The Exchanges

Q So let's turn a little bit to your transition to the crypto world. Where were you at the time when you first started hearing about it?

A You know, I was at Fortress. I was running a macro fund, and ironically, Pete Brigger, who would have been the last guy on the planet I would have thought of to be the Bitcoin guy, but he had moved to San Francisco, and one of his friends in his YPO group, a guy named Wences Casares, who in a lot of ways is like patient zero for a lot of us Bitcoiners, Wences had been Preaching Bitcoin to Pete. Pete called me up and he said, dude, you know anything about this stuff? Look into it. And so I did like a two minute, ah, you know, 15 minute, 20 minute scan on Google and started looking at it and started asking my guys on the desk and a couple of them hadn't heard about it and surmised really quickly that this is a perfect speculative instrument.

AI assessment note: “I was at Fortress. I was running a macro fund”

Q What was that gut feeling like when you're on the other side of the world?

A When you're young, I remember when Tiananmen Square happened, and that young guy in front of the tank, and you felt like, God, those guys have their moment, and we're sitting over here, we got nothing to do, and, and then even when Saddam invaded Kuwait, and Desert Storm won, all my buddies from flight school were over there, and I literally felt like a punk. I'm like, I'm missing my chance, and look at it now, like, what an idiot you were, like, none of my friends who went to war really liked it, you know. It's a horrible, horrible experience, blowing people up, and, And so, probably by the grace of God, I missed it all, but at that moment, I felt like I was being gypped. I was like, here, I'm freaking sitting behind a Wall Street desk, and I could be over there fighting.

AI assessment note: “all my buddies from flight school were over there, and I literally felt like a punk.”

Q In those couple of years, you started by trying to pick off lessons from people you saw, the best traders, then you had an experience of being one. What are the things you took out of the lessons and then the applied lessons?

A First of all, that there are a thousand paths to Buddhahood, and there are lots of lanes in trading, and your personality and your skillset has to match the lane you're in, and so if you're an arbitrageur, It's a very different skill set than if you're a macro trader, a pure speculator. And as you move from what I'll call complete commercial or mercantile things, like arbitrage, if I told you we could buy this soda here for 50 cents and drive it 30 blocks north to the Upper East Side and sell it for two dollars, we'd both say, let's do that as many times as we can. Commercial guys make the same decision. If we had all the information about A regulation coming in Bitcoin. If we had the newspapers from next December, and we had the volume numbers of exchanges, and we had comments from some of the big prognosticators, we still might make very different decisions on what to do with Bitcoin. And so as you move away from really commercial things to really intuitive or speculative things, it takes a different skill set. And so that was my first big lesson. It was like, Pete Brigger, my partner at Fortress, he could never do my job, and I can never do his, and yet we're both investors. He couldn't do mine because he couldn't live with the risk, and I couldn't do his because I have none of the toughness and diligence to cross T's and dot I's and that a distressed debt investor needs, an…

AI assessment note: “find your lane and be comfortable in your lane is the biggest lesson I learned”

Q And what do you think the risks are that it doesn't play out as you're anticipating?

A Well, there are, I think, three big risks. One is that we're here building a way and, and in two years time, David Solomon tells his army of warriors, hey, we need to be in this business faster than we thought. And, you know, Goldman and JP and everybody else is trading and lending and, and they just have so many resources that they can move quick. And so we need to build fast enough to be a player before the competition comes. They're going to come. There is absolutely no way that in a five years time, at least, you're not calling up your broker and saying, you know, dollar yen and cable and Bitcoin and Libra and gold, and they're going to all get traded on the same desk. And so we need to get in first. There is a regulatory risk continuous. The big risk, and Mnuchin talked about it, is that Um, money laundering and terrorism financing, and so can you really get the AML KYC done well enough? I think yes, but the infrastructure's not there yet to do that, and so one of the things we're investing in is companies that are part of that space, like security, and you're gonna need to build a whole lot of infrastructure for this to be part of the, the way business gets done. And the third is just your own execution risk, and so Building a business is hard. You got to pick the right people. You got to put them in the right seat. You got to mentor young people so they're, they become t…

AI assessment note: “Well, there are, I think, three big risks.”

Q So you went from not trading to running the trading business?

A Well, to starting this, yes, to running the trading business. And he gave me a year. It was a brilliant year. It was like I had a double O seven license and a bulletproof jacket. I flew around to the different offices, and I sat with all the best traders at Goldman Sachs, and interviewed him, and tried to figure out who did what, and who was good, and did my own education of both reading and just meeting people, and I spent my first two years successful, but not really confident to put risk on enough to make a whole lot of money. I was being too prudent. I had a great batting average, and I almost quit because you just didn't make enough money to be as relevant, and then the Asian crisis happened in 97, and a lot of people in this business get their jump of confidence in non-linear moves, you know. So all of a sudden, Goldman Sachs, Asia's blowing up, and we predicted it, had the foresight, and had some spectacularly highly leveraged bets that Asia would blow up that we were smart enough to figure out. It wasn't, I had so much courage that I took all this risk to make a fortune. I found a way with limited risk to make a fortune, and boom, once it blew up and we made a couple hundred million dollars, you go from being a 10 dollar trader to a 50 dollar trader to a hundred dollar trader, and now you're a big guy. And that confidence jump happened all at once. 1997 in Asia were lik…

AI assessment note: “Well, to starting this, yes, to running the trading business.”

Q Where are we on institutions thinking about the crypto world?

A Let's start with the bright news first. The Yale Endowment, which is always the leader, are already in, right? They made a fairly sizable investment with Paradigm, a firm out, out in California. Harvard and Stanford are in. University of Pennsylvania and Columbia are either in or getting in. And so the big university endowments are already having their first bets on the board. That forces every other Pension fund and endowment to look. We've had meetings with 700 different institutional investors, and I'm not telling you they're all on the two yard line, but they're all moving towards the goal line, and they're nervous, they're worried. They had a few things. Custody, custody, custody. Well, now we've got good custody. You've got BitGo, good custody. You've got New York Dig. You've got Fidelity. You've got this guy's anchor out in San Fran, and so you got real custody places. BACT is coming on soon, New York Stock Exchange's group, and so check that box. What Facebook did, or this Libra product did, is say, wait a minute, MasterCard, Visa. So now you're sitting at the state of Wisconsin, and you've got cover. You're like, well, MasterCard and Visa, not all these people are doing it. Well, let's, let's put a chip on the table, and so I think This Facebook project really accelerated institutional money coming in. It's not rushing in yet, and we're not getting to 20,000 without it…

AI assessment note: “The Yale Endowment, which is always the leader, are already in, right?”

Q So when you look at your family office, you've got a nice chunk of time capital in this ecosystem. What are you doing with the rest of your pie?

A I have a private equity group downstairs called Durational, two young guys that are stunningly Ambitious and talented. You see my Bojangles box. They bought Bojangles fried chicken. And so I, I love talking about the barbell between chicken and Bitcoin. I have a macro team downstairs. We still trade macro. It's talking to my shrink about it today. I was like, I'm not sure. I said, but I think, you know, for 30 years I wake up and it's my adrenaline shot and it keeps me in touch with what's going on in the world. And so I still trade macro myself. I've got a couple of guys downstairs. I've got an arbitrage business. Called Sea Otter that I'm a big investor in that lives downstairs, and then a big venture portfolio. And then I spent about 30% or 25% of my time on criminal justice reform. So most of my philanthropy, we've got a bunch of guys downstairs, is around trying to shed light and make change in this horrific justice system that we have in our country. The deeper you dig, the more disgusted and dumbfounded you are. I mean, we have literally one of the worst Prison systems in the world. We're the richest country in the world with the shittiest criminal justice system, and that's changing. The optimism now is that for like 30 years, this group of really dedicated social justice warriors have been pushing this ball up this hill, and it kept rolling back on them, and it's just …

AI assessment note: “I have a private equity group downstairs... I have a macro team... venture portfolio”

Q And where are the other big use cases? You mentioned the web three point oh and the cloud.

A Listen, payments is going to be a really interesting battle here, and Libra, I think Libra's a really cool project. Will it get off the ground? It's got its work to do, but I think it's a really cool project because it starts this, it's a Trojan horse way to have a market for money. So they start by having a stable-ish coin backed by dollars and euros and renminbi and yen and whatever other currencies they put in, and five, six years later, if that has enough acceptance and trust, they can Just like the silver certificate became the dollar, you know, we're not backed by silver anymore. It wouldn't have to be backed. It'll just be its own currency. It's a democratic and a democratizing thing. It goes right at banks. The spreads banks choose even in credit cards and fees and go to the ATM and you pay two 50 to take a dollar out. And if you're poor, you're taking 20 dollars out because that's what you're taking out and you're paying two 50. So you're literally paying 12 and a half frickin percent to get your money out of a bank. Bizarre. But it happens to entire half of our country that doesn't make a whole lot of money. This is going to be free. And so you're going to transfer money from Bangladesh to Abu Dhabi because you're, you're a laborer in Abu Dhabi because they all come from Pakistan, Bangladesh, Indiana, and poorer countries. So for remittances, for transfers of money, f…

AI assessment note: “payments is going to be a really interesting battle here, and Libra”

Q And I know you were a wrestler back then. What were the key things you took out of wrestling?

A My dad put me into wrestling when I was, like, third grade, and I was pretty good at it, and what I realized is you, you stick with things you're good at, because it just feels better. Wrestling's not a fun sport by any stretch, but it's a tough sport, and I was a skinny, scrawny little guy, and so learning to be tough and getting tough, I think, was, was the biggest thing. You learn not to be scared. You learn to walk off your front foot, The other thing in wrestling is you don't win all the time. You actually get the crappy daddy a lot. And so learning how to like get the crappy daddy and get back up and go back at it. Almost nobody has never lost, right? Cale Sanderson had that one great run, but then he even lost. And so I think it's the resilience is probably the biggest lessons.

AI assessment note: “learning to be tough and getting tough, I think, was, was the biggest thing.”

Q What were those four reasons at the time? Do you remember?

A Chinese buying. People worried about this hyperinflation fear. Very cool technology, right? Instead of in God we trust, in cryptology we trust. And sponsorship from this community I talked about before. It was pretty simple. So when I got on TV and started talking about Bitcoin, I got a message email or Bloomberg message, I forgot, from a Another classmate of mine and actually a roommate in college, Joe Lubin. And he was like, dude, I didn't know you were a Bitcoin guy. And he was down in Bermuda or Barbados coding away on this new project called Ethereum. And he was like, we got a new thing. It's going to kick Bitcoin's ass. And, and I was like, yeah, yeah, yeah. I don't know what he did. He's talking about, but so Joe was a computer science major at school and stupidly smart and a great squash player. And So that was in the back of my head. I had this idea that Ethereum existed. I left Fortress. My hedge fund didn't do so well my last year. When you leave Wall Street, you almost always leave grumpy. There's a little broken glass. You're angry. You're screwed up. You know, very few people leave on top, and I certainly didn't. I left with a lot of money, but I certainly didn't leave on top. I was a little bit embarrassed and frustrated, and I looked at my portfolio, and I thought, well, I got all this Bitcoin, and It had gotten up. It had gotten back down. It was doing nothing.…

AI assessment note: “Chinese buying. People worried about this hyperinflation fear. Very cool technology, right?”

Q How do you bring together these sort of two aspects of what you've done? So on the one hand, you get into Bitcoin and think of it as a speculative vehicle. On the other hand, you've taken a big chunk of your time and some capital and put it into a business that's locked into this ecosystem.

A So this is really fascinating to me. The venture piece of it, I sit, I hear all these new young businesses and how we're going to change the world, and so intellectually, this is a fascinating place to be. It's neat to have a place in it, to have a role as one of the spokespeople or commentators on the space, and so you get a sense of purpose that way. It would have been a lot easier just to be a speculator. I got a family office, you know. When you have a family office, people come and they shine your shoes, they tell you how good looking you are, and And I told our whole group, I was like, guys, now we're the shoe shiners. We're in the client service business. And so get on your damn knees and start polishing shoes. So it's a mindset shift. And so it comes with a little bit of work and stress, but I do think the reward is, you know, just being part of what will be, I think, a really big industry in 10 years.

AI assessment note: “It would have been a lot easier just to be a speculator.”

Q how you would describe your investment management tech, request a demo at ridgeline.ai. And now back to the show. Started off by saying you were a gifted salesman and salesman gets attached to brands. And so you think about Amazon web services and Google cloud or whatever it is. How does a decentralized protocol develop a brand that it could possibly replace something that has big brand name behind it?

A It's interesting. So Bitcoin's got this great brand and it's going to replace gold over time, or at least supplement gold in a big way. It's going to have to be Two things. It's going to have to be so easy to use, right? So the user experience, user interface is going to have to be far, far better than it is today, and people are going to have to demand, and this might come from governments as well, a level of privacy. The thing that excites me most about being part of trying to help birth this blockchain revolution is we are losing privacy at a stunning level. Pace. You know, you look at China right now, where 95% of financial transactions go through a government clearinghouse, which they now just add a little bit of machine-based learning to, and they know everything about you. Like, that's a 1984 scary as hell proposition to me. All of that stuff should be behind the firewall of a blockchain. And will it ever get there? I don't know, but that's the hope. And so, Will consumers care that they've given up their privacy? I don't know. I mean, it's a big debate in the medical records field, in medicine, and look at 23 of me. You gave your DNA to this lovely woman who now knows everything about you, and you paid her to own your DNA. Like, that's insanity. And I did the same thing. I licked that little stick. I was like, ooh, let's see where I'm from, right? She knows everything a…

AI assessment note: “The thing that excites me most about being part of trying to help birth this”