The Breakdown - How a Massive Devaluation of the Egyptian Pound Inspired a $100M Bitcoin ETP

Episode Date: November 7, 2020

Hany Rashwan is the CEO of Amun/21Shares, the creator of a variety of publicly traded crypto products with over $100 million assets under management.  In this conversation, he and NLW discuss: How he was introduced to bitcoin by Tim Draper in 2012 How the Egyptian revolution and challenges that followed influenced his thinking  How a 48% overnight devaluation of the Egyptian pound created the “aha” moment around bitcoin How bitcoin could become the global reserve currency  Find our guest online: Twitter: twitter.com/hany Website: 21shares.com

In moving forward and really pushing this in a more global setting for as many people as possible, there's this macro trend with what is going on with the American Century and what is going on with dollarization and how does the rest of the world fit into that and what the next steps are that I think are the most compelling argument for how honestly Bitcoin can reach the millions of dollars per Bitcoin value that some of its proponents think of. Welcome back to The Breakdown with me and I'm It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by crypto.com and nexo.io and produced and distributed by CoinDest.

What's going on, guys? It is Saturday, November 7th, and usually on Saturday we do the weekly recap. However, as I've mentioned a couple times, I'm actually traveling this Saturday, so instead I'm doing this interview. and it's one I'm really excited about. Between 2004 and 2008, I lived on and off in Cairo, Egypt, about six or seven times. I thought I was going to spend my life in the Middle East, and obviously things went very differently, but it's still a place that I care about deeply and am fascinated by. And so as part of this sort of global coverage, maybe shifting focus away from America after such a long election season, I wanted to talk to someone who was in the Bitcoin in crypto space, but who had roots in Egypt and who could maybe bring together those threads.

Enter Hany Rashwan. Hany is the CEO and founder of Amun and 21 shares. He has founded numerous fintech companies before this, all at the ripe old age of 30, and he's a super thoughtful smart guy, as you'll see from this conversation. In it, we talk about how Hany was both introduced to Bitcoin and where it really clicked in, and you won't be surprised to find that it was at a moment of currency devalued. of the Egyptian pound. So with that, let's dive right into this great conversation with Hanny Rushwan. All right, Hany, welcome to the show. So great to have you on the breakdown.

Thank you for having me. So I'm really excited for this conversation. People who are regular listeners to the show know that I lived on and off in Egypt for some time, a long time ago now, and have always been super fascinated by it. And, you know, your work, your career has taken you to lots of places far beyond Egypt, but I thought it'd be really fun to talk about both what you've been doing in crypto, as well as just get your take as someone who's from Egypt and who's spent time thinking about the economics and the place to get some background. So I think to start, though, let's talk about what you're doing now with 21 shares. And then maybe we can go from there into how it came to be.

But let's start with what 21 shares is and what you're up to. Sure. So I'm the founder and CEO of Amun and 21 shares. And the way we describe it is that 21 shares is our highly regulated entity that is today the world's largest issue of crypto exchange traded products. And we do more tokens under the Amun brand, which is a younger company. Under 21 shares, we brought the world's first index, investable crypto index, and we listed it as a share, as a stock on the Swiss Stock Exchange. We have since followed up with, I think, over 35 products now. We have by far the largest product suite of listed crypto instruments so that you can invest in crypto like you would buy a share or stock of a company.

And through our listings, you can invest in Bitcoin, Ethereum, Bitcoin Cash, Tezos, finance, Ripple, as well as four baskets or indexes that give you a broader overview of the market, as well as a Bitcoin short, ETP, if you want to hedge or go the other way, in USD, Euro, Swiss francs, as well as pounds. And today we're listed on the Swiss Stock Exchange, the Austrian Stock Exchange, Deutsche Borza, the German Stock Exchange, and a handful of small ones, and we're working on a bunch of new listings. Awesome. And so for people who aren't familiar, what's the difference between an exchange-traded product and an exchange-traded fund like we have in the U.S.? Yeah, so we've heard a lot about the ETF sagas, right, around the world?

We are working on a bunch of new listings and a bunch of new listings. geography, so we may or may not be actually intimately familiar with some of these discussions. So an exchange-traded product, and it's actually a bit, it's a bit complicated, because for some reason the Swiss regulators call an exchange-traded commodity, an exchange-traded product. So that is actually a feature just in Switzerland, where an ETP is actually an ETC elsewhere. An exchange-prided commodity is 100% collateralized. It is not a debt instrument like ETNs out there. And so it's a fairly more conservative structure than ETS and ETS.

And it was initially designed to trade gold and silver and other precious metals and commodities. That's actually how it came about. These kinds of products first got listed as ETCs and then later got listed as ETFs. So the world's first gold ETF happened, I believe, a year after the world's first gold ETC. We think that given the crypto asset class and especially our customers are mostly either retail users who want to put this in their retirement accounts or have an easier access to it or institutional investors and private banks and family offices who are not able to invest in this in any other form and are pretty worried about it. we give them an easier access to that. And so we thought we would go with the most conservative structure there is. And today, as it exists from a regulatory perspective, that is an ETC, which again, in Switzerland,

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nexo.io. Step two, transfer assets to your secure nexo wallet with no minimum or maximum limits on funds deposited. Step three, sit back, relax, and earn up to 10% compounding interest, paid out daily on your crypto and fiat. Your passive income made simple. Get started at nexo.io. So let's talk about how you got into crypto. I know you've been doing, you've been building tech startups for a very long time despite your young age and have been in the Vintac payment space, social space. But how did the, how did crypto get on your horizon? And how did you kind of get from going to school and starting to hack around computers to where you are now? Sure.

So I've been doing fintech startups for about 10 years now. And I did, this would be my third startup. The first one failed epically. We built buy buttons and inserted them inside of tweets and Facebook posts and YouTube videos. you'd get a little modal out and you'd be able to make a transaction and pay with a credit card right then and there. So that was the, I think, first social commerce, and that did not do well. The second company was a payouts and a disbursement's API that a lot of the online lenders like Lending Club and Prosper and Lendup, et cetera, in the United States used. And that was successful and we sold that one.

And then now we're working on crypto. So I did all of this starting in 2011, end of 2011. And my lead investor at the time was this guy called Tim Draper of Draper Fisher-Jervinson, which is a top VC firm in Silicon Valley. And Tim had been personally involved with the startup from the very, very beginning. He's actually invested in both companies. And those in the crypto space may know Tim, because he's a bit of a Bitcoin bull and one of the earliest people to really get into the space.

He's also one of those libertarians that wants to, I think his grand idea was we should break California up into six different states. And we got a little bit of famous there as well. And basically, starting in 2012, I would have these periodic meetings with PIF to do investment updates and stuff like that. And he would ask me, this is in 2012, right? So in one year, when everyone in the world only accepts Bitcoin for payment, what is your plan? And that's where he was. So I actually got introduced to Bitcoin super, super early on. I remember there were other companies within his portfolio that were at the time it would have been, let's say, 2013, 2014, really started getting involved more in Bitcoin.

He's one of the earliest investors in Coinbase. And these were all pretty early innovations. And at one point, I remember someone gifted me on a flash drive, three Bitcoins. And they were worth at the time $15 each, about $15 because I got $50 worth of Bitcoin from someone. And I've since lost that flash drive because it wasn't that important. But despite having been introduced to it super early, I dismissed it at the beginning because I thought that this is going to be very interesting for the black market and failed states. What we think of today as a Venezuela or Somalia or North Korea kind of situation, this is actually interesting for the people there and it's interesting for criminals overall. That was my first thought.

And I kept this thought for many, many years and I dismissed it. I didn't really do much with it. I played around with it from trading it. I think there was a point where it went from 200, 300, 300 to 1,100, and then back. I made some trades and some money there. But that was it. It wasn't really that interested in it. I thought at best it could become an index of the black market as a concept.

And I thought that was fascinating, but I really didn't want to be pretty. personally involved in that. And then I was selling the second companies who were in the middle of the M&A process. I was a bit bored. There were just lawyers going around. And at around the same time, I think this was the end of 2016. I'm Egyptian. And I was born and raised in Egypt, educated in America.

In my native country in Egypt, the pound was devalued at the end of 2016. And this is like throughout. you know, decades of government, social, economic, ineptitude, we've got into this stage now where the currency has been devalued so much. We need to do a flotation. And overnight, everyone lost 50% of their net worth, right, because it was devalued by half. And that was a crazy thing to to witness. Inflation that year reached 35%. So people actually, in Egypt, 2016 was a very, very tough year.

And this isn't a, most people don't really think about this or realize this. But like, this isn't you had a bad year because taxes were raised. It's your net worth. Like everything you have collected and saved in your 20, 30, 40, 50 years of. working is now half what it used to be worth, or more because of inflation. So it's a crazy, crazy thing, which is why a lot of people in a lot of areas of the world buy things like gold, because it's meant to safeguard values and, you know, et cetera. And during this, I remember seeing a lot of news reports of middle class and upper middle

class Egyptians, doctors, lawyers, engineers, the like, getting arrested for trying to buy Bitcoins on like local Bitcoins and things like that, like more of those kinds of purchases than centralized exchanges, which didn't really, weren't readily available to Egyptians at the time. Theod-on-Ramps weren't a thing. And that was, for me, the light bulb moment. It was then that I realized, huh, they're safeguarding their assets. This is significantly better than gold.

We're a gold-loving country. This is actually a lot better in many ways. And I get this. And if this applies to a country like Egypt, then my model of like this is an index of the black market and something for Somalia and Venezuela is no longer true. Because Egypt, despite our troubles, is actually a pretty important and big place. We're the 21st largest economy in the world by PPP. It's not an insignificant place.

If it applies to Egypt, then all of a sudden, well, it could apply to Turkey and Russia and India, Saudi Arabia, Brazil. And that becomes a much bigger addressable market. And if it starts applying to places like Russia and Malaysia and Brazil, then, well, the UK and America and Spain and Italy are not really that far off. And like I said, I was selling the other company. I tried to get my family to make a meaningful investment in Bitcoin, just like as a startup investment at this time,

because I thought it would be a significant investment for the next 10 years. And let's just say it was sufficiently difficult enough for my family to try and make that investment that literally, that's why we started 21 chairs in the moment. Interesting. So I love, I mean, I love hearing these backstories because they so often start with light bulb moment into some difficulty in acquisition or use or interaction with the asset turns into, you know, a new startup, right? So this is really fascinating. And I think that one of the points that I want to hang on for a second is the, this note.

of where it can happen because this currency devaluation story is so omnipresent. It's happened so many different places, so many different times. And it's just a fact of kind of the last, you know, 50, I mean, it's a fact of monetary history, you know, and certainly recent monetary history. And to your point, this is not just sort of the, you know, some backwater country. This is a place that millions and millions of people visit every year that has a thriving economy, that's one of the most important economies in the region, that has a huge young dynamic population, that has a growing tech scene, right? You know, it's, it's the, that's the profile, but it just is a fact of life. And I think that's certainly for me, one of the biggest reasons that I came to get,

get really deep on Bitcoin. I was first introduced to it probably around the same time as you, in a similar place, actually. I was advising a company going through Y Combinator the same class as Coinbase. And they gave out a thumb drive that had one Bitcoin on it, I think, to everyone or whatever. Maybe they set people up with the first Coinbase wallet or whatever it was. But at that time, you know, it was really presented as, it was like a competitor to Square, which is ironic now, given Cash App's relationship to Bitcoin. But it was just a payments technology. And it wasn't actually until

I left Silicon Valley a few years later and started to kind of like think about the world in in different terms again and revisit some of the earlier stuff that I had done in my life that was more focused on kind of global relationships between different countries that this particular kind of vision of a use case made sense to me. So I think it's just fascinating that that was a, the light bulb moment for you. I guess what I'm interested in too is, you know, so you are building startups, you know, in the early odds, right, in Silicon Valley. as right as Egypt is going through one of the most significant political changes.

I mean, the most significant political change in two generations, right? What was that like kind of seeing the awakening of Egypt in 2011? How did it change if it did? You're thinking around, you know, what the future might hold for Egypt or what you wanted to build. Interesting. So, I mean, we've had a very long, difficult last 10 years as a country. I think we've had, in the last 10 years, we've had three presidents and I believe three different constitutions. Positive and negatives, right? I was in

college at the beginning of the revolution in 2011, and it was a very nice, very euphoric moment I think it was quite exciting. A lot of people, I remember, it was actually, it was in the middle of the exam week, and I left school and flew to Egypt to see what is going on with the revolution, because that's how historic it was. And all of my professors, except one, I had one hard ass who was like, no, I'm going to fail you. You need to drop the class. I'm like, okay, done.

But every other person was like, go, go. go, we'll deal with this later. Ironically, the one hard-ass was a history of Islam, of course, which you'd think I should pass with ease. But anyways, it was a very euphoric time, and it was, in retrospect, a real lesson for all of us in like the devils and the details. There's a lot of really bright ideas, I think execution is everything. and that was a very, very difficult next few years. Something that actually I think would be fairly interesting to an American market is at the time, like we were so excited about social networks, Facebook and Twitter.

Like I think that in 2011 there were like three or four babies that were born in Egypt that were named Facebook. There was a famous one where like there's this guy that, named his daughter, Facebook. So there's an actual different girl who, I'm sure she changed her name by now, but in 2011 was called Facebook because that's how social networks, especially Facebook and Twitter, were a very big part of organizing the crowd and organizing information, et cetera, and people were really, really excited about that. Of course, some of these companies were going public around the same time, or, you know, it's just been recently public, and so they were using that as well. They're like, look at what we do, we spread freedom.

And now that we have calls to shut down social networks and the amount of misinformation and the malicious harm, et cetera, there, I think also mirrors expectations, reality, devil in the details, and all of these other things that I think have come up. So I think that is single-handedly the largest lesson that we learned. in the last 10 years. There's so much opportunity. Euphoria is fantastic, but euphoria does not last more than a specific amount of time. And execution is everything, and it's pretty damn difficult to execute. Yeah, I mean, these moments of radical change and upheaval lead to, I mean, incredibly difficult periods of open, you know, big changes in power, right? Big changes in power

are never easy. They're never clean. And so I think that you're right. I think change in general is like almost better clean is something that I've also learned. Yeah, and it's interesting, too, that you mirror the sort of loss of innocence almost with our expectations around these social media tools. Because this was at a time when, I mean, in some ways, I wouldn't be surprised if many of the agents that use social networks as tools of disinformation, their education was watching these sort of extremely legitimate, spontaneous citizen. protest movements like what happened in Egypt in 2011 as models for how powerful these networks could be, you know? Exactly. So I guess, you know, we don't have that much time.

I mean, I could indulgently talk about both Egypt and Bitcoin for hours. But I guess I want to see how, you know, so you had this revelatory moment around the potential for sort of a non-sovereign currency, right, in 2016 or around that area as the Egyptian pound was being devalued. What have attitudes towards Bitcoin towards crypto been like in Egypt? What were they like then? How have you seen them change? You know, what are things now?

And again, I know that you sort of have a pretty global purview now, but I'm sure that you still are in touch with the home community as well. Look, we're an important place in the region, but we are, as a country swayed, obviously, by these global macro trends. So that is what moves us. We're not a global power. So it's all about what is going on outside and how will that blow the wind that's coming our direction, which, to be very fair, I think, is the majority of the world. It's probably true that six billion people, that this is actually how the world is.

I don't think it is possible to talk about crypto, Bitcoin. etc. without really speaking about what is going on with the American century from like a very global macro trend. What is going on with dollarization in general? I live in Europe now. Europeans have a really difficult time understanding how the United States today is able to control the global financial system. We see it with sanctions a little bit when like European interests and American interests don't align, even though they're close allies on most things. The fact that America has so much control over the global financial system is a problem

for everyone outside of America and about half the people inside America. And that is something that is going to be this trend moving forward. And so when you think about it through the lens of a country like Egypt, we don't know what happens with the dollar. Does it stay? Does it leave? A lot of people will oftentimes want to hold their assets in a currency that they, let's say, are less worried about, right?

A lot of cases, that's the dollar, but that's now moving more towards the euro. There's a lot of gold buying and holding. And I think that trend continues. The real question, and I think this is where, like, brought up sort of non-sovereign currencies. I think this is where something interesting might happen is if the dollar is coming to an end, I don't know, in the next generation, what replaces it? Because being in Africa, there are clearly some very big issues with like Chinese debt and Chinese investment. I don't think a lot of the world is too keen on picking up the Chinese

currency as the World Reserve. Russia's not powerful enough to push this forward. So, you know, they may have some stuff with the rubles in Central Asia, but it won't move beyond that. Europe's a little too disorganized to really do much interesting things with the Euros. And there are all these clear problems with the dollar for the rest of the world. And like I said, for a lot of Americans as well, that might be the void where, huh, something that is non-sovereign, that is sort of Swiss-like, because even the Swiss can be intimidated and pushed and manipulated by other powers, something that cannot do that might be something that we can all either agree on or sort of just move towards and then it becomes an inevitability. And that's sort of how I think

about the true impact of Bitcoin or crypto on a country like Egypt. People are excited about it. People are very, very excited about gold and being able to be in control of their own destiny. And it has these attributes that make it superior to that. But in moving forward and really pushing this in a more global setting for as many people as possible, then there's this macro trend with what is going on with the American century and what is going on with dollarization and how does the rest of the world fit into that and what the next steps are that I think are the most, the most compelling argument for how honestly Bitcoin can reach the millions of dollars per Bitcoin value that some of its proponents think it will. Well, that is a juicy spot, I think, to maybe pause

this conversation. We'll have to have another one soon. But I appreciate your time. This is a super fascinating conversation. And yeah, it's just really interesting stuff. And best of luck with everything with 21 shares. We'll definitely be watching from afar. Thank you. Thank you. This was fun. Cheers. I want to pick up the thread where we left around how a non-sovereign currency could actually become the global reserve currency. And I think something that we don't appreciate is that it's not going to be a meeting like a Bretton Woods where people all agree on some new reserve currency. You might see central bankers try something like that. Certainly we've seen Mark Carney, the former governor of the Bank of England, propose his synthetic hegemonic.

currency, which is basically central bankers version of Libra. But I don't think that that's how it will happen to the extent that it does. I think that it will be numerous accumulative individual private market decisions that slowly shift things over time. If you start to see people and companies settle things in Bitcoin or some other currency that isn't the US dollar, that isn't the Chinese yuan, that isn't the euro, that's how it will happen. It will be the slow accumulation of transactions over time until it just becomes normative. And it won't be all at once, right? There could be a period where there's four global reserve currencies happening simultaneously, and it's regional, it's balkanized. In fact, I think that's the most likely scenario,

given the way that we're seeing the world shift in the next sort of post-American decades to come. I think it's important to note this because we sometimes discuss reserve currencies as though, again, overnight you flip a switch and it goes from one to another, but that's not how markets work. That's not how economies work. And as we think about the role for Bitcoin or a non-sovereign currency in that environment, it's going to be the decisions of the decentralized network of private companies that will make that change or not. Anyways, guys, I appreciate you listening. I hope you enjoyed that interview. And until tomorrow, be safe and take care of each other. Peace.