Spencer Bogart on the $20 Trillion in Store-of-Value Assets

Blockchain Capital: https://blockchain.capital/

Spencer Bogart: https://twitter.com/CremeDeLaCrypto

Unchained interview with Brock Pierce: https://unchainedpodcast.com/this-vc-is-sure-venture-capital-is-about-to-be-disrupted/

BCAP Q2 Nav: https://blockchainloop.com/blockchain-capital-releases-q2-2019-bcap-token-nav/

Upgrading of BCAP to Securitize platform: https://www.globenewswire.com/news-release/2018/09/04/1565117/0/en/BCAP-Tokens-to-be-Upgraded-Utilizing-Securitize-Platform.html

Funding of Securitize: https://www.coindesk.com/coinbase-backs-security-token-startups-12-75-million-funding-round

Blockchain Capital’s fourth fund: https://www.prnewswire.com/news-releases/blockchain-capital-closes-fund-iv-at-150-million-300617495.html

Story about Blockchain Capital trying to separate itself from Brock Pierce: https://decrypt.co/6876/is-blockchain-capital-trying-to-scrub-co-founder-and-mighty-ducks-star-brock-pierce-from-its-history

Interview with Brock Pierce in which he describes leaving Blockchain Capital: https://hackernoon.com/brock-pierce-interview-tales-from-the-bitcoin-floor-e479693a49bd

Lightning Network statistics: https://bitcoinvisuals.com/lightning

Tweets from LNBig on how they earned $0.10-$0.30 a day on Lightning fees: https://twitter.com/lnbig_com/status/1163055682964348934?s=20

https://twitter.com/lnbig_com/status/1159538637597487104?s=20

LNBig on how they spent $1,000 or so to open their Lightning channels: https://www.reddit.com/r/btc/comments/bxh0ny/lightning_network_capacity_takes_a_sudden_dive/eq9x4i9/

Profitability of running a lightning node: https://www.reddit.com/r/Bitcoin/comments/a9dmzw/how_profitable_is_running_a_lightning_node/

Letter to the SEC: https://blockchain.capital/examining-bitcoins-valued-attributes-a-letter-to-the-sec/

Blog post about Bitcoin’s likely dominance: https://blockchain.capital/the-past-future-of-blockchain-where-were-going-and-why/

Spencer’s Reddit post with questions/concerns about MakerDAO: https://www.reddit.com/r/MakerDAO/comments/asb9n6/a_couple_questions_concerns_about_maker_and_mkr/

+ tweetstorm: https://twitter.com/cremedelacrypto/status/1103428046621618178

Transcript:

Laura Shin: 

Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I’m your host Laura Shin. In case you haven’t heard, I have another crypto podcast called Unconfirmed. It’s shorter, newsier, and comes out Fridays. If you haven’t yet, go subscribe now where you get your podcasts. Also find out what I think are the top stories in crypto by signing up for my weekly newsletter at UnchainedPodcast.com. 

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Laura Shin: 

My guest today is Spencer Bogart, General Partner at Blockchain Capital. Welcome, Spencer.

Spencer Bogart:

Hey, Laura.

Laura Shin:

Tell us about your history, what you were doing before you worked at Blockchain Capital, how you got into bitcoin, and then how you came to work at this VC firm.

Spencer Bogart:

Sure. So before I joined the team here at Blockchain Capital almost three years ago now…two and a half, three years ago, I was doing what’s called sell-side equity research. So that meant I was covering about a dozen companies that were in the SAS and internet space, so companies like Salesforce.com and LinkedIn, and I’d follow their earnings reports, track their progress every quarter, and publish research for buy-side clients, so hedge funds, mutual funds, et cetera.

And you know, in 2015, started to realize that my passion, everything I was spending my personal time on, was kind of crypto and blockchain related, and in 2015, you could start to see the intersection where this was going to start to make more sense for a mid-sized investment back, like a Needham & Company, which was my employer at the time, to be able to start writing some research on this, and so, in 2015, I published the industry’s first Wall Street industry report covering blockchain technology.

What is it? Who are some of the large players in the space? Where can we expect disruption in terms of traditional financial services? And then parlayed that into covering bitcoin as an asset, to putting out price targets, talking about what’s going on in the network, hosting quarterly update calls, et cetera, and then in late 2016, so after about two years of doing that, realized that the industry was moving at such a rapid clip, that there was no way to truly excel at it without fully specializing in it.

So, at that point, I was probably spending 70% of my time doing crypto and blockchain-related things, but I felt anything less than 100% was going to mean that it’d be difficult to excel. So decided to go full industry, and Blockchain Capital was a natural home. I’d already been working with the team off and on just bouncing ideas and trying to understand what I’m seeing in the industry and if it checks out with what’s going on with kind of the venture side, and so this was a natural place, and yeah, that was early 2017.

So, to answer your question about how I first got involved with bitcoin, actually, I have to jump back to one prior employer, which was a startup called ETF.com where we built a first-of-its-kind analytic service for understanding ETFs, but we’d host a morning research call every morning to discuss what’s going on in terms of global economy and anything that could be related to anything in the ETF world, which is basically anything that’s relevant to the financial world.

And in one of those discussions, I think it was the day that bitcoin hit parity with one dollar, it came up as part of a news item. I was very competitive in terms of wanting to know more about everything than anyone else on the team, and so when I didn’t know about bitcoin at that point, I just kind of dug in head first, and you know, it’s so intellectually stimulating to learn about it, that, you know, it quickly consumed me, like so many other people that’ve entered the space.

Laura Shin:

Yeah, I feel like that’s my story, too. So one thing is, obviously, right after you joined, that was when Blockchain Capital closed its third fund, which was tokenized with the BCAP token, and for those people who don’t know, a long time ago, there was an episode about this, which I’ll link to in the show notes, but the BCAP token is an ERC-20 token, and you guys essentially offered that to accredited investors in the US. You raised 10 million. I think you also offered it to investors outside the US, and I was kind of looking around to see what data I could find on BCAP. The most recent thing I could find was, like, a Q2 NAV from July. So is there up-to-date data on BCAP, or is that kind of all there is, just these quarterly reports?

Spencer Bogart:

Yeah. Absolutely. So happy to dive into that topic. You know, I’m not the one that spends most time on BCAP tokens here at the firm, but I can definitely tell you that we do have a website that publishes a weekly NAV update. So, every week, we update where NAV stands based on any current marks in the portfolio. That is a website that, you know, we want to make sure that we’re very compliant, so we did that token sale under a Reg D and a Reg S offering. So, you know, that information is actually only available to current holders, but we have a website called Blockchain Loop, BLoop, and yeah, that’s where we publish all kind of updates for holders of the token.

Laura Shin:

Okay. Yeah, that’s where I found the NAV, too. So what is the token trading at now? Are you allowed to reveal that?

Spencer Bogart:

I’m not sure exactly. I try to avoid discussing anything since it does trade in the market, but it does trade on open finance, and you know, open finance is continuing to attract liquidity. So I think it trades more than probably any other security token out there on open finance, but you know, volumes are overall still growing.

Laura Shin:

And so, for the data issue, so is it essentially that that data is supposed to be limited to the limited partners and outside people can’t see that?

Spencer Bogart:

We just want to be careful to make sure that we stay in lines of regulation and that we never cross over into anything that could ever look like selling or promoting, which is the reason why I’m, you know, trying to make sure I strike that balance in this conversation, as well.

Laura Shin:

Yeah, I’m just trying to understand kind of like how security tokens work. So, in this case where you also sold to non-US investors, so if I was in Singapore or something where…at least from the last episode, your former partner Brock Pierce was saying there were some buyers there. Could people in Singapore easily see what it’s trading at, or yeah, just I’m trying to figure out how this works.

Spencer Bogart:

Yeah, 100%. So, I mean, you can go on Openfinance and see where things are trading. So anybody can go and do that. As far as our updates to holders of the token, again, that is held for token holders exclusively, but yeah, you can find that information on Openfinance and on Blockchain Loop.

Laura Shin:

Okay, and then so, for those investors, is that also the platform where they sell if they want to liquidate, or is that easy for them to do, or how do they do that?

Spencer Bogart:

Yeah, so they don’t sell through us. So all of this, like most assets kind of out there, that’s all facilitated by kind of third parties, so that’s entirely separate from what we do, but certainly, people can go and they can acquire tokens or they can sell them, you know, depending on their accreditation standard and where they reside on a platform like Openfinance, and then, obviously, there’s others that’ve been coming online that are facilitating trades, as well.

Laura Shin:

So the platform then kind of does the vetting to make sure that whoever’s trading meets the requirements? Is that it?

Spencer Bogart:

Yeah, exactly. So, in this case, we actually used a company called Securitize, in whom we’re also an investor, and they basically maintain a white list for who is able to hold the token. So if you can prove that you’re an accredited investor in the US or that you reside outside the US and are not an accredited investor, then you should be able to be added to a white list, which would allow you to kind of buy or sell tokens.

Laura Shin:

So then what is the benefit of doing it this way as opposed to the way that you would…like, I saw for your fourth fund that you didn’t tokenize the shares. So, you know, what do you guys feel like you learned are the pros and cons of kind of tokenizing the shares versus just doing it the traditional way?

Spencer Bogart:

Yeah, so the benefits are largely liquidity. So, you know, even at early kind of volumes that we have today, it’s still obviously an order of magnitude more liquid than a traditional venture fund where you’re locked up for 8 to 10 years, right? So at least you can find some liquidity in the market, should you decide that, you know, I either don’t like new things that’ve been added to the portfolio, or whatever, I need cash to be able to meet some liability. So that’s certainly an improvement.

You know, as far as doing our fourth fund the traditional way, you know, third fund was intentionally small, limiting it at a 10-million-dollar size. You know, institutional capital, so the types of LPs that we bring into our larger funds are not quite ready to hold a tokenized security yet, so we do that in a very traditional way, but you know, down the line, as the ecosystem, as the kind of security token ecosystem, if it continues to improve and evolve, then, you know, it’s something that we might redo again in the future.

Laura Shin:

Okay. Yeah. Yeah. So your fourth fund was 150 million, which, obviously, is much bigger than the 10 million, but essentially, it was sort of like the 10 million attracted investors who kind of wanted to be on the cutting edge, whereas the 150-million fund maybe attracted people or institutions that maybe don’t care so much about that, but just want exposure to this industry. Is that…

Spencer Bogart:

Yeah, exactly. The additional liquidity that’s offered by a token is not particularly appealing to the types of LPs that we bring into our larger funds, right? So, they’re, you know, totally okay with an 8- to 10-year horizon, right? So, you know, fund to funds, endowments, pensions, et cetera, the long-term lockup there is not any issue, whereas for a broader kind of investor base, you know, having additional liquidity is certainly beneficial.

Laura Shin:

So I realize you’ve only been around for the third and fourth funds, but in general, do you feel like you could characterize how the LPs of Blockchain Capital have changed over time?

Spencer Bogart:

Oh, yeah. Certainly. So it’s evolved from, you know, in fund one, largely being kind of industry insiders and people who are largely…you know, again, the idea there was what if you’re in the right place at the right time, but your company just doesn’t work out? So let’s help you get some exposure to other companies in the space, because everyone was obviously tremendously enthusiastic about the space, but everyone’s taking a lot of individual execution risk on whether or not their particular business ends up panning out.

So it was kind of a sort of diversification play there. Fund two started to go into more, like, high net worth and ultra high net worth individuals. I’d say fund three is a little bit of an aberration in terms of, you know, just a very diverse client set or LP base there, and then fund four is much more oriented towards, like, mostly LPs are fund to funds, large family offices, multi-family offices, et cetera.

Laura Shin:

Yeah, I guess, in a way, it’s obvious I guess that it would track kind of the way that the industry has grown, but I remember…because I think you guys talked about how that first fund, the LPs, were the entrepreneurs themselves. Like, I don’t know if I’ve heard of that before. I thought it was pretty novel. So then, you know, as you mentioned, you invested in Securitize, and I believe…did you also invest in Harbor? 

Spencer Bogart:

We did. Yes.

Laura Shin:

Oh, okay. Okay, and both of those are for security tokens. So, in general, what future do you guys see for security tokens, and what infrastructure do you think would need to be in place to make that an appealing option for you guys again?

Spencer Bogart:

Yeah, so, I mean, as far as it being an appealing option for us doing another fund, it really depends on what our target LP base wants, right? So, again, most of them, the additional benefits of tokenization just aren’t terribly meaningful for them right now. Now, do I think that, you know, in a few years, they could come around to appreciating that additional liquidity, even if they do have long-term time horizons the same way that we do? Potentially.

I think that’s an opportunity. You know, as far as the security tokens base overall, I think it’s still quite nascent, but as far as on the issuer side from higher quality institutions, we’re definitely hearing increased interest of doing things like commercial paper and other things that kind of have a blockchain backend. You know, again, our approach as a venture firm and for each of our funds is really to have relatively diversified exposure within the space.

So any major theme that we think can be relevant longer term, even if it’s going to take a few years to play out, that’s our time horizon anyways. So something like security tokens, again, we’ve made a couple of investments in that space, and it continues to be one of the themes that we kind of track, and we’ll continue to deploy capital if it seems more of an uptick.

Laura Shin:

So, like, is the main kind of innovation or appeal of security tokens just the liquidity, because…and I did interview Josh Stein, I believe is his name, from Harbor, and he even admitted to it. I was like, this doesn’t feel like the sexiest application of blockchain, and maybe I’m wrong, but correct me if I am. I guess my thinking is this appears to just take kind of like the same old securities with the same old rules and restrictions, but you’re just issuing them in a different form.

So it’s not that it’s more democratizing, and in fact, I wasn’t super clear if there was a difference from I guess Barry Silbert’s previous company, Second Market, where I know that, you know, it was possible to trade shares in private companies, which they did without using blockchain technology. So, yeah, it just wasn’t clear to me what exactly is the attraction for security tokens.

Spencer Bogart:

Yeah, and I think that’s fair. I think especially at this stage for the industry, it’s appropriate to be reasonably skeptical about the kind of proposition here. You know, again, internally, we all kind of focus on different things. I don’t spend as much time on the security token space, but I certainly think it’s an interesting opportunity longer term. I think that there are benefits in terms of additional liquidity, you know, in terms of having kind of 24/7 ability to be able to execute trades I think will become more appealing over time, and then, in addition, it’s just the potential for very significant expense reduction in terms of issuing and being able to transfer shares and be able to leverage a blockchain on the backend. Yeah.

Laura Shin:

So then, just generally for when you guys invest, obviously, this is a new world where you guys can have equity. You guys could have tokens, and I mean, broadly, that breaks down into a choice of investing in traditional startups versus in the networks themselves. So how do you guys think about that when you approach an investment?

Spencer Bogart:

Yeah, so we have, I guess relative to the industry at large, probably somewhat of an equity bias. We’ve had that through 2017, 2018, 2019, even as crypto assets themselves became particularly attractive or at least had some strong market performance or at least a lot of volatility. So, you know, typically, our first preference is to invest in equity of companies that are building around some of these public protocols, but sometimes the only way to participate in a particular network might be through a crypto asset kind of investment. So we tend to…we do both, but certainly have an equity bias.

Laura Shin:

And on the flip side then, in this world where entrepreneurs can raise money either from VCs or from the crowd in these, like, ICOs…or IEOs I guess are the trend now, how are you finding that they’re thinking about it, or if they come to you, you know, what are they looking for from VCs? Has that changed?

Spencer Bogart:

Yeah. Absolutely, and this was part of the catalyst to tokenize the third fund, was realizing that, in 2017…and again, we did that offer in early 2017, so before things got particularly crazy, but we started to notice very early on that some projects in the space were routing around the traditional venture investors and going straight to a large or broader, at least, investor base or purchaser base. So, you know, that was certainly part of the thinking in going ahead and doing the token offering.

But at large, I mean, in reality, most businesses, at least at this stage, probably should not be tokenized, and I think that for most businesses, like, probably 95% or more, traditional equity is going to make more sense, and so that’s overall what we’re seeing in the market today. It’s reflected in the deals that we see inbound. We certainly still see a lot of either new network launching with tokens involved or, you know, applications or things that might involve a token, but we’ve been much more hesitant on that front.

Laura Shin:

And is that because you have sort of like a general thesis that there will be just a few blockchain networks that succeed and then there will be more businesses built on top or something?

Spencer Bogart:

A hundred percent. So, you know, we don’t believe, necessarily…I mean, again, all of these are theses that evolve over time as real-world evidence kind of points one way or another, but certainly find it hard to believe that we’ll end up in a world with hundreds of really functional and well-used blockchains, and instead, think that things will consolidate towards…or at least I do think that things will consolidate towards, you know, 1 to 5 winners.

Laura Shin:

And why is that?

Spencer Bogart:

Overall because, otherwise, the network security starts to become very redundant. So what you really want is a really strong security, highly decentralized chain, and you can build kind of any layers of flexibility built on top of that. So a lot of this comes back to, again, some of the strong guarantees that are afforded by a well-distributed network, something like a bitcoin.

Laura Shin:

And then when you say you think it will consolidate towards just a few chains, will those chains be differentiated by function, sort of the way maybe now some people might say bitcoin is for money…the Bitcoin network is for money, and then the Ethereum network is for smart contracts, something like that?

Spencer Bogart:

It could be. Absolutely. I think that there’s a limit as to how specialized and niche these things can be. When you get into hyper specific use cases, I think it starts to become a little bit more challenging, but I think that’s a reasonable thesis and certainly one that we track. I mean, overall, if I think about kind of like where the industry’s come over the past couple years and where it’s going to, to kind of dig into that thesis a little bit more. You know, obviously, we had the wave of bitcoin first kind of rising in 2013.

People kind of…I’ll give you the really abbreviated version here, but then Silk Road happens. Price comes crashing down. Everyone enters this kind of blockchain, not bitcoin, phase. So this whole notion of private enterprise blockchains, and after several pilots and limited traction with any of those use cases, that was kind of set against the backdrop of 2016 and then into 2017 when bitcoin and crypto prices started to return and people realized, hey, these native assets are actually critical to protocols.

So, you know, just taking the underlying technology, stripping out the asset, and making it private actually removes most of the benefits and the things that actually make these networks function. So I think in 2017 then, especially with Ethereum storming onto the scene, it led to this newfound enthusiasm among investors at large that, you know, you could have kind of a plethora of large public blockchains with native assets.

And I think that that helps describe a lot of the boom that we saw in 2017, and in general, I would describe that as, you know, the industry kind of looking at it and saying, hey, what are the odds that the 1.0 version bitcoin here is actually going to be the real winner, and let’s see how many different fronts you can optimize on to see if anything can surpass something like a bitcoin, and so far, that has not proven out.

And I think that that thesis at large will continue to be challenged, and as a result, that we’re going to see a lot of that activity. So I describe that as kind of horizontal building will shift to vertical building. So I think a lot of it will consolidate to activity that’s either on top of a Bitcoin, on top of an Ethereum or both, and you’re going to see, again, development up the stack as opposed to across and horizontal.

Laura Shin:

So, actually, to make sure I understood, so in the case of 2017 where there were a bunch of initial coin offerings mostly done on Ethereum, are you considering that vertical or horizontal growth?

Spencer Bogart:

In that case, I guess I would consider it part of the kind of vertical growth, but a lot of the token sales also revolved around…especially the largest ones really revolved around new competing networks as opposed to applications built on top of Ethereum, and again, I think that there’s a lot of learning lessons from the 2017 ICOs about what models demand an actual token and what don’t, and again, part of my conviction around the fact that most businesses in the space are not going to need a token, nor should they have one, and therefore, equity financing is going to continue to be kind of the dominant trend for a while.

Laura Shin:

Yeah, I want to ask you more about that, but actually, there’s another question about the BCAP token that I just wanted to ask before we move on. I also noticed that 2% of the fund is invested in the BCAP token itself. Is that correct?

Spencer Bogart:

So there’s some ability to buy back the token if it trades a certain discount below its NAV, and so there is a small amount of it in there.

Laura Shin:

Oh, okay. Okay. Right, but then for the small amount, like, I guess I was just a little bit like…because, you know, I’m assuming that there are fees, right, of 2 and 20 or something? So then is it paying itself? Do you see why I was a little bit like…

Spencer Bogart:

Yeah. No, 100%. Yeah, I’d have to double check on all the mechanics there and double check with the auditors and everything to get the specific details. Again, it’s not the space that I actually spend much time on, but our team at large does, so I can get those answers.

Laura Shin:

Okay. Yeah, no, I was just curious, and I know I had a ton of questions about it, but obviously, we saw with the ICO craze, everybody was saying, oh, VC is getting disrupted, and I remember when I interviewed Brock about it, he was like, oh, you know, I figured we would eat our own dog food, and so I just was curious to know how this experiment worked out for you guys and what lessons you felt like you were learning from it.

Spencer Bogart:

Yeah. Overall, pretty happy with how things have worked out. Just, you know, in general, have encountered many of the growing pains of that particular niche or sub-industry, and so, you know, that’s helped inform some of our capital deployment decisions, as well, as far as what kind of key infrastructure components would need to be built to make something like this successful.

Laura Shin:

Oh, so that’s why that inspired you to invest in Securitize and Harbor and stuff like that?

Spencer Bogart:

Exactly.

Laura Shin:

Okay. So going back to that question about investing in equity versus the tokens or yeah, just about how some of the ICO craze was to launch these other networks, like EOS and stuff, I did see you guys invested in Block.one. You also invested in Parity. So Block.one obviously launched EOS, and then Parity is working on the Polkadot network. So, in both of those cases, you basically had this option of investing in equity versus in the token. So, you know, how did you guys approach that decision, and how did you come to the decision you made?

Spencer Bogart:

Yeah. So, for a lot of this, it was, you know, okay we’re skeptical about how many new networks will really need to be launched, and what kind of rights, more specifically, when we think about our fiduciary responsibility to our LPs, but about what kind of rights we actually have with holding some of these assets, and in some cases, just felt a little bit more comfortable with the equity play, that it was associated with any particular network, and that they would be able to, you know, find significant operating opportunities built around that new network as opposed to owning the native asset of it in particular.

Laura Shin:

But why? Because, you know, if you look at it, the predominant thinking throughout this time…well, I don’t know if it is still the thinking recently, but for a long time, there was this thesis about the fat protocols where there was this idea that value would accrue at the protocol level more than at the application level, and obviously, you know, this is slightly different because it’s equity, but it’s still similar in the sense that I think a lot of people thought that it would be the protocols themselves, the tokens themselves, that would generate the best ROI. So why did you guys have a different view?

Spencer Bogart:

Yeah, in general, I mean, I think whenever we see the industry in particular go one direction when it’s still very early and there’s limited evidence, you know, we tend to evaluate, okay, well, what’s the other opportunity? What’s an alternative here? And so, you know, the Fat Protocol thesis is very much a thesis and not doctrine, and in some cases, it’s proved quite accurate, and in other cases, less so, but in this case, again, if you see a team that functions well and you think can have more optionality…

I mean, when you think about the number of times that people have launched new crypto networks, and then the main founders, the people that, you know, I would say purchasers, were really trying to back and really gave conviction in the project actually walked away from it, it’s pretty significant, and to some extent, that risk does exist with equity, as well, but overall, the reality is that equity sticks with founders better.

And so, you know, if you’re backing a team, which, a lot of times, that’s a very core component to the investment decision, especially at an early stage, equity, again, just a little bit more sticking power to the founders themselves and any kind of opportunities they might subsequently pursue, as opposed to, you know, we launch a network, and maybe it doesn’t get off the ground or maybe nobody ends up using it, but then afterwards, we found a good revenue generation opportunity by launching a particular application or whatever it might be.

Laura Shin:

Yeah, and in a way, I wonder if it’s also simply the fact that VC has traditionally been set up anyway to invest in equity. Do you know what I’m saying? Like, maybe it’s just that it’s a better fit.

Spencer Bogart:

There’s definitely that as a component, but I mean, we have the flexibility to do either, and we do do both. So, you know, we’re not structurally limited in that way. It’s just making sure that we continue to make really diligent decisions, and equity, honestly, comes with more protections associated with it, and so sometimes we think that’s a better way to play the opportunity.

Laura Shin:

One other thing that happened pretty soon after you arrived was that Blockchain Capital parted ways with former partner Brock Pierce. Why was that?

Spencer Bogart:

Well, you know, Brock had a good run here at Blockchain Capital before I joined, and was…Brock likes to start a lot of projects, and so he got Blockchain Capital…helped get it off the ground and then kind of continues…he has a drive to continue building things, and so moved on to go launch the EOS network, and has engaged in a number of new entrepreneurial efforts, as well. So I think for Brock, it’s just a good fit, and I think everyone parted on good terms and thinks well of him and wishes him the best. So, you know, all good things there.

Laura Shin:

So, in a moment, we’ll discuss bitcoin and related topics, but first, a quick word from the sponsors who make this show possible. 

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Laura Shin:

Back to my conversation with Spencer Bogart of Blockchain Capital. So, as you kind of briefly touched on earlier, Blockchain Capital is quite focused on bitcoin, and in a blog post, you wrote, quote, “Bitcoin has a massively disproportionate probability of taking the lion share of the market over the next 10 years. Nobody cares about the second best email protocol after SMTP.” So, in this case, for bitcoin, why do you feel comfortable saying this early on, that it will be the leader?

Spencer Bogart:

Overall, in terms of user adoption, in terms of brand awareness, in terms of supporting infrastructure, I think bitcoin is just, far and away, the lead, and I think that, you know, bitcoin is really the 0 to 1 moment, and everything else so far we’ve seen seems to be either a 1 to 1.1 or if not even a step backwards, so from a 1 to a 0.5.

So, you know, overall, I think that while people have tried to optimize new networks on a number of fronts, you know, since bitcoin started being successful, we saw people launch bitcoin alternatives that were…they were faster. They were more private. They were more expressive. Things that, in theory, tried to be critical differentiators, and so far, none of them have proved to be particularly useful.

I mean, even on the smart contracts front, I mean, the most used smart contracts are multisig contracts, which is what’s used on bitcoin. So, you know, it’s still early in that experiment, so we certainly keep an open mind, but we think that relative to where the investor community has been at large, thinking that bitcoin is a slowed down 1.0 that’s guaranteed to be surpassed by some new network that’s optimized on one particular front is less likely to be true than what people are otherwise asserting.

Laura Shin:

So what’s your view on how bitcoin will be used? Because there’s been all these attempts to have bitcoin be used, like, for payments. You know, there was that period when a lot of merchants were signing up for it, and it seems to me right now that it’s really more of this digital gold. People are just buying it and holding it. Is that how you think it’ll be used in the future, that that’s the investment thesis for bitcoin, is that people will mainly hold onto it as a store of value?

Spencer Bogart:

So I think that that will remain for the foreseeable future as the main foundation, like the critical underpinning of what bitcoin is, and before we go a little bit into that and how that might evolve and how people might use it for other things, you know, it’s helpful to take a step back, because, I mean, people talk a lot about store of value assets, and it’s kind of a weird term, right?

It’s not something that people regularly discuss in normal financial circles and especially not outside of financial circles at all, but it’s weird because when you think about the assets that represent store of value qualities, they’re very familiar to most people. We just don’t typically refer to them as store of value assets. You know, the most obvious one that people always refer to…and like you said, bitcoin is a digital gold, so gold being a store of value type of asset, namely because of its scarcity and in terms of awareness, in terms that people know what gold is.

So that’s, like, a 9-trillion-kind-of-dollar asset. So there’s at least, you know, a very substantial portion of capital that’s seeking an asset with those kinds of qualities, but it expands from there, because if you think about high-end collectibles, like Picasso paintings or vintage Ferraris, those also are store of value assets. People are acquiring them. They’re not buying Picasso paintings because they look beautiful and they’re going to put them on their wall.

No, those things sit in vaults or in professional galleries where the purchaser is not looking at them. So they’re not appreciating the beauty of them. The reason why they’re purchasing them is because you can never make another Picasso painting. They are strictly limited in supply and broadly recognized, and then same thing with, like, a vintage Ferrari, something like that. People are not driving that around town. It sits in a warehouse. They rarely see it. They don’t do anything with it.

It’s only because you can’t make any more 1957 vintage Ferraris, but it expands out from there, as well. I mean, if you think about a lot of dynamics of the real estate market, it’s actually attributed to store of value type qualities. So, you know, I think some people would push back on this and say, okay, but people actually receive some direct value from kind of consuming that real estate in a way. So whether that’s by living in the home that they own or by renting it out and receiving rental income.

But that certainly does not account for at least some sizable portion of the real estate market, and that’s really evident if you dig into the microeconomics of any particular geography. So if you look at Vancouver, I forget what the exact statistics are, but a very, very significant portion of homes that are being purchased are being left completely empty because they were being purchased by overseas buyers that were seeking strong property rights.

So they said, okay, this is a scarce asset. There’s limited real estate available, and to have strong property rights associated with it, you know, particularly if you’re coming from an emerging market that may or may not respect your actual property rights, purchasing an asset in a different geography that does respect them is quite appealing. So, you know, some sizable portion of…I forget, the total real estate market’s something like 250 trillion.

Let’s just say that 5% of that is associated with real estate as a store of value type of asset. We’re talking about another 10 trillion or so. So, in total, you know, we’re talking over 20 trillion dollars of value that has sought assets with store of value type qualities, and in this respect, I think that bitcoin presents a very compelling alternative to some of those types of assets. That’s not to say that all of the capital deployed into those other assets, gold, high-end collectibles, real estate, et cetera is going to flow to bitcoin.

But that in terms of it’s the visibility, its liquidity, its portability, its ease of verification, it’s absolute scarcity. Bitcoin is actually superior to most of those, and so I think that it will continue to be a benefactor of asset flows over a long-term horizon. So at, you know, less than a 200-billion market cap, I think bitcoin has a long way to go, but sorry, that’s a very long-winded way of answering the first question of what is the thesis around bitcoin for the next few years?

I think longer term, as more capital flows in and as liquidity continues to increase with something like bitcoin, it obviously starts to get a lot less volatile. So part of the reason why the payment stories early on in bitcoin weren’t successful is that people don’t acquire bitcoin to spend it. They don’t incur a multiple percentage transaction fee to acquire it and then for the merchant to have to sell it. For that kind of payment utility, you know, credit cards typically work pretty well.

But longer term, as liquidity grows and market cap grows, those movements of capital in and out of bitcoin start to have a less and less effect on its price, and over time, it becomes much less volatile, which makes it more useful for payments and more likely that people are kind of earning it and spending it, and I think that that could create kind of a nice circular feedback loop at some point. If I had to guess, I’d guess that would revolve primarily around bitcoin’s superior attributes as programmable money.

So when I listed all those other store of value assets, obviously, you know, Picasso paintings and gold are not programmable, and you can do things with bitcoin that I just would not otherwise be able to do with any physical asset, and so I think, like, longer term, we’re going to see an increasing number of either products or services that leverage this programmable nature of bitcoin to present alternatives and solutions that just don’t exist today, so don’t even have any kind of real competition.

Laura Shin:

So, in this case, you know, you really made a strong case for bitcoin, but obviously, as a VC, you’re kind of looking for probably newer, not-so-well-known investments that can return the fund for you. So if bitcoin is already so dominant and if it’s also something where people can just go out and buy it themselves, they don’t need you to do that, like, what kind of opportunities are you looking for, and do you think it will be harder for you to deliver those kinds of returns that would normally be expected of a venture fund?

Spencer Bogart:

I think that, actually, the opportunities particular to us as a venture fund get more appealing over time, particularly as bitcoin appreciates, just because, you know, the opportunity to find early-stage companies that are solving particular problems that we’re hearing from, from a lot of the financial institutions that would like to start working with bitcoin, but have, you know, whether it’s a custody hurdle or a compliance hurdle, et cetera, that helps inform our decision-making in terms of deploying capital and making sure that we deliver it to businesses that are likely to see substantial growth in the future. So, overall, the opportunities set as crypto prices have risen has actually only increased from an equity side. It certainly has not decreased. So I think the relationship there is actually inverse to kind of what you proposed.

Laura Shin:

And right now, the main scaling solution being proposed for bitcoin is the Lightning Network, and I was looking around, and to my mind, it wasn’t clear to me how there would be good investable opportunities in Lightning, like, even for some of the node operators themselves. I saw this one big Lightning node operator was revealing some of the details about how much they’ve been earning, and it was things like…they tweet, basically, kind of what their earnings were for the past 24 hours, and one day, it was 10 cents. Another day, it was 35 cents. So this is, like, 3 to 10 dollars a month, and they also mentioned that they had spent one thousand dollars to open all these channels. So how do people make money in Lightning, and how do investors also making money in Lightning?

Spencer Bogart:

Yeah, so I think that that’s very much an open question. We have probably more evidence of things that don’t seem likely to work at this point than things that will. So, you know, we have a couple of the investments we’ve made as, you know, doing something with Lightning, but I don’t think we’ve deployed any capital to something that’s Lightning specific.

I mean, when we think about the future evolution of the bitcoin protocol, we certainly think that something like Lightning or something that’s Lightning like will be very important in the future, but that it’s also just going to be one of many layers offering a different range of kind of functionality and tradeoffs. So, you know, what will be the real business model around something like Lightning Network remains to be seen. It’s also worth nothing at its very early stages.

I mean, the Lightning team at Lightning Labs has always been very transparent about this, of, you know, there’s likely to be bugs. This is very much an early nascent kind of opportunity here, and so tread carefully, and we’ve seen a lot of the same things that you were just citing there as far as, originally, one of the business ideas around this was running nodes. So far, that seems to deliver limited revenue opportunity, and that’s a good thing.

I mean, overall, that’s because anybody can kind of step in and start running nodes on the Lightning Network. So with zero barriers to entry, you would expect that there would be relatively limited margin opportunity, and I think that’s so far what we’ve seen play out, but it’s quite early stages and definitely too early to draw any conclusions.

Laura Shin:

One thing I also noticed was Lightning, earlier this year, had kind of a number of nodes come online and also payment channels were open, but then recently, the number of nodes has leveled off, and then the number of payment channels has decreased. Although from the tweets of this Ellen Bigg, the node operator that I mentioned, it feels like they were the ones that closed a bunch because they weren’t being used. So why do you think that there isn’t more growth? Why do you think it has sort of plateaued?

Spencer Bogart:

Well, for one, I think that, you know, there’s always that kind of initial level of enthusiasm and hardcore supporters that really want to get on the network and start tinkering with it. I mean, this whole industry started with people that were tinkering with digital money, and so I think, naturally, once that becomes available, there’s an initial surge, and then it kind of settles back into a bug fixing and development phase, and I think that’s kind of where things are today.

You know, again, while I think something light Lightning, whether it’s exactly Lightning or something similar, will be very important in the future, but for now, what is that additional functionality that enables? Well, really fast and cheap transactions, so really fast, cheap payments. Overall, again, you know, I think it’s really important to have that functionality for future demand.

But it doesn’t change the fact that, again, people don’t really want to spend their bitcoin today. So, for merchant purposes, yes, it makes things quick. Yes, it makes things cheap, but you still have a problem that people don’t want to spend their bitcoin. They’re acquiring it because they want to hold it for a substantial period of time. So, so far, I don’t see that changing anytime in the near term, but again, at a much higher valuation where volatility levels off, I think that dynamic could shift.

Laura Shin:

Yeah, that was actually going to be my next question for you, because I noticed that the activity on the Lightning Network is currently dwarfed by the DeFi activity on Ethereum, although, as I’m sure you know, much of that is spurred by the DAI stablecoin, which is not only a stablecoin, but a way of sort of leveraging more money to invest in ether, as far as I understand, but anyway, the current amount of money in Lightning is about 8.5 million, and then there’s about, like, a half a billion dollars in these various DeFi protocols. So why do you think Lightning is so much smaller, and does that concern you?

Spencer Bogart:

Because Lightning doesn’t offer you leverage on your underlying asset. So if you look at a lot of the DeFi usage to date, you know, mostly…and I’m not even trying to be derogatory or anything. I mean, we track the DeFi space very eagerly and hope to see a lot more success there. Certainly some encouraging signs, but it’s also hard to ignore that much of the traction to date is not simply people kind of leveraging up eth exposure or something that essentially boils down to that.

So, you know, I think that if, on Lightning Network, you could somehow be able to attain leverage in a decentralized way, I think adoption would be much, much higher. So it’s a little bit or an apples to oranges kind of comparison, and not trying to, again, be derogatory or anything to DeFi. Just that, you know, very frankly, that’s what it’s being used for today.

Laura Shin:

Yeah, so what is your take more broadly on DeFi in general? You said you guys are watching it. What do you think of that trend, and where it will go?

Spencer Bogart:

You know, in general, I mean, I think it’s funny, because I think when people talk about DeFi, they talk about it as something that’s very Ethereum specific, and certainly, much of the conversion has revolved around it. You know, when I think about all of the original kind of conversations around bitcoin, I think of bitcoin as the original DeFi, and I think that, really, it’s a pretty broad tent, and so I think it includes both things.

But as far as the kind of DeFi ecosystem on Ethereum specifically, we certainly track metrics on a very regular basis to see what’s going on, and we would like to see things extend a little bit beyond the leverage and to see some of these applications either get to a way where they can definitely be compliant from a regulatory perspective or find a way to truly decentralize so that maybe they can mitigate some of that burden, but for now, again, you know, while I do think decentralized leverage is decently interesting, it’s not something that brings in new users, right?

So if you’re already holding ether, that might be a very compelling solution, but it doesn’t really bring in people off the sidelines that are saying, hey, oh, I can get leverage in a decentralized way and get extra exposure to eth. Now I’m going to go ahead and do that. So we continue to watch for the expansion of that particular use case or expansion of applications of DeFi at large, but in general, this ties back to the notion of programmable money, which is something that we certainly have conviction in, and it’s just a question of exactly how that’ll evolve.

Laura Shin:

Well, do you have a hypothesis around how that will evolve? Like, what will the future look like when...

Spencer Bogart:

Yeah, so, you know, speaking for myself, within our team, we try to harbor a lot of different perspectives, and we certainly have some people that are particularly constructive on Ethereum. I think for myself, I think that there’s a good chance that, actually, some of this activity ends up being denominated largely on either Bitcoin or Ethereum, but at the end of the day, if people don’t want to hold the base asset, if there’s not a reason to treat it as a store of value asset or as money, then I think it becomes increasingly difficult to build a future financial system on a different network.

So I think bitcoin certainly has a frontrunner advantage in that really we’re…I was going to say in the first inning, but we might be in batting practice as far as, like, what the DeFi space is actually going to look like and evolve into, but again, I would mostly imagine that it’s going to be, you know, development up the stack of a couple of winning protocols, as few as 1, maybe as many as 3, 4, or 5, and that, again, things are going to take…

Laura Shin:

Wait, but what I’m asking is, like, how will our everyday lives change? How will we interact with money differently? What will we be able to do that we can’t do with it now?

Spencer Bogart:

That is the multi-billion-dollar question, and it’s one that we’re trying to answer every day. You know, I think that, by and large, what we’ve seen kind of from iterations, or at least the first segment or iterations, has been trying to do things that we do in the traditional financial world, but in a crypto context. I think that some of those are helpful and useful, but I think kind of a breakout moment, if there’s going to be one, and I think there will be, will be around entirely novel use cases.

So things that you really couldn’t do before. So I’ll give you one example, and to give some more credit to the DeFi Ethereum community, this is an example that comes from that segment. It’s actually I think a since deprecated product, but it’ll give you an idea of some of the power here, right? So there was a company called Marble…not 100% sure if they’re still around or not, but they had a really interesting initial product that I think is great brain food for imagining where things could go.

So they had their Flash Lending product where you could borrow capital, arbitrage across two centralized exchanges, and return that capital in one transaction. So, again, you’ve basically taken out a loan and returned the loan in the same transaction. It’d be like walking into a bank, taking out a loan. They hand you the cash. Then you literally hand it right back to them, which, at first, seems ridiculous. Like, why would you bother going through the effort to do so, except that, in that, you had an atomic transaction that allowed you to use that capital productively.

So, in this case, again, borrow the capital. Buy a particular ERC-20 token on One DEX. Sell it on another decentralized exchange at a higher price, and then return that initial capital you borrowed, a very tiny amount of interest for the, you know, zero seconds that it was outstanding, and then also to retain the profits. So if we zoom out and think about what just happened there, you had a loan that was outstanding for zero seconds with no counterparty risk, yet allowed the borrower to use the capital productively.

Now, again, that’s super interesting. That’s the kind of thing where, when I talk to people that I’m trying to get excited about this in the traditional financial world, there’s kind of an ah-ha moment of, okay, now I understand why programmable assets and programmable money can be really, really useful and allow us to do things or enable us to do things that we simply could not do before that just wasn’t possible.

Laura Shin:

Wait, and I’m sorry, what allowed that to happen? You said it was a deprecated product? Why? What was the name of it and why?

Spencer Bogart:

So that was by a company called Marble. They’re actually not a portfolio company. We’re not actually associated with them in any way, but I just thought it was a cool product. The company was called Marble. The product I think was called Flash Lending. It has its own challenges in terms of the visibility on Ethereum and Front Running. So I think as soon as they launched that product, while it was working successfully for them, people started kind of front-running those trades, but nothing that invalidates the notion of the value of having programmable money there.

Laura Shin:

One other thing that I wanted to ask you about was, like, in the case now where you guys can invest in tokens or equity, do you feel that the lockup periods differ…or not necessarily lockup, but just even just your investment horizon differs if you’re investing in tokens versus equity?

Spencer Bogart:

It can. So there’s some…you know, certainly having crypto assets or digital assets of some kind definitely gives you a different optionality in terms of liquidy than what you would traditionally have with equity, right? So, typically, with equity, they’re waiting for an acquisition, for the company to wind down, or for it to IPO. You know, ideally, an acquisition or an IPO, and those are your kind of exit opportunities.

If you are an early-stage investor in some sort of digital asset, crypto asset, new network, et cetera, we tend to approach it the exact same way as we would an equity position, which is we’re here to be your partners and to work with you over the next 7, 8, 9 years, as long as it takes to kind of make it successful. That said, the element of liquidity there provides some different level of optionality that I think is certainly interesting. I mean, with an equity investment, if you think the company’s going the wrong direction, it’s very difficult to exit that position or to get them to shift into a direction that you think is more appropriate.

Whereas, you know, you have a different set of options when you’re holding a liquid asset, right? So if you really disagree with the direction, you don’t think it’s going to be fruitful longer term, or you’re just not seeing the company execute or not kind of earn the traction that you were hoping for, there is some optionality in terms of exiting that position, and so that’s certainly something we track, but overall, we enter every position with a long-term thesis that we’re going to hold it for a while.

Laura Shin:

And so, obviously, you guys did invest in Block.one, and I heard you say, I think it was on What Bitcoin Did, that you exited in less than two years at a 66X return. So, in that case, you know, why did you decide to exit, and how did you think about…like, why didn’t you stay invested in it longer, and do you feel like EOS has achieved the sort of success that would be typical for when a VC would exit a project?

Spencer Bogart:

Yeah, so you always have to keep in mind, like, risk management, and so, you know, certainly, it was an outsized outcome relative to what we would’ve expected. You know, it’s the kind of thing that you certainly hope for to be able to exit a position that is 66X or whatever it was type of return, but not saying that comes about every day, but when, you know, an investor comes to you and wants to buy your shares at that kind of a return and you’re willing to trim down your risk a little bit in terms of exposure, it can certainly be an appealing opportunity.

And in this case, those are fantastic returns that we would like to be able to deliver back to our LPs, and so that’s what we chose to do there. As far as, like, does that mean that there’s no…and keep in mind, we have to differentiate between EOS and Block.one here, because Block.one, you know, I don’t know exactly what all of their plans are going to be going forward, but they’re certainly not one in the same with EOS. They might be closely interlinked, though. So, you know, overall, it’s just a good opportunity to be able to return capitals to LPs with a very successful outcome.

Laura Shin:

And that was basically equity in Block.one, not EOS tokens?

Spencer Bogart:

Exactly.

Laura Shin:

All right. Well, so Brock, you know, your former partner, was one of the founders there, and at the time, actually, just going all the way back to when he and the other cofounders of Blockchain Capital started the firm, which, your other partners are Bart and Brad Stevens. The three of them actually met through the video game industry, which, this is a pretty colorful section of the interview I previously did with Brock. They basically had this massive business out of digital goods from video games, and I wondered if that history that Bart and Brad have, if that has affected some of the investment thesis at Blockchain Capital today? Like, do you guys see that blockchain-based digital goods are part of the future, and if so, what do you think will happen in that space, and how big could it be?

Spencer Bogart:

Yeah, great question. So we certainly see very strong overlap. You know, I don’t spend as much of my time on gaming because, like you said, two of my partners here, Bart and Brad, both have very deep experience investing in the video game space, but you’re right, that’s what brought them into it originally, was seeing, you know, the large secondary markets of World of Warcraft gold, and then eventually, once you’ve kind of tapped out that market opportunity, realizing that there’s this tangential opportunity in this brand new type of digital asset that doesn’t have the same kind of problems that a World of Warcraft gold had, and that asset was obviously bitcoin.

And one of the opportunities that they considered very early on was Mt. Gox itself, and so, you know, that helped bring them into the space, and I think we certainly still think that there’s a good opportunity for overlap. I mean, if you think in terms of geography, the places where video games have been most popular over the past 20 years are the same places where crypto is more popular today. So namely China, Korea, Japan, and the US.

In terms of, you know, demographic overlap, there’s a lot of similarities there, as well. They tend to be young, tech-forward, typically kind of, again, a Millennial kind of age range, and for better or worse, unfortunately, mostly male, and so that’s what the legacy video game industry has looked like historically, and that’s kind of what crypto looks like today. So is there going to be a strong overlap between the two? We’re certainly optimistic, and again, to go back to your point about thinking about owning digital assets versus owning equity, this is actually a good case study here.

So, you know, again, we have this thesis that there could be some great opportunities within gaming. Leveraging Bart and Brad’s experience of investing in video games directly, you take a tremendous amount of hit risk when you invest in a particular game. It’s very, very hard to predict which games are going to be successful, especially if it’s not coming from kind of already an established brand of some kind, but instead, we find ways to make a horizontal investment.

So instead of betting on this new blockchain-based game, whatever it’s going to be, we could buy the native asset of that particular game and hope that it appreciates because there’s going to be lots of demand, or we could take more of a horizontal equity play. So, in this case, we invest in the company called OpenSea, which is essentially a marketplace for NFTs or for these in-game digital assets, so, whatever, your wing dragon or your sword or what have you, whatever it might be.

I mean, so, in that way, from a portfolio management perspective, it allows us to make sure that we have exposure that’s based without taking particular hit risk, because we figure that if the secondary trading of those types of assets are one of the critical advantages of using a blockchain-based digital asset, then a marketplace is going to be a benefactor of it. So regardless of which game ends up driving that demand, you know, that’s likely to flow through to the secondary marketplace, and so, again, that’s where we kind of chose to deploy our capital and use that as an opportunity to see what’s gaining traction and inform where else we might deploy capital.

Laura Shin:

Yeah, I’m very interested to watch that space because I also feel like, as a journalist, that would be a natural area where crypto would take off, but I haven’t seen anything yet that really…I mean, I guess you could say CryptoKitties, but obviously, that was sort of a flash in the pan.

Spencer Bogart:

Yeah. Exactly.

Laura Shin:

One thing I wanted to ask about also was, you know, as you mentioned, you previously worked in an ETF company, and there was news recently that VanEck withdrew its bitcoin ETF proposal, and the SEC has these upcoming deadlines for deciding on some other bitcoin ETFs, like from Bitwise, which I think is one of your portfolio companies.

Spencer Bogart:

It is. Yeah.

Laura Shin:

And disclosure, they, at some point in the past, sponsored my podcast. So what do you think VanEck’s withdrawal says about the likelihood of a bitcoin ETF being approved soon, and what do you think needs to happen for the SEC to approve a bitcoin ETF?

Spencer Bogart:

Yeah, so, you know, you run the risk of reading too much between the lines on something like this. I mean, there’s a few factors at play, right? So VanEck and SolidX had also launched their kind of, call it a faux ETF, like, kind of a week and a half ago for QIBs, for qualified institutional buyers or qualified investors, and I’m not sure…

Laura Shin:

Can you define that for people?

Spencer Bogart:

Oh, yeah. Shoot. I think it is reserved for asset managers that have more than 100 million in AUM. I’m hesitant. I might be wrong on exactly what…but it’s the most restrictive category.

Laura Shin:

Okay, yeah, if that’s wrong, I’ll insert a little thing, but so, basically, yeah, it’s definitely quite different from an ETF.

Spencer Bogart:

And more importantly, from the name of exchange traded fund, ETF, like, this doesn’t trade in exchange. It’s entirely secondary brokerage activity. So we’ll see. So I have no idea. It’s possible that that played into their ETF filing, but I think probably more telling here would be Jay Clayton’s most recent comments.

It might’ve been on CNBC somewhat recently, who said that, you know, some of the concerns that the SEC has had around a bitcoin ETF are being addressed, and some day, it might be approved, but that day is not today. I’m loosely paraphrasing, but it’s along those lines, and so to go back to some of their prior concerns is largely revolved around, again, kind of custody and having qualified custodians in the space and around market surveillance and opportunity for any kind of manipulation of the underlying spot market for something like bitcoin.

So I think that, obviously, we’ve seen significant growth in the custody space. There’s now a number of qualified custodians and more entering the space. So I think that either now or very soon, the SEC can kind of check that off their concern list, and then as far as market surveillance and any ability to manipulate the spot prices, you know, I think that more exchanges are kind of rolling out surveillance software of some kind that will help alleviate or mitigate some of those concerns.

And I think people are doing good research to highlight exactly how difficult it would be to manipulate the market, which all I think are steps that helps get the SEC more comfortable. So, you know, long story short, I think a bitcoin ETF will be approved at some point, whether that’s now or in the next few months or if it’s kind of three years down the line. Not sure, but I would guess that within the next three years, we will see a bitcoin ETF.

Laura Shin:

Well, that’s a long range. So, I mean, what do you think about the Bitwise proposal coming up?

Spencer Bogart:

I think they’ve done an extremely studious job of educating the SEC on some of their concerns and trying to highlight, okay, like, even if we, you know, take out some wash trading that might occur on some exchanges in international jurisdictions, that the surveilled and licensed spot market volume is still extraordinarily deep and that these markets would be very difficult to manipulate, particularly as more kind of derivatives volume comes online, as well, via the CME.

So I think they’ve done a great job positioning themselves in a space where, ultimately, the SEC has really been dragging its feet and kind of kicking the can down the road. They’re fighting the best fight they possibly can, and I think they’ll be well positioned for when the time is right, and hard to tell whether that’s going to be this year or next year or two years from now.

Laura Shin:

One of the other big trends now, which is even reaching beyond the pure crypto space, is stablecoins, and Blockchain Capital doesn’t appear to have invested in any of the stablecoin projects. Why not?

Spencer Bogart:

Well, which of them have been particularly successful or good venture opportunities?

Laura Shin:

I’m not sure, but…

Spencer Bogart:

No, but that would be a lot of the concern, is we’re very interested in…

Laura Shin:

Because, obviously, Maker DAO has attracted a lot of big investors, and then Libra also has these huge companies that have agreed to becomes nodes in that. So, you know, I’m not trying to pick any winners, but if we’re going to judge by kind of like what some of the other marquee investors in the space have been doing, those would be maybe two projects I might pick out, but there’s a ton of others, obviously.

Spencer Bogart:

Yeah, so we’re not particularly bearish on either of those items, and in fact, we’re actually quite constructive. We’ve certainly taken a very good look at Marker and are very interested in the ongoing evolution of the project. You know, I’ve published a couple things online of criticisms of maybe potential flaws in Marker’s architecture and what the long-term opportunity might be, but…

Laura Shin:

What are those? Can you recap what you think those are?

Spencer Bogart:

Let’s see. It’s from about a year ago now. I’d have to go back and make sure that I don’t misquote. To be fair, some of those concerns have kind of been alleviated or mitigated since then as, you know, our understanding or Maker continues to evolve, but I have to go back. I’ve written…I believe I published a blog post on it. So I can go and revisit that. We can discuss again.

Laura Shin:

Okay. Yeah, and I’ll try to…I can link to it in the show notes.

Spencer Bogart:

Cool. Yeah, and then something like Libra, I mean, we’re very interested in this thematically, of what something like this might look like, whether it’s Libra or something that looks very Libra like, but that continues to be a very big focus on and something I would not be surprised if you saw us deploy capital towards, you know, some opportunity along those lines, over the next year or so.

Laura Shin:

And just I’m curious to know your take on Libra itself. Obviously, they’re facing a ton of regulatory headwinds. Do you think it will launch, and if so, how will that affect the crypto space?

Spencer Bogart:

I think it remains to be seen exactly if it will launch. I mean, I think that, you know, kind of coming out of the hearings, I think broadly, expectations had fallen significantly in terms of probability of launching within 2020 or at all, but you have to keep in mind that things are very dynamic, fluid, and evolving in real time here. So, you know, competing efforts in the space, whether it’s what the PBoC in China has announced or projects from someone like a Binance, all of this starts to interplay and weave together.

So, really quickly, we could end up in a situation where Libra looks like the most appealing solution relative to some of the alternatives that are out there, like a PBoC digital currency that allows people abroad to use it and use digital cash, essentially. So, you know, overall, what do I think is the probability? I think there’s an above 50% chance that Libra actually does launch in 2020, but you know, really hard to pin down beyond above 50/50 chance.

Laura Shin:

Oh, wow. Okay. Okay. All right. Well, we will see what happens. Where can people learn more about you and Blockchain Capital?

Spencer Bogart:

Sure. If you want to learn more about the firm, our website is BlockchainCapital.com, and if you want to reach out to me or follow me, you can follow me on Twitter at @CremeDeLaCrypto.

Laura Shin:

Okay, well, thanks for coming on Unchained.

Spencer Bogart:

Thanks so much for having me, Laura.

Laura Shin:

Thank so much for joining us today. To learn more about Spencer Bogart and Blockchain Capital, check out the show notes inside your podcast player. If you’re not yet subscribed to my other podcast Unconfirmed, which is shorter and a bit newsier, be sure to check that out. Also find out what I think are the top stories each week in crypto by signing up for my email newsletter at UnchainedPodcast.com. Unchained is produced by me Laura Shin with Fractal Recording, Anthony Yoon, Daniel Nuss, Rich Stroffolino, and Josh Durham. Thanks for listening.