THIS Made Me Change My Mind About Bitcoin | Anthony Pompliano

You and I had some epic showdowns on television. You called it everything from crypto garbage, uh, to one time you forbid me from owning any more of it, uh, but I think that there's a lot of changes that have happened in the market, both from a regulatory standpoint and also some of the market dynamics. You now are comfortable starting to allocate to it.

So maybe walk us through kind of what changed and then how you're thinking about allocating to a bitcoin or cryptocurrencies today.

Yeah, so what changed is exactly what you said, Pomp: the regulatory environment. I work in a very regulated world. I'm an investor in so many different financial services companies that are reporting issuers. And so we don't have the luxury of being offside with regulators. Not now, not ever.

In 2017, when we were talking about those epic moments, and it's true because I get those things shoved in my face every day. But I point out that when things change, I change. That's when I took my first bitcoin, Ethereum positions in 2017. Obviously, I've done very well with those. But recently, after the regulators in Switzerland, France, Germany, Australia, England, Japan, Canada all started to change their stance on crypto, it allowed me to start to allocate to it in a compliant way.

And that's really what got me going. Obviously, this is an asset class that's here to stay. It's still going through a very nascent phase. I'll be putting a lot more into it as time changes and still the regulators are not 100% on board. We all know that. But things are getting better, not just domestically but internationally.

And so, I'm an international investor, and in many countries where we're talking about bitcoin or Ethereum or other assets, other crypto assets, tokens, and coins, the regulators opened up.

What's the current allocation percentage? I think at one point we talked and you said you were at three percent. Are you still at three?

No, I've, you know, I've told everybody, I've disclosed that by the end of the year I'll probably be at seven percent. That's the target because I've gone beyond Ethereum and bitcoin. I have a pretty big position in USD right now, USDC. I'm moving into some other assets that I'm negotiating right now.

I have been struggling with this ESG issue around mining my own coin. As you recall, that topic was really forefront at Bitcoin 2021 when I moderated. And I think you were there— the major miners and how they're trying to deal with this carbon offset issue. I still get people asking about that. I still have sovereign funds that I service to some of my other companies asking, "What are you going to do around the ESG?" because they have these compliance committees. And I know a lot of people debate this issue, but it's not going away.

And so I think you're going to see a real move towards places like West Texas, solar wind ideas around new generation where it's completely compliant. Heidi, I'm a shareholder in there now. Jamie Leverton does sustainable mining with flare gas. So I mean, there's ways to get around it, Pomp, and I'm using that to increase my allocation.

But I think by the end of the year across all crypto assets, it'll be a seven percent weighting and it could go as high as 20% if I wanted to—but I'm just taking it one step at a time.

What would it need to take or what would have to happen for you to go from the seven percent target today to 20 percent?

Performance. Performance! I mean, that's basically, you know, I'm not a cowboy here. I'm actually allocating capital towards achieving a distributable return of between six and eight percent a year.

And so, you know, we have a lot of volatility in bitcoin, and right now we're kind of 61 back from the lows, and that's great. But not every crypto asset has to be that volatile. So when you start to build out your portfolio, let's go to USDC. You know, you actually can take that as a relatively stable asset and write contracts on it for 60 days, 30 days, 90 days and generate three and a half, four percent yield, which is what I'm doing right now.

And so I look at it as a portfolio approach. Some of these things have volatility; some don't. But, you know, the biggest problem which is holding all of us back in the crypto industry right now is compliance at the institutional level. You know, you go in and you say, look, um, everybody's talking about this.

Alright, I'm running—let's say I'm running a billion dollar mandate. That's not uncommon. And I want to put 10 percent into crypto. You have to be able to find a platform that can link to your internal reporting and your external regulatory. You know, it's not like I got a hundred million if I'm putting a 10% allocation on a billion. That's a hundred million. I'm not going to download an app on my phone and put 100 million dollars into it.

I'm going to have to have an institutional compliant platform, and the industry is not there yet, Pomp. It's got a lot of work to do on that front, and the more we move towards that, the more capitalism will be coming in.

How do you think about the breakdown between bitcoin, other coins, and then what I'll call like the miners or more publicly traded cash flowing type businesses? Do you have a framework as to how you're trying to allocate across these?

Yeah, the seven percent allocation is allocated across all of the above. Let me give you an example. I talked about how they have no—you know, I'm just a shareholder. And the reason that I met Jamie was when we were making a reallocation to some of our office space. She took some of my office space, which I'm very proud to have done that deal with her.

And we got to know each other, and I was telling her back then, it was a few months ago, the challenges I was having coming out of the Bitcoin 2021 conference and all of that stuff about ESG and which coin do you own and all that. She said, “Well, look, I keep every coin that we mine at Honey. It's sitting on the balance sheet. Every time we get awarded a coin, it stays there. I lend it out so I can get fiat currency to pay my expenses, but I own the coin, so that you're going to trade my stock in a very high correlation to the price of bitcoin, because the more I mine, the more it stands my balance sheet. I'm a proxy for the coin.”

I said, “That's a very interesting model. I'm interested because I know every coin you've got since you started has been built on a compliant basis towards ESG, so I'll become a shareholder.” So I bought some of her stock, and the stock is volatile as bitcoin is. I think I'm up 61%, and bitcoin's up 61% since I bought it, so she's really starting to trade with the value of her balance sheet.

That interests me a lot to solve for my mining issue because if I want more allocation of mining, I have no risk of getting called out from compliance around ESG with Hud-8. I'm not, I don't want to sound like an advertisement for them, but if more of the miners did what she is doing, you'd get more institutional capital coming into the mining infrastructure, which we don't have right now.

It's very hard to raise money for mining infrastructure because if you've got a facility in Tennessee or Mississippi or something like that, which is not compliant because there's coal energy there, you get all these headaches, and that issue has not gone away yet.

So I think that we talked about this last time you were on the podcast. My take on it is the ESG folks are, I've lost their minds. They're putting all these undue pressure and they don't really understand bitcoin and mining and all of that. I think that you're trying to solve not for, uh, what I'll call personal belief, and you're on some crusade, but more so from a compliance that says I have to do x. I got to figure out a solution so I can allocate capital to an asset that I want to allocate to.

So it's very much like you're given a box, and you're trying to play within that box, right?

Uh, with that said, well, I Pomp, I want to get detail on that. I have no choice. I have a compliance department. They have an investment committee on top of that is the sustainability committee and the ethics committee. I don't have a choice. There's no negotiation. I got to do what they say, and that's the same for another trillion dollars worth of buying on bitcoin—same problem. You don't have that problem; I have that problem.

So when you think about this, um, the bitcoin that ends up getting mined that meets all the milestones on this ESG kind of talk track, why are people not willing to pay more for it?

I think at one point there was a thought process, and maybe we just haven't seen, will they or not. But it seems like folks, they want that bitcoin, but from an economic standpoint, I haven't seen anyone paying more for it.

So one, have I guess have you seen anyone pay more for it? And then two, do you think that's something that will happen, or do you think that that's unlikely to happen in the future?

You know, at the beginning of this journey, I thought it might happen that there'd be some kind of wrapper on clean coin versus non-clean coin. I don't believe that anymore. I think you need fungibility across every single coin, all 21 million of them.

And I think what's going to happen is for incremental buying coming in, and I'm saying a trillion dollars, if my clients—just the institutional and sovereign funds alone, and not all mine—but that whole asset class of investor just did a one percent allocation towards just bitcoin, that's a trillion dollars worth of buying.

So we really, really want to solve this problem as an industry, so it's not because you get on one side of the debate or the other. They simply can't check the box and invest until their compliance committee says yes.

So all of these new mining operations—what I think is going to happen is you got the existing coin out there now, providence known or not known, got it. But if you're setting up a new operation to mine coin for the next 30 years, you're going to get a lot of institutional interest in that infrastructure.

Let's say it cost you half a billion bucks to set up in West Texas. You could probably fund that if you guaranteed those institutions that every coin awarded would go on the balance sheet, stay there, and they could claim to their compliance committees that it was mined sustainably through wind and solar—which you can do in West Texas.

So that's—and you know you've got the China thing shutting down, you've got all these compliance issues in Eastern Europe. All of this stuff is happening in the background and it started, you know, the height of this frenzy was in Miami at Bitcoin 2021 when you saw that debate raging, and Elon Musk said he wouldn’t take it anymore for payment on Tesla. All of that stuff was happening at the same time.

The issue hasn't gone away. On the other hand, I see it as a huge upside potential to solve the problem. I want to be long bitcoin when that one percent gets allocated to the rest of the funds because that's when you're going to see really incredible incremental valuations.

So today we're sitting around 45, 46,000. When that trillion dollars gets allocated, any thoughts in terms of what happens to bitcoin?

Katie bar the doors, Pomp! I mean, it depends how fast they come in. I mean, that's when you get extreme extension of valuation. You just don't know. Anytime people say, "Oh, I know the ceiling on the price of bitcoin," they have no idea. It could go anywhere, and it's just because it depends.

And here's really what I'm—when I talk to institutions, there's a change in philosophy about their thinking. Let's just stay with bitcoin: bitcoin used to be considered for many institutions that hadn't owned it yet, the ones that were just looking at it as a currency. They're not thinking that way anymore.

They're looking at it as a property, so you would buy it in the same way as a AAA office tower in Manhattan. You buy an allocation to the coin that you're allowed to own; you never trade it. You own it as an asset, you know it's compliant, it checks the box, you own it on your balance sheet, your providence, and it's something that you can own as property.

And that's where I think we're going. Some percentage will still be traded, but for the big institutions coming in, this is an asset class that is property. I think I just heard Kevin O'Leary say that bitcoin's price is unlimited. That's what I think I heard, but who knows? [Laughter]

In terms of public companies putting it on their balance sheet, we know MicroStrategy, Tesla, Square. We also know a number of the bitcoin or crypto focus companies in the public market have done this as well. Is that something where you expect over the next year or two more and more publicly traded companies will start to put this on the balance sheet, or are you thinking more exclusively this stays in kind of the investment organization corner of the financial market for now?

I'll tell you pragmatically what it's going to take to get the S&P 500 putting an allocation to their treasury and their balance sheets because, you know, they are interested in starting to explore crypto in exchange for cash reserves. And we'll go into that in a second on USDC, okay? But let's just stay on bitcoin.

That letter that Larry Fink puts out every quarter that dictates BlackRock's positioning for sustainability—we got to solve for that. We got to get Larry on board for bitcoin on a sustainability model. And if he's okay with it because that letter actually sets policy for Bo, think about the way this works for sovereign funds.

He's the largest asset manager in the world and for domestic pension plans and for universities and everybody else, you start—he started this a few years ago with the sustainability issue, and all of a sudden you saw the market capitalization of hydrocarbons like oil companies start to get crushed.

Because if you're an institution, let's say you've got, you know, five billion dollars under management, BlackRock, and Larry's telling you, “Look, we're not investing in hydrocarbon distribution companies anymore,” whatever his edict is, they're going to be selling those.

And so what we need is, you know, I'm just calling out for the guy that really sets the standard. It's Larry Fink in that letter and his ESG committee and the consultants he uses. We’ve got to get them on board.

And if he said, "Look, you want to own bitcoin, this is how you can own it and still fit the metrics around global sustainability." That's where we're at. Now, I've taken it upon myself, because I'm not ready yet. I want to go there and see his team and say, “Look, I'm going to bring a bunch of representatives from the mining community. We got to talk.”

I mean, I want to be an investor in mining. I don't want to be offside in compliance. I don't want to be outside on ESG. I can't. I don't have that option. I can't go against that mandate, so I'd rather get them on board.

What happens if you and I go see Larry Fink at BlackRock? You've got your nice suit on and your expensive watch, and I show up dressed like this. Do you think that he takes the meeting?

I think he takes the meeting. I think Larry's a pretty pragmatic guy. I work in the institutional world; you know that, Pomp. That's where I am every day. And so, you know, I'm sure that, you know, and I think probably—and I'm just speculating now because I haven't done my due diligence yet—but I'm going to guess that inside of his organization, there is a sustainability committee that's setting up these mandates and help publishing that quarterly letter.

But you got to understand something, Pomp: that letter is policy. That's what that is. It's not officially policy, but every institution reads that letter. The institutional committees read that letter on sustainability, and they try and abide by it because Larry is a pragmatic guy.

That's where we're at in the mining community right now. We got to solve this. You want to see bitcoin in a million bucks a coin, you got to solve this.

Is Larry Fink, in your opinion, the most important person in terms of institutional capital to flow into the market? If Larry Fink kind of capitulated, put together this framework and said, "Okay, here's how to do it," do you think that that would be the inflection point?

He is the most influential. Why? Because numbers don't lie. He's the number one asset manager on earth. Every geography works with him all around the world.

And so look, I'm just calling it what it is. He's the big dog, and he's put the sustainability mandate out there. And every industry—you should talk to the guys in oil and gas. They're not exactly happy.

Yeah, it makes sense. You, last time, told me that you had made an investment in a DeFi company and that you were starting to really spend more time kind of pushing into that, understanding it, starting to do all sorts of things around yield generation. What exactly are you doing there in the update?

Yeah, sure. I mean, so met this wonderful team in Vancouver, Canada, brought to me by some of my guys. We look at a lot of deals; obviously you're aware of that.

And, um, let me talk about the problem. I do a lot of work in consumer goods and services. A lot of the stuff I do in financial services is for the consumer model—for the large, not, you know, for trying to figure out how to solve a problem for 100 million users, not 10.

So here's a classic case: I have a team here that actually can write contracts on all the different platforms when I want to do interest income on, let's say, USDC. That's not easy to do. You don't snap your fingers and do that. You've got to actually do it, and I have to do it on a compliant basis.

So I have to have all the reporting. I have to do the 1099s. I've got to do all of the mark-to-market positions every day, and I've got a whole team of people doing that.

And I've put a lot of our cash to work that we sold off a lot of real estate in the last two years out of commercial real estate, and now we're putting it—it's sitting in cash making 20 basis points in USD. All I have to do is go USDC, and I can start writing contracts, which I am doing now on 30, 60, 90 days, making about 3.2 percent. We wrote contracts this morning.

Now that's not easy. So my daughter, who's 27, who's got a bank account at a big money center bank, says, “Hey daddy, I'm getting nothing on my cash. I'm getting 18 basis points and you're making three and a half. How much for that doggie in the window? ” And I said to her, “Savannah, it's a nightmare. You're never going to figure this out. You're not going to get set up to do this.”

It's not easy to do. She needs an app on her phone that she can simply say, "Go fetch, move over 1400 bucks out of her, you know, her bank account, set it up in a series of contracts, get an accounting basis so that she can actually report to the IRS at the end of the year, get a 1099."

That's what WonderFi is. That company started as DeFi Ventures, and I said to the team there, "Look, let's take advantage of all the people that know Mr. Wonderful. This is a ripoff of Richard Branson. He does everything Virgin; I'm doing everything Wonderful."

We renamed the company WonderFi. We raised a ton of money for it, and now it's working on its applications, and I'm lucky to be able to launch it soon. And it's going to solve that problem Savannah has, she and all her friends and another 100 million people, because there's not enough ease of use right yet in crypto or in DeFi, and that's what I'm trying to solve.

I am blown away at the fact that two, three years ago you were forbidding me from doing this and now you're the one who's telling your daughter to get into it!

I love it! [Laughter]

Well, you know, it's interesting. It's a bit, you know, it's a way that you can actually—if you understand what you're doing there, it's a less volatile crypto, you know what it is, and you can actually write contracts on it and get a decent yield—at least more than inflation.

If inflation is 2.1 percent, you got to make three; otherwise, you're losing money each year. That's my thinking on it, and USDC is the way to do it. But yeah, you know, I have really had a major turnaround on crypto. You were part of it.

I remember being on the set of CNBC with you in Squawk Box and barking at you like a dog, but at that time the regulator was barking like a dog too, if you recall, and so I didn't want to be outside on that.

Now we have a much more, let's call it, laissez-faire environment. But you still have to be compliant; you still have to report; you still have to mark to market. You can't be a cowboy about it.

Yeah, it makes a ton of sense. When you think about just the broader market, you mentioned inflation, um, and kind of crypto—a lot of people jump when they think of crypto and public companies to put bitcoin on the balance sheet, right?

And I think that there's obviously some that have done it, some that will do it. Is there a middle ground where this USDC strategy that you're employing, you'll see some public companies start to do that as well? And it's merely a low risk, volatile value kind of high yield generation type strategy from like a treasury management rather than trying to jump straight from US dollars to bitcoin?

You know, that's a great question, and that is the question. Well, I do questions. No, no, but that—I'll tell you why that's a great question because when you go to the actual compliance departments of large institutions and I've had many of these dialogues just in the last, you know, two weeks.

Can you convince your compliance department that USDC is not bitcoin and that you should somehow get a pass on USDC versus bitcoin and it shouldn't be regulated in the same way? And that's where you have a lot of gray zone because, you know, you think about what it—if you're going to be on the treasury side of your balance sheet, let's say you're managing, you know, 100 billion dollars of cash, and you want to put a 10% in USDC.

So instead of getting 22 basis points, you can get 3.2 percent, and you go to compliance and say, “I'm going to take this cash and convert it to USDC, and I'm going to start writing contracts on it.” What do you think the compliance department's going to tell you?

They're going to say, "Wait a second, have we ever done this before? Show me where. Show me where you got the sign-off on that from the board. Show me where you did the reporting, not just internally on the mark to market, but you reported successfully to the IRS on the quarterly and annual basis."

The problem isn't that the product isn't desired; the problem is there's no infrastructure for compliance yet. You know, and you know, Pomp, we're not talking about small dough here. We're talking about hundreds of millions of dollars moving fluidly off balance sheets into these contracts, and the only way you're going to get that done is prove to compliance and prove to the regulators that you can do it in a way that you stay onside.

So the good news is, from an institutional guy in terms of my thinking, what an opportunity! What a huge, huge opportunity this is for somebody or me or multiple platforms to solve this for the trillions of dollars that want to use it.

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