The Pomp Podcast - #1337 Cathie Wood | Bitcoin Could Reach $1.5 Million

Episode Date: April 3, 2024

Cathie Wood is the Founder & CEO of Ark Invest. This conversation was recorded at Bitcoin Investor Day in New York. In this conversation, Cathie talks about why she is so bullish on bitcoin, ETFs, macro factors, price target of $1.5 million, areas in the industry she is excited about, and more. ======================= Introducing Espresso - the world’s most interactive portable display. They have a portable screen that is incredibly light, comes with a nice stand, and the user interface is very easy. Anyone who listens to this podcast can go to ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠us.espres.so/pomp⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. They have a brand new offer waiting for you.  ======================= BetOnline.ag is a proud sponsor of the the Pomp Podcast. Use crypto to bet on sports, play poker and enjoy casino games at BetOnline. Visit https://promotions.betonline.ag/pomp and use promo code POMP100 to receive a 100% matching bonus on any crypto deposit. BetOnline boasts no crypto transaction fees, and processing is anonymous, instantaneous and secure. ======================= Pomp writes a daily letter to over 265,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/ ======================= View 10k+ open startup jobs: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Today's conversation is with Kathy Wood. She is the founder and CEO at ARK Invest. In this conversation, Kathy lays out why she's so bullish on Bitcoin. She gives a price target

of $1.5 million. And on top of that, she also goes through areas in the industry that she's super excited about. L2s, lightning, side chains, and much, much more. I always enjoy talking to Kathy because her mind only thinks about innovation. She's constantly trying to understand what's around the corner or what is on the horizon. Bitcoin is something that she has been right about for a very long time, and her thoughts about where we are headed are quite exciting. Here is my conversation with Cathie Wood. 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. Today's episode is brought to you by Espresso, the maker of the world's thinnest portable display. Now, listen up. If you're like me, you feel like you are at a command center when you sit down at your desk. I got a gazillion tabs open and different windows for different activities. There's my web browser, my text messages, I've Slack open, and I got a notes app. I normally work on a desktop and it can be very, very productive, but everything falls apart the

second I leave my desk. If I'm traveling, if I go to a coffee shop to do some work or just want to work from the kitchen table, my laptop doesn't have enough screen space. I lose my command center and my productivity falls off a cliff. It's a major problem, but this is where Espresso comes in. They have a portable screen that is so beautiful that you think Steve Jobs came back from the dead to create it. The thing is incredibly light. It comes with a nice stand and the user interface is so easy that I figured it out how to do it in less than three minutes. If you listen to this podcast, you know, that's not an easy feat. So the espresso team and I, we became friends. I got to know them because I really liked the product and those screens. They now want to offer them to

any fan of the podcast. So we struck a little deal. Here's how it works. Anyone who listens to this podcast can go to us.espres.so or that's too confusing. Just go click the link in the description. If you go to Espresso's website, they've got a brand new offer there sitting for you. You get a little discount and you'll get a beautiful screen. Trust me, I use mine every day. You'll love the Espresso screen and I think it'll make you more productive. Go check them out today by clicking on the link in the description. This episode is brought to you by BetOnline. Do you like making a profit from sports betting? Well, set yourself up to take home the most profit possible using crypto to fund your sports betting casino and poker account at betonline.ag. You can

avoid costly transaction fees, get your payouts lightning fast, and do it all securely and anonymously with the highest deposit and withdrawal limits in the industry. If you want to get in on the action, do it the smart way with crypto at betonline.ag. Head to the website, sign up with promo code POMP100 to get 100% bonus on your crypto deposit today. If you go and you deposit, it. They'll give you 100% bonus if you use promo code POMP100. BetOnline. The game starts here. BetOnline.ag. Go check them out today. Our next guest today is Kathy Wood. Kathy, unfortunately, could not join us in person. So she's joining us remotely. Kathy is the founder and CEO of ARK Invest.

Kathy, can you hear and or see us? I can hear you. Can you hear me? Amazing. There we go. All right. Dramatic entrance. Let's start the conversation with your current assessment of the Bitcoin ETFs.

You guys were the first fund, I believe, on Wall Street to buy into the Grayscale GBTC fund. But now we have ETFs. And so how do you think it's going? Well, I think I think by all accounts is going very well in in the aggregate. We're thrilled with our our positioning and actually somewhat humbled, I must say. So I think we're number three if you take out Grayscale. So I'm very happy with that. Very happy with the reception. And, you know, I think the interesting thing that happened when you have 11 ETFs approved at the same time, that's never happened before, the amount of energy and research communication that has gone out around this spot Bitcoin ETF opportunity, you know, has been unmatched. And I think I think it's done a great service for for Bitcoin and digital assets generally, because this is just the beginning of a completely new asset class.

Now, one of the reasons that people are excited is because Bitcoin's price is going up. Some of that is because there's a lot of people going into the Bitcoin ETF since the demand is outstripping supply. But there's also a number of other macro factors. There's questions around interest rates, around inflation, about a potential recession incoming. How do you evaluate Bitcoin in light of these potential questions? And also, why are people buying the ETFs? Is it just the ETF alone or are there macro factors that are driving them to buy it?

Well, as I just mentioned, I think there's been a lot of communication about what Bitcoin actually is in this new asset class leading the charge. I know that our research team, I know Yasin is there with you, has done an amazing job, not only in the last six months or a year, but we've had research extending back to 2014. And so and our first white paper in 2015 when we took our first exposure. And so we've been singing the praises of Bitcoin for a long time as a new asset class. So that's a start. But I do think there are some macro factors. I know Mike mentioned this earlier. We're very focused on what's going on in the emerging markets right now. I think with time, many more people will understand that the Fed, with a 24-fold increase in interest rates over little more than a year's time, has absolutely shocked the financial system around the world.

Now, many people are looking at very short-term lagging economic indicators here in the United States, primarily because the Fed is doing that. But if you look at other signals out there, there are signals that not all is well in the world. I know Mike mentioned the NERA, the Nigerian NERA, which has devalued by two-thirds since last June. Now, Nigeria is one of the wealthiest countries, oil-rich in Africa. And with a new administration that's become very business friendly, I think they thought they could let the currency float. And they found out that it has been very painful from a purchasing power point of view and from a wealth point of view. We've seen the same in Egypt, that the Egyptian devaluation was 40 percent at the beginning of March. so i think i think that there's a bit of a risk off reason for owning bitcoin emanating from the

emerging markets we've seen in argentina with the new administration there i i think the the currency i mean they made official what the black market already knew that the currency was worth half of what it was reported at Lee Worth. So I think we're getting those warning signals. I also think, you know, yesterday we got the Swiss bank cutting rates, which was a big surprise. The UK turning a little more dovish, the Fed now a little more dovish. Why? What are they seeing out there. And so many people think of Bitcoin as a risk on asset. And it certainly has traded like that over time. But we have been looking at it as both risk on and risk off. And I can tell you when we first when we first learned that in 2015, when we took our first position in Bitcoin

via gbtc bitcoin was about 250 and many people were making fun of us at the time thinking oh they're they're new we had just started our funds in october of 14 oh they're new they're just trying to gain attention this is a marketing gimmick and so we were really on the spot first of all we had done a lot of research we didn't think uh we thought there was real investment merit but we're watching like a hawk its moves. And back then, Greece was threatening to leave the European Union. And every time there was a flare up, you know, and a fear of another European sovereign debt crisis, Bitcoin inched up. And so we've been looking at it as both a risk on and a risk off assets for quite some time. And the regional bank crisis last year kind of confirmed that

point of view that here Bitcoin more than doubled, I think more than doubled as regional banks were imploding. So I think many people are beginning to say as they learn what this is, wow, could it be both a risk on and a risk off asset? We think so. Now, one of the interesting things is individuals and maybe family offices have been really excited about Bitcoin being outside of the system, kind of this alarm system that you're talking about with issues within the traditional financial system or the banking system. But what happens if Wall Street becomes a bigger player within Bitcoin? It's kind of pulling Bitcoin into the system to some degree. And so does that change the evaluation you have of the asset or how you think the industry actually develops in the coming

years? Well, it's certainly going to be adding more liquidity. That's good for price discovery. I think it's legitimizing this new asset class. So that's a very good thing. I think bringing in a new class of investor is important. And, you know, one of the reasons that we wanted to do a Bitcoin ETF, or spot Bitcoin ETF, even after we decided that it would probably be very low fee given the way the competition was going to evolve, was we're looking at Bitcoin as the technology as well. It is a financial superhighway, a public good. And so we think educating and offering access to as many people as possible in a less friction filled way. I mean, many people just didn't want to deal with, you know, wallets and so forth is, is, is going to,

in hindsight, when history is written, I think is going to become a very important moment in time. Now, you mentioned that a lot more liquidity will lead to or help in price discovery. There's a school of thought that as these large pools of capital come in and the asset gets larger, volatility will dampen and returns will actually go down. How do you think about the asymmetric return profile of Bitcoin historically and will that continue in the future or does that change now that there's new players and larger pools of capital? well asymmetric i mean uh there aren't many assets out there that i think can claim that they're both risk on and risk off so uh for that reason um uh we think that uh that the the return profile is going to be uh certainly relative to anything else out there you know uh yassin and and team have done. The returns to Bitcoin, I think this, yes, is over the life of Bitcoin or

I forget exactly. He'll tell you the period of time that we did. We put in our big ideas, 2024. And if you look at Bitcoin's compound annual rate of return, it's 44% over that time versus I think it's 4.5% for all other assets combined. So we think the superior returns are going to be there. This is the beginning. This is just the beginning of this new asset class. Yes, and the volatility is coming down. As we look at, are we going to have the same returns from peak to trough going forward? Perhaps not. But we've come a long way and we still think we have miles to go. Are you all doing anything different since you first bought or has it pretty much been bitcoin is good arc is buying holding and that's

the strategy when it comes to bitcoin specifically um well since we first we were looking for exposure very early on and the first exposure we could find was gptc but then as time went on um of course uh public companies uh uh became available with some exposure to uh to bitcoin um coinbase uh actually we had done our first no our second white paper with coinbase when i think it was either doing it series a or doing it series b uh so you know we were casting far and wide uh for exposure to bitcoin and we didn't have a private fund at the time like we do now um so uh bitcoin coinbase is now uh obviously a big part of our portfolio square as well uh robin hood so um we're we're looking for the companies that could potentially have that uh

that digital wallet that is um probably going to become a winner take most opportunity and so you've got Coinbase coming at it from the crypto angle. You've got Robinhood coming at it from, well, starting with equities and options and Square with cash apps. So yes, we're doing that. We also have launched some futures funds. I think that's pretty well known, three of which are actively managed. So one is Bitcoin Cash, one is Bitcoin ETH, and these are all futures. And then one is Bitcoin and all of these digital wallet opportunities potentially. And then we also have private funds, a cryptocurrency fund, a crypto revolutions fund, which will you know, which will take us far and beyond Bitcoin. So we're doing a lot and getting more

and more excited about it. And we now have four people, including Yasin, focused on this space. And one of them, I might add, is David Puel. Many of you may know him if you are into on-chain analytics. Some of them are named after him because he created them. We hired him because we can tell a lot about the market. We do a Bitcoin monthly piece examining the health of the network and where we are in the bull or the bear market, what phase we're in. We believe we're kind of in mid-phase right now based on on-chain analytics. And on-chain analytics also help us with our trading strategies in active management. You mentioned Coinbase. What's the investment thesis for a company that obviously is the most kind of regulated, well-known brand

in the United States, but why buy the stock here? And what do you think the future holds for them? Well, we were buying it when regulators were torpedoing it or attempting to, at least. We post our trades every day, and I think many people were very surprised to see us buying when Coinbase got the Wells notice and the stock price went down 20 or 30 percent. And then again, when the FCC sued them. Coinbase is the most regulatory compliant exchange in the world. Some of its competitors have gone out of business, FTX, of course, being an important one. Binance has had its share of issues as well, CZ having to step aside and the fines and so forth.

And Coinbase is now going international, very importantly. And I think as the trusted company that it is here in the United States, I think it will catch hold in the rest of the world. We're seeing it with an offshore derivatives exchange, which has taken off and is doing, I think, a lot better than a lot of other people expected. And then we've got base. They've got an underlying protocol,

which is generating organic demand with millions and millions of people already on it compared to, and it doesn't have its own token like FTT or BNB. It's truly organic demand. So I think it's got a lot going for it. And again, it's a great way to capitalize on a new asset class that is going to create a new class of asset managers. We're all going to become power users as we participate in this ecosystem. We're not going to be as much the, I mean, we call ourselves an active manager, but as you say, we buy and hold a stock if we really like it. We'll get to do a lot more in this ecosystem as an asset manager.

So that's pretty exciting as well. And Yasin and his team are really gearing us up nicely for that. When you look at Coinbase, do you feel like it could compete with the banks in terms of taking 100% or a very large portion of wallet share? Or is it something that's more akin to competing with the PayPal's and kind of payments? Or maybe it's something that would be competing more with like a Charles Schwab and like an investment account? Like, where does it kind of slot in from a competitive standpoint with the legacy players? Well, I think all of the above, right? And we'll see over time where it has the most success and where it chooses to focus. But we think it's a very big idea. That's why we own it. It's the top stock in our flagship strategy, even bigger than Tesla now. And you know how positive we are on Tesla. Now, Tesla went up a lot. People were very excited. People are expecting Bitcoin to go up a lot. They're excited before it's even happened. But one of the big questions is, will the four-year cycle persist? We obviously broke a number of rules, including we went below

the previous all-time high. We're now at an all-time high before the halving. How are you thinking about four-year cycles and or big drawdowns now that these new players are in the market um so you're asking me are do we have a lot of weak holders and is this going to disturb the cycle after that that happening is is that the nature of the question we can call them weak holders i like that better um and and you know we're trying to educate the the new holders but by definition you know they they haven't been doing this as long as we have and so innately they they they are not going to have the confidence that we have that this is a new technology a new asset class a new monetary system three very big each a big idea uh unto itself um so um as far as

the having i think what we're trying to do in in terms of education uh as we have this new investor base is say, you know what? For the first time, the supply growth of Bitcoin, as it drops from 1.9% per year to roughly 0.9% per year come April, it's hitting an important milestone. um the the supply of uh gold has been growing very long term on average one percent so now i mean it's just marginally but it is below the supply growth uh of gold so um we're we're trying to use that um to uh help people understand a lot of the reason that gold became such a successful asset class is because the supplied growth was fairly controlled, especially relative to money growth out there in various regimes, including our own. And so I think I don't

see any reason why the halving won't cause the same dynamic that it has in the previous cycles, especially as we're going out there with that message um it doesn't happen right away april and boom uh and it usually doesn't happen that way so maybe they'll develop some impatience but um uh we think that it um it emphasizes one of the core features of bitcoin and the reason it is uh a risk off asset as well as a risk on asset how are you all thinking about the lightning network um some of the layer twos or some of the side chains things that are being built on top of bitcoin yeah um well it's interesting to watch some of the uh the layer twos optimism arbitrum uh maybe taking some share here um i think that the lightning uh network demands too much

collateral and so uh you know this is a very uh creative and uh a creative community and they try and find workarounds and and those seem to be finding some success uh so but you know one of the things that in terms of the lightning network that's been fascinating um actually this was on one of our bitcoin brainstorms we do a bitcoin brainstorm every month i think we've done it for seven months now, Yasin, and the team with Bitcoin Park. I don't know if you know Rod Ruby from Bitcoin Park, but we do this once a month. And the second one we did was just mind-blowing to me. I was wearing my economics hat, the emerging markets, I understand about those as well but there's a convergence between artificial intelligence and uh uh bitcoin and

the bitcoin network that's taking place now and it's taking place in the emerging markets we had for those of you who know the uh the the people involved in in the uh lightning network um his name is roast beef he's one of the developers and he was telling us uh in in africa what he was witnessing was you know a completely new division of labor um we've gotten used to gig economy that concept here and in the united states with uber and airbnb and uh and other things But you can turbocharge that into the micro gig economy and AI agents using the Bitcoin network through Lightning. So it's happening. But as as as so much is when it comes to Bitcoin, we're not seeing it as much here as in the emerging markets where, you know, there's more of a need.

What about the mining businesses? Obviously, you all really understand Bitcoin and are enthusiastic. Are the mining businesses more or less attractive? And how do you think about them in the portfolio? you well we don't own any mining stocks uh we have a very strong point of view on on what many people criticize as the environmental damage that uh bitcoin mining is doing you know it's interesting i remember the dawn of the internet um maybe not the john don that was darpa and i didn't have anything to do with it but as as it was beginning to commercialize and we were beginning to understand what it was um there was a big controversy back then as well do you know how much uh electricity the internet is taking uh or using this is this is terrible it's so

wasteful it's for criminals it's for uh pornography it's for all of this stuff so this this typically happens with innovation. Many people think it's for nefarious uses and they do not see the bigger picture. I think the same is true here. And we did a seminar, I think it was in 2020, was right after Tesla had put Bitcoin on its balance sheet and received a lot of criticism about the environmental damage uh that bitcoin was doing and so with jack dorsey and elon we pulled together it was a half-day seminar i think i i know it's still up somewhere um and at that time we had written we had done some research saying wait a minute you know whether you know utility ecosystems could use Bitcoin mining for a very important purpose.

That is all of the energy that's wasted when storage units are filled with power from the sun or the wind, use that excess and put it into Bitcoin mining and then overbuild solar and wind. And that's exactly what's happening. The other thing that's happening that is fascinating is Exxon, I don't know how much it's rolled out, but I know it had six, it put Bitcoin mining machines into six natural gas

fields around the world. And basically, instead of flaring or venting the gas, and venting is much more uh damaging environmentally um than flaring uh they put it to use in bitcoin mining and uh and now companies i know caruso is another company doing this so uh we actually i think if if if i'm not mistaken um uh i think already bitcoin mining is uh the the energy use is more than 50% renewable, and now is contributing to building out that ecosystem. How are you thinking about Block, formerly known as Square? They recently, or last couple years, made a big push into Bitcoin. A lot of their revenue numbers seem to be tied to Bitcoin purchases at certain times. And now they've also come out with a hardware wallet. And so I know

you guys have been excited about that business and maybe the investment thesis there. You mean block altogether or the Bitcoin or the wallet? Both work. Okay, sure. You know, it's been fascinating to watch this two-sided market system, platform. You know, in the beginning, we did our very early research on this

and we were tracking where Cash App was having success. relative to PayPal. That was its main competitor at the time. And we saw that if you mapped where it was having success, it was in lower income areas. And it was growing virally. and part of the reason was this merchant consumer two-sided marketplace so it was very early on in fact I remember back then in the same quarter Jack Dorsey and Mark Benioff talked about this concept that there would be no difference between consumers and businesses and I heard them say it the same quarterly call. And so it was like, wow, okay, what's going on here? And so as we traced this, we said, oh, okay, this is providing services to the unbanked in the case of Cash App

and peer-to-peer and enabling merchants to, because Block can see every second of the day how well a merchant is doing because most of the payments go through it, it was then able to help these merchants build their businesses, give them working capital loans, give them loans to make new capital investments. And then it got into payroll. And then, of course, now it's offering consumers who stay within its network, very low cost banking services. So this is an ecosystem that's evolving. And you can see that with Bitcoin, this is a little bit of a Trojan horse. I know Block or Square, as it was called at the time, was just running into one regulatory

obstacle after another as it tried to enter new markets. And it basically said, to heck with this. and is using Bitcoin now to get into other markets. In fact, it's shutting down or maybe selling off some of the properties it bought in Europe in order to do this. So I think this is the world of offering access to financial services broadly

and as broadly and as inexpensively as possible and going global doing it. And, you know, it's very interesting when we try and, again, this is all about education, explain to new investors what this movement is. In the words, I'll use Chris Berniski, who was our first analyst in 2014 on Bitcoin and went on to write a book,

I think he published it in 2017, called Crypto Assets, The Innovative Investor's Guide to Bitcoin and Beyond. He recently is helping to bring to life, I'd like to think his ARK roots helped him because he's bringing to life for the average investor what this really is. This is the internet financial system.

Really, that's all this is. The developers in the early days of the Internet did not expect any financial services or commerce. In fact, the Internet was illegal for consumers to use in the 80s. I remember that. And then email was connected to the Internet in 1993, and it took on a new life. But we still didn't expect. No one was going to put their credit card on, even when people were trying. In those early days, I remember saying, I wouldn't do it.

And of course, you see what's happened. Well, what really should have happened is developers should have added in a layer for financial services native to the internet. That's what blockchain technology is. That's what it is. It's as simple as that. And so it's a very big idea. It's a global idea.

And a company like Block and some of the other, of course, Coinbase, they understand this. It's a very big idea. Think about how big the Internet is now. And it has miles to go because we've just begun. I appreciate your time. We're sad that you couldn't be here. And we'll definitely do it again in the future. Next time.

Yes. thank you so much for for letting me do this online i'm i'm really really honored to have been a part of this all right we'll see you later okay bye