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The Master Investor Podcast with Wilfred Frost
CRYPTO BONUS: Cathie Wood pt 2 - Why Bitcoin Will Always Be #1 Cryptocurrency
00:15:55
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- [00:00]
A
We don't think there are going to be very many cryptocurrencies. In fact, bitcoin owns the cryptocurrency space when it comes to pure crypto. Bitcoin is the cryptocurrency and we think it's going to be the biggest one by far. By far.
- [00:20]
B
Welcome to the Master Investor Podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders and politicians in the world, giving you, our listeners, an edge. Welcome back to Cathie Wood as well, who we caught up with earlier in the week and she's still with us for a bonus crypto conversation. Cathy, thanks so much for sticking around.
- [00:41]
A
My pleasure.
- [00:42]
B
So you are a big believer in crypto? Of course. Are you a believer in all cryptocurrencies or only certain cryptocurrencies?
- [00:51]
A
No, not all crypto or supposed cryptocurrencies. We don't think there are going to be very many cryptocurrencies. In fact, there's cryptocurrencies and then crypto assets. Bitcoin owns the cryptocurrency space when it comes to pure crypto. And now we have stablecoins which are cryptocurrencies as well, but they are tied to the dollar because they're collateralized primarily by treasury securities. So bitcoin is the cryptocurrency and we think it's going to be the biggest one by far. By far. Now it's focused on, it's a monetary system, rules based. The rule is quantity theory of money. So 21 million units, that's where it's stopping. And we're at about 20 million units right now. So that's quantity theory. Stablecoins are based, as I mentioned before, on the dollar. And if you can find a way to use those stablecoins, which you can in the decentralized finance, in defi decentralized financial services, you can earn money, you can earn money from your stablecoins. Just this last week Coinbase introduced a product allowing hold holders of USDC who do not get the interest payments. They're not allowed to by regulation, but they're allowed to lend or to loan their USDC in the DeFi ecosystem and they can earn as of last week 10.4%.
- [02:35]
B
So I want to get into stablecoins as a sort of idiot's guide if you can, for me, because I can see the argument why a dollar denominated, easy to move around asset is attractive. Whatever people want to say in the underworld or in certain countries where Assets might get seized or whatever else is the case. What is the argument for someone that lives in London or someone that lives in New York? Because you can transfer a dollar with great ease or a pound with great ease, earn interest, have it backed by the central bank and the government. What's the advantage of doing that via a stablecoin if you're in one of those countries.
- [03:21]
A
And you're right, there are two major stablecoins today. Tether is primarily outside the United States and outside Europe. Now after mica, or do you call it MICA or Mica either. I don't know. Okay, the regulation, so it dominates the two have 90% of the market circle is quote unquote more regulatory compliant certainly in the United States. And there is a euro version of USDC in Europe which has not taken off. So those are the big two. Now why would we in the developed world, you understand, the emerging world and we thought bitcoin was going to serve that, that role. So stablecoins coming along has taken some share from bitcoin which we didn't expect when we did our original analysis. So in this world what we're doing is taking the middlemen out of financial services. And what are the middlemen? You know, incorrectly or in a not fair way. I used to say these are the toll takers. It almost sounded nefarious, which it's not. All of those middlemen in the traditional financial world are there to lower risk, the risk of a transaction to the various financial institutions participating. When we move into the world of blockchain technology, it's peer to peer. The middlemen go away. So the way I like to describe it in a way that's more understandable, you know, for credit cards it's automatic 2.5% tax on each transaction. Again, function of middlemen that doesn't have to be anymore. We will and the tax will be anywhere from 2.5% or 2% to 4% in the developed world or 25% if you're doing remittances in the developed world, like say Nigeria. All of that flattens out and goes to fee based to the blockchains which will drop to 1% or less.
- [05:45]
B
Where are those fees at the moment? Because it's not like the cost of crypto mining and transaction costs at the moment hasn't got down to 1% yet.
- [05:54]
A
No, no, no. All of this is going to happen over time. I mean, yes, if you're operating in the world, crypto just. I just gave an example of usdc a person saying, hey, Personally, I can lend that out for a 10.4% rate. I'm not going to get that anywhere else. So that's one side of it and that's kind of a saving rate. And those who are borrowing at 10.4% could never get that rate. They're too small that banks won't have anything to do with them. So that's the other thing that's happening because of DeFi. It is those who could not get loans or the loans would be prohibitively expensive now can and savers on the other hand who are loaning the money out, they get a much better yield.
- [06:57]
B
On their savings, but obviously take a bigger risk than placing that bigger risk in a bank.
- [07:03]
A
But these are transparent ecosystems and many loans are over collateralized and we learned this during Three Arrows and Luna and that whole meltdown. Anyone who was on chain, their collateral was wiped out right away, meaning the financial institutions got their money back. If you were in the opaque and very centralized FTX ecosystem, you lost all your money. So it actually was safer to be on chain than to be at ftx, which of course was a fraudulent company.
- [07:49]
B
Let's touch on Bitcoin versus Ethereum because we had Tom Lee on a few weeks ago and he's a bull on Bitcoin, but he's even bigger bull on Ethereum. He thinks will surpass the size of Bitcoin. Why is he wrong on that? Why is Bitcoin always going to be bigger than Ethereum?
- [08:04]
A
So Bitcoin serves three roles and. Yes, and we would differ with.
- [08:12]
B
I know you get on very well with Tom and.
- [08:14]
A
We do, we do, yes, yes. So the three roles, Bitcoin as I mentioned and is the global monetary system, rules based, quantity rule to be sure. And that alone is a very big idea. It is also a technology. So layer one blockchain technology, never been hacked. The other blockchains cannot say that. Right. And so that's why the monetary system is based on it. And it is the first of its kind in a new asset class. We wrote our first white paper that in 2016. So a new asset class. So it's got three very important attributes to it. I do think that Ethereum is playing a very important role and therefore Ether, the native currency in the DEFI ecosystem. A lot of the fees are going to the layer 2s. Robinhood, for example, announced that it was going to start its own layer two like Coinbase has. It's called base. They get a disproportionate amount of the fees. Now the question Is are there going to be so many layer 2s out there that they're going to start competing against one another and confer more importance to the Layer one? That is a possibility. And that is why we're invested in Ether and we do think it powers the defi world. But I think these competing interests are maybe something that Tom and I can debate a little bit.
- [10:03]
B
And they're always great debates when you have them.
- [10:06]
A
Very friendly.
- [10:07]
B
And I know you're a buyer of Bitmine, the company Bit mine.
- [10:10]
A
Absolutely.
- [10:10]
B
Chair of. What about. Is there a long list of other cryptocurrencies that you believe in or is it actually a handful only?
- [10:20]
A
It's really only a handful so far.
- [10:23]
B
Which are the other ones?
- [10:24]
A
Well, of course, we've got Bitcoin now in our public funds. These trades are public, so I can tell you our exposures are Bitcoin, Ether. We are finally able to get an acceptable, from a regulator's point of view, way to play Ether. And we chose Bitmine Immersion and then Solana is the third one and we can talk about that as well in terms of its role that one is through. Well, it's Brera Sports and everybody thinks I or ARK just bought a bunch of sports teams, which we did not. This is the company into which Soulmate is a Solana treasury is being folded and supported by the UAE Middle Eastern. And my mentor, our advisor and my friend Art Laffer is on the board of that one. So that's been very interesting. So those are the big three, Hyper Liquid, as the new kid on the block and we're waiting to see how that all plays out. It's exciting. It reminds me of Solana in the earlier days and Solana has proven its worth and is there with the big boys. So those we think are. And then of course there are other services, aave, like Money Market Fund and Uniswap and a few like that, jito, which is related to the Solana ecosystem. So we will play certain derivatives. But if you're talking about the. The big boys or girls, those are the big three right now, because we're.
- [12:15]
B
Nearly out of time. I just wanted to come to get your view in the end on Gold, because it's actually a really interesting day for us to ask this question. Gold and silver are up significantly, of course, we're recording this on Monday this week. And bitcoin and Ethereum 45 minutes ago when we started, the conversation were down quite sharply and it's not often that we've seen those two trade in that same way on the same day. Do you think the argument for gold is sort of stronger than ever in the. I mean, clearly the performance has been very strong this year. Where do you stand on it relative to Bitcoin?
- [12:50]
A
Well, we don't own it and we're not saying it's going to be a bad investment either. It's just not what we do technologically enabled disruptive innovation. But with my economics hat on, I always take the performance of gold seriously. Typically it is a harbinger of inflation. I don't think that's the case this time. We monitor something called the metals to gold index. So metal prices to gold prices that has dropped below.0809 levels. And it's got me actually worried about, okay, what is going on out there. And it could be related to China and they're still going through a deflationary unwind of the property, the property speculation there. I think what's happening with gold this time around is geopolitical risk. And you'll notice on Friday night all of the chaos around HB1 visas, right? And I think that uncertainty looks like, oh my gosh, all of the, you know, the foreign students, you know, from India and China and their parents and looking at this saying what, what is going on? And personally I think it's just a negotiation with India that's going on and this will all be fine because we don't want to lose the best and the brightest from anywhere around the world, despite what, what you hear, the rhetoric you hear right now. So I think that's all going to change. But it doesn't matter. The headlines are blaring and people are saying, okay, what do I do? And people with a lot of wealth, so maybe older generation are maybe shifting some into gold. They're not probably putting it into the digital asset world.
- [14:46]
B
Well, Kathy, we are out of time. I've taken you for longer than we were meant to run. It's been such a pleasure to catch up in person. And a reminder to people that the full length episode dropped earlier in the week as well as this crypto bonus episode. Next week on the Master Investor Podcast we will be joined by Freddie Late, the founder of Latitude Investment Management. Make sure to tune in for that one and if you've enjoyed the conversation, please do subscribe and leave us a five star review. A reminder that nothing you've heard on the Master Investor Podcast should be considered direct financial advice. More on that in our show Notes if you'd like to see it. The Master Investor Podcast is produced by Paradine Productions and Master Investor Podcast Ltd. In association with Birdlime Media. If you've enjoyed the podcast, please do subscribe on YouTube or click follow on your podcast platform, and then you'll be automatically notified each time a new episode drops. Next week, we'll be with Freddie Late. Once again, a double thanks for two episodes with Cathie Wood. Thank you so much.
- [15:50]
A
Oh, thank you, Wilfred. It was fun.