WBD279 Audio Transcription
The Institutional Case for Bitcoin with Dan Morehead and Mike Novogratz
Interview date: Tuesday 17th November
Note: the following is a transcription of my interview with Dan Morehead and Mike Novogratz. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
In this interview, I talk to veteran investors Dan Morehead, co-founder & CEO of Pantera Capital and Mike Novogratz, founder & CEO of Galaxy Digital. We discuss their first Bitcoin purchase, institutional interest & what they expect from Bitcoin in the coming years.
“We’re just still in the really, really early innings in this thing. 100 million people have it, and we think that’s awesome, but there will be 6 billion people with it in 20 years”
— Dan Morehead
Interview Transcription
Peter McCormack: Good to see you again, Dan.
Dan Morehead: Yeah, great seeing you. I apologise for the delay. Sorry.
Peter McCormack: It's okay. Good to see you again, Novo. This is our second time, but your first time on the biggest Bitcoin podcast in the world, which is a bit of a delay.
Mike Novogratz: There you go.
Peter McCormack: But, Dan, I did the interview with Novo recently on the BlockFi event and he talked about you two knowing each other and I was, right, I've got to get you two together. What's the background?
Mike Novogratz: Well we went to Princeton together and Dan has a beautiful wife and I used to call her Big Devon, because she was a lot taller than me, and I would flirt with her and she would just give me the Heisman. I was like, "Who are you dating?" and it was this guy. So, I met him at Princeton and then at Goldman Sachs.
Then, we both got sent to Tokyo and so we lived about a block away from each other. He was at Bankers Trust. He was a hedge fund guy and I was a salesman, so I covered him. Then he switched to Tiger and I covered him. Then he became a macro portfolio manager and I was as well, and we worked together when he started the first version of Pantera. And so, it was a long and windy road, you know, 33 years.
Peter McCormack: Wow, since I was a small child. Dan, give me a story about Novo?
Dan Morehead: This is a professional broadcast, right?
Peter McCormack: You can say what the hell you want, I don't care!
Dan Morehead: No, it's been fun. We've been bumping into each other in so many different ways since we were 18 or whatever, and it's still the same. We're still doing the same thing together, investing in crypto. We've co-invested in a ton of deals together, we've had some good times, some bad times, and it's just been a blast.
I do remember, I was driving down the street in Tokyo. I had a Mazda Miata, you know, because you had to have a Japanese car in Japan, and I saw some guy out of the corner of my eye in a Princeton sweatshirt sitting on the stoop of his apartment. I back up and it's Novo moving in that day.
Mike Novogratz: The best part of the story is when we started looking at Bitcoin. I called Dan because we were thinking we wanted to get in at Fortress, we wanted to get in, but we didn't have the expertise or the time. Dan was family officing at that time, between jobs, and I called and I said, "Dan, look at Bitcoin; what are you thinking?" Two weeks later he called me back and said, "Dude, it's going to change the whole world; this is the coolest thing I've ever seen!" and he was just so ecstatic about it.
I had looked at it as a speculative thing and the God honest answer is, we started buying it when it was in the $90s, $95 or something, and I would have probably put in about one-fourth as much as did. But I said, "How much are you going to put in?" and Dan put in a big wedge of capital. At that point, Pete Berger and I, who were the other two amigos of the threesome, you know, Fortress had done well. We were certainly wealthier and we were like, "Damn, if he's putting that much in, we have to at least put $1 more than him!"
So, in lots of things in investing, if you get in at a good level early and you put a lot in, it makes the whole game a lot easier. So, I was talking to Pete about it and I was like, we bought like 90,000 coins between the three of us back in 2012.
Peter McCormack: Holy shit!
Mike Novogratz: Yeah, we weren't playing around! But, if we'd done a lot less, if we'd all done a third of that, you'd have made a third as much money probably, because it's hard; you feel like you miss things. You never really miss things, but you feel like you do. So, I owe Dan a lot for my Bitcoin fortune.
Dan Morehead: Yeah, so my brother introduced me to Bitcoin in 2011 and even gave me some from Bitcoin Faucet. Remember, Bitcoin was so unpopular that Gavin Andresen was giving them away for free? And I read about it and I had some libertarian interest, so I thought it would be really cool if it happened, but I didn't actually do anything.
Then Mike and Pete called and I came in for a coffee and I essentially never left. The coffee went for four hours and then they're like, "Hey, you can use this office right here", and I'm still actually physically still there seven years later. So, it's been just such a fun run.
Peter McCormack: Who's the bigger drinker?
Mike Novogratz: That would be me! Dan does all right, actually.
Dan Morehead: Yeah, you know, I go in spurts.
Mike Novogratz: He probably could drink more than me. I think I probably drink more days!
Peter McCormack: All right, well listen, look, we've got loads to talk about. Obviously, you guys invested early; very happy probably with your investments now. Quite an incredible year we're having. Actually, no, firstly can we just talk about politics because obviously, I'm a Brit looking in on your country right now, and Novo's sat there with, is that Joe Biden shampoo behind you?
Mike Novogratz: It's my Joe Biden water bottle right there.
Peter McCormack: Right, it looks like a shampoo bottle! So, quite a crazy situation going on; what's going on, man, tell me what's going on?
Mike Novogratz: Well I mean, Donald Trump is a very strange man, period, and he, pre-election, was seeding doubt about the fairness of the election for the exact reason that if he lost, he wanted to be able to argue that was a cheated election. He talked about Obama winning in 2012 as a cheated election. Even when he won in 2016, he talked about all the cheating that went on, hired a commission of Republicans; they looked at it and said there was no systemic cheating.
It's the same thing going on today. The results are in, they will not be overturned. This is Kabuki theatre for Trump to make himself feel good, probably to get some leverage as he gets ready for his next chapter in life. I think it's dangerous for the country. The markets are telling you, the equity markets, the bond market, the currency markets are telling you, "Don't watch the sideshow".
Biden and Harris are proceeding with the transition team and so I think this is literally the last cry of a little baby in a corner. But, it's embarrassing as an American, right? We've got overseas people looking and we've self-righteously told people how to run their elections so many times, "Oh, we'll send advisors", and now we've got this chaos. But, I don't think you should really pay attention from a markets' perspective.
Peter McCormack: Right, okay, fair enough. Well, the only thing I'm invested in is Bitcoin anyway. I guess for you guys, you're both, you know, long-in-the-tooth investment; you talked about Goldman Sachs. Dan, is there anything more exciting than Bitcoin right now as an investment; and, every time you invest in other things, are you just like, "Shit, I should have put that in Bitcoin"?
Dan Morehead: This thing is eclipsing everything out there, you know. For the next 20 years, I think blockchain will be more interesting than any other investment. For a while, Mike used to keep calling me and say, "Hey, man, what do you think about the Brazilian real?" or something. I'm like, "Dude, I can't think about anything else; it's 100% Bitcoin".
Back on the election, I do think it's important, the divided government with a Democrat in the White House and the Senate controlled by their opponents really puts all the heat on the Fed. It's the last kind of functional thing out there. So, I think the Fed's going to keep expanding its balance sheet, and that's going to be great for things you can't quantitatively ease, like gold or Bitcoin, or even real assets, or timber, whatever; anything you can't print more of is going to be hugely advantaged by the current state of the US political situation.
Peter McCormack: I also feel like I'm less worried about the regulatory side these days. I don't think we're in that phase anymore of, will it be banned; will they regulate it out? Yes, there might be higher regulations, but I think we're beyond that now. I also think things like what's happened with MicroStrategy and Square investing, I feel like we've got almost this moat, this kind of protective moat, that's been built around Bitcoin; how do you feel about that, Novo?
Mike Novogratz: I think you're right. Listen, you saw Stan Druckenmiller? Dan and I were macro-investors; we were pretty good. Stan Druckenmiller's a God, he literally is the God of macro; 30% annualised over 30 years, no down years. And, I tried to get him into Bitcoin plenty of times; we're in the same Fantasy Football League. And, there was not enough liquidity, there was always a reason not to.
The fact that he came out publicly on TV and said, "Hey, I'm into Bitcoin. Not as much as gold, but I'm into Bitcoin", is a monster statement. Because, when you get him in, Paul Jones in, so many other prominent investors in, there's no longer any stigma to be in it. And, as you get them in and as you get Fidelity doing custody, you get all these institutions start coming in, they've got a vested interest and they know all the people in charge. So, you get the money class involved, it's harder for the regulators to say no.
It's politically unpopular, right? Bitcoin is owned by, I don't know how many Americans; 100 million people globally. It's hard to remember when they tried to ban it in Korea and the next day, there was a giant protest at the Blue House in Korea. I think it feels similar here. So, I do think the page of the book has shifted.
It's not like you're going to have all green lights on regulation; we're watching really carefully who the next Chairman of the SEC is. The SEC and the OCC are the two big jobs and Secretary of the Treasury also important, not necessarily from a regulatory perspective, but from a tone perspective. So, we'll know a lot more in the month, but there have been some good names getting kicked around, and so we'll see.
Dan Morehead: I was going to say, I think Bitcoin's reached escape velocity. There's a time when regulators, even maybe a small monopoly of banks or whatever could have shut it down. It's now way bigger than that. I think one of the big announcements was from China announcing their version of it. It's game on now. Somebody is going to build a blockchain-based payment system. China's going to build one; Bitcoin has one; there could be some others. You can't put the toothpaste back in the tube; it's out.
Mike Novogratz: What's interesting, the coronavirus, in some ways, brought prosperity to the crypto world and it did it in two ways. It gave a huge tailwind in the macro story around hard assets like Bitcoin. So Bitcoin, as a macro instrument, is more relevant today because of the macro story that came from corona and the Fed's response. But, just as importantly, it wildly accelerated the digitalisation of everything.
You saw when PayPal got in. PayPal's got 330 million customers, right. They're the largest bank by customer, not by deposits. Every single financial institution now is saying, "Hey, things are going to shift and so, from our wealth management platforms, I need to offer Bitcoin because my customers are demanding it". But, from a financial infrastructure piece, right, most likely Ethereum is the beneficiary because things are going to get built on the Ethereum network, most likely.
But, you're going to see stablecoins out of the US, out of Brazil, out of almost every country. Some will be, like China, central bank-issued and run by the central bank. I think in the US, you'll see multiple people issue stable coins. But, as we move to a digital wallet world, it just makes Bitcoin accessibility so much easier.
I think the most important step to watch over the next five months is PayPal; how much Bitcoin transacts on PayPal, because it's going to skyrocket. And then you think about who's coming; the Novi wallet from Facebook; two-and-a-half billion new wallets. Pretty soon, every person on the planet is going to have a fricking wallet where they keep some portion of their money; their Bitcoin; their money; pretty soon their tickets and everything else.
So, that rebuilding process that we talked about in 2017 has happened and now the ball's starting to roll downhill, and so bullish.
Peter McCormack: Yeah, that PayPal thing's a good point, because we've seen how much business that Cash App has done and we know how much of the Bitcoin that Barry's buying for Grayscale. As more of these entrants come in, it's just a real kind of sharp shock on the supply. I guess you've looked at that as well, Dan?
Dan Morehead: Yeah, so the Cash App itself has taken up 40% of all the newly-issued Bitcoin. We're just at the beginning of this. So, there are a lot of pundits out there who try to figure out the value of Bitcoin and use all these really complicated models. It's pretty simple; if you're talking away 40% of the supply and you have increasing demand, the price goes up.
But, the big advantage to PayPal and Robin Hood and Cash App, it's just so easy to get in now. If you think back to the last bull market in 2017, people were trying to get into the markets, but it was a real pain in the arse. It took a week, you had to take a selfie with your passport and send it to Coinbase or Bitstamp or somebody and wait for their massively overloaded people to open up your account and put your money in. Now, there are 350 million people that have an account that can just put Bitcoin in straightaway.
Mike Novogratz: But, Peter, what's also interesting is, I mean Dan hits on a great point. Bitcoin's not easy to buy. It's getting much easier to buy for young people; every young person has those apps. But, for our age, I mean Dan and I are actually younger than we look, in spirit; but for our peer group, from 55 to 75, right, the baby boomers, most people don't; and they call their broker at EF Hutton or Merrill Lynch or Morgan Stanley or maybe E-Trade, if they're that online; and you still can't buy crypto at any of those places.
One of the big accelerations you're going to see in the next 18 months is every one of those institutions is going to have a crypto offering, a Bitcoin offering; they're going to start simple. And so, Bitcoin would be a lot higher already if it was easy to buy. We both have businesses trying to cater to institutions to make it easy for them to buy, and it's a pain in the arse. But, our pipeline might go from a trickle to, it's not a gusher yet but, man, it's becoming one. That all happened in the last six months.
Quite frankly, I was as frustrated as heck with the institutional adoption last November, December. I think I fired some people, I tightened our belt, we were burning money, and it all shifted in April. Now, I can't hire people fast enough. I think we're a microcosm of what's happening and so, I think really you're going to get these turbo charging forces. You're going to get easier access from all these wallets, and then you're going to get the baby boomers who are finally getting in.
We just did a capital raise for Galaxy and one of our investors was the New Zealand Super Annuity Fund. The thought of having the big sovereign pensions invested in Bitcoin five years ago was a pipedream and a fantasy. We talked about it, "God, I can't wait until one of the central banks buys it"; all that's happening now. Michael Saylor did his bit; he gets rookie of the year. I was trying to figure out who gets rookie of the year? Michael Saylor, he gets my award for rookie of the year! Paul Jones is in there; he's maybe a runner-up as a rookie.
But, as each of these guys goes in, you're triggering a new asset, a group of purchasers. So now, corporate treasuries are all thinking about it. I got an email today from another corporate treasury to talk to him about it. It's not going to happen overnight. Movements happen one, then two, then four, then eight. But, we'll look back in two years and be like, "Dude, that guy was a pioneer". So, I think you're going to see adoption on so many different fronts.
Peter McCormack: Another interesting thing, I was chatting to a guy yesterday who runs a fund and he said to me, "We're just about to pull the trigger on Bitcoin. We should be making our purchase by January", and I was like, "Huh? You're about to pull the trigger and then from that point, it's a two-month turnaround to actually make the purchase?"
So in my head, I was firstly thinking, "Well, you might miss some action between now and then", but then I was thinking, that would be a great question for you guys. Dan, what's the kind of thing that's going to -- why would it take two months to get to that point?
Dan Morehead: I know that you and I are drinking the Kool-Aid and that seems like an eternity, but this is going to be a multi-decade trade and someone who gets in in January next year will look like a visionary ten years from now, right?
Peter McCormack: Yeah, of course.
Dan Morehead: You know, it's commonly said that it took the internet 20 years to happen, because it kind of took 20 years to get Google and Facebook from the browser, but it took 20 years to get to the browser, right? Like, TCPMP was from the 1970s. So, we're just still in the really, really early innings of this thing and like Mike said, 100 million have it and we think that's awesome, but there'll be 6 billion people with it in 20 years. Getting from here to trade, it's going to be a great trade.
Like Mike said, when we originally got into the trade, we felt like we missed a huge chunk of it, because it had been running from 2011 to 2013. People that get it now, it's been running for a while but, look back ten years from now, you probably won't see these prices on the chart. It's such an asymmetric hockey stick-type trade.
Mike Novogratz: I repeat to myself before I go to bed every night, "There are only 21 million Bitcoin; there'll only ever be 21 million Bitcoin". It's like my mantra, my meditation thing. There's really less than 21 million; there's probably 2 million or 3 million that are lost. So, you really have a definitive supply of something that is now seen as value, right? What is unusual about Bitcoin is it's not the technology, it's the social construct.
I got into an argument with Goldman Sachs's strategist about five months ago, who's a good friend of mine, when she wrote that negative report on Bitcoin. She was like, "Well, what makes something a store of value?" I said, "Well, enough people say it is; it is". And I was like, who's next that you need?
Do we need Alan Greenspan to bless it; do we need Ben Bernanke to bless it as a store of value? I don't know, I trust Druckenmiller and Paul Jones and Abby Johnson and Pete Briger and Micky Malka. You know, I know 30 billionaires who made their money outside of crypto that are big Bitcoin bulls. There are probably a lot more than the ones I know.
So, both the little buy, the middle guy, the big guy, in terms of financial clout, all have decided that this is a store of value. Now I think the network effect just works. In the first four years, I was a big trader. I sold and I'd buy and I'd sell calls, and now I'm just a hodler; it's a lot easier.
Dan Morehead: Yeah, Mike, do you remember, that was my first line to you when you called me; you said, "I'm trading Bitcoin", I'm like, "Dude, that's called gambling!" It was back in 2013, there was no data, there was nothing. But, the thing I love about the negative, there's no intrinsic value to people that rag on Bitcoin. The intrinsic value of a Jackson Pollock's $40, right, with some house paint and some canvas; but, it's a scarce thing that has a 70-year track record of appreciating and being a good store of value. Bitcoin only has a 12-year track record, so it's not as good as a Jackson Pollock, but 20 years from now, it will be.
Mike Novogratz: I tell you, I saw a Jackson Pollock at the museum and I was like, "Damn, I'd love to own one of those" and I charted Google and how expensive they are, and they're too expensive to own right now; Bitcoin needs to go higher!
Peter McCormack: I think if Bitcoin hits $100k, I think you can get yourself a Jackson Pollock.
Mike Novogratz: I tell you what, I'm looking at the prices right now. I tweeted that I was going to get a moon tattoo on my arm when it hits the old highs and I think it might be this year!
Peter McCormack: Hold on, you'd just got your first tattoo when I spoke to you and I think, haven't you got a second; did you get something on your knees?
Mike Novogratz: I have literally got five tattoos since I turned 50.
Peter McCormack: You've got five? Woah, it's got big!
Mike Novogratz: I've got a big one on my arm when I got an Ayahuasca Retreat and came back, and I always thought my spirit animal was a dragon. It turned out it was a black cougar and so, I got the black cougar tattooed to my arm.
Peter McCormack: You need to get the full arms and sleeves done!
Mike Novogratz: Well, that's a little treat!
Peter McCormack: No, it's not; you've started. Hold on, that's five in how long?
Mike Novogratz: Since I've been 50.
Peter McCormack: Well, how long's that?
Mike Novogratz: Five years, I'm 55.
Peter McCormack: Five years, so you've done one a year?
Mike Novogratz: One a year.
Peter McCormack: But, is it going at an increasing rate; are you getting them at a quicker rate now?
Mike Novogratz: Yeah, it is absolutely, it is!
Peter McCormack: Listen, you're going to be done! When I'm next in New York, you and me, we'll go and get tattoos; we'll go and get Bitcoin tattoos.
Mike Novogratz: All right.
Peter McCormack: We'll get Dan in; we'll fly Dan in.
Dan Morehead: Yeah, I don't have the body art yet!
Peter McCormack: So, another thing I noticed was something that I think is the Michael Saylor effect. So, I get a lot of people just messaging me on the basis of the show asking recommendations. I got a lot of small company business owners get in touch saying, "I think I want to buy Bitcoin on behalf of my company; I think I want to put some on my balance sheet", and these are probably one-, two-, three-man businesses. That's a phase of people I hadn't even considered. I don't know if that's something either of you have noticed?
Mike Novogratz: Listen, it sounds weird; I get stopped on the street now. People are sharing or asking for Bitcoin advice. So, I think you're seeing people wake up and saying, "Something's happening and I need to learn about it". I have a young artist just email me as we're sitting here saying, "Can you give me ten minutes; I want to learn about Bitcoin?". I might exchange my advice for a piece of his art!
So, I just think there is a consciousness that is awakening that is a little different than what we had in 2017. 2017 was a complete speculative mania and everything was going up and you kind of knew as a speculator that it was going to crash. You didn't know when it was going to crash, but you knew it was going to crash. Paris Hilton coin couldn't really be worth $400 million overnight.
And it's very different this time. The market's much more rational, Bitcoin's got a legacy store of value, Ethereum is kind of a venture bet where we think it will be the base level protocol where stuff gets built on; and now, we're seeing stuff get built on it. We're seeing decentralised finance get built on it; we're seeing stablecoins; and so, the story with Ethereum is more intuitive than it used to be.
Then, there are other coins that feel more like equities, right? If you look at YFI or Uniswap, those things have dividends and you can kind of discount cash flow model. So, the crypto universe is getting more rational and easy to understand, which I think is important.
Peter McCormack: You reckon? I don't know, man. Listen, I get it with the Bitcoin; I can't get there with Ethereum and I can't get there with the DeFi stuff. I just know if I put my money in any of that, I think Bitcoin's going to outperform it.
Mike Novogratz: To be fair, I have 85% of our portfolio in Bitcoin and then a big chunk of Ethereum and then a smaller chunk of DeFi, because I think on a risk-adjusted basis, Bitcoin is just an easy bet right now. But, I think we'll look back in five years, ten years, and Ethereum and the other part of the crypto revolution will be really aware that the societal change happened. The real revolution is going to happen with the rest of crypto; I really believe that.
Dan Morehead: I think Mike's point is not to talk about Bitcoin down as one way or the other, it's just in 2017, there were 50 ICO whitepapers coming out every week. There aren't 50 great ideas every week. And you can argue whether there's one great idea that's only Bitcoin, or there's ten great ideas, but there are not 50 new ones a week. There's all this crazy stuff coming out and you can't have 50 great projects a week; and that's not happening now.
We've invested in a few ICOs over the last couple of months, but they're pretty rare, as are great ideas very rare. Most of the attention's on the projects that are actually delivering; you know, Polkadot, BobCoin, Ethereum, Bitcoin.
Peter McCormack: Well, I'm 100% focussed on Bitcoin. I think we're going to go over $16k in this interview, by the way. I'm just looking at it now.
Dan Morehead: It sure does!
Peter McCormack: $15,992; I think it's going to fly up past there.
Dan Morehead: I'll put a payment on the interview; I'll credit the interview for it!
Peter McCormack: Well, yeah, this is definitely it. I'll tweet out a photo of the three of us and send it to the moon!
So, another thing that's been interesting, I can't remember whether it was Cameron or Tyler, but one of them tweeted out yesterday about the US debt-to-GDP ratio being 135% and I don't know if either of you know Lyn Alden, but I interviewed her recently. She's a macro analyst and she referred to that as the debt-to-GDP ratio Event Horizon.
She said 51 of 52 countries that have hit that ratio have had a currency devaluation. She said it comes in different ways, most likely it's through inflation. You're both macro guys; Dan, is that something you're looking at and how concerned are you about that?
Dan Morehead: No, that's what's happening. Ken Rogoff, a Harvard professor, did this great study on all the countries on earth and there are only 13 that have never defaulted. It's pretty amazing; all 200 others have defaulted, either by reneging on their debt or by inflating it away.
The US Federal Reserve just promised to double inflation. That is a wild concept, right? I'm old enough to remember when central banks used to fight inflation. And fighting inflation's really hard, right? You need institutional buy-in, all kinds of structural change; it takes decades. Creating inflation's really, really easy as Zimbabwe and Venezuela have proven. So, if the Fed is promising to double the rate of inflation and keep it there for several years, they will be successful.
That's why I think Bitcoin going up because there aren't more Bitcoins and if they are going to inflate away problems, like the debt-to-GDP, it's coming through inflation. And, the US deficit is running higher than it did in the Great Depression, even higher than the average at World War II. World War II, there was a lot of fascism we were fighting, a lot of big things. So, the amount of money we are printing right now is really off the charts.
Mike Novogratz: Yeah, if you think about it, we went into corona running a 5% budget deficit and this is where Trump got it so wrong. He kept saying, "We've got the greatest economy in the world"; well, it was a sugar-high economy, because we were doing it on borrowed money, right, so we ran a 5% budget deficit. Now our deficit's mid-teens or low-teens, maybe, and we're talking about another trillion here or trillion there. A trillion is 5% of GDP. They throw it around like matchsticks.
I worked at the Reagan White House in 1984, which tells you how old I am, and it was the first time they talked about twin deficits, and it was a national tragedy, like a crisis; and it was a 5% budget deficit. So, that's usually crazy level and now it's accepted. And Dan's right. In our entire lives, we both joined pretty much right after Princeton. I was in the army for two years; he got a head start at Goldman Sachs. So, that's 30 years in finance.
The entire time, we had this idea of an independent central bank. Independent central banking was part of the global landscape. The whole world went to this idea of independent central banking, and now we've lost it. The central bank and administrative finance, the central bank and the treasury department are one, and that's scary as shit because we've never been through that.
They talk about this thing called the Minsky Moment, where confidence breaks down and the yield curve steepens and currency devalues. I don't know how close we are to that in the US and I'm not Cassandra thinking that the world is on fire; I just know we're closer to it than we were a year ago and it's out there somewhere. At some point, when that monster shows up, you're going to be happy owning some Bitcoin.
Dan Morehead: You know, you talk about trillions being thrown around like the white poker chips on the table? There was a great line from Senator Dirksen in the 1960s or 1970s; he said, "A billion here, a billion there; pretty soon it starts to add up to real money". And you're throwing around trillions like that now. That's just so big. The US in June printed more debt than in the first two centuries of the US's existence; it's just off the charts.
Mike Novogratz: How about this one? Prime Minister Trudeau, right, the Canadian PM, has printed more debt than all the other Canadian Prime Ministers combined; that's pretty cool.
Peter McCormack: Do you think standard retail investors, not even retail; let's even get away from investors because there are some people who don't invest, right, some people just don't; they maybe save a bit of money in the bank. Do you think people really understand what's going on?
For example, in the UK, we've got a lockdown, we've had a massive increase in the borrowing with our central bank. We're in another lockdown, we're talking about another stimulus package, all my friends are talking about whether they're going to get furloughed or not, or their staff are going to get furloughed; but, none of them are really talking about the implications of this borrowing. It feels like they really don't understand. It just feels like it's almost like they think this money comes out of nowhere. Do you think people really understand; or, do you think that's by design?
Mike Novogratz: We're not supposed to, to some degree. The society wasn't set up for everybody to be economic wonks like Dan and I. We were market macro guys and economists most of our careers. So, if you're an artist, if you're an engineer, if you're a teacher, you work to have some money, you save your money. So mostly, we've had a 2% inflation regime, plus or minus, for a while and so we've had a little bit of deterioration, but not big deterioration in your purchasing power.
In the US, no one even looks at currency rates, exchange rates, and so stock markets are on the high and so things have been fine; God willing, they stay fine, right? I'm not hoping, other than for my Bitcoin position, that the world blows up, right; I'd rather just have a graceful exit out of this horrific fiscal position we're in. I'm less and less confident we'll have a graceful exit out of the fiscal position. So, I don't think, until things really start to move, the masses --
Okay, so people are buying Bitcoin because there's the story being told, and there's some FOMO and it's becoming vogue again and it's easier to buy and people get the story when you tell it to them, but it's not a four-alarm fire because the economy's not a four-alarm fire yet.
Dan Morehead: Peter, I think the answer totally depends on what country you live in, whether you live in a developed world or a developing world. So, your countrymen, they probably don't notice the debasement of their currency, right? Probably half of them forget that a pound sterling used to buy a pound of sterling silver, right? It costs 184 pieces of paper, pound sterling, to buy a pound of sterling silver now. They didn't really notice that happen, but they basically lost 99.7% of the value of their currency. But, it's happened over a slow period of time.
If you go to the developing world, they totally get it, and that's why you see people in Argentina, people in all these countries, huge advocates of Bitcoin, because they actually see the depreciation of their currency because it happens fast and they notice it. We've seen our investments in The Philippines or Mexico, or whatever, people are flocking to Bitcoin because they know they're currency's depreciating at a very rapid rate. People in the US or Europe, they don't notice it, but the same thing's happening.
Mike Novogratz: It's a great place. Wences Casares, actually he was kind of Patient Zero for so many of us, and he might be the best Bitcoin salesman because he's got this great fricking hair; I think if I had hair like him, I might do a little better. But, he's got this kind of crazy hair, but he's got this experience from Argentina where he saw his family's wealth wiped out by currency devaluations. So, when you've actually been through it, you really get it; it's not just a story, it's a reality. I think Dan's 100% right there.
Dan Morehead: We have to do all these podcasts to tell Americans or Brits how Bitcoin works and why it's important. People in Argentina, you don't need to a big podcast; they totally get it.
Peter McCormack: Well, do you know what, I was actually out there. So, I went out to LABITCONF, I think it was in Uruguay, and I actually met Wences the first time out there. But, I was brought over with a couple of guys from Argentina and they explained it to me there. They talked me through El Corralito and what happened with the currency devaluation, but also that they couldn't even get to their currency.
They told me this mad story about one region in Argentina, because there wasn't enough currency, they just made their own currency; have you ever seen it? It's crazy. I'll try and dig the pictures out.
Mike Novogratz: I read about it.
Peter McCormack: It was this weird thing. But, I'm with you; it kind of makes sense. And, one of the things I noticed is that, it's funny, well it's not funny for the people there, but a week after the currency collapse in Lebanon, my podcast was the number one podcast in finance in Lebanon, just for that week; so, people are looking for it. They get it, it's natural to them.
Could it be therefore, in some ways, a bit of a leveller between countries, or do you think we've bought too many here in the US and the UK already?
Dan Morehead: Oh, I think it's going to bring financial inclusion to the world. That's why I think it's so important that basically, anybody with a smartphone can participate in this currency, or this payment system, whatever you want to call Bitcoin. And, yeah, I think it's going to have a huge positive impact.
Mike Novogratz: I've been hammering some of the Democrats that are on their way in. I'm like, "Guys, you can't be for democracy and for the little guy without being for crypto; it's the democratisation of finance". Think about simple things; I could send Dan a picture of myself on 19 different apps right now, but it's hard to send him money in the traditional system, right; especially if he's out of the country. I could Venmo him within the country up to a certain amount of dollars; but if he's in Argentina, I'm screwed.
If I go to an ATM, they charge me $3.50 to take out $20 if I'm not wealthy. Even $3.50 to take out $500 is a pretty big chunk. That's the banks having protected this weird financial oligopoly for years. That's not democratic in lots of ways. So, one of the reasons I got into this whole space was regime change, systemic change. And, crypto is systemic change and it's coming.
Interestingly enough, politically, it lines up. It's hard to make an argument, "No, let's keep screwing the little guy", you know? That's always happened. So, we'll see. I'm hoping that this new regime, the Biden regime, is sympathetic here; they should be.
Peter McCormack: Well, Trump wasn't and Mnuchin didn't seem so, so you would hope so, a little bit more so than them. What do you think, Dan, on the politics side?
Dan Morehead: Well, yeah, I think Mike's right that this is democratising finance, taking it away from the powerful oligopolies that control it. You think back; credit cards, remittance, banking; one or a couple of companies control all those payment rails and they really haven't changed in decades. The rates for credit card transactions are ludicrous compared to what they should be if there was a free market.
A great example would be, if I wanted to send $500 to the UK, it's quicker to go down the mall and buy a suitcase, go to the bank and load it up with cash and get on an airplane, because it takes three days to send money to a foreign country. That's crazy!
Peter McCormack: It's quicker to send Bitcoin.
Dan Morehead: Yeah, and it's going for free. So, it will change the world and some of these oligopolies are kind of fighting a rearguard battle against it, but it is coming and it's going to be great. It's going to bring a lot of people into the global labour market, because you can now pay them with Bitcoin, even if they're working in some really remote country. So, it is definitely going to improve billions of people's lives.
Peter McCormack: Right, I do want to ask you something, Dan, because I have spoken to Novo about this last time I spoke to him; but, since I obviously spoke to you last time, we did have the MicroStrategy thing, which I always like to get people's perspective on that, because it just came out of nowhere. And it wasn't just $10 million or $5 million; it was essentially $450 million.
Now he's just told us he did another $200 million himself. I mean, he's pushing $1 billion close at some point. I mean, we're not far. What, I think about $20k, he'll be pushing close to $1 billion across his personal business things. I mean, they were such big moves. What did you make of it?
Dan Morehead: Oh, I think it's great. And like Mike says, it's always hard to be the first one to do something; it's not that hard to be the twelfth person to do something. So, once each of these companies keeps doing it, it lowers the kind of frictional barrier to doing investments like that.
Having all your balance sheet as a company, or a private individual, or an endowment sitting in cash that's been depreciating in bonds; 20% of the world's bonds are negative yielding; and, equities are in the middle of an economic crisis; it doesn't sound great. You should have 1% or 2% in Bitcoin, right? And, putting some of your balance sheet, as a public company, into Bitcoin isn't that big a deal.
I think one of the perspectives to remind people is there already are 200 currencies. Corporations around the world have balances in euros, yen, sterling, whatever. Bitcoin's just one more currency and I would say I think it's the best performing currency and it's really amazing. But, it is just a currency; there are lots of currencies; and, no one cares when a company switches some of their balances from euros to sterling, right, because it's a boring shift.
You asked earlier about trades. This is the most asymmetric trade I've ever seen. If you invest in the yen, like Mike and I have been trading dollar-yen forever. It's been 20 points away from the same price our entire careers, you know?
Mike Novogratz: When I moved to Tokyo, it was 104.80; right now, it's 105.56.
Dan Morehead: It's within 20 points of 120 our entire careers, you know? We sometimes buy it and make some money, whatever, but it never actually really goes anywhere.
Mike Novogratz: 20 years ago!
Dan Morehead: Yeah, it's so funny, it never moves! And so, why not put a little bit of your assets in something that really could go up 50X, right? Dollar-yen is not going up 50X; Bitcoin could. And so, it's rational for MicroStrategy and these companies to put a bit of their balance sheet there and get the returns; maybe even get a higher multiple on their equity valuation.
Mike Novogratz: And, Peter, these things don't happen overnight, right, but you have to frame things. I keep thinking, right now the narrative that is powerful and is working, I mean JP Morgan just wrote about it, is "Bitcoin is digital gold". It's a finished product in lots of ways, right, where Ethereum and a lot of the other new projects aren't finished. They're still being worked on; they're venture bets on the future.
Bitcoin doesn't have to change; it will be the same in five years. So, it's adoption; we're really betting on adoption. We're roughly 2% of gold. We're $300 billion roughly Bitcoin and gold's, what, $13 trillion or $12 trillion and so, 2%, 2.5%? Making it 10% doesn't seem so farfetched. That's not, "Oh, Bitcoin's going to be 80% of gold in the next three years". It could get to 10% of gold in the next two or three years pretty easy, and that's Bitcoin at $65,000, $70,000.
People love to make $500,000 or $1 million and we certainly could get there in time. You don't get there overnight because of the law of large numbers. You're moving lots of money around and it shifts; it's accelerating. But, when I put a target now of $50,000 to $65,000 to $70,000, it's not pie in the sky. We're going to eat into some of gold. And, I think gold's going to go higher, given the macro backdrop.
Then, you also own the optionality that the central bankers screw it up, that we do hit that Minsky Moment, that we do hit that panic, and then you see this real acceleration where prices could go beyond that. But, Bitcoin could be at $60,000 in two years, 18 months, without the world blowing up; just with status quo. And, that's what's becoming exciting about this trade; you don't need the world to blow up for it to be $60,000.
Dan Morehead: Yeah, Mike, a lot of these predictions, everyone loves to put the big numbers and you didn't talk about gold. You've got to remember that gold went beyond 10% of seashells. It replaced seashells more than 100% of the value of seashells as a currency and Bitcoin could be like 500 times the value of gold in the long run.
Mike Novogratz: I 100% agree.
Dan Morehead: There's no reason it can only be a fraction of gold, because gold might be yesterday's seashells.
Mike Novogratz: Don't get me wrong; I'm just saying within time horizons, right. So, that's why I decided to become a hodler; like, patience, patience, patience. You'll look back in 20 years and be, "How the hell did that happen?"
Peter McCormack: Come on, Novo, get more bullish, man!
Mike Novogratz: I'm more bullish right now. I'm thinking about buying some right here at $15,920!
Dan Morehead: But, it's solely conceivable because Bitcoin has a nine-year compound annual growth rate of 209%, right, so that is $50,000 a year from now, right? That's just staying on trend, and I'm actually more bullish than trend; I think it's going to do more than trend.
And, Mike, the other point about, some people call it a call option on the payment rail of the world. I actually think it's a Plaid option on cash. If we debase cash money, paper money, owning Bitcoin is kind of like a Plaid if things get out of hand, with central banks creating inflation.
Peter McCormack: So basically, Dan, you're calling Bitcoin the gold killer?
Dan Morehead: I think so, honestly. Gold's been on us for 5,000 years so it's not going to happen overnight, but I can totally see a world, three decades from now or something, where we look back an all central banks have Bitcoin on their balance sheet and not all central banks have gold. It's coming and it's going to take a while, and definitely not overnight, but it's definitely conceivable.
Gold's just one of the elements on the periodic table, right? There's a bunch of coincidences that made it the one everyone stored wealth in, but it could easily be Bitcoin where everyone stores wealth.
Peter McCormack: Let me ask you something else as well, Dan? You've obviously, with a long career history in finance, you've obviously got a lot of friends, a bit like Novo, you've got a lot of friends in the industry --
Mike Novogratz: The same friends!
Peter McCormack: The same friends. But, you must have been fielding these calls for the last, what, seven or eight years since you've been investing, and I'm sure seven years ago it was probably you phoning people and people saying, "I'm not interested. And then gradually, over time, these phone calls must have changed. What are they like now? Do people know more; are they more trusting? How's the narrative changed?
Dan Morehead: So, the good thing is, you don't spend the first 20 minutes of the phone call going, "Why are there 21 million Bitcoins?" That used to be 100% of the calls a long time ago, so it's a lot deeper questions. But, Peter, here's a super important point. Bitcoin is a one-way valve. People get into Bitcoin, they're excited about Bitcoin, at their own rates, right? Some people were excited ten years ago, some people aren't excited yet. Stan Druckenmiller's just announced he's excited, so everyone comes at their own pace.
Here's the super important point. Almost nobody wants to get out, and nobody gets short, and that's why the price goes up. Every person you convince it's a good idea buys Bitcoin and there's nobody that's like, "Hey, I'm limit short, bubble has gone to zero", or whatever.
Mike Novogratz: So, Peter, I think Dan hits on a really interesting point. So, we've had this volatility in Bitcoin and people ask me about it all the time. The bulk of the liquidity for the last five years has come from the Asian exchanges, where there's 50 to 100 unleveraged. Arthur Hayes, or CZ Binance, Bitmax, all of them out there will be.
Dan and I both lived in Asia. I lived in Hong Kong for six years and Tokyo for one. Part of the Asian culture is the love of gambling. So, in lots of ways, what CZ created was a really sophisticated version of a Macau casino, where he would give people big credit to gamble. So, we're replacing, in some ways, really highly speculative leveraged owners of crypto with this army that are slowly marching, that are buying and then putting them away.
If you're an endowment, you're not buying Bitcoin and selling it in two months; you're buying it and you're going to hold it for eight years. You look at what Barry Silbert's done; hat's off to the guy. He's just slaughtered it with that Grayscale. It's the best piece of business I've seen built in years in anything. That stuffs gone for good; it's locked in; there's no redemption feature.
So, we're slowly replacing this transactional, speculative, casino capital, which is important because liquidity, I'm not bad-mouthing it, with much steadier hands and I think that process started a couple of years ago and it's bowling in a run.
Because, Dan's right. We had a $14,000, $4,000 drop. If you look at how many wallets actually moved coins, it was less than 30%.
Peter McCormack: Well, that means we're going to have some people that are going to come in at around $100k and see it drop to about $30k; go through that experience?
Dan Morehead: Yeah. Here's the funny point on that. Bitcoin goes down 80% ever three or four years, which sounds terrible, right? But, it's only had one year in the last ten years where the low has been lower than before. So, although it does drop 70% or 80% often, and you're just going to have to admit that's going to happen again, the highs that it's dropping from are always so much higher than the previous, and the lows have historically, with one exception, been higher. So, although it's wildly volatile, it's on this massive uptrend.
Peter McCormack: Well, it looks like we're going to have a bullish 18 months; it's kind of exciting. I'll tell you what's exciting for me, because this will be my second time. I had to go through the period of riding out my first wave, riding down, but now I'm clear in the green; it's good times now. It's never going to go to a point where my average price is in the red, which is good; it puts me in a comfortable position. But also, it puts me in a position where I don't think there's ever a reason to sell. I don't know what I'm going to do with it?
Mike Novogratz: Listen, Peter, you might want to buy a boat one day, or sail around the beautiful English coast?
Peter McCormack: No, it's cold and shit! I'll buy a place in Texas and a Lamborghini and a football club.
Mike Novogratz: There you go.
Peter McCormack: But listen, look, it's looking like an exciting 18 months. How do you think this plays out? This is the final question to both of you; you shoot first, Novo. Give us some kind of predictions. What do you think's going to happen over the next 18 months; what do you think people should look out for?
Mike Novogratz: Listen, I think you're going to see a continued acceleration of financial market players get in; Morgan Stanley, Goldman Sachs, UBS, Barclays. They're going to have wealth management offerings, they're going to sell Bitcoin funds, they're going to find their way into this space and that's going to just make it more competitive for Dan and me.
It's always funny. I was like, "Do I want my competitors in or not?" I want them in, because I own a lot of fricking Bitcoin and it's going to make the price of Bitcoin and all my Bitcoin-related assets go up. Man, give me a few more months to really build up my business so I have a beautiful moat. But, they're all coming and as those guys continue to come, the price is just going to keep coming higher.
So I think the next 18 months, you're going to see more and more announcements of corporates, tech companies and finance companies participating in crypto.
Peter McCormack: What about you, Dan?
Dan Morehead: Yeah, I guess my closing would be, if we had this call three years ago and you had your crystal ball and you told Mike and me and your audience that the OCC was going to approve banks, federally chartered banks, having Bitcoin, that China was going to have a digital currency; that 2.4 billion Facebook viewers would have a digital currency; 350 million PayPal, Robin Hood, Cash App people were going to be able to buy with one click, and the price was going to be 25% below the highs, we would have had a heart attack.
The price is turning out. Normally, there's a line in trading, "The worse to fill, the better the trade", and it's when you're buying the absolute highs. It hurts so much to do that, but normally, that's when the market's going to keep going up. Here, you're buying it at 25% discount and all the fundamentals are there, and there's money printing like I literally couldn't imagine. If you told me three years ago the US was going to print $1 trillion in one month, I would say 1,000:1 against; it just happened.
All that, I just think it's going to melt up.
Peter McCormack: Well, listen, it sounds like it's going to be a good 18 months. Hopefully, I'll get to see you both in person at some point before then. I used to do my interviews in person and I've not got to interview either of you in person, but hopefully at some point we'll do that. But, appreciate you both coming on.
Listen, everyone knows it's Pantera and it's Galaxy. I will include everything in the show notes and make sure people will see the work you're doing, but look, wish you both the best and hope to see you soon.
Mike Novogratz: Thanks so much. Dan, good seeing you.
