TFTC: A Bitcoin Podcast - Tales from the Crypt #21: Tom Garrambone Pt. I

Episode Date: April 10, 2018

Marty sits down with Tom Garrambone, co-founder of Tetras Captial in NYC, to talk about his approach to investing in Bitcoin and other cryptocurrencies, the differences between a medium of exchange and store of value, and Silicon Valley v. Wall Street.

what is up freaks welcome back to tales from the crypt at your boy marty bent here on a rainy tuesday night in new york city um with that being said i'm sure you can hear him giggling in the background i'm very excited to introduce our our guest this week founder of tetris capital here in new york city we've got tom garambone tom welcome to the pod how you doing marty how you doing freaks i've been waiting i've been wanting to say that i think they're doing all right i hope you guys are doing all right exciting day in the crypto world we're going to get into what happened at uh d economy in seoul a little bit in the podcast but first this is tales from the crypt yeah how did you discover bitcoin so um all the way back this was 2012 so i was a freshman in

college so i was at duke university studying um both economics and engineering and uh this freshman year and i happened to be in my freshman dorm with a bunch of engineers um and it was funny because then this is one week period i heard about it twice first from um my neighbor at the time who is a pretty hardcore engineer and who's just getting into it and he actually started mining it in his dorm second time was a guy who's in my fraternity very different path of discovering it um i heard about the silk road from um from his friends in high school and so second time i heard about it i took it a little more seriously and in that moment i found out about silk road dark web bitcoin all that fun stuff within like the same

30 minute time period but I think it clicked for me almost immediately because I was studying engineering and economics that hybrid also I would say leaning hard libertarian at that point I would say I'm pragmatic libertarian now but I feel like if I wasn't the type of person who's going to be drawn to it at that time I don't know who but yeah so in 2012 was kind of the first foray then I'd been kind of you know trading since high school didn't really implement it into my personal portfolio until about 2014 so i started digging into it a lot deeper then there was also the point where i wanted to make sure that i knew what i was talking about so i could also impress the ladies too oh ladies were interested in bitcoin at this point

there's about like a three-week period where i would say the broader public thought it was cool and now it's back it's back to not being cool um back to ramen yeah but yeah so um yeah it was it was kind of the i think most there's two different types of people who found bitcoin like that early on i'd say it was like the cryptographers like the hard cs crypto cypherpunk crowd and then like a group of degens in college and i think i was just lucky to have the kind of weird background to like be interested in i guess you could say yeah no i definitely fall into the the latter of that group those two groups you just described uh the d gens um and it's always interesting to hear how people got into this space did you have sort of the common thread

where people find it and then disregard it for a little bit and then sort of pick it back up in earnest or did you go like full throttle right away was it like an immediate aha moment yeah i I mean, I'd say the same thing about Ethereum a little bit as well. But Bitcoin, yeah, the 2012, I mean, price volatility is crazy. I actually didn't really start getting fully interested until like Mt. Gox happened. And so it kind of hit public consciousness then. And so I'd always kind of been thinking more macro about just like portfolio management. I'd always been a fan of gold and kind of that asset class exposure.

um i thought like even in 2012 i thought that there was this rising group of like these digital assets that could be competing with gold in this realm and so when it came more into like public light and there's a little better infrastructure to actually buy these things in a non-sketchy way that's when i took like the full dive into actually owning it and really trying to understand it so So, like, and this is what I recommend to people who are trying to get interested in the space. Like, you kind of need to have skin in the game before you really start to, you really start going down the rabbit hole. Like, if you don't have skin in the game, it's kind of this passive interest that you just keep hearing people talk about. It's once you kind of have a little skin in the game, it's then, okay, I actually need to know what I'm talking about.

So, yeah, college kid me, that's kind of when it happened. yeah no i think my aha moment was when i first moved my shit to a personal wallet was like i'd sit on coinbase and luckily i'd gotten some good advice from from some people early on and was quick to move my stuff into a personal wallet and the first time i like created a seed phrase and yeah what did you do that what year was that and what did you exactly do the interviews have turned and that was about like 2014 okay 2014 probably like around the summer 2014 and i used electrum wallet um so electrum.org one of their desktop wallets uh use that because it's open source i would recommend it if you're going to use a desktop wallet would not recommend a desktop

wallet as a go-to wallet especially if you connect it to the internet frequently but if you have a laptop laying around that you don't use too often and you want to download an electrum wallet create a seed phrase uh i don't see any problem with that it's an open source software project uh that's that's audited all the time by people looking at it um so i would just be careful with multi-sig stuff there could be some leakage that's that's a whole other why do you say that there could be some leakage and an actual the the seeds yeah yeah why is it we can get get on to that i think there are better ways of doing is this going to uh 12 word verse 24 word seeds or i think it's all of them actually yeah yeah yeah um well that's a topic for another podcast so you discovered

bitcoin in college now you run a hedge fund here in new york city the city of sin that's vegas but i'm going to call new york the city of sin because different types of sin there's a lot very very different types of sin both hedonistic in a sense um but so what was your path from interested bitcoin hodler to hedge fund founder yeah so i was so i studied engineering and economics in college and ended up going down the wall street path right after school i spent some time in like an equity link converts group at jp morgan and then i thought i wanted to go into private equity so i jumped over to deutsche bank and went to their financial sponsors group which focuses on leverage buyouts so like the plan was always the plan the plan was always um kind of

going down this hedge fund or private equity path eventually it's definitely been um the path has definitely compressed for a lot of weirdness that's happened in the last couple years um but so and i'd always been this guy so starting 2014 you kind of just didn't actually become an evangelist to everybody that you know and it's just been a growing position in my own personal portfolio of being in investment banking you can't actually trade single names as well so that forced me to do two things in terms of my personal portfolio was getting out of single names and trading etfs or more specifically options on etfs and in crypto um and so in 2016 i kind of shifted more and more my portfolio into all of this um as i said the kind of story about ethereum

is a little similar um very different kind of now we can get into that but uh my partner brendan was actually the first person to tell me about ethereum in 2015 and that was that was like a dismissal the first time i heard about it and that was in the realm of like nothing will be able to compete with bitcoin bitcoin just has this lindy effect that now there's nothing that can dethrone it Right. And so I came back to that about like maybe three or four months later when I heard a little more about it. And so this was like middle of 2016. And then I went kind of down the full rabbit hole with Ethereum. And I think there was a period of time where I did believe that it could. And that was kind of at the right time. But I think I still had this pretty rational head about what Bitcoin was in Ethereum.

And I think from over the course of 2016 is when I really evolved and made the thought of, like, what is Ethereum and what is Bitcoin pretty concrete in my head? And, like, what are the value propositions? Like, what is the actual value? So heading into 2017 is when actually everything really exploded into the public consciousness. I was kind of, like, evenly split with Bitcoin and Ethereum. I would say the wine. wine or is it that that that sugary soda you brought into this i had to stop i had to stop by here to get a diet coke that poison you brought that's my um i would say heading into 2017 um

early 2017 was when like i distinguished between like what bitcoin is in ethereum but i saw the massive kind of explosion of ethereum that was about to come and so like most of my investment thesis on ethereum from like the 15 to 400 the first time was like almost i was like this this this meme of like myspace is definitely going to catch on like it definitely works with the vc crowd and so like that's an example of like a psychological momentum trade which i don't recommend people do but like i thought it was it was very very clear what was happening um but what was the original question um how'd you get path from so okay so that'll happen observer to hedge fund so that'll happen um so my first year in investment banking was

almost was like completely dominated by working on this one deal it was adt apollo private equity firm um bought adt the security company through one of its portfolio companies called protection one it was it's it's the largest lbo like excluding like delhi mc since the financial crash so that just like absorbed my life for a year um and like i think that had two things that made me become more of a hermit hermit that also got me really deep into kind of this sass or like the sass type model businesses and so from there i like i worked on this deal and went really well I had a lot of flexibility in terms of what I could work on for like the next year I was in banking and I kind of completely shifted towards all mature SaaS type businesses data centers

e-wallets like a kind of weird niche oh they're all kind of different in a lot of ways but I was able to kind of take on that specific type market investment banking that ended up being a really good background to understanding kind of this growing infrastructure but the reason why I'm explaining all this is kind of all this actually came out of working on this one uh e-wallet company and so i was working with my boss um on this deal and so this is like end of 2016 and so like i'm kind of creating this deck for like all the economics and kind of comps and everything and so i show it to him and he's he just asked me like what do you think like just broadly about this and i said i was i thought it was a concern that they hadn't brought up like

any blockchain or any innovation happening in the fintech at all like i mean they had their own innovation but kind of broader outside of what they were talking about and so um i was like i was like it's concerning that they're not even mentioning like blockchain which isn't would have it would have meant that they were extremely far ahead of the time if they had it all but i was like it's concerning for this whole industry because blockchain is this massive new innovation right so he's like i i don't know like what that is like what is that and so from there i spent probably like 40 hours over like the course of like two three weeks giving him teachings of like what was happening bitcoin was happening ethereum so then he set up broader teachings for um not

only deutsche bank for other wall street firms and so kind of had this little group of occult following um and so like i kept getting more and more um requests if i could just manage people's money on this front um you know people knew like i had background in trading for a while um and so it kind of as it was getting larger and larger and i guess the number got larger and larger it's just harder to ignore and so at the same time i had plans to move into private equity at that point as well and there's a point where i was talking to my boss about all this and he's like you know i know you're you have this job to move into private equity now like why don't you go just work for bitcoin or ethereum i was like that's not it's not really a thing to do but i

was like i'll write you a recommendation to the ceo of bitcoin yeah so i was like that's not actually a thing and which makes me doubt my ability to teach any of this stuff but um i was like i have been considering now this this fund and so this was like right before the wave of funds started and so if i think if the wave of funds started before we had gotten going that would have like turned me off to doing it but we had just literally just got started above all of them and he was like a cc investor in the fund and we had a really good group of of close guys to see the fund and so yeah that kind of kicked it all off and so i mentioned brendan who's my partner we had been friends at Duke since freshman year actually became really friendly

talking about investments and all that pretty similar was degenerate since high school on playing poker trading and all that and so we became friends pretty immediately and we'd evolved our thesis on the space together and so he had gone he's pretty similar path Duke he was at Goldman Investment Banking then left to go work at a VC fund and so he was actually pushing their vc fund more and more um into blockchain type investments and so he like we it was it was a very natural thing that we would be working together and doing this and right from the get-go we also wanted a third partner so crypto super small community in 2016 we kind of knew the land of other people who we thought could be personal personality matches and alex

sunaborg was our first choice of the third partner and we had a conversation with him and it was like an immediate click and so that like that situation of how everything can work out with three people like extremely lucky and yeah i don't think that's replicatable at all but yeah so that i guess that's that's the little evolution yeah that's how tetris came to be yeah um one digression i think it would be important to touch on since you have like a background in pe in evaluating fintech companies is one i don't want to say meme but like one adage that i've heard particularly in fintech that a lot of fintech in the last like 20 years is basically like just ux on top of traditional fintech like there's no new tech and that actually like bitcoin stop saying like

already bitcoin is an actual innovation in the fintech arena and we're in the fintech space that hasn't been um it is like an order of magnitude better than the fintech that we we we are used to like so a lot of companies trying to raise money for a fintech quote-unquote uh for fintech company are basically just i know you can't say basically either right it's extremely what you're saying is like everybody's kind of taking an iteration an iteration move off of existing tech and which that's just extremely hard to do to gain traction and you have to have a lot of it's a capital game it's a subscriber acquisition yeah type game and like you need capital to do that to pull it off and that's kind of birthed massive vc industry and like you can't

make a a successful company without vc backing kind of because of that um like i guess what you're getting into is it's very hard and like what i'm kind of explaining it's very hard to beat an incumbent and what it's already doing and like there's this meme buzzword of like you need a 10x improvement over something and so this is kind of the first 10x improvement of something in the financial industry in a while you have some derivatives that have been able to do that but like this is like a immutable um censorship resistant store of value thing that's completely brand new yeah and that's like fuck i'm not judging i know i'm judging myself i'm very hard of myself but it is it's crazy to see like uh like because fintech was a buzzword for so long

like fintech fintech fintech like vc's like pouring in and then you get an actual fintech upgrade and a lot of people ignored it for a while until it started knocking on people's doors like hey i'm here and i'm somewhat better than the fintech that you're investing in um yeah it's it's it's i it's just such a difficult thing to wrap your head around i was saying it's like why would anybody know what's going on this is like when i talk to investors or just people in general they're like like i'm trying to explain like why they're like we there is a kind of a serious lack of talent still in the space in a lot of a lot of ways not like the developer side i mean i could work for the rest of my life trying to become a developer on that front i just couldn't ever get

close to like the top 100 people um so like kind of said on that and like they're just leagues above everybody but in terms of like business and how are people actually thinking about this correctly there's like still nobody like here right um and like that has to do with it's just like a very complicated model it's it's a it's a flip model so you kind of have to be like younger to like have an open mind about things um that's one and like yeah it's just it's like an abstraction and you kind of have to have like multiple disciplines background to like say okay why does this work why is it superior in some regards it's like you kind of have to have a background and like 10 things have to be young enough to have an open mind about it and like be in the right place the

right time so like warren buffett like i hate when people in crypto quote warren buffett but this is not about crypto like warren buffett has a quote he's like i'm just i was so lucky to be born like male this time and like have this skill set this time when it was important and it's like everybody who is in crypto now and like doing well it's like it's like you you were just born kind of at the right time there's a lot of people who just like fell into it yeah i honestly say that's more than most people now but like the really dangerous people it's like how in the world would like having a little bit of a cs background and behavioral finance like that that didn't make sense before today like it made zero sense to combine the two exactly and that's

the beauty of it the surprise of it all the black swan of it all it sort of came out of nowhere and has created this this value creation machine i would say that that people are drawn to and like you just said if you have the right skill set at the right time it's could be very lucrative in the long run and it definitely does suit a certain type of thinker i would say uh you definitely have to be open-minded there's you have to question you have to to be in this space you have to openly question the system that we grew up in and sort of what we're used to and it's like i tell people sometimes it's like pretty easy to tell when somebody came into this space because they're kind of all the same personality and like different waves um like it's and like now i would say like

we're almost at like the fifth wave and so like the personality that's just coming in now like they're all pretty similar so i guess it's it's like in like a tree you could see like ring signature like then uh every year like there's a ring and a tree it's kind of the same thing with crypto you're like okay you're this x personality type like you probably came in at this point in time yeah it's funny because those personality types just wait for for somebody or from what i've observed they're just waiting for another type of personality type to say hey this is okay this is cool we can explore this and they'll be like all right he said it's cool we can explore it um and it's interesting especially right now after the the blow off top that we just

experienced in december and the subsequent 70 80 percent crash that we've experienced what are you quoting bitcoin uh 19 beginning of the year it's about 50 i don't know what it is today but roughly yeah from the peak from like 1906 to it got down to 59 i believe so whatever that is um yeah um that tests uh people's ideology right yeah um and that's it's kind of like i hate when i'm gonna keep saying this because there's a lot of things that bother me and as we drink more it's probably gonna come out more but like people saying oh like i love bear markets like nobody likes bear markets but there is truth into it creates a better core um like whenever that happens like it flushes out like things that are weak like this is the great thing about capitalism

capital markets is that weak things don't last and so like in like when things get shaky it's like the core there is stronger and stronger so it's a good segue into your investment thesis and sort of how you approach investing in this space managing risk in this hyper volatile market it's got to be hyper stressful for you i would imagine um so what what is your approach like what are you looking for i'm gonna stop saying like i promise you freaks what are you looking for i'm honestly not i can't even tell you're saying that's because we're both millennials and we're used to it um so from an investment thesis what are you looking for how are you managing risk i don't get any particulars of your fund or anything but from a personal standpoint

how are you managing risk in this space at this moment and how has that uh risk management perspective changed over time yeah so i first of all like to speak more abstractly i think there are like three different ways to invest like there's three distinct different ways of investing there's the fundamental value investing there's two relative value investing and three momentum like trading over almost entirely the space right now is momentum trading and that's like what speculators do like you don't have a perspective on value um basically nobody's a fundamental value investor like you have like distressed shops that that do do that so like what like and i think people's perception of what fundamental value is is wrong fundamental value is like you can trade

this in for like there's like arbitrage on like i could trade this in for something higher there's a reason why it's acting weird nothing in crypto is any fundamental value because it's there's nothing that you could trade in it for like if maybe if there was an asset that was pegged to something and the the the peg got off and you're buying that asset cheap relative to like what it should be and you could trade in like that's the fundamental value bet virtually everybody is a relative value investor and so that is like coming up with your own assumptions on risk and like either cash flows in the future so like really there's only ever two variables that have to go into like pricing assets it's like cash flows in the future and you could incorporate capital

appreciation there and then just like risk of that happening um so the market pretty much always operates like relative value investing and like then that's like cycles like are like kind of naturally happen like debt cycles and all that that's completely tangential thought but so in in that framework and what i said was like this whole market is almost entirely momentum trading it's like you can have your perspective of like what is like actual good real like relative value like what is it better than everything but you're probably going to be wrong especially in a hyper super speculative market and so like like what i try to do is to solve for that and kind of get the best risk reward within this parameters of like liquidity and volatility like i break it

down into like three categories at every given time so this is like the base framework of how i think about the space so the first bucket is like what is something that i believe in for like a year or more going forward that's like where does value accrue to like people say network effects where like what am i confident is going to be there and increase in value for more than a year now um middle bucket is like more of like a three to four month time horizon so that's not like having a perspective longer term but that's more of like kind of like macro information arbitrage so like something that's been like a good example of that in this space has been like privacy tokens so like developers have been super excited about that for like last two years a year

like super super excited and that didn't really trickle into the market until like later stage and so that was a pretty good example of like information that was a pretty clear gonna move over into the space in a wider like that's like a thesis driven trade um and so the final bucket is catalyst driven trading and so that is very short term this x is gonna happen so we're positioning ourselves best for that the shit coin's gonna get out at the bit tricks and we're gonna a good example of that would be like over segwit 2x if like if you want to properly position your portfolio like you probably had to hold some um bitcoin cash because like we we like i i thought that no the segwit 2x what was going on that kind of inflated bitcoin's price because of this free

narrative token to begin with um and it was unclear what was going to happen with that 2x on the side and similar to what happened with z classic and the bitcoin private so like we can talk about that and like what bitcoin cash fork was like everybody bitcoin cash fork was this super value creative event for this like bitcoin as a whole and so what happened is that everybody thought any fork is fantastic now and so like everybody dumped back into bitcoin heading into that and so that was like you could kind of if you're taking yourself away and you're like just looking at market participants who are buyers and sellers it was clear that that was was going on and it was going to be a sale after that and it was it was like looking back it was super crazy

like free tokens for like if you look back at like twitter in november it's like i want my free token or whatever i want my platinum my gold my private yeah so um like like we like we actually like like that was a good time period of where like you know bitcoin is probably like in the near term overbought and there was this pretty good time period of like okay there we know there are big blockers in this space and so there's a there's a chance that the segment 2x doesn't work what happens if it doesn't where are they going and so it was clear that they're all going to go to bitcoin cash at that time period so i really don't have a long-term perspective on bitcoin cash but that's like a pretty good example of like a catalyst driven trade yeah that was definitely

a huge narrative going into the end of last year it's still going on and this is another perfect segue into into uh the debate crypto twitter was on fire today samson and uh samson and roger ver vitalik got up called called craig wright a fraud deservedly so it was interesting to see like it's literally there's a full 180 in like the whole ecosystem like let me say most people had their perspective is like now like it's like you can't say anything positive about him yeah um that happened pretty quickly though within like the last 24 hours all right so let's break it down for those of you freaks that don't don't know what we're talking about um while we were sleeping last night here in new york city there is a um conference going on in seoul south korea

uh the economy the economy yeah uh and there were a lot of a lot of big players in the in the crypto world if you want to say that i i hate saying that because it's supposed to be like a decentralized no idols type type system but oh geez let's be frank yeah there were some ogs there huge debate between roger ver and samson mal over the the uh differences between bitcoin and bitcoin cash and the value propositions of each protocol uh at one point towards the end of the talk vitalik buterin was given a mic uh in the crowd and he called out frag right uh for being a fraud and called out the conference for having him there which i think very admirable vitalik that dude should be called out he is a fraud in my mind uh a rambler if you will makes no sense can't put a

coherent thought together and it's basically a scammer um but with that being said vitalik was tweeting throughout the event and that blew up on crypto twitter everybody was was patting vitalik on the back for for being the the genius child that he is and and being so prescient and and being able to put everything into a tweet tweet thread in very concise form but i got on the newsletter today i was like hey it was like a cool cool thread that he did that he was live tweeting this event but i don't agree with everything he was saying like so let's i got first i made a comment i was like why are you live tweeting anything and then i realized how like crazy everything was going on and so it was like okay yeah thank you for live tweeting this

yeah but he brought some of his own uh his own bias into into the thread which perturbed me a little bit um so i'm trying to figure out my mind right now i'm thinking on the go how to structure this question so let's start with the bitcoin versus bitcoin cash uh debate that went on the crux of the bait from what i can tell from what i watched on youtube from what i've seen on twitter was uh that bitcoin bitcoin cash believes that the value proposition of the system is a medium of exchange and that it should be a medium of exchange out of box out of the box and that is what gives bitcoin cash its value whereas samson mal arguing for bitcoin was saying that we need to move slow and steady and establish bitcoin as a store of value first before it moves

to a medium of exchange because you need to have that base layer of store of value to then move to a medium of exchange and you have need to have a saturated value filled market where you can enable a medium of exchange where exchanging the token does not move the price too much. So let's get into the economics of this. And I'm obviously on the side of Samson Mao. And we're going to tie Vitalik's thread into this as well. I think those are two different discussions,

which we could go Bitcoin to ETH after. I don't want to talk about Ethereum at all, but Vitalik was... Let's shelf that. we could talk about that after yeah we'll talk about that after but vitalik was was siding with roger vera saying i agree i think medium of exchange out of the box yeah and i would say like people who are prone to lean towards eth also believe in bitcoin cash somehow like you have like a weird divergence in communities where ethereum people are more prone to like think bitcoin cash is like the where like the future is i think there are like reasons for that um and i

think it comes down to like like almost like a the philosophical disagreement at like its base level is does like making something does increasing usage make something more valuable or do you need something to be valuable to begin with and then like like use will come after right so like i i personally fall towards the the bitcoin btc uh side as well um and it's going back to what we talked about like five minutes ago like where is like the 10x improvement in this technology the 10x improvement in the technology is in this like immutable unseizable store of value like something we've never had had before so to compromise that in any way is like removing its value proposition it's a non-starter in my opinion yeah so like i like like heading into the

like i've always actually been on the side of like i think maybe we should increase the block size but if the community doesn't want to do that then why fight like i'm not smarter than the most of these guys who drew and like they're they're really good like i thought like the 2x may be okay i wasn't a supporter of segwit 2x because i thought just how it came about was just in the wrong way like i think like well let's see what happens for like the next year and then we'll move from there and that's always kind of been my position bitcoin cash is being like eff it like let's just do this and then getting support it was just like that also just happened in a really weird way um so like in my mind like it was like a secession from the union and like like in my

mind it doesn't really shouldn't have a claim to like the bitcoin name it's like saying like when a state wants to succeed in the united states it calling itself the united states like makes sense right just like like i had i forget who i had this this conversation with but it was like they're like oh like a soft fork is changing like segwit changes the protocol as well but it's like that's like saying every time like you add an amendment to the u.s constitution you have to change the name like it it's done in a way where there's like state buy-in it's like you introduce something and then there's gradual buy-ins that's like like for like you have to look at existing government models it's like that has been a lot more successful like let's not just like create

this clear rip and like figure it out it's like the the doing soft fork is a much more delicate and thoughtful process of it all. Because it's completely opt-in and backwards compatible. So people that don't want to utilize Segwit don't have to. Yeah. Well, I mean, I think the idea is that it'll eventually get close to 90%, 100%. But Bitcoin's culture is like, I don't force you to do anything. Exactly.

So it's like, don't mess with me, I won't mess with you. Which is still really the only place where that exists in all of crypto. So I think that's the special part of Bitcoin. i do as well and it's interesting to see all these altcoin developers and and i honestly don't blame them because i think it's an extremely nuanced argument like it's it's really difficult to explain why increase like the like keeping the block size where it is is actually probably better because like and this is what's confusing to most people who are coming in new to to the space is like, well, Bitcoin Cash has

lower, it's like in terms of transacting, it's probably better. It's like, yeah, but you're compromising. Why don't you just use Venmo? It's better to a point, though. That's my whole point is, what are you going to do? Raise the block size forever? Let's just

accept, this is what I like to do, is I'll accept, for a theorem, I'll say this as well. I'll accept everything that you say that's going to happen, but then let's go from there. it's like you're you're like they haven't first of all like there's not enough like really talented like protocol engineers to to to work on it in a significant way to make these like maybe that happens maybe they develop more talent but i don't think there's like more than really 10 like super

strong dudes working on it whereas like in bitcoin they're easily 60 60 um and like and that's a growing number as well like you don't really see like kids out of college saying i'm going to join bitcoin cash like the whatever core is it a bitcoin cash core or what do they even call bitcoin abcs their code base i'm not sure what they're like yeah like what is the process for is it just i'm pretty sure i'm pretty sure they're like at one point people don't understand is bitcoin core isn't like a group of people it's like a meritocratic process and so you you kind of get into it quotes by like building your reputation and so like it's just like how merit merit meritocracy works it's like you're a waste of people's time if like you honestly don't know

what you're talking about so that brings people take that as being toxic no and like you are toxic tom don't bring this toxicity into the barstool offices and i and i totally get that arguments it's like a little bit elitist right but it's it's just how reality works it's like you and And, like, I would say all of most of Bitcoin Core, if you're coming to them in, like, an academic way and being, like, I want to learn about this, almost everybody is extremely happy to, like, spend as much time with you as whatever. But just a lot of how, like, I feel like Bitcoin Cash, like, really what it is now is, like, I hate Bitcoin Core and that's what, like, holds us together. We're here to spite them. it's not like i think i think it's really the only thing that ties the everybody together there is like they just hate bitcoin core yeah it's just which is you never you never want to build you

never want to build a project out of spite which seems like what's happening or they're newer and they have like they don't think they see the whole picture of how all this works and they're like oh the transactions like we need to make this you know exchange so like getting back to that is like where this all brought up is like there are so many better ways of like using a medium exchange today and there's so much like companies and global that like we have you have so many different rails of like sending money right it's the holding money that's the that's the novel holding money and having it keep its value that's the novel part that's that's really the most novel part of all this and so like why would you like try and compromise that at all like i get it it's

like you're trying to get more adoption near term for like creating like a more functional thing conceptually i get i understand that argument this is kind of what ethereum is doing as well um but like it's not it's it's it's it's honestly it's a pretty nuanced thing so like i'm sympathetic and like i i don't like shut down the other side like i like to hear like i also trading so like i need to understand what the market psychology is all the time so like i i generally like to hear the full extent of what people think but yeah it's i mean it's i think what it boils down to is people are just focusing on like layer one of this whole debate and it's like you spend time and think about it like it's much more complicated than than what you saw before and like there's

really only one answer yeah and there's two things i want to touch on here first going back to your comment on elitism people shouldn't be like in the meritocracy and which bitcoin is my opinion people that argue like people that argue elitism are small-minded it reminds me of a quote that my high school lacrosse coach used to not physically beat into us but mentally repeat to us is that and this is this is actually a great a great pun for the blockchain space that you're only as strong as your weakest link in the chain and when it comes to value securing networks like bitcoin you don't want any subpar developer working on that code base in my mind you want i almost even think that's just irrelevant like that's just a part of like that's like part

number 12 of like the explaining what's the difference between the two but like say like for like equal equal to equal that's what's going on which it's not like it's like just conceptually they're i think they're just fundamentally wrong they just have like a fundamental wrong view of of saying reality is probably too harsh but like of how just value works right it's the creating a better medium of exchange isn't a 10x better improvement over the current structure of like society and the economy like we have fantastic ways of getting value around it's just the immutable part of like not somebody not being able to like shut you down that's the difference so and like that is only getting better of like being able to go from

holding value to transitioning into medium like that's what's main part of like bitcoin is working on now so that's like an inevitable thing it's like obviously it's not doing that perfectly now like there's clunkiness to it virtually there's no user interface for it but it's like you have to preserve the core part of the value and so and it gets down to so that's the parts like that's what's valuable and then if you want to say okay maybe this is the best medium exchange that's ever existed i'll take that side of the argument then you have to look at total addressable market it's like okay how do we actually value so we say bitcoin cash becomes the best medium exchange just ever existed and then you have bitcoin which is this fantastically new type of asset that is

like a store of value right so store of value versus medium exchange let's look at like what is the total addressable market there the store of value total addressable market is like orders orders of magnitude greater than that like no like you can't you don't really make you don't break into the trillions by being a great way of moving money around it's this extremely small spread it's Like, that's a payment rail. Payment rails really aren't valuable. No. And then when you're talking about these fixed supply systems that blockchains are,

who knows what Bitcoin Cash's plans in the future are. Maybe they'll add inflation to their network. But when you're marketing a medium of exchange out of the box, you're really, really pushing for the velocity to get jacked up, which will dilute your value. not dilute your value but depreciate the value because I think everybody's problem is they're thinking

about static models and just not dynamic economic models like why would anybody I guess the question it's like if you're thinking of like a steady state or like one or two iterations on it like that makes sense when you're thinking of like okay this working over

like years and years of time like then what's going to happen it's yeah like you have an inherent velocity problem which i think it's been over like it's been over talked about and i don't think people completely understand what that means it's saying like what it boils down to is the only way things get have value is if people hold on to them people are willing to hold on yeah and so like if nobody wants to hold on to it it's like the water versus diamonds debate it's like water what is that debate i've never heard that debate i mean i don't know if it's like a well

this is what me and brendan uh talk about it's like obviously if you're you like water this is my jersey actually water water we got the philly south jersey philly crew in the house we're gonna get watermelon we're gonna get wood ice we're gonna get it all and uh like i spent some time in london every every time i say that literally nobody understands what i was talking i got water beat out of me in charleston south carolina like what are you saying that what are you saying what are you saying is water we drink water down here it's h2o and diamonds like you need you need h2o more than you need diamonds but like water there's no scarcity to it and so if it's it's like almost more about like um situational opportunity costs it's like

what do you need now like like there's no ever like situational opportunity costs to like not holding or holding h2o so it's always there so that that's the problem that happens with anything that people just aren't holding right it's just it's out there for anybody so it's like what the price is like nothing yeah it's unless you have like a market maker who's artificially propping it up and that's kind of what those central banks have had to do that's what happened with with um the uk with soros it's like they they were holding the ground like you have to have somebody who's either a central market maker you have to have a peg for that not to like slip crazy out so this is like an economic like value at the end of the day boils down to economics not

technology like the features are great but like you could have this fantastic group goldberg machine and like well what does it do and why do people like need it right so it's like economics at the end of the day is psychology and it's what will yeah what people are willing to so like a like i I mean, I think that you're bringing him to, like, an even, like, more higher part of this conversation. Everything is psychology. We get cosmic here. We get cosmic here. It's, like, I mean, this is, like, just how I think about markets in general, too.

Like, I abstract a little bit away from, like, relative value or fundamental value, but just by knowing where buyers and sellers are all the time. And so, like, most people, it's really hard to do. And, like, you have to have, like, your discipline and protocols in place. so like so that's like most people just go broke by doing it so that's like kind of why you need to have like a layered approach to that because it's really easy to trick yourself that you know more information than you do but like markets are completely rational in reflecting the current market participants psychology so if you know the marketplace's psychology and the inflow and outflow of market participants then you understand the marketplace so crypto is completely rational

once you understand like who are the participants are like early stage degens like technologists and like entrepreneurs who like found this like relatively early and have now accrued some and now like i would say like vc type people and so they have a very specific type of view of how the world works and i think that view only works in a certain framework in certain like niche area of like companies and so they're extending this view of like spray and pray on like interesting technology and so this is why like everything has value and um so they're taking this like anything that has a good team and interesting technology has value and they're not thinking about any like like they're not there's no discipline in terms of okay this may be overvalued

like to me like i think crypto kitties is like a like a fantastic idea like super interesting But them raising the amount of money that they just did is like – to me, that was like an example of an overvaluation. Yeah. Lightning Network goes out and raises $2.5 million and CryptoKitties goes out and raises almost six times that. And like the pushback I've gotten – What's the value that CryptoKitties is going to provide over Lightning Network and what's the justification for that valuation or that raise? and it let's not let's not even think relatively let's say it's just like it's a it's it's i don't know what what the i don't know what the exact valuation is i didn't look into it but um let's say it's like roughly like 40 or whatever like that round put it at so they're putting 40 million

like they're attributing a 40 million ish uh valuation like that may be like i don't know It's like roughly around that number to essentially one person be able to replicate that idea. And so it's not like they're even betting on an idea. They're taking like compounded to the fourth risk on that. And so it's not only like Ethereum can handle this or whatever technology can handle like this happening and like full scale. Two is like is there an actual going to be a real marketplace for this so that people attribute value to it. Three is the idea like going to be fantastic like CryptoKitties. and four is the person

could be able to like actually pull that off so like that's like you're like that's comp that's it's a fourth abstraction

yeah it's and this is why like a good seed investment is like a million dollars and like or if that and like

that's an early stage idea and like it's like people have gotten really away from valuation in this space because it's

it's like we've been in like now not not even controversial we've been in like peak hysteria mode and it's like i'm gonna be late to the party like massive fomo and so it's like i just need exposure to this and like and like i think like not to like throw shade at like all vcs because

i think there's some like massively talented super smart guys that i don't compare to um but just vc as a culture is like very relationship driven very fomo driven and so there's like three like really solid vcs out there and like the rest kind of follow follow suit so it's like a very herd mentality type game it is it is and how much of that vc culture i'm not gonna frame this how much of that vc culture sort of connects to the easy monetary policy that's going on in this country do you think it's just there's been like a ton of easy money and and the culture of spray and pray has worked out for at least a good amount and there have been periods of time where you just needed a seat

in a certain industry and you made a lot of money like wall street in the 80s was that yes you see in the last like 10 15 years has been that so that's been my point they're a lot smarter than they are yes exactly so going back to like nassim taleb fooled by randomness like nero and his neighbor nero had the very conservative approach to markets and his neighbor got lucky in a bull market and bought multiple houses multiple cars then a black swan event happens and he gets wiped out and I feel like I can't speak to this because I've never been a VC never worked for a venture capitalist fund I've worked on the valuation side where we valued PE portfolios and that was an eye-opening experience for me actually this is going to diverge here a little bit but like

working for evaluations firm and value a evaluating PE firms portfolios was eye-opening did you go like company by company or what did you do yeah yeah so the valuations firm i worked for shout out mary divine in philadelphia if you're looking for a third-party valuation hit them up um yeah i can't talk about the particular companies that we're valuing but the pe firms like bing capital um hamilton lane a few others and you get you get down to like the nitty-gritty the balance sheets of these companies it's like oh my god like you're basically just loading these guys up with debt like it it's it's a whole balance sheet game that was the world that i just previously yeah no i know i know i was i'm in it i was in it too but you have to ask those

hard questions like is this just like a balance sheet game at the end of the day and it seems like that finding true value is very hard in this world at least in and i just don't know the answer to this it's just it's it's just different it's different um like what what works in different spaces is is just different so like vcs like you do need to be like the social chair type personality to like know everything that's going on right and so that's and obviously a lot more than that but you definitely need that aspect of it um to be like a really good um a hedge fund or private equity guy you have to be contrarian like you have to think the market's wrong about something it's always been like what is our edge right so it's a completely different framework

of thinking and so like in a lot of ways i think crypto is like this head-on of like silicon valley wall street and we've had like the early move of silicon valley and wall street has yet to come in my opinion i think wall street personalities are going to dominate the the space when they do come in because there's just so much more discipline let's get into that why why do you think so it's like this is this is a liquid market market no like there's a lot there's a reasons so like i i'm not saying vc's don't have a place like i still think they have the um the really early like the early stage finding like people want to build things right um and that guy but like in some ways i think the people who are really good or are you kind

of here like blockchain capital like they like if you look at their portfolios like home run after home run it's like like spencer's a smart guy yeah and the whole team there is um and like they're They're not really taking plays on tokens, though. It's like infrastructure-type stuff. Smart play. And so VCs getting involved in the tokens doesn't make sense to me. It doesn't make any sense. First of all, I don't think the tokens are worth anything.

But they're kind of taking the worst of both worlds in a lot of ways where they're taking a long-term view and they have the wrong long-term view and they're not taking advantage of liquidity. so they're playing in a space and they're like they're advertising the liquidity is awesome but they're a vc and like they're taking a five turn five year time horizon anyway and so like they're just like so it's like kind of like contradicting itself it's like like like i don't it just doesn't make any sense to me and like most of the like this is why there's a i think the bubble in like

the saft space so the simple agreement for future tokens is just going to keep lasting because it's the only space that vcs can play and because of like the custody part let's get into the ethics of that though like so the vcs the ethics of it is or not the ethics of it the mechanics of it to this point is the vcs get word hey we're gonna have this token sale we're gonna do a pre-sale we're gonna let you accredited investors get get get first buy-in and they do that the tokens get pumped the erc20 like somebody pumps it on twitter or something happens a story comes out narrative comes out retail investors are frothing at the bit to get in on it and as soon as the token goes live you have a 20 pop these vcs have a fiduciary responsibility to sell that pop

and i i think their view is that the token is going to be worth a lot more so like they wouldn't have gotten that position if it was going to be short because that's just not their bread and butter so like i think they genuinely believe those tokens are going to be worth a lot and they're taking a five-year time horizon why why are they wrong of why that's not those aren't valuable yes let's get into it oh boy let's get into it i think like you like the podcast i've heard you would be like utility tokens don't make any sense to me they don't and then you're like i'm stupid so i don't know you're not stupid they so this is going to like the velocity and in, like, hyperinflation problem.

Like, so there are utility tokens that make sense, but they really only make sense if they're pegged to something. And that's not, like, sexy to put out off, like, as an offer it. Like, you want this to be, oh, this is the currency of this system because then there's, like, could be perceived that there, like, could be network effects and it's worth a lot more. Just when that system operates in steady state eventually or doesn't, then, like, why would it be worth anything?

so it's like if you go into so if like disney has like this is a pretty tangible example for people to understand like disney has issues a bunch of x currency right and it's like you could only use it there why would you hold it if you don't believe in disney right yeah so unless it's like like what like the only way they make value and this is like disney like has done this and like or like disney downtown or whatever like they've had like the actual currencies they they keep like like it kind of is like a peg where like this utility you can trade in x dollar or something for this utility and so they have like a base layer peg and then things that are more interesting can be higher off of that and priced off of that um but if you don't do that then why

is it worth anything and if you don't do that why the reason why it's not going to be worth anything is because like there's this the full essentially the full um supply of the money that they put out is probably going to be hitting like is going to be used like daily and so the velocity of that i don't think it's unreasonable to say it's like 300 over 300 right like the normal economy or the normal like mature like economy is about like a velocity about five times and that like in that and just now natural uh demand increasing has a effect of like producing like a two to four percent inflation rate so if you're jacking that up and jacking velocity up the like the the money supply the effective money supply is like that much higher so there's that much more dollars chasing

product and so the person the people who are pricing the product are just not like they're going to make the common sense decision to increase the product's price to that like utility token right so that's that's what inflation is like a lot i think a lot of people have a misconception of what inflation is where they think like more money supply is inflation that's actually not the definition of inflation inflation is you're losing purchasing power yeah just increasing money supply does that naturally so increasing money supply is inflationary inherently yes and so like you have this problem it's just no but there's no economist crypto who are saying this is a bad idea um i think like maybe they work out by like the you have like a central authority saying this

is the peg and so then you're you're losing a lot of value proposition and it's the whole reason we're exactly it's becoming centralized again that you could or you could just make it by code and saying this is what this is but that's hard to do for creating uh like a free market or like a double-sided market yes and it's it's amazing like i've been told not to say that i'm stupid on this podcast a lot but i feel stupid sometimes but then i talked to you you listen to jordan peterson yes he's like don't don't say or let people tell you things that make you weak don't don't let them don't let don't let don't say things or don't let people say things to you that make you weak so it's like saying like i'm dumb is like example that all right well i'm the

smartest motherfucker on this planet you all heard it here first you're all dumber than me but i think that that that's a good tip actually i'm gonna take that with me no more saying i'm dumb i'm the smartest motherfucker in the world i'm really smart but taking that line of thought i came into the space because and that's after so many years of observing and being i would i would i would put myself out there and say i'm involved in the space now i've got some skin in the game uh putting my reputation i would say you're involved in the space um but bitcoin yeah hit me i'm famous on the mlb network um but i think one of the apprehensions i have of putting myself out there for the first few years where i was just

like a silent observer in the background was hey i don't get the tech of this all like the tech side like i i mean i understand the mechanics of a blockchain and how it works but when it comes to writing the code that makes these blockchains work like i feel powerless to an extent but after years and years of experience i'm coming to find that a lot of these tech-minded people don't have an economic understanding at all and you know you don't like nick sabo had a tweet out the other the the other was the last week or two weeks and he's like if you if you could choose between tech or um economists that can blockchain you'd probably want tech because a lot of stuff is just common sense which is true but like a person who's had more experience in markets just i think

understands like weird situations and what could happen at a macro level and so it's a very value add property right um but like ultimately it is more you can extrapolate and get to common sense things by having it's like more tech people are like more i think very micro um i'm like not i'm saying like vanilla tech person um i think they're crazy smart like if i'm gonna talk if i'm choosing between one or two i'd definitely go with the tech person they're just gonna be probably smarter talking about when i say tech like an engineer um i think people have over emphasized software engineers in the space of just like tinkering and tooling around like a software engineer doesn't mean you understand actually what's going on the protocol level

yeah it means you can manipulate the protocol in a way that ish yeah but one thing i've been coming to find is a lot of these people that are hyper focused on the technology side don't understand the economics and how it's going to play in the long term and that's why i got perturbed with vitalik's tweets read in particular today when he was referencing that book by gabner geibner um debt 5 000 years of debt yeah debt a 5 000 year history or whatever and he completely i mean first of all if you've read that book and read the critiques of that book you know that that that that literature stands on shoddy arguments and basically tries to argue that medium of exchange became came before store value i don't think

there's an example of a medium exchange that was established without that didn't have store value properties and it wasn't it wasn't done in a mandated way right so like gold was actually done in a mandated way as well in some ways and that's like when gold's value has gone up um but gold's also just very deeply ingrained in like human psychology but yeah like almost every like i think sabo actually retweeted adam as well it's like that's not right so that's what like so i had not i had an aha moment today was like you don't understand like economics in the history of money which is how old is he 24 he's our age yeah so yeah i just turned 25 the it's in like i mean i'm essentially making arguments against myself in a lot of ways but like you could be

smart and not have wisdom and it's like like making decisions for like governance like takes wisdom and so it's like we had like the founding fathers of the u.s which i hate going into like this type of analogy but it's like what made it work was wisdom like george washington and benjamin franklin realizing that they needed to step back right and they're like satoshi realizing he needs to step back that's why i'm saying it it's it's like i think he i think he did it for more more than that reason but i think that was definitely part of it um but yeah like if you want something to be like decentralized if that's actual like the priority you want this like ecosystem like you have to like bite your tongue and i'm not like i'm that's not a that's

not a direct comment to him but it's just like a broader comment of like how do you achieve that it's like you just you can't have people who having who have undue influence um and like it's a central point of failure that a lot of people like when people always produce these models of like oh what protocol is most decentralized like they're always leaving that part out it's like how like are there several people who are like the main part of this it's like that's always left out yeah the the founder centralization is again going back to the multiple aspects of this space like technical economic and then psychological which probably encapsulates everything to an extent it's probably a part of everything to an extent but again

say that again I missed that so putting together like the technical the economics and then the psychological is

is like like more than anything I'm beginning to believe is that this is a psychological phenomenon yeah no it's

like this is like the area that I've been obsessed with so like behavioral finance right um and we're gonna end it there

for right now we'll be back with the second half of this conversation on Thursday. If you guys liked this conversation, please follow Tom on Twitter, at Tom Garambone. Also, if you like this podcast, please share it with friends.

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