Dan Morehead - Why The Current Crypto Growth Is Just The Beginning

Full transcript: Dan Morehead on London Real

2:39 This is London Real, I am Brian Rose. My guest today is Dan Morehead, the American hedge fund manager and financial advisor who has become one of the leading figures in the world of cryptocurrency and decentralized finance. After graduating from Princeton University, you spent over 15 years working at some of the world’s leading financial institutions, including Goldman Sachs, Bankers Trust, and Deutsche Bank. Then, in 2003, you founded the global macro hedge fund, Pantera Capital, and in 2013, shifted your focus solely to blockchain and cryptocurrency.

3:09 Today, you manage $2.8 billion in blockchain-related assets and have invested in many crypto and DeFi companies, including Bitstamp, Coinbase, Polkadot, Blockfolio, and Audius. You have described DeFi as one of the biggest opportunities in the blockchain industry, suggesting that it, quote, has the potential to grow 100 times more than Bitcoin in the next three to five years. Dan, welcome to London Real. Hey, friend, thanks for having me. Hey, it’s great to have you here.

3:38 And so much to talk about today from funds to your early adoption of Bitcoin and in the space. Before we get started, I wanted to do a little memory lane with you because I started my career on Wall Street in 1993. I graduated with a mechanical engineering degree. I think you were civil engineering. And it was the guys at Bankers Trust that recruited me.

3:59 So I was at Bankers Trust when you were there from 1993 to 1995. I was on the 33rd floor on the fixed income derivatives desk. And Dan, it was a pivotal moment in my life. I learned so much on that trading floor. It was madness.

4:15 I see you cracking a smile there. There were things set on that floor that are so politically uncorrect today. It was so alpha, but there was so much learning at the same time. I remember I was interviewed by Ari Bergman. I went to work for Bill Hirschberg.

4:32 There were a bunch of 20-something year old guys that had come back from Tokyo that were running these big books, and they taught me so much. They also verbally abused me and whipped me into shape. But I’m wondering what you remember from your days at Bankers Trust and being on those trading floors. I can’t imagine these days how you do that via Zoom, but what do you remember from those days and do you think those were great places to learn? Oh, I do.

4:56 Trading floors were so fun. You know, 300, 400 people, all this kind of bashing about with a ton of money and risk on the line. It was really fun. You know, everything being done by a robot now is a little less interesting. I think, you know, for young guys like you and me, it was a great time to learn because you had all these, you know, seasoned professionals that were screaming about prices, you know, across entire trading floors.

5:22 And yes, probably some off-color remarks here and there. So it, you know, made it spicy and fun. But the environment, particularly Rangor’s Trust was so fun because it was a very dynamic place. You know, the two guys you mentioned were great and then the CEO was, you know, Gene Shanks was allowing lots of very interesting things to happen. So you could create new markets.

5:44 And, you know, at the time you were there, we’re all creating the derivatives market. And so it’s completely new asset class, it’s changed the world, it’s a very important thing. And that kind of, you roll the movie forward 20 years and blockchain is a new asset class. So there’s a lot of analogs we can talk about later. But the trade and support environment was so fun.

6:04 Flying around the world, going to Kuala Lumpur and all these places looking for interesting trades. That was a great time. Yeah, I try to describe the culture of Banker’s Trust and it was almost, it didn’t have a history, steeped in tradition, it was kind of like, we got this balance sheet, we got a bunch of smart people, we got great models, and if you can create something that’ll make a lot of money and work, then we’re gonna give you as much rope as you can.

6:30 That’s what I, that’s kind of the feeling I had when I got there, am I about right? No, you’re right, because I actually started out as a CMO trader and asset back trader at Goldman. And you know, obviously Goldman does have the steep tradition, and everyone kind of did their, you know, one little thing. And I was actually the first SFX security trader there, credit cards, auto loans, that was a new thing. And I was just the most junior guy on the desk.

6:55 I kind of did my little thing. It was fun, I sat next to Steve Mnuchin and some other treasury secretaries were my bosses. And so, it was a fun environment, but literally I did the same thing every day and I didn’t really learn that much because I just kind of tried to be good at trading a few Aztebacks but I didn’t really progress my career much. And when I switched to panic stress, it was like a wild west, you know, anybody can start, you know, start a whole mortgage derivatives unit.

7:22 I hadn’t even heard of derivatives basically before I got there. Um, and a lot of creative people, um, you know, so it was a funny, it was a really dynamic, fun time to learn. Yeah, I was in Tokyo. I did spend a year and a half, 91 92 in Tokyo. That was a formative time because, uh, Japan was just entering what We now know it’s the normal new environment, but at the time it seemed shocking to have rates below 6%.

7:51 Japanese overnight rates were 6% when I was in Japan, and they were just getting their heads around what they thought at the time was, quote, a Japanese recession. So sub 3% growth. And having seen the devastation and the EK collapse with overnight rates at 6% in the economy and a free fall, I was like, no, no, I think this is like a real recession. And that was 30 years ago. I mean, the world now has all those things they invented, zerp, zero interest rate policy, quantitative easing.

8:20 You know, all the things that were invented in the early nineties in Japan have, you know, now are the normal for everywhere. Yeah. Wow. It’s weird how that kind of almost foreshadowed what was going on. And bankers trust was quite big in Tokyo.

8:33 I think you probably working with Kent Kurtz out there who got moved back to New York right when I joined and the whole environment. And at BT, you’re right, I was 22 years old and I sat down on the fixed floating desk and they said, here’s a phone, goes to the Chicago Mercantile Exchange, here’s one to the Board of Trades, here’s the squawk box to the Treasury, guys, you’re gonna price this fixed floating swap right now, five years, you know, to this new charity date, to this, this, and quote it on 50 million notional, go. And I was just like, are you kidding me, you know?

9:02 And I think six months later, one of the MDs left and I was running the fixed floating swap book for a little while at 23. And this was like normal at BT, right? So it was a fun place to be and a fun place to learn. And like you said, there was so much innovation going on on that desk. We were doing time trades and all these fantastic, interesting custom-made derivatives.

9:23 And strangely enough, Dan, when I looked at the DeFi market about six months ago, I said, these guys seem to be doing the kind of innovation that felt like what we were doing at Bankers Trust in the 90s. And I had just a weird flashback and thought, But these men and women today in DeFi, and we’ll get to that, they don’t need a balance sheet, they don’t need 10,000 employees, they don’t need a line with the Fed, they don’t need all this stuff. They can be four guys, a girl, and a dog in Tel Aviv, and boom, Una swaps up and we’re testing it.

9:52 And I just thought, wow, this is incredible how fast it’s growing, the rate of innovation, and then the customer is the winner in the end. It would never happen this fast in the centralized finance institution, even with Bankers Trust and Goldman traders. And that’s what really attracted me to this place. And I don’t know if you ever see parallels in that, but that’s what pulled me into this space this time. Oh, I do.

10:17 And it’s just such a fascinating space because, you know, blockchain is impacting not just decentralized finance, but like a hundred other applications. So every day there’s something fascinating. And, you know, honestly, my head’s about to explode all the information I’m trying to cram in there. There’s so many cool things going on. So I feel grateful actually to be alive working in this time, right? When we look back 20, 30 years from now, this can be seen as one of the most important times in finance. Yeah, I really feel like we’re part of history, and I haven’t felt like that too many times in my life. So it’s fascinating to hear that after eight years investing in this business, your head’s still about to explode. That’s a great sign.

10:56 I wanted to kick it off. We got a lot to talk about, but maybe we start with Bitcoin, because it was one of the first things you learned about. I think you had a four-hour or coffee with someone that turned into a day when you first learned about it, you were one of the very first people to create a fund that would invest in this instrument back when nobody was even talking about it. And you were really early. You’ve said a few things about Bitcoin.

11:19 I’m just gonna quote you back and then give it over to you. You said, quote, I believe Bitcoin is the biggest trait of our generation. You’ve said Bitcoin is a serial killer. It’s going to go through 40 or 50 different industries. And then one of my favorite quotes from you is, you said it’s the final piece of the protocol puzzle that is the internet.

11:34 Even in the 1990s, the famous economist Milton Friedman said the only thing missing from the internet was an e-cash system. That’s what Bitcoin is. That’s what the other blockchains are. It’s just a protocol for moving data around and that’s massive. Dan, how do you start this conversation and how do you talk about Bitcoin to people that are new-ish to it or know a little bit about it?

11:57 Yeah, it’s a good question and I’ve tried so many different angles over the years to explain Bitcoin. It really is true that everyone has their own light bulb moment, you know, there’s a lot of different perspectives people have, like if you find a gold bug, explain it in two seconds and say like, great, got it, I’m in, yeah, you know, but there’s other people way more skeptical, you know, think, you know, we already have a currency in the United States, like we need another. So, you know, it’s just that there’s like so many different angles.

12:24 I do think the concept of it being the final piece of the protocol puzzle that is the the internet is one that really helps people get their head around it, because most of us don’t know a ton about the internet. But we know there’s a bunch of protocols like TCP IP that help move data around. But we needed a finance one, right? And the internet changed everything else in our lives, you know, commerce, communication, all that, but it really didn’t touch finance, right? Banks are basically the way they work when the DG set them up. You know, credit card has been charging the same rates since 1958. Western Union has been doing the same thing for 140 years, you So finance really wasn’t touched by the internet and that’s basically what blockchain is, it’s bringing the internet to finance. It’s connecting billions of people ultimately together without having to pay some kind of oligopolous control on the payment rail.

13:16 And you’re going to use cryptography to protect and provide trust rather than legacy financial institutions. Yeah, I find it so strange that it had like a 20-year lag, Dan, until we finally found the Internet of Money. And, you know, I actually had a two-year stint in New York City as the CFO of a dot-com startup from 99 to 01, and I was part of the group, you know, where I was just all in on dot-coms. My finance buddies would meet me for drinks, and they would just say, please stop talking about this as the next biggest thing.

13:49 I said, it’s Columbus in the New World, and we rode that up, and we rode it back down. But like you said, finance didn’t change and even fintech and London’s one of the great centers of fintech, it always seems to be like a tech plug-in to an old-school system, you know, like internet banking, where it never actually innovated. Why do you think there was that 20-year lag? Was it because the blockchain hadn’t yet been adopted? If the blockchain wasn’t adopted or Bitcoin didn’t exist in 2009, would we still be waiting for this to happen?

14:20 Oh, you know, I think so. Satoshi Nakamoto nailed it. There were decades of attempts to do it. Adam back’s hash cash before that and a bunch of projects like that. They were really close. Some gold back tokens, you know, but they all lacked one or two of the key ingredients. And Satoshi put together a handful of those concepts into the first fully functional digital currency that used decentralized trust, and then you’re off to the races.

14:53 So who knows if Satoshi hadn’t invented it, might’ve taken two more years, might’ve taken 20 more years. But a perspective to have is there’s kind of an impatience, and I remember there was a time when people said, oh, it took the internet 20 years to happen, because it took 20 years to go from Netscape to Google and Facebook, but it took 20 years to get to Netscape, right? It’s just, it’s been a 50 year journey to get from the original creation of TCP and IP to get to what we have now on the internet.

15:26 So blockchain is 12 years old, you know, so it’s, you know, it’s just at the beginning. And that’s why I’m so excited. I think there’s another 20 years just absolutely fascinating disruption to come. Yeah, it’s a good perspective. I know a lot of people in the industry are in crypto and DeFi.

15:42 They want it to happen faster, right? because they see it, but when you take a look back, it’s actually happening quite fast and- Oh, yeah, it is. And, you know, I love that you put that serial killer line. One of the reasons I love using it is to remind people, it will happen serially. It’s not gonna all happen overnight.

15:59 And, you know, in the bubbles and the manias, everybody thinks, you know, Bitcoin and blockchain is gonna change the world overnight. And then, you know, when it goes down 80 or 90%, like it has many times people like, oh, it failed, it didn’t do anything. In reality, it’s just, it’s slowly marching through, hundreds of different use cases, some of which like wealth storage, cross-border money movement, it’s already great at. 8% of all the US to Mexico remittance is going over Bitcoin.

16:25 That’s awesome, right? Like, so it’s already very useful, but like refugee aid, it’s not gotten done yet, right? Or voting rights, which ultimately blockchain will be hugely impactful. That’s like 20 years from now. another one, you know, well, Wall Street back offices, someday they will all be on a blockchain. It’s going to be like 20 years from now, right? And so all this stuff has to happen in its own good time. And I was just thinking, you know, one other analog that’s helped a ton of people is to think of what blockchain is going to do to finance is the same as what VoIP did to the telephone monopolist. So when I was a kid, AT&T controlled every phone in the United States, and if I to call somebody in England, I had to use British telecom. And it was really expensive. Like, you know, you really were conscious of how many minutes you were on an international phone call.

17:17 Then they realized you could route voice over the internet. And so the amount of information that goes over the internet literally wouldn’t fit over copper wires. There’s not enough copper on earth to run what is now the internet. And, you know, obviously, broadband costs are basically zero. That’s basically what’s going to happen in finance is now you can route money over IP.

17:38 So you don’t have to use expensive middlemen that provide trust and move money around. Anybody with a smartphone can communicate with anybody else on earth with a smartphone. And that is going to do what it did with voice is going to bring a massive explosion in the number of transactions. And the cost is going to head towards zero. And it’s going to open of all kinds of new things like micro labor and things that just are not possible in the current finance world.

18:07 Yeah, and it’s good to put the banks in perspective. I think you’ve said, you know, banks are basically still the same as when the Medici set them up in the 15th century. And as you said earlier, credit cards changes charge the same rate they did in 1958. Some of these transfer systems are still 100 years old and that’s what the blockchain is gonna bring. You know, there’s this book called The Innovator’s Dilemma, I’m sure you know this concept that the innovation can never come from the industries that are already associated or owning the space because they don’t want to eat their own profit margins.

18:41 And we’ve seen banks get into FinTech. Do you think ultimately it had to be this peer-to-peer blockchain thing that would bring all the innovation? I mean, would it have ever come from inside a bank or from a FinTech startup? Or would it always have to be something like this? or does this just make it grow faster?

18:59 Yeah, I mean, I’m sure there are some examples of some legacy firms that have kind of disrupted themselves, but most are much more like Kodak Film. Kodak Film invented electronic cameras, Wi-Fi, digital files, storing your photos, a ton of really innovative things, but they didn’t want to roll it out because it would cannibalize their print film business and ultimately ended up failing. And so there’s a few examples, I’m sure, examples against that, but it’s likely that it’s going to come from the outside because these finance firms, you have hundreds of billions of dollar market caps, you know, they are certainly not rushing to provide a product that ultimately let anybody with a smartphone send money to anybody else with a smartphone without paying them anything.

19:42 And the fees are, you know, very high. They haven’t for men’s fees, 8%, right? So the migrants spending an entire month working for their remittance company with Bitcoin or other or blockchain assets on their smartphone, they can send it essentially for free. So, the legacy firms are gonna, they’re playing a very slow dance with blockchain. Right, and like I think you’ve also said, if you wanna send like $1,000 to the UK, it’s literally quicker to get the cash by suitcase and fly here and give it to someone with the old system, not to mention the fees.

20:17 And yeah, you’re right. They will probably come slow to that dance and that’s why this market’s also so interesting. Let’s talk about Bitcoin because you put out some pretty interesting ideas about first, when you started looking at it, I think you saw this incredible linear correlation or logarithmic correlation between simply the number of users and the price, regardless of anything else. And I’ve seen some of the presentations you put out that I think are probably available on your Pantera website where you tracked simply the adoption rate versus price and found this incredible correlation And then on the back of that also predicted some potential forward price points for Bitcoin.

20:59 Can you talk about that idea? And then when you first realized that? Yeah, so there’s a lot of reticence about Bitcoin or other cryptocurrencies, because they don’t have cash flows. And I had a fun conversation with a tiger cup friend of mine that’s a TMT investor. And so they don’t invest in Bitcoin because there’s no cash flows to discount.

21:19 And I was like, well, there’s no cash flows to the Euro. and nobody thinks twice about trading the Euro. There’s information about interest rates and current account deficits and things like that that help you decide where you want to be long or short the Euro. And that’s the same with Bitcoin or other cryptocurrencies. All kinds of information, how many transactions are happening.

21:37 People are using it. The simplest concept though is just supply and demand. As I said, it’s gonna be a serial killer. It’s gonna go through all kinds of different use cases. And every year picks up more people that find another use case, find something they want to do with Bitcoin.

21:54 And we did publish a table that has a number of people using Bitcoin, and that’s gone up an order magnitude every two years. And we’re now at about 100 million people using Bitcoin. In 2013, there was about 300,000 people using it when I got started, and obviously there’s only a handful in 2009 when it was released. And the really wild thing is if you then put next to that the price of Bitcoin in each of those two years, it has also gone up exactly one order magnitude exactly every two years.

22:27 And I’ve never seen a relationship between two pieces of data that’s that crazy in terms of going up five decimal points and also maintaining the exact same ratio. The ratio is $200 per million people using Bitcoin. That was true when it’s 10,000 people using Bitcoin. It’s true when a million people using Bitcoin. been true, 100 million people using Bitcoin. And that is a framework that makes some sense, the more people who want to use it for whatever they’re doing with it, you know, the more it’s worth. I found in my time in the industry, the kind of the stickiness rate is massive.

23:05 It might take people five or 10 years to get their head around it, but once they buy Bitcoin or other crypto prices, almost never want to sell it. And that’s why the prices keeps going up, because there’s very few people that ever want to part with it and you know every year you try and you know you convince another cohort of people to come in. So if you extrapolate that out there’s 3.5 billion people on earth with a smartphone, only a bit more than people that currently use Facebook. If all those people started using cryptocurrency and that relationship held which you know the past doesn’t have to predict the future but it seems solid, that’s $700,000 per Bitcoin. And while I’m not going to say I’ve met my entire life’s exactly $700,000 on some specific date in the future, it really helps to point out the massive asymmetry of this trade. It’s definitely risky, you know, Bitcoin went down 55% over the last couple of months. So there’s definitely a ton of risk in the industry, but you really can only lose one time’s your money in being long something. And if it has the possibility of going up in order of magnitude, you know, it’s a good risk-adjusted trade.

24:14 Yeah, and the order of magnitude is 10x for anybody who has probably that engineering background or science. Have you ever seen an asset like this? And again, I think at Bankers Trust, you were doing some global stuff, so you really have seen everything. You’ve been in Tokyo, you traded probably currencies, mortgages, probably equities, everything under the sun. Have you ever seen an instrument like this or with the volatility or even with that asymmetry?

24:43 Yeah, so I did spend 25 years wandering around the earth looking for trades like this, big disruptions. Also, when I was at Tiger Management, we invested in a lot of big disruptions around the world. So I was in Russia when Gorbachev was doing glass notes and and invested in gas problems for other privatizations and Argentine farmland and Tesla motors. And every four or five years, something like that would come up. This is just so much bigger than all those.

25:13 It is, you know, all those things are regional or country specific, you know, some kind of interesting dislocation just in that one country, that one region. And in fact, it may be just one market, maybe just the equity market, or maybe just the bond market in Spain when they had their kind of devaluation. So, you know, all those trades, they were great trades, but they’re very kind of localized or specific. This is so many different use cases globally, and all those are literally the biggest things on earth.

25:44 Well storage, gold, even money, you know, M2 is a hundred trillion. All of those markets are the biggest markets on earth. So it’s, I think it’s a once in a lifetime type trade, and that’s why, you know, we went all in And it hasn’t slowed down, you know, I really think we have another 10 or 20 years of this. So, you know, I think it is a once in a lifetime trade. And every time I meet some, you know, college kid just thinking about what to do next, blockchain, I just say, hey, do this. And three years from now, if I’m wrong, you know, you did something kind of interesting, you know, it didn’t work, you move on, do something different. But, you know, if I’m even half right about how how important blockchain will be, it’s the right place to be.

26:26 And so, you know, I do think blockchain is the trait of a, you know, a lifetime. Yeah, it’s interesting you say that. My daughter’s 17 and she’s trying to figure out what to do with her life. I actually had her on the show on Friday and then set her up with a hot wallet afterwards and her first assignment is to send grandma some ETH. So I’m doing my part over here, Dan, just so you know.

26:47 Yeah. But it’s good advice. You know, I had a choice when I graduated MIT to go work for Ford Motor Company or a place called the Aerospace Corporation in LA or go to Banker’s Trust. And for me, first of all, I could feel the energy and excitement, I could see the upside and I’m actually glad I made that choice and it meant my learning curve and my earnings went 10X probably more. And probably the same is true, like you said with kids graduating these days.

27:13 I mean, blockchain is almost the new finance somehow, right? Oh, it really is. You know, you and I had a great time when Wall Street was one of the most innovative industries on earth and growing and really exciting. You know, but the robots kind of taken over most of what was fun about trading. And so now the innovation is in decentralized finance or it’s in other applications, blockchain.

27:40 Yeah. All right, let’s talk about DeFi. Then I wanna actually go back to some of the early days of you setting this fund up because it’s still amazing that you did it back then. You started off, well, you had no choice because back in 2013, and there was only Bitcoin really, and that was what people were talking about. It was the asset class.

27:58 It’s what you invested in. But pretty soon, this Vitalik kid came around and Ethereum came around, and we saw this programmable blockchain which could do many different things, and now it’s evolved in a massive way. You’ve been along that for that ride. You’ve been all in on Bitcoin, You’ve also started to invest in all these other DeFi networks. How do you describe this very strange relationship between Bitcoin and DeFi or Ethereum to other people?

28:28 And how do you see this new DeFi ecosystem growing in a different way to say Bitcoin? Oh, yeah, it’s been fun. I met Vitalik when he was a 17 year old reporter for Bitcoin Magazine. So it’s been fun to watch this whole thing grow. There’s a huge amount of innovation here.

28:49 DeFi as a concept is kind of another analog of the final piece of the protocol puzzle concept that you need a way for people to do finance transactions without a very expensive middleman. So Bitcoin has been fantastic at storing wealth, moving wealth across borders. It’s already doing a huge amount of cross-border money movement. There’s a trillion dollars stored in it, you know, and it’s been perfect, flawless for 12 years, never, never been hacked. It’s never even had downtime. There’s no other financial system I’m aware of that’s been 24 seven up time for 12 years or like, you know, even Facebook or other, you know, big sophisticated technology companies go down from time to time. So Bitcoin’s amazing at what it does. And sometimes you complain that, hey, it didn’t evolve or didn’t change. But you know, obviously one of the strengths is it doesn’t ever change.

29:46 It’s immutable. It’s got, you know, the lowest risk of any of these blockchains and SIs security. So Bitcoin is amazing at what it does. And it’s already had a great run. Our original Bitcoin funds up sixty five thousand percent.

30:03 So, you know, Bitcoin has already done a great job. And my point would be, I think more of the future returns are going to come from other protocols, and in particular, the smaller DeFi type protocols. And if you think about it, you know, there was a point in 2021, early this year, that Bitcoin itself was 70% of all the market cap, you know, the other 5,000 tokens were only 30%. And while I think Bitcoin’s gonna grow up a huge amount, you know, like 10X over the next few years, other things might go up even more than that. So we’ve been investing Ethereum, Polkadot, a bunch of DeFi tokens built on top of mainly Ethereum. And those, I think, have just a higher amount of potential upside over the coming months and years. But I want to stress, this is just my current trading It could be a mission, you know, if we like it wrong, we might have to change the tag.

31:01 And then as well, you know, Bitcoin’s now down to 44% of the overall market. And I guess the way you say it is, Bitcoin’s done very well, but the other things have gone up even more. So at this level, you know, we are buying back some Bitcoin in our funds. Ethereum, what are your thoughts? Will this stay the dominant blockchain and backbone of DeFi for the next five years or not?

31:25 I think so. From time to time, there have been some interesting projects that are gonna compete with Ethereum, but I think they have the inside track on this. There’s so many developers building on it. There’s so much community. That’s one of the things that the talk and the rest of the community have done incredibly well is to kind of harmonize, to have a single vision of where they wanna go and to really get a lot done.

31:52 And so, you know, Ethereum really is hard to unseat. I think there are some other blockchains out there that have attributes. And I guess the preamble to this is in our industry, sometimes it gets a bit tribal or almost religious that, you know, some people are Bitcoin maximalists and, you know, really just can’t stand anyone talking about anything else. And then, you know, some people are potentially too passionate about Ethereum. You know, my view is this isn’t a winner take all situation.

32:23 There’s, you know, there’s going to be, you know, probably at least a single digit, if not more numbered, very important blockchains in the long run with different use cases. Right. You know, Bitcoin, people sometimes say it as a compliment and sometimes slag it off, call it digital gold, but it’s great. It’s way better than gold gold. And that’s why it’s massively outperforming gold, even in a inflationary period.

32:45 Like we’ve got now, and then there’s a smart contract use case. There’s, you know, Ripple’s trying to replace Swift, and then you have the high-frequency, low-value transactions for gaming and things like that that need its own blockchain. So, you know, I think you’re gonna have a handful of blockchains. And to my mind, you know, being a Bitcoin maximalist is like being a Yahoo maximalist in the 90s. Like, Yahoo’s a good company, but there’s 30 other important things happening.

33:12 That’s the same here. Bitcoin is massively important. You know, you should have some, you should be long it, and definitely don’t be flat, or short Bitcoin, but there’s other things one would want to have a portfolio. And I do think, you know, my main advice to friends and, you know, colleagues is, you know, don’t put all your eggs in one basket. There’s, you know, there’s a lot of really interesting projects out there.

33:35 People complain, Ethereum’s gas fees are too high. It’s slow. We just got done with the London hard fork and we predicted those would go down. I don’t know if that’s happened. Is that going to change anytime soon or is it just hard to upgrade such a massive piece of software and should we just kind of get used to that?

33:55 Or do you think it will innovate and get better faster? No, I do. I mean, that huge hard fork going through is amazing. You know, I think it is amazing how much Ethereum’s evolved since, you know, the crowd sale. It really is amazing.

34:10 I think that’s why the other blockchains are competing with it. They have a real huge task, you know, to bring out something that’s radically better. Cardano hit to be the third market cap this week. I think it went down to four, but it had quite a pop. They hit some milestones in August.

34:30 We’ve actually got Charles here on the show in a couple of weeks. Everyone, well, some people believe that, you know, Cardano could be the Ethereum you would build if you knew what was gonna happen. You know, if you could have predicted the future in 2014, maybe you would have built a different network. Obviously it comes from very different philosophy. And I think both Vitalik and Charles would say that Vitalik is let’s ship it and test it.

34:53 And Charles is let’s research it and bulletproof it before we ship it, right? And I think both would agree if I said them that. Do you think Cardano will become a major player? Do you think it could take down Ethereum? What are your thoughts?

35:07 Yeah, I haven’t watched that for what they’ve done, but our bet is much more Ethereum. And your points will say that we’re watching economic Darwinism in action. There’s been 5,000 different projects tried, you think? And the market gets to vote on which ones they like and move some up to the top, and some, you know, obviously, have to drift down to the bottom. So it’s been that, to my mind, that’s the fascinating thing that the numbers, even two, but sometimes three and four, have really rotated over the years.

35:43 You know, there’s been a lot of moonshots of things that were gonna be the next, you know, Bitcoin or the next Ethereum. And most of them have flamed out. You know, we keep cycling through new ones. Yeah, that market cap table moves quite a bit up and down. And a lot of people are trying to come into that space, but we’ll see.

36:03 You know, it’s interesting that you chart the price of Bitcoin based on users. And I was having this conversation with a guest yesterday where we were talking about, you know, Microsoft Office. Now, again, I got nothing but good things to say about Microsoft, but we’re a Mac-based company, and whenever I go to someone’s office, I look and I’m like, you’re still using Outlook, and you’re still using this, and it’s not always the most innovative software, but it’s so well entrenched into every single business in this world that it’s not going anywhere anytime soon, because it’s got the most adoption.

36:34 Are you with me on that analogy, or do I have flaws in that analogy when it comes to it? It’s a good one. And the classic when I was a kid, it was, you know, Sony beta tape versus VHS. Sony beta was way better. VHS was terrible, but they installed a lot more units for anybody else than they won, right? And so the same thing with Microsoft, they installed an enormous amount of units. It’s hard to unseat them.

36:55 So, you know, it’s the same. And that’s essentially the argument of theory. I mean, they have a lot of people who built a lot of stuff on there. So it’s harder to unseat. I’m not an expert on many of these technologies but if you talk to a real technologist about SMTP, some of the other protocols are terrible, but these got out there and got enough people using it that now we kind of have to deal with it.

37:18 And that’s just reality, we’re pretty big in stall base. The next thing has to be radically better, it can’t be just a little bit better. Yeah, it’s funny, you’re a Bitcoin price predictor, it’s great for predicting the price, but It also tells you so much about the network, doesn’t it? It’s actually, there’s another sign there saying, yeah, it predicts the price, but the reason it does this is because that adoption is so crucial, right? It’s literally part of the network and it’s the main determiner of the price, which means it’s like when Bill Clinton said it’s the economy’s stupid, right?

37:52 It’s almost like it’s the adoption stupid, right? No, it is, right? Cause there’s some things that have no network effect, right? If you’re the last person on earth to use a Blackberry phone, it still works. It doesn’t matter if nobody else is using that.

38:03 If you’re the last person on earth to use a cryptocurrency, it’s got no value, right? So, you know, technologies generally and currencies have massive network effects. U.S. dollar being a great example, you can do business with U.S. dollars in the jungle of Borneo, right?

38:21 Like anywhere on earth you would amount a U.S. dollar is a massive network effect. You can do business, you know, so if you have a currency that’s also technology, it really has a massive network effect. Talk to me about how you choose investments. If people go to Pantera, your website, they can look at your portfolio companies and it’s an impressive list.

38:43 I listed off some of them earlier. Audience was in the news yesterday, I think with the TikTok deal, so congrats on that, I know you had a big price spike. I know you’re in for the long run, but that’s amazing. I mean, zero X, one inch, not to mention the coin basis and the bit stamps. You know, how do you look at these things?

38:59 How do you invest in these things? And how do you stay calm when like audience pops like that and in the day and you say, okay, but we’re here for the 20 year look. Like, how do you manage all that? Yeah, so, you know, the space is getting more interesting. I have to admit, you know, back in the day it was fun because there was only one thing, Bitcoin.

39:17 And even that’s kind of hard to get your head around. Now there’s, you know, thousands of different things to look at. So one of the things we’ve done is we’ve drawn our team 50 people when it used to be, you know, just a handful of us. So we’re looking at tons of deals, trying to figure out which ones have value. Occasionally we come to the markets with a view, kind of like a global macro stuff view that we, we want, you know, this type of, you know, cross border money movement company that we want, you know, scalability company. But mainly it’s just we get pitched all kinds of, you know, fascinating things. And we try and see if, you know, the product can work, you know, that seems to be able to do it, But a great example, I got a cold email from Brendan Ike and he said, hey, we’ve never met but I invented JavaScript and I was chief architect of Netscape and the co-founder and CEO of Mozilla and I’m doing a blockchain browser, you know, you wanna talk, I’m like, I definitely wanna talk.

40:15 And so, you know, we just keep hearing interesting ideas like that and trying to figure out whether they’re doable cause you know, we’ve seen a lot of projects that come up with something in their white paper that we ultimately conclude literally is impossible. Even if you have a thousand developers in a thousand years, you actually can’t build what’s in there. But if it is buildable and teams seems like they’re gonna be able to motivate a community to help them build out the project, then we take a strong look.

40:43 And in our portfolio, we’ve tried to invest in what we think is gonna happen kind of in this serial era. We’ve done three venture funds, we’re doing our fourth right now. Each of those first three is kind of like a geological strategy, like a snapshot of the time. Our first fund was all about how to buy Bitcoin, Bitstamp, how to store it like Zoppo, kind of primitives like Ripple Labs, Circle, kind of just the very basics of the industry. And then that kind of got built out.

41:15 So the second fund was about cross-border money movement and mainly using just Bitcoin, not other blockchain. So invest in a bunch of regional cross-border money movement companies, things like that. But then that kind of got built up because most countries have a pretty good dominant player now. And then the third one was much more about other blockchains, scalability, non-financial use cases. So each fund’s kind of a snapshot and that’s what we’re looking for now.

41:41 We’re just starting to raise money for our next fund. And there’s all kinds of new non-financial use cases that we’re investing in, scalability is still important. And in looking at those entrepreneurs, we’re looking for projects that can really make an impact. Audius being a great example, building a decentralized version of the music sharing sites we’re all used to. And that’s a huge theme for us and for our whole industry is so-called what 3.0, doing what we’re doing with companies like Uber, Airbnb, but doing a decentralized version of them.

42:20 And it seems pretty obvious that’s the future. Right, and so Audius isn’t DeFi per se, but it’s Web 3.0 where it’s kind of blockchain based. Is that how you would describe it to someone on the streets? Yeah, you know, all these Web 2.0 applications that like Airbnb, people with excess capacity for housing with people who need accommodation, match them up. It’s a great idea, but it might not need to be a 30% of tax, you know, for the rest of eternity, right?

42:50 So you can build a decentralized version of many of those businesses. And the music sharing business is a great example. The artists actually get very small cut of the amount of money spent on their production and all these middleman music sharing sites take most of the value. And so if you can use blockchain to connect the artists with the consumer, you can give both of them a much better experience at a lower rate. and they can buy equity with tokens at the same time, right?

43:23 Yeah, and so the community can participate in the value creation. And that is a big difference between protocol tokens and equity, which is funded, the dot-com boom, like you were mentioning, that none of the value went to the community, none of the value went to the people who built the protocols that drive the internet. All of it went to the handful of companies, like the Facebooks and the Googles that got control of certain areas. And so very little goes to the produce, to the content.

43:59 Facebook is a great example. 2.4 billion people spend 50 minutes a day producing content for Facebook. They don’t get any value. And they actually end up paying about half of people’s data bill that they’re paying is paying for ads and malware they’re being downloaded while they’re waiting for what they actually are searching for. So doing it in a decentralized way with the community itself shares in the success.

44:22 I think it’s obviously more equitable and I think it’s the way that their future will go. Yeah, I hope people can understand this. And you said earlier in the broadcast, it’s like everyone needs a specific analogy or story and to get it to click. The gold people need the gold analogy, that these people need an analogy. And so I try to tell the same story sometimes different ways on this show until it clicks for everybody.

44:46 But Facebook’s a good example. It’s a great application. We gave them all our data. We met all our friends from high school. We realized we didn’t wanna talk to them as much as we thought we did.

44:56 And guess who got wealthy? Facebook, right? And again, they provided a great app. But we got all our info and you said net, net. We probably pay more than we think, right?

45:05 The malware, the ads and our data. This, and is that fair? Well, look, it was literally fair because we did it. Now, this is a chance where we can be a part of that upside and we can also make the governance decisions and we can build it and almost by definition, since it is peer-to-peer, it can potentially grow faster than some of these other networks. Yeah, that’s a great way to say it.

45:30 Obviously, there’s a huge desire to connect with people like social media is allowed, but ultimately, this is very expensive, one way or the other. to taking ton of money out of the content producers, whether they’re people just posting selfies or people recording music, the ultimate content creators aren’t getting paid very much from the current system. Google and Facebook together get 98% of the marginal increase in online ad spending. That is much stronger levers than John D. Rockefeller had in the oil market and the antitrust officials to determine that it was unhealthy for our economy.

46:12 So those two companies have an amazing amount of power and it’s really the content producers and the consumers that are ultimately paying that. Yeah, well, you’re speaking to one. I mean, we’ve been on YouTube for 10 years. I think we’ve got a half a billion views of our content. And again, it was an incredible network to share our message.

46:33 But from a financial point of view, I mean, we spend millions of dollars every year producing that free content for YouTube, which obviously uses it to grow their network. And again, it’s been a great starting position for us 10 years ago. But now I look back and think, what if it had been on the blockchain? What if it had been tokenized? What if there was a community?

46:56 In so many ways, from a participation, from a revenue standpoint, even from a governance standpoint, when it comes to censorship issues and things like that, it really becomes obvious, right? how these two worlds will be different. And that’s what Web 3.0 is super exciting because potentially that ownership and governance goes back to the creators, right, and the consumers. Oh, I agree. I think it’s a huge theme.

47:21 And again, it’s not gonna happen overnight. It’d be really cool if you could snap your fingers and everything would go to a decentralized version. It’s gonna take a decade. But I think in a decade, we will look back and both the content producers and the consumers are gonna have had a better experience. And like you said, governance is really fascinating you know, many of these tech monopolies or oligopolies are controlled by literally one person.

47:46 That’s a very centralized version of governance. And if you let the community control governance, I think you’re gonna have better outcomes. Yeah, and we see it with the wars that we see on social media of why won’t you let me say this and this says this and the fact checker says this and like you said, then the Congress rolls up these individuals and makes them answer some questions and it all feels quite strange and centralized. There’s got to be a better solution and I’m guessing you’re going to make that happen with your funds going forward.

48:15 Audius kind of cuts out the Spotify’s and iTunes of the world and tries to give the governance and money back to the creators and the community. That’s roughly what that does. It is and you know, it’s a simple model and you know, I think it resonates with people. So it’s growing very quickly because people love using it. And the next fund you’re raising, This is a big moment.

48:38 Again, we’re gonna dig up your funds one day, hundreds of years from now, and find out what really happened in the last decade. But this next fund, I know you kind of said some of the philosophies, and again, it’s hard to predict the unknown, but what do you think you will be investing in? What types of ideas? It’s obviously blockchain-related, Web 3.0, not necessarily DeFi. What are some of the ideas you’re thinking about?

49:03 And also, I’m curious, where are these companies located? Is it much more international than it was, say on your previous fund? Oh yeah, that’s a great question. And we just had our investor summit recently, so we kind of did it then and now, compared to what we’ve invested now versus the summit two years ago in 2019. And in 2019, two thirds of all the projects we had invested were in the United States, and two thirds of those were within 2.9 miles of our offices in San Francisco or Santa Barbara.

49:35 So half of everything we ever invest in was within a couple of miles where two offices in California changed dramatically actually. It’s now 58% outside the United States. So we’re seeing a much more global distribution of projects that we invest in. So yeah, it has changed. And then I think, and that was changing, obviously prior to the pandemic, the pandemic’s now kind of, you know, made kind of distributed remote work the norm.

50:09 And so I think it’s gonna be more, you know, in two years we’ll look back at this next two years, I think it’s gonna be much more distributed than even what we did in the previous couple of years. If you had to throw cities out there, I mean, who’s in the mix? Is London in the mix? Is Tel Aviv in the mix? Or Singapore?

50:26 I mean, again, a lot of these are just maybe on their letterheads. Maybe all of those people are in different places, but are there any spots that you see coming up as being big in Web 3.0? Yeah, so it is very distributed. There isn’t really a concentration. And again, it used to be half were in Silicon Valley.

50:44 Now it’s very distributed. There are, actually there’s a huge blockchain community in San Juan, Puerto Rico. Now we have a handful of investments in China, but the rest of it really is distributed, very evenly around the world. We’re probably investing in 35 different countries, which is very different than most industries in the past. Okay, all right, let’s talk about Pantera because we haven’t gone there yet.

51:15 We’ve been talking about all things DeFi, but we haven’t really had anyone like you on the show to talk about investing in these instruments from a funds perspective. And I think it was a few months ago, Dan, when I was looking at this, I called up a bunch of my buddies in New York and I said, who’s risk arbing this stuff? Like, you know, who is it? And again, a few years ago, if it was the equities or FX market, you would know who it was, right? Dan, I mean, like, you could be like, all right, it’s the guys in Greenwich, or they say, you know who’s doing it.

51:46 But then with blockchain, I always wondered, I don’t know who it is. You know, is it some people in Russia or Tel Aviv? And then I realized, you know, some of your funds do a lot of that, like really interesting short-term looks also at crypto and investing, including long-term stuff. What is your life like as a fund? How do you look at these things and what are some of the instruments you offer to investors with those different risk profiles?

52:09 Maybe you could explain that. Sure. So, you know, since we fell down the rabbit hole, we’re investing across the entire spectrum of blockchain. And so we have four different main funds. One has daily liquidity and then venture ends tenure lock.

52:24 So, you know, we cover the entire spectrum just massively liquid all the way through normal hedge funds adventure. And it’s trying to offer investors, you know, a match to whatever specific sector they want to be in or whatever liquidity profile. So our Bitcoin fund is like an ETF, but it exists. ETFs don’t exist yet. That allows investors to come into any US banking day and come out any other US banking day with no lockups. So it’s a very efficient way for people to get exposure to Bitcoin. And then we have two quarterly liquidity hedge funds and again there there’s no lockups. We’re training things you know like Polkadot you know audience that are massively liquid so we don’t we don’t need to lock people up so people can come into our liquid token fund any month and come out at the end of any quarter.

53:12 And then the ICO slash early stage token space it’s now a bit slower because people want to hold things for a year to not be seen as unregistered securities so that fund is people come in every month and every quarter they can ask to come out but it does take one year to get the money back because we want to be able to hold things for SCC reasons. And then you know venture obviously is straightforward investing in equities. So that was great and we essentially were the first of each of those things to be launched in the United States so we ended up with four separate funds.

53:44 What we found is that particularly endowments really want an all-in-one blockchain type fund. They don’t want to pick is it early stage tokens or is it venture that’s going to be best. So our current fundraise is a fund that covers the entire blockchain spectrum all the way from very liquid things all the way through illiquid finisher and pre-auction tokens. And that’s been popular. And the other two reasons I actually think it’s a better format for now is back in the day, equity in tokens were totally different. You would invest in projects like Bitcoin or Ethereum that just have a token and they would never have equity or you’d invest in companies that would just be using blockchain tech to do something better, faster and cheaper, but they would never have a token. The world’s much more complicated now and so a lot of products have both equity and tokens or they start out as equity become tokens. So having an all-in-one, this blockchain fund that we’re launching allows essentially both assets to be the same fund and so LPs in the fund are going to capture value like you know brave being an example you know the equity might do well the basic attention token might do well or you know maybe one goes to one and one goes to zero and so it’s nice to have it all on one fund so the investors are ahead and then the other bit that you mentioned is there’s a often huge swing between value in tokens versus

55:13 Venture. We just saw tokens came down 55%. I was faced with a few weeks. May 17 was actually the most vulnerable week in Bitcoin history. So huge, huge move. But venture is very slow to change and reprice. You know, people are still doing term sheets from three or four months ago.

55:32 Entrepreneurs still want the prices they heard a few months ago. So this new fund, we’re able to essentially swing with that pendulum and uh just recently bought a bunch of liquid tokens in the fund because they were very cheap and now they’re starting to head back up and I could imagine a time you know a year or two from now our tokens are really expensive in an adventure sheet so we’ll sell the tokens and buy an adventure. And then you didn’t mention uh high frequency trading we do do that in our liquid token fund we have uh a quant team that’s built a bunch of models over four or five years where we trade HFT across a lot of different tokens on a lot of different exchanges and just trying to extract the inefficiencies and you’re talking about risk are with such a primordial market there’s a lot of inefficiencies and I’m sure they’ll be arbed out faster than in the traditional markets you know to Rintech from the 60s to now to you know make other markets really efficient and probably it’s not going to take 50 years in our market, but there still is a lot of opportunity.

56:34 So our who’s your competitor in high frequency stuff? Is it, is it some computer somewhere? Is it a couple other funds like yours or is it people you, you have no idea where they are in the world? Yeah, I’m not sure that many of our kind of venture competitors in the space do HFT trading, but there’s a ton of HFT shops like DRW and junk trading and firms like that that also trade crypto. And so, you know, I’m sure they’re the ones we’re mainly competing against.

57:18 And there’s five years left in this market, you’re saying, probably, or more and more. Yeah, I think there’s a long time. I would say, you know, I started on Wall Street in 1987, and I was like, wow, this stuff’s not gonna last. It’s all gonna get arced out. Maybe I’ll go back to being instructional engineers.

57:34 This thing’s not gonna last. And 30, 30 years later is still an opportunity. So any prediction that things get arced out quickly is normally wrong. I think there’s a good bit of time here. Okay, and then like you said, the fund you’re raising for now, people wanted the whole spectrum.

57:50 So you might hold Bitcoin and you might hold some Polkadot and you might hold some equity in the next audience as well, kind of all in one fund to give people kind of this weird, this diversified exposure. Is that what they’re looking for? Yeah, it really is. It’s trying to have the whole ecosystem in one fund, you know, because that kind of removes the illness of stock selection, basically, from the allocator. And I went around in 2013 and pitched to people, Pantera or Bitcoin Fund.

58:18 And I would get, you know, the CIO of the most famous and downloads and 20 other people around the table and nobody bought it because like that’s really a very specific bet one asset in one fund run by one fund manager, you know, and it didn’t sell very well. On the way to the elevator, I always get what’s the minimum, you know, because people want to invest personally, but there’s no way you’re going to get them to put their university endowment into that. So people want to allocate to the concept of blockchain, and then let the manager with his pants here or or one of our peers decide, you know, which sub-sector to be in venture liquid tokens, early stage tokens, and then within those sub-sectors, you know, which assets to be in.

59:00 And again, like I said, throughout the life cycle of the fund over the next five or 10 years, we can swing, you know, right now it’s 100% liquid tokens. We’re starting to invest in illiquid early stage deals and illiquid venture deals. And so the balance will probably shift a lot over the next five or so years. And then, you know, the fund will start winding down. And so example, say with Audius, your high-frequency guys could trade Audius.

59:30 Your other fund, third fund, I guess, would also have equity in Audius or tokens. And your new fund might also think, you know what, we want a position in the going forward. Would that be possible on a variety of companies? Yeah, it is. So right now, prior to the launch of our new fund, our four funds were essentially mutually exclusive.

59:46 Any ask that we bought could only go in one fund. Now, this is like a wrapper of all four of those concepts in one, and so any type of asset can go in the new blockchain fund. It will be our only venture fund going forward, so we finished investing venture fund three at the end of June, and so every new deal from July on goes into the blockchain fund, 100% of it. When we do invest in early stage tokens going forward, they’re split between our evergreen hedge fund and this new venture-style blockchain fund.

1:00:19 And then the same thing with liquid tokens. When we invest in big liquid things like OpenDOT or Ethereum or Bitcoin, they will also be split. And the only exception is we won’t be doing the HFT stuff in this new blockchain fund because it’s more of like an institutional endowment type product. And so HFT trading’s not really the right fit. Okay, and a couple of technical questions and I want to keep going.

1:00:45 When you do invest in some of your kind of startup ventures now, you were talking about earlier, is it a hybrid of tokens and some equity? Do you see the market going one way or the other? Do sometimes companies have multiple different types of tokens, like a governance token and a this token? And do you think that will trend one way or the other? Yeah, there’s been some big swings over the past where tokens weren’t very popular until 2017 that became way too popular and then they were completely out of fashion.

1:01:15 I think we’re now back to kind of a normal steady state where we’re seeing a healthy mix between equity and tokens. And then from the projects themselves, there are a lot of projects these days that have both equity and a token. We try and make educated views on which one will accrue the value, but we’re certainly not omniscient. So often we do invest in both because we wanna have exposure to whichever direction the value will go. Yeah, and that’s a great explanation of the market like you said. I mean, it’s got such a weird history and a lot of, you know, pain and joy points over that with the ICO boom and bust and you know people at first you couldn’t get the coin tokens and then there was too many and too many crazy ideas and then people wanted to stay away from them. But now they’re this incredible way of raising equity, right? It was never an option say 10, 20 years ago, but then you and you might wanna blend, so it’s good to hear what it’s happening like, kind of like on, where the rubber hits the road when it comes to those investments.

1:02:20 Questions about those early days and maybe lessons we could learn from you back in 13, 14, 15, 16, like trying to create a Bitcoin fund. I mean, I can’t imagine the conversations you had, the weird looks, the news headlines you were battling, How did that prepare you to be the Pantera of today? Yeah, it was a fun time. It was kind of, you know, the basics. I spent probably six months thinking about Bitcoin and whether it was, you know, a good investment or whether, you know, we wanted to get involved.

1:02:56 And when I ultimately decided to launch the fund, we repurposed an old fund that used to be FX trading fund for Pantera because it’s already registered and it came in and actually was grandfathered with a lower minimum so we could get you know more retail people in. But it took a while to get it all done and so we launched it and we didn’t really have all our dogs right and all that stuff and it really was kind of the Wild West. All these you know friends in Silicon Valley and tech CEOs trying to invest in the fund and get exposure. It was actually very hard to by Bitcoin back then, it was all Mt. Gox and crazy exchanges. I mean, it’s totally different now, but it was really hard to get invested in Bitcoin. And so people would, I had one CEO of a big tech company that sent us a few million dollars and a couple of weeks later he called and he said, hey, what are the terms? We didn’t have any documents or any real marketing material or or anything. So it was really fun to kind of get all those people engaged. Obviously, you know, we had a very slow going with endowments or very institutional investors, but a lot of really interesting people from Wall Street and technology decided to invest. And a good little story about how once the industry has changed is I spent a bit of time trying to figure out what exchanges to use in those really, really primordial days. And at the time out Gox was 85% of the

1:04:21 Old market. And I had visited Mt. Gox in Tokyo and met with the management and I spent two days there, actually, and I just felt like something was wrong. I didn’t know what was wrong. So we decided never to do business with Mt. Gox. So we need to do business with other people. And so we set up an account with this new startup called Coinbase, and they had one employee at the time. And when Bitcoin hit $65, decided to launch the fund because it had come down from 140 bucks or whatever. So it was, you know, come down more than 50% decided that would be the day we need to launch it. And it was actually over the Fourth of July weekend. So I sent a bunch of money to Coinbase and Bitstamp. A couple days before they get ready, and as soon as Bitcoin I hit 65, just intuition, I decided, okay, this has got to be the bottom, it’s time to go, we got to start buying.

1:05:23 And so I went in and I hit a buy, and a pop-up said that my limit was 50 bucks. And not like some Wall Street people used to say 80 bucks being millions, like 50 US dollars, like one Ulysses S Grant. I was like, oh no, I’m trying to buy like, you know, a million dollars, I’m in Bitcoin every time. And so I sent an email in all caps to support at coinbase.com saying, I just sent you $2 million, I wanna buy a Bitcoin with a limit. And four days later, I got an email back from their only employee, this guy named Olaf, and he said they were gonna up my limit to 300 bucks a day.

1:06:03 So it just shows how different the industry is. They’re trading 70 billion a day now of Bitcoin. Wow, and you invested in those companies afterwards, Coinbase and Bitstamp. Yeah, so it was really a great example of prototyping things. We still do that a lot.

1:06:21 We still try and use the product, obviously meet the teams. And so ultimately we did invest in Bitstamp first and later actually in Coinbase. And then many other companies that are, actually two other companies in our part of Coinbase to call me in Zoppo, from being customers there first. Wow. And that must’ve been hard to avoid Mount Gox back in the day when that was where all the volume was.

1:06:48 But I guess you really get a feel when you go into the headquarters, kind of like in an old school way. And they were doing 85% of the market. I mean, that was the most dominant exchange I’ve ever seen in the industry. But it really just felt like a lot of stuff didn’t add up. And then ultimately, you know, they were involved in those two US federal agents that went rogue, Carl Mark Force and the other guy’s name escapes me, who they were extorting Mt. Cox and they were federal agents.

1:07:17 I mean, there was a lot of super strange stuff going on. And those agents who were rogue were actually the ones that seized $5 million of Mt. Cox’s money in a bank in San Francisco. I mean, there was just a lot of, and obviously none of that was public at the time, but you could just kind of feel something really weird was going on. And I think it’s October of that year that, you know, else might, you know, win under.

1:07:43 How did you keep the faith over those years when not only there’s been 90% Bitcoin corrections, but also crazy news like that, you know, I had a guest on yesterday who said, of all the historic markets on Wall Street, you know, the media has probably been the most disfavorable to this one. How do you keep that North Star? Oh, you know, there’s been some dark times. I was thinking back in 2016, we were raising, we’re trying to raise our second venture fund and Bitcoin had been down, been down for two years.

1:08:18 And the total of that entire year was we raised $2 million of inflows and we had 60 million outflows. So, you know, there was some dark moments where it’s just like, this just is not working like nobody cares. So it’s fun now, you know, I’m super maxed the other way where everybody loves blockchain and Bitcoin, you know. So it’s, you know, there’s definitely some times, you know, it looked pretty dicey. Yeah, that sounds like you need a movie or a book coming soon on that, that’s impressive.

1:08:53 Talk to me about trading these volatile markets. I’ve actually got hundreds of students right now that go through our DeFi Academy and for four weeks we try to get them to put small amounts on these protocols so they can get to understand yield farming liquidity pools and even a basic options trade. But then we try to get them to learn how to invest in these markets. But I’m also looking at markets that go up 50% in a day and I’m thinking no human is prepared to trade these volatile markets.

1:09:25 And you might say, okay, Brian, I bought Bitcoin at 40,000 and went to 100,000. Even if it goes back down to 50,000, I’ll be okay. But I don’t believe you if you’re new to trading, because most people can’t take that emotional rollercoaster. It’ll drive you to spend it before you have it, to drink, to talk to the relatives. Like, I know from being on the Banker’s Trust trading floor, it took me years and years and years until I was even relatively seasoned from a emotional perspective.

1:09:55 I think you once said, you said once, I’m probably not going to win the Nobel Prize in physiology or medicine, but I can imagine that the traits implanted on the planes of the Serengeti might not be optimal for trading early-stage protocol tokens. And so, maybe you can talk about that, about how humans, you know, dealing with now mobile-based pricing 24-7 on instruments that are incredibly volatile, and all sorts of newbie traders for the first time ever, Dan, trading the markets in crypto. They didn’t choose to trade in Apple or S&P futures.

1:10:31 They’re going into crypto. How do you talk to people about that emotional journey and how to prepare for it? Just say no. No, so the point is don’t try and day trade crypto. Call up Pantera.

1:10:45 And it doesn’t remind me of a phone call I got, you know, super early days, 2013 or so. My friend, Mike Novogratz, who’s now at Galaxy Digital, he called and said, hey, I’m trading Bitcoin. I was like, no, you’re gambling. because there’s no information out there. Like it goes up, it goes down.

1:11:04 There’s no way to have an edge. And I still have a bit of that view is day trading crypto is gambling. It’s not really trading. Like there’s just not enough information. We have 50 people trying to figure out what’s going on and we don’t know what’s going on half the time.

1:11:18 Like we don’t know why the market’s going up, why it’s going down. So my main advice to people is invest the amount of money that if it went down 85%, your spouse or partner would still love you and then hold it, right? Like that’s it. Like don’t, trying to like day trade and all that stuff. Cause things go, you know, like you said up 50% down, you know, it’s just too hard.

1:11:43 And the other point is if you’re in an asset that does for 10 years, it’s triple every two years or triple every year, sorry, which makes it go up 10X every two years. You don’t want to be flat or short very much, right? Like it’s mainly going up. And so in most of our funds, although we have the ability to take a lot of risk off, you know, we’re pretty close to fully investing most of the time. And we try and take it off if we think the market’s overvalued or it’s coming down.

1:12:11 But, you know, most of the value is in being long and holding for a good period of time. And a good example would be our Bitcoin fund, you can come in it for one day, you know, you can come in on a Monday, come out on a Tuesday. So we offer people incredible liquidity. We really stress and beg to them to view it like venture. Write a check that you can live with, don’t look at it for five or 10 years.

1:12:36 And luckily our average holding period is something like 800 days now. You know, like people do hold it for a long period of time. That’d be my main advice to your audience. It’s just, it’s, you know, cause you are gonna, you are gonna like buy the dice and wanna sell it at the lows. Like it’s human nature.

1:12:53 Actually put a graph on our Twitter and our website about the inflows too and they’re a Bitcoin fund. Eight years, three bubbles, three massive bear markets. It’s massively pro-cyclical. All the money pours in at or near the highs. It’s just, and we’ve published this thing several times after each day recycle, we’re trying to help remind people and I need that reminding too.

1:13:20 Like I’m always thinking, you know, I’m so genius when it’s at the highs, and then I’m bummed, you know, 2016 with the lows. So the results of that study show that the amount of time Bitcoin’s spending in a bunch of different price buckets is very normally distributed, most of it in the middle of the range, you know, sometimes cheap, sometimes rich to its long-term trend, but the vast majority of the inflows come in way above fair value. And the important point for today is Bitcoin is now 32% below its long-term trend, you know, so it’s actually quite low relative to where it could be. And yeah, we’re still down quite a bit, 35% away from the highs. And we’re only about double where it was four years ago, right? You know, so Bitcoin is still, I think, is quite inexpensive relative to where, you know, its trend, and then obviously where I think it could be. So the advice is, you know, when, you know, when my peers and I are on CNBC already talking about Bitcoin at the highs, and Folo Devils was bringing you here, you probably don’t want to be like, going totally every dime you have into the markets. But then times like now, where markets way up to highs, it’s been down for a long time. You know, that’s probably when you do want to push, you know, more of your resources in it.

1:14:42 And, but still as a default, you would rather try to hold those positions even at highs, as opposed to going short or even getting cash because you’re willing to stomach some of that volatility and long-term you think it’s appreciated. I think it is. And that’s what we’ve done with our own funds is generally, we’ve probably averaged, you know, 85, 90% long across these cycles, you know, or sometimes we take risk down. And in February, we did that quite well.

1:15:09 We took it down right before the markets came off. This last time we didn’t, you know, so sometimes you catch it, but mainly we’re trying to be long. Great example would be last March when the financial repercussions of the virus were starting to dawn on all of us, very confusing time. We took risk down a lot, but only for two weeks. And by the March 25th, I think when we sent our investor letter out, We were back to limit log, because we thought the balance and risk were to go up.

1:15:38 And again, if you’re talking about asymmetric trades, which is what I’ve studied, you can only lose one time to your money, but you might 10 times your money, or more like our, many of our funds. You just don’t wanna be flat or short, because there’s a huge potential upside. And your downside is, it is limited. Yeah, you mentioned the kind of crisis pandemic last year on March 2020. It was an interesting moment for a lot of reasons.

1:16:08 We had Michael Saylor on here about a month ago and that was the moment where he kind of said, well, wait a second, maybe I shouldn’t have cash. Maybe I’m not a responsible CEO if I’m sitting on cash. Maybe it should be something else because I’m starting to see maybe what inflation really is as opposed to what’s probably published in the indexes, et cetera. and he kind of went a deep dive. We all kind of thought this was the black swan event we had been waiting for and then quickly realized maybe it wasn’t.

1:16:37 We also saw a lot of easing, a lot of money being printed, a lot of assets being propped up. Sounds like you, within two weeks, kind of changed your mind and got back in the market. What can people learn with what happened there? What do you say to people about understanding inflation or even the whole quantitative easing or even the value of their dollar versus a crypto asset? Yeah, the main thing to stress is what’s happened in the last 15 months in monetary stimulus is literally off the charts.

1:17:10 In June of last year, the United States started printing more money in a month than they did in the first 200 years of the country’s existence. It’s just completely off the charts. So you kind of have to open your mind up and just think what’s gonna happen when you print that much money. it has to inflate the price of things whose quantity can’t be used. And that is what’s happening, that anything that has a fixed quantity is going up in value.

1:17:38 We did put a graphic in our investor letter and on Twitter that shows the price of things essentially inverted, so it’s really actually the price of the dollar priced in number of ounces of gold or grams of sugar or, you know, bales of cotton. And in my opinion, that’s really the thing that’s moving. All the rest of that stuff is kind of staying the same relative to each other. It’s the value of paper money that’s plummeting right now. And so you see that against everything.

1:18:09 We even put lumber in there, you know? You know, everything that you can’t just kind of make more of instantaneously is going up in value and the value of paper money is going down. And it feels like we’re accelerating. you know, the amount of monetary stimulus that’s coming is just, we just keep dialing it up and the numbers are pretty staggering for each of the last two fiscal years, the budget deficit is $14,000 per adult in the United States. I mean, that’s a lot of money, right?

1:18:43 And then to put it in perspective, the cost of a vaccine dose is $14. So we’re spending a thousand times the value of a bit of medicine that would actually stop the virus kind of papering over the impacts of the virus. So, you know, it’s just, it really is staggering amounts of money that are being printed and it has to impact things. And the best proof of that would be that in a global pandemic, when corporate hearings were being destroyed, the S&P hit a high.

1:19:14 That’s excess money. Like that’s the, and you know, there’s all these great stories of like hurts, raising money. When you’re in bankruptcy, because there’s so much money being shoved at it. There’s just a lot of paper money going around in it. It really has to cause inflation.

1:19:30 You quoted Milton Freemer earlier, his great line, inflation is always in everywhere, a monetary phenomenon. Might not be true for like plastic flip-flops or whatever, but for things whose quantity can’t be eased, like housing, housing is record increase in the median home price of the United States in a depression. Like, I mean, it’s really wild, right? So there’s just so much money being printed that it really is pushing up the price of all assets. And so, again, I had this conversation with my 17-year-old daughter here in the studio on Friday and, you know, she’s never owned crypto.

1:20:08 She doesn’t take economics courses, but even she, Dan, she said, okay, but who’s gonna pay? That’s what she said. She’s like, who’s gonna pay for all this? And I couldn’t really answer her question. So I guess I’m gonna ask you like, we all see this, we all see it happening.

1:20:24 Obviously, smart money is diverting itself into non-inflationary vehicles like Bitcoin and some crypto assets. But how does the party end? You know, where are the chairs when the music stops, in your opinion? Yeah, so if you want all kinds of analogs, there’s a great line by the former chairman of the Fed, and Chesney Martin said, The role of the Fed is like a chaperone at a party to take the punch bowl away right when it’s heating up. And I mean, I feel like the monetary authorities are like an F1 driver spraying champagne on the crowd right now.

1:20:59 There’s so much money getting out there that it really is creating excess. And, you know, who pays for it’s a really good question. You know, unfortunately, I think the answer is, It’s groups that are subsets of society, like renters.

1:21:21 63% or so of Americans own a home. Flooding the marks of money, driving mortgage down to 1.25%, massively positive for people who own a home, it’s horrible for the 38% of Americans who don’t. So there’s a huge transfer of wealth going from renters to homeowners. Same thing with net worth. The United States just printed record net worth, household net worth, but it’s not evenly distributed.

1:21:51 It’s for people who own the equities, people who own the homes, people who own businesses. And for those that don’t, this is a huge transfer of wealth. So, you know, well, it kind of feels like your daughter might say, well, who’s gonna pay for it? I mean, I think that’s the answer. It’s the people who are not in the, Typically majority groups, homeowners, people who own equities, either directly or indirectly through their pension plan, those are the people that are benefiting from this and people who are not in those groups are being disadvantaged.

1:22:23 Yeah, it’s really down to the kind of the lower income or even maybe lower educated that haven’t crossed that gap of owning assets, which is, you know, they don’t teach this in school, you know, they don’t teach you how to buy assets in school. Well, I never knew how to do that or what that might mean. In the UK, we paid furlough checks to people, which was to supplement their income for many months and maybe even that’s coming up on a year. And I remember someone was like, well, who’s gonna pay for that?

1:22:53 Well, you’re gonna pay for it through your taxes, through the devaluation of your currency, but you’re probably gonna pay double what we gave you ultimately. And the asset holders and the other people won’t pay. And that’s the strange thing about this paradox is it almost redistributes wealth while we’re doing this. Oh, it does. No, and unfortunately, I think that’s going to be the subject of some really fascinating studies over the next four or five years is the massive wealth redistribution because of the monetary fiscal policies that have just been implemented.

1:23:27 Yeah, and just to reiterate the point you made earlier, as humans, we have a tendency to buy high and sell low, right, and yet when I got to Bankers Trust, They said, your job is to buy low and sell high. Or sell high and buy low, either way, do it. But our natural emotions, funny enough, are to do the opposite, which means when all the hype is there, fear of missing out. And then when it starts hitting the lows, we just think, oh my gosh, it’s panic time.

1:23:54 And so you have to almost train yourself out of that or not play that game. Agreed, crypto day trading, you gotta have your head examined. And these days, like when I was at Bankers Trust, Dan, I could trade Mercantile futures on the Singapore exchange if I call them at night, right? Otherwise, my liquidity was removed from me, right? These days you got the mobile phone with the blinky colors and the thing that has been adapted from the gambling industry, right, to get your attention.

1:24:22 Now showing you prices and the news that gets you to transact. So people really need to not be crypto day traders. I forgot what the figure is, but it’s something like high 70, 80% of lose money on a regular basis. So they need to really resist the temptation to go do that and to try to find either a discipline strategy or someone else to do the trading for them. Is that what you’d say?

1:24:44 Oh yeah, that’s my suggestion is, you know, figure out what you’re able to risk and then, you know, put it in a potentially diversified basket of assets, not just all in one. And then try and hold it for years. Anyone that’s ever held Bitcoin for three and a quarter years can make money. So, you know, if no matter what, and there’s been 483% on average, bear markets in that. So here’s another great stat on Bitcoin is although we’ve had four massive bear markets, 83% on average just had a 55% one.

1:25:14 In the last 10 years, there’s only been one year that’s printed a new low. So if you are able to hold it for a multi-year period, at least historically, it’s always bailed you out. I actually think it’s true going forward. If you buy any cryptocurrency now and you hold it for a few years, you’re probably gonna get a profit. But that’s the main point is don’t get over skews when everybody’s going crazy about it and don’t liquidate at the lows.

1:25:43 Yeah, couple of final questions about you. Dan, what’s your biggest challenge right now? I mean, from the outside, people are looking at your funds and then liquidity and the 2.8 billion and you’re raising money now. I’m sure a lot of it’s coming in, but I’m sure you also have a lot of challenges. So what is the biggest challenge or the biggest couple of challenges for you this year?

1:26:07 Yeah, actually, it has been just to try and keep growing to be able to handle the amount of interest in this space and the amount of deals. We’re seeing a record amount of inbound deals. We keep a stat for our investment committee that we have each week of how many deals are live, that we haven’t yet funded it, but we haven’t yet rejected it. So they’re still alive. And that averaged about eight for most of the years.

1:26:33 We’re at 25 right now. So we have 25 deals we’re trying to process. So our biggest challenge is to hire enough people to be able to really do some thoughtful work and be able to handle this opportunity. Because I do think it’s a once in a lifetime trade. So you can’t wait for the next set of these waves to come in.

1:26:53 You got to get your surfboard out and gravity. So our biggest challenge is trying to staff up and be able to process what has happened here. Other than that, I do think we have five or 10 more years of the marks and super interesting, super dynamic. So we’re really excited. You know, you told people to go into blockchain.

1:27:18 Again, back to my daughter, she’s about to go to university. Can you go to university for blockchain? Or do you have to learn that somewhere else? And the reason I ask is because I’m sure recruiting for you is not the easiest thing and definitely not easy for your portfolio companies. So how does that work?

1:27:31 What’s the best way to get education and how are your portfolio companies hiring the best people? Yeah, so that’s the beauty of a permissionless system. Anybody can participate. You just need a smartphone to be able to be in the blockchain ecosystem. So the main thing is just get involved.

1:27:49 Go join your college Bitcoin club or blockchain club. start reading, you know, there’s a ton of great stuff to read these days. You know, get on firms like ours, investor letter lists, you know, there’s a bunch of websites that aggregate news and just start, you know, learning about the industry. Others actually, you know, meetups that are really fun to go to meet other people in your community that are excited about blockchain. And then, you know, try and get an internship or, you know, get a job, you know, at a company in space to learn what’s happening, you know, just to get in the flow of what’s going on. So don’t go to university. Yeah, you know, it’s funny, we had a guy drop out at age 17 to go full time with us. I was like, wow, that is a new year. Wow. And did you got it? You hired him. Yeah, we had a guy drop out of college when he joined us at age 17. Wow. And he was obviously adding value. You can see that Right there.

1:28:54 You know, you went to Princeton, I’m sure you had an incredible experience. I mean, I think you rode a heavyweight crew and I lasted about four days on the MIT crew team, by the way, until I realized how hard it was and I couldn’t walk for like four days after the first practice. But I really relished my experience there. It was so important for me. I was in a fraternity, I learned, I had to manage my own schedule and, you know, again, look at my daughter, I just, maybe it’s nostalgia, Dan, but I’m thinking this is an important experience for her.

1:29:24 But I also can’t point to the best blockchain school in America, because there probably isn’t one. So how do you feel about that, you know, that conundrum? Oh, you know, there’s great Mark Twain line that I never let my schooling get in the way of my education. And that’s what I would suggest to kids like your daughter. Go to college, have a great time, learn all those things you need to learn.

1:29:46 Relationships, all this important stuff and then go get a job in Bitcoin or something else. But those four years are super important for lots of other reasons. And you can learn all the rest of this on the job. I didn’t study Bitcoin in college. So, if you can learn something that’s relevant like some CS or some economics, that’s helpful when you’re in college.

1:30:09 But so much of what college is about is not in the textbooks, and you know, so that, you know, definitely kids stay in school and have fun while you’re there, and then, you know, graduate kids get into business. Yeah, I’m still pushing for the college experience. Final thoughts, where is Pantera 10 years from now? I mean, everything goes even better than you expect, Dan. Where are you guys?

1:30:34 Maybe from assets under management or just things you’re doing, or yeah, what is, what’s the future? Oh, you know, so we want to be the best fund manager in the blockchain space. So we’re going to keep growing, keep scaling so that we can manage both hedge and venture funds as well as anybody else in space. And so, you know, we don’t want to get into other, you know, merchant banking or, you know, lots of these other things that some of our competitors are doing.

1:31:03 We really just want to stay focused on being very good at fund management. But I think the industry is growing, you know, it’s a two trillion dollar industry now, you know, our few billion is a very small fraction of that. I think the industry is going to be 10 times bigger in five years. So hopefully, we’re at least 10 times bigger ourselves, but it could be you could be around in 100 billion dollars or more at that point, who knows that would be possible, like, you know, we’re big believers in how this is going to scale and, you know, a good example would be, you know, DeFi, you know, recently went to 100 billion of outstandings, which, you know, we’ve been invested in companies like Xerox since there was zero exposure in DeFi space.

1:31:46 So, you know, we think it’s awesome that we’re up to 100 billion, but there’s 100 trillion of bonds, right? So we have 1000x of headroom in DeFi. So yeah, you know, some firm, you know, hopefully it’s been zero, but some firm space is going to be a hundred billion in five or 10 years. Last question everyone’s dying is how can they get involved in Pantera? I’ve got a few buddies in New York that are invested in your funds.

1:32:13 They got amazing things to say about you guys. What’s the minimum to invest and how do we do that? And what would you suggest for maybe new people to start off? Would it be the high frequency or would it be a venture cap fund? Yeah, just final thoughts on that.

1:32:29 Yeah, so, you know, we’ve always been trying to educate the community because this is a new asset class we’re evangelizing so we do have conference calls every month they’re open to anyone where we’re talking about the themes we see that we think are important in the space so if you haven’t already seen it you know on our website we have the times dates of the upcoming calls we sent out an investor letter roughly once a month we missed a couple here and there but and that goes to all the really important things we see in the space. And then very important, there’s a big list of all the books, websites, podcasts, that we think are informative in this space. So it’s a great way to get educated on the space.

1:33:07 And as far as our funds, we try and keep it as accessible as possible. Most of our funds have a hundred thousand dollar minimum. And then, you know, I think a good portfolio would be half in our early stage fund and half in our liquid token fund. It has a lot of liquidity, covers the entire spectrum of tokens, so it’s a great place to start. If you can invest for 10 years in our blockchain fund, it’s a great way to go, but not everybody can lock up money for that long.

1:33:35 And is that more like a million minimum, or you can still do it? That one is a million, so it’s a much more institutionally focused product. So, unfortunately, that one is a million, but all the rest of our funds are $100,000 minimum. And you were saying even the fund, I think it was the high-frequency fund, and you said, well, you can get liquidity every day, the average holding was 800 days? Is that what you said?

1:33:54 Yeah, so, you know, luckily people have, you know, really believes in our mantra that it should be treated like venture, even though you don’t want liquidity. Yeah, that’s, that says it all, in my opinion. I guess you know that too. And it kind of doesn’t surprise me. I guess you give them the option of liquidity, but once they see what you’re doing, they’re like, you know what?

1:34:14 We want to leave you to make those decisions. and I guess they’re voting with their frequency. So, yeah, those are great stats. Dan, just wanna say thank you for your convictions. I mean, it’s almost hard to believe that you were doing this back in 13.

1:34:29 I mean, in 2013, I had a conversation in my old studio, which was my kitchen with Max Kaiser, where he was screaming about Bitcoin, and I had just tried to buy some on an exchange for $85, and there was no liquidity, and it was just this wild west. And to imagine you were out there pitching institutions for funds and setting that up, it’s again, hard to believe. And I know a little bit about that side of the industry and it’s not one that responds to newness very well.

1:34:58 So yeah, I just appreciate the conviction. Your funds these days are really exciting. They’re really understandable. And yeah, I’m probably gonna be giving you some money soon. So thanks so much.

1:35:10 If people wanna learn more, go to Pantera on your website and basically get on your newsletter and conference calls and then go from there. Is that the best thing? It is, and Brad, thanks so much for having me on and thanks for what you’re doing to spread the word too. No, I appreciate it. It’s been super exciting.

1:35:26 Like I said, I haven’t felt like this since like the 90s at Bankers Trust and I was in the dot com startup boom as a CFO but I never felt like I was really invested. We kind of all had a little piece of equity and it disappeared. Whereas in this market, I feel like we can all own a bit of it. So it feels like I’m more involved in the upside than ever and I guess everyone feels that. And the education side’s amazing and we have a kind of a high price point academy experience for four weeks.

1:35:53 They all get a community and they learn by doing and the response has been amazing. The energy, as you know, in this community is kind of off the charts. Super positive, super tribal, which is good and bad and also really exciting. So yeah, congrats on what you’ve been doing. It’s great to see your portfolio is popping like audience and stuff.

1:36:14 And yeah, to be continued. So all the best, thank you so much for the time. Hey, thanks, thanks for having me on. All right, and thanks everybody for watching. Go check out Pantera, and we’ll see you next time on London Real.

1:36:25 Take care.