[Fireside Chat] Investment with #MichaelNovogratz #ryanlee at #KoreaBlockchainWeek2019

[Music] we're gonna give you guys a test on Nick's talk so I hope you took notes all right morning everyone I know Michael was here a year ago at the same event and gave one hour long speech almost it's it's like at this setting but lengthy very comprehensive coverage on the status of blockchain but you know our industry is changing really dynamically and rapidly so let me start by asking you this question as a famous macro trader an investor what is your take on bitcoins price movement in the past year sure so let me take you back a little bit on what happened you know kind of how we got there both to the highs of 250 2017-2018 and into the crash and and what I think happened is you know we had this amazing story markets are about stories and this satoshis white paper and then metallics paper this idea of a decentralized world this idea of being frustrated with centralized authority right saying this to the central bank's into the their big groups that that had controlled our data was very appealing the idea of decentralized finance democratization of Finance the little guy has a chance to participate was very appealing it was such a strong story that it wrapped us all up into it and so great bubbles happen around stories that are really appealing but also runs stories that really do change the world right the internet bubble in the 1990s got way way ahead of itself but the internet really changed about everything we did in the world and so we had the same thing with crypto and you know a little bit what happened is Bitcoin which started off as a decentralized money and kind of morphed into decentralized goals had had a backing but then etherion was the better bitcoin and litecoin was the poor-man's Bitcoin and you know there was boxers and movie stars that had their own coins and pretty soon we had a coin for everything and the market was unsophisticated it wasn't regulated it was unsophisticated and if you talk any market if you just collapse supply unto a market prices and collapse right and so there was almost unlimited supply as the market got more excited and we got the 20,000 Bitcoin like 1300 and aetherium and regulators got nervous because regulators job is to protect a little guy and there was all kinds of fraud and excess going on and little guys look like they were little guys being retail investors look like they were gonna get hurt and so regulators either slam the brakes or tap the brakes in different jurisdictions lots of supply in the market collapsed and bear markets are painful right the market collapsed many altcoins were down 99 percent 98 percent I think etherium was down 92 percent from its high Bitcoin almost 85 or 90 percent so we had a you know a catastrophic bear market some people took their toys and went home others said oh wait a minute what what's what's happening next and I think what's really important to understand is that markets get smarter people fool me once don't fool me twice and so people self-regulate and figure out what do we do wrong Bitcoin has come back it's come back far stronger than any other near the other crypto currencies and that's because in lots of ways the story around Bitcoin got tighter it went from being decentralized money right we're not going to many people are not going to buy shoes or steaks or suits or pay for services in it to a store of value a decentralized gold and that story took took hold institutions have bought it for the first time the Harvard endowment the Stanford and down with the Yale endowment and they're buying it as the centralized gold we're at a macro environment where 15 trillion dollars of debt trades under zero where we have trade war between US and China where we have the reverse of globalization and less stability in our global governance system and so it's a perfect environment for gold or for the new generations gold digital gold and so the story is clean and and Bitcoin doesn't really need to change to be used as digital gold Nick talked about lack of governance right it's hard to change the rules in Bitcoin and therefore there's a stability to it and so I tell stories and when I tell stories to investors they buy that story and so I think the outlook for Bitcoin as a as a its own little ecosystem is very strong more and more organizations are building the piping to allow more people to buy it and so just last week the New York Stock Exchange's Exchange futures exchange called backed started and that was important and maybe that was why the market went down there was a lot of expectation that it would start with a lot of volume and it didn't but more importantly almost is that they now have a custody solution as well and so one of the things that has stopped big institutions from coming into the space is custody they're gonna trust in your exchanges custody and just as important when the SEC looks at an ETF they want someone they trust to give pricing four six six to nine months well if they don't trust in your stock in cheese you're gonna trust nobody and so my guess is six to nine months down the road we'll have our first ETF because we'll have clear pricing that's trusted from-from backs and so all these things they're adding to the ability to people to unload Bitcoin given that it's got a happening coming up giving it's got limited supply I think the medium-term outlook for Bitcoin is very very positive sounds good yeah I think bitcoins characteristics as a scarce assets it's counter cyclical nature reverse correlation with a cyclical assets most of all the fact that it is liquid but scale has a lot of positive meaning in itself so if you think of it I looked at the last five years there are 40 emerging market currencies 40 that have devalued versus the dollar more than 40 percent from 99 percent in Venezuela you know it's a 40 percent so that's a big chunk of currencies right if I look at the US dollar in real terms over the last 100 years it's down 96 percent right and so fiat currencies get debased over time we're in an environment right now that that's actually connecting to people given that rates are so low and so I I literally see this is a hard asset very similar to gold in the psychology of the investors we speak to and and a great tailwind to be participating right and you know until recently like you said you have emphasized the importance of digital assets going to the mainstream institutional investors would you share some of your observations on that any progress you've served sure so listen I think the way I'm looking at the whole space right now is breaking it into you know kind of three buckets Bitcoin which we talked about and then I'll put all the other protocols the theory and being by far the leader and you're gonna hear from italic so I won't go too much into what's coming there but another 3040 protocols that are all vying to be either level one solutions are part of the level one solution to build the the future economy the really cool stuff listen if this was just Bitcoin and it was just a store of value okay it's pretty neat but the the the transformational stuff really happens around a theory more or if one of the other protocols beats etherium that's the good news is that there's progress being made the bad news is we all got excited that these things were going to be valued as store value and if you look at the periodic table of elements right there 114 elements only Gold is a store of value just because it is I think there was something about golden in the ancient times it came from God right there the ancient Egyptians and the the Aztecs and the Incas thought it was vested with some spiritual power and it was a shiny metal but the fact that there there is no Satoshi recognizable that he's this mysterious person persons woman I think I think Satoshi was a woman that adds to the the mystique around Bitcoin let me tell you the other kryptos have to have a use case just like copper or any of the other elements on the periodic table need a use case and so when you start coming up with some valuation metric even if it's a random you know valuation metric if aetherium is actually a crypto fuel and not a cryptocurrency by definition I say okay I have fuel times some amount of transactions times price per transaction equals equals some valuation so I start coming up with a valuation metric and it gets harder to dream is big ray Gold's got an 8 trillion dollar market cap the whole cloud has less than a 1 trillion dollar market cap and so what's gonna happen I think is the prices of these other protocol tokens are going to go up or down but not nearly accelerate until we see real progress in the use cases of the protocols that unfortunately is a couple years away and again I think batalla can give you a better idea than I can but from all our talking to people in research you know this is really a venture bet it's not a speculative macro bet right gold is a macro instrument and most of these things are venture bets and venture bet sir you know you make them and you look six to nine years later to see how they are and so I think the market got very impatient and liquidity was given to these venture bets way before it should have been given now I do think the one or two protocols that win will also be stores of value and so the upside potential is spectacular right if we're using etherium to process this giant blockchain that things are being built on that payments are being made on that smart contracts are being rich and that's the the new fabric of our of our web 3.0 it's gonna have a stunning value because not only is it gonna get valued by the the discounted cash flow of its use case but it's also gonna get invested with some money it will be money but it's not yet and so that whole bucket right now I I'm more patient with but I'm not nearly as long in terms of owning the tokens with and we we see lots of new projects come out with lots of hype and my instinct is the prices will go down first until they get developers in the box until they get customers in the box till they get use cases in the box that no matter how good the science is you know in the end up and the the programming in add affinity or Al Gore and or any of these new projects but if they don't have the numbers of people using them the price of those tokens are gonna come down because right now everything is speculative in order to keep speculative market stuff you need new buyers so you need more storytellers you need more proselytizers you need to get people to come into the system right that's how speculative markets work and the energy around the space just doesn't there's not enough energy to sustain these 5060 protocols right what is your source of belief and confidence on Bitcoin as a store of value do you have any sophisticated investors that you observed that you have a confidence that they will deploy the portion of their capital ances listen you know when I first got involved I remember going on TV and people thought I thought I was a little bit of a fool fool and there weren't a lot of other guys that had made money outside of the crypto industry talking about crypto there were a couple but not many I can give a list of 20 people who made over a million dollars in different industries that are giant Bitcoin enthusiasts Abby Johnson at fidelity right she's not just a Bitcoin but she's a crypto enthusiast but she's got you know 160 people now working on their project bill miller at Legg Mason it wasn't like Maisie now he runs his own funds Peter Berger at fortress Wednesday's Casa race Micky milker big names in their own communities not crypto people that have huge allocations to Bitcoin and so you know now David Swensen at Yale making a big investment in a in a crypto venture fund which is mostly Bitcoin and Harvard and so I'm seeing the movement Jeff Sprecher at the New York Stock Exchange is one of the best CEOs in the world so there's no longer a debate around are you gonna look foolish and vol Bitcoin is you know people have made the decision that it's now an asset now how much of the asset do you want are you comfortable do you need it those are big decisions but it kind of crossed the Rubicon no kind of being an accepted asset let me switch Chuck you're here you made a contrast just before that be coined as a store of value and other protocols as a sort of an ecosystem build play I agree and there may be some you know different nature of capital that may be required to the for the development of each route and do you see any progress in terms of ambassadors adoption of this ecosystem like you know euros either aetherium of the world yeah listen you certainly see some you know the decentralized finance apps on aetherium we've been investing a lot in video games eSports and video gaming and I think I last looked the second largest an app on aetherium was a was a video game app that we invested in and so I think the gaming space will be earlier adopters and the second big chunk will be payments I think the Libra Facebook project is the most important thing that got announced if it happens we'll see I hope it does a it credential eise's the whole space in some ways it used to be out cryptocurrencies can we do them wrong all of a sudden not just Facebook but Visa and MasterCard and uber and almost every company that they asked if we want to participate so they sent a loud and clear message to the regulators and the politicians that cryptocurrencies are part of the future now there were you know Facebook entered that thing at the lowest trust level in the company history and so they went in front of our Congress and the Democrats punched him the Republicans punched him and the only thing our two political parties can agree on is how much they dislike Facebook and so maybe it gets through maybe it doesn't but it sent a message that this is you know it's we're all under debating if cryptocurrency and if blockchain systems are gonna be part of the financial and consumer infrastructure of the world it's just when I think the next thing to look for which will be fascinating is the telegram launch which is supposed to happen by the end of this month I don't think we should have high expectations that it's just awesome blockchain on day one but they have three hundred and ten million users and so when I talk about getting people into the box and being able to experiment that will be the first case I think where you're gonna see the chance for real fast adoption of simple simple apps built on top of a blockchain and so that could be a game changer as well and you're seeing you know investors you know mainstream in VC growth equity you know start participating in I think that's the big shift that originally the idea was we were gonna fund all these things through tokens sales because it was this new way of raising capillary and a disintermediate the old ways of raising capital and both regulation listened regulation is supposed to help protect retail investors and it didn't people bought in a crummy projects at crummy levels with zero governance and they went down and they lost all their money and so we needed some regulation I would rather have the market regulate itself with less and clear rules from the the regulators and that's happening so rational actors now are saying these are venture bets so venture funds like poly chain and paradigm and a bunch of new ones blockchain capital and Pantera are raising lots of money from institutions one of the only good businesses in the last year to be an encrypt though was being an asset manager raising venture funds because the institutional money says you guys can't build the new Internet in two years this is a ten twelve year project and so I'm gonna invest in the long in the long run not the short run sure and so it makes again the token game which is listen the the other good business that has existed is these tokens were synthetic casino chips to provide gambling services for people that love to gamble right the Asian community in general from China to Korea to Japan love gambling and so if it's foreign exchange in Japan or with mr. and mrs. Watanabe or or now crypto most of the activity in this part of the world was speculative and the best businesses in terms of profitability if it's bit Mex or by Nance or whoa be really are providing leverage and access to Asian institutions to gamble on crypto that I don't think is going away I just think they're gonna be less assets to play with because it's hard to keep the liquidity and hard to keep interest in the story most of these protocols don't have enough storytellers to keep bringing people and they're not enough information and so if you're gonna be in the token game you've got to get the information out you got to give new information to get people excited you got to build that speculative community and I just don't think that is the way institutional investors think and so they're gonna be making venture bets it makes sense as a macro trader you are very much focused on you know the storytelling momentum creating hopefully what the Protocol's are doing rather than you know sparing their time and energies in storytelling they are building a real business and therefore they can prove themselves with uh you know I would say there there are no speculators that change the world they just make money you know the guys that change the world are guys like Metallica are trying to build the infrastructure to really see the shifts or like nick szabo you know my job as an investor is to just understand when that stuff takes off when when the momentum of the story and the capital inflows into those spaces and so we work with those companies trying to help them think about how to best present themselves write your comment on regulation is a nice segue to our next topic which is asset tokenization or security token much hope around it personally because blockchains you know very natural fit with a domain to replace or supplement the legacy system possibly get getting rid of the inefficient or intermediaries along the way what is your take on it yeah so listen I think security tokens is the the third big bucket I think about a lot and in some ways it's a less sexy bucket right it's putting a new rapper or a new skin over an old asset in some ways it allows assets that we didn't think about being able to have broad participation and investing in things like arts or or or sports memorabilia tokenized and digitalized and sold off and so it's probably where the regulator's need to focus the most right to figure out what structure we had allow people right in in the US we've got some capacity to do security tokens under reggae there was one or two tons but there's a very limited ability to do anything big we're right now working on a giant 700 million dollar real estate portfolio which is equity interests in a triple net lease portfolio of leases right long term 20-year leases and so it trades like a fixed income security it'll be seven seven and a half percent yield we will sell it under 144 a to traditional fixed income real estate buyers after its seasons in the US for a year its tokenized what does that mean it means that when the buyer that wants to sell it to someone else he's got far easier transfer restrictions he can just sell the token and that there's some chance that there's liquidity I think it's a very important transaction knock on what we get it done because it's the start it's kind of crawl walk run to the mind frame of security tokens people are building the infrastructure right if you're gonna have security targets people gonna want to store them somewhere so it's either the fidelity custody service or the New York Stock Exchange custody service orb it goes or an investor that go they're gonna need to be able to custody security tokens they won't have near the liquidity of something like Bitcoin or dollar Rihanna or dollar one remember liquidity goes around objects that people need to care about that stories can draw them too and so you know triple net lease real estate will draw some small group to want to participate in it but not a broad group and so it should have the liquidity relative to the story it has but I think it's really important I do think we're spending a lot of our time trying to figure out what what a security token platform should look like you know there's four or five projects in the u.s.

securitized or templum that are building these ATS I actually have a different view I think that it'll be a pooled sense of you know interoperability amongst these exchanges but they're I'm almost more optimistic that we will have real excitement in that space in the next two years where I think that web 300 space might take longer right right I agree and I I have some some examples of such progress by the conventional players very legitimate players in Europe in Canada they are working very very closely with regulators and legislators to to basically embrace this blockchain technologies merits - the way that the securities are being traded or even II should so I'm very hopeful - yeah I would say is when you talk to so I talked to my friend Joe Lubin a concensus who's the big aetherium ecosystem player their business continues to do well in providing services to both state actors and companies on how do you implement blockchain solutions and so the DNA of blockchain is seeping into the world at an accelerating fashion which is going to make all of the rest of this stuff come together a lot easier sure and so I don't want to come across as pessimistic I think I'm just more realistic and a little bit sober in the short term and partly because a lot of businesses got built with this expectation that it was going to be as easy as 2016 and 17 and so their cost structure their business is too high and then everyone got excited when we had this crypto spring when Bitcoin came way back up the clay went back up on the enthusiam on facebook on cz and what he's building in finance and being able to kind of reinvigorate the asian community you put those two things together and I got us a what would look we thought was a crypto spring and now it looks like it's a Cold Spring and I think there are lots of business that need to be rationalized you'll see businesses go out of out of business the good businesses are gonna you know be able to continue to raise capital to kind of build to build the future of the space but it's a more sober view in the short run than we had you know two years ago sure last but certainly not least let's talk about some Asian angle so many of my Western friends do not hesitate to pick Asia as a birthplace of mass adoption case of utility token what is your view on that and is it related to your interest in Asia in yourself you know deploying your own capital cuz I lived out here seven years from 1993 to 2000 a lot of you guys probably even born and so I've always had a affinity I bachelor party and eat day one I shouldn't tell everyone that I've had an affinity for age but more interestingly you know Asia has Asia's FinTech business is just way ahead of the us's if you look at you know we have four to five percent of payments done on mobile and China has 90 if you look at the apps we chats is just a far superior app then then then whatsapp with the exception of we check goes right to the government and you know we hope whatsapp doesn't yeah so I think there's just a better history of quick adoption up here I mean Korea had the the greatest internet penetration of any country way before anyone else did and so I think that is a will probably be the once we get scalable apps we'll probably see them here same thing with gaming yep yep I agree Asia has the largest young generation population and they are all tech savvy while they are pretty much underserved with a conventional legacy system so that makes the environment perfect for mass adoption case with that let's open it up for questions from the public any questions we couldn't in that comprehensive yeah I should have told you that there will be some time reserved for the questions from the from the public calling once all right nice thank you very much thank thank you enjoy your time