Crypto Will Go Back Up | Converge 2022

Bitcoin down, Twitter below 20,000. We have a slew of, uh, crypto CEOs that are resigning. Those are the signals right now. It feels pretty bad. Why are you bullish? What are the bullish signs that you're seeing?

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Kevin, you fund the architecture right now, and one of your peers, Jamie Dimon, really continued to beat down on it. He said very recently that Bitcoin and other cryptocurrencies are nothing but a decentralized Ponzi scheme. Yep. So, um, let me qualify my statements on this because it's, uh, I'm an investor in JP Morgan as well. I have a lot of respect for him. He may be one of the most successful banking managers in the history of that sector. However, that was an uninformed statement, and it was not helpful at a time when we're trying to drive regulation through two different bills on the hill right now. I, along with many other private investors, have been spending a lot of time in Washington on this.

Um, essentially what Jamie said there—he was talking his book, this is my interpretation. He feels threatened by some of this technology, particularly around Payment Systems, because banks make money transferring assets. It's a cost of friction in the system. One of the only reasons that I invested in Circle—and I'm an investor in Circle—I’m supporting their initiative, and I'm a big believer in what stable coins can do.

It's time to get rid of that friction, and it's not important that banks be protected so they can make fees from that friction. When you transfer the U.S. dollar into the Swiss franc to buy Nestle on the Zurich Exchange, these banks add zero value. There's no value created in ACH transfer fees. If we could use a stable coin that was regulated and approved by both sides of that transaction, it would be more transparent. It would be much faster. It would definitely be more productive, but above all, I would save millions of dollars, and so would everybody else.

I can't wait till we can do that because that kind of innovation should be supported, and it is, and that's why we're all here. This isn't about, you know, speculation on asset price. This is about reducing the fees of how the world's economies work—more transparent, more productive, completely auditable, regulated, but less expensive.

So does Jamie Dimon feel threatened? You're damn right he does. That's a big part of how he makes money—too bad. [Applause] For the 1.4 billion people who remain unbanked, uh, out of Asia, when we report on blockchain, crypto, and Web 3, we see the fastest adoption of crypto in countries like the Philippines, where they have 70 percent of adults that remain unbanked. These are not JPMorgan clients, right? These are people who are transferring their dollars back to the Philippines with remittances up to 17 percent. This is what USDC stable coins crypto can potentially unleash.

Yeah, I—there is a social mission here that is a good thing, but it is not going to solve a different problem we have right now. The reason we're stuck in a very low momentum state in crypto and blockchain right now is the lack of regulation that keeps the institutional investor out of this space. For all the excitement about stable coins and Bitcoin and all the projects and Ethereum on down, and Polygon and MATIC and everything that's coming, the truth is that none of it is owned by institutions—zero.

And so everybody likes to say, "Yeah, yeah," that's not, you know, but Sovereign wealth and pensions that I service in the indexing business—and there's many people who do what I do—create indices so that they can invest capital. They are waiting for regulation before they index. If all that happened was Sovereign wealth funds put one to three percent into maybe six different projects, it would definitely be some Bitcoin. There’d probably be some Ethereum, there maybe some Polygon, maybe a little Solana, whatever they want to do and what indexers would do for them based on market capitalization. That's a trillion dollars' worth of demand, but none of it is going to happen until we get some policy.

And the truth about this is—and I'm happy to just say it the way it is—there are countries that are advanced. There are places like Canada where they allow broker dealers now attached to accounts, and Canadians can do that. They've got millions of accounts open now—the UAE, Switzerland, France—but the real money, the sovereign wealth capital, is never going to move against the SEC. Never going to happen.

The reason that occurs is that if you're a sovereign wealth fund or a country that's oil-rich, perhaps you're generating a quarter of a billion dollars every 12 hours. The only place on Earth you can put that is in the S&P. The only way you can do that is by being compliant with the SEC rules. They are never going to make a move against the SEC in any way until these rules have been determined.

So we are being kept out of institutional capital, and Bitcoin is not going to trade above 22,000 until we get policy. Interestingly enough, and this is a personal speculation, if this stablecoin transparency bill was passed first before the digital commodities act, which is the other big initiative right now—and Jeremy, wherever he is, was the guy that got that done—I'd be like bringing Led Zeppelin back, and he would be the lead singer. Because if that happens—and if it happens, I speculate that all assets, all crypto assets, would appreciate overnight by 10 because it would signal the move for policy.

So we should all support the initiative of everybody, you know, and there are other people involved in this. You shout out to Sheila Warren and Perianne Boring who spent countless hours educating legislators on the hill. Their missions are important. Um, but there's a lack of knowledge with the government that we have to get over this hurdle.

So even if just stable coins—that one thing got policy—and remember when I go up there, I keep telling these guys it's just software. It's productivity software. It's not scary. If you buy Microsoft for your office and you're typing on Word, that's software. A stable coin is just software that allows for more productivity and transfer of assets at a much lower cost, much more productive.

Let's be candid, though; that race to want to figure out stablecoin regulatory clarity came after Terra Luna crashed in May, wiped out 60 billion dollars, and really created a lot of distrust in the market when you need people—the mass, the regular folks—who are actually using stable coins in ways that we can only imagine. Here in the United States, this is a very mature market. We are all well-served in this developed market, but the rest of the world really needs these tools.

Yeah, but how do they trust it? Sure. So I think the better way to look at this, I think, is the lunar crash, the other companies that were lenders that went bankrupt. In a way, you should look at that optimistically because what's happening here in this last nine months is we're scraping the patina, and we're removing the idiot management teams out of the market.

All these bankrupt ideas will not come back because they were tested; they didn't work. And that's an important way to build an Asian industry. So the litigators will litigate over the assets, and the lawyers will sue everybody, and that's okay because now the remaining players are being strengthened by the fact they’re still in business. They're able to raise capital to the extent they're doing that, and the idiots are gone. What's wrong with that? And I think we start now, even though we're in a crypto winter, at a much better place.

And I think the fact that they even woke regulators up—you know, when you lose 60 billion dollars—keep in mind it was decentralized, so a lot of it was outside of the U.S. That's maybe good. That's a good idea. Look, you got to feel sorry for the pioneers that got the arrows in the back, but they were idiots, so that's okay too. It's a good thing when the regulators are waking up and they're talking to you. They're talking to folks like Sheila Warren over at CCI, Perianne Boring over at the Digital Commerce Chamber of Commerce, all of these folks.

And yet there's a stall. Are we going to see movement before November 8th? That's the question we're all waiting for. What's the best? Well, I think it's, um, you know, it's a great question. And I asked the same question to—I think those women are in different places. I mean, uh, Perianne is more negative than Sheila. I saw them both within an hour of each other, and I got two different stories. So it's—and they're the closest to it in the sense that they spend so much time. We had an opportunity 48 hours ago to have the bill go to markup. I'm talking about the, uh, stablecoin transparency act. It didn't. That's negative.

I know Jeremy is optimistic that it can get there in October. I hope he's right. Um, we have a bit of a distraction—midnight November 8th. We don't know if the house will flip or what's going to happen with the Senate. It's a coin toss. Maybe this policy has to happen after the midterms, but the whole investment premise of investing now is that you feel—and I'm now speaking, you know, categorically—I’ve put money in harm's way in crypto across now almost 50 projects and I'm continuing to do so every week because I'm in the camp that says in the next 12 months, something’s going to break on policy.

I think it's going to be the stablecoin transparency act first, but that in itself should open the floodgates. Because if you ask a big, let's just take a big Middle Eastern bank—I don’t have to name the names—but they've got 5 million accounts with over 2 million dollars in each one, and they want to just have access to a stable coin, Bitcoin, and one chain, and they want to offer that to their clients. They won't do that until there's regulation. There's no compliance infrastructure at the moment, and they are getting ready for that to happen.

Now if all of a sudden stable coins that are backed by U.S. dollars were made regulated entities, that would open up within 90 days. And so as an investor, I say to myself, do I position myself now, or do I wait for the regulation? Because when in a nascent industry—and I happen to believe, and I've said this multiple times, this sector will be the 12th sector of the S&P in 10 years.

It will be—as an indexer, I put up to 20 in a sector, so just like I would in energy or just like I would in tech. So why not position myself now? I’m not going to get it right, it's volatile as hell, and some of the stuff I've invested in is going to zero, but not all of it, and so I think I'll do quite well.

Kevin, you're one of the smartest contrarians I know. And when you take a look at the market and you see everybody tacking left, you go right a little bit. Right now, everybody's talking left. Bitcoin down below 20,000. We have a slew of, uh, crypto CEOs that are resigning. We have consolidation in the market. Sam Bankman-Fried saving like the, you know, the JP Morgan of the 21st century, and saving Voyager and potentially Celsius. Rumor has it those are the signals right now. It feels pretty bad. Why are you bullish? What are the bullish signs that you're seeing?

I've seen this movie before. Um, the time to be putting capital to work is when there's blood rushing through the streets, and that's happening in crypto right now. All of these bankruptcies, defaults, changes in management, it's a cleansing that's going on. It's a very difficult time to fund new projects, and any valuations that people thought they were going to get four months ago are being cut in half—sometimes down 60 percent.

But the good ideas—and the way to look at this in my view—and I'm, you know, I'm fortunate I spent a lot of time teaching graduating cohorts of engineers, uh, you know, MIT, Waterloo, Temple, wherever they are, Harvard Business School guys. When you meet those cohorts, a third of the class are entrepreneurial. And so I'm doing this selfishly; I like to see their projects before the VCs do. So I'm sitting in the class, and we go out for a beer afterwards or whatever.

Here's what I've come through. I've come to this realization: if you ask them where they want to work, these are the brightest men and women on earth. To get into MIT, you basically need a perfect math score. They don't care what country you were born in. You’ve got to be the best of the best, and some of those dudes are very eclectic people, I have to tell you, but they don't want to work in manufacturing anymore. They don't want to work in the existing 11 sectors of the S&P. They want to work on the chain.

They believe that the biggest opportunity for them personally is to work in this nascent space that, you know, the analogy would be back at the beginning of the internet when only pornography was streamed—that was it. We're at that stage now. And so my argument is to any investor: you can't pour that much intellectual capital into a space and not expect extraordinary outcomes because those are the people that are going to redefine industries using this technology. I believe that, and I invest in them, and that's why it's good to put money to work now because every day another cohort comes out.

Remarkably, we're doing some pretty stupid things. We're throwing them out of the country; they should stay here, but they go and work in the Caribbean islands or the United Arab Emirates, wherever they can go to. They’re the best of the greatest, and the best, and we kick them out. That's not—you know, that's a different problem, but the investment thesis is—you go where the intellectual capital is going. That's why a 20% allocation to crypto at this point, at these prices, is a very good idea.

Pantera is raising one and a quarter to half billion for a new fund. Uh, FTX is putting capital to work. You're putting capital to work with some middle-aged partners. Can you break some news for us?

Yeah, I, I—we were together just, I always want to break some news. Yeah, I mean, it is a bit—I hadn't announced this yet, but I recently became an Emirati citizen. I'm very proud of that. Um, that's a very enlightened part of the world. Uh, 50 percent of the management there are women. I'm a huge supporter of women entrepreneurs. They're very advanced on their thoughts on crypto, particularly Abu Dhabi, the ADGM.

In order to work freely there, it's better to go through the scrutiny of citizenship, which is a heavy scrutiny. If you've had anything that didn't work out in your past, they're going to find it, but the point is I've gone through that gauntlet for one specific reason. I'm also launching a new fund. It's called Cipher; it's only Web3. My lead investor is from the United Arab Emirates. There's a tremendous amount of capital and interest there to invest in this space.

Um, and you know, in managing the decisions on which projects to invest in, because I'm very fortunate, my deal flow is insane. I see everything, and I have to disclose I'm a paid spokesperson for, uh, to FTX and a shareholder there too because we mentioned them, and I’m a big advocate for Sam because he has two parents that are compliance lawyers. If there's ever a place I could be that I'm not going to get in trouble, it's going to be at FTX.

So, you know, they're great people, but he gets the joke on compliance, which is why he's working so hard to get regulation. But having said that, um, picking those projects is really an interesting job because I look for utility. I'm looking for—I think Jeremy mentioned in his keynote—we've got to get away from the speculative price of an asset here. We've got to find reasons that this gets embedded into the economy.

And so I'm interested in solutions to, you know, how do we make a blockchain that can actually transact currency? You know, I'm very optimistic about what we've said about Ethereum, but I'm sorry, it's still too slow. And it—you couldn't do—you couldn't work within the currency market with that; it's just too slow.

How do you flip the switch? Most of the headlines remain very speculative, um, focused on that. How—what is the utility that you're seeing today you're willing to place money bets on?

You know, um, I think we're at a phase now where we stalled out. I talked about the price of Bitcoin; it's not—it’s not going to go over 22,000 until we have regulation. There's just no capital to move it. It's going to be stuck in this trading range 18 to 22 for two years until whatever the Commodities Acts get done or whatever, and you have to realize that.

Now I will say there's capital still going into Bitcoin miners because they're getting awarded coin at seven to eight thousand if they have scale, so it's still profitable. But nobody will fund the early miners that used carbon-based electricity, so those guys are screwed. It's too bad, but the new projects are ones that are using hydroelectric in places like Norway or solar. Or, um, so there's still—there's still places for capital to go to work, but there's a pause for policy.

And it's never has the anticipation been higher than it is now. Everybody is getting bored with the status quo, and the U.S. has to wake up and get its act together and start regulating this stuff. So I'm, I'm not in the camp that says we need to replace—you know, the original founders of crypto and decentralize and let's fight the government. Screw all that. That—we know that's not going to work, and we know that no one's going to make any money if that's the case; that's a bad outcome.

The better outcome is regulate the applications on the change that should be regulated. The policy exists for some of it. Put policy out on stable coins first. I hope that we consider Bitcoin and other token-based opportunities commodities. If there's, you know, if we’re going to fractionalize NFTs, maybe they're securities—all this stuff. But right now, what we have is turf wars—turf wars between the regulators openly declaring turf wars with each other. Right this morning on CNBC: "No, it's my domain!" "No, it's my domain!" Of course, they want to control it, but at some point, the role of the hill in Congress is to decide—make a decision.

It won't be perfect. In the case of stable coins right now, what held up that bill was the states; they're not happy. Well, tough! We got to get this thing done, and we got to move on. And, you know, we can tweak it, but it's very frustrating at this point. And I think I, I speak for a lot of people the same way from the institutional side. It's time to get our act together. We're going to keep losing talent; people are going to go work, you know, on some Caribbean island—not where they should be, in the United States.

This is very important stuff, and we shouldn't be losing our talent because we can't regulate it. That sounds dumb.

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