The Pomp Podcast - #1043 Russell Starr On Why Now Is The Time To Build In Crypto

Episode Date: July 12, 2022

Russell Starr is the Executive Chairman & CEO of Valour (formerly DeFi Technologies) In this conversation, we talk about regulation needed for the Crypto industry, why Crypto companies should be hiring right now, and why this bear market presents so many opportunities for builders. ======================= LMAX Digital - the market-leading solution for institutional crypto trading & custodial services - offers clients a regulated, transparent and secure trading environment, together with the deepest pool of crypto liquidity. LMAX Digital is also a primary price discovery venue, streaming real-time market data to the industry’s leading analytics platforms. LMAX Digital - secure, liquid, trusted. Learn more at LMAXdigital.com/pomp ======================= The Pod Pro Cover by Eight Sleep is the most advanced solution on the market for thermoregulation. It pairs dynamic cooling and heating with biometric tracking. Go to https://www.eightsleep.com/Pomp to check out the Pod Pro Cover and save $150 at checkout. Eight Sleep currently ships within the USA, Canada, and the UK. ======================= 

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Russell Starr is the executive chairman and CEO at Valor, which is formerly known as DeFi Technologies. In this conversation, we talk about Bitcoin and cryptocurrencies, the current state of the market, all the contagion, the lending platforms, centralized financial products first decentralized financial products and regulation. I really enjoyed this conversation with Russell, and I hope you guys enjoy it as well. Before we get into this episode, though, I first want to talk about our sponsors. First up is LMAX Digital, the number one

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Go download the FTX app today and use referral code POMP. Anthony Pompliano runs POMP Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of POMP Investments. You should not treat any opinion expressed by POMP or his guests as a specific inducement to make a particular investment

or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Russell is the executive chairman and CEO at Valor, which was previously known as DeFi Technologies. I've been working with these guys for a while as an advisor. They're a publicly listed business, and they are focused heavily on digital assets, decentralized finance, and a number of other things. So Russell, how are you? I'm pretty good, man. I'm not sure if I'm on the right show. You've got a tie and a suit on.

Listen, the bear market is a serious thing. This suit and tie, this exact one defeated the 2018 bear market, and this one's not coming off till we defeat this one. The problem is that it is not exactly the most comfortable outfit that I have. I don't necessarily enjoy doing it, but if we're all going to weather the storm and feel the pain, then I will wear this every day as a reminder that we are in a bear market until it's over. Well, if that's what it takes, I'm 110% supportive, man. Yeah, well, that's because you're not wearing the suit and tie, and I am. So everyone's supportive. But as you know, man, ELE, ELE. Let's talk about kind of the state of the market right now. Obviously, we've seen prices come down very, very significantly, Bitcoin down 70%, many other coins down even more than that.

As you kind of look out at the market, how much of this is driven by kind of crypto-specific value drivers versus it's just a recipient of macro economics and monetary policy, both in the United States and abroad? Look, my gut tells me that it's almost 90, 90, 95% macro driven. But you also have, you know, an unfortunate situation where a lot of the miners basically paid up to buy equipment at the highs and are now being forced basically to sell their their huddled coin just to just to make payroll and whatnot. So it's 95% macro, I would say, and maybe 5% or 10% driven just by unfortunate circumstances. You know, you always say to people, you know, the best thing to do in

the markets is buy low and sell high, but it always seems that everybody's buying high and selling low. So it's almost like a perverted instance of the way it should be, I guess, in this situation. What are you guys seeing from investors as prices have come down? You have a number of uh public vehicles you have a number of indexes and various types of products are you seeing investors uh redeeming selling are they contributing more capital what's kind of the investor trend right now yeah no that actually that's an awesome question um we're actually seeing net inflows month over month um and to me that means you know the market is still there it's it's continuous additions uh we call it net sales it's being positive flat to positive

basically every month, month over month, despite the sell off. And that's just people who recognize this as an ecosystem that I think is here to stay. And we're kind of, you know, sometimes I always say to people, we're not even in the first inning, we're not even in the first pitch in the first inning, if you can use that as an analogy. And so people are doubling down, if you want to use that analogy. But as we add products, people continue to buy them, we're adding people to every single one of our products uh despite the fact that the the prices are coming off and to me that's actually anecdotally probably the most important data point um for everyone who's listening uh there there is interest um obviously it's been a very rough ride um i really feel for

you know voyager i feel for maybe i don't feel so much for three hours capital because it sounds like there was probably a bit of a ponzi scheme or something of the like going on there i'm not allowed sure if i'm allowed to say something like that but you know a lot of people have suffered due to the the impacts and the and the actions of very few bad actors and and it still doesn't change the fact that this is an ecosystem that i think is going to change the way we execute financially in our daily lives basically from now and into who knows when Talk to me about the centralized lending platforms. Obviously, there's DeFi, and then there's these CeFi-type offerings.

What are you seeing differences there in terms of their performance during the market downturn? What are you talking about? Like, which specific ones are you talking about? So out of the centralized financial platforms, there's obviously exchanges, right? So things that most people would know those brands. There's also these lenders, whether they're more institutional-type lenders or they're lending on the retail side. surveys and the Celsius. Obviously, Celsius is probably finished or done. Look, in my perspective, you and I have been talking about this for a while, the future of this industry,

whether the TradFi wants to persist or the holistic or the purist crypto wants to persist, the reality is that there's going to be a symbiotic relationship between TradFi and the purist. You just can't have this ecosystem grow the way it needs to grow without incorporating some of the TradFi dynamics into it. And just literally today or yesterday or Friday, you were hearing Brainard basically talking about how regulation has to start becoming more and more meaningful, specifically when it comes to the exchanges. I see a world where probably all of those exchanges are regulated. I don't know whether that'll allow them to persist. I don't know whether that alters the course and you get like a JP Morgan or a Goldman who buys one

and controls it. But if you want to get everyone to benefit from these lending protocols, as you were just suggesting, or any of the other protocols that exist, you have to have a mechanism to get them out to everyone. And I just don't see, especially with what we just witnessed with Voyager, three-year-old's capital. I just don't see a world where you can do that without having some sort of a regulatory framework to protect investor dollars. And I know it goes against the whole decentralized perspective, but I think it's a bit of give and take on both sides. If you really want this to become as dominant as you and I probably believe it will be, and I think most of the people who are participating in this space believe this

will be the future of finance moving forward. I think everybody's going to have to accept some sort of a regulatory environment that's going to oversee practically all of it. And, you know, from our company's perspective, that's a good thing, right? Like everything we do is on traditional exchanges, but all we're doing is trying to take a nascent protocol that normally someone would buy in Coinbase or Voyager or any of these other alt exchanges and make it available to people on a traditional exchange um and i don't think there's anything wrong with that and i think i think that's something that people are going to embrace i think it's the way forward um and and ultimately i mean literally i mean i'll throw a question back to you um do you or any of us

really know which one of these protocols is going to win which one's going to lose we're so early in this game. We're so early in the paradigm. There are going to be losers. I often take the analogy back to the internet boom. And there were web browsers that were once the most dominant web browsers that no one would even know existed today. There were times when Amazon, people scoffed at Amazon. There were times when they scoffed at Apple. We're going to have to put up with volatility as this industry grows. When you think about, uh, kind of the current public markets, uh, obviously you all are a regulated entity, uh, talk a little bit about what regulations or what disclosure requirements you think are coming to, uh, some of the, um, kind

of crypto related entities, uh, projects, companies that are not in the public market. Like, what do you expect to play out there? Um, well, I honestly, jurisdictionally, it's going to be really interesting because when you look at Europe, Europe has embraced wholeheartedly this entire movement. There's a reason why we only list our products in Europe. The U.S. isn't even acknowledging, let alone giving us the time of day. And I would argue that we're exactly what the SEC wants to see in this industry. Look, Big Brother is going to try to control everything. You and I have seen this time and time again. But the whole purpose of this industry, the whole purpose of the decentralized process, the whole purpose of allowing, you know, foundations and

nodes and allowing more of a holistic participation and decision making processes, you know, that's counterintuitive to your traditional regulatory body. So I think there's going to have to be some sort of cooperation. You know, I will say this, and I don't know what your listeners think, But I really do think the U.S. is dropping the ball and allowing many other countries to actually take the lead where I would have thought in any other entrepreneurial pursuit, the U.S. would have been the leader. And again, we've talked about this. It's politically driven, in my opinion. It's U.S. dollar motivated. And it's unfortunate.

But you're going to see a migration of massive amounts of capital to jurisdictions that start to embrace this ecosystem. And it's unfortunate that it's not likely going to be in the U.S. So, I don't know if that specifically answers your question. It's just you've got the SEC that I think is acting, in my opinion, specifically from a political perspective. I don't think any of this has to do with customer protection. I think they'll use every excuse in the book to try to stop capital outflows away from the U.S. dollar. And then you're going to have the likes of China. Who knows what Russia is going to do?

Uh, but, but clearly there's an economic board that's being waged way above, you know, our pay grade. And then you've got the likes of Europe, Germany in particular, who has basically said, you know, you buy one of these products and you hold it for a year. You don't have to pay any tax. We want capital inflows into this. We want to be a center of innovation and a center of, you know, capital inflows. And it's, it's just, um, it, it, it's frustrating as a North American Canadian, you know, neighbor

to you guys to watch what's happening in the US. And then, of course, as a byproduct, we tend to follow where you then have another material country just basically embracing this and trying to push it forward. When you start to look at that regulation coming in, institutions obviously were allocating to Bitcoin and crypto, maybe Q3 of 2020. They really started in earnest. They continued until last year at the end. They considered it a risk asset. Monetary policy is going to become tighter. They begin to sell risk assets of which Bitcoin and cryptocurrencies take a hit. do you anticipate that they will come right back in once the federal reserve or other central banks pivot monetary policy uh or do you think that they actually never really left they might have sold some assets uh because of that risk off environment but they're still here they're still doing the

work they're still kind of involved in the communities uh and it's less a question of like them coming back because they left and more a question of just like asset allocation across their portfolio yeah awesome question again um i i can see your analogy or at least where you're going? Were they allocating 5% and now they're down to 1% so they never really left? That's a way bigger question. My view is they probably only ever got to 1%. You had some of the more aggressive hedge funds really dipping their toes in aggressively. But by and large, if you were to look at the fidelities of the world, the mass of money managers, I don't even think they began to answering your question in a little bit of a political fashion and saying there were a few

parties that I think did take that asset allocation up to 5%, maybe 10%. But they were such a small portion of the actual investing climate that you can almost argue that no one's really even begun to make that investment process. And really, when you look at it, the only way that a lot of those funds and a lot of the traditional money managers could actually participate in it was through the miners. And really, if you think about it, that's such a small part of what this ecosystem is supposed to be. And so now you have the likes of us, which, you know, we're a different business model. You're going to see other companies doing different things. Like you have WonderFi buying exchanges. You have some companies who are looking at the metaverse and gaming more specifically.

And then you have some trading platforms, of course. My perspective is, and you know, this is a much deeper conversation, but the bullwhip effect that I think is really going to make the Fed look pretty bad here quickly. And the bullwhip effect from an economics perspective is just sort of the concept that you just get all this inventory sucked up and you get excess inventory sitting everywhere. So while you've got inflation and the Fed increasing interest rates literally as fast as they can, so that as they know we're entering a recession, and I'd argue were probably already there in the recession, just with everything that's happening. They need to get interest rates high enough so that they can actually start cutting interest

rates to start stimulating the economy again. So to answer your question, I guess, in full, I think that in the next three to five months, you're going to just see tremendous amounts of capital flow back into this industry as risk on comes back aggressively. But the other secondary point to that, and you and I have talked about it before, I don't view, I mean, basically you get a bunch of lemmings who all act the same in the capital markets today. I don't view Bitcoin as a risk on asset. I view Bitcoin as an alternative form of currency. And as you see the dollar's demise pick up, I think you're just going to see more

and more and more and more flows moving into Bitcoin. The government has fiscally destroyed the economy of the U.S. And I know that's something controversial to say, but I think most of your listeners would agree. You can't print money the way the government's been doing it and continue to have a robust U.S. dollar. And so Bitcoin becomes a really relevant alternative investment class. And for the longest time, you had people saying Bitcoin was gold 2.0, and now they're calling it a risk asset. It doesn't really make sense. I think they're just using it as as an excuse to sort of come up with a reason why uh you know we we dropped what was it 70 in the last couple of months when you think of the business you're building uh obviously

defy technology is now called valor talk a little bit about the name change and then are you guys doing anything different strategy wise uh given the market conditions yeah literally what we're doing differently than most people is we're hiring aggressively um like what you're seeing right now is Coinbase rescinding offers, you're seeing basically the entire ecosystem almost shut down from a bringing people on board perspective. Because of how innovative we are,

because of how nimble we are, we just brought on basically the top salesperson from 21Shares. Today, you just saw head of legal from 21Shares is joining us on August 2nd. We have another person joining in early August. And so, yeah, I kind of take a different perspective. Back to my point, like too many people lay people off at the bottom.

What you want to be doing is hiring. And even if you put your balance sheet at risk at the bottom or close to the bottom, you want to do it. Yes, it's a bit aggressive. And yes, it's a bit dangerous. But if you believe in the business you're building and if you believe in the ecosystem upon which that business is built, you want to be hiring and building near the lows, not firing. It's the exact inversion of what most other people are doing.

The other thing that we're doing is we're taking a long, hard look at the ESG climate and we're looking at a Bitcoin carbon neutral product. We're looking at some other innovative products that I think will make a lot of sense. A lot of people have taken a bat to stablecoins just because of what happened to Terraluna. But the reality is that the other stablecoins have performed really, really well. And so we're looking at some yield-driven products as well that I think will help your traditional portfolio, just because as you and I know, sort of the bond and fixed income market is basically dead because of what's happened in the US. And so yeah, we're expanding, we're growing, and we're excited. So that would be

a very different perspective than I think you'd get from, or at least many of the commentaries that you've seen out of the likes of Coinbase and some of our other competitors. When you look at that market on the hiring front, where are those people coming from? Are they coming from wall street in the finance world are they coming from the technology industry are they coming right out of school what where are you seeing the kind of the talent or the interest come from yeah so another awesome question as usual anthony kick hitting it out of the park especially maybe it's the suit too man um uh for us we really only have one major competitor in this industry it's it's 21 shares and and for whatever reason um i think our our company's

culture, our company's nimbleness is proving to be a really interesting platform for the likes of people sitting there. But no, it's industry. How do I explain it? It's basically, imagine a lawyer who would be your traditional corporate finance lawyer who got a taste of crypto by doing some prospectuses and getting involved in the industry and just having a complete paradigm shift in their brain so so none of these are early stage people these are all these are all um what i would call top of the the pyramid people who who like and see what we're doing have tremendous experience and and like you and i believe that this is the future and so so we're getting um that's not to say we're not averse to hiring you know some university students who who want to get involved

in this space and would love to get, you know, some experience in, in, in anything crypto related or web 3.0. Um, it's just that right now we happen to be really, really fortuitous and we're seeing some really, really high quality people because of what the likes of Coinbase and some of these other bigger companies are doing as they, as they lay off really talented people. Um, some, you know, someone has to be the beneficiary of picking them up and it just happens to be us right now. Yeah, it's fascinating to kind of think, you know, as to how this all plays out. Last question for you is really around the Canadian markets where you all started. What is the general feel there from regulation from investors in that specific market? Specifically on the Web 3.0 side of things? Yeah, just in terms of kind of everything from Bitcoin, crypto, Web3, just along the entire industry.

Like, what is the general feel from both the regulators and investors? So, investor-wise, we're seeing tremendous interest from the retail community. Again, it's funny. Normally, the really smart money, call it the private equity, and the funds tend to be the first and the early adopters, and they're the ones who are getting in deep. And for whatever reason, crypto seems to have been driven, Web 3.0 seems to have been driven a lot by the retail community. And I think part of it has to do with the fact that for the longest period of time, the only way you could pick up any of these ecosystems, tokens, whatever you want to call them, you had to do it on these unregulated exchanges. And most funds aren't permitted to actually buy on those. As you're seeing these companies, you know, hybrid companies like I know, you know, Ali, one of our co-founders, and he created Hive Blockchain and Johan created CoinShares.

You're seeing money move institutionally and retail based into that. And so Canada, you know, Canada is one of those weird, very risk tolerant countries, at least when it comes to early stage companies, whether it be natural resources, whether it be Web 3.0. And you see that as, you know, many of these companies have launched and were first enlisted in Canada before even graduating to the NASDAQ. And so for that reason, I think you have a higher comfort level with the space than maybe you do in the US. And the next comment, the regulators really do follow the lead of what you see in the US. And so without getting myself into too much trouble, I think the regulators need to stop interfering with what I call sensible allocation of capital, right? Like winners are going to win, losers are going to lose. There's going to be bad apples. Every industry has them.

But let the investment climate drive itself rather than a regulator standing in the way of doing it. So, for example, like, you know, we're eight months still and waiting for the SEC to give us final approval to get on the NASDAQ when we filed a form that they never are supposed to even interfere and we should have graduated to the NASDAQ. Why is the SEC doing that? It doesn't make any sense. And you have that same sort of state or almost anti-business perspective from the regulators in Canada. That being said, maybe a little bit less so. So, you know, you do see the likes of Galaxy listed in Canada, you know, Hive and Hot, you know, all of these stalwarts that you see on the NASDAQ, they all started in Canada. So it's pretty cool that we're at the forefront of at least bringing traditional listed equities that have sort of the Web 3.0 paradigm built into them, but on traditional exchanges and driven out of Canada. Hopefully that answers your question. No, it does. And it actually makes me think of one more thing, which is, as you think about building these financial products, what is the market opportunity, the public markets versus the private markets? As you guys kind of think about this, is it all like structured and listed products? Or do you see opportunity outside of the structured listed products and what people would consider more kind of private opportunities? Well, as you know, we've built our company to try to take advantage of both. So we have our VC arm that you know very, very well and always thank you for your help and guidance in that space. So we sort of look at the world as you've got all these incredible new seed investment opportunities. opportunities and this is where I, you know, I back away completely just when you've got a guy like Johan Wattenstrom or Ollie on your team, they're the ones who can really take a deep dive

into those seed opportunities and as well as yourself. And we try to participate in those seed opportunities that we see as, you know, a future lending platform, you know, Luxor, Sovereign, which we, you know, we were part of with you and Wilderworld. So we're always looking for really incredible VC-like opportunities. But the bulk of our business, I think, is going to be driven by how do we take those seed opportunities and turn them into a relevant exchange-traded product that people can actually dig into and you can get everybody along. And quite frankly, that's only going to benefit whatever that protocol is anyhow.

The more capital you can get flowing into it, the more interest that you can drive, even just from a mind frame or understanding process, the better off everyone's going to be and the better off that actual token or protocol or metaverse or gaming ecosystem is going to work. So we're trying to look at it from both perspectives. But to your point, I think most of it's going to be structured on our end. But still, we won't ever give up on looking for that new next dominant DeFi protocol, metaverse gaming protocol. And again, we don't know who the winners and losers are going to be, but what we want to be able to do is offer as many to as many people and let the investor decide who the winner and the loser is going to be, not the regulator, if that makes sense. makes a makes a ton of sense where can we send people to find you on the internet or find out more about valor yeah so so i'm actually very accessible but valor.com is the new website you asked us why we changed our name valor was the business we built initially um ollie and johan uh built and and and we just changed the name because it was really weird having defy

and then valor as our our sub subsidiary call it um but but yeah valor.com um send an email to ir at valor.com often i'll answer it and uh you know i think it's important for a ceo to be accessible to the public yeah i love it man all right well thank you so much for uh for coming on anyone who wants to go check it out uh russell is uh uh definitely is available uh always quick to respond when i email you so i appreciate that um and so one question for you anthony fire away so does the suit come off when we're out of the downturn or is the suit okay so you're this is your, we're trying to figure out what the price point should be. Like when, when is the bear market over? And, uh, uh, everyone will know the bear market is over cause I will no longer wear

the suit and tie. But, um, at the same time, um, that means that we have to determine when do you declare the bear market over and that's unclear at the moment. So we'll, we'll come up with a little framework and, uh, I will hope that that happens not, uh, necessarily from an investment standpoint but uh you know wearing the suit and tie every day is uh hopefully soon let's just say that i worked my ass off to not have to do this every day and now somehow i'm back in the same seat so that's the punishment i get that's fine um all right uh yeah people were saying i cheated the other day we released a video and i didn't have the suit and tie on on uh on one of our channels so yes i did cheat i apologize uh but um all right man listen thank you so much for uh

for joining us and we'll definitely do this again in the future you got it man thanks again always a pleasure. All right. Sounds good. Talk soon. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you're subscribed on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to pompscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to palmscryptocourse.com to learn more, and I'll meet you guys for the next episode.