The Breakdown - Travis Kling: In the Fed Era, There’s No Such Thing as Market Fundamentals

Episode Date: February 6, 2021

On today’s episode, NLW is joined by Travis Kling, co-founder and chief investment officer of Ikigai Asset Management. They discuss: GameStop, WallStreetBets and financial populism Whether regulatory hearings will actually address any issues around retail investors  How WallStreetBets relates to bitcoin The rise of institutional investors  The end of career risk around bitcoin for investment professionals Why recent bitcoin FUD has been disingenuous How investors can price risk in bitcoin  Where DeFi fits for institutional investors -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

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distributed by CoinDesk. What's going on, guys? It is Friday, February 5th, and today I am so excited to share an interview with Travis Kling. Travis is the chief investment officer at Ikigai Asset Management. Before that, he was a long short equity portfolio manager at the $90 billion $0.72 hedge fund. But honestly, I don't need to go through Travis's credentials. You guys know him. Travis is one of the most thoughtful observers, not just of the Bitcoin and crypto space, but of the macro landscape as a whole. Now, I've known Travis for a good long time, now, and he only does podcasts in his own words when he really has something to say. And this week, as you'll tell, he has something to say. So without any further ado, let's dive into the conversation.

Travis, welcome back to the breakdown. It has been way too long. How are you doing, sir? I'm doing great. Good to be here. Feels good. It's going to be a fun conversation. Just a little bit going on. 2021 is off to a start that I don't think any of us, uh, uh, any of us, uh, any of us could be mad about. But let's start with, I think, I want to start this week, something you and I have been talking about, going back and forth, texting about for the last couple weeks, everything around GameStop. I know you, like me, feel like this is a much more significant moment, let's say, than just a bunch of guys on an internet forum happen to like a stock, even though they end all their posts with. I just like the stock. But when did you start

paying attention to this story? And when did it become clear to you that it was about way more than GameStop. I mean, I don't know when the stock started moving enough. You know, it's probably two and a half weeks ago that it popped up on my radar. I mean, look, the Wall Street Betts thing, you know, we've been paying attention to for a while. I mean, you know, it was in full blast last summer and the whole kind of gamma hedging upward spiral thing that they started doing. and I remember last summer reading about that

and thinking about how fascinating that was that they had kind of found this little thing. And then it comes back around specifically in the context of GameStop. You know, probably two weeks ago was the first time I ever heard Melvin Capital that was, you know, wrapped up in this. And then you start seeing the kind of short interest figures

coming out of prime brokerages, you know, sell-side research firms, and the price is running up hard day after day. And, you know, pretty immediately, it was clear that there was a little guy versus big guy, you know, that that was the situation here. And that, you know, the little guy had a name and the big guy kind of had a name too.

and, you know, I think when Robin Hood, you know, there was conjecture two weeks ago, the first part of two weeks ago about, you know, kind of how this was going to play out. It was getting a lot of steam rapidly. Wall Street bets. The number of users in the forum was, you know, going as parabolic as GameStop. stock price. You had a bunch of the other names that were heavily shorted that started ripping in sympathy. And then you hear about the bailout of Melvin Capital right around the same time as Robin Hood removed

the ability for a single day to buy any stock, but left in place the ability to sell stock and then and then the next day opened back up buying on GameStop AMC and some other stocks but only in these tiny sizes per per account. And I think as all that was kind of unfolding over a few day period of time, it just was immediately apparent to me that this was an astonishingly unique and pure expression of populism. And that the significance, you know, was massively transcendent of just a short squeeze on GME. And that it had the potential to be a really big deal. And that it remained to be seen what we, the people were actually going to do about it going forward.

So that's, I mean, that's a perfect place to take the conversation next because I feel like, and I felt like for the last few days, like media loves the David versus Goliath story. on the way up, but they can only tell that story for so many days before they're sick of it. And it felt like the beginning of this week, they sort of shifted to, you know, one, it didn't, you know, like it's kind of over now. The dream is dead. The retail investors kind of moved on. Two, just blaming the kind of billionaires like Chimoth who are egging them on. Or three, retreating to what I feel like is the most common strategy for traditional financial media, which is basically saying like, oh, no, you don't actually understand what's going on.

It's not that Robin Hood was being wrong. It's that they had all these dynamics. And they're too complicated for you. You know, like the kind of traditional patronizing. You don't understand the inner works of this. And that's exactly why you shouldn't be playing in this space. But I feel like there's, you know, the question remains how we're going to tell the story of this. And I think it's pertinent because we've got hearings coming up, right?

And we've got like some, you know, the government apparatus, the legislative apparatus is now introducing itself into this conversation. And you had a great line. in your recent investor update that I pulled out, GME, AMC, and others are trading just as much on fundamentals as the $17 trillion of negative yielding debt worldwide. And I think this is in response to one of the lines that we've heard from some politicians like Elizabeth Warren is the stock market is supposed to be about fundamentals. Let's get back to fundamentals. Or people on cable news saying, like, you can't tell me that this is a fundamental, you know, there's fundamentals behind this stock movement, right? So I'd love to just get your take on kind of these

narrative battles around it, but also that that specific line, I just think is so, so poignant. Yeah. I mean, what are fundamentals in, you know, stock markets right now, or any markets, any financial market right now? Like, what are fundamentals? I mean, we are in the middle of an everything bubble, right? And, you know, Tesla trading it 28 times trailing revenue or, American Airlines trading it 343 times forward earnings or pick a metric without exception, those are made possible by the fact that we're in the midst of the largest monetary experiment in human history, which is quantitative easing while simultaneously running increasingly larger deficits on top of increasingly untenable debt levels. And that's why anything is where it is right now

from a price perspective. And where all of those asset prices pick an asset, where the asset prices go from here, are going to be overwhelmingly a function of what happens with those same monetary and fiscal policies. So GME was just one more sort of mutant child of quantitative easing. And the thing is that makes this so so populous at its core is that rich people figured this out a long time ago. Rich people figured out that quantitative using makes asset prices go up. It doesn't really cause that much headline CPI price inflation, at least not yet, as it's currently envisioned.

But the monetary fiscal policies that we have in place make more. or less all asset prices go up so that when the market downturn came along in March of last year, and the Fed had already tipped its hand about their willingness to do more. And I always remind people, we cut interest rates three times before anybody ever said coronavirus. We started doing not QEQE before anybody ever said coronavirus. And so when that came and Powell pulled out the bazooka, rich people totally doubled down. And that was a great call. That was the correct call.

And so by and large, rich people did really, really well in 2020. And Wall Street bets, the little guy, the every man, figured out a way to jump on this same train as well. And they did it last year as well, too. Dave Portnore, stocks only go up. That was the point of all of that. That was the his realization that was the same thing that, you know, the status quo and sophisticated market participants had figured out a long time ago. But now the cat's kind of out of the bag. And that's the setup that put GME in place, made it possible. So I think this is super important because, again, so the, you know, like I was just saying, we're going to have these regulatory hearings around GME and Robin Hood specifically. But they are almost like an opening salvo of how a new administration and a new setup in the government is going to address economic issues.

And there's kind of this, I mean, if you use FinTwit and Bitcoin Twitter as a microcosm, right? A lot of the debate is roughly, let's call it, the Bitcoiners on one end of the extreme, the MMT is on another end of the extreme. It's obviously more complicated than that. But it's reductively a set of people who have identified this sort of never-ending asset price, everything bubble as driven by kind of the zero to negative interest rate policies that is coming home to roost and creating all these problems. And on the other side, there's a sense that that can continue and perhaps even just what matters is,

there's almost a sense that it doesn't matter if rich people keep getting richer, if asset prices keep going up, if that's the cost of full employment, right? Because you have, at the Fed, you have two mandates, right? Market stability and full employment. And one of the things that I feel like is very, is going to be really challenging over the next. couple years is we have to ask questions about not just how do we get to full unemployment, but what society do we live in? Is it okay to have a society where everyone has a job, but the things that assets get you, getting out of the rat race, being able to buy a house,

being able to afford college, are excluded from people who have jobs. And it feels like if you draw these kind of lines to their logical conclusion, it's hard not to see that as an increase, you know, ever-increasing kind of gap. So I don't know, it feels, it feels like, you know, part of what made the GME thing so compelling to people is that it was like the group that was predestined to sit on the no assets, but maybe you get a job side of things, charging like a barbarian horde of classic, you know, style into the space of the other and saying, we're not willing to just leave that party to everyone else. We're going to try to get ahead too. We're going to try to have our time and our money work for us rather than the other way around.

Look, you know, wealth inequality has been, you know, a problem for a couple decades. I don't want to put 100% of the blame on monetary and fiscal policy because that's not accurate because technology hollows out the middle class and globalization hollows out the middle class specifically in the United States. But monetary and fiscal policy is a major driver of wealth inequality in the United States. And when you have Jay Powell and Janet Yellen publicly state otherwise, it's one of the most egregious untruths that you'll ever hear either one of them rip. And we'll see how the history books sort of write about the the refusal to acknowledge, you know, the role that monetary and fiscal policy has played

in that wealth inequality. And the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the cancelon effect that has been so heavily in place. And this populism movement with GameStop just being the latest incantation of it, but it started, you know, at least four and a half years ago with Brexit. It was the same, it was the exact same sentiment that put Donald Trump into the White House in the first place. and social unrest, you know, I think is the release valve from this. That is the, you know, managing social unrest is likely going to be the governor that monetary and fiscal policy

guideline you know, policymakers are going to be most using going forward. And it's just going to be front and center. And what makes, within that context, what makes the GameStop situation so important

is that it bubbled up. It bubbled up to being ubiquitous. I found myself a week and a half ago on the phone with my mother that's from a small town in college station explaining to her what gamma hedging is. Right. And the main takeaway from people that don't have, don't know anything about financial markets about the game stop situation is that the little guy found out a way for once to beat the big guy, was beating the big guy and the big guy called in backroom favors so that he'd stop getting beat by the little guy. And that sort of thing, when it happens as out in the open as it just did, serves to plant seeds or water seeds that were already in the ground. And those serve as serve as.

the motivation and the willingness to push for action that eventually leads to change. And that's where so much of this dovetails so incredibly well into what we all spend all of our time doing, which is why does decentralization matter? Why is why is decentralization important. And in the same way that you need, you know, for Bitcoin and non-sovereign digital store of value to gain increasingly more adoption, you need monetary and fiscal policies to be increasingly more egregious. It's not just about that they're already bad. They've got to be bad and getting worse. And that's what pushes people into an alternative store of value like Bitcoin. It's what pushes people into consideration. I mean, we

saw that was Paul Tudor Jones. That was Stanley Drucken Miller. That was the institutional. I mean, we saw it Eiki guy. And we got a bunch of gold bug baby boomer LPs in May and June and July of last year that had no interest in Bitcoin. And then they saw what the Fed and Treasury did in March and April. And all of a sudden, they care. And so you need that push. And the same is true for other use cases for decentralization. If you're concerned about a social media platform banning certain users for speech that the executives of that social media platform find unbecoming, you can build a decentralized social media platform on top of smart contracts. If you're worried about AWS banning certain users for speech that the executives find unbecoming, you can build a decentralized AWS on top of smart contracts.

If you're worried about an exchange changing the rules to benefit the big guy at the expense of the little guy, you can build a decentralized exchange on top of smart contracts. If you're worried about how the money is being created and spent, you can build a money, Bitcoin, on top of smart contracts. It felt, I think, to a lot of us in this space who had made our way over here, like, almost like we see your rebellion. But can we interest you in a conversation about what you're rebelling towards? Absolutely. And I'm certainly not in anyone who. who listens to this knows that I'm not the type of person who's going to go be like,

your GameStop trade is stupid, you know, or anything like that. I would never kind of get into someone's asset choice, especially because it felt so clear that it was about something bigger. However, like, of course the people who, of course the rules of the game are going to be rewritten when the people who own the game control the rules that you're playing. You know what I mean? This isn't like some fair thing. This is a totally centralized, controlled system, you know, with,

with layers, in fact, of gatekeepers and rulemakers, as opposed to, obviously, the spaces that we play in, do you think, I mean, you know, you obviously wrote about this a lot in an investor update for people who are interested in Bitcoin and crypto. Do you think that this is just narrative convergence? This is a, you know, a river sticks to help people, you know, kind of come in to understand this importance of, of decentralization. or do you think or are you seeing actual conversion? Are you noticing people who are kind of fed up and saying this is the last draw with my engagement with the traditional system? I want to kind of move away in some way. Yeah.

And I think that's why I specifically said it remains to be seen what we, the people are going to do about it and what the immediate repercussions and ramifications in the near term are going to be. But it is because it reached, it's because the event reached such a ubiquitous level. And because the takeaway from the everyday common person was little guy was beating the big guy, big guy called in backroom favors so he'd stop getting beat by the little guy.

Like that was the takeaway. That was like the Instagram meme account takeaway, right? And those types of things, you know, what happens this week or this month or this quarter around this remains to be seen. But I definitely believe that it just keeps pushing people broadly to ask more questions. about how centralized power and authority that is unchecked is failing the people. And we just see that at a lot of different levels. And those of us that do this all day every day, we're very in tune to this, right? We've been doing this for a long time.

We, our sites are uniquely dialed in to say, oh, here's an example. of centralized power failing. Here's an example of centralized power failing. You can look all over the place. Big tech companies, Wall Street, politicians, you see it in a lot of different places. But the everyday person doesn't really think like that. But when events like this bubble up to that degree, you know, some percent of the everyday people walk away from that with this new idea implanted. And it's this idea that power tends to corrupt and absolute power corrupts absolutely. And it is incumbent on all of us that are dedicated to this ecosystem and to this technology to help those people understand how decentralization has.

the potential to deliver on a better solution. Yeah, it's interesting. And I think you can make the argument, too, that this was almost cascading failures of centralization. You know, you have kind of the ability for a small number of institutions to be short, you know, 140% of a company's stock into, you know, a platform that everyone's using, because theoretically it's free and easy, has the ability to or the mandate to because there's another centralized actor who has control over setting the, you know, the kind of, you know, the kind of margin limits or whatever. You know what I mean? It's like these layers and layers of centralization

that just break. In fact, in some ways, the only part of this chain that didn't break if you were one of those investors was Reddit who stuck up for them and said, no, they're perfectly within their terms of service to be doing this. But even with that, you know that this is, it's becoming, it's going to become a speech issue too when it makes it to the government around, are these people allowed to talk on social media about what they, what they think, you know? Like, is that an okay behavior? I'm not going to lie. I'm not that hopeful. I don't know. I'm not all that hopeful that much, this much is going to like come out of, you know, like what's what the hell's Maxine Water is going to do?

Of course not. No. In fact, I'm more, I think that the most, there are indications that the sort of, you know, the squad or whatever, the AOCs have a sense that there's economic injustice by these people being. not able to access markets in the same way, and that actually is the key problem. It's one of the more positive glimpses that I've seen. The problem oftentimes I've found with this sort of investor protection mindset is the same problem that happens with global philanthropy. And there's this great quote from a woman named Jane Adams, who was one of the first people. She basically invented homeless shelters, more or less, in the U.S., but like, women in the 1890s in Chicago who, you know, needed an abortion could come to Hull House where she

started. And she was a total pioneer. And it wasn't, you know, they weren't turned back to their, to their parents and stuff like that. And she wrote once, the problem with philanthropy is the unconscious division of the world into the philanthropists and those to be helped. And I think sometimes when it comes to investor protections, it's the unconscious division of the world into the people who can handle assets and the people who need to be protected from themselves. And I think that what I want to see is are we is a kind of up and down the line, Democratic administration going to fall into the trap of investor protection means protect them from themselves, or are they going to have a more complex view, you know, where they run and say like, investors need to have, you know,

they shouldn't be able to be kind of unilaterally shut out. And by the way, we should be reevaluing accreditation. Accreditation is important, but why can't people take a test? Obviously, that's something that's in the works now, you know, but it's like there's a, there's a path from a sort of left mindset that doesn't lead to a kind of paternalistic patronizing version of investor protection. I'm skeptical that we'll get there because it's so much easier to view it in the same tired way of kind of protected from themselves, protected from the big bad, you know, money on Wall Street kind of a thing. So I would say I share your skepticism. It's just the glimpse that I've seen from a couple of the folks that you wouldn't

historically think were kind of like allied with perhaps the position that we would take, seemingly getting it at least on a kind of a first level. Yeah. You know, it's kind of page one top of the fold of the SEC's mandate to protect retail investors. And have you dug deep enough to, arrive at a conclusion about the the kind of clearinghouse var spike issue that Robin Hood had and how that led to at the absolute peak of the short squeeze a single day where you could only sell and could not buy like have you have you managed to like put those two concepts together

or is that kind of one of these things that needs to get shaken out in the years? I think that's exactly what needs to get shaken out. Was this, was this, I mean, and I'm interested in your take on this, too, but I think this is the central question. And like, it may be too much to hope for this level of sophistication in a congressional hearing whose entire purpose, yeah, whose entire purpose, as we've seen over and over in the crypto and Bitcoin space is really just for people to get their five minutes to score a soundbite for their constituencies, you know?

Like, I don't think it'll get to this level. but I feel like the question is, was this just business as usual in an extreme situation where the collateral requirements were completely the same for this set of assets? The DTCC didn't do anything weird. You know, it just was an extreme situation. That's one thing. If, on the other hand, there was a rapid increase from, again, a centralized decision maker that raised collateral requirements unilaterally on a very specific set of assets. assets, that feels like a very different conversation. And then the conversation is, who's on the phone with whom during that time, you know? And by the way, are they talking about the $3.4 billion that Robin Hood

raises the next fucking day? You know what I mean? Like, at the, like, I am, I hate conspiracy theories, but like, when you have, uh, you know, these extreme situations followed by a company raising at seemingly a huge discount, you know, with incredible incentives more than it's ever raised before, there's some combination of either complete, you know, incompetence is the best we can hope for to something much more nefarious on the other side. But I think that the question of those requirements and whether they were changed at the last minute and who had the authority to do so and how were they acting, that feels to me like the most important pieces of this, you know? Yeah. What's your take? I agree with that. I've seen, you know, we've seen this movie too many times

before for me to be that hopeful that much of the truth is going to come out or that... Tell me about it. Yeah. No, it'll be, it'll be like, you know, whoever the next Andrew Ross Sorkin is, he's probably going to come from Bitcoin. He'll write a book about this like five years from now, uncover the truth, you know, like it'll be some murky combination of the authority that this centralized institution was given, plus like some pressure, you know, organized around it like five people who have the power to make these phone, you know what I mean? Like it's some massively complex thing, but probably what we'll get. I mean, here's the real frustrating thing.

Almost no matter what quote unquote resolution we get in two weeks, the damage was done. The damage was done the second it happened, you know? And when it comes to these sets of people's lives, and I think to your point, the point that you're making, at least the point that I heard, was that this is similar to bankers not going punished in the Obama administration. It's not about what people do with that feeling the week or even the year after. It's what the kind of psychological legacy of seeing that is, you know? And I think that's where this might have much longer term ramifications than just, you know, whatever we hear in a hearing in a couple weeks. Yeah. And I think that's, I think that overarching part is the most important

part. So in like in some way, I'm going to be curious to know like what the outcome is, what the hearings and things like that. But the the main point, I think, has been driven home and put into people's minds that is this continuation of the trend that's been in place for quite some time and is increasingly becoming the zeitgeist of our time. And crypto and more broadly just decentralization stands as the technological platform that has the potential to drive societal change for the good to drive solutions directly at this sort of thing. And that's what I'm most excited about. I feel bad for a bunch of regular folks that lost money, you know, but it's, it is just

bigger than that. and we need increasingly more of that, more egregious failures of power to motivate people to insist on a change. So let's shift gears a little bit. Let's take that section up. So obviously you were talking about kind of May, June, July of last year, new LPs coming in who had one of those moments, those moments of realization based on what they were seeing. what have the last couple of months been like December, January, Bitcoin starts to run up.

There's a narrative around institutionalization. Obviously, like every month you keep track of the ridiculous number of events that show more dominoes falling, you know, onto the space. Like you're kind of in the, you have a front row seat to this, you know, all these sets of people that you've probably been talking to for three years, all of a sudden getting, getting on the bus. What has that been like? What have you been hearing? What have you been seeing in terms of, you know, is this institutional, you know, institutions rushing in narrative driving the price, the correct narrative for looking at it? Is it more complicated? Is there another set of people, you know, coming in? Like, basically, what's your kind of read on where these institutions are

vis-a-vis Bitcoin and decentralization technologies as we roll into 2021? Yeah. I mean, the, from an institutional capital flow perspective and, you know, listening to Ross Stevens and Micro Strategy yesterday would, you know, he'll give you even a much more better informed opinion or view than me. But, you know, some north of 90% of the interest level from institutions is going, is going to BTC. And, you know, there's some some sort of stub piece that's, that's left over for, you know, Ethan and specifically DFI. And the torrid pace of positive news events over the last, you know, 120 or so days, you can just sort of sum all that up by saying the removal of career risk. That's how I think about all that stuff.

And you just can't discount how important that is when you get to investment committees. at institutions or just, you know, ultra high net worth individuals that are slow and cautious and, you know, think that all this stuff is new and unproven and this, that, and the other. And just it started with Paul Tudor Jones and then kind of the PayPal domino fell and the Stanley Drucken Miller domino fell. And we started getting more and more open interest on C and me and they shut down or, you know, to a large degree took Bitmex away from its role in price discovery, also took Hobe and OKX. Their role in price discovery was, was meaningfully diminished. And Brian Brooks is out here cranking through all kinds of positive regulatory updates.

And here comes one river and rougher and, you know, Guggenheim and. And here comes the chorus of cell side research, Wall Street saleside research, and then here comes Black Rock. And all of that is just the guy, the junior guy at the institution that's been waging a two, three year guerrilla grassroots campaign internally to get some Bitcoin exposure into the book. And he's got one senior guy that he managed. to convert over to his way of thinking, and now they're waging this grassroots war together to figure this out. And this is happening all over the place, been happening all over the place.

And now all of a sudden, all those things happen in, you know, just in a very short period of time, and now they can get there. And the, the rails to get involved are institutional grade in their safety, the regulatory clarity. We've removed a lot of that. Even the outlook for, you know, the big, bad, scary U.S. government is going to shut this thing down. That whole thing was like, okay, Cynthia Loomis got put on the Senate Finance Committee last night. So, you know, Visa is running headfirst at this thing. PayPal is running head first at this thing. Mass Mutual. insurance company older than the light bulb, $100 million Bitcoin position, took a minority interest in NYDig, you're knocking off a lot of those things. And so that puts us in a position

here where the removal of that career risk does not have a, that's not a linear effect. That's a sort of tipping point, super linear type of effect in terms of capital. flows and it's my expectation that that's going to continue. Many investors want to be a part of the next bull run. Others seek to build their dream home, finally launch that startup or fund their education. Try NXO's instant crypto credit lines and borrow against any major cryptocurrency with no minimum or maximum withdrawal amounts, no fees whatsoever, no credit checks, and flexible repayment.

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But of course, any time this starts to happen, anytime there's a new bull run, a whole bunch of new fight competes for supremacy, right? It competes to be the thing that the people who want to sound smart not being into the thing say. And obviously we've kind of, I think you went point by point in your last letter, refuting one set of kind of emergent fuds.

Obviously, Mike Green, whose work I really respect around passive, you know, have spent a lot of time on. Used to. Yeah, I know. And tell me about it. Has just, like, decided to wage war on that,

like, you know, like didn't want to be on a podcast, except like, hidden forces for like three years and then decided to do, you know, this Puff Show with Eric Townsend into, you know, at least a good show with Nick Carter, into this, you know, whatever, pomp debate. You know, so I guess what are you seeing, you know, which of the fud that is being interjected is the most relevant in the context of, you know, you're actually seeing, not necessarily relevant because you think it's correct or anything like that, but that you're seeing repeated most often that's coming up in your conversation. That's actually

kind of surprising to you. Yeah. So the first thing I'll say about that is that this tether thing, this medium post by an anonymous author, this was the thing that the most LPs reached out to us about by a country mile. And it wasn't just our investors that were asking us about tether, sending us a link to this medium article, again, written by an anonymous source. it wasn't just that, but I was getting, you know, normies that were texting me, you know, guys that have a couple thousand dollars worth of Bitcoin and they're just sending me, you know, you send me this link. And in my head, I'm like, is this the first time you're ever on Medium was to read this

guy's anon, you know, tether fud? And so that thing did reach like, you know, I kept calling it a fud hurricane or a fud tornado. and it did reach this fever pitch. And I get why because it's it you have on one hand tether that is not very transparent and has definitely done plenty of shady stuff in the past. And you're forced to fight that with like situational evidence. And that's just that doesn't. make one that's not bite sizable to try and unpack those two things against each other.

Like it's like you could do an hour long podcast just on that. And you could wheel out Dan Matacheski and you could wheel out, you know, a bunch of other folks. And, you know, you could just talk through a lot of the different give and takes. But it was, it makes it hard to push back against. But like, like this, like for example, the situational evidence. I like to bring up is that the New York AG, you know, that investigation was made public like April 2019. And a year later, you know, and it's ongoing and it's dragging it wrong, this, that, and the other, a year later, tether issuance explodes. And you go from, you know, five billion market cap of tether to like 30 billion market cap of tether over the last

nine months or so of last year or less than that actually. And how if the whole thing is a Ponzi and it's under the microscope of the New York AG and you're just telling me like they just somehow ripped another 20 billion of completely fictitious money and tethers with no backing. like it's just I struggle with that one. And if you listen to Paulo and the Tether or Biffinx General Counsel, you know, they went on Peter McCormick's podcast. They've done a couple other podcasts. And you listen to these guys, these do not sound like guys that are worried about going to jail

or worried about this whole thing shutting down. I mean, Paulo is sitting there telling you that like they're promising increased transparency this year. and they're talking about how excited they are for, you know, the rest of this year in terms of new business opportunities and things like that. Like, you're just, it's just not adding up to me that there's some closet full of skeletons and Mike Green has managed to kind of uncover that. And this whole thing is, is about to come apart. Like, it seems way more likely to me that the outcome is that they're going to pay some, you know, fine, it's going to be some real number, but certainly not enough to keep them, to put them

out of business. And then they're going to continue on as doing business more or less as usual. And one of the things I remind people about this of the, you know, $25 billion of new tether created while being under the microscope of the New York AG. The other thing is that there's been 256 ether addresses that have been blocked, tether ether addresses that have been blocked. just over the last handful of months, and that's up from like essentially zero a year ago. And look, dude, the tinfoil hat comes on really quick here. But like, wouldn't it make sense that the U.S. government just wants to make sure that it's knowing exactly what's going on on the Tether Network?

And they're allowing it to run. and, you know, create new tether and they want to make sure that it's backed and that there are dollars in the bank account. But in the meantime, they're tracking all this tether flow and figuring out where the bodies are buried for capital flight and illicit activities and this, that, and the other. And, you know, is tether a risk? Absolutely. Is there a chance that there's a very bad outcome from this New York AG case that significantly, you know, hits the price of Bitcoin. Yes, there's a real chance that that happens. But you just have to price all of these things. And that is really the overarching concept that I think I really want to address for a few

minutes here is just how to think about all of these different risks that are present for Bitcoin. So let's expand that because, again, I don't want to drag it to Twitter. People have heard me talk a lot about my thoughts of it. I've been resistant to doing a full show on it because of kind of the same feelings that you've had and also just kind of, I don't know, there's just so many transparently clear things to me that are, that are holes in the, this is a systematic risk that brings down Bitcoin and the whole price of Bitcoin is just based on tether manipulation. But the idea of pricing and risk of these different fuds. So that's your kind of big thesis. It's almost like, who cares? Like, you know, it's more like instead of it being sort of a clear reject or accept,

it's more like, what do you think the outcomes are these going to be? Are there other versions of this that have come up. So, I mean, among this list of things we're seeing is a lot of people who are diminishing Bitcoin's scarcity because something else is inevitably going to replace it as one. And there's kind of all this set of different things. But, you know, I mean, how do you, how do you kind of, as you're talking to these LPs who might be concerned, how do you tell them about how to think about this from a pricing standpoint? Yeah. So the thing that I find most annoying about a lot of the Bitcoin naysayer stance right now is just how, disingenuous the approach is, how intellectually dishonest the approach is. From what I can tell,

this very basic approach to assessing risk in the context of potential returns seems to be getting completely thrown out the window and they're taking this like all or nothing approach. It's like because tether risk exists in some form, therefore I cannot ever own any Bitcoin. And that's just an inferior approach to assessing any investment. And it's like if you told me that these guys, and like I'm going to throw Ray Dalio in this bucket as well too. Now, he was much more neutral than like a Mike Greene or an Eric Townsend, for example. he's also wildly more successful. But he also seems to have this weird take on not presenting this as a like probability weighted expected outcome.

And if you told me that all these guys went through that probability weighted exercise and arrived at this like base case, upside case, upside case, and that just doesn't warrant any deployment of capital in any size. I'd say okay. Like I disagree with that assessment and I'd want to hear them unpack it a little bit more. But like if that's the conclusion they make, so be it. You know. At least then you could argue with the inputs. You're like what it what's the what's which variable, which X in this equation is zero, you know, such that it makes the whole thing end up zero. Yeah, that's right. Because like, and I talk to I talk to investors, potential investors, whenever I get the chance, I tell people, there's a tremendous amount of risk in this asset class. And in Bitcoin, and as soon as you move down market cap for Bitcoin, there's like, you know,

it's like that those risk factors get that much bigger. So much risk present in this. When I spent my whole career in traditional investing and I stepped into this thing and I was just like, holy shit, there's risk all over the place in this. There's layers of risk, systemic risk, opaque risk. knowable risk. Whales, miners, Tether, Tether court cases, podcasts about Tether, blog posts about Tether from anonymous sources, counterparties, price manipulation, regulation exchange hacks, custody hacks, user data hacks, project hacks, global macro, hard forks, BITMEC's death spirals, stop runs, exit scams,

other scams, scammers, aggressive market makers, GBTC NAVTC trade unwinds, SIMS codes, code bugs, Trump tweets, false rumors, true rumors, tech obsolescence, rehypothecation, forced sellers, legal actions, liquidity crunches, market illiquidity, Brad Sherman's punk ass, Satoshi's million Bitcoin, exchange order glitches, bad data, President Xi. And that's not even close to an exhaustive list of the risks that are present. But over its history, Bitcoin's up like 11 million percent. So you've gotten paid for the risk that you've taken so far. And there still remains all of those risks. But if there were no risks present, the price of Bitcoin would be over a million dollars if none of those risks were present. And that's the concept of risk-adjusted

returns. And that's what's so crazy that I seem like this seems to be so lost. on so many people where you sit there and you take tether. There's a chance something's wrong with it. U.S. governments banning it or regulating or taxing it into oblivion. There's real risk there. You know, a cyber attack of, you know, like say Coinbase gets hacked for $20 billion with Bitcoin. Real risk there.

A hard fork. Okay. There's risk there. You know. this weird thing about if the whole world loses all its internet. Like, okay. Okay, there is a risk that is present there. And so if I'm trying to decide, if I'm going to buy some Tesla stock tomorrow, right,

there's some chance that I wake up the next day and Elon died, right? I buy Tesla tomorrow. Elon dies the next day. Stock's down 90%. there's a one in 20 million chance that he dies. Negative 90% times one over 20 million tiny expected probability of the expected outcome, right? And you just do that with any investment dozens of risks, hundreds of risks. Because also with Tesla, let's say you buy a share today, they got earnings tomorrow.

There's, you know, whatever, there's a 15% chance that they, miss earnings. And if they do, you think the stock's going to be down 20 percent. But there's also, you think, a 40 percent chance that they're going to beat earnings and the stocks can be up 15 percent or, you know, whatever, right? And you just do all of these things, hundreds, dozens of them. And that's how you build a base case and a downside case and an upside case. And you just approach an investment in Bitcoin that exact same way. If you assign zero percent probability to all those risks that I just talked about for an investment in Bitcoin, then your base case, expected market cap should be at least $30 trillion for Bitcoin, which is the market value of all the treasuries in

existence today. And it probably should be something closer to $100 trillion. Because without any risk at all to Bitcoin, it's the World Reserve currency. It's the dominant store of value across all assets. And it's the foundation from a collateral perspective of the global financial system. but there are risks. And so you weight them accordingly. And it's very strange to me that these naysayers of Bitcoin right now seem to have in common that they've removed this extremely elementary probability-adjusted approach to thinking about Bitcoin.

First of all, I think that officially wins the award for most epic rant in the history of the breakdown. Truly, I will 100% will record that clip of Bitcoin's risks factors that's going on Twitter. Second, I wonder to what extent this has to do with a confusion that is very separate, which is the business model of allocating capital versus the business model of being a media personality. Because I think that we pretend that a lot of these folks who are macro guys or whatever, right? Anyone who speaks about finance and the economy in a media context are capital allocators. And sometimes they are. They're background. They'll often talk about their investment thesis and things like that. But at some point, I feel like a lot of these

folks either, you know, explicitly or just kind of by default, transitioned instead to newsletter salesmen or podcasters or whatever. And those are very different business models that reward different things. So what you're talking about and your frustration is the mindset that goes into actual capital allocation. But that doesn't go as well into, you know, pick and fights on Twitter, which are the way you build on audience. Yeah, look, you know, for folks that are talking heads for a living, it's like, show me the incentive structure. And I'll show you the actions, right? So if you're just trying to, trying to drum up conversation, uh, you know, look, I'm not going to get mad at, you know, people have jobs and they need,

sure. I mean, listen, I mean, you're, you're talking to a podcaster. This is not a knock on the model. It's more, it's more, I think the frustrating thing is that literally on never, not a single show, will you have heard me be like, here's my like investing credentials that lead me to these things. It's not that type of show. It's not whatever. But I feel like, I feel like historically maybe, and maybe we'll break out of this, but like, you know, a lot of these guys,

they act like they are talking heads. Or sorry, they act like they are professional investors who happen to be giving a talking head appearance where increasingly their whole thing is being a talking head. And maybe that's just a function of the fundraising process and that works for them. And so effectively that, you know, it's kind of whatever. But it just feels to me like that's kind of part of the challenge too.

Look, and never underestimate the power of the dopamine hits of social media interaction. And I think it goes no further than Steve Cohen on Twitter, right? And, you know, you got 12 billion bucks in the bank or whatever it is. But like, and those, that dopamine hit from Twitter, it's just, it's the siren song, right? And I think that that does go into some of the motivators of this. But I think part of what's going on here too is that we've never had anything like Bitcoin before. And I just remind people of that on a regular basis. It is incomparable.

It has characteristics of a currency. It has characteristics of a commodity or, you know, a commodity month. money or whatever, but there is nothing else like Bitcoin and trying to wrap your head around the risk factors associated with it when you just have somewhat of a knowledge of it. Because the other thing that happens with Bitcoin all the time is that the amount of work you have to do to establish an informed base case, it's not a small amount of work, man. It's not. I tell people all the time. I think it takes 50 hours just to understand the basic value proposition. And it's like sometimes it's hard to get people to do

50 hours worth of work, especially when it's like, like what cryptography? Like who knows anything about cryptography, right? And so people end up doing, they do shortcut work, right? And they, and maybe it's five hours or it's 10 hours, but they end up doing shortcut work. And then at some point they, you know, Google problems with Bitcoin or why Bitcoin is doomed to fail. And then they read some thoughtful blog post about, you know, sort of why that person thinks that Bitcoin is doomed to fail or whatever. And because Bitcoin is incomparable and requires this diverse and, you know, kind of like, you know, archaic knowledge set or just like not, not normal types of knowledge to really understand it.

It overwhelms people. And, you know, I would just, you know, if there weren't all of these naysayers out here, the price would be a lot higher. So all of this does get tucked into the bucket of the wall of word. and converting the Ray Dalio's and the Mike Greens and the Eric Townsens and all the other people that aren't as public about being, you know, Bitcoin naysayers. Like that's just what we're going to do. And, you know, price is going to move higher as that journey continues.

And just as a reminder, at some point, one of those major risk factors that I talked about, could take down Bitcoin. There is a chance that Bitcoin is Ask Jeeves and that the world has not presented us with our Google yet. And I remind people of that. And you need to size it in your portfolio correctly. And you need to assess whether or not you're comfortable with a passive position or whether you would prefer an actively managed position as it relates to that. there's a bunch of, it's still a very binary bet. If it works, the price isn't even going to be close to where it is right now if it works. It's much, much higher.

And there are real reasons why it could potentially fail. And you probability wait the best you can or you give your money to somebody else so that they can probability wait it for you with the domain expertise that they have. And then you make a call and you manage risk, you know, along the way. It's interesting. I think that the, like, without analogy kind of piece is such a big part of the challenge, exactly as you articulated. Even the Google and Astjeeves analogy, I was going on a rant this morning about this on

Twitter because there's another one of the sort of set of Mike Green critiques was, you know, it's not scarce because another thing inevitably comes along. That's what happens with technology. And these guys who haven't spent a lot of time deep in. technology. I mean, whatever. Mike maybe he has. He's with Thiel and whatever. But like, you know, they always point to MySpace and Facebook, right? It's like, well, there's a Facebook. It's like, yeah, but Facebook won 15 years ago. And it has 2.8 billion monthly users. And other things have come up since then, but no one has ever been the social graph of everyone you know in

real life. No one is like can displace them from that. And that's why they have nearly three billion active users every month now. It's, you know, more than a third of the one. world's population. Because the real powerful thing is network effects, not technology. And to go back to your Ask Jeeves and Google example, the other thing that I hear all the time is, how could it have been Google on the first try? And it's like, but it wasn't the first try. You got DigiCash and Egold and all, you know, there were so many tries.

Yeah. I like this thought experiment. Let's run down the thought experiment of Bitcoin's Ask Jeeves and we haven't seen our Google yet. Let's first establish that nothing else in the crypto asset ecosystem as it currently exists is the thing that usurps Bitcoin because I am highly convicted of that. There's very few crypto assets in existence today that can even put up a credible case to be a store of value.

And they're all drastically. It's like, is like Bitcoin a competitor to Bitcoin? Like, I mean, I don't know. Maybe, right? Bitcoin cash, maybe, DECRE. I like decred. DECRE, you know, but it's like. So let's say something new comes along, right?

And that's the Google, Bitcoin was the ask jeeps. What would the characteristics, what would the characteristics be? Like, what would be the improvement relative to Bitcoin? Like, I don't know. What is, like, what does that look like? Like, is it more supply? Is it less supply? Is it, you know, faster blocked?

times? Is it a different, like a different distribution mechanism? Is it, uh, I, like, you know, I don't know, is it, uh, you know, quantum computer resistant through some way, like, like, what are the characteristics that you're talking about? So I mean, I think that that's a super interesting thought experiment. I don't think that basically anyone who's put forward that argument has actually thought about that to the extent, unless they say something like scalability, right? Those are kind of the fallback because it's going to be faster or whatever, you know, more. So I agree. I think that's an interesting thought experiment.

I also think that you have this, going back to your original point about if you're a capital allocator and you're thinking about opportunity and risk adjusted return. and you think that there's inevitably, like how many years after Ask Jeeves was Google? You know, how long was the interval? It wasn't that long, you know, that it displaced it. If you think that maybe based on quantum computing, for example, there'll be some quantum resistant thing and we'll have another, Satoshi Nakamoto will come back as another alien to make a different Bitcoin later on.

If that's in 20 years, how much very very much value? value are you leaving on the table by not doing the thing that in the short term proves that this matters? MySpace was an unfathomably valuable investment for the time that it was the thing because it demonstrated the thing was viable, right? If something does displace Facebook that won't change the literal trillions of dollars that have been made, ingested and spit back out into other types of investments, other networks, other investments, you know, like, it's just there, there's also just going back to your initial frustration, the ideologically. adherence to the possibility that it doesn't end up winning over the entire span of history

is kind of leaving people out in the cold of the possibilities along the way. Yeah. Yeah, I agree with that. It's a strange approach. And definitely agree with you that understanding the, or trying to get a sense of the amount of research that naysayers have done before forming their opinion. is important. And I, the thing that was, you know, it was like a very like, you know, et tu, Brutei moment with Mike Green because I was like such a big fan. I know.

I know. His prior work. But the thing that that really worried me about all the passive investing work that he had done was that I couldn't check any of that work. And I didn't really have anybody on speed dial that. that could check that work all that well. And in a way, he has this tendency to present some of his arguments. And, you know, I don't really mean to pick on him, but I'm, you know, we're going to kind of do it anyways.

You know, he kind of has a... He kind of waited into this fight. I got to say, like... He kind of presents some of these arguments in a way or his positions in a way that do make them very compelling and a little hard to poke holes in, especially when you're you don't have a really good knowledge base, which I don't in the minutia of passive investing. But then he comes at crypto and it's like, oh, no, I do have the knowledge base to do this. And if you're going to come at me on the genie coefficient of Bitcoin's distribution based on

wallet address holdings, that means you have not done enough work to understand the concept of omnibus wallets for exchanges. And if you haven't done that much work, you haven't done enough work to scare all of these people out of their Bitcoin position because that's like, that's not like Bitcoin quite 101,

but it's probably like, you know, Bitcoin 202 or something like that. 100%. No, that's the family who's like excited about it, but they're like, hey, but like, if this does replace it, is it weird that the world's going to be reorganized on the basis of like these super trillionaires

that own all of it? And you're like, no, let's talk about exchange wallets. And then they go, oh, I literally had that conversation via text today because someone was fudging, fudding Doge that way. And they've been paying attention to Doge because of the whole Wall Street Betts thing too. And I agree. It's not 101, but certainly it's the 201 or whatever level, right? Yeah. So I just, I mean, I think the main takeaway from that is you just urge people to, you know, be thoughtful in considering their sources for a, assessing an investment for themselves. Look, at the end of the day, you got to make the call for

yourself. But, but I mean, this is 2021. You know, the internet has never been more full of information. So the fact that you're going to pull information to assess that investment from, you know, a bunch of different sources and people that did other work. Like, that's totally normal. I get it. But it's just like, be thoughtful around that. Yeah. I mean, I think, I think those, you probably share this too. It's like, I think that we, like, we would do better with good critics rather than bad critics, you know? Like, if, if I could trade out the shifts and the, you know, Noriel's for, like, real thoughtful people who had done kind of what you said and, you know, weighted all these things and came to different conclusions, you know, I like watching Dimitri

Kofinis's exploration of this space, the guy who runs hidden forces, because it's, I mean, Demetri doesn't have the capacity to do anything but in good faith, right? And so even if he's, like, you know, questioning things, it's done in good faith. And you feel like, Mike, green is the type of person that you, like, if you're going to be a critic, be a good critic, you know? It's, I will say going back to Dahlio for a minute, I read that letter as there is literal no way that we're not announcing a Bitcoin exposure fund later this year. And this is like, I'm smart enough and have been around long enough to know that the way

to like make this transition is not to look opportunistic, but show myself walking back questions being open to different possibilities, still flagging some big picture things. in a way that I can then get around them later on. You know what I mean? Like I read that completely like not like he's being disingenuous, but like it's pretty clear to me. Like I will, I would bet a pretty significant amount of Bitcoin that there's a Dalio

Bitcoin exposure within the next six months. Yeah, I can see that. What are you getting excited about for 2021? Obviously, we've talked a lot about this crazy GameStop stuff. We hit on like the regulatory possibilities, not just in terms of that, but also in terms of other things. talked about all the sort of the walls of worry, but like, you know, you're obviously in

in the middle of all the good stuff too. What's exciting for you right now? Let me think here. So we, so Ikega over the last 18 plus months, we've had a pretty narrow focus from a strategy perspective and it's, it's systematic models driven exposure to Bitcoin with the purpose of outperforming, just holding Bitcoin. And we've gotten pretty good at it doing that. but it has been sort of at the, you know, at the expense of not paying as much attention and also deploying like a negligible amount of capital into stuff outside of BTC. And it has been fascinating to watch the explosion of defy. the pace of innovation and, you know, it seems like it has all the hallmarks of a bubble and, you know, the overvaluate, you know, it's just like, you know, there's a lot of stuff that's quite bubbly there. But it is fascinating to think about what is going to make it out the other side of that. and the lasting aspects of, and who knows, maybe it's nothing from this generation.

And, you know, definitely the purpose of this is not to shit on defy. That's not what I'm doing right now. You know, but it, you know, defy cannot, because of the limitations of Ethereum right now, defy cannot scale to any sort of size that remotely makes it usable in any kind of like real scale, right? There's a few tens of thousands of defy users, and there's probably this like ridiculously heavy power law distribution of those users. And it's, you know, it's really probably like 200 guys that are doing the vast majority of all of this stuff. And that's fine. And, you know, TBD on whether or not ETH is going to be able to, you know, migrate over to, you know, a scale that allows for a lot of throughput for DFI or whether or not,

you know, Sam and everybody on Salana and Sarum and all of that builds, you know, maybe they run at it because they've got a lot of throughput capacity on their deal. But just kind of watching how that develops and there there there there seems to be it's like a it's like a pot and there's a big pot on the stove and the burner's on and you've thrown a lot of different ingredients in there and I'm talking about crypto as a whole and you don't know what's exactly how the stew is going to come out yet and uh you know which and ingredients of the pot are going to be the most important or whatever, but like, you know, watching the things that are happening on Bitcoin's Lightning Network and then watching what's

happening from the Money Lego side of Defi and in some of the more governance focused aspects of defy and, you know, the importance of, you know, digital ID and like it seems like there's a lot of really cool ingredients that are in the pot right now and exactly how it comes together and when that kind of comes together, you know, into a product that ends up being, you know, the one that gets sort of transcendent adoption, you know, that remains to be seen. But it's fascinating to watch the innovation. And I'm looking forward to continuing to watch it and and to be paying even more attention to it. I think one of the things that, you know,

I'm sure you've done some of this reflecting too, thinking about what's different this bull run versus, you know, the last one. Last time around the things that were displacing people's kind of attention and that were attracting people were tokens for everything, random token power networks for stuff that was just out there and didn't matter, right? It was tokenized the world, tokenize everything. All of that energy, even if, fits in an asset that you're not interested in or for a use case that you're different. It's all

focused on financial stuff now, these money Legos, right? And there's even debates over, like, is Defi the province of Ethereum? It's obviously associated with it closely now. But it's, there's a concept underneath. I mean, to your point, the Salana community is obviously hard charging at it. A huge portion of the total value locked in Defi is locked in wrapped Bitcoin. You know, like these, it's financial primitives. I mean, I think about it a lot of times. it's like this primordial stew of raw capitalist experiment that because of the because like I think that we should be so grateful that the UI is so bad that it keeps people from wandering in the doors. You know, it's like this impenetrable nightclub. And because of that, it gets to be the weird

experiments where even if defy torched itself to the ground right now, all 32 billion or whatever was locked, they'd probably just start again tomorrow. You know what I mean? It's like it's people who all know the stakes of that money. And I think that's a really, I think that's one of the most optimistic things about it having the chance to evolve into whatever the hell it's supposed to evolve into. Yeah, to completely agree with that. Travis, man, I've kept you for a while. I really appreciate your time. I always love talking to you. Any final thoughts before we, I let you hang out in L.A. and do your thing? No, thanks a lot for having me on. I always enjoy. enjoy talking to you. I try not to do these things when I don't have something specific to stay.

So, and it's, you know, it's not all that often that I've got something specific to say. But, you know, look, we're in an incredibly exciting time for all this. And, you know, this beginning of 2021. on the back of, you know, the year that was 2020, that for a lot of people was the most challenging year of their lives. And this new year brings hope, you know, even if we have had a bit of a rocky start in some cases. And it's hope for change. And change requires action.

The world can only be grasped by action, not by contemplation. And action requires, the motivation to demand a better way and the willingness to push for it. Motivation and willingness come from inspiration. And that's where we find ourselves. And our ecosystem is intimately involved in it. In this place that we find ourselves amidst this inspiration to find the willingness and the motivation to move to action and call for a change that leads to an improvement

over the way things are right now. And man, I'm here for it. I'm here for it now. I'm here for it. The rest is year. I'm here for it the rest of my career. Amen, brother. There are so many parts of that conversation

that I could spend hours unpacking, expanding upon, but I think just to wrap up really briefly, I want to go back to Travis's point about remembering just how unique this moment is, just how unique a phenomenon Bitcoin is, how unlike previous financial moments, previous technologies, it is something entirely new and unto itself. And the consequence of this, of course, is to be patient, to take the time to help people who are engaging with good faith in exploring and understanding it. Travis does that

day in, day in his day job, and I appreciate him spending some time with us to do it today. Anyways, guys, I hope you enjoyed that interview. I'm pretty sure you probably did. until tomorrow, be safe and take care of each other. Peace.