The Great Unwind - TOKEN2049 Singapore 2022

it's so great to be in Singapore one of the previous speakers was talking about all the world's economic policies the distress is causing it's nice to be in a country that proves that rational policy works and we have so many investments in in Singapore outside the United States it's our biggest country we have 13 Investments uh like Amber here in sing so economic policy is really having a massive impact on the world and the Federal Reserve chairman said there's no precedent for what's happening right now I would say it's called the 70s basically all of the stats inflation everything unemployment all that stuff is exactly like the 70s we even have an oil crisis and just like the 70s we have a Soviet invasion of another country the only thing that's totally different from the 70s is back in the day the FED used to fight inflation this time they've let inflation rage to a point where inflation got to be 11 above the FED funds rate if you count inflation the correct way with housing uh using the case Shiller index even in the 70s the FED never let it get past about five percent so the feds made an obvious mistake keeping the rates way too low for way too long they're really starting to realize that but their second policy mistake is not something they've addressed yet the FED bought so many bonds they drove the real rate of return of a tenure note to six percent negative and obviously no rational investor is going to buy a security that guarantees them to lose six percent every year for 10 years the way they did that is the Fed which never used to buy bonds they only used to influence the short-term rate went in and purchased six trillion dollars of bonds and to put that in perspective that is 200 of all mortgage lending in the United States for 2020 and 21. so not only did the FED lend to every single American that bought a house they did 100 more than that and they got the rates down uh 700 basis points through its 50-year average that created a bubble in bonds of Epic Proportion the top graph there is the value of a US government and mortgage Market relative to its 50-year rail rate average the FED literally drove it 15 trillion dollars above its fair market value and and December 4th we sent out our investor letter calling out this Bond bubble and said it would pop when interest rates were 1.3 on the 10-year note we said it would go to five percent the bottom is the graph of what's actually happening it really is uh For Better or Worse on Pace and I think that has to inform your investing these days there's no working age person that's ever invested in a rising rate environment that's a massively important thing I think all of us have a failure of imagination because we've never seen a rising rate environment I'm 57 I got to Wall Street six years into the rally in bonds I think we're going to have you know multi-year period of rising rates to rates that are so different than everyone's talking about you know Wall Street forecasts keep going oh it's going to go to two percent or three percent or now four percent I think it's easily going to five percent fed funds five percent tenure note and maybe way higher I mean it's going to take a lot to actually slow this down um previous speakers talking about how crypto is now a risk asset I think that's temporary I've definitely been wrong uh in the last six months uh in the first 10 years of crypto it was uncorrelated with risk assets it's been very correlated for the last six months I think that's going to break down and it's a great place to hide because if if I'm right and bond rates do go up obviously it has to hurt bond prices because that's mathematical but I think it also has to impact other things that have discounted cash flows like equities real estate crypto has no cash flows you know cryptos like gold or soft Commodities it could easily rally so I'm I'm wildly bullish on crypto even though I'm I'm bearish on risk assets so how do you navigate these markets uh human nature is very pro-cyclical uh we've been doing this for 10 years we get massive inflows at the highs and in times like right now and it's a great time to buy you know it's kind of cricket stripping nobody wants to invest but now is actually the best time to invest for example our last Venture fund we raised it in 2017 and were able to put the money to work in the last crypto winner 2018-19 and that's a great time to invest because all of the kind of generalist VCS uh the big growth stage investors they all vanish in times like right now and it leaves just the you know handful of very dedicated crypto focused firms to be able to take huge Advantage you get enormous Alpha because there's very little competition you know for the deals out there uh the deals that we're seeing right now are just like that uh six nine months ago valuations were crazy uh there were big growth stage firms literally doing one deal every business day uh and so it's really hard to compete you know and do good uh do good deals in an environment like that but now all those firms have left the space and you know firms that are dedicated to space have much more uh Alpha so one analog I want to share is there's such a focus on you know Bitcoin and now you know a bit uh ethereum but there's so much more out there to invest in and the analog I like to use is uh in the late 90s Microsoft was it was almost everything in Tech it was like 90 of the market cap and over the next two decades Microsoft did well it went up 10x which you know that'd be an amazing investment I'd love to you know invest in things that go up 10x but almost all of the gains in the tech space came from things that were not Microsoft you know Amazon Apple Google and I think that's what we've got going in our space you know for a long time Bitcoins literally everything uh and then you know there was a long period of time I'd tell friends you know hey just you know half your money in ethereum half your money Bitcoin you're fine but now there's so many important projects and just yesterday the market cap of the stuff that's not Bitcoin or ethereum hit 44 you know so we're almost to the point where half of the entire Market are things that aren't the two main blockchains and I'm wildly bullish on bitcoin and ethereum but I just think these other projects are are going to perform even better uh and should be in in somebody's portfolio so I want to review a little bit about what else there is uh to be investing in because it really is an incredibly exciting time and in these you know crypto winners you get a lot of Skeptics saying there's no use cases you know nothing's really happening so obviously you know bitcoin's great at storing wealth it's great at moving money across borders uh and then ethereum really good at uh smart contracts but there's so many more use cases um we're really seeing a lot of uh very interesting applications of blockchain I'll go through a couple later but we're building a completely new uh Financial infrastructure and we're doing it at a time when it's the valuations are so low and you know frankly that's why I'm so bullish the early days of Bitcoin you know it was very cheap relative to where it could go or relative to Gold I think that's true of all the non-bitcoin and ethereum uh use cases now so Defy is a great example you know there are dozens of really important projects in the defy space and after this crashed the markets all of them combined are only uh trading at 20 billion market cap I think that's really crazy the entire value of the traditional Financial system is three trillion dollars and so while I wouldn't probably put all my life savings in D5 if it's less than one percent of the value of a parallel Financial system that it's highly likely to compete with highly likely uh to disrupt that just seems like a great trade so you should have some of your portfolio uh in defy and the really fun part about our industry now is it's very investable there's so many projects you know you don't have to put all your eggs in one basket you can invest create a portfolio that has a tremendous amount of diversity and value so I think web3 is the most inevitable trade I've ever seen and we might be too early and we might invest in things and you know they run out of money and it takes 20 years or whatever so you know not not saying it's going to happen overnight but web3 is such an obvious uh trade so the existing Internet it's all about extracting value out of you you know your Facebook's customer you're the one getting up every day spending 50 minutes you know producing content for Mark Zuckerberg and he's sucking all of the value out of it there's also some pretty you know sketchy governance issues with a lot of the big tech companies uh some of their policies you know could be questioned um so I'm really excited for a future world where the people that create all the value that people that that contribute to the value of all these networks actually own their own data um it's a it's an incredible New World and I think if you think about it all the the Web projects that we use and we like almost all of them can be done on a decentralized version great examples music sharing right uh Spotify you know all these entities suck an enormous amount of value out of the system and the artist gets you know a very little uh minority of the value of what they create and then obviously the fans pay a lot of money and they don't get any value for all the curation they're doing all that if you do things in a decentralized way you can have the people that create all the value uh both the artists and the you know the consumer you know the little kid on this phone finding a great new band you know that that has value they get paid uh part of the value of the network and so we're invested in a project called audios uh that does that another great example is is a search and browsers you know Google's business models wow they every millisecond they auction your private data to people uh and they used to actually read all your emails they don't do that anymore but it's a really sketchy business model whereas Brave browser keeps all your data on your own device and if you're willing to watch ads you get paid in cryptocurrency and so you're essentially auctioning your own attention and they have 50 million active users now you know so it's these web3 projects are actually starting to work the next uh Frontier you know nfts gaming the metaverse super exciting and one of the reasons I love that so much it's bringing a whole new cohort of people into blockchain you know the early days all you know uh cypherpunks that were super into the technology and all that uh you know some Libertarians you know got it going early but this is just fun and if these are fun so it's bringing in a whole new raft of people just bringing in uh big Brands you know it's gonna force a lot of people to engage blockchain and once you know you're into it then you're going to realize oh you know smart contracts are important or web3 or whatever and it's going to bring more people into our ecosystem the other thing to to think about is there's so many uh potential important projects out there I think a lot of the people in our space get almost religious about it you know they're either Bitcoin maximalists or they're you know super passionate about Solana or whatever there's not one internet company right there's 25 important things and I think that's the way you know blockchain will end up there's going to be probably a single digit number of very important layer ones and then you know a lot of different layer twos that are uh you know very important for the functioning you know of the network so an analog that I like right now you know everyone's bummed about the industry and you know it feels down you know because we're we're in a in a bear Market but I think the analog uh that works is going back to the internet the.com M the internet analog is often overused but since blockchain is really the final piece of the protocol puzzle that is the internet you know uh this is relevant so the internet had a lot of Promise a lot of things were tried you know pest.com all that stuff and there's a huge hype uh and a you know a bubble pop in 2000 uh March of 2000 it took a couple years actually to wash all that out and start building the real companies and the analog I would say is it's kind of like 2003 in the.

com era obviously uh the internet had a paradigm shift you know it's going to be very important it was going to do a lot of things I think blockchain is equally important and it really is you know essentially part of uh the internet decentralization is a massive concept it's not only important just in blockchain itself but it in governance you know uh voting rights there's a you know a lot of really important things that will come out of decentralization so web 2 had some you know important companies Apple Microsoft all that but um not all the important Tech was invented you know by 2002. there's obviously a bubble excessive speculation all that we're seeing that here you know there's a lot of projects that you know raised a lot of money with almost no information you know a lot of speculation on nfts things like that but that was actually the time to invest and if you think back to what happened in the post.com bubble so many of the most important companies that we know now were created after that right like that wasn't the end of anything that was really the beginning so you get Facebook Twitter you know the iPhone Netflix all that stuff you know happened um you know after the crash of uh Tech and I think we're in that space right now and so we're very excited we're uh we had just raised our latest fund and so we're now very aggressively going out there uh both trying to find new companies that are uh at great valuations but also you know looking at deals that maybe we missed you know back in the day they're coming back at you know better prices uh and then I think over the next three or four years you're going to see a whole raft of you know really uh brilliant innovators coming from traditional Finance to set up blockchain companies so a lot of our best investments are companies that have only been started in the last few years so to wrap it up I wonder uh share that you know I've been through three massive bear markets in 10 years and and I could admit in the first few of those I was really sweating and I was like I don't know if blockchain is going to work you know maybe the government's going to Outlaw it uh you know maybe something you know uh really bad happens um this cycle is totally different the fundamentals are so strong there's 200 million people using blockchain already the only thing you need to interact with blockchain is a smartphone and there's four billion people that have one of those so I think it's within you know only like three or four years that we're gonna have a billion people um using blockchain when you have a billion people using something you know supply and demand works and it uh the value has to go up you're also seeing government buy-in you know six eight years ago you know there's a real risk that the G7 would outlaw Bitcoin or something like that China already has more people using their government blockchain than all the other blockchains combined and so if you're a regulator no matter what your view is on blockchain maybe maybe you don't like it maybe you're skeptical it doesn't matter the toothpaste is already out of the tube governments have to get engaged and so governments like uh the US are building blockchains everyone has to get into that and it really is a national competition most countries have been neutral to blockchain there's a few that have been negative and even the US the SEC has been slow but they they have to get engaged because if they don't do it it'll um you know happen somewhere else and then the last big point is this crisis we've had over the last four or five months for some some uh lenders went under got kind of a bad rap all the you know really negative Skeptics said oh you know D5 blew up it didn't work you know the truth is really the polar opposite defy worked great defy function 24 7 executing smart contracts exactly as the two participants had agreed it's centralized finance that had the problems so all the names you hear of companies that went broke they're just old school Banks you know they're taking money in lending it out uh doing what banks used to do in the old days you know take it in with overnight deposits but lend it out you know long term or lock it up and staked ether and you know grayscale Arbitrage um and so all the failures in our space we're just old school you know excessive leverage type failures and all the protocols like Ave maker compound they just executed day in and day out and so I think we would look back a few years from now we're going to realize this era was really what proved that D5 works and so uh you know it might give Regulators a little more pause but I think it is you know it's a great sign for our industry and then lastly I just want to conclude that I think that the reason I'm all in on this space is I've been a Global macro style investor for 35 years looking for things that are asymmetric things for the upside you know is much more than the downside and I think over the next 10 or 20 years there's literally no other asset on earth that is as compelling as blockchain and it you know it might be a couple years of a bear Market or whatever it might you know I'm not promising things will go up today but um it is the most disruptive thing since you know the other half of the internet and with that you know uh we're we're gonna improve the lives of billions of people and you know have a huge positive impact and so that's why I've been so psyched to be in this industry thanks very much [Applause]