Dan Tapiero: Three Key Crypto Investment Categories (w/Dan Tapiero and Raoul Pal)

Dan Tapiero: Three Key Crypto Investment Categories (w/Dan Tapiero and Raoul Pal)

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ASH BENNINGTON: If you love our crypto content  or are looking to learn even more about crypto,   be sure to checkout and subscribe to our new  youtube channel after this video dedicated to   all things crypto. Find new videos every week.  Be sure to check the link in the description. RAOUL PAL: Dan, look, as ever, always  great to be on Real Vision. This time,   it's on Real Vision Crypto. We're going to  come and leave a bit of the macro world behind. 

DAN TAPIERO: Okay. RAOUL PAL: Because you and I have   both been down this journey together and it's been  fascinating. People have seen it on Real Vision,   us both going down the journey of you dragging me  back in and that great conversation that we had.   Now, things have changed for you, because you've  now gone even deeper into this, much like many   of the macro guys. You've gone from being an  observer of the space to an investor of the space   and now you're going all in them of space.  Let's talk a little bit about what you're up to.  DAN TAPIERO: Yeah, that's true. You've been an  intellectual sparring partner of mine for years  

and years and, yeah, we really  hashed that thesis out together.   That was the initial stage of me falling down  that rabbit hole. After the initial Bitcoin   position in Q1, Q2 2019, I really started  to look around for what else I could do   and given my background and experience, I really  wanted a sector bet. I was blown away like you by   how intelligent some of the people  were in the space, all the different   projects that they were working on. Again, very hard to understand.   I don't know that you and I could have a  really high level conversation about Polkadot   or even Ethereum, it's very high, very complex.  I just found myself continuing to hit a wall.  

Bitcoin, I could understand because there's very  strong macro component to it, a store of value,   is very the Bitcoin network that we  talked about. The value of that network,   especially after the first five, six years,  really, I think has become established.  There are lots of interesting things going on  that are valid, and so I wanted to find a way to   dig in and figure out a way to get involved  because I'm just sitting there with my Bitcoin and   that's wonderful. What else? I came up with this  idea for this fund that we launched 10T Holdings,   launched just a few weeks ago after a year plus  of work. It really is a sector bet. It's a classic   bet that I've done before. I did it in the ag  space when I was working with Druckenmiller. 

We aggregated a whole group of farms, built  a farmland rate and that became our bet   on the farmland sector. We held that for seven  years and had a fantastic exit. I was looking for   that sector bet, and I didn't feel that there  were enough-- of course, there's Novogratz's   Galaxy. That's one public company. I thought  about taking a position there, but I didn't feel   it had as widespread an emphasis as I wanted.  I wanted exposure to several different sectors,   and I figured I'd build a portfolio of  companies that were active in that space. 

I've divided this whole world into  three categories, digital asset   ecosystem gateways, next -- RAOUL PAL: Hi, I’m Raoul Pal.   Sorry to interrupt your video - I know it’s a  pain in the ass, but look, I want to tell you   something important because I can tell that  you really want to learn about what’s going   in financial markets and understand the global  economy in these complicated times. That’s what   we do at Real Vision. So this YouTube channel  is a small fraction of what we actually do.   You should really come over to  realvision.com and see the 20  

or so videos a week that we produce  of this kind of quality of content,   the deep analysis and understanding of the  world around us. So, if you click on the link   below or go to realvision.com, it costs you $1.  I don’t think you can afford to be without it. DAN TAPIERO: -- space. I've divided this whole world into   three categories, digital asset ecosystem  gateways, next generation financial services,   and blockchain infrastructure companies. 10T is  very simple. We're just building a portfolio of   10 to 12 companies overall, three to five, let's  say, or three to four companies in each space.  

They're companies that are mid to late stage.  They're larger than $400 million in valuation.   They have, let's say, $30 million to  $50 million in revenues or larger.   They've established moats. They have leadership  teams. They've already figured out how to win. 

The reason I've done this is because the funds  in the space for the most part are all VC   and focused on early stage. I don't really have  any ability to add value there and I can't compete   against an Andreessen or a Polychain or a Paradigm  or a ParaFi, any of the guys in the space today.   I don't have a programming background. I can't  get into the arcane details of the protocols,   and frankly, the people I know, and  my investors really can't either.  This was really a simple way for me to express a  bet on the space. For me to be able to explain it   in simple terms, these are companies you will own.  There is an income statement and a balance sheet,  

there is a CEO, there is a team, this is their  project. Any 60-year-old guy who knows something's   going on in Bitcoin, something's going on in  this digital asset world, they're not quite sure,   they can't wade in because there's  too high a barrier, an intellectual   barrier for people to really understand. Try to figure out the difference between Polkadot   and ChainLink, or actually how Polkadot works. I  listened to a podcast recently with Gavin Wood.   I've listened to it three times, and I'm still  not exactly sure because- - it's interesting,   but I don't really know. However, owning companies  that are leveraged to the growth of the overall   digital asset ecosystem seems like an easier way  for me and other people like me to get exposure. 

The last thing I'd say is I really feel like I'm  bringing a whole new investor base, investor class   to the space, people who would not necessarily  come in, but who are sitting on very large pools   of capital. I think the fund is a nice toe dip  for our LPs and investor base. Then if they want   to explore certain things more, then they can.  That's what I've been busy doing. Building that   business for the past year, and we've launched. RAOUL PAL: Yeah, super interesting. That latest   stage idea, as we're going into the Coinbase IPO,  people are starting to see there is massive value   embedded in some of these businesses. What  I want to cover with you, you talked about   the three key areas. I'd love to go through  those key areas. We talked about the gateways. 

Well, let's go through the three areas that you  discussed, because I think that's interesting to   dig into to see what your thoughts are on them,  how you think about them overall, because again,   at a top-down level, you and I can't get into the  weeds about the technology, because we just can't,   but it's the conceptual framework of  what this is all about or where it   might be going is going to interest people. DAN TAPIERO: Yeah. Look, these are categories   that we came up with. Other people have broken  this world down into many different categories, in   seven, eight different categories. Some people  now have a tremendous focus on the gaming or NFTs.   There's of course, also, defi has been on  fire, so people are focused on that. There  

are people who are Bitcoin only, and they're only  looking at things that Bitcoin type solutions.  There are many different ways to carve this world  up, and I think the reason we came up with what we   did was just simply because the companies that  are larger fit into these categories for us.   Again, there are only 35 companies that  we see that have a valuation over 400,   we're going to own 10 to 15 of them. The  first one is just traditional, I would say,  

the on-ramps into the digital asset  world. Coinbase, of course, is one.  We won't own Coinbase because it's already on path  to being public but there are other exchanges that   would be any exchanges that you know. A Bitstamp, or an eToro, or Kraken.   Any of the exchanges, that would be one  category. I might even put BlockFi in that   category, too. They've just done a raise of 2.8  billion. I think they really are the blue chip   leader in the borrowing and lending space. I  would categorize them almost as a gateway as well.  

We've broken it, as I said, we've broken it down  because those areas are populated with companies   at the size that we're looking to invest in. RAOUL PAL: Now, to talk about these gateways,   these exchanges, where does the  moat lie in these things? Because   obviously, you've got fungible products  that can trade on multiple exchanges,   how do these guys adapt as they move forwards? DAN TAPIERO: Well, it's a little bit as you've   talked about before and have talked about recently  about network effect. Coinbase, as an example,   is the retail interface in the US. In the US,  it's dominant. Over 35, or $40 million clients.   They've already figured out how to win  in that space. In my mind, a lot of these   companies are really budding conglomerates, too. Two years ago, they didn't have custody, then all  

of a sudden, they see that custody is interesting,  they pivot there. Next, they see that borrowing   and lending is taking off, so they pivot there.  All of a sudden, they offer staking, and so there   are all different kinds of things that they do.  We think of them as an exchange, but I'm really   betting on them as these are the best teams in  this category and they will pivot if they need to.  RAOUL PAL: Do you think they head  towards becoming investment banks?  DAN TAPIERO: Some of them, yeah. Look, the  space is really evolving and growing at an  

enormous speed. I think some of the companies  could actually be purchased by some of the   existing investment banks. Morgan Stanley is  an example, bought E*TRADE for $12 billion   a year and a half ago. They could have bought  Coinbase at the time for 7 billion. Now, Coinbase   could be 30 billion, 40 billion. I know there was  an announcement today, it's trading at 70 billion. 

I think some of these larger guys in the legacy  world might try to step in and purchase them. Some   have ambitions of being an old style investment  bank, but some don't. Someone like Kraken is   really a favorite for active traders. There's  great liquidity, all sorts of different products,   they're really cutting edge, super secure. Each  one of these gateways focuses on different things.  I don't think Kraken is trying to be a Coinbase.  I don't think BlockFi is trying to be a Kraken.   They've developed their own niches. Is there  a moat? Well, there's a moat in so far,  

as an example, Kraken has been  in business for over nine years.   They've spent 10s of millions, if not more on  building that infrastructure. I don't think an   asset like that is actually replicatable today. RAOUL PAL: I spoke to Jesse a while  

ago. The poor guy's exhausted. DAN TAPIERO: Well, they've had quite a few   blowouts. I heard from somebody recently  that a few weeks ago, their Dogecoin trading   went up 20x in one day, and it blew out the system  there. Don't quote me on that, but the volumes as  

we know have exploded. They're built to take that.  What I mean is that building that infrastructure,   you couldn't do that today. You can't start  from-- I think BlockFi is a little special,   in that they're a younger company, but they  really carved out the borrowing and lending space.  They didn't seek to compete head to head with a  Coinbase or a Kraken, or Binance. Throw Binance  

in there, they really are the juggernaut in  the space, but they're not really in the US.   They're doing over a lot more than 50% of  total world volume, but it's outside of the US.   I think Binance would have a very hard time  if you talk about moats of competing with a   Coinbase or Kraken or even a BlockFi in the US. There's also geographic diversity that we're  

going to bring at least to our portfolio, because  each of the different areas have different rules,   the jurisdictions have also-- the clients have  different needs. South Korea is a gigantic   market. I can't tell you that I've got tremendous  expertise there but there are companies there   that service South Korea that are enormous but  aren't really active in the US. It breaks down   by geography as well in terms of you asked  me about the moats in this particular space.  RAOUL PAL: What's the next bucket after these  gatekeepers? What's the next bucket you have?  DAN TAPIERO: Well, you've got next generation  financial services and that's a broader category   we came up with because there are lots of things  going on in the space that are not gateway   strictly and they're not infrastructure. Figure  would be an example. They are super plugged in,  

and they actually use the blockchain technology  to power their mortgage lending platform.   All of a sudden, within just a handful of  years, you've got a billion dollar company   run by a Mike Cagney, who's had tremendous success  previously as an entrepreneur, and they're really   doing some super innovative stuff. I can't get into the weeds   on that right now, but I think that it's a  unique company, and they are taking that whole   mortgage space by storm. We think that they're  going to be a powerhouse in the next three,   four or five years. Another company, take a look  at BitGo for instance. They're a pretty strict   custodian, but they're branching out into other  areas as well. I wouldn't call it necessarily   a gateway, it's more of a custodian. Another company, look at Barry's DCG.  

DCG is really a conglomerate. He's not  really focused on being a gateway. He's   an over-the-counter market make. He's moved  into borrowing and lending. He has the Grayscale   Trust. He has the publishing and events business.  That's really like a financial, I would call   it like a crypto conglomerate powerhouse. RAOUL PAL: He's gotten into mining as well,  

doesn't he? DAN TAPIERO: He's launched a big mining   project as well. He's doing tremendously well.  It's not that easy to procure a block of stock   in the secondary, and it is expensive, but it is  out there and there is evaluation out there. Also,   the market for the secondary has improved versus  three, four or five years ago, there were very few   brokers in the space, some people now are  moving to it. I will say this, look, we are  the first fund that I'm aware of that  focuses exclusively on mid to late stage   digital asset ecosystem companies. All the other funds, you have growth  

equity funds writing one-off checks into the  space, Tiger and KO2 and some of the bigger guys,   I think it was in Q4 2018, participated in that  large Coinbase raise. I think for most of the   growth equity guys, it's a little weird in crypto.  They're not quite comfortable with cryptocurrency.   I think you need to underwrite a macro scenario,  have a macro view, and a lot of these guys   don't necessarily, or maybe they do, but  they don't really have a lot of comfort.  To me, a company that's worth a billion dollars,  that's generating $50 million or $100 million in   revenue. That's already a business and it's not  early stage. It's funny, it's the same realization   that you and I had when we were talking about  Bitcoin in early 2019. I thought to myself,   this is not an emerging asset anymore. This  is an established asset, and I don't know why  

people don't see it yet. I see this as the  same way and so we've waded into this area.   So far, I don't think really there  are that many competitors out there.  RAOUL PAL: My guess is in this space, you're  going to get inundated with new companies coming   into your criteria, because the space is moving  fast and there's going to be somebody in the defi   space who makes it into that. There's going  to be a bunch of companies that start falling  

into this new category where they're larger.  It's going to be an embarrassment of riches as   this space grows, because it's moving so fast. DAN TAPIERO: Yeah, I think that's right. Look   at BlockFi, two years ago, it had a $50 million  valuation. Then last summer, it was 500 million.  

Now, they've just completed a raise of 2.8  billion. It's one of the fastest rises that I can   remember and if you look at who they're backed by,  they really are backed by some of the heavyweights   in the investment world. You may think that 2.8  sounds like a big number, but it's certainly   a number that many of these investors are very  comfortable with because they're thinking about   the company potentially being worth 10 billion or  20 billion, otherwise they wouldn't be investing.  There is a large universe of companies worth  under 400. Probably, maybe even 50 to 100   different companies, and we have them on  our target list. We're watching them. Market  

valuation isn't the only metric, but I feel like  if you have to draw a line in the sand somewhere,   that's the line where we feel like a business has  gotten, has been de risked, has moved out of the   developing category. Look, that being said, the  VCs, I always say this, the VCs are buying the   company at one, and they're going to sell it to  us at 100 because we think it's going to 1000.  We're not going to make the 50x in a year  that some of these defi guys-- we're also not   going to have any zeros. It's a de-risked less  volatile way to play the growth in the overall   ecosystem. Because look, I am a super proponent  of Bitcoin. I think it's going to 300,00, 400,000,  

potentially even more. Store of value, I think,  very clear, also has greater functionality   as we've talked about as a network, but  there is a whole world growing out there.  The Central Bank Digital Currencies are going  to be moving on digital rails. The stablecoin   business, and the yield, we should talk about  this later on, the yield that is being offered   in this space, again, there are credit considerations, but   I don't think the general population is aware that  you can buy $1 stablecoin, and earn 4%, 5%, 6%,   in some cases, 8%, 9%, 10%, but I just think that  that world is coming to the overall population.  I know that's not on Bitcoin, and it doesn't have  anything necessarily to do with Bitcoin and people   in the space might not like that, but I think  that the most powerful-- this is the last thing   I would say, the most-- and I've been thinking a  lot about this recently, the most powerful things   from the digital asset world that are working  are things where there's a very strong need.  

In the case of Bitcoin, there was a very strong  need for another store of value. We've talked   about this, there's a shortage of stores of  value. We have gold, there used to be the yen.  If you're worried about debasement, if you're  worried about not just the basement, but just   risks where you feel safe in a way. Now,  I don't know that-- Bitcoin has plenty of   risks as well but there is a shortage, there's  a need in the world for more store of value,   let's say, instruments as an investor. Just as  right now, there is a need in the world for yield.  

This is one of the reasons I think the  stablecoin business and yield on stablecoin   is really going to explode this year, whether-- RAOUL PAL: Now, here's a question about it, Dan.   Doesn't it just force all the banks to arbitrage  it? Are they connected to the money markets,   or will it stay separate to the money  markets? That's the big question.  DAN TAPIERO: Well, I think that eventually, they  have to get involved, but I don't think the banks   even get it yet. All of the banks and the  custodians that we've seen in the last   three, four months, they're into Bitcoin. It's  funny in a way, but they're not into anything else   they don't even actually really-- I  don't think really understand Bitcoin,   but they get it enough and they understand that  their clients want them to sell Bitcoin and also   in most cases, Ethereum, as well, especially now  that Ethereum is also on the CME. It's become   more of a first class asset, but the point is  I don't think that the banks are even aware   of what's going on, and I don't think  they understand what's happening in defi. 

Of course, there are genius guys within the  IT department at banks. I'm talking about the   leadership. The guys who can wake up one day  and say, listen, I want to put $100 million,   I want to hire 100 people, and we are going to arb  these yields out. They're way, way, way behind,  

and banks aren't really risk taking organizations  anymore. That's another reason why this has popped   up, because the banks after 2008 vacated the  business of really making money and I think   also offering interesting products for people. The reason these guys have capitulated in the last   three, four months is because the clients have  said, are you kidding me? I can't even buy bitcoin   through you? I'm going to move my account. All  of a sudden, you get a BNY or US Northern Trust,  

or any of these traditional people coming on  and doing it, but they don't really understand   what's going on there yet. RAOUL PAL: No. It's really interesting,   even when you look at the Bitcoin futures and the  premiums they trade to spot, it's gigantic. The   yields implied in the future's like 20% a year. DAN TAPIERO: Right, because people can trade   futures who can't trade Bitcoin.  Bitcoin is not a security,  

so that precludes a huge chunk of people. That's  why the Grayscale Trust has been in such demand.   I think there are arb opportunities, and I think  some of the smarter hedge funds, of course,   are probably there. The top notch guys with quant  teams, I'm sure they're deep in the weeds on this,   but there are very few guys like that. RAOUL PAL: Because they're actually who's   driving a lot of the yields by the  borrowing of crypto and stablecoins   and stuff. It's really interesting. How do you  think through the security in the space? Again,   it's complex to know what risk you're actually  taking to get that yield. Any thoughts on that? 

DAN TAPIERO: Yeah. I'm not sure. I think it was  on a Real Vision Crypto, someone on your team   did an interview with Alex Mashinky of Celsius,  and he explained where the yield comes from.   I would suggest anyone, listen to that instead  of me as a part time hacker in that area. Alex,   I think, really explained it well, and  along with Compound and BlockFi, those are   the leaders in the borrowing and lending space. I  think it comes from a bunch of different places,   obviously, there's credit risk, and obviously,  there is risk there. I think it's also  

manufactured differently at different places. That's a whole separate world, that centralized   finance, the whole defi world, that's a whole  other thing that I can't pretend to explain here.   You should have Ben Forman from ParaFi,  who I think you have interviewed before.   Ben is a phenomenal defi guru. Any questions  I would have, I would just ask him.  

Specific things, he could take you through  where all the yield is manufactured. From   a bigger macro investor perspective, I think  what you have to know is that yes, there is some   quasi-- or what we would characterize, old  guys would characterize as credit risk.  Look, I don't think that there's that risk  in investing in the companies in the space.   They're operating businesses. Yes, there's  credit risk, but I don't need to get into   the weeds. I have people on my team who can do  that anyway. That may not be as satisfying--   but I prefer to be like perfectly accurate. RAOUL PAL: Honest? 

DAN TAPIERO: Yeah, perfectly accurate  also. Look, I think Real Vision Crypto,   Raoul, is phenomenal. You and I talked about  this idea a year ago. I think it's huge,   I think it's going to become huge. I think  just the quality of the content is awesome.  RAOUL PAL: Yeah. There's nowhere else you  get this amount of incredible content about   every single thought corner of this whole space. DAN TAPIERO: I agree. I agree. It's phenomenal.   It's just that now you have to have  someone in the legacy world give a crap,   and put a nice big valuation on it, which it  deserves, which it deserves because it's unique   information and no one else is even close. RAOUL PAL: I appreciate it.

DAN TAPIERO: Yeah. The third category. RAOUL PAL: The third category.  DAN TAPIERO: Right, is blockchain infrastructure,  and that's something very obvious that everyone   would understand. If you take a look at a company  like Paxos, our old friend Chad who's built that   company, as you know, he built PayPal's  connection into this digital asset world.   PayPal now offers a bunch of cryptocurrency  off their platform for their 340 million people   because Paxos built that bridge. RAOUL PAL: I bought my first ever Bitcoin   using itBit, which was the thing that  [?] and Neil built first. They ended up   now becoming the engine for this  whole PayPal thing. That's where  

I bought my first Bitcoin. DAN TAPIERO: You say to me,   you can make one bet and you can be long Bitcoin,  you can make another bet by being long Chad, and   the team and their vision and what they're doing,  and he has this vision of tokenizing the world and   I it's a legitimate one. There are going to be  lots of different ways to go about it, but he's   a guy who I would want to have an investment with.  I believe in his vision and what they're doing.  RAOUL PAL: What a lot people remember is Chad was  the person who gave the first tutorials on Real   Vision six years ago to get people understand  what is blockchain at the time, and Chad is--   well, you and I have known him for a long  time. He's phenomenal, him and Millwoods   have been introducing [?] into the space. DAN TAPIERO: Absolutely,   absolutely. It was at one of those conferences  down in the Caymans, where it was just us sitting  

around the roundtable talking about stuff. I'm  not saying that this concept is a better bet   than a Bitcoin or better bet than early stage  investments. I just think it's a de-risked bet   on the space that I'm comfortable with and then I  wanted for my own portfolio, which is really what   the driver of this whole thing is, is that this  is the broad exposure I wanted for DTAP Capital. 

RAOUL PAL: Yeah, and as you said, you did this in  farmland rates, and you've done it in gold. It's   your chosen way of expressing a long term macro  bet that you can't mess around with your trade,   because you have to build a business around it. DAN TAPIERO: That's exactly right. There's   something to be said for not being able to take  profit really, because it's tempting. I'm sure   you, just like me, I've put the big claim out of  my mind, and it's in a lockbox outside of my daily   activity and I don't think about it, and I don't  do any computations. It's just there and in five,  

six, seven years, or if it hits 300,000, 400,000,  or 500,000, then maybe I'll think about something   to do, but it's very hard to just do that. Also, when you're building a business,   there are other ways to build value, other revenue  streams. For me, I hope that this will also lead   to-- this is a toe dip for me into figuring out  what operating business I might want to start in   this space eventually. It's also a way for me to  learn more, dig deeper in and hopefully find a way   to start another operating business. RAOUL PAL: I think one of the things you touched  

upon is that something that I've been thinking  about, and talked only a little bit about,   is with macro guys, it's pretty easy to  buy something that's super bombed out,   you've got your thesis. It's pretty easy to buy  a breakout and trade that for a bit on a nice   chart pattern with some news flow. It's pretty  easy to try and short a top and whatever it is.  The hardest thing in macro, the literal hardest  thing is an exponential curve. We can't do it. I'm   seeing it already amongst all the macro guys that  I know who's still more in the traditional macro   world. Their reliance like has gone too far. You  got to start shorting it, the risks are too big.  

I see this narrative because it's really hard in  macro to ride that reflexive exponential rise.  DAN TAPIERO: Yeah, it is hard, but to be  honest, that's been my thing. I've been less   interested in catching squiggles, and I think  actually, unless you're doing it 24/7 as your   full time daytime job and you have x number  of years' experience, I think trading crypto   is insane. I think it's totally nuts. I think you  have to allocate a percentage of your portfolio,   and you have to leave it and you have to give  yourself parameters, and just put it out of mind.  To tell you the truth, one of the reasons  that I don't find it that difficult is because   probably the most formative experience I had in my  career, of course, was working with Druckenmiller,   but was early in my career working with  Julian Robertson at Tiger. Julian had that  

long term hold mentality. He could hold things for  years and years. I saw him-- and this is, again,   I was almost right out of college, I was very  fortunate to be to be given that opportunity   to sit there on the frontline of watching massive,  literally gigantic positions being put on.  We used to have-- the fund at the time in  the early 1990s was $3 billion when I was   there. We would have $300 million, $400  million daily swings. Think about that.   In our swaption portfolio, we had all  these European interest rate bets on,   as you remember 1992, 1993. He never flinched.  If anything, that was where I learned   the value of having that long term hold. RAOUL PAL: How did he have the conviction,  

because you know what it's like. As soon as you  put a trade on, every broker is trying to get   you out of it, and half your friends are.  Everyone calls you an idiot and holding on   is actually difficult because of that, all of the  contrary news flow. I've learned to filter it out,   but how do you do it? DAN TAPIERO: Yeah,   it's hard to filter out and it's experience.  Well, at least in Julian's case, when Julian,  

the people he's listening to are four or five of  the greatest other investors or analysts in the   space. At least when I was growing up, there was  never much wavering at all. Again, sometimes that   can get you into trouble if things really change  and you miss it, but the conviction is built   up through lots of hard work and research, and  really believing that you have an edge, you see   something out there that the world doesn't see. I think, for instance, if you're a Bitcoin   holder today, I was thinking about this--  when we were talking about it in 2019,   or for you in 2012 even, or in March or April of  last year, it was pretty clear below 10,000. To  us, it was very clear, given what was going on in  the macro that you had to buy it, and basically   just hold as much as you can handle. Now, it's  up 10x from when we were pounding the table,   and you've got all sorts of people coming out  acknowledging it. Of course, as a macro trader,   you think, oh, well, now, everyone acknowledges  it, I've got to get out because I bought at 5,   it's now at 50. Thank you very much. What's different about this bet is that  

the people who are buying it now, they still  don't understand what the big driver is to   take it to 400,000 or 500,000. Not really. Some  of them do, of course. Of course, but I think,   generally speaking, they don't. It's the  importance of this Bitcoin network capital be   the mechanism of how the Bitcoin machine  works and what it does, and that really   it is the value protocol potentially for the  internet, and that it is, as you've said and   I've quoted you before, this pristine collateral. Bitcoin is so many different things. It's not   just a store of value. I think the digital gold  narrative is a nonsense in a way, but it almost   limits people's thinking about what Bitcoin is.  They say, oh, it's digital gold, I get it, okay,  

I either believe it or I don't. They don't  actually understand what's been invented here   by Satoshi and what lived through five or six  years in the beginning of just like the wildness   of just the environment, meaning it took quite a  few years for it to become established in a way   that at least I felt comfort that it was  passed its hey, could go to zero phase.  Whence this famous thing, just put 1%, that was  put 1% in your portfolio, because a lot of people   thought it could go to zero, and so you're only  going to risk 1%. I think there's zero chance   it's going to zero. Certainly now, and even  when we've talked, I think that was my insight.   The reason why 50,000 doesn't really mean much to  me is because I don't hear people talking about   some of the things that I think are  really valuable about Bitcoin, number one.  Number two, I think only 1% to 2% of the entire  world have crypto accounts or crypto wallets.  

What that actually is, it's more akin to  1995, 1996 in the development of the internet,   because at that time, only 1% of the  world had internet access. For me,   I feel like this space is around there in terms  of development. If you look at the rate of the   adoption of the internet over the following 10  years, so from 1995 to 2005, it grew by 15 times.  I think this digital asset ecosystem  is going to grow at least 15 times.  

I think it's growing at a faster rate now. 10  years from now, I don't think it's crazy to think   that 15% or 20% of the world have crypto  accounts or crypto wallets. That's how I'm   thinking about it. That's why I'm ignoring the  fact that it's moved 10x and that people who   are parroting things that we discussed a year or  two ago, it's not a trade. This is not a trade.  RAOUL PAL: Okay, so let's fast forward. Let's  say it gets to where I think it's going to finish   this year, let's say it gets to 250,000+. DAN TAPIERO: You're more bullish than me,  

I wouldn't put a 250,000 number on this year.  I don't know where it could go this year,   it could be 70,000 this year, or it could  be 250,000. Yeah, go ahead. I'm sorry.  RAOUL PAL: I've just done a lot of work that gives  me some confidence, could be dead wrong as well.   Now, let's say it does get there. We both  think it's going to go much further over time.   We get to the point in the halving cycle  where historically, we've seen prices   plummet. Now, how do you think with institutions  coming into the space, that the halving cycle is  

going to play out-- the negative side of the  halving cycle, do you think it's going to be   cushioned somewhat by institutions?  How do you think it plays out?   Just the structure of that. DAN TAPIERO: No, this is nature,   this is nature. It is going to go up to  the number that it's going to go up to,   and then it will have a massive correction.  It will have a message, and my guess is that   a lot of those institutions will be selling it  at the low. Because I think that it's the right   exposure for certain institutions, endowments,  for instance, or funds that have a long term view,   but a lot of the world isn't set up  that way. Certainly not corporates. 

I think it's wonderful that Michael Saylor is  doing what he's doing, and the guy is a godsend,   and I think a phenomenal risk taker and actually  a phenomenal macro guy, but I don't think that   that's appropriate for like 90% of the corporate  world. They're never going to be able to do that.   The people that are going to buy bitcoin are  the people who are looking for not only just   a store of value, but who understand its value  proposition-- and to me, that will be investors.   I think it's a nice thought, great that Elon  put some on the balance sheet. Great that Jack   put some on the balance sheet, but these guys  are at the cutting edge of the cutting edge.  Some company out in the middle  of whatever that makes widgets,   they're not putting their money into Bitcoin.  They don't even own gold. They probably are still   sitting in bonds at 50 basis points. That's  a case where I think they're a little ahead.  

To me, it's not the corporates that are  going to be driving this next leg, it's the   investment community. As we've talked about, the  $190 trillion that are sitting in cash, or bonds,   or cash plus duration out there. You don't need  much of that $190 trillion to move into Bitcoin   and into the ecosystem, generally, to get  you to the numbers that you're talking about.  Now, I think this is nature. It's like  the Fibonacci sequence of rabbit herding.  

It's the same-- rabbit meeting, it's the same  thing. This is what guys like us who are in the   markets understand, but people out there in the  business world have a very hard time dealing with.   By the way, this is one of the reasons that  I've set up 10T as well, because in the last   correction, when Bitcoin went down 80%, of the  value of a basket of these companies did not go   down that much. In fact, some of them didn't  go down at all, because some of the companies   actually are not really correlated to the  price of Bitcoin. That's another reason  

why we've had very good traction, because  the volatility profile was different.  RAOUL PAL: Another couple of things I want  to flip by just to get your thoughts is   that you love art. We're now seeing the rise  of NFTs, which is not only just for art,   but that's one of the things that's happening.  What are your thoughts of NFTs? It seems like  

this is maybe the defi for the next cycle. It's  the next big thing that's coming on the horizon.  DAN TAPIERO: Yeah, it's very recent. As you  can tell, I have this painting behind me.   I do focus a little bit on some things going  on in the art world. Look, I think it's  

going to be very big, and actually Pomp has written a nice note about this as well. He   published something maybe a month or so ago, the  auctions that are on the Winklevoss's platform   was at Nifty gateway. I think that's a great  business. It's not even the first inning,   it's like the first pitch of the first batter. My initial sense from speaking to my friends in   the art world is that the quality of the art  for people who have a proper eye, let's say,   is not very good. At the moment, you're looking  at Christie's is going to auction off some of   [?] work, and I think that you should follow some  of the leading artists on Twitter, they're there.   There's some other people who you can  follow to learn a little bit more. 

I think that once the quality of the art becomes  what I call proper art, so that someone who's   been a dealer for 30 years who has a great  eye says that's really an innovative vision,   or that's really done in a very interesting way,  then I think the market will really take off.   Because a lot of it is just not really nice to  look at or a lot of it isn't-- I'm not saying   it has to be aesthetic necessarily, but I think  that's when you get, again, the legacy world--  RAOUL PAL: Yeah, if the new banker turns up as a  digital artist with NFTs, it's going to explode.  DAN TAPIERO: Right, and I think there might be  some people out there potentially, but look,   as the dollar value goes up, you're going  to see some really quality artists move   into the space. I'll just say as an aside,  I actually am involved in a project.  RAOUL PAL: [?] the right person. DAN TAPIERO: Well, not really. It's really maybe  

the next time we chat, we could talk about that. I  think again, the real whoosh, the inflection point   in the hockey stick comes when the 95% of the  world, of people in the traditional world, whether   it's in the traditional banking world, or in this  case, in the more traditional art world, once they   have their lightbulb moment, then it will get  lifted up. I think that comes when pieces hold   what they call more artistic merit a little bit. RAOUL PAL: A little bit of a thing I saw today,   a friend of mine sent me on WhatsApp that  he had bought a bunch of these NBA clips   at an auction with NFTs. You could buy  like 40 of these things for like 15 bucks,   and he's already up by 100 times his money. DAN TAPIERO: Yeah, I don't really know much   about that. I'm not really following it  that closely. It is hyper speculative.  

Very interesting, but I think you probably--  Novo probably is the guy to talk to about that.  RAOUL PAL: Yeah, I think Barry is probably  because of his understanding of decentraland   and all that stuff. He was pretty  early on with telling me about and   telling you as well about the tokenization, and  what this all means, because gaming is the other   huge space. Again, I haven't got the bandwidth to  take in all this stuff. There's so much going on.  DAN TAPIERO: Look, we're not micro guys at  the end of the day. I think after 30 years  

of being macro guys, I think we've made our bed in  a way. We can do a deep dive into specific things,   but we can't do a deep dive into every specific  thing. That's the difference. Our strength   has been focusing on the macro and the big tidal  wave that's coming in whatever area that is. I   want to stay really focused on my current project,  and once that really gets to a place where I want   it to be, then we can maybe look at some different  things but yeah, I'm probably not the right guy.  RAOUL PAL: Final question,  how are you dealing with   Ethereum, and any of the other larger interesting  protocols? You invest in it all yourself?  DAN TAPIERO: I didn't. I don't know if you  recall, but I run this investment committee for  

an endowment and we did put money into the space,  we actually did 85% of Bitcoin and about 15% or   maybe it was like, 80/20, into Ethereum. That was  Ethereum was at $180, so someone is going to be   getting a scholarship to the school, I think, or  at least a few, meaning that back then I saw that   that would be a good way to make that allocation,  but I did not. I just left DTAP in Bitcoin.  Look, I think it's valid, of course. It's  just your analysis that it's five years behind   is probably a good mental model. I know there  are lots of naysayers, and I know all of that.   Some of the lookalikes, as you said, like a  Polkadot or the improvements or however you   want to call it, Ethereum killers, I think  they'll find their way or maybe they won't.  

Basically, I don't want to make a bet on  that, because that's not my expertise.  If we had a team that I built of people  who could do in-depth analysis on it,   then I'd have an opinion, but I  think the way that I'm playing that,   through the gateways or the next gen financial  services or the blockchain infrastructure people,   through the companies and the smartest guys  in that space, it's just easier for me to say,   listen, do I want to bet on myself in blockchain  infrastructure, or do I want to bet on Chad   Cascarilla? It's a pretty easy decision that I  don't have to kill a lot of brain cells over.  RAOUL PAL: This is the most important  thing, I think, of this whole interview.  

You've been all the way through totally  honest. It's like, I don't know,   it's not my job to know. I'm a macro guy. I'm  looking for what is the easiest, cleanest way to   represent my macro view. I understand that there's  all these exciting flashy things in their corner,   I'm just going to assume that someone's going  to turn one of those into a business that I can   invest in, so I don't have to take the risk in  picking stuff, and I'll keep with my Bitcoin.  

That's a very, most people can't do that. It's  really interesting to say, and to be honest   and say, I don't know, it's not my job to know  everything, because as you know in this space,   it's ludicrous. People are so smart. DAN TAPIERO: Yeah, it's just crazy.   I've never seen anything like it. That's another  reason why I see myself in this world for the next  

10, 15 years. I said that even two years ago,  I could tell, and look, I'm not trying to be   the number one performer. I don't care about--  I don't need to make the most amount of return,   I just don't care. I think that these businesses-- RAOUL PAL: Just enough returns,   that's the point, just enough returns. DAN TAPIERO: There's enough there. If you look at,   just as an example, where Coinbase  raised money in their early rounds,   it's done pretty well. I don't know how  it can go from 80 billion to 800 billion.   Maybe it does, I don't know. That's  not a bet I would make either, but  

from a billion to 10 billion, or 3 billion  to 15 billion, I think that I want to have   a de-risked bet, what I would call it, even a  picks and shovels bet exposure to the space.  Look, there's a lot of flashy things there. Look,  as an example, I mentioned before the explosion in   the trading of Dogecoin. Dogecoin is ridiculous.  I would never own that or even think about it for   one second, but look, one of these companies  had a massive boost because of it and actually   profited from it. In a way, I would have exposure  to Dogecoin, it's just not the direct exposure.  

I feel like the 10 to 15 guys who I'm betting  on, I'm betting on them to be smarter than me.   I like that bet, I like that be. RAOUL PAL: I like it too, I like it too.  DAN TAPIERO: Would you bet on yourself,  or would you bet on Jesse, in that case?  RAOUL PAL: Actually, I bring nothing to it but  he's in the trenches forever. He knows his game.   Dan, super interesting as ever just to pick  your brains on this. Really exciting what   you're up to, and again, I just love the  way you've structured the whole thing.  

It's just really smart. Well done. DAN TAPIERO: Thank you Raoul. Love   chatting, talk to you soon. RAOUL  PAL: Yeah. I'll see you very soon. NICK CORREA: Thank you for watching this  interview. This is just a taste of what we   do at Real Vision. To learn more about  the complex world of finance, business,   and the global economy, click on the  membership link in the description.   Give us 7 days to change your life. This  will be the best dollar you'd ever invest.

2021-04-01 23:10

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