there's been a cycle. And it happened in oil, it happened in natural gas, it happened in copper. And the similarities were incredible. There was always, you know, the big market leading company, it would have been Canamatsu in copper, it would have been Metal Gazelle Shaft in energy, it would have been Enron in natural gas, Brian Hunter in Ameren in the natural gas hedge fund business. Very big dominant company, you know, Reed FTX for that and maybe a couple of others. There was a poster child spokesman for that company, all the names that we now know in infamy.

• 7:34Speaker 02

  And when those people, you know, ran out of road and the market began to sense they were vulnerable and people all exited the ship. And they sank in every case and were arrested in many cases and jailed in some cases. That always represented the cycle low. And in each of those examples I just quoted, yeah, it represented the multi-year cycle low of the asset class. So, you know, going back to, you know, the SBF collapse, we were talking sixteen K Bitcoin, that was the wrong price. And given everything, it was the wrong price. It was a victory lap for the haters. There was forced liquidation left, right and centre. There was knock-on effects from third-party exposures that sunk other people.

• 8:18Speaker 02

  And it was the wrong price. So we had something of a recovery, call it to the, you know, low twenties, mid twenties. And then some other interesting stuff happened where there were a series of enforcement actions, you know, largely by the S E C, but not limited to the S E C. And I think those in the in the initial phases had very negative impacts on price. You see the latest lawsuit and the market would be down, you know, a thousand, two thousand dollars on the back of it. And as a market watcher myself, and again, having been through these cycles in other commodities, what you're really looking for is the time when those pieces of news no longer move the market. And the market then sort of becomes immune and impervious to that kind of news.

• 9:03Speaker 02

  And you need to see that because in any investment, you really need to know, you know, where the bottom is, you know, it might be a silty bottom, but somewhere roughly where the bottom is. And when that kind of news can be absorbed without a market impact, you know that there's a little bit of a foundation there. So, you know, now we're in the mid twenties and, you know, we we don't really have much of a catalyst. I think it was very instructive to look at a lot of private company stocks, not just ours, but many, many others, as interest rates, you know, got very high to the five, six, seven percent, depending on which country you're talking about. The valuations and the multiples of all these private companies collapsed and and, you know, in many cases, haven't significantly recovered.

• 9:48Speaker 02

  And I think, you know, Bitcoin is one of those kind of risk on assets, probably arguably the most risk on asset. And therefore, while we were sitting at twenty five, you know, having been too low at nineteen, we're sort of battling this headwind of really high interest rates and and lack of speculative capital and liquidity, you know, shrinking and shrinking and shrinking, not just in the macro environment, but in the crypto environment as well. And that was true of counterparties going out of business. It was true of credit lines that people were offering and could receive and so on. And then all of a sudden, you know, Following July, you know, July was kind of, you know, crept up to near thirty.

• 10:29Speaker 02

  Following that, you know, two things start to happen. You started to see a little bit of a chink initially in the energy price, which took some of the heat out of inflation because the, you know, Russia-Ukraine spike started to kind of wear off. Then you sort of saw a little bit of backing up in inflation as well. And all of a sudden, we're not sitting here thinking rates are going to God knows what number, um, with thinking actually the worst might be over. That's good for another little bump. You still don't really have a catalyst at that point. Okay. You you're just trying to avoid the bullets, as it were. And, um, the catalyst was really, I think, um, you know, let's call it broadly institutionally interesting crypto, something that we've been after for a long time.

• 11:11Speaker 02

  You know, you had a confluence of a number of events. We've got some forward process, forward progress in in regulation in Europe through the market legislation, makes some sense. You know, Switzerland's still a very solid jurisdiction. The UK is a little bit sort of, uh, negative generally with crypto, but trying to make steps to go forward. In fact, if you listen to the politicians, it sounds a lot better than it actually is when you talk to the regulator, but moving in the right direction. And so that started to look a little bit better. Rates start to look a little bit softer. And then we have some tangible input, you know, the BlackRock ETF. And I think that was, you know, that was the catalyst to to really move this. And what it's saying is, okay,

• 11:52Speaker 02

  we've kind of exited all the bad actors. Uh, we've put at least the seeds of a regulatory framework in Europe in place and outside of America. Um, and that's a base on which you can build. And I think that is a legitimate catalyst. I think the impact of that kind of thing. Um, people need to understand that when BlackRock has a product, BlackRock has three trillion of assets that they can deploy, their clients can make a ten basis point allocation to Bitcoin. That's a huge number. And those clients probably wouldn't buy something outside of that environment because, you know, they deal with the biggest and the best clients in the world. So. That I, you know, that I think is where we are and that I, that I think now continues because,

• 12:37Speaker 02

  you know, another thing I've learned about markets over a long period of time is when there is an event horizon and the event horizon in this case is the approval of such an ETF, um, the market tends to move into that vacuum while it's happening. That's why I'm not really in a hurry for a judgment. I kind of like to see this drag on all, all next year would be just fine because I think the anticipation of that uh, is a positive and um, and also, you know, we're seeing for the first time, I would say, um, you know, institutional interest and to be involved in the marketplace from really quality companies who may want us to white label products, may want to buy our products.

• 13:19Speaker 02

  For the first time, you know, we're, we're seeing, and it almost seems to me like, you know, these institutions are going, right, we had a big backup in price. We had a big clean out of, of bad actors. We've got some regulatory framework which we can kind of hang our hat on. We've clearly got the client demand. Larry Fink will tell you that directly. And so we're going to try and get involved and um, hey, this is, this is what, you know, you and I have been sitting around waiting for for many years and I, I truly believe that is happening as we speak.

• 13:49Anthony Pompliano?

  How impactful, if we kind of look forward, maybe the next two to three, five years, how impactful can this be? And I'll give you kind of a, a couple of things I've been thinking about. I don't yet have kind of a strong opinion about, right? One is if somebody wanted Bitcoin badly enough, they probably went and figured out a way to get it is one argument. Uh, a second one is even if the ETFs gathered 50 billion in assets, it's an 850, 900 billion dollar asset. And so how much could you really, you know, it's not like it's going to triple overnight. Another argument is no, this is the signal that everyone gets it, right? Every asset manager, nation state, it's kind of, it is, this time is different and, and there's uh, the breakout of this kind of four year cycle and, and kind of having process. Where, where do you sit and how are you thinking about this right now?

• 14:34Speaker 02

  Well, I, I was around for the creation of the gold ETF in the beginning and, and to date myself. Um, and do you know what the narrative was at the time? It was, okay, you know, this capital is in theory going to come into this space, but the day to day trading volumes of gold are actually not large enough to sustain that kind of capital inflow. You know what happened? The daily trading volumes of gold went through the roof. And, and you know, when we, CoinShares, and I'm not sure how publicly available this research is, you might have to call James Butterfield, our head of research, and ask him nicely if any viewers are interested. It could be on our website, I'm not absolutely sure.

• 15:15Speaker 02

  We, we did a, you know, we, we lead the industry in terms of providing data on institutional inflows into crypto. And so we have some very granular data on that, and we, we did a research on our own, and we said, okay, we think we know the price elastic response to inflows to the price of Bitcoin. We can correlate that back over time. Half our marketing and research team, by the way, came from the gold business, funny enough, because we hired them from WisdomTree, actually, to come to the crypto industry. And so they're very familiar with that whole, that whole development back in the gold ETF beginnings. And so, you know, we modeled what we reasonably thought the inflows would be. You multiply the inflows by the price elastic response, and you end up with a price.

• 15:58Speaker 02

  And that price, I think, came out to between $115,000 and $140,000. Now, I have never, in my entire crypto career, been the guy saying the moon and 500K and, you know, all that kind of rubbish, but this is just math, right? This is just like a reasonable assumption for these kind of inflows. Moves it that way. Now, what's the causality there? You can't just say that the creation of a gold ETF and the inflow of institutional clients who wouldn't have otherwise invested in gold was the only factor, because once they start doing it, the retail starts doing it as well. So, so I do think that it will be, you know, maybe

• 16:42Speaker 02

  the type of people you mentioned in your first comment, those who figured out how to do it first, it's probably where we are right now. Second, you know, you get the actual announcement, there's maybe a little profit taking. Usually the rumor, buy the rumor, sell the fact thing is a, is a, is a good strategy to trade. And after that, you're sitting there waiting for inflows to come into the, into the actual ETF. And, and I think that will be a real driver. Happened also in the silver ETF, which came after the gold ETF. And Barclays, who used to own the silver ETF before they had the problems in 2008, had to sell it to BlackRock. Um. Used to publish a very useful spreadsheet showing you how much silver had been accumulated into the ETF week by week by week.

• 17:27Speaker 02

  And after six months of this, you could draw a line through it and kind of go, there's not enough silver. And silver reacted, you know, accordingly. So. So, yeah, I think it's real and I think it starts with the guys that can already do it. It's followed by the institutions and then it's followed by the retail guys who probably got a little bit burnt, you know, in a couple of the dips, particularly in twenty one. Um. But it's it's a green light across the board, I think.

• 17:54Anthony Pompliano?

  Now, when we look at um what is happening now, there's some people who are front running Federal Reserve, potentially moving back towards loose monetary policy, cutting rates, you know, kind of the the whole narrative that I think people are grabbing on to. How important is the Federal Reserve for the movement of Bitcoin's price? And um on one hand, we see these like, you know, Bitcoin over global M two supply. On the other hand, we see the Fed still committed to destroying investor demand and Bitcoin's up, you know, one hundred and fifty percent uh on the year and it seems like, you know, could care less what Jerome Powell says in his press conferences.

• 18:28Speaker 02

  I think it makes a huge impact. Um. You know, it's just looser credit, you know, Bitcoin is a very responsive act uh uh asset class um to looser credit. Um. I'm surprised it didn't do a little bit better under the inflationary kind of regime. Um. But, you know, for all those who said, oh, it's disappointing that Bitcoin didn't rally more, you know, during the inflation recycle. Because Bitcoin had been touted as an inflationary asset. Well, we didn't really know that because because um we'd never seen an inflation recycle before in the history of Bitcoin. It was too uh too young.

• 19:08Speaker 02

  So I think, you know, what we've learned and we do keep learning as time goes by. About how Bitcoin responds. To me, it is a risk on asset backed by some technology tailwind that slowly permeates it out amongst many, many more users. As you can see from wallet adoption and the amount of Bitcoin in wallets, it just diffuses out into space continually over time. So yeah, I do think that we're clearly on the shallow beginnings of a down cycle in rates. And the Fed has not done a great job of reducing the size of the balance sheet to date.

• 19:52Speaker 02

  Neither have any other central banks. Not quite sure how good they're ever going to be at doing that. And as cycles happen, maybe we'll do some more money printing at some point in time. So I think there's a modest tailwind, all other things being equal. And as we see failure to reduce the balance sheets and arguably in some extraneous circumstance, more money printing, it seems to be unavoidable over time, politically unavoidable. Then we wrap shit higher still. So this is not a crazy bull market like it's going to be up $10,000 in a day as it has been from time to time in the past.

• 20:33Speaker 02

  I think it's a really broad base, potentially broad base and very solid rally that could go on for some time.

• 20:40Anthony Pompliano?

  Now, coin shares, I think is very interesting business because you basically have exposure to different parts of the market, right? I've seen reports that say, hey, look at their principal investing. They're fantastic investors. There's others that say, wow, this asset management business is going to do really well as prices go up. There's even been some coverage, I think, from some of the research analysts that are like, coin shares benefits when ETH goes to proof of stake, right? There's just kind of all kinds of different things being written or covered about the business. How do you think about coin shares? And like, when you think of, okay, this is a business we have today, how do you describe it to people?

• 21:16Speaker 02

  Yeah. Well, two ways to describe it, really. It's one, what do we do from a qualitative perspective? And two, how do our earnings actually respond to different market conditions?

• 21:29Speaker 02

  So if I had to describe it in a few words, it's an asset management business. Um, we currently have around four billion and we have it in a wide array of products now. Um, we have our legacy XPT provider products in Sweden, which incredibly popular from the day they listed. Um, we have CoinShares Digital Securities, which is a platform um of a different kind. It's a little bit more institutionally focused, a little bit more institutionally structured, a little bit cheaper fee wise. Um, multiple products there and multiple listings on different exchanges, you know, for those multiple products. We have a couple of um private trading funds run by a chap that works for us called Lewis Fellas.

• 22:14Speaker 02

  Um, that do relatively sophisticated, you know, Bitcoin and E- strategies for high level of private and institutional investors. We have an equities fund, the block index that we joint ventured with Invesco. We have CoinShares Fund Two, which is now four years old and is a ten year duration private equity. Um, fund, uh, closed, that run by Milton Tameras. Um, so you know, a pretty wide spectrum of investment product and you know, you've seen the news recently that we are involved with Valkyrie. And we're hoping to also be a player in the, in the US ETF market now. So quite a wide, a wide different array. And it's, it's been really interesting to see how loyal certain customers are to certain geographies and certain structures.

• 22:59Speaker 02

  They know this ticker. I mean, that ticker's cheaper and it's the same exposure, but they don't really move. And um, and our, our capital base is very, very sticky. And I'll tell you an interesting fact. Which is of our, of the assets that we currently have, I think we have given back way more than the invested capital that we ever received. In other words, everybody in our network on mass, you know, in sum is trading with house money. And I've never seen that before in an investment product. Um, and the truth, you know, one of the, one of the sort of unspoken truths about the asset management business in crypto is you never really raise that much money. You kind of got to have money from three years ago that's multiplied significantly.

• 23:44Speaker 02

  And that's actually by far the best source of fresh AUM. I mean, the last month or two, I think our AUM has gone up by like six hundred million dollars. And that's purely, you know, I mean, there might be ten, twenty, fifty, hundred million, you know, here or there coming in or out, but basically it's because the asset class is going up. So that's where we are actually synthetically quite long Bitcoin. Because the more Bitcoin goes up, the more AUM goes up, the more our fees go up, very simple. And that's a good exposure to have. So that's that. The second part of the business, which has been really evolving over time, just changed, changed so many times actually over the years, is CoinChet Capital Markets,

• 24:27Speaker 02

  which is our market making business, which was started back in twenty fifteen, probably twenty fourteen, because no one else would make markets in our securities, because no one had the securities leg and the crypto leg simultaneously. Crypto guys and securities guys, but nobody did both. So we started that business. It's been through a number of cycles, you know, broadly speaking, we make markets in our own products. And as, as conditions permit, you know, we'll make markets for third parties. And we do an amount of arbitrage trading, whether it's, you know, buy on this exchange, sell on number one, buy a derivative that's underpriced versus another derivative that's overpriced. And, you know, no outright exposure or stuff like that, but, you know,

• 25:12Speaker 02

  these days we're probably doing between one and two billion a month. In the peak, we're probably doing five billion a month in that business. It is represented over time anywhere from twenty five to fifty percent of our overall revenue. So in some cases, almost matches the fee business that we have. And what's happened, you know, despite the fact that volumes have gone down, the competitive landscape has shrunk by at least fifty percent, and so margins have gone higher. And I don't think we're quite where we were, but it's not as bad as it sounds when you talk about a fifty percent drop in volume. Um, it's, uh, you know, the, the, the, the money that can be made is, is actually um, more than, you know, it's, it's more than that. So

• 25:55Speaker 02

  and that, that business, it sounds simple, but you know, you have to set all kinds of banking mines and exchange facilities and and really be able to actually operate to, you know, manage the risk, measure the risk and, uh, and have the sort of liquidity and the partners around that you need to, to make that work. So you know, that's, that's quite a mature business at this point. It's, it's run quite professionally and it's a big contributor. Um, the third part is, as you say, you know, we have eh, investments in probably forty companies. If you, if you look at all of the pockets we have, um, some of those are actually side pockets and ex-investors and pre-IPO investors that pretty much mirror the current cap table. Um, we have a fund with that group. We have a coin chess fund too.

• 26:40Speaker 02

  Uh, we have, um, you know, some stuff on the balance, some significant stuff on the balance sheet as well. And, um, and yeah, you know, those are generally, you know, we've had a few losses like everybody else, uh, a few write-offs like everybody else. But, you know, dotted around there are some real winners. A, a great example was BlockDemon. Uh, we had a position in BlockDemon, you know, one of twenty-five positions in CoinShares Fund Two, and we managed to return all of the invested capital to the investors by selling a piece of that position. Um, when, you know, in twenty twenty-one, which is obviously a wise thing to do in retrospect. So there's been some, uh, good winners there and, you know, more importantly than that, that's nice, but more importantly,

• 27:25Speaker 02

  we've done lots of business with our significant private equity positions. So, you know, we do a lot of business with Kimenu, our custodian that we launched with Nomura and Ledger. We do a tremendous amount of business with Flowbank, in which we're a big, you know, client, um, a big, a big shareholder. And we've done all the business with Three IQ, uh, in Canada, you know, issuing, uh, ETFs. Uh, with Kingdom Trust, um, uh, who have recently gone through. Through a buyout process, which was a good deal for us. So, and in all of those cases, you know, we're either clients of theirs or created and co-marketed products with them, or they became clients of ours. And, um, and, and that's been, um, that's been, you know, a good activity.

• 28:07Speaker 02

  Not nearly as impactful as the trading and the investment management business. Um, but, but we shall, you know, we, we, we're still in the game, you know, with a lot of those and see, see, we'll see how they go. The final point I'll make, and this is a new one. So I would say what I just said six months ago. The new one is, is really in two pieces. There's money on the edge of crypto that is either crypto money. So. Um, just to throw out a couple of names, you know, the binances, the tethers, the, you know, the, the, the, the, even DCGs arguably of the world. And, you know, these guys may in some cases not be deemed experienced enough to operate a regulated crypto business.

• 28:50Speaker 02

  Um, that's kind of a requirement in many, many cases now. And, you know, if you don't have the track record and you don't have the infrastructure. Or you've made missteps in the past, it's very hard to obtain those kind of licenses. We have a lot of licenses and, um. And, you know, they've been hard, hard for three, four years to get some of them. And, um, and so we find ourselves in a position where we can actually form a buffer between capital and regulated businesses where those. That capital cannot directly access and will find ways, you know, to make that work, you know, within the appropriate regulatory framework. The second thing, uh, that's going on is, you know, there is.

• 29:33Speaker 02

  There is a, a cohort of asset managers who can't make it pay. Because, believe it or not, you know, and I've seen some examples of this, you know, you can have a few hundred million dollars. In a crypto asset management business and still not be able to make it pay. Because of, you know, relatively low fees and relatively high regulatory costs and staffing costs. And so there's an opportunity for us and, you know, I think the Valkyrie deal is probably in that, in that flavor. Where, you know, we can bring our scale, um, we can operate some of these businesses. Very little incrementally. And so there was a roll up trade going on where, you know, the bigger managers can can take out the smaller managers and that can be on an outright

• 30:15Speaker 02

  purchase or on a buyer on a JV basis. So and that's that's a new activity, you know, and that to me is us finally getting paid for the gold plated infrastructure that we spent so long and spent so much money on building.

• 30:30Anthony Pompliano?

  Now, on this part of, I'm going to call it, there's like the systematic stuff, right? Where you either are passive in the market or you're not making decisions yourselves versus what I'll call maybe more of like the past in terms of understanding macro, understanding markets, making private investments. How much of crypto is different maybe than, let's say, in the traditional financial system where, you know, people see everyone from the citadels all the way to the point 72s to, you know, even Dalio and Bridgewater. Like, a lot of these folks, I think, have really driven home this idea that, like,

• 31:15Anthony Pompliano?

  the machines are making the decisions. We don't seem to see that much of it. Obviously, market making maybe is a little bit different than some of the private investments. And maybe there's like the two extremes. But how do you think about like human intervention versus machines, software, AI, and like this rise of the machines are smarter than the humans?

• 31:35Speaker 02

  Something that's been a, you know, a growing trend throughout my entire career. You know, when I started, it was 100% humans and that is definitely not the case anymore.

• 31:48Speaker 02

  In the company that predated CoinShares, the commodity fund that me and a couple of my partners ran, we actually ran both strategies. We had a purely quant strategy and we had a purely discretionary strategy. And I ran the discretionary strategy and one of my partners ran the quant strategy. And I have to say, I think they were very complimentary. And but the style could not be more different. Um. It's an entirely different activity. Um. So, you know, I don't think there's any, even even in the companies you just mentioned, the D Shores, the Citadel's, the all these, you know, the the the Millennials of the world. Um. You will find, actually, if you go below the surface, that both of those styles still exist.

• 32:34Speaker 02

  The difference, and when it gets a little bit

• 32:38Speaker 02

  let's say, um, uh, what's the word, a camouflaged, is in execution, you almost need an algorithm these days. Like, in my day, you'd pick up the phone and say, you know, buy a thousand lots of crude oil. And then someone would scream onto the floor that you buy a thousand lots of crude oil. Nobody does that anymore. So, and the reason you need algos is that there are so many other algos that as soon as you put in an offer, someone's going to be ahead of your offer, maybe ahead of your offer, and they're going to, they're going to game you. So, so you shouldn't really be confused that the, that in a way, you might have a Stan Druckenmiller sitting there going, you know, I want to buy, you know, a hundred million for ten years. But he's not going to pick up the phone to the Chicago Merc and and say those words. He's going to give that to Goldman or whomsoever.

• 33:23Speaker 02

  And they're going to run a smart algo that's going to do that. And that, it's just a cat and mouse game. You know, there's no, I don't think there's any intellectual input into that. We run a ton of algos in coin shares to do exactly that. You know, if we get lifted on a market making offer somehow, there'll be some algo running on how you're going to get that, you know, that position back again. Um. Those algos are written by humans, by the way, not an AI, at least not yet. So so in a way, you know, you're just really codifying what you would do if you were sitting there and you could do it that fast, which you can't. Um. But a lot of the, you know, our quants will sit around and they will write those algos. But the logic behind those algos, you know,

• 34:06Speaker 02

  would be no different to what a good discretionary trader would be doing and executing in order. So it's really, what's your strategy? Is it a discretionary strategy? There's a place for that. Is it a coin strategy? There's a place for that. But pretty much either way, you're executing with an algo.

• 34:21Anthony Pompliano?

  What are you most excited about thematically in crypto? So not like products, not coin share, you know, in terms of business lines. But are there certain themes or areas of the market that you feel like are either under, you know, scrutinized at the moment and will be bigger than people think? Or maybe even areas that everyone's talking about that you're less excited about and think could be overhyped?

• 34:44Speaker 02

  I think the most interesting observation, Pom, is I never really understood how there was room for the proliferation of different crypto assets that occurred. For quite some time, I was active in crypto when it was only Bitcoin. And then I think there might have been Litecoin, and I think there might have been Ethereum. But it seemed like a long time to get to like three cryptos. And we somehow went from three to 20,000 in a very short period of time. And what I realized finally was crypto is, you know, very, very, very low hurdle of entry, very high hurdle of success.

• 35:30Speaker 02

  And it's been, you know, it's been frustrating that, you know, I've been involved with the Tazos Foundation for some time now. Tazos is a great blockchain, a very secure, very sophisticated blockchain. It's one of, you know, in my view, probably the top five in terms of its functionality.

• 35:48Speaker 02

  But it is very, very tough to unseat Bitcoin as a store of value and Ethereum as a utility at this point. And there are some other promising, you know, candidates for sure. But it just seems that, you know, the longer time goes on, the more the infrastructure built around the legacy, old legacy coins becomes more of a factor for their longer term survival. And that makes sense in a way because as we know, improvement protocols are there so that the community can improve the network on which they're working. And if they're getting an idea for the near protocol

• 36:30Speaker 02

  The AdWords protocol, um, why not, you know, if it's a good one, bake it into, you know, into Ethereum. So what I think, what I think I'm learning here is that I wasn't sure how this would all unwind, but it does seem to me that, you know, there will be some sort of Darwinian extinction of a large number of cryptos. And unfortunately, a lot of those cryptos are the ones that, you know, the the uninformed retail investors might have piled into in twenty twenty and twenty twenty one. Um, you know, some of them shocking, you know, shocking in terms of performance in ninety five percent declines and stuff like that. And I think a lot of those things are walking dead. You know, I think we may be now reverting to,

• 37:13Speaker 02

  you know, a, a very limited number of meaningful crypto networks. And, you know, I think we just need to sort of circle in around those and kind of forget about a lot of this other stuff. And that, you know, that kind of evolution doesn't happen in normal financial markets. In all financial markets, things are built behind a wall to last very robustly, very innately, very featureless. And they'll be there for twenty years, like my HSBC bank account is pretty much the same as it was twenty years ago. Um. That's not the way crypto works. And so we had to find another creation extinction mechanism. And I think that's what we've been seeing. So this may sound boring, but I'm most excited about Bitcoin and Ethereum for those reasons.

• 37:54Anthony Pompliano?

  I, I think that a majority of the market probably feels exactly the same way. Um, another question I have is you've been doing this for ten, eleven years now. Uh, when you first did it, you've told me a lot of your peers kind of looked at you like, hey, Danny, you, you okay? What, what are you doing?

• 38:11Anthony Pompliano?

  A decade later, uh, have they capitulated? What, what are some of your peers doing? What are they saying behind closed doors?

• 38:17Speaker 02

  I think what my, and I'm talking about my peers outside of, you know, my financial market peers, okay? Not, not my, you know, not my inside crypto, uh, kind of peers, but. But yeah, there are a cycle or two behind me, you know, they'll get there when, you know, you come to realize that, you know, there's a particular kind of heartbeat to crypto. It is more volatile than other asset classes. And, you know, just because you lost forty percent on your last purchase and might have been ill-disciplined in how to deal with that potentially, you will learn. And, and, you know, I felt like, you know, post 2021, there, a lot of my kind

• 39:02Speaker 02

  of outside crypto network, um, kind of gave up on it. It was like, oh, you know, that's done, you know, that's over. And now, all of a sudden, like, my doctor called me up and was like, talking to me about, do I like Bitcoin more than Ethereum, but how do I, you know, get involved, you know, in this current marketplace? And I want to hold my own keys so I don't have exchange risk. And so they're coming back now, no doubt about that. And it's always when my phone's ringing with those kind of people that, you know, you realize you're in a different cycle. And, and I suffered the same thing. I mean, my first exposure to Bitcoin, I bought it at a hundred, it went to a thousand over the course of a year, and then it went to eighty, and my reaction was, oh, that

• 39:44Speaker 02

  was fun, but it's over. Right? It's over. And then you learn. So cycle number four or five, you know, you kind of figure it out. And it might not be an investment you want to hold all the time, but when it's good, it's better than anything. And, and I think people, you know, are now dusting themselves off from, you know, the 2021 debacle and getting back involved. Now, you know, what they should have done is read my LinkedIn post from, you know, right after Sam was arrested, where I was like, this is the wrong price. Yeah. So another guy that sort of blew up the world. And, um, and, and, and, you know, it's like seven out, as they say on the craps table. Um, but, you know, this, this, this is coming back. And I, I just think this is going

• 40:24Speaker 02

  to be a feature of crypto forever. And, and maybe one day we'll, we'll reach a point where nobody is a naysayer, nobody thinks it's worthless, nobody says it's backed by nothing and therefore is useless and is, you know, just a hotbed of criminal activity. Once you do not hear that anymore, we may well have reached the terminal price, but those voices are still pretty loud. And, um, and that what made, that's what makes me, you know, optimistic for the, for the future.

• 40:51Anthony Pompliano?

  Now, my last question is, if we had talked five years ago, maybe, definitely further back than that, and somebody said to me, hey, who is Danny? Most of the description of your career would have been in the traditional financial world, if not all of it. When your career is done, when you decide, hey, I've had enough, are you going to be known as a crypto investor or as a traditional markets investor? And do you see pros or cons of either one of those?

• 41:20Speaker 02

  Well, I'm gonna, I'm gonna reveal something to you tonight, Pom, and we'll see what you want to do with it. But so in July of this year, I turned 60. And I feel like I'm very, you know, young in body and young in mind, but the math is the math, okay? And I went on a, I went on a, I want to say it's like when you renovate your house. I went to a clinic for two weeks and I had every test known to man and every therapy known to man. I had a nagging shoulder injury for a long time. You know, I had all kinds of stuff done. I may or may not have had a little bit of

• 42:02Speaker 02

  face work done. We don't need to publish that too much, but I just wanted to, I wanted to sort of go, okay, we're gonna, this has been the family house we've been living in, and we want to live in it for a little bit longer. So, so that's what we're gonna do. And one of the things on my list was something that I promised Jean-Marie, our CEO, my good friend, we made some promises to each other back in 2014. And one of them was if Bitcoin ever got to $1,000, I would have a Bitcoin tattoo. And, and many years later, so that must have been, you know, nine years later, I delivered on the promise. And part of, part of the, part of the thought

• 42:46Speaker 02

  process, because I'm not a tattoo dyer, as you can imagine, but part of the thought process was, I wanted a kind of a memorial to Bitcoin and what it's done for me. And but that wasn't enough. You know, when I thought it through, I thought that wasn't really enough. And, and what I, what I thought was, you know, this is something I wanted to do for what Bitcoin is going to do for me and for the world going forward. And that was a really conscious choice. Okay. I'll show it to you if you want.

• 43:15Anthony Pompliano?

  Yes.

• 43:23Anthony Pompliano?

  No way.

• 43:28Anthony Pompliano?

  That is amazing. How long have you had that?

• 43:31Speaker 02

  I had it July 4.

• 43:33Anthony Pompliano?

  Wow.

• 43:35Speaker 02

  And I'm telling you something, I had to think long and hard whether the Bitcoin market would rally because I didn't want to fall into the same trap as Novo.

• 43:46Anthony Pompliano?

  Novo and you are going to compare notes in five or six years to see who made the better tattoo choice.

• 43:52Speaker 02

  I think there's a long way to catch up, but anyway, so to answer your question, and that is the answer to the question. I think Bitcoin is a magical thing. I will, I will never cease being fascinated with it. You know, I kid you not when I say, obviously, you know, I have a lot of my net worth tied up in the company. I have a lot of them tied in, you know, some of the liquid investments, 100%, well, 95% to do with crypto.

• 44:19Speaker 02

  And I can never get it right. I can never like get liquidity at a good price in my stock to get me cash to buy Bitcoin. Because by the time Bitcoin's up, you know, it's a chicken and egg. But if at any point in time, you know, I do get meaningful liquidity for my rather large position in coin shares. I am seriously thinking about just becoming, you know, I'm doing, you know, the ultimate thing, you know? We know it's a store of value. We know it's a medium of exchange, but is it a unit of account? I want to make it a unit of account. I want to, and I know there are some people who already do that. More the, more the maxies than the normal guys, but I actually want to do that because I really do believe in it. And, and that's as much as believing in Bitcoin as disbelieving fear, but, but I plan to do that ultimately.

• 45:03Anthony Pompliano?

  That's a fantastic answer. I did not expect that. So that may be one of the best answers we've ever had. Danny, where can we send people to find you on the internet or learn more about coin shares? If they're intrigued by what you guys are building and want to learn more?

• 45:16Speaker 02

  Sure. Well, you know, DM or coinshares.com or Danny L. Masters, all letters on Twitter.

• 45:26Anthony Pompliano?

  Awesome. Well, Danny, thank you so much for doing this. You are an investing legend, and I think you've been a pioneer in Bitcoin and cryptocurrencies for a long time. So people are very excited to hear your thoughts on where we are in the market, and we'll definitely do this again in the future.

• 45:39Speaker 02

  Awesome, my friend. Keep well. I look forward to seeing you the next time. Hopefully, hopefully you have this discussion at a big high price.