#545: Jesse Proudman on Automated Crypto Investing

Jesse Proudman is the co-founder and CEO of Strix Leviathan, a quantitative crypto hedge fund algorithmically trading digital assets. He and his team is spinning out Makara, which is the first SEC-registered crypto robo-advisor. In this conversation, we discuss automated investing, defensive crypto, market drawdowns, bull market cycles, importance of SEC registration, and what is next for Makara. ======================= Circle is a global financial technology firm that enables businesses of all sizes to harness the power of stablecoins and public blockchains for payments, commerce and financial applications worldwide. Circle is also a principal developer of USD Coin (USDC), the fastest growing, fully reserved and regulated dollar stablecoin in the world. The free Circle Account and suite of platform API services bridge the gap between traditional payments and crypto for trading, DeFi, and NFT marketplaces. Create seamless, user-friendly, mainstream customer experiences with crypto-native infrastructure under the hood with Circle. Learn more at circle.com ======================= Exodus is an absolute game changer in the crypto wallet space, and we’ve teamed up to offer an exclusive discount for you, as listeners of the podcast. Sign up for Exodus today using my promo code Exodus.com/pomp. This is a no brainer for both newcomers and crypto heavyweights - go sign up today. ======================= With 10M+ users, Crypto.com is the easiest place to buy, and sell 100+ cryptocurrencies. The Crypto.com Visa Card gives you up to 8% back instantly, and 100% back on Spotify and Netflix. Also, Crypto.com lets you earn up to 8.5% p.a. on BTC, and 14% p.a. on stablecoins. Get $25 when you download the Crypto.com App with code "pomp". Download the App now: https://crypto.onelink.me/J9Lg/pomppodcast2021 =======================

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

• 0:00Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Jesse Proudman is the co-founder and CEO of Strix Leviathan, a quantitative crypto hedge fund, algorithmically trading digital assets. He and his team are also spinning out Macara, which is the first SEC-registered crypto robo-advisor. In this conversation, we discuss automated investing, defensive crypto, market drawdowns, bull market cycles, the importance of SEC registration, and what is next for Macara. I really enjoyed this conversation with Jesse, and I hope you do as well. Before we get into the episode,

• 0:41Anthony Pompliano?

  though, I want to quickly talk about our sponsors. First up is Circle. Circle is a global financial technology firm that enables businesses of all sizes to harness the power of stablecoins and public blockchains for payments, commerce, and financial applications worldwide. Circle is also a principal developer of USD Coin, USDC, which is the fastest-growing, regulated, fully-reserved dollar stablecoin in the world. It now has more than $14 billion in market cap, and it's adding nearly $300 million of net new digital dollars in circulation every single week. The free Circle account and suite of platform API services bridge the gap between traditional payments and crypto for trading, DeFi, and NFT marketplaces. I've had Jeremy on the podcast numerous times. I'm a big fan of what Circle's doing,

• 1:26Anthony Pompliano?

  and I highly suggest you go check it out. You can learn more at circle.com. Again, that's circle.com. Next up is crypto.com. With over 10 million users, crypto.com is the easiest way to buy and sell over 100 cryptocurrencies. You can download their app at crypto.com and get $25 with my code Pomp. Again, crypto.com, download the app, and you can get 25 bucks with the code Pomp. If you don't want to spend your crypto, nothing beats the crypto.com Visa card. But that also is for if you do want to spend it, which it pays you 8% back instantly, and comes with amazing perks from Netflix, Spotify, and Amazon Prime subscription. So, if you want to get airport-

• 2:10Anthony Pompliano?

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• 2:54Anthony Pompliano?

  across multiple devices so you can have access to your funds anywhere. You can instantly exchange around 100 different cryptocurrencies straight from your wallet. Interactive charts let you view an asset's price history and your portfolio's performance over time. And maybe the best part, Exodus is integrated with the treasure hardware wallet, making advanced security easy for everyone. Go visit them at exodus.com/pomp for your free download or search Exodus on the App Store or the Play Store. Go to exodus.com/pomp and check it out today. Exodus.com/pomp. If you go there and you download it, you will then tweet at me and you will be like, damn, this was actually really, really beautiful. So go check it out. All right, let's get in this episode with Jesse. I hope you enjoy this one.

• 3:39Speaker 01

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

• 4:04Anthony Pompliano?

  All right, guys. Bang, bang. I've got Jesse here with me. Thank you so much for doing this.

• 4:08Speaker 02

  My pleasure. Thanks for having me.

• 4:10Anthony Pompliano?

  For sure. Let's start with just how you're spending your time right now. I know you guys have the hedge fund and then you've got this new product. Maybe let's start with the hedge fund. Give us an overview again of Strix Leviathan and come with the focuses there.

• 4:25Speaker 02

  Yeah, absolutely. So Strix, we founded three years ago. We launched our fund in April of 18. So we've just now crossed over the three-year anniversary of having a track record, which is pretty rare in this space to find folks that last that long. And it's been going phenomenally well. The team's grown now to about eight folks or so. The investment team there has grown pretty significantly. And at the end of the day, like that fund, it's a, you can think about it as defensive crypto. We started it because I took a little bit of money in 2017 and turned it into a lot of money, and then back to a little bit of money personally. I was like, there has to be a better way to participate in this space. You know, there's a lot of people that argue for Hodl, and I just found that I'm not one of the people that can tolerate an 80% drawdown. Like, it's just not for everybody, right?

• 5:08Speaker 02

  And so I wanted some way to have exposure to this space that just felt safer, felt defensive. And that's exactly what the fund has done over the last three years. So it's been really neat to see it sort of manifest itself and to follow through with the vision that we set out. And then we're just, we're beginning now, given the size of the team, we're beginning to be able to spend time and energy in areas that we haven't been able to focus on in the past. So the set of strategies that we run, where historically they've been predominantly momentum strategies, you can think of them like commodities trading strategies by far and large. We've really added some pretty sophisticated machine learning over the last year and statistical analysis into the mix.

• 5:49Speaker 02

  And it's just neat to see new things come to fruition in the platform.

• 5:55Anthony Pompliano?

  And so when you think about kind of taking a defensive strategy during a bear market, no-brainer, right? Obviously, as you said, nobody likes to take an 80% drawdown right to the chin. But how does that play out during a bull market? So kind of like, what are the opportunities and the challenges with operating that type of strategy in a bull market?

• 6:15Speaker 02

  Yeah, absolutely. So if you think about what the objective of the fund is, we're trying to return a better risk-adjusted return over a complete market cycle. So that means slower drawdown, smaller volatility. We're trying to capture sort of 60% to 70% of the gains in a bull market and 0% to 20% of the losses in a bear market. And in aggregate, it's just a more comfortable exposure in a lot of ways. We found that resonates with a lot of family offices and high net worth individuals who are just sort of beginning to dip their toes in the water here. And it just, that feels like a more comfortable investment. The challenge there is that in a bull market like we're in, you sort of, you're always going to lag the aggregate performance. It's just part of the strategy set. And so you've got to find investors that understand that that's part of the objective,

• 7:00Speaker 02

  that it's, we're not here to outperform Bitcoin. Like, that's not our sole purpose in life. We're not here to outperform sort of all of these new and exotic tokens that are on in the market. And there's plenty of vehicles to do that. And there's folks that are phenomenal at that specific investment style. It's just, it's a different approach. So it's really been, we've spent a lot of energy thinking through, how do we explain what we do and the why? The why of what we do to folks? And that probably is the largest challenge we experience.

• 7:36Anthony Pompliano?

  And when you think about kind of how you measure success, what are like the KPIs? So when you're talking to an investor, who's somebody who's evaluating this strategy versus other strategies that they could look at, obviously, it's not just a return. What are some of the other KPIs that they're looking at? And kind of find importance in if they choose that this strategy is something that they would want to incorporate in a portfolio?

• 7:58Speaker 02

  Yeah, we measure two things predominantly. It's Sortino ratio and drawdown. So our objective is to limit drawdowns. They'll still exist, given we're a long-short fund. But our objective is to limit those. So if you think about Bitcoin's history, since we've been operating as a fund, drawdown is sort of 80, 85%. Our drawdown is a fraction of that max drawdown. And so it's really, it's about providing sort of comfort in those numbers. And then Sortino, like our objective there is capture more of the wins and fewer of the losses. And that stat, more than a Sharpe ratio or anything else, does a great job demonstrating that ability.

• 8:37Anthony Pompliano?

  Explain that a little bit more, because I think that that's probably a stat that most people aren't familiar with.

• 8:41Speaker 02

  Yeah, so Surtino ratio, it's basically a numeric calculation that allows you to look at both the wins and the losses of the fund and from a return perspective and be able to put sort of a measure to that that can say for the gains that you've experienced compared to the losses you've experienced, sort of what is the, what is the relative ratio there? So it's just, it's, it's an objective way to measure investment vehicles that, that looks not just at raw return, but looks at the risk and the gains.

• 9:15Anthony Pompliano?

  Got it. And so you now have a kind of a spin out, if you will, you guys are building a technology platform. It's a consumer facing technology platform, McCara. Talk a little bit just about where did this idea come from? And then what have you guys built so far?

• 9:30Speaker 02

  Yeah, absolutely. So we founded Strix in 2018 with a thesis that the institutional infrastructure in crypto really was non-existent or abysmal. And with that thesis, ended up building this octopus software platform. It's an investment management platform and we've identified it as effectively the most robust investment management platform in the space. And that's what we've used to run the Strix Leviathan funds over the last three years. Last summer, we got together as a team and really did some analysis around, how do we open up these markets to a broader set of people, a broader set of investors? As a hedge fund, from a regulatory perspective, we're limiting, limited to who we can sell to, right? We, the Nest Fund is a 3C7 fund, so we can accept qualified purchasers, which

• 10:13Speaker 02

  means you have to have $5 million of investable assets to participate in our vehicle. And that's not, it's great. We, we love our LPs. We've done a phenomenal job for them, but we, we want to be able to, to touch more people. We want more people to have access to this asset class. And so as we thought about that, we, we really, we started to look at why aren't people allocating here? What is the issue with this asset class that causes people to sit on the sidelines? And so we went and we spoke to a bunch of prospective customers, doctors, lawyers, bankers, tech execs. And we started to see this repeated message, like the space is just too intimidating. We've got 9,000 different assets now. Everything's named exactly the same thing or with some peculiar name that's impossible to pronounce.

• 10:56Speaker 02

  You've got a completely foreign lexicon that people have to learn to figure out how to interact. And then sort of all the tools and technologies. Sort of the wallets, like they've gotten so much friendlier over the last couple of years, but they're still pretty intimidating and the risk of loss is total, right? You make a mistake and you lose all your money. So that's, nobody wants to have egg on their face or be the sort of clown in the room by making a mistake. And so we looked at that and we looked at what we built on the octopus side. So there has to be a way that we can provide people easier access to this space. And so we found, we found effectively with the SEC an avenue to register as crypto's first robo advisor. So we're an SEC registered investment advisor with the SEC.

• 11:41Speaker 02

  And that allows us to effectively build investment baskets that clients can come and select. These baskets are the equivalent, you can think of them like thematic ETFs. So an investor can come to Macara, sign up, they go through a Q and A. So unlike sort of traditional robo advisories where you're trying to figure out your risk profile, like I have my low risk, medium risk, high risk, like everything in this asset class is risky. It's risky, risky or riskiest. So the goal here is it's more about figuring out your interest, like why do you want to participate in this space? Some people are like, look, I just think Bitcoin's interesting. So great, we've got a Bitcoin basket. Some people can say, look, I'm concerned about inflation. That's my number one worry. We could give them a modern inflation hedge basket that's half Bitcoin, half tokenized

• 12:26Speaker 02

  gold, rebalanced on a quarterly basis. So there's a bunch of different avenues that we can utilize to, to get people on the platform and to make that process simple. Like the goal here is you don't have to understand all of the nuances and complexity of this asset class to participate.

• 12:42Anthony Pompliano?

  And so when you think through kind of spinning out a product that you've built, maybe just walk through kind of how you guys historically have split resources internally and then why spin it out versus keep it internal?

• 12:55Speaker 02

  So the Strix team historically, I mean, that's grown into a phenomenal business. It's a profitable operating entity. We've got a great team there of investment professionals that are focused on building and deploying the best strategies we can in that fund. And so it's exciting to see us reach that milestone. It's a pretty meaningful milestone. But as we looked at this, we recognized there was this opportunity to build this new product. And so we decided to sort of spin it out as its own entity and raise capital specifically to go grow that vehicle. And the neat thing is that these two, the two businesses are very complementary in nature. So the improvements we make on the Octopus trading platform within Strix benefit the Macara clients and the learnings we make on the Macara side in terms of the passive

• 13:40Speaker 02

  products go back into the Strix side. So being able to spin it out and have it to dedicated teams allow us to really get the proper resourcing on each side and grow the organization successfully.

• 13:51Anthony Pompliano?

  Yeah. And so when you start to roll this out, what's the importance of that SEC registration? Right? Obviously, you guys being the first ones to get it, just kind of being first to do a lot of stuff with regulators is important. But how do you view the importance of actually SEC registration around a robo-advisor in this space?

• 14:08Speaker 02

  Yeah, I think one of the issues with crypto is that over the last decade, most organizations or most startups here have shied away from regulation because it was hard and challenging and the regulators, quite frankly, weren't ready. And so you've ended up with, you know, international exchanges that exclude US customers. You end up with all of these, you know, some of the most successful businesses just don't want to touch the US. And we didn't feel like it should be that way. So going forward with Macara, the thesis was being crypto's first SEC-registered investment advisor. We can demonstrate to these market participants who are standing on the sidelines and are concerned about how bizarre this space is, we can demonstrate that we've gone sort of the route to do this the right way. So that registration allows us to give investment advice.

• 14:52Speaker 02

  It allows us to put together these investment baskets and be able to make those recommendations to individuals. And it also sets up a number of requirements and considerations around how we run the business, like things like we can't charge transaction fees to our users. So and all of our sort of billing methodologies need to be very clear and transparent. So it sets this expectation, like many people are familiar with working with advisors historically. They know what that experience should look like. And now they can get sort of a similar experience in the world of crypto.

• 15:20Anthony Pompliano?

  And is the expectation that this will be 100% of people's exposure who are users of the platform? Or will this be kind of one piece and then they may actually go buy and hold or do something else on another platform? Like, how do you think about almost like the percentage of wallet share for a user that comes onto the platform?

• 15:36Speaker 02

  Yeah, so the neat thing here, it's like, this is not an exchange. The last thing crypto needs is another exchange. We've got a bunch of phenomenal ones, and everybody that was an exchange has built some kind of buy and hold functionality to their app over the last year. So users that are in crypto, like, they are taken care of. They're taken care of. This is targeting net new users who otherwise don't have exposure to the space, or they may have a little bit of exposure and don't know what to do. And so the objective is get people in the door, get them the sort of the quickest and simplest exposure into the asset class. And then as they grow with their sophistication, so will our product and its feature set. One of the really important things that, in addition to just the investment advice that we're giving, is this component of education.

• 16:21Speaker 02

  So we think people participate in this asset class for two reasons. One, the gains are compelling, like, that's an obvious no-brainer. But two, they're curious, right? To some extent, this is liquid angel investing, and people really just, they participate because they want to understand what's happening here. And it moves so quickly on a day-to-day basis that it's very hard to keep up. And so the objective with Macar is to mirror and match those investment baskets that individuals are making investments into with educational content that allows them to easily and simply digest what they're investing in. And there was some stat that was released three or four weeks ago that said 60% of crypto investors don't actually understand what they're holding. Like, that terrifies me. That's not how this should be. Like, people should understand what they're investing in.

• 17:04Speaker 02

  And they should do it in a way like, I want to be able to walk into a dinner party and be able to have some commentary on where my money is and why it's exciting and interesting. So that doesn't happen really on exchanges today. That doesn't happen in existing venues. And so being able to match those baskets and the education into one unified experience, we think, really unlocks this door to new market participants.

• 17:25Anthony Pompliano?

  When you think of the ideal customer for Macar, or the ideal user, who is that? Is that a kind of a large net worth and a lot of liquid assets into cryptocurrency? Is that somebody who's more of kind of a beginner, a younger person? Just, is there kind of a persona, if you will, or a customer segment that you're specifically focused on?

• 17:47Speaker 02

  Yeah, and the neat thing here is that there's no sort of minimum investment or there's no floor. It's not a hedge fund where you have to have hundreds of thousands of dollars invested. This really, it's a product available for everybody and we want to focus on that concept. Our objective is to make this asset class accessible to people that just by far are too confused. You know, I think that the working professional, the doctor, lawyer, banker, or somebody that's working 40, 50 hours a week in their job, and then they come home and they spend time with their families, that persona makes sense to me. You don't have time to go and understand all of the nuances of this asset class, but you're curious and interested.

• 18:27Speaker 02

  And this gives you that path to gain exposure simply and quickly and to learn from it.

• 18:34Anthony Pompliano?

  Yeah. And then how do you think about when it's a robo-advisor? Obviously, people want to have an opinion, right? But there's almost this automated element to it. It sounds like really the experience is like, come in, I kind of tell you what my goals are, and then your software and platform is able to then guide me in the right direction. Is that a fair way to think about it?

• 18:53Speaker 02

  It's exactly right.

• 18:54Anthony Pompliano?

  Got it. All right, let's switch topics. We were talking a little bit about regulation, SEC registration. There's a lot of people hoping that the SEC will bless them with the kind of elusive Bitcoin ETF. I don't know what the count is recently, but I think that we're up to like eight, nine, 10 different.

• 19:12Speaker 02

  I think it's nine or 10.

• 19:14Anthony Pompliano?

  Nine or 10, okay. You tend to think that maybe we shouldn't be holding our breath for these. Explain kind of your perspective on the Bitcoin ETF and kind of why maybe you've got a little bit different viewpoint.

• 19:25Speaker 02

  Yeah, I mean, this is a fascinating one, given it's been such a hot topic of conversation for literally the last four years. Particularly given 2008, it was like, oh, the ETF is going to get approved and that's going to save crypto. And then it pivoted to institutional capitals coming and that's going to save crypto. And so we've been talking about ETFs for as long as I can remember. You know, what's the advantage to an ETF? Well, certainly, I think it opens up access to this market, to a broader set of people that don't feel comfortable making investments here today. It's like it works sort of within your brokerage account, like it simplifies that exposure. But we have that today between all these exchange trusts, between Grayscale and Bitwise. Like, there are vehicles already to do that.

• 20:08Speaker 02

  So it's not sort of this phenomenal new invention.

• 20:13Speaker 02

  The big challenge here that I think is often overlooked is that These ETFs, you're basically taking a 24 by 7 traded asset and you're wrapping it up into a banker hour vehicle, a 9 to 5 banker hour vehicle. And if you look at Bitcoin and its movements over the last couple of years, the largest movements in this asset class typically happen when the stock market's closed. You look at March 12th of last year, that was overnight in the US hours. You look at Thanksgiving, Thanksgiving is a repeatable, you can guarantee that there'll be fireworks on Thanksgiving every year. New Year's Eve is another classic example. Sort of all of these environments that may be phenomenal buying opportunities or maybe selling opportunities for all you know, you're locked out in the construct of

• 20:56Speaker 02

  an ETF because the market's closed. So that's, I think it's something that's easily overlooked when people that are thinking about that as a vehicle. And the second component is really it's around like, do you want to participate in technological revolution? So why was Bitcoin created? It was like, we were here to replace the traditional financial system. We want to have an alternative, something that's very different. And instead, you're just packaging it up into that traditional structure and providing it on these brokerage accounts. Buyers of that aren't actually participating in Bitcoin. They don't hold the Bitcoin. They can't get access to the Bitcoin that's in that ETF. You're not, you're not really a participant in all of this technology revolution. And so we think if

• 21:41Speaker 02

  the objective is just simplifying access to these new investors, we think there's better ways, like what we're building in my car, or even just looking at the exchange landscape and its evolution over the last couple of years, there are better ways to participate in this revolution than just buying Bitcoin in an ETF.

• 21:58Anthony Pompliano?

  One of the things that I always laugh about is it feels like on Monday mornings, the institution, they come into work and they're like, what happened this weekend? And they see like, the kids were out while parents were sleeping, did all kinds of crazy stuff, left a mess. And then like, now jump back in bed and are pretending to sleep again, right? And so there is this element of, of the institutions don't get to play when, when all the kind of crypto degenerates, right? I say that in a loving way, get to do all the crazy stuff. So I definitely agree there. Do you think an ETF would be bad? Like if it gets approved, you know, assuming it does get approved at some point, is that a negative kind of event?

• 22:36Speaker 02

  No, definitely not bad. It's a phenomenal milestone for the industry and it's a valid stamp of approval, right? I just think we've had bated breath, everybody's had waiting for bated breath for years, waiting for this ETF to be here. And I just think it's not this magical end all be all point in time that changes everything for the industry.

• 22:57Anthony Pompliano?

  Yep. And when you start to think through kind of the regulatory environment in general, what has your experience been, right? So you've got a hedge fund, obviously, then you've got a consumer facing platform that has SEC registration. Do you feel like the regulatory environment is abrasive to crypto? Do you feel like it's just normal for kind of finance organizations in general? Maybe it's actually better for crypto companies? Just what's your personal experience?

• 23:22Speaker 02

  Yeah, it's been really interesting kind of tracking that over the last four years I've been running this business, given we started in 2018 and sort of regulation was ostensibly very opaque or totally absent. And you sort of, everybody had to go to their lawyers and say, here's what we want to do. And then the lawyers would give you some advice and they'd say, you know, but that's our best of guess. Like, we don't actually know how this is going to work. So when we started Strix, you know, we configured it in a way that we thought was regulatorily the appropriate route. And we're operating in Washington State. So New York and Washington State have the two state regulators that ostensibly have looked at crypto the hardest and have built sort of specific regulation around it. And we discovered sort of 15 months into

• 24:06Speaker 02

  operations that the state had a different opinion than what our legal team did on how to structure these things. And so we had to go through a restructuring in the middle of 2019. And for a startup in this asset class, like, it's just ridiculous how much capital gets spent on legal bills, right? I think if you go start a traditional hedge fund, trading equities, you go plop down 30, 40 grand, you get all your legal structure in place and away you go. All said and done, on the Strix side, I think we're close to three quarters of a million dollars we've invested into legal bills, not because we've done anything wrong, or it's like, because it's just opaque. Like, the lawyers don't know. And so you're playing this constant guessing game. And the regulation continues to change. And so as it changes, you've got to

• 24:49Speaker 02

  sort of adapt and respond and react. And it's just, it's goofy. It's not, it's not a good way for...

• 24:57Speaker 02

  For startups, it's not a good environment for startups to be able to function. And it's those that have been able to put up with it that have made it this far. That's actually, but sort of, so that's the state side. And then you look at that in comparison on the federal side, like the SEC is actually, you know, for all the grief a lot of people give the SEC, they've done phenomenal work over the last couple of years, trying to provide more and more clarity into what is a very dynamic and quickly evolving market. And it also seems like the SEC, you know, they're much more willing to engage and have conversations around the right way to do this, in a way where some state regulators have really pushed back. So it's been fascinating to watch sort of those two tracks evolve over the last couple of years. I feel pretty good about the state of regulation in crypto in 2021. I think it only gets better from here.

• 25:42Speaker 02

  I think every month and every quarter that goes by, we get further clarity about how to do this the right way. I think startups in today's environment are at a structural advantage from that regulatory. It's like we sort of, it's the Oregon Trail of crypto, like we've forged the river and hunted our food and now we're on the West Coast and everybody can sort of benefit from that work we've done. So it's been a fascinating evolution over the last couple of years.

• 26:09Anthony Pompliano?

  I love it. You mentioned Washington. I'm in Miami. Why not move? Why not go to a different state?

• 26:17Speaker 02

  Yeah, I mean, I think that's something that we're considering. In fact, our team has started that process. So we've got members in Barcelona. We have our CIO just moved to North Carolina. And, you know, it's fascinating to me. So Washington State just this week passed a capital gains tax, which is like, it's an unfriendly tax for entrepreneurs. It's basically saying, we don't want you to run and operate a company in this state. And so thinking about that and thinking about the regulatory environment that exists here, it's really fascinating to compare and contrast that to what's been happening in Miami, particularly with the mayor, right? It's so, it's so amazing to watch the mayor interact with people on Twitter and really want to build an ecosystem and be actively involved and participate. You know, it's a rare, it's very rare to see that.

• 27:02Speaker 02

  And it's been exciting and invigorating and it really, it makes people consider that move. So certainly something that we're looking at on our side.

• 27:12Anthony Pompliano?

  It's hilarious to me. Incentives run the world and taxes are the greatest incentive in the world, right? Or one of at least in terms of you can use them to attract talent and companies and resources, or you can use them to push them away. And there's arguments for both sides. You know, each situation has to be evaluated on its own. But for the most part, it seems like certain states are headed in the wrong direction and therefore they're losing citizens. Literally, I think it was just in the latest consensus, you saw that a couple of states like California and New York literally lost political representation because they've lost so many citizens. And so naturally, where are those people going?

• 27:53Anthony Pompliano?

  They're going to states where it's more conducive to business and to personal wealth building, right? Like, it doesn't seem like it's rocket science that if you increase the incentive to go somewhere, people will follow.

• 28:07Speaker 02

  Well, it's kind of funny, given you're effectively being paid to move, right? If you're going to start taxing capital gains at that point, and there are avenues and venues I can go to that aren't going to tax those gains, I'm being paid to make that transition. So it's, in my eyes, it's pretty short sighted. And particularly, like, from the entrepreneurial perspective, it's not as if I have taken market pay over the last four years. You know, the returns that I make from spending my time, energy, and effort in this business, they're capital gains returns because I've invested a decade of my life here. And I've done that at the cost of sort of short term, short term income. And so it's pretty easy to look. And Washington's funny, given you've got, you know, you've got Bezos, you've got

• 28:52Speaker 02

  Gates here. And so I think that sort of the legislature looks at those individuals and say, aha, sort of here's some easy money. Let's go tackle that. But they ensnare kind of this whole entrepreneurial ecosystem in the midst of that. And it's just, the incentives comment is exactly spot on.

• 29:10Anthony Pompliano?

  Well, Miami's open. Come on, let's go. We'll, we'll talk about it more.

• 29:14Speaker 02

  We'll be down for Bitcoin 2021.

• 29:16Anthony Pompliano?

  That's going to be the next recruiting session. Don't worry. In terms of the bull market that we're in right now, what's been the biggest surprise to you?

• 29:25Speaker 02

  You know, we talk about this a lot internally. Like, I think if you look at the 2017 bull market, in the midst of that, we had sort of six or seven pretty material drawdowns over the course of 2017, and they were fairly extended, periods of time, from a duration perspective. You know, 2018, 2019, the argument was, "The institutions are coming, the institutions are coming." We finally saw them materialize in 2020, particularly the back half of 2020. It's not stopped in 2021. And I think, I like to think through, sort of, what's the difference between the 2017 market participant and the 2021 market participant? 2017 market participant, predominantly retail, you know, this is a speculative asset class, so they're here to speculate. But you're sort of, you've made your investment, it goes up in value, it's not as if you have

• 30:08Speaker 02

  a ton of additional dry powder to continue making investments as things, as these dips occur. And so, and particularly, sort of, as the market fell apart in 2018, like, that's a scary proposition to a retail investor. 2021, like, it feels structurally different to me. Like, these institutions, they're, they've now accepted that this asset class is not going away. The tooling and infrastructure to support their involvement in the asset class is finally here, from a custodial perspective, from an auditor perspective, even just from, sort of, the general conversation in the media, like, it's no longer, it's no longer crazy to say, "You're gonna hold Bitcoin on your balance sheet."

• 30:50Speaker 02

  It's now, you've got this aura of being innovative by doing it. Those investors, they're not taking their entire, you know, their entire investable balance sheet and putting it into crypto on day one. They're looking at this as a long-term opportunity. And so, the dips that we're seeing now, they seem to be being bought up much quicker than we saw in 2017, like, much quicker. And so, that period of, sort of, market recovery, it goes by much faster, and, sort of, away we go. Whether or not that continues through this year, I think is anybody's guess. Certainly, we had, like, the back half of 20, it was just unbelievable what the drumbeat of news was, sort of, every day, it was some new, some new piece of material institutional news.

• 31:34Speaker 02

  That's slowed a bit now, but, you know, I don't think it's going away. So, that's how, comparing and contrasting 17 to 21, that's how we think about it.

• 31:45Anthony Pompliano?

  What do you think is the kind of back half of 2021 look like? Do we see Bitcoin much higher? Will it top out at 60K? Like, just kind of understanding you can't predict the future just directionally. How do you think about where we are this year in a bull market and kind of what's to come?

• 32:04Speaker 02

  Yeah, I mean, this is my favorite. Like, I have no idea. Nobody knows. You know, we don't have enough data in this asset class. It's totally speculative. Most of it is behavioral in nature. And so it could continue to go up. I think there's a number of arguments I could make for why we are sort of at the beginning of a much more prolonged bull market. We also could see a topic and it could fall apart again, much like it did in 2017. There's fewer reasons in my eyes for why that could be the case at this point in time. I think, looking at the macroeconomic picture, there is so much cash sitting on the sidelines right now, and there is an appetite for speculative investments.

• 32:46Speaker 02

  There's an interest in generating above-normal return. This is an asset class that has done that historically very well. And so to think like, this isn't going away. So if it continues to, if this asset class continues to exist and those market conditions continue to exist, it sort of feels natural that we'll see sort of an evolution and flow of capital into it. But how that manifests and into what assets that manifests in is, I think, anybody's guess. It's like the last two weeks, just watching Bitcoin and Ethereum as two markets here and how they've behaved and reacted. You know, it's a fascinating market to participate in right now.

• 33:25Anthony Pompliano?

  Yeah, I think what's so interesting to me is, you one mentioned everything happening a little bit faster, but also when you compare it historically to 2017, so far, we're further ahead than we would have been in that bull market. And so some of that is like, the speed at which we go from these little like mini boom and bust cycles and kind of roll through the full cycle, but also just from days since the last halving, just how far ahead we are. It's quite impressive and frankly... I think as you kind of look at the market structure, a lot of it's just driven by you have a lot of folks coming into the market with really, really big pocketbooks and they want, you know, access to an asset that 60% hasn't moved in a year. There's more and more coming

• 34:09Anthony Pompliano?

  off of exchanges and just from a market structure standpoint, they got to pay more for it, right? And so it's just fascinating to see it's almost overly simplistic in terms of the explanation. And that actually may be one of the reasons why some people in the legacy world are missing it, right? But, uh, but, but, um, you know, I don't know. I'm with you. Like, nobody knows the future, but, uh, but, but it seems almost too simple. Uh, and so it's constantly getting people to kind of gut check themselves and recheck and recheck and recheck all the data and their analysis to see that everything's still kind of intact.

• 34:41Speaker 02

  Yeah, I mean, I think the really neat thing to me is, is I think at the end of 2017 and through 2018, 2019, like we were laughed at. Like you'd go anywhere and you say, I run a crypto hedge fund, literally laughed at. And now those same people are coming back and they're asking, how do they get involved in the, in the ecosystem and the, in the industry? Like, uh, there was at the, at the conclusion of the 2017 market, I think there was a lot of question, does this asset class continue to exist? Like, people ask that over and over and over. You're not seeing that right now. Like, this is an established asset class. It will be here. Will it be the same set of, of tokens and assets that are on the, you know, the top 10 by market capitalists today? Probably not. Like, this is liquid angel investing. These things changing. It's all,

• 35:24Speaker 02

  this is all a big experiment. It's all a big experiment in human behavior and psychology and technology. And so this will change, but this asset class as a whole, it's not going away. It's, it's here for the long run.

• 35:38Anthony Pompliano?

  Yeah, I tend to agree. Where can we send people to find out more about Strix or Makara?

• 35:44Speaker 02

  Yeah, absolutely. So Makara, you can find it Makara, M A K A R A, digital, D I G I T A L dot com. We've got a waitlist ahead of our launch there and anybody on the wait, that joins the waitlist to receive six months of, of fee-free investment management when we launch. And then the top 100 refers will receive a $50 pre-funded account at launch. So check that out and get on the waitlist there. And then Strix, you can find it Strix, S T R I X, fund, F U N D dot com.

• 36:13Anthony Pompliano?

  Awesome. Well, listen, Jesse, I really, really appreciate you taking the time to do this. I always enjoy talking with you and we'll do it again in the future.

• 36:19Speaker 02

  Perfect. And I'll see you in Miami soon.