The Pomp Podcast - #1363 Quinn Thompson | Bitcoin's Future In America Is BRIGHT

Episode Date: May 22, 2024

Quinn Thompson is the Founder of Lekker Capital. I think he is one of the more interesting investors in crypto, he takes a macro overlay and puts in on this industry. In this conversation, we talk about the relationship between the macro environment and the crypto industry, where he is allocating capital, how he evaluates different assets, data points he looks at in the macro environment, global vs. United States, upcoming election, and meme coins.  ======================= 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.  ======================= Meanwhile is the world’s first licensed and regulated life insurance company built for the Bitcoin economy. Protect your loved ones with sound money built to manage life’s uncertainty and a broken financial system. Their BTC-denominated Whole Life Insurance policies allow HODLers to pass more BTC on to their loved ones and a tax-advantaged way to access BTC for liquidity during their lifetime. Visit their website at https://meanwhile.bm/ to join the waitlist for a policy and to learn more. ======================= 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. What's up, guys? Today's episode is with Quinn Thompson, the founder of Lekker Capital. I think he is one of the more interesting investors in crypto. He takes a macro overlay

and puts it on this industry. In this conversation, we talk about the relationship between the macro environment and the crypto industry, where he's actually allocating capital, how he evaluates different assets, what data points he looks at in the macro environment, how the global world is related to here at home in the United States, how fiscal and monetary policy both implement into the crypto investing. And then we get into some fun stuff like the politics of the incoming election and also meme coins. This conversation was a lot of fun. I learned a ton and I think that you guys will really enjoy it. Here is my conversation with Quinn Thompson. 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 have Slack open, and I got a notes app.

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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. Today's episode is brought to you by Supra. They just launched a brand new million-dollar Bitcoin DeFi accelerator dedicated to Bitcoin L2 ecosystem dApps. Bitcoin builders, you can integrate with Supra's price feeds into your dApps and apply for the accelerator at supra.com slash pomp dash btc. Again, that's supra.com slash pomp dash btc. It's open for a limited time, so get moving ASAP. By the way, the program includes free access to Super's price feeds with 600 to 900 millisecond data refreshness and next-gen accuracy, as well as low-latency verifiable randomness,

both serving over 55 blockchains, including Bitcoin L2s. With these powerful services and the million-dollar Bitcoin DeFi Accelerator, Super is going all-in on the Bitcoin ecosystem. Here's something extra if you're not a builder. You can earn $1,500 by referring Bitcoin L2 projects to apply to the million dollar Bitcoin DeFi accelerator. Their projects can get financial support and you bag $1,500 for every referral. Join Supra affiliates and spread the word. You can go to supra.com slash pomp dash BTC to learn more. That's S-U-P-R-A dot com slash P-O-M-P hyphen BTC. Go check them out today. All right, guys. Bang, bang. I've got Quinn here with me. I thought a great place to start this conversation is understanding how does the macro environment

influence crypto, and then maybe also how crypto is starting to influence some of the macro environment. Yeah, absolutely. Thanks for having me. So Bitcoin is interesting, and I kind of think everything stems from Bitcoin. And how I view it is sort of like 50% gold and 50% NASDAQ, where it has these attributes that at different times, it's more correlated to different parts of the market. And kind of breaking down that further, if you look at gold, the traditional correlation between gold is an inverse real rate hedge, basically.

And so when real interest rates are rising, which is nominal interest rates minus expected inflation, those are rising. Gold suffers because the cost of capital is rising. and it makes this asset that produces no cash flow uh doesn't really have a ton of utility or earnings power uh less valuable in those cases uh nasdaq you know when interest rates are rising because of a strong economy earnings are growing stocks are performing well the economy's strong and uh you see you know it's almost balanced out um so i kind of think of it that way where you you have it's like a more levered gold it's there's a lot more upside with with the technology component but there's also this risk on you know tech stock element that that you definitely need

some animal spirits for for the asset class to do well i think how you know how it impacts macro is it's too small at this stage to really to really have knock-on effects in other places of the market but one thing that that whether crypto natives like to admit it or not is it really is a byproduct of the easy monetary policy for the last couple decades and that's not to say it's doesn't have the use case the technology isn't good or uh you know it's not going to be a pivotal thing in the future but if you would have had sound monetary policy for example uh and and you know uh not this excessive spending and and really this global issue you probably wouldn't have had the same level of innovation and and technology you know advancements with bitcoin

of crypto so if you wouldn't have as much innovation as much kind of technological progress without the easy money is that an argument as to like maybe why easy money has been a positive thing versus a negative thing like most people focus on the negative and they say hey you're debasing the currency you're hurting you know 50 plus percent of americans things aren't always black and white and so is that the positive like impact of the easy money yeah definitely uh people are looking for this life raft away from the traditional system where uh if you even look in the last two years again the the trend is the top one percent wages the highest earners in the country are growing at a much faster clip and the the bottom 50

incomes haven't grown so you know obviously the headline inflation numbers have come down and that's a function of of you know some of the supply chain issues being worked out and and the fed you know tightening policy but we're actually seeing a relaxing of of that tight monetary stance not just in the us but globally it's it's an important factor as well and uh it bodes really well for for crypto and really anything houses uh real estate and uh we're seeing in commodities that you that you can't print uh things that are nominal uh nominal hedges when you say that this stuff is good for houses um bitcoin etc anything priced in dollars seems to just go up over time. And I think historically people thought if inflation

was high, you would buy kind of true inflation hedge assets, things like gold or real estate. I think Bitcoin is trying to enter that conversation or maybe has entered that conversation. But also stocks seem to now be somewhat of an inflation hedge. And what's interesting to me maybe is like the historical stock valuations seem to be less valuable because there's almost like a monetary premium being put on stocks as well, where people may not just be buying it purely for the valuation of the individual company. They actually may be trying to hide from some of this inflation or debasement as well. Yeah. The other thing to look at is equity and stock performance in real terms. So we're back at right around all-time highs that

we reached in 2021 in the S&P and a little higher for the NASDAQ. But if you look at those levels in real terms adjusted for the you know four percent inflation last year and it's eight percent in 2022 uh we're actually not yet at all-time highs so what tends to happen in these inflationary regimes is nominal as you said stocks you know their their earnings are nominal so when there's inflation their their earnings rise in in us dollar terms uh those all go up but they don't have as much of liftoff when when inflation's high and actually one of the interesting things and and kind of feeds into i think what we're going to see over the next you know number of months and year is we had this huge inflation surprise and you know the fed called it transitory for

the better part of until 2022 when it was way way above target um and and inflation volatility so the the standard deviation of inflation you know we went from like zero to eight and then we've come down to three and this market's in a transition where okay everyone's kind of coming to the conclusion that we're not going back to two like like monetary policy authorities are targeting but we're also not skyrocketing back to six and you can have healthy equity and risk asset markets when that standard deviation the volatility of the inflation isn't six four eight too. If it's just steady at three, the Fed talks about price stability. Price stability doesn't imply something about the growth rate. It implies a steady growth rate. And so one of my arguments

is that they're actually okay with inflation in the three to 4% range. And volatility is back down to like 2020 levels, which is actually all right for companies who can pass along those price increase and they have earnings power and operationally they're levered. Yeah. When you think of Bitcoin, maybe versus some of these other assets, it feels like S&P and traditional stocks, NASDAQ, gold, and Bitcoin all are benefiting from this currency debasement. Bitcoin is just the most asymmetric of them? Or why are people allocating to Bitcoin maybe than some of these other assets, which people would either say have been around longer, maybe lower risk, or potentially have different ways to value them? Yeah, to me, there's a couple of characteristics that make it really unique. One is the global accessibility. When you think about how traditional financial systems are controlled, it's really top down. And that's one of the biggest beefs, right? With how the rich have gotten richer and the wealth inequalities. And crypto, Bitcoin inherently is a grassroots movement. And it started with the $100 investors and traders and builders that brought it from the ground up. And that's where you've seen this just virality of it and why it's grown like wildfire is

because it's just much more support conducive to mass adoption in that sense. And it's just a fraction of the size. And I think there are these technological tailwinds behind the industry, the AI, the tech movement. The one thing that the positive of suppressed interest rates for a long time is it's lowered the cost of capital, allowed tons and tons of investment to flow into technology and more speculative ventures, which has very significantly progressed the advancements we've been able to make on that front. and and there's meaningful tailwinds behind you know that usdc campaign is an example from circle you know pushing this new money and uh you know it's natively global whereas stocks trade for six hours a day five days a week in one country and it's difficult to access so i think there's

all these innate characteristics of the asset class that make it much more accessible uh it's much much less controlled by you know centralized authorities and so it has some semblances above like the last free market that that kind of exists so there's a lot of different ways to invest in kind of bitcoin and crypto in general right um there's people who just frankly they're not doing any work they're just buying something somebody told them to do and maybe it works maybe it doesn't uh there's people who may be a little bit more sophisticated and they've you know gone they've read white papers or try to understand the technology and so they're buying uh technology but not necessarily markets or kind of financial price movements um there are some people who are

doing actual valuation methodology or you know technical analysis etc um and maybe even there's some like quant folks that are you know kind of trying to ingest data and figure out what to buy sell hold etc um you all at lecker capital have somewhat of a nuanced kind of view as to how to trade or invest in these assets um my understanding is that you're basically taking this like macro overlay but still allocating to the crypto industry so describe a little bit as to like why is nobody else really doing this and then why do you think it's so so advantageous to take this approach yeah good question it is a unique strategy and there's not many people really looking at it this way i would say so my background is is traditional you know wall

street fixed income and credit uh where i spent the first seven years of my career uh you know underwriting and in the capital markets um i've been in crypto for the last five years and you know obviously always kept that traditional approach with me and how i evaluate you know value and and fundamentals crypto is such a high growth industry that you know there's a lot of speculative uh component as well but basically my view is that uh there's some very very strong correlations between the asset class and traditional macro variables interest rates and the cost of capital what inflation is doing what overall risk sentiment is and that that produces some very uh supportive environments to to be long crypto assets and also some very

non-supportive as we've seen in you know what some would call these four-year cycles uh within that i think that um from from some of the work and research and in years of kind of refining my process in this s class i found that those variables what what makes it confusing is they change from time to time you know sometimes interest rates spike and it's bad for all risk assets uh other times it's a low growth environment which like 2019 can be bad for crypto because liquidity is falling out of the system and and uh you know crypto is kind of the tip of the spear for liquidity so what we found is that um overall you know we kind of take this macro approach that tells us risk on risk off signals uh that informs you know do we want to be positioned in bitcoin do

we want to be positioned in cash you know broadly and then based on you know the intensity or lack of risk on signals you know that tells us to go further out the risk curve than bitcoin or you know kind of you know play defensive and really i think the the core tenet of my thesis and the understanding is bitcoin is is we think of it like gold uh we think of everything else is is tech and you know from the outside looking in to the crypto industry everything looks like a coin and a token and that's just it'd be like if you said because the gold etf and nvidia trade on the same exchange that oh those are both public securities and it just there's so much nuance and so i think um that's confusing people where we've had this environment that's been really strong for bitcoin

and actually not that strong for the other crypto assets and there's there's underlying fundamental reasons for that uh and and so we're looking at these things and making decisions on allocation and position sizing based on this macro-informed view. Walk me through your process. What are the indicators or data points you're looking at on the macro side that are really informing to be risk on or risk off? Yeah, it starts,

so you hear a lot about liquidity in the system and crypto really is this tip of the spear liquidity. You need way more liquidity in the system for crypto to perform well than you do for stocks, for example. There's much more earnings, power and cashflow associated with publicly traded equities than there is crypto.

But ultimately, they're both expressions of a risk on trade. Some of the things that we look at are real interest rates and the cost of capital. So an example here is in 2021, what produced such a positive environment was we had inflation rising. So companies are being able to raise their prices, their revenues increasing on a nominal U.S. dollar price basis. and normally associated with rising inflation is a monetary monetary policy that's restrictive 2021 uh they called inflation transitory for the whole year and it was just until december when they started uh even stopping their asset purchases on the fed balance sheet and that was really the slow-moving ship that if you took a 30 000 foot view there was no surprises as to why tech and

crypto had a 2022 like they did you know idiosyncratically there were some credit events i call it the the great financial crisis moment for for crypto when we had all these um kind of banking blow-ups and and those were um byproducts of of some of the over leverage and problems in the space but but at a broad level they they started because of of the uh shifting macro environment and um you know the fed went on this this war path to correct the inflation problem raising interest 500 500 basement points and you know and then we saw kind of a relaxing of that in october 2022 uh as yields spiked and we had a crisis in the uk gilt market fast forward through the u.s banking crisis inflation came down and here we are uh today where inflation hasn't gone

into it's not going to do and the fed is actually relaxing and so this is an environment similar to 2021 where you have inflation steady to maybe increasing and the fed not doing anything about it again this is environment strong for anomaly price assets stocks uh crypto and so that's one of the examples uh you you do look at broader you know economic strength um why you know so i just explained why this isn't a 2022 because the fed isn't correcting this inflation problem more it's more akin to 21 why this environment is not a 2019 uh you know echo bubble is is because uh the u.s economy is actually still strong and in 2019 you had fading liquidity uh an actual quite significantly slowing recession even before covid uh leading into the september 2019 uh repo market

liquidity crisis uh that the fed ultimately resolved so there's all these different factors and it's kind of bundled together as just liquidity. But when you look at the measures of liquidity, they're coincident. They're not forward-looking indicators. And so you have to kind of project out some of these variables like inflation, interest rate, earnings growth, economic strength

to kind of come up with a view on what is going to happen six to 12 months out. You've talked a lot about the US economy and kind of what the Fed's doing, interest rates, inflation here. One of the things that you also mentioned is just how globally accessible an asset like Bitcoin is. And so in a time where the U.S. Fed was trying to drain liquidity, increase interest rates, sell assets, it seemed like maybe some central banks globally didn't get that message.

And China, for example, is pumping less liquidity in. So how much importance do you put on what the U.S. is doing versus maybe like the global liquidity situation or specific other markets? The U.S. is the leader because most currencies and central banks are followers in the sense that when Fed policy is tight, for example, the U.K. and the EU and the Bank of Japan are unable to significantly ease policy because it would sacrifice their currency. And so it is very important to kind of see the U.S. as the bellwether. And it's a little bit like the cleanest dirty shirt in the laundry uh there's some you know the dollar milkshake some of these theories out there about what what you know implications for a strong dollar um and that's

something that's probably thrown traditional macro investors off a little bit who haven't been as attuned to the debasement theory which is when every global central bank in unison is expanding their currency base uh you know the the the relative you know dollar yen dollar euro dollar uh you know in intra currency relations matter a little less because uh they're all kind of deflate you know inflating at this same rate so it is very much important to look globally i think that's one of the catalysts coming up where uh we've seen both in october 22 and we've kind of seen it recently where uh japan who's one of our largest allies one of the largest the largest holder of u.s government debt is facing a currency problem and right now their their interest cost annually

is 25 of their their annual budget and they're basically at like between zero and two percent rates uh so they can't really meaningfully increase their interest rates and they have to do something to stop their currency and one of those things would be uh weakening the dollar and then so we've seen some coordination between japan monetary officials and and the treasury and fed here uh to take steps to do that and you know in some ways if if the dollar kind of relaxes monetary policy of the U S it gives a green light for China, Europe, UK, Japan to stimulate a little more. And that's overall, you know, very positive for, for risk assets. Now, when you see the United States spending as much as we are in terms of the fiscal policy, it feels like the fed was

tightening. Politicians didn't get that memo either. Um, there's proxy wars going on Southern border, obviously, uh, entitlement programs. Like there's a bunch of reasons why we continue to spend. And sometimes it feels like maybe we're spending to try to drive GDP growth. Other times we're spending because people are trying to buy votes. Other times it feels like people are spending because they don't know why they're spending, right? But it's just like, this is what we do. If you give me a hammer, I'm looking for the nail. And so is that keeping us out of a recession? Is it actually the government is hiring people, the government is spending money, and that's why you mentioned that the economy is so strong? Yeah, pretty much. And it's not just the

government spending, but it's also the knock-on effects from that. You know, when the government is spending, they're building bridges, they're building roads, they're investing in AI and new infrastructure plants. And a lot of that gets funneled to the private sector, who then pay salaries. Those salaries go to stimulate the local, you know, grocery stores and taverns. And so it's this very, not just first-order stimulation, but second and third-order as well. And that is really, in my view, what has kept the U.S. economy so much stronger. You know, undeniably, the question for the last year plus has been, how has the U.S. decoupled so significantly from the rest of the world? Europe, U.K., Japan, China, all the big developed nations are facing much slower economic growth.

And the answer to me, and I think most people agree, is on the fiscal spending. We're spending on an annual basis as much as we do in wars or deep recessions, which is very unheard of and atypical. What I would say is the actual question that's more hotly debated is why is this been able to sustain itself in emerging markets and other places where they spend hand over fist and therefore have to finance these large deficits? it usually creates problems for the currency because you're printing uh you're issuing so many so many sovereign uh debt issuances that that it puts a lot of pressure you need extra buyers to come out of the woodwork the price of those instruments has to fall to to find the marginal buyer um and in the u.s we haven't had that problem the dollars you know as strong as it's been in a long time and our interest rates you know they're they're higher but they're not

you know blowing out and to me the answer to that is is in the piping of the federal reserve The reverse repo facility is something that gets a decent amount of attention. But if you look at the trend between in COVID, they actually stimulated so much that they stockpiled 2.4 trillion of excess reserves in 2021. And they started draining these in late 2022 through 23 and into this year. And that's, to me, what's what's supporting things from a liquidity perspective. when the treasury goes to issue all this excess debt to finance these deficits, they actually don't have to take all that money

from the private markets. They're getting some of that from these excess reserves at the Fed. But that runs out at the end of this year, probably, or sometime between now and the next nine months. And so that's kind of where the fork in the road, I think, is for policymakers. Now, as the macro environment is kind of playing out

in this way, people obviously are buying a lot of crypto. We're at $2.6, $2.7 trillion kind of liquid market cap now. When you all say, hey, it's a risk-on environment, we want to allocate and get out of cash, buy Bitcoin, buy Ether, buy Solana, buy a meme coin. How do you think through kind of your addressable market and then risk-reward of each one of these types of assets? Yeah, so we're all liquid investors, so we don't do any private deals. we have a bias towards liquidity and you know investments can rotate and you know we kind of take you know one to three month views typically and think think of the world in that sense so definitely have a bias towards quality where you know we're not day trading we're not you know

just playing pure momentum and narratives we you want to be able to sleep at night and long things that you know will be there in 12 months but with this dispersion we've seen in the digital asset space, there is a lot of alpha to be had in asset selection, which is, I think, also a more unique and really how most markets trade. But it's different than, say, 2021, where everything just went straight up. So we view the world in both tokens and also traditional crypto related securities like Coinbase stock or Robinhood or micro strategies. And there's huge discrepancies and the reward potential of all these you know what's the adoption and usage uh what's positioning and ownership like uh and where the momentum and thematic growth growth names are um but but we

take a very kind of acute approach to downside protection as well and i think in the in the in the space if you survive and make it cycle over cycle and you're structurally long you're you're going to do well, where we see, you know, time and again, people not doing so well as is giving back those gains. And so big focus for us on capital preservation, and, you know, making sure we're in the names that we think will be there in 12 months. And, you know, basing our analysis around that. So when you start to look at let's just take tokens first, Bitcoin, Ether, Solana, maybe like the big three that people have been allocating to Ether sentiment was horrible. Um, people, I think we're very excited about Bitcoin because of the ETF approvals, Solana

up a lot seems to, you know, people believe that it could be the next ether, um, or, or at least from a price action standpoint in this cycle, how do you think through those three things and maybe like the pros and cons of allocating to each one, you know, maybe through the end of, uh, this bull market? Yeah, I view, uh, I really view Bitcoin as the digital gold. I view that as, uh, you're almost risk off way to play the industry. um and you know i'm still very risk on if you're long bitcoin but but you get what i mean and um ethereum and solana is you go further out the risk curve but uh those are more you know you know mag

seven type of type of names uh they're more app store internet of things type of internet computer you know you hear all these different nomenclature uh solana to me has implant implanted itself as one of the big three with bitcoin and ethereum that's an asset i think is is here to stay uh The longer it shows its prominence and its activity, you know, it's a core part of the ecosystem. I think what is an interesting question to ask right now is what the total addressable market is of a Bitcoin versus an Ethereum, or, you know, you can talk about Solana, but those are really just the two largest.

And to me, I really do think over the long haul that the leading smart contract platform surpasses, well surpasses the market capitalization of Bitcoin. because if i'm if my view that bitcoin is digital gold and gold is a 15 trillion dollar market cap asset um you know you combine the the meg sevens and and you know what's built on the value of the internet and i mean it's just a significantly way higher uh way larger there's just such a such more to do you have banking and money and financial services and social media and everything built on top of this and value accrues to that base layer so um i think that question's been plaguing lot of people though with the dominance of bitcoin so we've obviously had the bitcoin etf which has

led the way this cycle and and um typically when crypto is expanding uh other things besides bitcoin outperform um but my argument would be that we're actually you know always up until we get to all-time highs in bitcoin is is kind of like more of a recovery than it is you know breaking out to new highs and uh people betting on this new technological innovation and promise of the industry and so we're kind of in this recovery mode up until most most recently um sentiment has been very bitcoin driven and then you add on top of that the etf you know that's funneled flows into bitcoin and those flows are going into an etf passive vehicle those flows aren't going to on a crypto exchange uh that can then get rotated into other risk assets so to me

this is a turning point i i've been known to say last about the last week it's it's probably the turning point where uh momentum for bitcoin specifically is peaked in the cycle relative to everything else uh and i think i think as politically the situation is is changing very significantly and rapidly um you want to be looking out to these things that were most you know most harmed and disadvantaged with a more strict political regime regulation uh and those we know bitcoin's the most sturdy and and you look at the smart contracts the d5 the things like that uh that stand to benefit the most and so i think you know it's it's the time to go a little bit more out the risk curve and into these other you know technology avenues and then stable coins

obviously have become incredibly important in crypto um but now we saw the former house speaker paul ryan say hey wait maybe the stable coins could like save the treasury market um i've previously written a number of times about the fact that china and japan used to be 22 of all treasury purchases now they're down to about seven percent stablecoin uh collectively i think are like the 16th largest holder of treasuries um it feels like maybe stablecoins are just important to crypto like they're becoming important to the global financial system it's it's pretty remarkable this whole topic because we're we're living in a day-to-day you know we send stablecoin transactions we've done it for years and we're in this echo chamber

of crypto enthusiasts but when you zoom out and you say there's this new technology that was created really became large over the last four years basically one presidential cycle amount of time essentially you know 2020 was when stable coins kind of really took off with usdc particularly in the us and you think of it like a sovereign think if think of a country started five years ago and grew so quickly they were the 16 17 largest holder of the us's debt us would be all over them they would that guy would have a permanent room at the white house if he was gobbling up your debt like that and then here the politicians are they're they're like we hate this industry it's so bad and fraudulent and you're sitting there you're like all right we have all

our policy makers sitting on record saying we have a debt problem uh yellen's making trips to china and japan begging everybody to buy our bonds and here's stable coins jeremy allaire and and uh the tether guys like hey guys just just give us an avenue to to operate legally under a regulatory framework you know we'll give you all the bad actors addresses we'll stop every criminal's uh transactions we'll report all the tax stuff we need to just just let us operate and let us uh have an on-ramp and off-ramp to the banking system that'll be much safer you know less you know behind the the you know doors and um you know illicit activity type of stuff and we'll be here and we'll be you know in instead of 16 we'll be your fifth largest buyer buyer of debt and so

people are picking up on it you know it it's taken many different forms the arguments shifted people the industry's figured out now in a much better way how to collaborate with regulators we saw the circle campaign and and you know the big regulatory push on that front and and getting people involved and when they that green light comes that's like the the iphone moment for crypto because um the regulators are going to love it the politicians are going to love it users are going to love it because they're not scared of you know losing all their life savings in svb um and and it's a win-win-win so i think that's that that's the big theme of the day and the last week is is how quickly that shifted and stands to benefit the system i always think back to 2020 in one of

the original bills uh around covid um they mentioned digital dollar payments like instantaneous digital dollar payments and then it got taken out in like a second draft and everyone's like well we don't have that right type thing um but you could see politicians be like wait a second we're like physically mail checks to you know 100 200 million americans like are they gonna get them right you know what's going on like it just became very clear that if you want to do something like this you're gonna have to move to the digital dollars and it just feels like since then more and more use cases it's just like the technology solves problems and for an industry where people will constantly critique it and say like oh everyone's just launching coins they don't

really solve problems it does feel like stable coins have this great product market fit you see in the usage data right you know i think um usdc usdt combined do as much transaction volume as visa on an annual basis and again like you know visa is a different system what are people doing with the stable coins there's a bunch of questions that folks have but just the fact that you can get you know 10 12 13 trillion dollars of annual transaction volume seems like a pretty big number yeah and visa's been around for for how many decades right and then stable coins have been around for you know less than 10 years and that that growth is just astronomical and it's difficult to not to deny and that's why we're seeing it become such a political hot button yeah what

about the public equities um obviously there's you know very large companies like coinbase based here in the united states um historically there's been a number of opportunities in public markets outside of the united states as well like how do you all look at maybe what the investable universe is and then you know sifting through where to invest and where not to yeah it's it's been a uh not a huge asset-rich market in in terms of the publicly traded crypto activities we saw a big big boom in 2021 with spacs and just broader ipos a lot of those were bitcoin mining companies um they were kind of the most prominent uh largest organizations in the space at the time with you know you know corporate finance functions that were ready to go also the big users of capital

that you know it's a cap capital expenditure intensive business line they needed to tap into those public markets to to be able to grow and expand uh we've seen obviously a huge not just in crypto but there hasn't really been any tech ipo since since 2021 the window really closed and um you know it's it's something that that the the broader macro environment you know started but then the regulatory environment um you know galaxy digital's you know one based here in new york that you know very very reputable business but they're listed in canada that's so that's been an avenue a lot of people have listed on the toronto stock exchange but but it doesn't come with the same liquidity and credibility benefits as if you're listed on the nasdaq or new york stock exchange

so i think that could be a big driver of momentum and growth for the industry because what makes the us economy so strong is the efficiency and depth of our capital markets the ability for entrepreneurs to say i have a really good idea check it out i'm going to sell you on my idea and go get funding and build that and in crypto there's been a ton of venture capital investment into the space but there hasn't been a liquidity avenue to rotate and reinvest that capital like you see in other industries and m a and ipos are are so ipo going public or m a and oftentimes mna is facilitated by being a public company and accessing the capital markets um is a big facilitator of that provides liquidity provides

investors returns uh reinvests you know all those strong things you need for a healthy functioning economy so uh the the public crypto market's been starved uh hopefully circle can can get it done this year you know it's really the regulatory environment that that needs to be changed because they tried circle for example tried going public with the spac and um i think it was just a little too complex for the sec to approve so i could see that as being quite a big driver you have businesses like kraken and gemini and and chain analysis and some of these larger uh businesses that that definitely are big enough to go public uh there just needs to be more investor awareness more acceptance in the space and and slowly but surely we'll get there so it's not a huge

environment today like coinbase is obviously the leader of micro strategies is is it's not an operating company per se um but but there's some interesting things there robin hood's getting into crypto and starting to look more at like the the paypals or the the adjacent crypto businesses um but it's still such a small percentage of their overall operation that it doesn't they don't really move with with crypto so we tend to focus more on the crypto natives that that overlap um politics seems to be playing in um there's been regulation that people have been really worried about and wanted clarity uh i always remind people that you know the clarity you get man it'd be the clarity you want but but clarity's coming um but now politicians seem to be doing

a 180 and you know my recollection of events when i explained to people is uh pretty much both political parties were uh absent a couple of individuals on each side pretty much like these people are full of i don't want anything to do with this i don't think it's good for americans i don't care how many of them are using it like we're just not going to play this game um trump at an event in mar-a-lago uh with a bunch of crypto people present all of a sudden i mean mean kind of out of nowhere was just like i'm going to be the crypto candidate the biden administration they don't like this stuff i like it send me your crypto right like you know i think that you guys should be able to do this and obviously you know somewhat pandering or playing

to the crowd but it seems like that is like kind of the shot heard around the world because when he did that now he is accepting crypto donations um you know kind of two weeks after he said he would do it uh it seems like a lot of the democratic party now it's like oh wait a second here we can't like give this guy a gift and let him be the pro crypto candidate and then biden run as the anti-crypto candidate because this group on the internet obviously has influence they're very loud um they're very good at memetic creation amplification you know all these things and they have money right because of the value created there and so the democratic party seems to have kind of 180 and now you're seeing this flurry of like bipartisan support for crypto which kind of

feels weird to be honest right like how do you read what's happening it is a whirlwind uh and we could sit here and argue all day long about who actually believes in the tech and who actually doing it for votes and we all know kind of where that answer sits uh but the the reality is is what's going on. And the ETH ETF is kind of the tip of the iceberg where it's the shot heard around the world and the loudest that made headlines on the Bloomberg terminals and in bank research reports. But it's really what's going on underneath the shifting. And Democrats really aligned hard and heavily with the Warren-Gensler camp. As recent as two or three months ago warren's big campaign for re-election was was her anti-crypto army and there was ads

literally ads on building an anti-crypto army i mean and then then we had john deaton running against her and her in her own district um supposedly you know that kind of stirred some things and and uh you've just had this big shift with with trump kind of putting his foot down probably huge props to vivic for for um you know making that a core policy but um it's really turned into this what i call a lose losing situation where it was a political uh issue very very uh you know one side republicans kind of latched on and you know we're pro crypto and innovation and less regulatory red tape and the democrats were digging in and you know maybe it had to do with the relationships with with sbf um so that that's a very ugly environment because

it's just it's no one gets anything done there's really no merit involved it's just ideological and pandering there, but it's now a win-win. And to me, this is, put the macro aside from the bull case here and for risk assets broadly, this is paramount to the longevity of the industry, bringing entrepreneurs back on shore to the US and stablecoin adoption. uh banks you know the fdic uh chairman resigned who was day one he came in and made the the organization anti-crypto um so now banks will be able to custody the asset class and and trust me when when banks uh start making money off this you know jamie diamond and these guys are going

to change tune real quick so but they kind of already are like this is this is one of the other things that forget any one bank but a lot of them are saying negative things in you know congressional hearings or in interviews, but they have teams working on this stuff. Yeah, it's great. And so it's kind of like, you know, don't listen to what they say, watch what they're doing a little bit. And then obviously, if all of a sudden you can drive earnings for your next earnings report, you're probably going to be pretty interested in what you could do in this space. You bet that everybody at these large Wall Street institutions are seeing Coinbase's earnings and

Coinbase's EBITDA 5X-ing in a year type of thing and saying, these guys from California came out nowhere and are uh kind of stealing our lunch so it just opens up so many more avenues i mean i i was saying this the other day where if you gave me a white sheet of paper and said write all the really constructive things you possibly could think of you know line of sight to a stablecoin bill that allows circle and these stablecoin issuers and banks to uh tap into the federal reserve directly uh the the sab121 that allows banks to custody crypto those two alone are just monumental uh mix in you know the eth etf which personally thought it was probably a 2025 event and and then you put those together and the implications i mean let's not forget the sec

has active litigation against basically all our industry leaders coinbase robin hood consensus uniswap these are some of the if you talk to anybody in the space you're like wow those are the stand-up citizens of our industry and and they're being made look made out to be criminals in washington and and so people have recognized that and and it's becoming a you know incentive how do we get more votes and and this win-win now you're seeing democrats republicans compete to be more uh supportive and and that's just a different operating environment for everybody and i think it uh is is one to keep paying attention to we saw this at the state level and the city level um you know i wrote recently that uh i think it was in 2021

texas uh governor miami mayor and new york city mayor at one point they were all like chirping at each other on twitter talking about who like was gonna take more of their salary in bitcoin who was the bigger like bitcoin city capital you know all this stuff and so we've seen it kind of at the city and state level now it feels like at the national level the the two parties are really going at it and and also you know the independents like rfk etc like they've pretty much been in on this so this is really the the two major political party candidates now we're kind of joining that um but now i start to think like is there a global domino effect where if the united states goes on this i looked it up earlier today there's 17 countries that currently are banning bitcoin

cryptocurrencies in some form or fashion does that number go to one you know zero two right with the united states all of a sudden starts to embrace it like does everyone kind of fast follow um and then also the countries who were you know kind of one foot in one foot out hey we're not gonna ban it but we're not really gonna embrace it either kind of what the united states was doing um do they now swiftly become embracing as well and actually in a weird way trump's speech at mar-a-lago not only forced the hand of the democrats but the chain of reaction uh of events is actually going to force all of these countries to become more kind of sympathetic that's a really good point and it has to carry some weight right i mean it's a very very globalized world we live in

and social media and the internet uh creates you know the virality of everything so you you gotta imagine you know populism is is kind of the the you know regime we're in in u.s politics i actually don't think biden and trump are all that different candidates they're they have more similarities probably than differences um and and that's a theme globally that's the theme in europe in the uk and and um you know you have to imagine people are like oh wow you know they trump just like on a dime turned millions of voters into republicans for this election and interesting stat it's the uh 2024 is the most the largest uh number of people in the world ever in one year are voting for their for their national leader so it's the biggest global election year ever in the

history of um you know advanced society uh whatever that means but that that it's gonna become an issue everywhere and i think you know crypto isn't isn't a us thing it's it's global there's times where the us leads the market and when we have the etf and there's times where you know asia europe leads it and um i would imagine uh you you'd see more of this and yeah another tailwind to add to the list it's also interesting to me that people are like oh this is new like um you know there was a opinion piece that was written everyone freaked out over about you know basically if you are a one issue voter you're an idiot yeah i think it was almost like the title right and um i kind of laughed to myself because i'm like wait a second people have been one issue voters

for a long time around their wallet yeah sure there's like you know wackos who will pick some esoteric you know topic they really care about and they'll you know go to the mat and argue over but your wallet seems like a pretty universal thing that people really care about and so um is the economy better off with one president over another is am i personally in a better financial position right like do i pay more taxes or less taxes like these things that again maybe they're nuanced in terms of the topics but they all revolve around like who is best for my wallet almost feels like if you had to pick one thing that people have been voting along forever it's that right more so than any other topic or anything and so crypto is just like

maybe like the digital manifestation or like the newest you know version of this but really that's what people are doing if they're a single issue voter on crypto they're just a single issue voter around like who's best for my wallet or who's best for my portfolio yeah i think that's right and and it's also just there's broader i think depth to the topic of of you know more libertarian views versus versus last and um you know i think what crypto voters aside from just like i think everyone agrees that you know no matter how important crypto is to their life maybe they work in the industry maybe it's their livelihood maybe their family's involved like uh maybe they need to send payments to you know their mexican immigrant or filipino immigrant they have to send

payments back back home and they don't want to pay 10 of that that lump sum every time so there's a lot of different i think angles that people come to the industry from but to me it's it's it's more the bigger picture in the sense like you know i want the choice of how i invest of how i uh custody my my uh you know wealth and and money and how i how i use financial products and i want the best availability i don't never going to use every financial services offering available but to limit what people can and can't do based on um sort of an ideological belief uh i think is is what really people are pushing back against and then what that means for the rest of their decisions they might make in their day-to-day life of around a free choice and and so it's really should not be a

bipartisan topic at all i mean it's uh there's something for everybody in it there's there's the freedom of financial services uh that and accessibility when we're seeing banks less and less banks in the us you know these local and small towns have uh you know small they used to have a small branch now it's obsolete it's in the big city they don't have access to the same lines of credit um it's tougher environment for small businesses and crypto and decentralizing the financial services industry improves accessibility tremendously and lowers the cost so it's good for you know what democrats would believe in and on the on the you know traditional conservative side uh it's freedom of money freedom to choose what what how you kind of use your your resources and

And so it's nice to see some of that, you know, rivalry kind of toned down because there's really a lot of good here. And if they knock their heads together, they can, they can create an environment that's benefits everyone. The last thing I want to talk about is, uh, the memes, the meme coins seem to be the other side of the barbell maybe, uh, in a weird way where, um, Bitcoin ETH really is lagged. Solana has obviously performed well,

let's call them like the large caps uh with maybe bitcoin being the dominant performer there uh and then the other side of the market like really it's meme coins and that seems to be where capital is flowing attention is flowing um even i would argue uh kind of the eyeballs of um vcs they might not be investing as much in it but like they're they have to pay attention just given the performance and kind of watching what other market participants are doing so how do you evaluate that area of the industry yeah i don't you know for the fund we don't really do much in it uh we we're aware of it it's it's definitely speculation it's definitely there's a component of gambling i think there is some meaning to it uh and reason for it happening it's it's a it's a byproduct of i mean we're

seeing even in the traditional world so i like how you know dog with hat and some of these make bloomberg headlines but uh you know it's what's been happening in the traditional world with in 2021 another kind of analogy to that environment with gamestop and amc so i think there's a reason for it you go into these sub subreddit groups and it's some of the most uh you know cult-like tenacious you know collectives of tens of thousands of people and you're reading these posts like you know i don't have anything to my name i've been screwed by the system and so it's again kind of a function of this populist movement um and in the crypto market being sort of the home to like i said grassroots uh you know participation it's not an institutional top-down

thing you're just bound to see more of it and so uh people have lashed on i think it's you know there's a component of it that's a little bit rebellion to the top of the crypto industry too the vcs and so on who have been funding these large private private uh protocols that have then launched tokens and and maybe not done so well and retail participants have gotten hurt there so i i we're observing i think i think there is meaning to it it's it's tougher to say there's valuation backing it up or fundamentals so i tend to not not really traffic in that area but but i think it's interesting my take would be that when the cycle is over it you know people who are investing memes probably get hit pretty hard and so it's one of those you don't want to be the last

one at the dance but uh it's it's kind of entertaining and and you know coming into a political year where there's all sorts of weird things that happen it's probably a fun space to keep an eye on where can we send people to find you either on the internet or find out more about liquor capital yeah yeah just follow me on twitter reach out there i produce uh sub stack writings and and i'll be putting my monthly letters up for the public pretty soon here as well so yeah always happy to chat with people in the space and thanks for having me on absolutely i think you're one of one of the most interesting macro investors right now who's just focused on crypto.

So excited to talk to you. Appreciate it.