Ateet Ahluwalia, Managing Director, Coventure: Inside the Mind of a Crypto Quant

Ateet Ahluwalkia is a managing director at Coventure. In this conversation, Ateet and Anthony Pompliano discuss Quant Trading, the challenges with finding great data in crypto, and what the future of active management may look like. ----- Join the Off the Chain newsletter. Pomp's daily email analyzes the crypto market for institutional investors. Simply, it’s the best crypto newsletter delivered to your inbox every morning. No frills. No bullsh*t. Just everything you need to know in a 3-minute read. https://offthechain.substack.com/ ----- BlockFi BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it. ----- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by BlockWorks Group. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworksgroup.io

• 0:01Speaker 00

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off the Chain, simply the best podcast in crypto. Let's kick this thing off.

• 0:12Speaker 01

  Atit Alualia is a managing director at CoVenture. In this conversation, we discuss quant trading, the challenges with finding great data in crypto, and what the future of active management may look like. I really enjoyed this conversation, and I hope you do as well.

• 0:29Speaker 00

  Before we get started, I want to talk about one of our sponsors, BlockFi. These guys are doing really interesting work in crypto lending. What they allow you to do is keep your crypto, put it up as collateral, and receive a US dollar loan funded directly to your bank account. They do loans ranging from $2,000 to $10 million, and they're perfect for helping you reach your financial goals of all sizes. You should visit blockfi.com/pomp. Again, that's blockfi.com/pomp. Again, one more time, type it in, blockfi.com/pomp, if you'd like to learn more about putting your crypto to work without having to sell it. Definitely do it.

• 1:02Speaker 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.

• 1:30Speaker 00

  Alright guys, I'm here with Atit. Thank you for coming.

• 1:34Speaker 02

  Thanks for having me.

• 1:35Speaker 00

  Perfect. Okay, so we're gonna move through this like machines. You ready?

• 1:38Speaker 02

  Ready.

• 1:39Speaker 00

  What's your background?

• 1:41Speaker 02

  I started out of college at Goldman Sachs. I was very lucky to be there from 2006 to 2012. From there, went to Bluecrest Capital, and then from there, went to Barclays before coming to CoVenture. I started actually in sales. They, Goldman rejected me a couple of times, and they're like, you know, if, if a spot opens up in trading, and you're still good enough, we will move you over. And I was fortunate that the gentleman who ran the book before me, well, unfortunately, you know, he dropped a lot of money, so they put me and a couple of guys in there to, to run that book. And then over the course of six years, was able to put together a pretty awesome track record, trading, you know, arbitrage, relative value, cross asset.

• 2:27Speaker 02

  And doing so in a quantitative way in both spot and options. And then from there, Bluecrest, that was running a global macro portfolio for a handful of years. Then they became a family office and then going to Barclays and running a macro credit pod there, trading index again in credit versus other asset classes. And then, you know, while I was there, a gentleman I worked with at Goldman for a handful of years, he said, you know, I've invested in this company called CoVenture. The founder is this guy named Ali. I want you to go to an investor dinner on my behalf and really, you know, stir up some dust, get in his face a little bit and find out what you can about it because I've taken a reasonable position in some of their offerings and I want to know if I should add or not.

• 3:12Speaker 02

  I went to that dinner. I did exactly, exactly that. I got into an argument with two LPs, which are now my LPs. And it turned out that, you know, he was, his answers to risk management problems, his, his answers to how to grow the business, how to think about it, how to deploy capital, were so solid that, you know, we got to know each other over the course of the next several months and year or so. And then eventually he had asked me to come on to run our active vehicles at CoVenture in crypto.

• 3:42Speaker 00

  Very cool. Shout out Ali. Let's go back to Goldman for a second. You were there at a time where it was quite exciting and there was a lot going on. Talk to us about what you remember from working with what many people believe to be some of the smartest people in the world, kind of the culture and what some of your takeaways were from your time there.

• 4:06Speaker 02

  So Goldman was incredible. I don't think it's necessarily the same way now, but back then it was if you make money, it doesn't matter what your age is. It doesn't matter what your background is. If you majored in anything at all, they don't really care. As long as you can make money in a responsible way, you're in, you're in the game and in a big way. So it was probably the, the single biggest blessing outside of my family in my life. I got to learn every day from, you know, All sorts of people there, Wayne, Neil, Jahan, Monica, Arun, all of these guys that were incredibly talented, that really took my, it took something that I was passionate about to something that I could be good at. And eventually that turned into a lot of money

• 4:50Speaker 02

  being made on the book that I traded. And that kind of formed the basis for everything I do now. So I don't know that like, you know, post Dodd-Frank, I don't know that you're allowed to take as big positions. I don't know that you're allowed to really go after it in the same way. I don't know that you're measured on the same criteria. But back then, it was like, how much money did you make? Was it compliant? Great. That was it. That was the entire review process. That was everything. And it didn't matter your age or anything else.

• 5:16Speaker 00

  What do you think made Goldman different? Was it the intelligence of the people? Was it the culture? Was it something else? Like, what made Goldman stand out to you in terms of the experience you had versus maybe somebody else?

• 5:33Speaker 02

  I just, I think that they, back then at least, like, the focus was so strictly on can you perform? Are you a performer? And if you are, off you go. We really don't care, like, you know, who are you affiliated with? What was the political connection there? You know, what were your rankings relative to your, it's like, no, are you making money? Are you thoughtful? Off you go. And you have a seat at the table with everyone else, guys who'd been trading for 20, 30 years. You know, you get access to everything. They just, all they cared about, like, they had one vision. It's like, let's get A to B. Let's not worry about the rest of the stuff. As long as you're doing it in a compliant way, you're a guy. I think a lot of other firms worried a lot more about a variety of other

• 6:15Speaker 02

  things that may have, you know, thrown them off course. But, you know, speaking from working there and a couple other spots, I can definitely say that they, they really went after it aggressively. And they allowed you to as well.

• 6:26Speaker 00

  It reminds me of the saying, winners win. Right.

• 6:31Speaker 02

  I mean, I can, I can list 10 traders off the bat from there that are now either running their own hedge funds, venture capital funds, managing money in a variety of different ways because of, you know, that, that kind of background.

• 6:41Speaker 00

  Yeah, it's crazy. How'd you originally find out, hear about, or get involved in crypto?

• 6:47Speaker 02

  Oh, man, I made a huge mistake, actually. I, I

• 6:50Speaker 00

  Man, I love when people start the story that way.

• 6:53Speaker 02

  It was brutal. I, I thought they were like, uh, it, this, this shows age a little bit, but I thought they were like Sonic the Hedgehog coins. I'm like, don't talk to me about this garbage, seriously. But then, when the Cypriot crisis hit, you actually saw, um, with an endorsement from the EU, a haircut of retail investors' bank accounts. Like, think about if, you know, the US government reached into your bank account and just took half of everything you've worked your whole life to save. That was endorsed by the entire European Union. And when that happened, you know, I had hedges on in place. I thought I'd make a bunch of money. I'm like, I'm gonna clean up. This is gonna be great. Cause when, when volatility's high, that's usually when I perform the best. Yeah, I was having a really good year. And I thought, I am going to just crush it. I'm gonna, I've already beat the budget. I'm just gonna smash this.

• 7:39Speaker 02

  And what ended up happening is I didn't, I lost money on the hedges. I, I broke even, basically, and it was really frustrating, cause when you expect something good to happen, it doesn't. Even if it's neutral, that actually hurts more than losing. And so what ended up happening was, I went back, I looked at a covariance matrix I had that looked at all sorts of global macro assets. I had plugged in data from Bitcoin, like, you know, price data, and I actually saw that it was actually a much better hedge. Did a little bit of research and, and it actually became a thing where Western people, when all else fails, when their government fails them, will actually trade this digital asset as a means to preserve and store wealth. And you see that today, Argentina, Venezuela, Zimbabwe, all across, you know, any kind of distressed environment.

• 8:21Speaker 02

  But back then, that's when I was like, okay, this is a really interesting, you know, macro kind of hedge. And then I forgot all about it until a, a software engineer I know in London, who's incredibly thoughtful and intelligent, told me that, you know, this is the basis for cheap trust.

• 8:38Speaker 02

  And that's what really got me into it. So I didn't really get heavy into it till early 2016.

• 8:43Speaker 00

  Because you've seen Bitcoin perform in what was a volatile, kind of chaotic environment, what's your general thought process or framework you use to think through how Bitcoin would perform if there was another global financial crisis?

• 9:01Speaker 02

  That's a great question. It's two parts. First part is it's just a number on a screen, right? You can't fall in love with the narrative. You can't tell them it's going to replace fiat and all this other stuff. It's a number on a screen. You have to trade it in a quantifiable way. But the second part is I look at it, a lot of people tell me in the crypto community, they're really excited about a crisis because they're going to make a killing in crypto. And I think that's ridiculous because if you look at the key crisis asset, it's gold. And if you look at 2008, and I only know this because I got torched on it, you know, I bought a ton of gold and I kept buying it all the way down, but gold fell 38% in the global financial crisis, right? It wasn't a legitimate hedge in the true sense of the word. Why? Because people sold what they could, not what they wanted to.

• 9:46Speaker 02

  They sold liquid assets like the GLD ETF to meet margin calls in their debt funds and in other various places. So gold falls 38% along with the S and P 500 falling, you know, 60-ish percent almost at the trough. It bottoms ahead of the S and P and then goes on to triple. So in a global financial crisis, you know, liquidity gets sucked away from the most liquid things. Bitcoin is actually, you know, pretty damn liquid. So people will probably sell that to meet other payments, you know, other things that they have to do. So I think it would have to get incredibly bad for Bitcoin to then outperform. I think rather than seeing a global financial crisis, if you really want to see Bitcoin outperform, what you really want to see is more liquidity pumped in the system. And if you look at the Fed's balance sheet, they've recently unwound from four and a half

• 10:29Speaker 02

  trillion worth of assets down just sub four trillion. And people are saying they're out of bullets, you know, but really... Their balance sheet relative to their GDP is actually quite small relative to the European Union, relative to Japan, relative to Switzerland and some other major central banks that have been pumping for quite a long time. So Bitcoin actually performs better in that liquidity-flushed environment. In a financial crisis, you really want to see a scenario where things get so bad that people want to trade any other asset besides dollar-denominated vehicles. And even then, you're probably better off buying cigarettes, right? That's the ultimate poor man's gold, right?

• 11:08Speaker 00

  Absolutely. All right. So you've got this quant background, done a lot of trading across different assets, different markets and at different firms. What makes crypto so interesting coming from that background?

• 11:20Speaker 02

  Crypto is fascinating for me personally, just because if you look at kind of the systems I employed in 2006, 2007, 2010, those systems are actually quite viable in crypto. You have an alpha hurdle here that's very unique to the asset class in terms of slippage due to liquidity, bid-offer costs, exchange fees. What kind of volume can you get off? How do you trust those volume figures? That's the hurdle you have to overcome. But even despite that massive hurdle, you have edges that are just so dramatic that you have to get involved. So from that perspective, it's fascinating. I think the second piece of why it's interesting to me is, you know, I remember in Goldman in 2007, I believe 2007,

• 12:03Speaker 02

  early 2007, they started moving people over into European distress debt. You know, I asked my boss and my boss's boss, you know, why are you doing this at all? They said, look, we don't know when the market crashes, but you know, the higher-ups are telling us and it's clear that eventually things will turn around and we'll need a lot of people doing distress. You know, you fast forward to the end of 2008, you've got 60 people in that unit. So from one to 60 guys and girls, they, it's not that they predicted it, it's that they were very thoughtful around risk management.

• 12:32Speaker 00

  They're prepared.

• 12:34Speaker 02

  Exactly. And you know, when Jeff Currie wrote that, you know, oiled a 250 piece right before oil peaked, you know, they were moving guys out of commodities into, back into mortgages. When, after the GFC in 2008, they started moving guys over to Europe to help trade debt, help trade other asset classes, because the viewpoint was, okay, this is going to now spill over to Europe. And now you see like, you know, two years ago, they started moving people into cryptocurrency. And that to me is fascinating, because it's, these people have a window, an insight into political movements, regulatory movements, things that I'm not privy to. And they seem to be trending in this direction. So that to me is quite fascinating.

• 13:16Speaker 00

  Those are the upside or positive arguments for why a lot of the stuff is interesting from your background? What's the challenges with applying a lot of those quant strategies and frameworks to crypto today?

• 13:27Speaker 02

  That's a great question. So.

• 13:29Speaker 00

  That's all we do on this podcast is do great questions.

• 13:31Speaker 02

  Great questions with mild answers. The most challenging thing is data. You have, you know, if I wanted to test the system on the S and P 500, I can look at the SPY ETF. So that's ETF you buy on your 401k account when you want to trade, you know, beta exposure to the US economy via the stock market. I can go back to 1993. I've got 25 years of really rich data. So that's like, you know, whatever, 6,000 plus data points. In crypto, because it's not regulated, or it's a light touch regulation, you have only really good data from, you know, January 1st, 2017 onward. So that's only two and a bit years of really high quality data. If you drop the timeframe though, let's say to the 60 minute timeframe, all of a sudden you have 24 times as much data.

• 14:14Speaker 02

  You've got 8,000 plus data points. You can start testing different environments, different regimes, different price action patterns, different correlated effects. And you can treat it like you would a traditional asset class. So the data itself is very, very difficult, not only because there's a limited amount of it, but the second piece of that is it's bifurcated. There's no central order book, like when you trade S and P 500 contracts, or cocoa contracts, or whatever it might be, you have to go trade it on, you know, exchange X, Y, or Z. And the prices are slightly different, but the liquidity is actually dramatically different across exchanges. The other issue is with the data is, you know, if I ingest price data, a lot of times, some exchanges won't have a trade, like even in 2017 between certain price points.

• 14:58Speaker 02

  So you're worried that they might make something up. Another difference is. I've never been in any asset class where the exchange was the OTC market maker. That's a little crazy. The incentives there are not exactly aligned with the investors. So you have to be very thoughtful around counterparty credit risk. One of the things that I love about, you know, Coventur and where I work is when I came in, I said, you know, we have to build out a data offering. Number one is going to be data. And we ran hard at that, you know? And now we have data from, you know, all the big exchanges. And that's critical to stay on top of that because the top 10 exchanges in the beginning of 2017, I think only two of them are left in the top 10 right now. And you really need to be on top of that because of, you know, issues with wash trading and.

• 15:41Speaker 00

  And so as more and more quantitative, you know, experience or quant type strategies come into crypto, are we just in the beginning stages of what we see in like public equity market where it's just a ton of high frequency trading, you know, algorithms versus algorithms? And there's much less kind of room for the retail investor to have an edge? Or do you think that one, maybe that doesn't happen or two, yeah, it might happen, but it's a really far time, time horizon?

• 16:10Speaker 02

  I mean, I think inevitably you'll see a lot of high frequency. I mean, they're already involved, right? There's a ton of the top high frequency players in traditional markets playing now. I think that, yeah, it'll be on an accelerated growth curve relative to other asset classes because they had time.

• 16:24Speaker 00

  So you think it happens faster?

• 16:25Speaker 02

  Yeah, I do. I do. And I actually think that's good.

• 16:28Speaker 00

  Why?

• 16:29Speaker 02

  It'll liquefy it a little bit more. Having more players involved, churning it around, it means that I don't have to spread an order across, via smart order router across 10 different exchanges. You know, I can do it at one place. That means you have more thoughtful exits. The market's all about outs. And if you only have one out, right now in crypto, we have spot. You trade spot here, you trade spot there. You might trade a future or a CFD contract or a swap. It's all the same swap exposure. What you need is deliverable and non-deliverable forwards, an options market, a structured products market, all of these, an ETF, all of these things will actually contribute to liquidity in the space and open up a whole host of additional quantitative strategies to trade. It also prevents some of the bad actors from being able to push it around as much. And that.

• 17:13Speaker 02

  Actually is net beneficial to the retail investor for two reasons. One, if they were involved in the space from an early stage, now they actually get to benefit from an influx of capital. So you look at a market cap of 100 billion, right? One basis point on BlackRock's 6 trillion is 600 million dollars worth of assets. So it's 60% of the crypto market cap is one basis point of BlackRock's balance sheet. Just think about that. So if you have more players involved in the traditional space, I know people get upset about that, but what that does is it liquefies the space. That natural source of demand should, in theory, bump up the price. And so if you're involved early, great. If you're involved a little bit later, then maybe you have more products, more vehicles to get exposure to the space

• 17:56Speaker 02

  as opposed to having to go through five or six different hoops right now.

• 17:59Speaker 00

  Well, let's talk about spot futures and swaps. So maybe just what is spot? What is futures? What is swaps? And then we could talk about the pros and cons of each.

• 18:09Speaker 02

  Sure. So spot is just the actual underlying coin itself. Bitcoin itself that you would hold in a wallet in self custody or custody somewhere else. A swap is basically engaging with a counterparty and saying, hey, I want the underlying exposure, the underlying economic exposure of Bitcoin. So let's say you and I engage in a swap and I buy one Bitcoin from you on swap. Then if Bitcoin goes up and doubles, you owe me $3,500. If it goes to zero, I owe you $3,500. And a swap usually is a terminated contract that we negotiate. And a future is very similar. Again, it allows you to get access to the underlying spot without owning it. And you can either cash settle it where you and I, again, very similar to a swap, we agree to settle that contract.

• 18:54Speaker 02

  One of us pays the other, depending on how the price moved at the maturity date. Or we can physically settle it. You know, I can buy a physically, well, not yet, but hopefully in the future, a physically backed future. And then if I want to get exposure to Bitcoin, we will settle it where no matter what the price is, you deliver me the coin, I deliver you the fiat.

• 19:15Speaker 00

  And so, why would you use each one of those? Like, what's the pro or the beneficial side of each one of those instruments?

• 19:22Speaker 02

  So that's very dynamic. It depends on what jurisdiction you are, because futures might have preferential tax treatment. So will CFDs. CFDs and swaps will have preferential tax treatment in Europe, for example, especially in England. It might be that you want to actually hold the coin, that you're holding it for your ETF, so you need to get exposure, so you're not just going to go buy, you know, X thousands of Bitcoin from an OTC desk. And it could be just how the time horizon as well. So if I want to do a trade that lasts an hour, I really don't need to go source the Bitcoin, go through the whole thing, unless the liquidity is better. So the price could be slightly different, the liquidity could be slightly different. So, you know, you're really weighing those factors. What's my time horizon? What's the liquidity of the underlying product? And how long do I really need to hold it for in terms of tax reasons?

• 20:05Speaker 00

  And then, what about on the futures and swap side? What's the downside to these instruments?

• 20:12Speaker 02

  It depends who you ask. You know, the downside to a cash-settled futures instrument is that, you know, you can create open interest out of anywhere. So, you know, the best example that a lot of people like to give is the gold market. So the gold market has a finite supply, but, you know, I think 100 times the annual mined supply trades in the futures market. So who needs to sell that much gold? Right? It, the idea being that it removes the supply cap argument of Bitcoin, there'll only be 21 million, and you know, there's a million locked up in the, you know, original Satoshi account, and then you've got like, an estimated 4 to 5 million that are lost, so the real supply is 16 million. Well, I mean, when you really, when you really look at it, though, if you have futures,

• 20:56Speaker 02

  and I just decide one day to sell a Gazzian futures, well, now the supply is actually dramatically increased. So you actually want a physically settled future, where you have to deliver me the coin, not just exchange cash flows, to keep in alignment the spot market with the cash-settled futures market. This kind of keeps that in check. It's a, it's a bit of a, it would allow order, and less kind of...

• 21:22Speaker 02

  Weird games to be played in theory.

• 21:24Speaker 00

  So today, we've got kind of three types of ways to invest, right? That's at spot futures and swaps. If you could make, just wave a magic wand and create the market infrastructure, the instruments, you know, what does that look like, right? Coming from, again, from this kind of trading and quantitative perspective, like what's missing and that you wish was there?

• 21:50Speaker 02

  I wish we had a fully fledged out of options market. I think that the way that it's done currently, if you're a miner, you want to be able to hedge your cash flows. Miners would then sell calls because they know that they hold the underlying coin. And if it rallies, you know, 50%, well, happy days. They're going to make that 50%. They're going to get called away via the call option. They get to collect premium in the meantime. And that's a good for their business. If you're an exchange, your revenue only goes up when people trade. Period and end of story. Now, people trade more when there's more volatility. So you're long volatility. So you want to sell volatility. If you're an exchange, you might sell straddles or strangles. These three activities, the exchanges selling volatility,

• 22:33Speaker 02

  the miners selling volatility, maybe some of the original, you know, players that hold a lot of crypto selling certain volatility structures would dampen the volatility of the asset class as a whole, make it a little bit more palatable to traditional financial players. And, and that would help the ecosystem as a whole. It'd also help you create interesting payoff structures. Like right now, if you buy, I think overnight, you saw, depending on the exchange, Ethereum was at 126, dropped down to 122, and then it drops all the way down to 114 in a couple hours. So if you have a bit of more dampened volatility, then that's going to allow a lot more people who are shy to get in the space. Because a lot of people look at volatility and say, I'll stay away. But that's not risk management.

• 23:15Speaker 02

  Risk management is always a sizing question, not a volatility question. If it's volatile, take a smaller size. But to those people who don't agree with that, that thesis, it allowed them to get involved, which again, is only good for the retail player because it would, in theory, boost value.

• 23:29Speaker 00

  Well, and this idea of volatility and sizing is one of the things we talk about all the time to institutional investors, right? Is, look, if you've got something that's non-correlated or low-correlated, and it's got an asymmetric return profile, you could actually risk less capital and have a return that still impacts the overall portfolio performance than in maybe some other of your more speculative type investments.

• 23:51Speaker 02

  Precisely. And you know, if you could do an option format where your downside was specifically limited to that premium, you do that all day, especially if you're a traditional firm. Right now, if you're like, well, I'll put it here, I have to worry about custody, I have to think about this, and I have to think about that. There's a million excuses people can use right now to not get involved. But having a more thoughtful infrastructure in place would, I think, would certainly be beneficial to the whole market.

• 24:15Speaker 00

  So, you're bullish, I'm bullish, there's plenty of people who are, but there's a whole subset of the traditional finance crowd that I think are probably, you know, they're on a spectrum from, hey, I read about this in the headlines, and what are these idiots thinking about, all the way to people who really understand it, but think it's not real. Why do you think, or how would you answer the detractors who say, you know, this isn't a real asset class, this isn't going to survive, you know, all the things that you probably hear people say from that traditional finance background?

• 24:51Speaker 02

  Well, I would, I would argue this, like, it's very hard to get your mind around things that are different. So before, you had real goods, you know, I would buy a watch from you, I would give you cash for it, that was a big deal. You know, it was a, and the cash represented a physical asset. Now, we have, you know, the internet, and you have digital representations of that asset, you've got ones and zeros moving around in a computer, which represent your money, it's a digital representation of a, of a physical asset. And now, you actually have a digital representation of a digital asset in the form of cryptocurrencies, and that's hard to wrap your mind around. I'd also say to people in the traditional financial world, one thing that's critical is examining your theories on, on forward

• 25:33Speaker 02

  scenario analysis. So, if you had told me in 2008 that the S and P 500 would almost get to 3,000, and in 10 years, we wouldn't see a recession, and that everything would absolutely be on a tear, I would have laughed at you, right? And that's, and I would have gotten it totally wrong. I would have assigned like a 2% probability to that, turns out that's exactly what happened. So I'd have them think about the scenario analysis of, of why things actually happen, and mistakes that they've made guessing the market, and if you've been in the market long enough, you realize that- You know, you get a ton of stuff wrong. You're actually in the business of being wrong, but acting responsibly when you are wrong. And then the other thing I would say is, you know, our traditional financial markets are not as

• 26:14Speaker 02

  strong as people think. The fragility there is just unbelievable. If you look at, you know, the flash crash we had, was it May 2010 or 11? Seventy percent of the stocks that did no longer had a bid were ETFs. And why is that? It's because when one stock goes down, the bots that trade them back and forth don't know how to value the ETF. That's not their job. Their job is to make pennies over and over and over again. So you had a flash crash, right? If you look at something like companies that are in 200-plus ETFs, all the large caps, if there's ever an Enron-type accounting scandal, a WorldCob-type scandal, how in the hell are you going to value all these things? Right? And you're going to have a cascade effect across the ecosystem. And that's happened before, right?

• 26:57Speaker 02

  You've had these flash crashes repeatedly, even though the flash crash happened, you know, eight years ago. So that's one source of instability. The other source of instability is, I mean, look at the leveraged loan market. I mean, even now, it takes, you know, a week to five weeks to settle a trade, yet you have instant liquidity in the form of the BKLN ETF. Right? People can trade that. Your mom, if she owns debt in her 401K, which she most likely does, may have access to junk bonds in the form of ETFs. She might have access to leveraged loans in the form of ETFs. And these things take a long time to settle, yet the people backing them, the, you know, the approved agents that can make you a market in them, they have to take this settlement risk all the time. And were there to be an issue

• 27:38Speaker 02

  across one of them, you could see an extreme dislocation from NAV or net asset value, the fair value of the underlying assets in that ETF. It could dislocate in an extreme manner. And you've seen that a couple of times, right?

• 27:52Speaker 02

  And so I'd say like, you know, the traditional markets aren't as stable as you think. We're just used to using them. And then the last thing I'd say is, you know, when I started using the internet was to send emails. And I remember how much grief I got, especially from my father in particular. He's like, you're gonna send an email to your grandfather. Just write a letter, send a stamp. It's more personable. It's more, it shows respect, you know? And over time, I mean, I use it a thousand times a day. I know he does too, and so do my grandparents, right? But you'd be shocked at the things you get used to, right? A lot of people don't know how the internet works, but they use it. They have trust, they have faith that it's there. Same thing with our traditional financial system. I believe in time, same thing with the Bitcoin and cryptocurrency ecosystem.

• 28:34Speaker 00

  So it sounds like you're describing a world where the traditional markets are actually much more similar to crypto than different.

• 28:42Speaker 02

  They are. Look, they're very similar. Crypto is just, it's a, it's just a few steps behind in terms of evolution. I mean, it's a 10-year-old market, right? Like, ask a 10-year-old, how much would you contribute to your family?

• 28:53Speaker 00

  And I would argue it's 10 years since the inception of Bitcoin, but most of the other assets and definitely most of the infrastructure is five or less years old.

• 29:02Speaker 02

  Precisely. And I mean, if you look at, if you strip out Bitcoin, like, well, this is another problem. Going back to the data is how many coins have, you know, more than a couple of years of history?

• 29:10Speaker 00

  Yep.

• 29:10Speaker 02

  Well, actually, very few.

• 29:11Speaker 00

  Yep.

• 29:12Speaker 02

  Right? So I think that these markets are similar. It's just, if you look at an evolution chart, right? Like Bitcoin is just a few steps back behind, you know, the man or woman that is traditional financial markets, that quote-unquote "fully evolved" person.

• 29:27Speaker 02

  And I think it'll get there in time. I mean, the one thing that would really accelerate that is thoughtful regulation.

• 29:34Speaker 02

  Once you get that, I think it takes off dramatically. And you could, like, look, I mean, fidelity is involved, Goldman's involved. Bank of America filed the most patents of any traditional financial player in 2017. Alibaba is involved. People are involved, right? Even the detractors who talk on CNBC and say one thing, they're turning around and filing patents on everything they can blockchain-related on the other side, or they're issuing special, like, they're trying to put through ETFs and things of that nature. So, I mean, I think it's more...

• 30:02Speaker 02

  Of the cliche of actions speak louder than words, right?

• 30:05Speaker 00

  All right, before we continue with this conversation, I want to mention our sponsor again, BlockFi. Remember, they do crypto lending. So you posted your crypto as collateral, they give you a US dollar loan, and you can use the US dollars to do whatever you want. You should visit blockfi.com/pomp and then tweet at me that you went. If you tweet at me after you went to blockfi.com/pomp, maybe I'll throw you a like, a smiley face, or the fire emoji. The fire emoji is the best. Remember, go to blockfi.com/pomp and I'll see you on Twitter.

• 30:36Speaker 00

  Yeah, well, and also, you know, we talk a lot about capital inflow, but we separate it into intellectual capital and financial capital.

• 30:44Speaker 02

  Right.

• 30:44Speaker 00

  And the financial capital, everyone, you know, it's pretty measurable. You can go on all these sites and see, hey, you know, what's the volume of this stuff? And you can look on a blockchain and see, you know, how much is actually being settled on chain and all that. But the intellectual capital, it's incredible. I mean, how many, you know, really smart folks from Wall Street, from Silicon Valley, or from somewhere else in the world who are well-respected are rushing in to do anything, whether it's build a company, finance, trade, you know, all kinds of different stuff. I think somehow that gets lost.

• 31:18Speaker 02

  I agree. And like, look, only three years ago, four years ago, around that time period, universities started offering really in-depth degrees in, you know, cryptography and blockchain and things of that nature. Now you're seeing some incredible young guys and girls devoting their time to this space. And when you have that influx of intellectual capital, it's very hard to stem that tide.

• 31:40Speaker 00

  Yeah. The, the other piece of it is, as you get the intellectual capital coming in, there's a lot of trust and familiarity, I think, that capital allocators have with those folks, right? So I always give the example of, if you take a founder who's previously built and sold a company for, you know, 100-plus million dollars, and then they say to you, I'm gonna go build another company, and this time I'm gonna do it in this space. Immediately, you ask yourself, if you don't believe in blockchain and crypto, what does this person know about building companies in this space that I don't know? Or what do they believe that I don't believe?

• 32:13Speaker 02

  Well, precisely right. And you see people like Peter Thiel getting involved. You see, there's a lot of heavy hitters getting into the industry. It's like, what do the people that set up some of the companies that I use on an everyday basis? What do they know that I don't?

• 32:24Speaker 00

  Yeah. Who are the people who are usually ahead of the curve? And why are they ahead of me in this?

• 32:29Speaker 02

  And again, it comes back to a size question. Even if you think, oh, this is garbage. Well, 50 bips of allocation, that's not going to hurt you. You're not even going to notice. Right? So.

• 32:37Speaker 00

  You know, we've gone around the country saying, just get off zero. Right? Having zero exposure to the best performing asset class for the last 10 years. Probably not the best answer. Now, is it 10, 50, 100, 500 basis? You know, whatever you want to do, there's a conversation to be had, but it can't be zero.

• 32:54Speaker 02

  I agree. I mean, it's really a question of size. That's it. That's all it comes down to. And I think too, um, you know, a lot of people make this argument to me like, oh, where are the decentralized applications? We haven't seen any DAPs. This whole space is just a joke. It's just like, you know, electronic gold. I'm thinking, you know, what? How long did it take for the internet to really mature and bring about these data behemoths? That end up being, you know, the top companies in the world. A lot of people are like, this reminds me of pets.com. And I'm, and I think, I laugh because who bought pets.com? Do you know?

• 33:28Speaker 00

  I have no clue.

• 33:29Speaker 02

  Amazon.com bought pets.com. And that's the example, like it's not an Amazon. It's like a pets.com. And I'm like, really? Cause that's actually technically the same thing. Right? You know, the most successful man in the history of mankind, Jeff Bezos. You know, he, he was, he, at the time he was laughed at for bringing books online. People like, I just go to a bookstore. What's the big deal? But it is a big deal. Right? And it's, there are people that see it ahead of the curve and they get involved. And to that point, you see things like Amazon taking, uh, buying the rights to, to certain websites, like Amazon crypto, whatever they bought. Right? Um, there are people that understand that this is disruptive. They see other industries getting disrupted and they want to get out ahead of the curve. It will take, it could take any different iteration that we're not even expecting or thinking. But I do believe it's here to stay.

• 34:14Speaker 00

  It, it's also funny when people ask about the, what's the killer app? Or what's the, you know, the depth that works? Because the first application of this technology is massive. It is a sleeping giant. Right? And I joke all time about, you know, people are actually underestimating Bitcoin based on what we have today.

• 34:34Speaker 02

  Yes, exactly.

• 34:35Speaker 00

  So if you look, I mean, last year, if I remember the numbers correctly, it's like. In 2018, there was over $420 billion of on-chain transactions. And people will say, you know, that's speculation. It's this, it's a whole bunch of stuff, but it's still $420 billion of on-chain transactions that occurred on something that a whole bunch of people doesn't believe has value.

• 34:59Speaker 02

  Exactly, exactly. And then again, like, how long did it take for, I keep going to Amazon because it's, you know, one of the most important companies in the world. How long did it take for that to go from online bookstore buying pets.com to having AWS and revolutionizing the way every company in the world does business? Right? It's the place that spent most money on, right? So.

• 35:18Speaker 00

  I mean, look, you and I have talked about this before. You know, the stats on Amazon, it's drawn down to what 90% in a given year twice.

• 35:25Speaker 02

  Yeah.

• 35:25Speaker 00

  And the average.

• 35:27Speaker 02

  20,000 bagger, whatever it is.

• 35:28Speaker 00

  Yeah.

• 35:28Speaker 02

  2,000 bagger, something like that.

• 35:29Speaker 00

  Well, and the average annual drawdown of Amazon for the last 20 years has been like 30%.

• 35:36Speaker 02

  Precisely. And again, that's a sizing question. If you, if you bailed, you'd say, well, wow, this stock got to from under $15 to, you know, over $2,000 at one point.

• 35:45Speaker 00

  So let me ask you one more question before we get in the rapid fire. For those retail investors that are out there who they don't have access to a bunch of quantitative strategies, they don't have your background. One thing you say all the time is it's just numbers on the screen, right?

• 36:00Speaker 02

  Yeah.

• 36:00Speaker 00

  Walk through how that applies to, you know, retail type folks that aren't managing money professionally, but probably should take a similar perspective into investing in assets.

• 36:14Speaker 02

  Well, the big risk is, you know, we all say, oh, never put in any money that you can't afford to lose, where if it went to zero, you'd be happy and fine and everything. You wouldn't even notice. Problem is, no one ever does that. They put in way too much money and they're not disciplined. And the way that you can kind of require a discipline in yourself is to take a quantitative kind of viewpoint, and it could be a thesis for why price moves the way that it does. When you're a trader at a bank, people think that you have all this information and you're always going to be right. You're always going to make money. They view it as like a casino with like some kind of house edge. That's simply not the case. Traders rise and fall all the time. They make and lose money all the time. And they're dealing with the same emotions that

• 36:57Speaker 02

  the retail trader is dealing with, period and end of story. But what the great traders realize is it's a business of being wrong. And it's how do you handle it when you're wrong? How do you quantify that? And so, you know, how do you stay calm in the heat of the moment, instead of doing something that will end up costing you a lot of money? And the only way I've found to do that is to understand the stats behind every action I do. So it could be as simple as every time price goes above the X period moving average, I'll buy. And when it goes back below, I'll sell. You can actually program that. You can actually go through by hand. Because before I could program, I used to do this by hand. And you can say, well, every time it does

• 37:36Speaker 02

  that, it goes up 4% on average. The max it's gone up is 17%. It wins 35% of the times and it's lost seven times in a row. Right? So it's about, does your emotional constitution allow you to stick with that framework that you've kind of created that you think will work? And when you know the stats, you get humbled. Because you realize, you know, most of these things that I think are true are far from it. Or they're so difficult to implement, given my emotional constitution, I should either hire someone to do it for me, or I should just not use the system whatsoever. So like the average hit rate, if you have 100 ideas, I'd say two of them are any good. And then, once you run them through the testing, and you look at bid offer liquidity, you look at time and market, all the different KPIs, Sharpe ratio,

• 38:20Speaker 02

  everything, maybe one of them will make it through the net. So think about like how difficult that would be. But you know, if you do take the time to do the quantitative analysis, you keep yourself on the right side of it more often than not. And you also allow yourself to do the right thing in the heat of battle. It gives you a tremendous sense of calm.

• 38:40Speaker 00

  It's funny, because coming from a growth background, one of these growth teams at Facebook, etc., I always think that the beauty of data is that

• 38:51Speaker 00

  You probably have the right idea, right? So if you come up with, you know, in that world, testing, or you're going to go test 10 screens to see who clicks on what button the most, right? You actually come up with the right idea. You just don't know which of the 10 is the right one, right? Same thing in trading is you come up with, you know, 10, 100 strategies. One of them is going to make you money. The hard part is figuring out which one.

• 39:12Speaker 02

  And it's interesting, you know, you said earlier, like, well, what happens if it's bot versus bot, algo versus algo, you know? That definitely eroded several edges I used to use in like the mid 2000s for sure. There are systems that I can't use again. By the way, they work quite well in crypto for now. But also despite having a traditional financial marketplace that is dominated by algorithms, there are still systems at work that I use all the time, right? So that I don't think that's a detractor for using quantitative analysis. I actually think it's a good thing because it provides liquidity that allows you to kind of lower that alpha hurdle. And I think for the retail trader, it's, it's, it's, it's hard out there, man. You have to watch CNBC and someone saying something and they're doing something totally

• 39:56Speaker 02

  different, which I've experienced like on the trading desk at Goldman. You know, one guy came through and was talking about how awful the UK was. At that same time, his execution desk was calling up selling insurance contracts on UK government CDS. I couldn't believe it. I'm like, this guy's saying one thing there, his execution desk is doing something totally different. You know, you really can't trust people like that. But when you have the facts, like when you do the analysis around how often is this right? How often is it wrong? Like to what degree is it right? What are the KPIs I used to analyze that? You have the raw facts and it's very important to get to that stage because otherwise you're kind of competing with like the Michael Jordans in the space. Like, I mean, I, every day, like if Stanley Druckenmiller does a trade, I can actually take the opposite side.

• 40:42Speaker 02

  Or do whatever, but I'll only do something as ridiculous as that if I have the quantitative stats backing me up.

• 40:47Speaker 00

  Yep.

• 40:48Speaker 02

  Right?

• 40:48Speaker 00

  Somebody was making the argument, it was probably three, four months ago, they told me they're a stock picker, like talking about public equities. And I said, it's great. I said, you think that you've lost any edge or disadvantage compared to the algorithms? And this is a pure play retail investor who has no team, no image, just literally are reading the paper and I pick stocks. And he said to me, there's plenty of investors who pick stocks. And he rattled off a couple of names. And back in my head, I was thinking, you realize those people have such in-depth teams, they're talking to thousands of companies a year, they're doing incredibly deep financial analysis. And yeah, they're quote unquote, stock picking, but the amount of work and effort and data analysis that goes into which

• 41:32Speaker 00

  stocks they pick makes you look like the biggest amateur in the world. And you're probably getting just rolled over on a daily basis. And I asked him, and I said, well, what was your performance last year? And he got real quiet, right? And I think that's part of what's happening in crypto is there's a lot of people who they think that they can pick tokens, right? Because they think that that's what other investors are doing, the other funds are doing, oh, there's picking ICOs or there's picking tokens. And they don't realize how much work goes into this stuff and how easy it looks, but how hard it actually is.

• 42:04Speaker 02

  Yeah. And I'll tell you, like, there's a lot of, a lot of, you really have to be an incredibly intelligent person, probably with a bunch of PhDs to be able to fundamentally value these companies and do it the right, the quote unquote, right way. But if you quantify it, you're basically admitting like, hey, look, I am not as smart as Warren Buffett. Like, there's, there's no edge in trying to beat him for me. But if I use the statistical models to kind of quantify the price action, then I have a decent shot of earning a very respectable return, right? I don't think that.

• 42:41Speaker 02

  It's a weird field, right? Because if in law, I can't just go into the courtroom and represent someone or go into a surgical theater and say, hey, I'm going to do open heart surgery today. You know why? Because I can. Because I opened up this special account at the hospital and they let me come in and do whatever I want. But in trading and financial assets, you're allowed to do that. And that is insane. It's not insane. It's wonderful. Let me be clear. But if you quantify the price action, you can think about what you're doing in a logical way. You can still get in a really, really nice return. And I think that people should could kind of steer towards that because otherwise you get caught up in the, you know, Warren Buffett says that, you know, gold's a ridiculous asset, yet the guy owned 25% of the above ground stocks of silver. And I think 2001 it was or 1999

• 43:24Speaker 02

  because he's afraid of inflation because Greenspan was cutting in the middle of the tech bubble. You know, it's not what they say, it's what they do. And the only way to know what they're doing is to look at the screen, the price action and quantify it, right? Because people say a lot of stuff.

• 43:38Speaker 00

  Yeah. Look, I, it's facts versus opinions.

• 43:42Speaker 02

  Hundred percent, right?

• 43:43Speaker 00

  All right, let's do this rapid fire. What's the most controversial thought you have in crypto?

• 43:47Speaker 02

  Controversial thought? I think that most cryptocurrencies could go away except for Bitcoin. And we might have like two or three new ones we haven't thought of in 10 years. And we could have four cryptos that really matter.

• 44:00Speaker 00

  I agree with you. So I don't think it's that controversial.

• 44:04Speaker 02

  A lot of people don't like it when I say that.

• 44:06Speaker 00

  Yeah, I was just gonna say the Twitter trolls will let us know. What's the most important company in crypto?

• 44:13Speaker 02

  The first traditional financial company that goes after it.

• 44:17Speaker 00

  Oh, interesting. Okay. No one's ever said that before.

• 44:19Speaker 02

  That is it. Period. End of story. Because when they're in, they smell blood in the water. And all the traditional financial companies are like, we have to get in now. So a lot of these companies aren't the first movers. They wait for one of their peers to get involved. And they're like, oh, they're involved. There's money there. I'll hire their bench. I'll hire a bunch of PhDs and let's go after it now. So as soon as, as soon as Fidelity's, you know, offerings up and running and really running hard, as soon as there's an ETF by a traditional guy, that would be phenomenal. Because now you could put in 401ks. Now you can really go after it.

• 44:51Speaker 00

  If you could change or improve anyone regulation, what would it be?

• 44:56Speaker 02

  Oh, man, just call them securities. Get it over with. Let's, let's go after it. Let's trade it. Let the big institutions get involved. I get so much grief from people in crypto about regulation. I'm like, guys, we need regulation. Without it, this space doesn't grow. Without it, it's this really fun area that has incredible potential, but without the regulation, I can't realize that potential because the big dollars don't follow. And the big dollars need to come in. So that guy with a PhD, wherever he is, that's got a brilliant mind, can get that funding to create that product. And, you know, then people in the traditional space won't complain about DAPs and things like that.

• 45:34Speaker 00

  Yeah, I actually, and I've recently started thinking about this. I, for the record, do not know if I agree with this or not, but it's a thought that I've started to spend more time on, is if you look at the like, change the world technology, right? There's probably two to three applications that can really impact billions of people, right? Let's say Bitcoin is one of those. They're already ruled on. We already have clarity. It's not a security. They've said that, right? So it's not going to get lumped in there. Everything else, the upside versus the downside of is it a security, is it not, is relatively, you know, small in terms of if it's regulated as a security, we're not going to get that much of an advantage

• 46:16Speaker 00

  or disadvantage. And if it's regulated as not a security, there's not that much disadvantage or advantage to that. And so if we can get to the future faster and have more people participate in that future by having them be securities, and we actually think that's what the rules are written as today, we probably should move forward down that pathway. And maybe there's some small improvements, right? So maybe we can change, like, you know, accreditation laws to allow more people to participate, or, you know, there's some things that we can do to make that world better. But I tend to agree with you that it's just not as big of a deal, as long as those, you know, two or three world-changing applications of the technology, we're already in the clear with those, right? That they're not going to be

• 46:56Speaker 02

  You want to talk about world-changing. Imagine you're in Venezuela, inflation's off the charts, and you're basically Whatever you've worked your whole life for, it's it's valueless because you don't have the currency to back it. You can't hold gold. You can't do anything. I mean, that is a game. That's a life changing technology. Same thing in Zimbabwe, same thing in Argentina, same thing across various different countries. So you talk about a game changing technology. It's already here.

• 47:16Speaker 00

  And it's not theoretical. Like, we have the data to show that this is happening in real time in these jurisdictions. And people not only buy into the narrative, right, they're actually voting with their currency and changing it into the digital currency.

• 47:32Speaker 02

  I think too, like, a lot of people focus on, you know, Bitcoin supplanting fiat, which I think is.

• 47:39Speaker 00

  What are the odds?

• 47:39Speaker 02

  Aggressive.

• 47:41Speaker 00

  Aggressive.

• 47:41Speaker 02

  To say the least.

• 47:42Speaker 00

  What would you say are the odds that Bitcoin could become the global reserve currency? What's the probability?

• 47:47Speaker 02

  Negligible. Negligible. Because if you're a government, you have.

• 47:50Speaker 00

  Like low single digits.

• 47:52Speaker 02

  Lower than that. I'm talking about basis points of basis points for now. Like, I'll change my mind as the vax change. But like, I mean, I think what's interesting is how it'll change legal aspects of transactions. So if I want to buy land in India, agricultural land right now, I could. There's a ton of red tape. Somebody else will forge documents to say they own it too. And now it's not my land because someone bigger, stronger, faster than me with more weapons than me is like, no, it's mine. And you know what I'm gonna say? You know what? You're right. I'm just gonna go back to Texas or New York or wherever, right? So, but if you had an immutable ledger telling you like, yeah, you own that, it's gonna change.

• 48:31Speaker 02

  It's gonna unlock that potential for growth. And I think that's, I'm giving you one dimension of like.

• 48:39Speaker 00

  A bunch of them, yeah.

• 48:40Speaker 02

  Hundreds of dimensions that this is gonna change on the legal back end. It removes the he said, she said. It removes me having to trust my boss when he says, oh, don't worry, I'll take care of you. It removes that because you've got contracts in place that are ironclad that, you know, they remove a lot of the wishy washy-ness.

• 48:55Speaker 00

  What's the most important book you've ever read?

• 48:57Speaker 02

  Reminiscence of a Stock Operator.

• 48:59Speaker 00

  Why?

• 49:00Speaker 02

  Because you see, you see a guy turn nothing into something. You see him succeed in the stock market against the pros. You see that learning process. You see him get knocked down several times, go broke several times and still have the confidence and wherewithal to get back up and succeed. And it shows that it's doable, like it's done, like this is something someone actually did. And it's really inspiring.

• 49:24Speaker 00

  All right. You could ask me one question in a second, but what is the probability that aliens exist?

• 49:31Speaker 02

  As close to 100%, like the asymptote right there. Like it's right up there.

• 49:37Speaker 00

  How do you get there? What is the mathematical equation or the framework you're using to get there?

• 49:42Speaker 02

  You just take things to the logical limit. Like if you want to prove or disprove something, what do you do in math? You take it to the limit of negative infinity or positive infinity. We're in an infinite universe, which all signs point to that being the case. Then, you know, you have an infinite number of trial and error situations. There you go.

• 49:58Speaker 00

  Have you ever thought about like how small you are in the universe?

• 50:01Speaker 02

  Yeah, but only because I'm 5'9".

• 50:04Speaker 00

  Yeah, but like being 5'9" in Manhattan, in this Earth, which then is in this solar system.

• 50:15Speaker 02

  Right.

• 50:16Speaker 00

  Which is one of more than we know of.

• 50:19Speaker 02

  Right.

• 50:20Speaker 00

  Like, that's pretty wild. And here's, here's a stat for you. When I was in school, probably when you were in school, there were nine planets. Remember that?

• 50:27Speaker 02

  Mm hmm.

• 50:28Speaker 00

  Like, we went all the way out to Pluto, right? So like supposedly Pluto's not a planet, and now there's over 100 planets.

• 50:36Speaker 02

  Well, there's also other objects rotating the sun on a different axis that people are really interested in, right? There's several of them. So are they planets or not?

• 50:45Speaker 00

  Yeah, but they got weird names. They got like letters.

• 50:48Speaker 02

  X5, 69.

• 50:49Speaker 00

  Yeah, they got like letters and numbers. You're like a math guy and you're smart, so you'll get a kick out of this. The time when I knew I wasn't a math guy was the first time I walked in a classroom and there was letters and numbers on the board. I said, oh man, you guys got me. I'm done.

• 51:01Speaker 02

  That's awesome.

• 51:03Speaker 00

  All right. What question do you have for me?

• 51:06Speaker 02

  What is your biggest fear for the crypto ecosystem?

• 51:14Speaker 00

  Biggest fear?

• 51:17Speaker 02

  Biggest fear.

• 51:22Speaker 00

  I'm gonna answer with two.

• 51:26Speaker 00

  One, we're all wrong because I think that it's less to do with loss of capital, less to do with technology impact or anything like that. And it is, it would be a major psychological shock,

• 51:43Speaker 00

  possibly fatal to a lot of people in terms of like their careers. Right. If they believed so heavily in a future and in a technology and in something occurring, and it came out that they were wrong. Because I think that there's a lot of people who are putting an inordinate amount of time, energy, resources, etc. into this. And there is an element of kind of cultish religion, that type of stuff. Like you believe along with working on something. And if it came out that blockchain and crypto went to zero, like completely did not work, which is, you know, again, very, very small possibility, but still possible.

• 52:26Speaker 00

  I think there would be a really bad psychological impact on some of the smartest people in the world. And so, because they would question themselves the next time they got excited about something. Yeah, took a chance. Right. Yeah. So it's something that I think about a lot. Obviously, I'm like, really, really, really, really, really deep into this. And so if that happened, like, I think I would spend some time, like, what did I miss? Right? And I'm not saying like, oh, you know, I believed in five projects and two didn't work. That that happens in every industry, and I don't think that would be a big deal. But I'm saying if like blockchain and crypto, the whole thing didn't work. I do think there'd be a pretty bad psychological impact. So that's one. Two is, you know, I go

• 53:10Speaker 00

  back to the Gandhi quote, right? First, they ignore you, then they laugh at you, then they fight you, and then you win. I think there's a lot of ignoring going on. I think now we're starting to see some, I don't even think we're at fighting yet. I think we're at the laughing stage still. Right. Like, ah, haha, you idiots all bought this in 2017, and then it crashed 80%. You guys are so dumb. Right? Like, okay, that's fine. Like, I think we should expect that anytime an asset's volatile. But the fighting could be worse than any of us imagine. Right? So I think like, the two probably most controversial things that that I spend time on are like, one, there's a higher probability than most want to admit, they're actually underestimating everything. So like Bitcoin, for example, I actually put the percentage at much higher that it can

• 53:54Speaker 00

  become the global reserve currency, not because I believe that it will, right? But because I think that if we are going to over rotate on underestimating or overestimating something like that, we're all probably underestimating it, right? So that's one. And then two is on the fighting side, anything that you and I think of as something that incumbents, whether it's governments, large financial institutions, you know, et cetera, would do to fight a challenger, the people in those positions probably think things that are 10 times worse.

• 54:30Speaker 02

  Right.

• 54:31Speaker 00

  Right? And because we think of what would they do within the rules? And I think they think about things like we would change the rules or we wouldn't follow the rules, no one would stop us.

• 54:41Speaker 02

  Well, you, that's what makes financial markets a little bit tricky, right? With all the central bank involvement, it's, these guys dream up things that you would never, like, look, that's another reason why I like quantitative investing, right? Like, you look at it and you're like, well, in zero interest rate world and negative interest rate world, there's $8 trillion worth of negative interest rate bearing bonds. Like, someone's being paid to borrow. You're giving them money to borrow from you. Like, that's insane. And so, everything you learn in college and in economics textbook, well, at least when I went to college, is largely irrelevant because that was never a thing. So, yes, they can change the game. They often do. It often persists longer than you think and has consequences that you can't really even conceive of, which is why, you know, I would like to, again, I, what's the easiest safety

• 55:26Speaker 02

  valve? It's having the traditional players involved. Have guys that have something to lose that wield power, that are involved in the asset class. That's how you get a partner. Like, you, you find allegiances in the most unlikely places for, I'd say, to some of the crypto loyalists and, and you really do need their, their, their, their power on your side.

• 55:44Speaker 00

  There's a very unique balance between being innovative, being new, being disruptive, and a need to be legitimized and to be validated.

• 56:01Speaker 02

  Yeah.

• 56:02Speaker 00

  Right? And, and those that I think that walk that line well, end up being the most successful, right? Because you want to be disruptive to a point. Right? Because what you don't want to do is you don't want to disrupt people so badly.

• 56:15Speaker 02

  Yeah.

• 56:15Speaker 00

  That actually they turn and.

• 56:17Speaker 02

  Punch you in the face. Yeah.

• 56:19Speaker 00

  You know, all kinds of stuff, right? And so.

• 56:20Speaker 02

  You want people to think it's their idea. You want to gradually let it's like the boiling frog thing. Whether or not that's true, you want them to gradually get involved. You don't want them to just turn around and feel like they've lost something because that's when people are at their most elite in terms of performance against you.

• 56:36Speaker 00

  Yeah. And the way that I think about it too, is like, so, you know, take Bitcoin, for example. Let's say that they really, really got threatened, right? Like really badly. And banks and governments, etc. And they started saying, oh man, this is pretty bad. What if they just bought up a very large portion of the Bitcoin supply and destroyed?

• 57:00Speaker 02

  Well, by definition, they can't buy up all of it. So.

• 57:02Speaker 00

  Can't buy it all, but let's say they destroyed, and I'm talking, it's almost nearly impossible for them to do this, but let's say they bought up 60, 70% of circulating supply. And they destroyed it. Some would argue, oh, that just makes it more rare, right? And drastically reduces the kind of total available supply. And so therefore price would increase even more drastically and all these things. I think that would be pretty hard to overcome.

• 57:27Speaker 02

  The problem I have with that argument is you're telling me that the government's going to spend money, which by the way, it does not have, to prove that they have a serious competitive threat. And more likely, they're just going to say, oh, you can't use it anymore.

• 57:42Speaker 00

  So I'm not saying that they're gonna do this. I'm just saying that on the spectrum of things that they could do in response to some of this, people don't even think about, well, why don't they just buy and destroy it? They always think about, will they ban it? Will they actually, you know, cut off the traditional financial system from the crypto, you know, system? There's all kinds of things that we're already seeing them try to do, but. The idea that they would actually be a non rational economic actor in order to stop it.

• 58:08Speaker 02

  Right.

• 58:09Speaker 00

  I haven't heard that many people talk about.

• 58:10Speaker 02

  So we actually have a precedent for something similar.

• 58:13Speaker 00

  Okay.

• 58:13Speaker 02

  I'm going to stretch here.

• 58:14Speaker 00

  All right.

• 58:14Speaker 02

  A lot. But you know, when gold was confiscated from people in the 30s, right? The US government basically said, you have two options. You either give us your gold or you face a monetary. I think the penalty was like 10 grand and I think 10 years in prison. I might be getting those numbers wrong.

• 58:30Speaker 00

  Some penalty.

• 58:31Speaker 02

  There's a, there's a prison penalty. There was a monetary penalty and you're going to give us your gold. And then they turned around and devalued it, the, the US currency relative to gold by 50%. So they, they stole 50% of your savings. So I don't think they buy it like they actually, you know, they did buy it, but it was pegged at the time.

• 58:48Speaker 02

  I think they would just confiscate it in some way.

• 58:50Speaker 00

  Yeah.

• 58:50Speaker 02

  Like imagine if the penalty was, you know, you go to jail if you use it. Well, you're probably not going to, especially if it's Bitcoin, which is very trackable.

• 58:58Speaker 00

  Right. It's wild to think about.

• 59:00Speaker 02

  Yeah. I mean, we can, oh man.

• 59:01Speaker 00

  Tweet, tweet, uh, tweet me and I'll tweet, oh wait, we can't tweet at a teat because he's not on Twitter.

• 59:07Speaker 02

  No, I am technically.

• 59:08Speaker 00

  Are you now?

• 59:08Speaker 02

  I don't talk about it. I follow you.

• 59:10Speaker 00

  Will you tell us what your Twitter account is?

• 59:11Speaker 02

  If I remember it, yeah. I think it's at a teat A or at a teat Ahluwalia. I don't know.

• 59:16Speaker 00

  All right.

• 59:17Speaker 02

  We're going to put it in the notes at the end.

• 59:18Speaker 00

  We're going to find your Twitter account and we're going to expose it. So you, uh, you get some followers and then you have to start responding to people.

• 59:24Speaker 02

  Oh, that'd be lovely.

• 59:25Speaker 00

  All right. Tweet all of your ideas at a teat and we'll get it going.

• 59:28Speaker 02

  In all seriousness, if you ever want to talk about quant financing or any of that, like you should actually tweet at me because I talk to everyone about that. I talk to students. I talk to, you know, a lot of different groups of people about it.

• 59:40Speaker 00

  Awesome.

• 59:43Speaker 02

  Oh, it's okay. So apparently it's at a teat Alawalia. And if you could spell that.

• 59:47Speaker 00

  Extra points.

• 59:47Speaker 02

  I'll tweet back nicely.

• 59:50Speaker 00

  All right, man. Thank you so much for coming. This is awesome.

• 59:51Speaker 02

  Thanks for having me. Thank you. I appreciate it.

• 59:55Speaker 00

  All right. You reached the end of the podcast. Congratulations. I appreciate you listening all the way to the end. You deserve a trophy. But before I hand out the virtual trophies, remember to go visit blockfi.com/pomp. They're the crypto lending leader in the US. They do it in 45 states, interest rates as low as 8%. And you can use the US dollars funded directly to your bank account to do whatever you want. You should definitely go visit blockfi.com/pomp. You know, you want to do it, so just do it. Blockfi.com/pomp.

• 1:00:27Speaker 00

  Hey everyone, Pop here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the Apple, Spotify, and other podcast charts, please do us a favor and rate, review, and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.