Why Bitcoin Is Property To Financial Institutions | FT. Anthony Pompliano

I've got two of my brothers here. I don't think you've ever met them before, so be careful because they're way smarter and better looking than me. But they got questions for you as well. I'll go first.

Kevin, thanks for doing this. And, uh, now that we've clarified, you've gone from Bitcoin being garbage to a significant allocation. We'll have to get you one of these hats. You're never gonna stop. You guys are never gonna let me go like you're never gonna not bring it up again. Like what I'm gonna like a hundred years from now, you're still gonna roll out that tape.

Yes, yes, well maybe, but I respect the fact that you did the work, you changed your mind, and you've now allocated a significant portion. That's awesome.

So my question is pretty simple, I think, maybe complex to some degree though, which is we have a lot of young people that watch this show who are early on in their investing career, in their call it personal finance journey, right? Just getting things in order, investing some money, allocating some capital out of each paycheck, etc. Knowing what you know now, if you had to go back to your early twenties in the current market environment, how would you think about kind of just starting out investing?

Though I would have listened earlier to the concept of diversification. Because, you know, I live by a rule now—it's very simple. I never let one position become more than five percent of a portfolio and no sector become more than twenty. And I consider crypto to be a sector now. I can invest in mining, I can do coins, I can do tokens, I can do Bitcoin, Ethereum—there's a lot of different things. So I consider it a sector. So technically, for diversification, I could go to 20 in crypto, but Bitcoin would never be more than five percent of a mandate. You see what I'm saying? A single asset.

And if I were starting, there are two things I would do if I could talk to myself again. Because I'm guilty of having bought a lot of crap I didn't need when I was young. I wish I'd simply taken 10 percent of my income when I started working—and that was like when I was 17 years old—and simply invested it into the market. And if crypto existed then, I would have put some in there too. But had I done that, I'd be way better off than where I was, you know, 15 years ago. Because it was only decades later that I figured out investing and started to scramble. I got married, I had no money, and so I was able to solve for it later on by taking some chances. But investing from the beginning is key. And that's that pair of jeans you don't need or that crap you don't need. And you can always save 10 percent of your income and just stick it into an investment long term. You'll be way better off.

Makes sense, John?

Yeah, Kevin, thanks for doing this. Nice to meet you. I am curious about where you see—so you've come a long way like Joe said and Anthony as well—where do you see the regulatory environment and discussions around Bitcoin? So, example, the ETFs that have been proposed have not been passed. Where do you see the entire space?

Yeah, it's a great question. And everybody—I mean, I'm in that indexing market as well, and we have this conversation every quarter. So, as you know, the Canadian regulator allowed both Ethereum and Bitcoin into ETFs and there are multiple offerings, and they've all been successful. And they definitely are correlated to the price of Bitcoin. And so you can trade that volatility up in Canada on the TSX, and they're not the only country that's going to allow that.

So I'm optimistic that the U.S. regulator will follow suit at some point, but not next year. There are multiple applications waiting, and the reason they're going to go cautiously is A, they can, and B, they know when they make that index, when you actually can trade a Bitcoin ETF, that will be incredibly popular. And in terms of just saying, "Look, I want to trade the volatility of Bitcoin, and I can't or I'm not allowed to own the Bitcoin for compliance reasons," but an ETF is considered, for most compliance departments, a compliant equity.

So if you had an ETF today, it would fit under the radar screen of many institutions who could allocate immediately to it. And so that's why I think the regulator is being very cautious in terms of how they allow for it. My guesstimate—and it's only a personal estimate of what will happen—is we'll see this first in 2023. So it's still a ways off, but the interest in all things crypto institutionally is huge. And it goes back to what I said earlier; the reason that you haven't seen these allocations, there's a lot of excitement around Bitcoin, but the truth is most institutions aren't playing yet, is you simply don't have the compliance infrastructure linked together yet. You can't download an app and put 100 million dollars into it. That's not going to happen.

You're going to have to have—so when I buy a stock or a bond or another asset class, for decades now compliance has already got structure. It's a mark to market at four o'clock at night. All the compliance automatically occurs, the positions are known, they're disclosed to the regulator—it's all done. And that infrastructure's been around forever. We don't have that infrastructure yet in crypto.

What would be the sequence of events for an ETF approval in the U.S.? Would they just say, "Hey Grayscale, you get the approval," or, you know, one individual ETF application gets approved? Or do they have to, from a market structure standpoint, approve three, four, five, ten of them all at once, and they kind of let the market decide? How does that play out?

I, you know, I would think they would allow multiple competitors in the market simultaneously. All of the files have been sitting, you know, with, if you want to call them, shelf prospectuses for a long time. And so it's to say that one's ahead of the other, ahead of the queue, I don't think even exists anymore. I don't know that, but it would seem—it would make sense to me as opposed to just give it to one issuer, you know, do three or four Bitcoin, do three or four Ethereum, maybe do a, you know, maybe a USD—whatever has been filed for—but bring the market forward simultaneously. And let the financial services compete.

Because, you know, look at it this way: if somebody said to me, "Look, you're going to have to pay 80 basis points to maintain your Bitcoin holdings inside an ETF," I wouldn't do that. That's crazy. But if you had three competitors, maybe they go down to, you know, sort of an index weighting, maybe 11 bips or 14 bips, and I get compliance and I get reporting—okay, maybe that's worth it because I want that, right? The great thing about an ETF is it's already on my statement, on my mandate, and it's going to be compliant. And so I'm willing to pay something for that.

But right now, I'll tell you one of the other problems in the crypto industry is: most of the platforms—I don't have to name names, but you know, I know the same platforms you do and I'm well aware of all the initiatives going on—are not priced for institutional pricing. You can't charge an institution 300 basis points to maintain any crypto anything. They're not going to pay that. And so you've got to go to scale, and you've got to get fees way down, and we don't have that yet. Most of the stuff that's out there that's on your phone has really a lot of friction in terms of fees, and they're just not going to pay it.

So there's lots of work to be done. But the good news is it's here to stay, and the amount—and I keep saying this—the potential is just—there's never been an asset class with more potential than this.

I tend to agree. You recently announced a deal with FTX, and I think the reason why I like you so much is when you go from no to yes, you immediately say, "What do I bring to the market that is unique?" And this deal with FTX is really interesting because I think it's an investment plus like an ambassador or some sort of spokesman type role. Explain kind of how the deal works and what the thought process here is.

You know, it was—it was hap—you know, it happened actually when we were together in Miami at Bitcoin 2021. I was having meetings with most of the major players in crypto at that time for various reasons. And I met Sam Bankman-Fried, and he was a really impressive guy. And his team—I met his team after that and we started starting to think a little bit about, you know, what's it going to take to get in the same conversation we're having now? I was having with his team saying, "Guys, what matters is compliance." And, you know, because we've talked a little bit about me investing in FTX, which I was interested—it’s a private company, obviously—but every day—and I can't stress this enough—but Sam understood this: every day I deal with compliance, not some days, every day. Tomorrow I have a two-hour session, my quarterly session that I have. No. It's not, "Is it—can I go or not go?" I have to be there for two hours with my compliance officers, otherwise I'm not compliant.

So you got to understand—and I'm not the only person that goes through this. I live and breathe compliance. I was explaining this to him. He understood it. He was one of the first big crypto guys that got the joke on compliance. And the more we talked about it, the more I met his team, I realized these guys are institutional grade compliance. I can do something there that I can't do anywhere else and be totally compliant. Now, it took months to get my compliance people to figure it all out, but now I can go into many different places in crypto and 100 percent compliance with a heck of a great team in FTX.

So I'm willing to be ambassador. And they, you know, they hire Tom Brady too, so I'm happy to work with Tom; maybe I can play some football with him. I'm going to show him how to pass. You know, that kind of thing. [Laughter]

They pay you in dollars or in Bitcoin or something else?

I said to Sam and his team when we were negotiating this, I said, I do not want any fiat currency. I don't need any more fiat currency. What I want is all crypto. I want look, I'm getting involved with you for compliance reasons. And, you know, I think Sam liked the idea that, you know, you've got a spokesperson here that once was a skeptic—just like you keep poking me, pump all the time on this—that has turned around completely and now endorses this.

But I have a different mindset than the typical crypto advocate. You've heard me say compliance 400 times since we started talking because I have no other way to operate except to be compliant. The minute I'm offside, I am screwed. So there is no option for me to be outside. And with FTX, I can go into this journey with a full compliance infrastructure. These guys are big, they're global, they have the technology to link, they can give you your mark to market, they can do all the things you need to stay compliant, and you can expand your crypto holdings. You're well aware of their breadth.

Yeah, absolutely. All right, we're gonna do a rapid fire, and then I'll let you go. You’ve withstood our poking over your sins of the past. Now that you've atoned for them, first one is: what is the breakdown percentage-wise in the portfolio between Bitcoin and Ether?

Yeah, Bitcoin's still the big daddy. I mean, you know, right now I've only got three positions on. By the end of next month, there'll be almost 15. I won't disclose what those are, but right now it's primarily Ether, a little Litecoin, Bitcoin, and a ton of USDC, right? But Bitcoin is the biggest out of those four. It's still is because I started putting on that weighting back in, uh, in 2017.

But, you know, I must tell you, I don’t think Bitcoin only anymore. There's so much other—there's so much other portfolio work to do. You're well aware of it. I think what we should do is every couple of months, you know, maybe I'll get into the idea of just disclosing what I own because within a couple of months I'm probably going to be at 17 positions.

I think that once a month you should come on here, and we'll just ask you all the hard questions.

Anywhere in the world, I'm happy to do it. I'm all about total transparency and compliance and I'm just, you know, people ask me what do I have in Dogecoin, whatever, this would have been that, you know, like for me it's asset based, but I am so intrigued with what we're doing in DeFi. That's where the puck is going. I want more assets to do more DeFi with because I think I can actually build an income stream when I start talking about seven percent weighting—that's a lot of dough in my world—that's a lot of—you're rich and you got it, you're rich, you know?

Well, I know, but it's, you know, if I make a mistake with one or two percent, no hot dog for me. If I blow seven percent, I'm gonna cry like a baby. So I'm gonna think a lot about it.

All right, what is the thought process in terms of this infrastructure bill, all of the taxation, regulatory debate? Don't get into the politics; I don't care about the politics. But do you think that it's something where the U.S. basically ends up embracing this, or do you think the U.S. is adversarial toward it over a long period of time?

No, I think we're going to embrace it. I'm actually happy the deal didn't get rushed through. I'm in the camp that says I'd rather have the policy match the objectives of innovation, and I think the U.S. should lead in crypto innovation. We should be developing the technology. Some of the companies that you showed me months and months ago are very forward-thinking. They need to work in, you know, the stuff we looked at together. They need to work in a compliance environment. Every single company that wants to raise institutional capital has to embrace the regulator, and I'm waiting for it.

So I'd rather see policy developed that, you know, does not—if you're a broker-dealer and you're trading assets, you have to go with a certain level of compliance based on broker-dealers that trade financial assets. But if you're a miner, and you're actually an infrastructure play in mining coin, maybe the regulation should be a little different for you. And I'd rather have the policy developed with the, you know, the actual industry participants in a way that makes us the global leader.

Now that China's shutting down all those, you know, those miners, particularly the ones that were using coal to burn electricity, this is a huge opportunity for us. And so we should take leadership on sustainable Bitcoin mining and other, you know, all the talk about Ethereum and proof—proof of stake and proof of work and all the things that are going on there—very interesting. This sector requires the regulator to issue policy, and once policies issued, let the competition begin. Because I'll tell you, a ton of capital is going to be coming into the space.

We've seen in the past in financial markets—and this is a little bit of a tangent, but I was reading about this over the weekend—an absolute drastic increase in America's position in the global financial system. The more that we pursue deregulation, that comes with risks, but historically that has been a positive. Do we think that that framework applies here as well where you basically need some boundaries of, "Hey, this is really, really offside stuff, this is really bad, you can't commit fraud, no scams," you know, all the stuff that is kind of common sense? But within that sandbox, if you will, the less regulation the better from innovation, experimentation, and really pushing us forward? Or how would you look at that with that historical context of deregulation in America's place as the leader on a global scale?

Yeah, that's a good question. Here's the way I look at it: you know, there's billions of dollars being invested in DeFi, all the different payment solution opportunities, all the different things that could be done around crypto assets there. And that's definitely where the puck is going. And I'm—I've got several bets going on in that space, and pomp, we haven't even talked about NFTs. I mean, that's—I think you know NFTs well.

So let's just think about that for a second. If I'm the regulator, okay, and I'm trying to—I want innovation. They always want innovation; they don't want to stifle innovation. Maybe the way I look at it—and I'm just speculating on what they might do—is they'll say, "Okay, let's do it this way. If there's an off-ramp and on-ramp with fiat onto a DeFi platform, I gotta regulate that because I'm taking regulated currency, putting it onto a deregulated decentralized platform." But when it goes back to fiat, I want the tax reporting. Was there a capital gain or loss on the trade? Was there interest, which is interest income? I want the regulatory environment to apply to that, even though it's innovation, so that I can get a 1099 or whatever I need to do for external regulators.

And I think if the industry understands what those policies are and what those rules are, that'll accelerate innovation. Now, when it comes to NFTs, I'm going to make a statement here that you may not believe, but I think that in the next five years, the market capitalization of the NFT markets will exceed that of Bitcoin itself. I really believe that because the potential for all of these industries that are, you know, dealing with physical assets that want to credit, give them accreditation or give them provenance or sell NFTs from that is billions of dollars.

It's billions of dollars from the Mona Lisa to my watch collection. And so I look at it and say to myself, which of those verticals should I become an investor in and stake my claim? And the one that I'm starting with—I haven't talked much about this; I don't think I've ever mentioned to you—is I’m building a team around the watch industry. I mean, I've been a watch collector for 40 years. I've got a massive build-up in that asset class, and I want every single one of my pieces to have an NFT associated with it. I know all of the large collectors around the world, and I've talked to them and they all want the same thing. It's a multi-billion dollar space waiting to emerge in the next 24 months, and I'm going to lead the charge there.

It's a very arrogant thing to say, but nobody knows the people I know in terms of how to put this thing together. But that's just one tiny vertical.

So here's my question, and you answered for me: is an NFT of a watch a security or is it a piece of art? Which is it?

I love you. I wouldn't buy it, so I don't have to worry about that. But I know you would buy it, and I bet you know what the answer is. My guess is they would deem it a security only if the purchase was made to try to increase the price, like you're buying it specifically for the price appreciation, not for collection or wearing the watch, etc. But how do you determine that? I don't know.

Well, that's a very interesting answer because that's the debate going on right now. Because the same thing for art: if you buy a piece of art because, let's face it, the NFT I want to buy—let's say I know a collector named Bill and he's got a one-of-a-kind JP FP Journal watch that I can never have because it's one of a kind and he's got three NFTs. I'm a buyer. I'd like to buy that NFT. I don't know what it's going to trade for. It's going to get auctioned, but I bet you in five years it's worth more. Now, that's no different than buying a Warhol, right?

So I think we need to get policy on that. Meanwhile, back at the farm, the reason I want to get all my watches turned into NFTs is I’ve gone to the insurer and they've said if you can go get them accredited with an NFT and authorized by the original manufacturer, and that becomes a zero-zero-zero serial number to your watch serial number, we’ll give you a discount on your insurance.

Why? Because what they're going to do is say, "Look, if we can identify that watch in perpetuity, so when it's stolen we can simply let the entire world know that if you don't own that NFT, your watch is stolen." That takes a lot of pressure off thieves and stealing watches. If all the world's one-of-a-kind watches were NFTed with authorizations, who's going to buy a stolen one-of-a-kind unless they get the authorization NFT? I wouldn't do it, and it makes the value of the stolen piece drop dramatically. That's why there's such a rush to do this because right now even the original papers for old one-of-a-kind pieces are forged. You can't forge an NFT of a one-of-a-kind Patek Philippe; you just can't. And that's why there's such an interesting opportunity here.

All right, I hear you. We got to get you a watch that works; you were late! I had everyone tweet you late though.

You are such a ball buster, unbelievable. You never do. Do you want to know why I give you a hard time? Only because I greatly, greatly respect your ability to change your mind. Most people—and we've had some of them come on—and they've been anti-whatever in the space, and they get very stuck there and they won't look at new information; they won't change their mind. So I will give you massive credit for that. I think you're probably the person that I know that went from critic to the most in the entire space, which is a huge kudos to you.

Two last questions, and then I'll let you go so you can walk in the park behind you.

First is Dogecoin: do you own any, and what do you think about all these folks who are claiming that it's a good medium of exchange?

Yeah, you know, it's—I don't own any. And the reason is I really question its long-term asset value, but I'm not against it. It's the meme stock of crypto; that's the way I look at it. It's been able to garner tremendous amount of interest on social media, and I'm the first to admit today, over the last two years, that there is a direct correlation to market capitalization of assets and social media. It's been proven over and over and over again that if you can get a strong group of followers, or apes, or whatever you want to call them, on Reddit or on Robinhood, you can actually elevate the value of a company. And for good reason—the more people know the story, the more they buy the stock, and the more they hold and stay along the stock.

And that's why Dogecoin's done so well; it's become a almost a character of itself. But no, I don't own it, it doesn't fit some of the metrics I care about. It's really easy to understand why Bitcoin is a property; you know you've got a diminishing number left to be awarded and all the rest of that, just same with Ethereum as a, you know, form of payment in blockchain.

But I'm having a hard time with Dogecoin in an allocation. I don't mind, you know, having some fun with it on a wallet on a phone, but if I'm putting real dough into it, like a two or three percent allocation—no, I don't think so.

All right, last question: every single person gets asked. You answered however you want. End of 2021, Bitcoin price prediction—what do you got for us?

I think we revisit and go through the highs again. The only thing that has me concerned is everybody's made the assumption. Um, you know, I'll stick with that. But here—but the one thing I would say—and I'm spending a lot of time talking to institutions about this—I'm on my way to the UAE in the Middle East on September 3rd over Labor Day weekend. This topic will definitely come up. Everybody's assuming we're marching towards the ESG resolution. I know a lot of people that own coin now don't care about it, but it's the incremental buyer that cares about it. And I think every—and they're making the assumption of the next 24 months will resolve this problem.

If you want to see Bitcoin crack that hundred thousand, we got to have a solution. And this is only my opinion; nobody else is okay. I'm not putting it out there anywhere else. When I see that Larry Fink letter with the word Bitcoin in it, when he writes and says, "I've, you know, I'm okay with Bitcoin mined sustainably," that's when you see the 100k price. Put your seatbelt on then.

Yeah, yeah, I'm not saying he's going to do that; I'm not saying he's going to do that anytime soon. But I go right back to the beginning of our conversation: the potential is so huge, even at a one percent allocation—that is why you should own Bitcoin. You have to make the assumption the industry is going to solve this problem, and Larry will write that letter one day, and when that happens, Katie, bar the door.

I love it! If you liked that video, wait till you see my next one. Don't forget to click right over here and subscribe.