This episode is the first in a series, Why Bitcoin Now, that takes a deeper dive into Bitcoin and the history of money in the macroeconomic environment of the coronavirus. Mike Novogratz, founder, CEO and chairman of Galaxy Digital, and Raoul Pal, founder and CEO of Global Macro Investor and Real Vision Group, tell us where they think Bitcoin is going amidst this macro uncertainty and the global crisis due to the coronavirus. We discuss:
- why Bitcoin’s price hasn’t risen in price due to the global turmoil, and instead fell with the rest of the market on Black Thursday
- why quantitative easing is the catalyst for institutional investors to turn to Bitcoin, but why that takes time, and why registered investment advisors may be on the cusp
- why they think retail investors will continue to buy Bitcoin despite record unemployment
- why Bitcoin will benefit from social unrest
- why any particular country’s success in dealing with the coronavirus won’t really lessen the economic impact there
- whether China’s first-mover advantage with the DCEP and its comprehensive enterprise blockchain initiatives will undermine the global dominance of the US dollar
- why they believe there will ultimately be a dollar-based stablecoin
- why they believe Libra will be a strong player in the future of stablecoins
- how election outcomes, and in particular a potential movement to break up Big Tech, could affect Bitcoin and the vision for Web3
- whether Ethereum, and staking, will see more adoption from institutional investors
- why they believe yield farming is ultimately not sustainable, but still profitable
- the impact the Bitcoin halving will have in this macroeconomic environment
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Crypto.com: https://crypto.comKelman Law: https://crypto.law
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Episode links:
Mike Novogratz: https://twitter.com/novogratz
Galaxy Digital: https://www.galaxydigital.io
Raoul Pal: https://twitter.com/RaoulGMI
Real Vision: https://www.realvision.com
Unchained interview with Kyle Samani on what happened in the crypto markets on Black Thursday: https://unchainedpodcast.com/teetering-on-the-edge-how-black-thursday-exposed-the-flaws-in-the-crypto-markets/
Unconfirmed interview with Antoine Le Calvez on what happened on BitMEX during Black thursday: https://unchainedpodcast.com/what-happened-on-bitmex-during-black-thursday/
Unchained interview with Chamath Palihapitiya on Bitcoin: https://unchainedpodcast.com/chamath-palihapitiya-why-bitcoin-will-be-the-category-winner/
Brian Armstrong tweet about deposits to Coinbase the same size as the $1,200 stimulus check: https://twitter.com/brian_armstrong/status/1250907110730170370?s=20
China’s DCEP and blockchain initiative: https://unchainedpodcast.com/why-china-aims-to-replace-cash-with-the-digital-yuan/
Unchained interview on Libra: https://unchainedpodcast.com/a-libra-co-creator-on-how-facebook-will-make-money-from-calibra/
Unconfirmed interview with the Libra Association’s Dante Disparte: https://unchainedpodcast.com/libras-dante-disparte-on-why-we-should-trust-a-financial-system-designed-by-facebook/
Unconfirmed interview with Michael Casey on why it would it would be good if Libra rivaled the USD: https://unchainedpodcast.com/why-it-would-be-good-if-libra-rivaled-the-us-dollar/
Christopher Giancarlo’s digital dollar project: https://unchainedpodcast.com/christopher-giancarlo-why-the-us-needs-to-have-a-digital-dollar/
Ethereum 2.0 staking: https://www.coindesk.com/3-ways-staking-will-upend-the-economics-of-ethereum
Unconfirmed with Kain Warwick on COMP’s launch: https://unchainedpodcast.com/why-comp-5xed-on-day-1-and-what-this-means-for-a-defi-bull-market/
Unconfirmed interview with Tony Sheng on yield farming: https://unchainedpodcast.com/how-you-can-double-your-money-or-lose-everything/
Transcript:
Laura Shin:
Hi all. Before we get into today’s episode, a few quick notes. First, this is the inaugural show in a series I’m doing called Why Bitcoin Now, which looks more closely at Bitcoin in this macroeconomic environment. We’ll do a little dive into the history of money, the history of Bitcoin, and also look more closely at the first cryptocurrency’s monetary policy among other things, and we kick the whole thing off today with a discussion with Raoul Pal and Mike Novogratz on the overall macro environment for Bitcoin. Plus, we touch on other related initiatives like the digital dollar at Libra, Ethereum, and Web 3.0.
While the series will be consecutive episodes in a row, I will flag each one for you with a rubric Why Bitcoin Now because I think the macroeconomic conditions are especially conducive to understanding Bitcoin, especially from a monetary perspective.
One more note, this is the last Unchained episode with my sound engineer, Chris, at Fractal Recording. He’s been with me since day one of Unchained, which launched more than four years ago. He’s been my rock for these shows beyond professional and dependable and just an all-around pleasure to work with. Plus, he likes fractals like me, which makes him really cool, in my book. Chris, I’m going to miss you tremendously, thank you for all the work that you’ve done for me and my shows, I really wish you all the best.
Now, onto the show.
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Laura Shin:
My guests for today are Mike Novogratz, founder, CEO, and chairman of Galaxy Digital, and Raoul Pal, founder and CEO of Global Macro Investor and Real Vision Group. Welcome, Mike and Raoul.
Mike Novogratz:
Welcome to you.
Raoul Pal:
Nice to meet you.
Laura Shin:
Ever since the coronavirus started, I’ve been thinking that between the pandemic and all the economic uncertainty it’s created, as well as the recent Bitcoin halving, Bitcoin might be about to have a moment, but right now, the price is basically just about where it was before the crisis hit, so maybe I was wrong. Why do you guys think that is?
Mike Novogratz:
Well, I think it is having a moment. I think it’s having a big moment. You know, quite frankly, I was more confused early in the year why it was going up in January. In December, I was kind of depressed thinking there was not a whole lot of energy in the space, and then we had this kind of mystery rally, not just Bitcoin but all the cryptos going up, and I didn’t have a great understanding of why, lots of leverage, mostly out of Asia, that piled into the market, and then we had a big deleveraging, right, all the way down to sub 5,000, you know, when corona hit and you had the global deleveraging, and since then, you know, the tenor of the buyer has changed, the amount of phone calls that we’re getting has changed, the overall excitement of the space has changed, mostly because we now have a perfect macro backdrop to sell people on the scarcity story, on the hard asset story, on Bitcoin is digital gold, and we’re seeing new buyers, and not just not new buyers but new buyers and new asset in investor classes, so Paul Tudor Jones buying it, I mean, the first major hedge fund that’s bought it in its fund.
I got a call last night from one of the biggest hedge funds in the world looking to hire a crypto trader. I told him I wasn’t for sale. So, you’re seeing this shift of new participants, and the macro story is so powerful, I think it’s a very different story.
Laura Shin:
And Raoul, what about you?
Raoul Pal:
I’m going to totally agree. I think it is the gift of the macro story that Bitcoin has always been after, but not only that, I mean, I totally agree with what Mike’s saying, but on top of that, I think the whole space…and Mike operates in a much larger space with Galaxy, is that whole disruption of a financial system is becoming much more obvious to people now because you’re seeing the fragilities of what exists, so I think, you know, it’s a perfect time and a place, it’s interesting to me it’s not broken out yet, but you know if anything, it teaches you patience within the Bitcoin world, and you know, like Mike, I didn’t really understand why it was up beforehand, I was not really heavily involved, but now, it’s got a lot of focus for me, and same thing, I’m getting emails, phone calls every day from hedge funds saying, okay, how do I buy it for my PA, how do I get it into my fund, what do I need to do, how do I get involved, so yeah, it’s definitely growing in importance across the spectrum.
Laura Shin:
Well, so then, two questions, I mean, first of all, why did Bitcoin fall with the larger market on March 12, like if what you’re saying is, you know, that it is the safe haven, that it is this hedge, then why was it correlated rather, you know, but the second part of the question is then also you guys didn’t answer like why is the price basically the same as it was before, like why isn’t it higher?
Mike Novogratz:
Well, so it’s very easy to understand why it fell, we had kind of max uncertainty, right, the VIX over 80 for 5, 6, 7, 8 days in a row, that’s happened once in my whole career, and so when you have max uncertainty, people run for cash, cash is your first instinct, as a safe haven, and leverage goes from here to here, and so because…you know, listen, you could buy bitcoin on Arthur Hayes exchange with 100 to 1 leverage, I don’t think many people do because it wouldn’t last very long at 100 to 1 leverage, but crypto because it’s unregulated and because a lot of the big futures exchanges are offshore, provides so much more leverage than traditional equities or fixed income.
If you think about it, if I wanted to buy Goldman Sachs shares and I’m a retail participant, the most I can get is 2 to 1 leverage and in crypto 30 to 1, 20 to 1, 50 to 1, and so when you have a lot of leverage and you have uncertainty, usually the price gets the shit kicked out of it, I think is what happened.
Raoul Pal:
Yeah, and because it’s in retail hands, that leverage works very quickly against it. The other mechanism why I think Bitcoin is not really rising from here is there’s another new development that’s gone on over the last few years, particularly in the last year, is this kind of yield enhancement stuff, so everyone’s getting positive yields out of storing Bitcoin, and one of the strategies as ever, the same in financial markets is selling upside volatility, so there’s a lot of call selling that’s been up there and this kind of gamma hedging stops it breaking out, but we kind of most of us who have been around for awhile in this stuff knows that once you stop breaking levels, everybody ends up liquidating these short call positions, and it creates a huge run upwards, but I think it’s that, it’s very heavy in delta hedging and gamma hedging.
Mike Novogratz:
When it breaks 10,000 or 10 thousand 2 hundred, it will get to 14,000 much faster than people expect.
Raoul Pal:
Yeah.
Mike Novogratz:
So, when you consolidate and arrange…and listen, this is an adoption story, and if Bitcoin was easy to buy, it would be a lot higher, and so we’ve dealt with a few hedge funds that are buying it, right, they’ve got to call through all the due diligence for their funds, and you know, it’s a 2 to 4 week process for their back off as to feel comfortable, and so it’s not like pick up the phone and call, then they got to usually talk to their board, hey, we’re going to by crypto for the first time.
The other, I think, new group of buyers that are coming, they’re not here yet, the financial advisor community, is giant, right, the bulk of the wealth in America and in Europe is not owned by Gen Z or Millennials, though they’d like it, it’s owned by Gen X and Baby Boomers and older, you know, the 50 to 80 year olds. They don’t have breadwallets or Coinbase wallets, or Venmo apps, you know, and so getting the financial advisors to feel comfortable to then sell it to them, it is a process at Galaxy that we’re really working hard on, that’s being amped up in a big way, not just with us, with others as well, and so I think in the next few months, you’re going to see a lot of FAs putting their clients into this.
Raoul Pal:
And also, Mike, as you know, is the structure of this is everyone’s got their eye on it, and if the price moves up, everyone gets fomo and has to get involved, and that’s at institutional level now.
Mike Novogratz:
Yes.
Raoul Pal:
So, if it goes up further, the more it goes up, the more the market cap goes up, the more they can justify it to their trustees and the more people get involved, so I think we’re at that tipping point of a virtuous cycle that can continue for a while, but we just need to get through these levels first, but I think essentially every institution, every RAA, is almost kind of shortly upside calls. Not really. I mean, obviously, there’s a bunch of people who are, but really what it’s all about is people don’t have it and they need to get it, but they wait for the price for confirmation.
Laura Shin:
So, it’s sort of sounds like you’re saying the decision makers have made the decision, it’s just kind of a matter of time to let those decisions play out in the market, and we should see the price rise, but I’m wondering like so what is it that’s driving those decision makers, like what is it about Bitcoin that makes them think that this is the investment to make now during the time of the coronavirus, is it just as simple as like Bitcoin is scarce, and we’re about to see unlimited quantitative easing or is there anything kind of more…?
Mike Novogratz:
Think bigger. It’s just that simple. Well, so people ask me all the time…well, I bought more gold yesterday even, and so I own gold and silver as well, but why Bitcoin versus gold, if you want to buy gold, there’s 16 different ways to do it, it’s very easy, I need to pick up and buy an ETF, and so there’s no adoption curve in gold where Bitcoin there’s still an adoption curve, right, a small portion of the institutional world has participated yet, and so as that adoption grows, you just got a jacked up upside versus gold.
It’s the exact same macro story, and listen, you know, it’s funny, Bitcoin really is going to disrupt one thing, right, the crypto universe is going to disrupt everything. Bitcoin really right now is being bet on to disrupt central banks, and so the fact that backed or fidelity or real institutions are going to hold it for you and custody it, some of the crypto junkies are going to be like, dude, that’s not even the whole spirit of crypto, right, the spirit of crypto was to get away from those institutions. Well, in a meta sense, yes, but in a specific sense, the bet on Bitcoin is a hedge versus fiat, so it’s disrupting one piece, and so I think having those trusted names in and around keeping someone’s Bitcoin safe, I mean, it’s shocking, you know, because it’s almost comical when you originally started telling the story of this is going to be a disruption for the banking system but can I keep it at JP Morgan, but if you think about it, the first leg here is disrupting central banks, it’s this fiat that’s being printed like it’s toilet paper.
Raoul Pal:
Yeah, because if you think about it in the terms of, right, we’ve never gone through such central bank uncertainty, none of us have lived through monetary printing of this kind of magnitude. In fact, none of us even believed it would ever happen, so when you’ve got something that is so large and it continues, I mean, it just doesn’t go away, it gets worse and worse and worse, everybody has to ask the question, well, what could it mean, and Bitcoin is the call option on the what could it mean, and it’s as simple as that, so in a big portfolio, a very little bet could end up being a very big thing if something at the central bank level, i.e. fiat currency come into a larger problem.
Laura Shin:
Yeah, and so it sounds like you two actually have kind of like two theories that propel your interest in Bitcoin because Chamath Palihapitiya was on my show last week and basically said he didn’t think that COVID was going to be Bitcoin’s moment, and he said it’s only going to take off if there’s some fundamental breakdown of the system, but you seem…and he basically was like, yeah, I don’t believe in the digital gold thesis and stuff like that, but you guys seem to see it both ways, but one thing that I was curious about is so far we’ve seen that retail investors have really led these different bull markets in Bitcoin, but with the fallout of the virus, I don’t know if a lot of retail investors are going to have a lot of extra disposable income to place on speculative investments, so do you think right now we’re going to see that flip because you guys are talking about institutional investors?
Mike Novogratz:
Well, both, like here’s a stat that will blow your mind, 2020 disposable income in the United States is going to be up 4 to 5% from 2019. That’s kind of crazy with 30% unemployment or whatever we have, 20% unemployment, right. Think about what I just said, disposable income for Americans is going to be up 5% this year. Why? Because the government’s giving everyone a ton of money. They gave them stimulus checks, and you saw today, you know, Trump’s losing on the polls, he says, I’m going to give more stimulus checks, right, it’s an election year, this guy’s not going to be cheap, he wants to get reelected, right. We took unemployment insurance up 600 dollars from basically you used to get paid about 12 dollars an hour unemployment insurance and now it’s $25 an hour, and so unemployment insurance, all of a sudden, is 50,000 dollars a year, so it’s not that bad to be on unemployment, and so we’re pumping the money full of liquidity. A lot of that’s finding its way to the US stock market. If you see the Robinhood accounts are jamming stocks up, and we’re seeing kind of bubble-like behavior in lots of stocks, some of it’s finding its way into the crypto markets.
Brian Armstrong had a very funny post the day the 1,200 dollar…was it 1,200-dollar, 1,200-dollar checks, how many 1,200-dollar Bitcoin orders he had versus a normal day, and it’s a graph that goes (up and down), right?
Laura Shin:
Right.
Mike Novogratz:
No one buys 1,200 dollars of anything, on that day, there were a ton of 1,200-dollar buys, and so you know, shockingly, there’s a lot of liquidity in the system, and I think it finds its way in.
The other thing I would mention is, you know, Bitcoin and cryptos always been about systems change, COVID exposed the kind of raw inequities of our country, which I think is creating this tension…oh, I just lost you, hold on.
Laura Shin:
No, we’re here.
Raoul Pal:
We’ve got you.
Mike Novogratz:
Well, I can’t see you, though, I’m sorry. It’s creating this tension, and now, we’re seeing riots in the streets, right, the Black Lives Matter Movement, it’s not just the Black Lives Matter Movement, it is a revolution of spirit of saying, we’ve got financial inequality, racial inequality, healthcare inequality, we want systems change, right, people are protesting in strength for system change, and so while it’s not a direct correlation with the price of crypto or Bitcoin, it’s the same macro spirit, right, and so we’re going to go into one of the most difficult elections of our recent history in our country, that is going to keep more, I think, tension, dislocation, and possible really wacky outcomes, which also is a tailwind for Bitcoin.
Raoul Pal:
Yeah, and also, if you think of the narrative that Mike’s talking about, it’s a narrative of fear, right, because people don’t know, we don’t understand what is happening, and that narrative of fear, whether it’s fiat money or systemic social change or whatever it may be, people automatically start to gravitate towards understanding things like Bitcoin because they’re looking for answers, and Bitcoin appears to be the answer that many people have come up with, and so, you know, I see it even at the office from the people we employ at Real Vision, I mean, today, my chief of staff was like, okay, so I’ve set up my accounts and I’m now doing my due diligence to get my KYC, and I’m like why are you buying Bitcoin, she goes, well, I just don’t understand really what’s going on, and I feel like it’s an insurance policy, and so it’s really getting to that tipping point where people are understanding it’s something they need to do.
Laura Shin:
Well, I just…
Mike Novogratz:
So…
Laura Shin:
Oh, go ahead, Mike.
Mike Novogratz:
Well, I was going to say the other last thing to mention is so we had 2008 where Bitcoin was first brought into the world by Satoshi and his merry pranksters, and you know we had a financial crisis. The global financial crisis is something we never thought we’d see, JP Morgan might go out of business, Morgan Stanley might go out of business, we don’t trust the banks, we don’t trust anybody, so here comes crypto, and there was a lot of…when I bought crypto in 2012 at 100 Bitcoin, you know, we had just done QE2, Europe was in crises, there was a lot of fear of inflation, yet we didn’t get any, right, and one of the reasons we didn’t get any and things kind of got put back, the genie got put back in the bottle, was that the political movement that came out of that chaos was the Tea Party, it was this fringe Republican group that said stop spending our god damn money, no more Mr. Obama, and so we had this stalemate between the central bank having to feel like they had to do everything because the Treasury wouldn’t do anything, right, the Tea Party got eaten up, swallowed out, and thrown to the side of the road by Donald Trump, right, he came into this with a 5% fiscal deficit, spend, spend, spend, now the political moment that’s coming out of this is the radical left, you know, it’s AOC…I shouldn’t call it radical left, but it was radical versus the center, and so there’s no chance in hell that either party is going to say, oh, it’s time to be fiscally conservative now, let’s stop spending, right, they’re going to say, let’s pay for kids college, let’s wipe out student debt, let’s have universal healthcare, let’s make this world more fair and just, all of that costs a shack load of money, and so the printing press goes brr, it’s one of these crypto memes, I can’t imagine the printing press slows down anytime soon. I don’t see a political scenario that puts us back into adults running the show.
Laura Shin:
Well, I guess, the one thing that I just wonder is like if we’re talking about retail investors buying Bitcoin and having the disposable income to do that, like I totally understand that, I think it’s like two-thirds of people who receive stimulus were getting more money than their normal salary, but that’s also kind of the group of people who like tend to have debt, and I just don’t know how many of them are going to be like, oh, I’m going to put some of this in Bitcoin.
Raoul Pal:
Well, you know, I think there’s a really important thing here is if you are a Millennial, so you’re under the age of what 35, and you look at your 401K and your investment opportunities for your retirement savings, you have equity valuations at all-time highs, bond yields at all-time lows, credit yields at all-time lows, and property price is pretty much at highs…
Mike Novogratz:
It’s true.
Raoul Pal:
You have almost zero opportunity to have an expected positive return over the next 10 or 20 years, right, that’s the reality here, so what do you do, how do you save for your future. You can save in cash. Okay, that’s fine. The reality is crypto offers an opportunity, it is the thing that the Baby Boomers got with the equity market and the bond market, they got the double, and the property markets, all three, they got a record low valuations gifted to them in their 30s, and they got rich on the back of it…
Raoul Pal:
And I think Millennials are going to accumulate over time in their 401Ks into crypto or think about saving because it gives them something that has the 50 to 100 for one upside.
Mike Novogratz:
And Laura, if we were landing here 150 years from now and we were anthropologists and historians, we’d look at the Baby Boomers, and you know, unfortunately, I’m 34 days a Baby Boomer, though I always tell my kids I identify at Gen Z, the Baby Boomer generation will look back as the most selfish generation in the history of the planet, if you look at what they have taken and the debt they’re leaving versus what they put in, right, and so this is generational theft on a gargantuan scale, right, the Baby Boomers are running up a debt that’s astronomical that my poor son and his kids are going to have to pay back one day, and they’re not going to be able to pay it back, and so in some ways, logic would say the only way you pay it back is to inflate the shit out of the way of your deficit, if you just look at the scale of the debt and how fast it’s growing, right, you’ve got a positive first and a second derivative of the growth of debt, that doesn’t make you feel good if you’re 20 years old or 24 years old or 16 years old.
Now, most of those guys don’t have economics degrees yet and they haven’t actually figured out how to connect the dots, but they intuitively feel it, and so when I really think about it like we’re going to come back as these future anthropologists, you know, like dude, of course, they were buying something else, and they’re smart enough to know that the dollar’s going to be worth that much.
Raoul Pal:
And key to the point is the Millennial generation and particularly Gen Z grew up understanding that digital assets have value, right, Mike and I had to take that leap, we didn’t know this, it didn’t make sense to us, right, and we were still fighting for our vinyl records, and it was all going to Apple, you know, all of this digital stuff was not a natural thing that we grew up with. What these guys grew up with is digital assets have value, so they don’t have to take any leap of understanding at all. In fact, it’s ludicrous to imagine that cash is an easier thing to have than a digital asset, so you know the adoption rate from younger people is always going to be faster in this, so I think just naturally they will gravitate towards it, and they’ll just understand it intuitively.
Laura Shin:
Yeah, I guess, you know, when I asked that question though I was thinking more about like furloughed workers, like people who just don’t have money coming in.
Raoul Pal:
I think, Laura, what you’re doing here is worrying about a small point in time and the group of people, so there’s a number of participants in this space, so we’re looking at either the structural flows or who is the next person in. The next person in, I think, is probably the hedge funds because I think they understand it, the institutions are slower but they will get there, and I think that flow will offset anything from a few Millennials, who are furloughed or even if it’s 10 million Millennial furloughed because the relative amount of savings that I have versus the large pulls of capital, so if we’re looking in that short-term, i.e. what breaks 10 thousand, well, it’s probably the shift towards more institutions coming into the space because a few people can drive this massively, and as we said, once it starts going through…there’s a few structural issues, once it starts going through the upside, it actually quite probably accelerates.
Laura Shin:
So, just to summarize to make sure I fully understood, so you know it sounds like you think institutions will lead, but like I guess where I was also going with my question was we have this like record high unemployment, but yet you still think that retail is going to also drive the next Bitcoin bull market, is that the case?
Mike Novogratz:
Well, I think I agree with…I think that, again, prices are set on the margin, right, so it’s where are the new buyers. I think the new buyers are coming from 50 to 80-year olds. That doesn’t mean, you know, 15 to 50 year olds stop buying completely, but it’s that Bitcoin is a social construct, it’s how many people can you get to believe in it, and there’s a whole new group that are starting to believe in it, right.
Again, if you go on Robinhood’s app, Bitcoin is a big part of it because they’ve got all young people, who already believe in it, and so we’re converting new people…
Raoul Pal:
And the key point is you take…
Raoul Pal:
And the key point here is if you take one person aged 30 and one person aged 60, their relative wealth differential has never been larger in all the history of the United States, so you bring in one of those 60 year olds, it has an ounce size impact because they have much more savings because they’re later in their careers and the relative earning gap has been ridiculous for a period of time, so you know, as those people come in…but yes, sure, a bunch of those are furloughed, too, but if you look at the unemployment statistics, the actual predominance of people who have been laid off are actually the under 35s.
Laura Shin:
Okay. Yeah, but so I actually still want to ask a little bit more about how the coronavirus will impact things because just I was wondering like will we see kind of different impacts based on like how well a certain country handles the coronavirus like, for instance, would we see like less of economic fallout in a place like New Zealand or Australia or Taiwan where they’ve kept the virus down, whereas, obviously, in the US since we’re at this level of about 30,000 new cases a day and it’s actually just frankly increasing at least at the time of this recording, so in that sense, will the economic impact in the US be worse?
Mike Novogratz:
You know, when the US sneezes, the world gets a cold, I mean, we are still the dominant engine of global growth, and US sets monetary policy in lots of ways for the world, we’re still the reserve currency, and so I think even if your country, if you’re Tahiti and you’ve got no cases, the economic impact because of tourism and all kinds of other things is still pretty severe. If you look at China’s doing its biggest stimulus ever, Japan is doing its biggest stimulus ever, the US is doing its biggest stimulus ever, Europe is doing its biggest stimulus ever, and so you add it all up, and it doesn’t really matter if you’ve done a little bit better in COVID or a little bit worse, it’s the collective psychological shift amongst central bankers, you know, although people believing in modern monetary economics are praying it works, right, I mean, you know, to me, it’s horse shit, right, money doesn’t grow on trees, at one point you’ve got to pay back, and this hope that, yeah, we can just keep doing this and then put the genie back in the bottle, you know, it’s going to be really hard to get the genie back in the bottle, he ain’t going back in, and so you know the best you can hope for is a long period of 3.5% inflation to start inflating away some of the debt but not going higher, but markets usually don’t work that way.
Raoul Pal:
And you know, looking at the coronavirus in particular as well is if everybody had acted like South Korea, Japan, and some of Europe, it gets contained faster, it doesn’t mean people get all their full freedoms back and the economy gets back to normal, the problem is, is we’ve got the US, which kind of reopened at peak virus, so that’s now become a problem, and then you add Brazil and India on top, and you’ve got a world that is now impossible to reopen, right, because you’ve got 1.7 billion people who are now at peak virus, right, so that’s game over for the year and game over for everybody else, so New Zealand great job, people in New Zealand can move around freely and it’s all good, the problem is they can’t travel and they can’t have anybody in, and world trade takes a big hit, so it’s really hard, so people are getting penalized.
So, if you think of the structure of society, what’s happened is people have been penalized now for taking the pain, so countries that took a lot of pain to control the virus are now being penalized because others didn’t do it, and so, therefore, they can’t reopen, the world economy takes longer to heal. Yeah, it’s an issue.
Now, could New Zealand’s domestic economy or here in Cayman where we’ve pretty got rid of it, can our domestic economy recover faster? Possible, you know, I don’t know.
Mike Novogratz:
Well, that bar doesn’t look very crowded.
Laura Shin:
Well, I guess, Raoul could still have parties even if it’s not necessarily…
Raoul Pal:
There’s only 140 people who live on this island that I’m on right now, so it’s not much of a party.
Laura Shin:
All right, well, so we’re going to talk a lot more about how other macro factors are going to affect Bitcoin and the crypto space, but first a quick word from the sponsors who make this show possible.
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Well, so what you’re describing then, it seems like the digital dollar would have kind of built…I mean, you referenced this before but I just want to know what it looks like to have kind of built in, or I guess you were saying that it could even be some of the commercial entities that help distribute the digital dollar but you know, in terms of the KYC, the know your customer anti-money laundering, anti-terrorist financing, anti-fraud, all those things, what would that look like? When I want to use it you know, do I have to give my full identity and then frankly well, let’s not get to that. We’ll talk about that in a second, but just answer that.
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Laura Shin:
Back to my conversation with Mike Novogratz and Raoul Pal. So, like you guys have…in a way, you’ve painted quite a rosy picture, and I just wondered…well, sorry, for Bitcoin not necessarily for the economic recovery, but I wondered, well, will that actually be more positive for Bitcoin to have the economic fallout kind of be dragged out the way that it looks like it’s going to be since the virus cases are not decreasing?
Raoul Pal:
Well, my view is that…my fear at the end of this is there’s two camps that go on in macro land and everyone will fight all day until it’s proven one way or the other and then they’ll claim victory either way, but it’s the inflation camp and the deflation camp. So, the inflation camp is not only about the excess printing and what it does to monetary policy, but it’s the excess stimulation and can it create a general rise in prices. I don’t believe in that, I believe that the fiat currency value will devalue versus gold and Bitcoin, things that have perceived longer term stores of value.
On the other side of the equation is what I worry about, which is solvency because if you drag a crisis on for a long period of time and everybody’s in a lot of debt, well, if their cashflows are impaired, i.e. the economy is slow, you end up with a solvency crisis, and we haven’t had that since the 1930s, and my fear is that is the risk here, and I think we would’ve had a better chance if the US economy had shut down, stayed shut down long enough to get the RO down below 1 and then reopened, and you wouldn’t have had a potential prolonged event. I could be dead wrong, right, everything could go fine, and so I don’t have a crystal ball, but the probability of this being a longer event is higher, and if it’s a longer event and cashflows are impaired, there’s two answers, either people go bust or governments spend more money and print more money, right. Both of those are extremely positive for Bitcoin and gold, which is why both of us own Bitcoin and gold because it’s very rare in macro, which probably means we’re both going to be wrong, but usually it’s very rare in macro where both extreme outcomes lead to exactly the same trade.
Mike Novogratz:
What’s interesting is it’s hard to see governments not printing more money, like the psychology shifted. What’s funny, you know, the minimum wage in America is anywhere from 7.50 to 15 dollars depending what state you’re in, the living wage in our country is about 14.50…I’m sorry 16 dollars, the average wage that you get paid working at Walmart, Home Depot, Lowe’s, all the big box retail is about 14 dollars, so 2 dollars below the living wage. Same thing with working at any of the fast food restaurants, right, 13.50 is the average wage, so now at 25 dollars, what’s interesting, people are kind of feeling like that feels more fair, that feels more right, like it’s a staggering difference, right, it’s making 20 thousand dollars a year 50 thousand dollars a year, but there’s a social construct, that’s why people are marching in the streets, of saying, we’ve been slaves for too long, and so there’s literally this social upheaval, breaking windows, painting, you know, eat the rich was all over L.A., you know, besides Black Lives Matter, of saying, the way society was functioning doesn’t really work, and so I have a really hard time seeing…you know, I think Trump and his gang of Republican senators and congressman are going to get wiped out of these elections, like it’s going to be a historical beatdown, that’s my first prediction, but even if I’m wrong, even if Trump wins, he’s not going to like then tighten the belt.
Look, he’s been the most profligate president we’ve had in years, in generations, he came in and run a 5% budget deficit when he claimed we had the greatest economy of all time. When you have the greatest economy of all time, you’re not supposed to be having a 5% budget deficit, and so you’ve got a Republican spendaholic and now you’ve got the democrats, who are ready to go, and so I just don’t see the case for not wanting to make people’s lives better with free money.
Raoul Pal:
And also, the other side of this is even if within that, these things are deflationary, the outcome from that, and I think real rates will end up going after the United States because bond yields are at 0, and I think we go to deflation, so real rates go up and the Federal Reserve have two tricks in their sleeve, one, let’s go to negative rates, two, print more money or three is both of the above, and again, so that’s another situation where it massively plays into this whole thesis about societal unrest, the unfairness, the feeling that you’ve been screwed, and then the printing by central banks, the feeling that the value of your currency is going down, the feeling that your own personal value within the economy has gone down, all of this plays into this big, larger, secular, thematic that’s playing out in front of our eyes.
Mike Novogratz:
And Laura, what’s important to talk about is like, listen, I don’t want chaos in the streets, I don’t want the dollar to hyperinflate and our currency to become toilet paper, like you know, I don’t want that at all, and I guess Raoul probably doesn’t want it either even though it would be great for our Bitcoin positions, as the possibility of that increases, as the probability of that increases, people want more hedge, people want more diversity, and so this trade can work, and it can work in a big way without the world falling apart, it just has to feel like the chance of it falling apart are a little higher. Is the dollar going to lose its reserve currency status in the next five years? Most likely not.
Raoul Pal:
And also, for me, it’s not just about the endgame for the dollar, it’s about, you know, Bitcoin, for me, stands for a whole bunch of different things, and for me, it’s a call option in the future of the whole financial architecture, the whole rise of the digital assets, the blockchain, tokenization, and all this stuff, and it is an option on that too, so we could be wrong, and as Mike was saying, maybe we don’t get to some sort of endgame, but we do know that there is a massive progress to this other endgame, which is going on, which is a whole new architecture of how we operate digitally and digital sort of value, so Bitcoin is that, too, and that’s what makes it incredibly attractive.
Mike Novogratz:
China came out like two nights ago, and I don’t know if it was public, at least I saw the paper, and said, okay, we’re going to go to Japan and Hong Kong and Korea and see if we can do an Asian stablecoin for trade, a crypto backed by those four currencies, if you’re sitting in Steve Mnuchin’s seat, you got to start scratching and say we got to get the dollar stablecoin out there pretty soon before China takes over the god damn world, right, we’re going into a Cold War with China, I wish we weren’t, I spent seven years of my life over there, and so it’s frustrating to see, but we are, we’re going into a Cold War, Trump killed the H-1B visas yesterday, stupidest thing I think a president’s done in a long time, but it just tells you where that tension is, and so right now in the US, we’ve got Venmo and a few other cash apps, the Apple Pay, and we don’t have the crypto alternative yet. It’s coming, Libra’s coming soon, hopefully by the end of the year, that will be a stablecoin, I’m guessing their dollar stablecoin becomes the dominate Libra stablecoin even though they’ll have other currencies you can participate in with 2.4 billion users, and so the payments game is going to be a monster game, and why that’s interesting for Bitcoin is the moment you’ve got a Novi wallet, you know, it used to be called Calibra, now it’s called Novi, there’s some rumor they named it after me…not really, though I like those guys, the moment you’ve gotten your Novi wallet, it’s really easy to flip between your digital dollar and Bitcoin, right, that’s going to be part of it, and so as we move to digital dollars, as everything is in your phone as opposed to…you know, I was on CNBC yesterday, and the guy before me was literally from some change company, and I was thinking you couldn’t have set me up better, and he was talking about we had a shortage of quarters, and it’s because of COVID, and they can’t print as many coins, and I was like, dude, this is 20 fucken 20, like what are we talking about, how much change you have in your pocket. First of all, it breaks your pockets if you put too much change in there.
You know, China already 90 plus percent is all done digital, that’s the direction of the future, and as the US and Europe digitalizes their financial structure, our bet is it’s going to be a blockchain base. That’s not 100% certainty, right, you know, the centralized apps like Venmo are pretty popular, their business model doesn’t work really well with interest rates at 0, but you know, listen, you’d be arrogant to think it’s got to be a decentralized…
Raoul Pal:
Yeah, because you’ve seen what India did, right, they rolled out this massive digitalization. I mean, you can go and buy a pint of milk in India with a fingerprint, now. You don’t need a phone, you don’t need a wallet, you don’t need anything, you don’t need money, just a fingerprint, and you can have all your KYC and you can have all sorts of stuff. The problem is it’s not decentralized, there’s a number of frugalities potentially with it, but the point being is actually the United States and Europe is so far behind where everybody else is. If fucking India can buy milk with a fingerprint, we’re a long way behind.
Mike Novogratz:
Yeah.
Laura Shin:
Yeah. Well, so you guys…I mean, I know you guys could talk all day, and yet, I have so many questions about all the things that you guys just talked about, but let’s start kind of with maybe what is to my mind the biggest question around all this because it’s the most global, and it really effects the global balance of power, but you know I think a lot of people would agree that China wants to make the Renminbi more dominant and also reduce the dominance of the US dollars, the global reserve currency, and obviously, you know, as you mentioned, they’re piloting their own central bank digital currency, the DCEP, they also have this vast enterprise blockchain effort that consists of like hundreds of different individual initiatives, so I wonder like do you think that they will effectively parlay these efforts into leverage to reduce the dominance of the US dollar, and if so, would that work?
Raoul Pal:
They can’t do it by trade alone, right, the RMB is not a currency yet that everybody wants to use. The issue is, is the dollar is 25% of the world economy, yet it’s 79.5% of all world currency transactions, so the dollar is outsized, and really what the Chinese and the Bank of England have talked about this and the ECB, and Mike was just talking about it before, people are looking at baskets of digital currencies as trading blocks, and there you could have a dollar waiting that’s not 79.5% but something more reasonable like 40%. It’s not the death of the dollar or the abandonment, it’s something that allows the system to function because there’s not enough dollars around, just complicated architecture, so I think all of that is coming, and I think it’s going to move towards a regionalization of currencies and this kind of basket world where you have a much more stable environment where you can…Libra was genius because it had dollar, the original Libra concept had dollars, yen, pounds, euros, yuan, and so, therefore, it kind of basically moved up and down with global GDP, and that’s brilliant for world trade, so I think all of this is coming, I don’t think it’s a mass abandonment of the dollar, I think it’s a deemphasis.
Mike Novogratz:
But it’s interesting, you know, it’s systems change. Again, I go back to that word, so how do you get to become the reserve currency? You spend 5% of your GDP on the military, right, whoever’s got the most powerful Navy in the world has been the reserve currency for a long, long period of time. We spend 5.5% of GDP on the military, the next biggest country was like 2%, and so in lots of ways, the US paid to be the reserve currency. You get a huge amount of benefits from it.
You know, Trump in this kind of post globalization era, let’s make America great again, let’s be nationalists, let’s turn our back on globalization, you can’t blame in some ways the other countries that say wait a minute, we’re letting these guys control the payment system of the world, where money gets wired because of the switch system, you know, the moment we’re not nice actors, it exposes just how powerful the reserve currency is, and so people don’t want it anymore, you know, hey, we’re not going to overpay for NATO and keep everybody safe with our 5% GDP military, but we’re going to look much more hawkish, people are going to be less prone to want the dollar as their reserve currency, and I think China’s a real threat, and you know, I hate thinking it that way because I’m like such a globalist in my core, but certainly, you know, the US is seeing…and now both parties, which is frustrating, but both parties are seeing China more as a threat than an ally.
Laura Shin:
Yeah, and actually, just to go back to a comment that Raoul made at the very beginning about how he didn’t think that China could use trade only to kind of make the RMB more dominant, I did wonder though like with these sort of belt and road version of these blockchain initiatives that they’re doing and you know the fact that they’re kind of going into these countries that are developing and have very young populations and that are really going to be the source of global growth probably for the next couple decades, like that combination alone, I think, makes me wonder a little bit, especially when you look at how the US is kind of dragging its feet with its own…
Raoul Pal:
I mean, you’re dead right. The problem is the US is still the largest economy in the world, and it’s huge, and it has a large share of world’s wealth, so it doesn’t go away. Dead right. All of those countries, particularly all the Islamic countries across the Middle East, around the Indian Ocean, fantastic demographics, low debt, they’re all strong in trade with China, there’s a new world being built in front of our eyes, without question, but you can’t ignore the US, and you can’t ignore Europe within that equation, and that’s still there.
Laura Shin:
And what do you guys think about Christopher Giancarlo’s digital dollar project, do you think that that is something the US might actually do, and if so, do you think that would help the US kind of keep up with this competition going on with China even if the US doesn’t recognize it’s in a competition?
Mike Novogratz:
I think you’re going to see one or more dollar-based stablecoins really grow in the next 6 to 24 months. You know, the question is do the assets get held at Bank of New York or do they get held on the fed balance sheet, and that I think is still up for grabs, you know, right now, it’s not the fed balance sheet, it’s assets being held at some bank, and so that keeps fractional banking alive in some weird way. If the assets are all held at some balance sheet one-for-one, you know, you kind of lose fractional banking, so the fed has to kind of think about how do I really expand money supply when I want to.
Laura Shin:
Yeah, I think…
Mike Novogratz:
So, it changes banking dynamics.
Laura Shin:
Yeah, and in his proposal, he would keep the structure that we have now using commercial banks in addition to the central bank.
Raoul Pal:
Although in general terms, give the central bank the power to be the bank and be able to put money in and out of people’s pockets directly it becomes too much of a prize.
Laura Shin:
What do you mean by too much of a prize, I don’t know what you’re saying?
Raoul Pal:
Well, because for governments, the ability to control, incentivize, penalize people directly by owning the banking system direct, if you’re issuing digital currency, you don’t actually need the middle man. The dirty truth is you don’t a bank apart from leverage and a few other bits and pieces. Now, can that be sold by a different layer? Probably, but the fact being if the governments are the people who directly pay you, take the money away, tax you at source, all of this, that’s an incredibly powerful thing. Once you put that little trophy in front of them, they’re going to go straight towards it regardless of what we think because that is the new world we’re going into.
Mike Novogratz:
Well, then you look what China’s doing, I mean, China’s system scares the shit out of me, right, they’ve got social responsibility scores based on all kinds of factors, they’re moving from a digital renminbi to a crypto renminbi, like it’s bad enough digital renminbi, they know what you spend your money on, a crypto renminbi, listen, if they don’t like you, if you’re a Uighur sympathizer or if you’re gay and they don’t decide to like gays that week, they can freeze your money, like because they know who you are, because they’ve already seen what you shopped, and they can figure who you are, and so this combination of machine-based learning, you know, facial recognition, and having a programmable currency controlled by the state that’s not decentralized is one of the scariest…you know, it makes 1984 look like a kids Nam.
Raoul Pal:
Yeah, so one of the big developments going on is the rise of behavioral economics, so yes, it’s been around for a long time, but once you apply big data to behavioral economics, what you can do and Facebook have been masters at it, as have Google, is you can influence behavior.
Now, what makes it powerful is we’ve also learned that from the gaming system, and again, it’s behavioral economics, is incentive-based systems based around some sort of perceived benefit and money being the great driver in humans generally, as long as we don’t need food and water, if you can attach a token credit system, i.e. a digital currency, to a behavioral economic system, i.e. a reward and incentivization punishment system, then you can control more people, and that is terrifying, but that is the world we’re going into.
Laura Shin:
Yeah, actually, just a few comments, I did have Christopher Giancarlo on my show a couple weeks ago to talk about his proposal, and he was saying like, you know, in the US, we tend to do public/private partnerships, and so he’s really envisioning that his digital dollar proposal would be that, and that I think he seems quite allergic to the idea of a central thing currency where…
Raoul Pal:
It’s not his choice because when the market take it…it’s like when Libra came out, right, everyone knew it, we was like, okay, well, there we go private currency will exist now, and it’s not in the…you know, everything changes once an idea is unleashed, you know, Satoshi’s idea has grown into this huge ecosystem, and so if you’re thinking of trying to launch a digital central bank currency and assume that it’s going to be a nice, fluffy thing that everybody thinks, oh, isn’t that lovely, it’s never going to happen because the behavioral incentives are aligned for governments to use it much like…
Laura Shin:
Well, we’ll see…
Raoul Pal:
Much like the data that’s within Google and Apple gets used by governments because they want that data. The state and Alibaba have a very good relationship because they need that collection of data, you know, they’re not going to take that away.
Mike Novogratz:
I mean, you think about it, every single financial transaction goes through the same clearinghouse, like think about what I just said, every single penny spent goes to a god damn government clearinghouse that they then can hook their AI engines to and figure out who’s who.
Laura Shin:
I just think the US is fundamentally very, very different from a place like China, so I don’t know if our government is going to go in the same direction, that’s just…
Mike Novogratz:
Oh, we are. Look at the way we’re dealing with COVID, we like our freedom, I ain’t wearing no mask.
Laura Shin:
Well, my opinion on that is that we politicize science and that’s really frustrating. So, we did mention Libra briefly, but I did want to ask just about that a little bit more because the US is dragging its feet on a digital dollar and China’s really coming out of the gate with this, I mean, you know, Libra’s had quite a lot of just I would say regulatory difficulties, yet, despite that, do you feel like this is sort of the best bet as a counterweight to the DCEP being sort of the first mover?
Mike Novogratz:
You know, I think, Libra’s very…they’re very aggressively hoping to launch, and they’re persistent, and I think they’re going to try to launch, and I think they will launch. I think, you know, congress, the US public, has a big skepticism around Mark Zuckerberg, and you know, if Libra was not a Facebook project, I think it would have a much better chance of success.
That said, I’m not going to short him because you look at Facebook and stock trade is on the highs, it makes Fortune, anything he does, that they do, seems to work, and they have 2.3 billion customers. I do think if you think of Libra, they’re going to do that you’re a Libra and all these different Libras, I think, offshore, the dominant Libra will be the dollar Libra. In the same way, if you’re in Valenzuela, you want 100 dollar bills, you’ll take Bitcoin because you can’t get the 100 dollar bills, you’ll take the dollar Libra, if you can get it, and so I think it probably has the most chance of success just because it’s got the customers to start, and they can do things on scale, right, all these other places it’s harder, like how do you get people from fiat into currency into digital the first fund, so those ramps are the hardest thing to figure out how to do, and you know they’ve got an army of people that can work on that.
Raoul Pal:
And then, WhatsApp, which is gigantic, so you know the ability to just instantly transfer payments around using WhatsApp is the killer app, I mean, they’ve never monetized WhatsApp. They paid 19 billion dollars for what 24 people or however many it was…
Mike Novogratz:
Yeah, 24 people.
Raoul Pal:
Nineteen people, it was crazy, but in the end, the killer app is coming, and they know exactly what it is, it’s going to be being a global payments platform.
Mike Novogratz:
Yeah.
Laura Shin:
So, let’s also now just talk a little bit more about the election because we touched on that earlier and it sort of…Mike kind of was talking about the different parties and stuff like that, but I just wondered like if a Democratic president or congress comes in, how do you think that will affect Bitcoin, I feel like the Democrats have sort of broadly been more skeptical of cryptocurrencies, and I wondered if a blue wave would kind of hurt the industry in any way or what you guys thought?
Raoul Pal:
Personally, I don’t think it hurts the industry, I think as Novo said, they’re going to spend money. You know, we look at it…we’re very simple macro guys here, we keep telling you the same thing is they’re going to print more money and they’re going to spend more money, and that’s only good for Bitcoin, and I don’t see a world that that doesn’t happen yet. Sure, 3, 4 years out, maybe things change, maybe there’s some more austerity, but you know we’re looking at that window between here and there is I don’t see that, and I don’t see that…they’re not going to change the regulation that exists now, so we could all buy it and trade it, so what’s the risk.
Mike Novogratz:
I also think right now Bitcoin’s biggest competitor isn’t gold, it’s Nasdaq or story stocks, it’s what…you know, it’s Beyond Meat, it’s Tesla, you know, you’re making a whole lot of money buying Tesla, it’s going up, even though it trades at some spectacular multiple, you know, it’s a lot like a crypto, it’s a story that people can buy into and it’s a store of value because people say it’s worth something.
I think if Biden gets elected, he’s going to take the capital gains tax right up to where the income tax is, so also you’re going pay capital gains from 15 to 40, and the stock markets going to choke on that, and you’re going to see a major selloff in stocks if the Democrats win, then I think perversely, it might hit crypto for a little bit just the correlations, but then all of a sudden people are going to say, shit, now I can’t buy stocks, but I can still buy Bitcoin because Bitcoin’s not going to get taxed like that. Well, it will get taxed like that, but…
Raoul Pal:
And also, those same story stocks are likely to get regulated.
Mike Novogratz:
Yes.
Raoul Pal:
So, they run the risk that Facebook…I think Google gets broken apart. I think Facebook, if they get Libra off the ground, there’s almost zero chance they can stay together as one company. You can’t have all the worlds data and the worlds currency and the largest messaging application in the world, it’s impossible, so they’re going to get broken up. I think they’re going to get broken up.
Mike Novogratz:
Yeah, Silicon Valley, the Democrats are coming after Silicon Valley.
Raoul Pal:
Yeah, and so in that case, and I love that, I hadn’t thought about it before, in the world of story stocks, because when you’re bringing people into markets that weren’t traditionally involved, the story is the driver, and Bitcoin has a really great story, and I understand that Tesla had a great story, but it got kind of crazy, and they’re all going to get regulated.
Mike Novogratz:
Laura, I was on stage in Abu Dhabi right before this whole thing started, and I was on with a guy, Mohammed Oshia, who owns 70 brands, like every major western brand that’s sold in the Mideast, he owns, richest man in Kuwait, and you know they put me on stage to talk about brands, and I’m like what the hell do I know about brands, and I sat there trying to think quick on my feet, and I was like, oh, Bitcoin might be the single greatest brand created in the last 10 years, like there is no other brand that came out of nowhere that creates 180 billion dollars, it’s known globally in every country, in every village someone talks about Bitcoin, it’s got 190 billion dollar market cap, and I hope soon 200 billion and higher, and so it’s interesting, I was thinking what a powerful brand that’s been created.
Raoul Pal:
That’s a great observation, I think.
Laura Shin:
Yeah.
Raoul Pal:
It is a brand, I mean, everybody knows it, they kind of knows what it stands for now. They don’t fully understand it, but you don’t understand how your Apple phone works, so why do you care. The point being is it stands for something and great brands stand for something that you believe in.
Mike Novogratz:
When it breaks 10,000, I’m going to get a big diamond shave of the Bitcoin here so I can show off my brand bling.
Laura Shin:
Yeah, I actually also feel like the Bitcoin story is sort of perfect for the moment in terms of all these popular uprisings that we’re seeing and this movement frankly also against big tech, but I just love you guys because you went right for what my next question was, which was if a Democratic president would try to break up big tech, so in that vein, as you know, there are a lot of people in Silicon Valley, a lot of these VCs, who say that Web 3.0 is the anecdote to how big tech is so dominant, so do you feel like if that happens, that if the Dems do break up big tech that we will also see…?
Raoul Pal:
Yeah, I mean, we’re seeing it, and Novo will know this as well, people at Brave Browser, we’ve seen that Block.one are launching Voice, you know, all of this social stuff, the whole economics of this world are going to shift, right, the economic power is all with Google right now, and the economic power is going to go back to the individual, that is the rebellion that is going on everywhere, so you will charge for your time and your attention span as opposed to you getting a product for free and then monetizing your attention span, so I think that whole entire shift is coming, and that’s going to be driven by blockchain technology, for sure, so I think there’s a whole disruption to Silicon Valley that has to happen. We need to own our security. I cannot trust…we talked about it before, I don’t want to trust Google with my security. Has anybody asked you how did Google keep their stuff secure? There’s the largest repository of privately stored information on earth and not one person asked where are their servers kept, what is their security protocols. I want my data and I want it on a secure blockchain.
Mike Novogratz:
So, Laura, I think…listen, you know part of the reason I got into crypto, first it was speculative, and then my college roommate, Joe Lubin, is a real firm religious zelate around Web 3.0 and how the Ethereum blockchain or any blockchain can kind of fundamentally change how we structure businesses and our data and everything else, I still think Web 3.0 is coming, I think the gap between where we are and where we need to be on the technology is wider than people want it to be, and so it’s not happening in the next year or two or three, but I think in the next 3 to 10 years, you’re going to see more and more of the architecture being robust enough to take a real shot at things, and listen, it will be a wrestling match, you know, will Bitcoin disrupt gold, I think so, or at least it will add to gold, will it disrupt the dollar, we’ll see, will the Voice, Block.one’s new social experiment take out Twitter, not a high probability but it might, right, these big tech companies are smart and they’re fast and they’re well-funded, and they all have a blockchain defense angle, you know, they’ll blockchain a little bit, and so it will be a fascinating space to watch.
I think the move of what people want and where history is going is exactly what Raoul said, and so I think that fight over what gets disrupted and what doesn’t get disrupted will really be a lot of fun to watch. It will be profitable, there will be great moneymaking opportunities both of the long and short side.
I mean just look what’s going on in D5, right now, you know which is a little bit of a mini bubble, it’s really the first thing that’s worked on Ethereum really, and so now we’ve gone from a 500 million dollar ecosystem to a couple billion-and-a-half ecosystem in five days, you know.
Laura Shin:
Well, I wanted to ask a little bit more about Ethereum because I wondered if Ethereum 2.0 would get more interest from more traditional financial people like you guys because it will sort of become more like a yield bearing asset.
Raoul Pal:
You know, I think of it…
Mike Novogratz:
Well…go ahead.
Raoul Pal:
Go ahead, Novo.
Mike Novogratz:
Well, I was going to say that each of these things have a story, right, so Bitcoin has this story digital gold, Ethereum is trying to become the decentralized platform for D5, for stablecoins, and for lots of things. I would value it more like I value Facebook, right, as the social network of Ethereum grows, as there are more programmers, as there are more businesses on it, as there are more people using it, I think the value will grow. Right now, that community is buying it speculatively the same way the Bitcoin community buys it, it’s a smaller community, it doesn’t have the institutional framework yet, you might have a few speculators that will participate, but when I think of Bitcoin, I can think of 20 billionaires that made their fortunes outside of Bitcoin that are big advocates. I was on a call with Bill Miller earlier, right, one of the great financial investors of all time, Bitcoin guy, you know, Abby Johnson, Bitcoin guy. The Ethereum community doesn’t have those outsiders, they have the Joe Lubin’s, the Vitalik’s, plenty of stupidly smart guys that are unbelievably passionate about what they’re doing, and so it’s a different universe. Even Ripple, it’s got its community, right, they’re trying to become the cross border payments remittance shop, and they’ve got the Ripple army out in Asia, and they’ve got a community that people continue to buy it, and so a smaller community than Bitcoin, and so it’s not that there could only be one of these coins, I think the other coins have to really have a purpose for that community, and they’ve got to grow that community, and it can start speculative, but in the long run, it’s got to be used.
Laura Shin:
But I’m really asking about staking, in particular, like do you think that that will become a thing that financial institutions will be interested in doing?
Mike Novogratz:
In time, yes. So, I think you’re going to see it first in Bitcoin with getting people to invest in mining pools, right, getting return on your Bitcoin by taking some of your Bitcoin and putting it in a mining pool, and so maybe if you have 10 dollars, you’re going to put 7 in Bitcoin and 3 in Bitcoin mining, and I think you’ll see it there. I think you’re certainly seeing it already in Ethereum, and it’s a good model. I just don’t think that institutions are going to be there this year.
Raoul Pal:
Yeah, I think when you’re dealing with something as complicated as Ethereum, Bitcoin, and all its potential possibilities and futures and what you can do on it, as Mike says, the most important thing to understand is the story, and it’s a simple story. Bitcoin is kind of the trusted kind of reserve currency, and Ethereum is a platform with which to construct a new world, and if you think of it in those terms, it’s like gold and silver, silver is sort of a precious metal, but it’s really an industrial metal, too. Bitcoin is the precious metal, Ethereum is the hybrid model, so I think they both have a place, and I think many of the other ecosystems have a place, too. They will find their niches and their communities, and the whole thing will just grow from that much like, you know, there’s a Java world, and there’s Linux, and there’s all these other programming languages, all of this exists, and they all talk to each other, and I think that’s fine.
You know, it’s like we’ve got all the different email protocols, and they all work, you know, I can use my Apple email and you can use Gmail and somebody else can use Outlook…
Mike Novogratz:
My wife still uses AOL.
Laura Shin:
Well, so actually, Mike mentioned the DEFI trend, and I just wanted to ask have you guys been watching this yield farming thing going on, do you think that’s sustainable?
Raoul Pal:
Yes.
Mike Novogratz:
No.
Raoul Pal:
I’ve looked…
Mike Novogratz:
In the short run, no, in the long run, yes, but I think, you know, you’ve got kind of crazy levels all of a sudden.
Raoul Pal:
I mean, the point being, as we know, right, you see these outside returns, right, they don’t exist in the world, right, there’s no such thing as a super normal return that lasts for long, so you see these 100% a year returns that people are talking about, what he and I will know is that, well, you just haven’t seen the defaults yet, so you don’t know what the over cycle actual yields you get. My guess is it’s probably good. Maybe you get 15-20% yields because not many people are in it, but it’s not the 100% they’re talking about, but we need to see all the things that go wrong so you can see over the cycle, so if people are building that in as an expectation, they’re all going to use a lot of money. If you don’t and you just think, okay fine, I don’t know what it’s going to be because, you know, the day you go and buy 100 junk bonds, they’re all paying and you’ve got 100%, you know, some imputed return, the reality is it doesn’t work that way, some don’t pay, so we got the same thing to come, you know, one of these stablecoins won’t hold value, whatever it may be, whatever mechanism it is, but that’s okay, but it’s really exciting to see that stuff like this is coming.
Laura Shin:
Yeah. All right, well, I appreciate that you guys went over, but I just want to ask one last piece because I mentioned it right at the beginning, so amidst everything that we’ve discussed, we also had this recent Bitcoin halving, and traditionally that has driven a boom in the price in the year or like roughly 18 months after halving, but because this isn’t really a normal time, I just sort of wondered how you expected the halving to be affect…or how you expected it to effect Bitcoin amidst everything else?
Mike Novogratz:
So, I think it’s just…again, both of us are storytellers, so you’ve got two storytellers on the same podcast, when I think of the Bitcoin story the halving is like a giant exclamation mark this year, like okay, the central banks are doing quantitative easing, and oh, the central bank of Bitcoin, we’re quantitative tightening, right, we just cut the new supply in half, and we’ll do it again in four more years, and so it’s such a symbolically cool time for it to have happened. It’s a little bit like aha, you know, they got central banks, and I think that, you know, to me, that was much more important than the technical of minor selling and…
Raoul Pal:
Yeah, it’s the lovely thing of saying, quantitative easing versus quantitative tightening by algorithm, you know, it’s a great story, whether it at the margin makes all the difference at all, who the hell knows, I’m not smart enough to figure it all out. What I do know is it probably works, whether that’s because of the story and the human behavior or the reality of the less supply and an increased demand.
Laura Shin:
All right, great. Well, this has been so fun chatting with you guys. I’m so glad we were able to make this happen. Where can people learn more about each of you and your work?
Mike Novogratz:
Well, we have a website for Galaxy, you know, galaxydigital.com or dot org, I’m not sure which one it is.
Laura Shin:
I think it’s dot IO.
Mike Novogratz:
One of the two.
Raoul Pal:
And you can find me at realvision.com or find me on Twitter @raoulgmi.
Mike Novogratz:
Oh yeah, I’m on Twitter a lot, too, I have no regrets.
Laura Shin:
Great, and I will put the real link to Galaxy Digital in the show notes since Mike couldn’t remember. Okay, well, thank you both so much. Thanks for coming on Unchained.
Mike Novogratz:
Thanks, Laura.
Raoul Pal:
Thanks very much.
Laura Shin:
Thanks so much for joining us today. To learn more about Mike and Raoul, check out the show notes inside your podcast player. Don’t forget you can now watch video recordings of the podcasts on the Unchained YouTube channel. Go to youtube.com/c/unchainedpodcast and subscribe today. Unchained is produced by me, Laura Shin, with help from Fractal Recording, Anthony Yoon, Daniel Nuss, Josh Durham, and the team at CLK Transcription. Thanks for listening.
