Confronting Ark Invest on Bitcoin & Cryptos | The Truth [Episode 23]

what you're about to watch is a recorded

live interview with arc invest

cryptocurrency division where we get to

go deep

on cryptos nfts and more

i do have to add a disclaimer here

though so on screen now you're going to

see

a disclaimer that ark invest requested

be added there were also segments of

this recorded

live interview that had to be removed

unfortunately i was not able to post

this live

but we can blame the sec for that that

is not archinvest fault

i love arkhanvest so without further ado

let's get into the video i do want to

quickly mention though make sure to get

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off using the coupon code down below on

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thank you very much for watching let's

get into it hey everyone meet kevin here

i'm back and

super excited today to be talking about

the future of cryptocurrency

to talk about the future of crypto

especially bitcoin and ethereum and i'm

sure we'll talk non-fungible

tokens as well and multi-layered art oh

my gosh there is so much to talk about

so much to understand

i had to bring in an expert and who bet

then an amazing analyst over at

arkhamvestia scene

please introduce yourself tell us about

yourself what you do and

how you know so freaking much about the

kryptos thank you so much kevin great to

be here

um i'll start by saying i've watched a

few of your videos and

and the vibrant energy uh that we can

feel through the screen is always just a

pleasure so thanks for everything that

you do

it's all coffee it's funny i don't i

don't drink coffee uh

so it's it's i can only imagine

um how much of a boost that that might

be uh

but yeah it's it's great to be here um

so i

like you sort of prefaced um i am a

crypto analyst

at uh arc invest i joined in 2018

um so actually in the depths of of a

bear market uh right after the 2017

crash

um so a little bit of context there

um prior to arc i i was at the

university of pennsylvania

studying assistance engineering and

finance um

and uh actually very early on

uh told myself that i don't want to

follow the

uh traditional route of investment

banking or consulting and

and going through kind of the

traditional recruiting process um

so you know ended up being interested in

in the venture capital world

uh which like as a as a as a graduate or

as an

as a student is sort of difficult to tap

into but cold emailed a bunch of vcs um

you know had an opportunity to to intern

at one

and there they gave me uh the free reign

to

explore whatever industry i wanted to

from both the tech and investment

perspective

and so that was actually right um during

the 2017 bull market

um and i chose crypto and told myself

that

uh this is definitely what i wanted to

do full time

um so committed to figuring out a way to

do that full time

um found arc um in in 2018 my senior

year

actually through twitter um you know we

can go into sort of the the open

research ecosystem that arc prides

itself on

um and you know dm'd one of their former

analysts

um told them i was interested started

sharing some random content encrypted

myself and then

the rest is history so i've been there

ever since and

it's been it's been quite a fun ride so

what you're saying is the way you got

your

position at arc was by sending them free

research

in a lot of ways yeah that's exactly

uh the mindset at least i think um

you know we we often get so much inbound

of like okay

how do you join arc or or you know what

what's this sort of um approach to

um making a name for yourself in in the

industry and

and the real answer to that is by

leveraging the internet

um the internet is is a tool where you

know you can basically

share an idea and it's very meritocratic

and that if that idea is good

other people will share it um and uh and

if you

keep sharing ideas without any

expectation of anything in return

eventually someone you

want to see it sees it um and uh and so

you know that's been that was sort of my

approach where it's like i'm just gonna

start a twitter page and just start

tweeting about random things and

actually started by just synthesizing

things that

were interesting to me it really wasn't

original thought it was just

a lot of smart people saying really

interesting things and maybe

figuring out ways to repackage that um

and so you know

arc uh and you know as you probably

might know

you know we were pretty active on social

media and it's by design it's a

an explicit part of our research process

um you know where we

think that information is increasingly

becoming commoditized

and you know there's no longer a value

add or a competitive edge in being black

box

in your approach to research rather

by sharing your research not as it's

complete but as it's evolving

um you can really get immediate feedback

um

and uh be able to sort of battle test

your assumptions

um in ways that sort of a maybe a five

to ten person

investment team in internal operations

uh might not be able to do as

effectively um so

part of kathy's reason for founding arc

was because traditional compliance teams

weren't set up

uh to handle um kind of the research

involved in identifying disruptive

innovation more broadly um

and so you know the the sort of social

media

presence is really more of a research

angle than it is like a marketing angle

um and so you know i found my

my my job because i found a tweet that i

thought was interesting and

dm'd the analyst and then the rest is

history right so

um to all that so yeah to all the people

who are sort of

aspiring yeah

to get into this i mean it just goes to

show like you can

if you provide value to society like

good things can come back

so this got you uh a seat at arc

essentially

so you're i imagine a full-time employee

pro you know benefits everything

uh it which is amazing and i'm

speculating

maybe you can enlighten that what's the

and i want to talk about crypto

obviously but

what's like the work life balance like i

mean do you have set hours or you just

always on i mean you got a meeting right

after this is

you know is kathy on you with the whip

what's going on here

yeah sure let me just close my door one

second yeah yeah take your time

i'm so excited to talk about crypto too

we'll be talking about everything

so yeah i mean that's that's the

that's the fun part we'll get into the

fun part um but

yeah i mean the uh sorry can you hear me

i can hear you you're good i've just

given you the spotlight

um so yeah i mean the

the work-life balance well it's funny

because the crypto markets trade 24

7 so you know you're you're if you fall

into the rabbit hole very quickly it's

like you're kind of just

constantly working all the time

thankfully i enjoy what i do

uh but but to be honest it's uh the

analyst role is

um not really defined um as

traditionally as like a maybe a

traditional investment shop might define

it where

you know it's very entrepreneurial um in

its approach

um where you know analysts are are

really

able to define the roles as the a as

what they want in terms of like the

there's a lot of encouragement to take

initiative um and

the base is obviously you know uh

covering

your theme so we're not really divided

into sort of sectors so i i cover crypto

we have analysts that cover genomics and

energy storage and dna

and and dna sequencing and um

ai robotics so you know everyone covers

their own theme

um and then from there it's just you

know

trying to figure out new interesting

ways to think about the space

so coming up with sort of provocative

research sharing that research as it's

evolving

and then of course figuring out ways to

translate that research into actual

portfolio management

and investment decisions so you know

every morning we're on a morning meeting

with kathy

um and she is basically saying okay give

us the news

uh is there anything actionable is there

anything interesting um

and then from there she's able to

synthesize and sort of uh

end up making the the relevant portfolio

management decision

um so you know it's it's really just uh

a front row seat into all things tech

uh however you wanted to find that um

and

balance is it's it's fine it's nothing

good

yeah it's it's yeah it's fine i mean i

guess

you can probably essentially work market

hours and do your research whenever you

want outside of those which is kind of

neat

yeah what we're even within them so

let's touch on

crypto though because there are a lot of

people who are very skeptical of crypto

a lot of people even say that

one of the reasons tesla started its

sell-off was because they didn't agree

with money going into bitcoin

i we one of the theories i have is that

bitcoin might be very volatile

but i don't see it as risky i don't

necessarily associate that volatility

with risk

um i think that the interesting thing is

the hardest part

for bitcoin in our opinion was to get

from zero to one

um you have to understand that like the

evolution of bitcoin didn't start with

like a market price where you can buy

bitcoin on exchanges

uh it really started as this uh digital

like collectible uh that was uh part of

a very

you know small group of cypherpunk

enthusiasts

who were just cryptographic uh

or cryptography nerds um and

that sort of evolved very organically

into something that could potentially

be used as a mechanism to

you know store and transfer value um and

create sort of this internet native

uh monetary commodity um so you know

that's that's the i'd say the first

thing of like you know can bitcoin go to

zero

i mean i think that the strongest

bitcoin holders will tell you that

uh at any opportunity they see a dip

they'll probably be

accumulating bitcoin um so there's

what's called sort of those

buyers or holders of last resort

and there's a big enough holder of last

resort where

you know it's very likely that they're

going to be buying before bitcoin goes

to zero

and then on the volatility i think

that's a really interesting

point that a lot of people

um tend to misunderstand you know

bitcoin's volatility right they

basically point to it as the store value

deal breaker right like why would anyone

why would anyone want to store

value in an asset that's going to have

these dramatic day-to-day

price swings um you know it could be

crazy

stocks today exactly um

but if you think about it um bitcoin's

volatility in a lot of ways actually

highlights the credibility

of its of its monetary policy um so

there's something

um called the impossible trinity which

is

uh a macroeconomic policy trilemma which

you know i urge you um

or the viewers to look into but it

illustrates that

um you know when forming uh uh monetary

goals you have these policy makers that

are able to

satisfy two of three objectives they can

never satisfy all three

but they can satisfy two of the three

and this is called the the trinity i'm

gonna write this down yeah

trinity it's a it's a macroeconomic

policy trilemma

if you google macroeconomic impossible

trinity

um it will basically highlight

sort of what policy makers think of when

dictating

um monetary policy goals so the

so the the three options are um you know

a fixed exchange rate

uh free capital movement and an

independent monetary policy so something

like the there there you go

exactly something like the uh the uh

the classic gold standard um the fixed

exchange rate

and free capital movement were chosen um

and uh an independent monetary policy uh

was uh uh was was sort of sacrificed um

with with bitcoin bitcoin has basically

chosen an independent monetary policy so

it's not

backed by anything really right um and

free capital movement

meaning that anyone can go in and out of

the asset as they please

and so as a result of that you don't

really have

a fixed exchange rate what that means is

that

it is being priced exclusively as a

function of demand

um so because there is no sort of stable

peg

you're naturally going to get these

price swings

um and it really just highlights that

anyone can go in and out of it

and that it is not tied to any specific

monetary policy

um so you know you just have to think of

bitcoin as

choosing uh a different uh set of

trade-offs

when dictating its monetary policy um

you know the volatility

is is coming uh but in in

the volatility exists but in return it's

really just an emergent property

because you have these scarce uh this

scarce asset that only has 21 million

in circulating supply um that anyone can

access

um so that's i gotta ask about that i

mean though

i mean you've got uh like ether and and

bitcoin cash and now you've got

card i mean there's so many of these

other currencies what's to stop like

you know the next bitcoin from coming

around and people like man btc too slow

10 10 minutes to verify transactions i'm

outta here

that's a good question um and we we

often get that critique a lot right

bitcoin is the money space to facebook

it's

uh it's too slow it's uh

it it's just it's just basically not

going to sustain itself over the long

term

um again i i think the framing here

uh are is twofold the first is

um you know i like the famous quote by

thomas soule

that where he states uh there are no

solutions there are only trade-offs

um so that as a framing in the crypto

world is extremely important

um where you know you can't have

this perfect um network um

where if you're gonna see like this is

the bitcoin killer it's faster it's more

decentralized

it's not without explicit trade-offs um

so

you know to start like bitcoin being

slow

um is really a trade-off that it makes

for being highly secure and highly

decentralized

and when you think about the value

proposition of these networks

it's not so much as a convenience of

payment it's not to really compete with

visa

it's to compete as an alternative to

central banking where you need

high assurances and guarantees to

settlement and you can't have those high

assurances and guarantees

without the security guarantees that

bitcoin

introduces um that's the first thing the

second thing is

how exactly um are these assets how do

they crew value right what makes these

assets valuable

why is bitcoin more valuable than

another asset because at the end of the

day this is open source software

um and it is a technology that

technically

can be replicated um but

i think that bitcoin's value

specifically is not replicated or can't

be replicated by software alone

um and you have to actually look at the

network effects that bitcoin has built

that are irreplicable so an example that

we'd like to give is

imagine that you were given the source

code

of facebook right and you're like okay

here's the source code of facebook but

you can't get the 50 000 employees you

can't get the 2.6 billion users you

can't get the

the leadership and the team but you can

get facebook source code

so in the same way it's like okay well

here's a bitcoin cash or

litecoin that looks cosmetically similar

to bitcoin

but you're not getting the

infrastructure and liquidity you're not

getting the brand and recognizability

um and network effects especially when

it comes to a non-productive asset like

bitcoin

is its most important moat

um and it is one that is sort of

defensible

in ways that technology alone cannot

replace

um so the better quicker faster cheaper

if no one is adopting it

isn't going to um you know really yield

any benefits to the end user

um so you know that's that's sort of

that's sort of our take there is that

network effects are the most important

thing and bitcoin has been able to build

a network effect

that is frankly um we believe uh

not replicable now you invest i believe

at arc in the grayscale bitcoin

trust because you can't hold bitcoin

directly in an etf correct me if i'm

wrong on that

can you buy the ether or the the new one

that just took place

number three uh cardano can you buy that

uh so there there are questions

um that you're you're right uh in that

we are 40 act product or etfs are 40 act

product

um and so you know we can't hold the

underlying

um but you know there are uh

uh securities that like the grayscale

bitcoin investment trust that truck

that track bitcoins underlying um but

even those have

you know specific limitations um as well

um and so you can imagine a scenario

where equities sell off and bitcoin

rises

and you're basically stuck um being

overexposed to bitcoin in this specific

product

um so all that to say that um you know

our our exposure uh to bitcoin

um you know in these products have

probably been

a relatively underweight our conviction

and when it comes to other products like

the eth

grayscale product or the cardano or what

what not

those even if we were interested in

other assets and there are some

interesting assets i think ethereum is

definitely

an interesting complement to bitcoin um

the liquidity there

um is just is simply you know not

something that

that is it's not liquid enough for us to

gain exposure at scale

um to those specific products um in

addition to the massive premium that you

get on those products relative to nap

um so i don't want to go down like a

regular regulation

like rabbit hole but i gotta ask you i

mean

it sounds to me like with this qualified

income rule or unqualified income rule

here's regulation again kind of

potentially limiting innovation am i

wrong to say that

um so with this rule specifically not

really uh the reason why is because it's

it's actually commodities rule so it's

the same thing if you had gained

exposure to gold

a gold etf in an equity etf

but that doesn't mean that your broader

point is not

uh sound in that um you know we

especially in the us uh you know there

needs to be

careful consideration we believe in um

you know promoting

bitcoin and crypto and in technology

more broadly

um in a way that doesn't stifle

innovation and that doesn't dissuade

entrepreneurs and investors from really

um you know

deploying capital in in these

jurisdictions versus others

um you know and with bitcoin being a

neutral borderless jurisdiction agnostic

asset um you know it's it there's a lot

of interesting game theory at play

um where for every country that is going

to um

you know disavow it you will have others

that create havens for it

um so you know i think that yeah there

certainly needs to be

more thorough consideration of um i

would say

open uh being more open or

uh to regulation than being more

stringent

got it i want to talk and it is very

interesting too that that you're

suggesting that maybe you're you're

underweight your conviction on bitcoin i

think that's a that's fascinating

talk to me about janet yellen is she

gonna be a big risk

to bitcoin here is she just clueless i

mean she's calling this

uh you know an illicit activity tool

when we know that bitcoin is used

less for illicit activity than cash is

is she just uneducated is this the you

know

first two months on the job cluelessness

what's going on here and all respect to

janet yellen okay but

you know i i'm curious that's a great

question it's actually something that uh

we talked about internally at arc

um oh i've got bugs i know it all

exactly yeah he's just the guy got the

little uh the little chip

on the back that had every conversation

um

but uh it was actually in response to

her first point of critique uh which we

actually tweeted about

um that that was around criminal

activity uh in bitcoin being

facilitating criminal activity um our

response to that was actually this is a

very

this is a positive for bitcoin if uh if

yellen

is still looking at criminal activity as

the primary point of critique

for uh currencies um what is interesting

as well

is uh the next month so basically the

month of february where she she had

basically

criticized bitcoin for criminal activity

in january and in february she's like

you know this is a tool for speculation

and it's inefficient um so she went from

you know

criminal activity to you know another

recycled

common critique of this is just purely

as a means for speculation

um so it actually gave us comfort

um and in a lot of ways

i expect uh you know the united states

and

these uh global hegemonies to one day

come out and say

uh bitcoin is either one going to be a

global threat to our monetary

sovereignty

in which case we need to figure out a

way to stop it or

uh we need to figure out a way to

complement it

uh with our existing operations so

whether that be

allocating it as a portion to in their

central bank reserves

or or whatever the case is um and we're

starting to see that in other emerging

markets like nigeria outright banning

bitcoin

um and then senators coming out and

saying you know this is basically making

our own fiat currency worthless

um you know that that's the sort of the

tone that we expect or the narrative

shift that we expect

um so for yellen to come out uh

and use you know fun or fear uncertainty

and doubt

um that has been recycled over the last

decade now um means that yeah we're

still early

and they're not really paying attention

to this i like that

uh that argument and i love how you

turned it around because really

one what i love is when i talk to people

about how

phenomenal tesla is and how undervalued

their energy business is for example

uh and and i get people going what tesla

i'll never drive a tesla i need a gas

car i think to myself like

still early that's a good thing

i i don't know if you saw the elon's

tweet uh like a few days ago but

showing like a a horse carriage uh

newspaper uh that basically said like

it was basically saying are you really

gonna drive uh automobiles

uh and you're gonna have to do

maintenance and change tires like how

much more expensive is that going to be

uh versus just you know riding a horse

carriage

um and so you know the analogy was okay

well electric vehicles

uh to to the internal combustion engine

is

is going through that same evolution and

skepticism

that is so brilliant i love that i want

to talk to you about energy with uh

bitcoin this is a big issue

uh obviously currently the the energy

usage is is

it's high but it's been relatively flat

like it seems like its usage has been

going up but it's it's

uh consumption has been relatively flat

uh relative to that increase in usage

so it looks like there's some kind of

efficiency built into the system

i don't understand that how how can they

make it more efficient when it becomes

harder to mine can can you speak to that

a little bit or you get less when you

mine

yeah sure so um i'd say it's taking a

step back

and and sort of uh providing some sort

of

um explanation for the use of mining

um so mining is basically um the

mechanism by which you can

eliminate that trusted third party or

intermediary

right where if you think of a

traditional set centralized system like

a paypal

you have a single authority that is able

to facilitate transactions

and secure the network and add

credibility to the institution

for participants who are involved right

if i get frauded on paypal i'll email

paypal and let them know and they'll

issue a charge back or they'll say yeah

there's an error in your account

and they will facilitate transactions

from one paypal account to another

um the the value proposition of bitcoin

is that it eliminates that need for a

trusted third party

um and instead instead replaces it with

um you know economic incentives um

by which anyone can uh

if they see an economic incentive to do

so

contribute to the network and contribute

to the network

means facilitating transactions and

securing the network so miners have have

a dual rule

of basically bundling transactions in a

block

and verifying that those transactions

are indeed legitimate

um and uh in return for that

uh are issued with uh newly mined

bitcoin or newly issued bitcoin

so in return for their services um they

are the

um they they they receive a compensation

in the form of bitcoin

now the energy consumption which many

deem as inefficient is actually a

fundamental feature

um in adding credibility to bitcoin

um the analogy that i like to give here

is is with gold right

uh gold uh is is valuable and has

converged as a universal

store of value not because it's shiny

and it looks

nice as a tooth replacement um

it's because it had specific properties

that deemed it suitable to uh

preserve wealth over space and time

in addition to being fungible and

and something universally recognizable

it was also something that was very hard

to produce

and still is there is a clear

explicit proof of work that gold miners

have to go through that adds to

sort of the unforgeable nature of the

asset

right unlike the sort of u.s dollar

which can be printed with like a stroke

of a keyboard

um gold you need to basically prove

and create an explicit cost to uh to

mining gold

so in the same way it's bitcoin

requires that prolific resource

consumption

and that poor computational scalability

to unlock the security guarantees

that make it this global uncensorable

monetary system now when it comes to

sort of the

the the misconceptions that we're seeing

today and i think the biggest one is

that energy consumption does not

necessarily

equate to pollution or co2 emissions

right um so there is a question of the

energy mix

that uh that miners are using to secure

the network

the mining industry specifically is a

perfect competition

and it is a ruthless it's ruthlessly

competitive

um in that they are exclusively profit

maximizing entities

and they are looking for the cheapest

access to electricity

um in order to mine their bitcoin to

optimize

their their operations and it so happens

that

uh renewables are converging as that

cheapest access to electricity

as well as stranded energy assets that

otherwise would have been

dumped um as being a mechanism

to basically unlock stranded energy

assets to mine bitcoin

um so all that to say that the

um energy source that is being used to

mine bitcoin

is a either would have already been

wasted

right so like basically in natural glass

natural gas flares or peaker plants

right during the off season uh where

they're where it costs more to dump than

to mine bitcoin

or um as renewables so in in china

you know most of them bitcoin mining is

actually hydro

um and so i i just think in general

there

just the reason why bitcoin's energy

footprint is kind of their hands-on and

eyes on the energy footprint is because

it's just much easier to quantify

than traditional banking systems but if

you were to buy

kind of the lights on at a jp morgan at

every bank branch

and the number of computers that had to

to go on

and and and and the amount of resources

and that that

that are required um to sustain a

traditional legacy system

um an apples to apples comparison would

actually show that bitcoin is far more

efficient

i mean think about it like the federal

reserve has like 2 000 economists at it

you know that's 2 000 people with houses

air conditioners and and computers

and they're just they're just talking

about printing money

no i don't want to oversimplify their

role okay i respect the fed a lot

but uh okay so this is interesting

because ordinarily when you hear oh well

bitcoin's using renewable

you think okay fine but they're taking

away potential renewable energy that

could be going to something else

uh you know somebody else's use but what

you're saying is because it's a perfect

competition

and we're constantly looking for ways to

reduce our electricity costs

it actually makes sense to produce more

solar fields in vegas or hydro dams in

china

because that's going to give them a one

percent com or

you know even let's just say extreme

here a one percent competitive advantage

over the next dude mining

and so it incentivizes them to build

this infrastructure and really they're

creating something that wouldn't have

been there

otherwise is that what you're saying

yeah that that is

exactly what i'm saying but in addition

to that i'm also

saying um you know you you

and that's really interesting that you

bring that up you're like well it could

have been used for something else

right right and what the market has told

us is that there is a

clear demand to use it for

uh in order to back a non-state

synthetic monetary commodity in in in a

lot of like

bitcoin bitcoiners views i i would say

that there's like

no more noble of a use

of energy than to back this

permissionless open monetary network

that exists outside the purview of

legacy systems and so ultimately

yeah it is and it is a twist and it's

like it's something

that bitcoiners like to bring up but

it's like

it it it's really just a matter of

opinion as to whether

something like bitcoin should exist and

if something like bitcoin should exist

which clearly the market is telling us

it should uh then then it just converges

towards perfect competition i can

i can promise you that if miners uh

see that there is a no means to be

profitable

um by mining bitcoin uh with

traditional fossil fuels then they're

going to go to renewables or

whatever the case is so um yeah that's

the framing i maybe have

i maybe took the most extreme stance but

uh i i feel like

it doesn't really uh doesn't really um

you know get married to that stance i

know i it's totally fine no i get that

i want to talk about that though so

non-state money personally

uh i don't ever see

the dollar going away you know i do

think there will be a

digital dollar i do think that the

federal reserve will have

the fed coin or the dollar coin or

whatever they call it i do think the

blockchain

or just blockchain technology excuse me

in general is is phenomenal

and i do think that that'll probably get

incorporated into our monetary system

but i don't ever see them getting rid of

something that they can use to print

as a primary source of currency you know

i could see the bit

uh i could see bitcoin in general being

treated like a gold but not as this sort

of

it's everything that we use how much i

mean isn't it

a risk factor that maybe people are

pricing

in that bitcoin is going to replace the

dollar and when that doesn't happen

bitcoin crashes

uh yeah so that's a that's a good

question um

and and and that goes back to like

basically

what you define as success in bitcoin

right i think that the

massive spectrum of opportunity that

bitcoin presents

um you know on one hand you have you

know the the early days of just okay

this is just a weird

internet magic money for just the nerds

um and then i would say in between that

you have

um you know a digital gold right where

it's a

five to ten trillion dollar market cap

as being sort of this

internet native store of value doesn't

necessarily compete

with fiat currencies um but uh

but it is it is something that is used

as an alternative

asset um like real estate or or just

general commodities

um and then and then i would say one

step further

is as a potential uh alternative to

uh fiat currencies and in weaker regimes

uh so you know we actually rise

bitcoin's opportunity as a catalyst for

currency demonetization

in emerging markets yeah yeah so

i i would say 10 15 years ago uh

we had a a venezuelan version of meet

kevin

who was basically saying that the

boulevard would

probably never go away um and

you know as we know that that that

didn't turn out to be the case

and so the argument is that

yeah human humans uh we should we should

basically remove the decision-making

um uh when it comes to monetary issuance

away from humans

and into something that is open uh

predictable

and verifiable um you know do i think

that bitcoin is going to replace

the us dollar um no

uh not maybe not in our our lifetime

uh i don't think that's the case uh but

uh do i think that it's that that

bitcoin

potentially replacing the us dollar is

priced in at these levels absolutely not

um you know if you look at bitcoin at a

one trillion dollar market cap

at the high i think now what what is it

800 900 billion

um you look at sort of just

uh gold as a 10 trillion dollar market

cap

if you look at the m2 based money

outside of the top four currencies

so if you think of yeah if you think

outside of the yuan the yen the euro the

dollar so you assume that those aren't

going to be replaced

but that there's there's a mechanism by

which bitcoin captures

the the some share of outside of those

top four currencies

that that m2 based money that's a 46

trillion dollar base money and if

bitcoin captures about five percent of

that

that's a two trillion dollar opportunity

in there alone

um so there's a lot of room for bitcoin

to grow

before it becomes a threat uh to u.s

monetary sovereignty but at its full

potential

it ends up basically being a black hole

for fiat currency um

and if you think about fiat currency

i'll push back what you said a little

bit and saying that it's really only a

hundred year phenomena

um you know if you just look at the us

dollar

it was once backed by gold that was

about 50 years ago only

um and so to think that you know in the

next maybe

century we're not going to see a mishap

uh

um and if you look at the evolution of

global reserve currencies over time you

know

the frank was at one point the pound um

so so you know and the sterling those

end up

basically um you know trending towards

obsolescence

um over the long part are you uh taking

a peter schiffian approach here of

of the dollar's gonna crash big time and

you need to get out of the dollar asap

uh not really one i'm not really a macro

expert so i i i'm not i'm not gonna i'm

not gonna make speculations on the

strength

of the dollar uh i

i will say what's funny is peter schiff

is a massive bitcoin skeptic which is

very which i think is quite ironic and

kind of funny

um yeah but but uh i i i would say that

the macro

uh tailwinds that we've seen in the last

um call it few years has really made a

compelling case

um for bitcoin um as a hedge against

uh general currency devaluation um so

you know it's i think starts with you

know emerging markets

it's very interesting to even see like

correlations between

yuan devaluation and inflows into

bitcoin um

it ends up and ends up towards you know

a potential weakening of the dollar um

and if that's the case

uh taking that um sort of hedge against

economic apocalypse

by allocating into bitcoin i think is is

a sound

uh as a sound uh case

you mentioned i mean this is this is

very interesting because

i kept thinking about bitcoin as as

maybe being something that can be worth

a dollar

but we're not so worried about that

we're worried about

the zimbabwe the venezuela where

basically what what happened here is

you had this complete collapse of trust

of of central banking authority

in these countries or even government

authority because many many central

banks are linked they're not

independent of their of their

governments like they are here in the

united states

supposedly but we won't go down that

rabbit hole uh

so what you're saying is what if you

have a bitcoin

you don't have this risk of uh

these these crises in maybe venezuela or

zimbabwe because there's no way you can

have hyperinflation because you're

really pegtile

uh you know supply and demand driven

economy and you could actually

stabilize emerging markets by using

bitcoin

outside of the big four as you mentioned

that's exactly right

um and there i think really interesting

points that you bring up

um that we can break down a little

further um

i'd say the first thing is uh yes

bitcoin being

uh a borderless um sort of asset and

network right where it works

in the exact same way it works anywhere

around the world

and it's in one that what the one that

no one controls

um i i'd say the second is in

talking about the hyperinflation in the

zimbabwe in venezuela

really just brings up the broader point

of how all of the

monetary discretion that humans have is

a slippery slope

um i can tell you that zimbabwe never

really considered that they were

that their currency was going to be

hyperinflated it was just the complete

mismanagement

of that um and so if you even think of

like

the argument of the recent injection

uh of stimulus um where you know even

you know the usd's base is exponentially

increasing it's gone parabolic just this

year um

you know what's not to say we're not

going to see even more unconventional

monetary policies and

you know what people like to call qe

infinity right it's just going to

we're just going to sort of inflate our

money away and obviously that's

that's definitely you know much more

simplistic than than

than reality but it's to say that like

you know this is a new paradigm

the economy is going physical to digital

i

i think that we're going to look back at

this and

believe that like fiat currencies in

general was just such an absurd concept

where

we're going to tell ourselves really we

i can't believe

that we left the decision

of monetary issuance

in the hands of a few people like that's

that's sort of the that's sort of the

i think the framing and call it you know

past our lifetimes

um and and then finally uh

sort of where how bitcoin can sort of

evolve as this grassroot movement in

emerging markets

is what what we're starting to see where

you know you have these

parallel economies emerge um

uh that end up demanding a more

uh predictable asset uh than what their

current

uh regime offers um

you know if you were to ask a venezuelan

what they would love they would love the

dollar

if they could get the dollar they would

love the dollar um

but there are strict capital controls

and they're you know very

sort of difficult um avenues to access

it

um you know bitcoin perhaps provides a

second alternative where businesses

start to demand

uh bitcoin instead of you know their

fiat currency

and it just becomes a spiraling effect

from there

um another reason why it's so compelling

and i'll finish off by saying this

in in what you alluded to is

bitcoin represents more than the

separation of money and state

bitcoin represents the separation of

property rights in state

where wow the enforcement of ownership

in bitcoin is not from a

top-down local authority it is enforced

by cryptography

you have access to a private key you own

bitcoin and no one but that private key

is going to dictate whether or not you

own bitcoin

and so it goes back to bitcoin being

this sort of borderless

um neutral platform where

it doesn't distinguish identity based on

ip address or geography or

email it is private keys um

and uh it doesn't rely on a

local authority to enforce the property

rights or that ownership

it has a completely independent property

system

um and so that's sort of why i think in

emerging markets specifically

uh we're going to start to see um a

compelling case to just hold bitcoin

especially because you can just do it on

a hard drive unlike gold

where you know it's you got to carry

chunks of it

if you want to own it yourself yeah

unless you lose that in a landfill

but uh topic for a different video that

one with that big story what was like a

quarter of a billion dollars or

something feel bad for that person

excuse me for a second so uh kathy

uh she sees this potential for the

federal reserve to have to

adjust their interest rate policy much

sooner because of this belief that

potentially we could see inflation

happening sooner

which is one of the reasons kathy sees

bitcoin as as a

hedge what if she's wrong and what if

the fed's right and what if what if

there is no inflation you know we see

these spikes

inflation goes away and people are like

well dang i was holding bitcoin for

inflation to come it's not happening

we're back to no inflation we're back in

our deflationary

you know spiral uh with thanks to

technology and

reduction of velocity of money we'll

screw it let's dump bitcoin

so i i would say bitcoin as an

inflationary hedge is only

one of the multitude of use cases for

bitcoin

um i think the very unique thing about

bitcoin and its value accrual dynamics

is that all use cases are positive some

and additive

so what i mean by that is if you're

owning bitcoin

for an inflationary hedge then that

means that the bitcoin that you own

cannot be owned for using bitcoin as a

remittance

mechanism or using bitcoin as uh

protection against arbitrary asset

seizure or using bitcoin as a

catalyst for currency demonetization and

emerging markets so there are all these

um use cases um in which i think that

the inflationary hedge use case even if

we were not to see

uh bitcoin uh the the u.s dollar um

you know in inflate the way that you

know maybe some are expecting

um there's still there's still a

compelling enough

case in compelling enough demand drivers

by which that that ends up being uh a

small

portion um of the bigger pie um

again we're not really talking about

bitcoin at a 20 trillion dollar market

cap here you know

what bitcoin is like a 900 billion

dollar market cap and kathy likes

it just feels big relative to what

though

it's like it's a big it's like a it's

it's a large cap equity stock if that

like to think that something as neutral

and permissionless

and as monumental as bitcoin is like

half of

apple like i i think that that's like

you know

it put things things into into

perspective uh

for sure um so yeah i i think that

you know bitcoin has had a very nice run

it really has and there are these insane

cycles and some people say that they've

never really seen

these parabolic rises happen as

frequently or as condensed as we've seen

bitcoin

but you know i think that it that this

is

a new paradigm for wealth transfer and

the preservation of wealth

um and you're not talking about like a

new paradigm like a ray dalio

uh the great d leveraging crash is

coming

no no yeah i'm talking like just a new

monetary paradigm uh

like you look at the context of monetary

systems

we started at barter and we went to gold

and we went to fiat i think that bitcoin

in crypto currencies uh seemed like sort

of the

next logical evolution in how we

um and how we settle economically

incredible why why not use staking

instead of energy transfer or is that

the direction we're going to

yeah again that that goes back to there

are no solutions there are only

trade-offs

uh so proof of stake is uh is an

unproven security model relative to

proof of work

um in you know we've seen ethereum

as uh kind of the the the

the poster child of some of the

difficulties in transitioning from proof

of work to proof of stake

um and how it becomes much more of a

technical risk

um and then it is sort of this hard

base money asset that is predictable and

reliable and does a few things right

um so i think perhaps the future for

alternative networks that might

complement bitcoin

um we could see a proof of stake um

we could see a proof-of-stake-like

alternative

but for something that necessitates

um high security guarantees

proof-of-work in bitcoin um is unmatched

why like what i mean like i mean it has

ethereum had had issues or or like

i mean if ethereum hasn't had issues i

mean

ethereum ethereum ethereum has tried to

transition to proof of stake

uh since 2017. uh four years later

it's still uh it's still reliant on

proof of work

um the issue um in proof of stake

um you know there are a lot of uh there

are a lot of unanswered questions

um to basically um

successfully transitioning from proof of

work to proof of stake

um in a lot of ways uh

i'd say the simplest um explanation for

why there are questions around proof of

stake is because

um of its perpetual motion machine

like security guarantee what i mean by

that

is whereas proof of work

has explicit costs

that are independent of the network

mechanics

that are being used to secure the

network

proof of stake relies on kind of this

internal

snake eating its tail where

it relies on the underlying assets

themselves

to secure the network but the security

of that network is

only a function of the value of those

assets

and so it's this sort of back and forth

where to bootstrap that

becomes very very difficult um in the

incentive spiral

exactly you effectively can yeah it's

you can spiral

or or it's basically so quote unquote

secure where you have

everyone staking it and the value so

high that it becomes unusable

as a store value or mechanism to

transfer because most of it is being

staked

um and so there are definitely questions

uh around proof of stake i'm definitely

not the

i would say an expert in the mechanics

of proof of stake so i i don't want to

you know talk beyond just

um you know what what we've laid out

there but uh but what i can say

is that it it offers nowhere near the

censorship resistant

guarantees that a proof of work offers

because there

isn't that provable explicit cost right

miners for instance uh improved work

are spending billions of dollars up

front

to build out this network

whereas uh proof of stake ends up

perhaps even converging towards a

plutocracy

where you have just a few stakeholders

buying up all of the liquidity of the

network

um and and and bonding it uh to secure

the network

uh but then it becomes a matter of just

who has more money

versus who's willing to take more risk

and have skin in the game

in explicit costs to secure that network

so it's important if they call

themselves the fed and then start

manipulating the currency by being able

to release stakes or not

when you in when you incorporate

on-chain governance

into that aspect and that's part of why

bitcoin is is again

um so interesting is because the

governance mechanism is just

so dispersed that it's hard to

centralize control but if you

you can imagine a scenario where you

have a network that also has

a governance on-chain governance

mechanism baked into the network

where the largest holders are the ones

dictating the future of that network

and so to your point it basically ends

up

returning to status quo um where

the the people who are able to buy it up

are the ones who are controlling the

network

whereas with bitcoin it doesn't matter

how much bitcoin that you hold

um you are no you you're not going to

change the way that the network works

because your security is not bound to

your holdings why can

blockfi or some of these other companies

voyage or whatever

why can they pay me six percent interest

just for holding

bitcoin there is this is this bit

connect all over again

is this a ponzi what's going on here

yeah that's a good question

uh i i would say a few things that the

first is

there's a there's a mis a

misperception between offering

annualized rates

and annual rates so like

what's funny is like the six percent

annualized it's

at any given time but you're going to

see massive fluctuations that

might end up converging towards two or

three percent over the year

um the second thing is that you know

there is huge custody risk

um and people are taking massive risks

by

custodying it um in um

you know a in in sort of a counter party

and so i mean

we and we've seen we've seen like hacks

and leaks

um and security leaks from

users who end up trying to generate

yields

by going to these more esoteric products

um with blockfi specifically

um again i'm not i would say i'm not the

perfect person to speak but

i i've like followed zach prince who's

their ceo and

and they've done they've done tremendous

things they're doing uh

they found an inefficiency in the market

um and i think because we're so

early and crypto first companies aren't

actually

as integrated into the traditional

financial system

as what we might see you know in a few

years

there's still some significant arbitrage

opportunities

that users are capitalizing on i expect

those yields to

basically converge to kind of

traditional savings yields on

on checkings or savings accounts and and

traditional banks

but uh the risk it's just you know much

much higher risk than like you know

putting it on a jpmorgan you know two

percent uh

uh savings account or whatever it is now

they

they say that they take this uh

that 95 of their crypto or the crypto

you have with them is put onto like a

gemini

cold storage uh account or whatever

wallet uh and that five percent is in a

hot wallet which then they have

insurance for

is this just like marketing bs or or no

there there's merit to that

there there there's yeah most exchanges

so you can think of that in the context

of like

uh block fi uh i'm sorry you can think

of

block find the context of like a

traditional exchange

right where most exchanges are also

storing their

um their bitcoin and cold wallets

um and are projecting what sort of

liquidity

um uh on a daily basis would be required

to be stored

on hot um that um

that would that would basically allow

them to facilitate withdrawals

if uh if users request it um but you can

kind of see a slippery slope here where

um if you saw a potential equivalent

bank run on exchanges

uh it would be very interesting to see

whether or not they could meet that

demand

so imagine every single user on like

block buy

wants to suddenly withdraw all of their

assets

you know could could block fight

potentially

meet that meet that request um

and so that's why in general you know

users tend to

um you know are are encouraged to

um keep as much of it in self-custody as

possible

uh and then ultimately play around with

you know generating yields on

exchanges or service providers that

allow for that

um with a much smaller portion of total

uh holdings

got it got it that makes sense uh so

another question that i have

is let's see here

is it just impossible basically to get

into the business of

mining because there's so much

competition like

it can can somebody just go on amazon

and buy a you know a miner or whatever i

don't know wherever you might buy it

and actually be competitive no

i definitely cannot go on amazon and buy

a miner and be competitive

and that goes to show and we've written

research about this but the evolution of

the mining industry

which really started off as like a

hobbyist activity where if you had asked

me this question 10 years ago yeah you

could mine bitcoin from the cpu drawn

from desktops

and then as soon as people start to see

the evolution so we went from

cpus to gpus to fpgas

to now asics or application specific

integrated circuits

who um the hardware has a sole purpose

of

just mining bitcoin so mining has

evolved from a hobbyist activity

to um a professionalized industry

uh where you have extremely large-scale

data centers

that are in like the tundra

mining bitcoin in these plants that

require

you know specialized services for

maintenance for operation

uh you know long-term leasing and

purchase power agreements

um so yeah mining bitcoin is definitely

an industry in and of itself and one

that requires

um extreme expertise where you know your

typical enthusiast

you know has no business uh being

involved in

got it okay i know you've got to go soon

so i want to ask you one more question

is there a future uh and

i don't know if you can answer it is

there a future of expanding

your investments uh into other cryptos

or are we sticking to the btc

yeah i think um we we're certainly

interested in other crypto assets um

we're also interested in in

figuring out ways to gain more efficient

exposure

um to the opportunity um and so

um you know that's that's sort of part

of my role is thinking about it

um uh but i think in in general you know

bitcoins the reserve asset of the crypto

asset ecosystem

uh for institutional investors um you

know getting in on bitcoin is is is

is likely the sufficient enough to gain

exposure to the entire opportunity and i

think ethereum specifically is

a is it makes an extremely compelling

case for being a compliment

um and in general you know other assets

that are being built on top of ethereum

um as well make a compelling case

uh and you know any asset that provides

monetary assurance but that is unique

enough

in its ability to provide that monetary

assurance than bitcoin is

um you know we're not smart contracts oh

sorry i was just gonna say will smart

contracts at ethereum come to bitcoin

um i don't think so as i don't think as

as effectively as as ethereum has

because again ethereum has made

explicit trade-offs um where it is not

nearly as secure decentralized but it is

much more composable and you can have a

lot of feature sets

i think that we're going to see a bridge

between bitcoin and ethereum

um i think that there are certainly

efforts uh

to build smart contracts on bitcoin

but ultimately i i believe ethereum will

end up taking most of the share um

of sort of smart contract applications

60 seconds on nft's and then we got to

go

logan paul raised three million dollars

on a trading card he digitally created

why like can he just make five more and

then dilute the value of that one i mean

like

how about and i know you guys are logan

paul

logan paul gets it i think he's one you

have to think of it in the context of

he's a content creator

he's on the cutting edge i don't know if

you've been following his sort of

pokemon

rabbit hole uh in general

you have to think of these as uh

actually in a lot of ways

philosophically aligned with bitcoin

in that value is subjective people

like what others can't have when you

have a world of abundance

especially in the digital world and you

can have

provable scarcity even if that scarcity

is issued by a single individual like a

logan paul

you know people want the next big thing

they want to feel like

they are the status symbol it's like the

same thing of like

why are you gonna buy picasso can't

picasso paint a ton of other paintings

well it's like

well no picasso has a life uh and he's

now

passed away and he's only had a finite

number of paintings

and people render his his art as being

valuable but all of that is subjective

um

so that's more of a human

psychology question than it is is logan

paul crazy

i think nfts um are are definitely

uh there's there's definitely a case to

be made we've definitely gotten

overheated we're seeing a lot of

exuberance here um but i expect

uh digital watermarks uh that are

provably

scarce uh to be uh

an up-and-coming use case in the next uh

five to ten years

amazing absolutely incredible interviews

super insightful i know you've gotta run

how do people get in touch with arc uh

and give uh give a shout out to the

company sure you can just go to

arc-invest.com we have a website we

publish

blogs uh and then we obviously have our

twitter archinvest

and you can follow all the analysts as

well on twitter

absolutely amazing thank you so very

much for your time

uh folks if you've enjoyed this consider

subscribing and sharing

thank you so very much again i look

forward to having a conversation again

in the future

thanks kevin great for being here

you