Dakota 2021: Blockchain Discussion with Dan Tapiero

If you missed the 2021 Dakota Conference (or you just want to revisit some of the great panels and discussions that were had), don’t worry. In addition to full, streamable videos, we’re sharing the transcripts of some of our panels so that you can read them at your own pace.

In this article, we’re sharing the full interview with Dan Tapiero of 10T. By the end of the article, you’ll have a clearer idea of where blockchain has been, where it’s going, and how your firm can prepare for what’s ahead.

An interview with Dan Tapiero

S2: 00:25

S2: 00:36

All right. Everyone, it's with great pleasure that I introduce Dan Tapiero. If you haven't heard about him, you're going to hear about him a lot going forward. He's really the preeminent investor right now in digital assets, blockchain. He'll get into it. But it's like I said, it's with great pleasure today. I think some of the takeaways, Dan, that we're looking for is this is an audience, a very sophisticated audience, where they have both their firms that they work for trying to figure out blockchain, Bitcoin at the same time. Everyone in this room personally is trying to figure out if I could zap my self back to 1995, how could I get into Amazon? How could it get into Netflix? Well, maybe 1997. But, right. So just to give you perspective, that's what we're going to talk about today is one of the preeminent investors. And Dan, welcome.

S3: 01:23

Thank you. Glad to be here.

S2: 01:24

Cool. Could you just give us a little background on yourself and formation of 10T?

S3: 01:29

Sure. But before I get into that, can I just get a sense for people in the audience here? How many own Bitcoin personally? Let me just see. Okay. That's pretty good. That's pretty good. How about Ethereum? All right. So there are enough people personally. And how about for your clients, or? Okay. So that's zero. Whoa. Whoa. All right.

S2: 01:55

These aren't allocators. These are more work for investment firms.

S3: 01:58

Yeah. But still, I mean, in a professional capacity, zero, so. All right. Well, 10T Holdings, I launched in 2020. We're a private equity fund. We focus only on mid to late stage companies, private companies in the digital asset ecosystem. So as far as I know, I think we're the first fund of this kind. All the other private equity funds in the space are really focused on early stage and VC seed and angel rounds. We only also focus on the equity. Many of the funds, again, very focused on all the different cryptocurrencies, also early-stage protocols and tokens. And this is a very fast-growing space. But I think we've carved out a niche, certainly one that I like, just coming from my background made the most sense for me.

S3: 02:55

I was in the macro hedge fund business for 25 years. During my career, I started working for Julian Robertson at Tiger in the early 90s, then went to work for Michael Steinhardt, and then Steve Cohen for 10 years at SAC, where I ran macro, ran my own portfolio, worked with Steve closely. Left Steve to work with Stan Druckenmiller at Duquesne, and then came back to Steve, and then retired from that business in 2012. And along the way, I also started two businesses, a little bit different for a portfolio manager, a classic sort of global macro hedge fund manager. I started one with Druckenmiller called AgCoA in 2006. By 2012 - that was a private farmland REIT - it was the largest private farmland REIT in the US. We sold it to the Canadian Pension Fund System, CPP, in 2013. And then in '08, '09, very worried about banking and potential systemic collapse, I was very focused on gold, started a physical gold company called GBI, Gold Bullion International.

S3: 04:01

And we sell physical gold, silver, platinum, palladium, but it's stored outside of the banking system. And that business now is the third largest vaulter of gold in the world outside of the banking system. I'm still relatively involved with that business. It was through that business that I was introduced to Bitcoin. In 2014, the gold business integrated with another firm called Bitreserve, which today is the Uphold wallet. Maybe some of you have your crypto on the Uphold platform. And we were the 1st place in 14 where you could buy and sell physical gold to buy and sell Bitcoin or Ripple. So that was my introduction to it. But at the time, it was only $10 billion in market value. So as a classic, as I said, global macro guy used to trading currencies that trade $5 trillion a day, Bitcoin was too small.

S3: 04:58

So I really sort of didn't really focus on it. It wasn't something I was that interested in, but it was on the radar. And then, it was in 2019, after the Bubble and then the collapse, that I really started to focus on it. And what happened really was I positioned in Bitcoin and Ethereum in my own entity, DTAP Capital, but then started to think about how else could I get exposure to the space in a different way. And it was sort of similar to the Ag BED that Druck and I did because we had done all the research, positioned in the grain futures, and had one of the largest positions back then in '06, '07, but then tried to think about other ways to express the BED. And AgCoA was one of those ways.

S3: 05:50

So similarly, after positioning a Bitcoin, Ethereum, I thought, "Okay. I've done the work. I've done that deep dive, the rabbit hole fall, which they all talk about, six months of 10 hours a day of reading and listening to podcasts." And then, I'm just sitting there and I'm thinking, "Well, what else can I do?" So 10T came out of the desire to own some of the businesses in the space. And I'd seen with AgCoA how in '08 every asset in the world got crushed except for bonds and farmland. Our portfolio ended up being up 2 or 3 percent in '08. So I thought, "Okay. Bitcoin has had seven drawdowns of 70% since inception." I can sit through that, but how maybe I don't need to. So we started looking at a basket of the companies. Again, these are what we call picks and shovels types businesses. And actually found that in '18, the companies actually didn't mark down that much.

S3: 06:59

They actually maintained their value pretty well, even though Bitcoin had dropped 80% and Ethereum, 95%. So anyway, that was a light-bulb moment for me. And we started in-- I guess, we were supposed to launch in April of '20 and COVID hit, of course, and then we sort of, I think, grew into sort of a new model of certainly a fundraising where we could do a lot very quickly on Zoom. And that's benefited the fund, and we launched at the beginning of the year. And this space is-- should I keep going?

S2: 07:37

Well, let me just ask one quick question. So you raised 750 million between two funds almost simultaneously and co-invest. Walk the group through, because we'd really like to understand what do these companies do from a sort of broad perspective and why is it attractive to be investing in them? And where do you-- I've told everybody, where do you handicap the internet days if you would do a proxy?

S3: 08:01

Yeah. I mean, I think--

S1: 08:04

And then talk about how you get to 10T.

S3: 08:06

Okay. Yeah. Well, no, that's going to be wrong now. Yeah. The companies that we wanted to invest in broadly were in three buckets. One is digital asset ecosystem gateways, then we have next generation financial services, and then blockchain infrastructure businesses. And I thought, "Look, I just want to use the private equity structure to build a macro portfolio that it's going to benefit from the winds that are at our back." And I looked broadly at the development of the internet. And in 1996, 1% of the world had internet access. And as of about nine months ago or so, 1% of the world had crypto wallets, had cryptocurrency wallets. And in fact, the adoption rate of crypto, it's increasing at a faster rate than the adoption of the internet.

S3: 09:06

But what we did is we looked out and we said, "Okay. How did the internet adoption-- what was the rate of growth over the following from '97 for the following 20 years?" And we saw that over the following 10 years, the adoption rate went up 15 times. So we said at the very worst, if the adoption of crypto is following the same trajectory, which sort of makes some sense, the space is going to grow by 15 times. And if we're wrong completely, maybe it only grows 5 times or 10 times. But still, we've got a wonderful chart in our presentation booklet, and I'm sure you remember that one because that's the favorite of a lot of our investors showing, again, how in '95, '96, '97, at that time of 1% internet adoption rate, you had eBay and Amazon. And if you'd held those for any period of time, I guess 10 years, you got a little hurt in the up and down of 2000, but.

S3: 10:07

So the types of businesses we invested in the first two funds were in those three buckets. And maybe names you know, maybe names you don't. Kracken and eToro, Huobi, Deribit, Ledger, Figure, Helium were some of the names. But in the gateways bucket, those are generally, I would say, fiat on-ramp, so wallets or gateways from what in the space we call the legacy world into the new world, the digital asset world. And again, Coinbase is probably the biggest American company. But understand this, and this is one thing that people here don't sort of get, which is that this is not really an American bet. This is not about the US. Only 10% of world volume is United States.

S3: 11:05

So I call this truly the first global macro investment of all time. We have 10 or 15 currencies that really trade in a liquid fashion. That's really about it. You have people in every country in the world with crypto wallets, operating nodes, you have miners all over the world. And I think it's just something to keep in mind. Our focus here is on Coinbase. And we own Kraken, which is the second largest exchange. eToro is also another - it's Israeli-based, actually - platform sort of like Robinhood that's been very, very successful. So that's sort of one bucket that we have. And the second bucket, next gen financial services are businesses that are growing up in this new digital asset ecosystem that, in a way, mimic a little bit what exists in the legacy world, but are in a different way completely different.

S3: 12:14

Ledn is a company we're looking at right now. They're a borrow and a lender. So just recently, in the last year or so, the borrowing and lending business on Bitcoin, Ethereum, some of the other cryptocurrencies has really exploded. So it's a little similar to the repo market, I guess, in the Treasury world, but not. So borrowing and lending has become a very big business. Growth rates have been astronomical, 20, 30 X from last year. So that's not 20, 30 percent, it's 20 to 30 times. So there are businesses, literally, that did not exist two years ago that are worth a billion dollars today. And they're substantiated by revenue. It's not some crazy multiple expansion. And then, the third bucket blockchain infrastructure, we have a bitcoin miner like Bitfury that we own 7% of that business. What else is in that bucket? Trying to think other infrastructure companies. Well, new ones that are coming up are Copper. They're building these digital rails that the new system is moving on. There're a range of new businesses.

S2: 13:32

Well, Dan, talk to us. This is what I-- so, number one, full disclosure, we do not raise money for Dan. I was introduced to Dan by our friend who's here today, Brian Rathjen, who did create a feeder fund for his first funds. But we were introduced in that fashion, so I'm just a personal investor. Talk about why-- again, this is going to sound like we're asking a barber if you want a haircut, as Alan Breed would say, but knowledge gap. You were telling me some stuff that-- this isn't like creating Amazon and Netflix. The level of sophistication these-- and it really is why you need someone guiding you to figure out what the right investments are because of the sophistication level.

S3: 14:12

Yeah. I mean, I've never seen anything like it. There's a huge generational gap here and I do think there's sort of a wealth transfer that's going on, but that's a separate point. The intellectual hurdle is just enormous. I mean, I didn't grow up as a internet native. I mean, I remember-- I mean, I wrote my high school history thesis in pencil, right, on paper. And these kids are very used to living completely online. And I think the average amount of time spent online is eight hours, I think, amongst 20-year-olds, something like that. So they're very comfortable moving and operating in this world. And of course, many of them very comfortable writing code. And it's just there's a level of complexity here that's just multiples greater than anything.

S3: 15:13

And it's almost impenetrable. I mean, on my team, I have a few junior partners and then five analysts. And the analysts are on their 20s and 30s. And I've never been in a position where I've had an analyst actually know more than me about something I was investing in, but you don't really have a choice. It's also because the space is growing so quickly that the NFTs, for instance, a year ago, were not even anything. Right? So there's an entire world that's grown up. The NFT volume, for instance, has gone up 100X from last year. And just think about all the businesses that have to grow up around that NFT world, whether it's exchange type platforms or businesses that are building those rails, servicing, it's all the middleware, it just doesn't pop up by itself.

S3: 16:14

And there's the whole ecosystem of businesses and companies. And we invested in one called Animoca, which it's in the first two funds, it'll likely be in the third fund. It's a portfolio of operating businesses and gaming-oriented companies, operating and portfolio companies. So for us, that's the sort of great diversified plan NFT on the NFT space. And in a sense, I'm trusting that CEO to make the right decisions. I mean, I think that's very important. These companies we're investing in, I really think are all budding conglomerates is how I see them. Once your business is at a-- we only invest in businesses with $500 million dollar valuation or more. And in the portfolio, we have 9 of the 11 that we've purchased are over a billion dollars.

S3: 17:11

So these are companies, again, already pretty established for the crypto world, already making a lot of money, and they turn into asset allocators in the space. So I can't know what every cutting edge development is taking place, but so we're betting on the bigger businesses with the smarter guys that have already figured out how to win. We're betting on them to also lead us into the future. So I'm doing my work, I'm relying on my analysts. Right? But then, we're also relying on the businesses that we're investing in to make those decisions about the future because-- and they have 500 people. Animoca has 500 people. Right? And the PhDs and engineers, and it's just-- I'm at a conference across the way called Mainnet, and it's normally called the consensus conference.

S3: 18:12

And literally, you can sit in one of those panels, they're 20-minute panel discussions, and not really know what they're talking about. And it's true, because there's a certain level-- I mean, you learn and you have to be very diligent. I think that's the real problem with this space is that it takes so much to get just a decent amount of knowledge. And I, frankly, feel a lot safer owning these businesses. Friends of mine are making 1,000, 2,000 times return on their early stage tokens. I mean, Solana is a cryptocurrency that just in January was at $2, and it's now at 150. And there are a lot of people who have made hundreds of millions of dollars in Solana. It's now, I think, a $12-billion crypto. It's up 70X.

S3: 19:11

And I mean, so my thought is, well, I don't really need to make 70X. We're shooting to make 5 to 10 X over five, six, seven years. And even that estimate has been completely wrong. I mean, Gui knows our first two investments actually went up six times in the first seven weeks after we invested them. So I never had a hit like that, and there was a significant amount of money invested. So getting to your point about 10T, we called the fund 10T because when I was thinking about this idea in 2019, the ecosystem was worth 300 billion. The whole thing, Bitcoin, Ethereum, all the cryptos, all the businesses in the space. And I said, "All right. I think this space can go up 30 times in 10 years," which took us to 10T. So I said, "10T in 10 years."

S3: 20:06

And what's happened is two years later, we're at 3 trillion right now, so 3T. And I think I'm going to be off by a huge margin. I was, last week, at a panel discussion and Dan Morehead of Pantera was one of the first VC funds and Marc Yusko of Morgan Creek were on the panel with me. And they said the last question, what is the ecosystem value five years from now? And Dan says 40 trillion. Okay. And Mark says 25 trillion. And I'm sitting here, of course, in my head just thinking, "Okay. Well, 10T, I don't know, it's only three times from here. I'm going to be the most bearish guy on the panel." And I've never been the most bearish guy on the panel. So I threw out 20T there as a number. But it's tremendous and I think that you almost have no choice but to engage with it. And I think if you're a professional money manager or just an individual investor, I think you really need to dip your toe in, even if it's just 1% or 5% or whatever percent of your portfolio, because it is the future.

S2: 21:21

Could you just make the one point about this knowledge gap between-- you started digging in a little about the boomers versus the kids, the 20 somethings. And you're saying that's kind of the problem is that boomers could get left behind.

S3: 21:34

Well, yeah. I've never seen such an investment that was so age biased. So again, I've spoken to hundreds of people about 10T, and I would say there's a distribution. I mean, people over 60 usually don't get it, aren't interested. for the most part. They think it's some kind of Ponzi or whatever it is. They just haven't done the work. And people under 35, on the other hand, intuitively know that this is the future and they've allocated to cryptocurrency way ahead of stocks or anything else. And I think as you go down in age, 50-year-olds are a little more open to it, 40, more. And I've just never seen anything like that. So unfortunately, I try not to do meetings with older people because it's too much to explain. But if they're crypto curious, then we have a shot. I mean, if they think-- if someone says-- then again, a lot of the large asset managers and fund managers and investors are older. So if there's an inkling on their part that something real is happening here, they just don't know what it is, we sort of take them through in an hour of our presentation. And I think we do a decent job of explaining what the value proposition is, not just of 10T, but of the space generally in English.

S2: 23:13

And one question one of you asked, and I'll just put it out there, they're saying how Jamie Dimon is kind of poopooing crypto. Could you maybe comment on that? Where do your investments in the platforms relate to a JPMorgan? And where do you think that's going?

S3: 23:30

Well, I mean, Jamie, I think it was two years ago, came out very negative and said he would fire anybody, whatever it is. And then I think a year later, he sort of walked that back. So in the middle of last year, he started to walk that back. But what he doesn't say, okay, and this, I'm sure very few people know, is that JPMorgan has the greatest number of blockchain patents in the world. So he has people underneath the hood there in his tech and research departments that he's not aware of, or maybe he is aware of them, I have no idea. But they're number one. So they've been trying to figure this out and they've been involved, they've had their own coin. I think this is a-- you hear this word disruptive, but, I mean, it's massively disruptive to JPMorgan's business.

S3: 24:25

You're earning 0% on your cash in JPMorgan, very easy if you own Bitcoin or even a dollar of stablecoin, which is a digital representation of a dollar, you can earn 5, 6 percent relatively easily. And if you look at a company like Gemini, for instance, which is owned by the Winklevoss-- we're actually going to be the largest investor in their new round. That's not public yet, but we're the largest investor. And you look at that business and I think, truly, they're building the Morgan Stanley, JPMorgan of the future. And they've got 10 or so business verticals and one of them is providing yield on your cryptocurrency or on your stablecoin. So I think there is some world where a lot of these deposits that are stuck in the traditional banking system, and again, not just in the US, in search for yield will move into the digital asset ecosystem, so.

S3: 25:26

And you may say, "Well, why is there the opportunity for yield there?" It's because this space is capital starved and anyone is happy to pay 4 or 5 percent, I mean, or 10% for money because the growth is just insane. I mentioned Solana just as one example, Kraken, the company we bought, as another example. There's just so much growth that even to pay 4 or 5 percent for a year is kind of ridiculous. Right?

S1: 25:59

We've seen that. We saw that on our prep call. We talked about a bank in the Midwest is losing deposits on a quarterly basis going to crypto exchanges.

S3: 26:06

Is that right? Which bank is that?

S1: 26:07

And now-- I don't want to say the bank.

S3: 26:10

Okay. But what state is that? That is really interesting? Wyoming?

S1: 26:12

I won't say the state, but--

S3: 26:14

That is really interesting. First time I've heard that.

S1: 26:17

Yeah. No. I thought we talked about it on the prep call. But the bottom line is, they need to address crypto for their clients, otherwise the clients are vacating and going to crypto exchanges because they want to be involved.

S3: 26:28

Yeah, I mean, I'm not as focused on that. I mean, as I said, this is the first time I've heard that, but it makes a lot of sense. I think actually, that's connected to what I think is sort of the single most important question that I think every investor has to answer over the next 10 years. And that is-- especially traditional investors who own 30, 40 percent of their portfolio is still in bonds. The 60, 40--

S2: 27:00

Talk about your --

S3: 27:01

--70, 30, well, right.

S2: 27:03

Death of the 60 40, perhaps.

S3: 27:04

Yeah. I mean, I think it is. And I think it worked wonderfully from 1981 until relatively recently. Every time you had a little wobble in the market or the economy slowed, your bonds kicked in and saved you. And that's wonderful. But at a 1% rate and in real terms, everything is negative. Your purchasing power is being eroded massively. So at some point, institutions are going to have to-- pension funds, insurance companies. We actually have one pension fund that made a significant investment in 10T. But they're going to have to, I think, move out of bonds 1% and negative real yields. And there's not really that much alpha out there. The hedge fund business, I think, is in a way a little bit moribund. I mean, the top 1% of guys, I think, will always make money, but it's a very hard business.

S3: 28:04

And there's just gigantic alpha in the space, but, again, there's a very high hurdle to figuring it out. And you really have to be with--

S2: 28:14

Well, Dan, let's bring the-- well, I do just want to just-- because Dan brought this up, it's that high hurdle to figuring it out. And again, it's like asking a barber for a haircut, but at the end of the day, you need a guide, basically is what you're getting.

S3: 28:26

Well, I mean, I don't want to get up here and say, "Yeah. I'm the guy. Everyone just give me all your money."

S2: 28:28

I understand. How do you bet the race? How do you handicap it correctly and bet it correctly?

S3: 28:33

Right. So it depends, again, what you're looking for. A lot of the-- a lot of people who are looking for the home run bet are in these VC funds. And you have Andreessen, but they're closed, and Pantera and Polychain and ParaFi. And they're really in the weeds and they're in the nitty gritty, dissecting the code and looking at which protocols are better and which ones are going to grow up. But I think many investors really want to understand what they're investing in, especially if it's large amounts of money. And I think right now, we're the only ones that are focused on these mid to late stage companies. And we write 50-page investment memos explaining why we're investing in the company and what the company looks like underneath the hood. And, Gui, you've sat through a few of these presentations.

S3: 29:27

So I think it's just easier to have your money in a business that you see is producing revenue that is leveraged to growth in this space. And you might give up some upside, but again, we're looking for 5 to 10 X. And I think if we made three times our money over the next six, seven years, it'll be a total failure. I mean, I'm not kidding. I've never been in a business or an investment where I have said that. But the reality is I've been way too conservative generally. And I think we provide a good diversified exposure to everything that's growing in this space. I don't know why we're the only ones. I'm a macro guy. Why would I be the only guy? I think you'll have other people focused on it. You do have firms like Tiger and Coatue that have gigantic private equity growth equity presences. And they come into the space every once in a while and make a few investments, but they're not focused exclusively on the DAE like we are.

S2: 30:34

Gotcha. So just moving to questions from the crowd. So I want to make sure we give an opportunity for anybody to ask questions.

S3: 30:40

Might be virtual questions, but once again, technology is getting the best of me.

S4: 30:42

I was wondering if the SCC is going to handle the problem with the banks losing deposits for them?

S3: 30:49

Yeah. So the number one question that comes up every time in every meeting I've done is about regulation and is the government going to ban it? And again, I say, well, which government? If the US, I don't think you can ban it because it's completely decentralized. But if they were somehow going to ban it, I don't think it would really matter because the US is not really relevant here. We're actually in a position now where I'm afraid we might be falling behind in terms of our ability to innovate. So I think at some point, the US will come around. It's very slow and, again, there are older people who are used to the existing framework. So I don't really-- I think these are speed bumps and you have lots of nuggets in the press.

S3: 31:48

But look, it's really important to understand that Bitcoin itself, at least in my view, is an invention akin to the invention of the combustion engine or something like the discovery of electricity. And I say that because-- and Gui's heard me say this, because the eight-page paper that explains how bitcoin works, the white paper that Satoshi wrote, is a solving of a math problem called the Byzantine Generals Problem that had been unsolved for hundreds of years, and it's the problem of distributed trust. So it's how do two counterparties trust each other without an intermediary? So the math of that, okay, was not figured out until this paper. There's a 30-year timeline of cryptographic and scientific research that came before the writing of this white paper.

S3: 32:40

So this is not some hooey-falooey, internet, funny thing moving around this and that. This is one of the-- it's probably the greatest financial innovation since the war, and the US is just a joke. And it's terrible because we have been at the forefront of innovation in technology and in finance for the last 40 years. And if you think about like look at the mortgage-backed market in 1980 or '81, we invented that. Right? And I think it's very similar. It feels very similar like the mortgages in the early-- I mean, the DAE space does, where you had rocket scientists from MIT going down to Salomon Brothers coming up with these things. So it's just unfortunate that the US has taken this position or these regulators have decided to, I think, not really do their work, not really understand the importance of it, and they could.

S3: 33:45

I'm at this conference, I didn't see anybody from the US government there. They should have had 100 people there. But other places like Singapore, even Germany has more node operators. Those are people who are validating transactions on the platform. Germany has more than the US. So I think that the question of regulation is less relevant to the big picture. I think it is relevant to what happens to our future in this world.

S2: 34:22

More questions.

S5: 34:24

Do you have much to say about the proof of stake and proof of work?

S3: 34:30

Yeah. I mean, proof of work is the algorithm that is behind the Bitcoin network, and it is energy intensive. There have been hundreds of papers written by guys 100 times smarter than me showing why it's not a threat to our existence. I know people continue to come out against it and mentioning this. I think the proof of work algorithm is actually very important because it's part of what contributes to Bitcoin's rarity. And again, Bitcoin is proof of work. All the other cryptocurrencies are derivative of the Bitcoin code. So Ethereum is proof of work, but it's moving to proof of stake. The reason that you would want proof of work is because the security of the proof of work algorithm is bulletproof. And Bitcoin has never been hacked. It cannot be hacked. It would be impossible to. No government, no person. And again, why is sort of a longer conversation.

S3: 35:36

Proof of stake has less of an intensity on security. But that's okay because there are many use cases that don't need the intense security functionality of the Bitcoin network. So as an example, you don't need Bitcoin to buy a cup of coffee. Right? Because you buy a cup of coffee, it's slower processing, you may get 5,000 confirmations. When you do a trade, you don't need 5,000 confirmations on the trade to buy coffee. However, if the Federal Reserve is going to send $100 billion to the Bundesbank, right, it can do it in virtually in seconds for a very small amount of cost on the Bitcoin network. Right? The Bitcoin network is for large transactions, and that's why people say it's more of a store of value. Proof of stake is for all the other functionality. So there aren't as many confirmations, and then all the different iterations of proof of stake is just too long to get into. But there are a lot of use cases that don't need that strong security, so.

S2: 36:54

Thank you for the questions, everybody. More questions?

S6: 36:56

How is the success of the industry?

S3: 37:01

So, I mean, that's a great question. We, of course, have a panel on that in her presentation.

S1: 37:09

My bad, sorry.

S2: 37:09

All right, then.

S3: 37:13

Yeah. I think, look, there was a point, even two or three years ago, where people were saying, "Oh, Bitcoin can go to zero." And I thought, "Well, there's a zero chance, zero, that Bitcoin would go to zero if you know what you're talking about." So I think that, look, Bitcoin is core to this ecosystem and Ethereum is becoming even more core and the world is, I call it, broadening and deepening the DAE World. But just as an example, I mean, Bitcoin went down 50% this year from its high, and it had no impact at all on the businesses that were buying. And as I mentioned before, in 2018, when you had dramatic collapses, a basket of companies would have broadly maintained its value. So for me, that's sort of the exciting thing.

S3: 38:12

I can be long the single greatest performing best asset in the history of the world. I mean, Bitcoin up 250% annualized for the last 11 years. There's no asset that's ever done that. And I can be long the upside without having to deal with those seven corrections of 70% or the 50% drop or any of that. And maybe we don't do 250% annualized, but so what? Is my feeling. I don't even look at the price. For me, Bitcoin at 30,000, 40,000, 50,000, it's all the same price. Bitfury, the miner we own, breaks even at 14,000. And one of the miners they own, which is Cipher, they own 70% of the second largest-- will be the second largest US miner, their break-even is 3,000 bitcoin. So this is all gravy up here. And I'd say the same thing for Ethereum.

S1: 39:11

A great question, though, Dan.

S7: 39:14

You mentioned proof of stake earlier, some other attributes that you'd look for in protocols. Is there a commonality among the protocols you guys evaluate that are underlying the businesses you invest in?

S3: 39:24

No. No. So we look at these businesses from a traditional perspective. Are they making money? Do we like their vision? Is the CEO credible? What business are they in? Do they fit one of our buckets? So these are things that people can understand. I am not looking at the difference between Polkadot and Chainlink. It doesn't matter. I'll give you an example. Kraken, which is an exchange that we own, mentioned before, is a play on all of them. Dogecoin, which I think is completely worthless. Kraken made a huge amount of money in the first quarter on the Dogecoin move. So this perfect example of a company leveraged to all of the activity in the digital asset ecosystem. And that's what we want. We want to be leveraged to everything happening. Things are changing so quickly, I'm not going to know which protocol is going to do better. I mean, Solana's exploded this year, but maybe there's a world two years from now where there are 10 things that are better than Solana. I just don't know.

S2: 40:40

But you're a trader, should you be trading these know? You said 30, 40 thousand doesn't matter.

S3: 40:43

Yeah. No. Please don't trade this. Please don't.

S2: 40:45

Okay. Good advice.

S3: 40:47

Yeah. Please don't trade this.

S2: 40:48

Buy and forget about it.

S3: 40:49

Yeah. Again. I've traded a lot of things and this is one thing you do not trade. You decide what you're going to allocate and you come back five, eight years from now or you have some target. This is going to push you to your grave early.

S2: 41:07

A lot of things --

S3: 41:08

This is the one thing, I don't even trade it. I think it's dangerous. Again, I've had a lot of experience trading and I wouldn't trade it.

S2: 41:18

That's good advice. Any more questions? Because I have questions first to the audience, but there's one term I think we should all talk about and be aware of, and that's DeFi. This all wraps into DeFi, and we're all going to hear that term a lot. So can you give us an elevator speech on decentralized finance?

S3: 41:36

Yeah. I mean, DeFi, it's the world where there are no centralized organizations that interact with your trading. So I don't think most people will ever be involved with DeFi. DeFi, to me, you'll go to your Coinbase account, and then Coinbase's market makers or system will plug into this DeFi world. It's sort of like if you traded Treasury bonds years ago, you'd call Morgan Stanley, but then Morgan Stanley would go to Gaban or Cantor Fitz or whoever it was. So DeFi is a lot of things, but I mean, to understand conceptually, it's this network of automated market-making platforms that are all integrated with each other. Some are integrated, some are not.

S3: 42:35

So there are platforms like Aave, which focus on borrowing and lending, and you interact directly with that platform, but no one actually controls that platform. There's no CEO of that business. It just operates on code. So that is something sort of hard for people to get their minds around. But this is a world where people are banking themselves. Right? There is no person. There is no person to call. There's no bank. People have their own wallets and usually they have a cold storage wallet, which is like a ledger, which we own 12% of that business. Or they have a hot wallet, which is left on the exchange, which is not really recommended. But it takes a lot of work to be involved in DeFi as an individual. Getting on to MetaMask and figuring out how to move your crypto from your ledger to MetaMask and then executing across other platforms, I mean, it's not for civilians, is what I would say at this stage.

S2: 43:51

You mentioned 10% of the action is in the United States. So there's the ESG component with energy consumption. Let's talk about the ESG component that we are bringing banking to sub-Saharan Africa, bringing banking to a large portion of the globe that has no access to standard banking, whether it's through stablecoins or anything like that. And there's some power to that.

S3: 44:12

Yeah. I think there's huge power. And that is the theme or meme is banking the unbanked. And there's a huge percentage of people out there in the world, you'd even be surprised in Latin America, that don't have bank accounts. And I think it's 30 to 40 percent in places like Brazil and even Chile and Mexico. I mean, the numbers are huge. So there are businesses that are growing up that are just servicing almost single countries. There's a business that we were looking at called Abra, 40% of their business is in the Philippines. I mean, people in the Philippines love using the Abra platform. And I'm not exactly even sure why, and I'm not sure they even know why, but it's taken off. So they push resources out there. And the next thing, you know what? They're in Laos and Cambodia and Vietnam.

S3: 45:13

So also, the Asians are very facile with technology. They always have been, they are. It's not a racialist comment or whatever it is. It's just the truth of it. And a lot of the volume, of course, is Asian. When you say the US is 10, a lot of it is Asia, but then it's spread out across the world. So I think, again, thinking about the US, we have lots of banks. I mean, we're over banked and people don't worry about the value of their currency. These are countries where every 10 years, the currency goes down 90%. So we've never had that problem and I don't suspect we will. We have a problem that our cash is worth nothing or negative. That's our problem. But maybe that's not enough to get you out of bed to spend six months figuring out MetaMask, right?

S3: 46:09

But the Filipino guy, who now has the ability to do play-to-earn on Axie Infinity-- so you can play-- you have 19-year-olds playing video games and earning money playing video games. This is very new. Hundreds of thousands of dollars playing video games. And again, how that's done, I want to put that for another day, but. We own a piece of that business. But it's a whole new trends. So it's not just banking the unbanked. It's that there are a group of people, let's say under 30, who have only known a world where the internet has existed. So for them, it's very natural to make a transition. You can be a person, as you said, in sub-Saharan Africa, you're 25 years old, you put your savings into Bitcoin. All of a sudden, it's gone up 8X. Then you figure, "Hey, I can stake some of this bitcoin here. And you know what? I'm going to earn a 7% yield." And all of a sudden, it's the farmer in Nigeria with his crypto wallet. And I think that that's really underappreciated. I'm glad you brought that up, because that is world changing. I just don't know-- we're so insular here in a way. You wouldn't think it, but--

S2: 47:37

Well, Dan, you just did have an event, which is kind of-- I think what everybody's thinking in this room a little bit is, when did the institutions start committing capital to these companies, these platforms? They're profitable. They have revenue. They're profitable, obviously, like Gemini. You don't need to speak specifics, but you just received for fun too, I believe, a pretty significant commitment from the State Pension Fund.

S3: 47:59

Yeah. I mean, I can say it publicly because they've said it's okay and it was reported. It was the state of Michigan, Mercer, their employees workers pension fund. And I think it's the single largest investment in the fund. So you can sort of take a guess.

S2: 48:23

And it wasn't Dan that cold called me. It was a referral to a friend, right? I said you should talk to this guy.

S3: 48:27

Yeah. It was a referral for a friend. And as far as I know, it's one of the first big pension fund allocations. And believe this or not, they turned around in three weeks to make the decision, which I was told-- I've never gone out there and raised money really before this, so I never knew that pension world. But apparently, it's a world record in terms of--

S2: 48:51

Yeah. Don't get used to that.

S3: 48:52

No. I know. I'm not. But the thing is --

S2: 48:56

So what drove that? I would say, what drove them to go with 10T versus on their own?

S3: 49:00

Well, on their own, they don't have the expertise, even the guy who made the allocation. I think they've been looking for two years for a way to get exposure. And when they started looking, Bitcoin was probably at 4 or 5 thousand. So they see it going up, they see Ethereum up 20 times, and they just can't get comfortable with a direct allocation. They can't get comfortable in the VC world because they don't really understand any of that. And it's also more speculative. It's a different business model. It's invest in 10 companies, 9 go to zero, and 1 is Google. And you can put a little bit there, but you can't really allocate big dollars. And we can put quite a lot of money to work, and we will in the future. I mean, I think that was sort of attractive for them, that we could put a lot of money to work.

S3: 50:00

They read the investment memos, they understood what we were doing, and there's no one else doing it so they rushed. I said, "Look, we're going to close and every day we wait, every week we wait, we're missing opportunity." Look, when I launched the fund, I said, "We're going to invest the money over the first 12 to 18 months." And what's happened is we've invested 80% in the first 6 months. And it's not because I was necessarily needing to work at that breakneck pace, but the opportunities are there, the space is capital starved, we're one of the few people in this part of the capital stack, again, looking at BC and later rounds and companies over 500 million. And it was just English. I mean, I've told you this before, I think my role in this space is more of a translator translating what's going on here into English for people from the old world to invest. I mean, the investors are all people who are my friends or from my network from my business role for the last 30 years. So they don't care about the difference between Polkadot and Chainlink and they don't need to make 1,000X. Right? They know that there's something important here and they need some exposure, even if it's a few percentage points.

S2: 51:26

Sure. Makes sense. Chris?

S1: 51:29

No. I was just good to say, I mean, this has been hugely beneficial.

S2: 51:31

But do you want to just-- one thing, it's very topical in the press a lot because I do-- you touched on it, ESG power of computing to mine the Bitcoin. Could you just comment on that? Like, how?

S3: 51:42

So I don't usually talk about that because I don't think there's a lot of validity behind that. Yeah. I mean, literally, you can go to our website and-- so there are five questions that I get asked all the time in the space, they're called FUD, which is fear, uncertainty, and doubt. And those are the five questions that keep people from investing in the space. And one of them is this question on energy and energy usage. And we have five papers that were written on our research site that completely debunk that fear. So it's the same thing, like, can it be banned? That's another one. So I don't address it.

S3: 52:36

Look, the short answer is there's an economic argument that is-- there are a lot of different arguments that are made and it's been debunked from a lot of different angles. But the one that I think of most is sort of just the straight economic argument, which is that if you look at how much energy is used by what the digital asset ecosystem is replacing, every building of every bank, every wire transfer, every piece of energy used to run the entire global banking system, it's multiples of what's used to mine just Bitcoin. And again, it's been years and years of people getting hit with that question. And I don't speak on only because the guys who have responded are really-- yeah.

S2: 53:29

No. Makes sense.

S1: 53:31

Well, Dan, I wrote down-- we were going to do a speed round, but, literally, all the concepts I had in speed round were covered from our questions. I'll just conclude my thoughts. I remember when Netscape came public and people were like, "Why you just couldn't--" All the folks, probably in their 50s and 60s that said, "Let's short that," and then wound up probably going six feet under. Not too dissimilar from this whole universe. I think people want to be like, "This is called Fusion. Oh, you're the one that bought it at 80,000 and it went to 0." And from all the dialogue we're having unsolicited in our morning panel, people brought up crypto. I think it's here. It's here to stay. It's just a question of how do you--

S3: 54:04

Well, the Netscape moment, really, I think was Coinbase. For Americans, the Coinbase IPO is sort of equivalent. I mean, it's unbelievable, the SEC clamped down on Coinbase because they were going to offer a product that offers yield. And I think there's major panic. And I think they said they were going to sue Coinbase. This is just this week. And Coinbase, yesterday, came out and said, "Okay. We're not going to offer this yield product," but everyone else does and they're not clamping down on everyone else. So you can see just how bad our regulators are. I mean, they specifically focused on Coinbase because they have I don't know how many wallets now. It's got to be 40, 50 million. And maybe they're afraid that there's going to be a wholesale exodus of the banking system.

S3: 54:58

And I would say, "Look, the free market is working in the digital asset ecosystem. It does not work in the old world." There's intervention all over the place, authorities buying bonds every day, there's currency interventions. It's completely massaged. Right? So this is money and wealth wanting to be free. That's what this is. And it's a wholesale redefinition of value. We didn't even get in to sort of the technology of this whole thing, because blockchain technology, which is the technology that powers the Bitcoin network, is being applied across a whole spectrum of businesses. And there will be a day where everything of value-- so call it $500 trillion of assets out there, but everything of value will sit on a blockchain somewhere and live in the digital asset ecosystem, and it will be fungible with each other.

S3: 56:05

Which means you'll have your phone, you'll go to the store, let's say you'll go to the car dealer, you're going to want to buy a car, and you'll be able to sell a piece of the value of your house to pay for the car, and it'll be instantaneous. All value that you own, your paintings, your stocks, your crypto, your everything will be there and it will be fungible. All contracts. Right? Because Bitcoin, in a way, is to me a truth machine. It can't be altered. So once it's on the Bitcoin network or a crypto network that is focused on security, it can't be changed. It's there. Ethereum is a smart contract platform. You're already seeing many different types of contracts go back and forth on the Ethereum network. So, yeah. I just think we're, unfortunately, a little behind here, but--

S2: 57:09

Well, Dan, this has been completely illuminating, I think, for everybody. You've been called right now the Mick Jagger of blockchain, if you will, from a standpoint.

S3: 57:17

Oh, really? That's the first I've heard of that. My goodness.

S2: 57:20

Because you're, well--

S1: 57:23

You're getting your own walk-up song.

S2: 57:24

He's getting a lot of requests to come speak, and he was very kind to come speak with us today. So we can't thank you enough, Dan.

S3: 57:29

Thanks. Great to hear.

S2: 57:31

Unbelievable stuff. Thanks so much.

S3: 57:32

Thank you.

S2: 57:33

We appreciate it.

S1: 57:40

Great. Thanks, Dan. I think we're going take just a quick few minutes break.

S2: 57:43

Stage back together.