Kevin Kelly, Co-Founder of Delphi Digital: Crypto and The U.S. Pension Crisis

Kevin Kelly is the co-founder of Delphi Digital. In this conversation, Kevin and Anthony Pompliano discuss the macro economy, whether he thinks a recession is coming, where people should be watching out for, the current pension crisis in the United States, dethroning the King Dollar, where DeFi plays into all of this, and whether an ETF is on the horizon or not. You can find additional resources and information here as well as Delphi's Weekly Market Commentary. 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. CRYPTO. COM-----Crypto.com is a pioneering payment and cryptocurrency platform that seeks to accelerate the world's transition to cryptocurrency. With the vision of "cryptocurrency in every wallet", the Crypto.com App offers a full range of financial products with competitive pricing, well designed UX and high security. It is the best place to buy, sell and pay with crypto. COINMINE-----The Coinmine One is like an Xbox that turns your electricity into Bitcoin. You just plug it in, connect to wifi, and tap on the crypto you want. It’s so easy anyone can do it. Everything is controlled from the Coinmine mobile app and the Coinmine keeps getting better with over the air updates that add new coins, features and services to your Coinmine. Visit coinmine.com/pomp to get a Coinmine and earn crypto for powering a new world.

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

• 0:01Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off the Chain, simply the best podcast in crypto. Let's kick this thing off. Kevin Kelly is the co-founder of Delphi Digital. In this conversation, we touch on the macro economy, whether he thinks a recession is coming, where people should be watching out for, the current pension crisis in the United States, dethroning the king dollar, where DeFi plays into all of this, and whether an ETF is on the horizon or not. I really enjoyed this conversation, and I hope you do as well. Skrt skrt! Wanna know who has the best URL? Crypto.com. That's right, Crypto.com.

• 0:45Anthony Pompliano?

  They're a crypto platform with one goal: motherf***ing mass adoption. That's why we're all here. We're trying to get crypto in every wallet. Crypto.com is helping people do that through buying, earning, lending, and card payment. Everything you could want at Crypto.com. Go help your boy out, tell him Pomp sent you. Download the app or visit Crypto.com. Pomp's got you, always. Everyone wanted to get into mining and didn't know how? Don't worry, your boy Pomp's got you. Everybody got some electricity and wifi? All you gotta do is go to CoinMine.com, you buy a coin mine, it's like an Xbox or a Playstation that helps you turn your electricity into Bitcoin. That's right, you purchase it, it shows up at your doorstep, you pull it out of the

• 1:28Anthony Pompliano?

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• 2:11Anthony Pompliano?

  or Ether at BlockFi and receive 6% annual interest, paid monthly in cryptocurrency. 6% is an absurdly high rate. It's the best rate in the industry. I highly suggest you go check out blockfi.com/pomp. Again, that's blockfi.com/pomp to sign up and start earning crypto today.

• 2:30Speaker 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.

• 2:55Anthony Pompliano?

  All right, guys. Bang, bang. I've got Kevin here. We've got the live stream going as well. So we've got a whole bunch of stuff to tackle. Thanks so much for doing this.

• 3:05Speaker 02

  Yeah, thanks for having me.

• 3:06Anthony Pompliano?

  All right, let's go through background first and then we'll get into all the fun stuff.

• 3:12Speaker 02

  Yeah, no, for sure. So I started my career, I studied finance and economics undergrad. Started my career at Bloomberg, knew I wanted to be in the markets, specifically the equity markets, in some capacity. Coming out of school, wasn't exactly sure where. So started at Bloomberg as an equity fundamental analyst, later moved over to their independent research arm called Bloomberg Intelligence, which essentially is kind of similar to sell-side research, equity research. And I was doing equity strategy there. So basically what that means was from a top-down perspective, more of kind of a macro strategist, looking at global equity market trends and how the macro economy can affect those and trying to forecast where we thought the markets were going to go, kind of at a high level. And so my path to Bitcoin,

• 3:55Speaker 02

  I'd say was decently similar to a lot of other people, especially those who've come from the traditional finance world. First, actually, you know, heard about it or saw it in 2013. Like some people, I mean, I personally completely dismissed it, to be totally honest with you. I thought it was fake internet money. It was breaking above, I think it was $1,000 at that point in 2013 when I first came across it. And I completely dismissed it. Did none of my own due diligence, none of my own homework and just kind of listened to what some of the financial pundits said and then kind of came back around to it in 2016, really early 2017. What fascinated me at first was just that this thing was still around, right? That people were still talking about it. People were becoming increasingly more bullish on it and what its potential long-term valuation proposition was.

• 4:38Speaker 02

  And so that's when I really started to kind of do my own homework and figure out exactly what this was. And that I guess you could say is the moment when I fell down the proverbial crypto rabbit hole and it's kind of been off of the races ever since, to be honest.

• 4:49Anthony Pompliano?

  So you were not working at a crypto company when you came across crypto?

• 4:53Speaker 02

  No.

• 4:53Anthony Pompliano?

  What was the, you're at Bloomberg, right?

• 4:55Speaker 02

  Yes, yes, I was.

• 4:56Anthony Pompliano?

  What was the general sentiment inside of Bloomberg in, what, 2016?

• 5:01Speaker 02

  Yeah, so 2016, it was still, I mean, largely kind of flying under the radar. It really didn't get on, I guess you'd say, the radar of a lot of our strategists or research analysts until 2017, really, when you really started to see that run up, right? So probably summer of 2017, a few of my partners now at Delphi and I were actually, you know, trading some of this stuff, starting to actually invest capital into it, you know, again, continuing to get further and further down the rabbit hole of these different protocols and tokens and structures and things of that nature.

• 5:31Speaker 02

  And it was kind of funny that the run-up was, I mean, a lot of fun, obviously, for anybody who was a part of it, but it was interesting because we actually had a lot of our kind of like senior analysts that would look over at our desks and, you know, we wouldn't be trading all day, but, you know, obviously there were, there were certain points where, you know, Bitcoin would fluctuate, you know, 10, 15% in a single day. And I remember one time the S and P was down, I think, probably, you know, 1.5%, 150 bips. And my job as an equity strategist is basically to figure out, A, why that's happening and if we think that trend will persist. And I remember just thinking in my head, you know, I was almost becoming jaded to traditional market volatility because you'd see something like Bitcoin or some of these other altcoins that were, you know, ripping sometimes 60, 70, 100% in a day.

• 6:14Speaker 02

  So it was a really interesting kind of dynamic, but when I left to start a crypto company, a research company with my partners, the response was largely, was largely positive, I would say. They were positive, it was positive in that we were going out to do our own thing. We were kind of, you know, being entrepreneurial. The flip side of that was anybody who was kind of in the traditional markets or had been there for years was basically like, you know, what the hell are you guys doing? You're basically betting your careers and your, and your life on something that is extremely speculative and again, still largely had the connotation of being, you know, fake internet, you know, magic money.

• 6:51Anthony Pompliano?

  For sure. So you, you left to start Delphi Digital, which I sit on the board of directors of. Maybe give us a little update on what Delphi is and what the offerings are.

• 7:00Speaker 02

  Yeah, no, for sure. So we're basically an independent research firm focused on the crypto and digital asset markets. On one side, we've got our research arm, which includes two subscription products, one for more institutional clients, high net worth individuals, starting to see some, some actual traditional institutions coming in and demanding research on this space, or at least trying to understand how they can get exposure to it. We also have a retail product. It's a little bit more of a watered down version of our institutional product, but that includes weekly market commentary, thematic insights. So basically what we do is we're just an independent research arm. We're not attached to, you know, any asset manager and we're basically trying to put out the most objective research as we can on this space in terms of, you know, how to start to think about these things, how to value them.

• 7:42Speaker 02

  It's still obviously very, very early days and still very nascent market. So we actually, we, we actually love that aspect because we're able to, A, help kind of pioneer some of these valuation techniques, but also there's a lot of really good information and people that we've been able to connect with that are doing some really, really interesting things in terms of the valuation side of this. And we also incorporate a lot of, which I'm sure we'll get into in this conversation, a lot of the kind of global macro landscape and backdrop into our outlook for specifically Bitcoin, but you know, crypto at large. Because, you know, as you know, I've been pounding the table on this for a while, but I think you definitely have to have an understanding, at least a basic understanding of kind of where the, the macro landscape is taking us in order to, you know, have a real kind

• 8:25Speaker 02

  of idea of what valuation potential of, of Bitcoin and crypto can be.

• 8:30Anthony Pompliano?

  So let's start with the macro economy. Just give us an overview of where you think we are across different markets.

• 8:36Speaker 02

  Yeah, so I mean, it's really interesting when you look out, the, on the surface, things don't appear to be that bad, right? You've got stock markets that are, you know, pretty much within striking distance of all-time highs. Where it starts to get really kind of dicey is when you look beneath the surface and you see, you know, a slowing or deteriorating global growth outlook. And a lot of that's driven by, you know, trade wars and this kind of move more towards protectionism, especially with the debates going on with US and China. You've got now seventeen-plus trillion dollars in negative yielding debt, which again, if you were, you know, even ten years ago, but fifty years ago, I mean, that's just unimaginable to a lot of people. So we can talk about kind of how we got there and what the outlook is for that part of the market. And you've just had this kind of gradual shift out the

• 9:19Speaker 02

  risk curve for a lot of people, right? Because you're no longer getting that type of yield or potential return or return potential from some of these asset classes. So where I think we're gonna, you know, start to get pretty dicey and you're starting to see this show up in monetary policy, you had the European Central Bank this week, the ECB coming out, not only cutting, you know, their deposit rate by ten basis points, but the big kind of bazooka that they had, that they were debuting was that they're going to revamp quantitative easing, right? So essentially, you know, that money printing process and trying to stimulate an economy that is simply just struggling, struggling to get growth, struggling to get inflation off the ground. The FOMC meeting next week for, for the Fed is the September

• 10:00Speaker 02

  meeting, and they're largely expected to kind of follow the same central bank, you know, race to the bottom in terms of more rate cuts, potentially restarting an asset purchase program. And so, again, a lot of this plays into our long-term valuation, you know, proposition for Bitcoin, because if you have this broad-based currency devaluation, you have to, you have to understand what it gets devalued against, right? And that's going to be these kind of real hard, you know, scarce assets. And obviously Bitcoin, you know, fits, fits right into that narrative.

• 10:28Anthony Pompliano?

  For sure. So let's start on the macro economy. You said a bunch of stuff there, but one of the things that I think is top of mind is this idea of quantitative easing becoming, you know, kind of the new normal, if you will. Describe what quantitative easing is and then what the impact it has on both the legacy assets and then something like Bitcoin.

• 10:45Speaker 02

  Yeah, so quantitative easing essentially is basically, central banks are now, when I say asset purchases, they're basically buying government bonds in Europe and Japan as well, also buying corporate bonds. Japan's actually getting into the equity ETF market or has been in the equity ETF market. So basically what they're trying to do, long story short, is asset purchases to stimulate growth, right, kind of pump money into the economy. Hopefully that gets into the consumer's hands. If it gets in the consumer's hands, they'll, that kind of wealth effect will translate into more domestic spending, you know, faster growth, inflation will pick up, things of that nature. What's difficult is that monetary

• 11:26Speaker 02

  policy can work when the, there's kind of pent up demand for private borrowing, where I think we're kind of getting to the point where monetary policy is starting to push on a string and which it won't be as effective is because, you know, you have to rewind and say we are a debt-based economy, right? That's one of the realities that we live in. And so when times are good, that's not necessarily a bad thing, right? That's not necessarily a bad thing, depending on what you use it for. And so when times are good, companies are borrowing, people are borrowing, and they're putting that towards, you know, productive assets or productive investments. That's how, you know, you can really spur economic growth and the cycle kind of repeats, right? Where I think we start to get to the point where monetary policy becomes less effective is now you've had, you know, corporate, companies

• 12:10Speaker 02

  go on a huge debt binge the last 10 years. Capital's been largely pretty cheap and easy to come by. And so if the demand for debt is no longer there, right, or is suppressed, cutting interest rates won't necessarily matter nearly as much, right? Because if you're a small business and you're saying, I don't need to take on any more debt, you know, I'm good for now. If I cut rates from, let's say, 2% to 1%, it doesn't really necessarily matter, right? Because you're not, you're not in the capacity, you're not looking to add on to that debt. That exposure. So what's tough is monetary policy is probably going to be less effective. So that means that the conventional ways in which, you know, central banks try and stimulate economies will probably get more and more into the unconventional realm, right?

• 12:52Speaker 02

  With more asset purchases, expanding the mandates for the assets that they can purchase. I mean, Japan, as I mentioned, is a really good example where they own something like 70% of the domestic ETF market, which is absolutely eye opening. And when you think about how they unwind that balance sheet, right? How they actually sell those assets. If times and growth does improve, I mean, there's just, there's no real easy way to do that. But long story short, how that has an effect on asset prices is a lot of that money from quantity to be easing throughout this cycle ended up staying or getting trapped in the financial system, right? So it wasn't necessarily like the Fed or the ECB or anybody was pumping money into the system and it was going directly into consumers' hands, which we would consider something called like helicopter money, which is now a new proposal that's going to be on the table, I think, you know,

• 13:36Speaker 02

  in this next kind of easing cycle, because you want to be able to directly influence, right? The consumer's behavior and literally putting money in somebody's pocket is probably the, one of the best ways to do that. It certainly has inflationary effects and potential. But, but now this whole kind of shift towards more dovish monetary policy is definitely one that we think is going to continue. And it's one of the reasons why you've seen not only Bitcoin run up this year, but also gold, right? There's a lot of similarities between the short-term drivers of gold and Bitcoin as well.

• 14:09Anthony Pompliano?

  For sure. So one of the things that is definitely true is as economies start to struggle or enter these recessive periods, central banks have two tools. They can drop interest rates or they can put more money, usually they do both, or at least lately. I think that we're starting to see that that is the plan here as well. But that leads to this third idea, right? Which is the modern monetary theory, which you alluded to a little bit with the kind of helicopter money. Maybe explain what modern monetary theory is and kind of how that fits into the equation.

• 14:39Speaker 02

  Yeah. So, so at a basic level, and one of the, I'll get into why. I think it actually does have a lot of merit, at least in the short term. But over the long term, I think can potentially. Run into some issues. It basically, you know, what it says is that the government can essentially print as much money as it wants because it pays back in its debts in that currency, right? So hypothetically, we have 22-plus trillion dollars in national debt here in the US. You know, what's to stop the US government from coming out and basically just printing that money and repaying those debts, right? And that's a very, very kind of watered-down simplified version of it. Where I think that theory has a little bit of merit in the short term is that's kind of essentially what we're starting to do too, right? You see the fiscal deficit continues to increase, the budget deficit continues to increase,

• 15:23Speaker 02

  you've got these fiscal stimulus plans with corporate tax cuts and no real way to kind of finance those, so these deficits and this national debt continues to grow. And it can continue to grow, you know, almost indefinitely because, you know, the US is the US dollar is the global reserve currency, right? There's a lot of, you know, benefits that come with doing that. We can basically finance, you know, our expenditure indefinitely. But where I think that does eventually hit a crossroads is that a lot of our debt is also internationally financed, which means that there's a lot of foreign holders of US treasuries, for example. And so as soon as, and you're starting to actually see this play out with China and Russia and the, you had Mark Carney, for example, do you see, or the BOE, Bank of England

• 16:08Speaker 02

  President, coming out in one of his recent speeches talking about the potential for, you know, not a Libra currency, but a Libra-like currency, right? That's more of kind of a non-sovereign, you know, digital currency for the world. This move away from the US dollar, if that trend continues and people lose confidence in the fact that the US can repay that debt, that's where I think we run into issues with this whole MMT theory because we are dependent on, you know, foreign buyers of treasuries to kind of, you know, help us. The demand for that debt is extremely dependent on some of these foreign buyers, right? So if they lose confidence that we can repay this, or they lose confidence in the dollar is a reserve currency, then everything kind of starts to shift, right?

• 16:50Speaker 02

  You'll have financing costs in the US will increase, yields will increase. And so if the dollar loses that global reserve currency status, that's where I think, you know, MMT really kind of starts to run into some troubles there. But again, that's just because, you know, we're still heavily dependent on, you know, the foreign perspective of, you know, US debt and US treasuries.

• 17:12Anthony Pompliano?

  For sure. So, one of the things that, to me, a lot of this is predicated on is there being some sort of recession or drawdown in the economy from growth, GDP, etc. What are you looking at from data point standpoint that could be kind of the alert system, right, or kind of give us an early warning sign that a recession was coming? And then where do you personally think we are in terms of a potential recession occurring?

• 17:40Speaker 02

  Yeah, no, great question. So, one of the-

• 17:43Anthony Pompliano?

  All I do is great questions on this podcast.

• 17:46Speaker 02

  Just set people up. No, one of the things that not only I look at, but a lot of the market looks at is the yield curves, right? So you had a US yield curve inversion, basically meaning that short-term yields or yields on shorter-term debt were above yields on longer-term debt. And the reason why people look at that as a potential indicator for a future recession is that if you think about how integral today's banking system is and the process of a bank connecting borrowers and savers and essentially being able to the spread between long rates and short rates is what where a lot of the banks make some of their profits. And so, the incentive to lend, right, is all well and good until you have an inversion, right, where you're actually, that spread turns negative for

• 18:31Speaker 02

  you as a bank. So lending becomes, you're less incentivized to lend. And so, what's interesting, and kind of tying this back to quantitative easing too, is that at the end of the day, a lot of the monetary policies are also indirect, right? So they're not directly stimulating the economy, they're indirectly doing it largely through the banking system. And you can lead a horse to water, but you can't necessarily make it drink, right? So you can lead banks to all these conditions that make it profitable for them to lend, but at the end of the day, they don't necessarily have to lend if they don't want to. With a yield curve inversion, and again, you having this flip in rates, that also makes or disincentivizes them to lend as well, which easily can start to funnel into the real economy, right? Because again, we're very, very debt-driven. So if you have

• 19:12Speaker 02

  credit cycle, if the credit cycle starts to tighten up, if credit becomes harder to get, if capital becomes harder to get, it can really start to slow or accelerate that slowdown in economic- Growth and that's one of the key indicators that a lot of people look for. There's a number of other ones like the USPMI ISM. It's usually a pretty decent leading indicator because that looks at, you know, manufacturing growth and the expectations as well for what some of these manufacturers will are expecting in terms of whether the economy is going to be contracting or expanding. And so those are probably two of the two of the big ones that I look at. But there's a number of indicators and we've got a chart book that when we release this podcast. You know, we can send out as well with some of this stuff and some of these other indicators that we watch.

• 19:56Speaker 02

  But there's a lot of things. I mean, the credit cycle is extremely important. But again, it's also looking at kind of consumer sentiment right now. The US economy is it looks pretty good relative to the rest of the world, but it's largely driven by the consumer, right? So if you have any kind of sell off in the market or loss in consumer or consumer confidence. That certainly could could kind of accelerate the timeline for a US recession, which, you know, again, will bleed into the global economy. So in terms of timeline, I mean, I don't think we get a recession here in the next, let's say, three to four quarters, but I definitely think in that 18 to 24 month window. That's where I would put my bets that we'll certainly see some type of recession.

• 20:37Anthony Pompliano?

  Got it. And so when that recessive period hits, obviously the central banks have their tools that they'll use to to try to combat it and keep prices stabilized, if not continue to increase. But we don't give investment advice here, but maybe just mention some of the assets that you would keep an eye out in terms of as we enter into that recessive period, they would benefit from cutting interest rates, printing money and maybe even some MMT going on.

• 21:03Speaker 02

  Yeah. So, so when you have interest rates cut and you have these kind of stimulative measures taken by central banks. A lot of risk assets actually actually tend to benefit, right? So this is kind of a little bit more outside of the recessionary period or just immediately following the recessionary period. If you think about stocks in 2008, 2009, you know, beginning of March 2009 was actually the best time to buy stocks. That's literally when they bottomed hindsight being 2020. I mean, obviously, you know, it was very, very tough to predict that that was the bottom for the market. And if you actually look at Headlines on the day that the market bottomed, they're pretty hilarious because, you know, again, a lot of people were coming out and a lot of the financial headlines were saying that like this was just the start, right? Like everything, the world was at that point, pretty much looking like it was coming to an end.

• 21:45Speaker 02

  And so the best time to buy is usually when things are out of favor, right? Or when everyone hates a certain asset class. When you get into recessionary periods, it's tough to say that in a recessionary period, you know, risk assets certainly will sell off, usually sell off more than kind of your safe havens like your bonds or even your gold. Because, you know, investors want to try and preserve as much wealth as they can, right? So you're, you're going to flood into things like US treasuries, you're going to flood into potentially safe haven assets like gold. So those tend to outperform, but in absolute terms, a lot of assets in general lose a significant amount of their value because correlations kind of rise to one when everyone's panic selling. And so this, this also kind of bleeds into, you know, we talk about Bitcoin and what its potential

• 22:29Speaker 02

  performance could be in the next recession, right? Or if you do see kind of a market panic and sell off, you know, I think it really depends again when that happens, obviously, because the macro narrative for Bitcoin has gotten a lot stronger, you know, even in the last six months, which is pretty incredible to see because, you know, I have a lot of the conversations that you're having. You know, with different macro strategies coming in and basically making the point or the use case or the long-term value proposition for something like Bitcoin, right? But if investors continue to see this as more of a risk asset, right? Because it is still a very kind of unproven, as incredible of an innovation as it is, it's still very unproven, right? Doesn't have a long track record, certainly nothing compared to something like gold. Its volatility is still very high, which, you know, we can get into, but I, I don't view that necessarily as, as a bad thing, right?

• 23:12Speaker 02

  You have to expect that with such a, a smaller market compared to something like gold, which is extremely liquid. But I think, you know, long story short, Bitcoin probably takes a bit of a hit heading into the next kind of market panic or when the next market panic happens. And you see panic selling and you kind of get into this recessionary time. But at the same time, and you've seen this in gold historically as well, where people are trying to sell the most liquid assets they have, they're basically selling out of just about anything, right? So gold initially can take a hit and then long longer term, you know, outperform some of these risk assets as that safe haven. I think you'll see something similar with Bitcoin. But what's again really fascinating to me and to us is there is no historical precedent for this, right?

• 23:54Speaker 02

  So Bitcoin could absolutely rip up, you know, the next time you see a huge market panic and huge market sell just because of its, you know, uncorrelated nature. But you could also see correlations rise with risk assets like we've seen. You know, in Q4 2018 was a great example where, you know, the market, you know, stock market fell off a cliff. And Bitcoin and the crypto market also, you know, kind of followed suit as well. So, you know, I think it's tough to say which which way that's going to go. But there's certainly arguments for both sides of the coin, so to speak.

• 24:24Anthony Pompliano?

  No pun intended.

• 24:25Speaker 02

  Yeah.

• 24:27Anthony Pompliano?

  So one of the things that people are definitely, especially in the Bitcoin community, talking about is this idea that Bitcoin could rise to be the global reserve currency. It could dethrone the dollar. I think that there's other countries around the world, Russia, China, et cetera, who have openly come out and been combative towards a US dollar system. They've said it's too expensive, it causes too many issues. There's too much risk involved from a macroeconomic and also from a national security standpoint for them. What are your thoughts around the dollar being the global reserve currency? The ability for somebody, either another country or a decentralized currency to kind of dethrone it? And what's the impact to that global economy if that was to happen?

• 25:08Speaker 02

  Yeah, so I think it's important to kind of put in perspective why, you know, the dollar today serves as the global reserve currency, right? One of the more heavily cited reasons and one of the more obvious reasons is because it is by and large the the most heavily used kind of transactional currency, right? So you have, you know, a lot of the commodity markets are priced in US dollars. Even countries like more developing countries that are exchanging goods and services oftentimes will actually exchange those in dollars, right, themselves because again. Those economies and those local currencies experience a lot of uncertainty, a lot of volatility. So the dollar is heavily used in just kind of global commerce. The other reason and why I think it's going to be a longer to dethrone the dollar. It's going to take a little bit longer than most people think is because the network effect

• 25:52Speaker 02

  that bring this back to the treasury market, the network effect that US treasuries have as a global reserve asset, right? So when you think about global reserves and FX reserves for the central banks, it's not literally like they're holding, you know, just, just, you know, let's call it hundreds of billions of dollars in cash in US dollars just sitting in a vault. They actually hold, you know, US treasuries and things they can earn, you know, some type of yield on, or at least some type of yield until, you know, 12 months ago. And so I think the network effect of the US treasury market, because it is one of the most liquid markets on the planet, is going to keep the US dollar at least in reserve currency status for, you know, the foreseeable future, because what is going to be your replacement, right? Bitcoin, again, long term could certainly, and we think could certainly, you know, challenge

• 26:37Speaker 02

  it as a alternative global, you know, digital reserve asset for sure. But I think the path to, you know, we'll say, we'll call it adoption there, or the path to central banks actually, you know, allocating or starting to accumulate this, I think is going to be a lot longer because again, what is going to replace, you know, US treasuries or the dollar as that global reserve asset? When you have structural issues going on with, let's say, the euro, you have Brexit with the pound, you've got the Chinese yuan that's starting to become more and more of a player and dominant player in the global FX markets. But at the same time, there's a lot of risk and there's a lot of tension there, obviously, with the US-China trade tensions and this, you know, move more towards protectionism.

• 27:18Speaker 02

  So I think, you know, longer term, potentially you could actually get something that's more like what Mark Carney proposed, like a Libra type, you know, non-sabrent currency that a lot of these countries move more towards initially. Bitcoin, long term, again, you know, certainly has that value proposition to be an alternative global reserve asset. But, you know, the dollar's, I guess you could say, network effect, so to speak, is kind of ironic because we're talking about something that, you know, Bitcoin's network effect's obviously a huge Reason for its value proposition long term. The dollar is a very, very kind of similar in that sense where everybody holds treasuries. All these central banks hold treasuries because it's the most liquid. And liquidity comes from most of them holding, you know, US treasuries and being able to sell or buy.

• 28:01Speaker 02

  When, you know, economic crisis, you know, potentially happens. Or they're trying to basically prop up, you know, some of their, their, their, their local currencies. So network effects can kind of, can kind of go both ways. It's pretty interesting, at least from my side of the table, when you think about it from that perspective.

• 28:17Anthony Pompliano?

  So part of this is definitely that there are traditional fiat currencies. Then there is Bitcoin as a decentralized or non-sovereign currency. Is there a hybrid between the two, right? Do we see some of these countries who say, look, I understand that digital currencies are going to be a thing. I see the value proposition for the end user. I have a monetary policy that I want to continue to pursue and implement on the world, or at least on my country. I'm actually going to issue a central bank digital currency or a digital currency that is taking my monetary policy and combining it with the technology. And that's my kind of foray into this future world where I can disrupt myself from a technology standpoint, but keep the same monetary policy intact.

• 29:03Speaker 02

  Yeah, so I think where it becomes tough to make that argument is when you think about just monetary policy, right? From an individual country's standpoint, and even the, I mean, the euro, right? The ECB, you know, overseas, it's not just, you know, one country that's, that's subject to the ECB's monetary policy. It's a large portion of Europe. I think where it gets pretty tough to have some type of hybrid is because you're almost surrendering, you know, your, your independent or your objectivity, more so independence for your country's monetary policy if you go into some type of hybrid structure. I do think there will be a place for, and I just, I continue to use Libra because it's just kind of the most, it's the easiest example, it's one that's actually been proposed, but a kind of non-sovereign

• 29:44Speaker 02

  collection of different fiat currencies, mainly so the stable ones like the euro, the dollar. I think there will be some type of hybrid digital currency that, that plays out, whether it's Facebook's Libra or whether it's some Anything else that comes to market, I definitely think there is a lot of potential for that. And central bank digital currencies in general, I think that's just the way in which these markets are going to move. They're still going to be denominated in fiat, right? So creating China's central bank digital currency, to create a digital version that you want, which largely, a lot of it, you know, today, a lot of fiat money today is digital anyway. There's a lot of potential efficiencies that could be realized. There's a lot of questions about surveillance as well. But at the end of the day, it's still subject to that monetary policy of whatever the country is that's issuing it, right?

• 30:29Speaker 02

  So I think you're going to see a broad-based move to central bank digital currencies. But I don't necessarily think that they'll forfeit their independence for their monetary policies through some type of hybrid structure. Because again, that's kind of how monetary policy has developed, you know, over time is to be not only independent, but flexible enough so that when something happens, whether times are good or times are bad, monetary policy can adjust. And you've seen a lot of problems even in Europe with the countries that use the euro because, you know, the ECB basically has to take into account all these different countries, right? That have different current economic situations going on, right? Some are operating in surpluses, some are deficits, some are really struggling to, you know, get economic growth going.

• 31:14Speaker 02

  Some are probably a little bit better off. So you have to kind of balance those. And you've seen a number of different examples where even something like a euro has proved the use case potentially for, you know, more independent, country-dependent monetary policies. So I think a hybrid structure would be certainly interesting, something to look into. But I don't think it would necessarily, you know, take off.

• 31:37Anthony Pompliano?

  For sure. And then you mentioned Libra a couple of times. Obviously, that is, I'll put it in the bucket of another type of hybrid, where you don't have sovereign nations backing it. You instead have corporations, those corporations have geographic diversity, and they try to come together and create a global currency to compete with sovereign currencies. And then also with Bitcoin. Maybe talk a little bit about how you and the team at Delphi have thought about this and kind of where your thoughts are today in terms of their ability to launch this and actually get adoption.

• 32:05Speaker 02

  Yeah, I think it's kind of interesting too. If anybody else came out and if Facebook's name was not attached with Libra, I think the conversation would honestly be drastically different. The fact that it was under the Facebook name, obviously they've incurred a ton of scrutiny over the last few years with data privacy issues and all of that. I think just by nature, they kind of put themselves in a hole by having it attached to Facebook. But the idea of Libra, right? Which again, if you go through and you read that white paper, I mean, there's really only a handful of currencies that are out there that meet the criteria that they've laid out, right? It has to be extremely liquid, it has to be part of countries that are developed and relatively stable, so you're not going to see a ton of emerging market currencies get put in there.

• 32:48Speaker 02

  So when you think about, again, the reserve assets or the reserve currencies of the world today, you know, the dollar, euro, the yen, specifically the dollar as well. One of the other criteria was that, you know, in order for the Libra Association, which again, if you're a token holder in the Libra Association, you've actually got rights to the interest on these reserve assets. Tying it back to negative yielding debt, I mean, the US dollar is one of the only currencies or deposits where you'd actually put a lot of those reserve assets because you've got negative yields elsewhere in Europe and certainly in Japan as well, right? So I think that type of structure is certainly very interesting. It's also interesting that US regulators have kind of been on the forefront of the scrutiny behind Libra when, if we're talking about the threat to the dollar as a global

• 33:31Speaker 02

  reserve currency, Libra's actually one of the things that potentially could help it because it, again, it is probably the most attractive reserve asset to put into that basket just based on the different incentives that have built into Libra. But I certainly think that whether it's Facebook or somebody else, that type of structure will get done. I think it won't really hit mainstream adoption until you have some type of central bank involvement, as potentially unfortunate as that is. I don't think governments are going to really surrender, you know, their ability to try and at least attempt to control monetary policy and attempt to control their currencies to somebody like a Facebook or Libra.

• 34:15Speaker 02

  I don't think it certainly serves as a huge threat to fiat currencies because again, it's literally made up of them. But I do think that...

• 34:24Speaker 02

  How that plays into Bitcoin too with Libra and Calibra, the wallet itself, right? If we're actually able to use something like Libra and then transact or hold digital assets, you know, like Bitcoin, I definitely think it could accelerate the adoption of this space and the use, the usage of crypto assets and digital assets in general. But I don't think necessarily that again, you know, Libra, the way in which it's been designed, I don't necessarily think that it'll get off the ground without some type of regulator stepping in and really kind of, I don't want to say hold handing, but, or yeah, handholding, but having some type of, you know, influence on its launch and kind of how it gets to market.

• 35:01Anthony Pompliano?

  For sure. And so if Libra is probably not a great competitor, the central bank digital currencies are okay, Bitcoin obviously is a very, very strong competitor, and you've got the fiat currencies, at what point does the Federal Reserve and central banks just say, "Look, we have to hedge, and so let's go buy Bitcoin and put it on our balance sheets"? Is there specific moments or data points and inflection points that you're like, "Look, these are the things that I would watch out for, for that to happen"? Or do you think it's some, much more of like a policy decision and it's less affected by data or things that are happening in the global economy?

• 35:36Speaker 02

  Yeah, it's a great question, and it's, there's no real-

• 35:39Anthony Pompliano?

  All I do is great questions.

• 35:40Speaker 02

  Yeah, I gotta stop giving you props for those.

• 35:42Anthony Pompliano?

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• 36:26Anthony Pompliano?

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• 37:12Anthony Pompliano?

  This rate actually compounds, so you receive a 6.2% APY, which is very attractive given the alternatives. So you can actually take your bitcoin, you can deposit it with BlockFi and get paid an interest rate of 6% in return. Go check out blockfi.com/pomp, again, blockfi.com/pomp to sign up and start earning interest on your crypto today. If Libra is probably not a great competitor, the central bank digital currencies are okay. Bitcoin obviously is a very, very strong competitor and you've got the fiat currencies. At what point does the Federal Reserve and central banks just say, look, we have to hedge? And so let's go buy bitcoin and put it on our balance sheets.

• 37:54Anthony Pompliano?

  Is there specific moments or data points and inflection points that you're like, look, these are the things that I would watch out for, for that to happen? Or do you think it's some much more of like a policy decision? And it's less affected by data or things that are happening in the global economy?

• 38:09Speaker 02

  Yeah, it's a great question and it's, there's no real.

• 38:11Anthony Pompliano?

  All I do is great questions.

• 38:14Speaker 02

  Yeah, I gotta stop giving you props for those. It, it's, I'll put it this way, it's an interesting question, right? Because I don't think there's any real timeline on saying, you know, 12 months from now, for example, could central banks come out and buy bitcoin? I think it really depends on, again, if you think about what reserve assets and the purpose that they serve, right? Especially for central, for central banks, basically having the liquidity to be able to get in and out of these things, right? It's one of the reasons why gold is still, you know, a significant portion of global reserve assets, right? And if you look at the trends in gold demand. And right and gold's ripped up this year. A lot of that too is central banks continuing to purchase and buy and accumulate more gold. The liquidity of the gold market, you know, is not quite that of US treasuries, but it's certainly extremely high compared to some other, you know, liquidated alternatives.

• 38:58Speaker 02

  So I think you have to have Bitcoin has to have the liquidity to be able to support something like central banks getting into this accumulating some and then being able to actually offload that if they need to. And be able to get into that in a relatively easy way without a ton of slippage. I think liquidity has to develop for Bitcoin, which again, if we continue on this route of. Not only this was obviously a largely retail driven, you know, phenomena, but now getting more institutions involved. The liquidity can certainly develop for it, but I don't think you kind of get to that point where where central banks take it seriously or potentially consider it as a reserve asset. At least in a large enough quantity to to move the needle until they have, you know, till the market has that liquidity to be able to support, you know, how they actually interact or use, you know, reserve assets.

• 39:41Anthony Pompliano?

  For sure. And then you you mentioned the idea or the difference between the institutions versus retail and then of central banks. One of the things that a lot of people are looking for in the Bitcoin industry is the ETF. So there's tons and tons of talk of the ETF. There's been a number of proposals or applications. There's two still being considered, both Bitwise and then the VanEck ETF applications. What's the thoughts there in terms of how viable are those? What's the likelihood that they get passed? And would it have a major impact on price and adoption of Bitcoin?

• 40:16Speaker 02

  Yeah. So I think longer term, and by longer term, I mean, you know, let's call it three to five years. I definitely think you're going to have, you know, some some some form of a Bitcoin ETF approved. Whether that happens in the next, you know, six months or not is is obviously, you know, definitely up for debate. I think there's still some things that regulators are concerned about, especially the SEC in terms of potential price manipulation kind of on these spot exchanges. I do think, and this is one of the things that, you know, we're kind of digging into now and the the potential effects of something like back coming into the market. Where again, you know, you're not as as reliant on these spot exchanges for the the actual Bitcoin price quotes. Tie, you know, an ETF to that type of pricing source. I definitely think that could potentially accelerate

• 40:59Speaker 02

  the, the, uh, the, uh, potential approval of a Bitcoin-backed ETF. But in terms of what it'll do to the market, I mean, again, this kind of gets outside of the, you know, obviously not your keys, not your Bitcoin argument. And it's not us saying that, you know, that's the best way for people to get exposure to it. But again, if you're just thinking about this from a pure kind of investment or investable asset class. If you look what happened with gold, right, with the first kind of exchange traded products and, and arrival of ETFs in the early 2000s. Part of the reason why gold really ripped throughout, you know, the, the early 2000s and really into the late 2000s, um, up until about 2010, 2011, was one, because the dollar, um, was, was, um, getting a bit weaker. But at the same time, the, um, accessibility for investors to get into these products, right?

• 41:42Speaker 02

  So now you could actually trade or, or invest in a gold-backed ETF. And it was much easier than, um, actually going out and either buying physical bullion or, um, locking up on some of these maybe close end, uh, close end funds. The just increase in accessibility in these products that were brought to, uh, market for both institutional or for both retail and institutional investors, um, was part of the catalyst that led to the explosion in gold's price, right from the early 2000s onward. And what's interesting today is that if you look at these investment vehicles, and this kind of gets into the argument of Bitcoin versus gold. There was, there was a, a period, you know, in the early to mid summer where Bitcoin and gold had a very, very high correlation with one another, right? And everyone was kind of like, this is it. This is the moment Bitcoin's now proving, you know, it's, it's, it's safe haven, kind of store of value.

• 42:27Speaker 02

  Argument it's trading in line with gold, which again has, you know, centuries and centuries of, of, uh, of, uh, history to back it in terms of its safe haven asset, um, uh, classification. Then that correlation kind of broke down a bit. And, and when you think about it, just from the incremental buyer perspective, there aren't nearly as many ways for people to actually buy Bitcoin in some type of ETF or investment vehicle as there are with gold. Right? So, so you wouldn't necessarily expect them to trade in line with one another nowadays. Because again, the markets are very different in terms of their size of liquidity, but also who that incremental buyer is and the accessibility to something, um, like Bitcoin versus, versus the Accessibility to gold. So long term certainly can can lead to, you know, an explosion in adoption and at least people getting exposure to it, which would then feed into, you know,

• 43:12Speaker 02

  Bitcoin's price and and value potential. But I think in terms of timeline, you know, I don't think we we necessarily get one maybe the next six months or so, but definitely longer term, three to five years. I think that's certainly going to be a going to be a vehicle for people to be able to invest in not only from the institutional standpoint, but, you know, financial advisors and and people that are trying to put money into 401ks and things of that nature.

• 43:34Anthony Pompliano?

  Got it. So I want to switch gears for a second and talk a little bit about the pension crisis going on specifically in the US. A lot of people probably are not aware that majority of the pension funds in the country are underfunded. Maybe just talk a little bit about what's going on there and how some of the crypto and Bitcoin could could potentially be a solution.

• 43:53Speaker 02

  Yeah, you want to talk about the potential risk that's just kind of hiding, hiding blatantly in the shadows. And it sounds kind of contradictory, but the size of, to your point, the size of the underfunded pension problem continues to only really get worse. You've seen a little bit of improvement here in the last few quarters. But what's really interesting is that the way in which pension funds work too, when we talk about underfunded, it's basically what their assets are. I think about kind of the investments that they have, right? The assets they have in their books versus longer term, what they're supposed to pay out or they're they're liable to pay out to their, you know, former employees as they start collecting pensions, that underfundedness, right? So comparing your liabilities to what your assets actually are. What's really, really difficult is that you have these underfunded

• 44:37Speaker 02

  pensions and the problem's becoming worse at the same time when, again, you have stock market, you have the stock market within striking distance of an all time high, the best 10 years for risk assets, you know, that we've seen again in decades, right? So if things, when times are technically good, if you still have this underfunded pension problem, what gets really scary is what happens when times turn, right? What happens when you get a drastic sell off in bonds, which potentially reads leads to a repricing in stocks and risk assets. And let's say, you know, the stock market loses 20, 25, 30% of its value. Now that that funded ratio gets even Worse, right? And where I think this again, kind of potentially leads into this larger global macro backdrop.

• 45:21Speaker 02

  There's been the economic growth and kind of who your incremental buyer is and consumer spending and all of this. The more and more people that retire, demographics are obviously moving against us. The if pension funds either go under or have to be bailed out or simply just cut the benefits they promised people. Well, now that leads to less spending, right? Less spending in the economy, more people trying to save. And that again, can have these kind of vicious circle effects that can really, really lead to, you know, some, some pretty significant drawdowns, not only again in risk assets, but in the global economy at large. So that's one of the kind of underlying risks. That's a lot longer term because I don't think there's going to be a domino that falls that necessarily, you know, upends the entire global economy because of this. But especially here in the U.S. I mean, it's a huge problem.

• 46:05Speaker 02

  And, and it's one of the reasons why, you know, we're talking to some of these more conservative institutions. Again, we'll never say to, you know, sell everything and put all your eggs in the crypto or Bitcoin basket. But when you think about the asymmetric return opportunity of something like Bitcoin compared to the outlook for traditional asset classes, the, the, that asymmetric opportunity becomes extremely compelling when you finally can convince people that the next 10 years are probably not going to be, you know, nearly as, as lucrative as, as the last 10.

• 46:35Anthony Pompliano?

  Yeah. And, and part of it, I guess, too, is, you know, Mark Yusko and I talk about this a lot in that a lot of times people make investment decisions based on the performance of the asset for the last 10 years. They don't look out and say, well, what is it going to do for the next 10 years? And so that's one really, really important thing. And the second thing is the correlation is really important, right? And so just modern portfolio theory, if you add together a ton of assets that are non-correlated, you actually end up reducing your risk. Maybe talk a little bit about how Bitcoin fits into that modern portfolio theory and then the outlook for various asset classes moving forward for the next 10 years.

• 47:11Speaker 02

  Yeah. No, so spot on. I mean, if you look at, you know, an uncorrelated asset, because again, when, when you have fluctuations in stocks and bonds and this year, actually, there's been a higher correlation between the two. Usually you have bonds trading inverse with stocks because again, one's looked at more as kind of a safe haven asset or a, or a like a safety asset when things go wrong in risk assets like stocks. You've seen that correlation, you know, trend positive this year. But to your point. The uncorrelated nature of Bitcoin actually allows you to reduce your, the overall portfolio risk itself, right? So the uncorrelated, non-sovereign asset is certainly probably one of the strongest arguments for including in a portfolio today. Again, just based on that asymmetric return profile and the fact that there are certain periods where historically,

• 47:56Speaker 02

  if you look over long time periods, Bitcoin largely uncorrelated to any asset, whether it's stocks, bonds, even gold or other commodities. But it also has times in which over the short term, it trades at a high correlation with stocks, for example, in that Q4 2018 sell-off, then beginning to middle of the summer, it traded much more in line with gold, while stocks were selling off and had a negative correlation to stocks. So the fact that it is and is proving itself to be a largely uncorrelated asset certainly makes a strong argument for portfolio inclusion. In terms of the outlook for traditional asset classes now, and we've got data to support this, when you look at just kind of the next 10 years, right, just to make it easy, if you look at US 10-year Treasury yields, right,

• 48:39Speaker 02

  the fact that that is sub 2% or below 2% right now, that's one of the best kind of predictors of what your longer-term returns, that 10-year return will be on that asset, right? So let's say you're getting, we'll call it 2, maybe 3% on Treasuries over the next 10 years. You look at stocks, right, which there are certainly pockets of the market that are still, I would argue, a bit undervalued. But by and large, especially when you look at price-to-sales ratios, a large part of the stock market is overvalued. Valuations are a very, very poor timing mechanism, right? So people have been arguing the S&P was overvalued for the last five years now. Have you sat out of this market? Obviously, you've been kicking yourself because it's pretty much, I mean, not in a straight line, but pretty much gone up into the right. What valuations, when I say

• 49:21Speaker 02

  valuations, I think like price-to-earnings ratios, things of that nature. What they are really good are longer-term return predictors, right? So if you look at, and you just look at the inverse correlation between, or I should say the inverse relationship between high equity valuations and then the subsequent 10-year returns on the S&P 500, looking back over about a century, they move very, very closely with one another. So when you have valuations... That are at these levels, the expected return over the next 10 years is much lower than if you were buying it, you know, let's say bottom of 2009, when pretty much everything was, was, you know, fire sale and on sale. Those are typically the best times to buy because everything looks cheap, right? A lot of things today look expensive. So if you put this all together and you say, okay, I'm not really getting,

• 50:04Speaker 02

  if you're a pension fund, you're trying to get, it's called 78% a year. Where are you actually going to get that return from, right? You're not going to get it, obviously in government bonds. You're probably not going to get it in stocks, especially like US large caps, which have absolutely crushed. So the argument to put in something like a Bitcoin, which really does have that return potential at a very small allocation. Really, if you can, if you can convince more institutional investors or high net worth in individuals of that kind of outlook for traditional asset classes, that argument for portfolio inclusion becomes a lot easier.

• 50:36Anthony Pompliano?

  For sure. And I guess from that also, there's the qualitative argument of, hey, Bitcoin is a better piece of technology. It's going to be adopted, you know, all of that. But then there's the quantitative argument, which we're talking about, which is non-correlated asymmetric asset. And for me, what I've found is that the qualitative argument is very easy to debate for institutional investors. But the quantitative one is much, much more difficult to debate and they actually are more receptive to.

• 51:04Speaker 02

  Yeah. And again, I think in order to understand that long-term value proposition of, and it's not to dismiss the technology, right? Technology is an absolute incredible innovation. But when you think about, you know, specifically Bitcoin as this long-term, you know, non-sovereign, you know, digital gold store of value alternative, that value proposition is really going to be driven by a lot of the other things that are happening in the macro backdrop around it, right? And that's why we think that right now, the macro backdrop is primed for the next 10 years for Bitcoin to really be one of the best performing asset classes is because that backdrop is primed for it to do that, right? And I, and you know, nothing operates in isolation like we talked about and not only uncorrelated returns,

• 51:46Speaker 02

  but there are a lot of, if you think about just the psychology of investing, you know, depending on how stocks and bonds in your overall portfolio trades, you might be more inclined to buy a certain. Asset versus others. So again, coming back to when you look at the outlook, the next 10 years for your portfolio, you know, you're, you're trying to find, you know, the assets that will at least help you preserve that wealth, but also obviously grow that, you know, and it's one of the reasons why you continue to see growth assets. And you're seeing these, you know, multi-billion dollar IPOs with multi-billion dollar losses. You're seeing people get pushed further and further out the risk curve and trying to find these growth assets. What another reason why growth has outperformed value for, you know, much of the last decade is people are getting pushed further and further out the risk curve, trying to find these assets that,

• 52:30Speaker 02

  again, will give them that, that, that value appreciation. And they're willing to pay higher multiples for it, right? Which is the definition of kind of what a, what a growth asset would be. So, you know, I definitely think it's a very interesting dynamic. The technology, to your point, you can argue back and forth and, and again, is there a, is there a, you're gonna hate me for this. Is there a non-zero chance that this all doesn't work and Bitcoin goes to zero? Yes, right? There's a non-zero chance. You have, you have to, and you have to be upfront about that and you have to understand that. But at the same time, I think the, to your point, the quantitative or monetary argument for including someone like Bitcoin, especially when you're talking to people who are kind of more versed in, in traditional investing, is very, very difficult arguing, argument to make unless they kind of tie it back to the uncertainties around the technology.

• 53:16Anthony Pompliano?

  Other tokens, obviously, we could spend all day talking about Bitcoin. Anything else that you're paying attention to, interested in, or think others should, should be paying attention to?

• 53:25Speaker 02

  Yeah, I would say, I mean, just like kind of a high level, I mean, at Delphi, we cover a number of different, you know, tokens, projects, a lot of valuation work on some of these. Still, obviously, as I mentioned, very early days, but some of the things that we're, we're obviously looking at, you know, smart contract platforms. The leader being Ethereum, a lot of obviously really incredible innovation going on there. We've had conversations with, with some people that have, you know, some, some pretty significant influence, you know, in that community about what some of our longer term concerns are, but also, you know, we've, we've learned a ton from, you know, a lot of the, the developer community there. So looking at just smart contract platforms in general, how those Those wars are kind of going to start to play out.

• 54:08Speaker 02

  Gaming, I think, is also a really, really interesting area where we're. It's still, I think, too early to figure out exactly what's going to be, drive the most value or which project today potentially could drive the most value. But it is one of those kind of industries that we're looking at that we think, you know, the economics behind issuing a token certainly can make sense. And then the security token market, which is still very immature. We've talked about this a bit too, but things like, you know, tokenizing assets. I think that's certainly you're going to have this, this whole move towards digitizing or tokenizing different assets and different asset classes. I think that'll also make, you know, the portfolio management aspect a whole lot easier. And that's a longer term trend. But also, you know, some really interesting structures like tokenizing athletes or kind

• 54:52Speaker 02

  of tokenizing teams and things of that nature. I think what this has done, at least for us, or at least, you know, for me, I won't speak for the other guys, is it, it makes you kind of question what different incentive systems can be designed to try and push, you know, a community in a decentralized way towards a, you know, certain, I'll call it end goal for lack of a better, better term. But what's really cool is that this, this whole industry is moving towards, you know, really interesting token economic designs, questioning ways in which, you know, traditional companies operate. Are there ways in which you can actually make it so that all the stakeholders in a system, right, so not just shareholders, but, you know, the community, the users, the customers, the employees? How can you design these types of systems that everyone kind of benefits?

• 55:37Speaker 02

  I think that's one of the really kind of, you know, cool, cool aspects of crypto and the entire community is that by and large, yes, there's a lot of polarization that goes on, especially if you're in kind of the Bitcoin versus Ethereum camp. But at the same time, there's a lot of people that are out there that are continuing to just kind of push the bill, continue to innovate and continue to put out some really great content and question, you know, what, what today's crypto economic landscape looks like, what different token structures could be. And, you know, that's certainly one of the reasons why, you know, we've not only gotten into this industry, but playing in this industry for a long time is just the innovation and the, the, I would say, the level of talent and intellect is, is pretty incredible.

• 56:21Anthony Pompliano?

  You mentioned Ethereum. What's the take on the DeFi or decentralized finance and what's going on there? It's starting to get, I think, a lot more attention. I don't know if anything's kind of really broken out in terms of compared to traditional finance, but maybe just give a little bit of the thoughts from you and Delphi on DeFi.

• 56:38Speaker 02

  Yeah. No, DeFi, one of the most, you know, one of the more definitely innovative, we'll call it, industries being built on Ethereum and some other platforms or protocols as well. What I think, you know, longer term, I think there's certainly things that need to not only just be addressed, but as you kind of get into a more, really try to compete with more traditional finance, one of the tough things right now is that if you're getting into DeFi, right, or you're planning on locking up, let's say ETH to get DAI to be able to use, DAI being a US dollar kind of stablecoin, it takes money to do those types of things now today, right? Which again, if you're trying to really, you know, create an open financial system, we also have to lower not only the barriers to entry, but also the ways in which, I guess you'd say the capital cost that

• 57:23Speaker 02

  it takes or the capital requirements to get into some type of decentralized finance world. So the over collateralization, again, basically means that you have to, it takes money to make money, or it takes money to actually be able to interact with some of these protocols. It's certainly a really great testing ground and there's still a lot of innovation that goes on every single day. I mean, we've got two of our partners out at Ethereum speaking in Tel Aviv, you know, this weekend and their entire presentation was on DeFi, right? And so we'll put that on our site where people can reach out to us to get the slide deck for that. So there's a ton of innovation there. I think longer term, there's going to be some questions about, you know, how do you actually shift some of the maybe underwriting risk or some of the due diligence on things like if you're thinking about, you know, mortgages or more complex

• 58:07Speaker 02

  kind of loan structures. But by and large, I mean, DeFi itself is certainly a huge movement, not something we see, you know, we're addressing or moving backwards. And people, again, continue to innovate and, you know, push that market forward. So we're really excited to see, you know, what the next iteration of that is.

• 58:23Anthony Pompliano?

  For sure. And for those that are just joining now, maybe just give us an overview of Delphi and what you guys are doing there and kind of the type of customers that you guys have with the various offerings.

• 58:34Speaker 02

  Yeah, so we are an independent research firm focused on crypto and digital assets. We've got two research subscriptions. One's more so for, we call it the institutional product, more so for institutional investors, high net worth individuals, kind of more sophisticated investor class. And then we've got a slightly watered down version that we call our insights product, more so for your retail customer. And that's weekly market commentary, thematic insights. We do put out, we've got a number of free reports right on our website. If you go to delphidigital.io, if you do /bitcoin, that's our state of bitcoin report that we put out that needs to be updated at this point because it was back in December of 2018. But we've got some pretty interesting analysis there on different things, not only

• 59:18Speaker 02

  just the state of bitcoin, but UTXO analysis, kind of the process that we used to put out that bottom call back in December 2018. We've also got a consulting arm, so we work with a number of different, largely, you know, funds that are trying to get in this space, understand what the potential investment use case could be, where they could actually deploy capital. We've also worked with, you know, some project teams, just, you know, picking our brains about token economic structures and things of that nature. So really, again, just kind of an independent research firm trying to put as much credible information as we can. That's also extremely vetted, thought through, and hopefully pushes the community forward.

• 59:53Anthony Pompliano?

  All right. Time for the rapid fire questions. I'm fearful of doing this with him because I know he's got questions waiting for me at the end. What's the most important company in crypto?

• 1:00:04Speaker 02

  Ooh, most important company in crypto. For, I'll say, I'll stick with the kind of investing thesis. I think backed, at least right now, I think the potential, if that gets off the ground, gets up and running and actually becomes successful, I think could certainly move the needle in terms of institutional adoption, for sure. Them, and I'm gonna add a second one, just because, you know, we can. Fidelity. I think everything Fidelity is doing in terms of custody. Again, we've been waiting a long time for A trusted custody provider to come into the ecosystem, not to say that there aren't a ton of great custody solutions that already existed, but again, if you're thinking about institutions and people kind of putting, you know, real, real capital to work in this

• 1:00:46Speaker 02

  space, they needed some type of, you know, State Street or Fidelity to really come in and a name brand that they trusted. So I'd say between those two, I definitely think that they're going to be, you know, some of the more important companies for sure.

• 1:01:00Anthony Pompliano?

  What's the one regulation you would change or improve if you could?

• 1:01:03Speaker 02

  Accredited investor rules, I think. And this, I mean, I could, I could probably talk all day about this. More so from the fact that I think that the arbitrary limitations on people to, again, if you're worth a million or you have, you know, an income of 200,000 a year, I think it's for two or three consecutive years, whatever it may be, the fact that that's kind of the standard for, you know, your, let's call it your investing intelligence level, to be able to get into some of these, you know, riskier asset classes like private equity, like venture capital. I just think those are arbitrary and I think it should be moved more towards either have that system in place, then you add on, you know, the people that are really, you know, interested or and committed to, you know, learning about

• 1:01:47Speaker 02

  the risks and opportunities within just, you know, investing in different asset classes, having some type of, whether it's test or, you know, kind of comprehensive, you know, course that people can go through that kind of stamps them as an accredited investor, even if they don't have, you know, the capital requirements to, to meet those rules.

• 1:02:03Anthony Pompliano?

  What is your most controversial thought in Bitcoin or crypto?

• 1:02:08Speaker 02

  What's controversial thought in crypto or Bitcoin? I'll say, I don't know if this is necessarily the most controversial, but one of the ones is I think that in order to, for Bitcoin to do what we all think it can do and will do, I think it has to obviously accrue a ton of value in the, you know, trillions or several trillions of dollars. And so, you know, when it comes to these kind of medium exchange and all the things being built on top of, you know, Bitcoin, Lightning, obviously, you know, extremely important for the long-term kind of adoption and reducing the barriers to entry and the friction between, you know, transacting and interacting with Bitcoin.

• 1:02:49Speaker 02

  But I'm not nearly as concerned about the medium of exchange type metrics to value something like this. It's much more the store value narrative has to come first. In order for it to ever become a global currency or global medium of exchange, you simply have to get Bitcoin from where it is today to the multiple trillions of dollars in terms of worth or market value, because then you'll have suppressed volatility, more institutions obviously being in the market that'll help. And it can actually become that trusted global medium of exchange, whereas today, again, I'm just not nearly as concerned with that as I am about the long-term value proposition that the store value provides. Most important book you've ever read?

• 1:03:34Speaker 02

  Most important book I've ever read? So, back in seventh grade, this is a real throwback. I'll throw a second book that I read recently that's much more applicable to crypto blockchain investing. I read this book, Transal Saga, back in seventh grade, and I have no idea why, but it was pivotal in just the way in which I've, I don't know, kind of approached life. That sounds kind of very, very high level and theoretical, but it was really interesting, kind of about the different parallel worlds. One of those books you kind of get entrenched in. I'll never forget, I read that probably three or four times throughout middle school and high school, just because I kept going back to it because it was that good. The one that I would say is much more applicable to today, and actually goes back to our conversation

• 1:04:16Speaker 02

  about central bank digital currencies and things of that nature. This guy, Eric Townsend, who is a macro hedge fund manager, also runs Macro Voices podcast. He came out with a book, because he has a background also in computer science, and I think a little bit mild cryptography, but you'll have to check me on that. But he came out with a book called Beyond Blockchain, and it was like the death of the dollar and the rise of digital currencies. And don't agree with everything that he has in that book, especially some of his longer-term takes on Bitcoin, but his argument, again, for the dollar, de-throning the dollar as a global reserve currency, as well as what the rise of a digital currency world would look like, I think are really, really interesting.

• 1:05:00Speaker 02

  He's one of the guys I'm gonna suggest you try and get on this at some point, because I think he's got some really interesting takes. But yeah, that would probably be one of the more interesting ones I've read recently that certainly had me questioning different perspectives. Aliens, real, not real? News is coming at some point.

• 1:05:17Speaker 02

  I would say, yeah, aliens, depending on how you want to define them. I think extraterrestrial life, to some degree, yes. Can we prove that, which is tough, right? You can't empirically prove that. So it's tough for me to say that they absolutely exist. But at the same time, I think it's really hard to imagine, if you try and imagine how big the universe is, that the odds that they're out there has got to be at least, again, it's non-zero. There's a non-zero chance that they exist. And, I mean, that's good enough for me.

• 1:05:47Anthony Pompliano?

  I'm just a math guy, man.

• 1:05:49Speaker 02

  I'm just a math guy.

• 1:05:50Anthony Pompliano?

  They're definitely real.

• 1:05:51Speaker 02

  I just need data to support it. That's all it is. That's all it is. The probability is above zero. That's for sure. I'll give you that.

• 1:05:57Anthony Pompliano?

  The comment section lights up when I ask about aliens.

• 1:06:01Speaker 02

  Yeah, right.

• 1:06:01Anthony Pompliano?

  I don't know if that's good or bad. All right. What one question do you have for me to wrap this up?

• 1:06:06Speaker 02

  So I'm going to hit you with two. The first one, the second one's going to be much more important. The first one is, you know, obviously you've created an incredible brand for yourself. You're constantly traveling. It's hilarious. I mean, you're sending us things at 3:30 in the morning. And just what happens, you're in Tokyo and we, you know, thought you were still sitting here in midtown. How do you find balance? Just in general, balance between what you're doing, the work you're doing and, you know, the rest of, I won't say necessarily a social life, but just having balance, you know, being able to eat enough sleep, eating correctly, like those types of things, obviously are extremely important. How do you, you know, find balance in your life?

• 1:06:44Anthony Pompliano?

  Yeah, it's a great question. I'm laughing because it's probably the question I get the most often.

• 1:06:50Speaker 02

  Is it really?

• 1:06:51Anthony Pompliano?

  Not on the podcast, but just a lot of people ask and they don't want others to know that they're asking, but they ask. One thing that I will, so I'll give an example. So today is Sunday. I got to the office at 8:00 a.m. and I recorded five episodes for the second podcast that I started called Letters from Wall Street. So it's five annual letters to shareholders from CEOs of Fortune 500 companies. And then I've recorded two other podcast episodes for all

• 1:07:26Anthony Pompliano?

  Off the chain and this is the third one. And I think a lot of people would be like, wow, why are you going into the office on a Sunday and doing all this work, etc. And what they don't realize is like, I'm having fun, I'm enjoying it, right? And what I mean by that is I would read those annual letters anyways. So I created a way for me to read them and share them with people because it's something I enjoy doing. Like it's almost like quote unquote downtime for me. And then in terms of the podcast episodes, like I think I found a potential investment opportunity earlier today, right? And so it's, it's a great way for me to meet people. It's a great way for me to just continue to build a network and understand how different people are thinking about the industry, etc.

• 1:08:11Anthony Pompliano?

  So I think that, you know, there's some people who look at it like it's work. Some people like myself who just look at it as more as enjoyable. I frankly, I look forward to doing this. So that definitely helps. When it comes to sleeping and eating, I used to be a like four to six hour sleeper. I am now much more of a seven to eight hour sleeper. And my girlfriend, Polina, really has pushed me on that. And I'm at the point where like I can definitely tell if I didn't get enough sleep. And so once you get to that point, you realize like how important sleep is. So I just become much more efficient with my time. And, and then something that a lot of people actually don't know about me.

• 1:08:53Anthony Pompliano?

  I don't think I've ever even talked about on the podcast is that I'm super interested in like longevity. And so part of longevity is what you eat and what you put into your body. And so I probably know too much about that stuff. And so it just comes down to, you know, eating and drinking the things that are generally good for you. I'm not perfect, like I had a can of Coke earlier, right? It's not going to kill me, but it's probably not the healthiest thing. And so it's more all about just moderation when it comes to eating and making sure that you're eating. And then from a sleep perspective, it's prioritization, right? If I said to you, what's the most important thing you do all day? If one of the top three things is getting eight hours of sleep, then you'll prioritize it and you'll get it.

• 1:09:36Anthony Pompliano?

  Sleep. So I think that's just the way to to look at it is you kind of do the things that are important to you. And so if being healthy is important, then you've got to prioritize it and make it one of one of those things.

• 1:09:49Speaker 02

  Yeah, no, I totally spot on. I mean, it's funny you say that. I when we first started Delphi, too, I was very much in that four to six hour sleep camp. And I mean, honestly, in a pretty short period of time, it's not very sustainable, right? So you find yourself it's noon and you're exhausted and you're, you know, potentially making bad decisions or whatever, or what have you. And speaking of healthy, my second question, which is arguably more curious to hear about. If you had to give up Bitcoin or McDonald's for the rest of your life, which would you choose and why?

• 1:10:20Anthony Pompliano?

  Man, so my my

• 1:10:23Speaker 02

  Somebody here.

• 1:10:24Anthony Pompliano?

  My one crutch or weakness is I just love McDonald's, man. I love McChicken sandwich with some fries and a McFlurry. I don't know why people can hate on it. They can tell me it's unhealthy, but it hasn't killed me yet. Yeah, yeah, just moderation. I don't eat it all the time. Actually, Sunday nights, I usually take Plina to McDonald's in Times Square for a little date, which I think is more enjoyable for me than her, but that's okay.

• 1:10:50Anthony Pompliano?

  And so I would definitely give up the McDonald's, though. I truly, you know, look, it sounds almost ridiculous to say this because I think a lot of people don't understand

• 1:11:04Anthony Pompliano?

  how much I mean it, but but

• 1:11:07Anthony Pompliano?

  to me, Bitcoin can have a bigger impact on changing the wealth inequality gap than all philanthropy combined. Right? And the reason why I say that is it fixes the one structural issue, which is inflation, that causes for this drastic wealth divide to occur. And so for me, it's a thing where it has nothing to do with my personal financial gain. It has nothing to do with, you know, what we're able to do from an investing standpoint, etc. I just wake up every day and I'm super excited and frankly, kind of run to work to work on this stuff because I say to myself, you know, look in the United States. 50% of people can't come up with $400 for an emergency bill.

• 1:11:52Anthony Pompliano?

  And so if you've got something that could potentially save or help over 150 million people by simply changing the structural design of money, the thing that we all interact with, it's pretty incredible and frankly, pretty lucky to be able to work on something like that. And so, you know, I love McDonald's, I love those McChickens and McFlurries, but Bitcoin would definitely be staying and McDonald's would be hitting the road.

• 1:12:16Speaker 02

  Just kissed that McDonald's sponsorship goodbye, man. There it went.

• 1:12:20Anthony Pompliano?

  Absolutely. All right, man, listen, I really appreciate you doing this. Where can people find more about Delphi and sign them if they're interested in their reports?

• 1:12:29Speaker 02

  Yeah, so, no, I appreciate you having me. This has been awesome. So you can find us at delphidigital.io. You can find, we also have a Twitter, @Delphi_Digital. You can find me at @Kevin_Kelly_Roman_2, Kevin Kelly II, not Kevin Kelly Jr. for no reason, no reason at all. And you can follow all of our partners, all of our partners are on Twitter, LinkedIn, you know, things of that nature. So I'd say if anyone's curious about our research or just wants to, you know, have a conversation about crypto, feel free to, you know, reach out to us, shoot us an email, you know, drop us a DM on Twitter, whatever it may be. We're always looking to engage with people in the community.

• 1:13:05Anthony Pompliano?

  Absolutely. Thanks so much. 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.