Well, welcome everyone. My name is Donna Rapaccioli and I have the honor of serving as the Dean of Fordham's Gabelli School of Business, as many of you know, 2020 marked a hundred years of purpose driven business education at Fordham. And this Centennial series was designed to shine the light on emerging trends and new forms of business disruption. Since our inception, we focused on embedding these trends into our programs to better prepare our students for these exciting disruptions that they'll face throughout their careers.
I want to thank the Gabelli center for global security analysis for being our partner in the series. I'm very much looking forward to tonight's event, featuring alumnus Michael Bucella Gabelli school, 2008 and Gabelli school faculty members, Paul Johnson, and Donna Redel. There are many applications of blockchain and cryptocurrencies, but it may just be that decentralized finance, defy and non fungible tokens, better known as NFTs will be the applications that bring this technology to a much wider audience today's session is going to focus on how defy and NFTs will challenge the established finance industry. It truly is my pleasure to introduce our panel. First,
Michael Bucella is a partner at block tower capital and institutional crypto asset and blockchain technology investment firm, professor Paul Johnson runs MACUSA investment advisors and advisory firm focused on helping CEOs and boards of directors deal with operational and financial strategy, capital allocation, shareholder value creation, and corporate communications. And Donna Redel is a business woman, professor of blockchain, digital assets, an angel investor, and a philanthropist. Our speakers will participate in a fireside chat around these topics and share their insight and expertise. Following the discussion. We'll facilitate audience questions.
We'll ask that you type them into the Q&A section near the bottom of the zoom screen. And you could do that beginning now, before I turn it over to Paul to start us off, I want to remind you that we rely on your philanthropy to deliver on our mission so that I ask that you consider making a gift to the Gabelli school Centennial fund. Now it's my pleasure to turn it over to Paul Johnson. Thank you, Dean. Very much appreciate being here tonight. More importantly as I am very honored and to be part of the Gabelli team where we deliver crypto related courses, we teach four courses at the graduate level. I teach one of them, Donna Redel teachers, one of them I think Ben Cole might even be on this call. He teaches one of them. Then we teach a fourth class.
I focus mostly on digital crypto, the traded tokens, and then a second mini course on business related applications of blockchain. So what I'm going to do tonight is take a quick tour through a few slides. I don't like to scare everybody. We're going to go through 30 slides in three minutes to level set the way I think about what's going on. At least the current crypto markets.
And then this will lead to a broader discussion. I believe Donna Redel and Michael Bucella will make some comments similar. Alright, let's get going. Go through quickly.
Blockchain crypto is basically the intersection of technology and finance and it's nothing more than that. It's the next generation of technology born out of many of the technologies we've seen before, and it really is coming directly at finance and other information-based applications. And it really got launched in the financial crisis of Oh eight where my favorite pictures and Lehman brothers in front of Christie's in 2009, a unknown entity person, individual named Satoshi Nakamoto published a paper. It's a very short paper.
It's a very insightful paper. It's a very cool paper that he wrote. And what you see is that he wrote a district's distributed this paper on really a little known cryptographic mailing lists and with a single line in the email that says I've been working on a new electronic cash system, that's fully peer-to-peer with no trusted third party, January 3rd of Oh nine. They mined what is called the Genesis block of the blockchain. It's the first entry in the blockchain. And in that he publishes the code. This is an open source project. He published all the code behind it in the code, but not in the original paper.
There's a 20 minute million limit on the number of big points. Why is that important? That creates scarcity. And if you create scarcity, the only thing you have to think about is demand. And that will be one of my themes. It took seven days to mine, the first block and the first transaction was between Satoshi and a gentleman named Hal Finney, who subsequently passed away in 2014 of Lou Gehrig's disease. In the original Genesis block Satoshi put in, in place, this quote, which comes from the London time.
And it really has a double meaning one to timestamp this, the original blocks. So we would have that forever, but to also point out the failure of finance, because this was the second bailout for banks by the British chancellor, very important. Now Bitcoin came on the history of a lot of work in digital currency. In fact,
depending on how you to count the projects, it was either the fourth or fifth attempt, the first four, which died didn't get very well. So they were neutral reaction to Bitcoin was not very overwhelming because there've been many programs before that none of which were successful. Bitcoin is based on four key computer technologies that had been around for a long time. And if you look at it, really,
the genius is how the puzzle pieces were put together. I won't go into details here, but it's really the proof of work, which is this lottery ticket, which eliminates double spending, which is a provenance inherent in all digital system, plus a consensus mechanism based on what it's called Byzantine fault tolerant. Plus this a reward system, we had a predictable monetary supply and it was those pieces put together in such a way that it ended up being genius. And that's what Bitcoin is today. It comes with some costs. However, this is the hash rate that the miners use to solve that cryptographic problem we've talked about. And these are Terra hash rates per second. These are big numbers.
I'm going to put this into numbers. You probably understand, which is terawatts of energy in February. The Bitcoin network burned up 81 terawatt hours on an annualized basis of energy, just in the month of February. That's the size of a small European country,
what they would do in a year. So Bitcoin has an energy problem, which is not going to go away. So what is Bitcoin take me. I've been teaching crypto for four years. I finally, this week figured it out, and this is my answer. What is Bitcoin? It's a digital system that provides data and transactional integrity without a centralized trusted third party would never been able to do that before the system put together, solve the double spending challenge.
That's inherent in all digital systems. As we know, making copies and digital systems is trivial. The system does not allow them. Bitcoin has a limited supply programmed into its code 21 million, which creates its scarcity and the value. And this is really the insight I had recently.
The value comes from individuals projecting narratives onto Bitcoin and the technology's potential. And that's what, what you have. And so for people that struggle with w with what Bitcoin really is, it's, that's the key. It is nothing, and therefore it can be anything. And there's the price digital asset volatility, which is what we deal with. These are fairly simple steps price at any asset quoted is the intersection of supply and demand supply as a function of the issue in mechanisms and is relatively fixed for most digital assets.
Bitcoin has 21 million. So that fixes the supply side scarcity. There are two types of demands. There's transactional man, and, and speculative demand. Transactional demand is relatively stable in the short run and takes a long time to build. And at the moment there's very limited transactional demand in Bitcoin.
So therefore, a short-term price volatility is nothing more than changes in speculative demand. So Bitcoin today as a speculative asset there's your fixed supply. We know what the inflation rate will be. It's about 1.7, 5% a year now. So price goes up if demand grows faster than supply. In this case,
that demand grows faster than 1.75%. The price will increase as we've seen, keep in mind that 95% of the Bitcoins are still owned by 2% of the holders. The rest of us owned the other 98% keep all this very important currency is an intermediate good used in exchange, which means currency as a collectively system, serving as an exchange protocol. And because currency is an exchange protocol, it is at the point of exchange, which is effectively an act of faith. You hear this all the time about currency,
that the value of an intrinsically worthless item pieces of paper becomes a reality. I put this all together because it's important to understand that users define currencies, not investors or speculators. So Bitcoin will become a currency when people start using it as a currency, not when investors and speculators tell you that it's a current shape. All right, little thought process. There are three assets. You can hold orange one, a blue one, a green one, the orange one goes up in value, 5% a year. The blue one that value never changes.
This is all relative to purchasing power and agree. One decreases its purchasing power. So if you have an asset, the orange one where the purchasing power is going to go up over time and, and you can buy more things with it over time. The blue one is you can buy the same amount of things over time.
It's inflation protected. And the green one is an inflationary currency. So it actually purchases less over time. Ask yourself, which asset are you going to hold as an investment? What asset are you going to use to transact it? It's pretty clear a transact in the green one and you'll hold the orange one. Well, guess what? The orange one is Bitcoin. The blue one is hard money and the green one is Fiat. The Fiat currencies will always do a better job.
And as a medium of exchange over deflationary currencies, all right, Bitcoin has value because it trades into more established currency networks, RMB the Euro or the USD. That's where it value comes from. There's almost no transactional demand. George Soros, one of the greatest hedge fund managers of all times when I see a bubble for me and I rushed to buy it, adding fuel to the fire. Shara said, Morgan Stanley made a $200 million investment in a Bitcoin firm called N Y dig. Last year, here are your Bitcoin bowls that we've asked brothers.
They're the ones from Facebook. Paul Tudor Jones made a comment almost a year ago, but Bitcoin is average price, $11,000. Michael Saylor, the CEO of micro strategies, making an inflationary bat with his Bitcoin purchase. Stanley worked with Soros.
He's making a supply and demand bet because he knows supply is fixed. Bill Miller used to be at Lake Mason now runs Miller value partners. He's making a supply demand bet. One river asset management made a $6 million investment in the fall, the largest institutional investment. At that point, they were making a supply in the man bet and Elon Musk.
I think he just wants to headline. All right, this is a positive convexity trade for you. Traders out there. Higher prices increases, demand. Most asset higher prices,
decreased demand. All right. So just remember final comments, nothing the longterm bowls have said about Bitcoin has come true. It's not a currency, not a payment system, and it's not been tested as a store value because there's been no inflation. However, it's been a speculative spectacular spec, a speculative asset, and maybe the best in modern history. All right. So just a few comments get started. Dean,
I don't know whether you wanted Michael or Donna to chat now. Donna, why don't you jump in? Okay. Hi, I'm very happy to be here and it's fantastic. I, to talk to students,
I managed to actually have a students on Friday night from various clubs at Fordham business school. Talk with me. So it's great to be here again. I take a slightly different attacked in teaching. Then I, I do a little of it from my life experience. I I've seen the nexus of technology and law and business come together many times. And the first time I really saw it was when I was on the trading floor and I was chairman of COMEX. And there was a product that was starting between the Chicago mercantile and Globex that was going to do trading overnight.
And of course that would have in some way, disrupted on a long-term basis, the people that trade on the floors, it was a long process. We did a merger and today, lo and behold, there is no trading on floor. So sometimes you need to go through a lot of disruption in order to protect the jobs and protect the way of doing business in the future. Not as it is today in order to be able to, to modernize and have a whole industry that modernizes and that went for the New York stock exchange. And for all others, they're just backdrops now for CNBC or MSN. And so I say the same thing to students, which is, you know, today in this cryptocurrency world, what are the opportunities? Where can you apply what you're learning and how can you question and improve upon your learning in order to be prepared for the future? You still need your basics.
So in law you still need contracts and you still need property. And all of those things come to play very specifically in Bitcoin in the business school, you still need to know about finance and you need to know about accounting and you didn't know about analysis and Michael will be able to speak to those things because that's what he does every day. And so going to school and learning these fundamental traits, and these skills will be able to make you flexible for when new technologies and new businesses and startups and entrepreneurs that are growing every minute in this cryptocurrency world will be able to be open to you. And so I will have Michael talk a little bit about, you know, the practical elements that he sees, if, if the, if the Dean is ready for that.
Sure. I can pop in if that's okay, Donna, please do Michael. Excellent. and and, and yeah, I mean, I, you know, I, my experience of the Bordeaux community has been ever present. I found my way into Goldman Sachs during the depths of the financial crisis through an alumni and alumnus who helped guide me through, through that process when I was a graduate with you know, one job prospect that I wasn't necessarily thrilled about. And and then spent the next 10 years at Goldman Sachs and building out sort of my own businesses and across asset space from really in Canada and and was sitting you know, sitting in on the trading desk at Goldman and in 2017 with the SMP, you know, not realizing it a seven implied vol and this new technology and asset class that I've been hearing about and sort of trading in for the last two years, two and a half years kind of percolating and, and, and really it was one of the few things that I think that would draw me away from the traditional finance world. And so for me,
it was very much a market before it was a technology. And, and so that was the exciting moment for me was when Bitcoin became more of a market, you know, my partners in my, in my hedge fund. And as a quick background, we run a large multi-strat hedge fund. We focus, focus exclusively on the cryptocurrency space. We also do private investments in blockchain technology in cryptocurrency infrastructure companies. So we kind of look across the entire ecosystem. Obviously, Bitcoin is a large piece of that, but as in the title of, of of today's sessions, there's other areas like defy and kind of a an interesting time for the NFT segment given given we have one of the largest capital raises in the history of, of of, of our industry today with dapper labs closing a 300 plus million dollar round led by Cotu and Andreessen Horowitz.
So it goes to show you that the generalist community is now really focused on our area as it grows out in, in scope. And so, you know, I kind of looked at this space again, as a market. Initially it pulled me in, it was this hyper volatile uncorrelated asset. And then once we launched block, I got pulled into the technology side and it led me down the rabbit hole of things like smart contract protocols. Most of the folks in this call may have heard of something called a theory.
That's kind of the defacto standard and smart contract protocols. There's alternatives to that. There's the DFI space, there's the NFT space. And the way I kind of break down the, the industry today is you have Bitcoin as this macro asset that's being adopted by institutions as primarily a hedge, really a hedge of, of, of Fiat debasement. And so you can say that is potentially an inflation hedge, but we really haven't seen inflation tick up just yet. So we can't say that for sure. You can say, actually,
this is what the chief commodity strategist at Goldman Sachs correlated to as they retail reflation trade. So it actually aligned better with copper than it did with gold price. The other way to think about it is basically a hedge against central bank activity, which is, you know, as everyone knows, has been kind of unprecedented since the pandemic. So that's sort of a, that's sort of in my view that train has left the station and we've seen institutional adoption. You know, Paul had mentioned a few of the larger players that have, that have invested more recently. We talk with large CEOs and pension plans,
endowments foundations, sovereign wealth funds across the world. They are well, well well-established in terms of their underwriting of the asset and are just in the earliest stages of actually deploying. So that's the first vertical, the second vertical being something being defy and defy is much more crypto native community, where they're developing kind of a future of financial infrastructure. The other folks paying attention to that are large investment banks. So, you know, I, we were on a call very often with, with management committees of, of different investment banks. They're outside of understanding the, wanting to understand the Bitcoin markets, because that's where the trading volume is. They want to understand the,
the impact of the centralized finance on their core business lines. So namely things like synthetics, right? So how did decentralized synthetics impact their, you know, their assets they're trading on a daily basis? It becomes a 24 seven marketing just about every asset class, these centralized lending pools for commercial banks, how does that impact their NIMS? So that's kind of that, that second pillar of, of, of, of the crypto ecosystem. And the third is really the consumer facing application of NFTs.
And I think one of the widely, most widely known one right now, our MBA top shots, which was developed by the company, I just mentioned Docker labs. And it's built on top of there are specific more gaming, oriented blockchain called flow. And so it kind of flows through the no pun intended flows through the whole stack. And that consumer side of it has exploded. It's exploded the media coverage. It's, it's, you know, frankly, you know,
made my life quite quite a bit busier than it would have, would have otherwise been. With people asking me, it's kind of, you know, it's interesting how there's so few people that understand what's happening in so many others that are looking to come in and you see that often in new attractive technologies, particularly consumer facing. So those are of the three verticals that, that you can roughly break the crypto ecosystem into today. You know, we, we invest in trade both short, medium, and long-term across all of these things. You know, we, it is certainly a unique market and so far that it is more vulnerable than any other asset class that exists. It is uncorrelated to just about anything else in, in the macro ecosystem and getting increasingly less correlated and it's technology at its earliest stages.
So everyone thinks they may have missed the boat, even for Bitcoin. It is the earliest days for Bitcoin. Currently, when you think about defined, then you have T space, economic models are still being built out. The technologies are sort of catching up. So it's an exciting space. It's,
you know, information inefficient and it's liquid, and it's very, very exciting. And I'm happy. We're able to talk about it here on the panel today. See if I can get off me, Michael, just to follow up. You put in three verticals, which are interesting. So you put bitcoin as sort of the macro trade DFI as the potential finance disruption, and then the consumer facing, what, where do you put the platform protocols, the smart contract portfolio? You put that in Defi. Yeah. So right now that's being primarily driven by the, the, the evolution of DeFi . If you look at any of the, the layer ones that have, like , you're looking at the tokens and appreciation their value, it's been effectively determined by the level of Defi activity on the base layer protocol. So yeah, I would put that squarely in in the defy camp in that
Middle sector. Yeah. I have to push back because there is a little bit of echo. I'm going to push back a little bit because you used a lot of terms there, and I'd love to just go back through that answer and make sure people understand. So talk about a smart contract platform. You don't really necessarily talk about smart contract, per se. You can just talk about these are programs when you walk through kind of what a theory is for people in simple terms. And then let's build up the idea of layer one versus layer two with the ultimate idea of what's defy look like if, if the disruption happens, right.
Right. So layer ones are networks, which trigger almost contractual agreements. So there's smart contracts. So basically they affect a change of state. What defy does and you're building decentralized applications on top of that is they're leveraging those layer one applications to transact on top of that initial layer. So what tends to happen and you brought up layer twos. What tends to happen is if the bulk of decentralized application activity and transactions are happening on one layer, one, I want to get too far down the rabbit hole.
[inaudible] I'll Translate when you're done, keep going. Okay. What happens is those specific networks because of, because of because of the consensus mechanism, it may stall out and so far that the network becomes congested.
And so actually one of the companies I mentioned previously, dapper labs that created flow blockchain. The CTO of that company, Dieter Shirley created a company, a decentralized application called crypto kitties in 2017. And it was this interesting concept. And,
and it was kind of the first viral decentralized application in the space. And it, and it basically brought the Ethereum network to its knees. It congested the network to a point where was almost unusable. We saw that more recently with the advent of decentralized exchanges and massive activity on a theory and where it became almost unusable from a cost perspective. So, so affecting transactions in any small increment of capital was cost prohibitive.
And so what happens is though those decentralized application layers will then move to the next layer. One that they think is high quality that has higher throughput, where the cost of transaction is quite lower. So their, their user base can sort of transport along with them and be able to transact and lower dollar amounts. And so for things like games, layer two has become incrementally important because that significantly decreases the cost of transacting on these, on these platforms.
I tried to keep it high level, but. Yeah, I just want to pursue this cause I think it's important. So you said three verticals, which we can use and people, we spend a lot of time trying to categorize this so people can understand.
And I happen to agree that Bitcoin is different than everything else. So it's its own vertical. You can call it anything and want it's Bitcoin. And then we get into sort of technology and adoption of, because Bitcoin, if it continues to trade, it will never be used for anything other than trading.
Because it's too volatile and it's too scary. It's never going to be money, but it's going to be this macro trade. Okay, fine, fine, fine. And then you can do the consumer side, which is interesting. And the new NFTs, the NIF DS have come out, people being kind of blew everybody's mind, top shot. People are doing, people have collected those sorts of things, forever. People like that,
baseball cards people have collected or people have collected. So that translates pretty well. This just might be a better infrastructure for that. And we'll have fads come and go. It seems that the real disruption is in that middle bucket.
Disruption to finance disruption potentially to legal, I'm gonna Donna kind of weigh in as well. And it feels to me a little bit, like we have some first-generation technology out there, that's proving it out. I hate to use the analogy of AOL, but you know, AOL.
So to show the power of a community show, the power of emails, show the power of internet access, all kind of connected and then better platforms along. I mean, you guys are trying to make bets on that. Do you feel that this layer one may run out of gas and things will go to next gen layer ones or we'll build their own native layer ones or things like that? Yeah. So, I mean, right now there's, again, it's very early,
even with a theory in which has been kind of the gold standard and smart contract layer ones. We're now looking at a new, new parts of the ecosystem that are emerging. So polka dot for example, is, you know, some folks consider that to be a layer zero where you can see the Ethereum blockchain onto the polka dot protocol via a pair of chain. So the, the, the interesting part, the nice part about this space from an investment and trading standpoint is that these affiliated and associated tokens are liquid. And so if you think about the traditional J curve of a venture investment, if you were able to basically Mark to market every minute of every day, the progress of of a, of a company and its path from zero to success or zero to failure, that's basically what you're provided here. And so again, it goes back to that kind of information and efficiency, understanding how different parts of the stack interact with one another, understand that if you're talking to, you know, 20 decentralized gaming developers, and they're all using MADEC polygon as their layer two solution, and that layer two solution has an associated token, that's going to re you know, increase in usage significantly.
You would then go out and acquire that, you know, you would build a position in that name. I think [inaudible]. Can anybody, other than a professional do that. Yes. With associated risks. So, you know, we have. You, you, you get to spend, you know, 70 hours a week thinking about this, but if I'm somebody kind of watching it from the side, interested, believe in this disruption, how do I play it? I could play Bitcoin, that's that big master trade, but what if I wanted to play the defy? I don't have the resource to go talk to 20 gaming companies and see what later to protocol they're going to use. Yeah. And, and, you know, I I'd imagine all the folks on Reddit didn't have time to go speak with GameStop managers there. You said, CA you can trade. It just, it can, you, should you,
as a different story. And I do think it is very much buyer, but where in this space, the only thing I recommend to family and friends currently to buy in our, in our space is Bitcoin. And potentially some Ethereum. And I say, if you want to go crazy with 5% of it,
you know, go on Coinbase and fiddle around with some of those assets, but learn what they are. So at least while you're losing potentially likely losing money, you're learning a bit more about the ecosystem. And with respect to Bitcoin, if they're willing to go a bit further down, kind of the, you know, the rabbit hole, we'll, we'll, you know, I'll get them the heart. I gave everyone the Satoshi anniversary wallets for Christmas a few years ago.
I think having people understand and, and being part of the decentralized ecosystem is important. But that being said, you want to play in the broader universe of the cryptocurrency ecosystem. It is very much an institutional process. So, you know, we've, you know, we're, we're, we're a hedge fund we're at, you know, at a smaller, a much, much smaller AUM level. We were 10 people and they're re and, you know, if I were to, if, if we were to be a traditional hedge fund that rum at that point with 10 people, people would have thought we were out of our minds, but you need, you need that type of operational leverage to account for every risk in this space to not only generate alpha, you know, generate alpha through ideas and trading, but also just really account for operational risk. And that's, that's the biggest risk is the risk of ruin the risk of complete loss.
And there's a lot of layers of this. The beauty of cryptocurrency is the decentralized nature of it and the self sovereign nature of it. But the biggest risk is the, is just the same. So. I was gonna add on to what you were saying, which is in part, the fact that it's a professional market in the defy space is what is, what is allowing it to continue to operate. Because if you had a huge inflow of retail people, you would now have the government, the regular Raiders come in and say, Whoa, we have to take a look at this. They are purposely allowing a lot of experimentation in a way, in a way that they might not allow it.
If there were a lot of retail people in this space, we've recently seen some heads piping up with some additional notice as saying that, you know, the on-ramps and off-ramps a lot of these things need to be made sure that everybody is complying with a KYC, AML anti-money laundering all of that going on, even in the NFT space where the big money is Mo is moving around. So I think that the longer that the, these experimental protocols can be worked out and the bugs in the smart contracts, which ended up in exploits happened within the professional community. I think you have some cover from the regulators. And I, and I do think that that's an important, an important thing to work on and do at this point.
Don, a follow on question to that are the regulators crypto friendly, crypto neutral crypto negative. What do you think? Well, okay. So I have to say that we have new regulators coming in. Gary Gensler, who formerly was head of the CFTC, most probably will be the head of the sec. He taught crypto and blockchain at MIT. He knows this industry. There's no reason to not believe that he will be at least knowledgeable and friendly in this. Does that mean that everybody gets a blank check? Absolutely.
No. We have a good regime under the CFTC. They're pretty knowledgeable. We have a number of products that are trading on regulated exchanges, and that will increase the CME. Just announced that they will be doing Bitcoin. I'm calling them minis, but they're a little smaller contracts that had been before. And I think the issue we have here again is the same KYC, AML, what a bank secrecy, which is what Janet Yellen at the fed has talked about in terms of the bad guys.
Now just be clear on the bad guys, leaving aside nation States that it has been shown over and over and over again, that it is much easier to check to trace crypto than it is to trace cash. And there are a number, excuse me, a very good companies that have been work that work with exchanges and work with the government to have caught people that they normally would not have caught that were using Bitcoin. And they wouldn't normally use cash for illicit activities, you know, trafficking and in all kinds of things and, and, and people. So I think that that is kind of getting dispelled along the way as a serious risk. With the last week you had all of the major regulators and heads of central banks in the in the BIS bank of international settlements symposium, that was five days you had Jerome Powell talk that Bitcoin was replacing gold as, as the, as the, as the standard as the hedge.
And the store of value. You had a lot of discussion about central bank, digital currencies and how all the countries were shaking out on that and stable coins. So they, the most of the, the symposium was about digital technology and digital assets, which I find incredibly interesting in that every single one of the regulators were focused on this and ways of using it, not ways of preventing it, ways of thinking, how do we incorporate this in a way that's beneficial to the global population and to our ability to help our citizens manage the, manage the currency risks, et cetera, within, within our government. So and just to say in both of the house and the Senate original COVID legislation was a digital dollar. Of course,
they retraced on that because we didn't have the systems and the protocols and the blockchain and everything ready for that, but both versions had that in there. So we're getting ready for a more digitally oriented crypto based society. It will take a little time, but we'll get there is my opinion. Sorry. No, that's great. Great, Michael, thank you for a second. So, you know, we're a school of higher education, and then you went there and I know you felt, you feel extremely appreciative of education. You had it at Fordham, and we very much appreciate you coming back and sharing your insights and your time. This is critical. Is it,
is it possible for somebody to be very bullish on the technology, orienting their education, that way to look for the disruption opportunity and not have to trade the tokens? Can, can we separate the speculation around this new asset? That's hard to understand why it goes up and down so much from perhaps the tech, the disruption we see I've been teachers for four years. I know Donna, I think you been maybe even longer than that, the school has been teaching crypto for the better part of six years. We're trying to make sure the students get all kinds of perspective on the technology, but is it possible, you know, if I'm a student and I say, look, I there's too much. I don't have any money. I'm, I'm a student or that the assets are too volatile, but I'm really excited about it. Is it okay if a student is, is not a participant in the, in the speculation, but is very much a participant in the technology disruption? Is that okay? Yeah. Without question, I think, and afforded it's been a great job of that,
right? It, it, it brings together a few of the core tenants of, of, you know, the judge of education, which is, I mean, everything from philosophy to technology, law, finance, it's, it's really game theory. There's a lot of very interesting collaborations of, of fields of study that, that cryptocurrencies bring together and you can attack it from a million different angles. That's, that's the most exciting part about this it's, it's, it's, it's easily one of the most pervasive technologies to come about. I mean, I think it will be, I think everything in the forward will have some form of distributed ledger technology attributed to it particularly in the FinTech space, which is kind of the tech of everything at this point. And yeah, I mean, listen, you know, when we, when we first launched block tower you know, when we scale that first year, we were hiring folks from Bridgewater and, and Citadel and other kind of, you know, proper institutions and you come to realize, and over the years, we've, we've had, you know, some, some restructuring of individuals, you don't, you kind of, you don't realize your implicit biases until you've been until you've kind of been proven wrong. And so, you know, our,
our firm now is oriented around folks who have really dedicated their lives. And so, you know, some of the most talented folks on our team are, you know, got guys and girls who have been in this space since their days in college, since the university days who have been founders and creators and studiers of the industry have been trading in the industry in university and have been fully crypto native since they've graduated. So there's, there's certainly ways. And, and now the industry has gotten itself through a point of being well, capitalized enough for a student to feel okay, going into the industry and taking a, you know, a risk when I was graduating, the big risk was going into finance. You know, and, and, and, you know, you, you said it sort of, you know, it's, it's filler kill you, either. You either, you.
Know, you, you perform or you, or you exit. And that is kind of what, you know, finance has become more the stay business, although the last few days, maybe not as much, but it's been more of a steady business. And now these emerging spaces, like the cryptocurrency space, blockchain distributed ledger tech, are those new versions of what finance one once was. So the one thing that drives me crazy about crypto is that there's this idea that if you don't get it, it's because you just don't get it as opposed to, you know, we can't get there by first principles. And that's the thing that I've made a lot of people in crypto and they say, no, you can't get there by first principles. You just have to believe.
And it's only those that grew up with it that truly believe. And it's just like, well, we haven't repealed the laws of gravity until we do guess what Donna's world is going to be a factor, right? The law will be a fact that regulation will be a factor at the moment. They've decided to sit on their hand. And she said, however, if certain things falls certain ways, they're going to be there very quickly. The law of economics will, we'll go, you know, you know, Bitcoin is not gold because gold been around our culture for 5,000 years, but it's been around for 12. So, I mean,
that's sort of the case we're going to turn to the lightning round on. Yeah, I just want to say, I mean, because I know we're at a business school, but Michael will agree. I mean, there are huge issues that need to be solved and we need smart people to solve them. We need people that know tax. I mean, this whole regime has to be organized and structured in a comprehensive and rational way around tax.
And that tax is tax that's on a day to day tax that's business tax that's inheritance tax down the line. Every single thing we've seen in the last week, companies like play Powell and visa. And we saw just recently BNY Mellon, JP Morgan, Goldman Sachs all of them, these companies going into this arena in one way or another. And so and I don't want to sell short also, not only the crypto, but the blockchain. There are companies that are using blockchain for supply chain w all of the things that happened during COVID many of the resources that were scarce resource or fraudulent resources could have been checked.
If there were block really sustainable blockchains that were global. And we would have known that money that was being spent on masks were fake masks. So they came from, you know, et cetera, et cetera. So I do think that, you know, the opportunities here for business students, and obviously for law students do your are enormous because it's all a huge startup that is growing and needs solid people that have great educations and a desire to be in this, this new economy.
I think there's just so much, and I don't know, Michael, what, what you say to that? Yeah. I mean, the two defining moments looking back that were clear as day was I remember, you know, 2008 walking of the Goldman Sachs. Front door into occupy wall street crowds, and that was kind of a Genesis or defining moment for what Bitcoin represented and emerged out of. And I think what we had earlier this year with Robin hood and wall street beds was very much a defining moment for what the decentralized finance community is now. That's kind of what drives the community. And so I think about, you know,
I would say it's, you know, coming at in 2007, 2008, as a, as a person wanting to finance, you were driven by, you know, capitalistic instinct even more so now than ever with the people, even that are, that are part of block tower and kind of the younger, newer cohort of people entering the industry. It's more philosophical for them, which is even more interesting because you can create this new economy through a, a very passionate philosophy around decentralization. So again, it's, it's pervasive, you can look at it from a hundred different ways. And I think, you know, all of your question, there are many times where I hear something on a call, a conference call with, you know, in a meeting. And I just, I turn to one of, you know, a number of people at my firm and say, what does that mean? And, and I, you know, I I've been in markets for a long time, so it's easy for me to understand markets and how markets operate, but there are certainly many, many things that I am still not comfortable after four years, you know, six years in this space, four years full time that I'm still uncomfortable with, which is why you surround yourself with that expert networking community.
Yeah, I agree. All right. We've got a couple of questions from the audience, so I'll do a quick, and we'll do a lightning round. Well while blockchain seems so compelling, why does it been so slow to take off. Friction, operational friction? You know, I think with private blockchains, like Donna mentioned some, you know, blockchains that are focused on supply chain management, it's just, it's getting a group together to all agree to leverage the same base layer technology and it's, and it's transparent, you know, and, and I think with most companies, the idea of proprietary information and, and information advantage is important.
So opening up information, transparency, even amongst a smaller group is difficult. You know, you're starting to see that now. You know, you have large investment banks that are focused on the repo market. As I mentioned to you in a, in another conversation you have, you know, I think there's been a a group of investment banks that have been building on the titanium network, which has been used, I believe for FX swaps for a few years now. So, and then you're starting to see I'm a mentor for a few accelerators, one of which is more focused on industry or enterprise focused blockchain.
And so we see a lot of it across agriculture and other industries. It is really just getting a few of those to focus on changing budget is a big enough, a big enough of a hurdle to, to, to basically replace your technological infrastructure is a, is a whole nother can of worms. So you need progressive thinkers in a corporate environment, which is not necessarily the easiest thing in the world. Donna, you may have some views on that as well.
No, I think that also you know, these big companies like PWC Ernst and young, et cetera, that a lot of them have been working, but now they have to figure out how do they take that? And they turn that into sales when sometimes, you know, the lag between having created ideas and rationales as to why clients should use this or instant long doing an Ernst and young doing the night night application. It takes a little while to be able to translate that down to also very dense hierarchical structures, to realize that they really need to do this. And this is not new and technologies has happened before. And you know, and it's not going to be the last time it happens, but when it does catch on there will be a huge adoption across major corporations, banks, financial systems, and an increase in, in learning in university. So get there first. A follow on question is all the energy that Bitcoin consumes worth it? No, this is a raging debate in the, in the institutional community facing off against the crypto community. So there's been a lot of good data pulled on both sides.
If anyone wants to look up kind of one of the leading defenders of the crypto ecosystem, you can read up Nick Carters. Nick Carter has a firm called Khosla ventures. He's done a lot of great work on, on the usage of energy. And and, and, and, and I think the defense of, of Bitcoin, but Paul has a, as a view to I'm. Sure.
No, I mean, I mean, you think it's bad now wait till the coins at $150,000, wow. That's going to be disaster. And by the way, you know, everyone talks about the chain being secure. It's the energy part of this. That's not secure because guess what? The weak link is the controller at the local energy power supply company that can in fact be hacked. So how about this go short Bitcoin and then closed down a couple of mining pools and you're gonna make a lot of money. Do you think that Bitcoin will replace you as dollars? It's always interesting questions.
What do you mean by replace you installer in terms of transactions? No, as a reserve currency? I don't think so, but other people do. Yeah. I would say that, and, you know, I had a good conversation with Richard Haass. Who's the head of the council on foreign relations a couple of years ago on this at at a conference. And I think that we have the basket. I think that it's, it's not a Bitcoin versus dollar, but the dollar has lost over the last number of years. A lot of it's front and center as the country has migrated away from being front and center.
I looked up the number. I didn't have to push back, sorry to interrupt. I have to push back, but the us dollar as a present international trading is up over the last 10 years. And it's flat over the last 20. So no, no, no. I'm just in terms of the dollar volume as a percent of global trade, it is up over the last 10 years. It's flat over the last 20 years, the Euro's lost and the Yuan is increased by modest amount. So I mean, people say that all the time,
and they also say that this inflation hedge that we've had no inflation. So I just, I agree, but it just, the facts are in. So I don't think it replaces the as, as a, as a us citizen sitting in a, in a country with a reserve asset as my currency and a stable financial system, it'll never replace anytime in the near term by us dollars.
But similar to your chart that you showed earlier, I want to hold my Bitcoin. I'm not going to buy a Tesla with my Bitcoin and buy a Tesla with my, with my declining asset. I'll buy my, you know, I'll buy anything on the PayPal merchant site with my U S dollars, not my big plane.
But if I'm sitting in an unstable environment and so unstable political environment, I don't trust my banking system. I don't trust my currency. You know, I think that's where you. Sorry about this back now, even in those environments, you're not going to trade. You will, you will put you'll hope.
Bitcoin will be your store value. You'll convert it to local currency as you need to transact you won't transact a Bitcoin. Yeah. And even with that, I mean, that's kind of a hypothetical theoretical, I should say, because most people always point to Venezuela and Venezuela. They don't convert to big, you know, you can look at local Bitcoins volumes in certain environments, and most people are converted to us dollars. It was a massive increase over the past few years during politically unstable environments and stable points on exchange. So stable coins are,
you know, effectively, you know, tied to tethered to the U S dollar. Not. Exactly they're the gateway drug. Not tether. They are tethered to the U S dollar, but tether is the type of stable coin.
But I think stable point volumes are a reflection of political instability. And, and those, and those regimes will always kind of, you know, pull forward the idea of what is a good store value. If my dollar is in my local bank, one are not protected by the local bank or two, not protected by inflation from inflation. So. Yeah, yeah, yeah, no good call Michael follow onto that.
Us government or somebody issues, a government backed digital currency, does that take the enthusiasm out of crypto? So one of, one of our advisors is Christian and Carla. I think Donna, you know, as well, he's been, he was the former chairman of the CFTC. He has focused exclusively since he left government on a us digital dollar project. I think there are going to be, China's already, already been rolling out their digital Yuan to citizens it's in use. They, they distributed hosted wallets B.
There's actually great research done on this by, by the Goldman Sachs Asia economics team. Digital dollars will, will come about simply for simply from a function of monetary policy. Whereby actually was another goal report saying that the digital dollar would allow for a negative interest rate environment, much more seamlessly than a Fiat environment. And we can run through the reasons why, but I don't think that people are viewing their big point holdings. The digital dollar can be printed just as easily as a Fiat dollar and in some cases more easily and distributed to the economy, more seamlessly.
I don't know my big point because I, because it's it's, it's I own Bitcoin because I don't want to be in a dollar. You own Bitcoin. Cause you think it's going up. I would pick one of the, I think it's going up in my currency. So again, he asked, so. Oh wait, wait, wait, wait, hold on, hold on. It's a speculative asset.
You're not, you're not betting. You're not short that or your long Bitcoin, because you're a believer in crypto. Well. In, in being long Bitcoin, if it's BTC USD, I'm in fact I'm, I'm in the same breath, short the dollar. Well, it's the same, but then your house is short. The dollar, your, the one, you just put it up, you're going to move. You're going to buy a new home.
You're going to be short. The dollar, every stock you own is short the dollar. I mean, that's. I think the, no, so realistically I have I've I have, at some point in this world of cryptocurrency shifted my view on the cost of everything as a function of some other currency. So the reason that, the reason that a little bit Don rookie card, a three-year-old rookie basketball card went for $6 million at auction. I don't think that card actually appreciated that much. I think the value of the dollar is depreciated more so than the appreciation of that rookie card or at least the.
Yeah, hold on. Let's do the math. Michael Saylor goes into Bitcoin as an inflation hedge. So you say to Michael slaver, all right, how much inflation do you think is coming? He says 15% that we've never had a year of 15% inflation in the U S dollar in the history of the dollar, right? Hold on Michael Saylor.
How many years of inflation do you think? I want five that 75% not compounded. His position is up 250% and he should be selling as Bitcoin because the hedge worked. Michael and I, he is, I think he's great. He is maniacally focused on his investment case with it. I literally, I was he's down here. We were speaking last week. I, I, there's nothing else.
You can input into his views of the macro environment or the cryptocurrency space outside of we're printing 15% of my us dollar monetary supply a year. So it's not inflation. He's not looking at like the five-year five-year break even and saying, we're going to be skyrocketing to 15, right? He's looking at dollars. So percent percent of dollars printed on CA on existing capital. And that's where he's getting that 15% number, which is not obviously that the terminology is mixed up, but his view is it's very much simply a function of supply and demand. You've got this ever increasing supply of us dollars, which isn't unknown. I mean, I, I'm not gonna sit here and say, they're going to print 15% more supply of us dollars every single year in perpetuity.
But I do feel more comfortable in the supply curve of Bitcoin relative to U S dollars. And I do think that the demand profile for Bitcoin will increase significantly higher than the demand profile for us dollars as a Delta of the existing demand. So. Of course, of course. Right. I completely agree.
But that just means that you're betting that the increase in demand for Bitcoin will be greater than the increase in supply at a faster rate, which makes it a speculative asset. And you're long that, and there's nothing wrong with that, but. No, but also Paul, in contrast to the fact that there isn't that the amount of dollars that are in circulation keep going up where as the supply a Bitcoin is set is fixed at a certain amount, 21 million, and it's not going to go up. So the dollar, the dollar part of that, argument's irrelevant. Not really.
So Michael, you will wait, wait, you would still be one big Bitcoin, even if dollars were not increasing at all. Yeah. It's relative value. Right? So the dollars are increasing in a row. But he has conviction though. I don't know that that's actually accurate. I am fairly conservative.
So this industry is actually great for me because I'm fairly conservative by nature. And so it allows me to kind of blend out into a more, I would say, further out the risk for him than I generally otherwise would be. And last year I was, you know, I was sitting on a lot of cash and I, and I, and I at a certain point gained significantly higher conviction in holding Bitcoin relative to dollars. And that conviction was premised upon the increase in demand relative to the existing demand for Bitcoin plus a fixed supply curve relative to be declining demand, to hold us dollars because of expected money printing relative to the demand relative to the supply curve of, of which is, I guess, is a function of itself. But I was hired convicted and holding and owning Bitcoin and cryptocurrencies because of that. And the other is not a good argument. I know, I know Dean's going to pull us. I have one follow on question.
Can we call you back in five years? And when inflation did not accelerate the us and the dollars purchasing power is basically the same, you would admit that that thesis was wrong. And Bitcoin will be worth a million dollars a bit quiet. And he will say, Hey, you know, you're, you know, I, I. Yeah, but what I'm pointing out is that the dollar part of the arguments are irrelevant. Well, listen, my working capital probably isn't going to be Bitcoin for some time, maybe not in my lifetime. So I guess what you're getting at is, is,
is accurate in a sense of my, my life's working capital will continue to be U S dollars. Actually the biggest change in diet, I'll let you go in a second. The biggest change in this market is going to happen is actually happening currently in an Alan Lane, the CEO of silverbeet bank just referenced this.
There's going to be the ability to borrow against your Bitcoin holdings from regional and regulated banks. Exactly. In that disaster, that it's just frightening to me. It allows for you to take an asset. Now let's take an asset. That's more volatile than any asset we've ever traded capital markets and let people borrow against it. That sounds like a really good idea. I mean, the banks will, if they're good risk managers, they'll hedge out that volatility. You've got CME products. I'm not worried. I'm not worried about the banks, Michael.
I'm worried about the people of borrow against their Bitcoin. Yeah. I'm just going to jump in and it sounds like Paul already answered his part of the question. And my question to each of you, my final question was going to be in the crypto world.
What's keeping you up at night. And it sounds like for Pohl, it's the borrowing side. What about Michael or Donna in the crypto world? What, what are you concerned about? What's keeping you up at night? Great answer. Great answer. I think mine is kind of like what Paul was saying, but a little bit of the converse, which is leverage a leverage in the defined markets w you know, and these are professional people, but there's so much leverage. And there's so much experimentation that when something happens, an event happens, it's a black Swan you know, almost immediately.
So I don't stay up at night because I don't really trade. But if I were going to think about what the problems is, that would be a problem. Donna, I will, I will add to mine.
What I worry about is just the speculative nature of it. The technology is incredibly powerful. This is what I teach it. I am very passionate about teaching. And I tell the students, look,
you've got to know this. This is big. This is big. But the speculative nature around the tokens does keep you up at night for normal. Well, Michael's a professional. You can do whatever you want. Paul Tudor Jones has been doing this for years. It's when my very dear friend,
the other day, who's never owned a stock, ran and called me up and said, should I be buying Bitcoin? That's what keeps me up at night. Michael said it earlier, buyer beware, but this was a great conversation. And there are a lot of questions in the chat, which I think will circulate to the panelists and see if we can get some answers and we'll post them on our website. I want to invite everybody next Wednesday.
We'll have another really exciting conversation on SPACs special purpose acquisition companies. And we invite everybody back on Wednesday, April 7th at 6:00 PM. And thanks again. Thank you, Paul. Thank you, Donna. Thank you, Michael. This was really great.
2021-04-18