Bitcoin Will Replace Gold & Other Predictions Explained (w/ Barry Silbert & Raoul Pal)


BARRY SILBERT: Younger generation investors do not view
gold the same way that my parents or grandparents did. There are still very few break out examples of how
blockchain can or will be used for non-speculative, non-financial use cases. The thoroughness that you see in other asset class
research does not yet exist. If history repeats, which doesn’t always- but if it does,
you would expect that the all-time high of 20,000 will be taken out in this next run. RAOUL PAL: At the very beginning of Real Vision, we cared
about cryptocurrency. We thought there’s a future in it that was going to be an
important future of the financial system. And we’ve gone through some booms and busts. But that
whole narrative is still very important to me personally, and I think to Real Vision, and to many of you in the
financial world. We know it’s not going away. And one of the first guests we ever had on that brought us
into this crypto world was Barry Silbert. Barry’s an old friend, and he’s a great thinker in this
space. He understands the juxtaposition between financial markets
and the digitization of assets and cryptocurrencies and blockchain and all of these things. He’s been a
pioneer in the field. And it’s super nice to get him back on so we can just kick
around the tires of this space, and really see what’s going on. It build on from the Mike
Novogratz interview that we did back in October, where it starts to build on the story of where this is
really going now. And as we know, this is not a very straightforward
journey. It’s a very complex world we’re developing here, but an exciting one. But one of the key things is Barry
started an advertising campaign that to many of you is going to be the worst thing ever. It’s questioning the value of gold and raising the value
of cryptocurrency versus gold. And I think just to start off, I want to show you that
commercial, because it’s going to get some of your blood boiling and
others thinking, yeah, this is dead right. SPEAKER: Why did you invest in gold? Are you living in the
past? In a digital world, gold shouldn’t weigh down your
portfolio. You see where things are going. Digital currencies like Bitcoin are the future. They’re secure, borderless, and unlike gold, they actually
have utility. Leave the pack behind. It’s time to drop gold. Go digital.
Go Grayscale. RAOUL PAL: Barry, good to get you back. We figured out
just now that it was what? December- BARRY SILBERT: 2014. December 11 of December ’14. RAOUL
PAL: Wow. So, it’s a long time ago. Because we’ve been massively big supporter of crypto,
blockchain, the whole thing. And you were really almost our entry into that world. BARRY SILBERT: Right? You guys have figured it just
launched, right? RAOUL PAL: Exactly, three months prior. And so, where was
Bitcoin then? BARRY SILBERT: 350 or so. RAOUL PAL: And where’s it today? BARRY SILBERT: About 8000. So, I got to re-watch the
interview. And I guess we’ll do a victory lap right now and say I was
probably pretty, right. RAOUL PAL: Yeah, I think you can say that. And that’s with
a huge spike up and a huge drop as well. And it’s still being very right. Once to get you back,
just to pick your brains to find out where we are. We’re on this journey and it’s a long journey. We think we
know where we’re going. But we don’t really know. So, let’s start with where you think the journey is going.
And then we’ll back up to where we are now. And the stuff that you’re looking at. BARRY SILBERT: Right. Well, so I think let’s go back to
the for the past, I guess, four and a half years. So, in 2014, I would imagine the asset class was probably
only worth a couple of billion dollars. Today, Bitcoin is worth about 125 billion. I would imagine
that there were only a handful of exchanges- RAOUL PAL: In fact, your investment trust is worth- now? BARRY SILBERT: 2 billion. RAOUL PAL: The same size, different times. BARRY SILBERT: Indeed. Yeah, that’s true. And, yeah, good
to be a first mover, I guess. Yeah, so there were probably only a handful of exchanges
that you could trade off of, there was no institutional involvement in this space. When Bitcoin was discussed on popular media, it was always
described as tulip bubble Ponzi scheme. So, still quite a bit of that, I guess. And then, yeah,
you fast forward- RAOUL PAL: And it was also the criminal element, it was
always going to say, it’s the currency of criminals. BARRY SILBERT: Silk Road, probably, yeah, Silk Road
probably existed at that point. And there was this perception that Bitcoin was only used
by criminals. And so, fast forward to today, it’s different. I think the
asset class, look, the asset class is here to stay. The asset class, as defined as digital assets, which would include both digital currencies and these
token investments. So, the asset class is here to stay. I think it’s now being looked at as potentially an
important part of a diversified portfolio. There are thousands of digital currencies and tokens that
are out there, most of them we’ll talk more about- you don’t want to touch, but there’s thousands of ways to
play the asset class. And the infrastructure, the infrastructure comparing it
then versus today, you’ve custody solutions now like institutional grade
custody solutions, you have trading software, you have data and analytics, you have fantastic media
editorial coverage. And so, I think the asset classes really ready for the
next phase, which it seems to me is institutional money moving into
it. We’ve seen hedge funds dabbling. We’ve seen family offices dabbling, but the pension funds
and the endowments and the insurance companies and the central banks and all the deep pools of capital
haven’t really touched the asset class yet. And I think that that’s next. RAOUL PAL: Do you not think it needs a clearer use case
for them? Because there’s so much theoretical use case. You and I was just talking off camera, everybody we know
involved is investing in companies who have use cases. And it’s in that dark period of everything’s being
developed, nothing’s really come to market yet. What do you think about the use case for all of this? Or
does it just become a trading asset? BARRY SILBERT: So, we, as a digital currency group, my
company we’ve invested in 145 companies now. And so, we’re the most active investor in this space and
so we have pretty good visibility and insight into what’s working and what’s not working. And I continue to believe that the number one use case is
speculation right now. And that is not a bad thing. In that one, I think Bitcoin is going to controversial
opinion here is going to displace gold over the next couple decades in terms of the role that
gold plays in a portfolio. RAOUL PAL: We will come back to that. BARRY SILBERT: Yes. But separate from the story value gold
play, I think that in order for Bitcoin and digital currency to provide the utility that people are excited
about from a cross-border payment perspective, remittance perspective, all the friction that could be
eliminated by the free movement of money around the world, not possible unless the asset class- the
size of the asset class is larger, unless there’s more volume and velocity in the on ramps,
the off ramps. So, initially, the number one use case is speculation. As a market cap grows, you have more liquidity going in
and out of different fiat currencies. And eventually, you’ll have the ability to operate as an
individual or as a business exclusively in Bitcoin or digital currency and completely eliminate or bypass the
middleman and all the friction all the costs, but none of that becomes possible. You can’t create a
better financial system that eliminates all the friction and middlemen, when you only have $125 billion asset class
that trades $5 billion a day. It’s just not big enough. RAOUL PAL: And that’s an interesting point. So, you think that speculation is one of the good ways to
build the culture? BARRY SILBERT: It’s the only way. It’s the enabler. It’s
the flywheel effect. It has to grow in value. And as it grows in value, it becomes more as a tradable
asset. And as it becomes more a tradable asset, you get the
derivatives and you get the futures and you get the infrastructure,
and then you have the liquidity. RAOUL PAL: But the argument is, is what are you trading
then? I guess the answer is you’re trading a future operability
or something, you’re trading the future use case I guess. BARRY SILBERT: It’s two things. One is if you buy into my
hypothesis that Bitcoin is going to displace gold and so you’re trading into an opportunity. So, there’s 8 trillion of gold and then there’s 125
billion in Bitcoin. So, that’s one play. And the other is you’re betting on the innovation. You’re
betting on the technology. You’re betting on the community. You’re betting on this new financial system that is going
to get built within a couple decades. And that, that investment thesis is a little- it’s a
different analysis. The gold analysis is okay, what is the probability that a
cash or some of 8 trillion and then you discount that back and you say, okay, it’s
got a 5% chance it’s going to happen, that it’s going to catch 25%, you could do the math, still
big number. Whereas if Bitcoin becomes the underpinnings of the new
financial system, all of the value that gets tied up in Bitcoin, as it’s moving around the pipes, it’s like a
working capital analysis. And so, if there’s five or 10 or $100 billion tied up in
the Bitcoin system as it’s being used for all these use cases, you can make some assumption as to what the
value of the asset class would be at that point. And that’s not even valuing the blockchain use cases using
the database for recording ownership around digital rights and identity and all the crazy ideas
that we’ve invested in and you’ve heard about. RAOUL PAL: So, you can you think of therefore, Bitcoin,
thinking through your idea with gold and other areas is, you need to think of it in terms of
option value. What is the probability of it ending up replacing gold?
And then trying to impute that. My guess is you could probably apply some option pricing model and come up with
some fair value whatever that means. BARRY SILBERT: Right. And these small changes in your
assumptions have a pretty meaningful impact on the outcome. And that’s why Bitcoin will move up or down five
or 10% in a week, because the very small changes in money flows, very small changes in perception changes
the probability of the ultimate outcome. And so again, with gold as the, in my opinion, the number
one use case, our digital gold, 8 trillion relative to 125 billion. For you to double your money in gold over the next couple
decades, essentially, it’s a bet against the dollar. It’s a bet against fiat currency. Certainly, on my belief that Bitcoin would perform well in
that environment, but really, more importantly, if the world doesn’t fall apart and if the value of the
fiat and US dollar doesn’t collapse, Bitcoin could and should still perform really, really
well, because you’re investing in this new financial system,
this technology, this community, this restructuring and rebuilding of the way that value moves around the
world, and gold is never going to have more utility. It’s just going to, or not be perceived as this store of
value that you put in your portfolio, that would perform well in periods of financial
dislocation. RAOUL PAL: Do you see- it used to be- people used to trade
the gold-silver ratio for a long time. And one of the reasons why silver often outperformed in
certain times is because it has two values. One is the precious metal value. And the other is the industrial value, because people use
silver for a lot of stuff. And you think of Bitcoin in the same way, should hyper
outperform in that magic scenario of devaluation of fiat currency, which probably at the end of the next
recession, we’re going to see some format of. But also, it has the price and the optionality of the
future financial system, which, as you go into recession and you get to more extreme monetary policy, the
probability explodes of having to choose a different
outcome. BARRY SILBERT: That’s a super smart way to look at it.
That’s absolutely right. Absolutely right. RAOUL PAL: Because one of the things I’ve been looking at,
just to cross our two worlds over is the Japanese now own most of their government debt. In the next recession, they’ll probably own all of it, which is a debt jubilee. So, what happens to the Japanese
yen? Probably collapses because of the boom, because all debt’s
gone. I don’t really know what that world is. But clearly, it’s been happening since biblical times,
this debt jubilee stuff. But in that environment, you think the Bitcoin has its
proof. That is the environment that it is absolutely there for. Because at the end of that, there’s going to be a huge
distrust in financial system, what asset is what, how can you just write off assets? And having blockchain
and the registration of assets and the storage of that data means that you actually get
to own your stuff. BARRY SILBERT: Right. And there’s been a little taste of
how Bitcoin may perform in I guess smaller example. So, Brexit, Bitcoin went up. Cyprus, Bitcoin went up.
Brexit, Bitcoin went up. RAOUL PAL: China now. BARRY SILBERT: China. Yeah. Look at the past couple
months, Bitcoin went up. And then certainly, plenty of examples where Bitcoin did
not go up when certain things happened. But it’s interesting that if you can think about- there’s
an interesting generational wealth shift that’s happening that I think many investors don’t take
the time to think about or analyze. And so, the numbers that I saw, there’s $68 trillion of
wealth that will be handed down in the US alone, over the next 25 years to 68 trillion. So, the question
is, as that value gets handed down from boomers to Generation X and Y and millennials,
where’s that money going to go? I would posit certainly that whatever is in gold, that
percentage is not going to stay in gold. Younger generation investors do not view gold the same way
that my parents or grandparents did. I grew up, we weren’t on the gold standard, I grew up in a
period time where we weren’t in war and have to worry about hiding value from the bad guys. And so, of the 68 trillion, whatever is in gold, is it
going to all go to Bitcoin? No, of course not. It will go into Fang stocks. And will go into the Uber and
things like that. But I do think that younger generation investors are open
to the idea that what they have been told, or their parents have been told about the role that gold
will play in their portfolio may not be right for the next couple decades. And if you look at the biggest buyers of gold recently,
who are the biggest buyers of gold right now? RAOUL PAL: Central banks? BARRY SILBERT: Central banks. So, what’s interesting is gold bugs love to talk about how
central banks are idiots. Said central bankers are idiots. Fiscal monetary policy
they’re doing yet then they run around and talk about how smart they are for buying gold. Over
the past five years, the largest increase in demand for gold has come from
central banks. Well, when the stuff does hit the fan, what do those
central banks do with their gold? Do they keep on accumulating? Or are they forced sellers?
They will be forced sellers. Are they going to use that value to prop up the currency?
I would guess that they’re going to sell off their gold before they start selling off their ports and
their airports and things like that. Okay, so that if the central bank demand disappears, we
know in periods of recession and depression that people will sell their golds to buy food and fund their
lifestyles. And from an industrial use perspective, I didn’t appreciate this until we launched this drop gold
campaign, the use of gold in electronics is down 30% over the past
10 years, down 30%. So, sales of smartphones are up like five or 10X and
tablets are going to be- so, electronics are up hundreds of percent, yet the use of
gold in electronics is down 30%. So, the demand for gold is basically jewelry and it’s
central banks. What happens when the economy turns down? I just don’t see where the buyer comes from. RAOUL PAL: Yeah, although I wouldn’t even have the
argument about gold, let’s say gold is a fixed value. Okay, let’s assume that it is. The argument, I think the better argument is, what is the
value of cryptocurrency in that environment? And I think the generational thing, I did a piece about
the pension crisis. So, I think part of that 68 trillion is going to get
absolutely obliterated in the next recession because baby boomers are forced sellers before they even
divest their assets to their kids. They’re going to be forced sellers, because they need to
realize some liquidity to retire on when it’s just a standard retirement process. And I think that that defensive financialization we’re
going to see part of is going to put that younger generation even further away
from public markets and all the stuff that we grew up with. And I think
they’re much more comfortable with private markets. I think that VC world and the PE world and then the crypto
world, the three worlds, they feel are more quantifiable and understandable to
them. BARRY SILBERT: Right. And it’s also much more accessible.
If you think about investing a private company stock, you have to be a high net worth investor. And you
typically only get access to deal flow that’s local to
you. Where with this new asset class and these thousands of
protocols and tokens and different players on the digital currency asset class, it’s global and it’s
accessible to anybody who has a mobile phone. And that’s exciting. RAOUL PAL: And also, if you think about the set of
opportunities that baby boomers had when they were in their 20s, right, they had the whole
demographic wave in front of them. And they had equities by 1982. Repeat of seven in the S&P.
They had interest rates at 15, 16%. So, they had the best setup in history to accumulate
wealth, right? Nobody’s ever been given that before. You cut to the millennial now, they’ve got the most
expensive stock market in all history. They’ve got bond market that yields nothing. They’ve got
real estate that is incredibly expensive that they can’t buy. They have the absolute inverse of
what the baby boomers have then. They have one thing, and that is crypto. Right. If there’s
one thing on a 38 pension retirement horizon that has the probability of going to a huge number, it’s
this area. That’s the way I think of it. Yes, there’s a whole bunch of other investments and you
could do VC and stuff like that. But if there’s one option bet that could pay off a
thousand x, it’s this. And so, if you’re a millennial, you forget gold, because
yeah, sure, gold may double. It may double again. But it’s not going to have the same performance over time
that cryptocurrency could if you get the right bets. Yeah, that’s how I’m thinking of it. So, when you’re looking at the investments in your
portfolio, the companies you’re investing in, talk to me about that landscape. Who’s doing what? Where
is this going? What applications? BARRY SILBERT: So, when I started investing in this space,
this would have been in 2012, there were literally five companies you could actually
invest in. There were not a thousand companies to invest in and so I
invested in Coinbase and invested in Ripple and invested in BitPay, and some of the companies that
have gone on to be the leaders in this space. And then I’ve had a few theses over time. And so, for a while I was investing in exchanges, and so
invested in 20 exchanges around the world. And so, the hypothesis was that the dominant exchanges in
any given geography or market, were going to be not a global exchange, it was going to be
whoever had the best banking-investors relationships locally. And so, we invested in 20
exchanges, and the consolidation has started. Then we started investing in companies that were using
blockchain for non-financial use cases, things like identity and provenance and supply chain and
digital rights and things like that. Lot of proof of concepts, lot of consulting type revenue.
But there are still very few breakout examples of how blockchain can or will be used for non-speculative
nonfinancial use cases. I’m still very excited about it. But the reality is a lot
of the use cases that people have identified, they’re just as well served with just a database or shared
database, so introducing the idea of a decentralized blockchain, especially with a token slows down and
complicates the proposition of it. Then we started investing in infrastructure around
trading. So, compliance software and trading software and data
businesses. And those are starting to gain traction now, because as there’s just growing demand for the asset
class, investors are just looking for lots of information. And then I guess, a recent area that we’ve gotten pretty
excited about were applications around gaming. RAOUL PAL: It’s the one thing I wanted to talk to you
about. BARRY SILBERT: Yeah, because there’s this- RAOUL PAL: Because this seems to be leading the way in
many respects, the digitization. BARRY SILBERT: Yeah, it’s interesting. I think clearly, gaming, e-gaming is an enormous trend in
the world today. And the younger generation of consumers are comfortable
spending a lot of their time in gaming. And so, what a blockchain enables you to do is create
something that’s called a non-fungible token, an NFT, which is essentially recording ownership of a digital
asset in a blockchain. So, think of it as a sword in a game or gold in a game or whatever is the value, and then
being able to monetize that or use it cross-games. So, there’s a lot of interesting businesses that are
starting to- RAOUL PAL: Sorry. This feels really tangible. I know it’s
not to us, because we didn’t grow up in gaming culture in the same
way. But seeing MPO, and this is a hugely tangible thing, a
digital asset is a real asset to many, many people. BARRY SILBERT: It is. And the question really is, are the
game publishers going to be okay with this? Because they make a lot of their money by selling upgrades
and things within their game, and they don’t want that value to be transferred like
airline miles. So, one of the areas that we have invested heavily, one of
the projects we invested heavily is that it’s going to make your head spin- is something
called Decentraland. So, Decentraland is a virtual world. It’s a metaverse.
It’s a play on our hypothesis that in the future, people are going to spend more time in a virtual world and
that virtual world will likely be VR-like goggles. And so, Decentraland is similar in concept to if you
remember Second Life? Okay. So, with a few key differences, number one, the land in
Decentraland is ownable. So, every parcel of land, you can buy and you can
speculate in the land, you can build on the land, you can lease out the land. RAOUL PAL: But is not infinite? BARRY SILBERT: So, it’s not. The supply is capped. And so,
that’s the other big difference from Second Life. Second Life was infinite. And it was a little- if you
ever- I logged in a few times and it was overwhelming. There was no urban planning. And so, Decentraland is a
grid the size of basically, Washington DC. So, you can own the land. And then there’s an in world
currency called mana, M-A-N-A, that is tradable like any other digital currency. And so, we have invested in mana, we’ve invested in land. And then we started investing in businesses that are being
built within Decentraland. We invested in a company building tools for people to
navigate the world. We’re looking at a media- there’s a media business in
Decentraland. There’s a Vegas district and so we invested in the Vegas district to help support the growth of that
district into- The hypothesis here is if a metaverse is going to exist,
if the Ready Player One World is going to exist, it can’t be owned by company, it shouldn’t be owned by
Google or Facebook or Apple, number one. Two is it is a platform for discovery, meaning if you want
to go ride a roller coaster in the virtual world, I don’t think that you’re going to go into a computer and
say show me a roller coasters in VR, you’ll put your goggles on, you’ll drop into the world, and there’ll be a AI avatar that will show you the way to
the roller coasters within the virtual world. So, the opportunity for landowners to monetize their land
is really interesting. There’s an advertising play there. You could have a whole
advertising network within Decentraland. RAOUL PAL: Even though it sounds extraordinary, if you
just step back to stuff like some of the computer games from the 90s and early 2000s, music stuff. They sold huge amounts of music on the radio stations and
stuff like that. There was huge hits made and huge revenue streams paid to
a bunch of people buying stuff in the digital world that cross into the real world. And just to give you an example about this is I didn’t
know how to navigate this thought process. I think Mike Novogratz have mentioned this to me as well.
And I didn’t know, understand this. And then I went to a friend’s house, one of the oldest
ones in the world. And it was a Friday night. And his son was in a room like there’s a glass room, which
was the TV room. He doesn’t watch TV any longer. He was playing- BARRY SILBERT: Fortnite. RAOUL PAL: Fortnite. And he had his headphones on. And I’m
like, what’s he doing? He’s on his own. It’s Friday night. He’s like, no, he’s not on his own.
He’s with 30 friends. And this is what they do is they get together online, and
then they are crossing the two worlds of the virtual world and the real world. So, like, I used
to hang out with my friends at the shopping mall, or whatever it was, or on the street on bikes. They don’t
do that, they do it online. These digital things have real value to them, because they
are part of that crossover of digital and real life. Once I saw that I said, but what about does he not get
unassociated, of course not, he plays football with his friends and does all the normal
stuff. But this is how they hang out together. And it’s actually made it easier because he’s hanging out-
there’s a friend of his from America and there’s a friend of his who lives in different part of
England. And they can all hang out together. I’m like, get it. BARRY SILBERT: And wait until they have some discretionary
income and they can start buying things and- RAOUL PAL: Which he’s doing already. Because his dad, he’s
giving him some money or pocket money, whatever. Mows the lawn, and before you know it, he buys something
as a digital asset. BARRY SILBERT: And this is why Decentraland is so exciting
because people are building. They’re building houses and castles. They’re building for
vanity and for ego purposes. They’re building in this world and they’re now able to buy
and own and display these NFTs that they’re now buying outside of Decentraland. They’re
bringing it into Decentraland. And so, all of the gaming applications that are being
built where there’s an NFT component, Decentraland could be the place where you go. The
marketplaces are now popping up. So, you can go into Decentraland and buy and sell goods
for various games that are being built on top of blockchain. It’s a big
idea. It’s a really big idea. RAOUL PAL: It is. And I don’t think it’ll stick with just
gaming. I think they’ll be whole parts of our business world and other worlds that even the
scientific world that will end up being digital. BARRY SILBERT: Right, right. Well, part of Decentraland- So, there’s this Vegas district, there’s a university
district. And so, there’s now universities that are now exploring
how they can engage and educate in a virtual world. RAOUL PAL: What is the NAV of this new land? BARRY SILBERT: It’s relatively small. The value of the mana in circulation is probably about 100
million dollars. And the land- RAOUL PAL: So, it’s not even priced at the price of a high
quality game? BARRY SILBERT: Right, right, right, yeah. RAOUL PAL: Just think of it, those times, right, if you
just think it’s nothing but a game, but quite a good game, that’s still cheap, because a good game like Grand
Theft Auto is worth a billion dollars plus. BARRY SILBERT: I think Decentraland could be as big as
Google. It’s a platform play. It’s a platform play. RAOUL PAL: Wow. Wow. Okay. So, that’s another question
let’s come on to is Google and Facebook now moving into crypto and privacy. I’m very interested in Tim Berners-Lee’s new internet. And there’s a whole world where I think the internet
blockchain, the whole lot have to mix. Because we need to own our own data as humans and be able
to decide whether we sell it or not to others. Because basically, things move so fast in 10 years with
Facebook and all of these platforms that we didn’t know what was
happening. And now, everyone’s figuring it out. And you can just see the DOJ are about to get involved.
And they’re all going to get broken up in the end because they’ve got way too much power, and particularly
way too much data, which they own, and we don’t. So, what do you think about that? And how’s this whole
world going to play out? Because I think this is enormous. BARRY SILBERT: And so, the next investment thesis that we
have to focus in and we’re focusing on right now is actually is privacy. From an investment perspective,
we’ve invested- there’s only five digital currencies out of the thousands out there that we’re excited about
that we invest in- it’s Bitcoin, it’s Ethereum Classic, it’s mana, as we talked about. And then there’s two
privacy focus projects. One’s called Zcash, which is basically private money, and
then something called Horizon. And the token is called Zen, Z-E-N. And Horizon’s interesting, because it’s a platform for
privacy focus applications. So, it’s private money, it’s private file sharing, it’s
private messaging, it’s private internet access. So, Horizon is something I’m really excited about because I think it’s going to play right into this
important narrative, which is people are- they’re going to want to own their information, they’re going to want privacy as relates to communication
and financial transactions. But look, it’s going to be a challenging road for any of
these privacy focused protocols. Because as they have success, there’ll be quite a bit of
pushback from regulators and law enforcement, and stakeholders like that. But look, ultimately, I do think that people, while they
do value privacy, they also value free Facebook, free Google and free use of all these different products
and services. So, I’m not really sure how you address the monetization
question for these platforms if you start taking away from them the information that
they have access to and they’ve been selling. RAOUL PAL: So, how do you think about this world that’s
now coming to light? And there’s two parts I’m interested in is one is who deal
with all these currencies? What research platforms? Because people don’t really know the relative value of one
versus the other, which is why it’s so volatile. That’s interesting, and then trying to figure out the
world with all of these forks, I’m not sure what the value proposition is in terms of how do you keep hold of a
value of something when it keeps bloody changing? BARRY SILBERT: On the question of forks and the
proliferation of all these different tokens of projects, I view it like it’s Darwinism of money and value. And
ultimately, it’ll be survival of the fittest and as these various projects- and I think forking is becoming less
common because there were a few forks that everybody won and then there’s been some more recent forks where
everybody’s lost. So, I do think that it’s actually a good thing to see
these projects splinter because whatever is the survivor, if any of them survive, means that it’s been tested, it
means it’s been challenged. And for these protocols or tokens to have value longer
term, they have to be challenged. RAOUL PAL: But that’s a hard trading environment. BARRY SILBERT: Oh, of course, of course. Of course. Yeah.
Well, this is why we only own five ahead of or have any meaningful amount of money in five out of the
thousands. RAOUL PAL: Because you are actually having to ask
individual investors become option investors, because many of these things go to zero. And some make
infinite wealth, right? BARRY SILBERT: With the last fund, so Grayscale, our asset
management business, we have 10 funds. And so, nine of them are the Bitcoin trust and Ethereum
trust and you have classic trust, the 10th one is a large cap fund that invests across
basically, it’s designed to cover the top 70% market cap of the asset
class. And essentially, it rebalances every quarter. So, we’ve positioned it and I think it’s been well
received as the first investment people can make in this space. So,
you don’t have to try to pick winners. Basically the bet is, is okay, if this asset class today
is worth 250 billion- RAOUL PAL: Like an index fund as always. BARRY SILBERT: Exactly, exactly. So, it rebalances every
quarter, you said it and you forget it. Your bet is that the asset class grows from 250 billion to
2 trillion. And if that happens, then you’ll make good return. RAOUL PAL: And so, if there is this trading and
speculative community that’s necessary for the future of
this, then something which you just mentioned briefly, is there
is no research. BARRY SILBERT: There’s no research. RAOUL PAL: Actually, does anybody know what- everyone’s
going to torch to their money if they’re not careful, unless somebody applies some
intelligent framework around it? BARRY SILBERT: Well, yeah, actually, let me rephrase that,
there actually is a lot of research, there’s a lot of commentary, there’s a lot of data analysis, but there
is not yet an opportunity for paid research because the market’s not big enough. And so, I think not
just the quality, but the thoroughness that you see in other asset class
research does not yet exist. But I think there’s absolutely some really thoughtful
analysis out there and approaches to the way to value these different protocols, these different assets. But
it’s still a very- it’s a nascent asset class. And so, some people will look at the cost of mining as
having some input or impact on the price of Bitcoin. Some will look at the number of active wallet addresses. Some will look at the number of adapt decentralized
applications on a protocol. These are all interesting inputs. Are any of them leading
indicators? I really don’t know, our investment strategy is we don’t
short, we don’t lever, we don’t trade, we invest. And then we do everything we can to create awareness and
drive utility for these protocols. And these investments, we’ll have these for 10 years plus. RAOUL PAL: But I’m guessing that there’s also a group of
people. I’m guessing people at Virtue and Citadel and everybody is starting to get involved in algorithmic
trading, machine learning, and that whole space. BARRY SILBERT: There is, and there’s always been money to
be made in the digital currency space doing cross exchange arbitrage. But the challenge has always
been you didn’t want to leave money on the exchanges. Because while you can make a really good return with these
arbitrage, you wake up one day and the exchange is hacked, or the exchange is cut off withdrawals or
deposits. But I think that that’s changing. I think over the next couple of years as the well run,
well capitalized, in many cases, regulated exchanges emerged from the pack, I think you’ll start seeing more
opportunities around cross exchange arbitrage. And then now, we’re starting to see the quants come in and
the arbitrators come in and build their models, and back test, and yeah, I’m definitely aware of people
making money in this space, but also it’s not big enough yet for the real players to
care, but we’re getting there. RAOUL PAL: And how do we stamp out the bad actors? If you
have a bit Phoenix and a bit Heather thing. And there’s a whole bunch of things that- BARRY SILBERT: Well, how do you define a bad actor? RAOUL PAL: I don’t know. There’s too much. I guess my
financial market background says I’d rather not let too many people who don’t know much lose too much money.
Being taken advantage of. There was a bunch of ICOs that were basically taking
advantage of people and yes, I like the technology. I like the idea. But to literally steal money from people,
I just think is wrong. BARRY SILBERT: So, I agree with you. Philosophically
though, I also think that at least in the US, our capital formation process is- I wouldn’t say it’s
broken. And we talked a little bit before about the way the public markets have changed. But today, there’s half
the number of public companies than there were in a decade or two ago, and you have to be a much larger
company to feel access to public market. And so, I think the challenge that the SEC has had is how
do you do executive- talking about how do you protect investors? How do you
support capital formation in the public markets, while trying to use the 33 and 34 Act or apply 33 and 34
Act type roles to an asset class in an environment that certainly was not in anybody’s mind 70 years ago? And
it’s hard. And so, what’s happening now is you’re seeing some
interesting experimentation happening outside of the US. And there’s certainly a risk that that experimentation
results in some important projects and products and businesses that are built outside the US. And so, from
a financial capital world perspective, there is a risk that that’s going to move offshore out of
the US. So, I don’t know. Ultimately, it’s- RAOUL PAL: But that’s a balancing act, right? It’s the
same with bioengineering. There’s a balancing act between what do you allow that
your society will take, right? So, massive fraud. In an unregulated world, massive fraud will also equal
massive innovation. And that balance it. But as a government, you have to choose where you are on
in that equation. And it’s same with biotechnologists. How much human
cloning will you allow or at what point? Yeah, it’s a complicated world. So, we’ve had a big run up in the price of Bitcoin in the
last couple of months. Maybe it’s China-related. I don’t know. Do you have any view why it’s done this? So,
just out of the blue? And secondly, what is your thought process over the next
12 months? BARRY SILBERT: I think there’s a few things that
contributed to the price run up. One is, just from a technical perspective and a chart
perspective, you’ve look at what happened. You had the blog top, you had the consolidation of the
bottom, volume dried up, volume started increasing, price started going up, started taking out some
resistance, and all of a sudden, you’re off to the races. And I think because Bitcoin has now gone through five or
six 80% drawdowns, only to hit all-time highs after each one. I think people
who’ve been in this space as long as I have, and others, we just view what happened as a buying
opportunity. And because the thesis hasn’t changed, in fact, it’s only
become stronger. So, I think if history repeats, which doesn’t always, but if it does, you would expect that the all-time high of
20,000 will be taken out in this next run. RAOUL PAL: Well, we don’t know if this is the run, it
could go down to 2000 and the gone through- BARRY SILBERT: True, but I think if you look at the past
four or five times that it’s done this, the chart looks similar. RAOUL PAL: Similar log scale. I was looking at that the
other day. BARRY SILBERT: Yeah, yeah. So, I think that that was
contributor. I think the China talk was a contributor. Look, I think our drop gold- we started a national ad
campaign. So, we now actually have television commercials that are,
look, it’s very much intended to be provocative around gold, but it is indirectly or and fairly directly,
I guess a commercial for Bitcoin. So, we launched on May 1st, the price of Bitcoin on May
1st was around 5000, today, it’s 8000. So, I think maybe we created a little bit of tailwind. And then I think what’s going to- over the next 12 months,
the catalysts for further upper price movements are number one, Fidelity is going to be launching their
trading solution, the ICE backed they’re launching, their trading solution, rumors of TD Ameritrade making
Bitcoin accessible on their platform. So, you have on ramps that are about to be launched. And then most importantly, that very few people are
talking about is the next Bitcoin halving. So, many people though the ones who are invested in
Bitcoin don’t know what the Bitcoin halving is. And so, here’s a quick tutorial. Bitcoin is created through this process called mining. On average, every 10 minutes, a certain amount of Bitcoin
is created and issued to the miners. When Bitcoin was launched in 2009, it was 50 Bitcoin
issued every 10 minutes on average. Roughly every four years, based on the way the code is
written, that reward goes out in half. And so, if you look at, it’s basically the inflation rate
of Bitcoin goes down in half every four years. RAOUL PAL: So, this is the difficulty rated mining. BARRY SILBERT: It’s not the difficulty rated, it’s the
reward. So, the difficulty rated go up and then Bitcoin
recalibrates so that it stays basically on this 10 minute creation
schedule. So, every four years, the inflation rate goes down in
half. So, the next Bitcoin halving is estimated to be May of
2020. So, roughly a year from now. If you’re an efficient market guy, you would say it’s
already priced in. Yeah, the last two Bitcoin halvings that have happened
after the Bitcoin price or the reward halved, the price of Bitcoin went up somewhere like five or 10X.
So, the question is, is it priced in? I don’t think it’s priced in because when I talked to
people who invest in Bitcoin, most of them haven’t even heard of it. And so, if it’s not priced in, the question is, when does
it get priced in? When do people start thinking about talking about the
Bitcoin halving events? My guess is, it’ll certainly be in 2019. People are not
going to wait until 2020 to start talking about it. And I think a lot of what is starting to happen right now
was the smart money, the early Bitcoin folks know that that’s going to be the
narrative going into 2020 so they’re getting involved in Bitcoin before it starts
becoming the story as to why you want to get in Bitcoin, before the halving
happens in 2020. RAOUL PAL: So, in essence, your 12 month view is Bitcoin
significantly higher? BARRY SILBERT: I reluctantly say yes. RAOUL PAL: Yeah. It’s a highly volatile market, you’re not
going to hold a gun a gun to your head, right? BARRY SILBERT: Yes. RAOUL PAL: And what do you think? The final question, the
Bitcoin-gold thing begs a question, what do you think the final value of Bitcoin is in
relation to gold? BARRY SILBERT: Over what time frame? RAOUL PAL: It’s funny, because I remember I wrote this
article a long time ago about trying to value- BARRY SILBERT: And you put a million dollars behind that,
right? RAOUL PAL: Yeah, does that still stand up? BARRY SILBERT: So, it does, except for in that
environment, a million dollars doesn’t really have much
meaning because of the value of the dollar not being from person-
power perspective, a million dollars today. RAOUL PAL: So, then do you look at it as a ratio between
gold and Bitcoin? BARRY SILBERT: Well, yes, but I absolutely believe that
over the long term, multidecade, I just think that gold is- it’s a fairly controversial
position to have. But I just think that gold has had its day, and I think
that Bitcoin in particular is going to displace it over multiple decades. And that’s
probably not a lot of people that thinks that, but I do believe that is- probably it’s going to happen. RAOUL PAL: Yeah. And I don’t disagree. But I also think that you don’t necessarily need to take
that bet, you need to take both. BARRY SILBERT: Of course, of course, absolutely.
Absolutely. RAOUL PAL: A world of both gives you that balance, and I’m
no particularly gold bug. In fact, I’m much more bullish on cryptocurrency over time
than I am on gold. BARRY SILBERT: I think the problem though is taking the
bet on both like you’re hedging the Bitcoin bet, but I just think that if Bitcoin has that level of
success, the gold will no longer serve its purpose. And ultimately, look, it’s pretty for jewelry. It’s
replaceable from the electronics perspective. So, if there’s a perception that gold is not going to do
what it’s supposed to do in your portfolio, it’s going to lose favor. RAOUL PAL: I’m just thinking, my God, the gold community
is going to hate you. And we’ve got quite a few on Real Vision. It’s going to
make you laugh. Look at the comments section. The outrage will be palpable. BARRY SILBERT: All right, I’m ready. RAOUL PAL: Yeah. Good. Barry, thank you as ever. Real,
real pleasure to sit down with you. And let’s see how this all plays out in the next coming
year or so. And we’ll get you back again soon. BARRY SILBERT: Look forward to it, thanks. RAOUL PAL: Brilliant. I’ve always said this about this whole space, it’s what you don’t know that’s developing is where the
really big opportunities lie. I thought Barry’s views about speculation, the importance
of it was something I hadn’t really heard before. But I also thought that this whole move into the
digitization space and the digital land space, I think that thing is something huge and I can’t yet get
my head around what this is going to be as our virtual worlds and our digital worlds and our real world all cross
over into something. Who’s going to own that? How does it work? The internet is owned. So, why can’t those virtual worlds be owned in a number of
different ways? And monetized in a number different ways. That is what all this digital currency is leading to, it’s
leading to somewhere in the future. Who knows when that future lies or where it lies, but all I know it’s going to be a hell of an exciting
journey.

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