SEBASTIAN MOONJAVA: Hi, I'm Sebastian Moonjava here for Real Vision, and in honor of the recent launch of our crypto platform, we're going back into the vault and releasing several videos from this summer's "The Crypto Gathering" event. While some time has passed, and boy, has a lot changed, we still feel that these videos provide valuable information to those looking to understand the crypto space a bit better. With that being said, please enjoy a look back at Real Vision's "The Crypto Gathering."
ANTHONY POMPLIANO: All right, everyone, welcome. I have Mark Yusko, Mike Novogratz, and Raoul Pal here with us today. Thanks for joining us, guys.
MARK YUSKO: Thanks for having us.
RAOUL PAL: Good to be here.
ANTHONY POMPLIANO: Absolutely. Let's get started with how each of you lost your virginity, and not that virginity, but your crypto virginity. Since Mike came the most dressed up, and he's got his pink colored glasses on, we'll start with him. Mike, tell us that original story of when you first came across either Bitcoin or crypto, and what drew your attention?
MIKE NOVOGRATZ: Sure. So I was running a macro desk at Fortress in 2012 I think, and I got a call from my partner Pete Briger. Pete ran maybe the world's best distressed debt business.
He was as far from a speculator or a currency guy as you can imagine. Those guys buy dimes for nickels. I used to call them the most glorified garbage collector in America.
But he had moved to San Francisco and had met Wences Casares, who was, I think, a lot of people's Patient Zero for Bitcoin. Wences is an unbelievable lover of Bitcoin and proselytizer, and he had put the bug in Pete's ear. So Pete called me up, as his macro partner, to say look into this.
I went on the internet and typed Bitcoin. I'd never even heard of it in 2012, and started reading for about 20 minutes and looked at a chart, and I thought this probably makes sense. We're in 2012. We're QE2. We're the European financial crisis on back of the financial crises.
You had libertarians and people that wanted to get off the grid and screw the government. As a constituency, the Chinese had started buying it. And so I decided, with Pete, to buy some Bitcoin. And we had a young guy that worked for me to figure it out.
And then after about a week, I called him back, and I said, I think this is going to be bigger than that. So we should maybe do a business around this. And we decided, at Fortress, that it wouldn't make a lot of sense, and so then I called Dan Morehead, who was a friend of mine from both college and Goldman Sachs and the hedge fund world.
And Morehead had run an exchange. He had run a currency exchange. He'd run a hedge fund, and I had been a big investor in his original Pantera.
And so I said, Dan, why don't you look into this thing called Bitcoin-- he hadn't heard of it-- and call me back in two weeks? And so he literally did a deep dive and called back and was like, dude, this is going to change the whole world. And so we decided, the three of us, we'd partner up.
And at that point, Fortress was a big company. We had taken it public. Pete and I were pretty wealthy guys-- are really wealthy guys, and we were going to put a small amount in Bitcoin. And Morehead put so much damn money into Bitcoin, we figured we had to at least do as much as him, maybe plus a dollar.
And so quite frankly, a lot of the reason I had a 30,000 Bitcoin position, and all of us did-- we bought 100,000 collectively-- was that Dan was so bullish on it. And so it's funny how these things work. It's never one guy. It's this combination of three or four people, and you get lucky and get into it. So we bought it about between $92 and $110, and the rest was history.
ANTHONY POMPLIANO: That's awesome. And then, Mark, maybe you next, given I know you and Dan have known each other for 25 years as well.
MARK YUSKO: Yeah? But no, it's interesting-- the interesting point that the origin story for both Novo and myself go back to Dan, but then mine goes through the other people here, too, in that it goes through Mike's loft in New York and Raoul hosting a GMI roundtable. So I got a call right after Mike and Pete set up Dan. Got a call, Dan-- I said, Dan, I've known you for 25 years, from his hedgeman days and Tiger and Goldman. And we had seeded, helped seed, along with Mike, his macro fund, Pantera.
And he called me up and said, hey, come to San Francisco. I'll buy you dinner. Go out. He said, I'm shutting down the fund.
Why would you shut down a billion dollar hedge fund? He says, look, I'm just going to dedicate the rest of my career to Bitcoin and blockchain technology. I'm like, OK, and I made the first of my many bad investment decisions at this time in that Dan was launching a Bitcoin fund with Pete and Mike's money, and Dan's, and blockchain infrastructure fund.
And I said, look, I was not running drugs on Silk Road, not a cryptography student, didn't know what Bitcoin was, hadn't even googled it like Mike. But as soon as he said infrastructure, OK, I get that. So you go into Dan's first infrastructure fund, which was only $15, 1-5, or maybe $18 million. It's up 11x. No one's complaining, but I should have put the money in the Bitcoin fund because it's up 140. Best performing hedge fund of all time.
So first of my many bad decisions, but the second part of that crypto life story is Mike was hosting these series of events at his loft, that I just heard he got a ticket for, for having an illegal bar, at his loft in New York, and I got a backdoor invitation. The "aha" moment for me was-- you and I talked, Pomp, about this. Follow the money; follow the talent. And it was the first time since the early '90s where, in this loft in Soho, you had super investors, literally billionaire investors, you had kids who I couldn't even understand what they were saying because they were so deep in the tech, you had supermodel's, you had the glitterati of New York-- you had everybody coming together to talk about Bitcoin and crypto. And then the last part of it was being with Raoul at this GMI roundtable, where we had the unfortunate-- and I'll that Raoul tell his story-- the unfortunate experience of getting talked out of going all in by a really, really smart guy, but that cost me a little money, too. But I'll leave it there.
MIKE NOVOGRATZ: Who was that?
MARK YUSKO: Emil Woods.
ANTHONY POMPLIANO: All right, Raoul, how about yourself?
RAOUL PAL: So the backdrop for me was, obviously, we started seeing some news stories in about 2011. Most of us didn't really understand it. By 2012, I was living in Spain, and the European banking crisis was in full blown mode. They were rioting in the streets, and that whole feeling of societal rebellion was something that I was focused on, thinking within this is coming change.
So I had my radars up for change, and Bitcoin was part of that. And it was actually a prior GMI roundtable in 2012, just outside Valencia in a town called Javier, where I was living. We had a group of us there, and it was Emil Woods who was there. And I was talking about change and where things are going and the need for a new system of money and all of this, because we've just going through 2008, and now, I was living it real time in Spain.
And Emil started talking to us about Bitcoin, and it was at that point-- so Emil was ex-Goldman as well. I think almost everybody seems to have been. But he was an ex-Goldman guy as well. He was running a hedge fund, and he happened to have an office in New York City that came with free electricity.
Somebody told him about Bitcoin mining. I've no idea who, because he was really early. He was 2011 he started mining, or 2010. So him and Chad Cascarilla started mining bitcoins because they had free electricity, and so they built up a substantial amount of bitcoins at $0.12.
Eventually, I kind of got it. I actually got into it around $200 and wrote it up and got talked out at the same roundtable with Mark by Emil because he didn't mention Bitcoin at all. He was talking about blockchain and a bunch of other stuff, which actually, in the end, did us a favor because it opened our minds that actually it's a much bigger world than just Bitcoin. But yeah, this whole thing had come together from these various people, and I looked at it.
I wrote a paper that went viral, I think, bizarrely around Silicon Valley, when I started comparing the potential valuation of Bitcoin versus gold by looking at above ground supplies, the amount of gold that was mined, and looking at it versus the Bitcoin algorithm. Now, I'm not a great maths guy, so I couldn't do what Plan B did, building a stock-to-flow model, but I just figured out it's potentially, if this thing survives, it's the very wrong price. And that became a viral article.
But yes, I sold out in 2000. I made 10x, thought I was a hero, and then Novo managed to rise that, get that whole rise up to the top, and I missed all of that. But since then, it's been a big deal for me.
ANTHONY POMPLIANO: Absolutely, and so I think a lot of people are saying, hey, look, there's tons of smart people who have now been convinced of Bitcoin's future prospects. They've become invested through various ways, either directly holding it, investing in funds that trade and hold it, or even investing in infrastructure. Help me understand how you guys are looking at Bitcoin today, given the current macro backdrop. The three of you all have very unique experience and expertise there, and I think a lot of people, specifically, are wondering, hey, this should be Bitcoin Super Bowl.
There's obviously incredible money printing that's going on. There's chaos, there's uncertainty-- all those things going on in the global macro economy. How do you look at Bitcoin, and has anything changed for you given that change in the macro economy? Maybe we'll go back around the other way. Raoul, you first.
RAOUL PAL: Look, I think you couldn't have asked for a better accelerant. Now, there is some issues because there's a lot of leverage in the Bitcoin space in the retail space, so it acts like a risk asset in the short term. So we note the correlation in the short term to risk assets. I think in a longer term time horizon, it's not, because you can flush out the 100 times levered people pretty quickly. So it has this high delta, and then it fades away.
We've got that perfect matchup. I was just speaking to Niall Ferguson before. They're setting the scene, and that scene is one of economic catastrophe, a technology race that's being driven by China in digital currencies and the whole digital world.
We're seeing the central banks from the BOE to the ECB to the BOJ all wanting to do the same. We're seeing the largest monetary printing we've ever seen by almost every nation on Earth. It's like, well, if crypto is going to have a use case, this better be it, because if not, we're all really, really wrong, because this is everything we've ever asked for all crammed-- the horizon that we're all looking at, that Dan Morehead saw so early, has hurtled upon us now, and we're actually-- the time horizon is today.
ANTHONY POMPLIANO: Mark?
MARK YUSKO: Yeah, look, I couldn't agree more. I think the big challenge is, when you look at this money printing that's going on, you always have to talk about currencies in pairs. One of the dangers of talking about Bitcoin or the dollar or-- what are you talking about it relative to?
When people say "the dollar," you sometimes are talking about DXY, and that's really the dollar versus the euro, primarily, and the yen, too, and a few other currencies. But the bottom line, it's a major market currency cross that you're looking at. Dollar versus emerging market currencies is very different, and when you talk about Bitcoin, you have to say, well, in what? Bitcoin denominated in dollars, US dollars, denominated in euros, denominated in yen, denominated in bolvars in Venezuela? It has a different price depending on what you're talking about.
And we talk about what we call the Fiat Fiasco which has been going on really since the '70s and is accelerating now, and that is just this massive destruction of fiat currencies. And you see it in-- let's take the S&P. The S&P looks high in nominal terms, but when you divide it by gold, the price has actually gone down over the last five years. It's not up.
So gold as the ultimate currency, and then you think of Bitcoin as digital gold, being even the better ultimate currency. And I always use the example of "Knight's Tale," one of my favorite movies-- don't judge me. Great movie. Heath Ledger.
And there's a scene where he wins the contest or the tournament, and he gets this golden calf. And his page has gotten in trouble with gambling, and he literally smacks the thing on the table, breaks off a leg, and says go do what you do with this. That's a really inexact way to divide wealth, whereas it's heavy, it's hard to transport, hard to divide.
Bitcoin solves all of that, and I think that digital gold store of value is what gets me the most excited. And that's back to Raoul's original $500k to a million dollar depending on how much of the gold market equivalence it gets. But we're at this weird point where people are so transfixed on central bank infallibility that they're ignoring the solution right in front of their face.
ANTHONY POMPLIANO: Sure. Mike?
MIKE NOVOGRATZ: So just to add a little bit of that, this crisis just started, and we're three months in to QE infinity, global QE infinity. And markets are adjusting. They're trying to understand what's happening.
This is not going to stop in three weeks. Biden's going to get elected, and he's not going to say, oh, my god, the Fed needs to tighten, fiscal policy needs to tighten. We have started this process of blowing out deficits globally and monetizing them, and so we're really in the early innings of this from a macro perspective. And it's hard to think about because we kind of think rationality should come back, and we can't run a 5% budget deficit, let alone a 20% budget deficit. But it's going to be a while before, I think, there's a political counterforce to just spent.
In America, July-- at the end of the month, at the end of July, the $600 surplus that's going to people on unemployment is supposed to go away. Right now, if you're unemployment, you're making about $50k a year, and it feels pretty good. And more interesting, it feels fair. Finally, people are saying, well, that's what people should make, not $17,000 a year. And that's a political force.
You watch. It's going to be very hard to take that $600 surplus away. Well, who's paying for that? Well, taxpayers who aren't paying taxes are paying for that. Right now, the Fed is paying for that.
And so I think we're really early on this story in macro, and it's going to be a three to four year story as it plays out. I see Bitcoin, right now, as two things-- the macro story, which Raoul and Mark articulated really wonderfully. That's here, and it's here in a huge way. But also a story of adoption.
Bitcoin's not easy to buy. It still isn't easy to buy. And so if it was easy to buy, we'd probably be trading much, much higher. But lots of firms, including the guys represented here and lots more, are working really hard to make it easier.
And so if you're a Gen Z like myself, or a millennial, you probably have a phone. You probably have two different crypto wallets and your Coinbase account, and it's pretty easy for you to buy. It's going to get easier with Libra.
The Novi wallet's going to allow you to buy Bitcoin all of a sudden on Facebook. You just saw that Paypal's allowing it, and so more and more access points. But the big wealth in America is held by 50 to 80-year-olds. It's held and managed by financial advisors, the classic old stockbroker who then became an FA. [INAUDIBLE] they changed their names. And right now, up until recently, they had very few avenues.
Barry Silbert has been the winner in this whole game because his Bitcoin trust is the only thing that most stockbrokers can put their customers into, and even though it's not a perfect retail product-- it trades at a big premium often to NAV. That's been it, but there's lots coming down the pipe. We've launched a Bitcoin fund that's institutional grade that, hopefully, in the next few weeks is got graded by the big consultants, which makes it a very good product for that FA community of data partnership, and it's not just us.
There's going to be a lot of pipes being put into Gen X and baby boomers, where the bulk of the money is. And they're not as radical. We're going to disrupt the whole world.
The Ethereum community is literally about this total disruption. They're like, you want to make a very simple bet, a very distinct bet, that we're going to disrupt central banks. And so Bitcoin is a pretty good disrupting bet around central banks. It's ironic that-- please store it somewhere really safe for me. If you can store it at JP Morgan I'd be happy.
But right now, we're storing it at Fidelity or the New York Stock Exchange, and so there's something ironic about that. But if you stand back, they're just narrowing the bet, and I think that's a powerful story. I think you're going to see that adoption plus the macro, so in time, this should go much higher.
ANTHONY POMPLIANO: Yeah, and so speaking of adoption, I think you articulated, one, we got to make it easier to buy Bitcoin. What are the other things that the institutional world needs to see in order to start really putting serious dollars to work? We're looking at an asset that's $150, $200 billion, and obviously, everyone here thinks that that's going to grow much higher. Maybe, Mark, we'll start with you, just around what are those inflection points that the institutional world wants to see or needs to see in order to really start to put those big dollars to work? Mark, you're on mute.
MARK YUSKO: Mike said it best, that people are afraid, at this point, in the institutional world, of things like custody and transparency, and that's not going to change until we get