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Hi, I'm Ral Pal, and welcome to my show, The Journeyman, where we travel together to that nexus of understanding between macro, crypto, and the exponential age of technology. Now, I know many of you are focused on crypto markets. Crypto markets have been kind of frustrating with government shutdowns and lack of liquidity. So, I thought maybe the good thing to do was to bring in one of my favorite hedge fund managers, Richard Galvin, to talk to him about how he's seeing the crypto space, where the opportunities lie, where the opportunities are going forward, and what's really going on. Richard's always, uh, really interesting to speak to. He has some great ideas. He's a long-term veteran of the space, and you'll get to learn a lot as I learn from Richard. Anyway, let's see Richard Galvin, see what he has to say.
Join me, Ral Pal, as I go on a journey of discovery through the macro, crypto, and exponential age landscapes. In the journey, man, I talk to the smartest people in the world so we can all become smarter together. Richard, good to see you back, my friend.
>> Yeah, thanks for having me back.
>> Yeah, you wake up and today it's Thursday and Thursday, Monday, 3rd of November. You wake up in the morning in Australia, markets are bloodbath again. What's going on right now, do you think? I've got a lot of theories about liquidity, but how you, how you dealing with this?
>> Yeah, I think the, um, the disconnect in the markets is probably some of the strongest I've seen since, you know, I've been doing this 7 years now, right? So, the disconnect between the reality of what's actually happening kind of on-chain growth around revenues, applications, users, all those sorts of things are, yeah, smashing new highs, and prices just continue to fall down. I mean,
>> Yeah, I mean, I looked at this at depth and I was just writing Global Macro Investor over the weekend. What it seems to be is this, um, it's liquidity, as ever. And because the government shut down, they can't draw down the Treasury General Account, that's now like a trillion dollars plus. So, it just keeps building. It doesn't get spent because there's no workers to pay right now. Meanwhile, there's no reverse repo to drain to offset it. So, they've got nothing to offset it. So, repo rates have been blowing out. They've had to give emergency lending and repos. So, it's kind of, we had this in like 2018, 2019 before, um, and why it takes crypto is because the entire asset management world is underweight tech, and so they're chasing into year-end because I think it was, I saw the stat yesterday, 80% of all funds have underperformed the market this year. So they're all chasing that, and crypto being at the margin in liquidity gets whacked in the meantime, and until the government reopens or the Fed get forced to, well, they're going to end QT, but then they need to increase their balance sheet and all of that. But as you say, the, the dichotomy is that the crypto economy is actually pretty vibrant.
>> Yeah. I mean, we've seen this bizarre reversal where crypto is kind of, you know, broadly seen as the kind of hype sector, right? Whereas I'd argue it's the reality sector now in terms of profitability and growth. Uh, and we're probably seeing the reverse of what's kind of historically been the case of kind of overhyped, underdelivered, where we're actually seeing most things that, you know, have built utility over the last 5 years overd delivering and getting not rewarded at all.
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>> And one of the things I've looked at is like a lot of people complain that this year has not been like a, you know, the classical fourth year. Yeah.
>> And we've seen it. We've had no alt season. If you look back at stuff like everything X, Bitcoin, and ETH,
>> they've not gone to new highs this cycle yet. Feels like there's still a lot to go. I did a lot of work on this and I found out that, you know, a lot of this four-year cycle is actually built on the debt cycle. And in 2021 and 22, when rates went to zero, they pushed out the maturity of debt by a year. So it's all to roll $10 trillion to roll this year in, in the next 12 months. So it feels like we had sort of an interim year. Um, I still think we finish up strongly and I think it goes a lot longer than people expect. How are you thinking about the cycle itself?
>> Yeah, I think the cycle's, you know, a difficult one to sort of get your head around because the construct of the markets changed so much, right? So to me, a cycle is more, uh, is more robust if it's the same group of people trading the same kind of assets over the same kind of time frames. But the makeup of ownership of crypto is dramatically changed over, you know, even the last two years, right? We've seen the influx or the, the liquidity sink of all the Bitcoin and Ethereum and now Solana starting to go into ETFs. Um, so I think we have seen a transition of ownership of people that will look at the market in a different way. So, so personally, I would expect the cycle to break down, um, and lose, I guess, what we've seen traditionally where you've had pretty similar group of people trading pretty similar assets with a pretty similar mindset. Um, markets probably telling us a different story though. So, you know, whether we're right or wrong, let's see in six months.
And where do you think, let's talk about because you've started a DAT, is that right?
>> Uh, no, no, but we've invested in a bunch. We've helped advise on a few that are coming to market as well.
>> Right. Okay. What do you think about that? Because that's been complicated as well. They started off good. Then they're all trading at or slightly below NAV.
>> Mhm.
>> Um, and they're kind of struggling to raise new assets. What do you, how do you think this resolves itself?
>> Yeah, I think if we step back and look at, you know, why they came about, I think, um, you know, we've been looking at the crypto sector as probably some of the cheapest tech, particularly on a growth-adjusted basis, it's probably the cheapest tech there is in the world by some margin,
>> right?
>> But what it really struggles to, and the point you were making at the start, and I'd say there's some very crypto-specific factors around this, it struggles for liquidity. And you've basically got this, what I'd say is very undervalued triple-digit tech growth space that's about to get regulatory clarity and all the sort of nice things that traditional money would, would like to see. But the flows have been terrible, right? You basically, you've had great flows at the top end of the town, Bitcoin and to a lesser extent Ethereum, and it's kind of been a wasteland outside of that. Markets are pretty good at sniffing out kind of opportunities and marrying that up with liquidity. So, wasn't super surprised that the DATs sort of came along and married up what you could argue would be excess liquidity in pretty expensive equity markets with, with, uh, you know, with a dearth of liquidity in crypto markets, and we saw that sort of initial surge come around. Um, I think there was always going to be some indigestion come out of that. And, you know, equity markets are good at finding opportunities and when they find them, they're extremely good at pressing the advantage and pumping as much liquidity into them as quickly as they can. And, you know, DATs are a good example of that. I think as we look forward, where do we see the DAT market? We, we don't think it makes a bunch of sense to have 50 DATs owning the same asset. So, we think there's going to be clear winners. And if you look at the Ethereum sort of, uh, stable of DATs, you can see Bit Miners just pulling away from the rest now, right? With huge growth while the others kind of stagnate.
>> I think the second trend we're starting to see and we saw in
>> Do you think Bitmine would end up buying any of these others at discounts or NAV kind of to try and do a larger capital call and just clean up the market?
>> I think this happens over time, but I think the speed at which equity markets make these adjustments
>> is probably longer than most people, particularly crypto people, think. Like, you know, equity markets can, debts can trade at big discounts for extended periods of time. Well, remember the closed-end fund business? I mean, that was that for decades, right?
>> Yeah. And we've, you know, Australia is a good example of that, right? There's a bunch of listing investment companies here, and they can trade at big discounts for long periods of time because the incentives for the people who largely control them is relatively small to wind them up, and they've been given money on a long-term mandate to, so to flip around and wind it up two months into the journey kind of goes against the basis of what the capital raised. But I think that will happen over time as the winners, you know, with premiums can clearly make huge financial returns by buying discounts. I think the other trend we're seeing and we're interesting to see this in the new protocol DAT that came to market last week.
>> We think we'll start to see more operations within the DATs to make them more of an operating type entity that sits along these
>> alongside these protocols. You know, the NE one's a good example. You know, it's got a bunch of NE in the DAT, but it's also raising capital to buy infrastructure and run infrastructure alongside to support the AR roll out across the new protocol. And so, it's going to be an operational hub to also support the, the to support the to support the ecosystem,
>> which takes the pressure off the foundations only in doing that. You need the kind of ecosystem funds. I mean, like Solana was lucky to have Multicoin, but most don't. And, you know, Ethereum had consensus, but you kind of need these non-foundation entities that are profit entities to allocate capital more efficiently.
>> Yeah, I think once you start to put that operational aspect, I think it does two things. One, it actually supports the ecosystem more than just being a token sink effectively, right? Like a buy and hold.
>> Yeah.
>> Two, you start to operate potential for operational earnings within the DAT. So you start to move it away from just being a pure look-through NAV other than a passive asset holding. There seems to be a lot more opportunity with yield and stuff like that as well. It's like liquidity provision, provision into the market. There's a lot these things can do. I think they've just not been well-structured vehicles yet, generally.
>> Yeah. And I think it's just, you know, it's very early days. Yeah. So, we've just gone through the process of getting through, you know, how the regulators look at them, how they raise capital, the cohort of funds that can support the initial raises of these. So, I think it's very early days. I think they'll adapt over time. And to be honest, the discount to NAV is the incentive to make them probably do that faster than they would have done, right? Like to think about, well, how can we grow? Because I mean, there's the, there's two ways they perform. It's the multiple on the, it's the premium or the discount on the on the NAV, but it's also the underlying token, right? Like
>> yeah,
>> if the underlying tokens start going up a lot, a lot of sins will be forgiven. So, so
>> I think they trade, I haven't done the work, but my guess is they trade like the funding market. My guess is most things are negative funding right now. And so the DATs are, and in a strong bull market, they all go positive funding, and the DAT will as well.
>> Yeah. And, and in a strong bull market, the token goes up, and you know, even if you're at a discount, if equity investors are still, you know, as long as the discount's kind of even constant in a weird sort of concept, you're still making good money if the token's performing. So, the ways to get the token performing clearly are for the DAT to start contributing back to the ecosystem and help it grow. I mean, from our perspective, it's a clear maturation of the space that, like any foundation, any CFO of a big corporation, they got to be looking at their sources of capital, like where can I get capital in the most efficient way, and how can I diversify my sources of capital to make sure that I've got a more robust access to cap raising as I look forward. So, you know, at the moment, you got a bunch of foundations with cash and tokens, and they're very, uh, they're very constrained about the way they can raise capital. They've either got to sell tokens on market, which is pretty difficult.
>> Yeah.
>> Um, or give them away in some form of kind of, you know, some form of incentive and reward. Raising a DAT and having access to additional sources of capital makes a whole bunch of sense to us. Like just like how corporations have convertible bonds, junk bonds, or high yield bonds to use a more, uh, progressive term now. It makes sense for us for you, and for, um, crypto protocols to start diversifying the way they can raise capital as well.
And what about the fact that some of them are having to start to sell the underlying to buy back their shares? Does that change the market dynamic, you think? Or is it like a temporary
>> distortion?
>> Seems like a temporary sugar hit to me because I suspect the market won't reward that activity for that long, right? And so, incentive to do it, the incentive to do it goes away pretty quickly. It doesn't seem to fit the mandate, right? Like if you raise capital two months ago for a long-term hold on a protocol, then to be buying it back a few months later, I, I don't think that's a, look, I don't think that's in line with the, with the way the capital was raised. And I think the reward for doing that will, uh, decline pretty rapidly and and take it away as an option.
And the other issue is who the pipe holders are in the beginning. It's just Jump Trading and Millennium and, you know, all of the fast money guys, and they will flip out for a 5% profit because on an annualized return, it's like 60% return. They don't care. And then you've got to find all the buyers to actually replace it, the institutional capital, which we're just not seeing really yet except in Bitcoin and ETH.
>> Yeah, I think we, but we're starting to see
>> it probably does. It probably will.
>> Yeah, Solana and you're starting to see with Bit Miner, right? Let's not underestimate the success, you know, that's, I think it's close to 15 billion now, right? So, I guess we've seen a, a, a change in the model of how these can work from a financing to a, you know, one that also needs to have a strong capability to actually market what they're doing. And I guess, you know, um, to give credit where credit's due, MicroStrategy did this some years ago, right? Michael Saylor has been an incredible advocate for the underlying token or the underlying coin that they've been buying, and he's been, uh, incredibly sophisticated in the way he's raised capital to keep buying that. And I think, you know, that's the model, and he's proven that that's the model, and that's where the debts need to go. I think the addition I would add to that is that, um, and as he's kind of done in Bitcoin, but particularly as we start to get into sort of more sort of, you know, uh, utility-driven, fee-driven models outside of Bitcoin, they need to start thinking about, well, what can I add back to the ecosystem? And that's right,
>> how can I bring that into the DAT and use that access to financing I've got to accelerate that?
>> It also with MicroStrategy also tells you that liquidity is constrained within the crypto market because for a while he was able to just keep issuing stuff, issuing stuff. Now, we can barely do anything.
>> Yeah. And I think we've, you know, you probably got a better read on this than me, but I think, you know, the crypto market's been a pretty good kind of forward look on liquidity, right? It's kind of the canary in the coal mine around liquidity.
>> Yeah.
>> Um, longer term, I still think that's a great story. Month-to-month, there's obviously these kind of hiccups that we see.
>> Yeah, exactly. So, it'll be interesting. The other function, the other feature that we've seen, and not surprisingly either, because we see it every cycle, is OG selling. So, we've seen a bunch of people, uh, 44 billion, I think was the number I saw.
>> Yeah, I think that, and, and I think it gets exacerbated by kind of slow news days as well, right? When markets are down, when markets are weak, people kind of looking around for, you know, what is it? Start to focus on older wallets that probably get a bit more attention than they would if, you know, the markets are strong in that day. But I think it's an inevitable kind of, you know, as momentum starts to move, you'll see some of that sort of longer-term capital take their money off the table and move on.
>> Yeah. I mean, if you are one of these people who bought Bitcoin at 10 bucks, right? You're just like, well, I'll take some off at 100 grand at 100,000 because you're suddenly up 10 billion. It's like Novo did that unwind for a Galaxy for an individual that was $9 billion.
>> Yeah, it's an insane ability to actually hold through that period, right?
>> And I know a few of them as well. Um, it's incredible.
>> I just don't know how they've done it, but, you know, suddenly it's like La La Land prices. Is I mean, who needs, they don't need Bitcoin to double again if you're worth 10 billion bucks. I mean, is the extra 10 billion if it doubles again worth your while? No. So they just kind of use maximum liquidity to just try and ease out.
>> Yeah. And I think the, um, and, you know, that's a, that's a natural sort of progression of assets as they sort of move over time, like founders selling out of tech stocks and those sorts of things. I guess from a liquidity perspective, if you think about where Bitcoin is today versus say two years ago, just given the, the size and scale of both the ETF market and the, and, and the futures and derivatives markets, it's in a better spot to handle that supply than it's probably ever been. So, you know, I think the market's risen to kind of, uh, be able to meet some of those liquidity demands. But, you know, you'll see this sort of indigestion from time to time as assets continue to grow and the space continues to mature and we see ownership sort of move from, you know, the financial engineers, you know, for one of a better word, hedge funds, um, institutional investors, ownership in crypto is only going one way.
Yeah, exactly. And the other feature of this market is, you alluded to earlier, we've had no real new liquidity in outside of the very top end. And that's a function of this has all been generally driven by retail, and retail in most places don't have any money because, you know, prices went up a lot. Interest rates haven't come down much yet. The economy, still, the actual economy, look at the ISM survey, still below 50. So it's not even expanding. And then you're like, well, obviously they're not throwing money into crypto because they don't have any.
>> Yeah. I think the other factor to put on the table as well, there's been pretty good money to make in some other speculative sort of high-risk sectors as well, right? So, bunch of high money, quantum computing stocks, those sorts of things. So,
>> um, you know, the, the, the attention around particularly around that speculative dollar has been kind of split, I would say, around crypto as well. And I would put that as a factor. I think what crypto is waiting for, and I think Clarity Act is a, um, you know, we've seen Genius Act and Clarity Act on the horizon as well. What it's waiting for is that transition from, and, and the transition has to happen, right? Because the ownership of crypto is just so skewed retail versus institutional versus anything else. You just, those building blocks in place to allow that institutional ownership to kind of take over. And, you know, I would argue we've seen that in Bitcoin and Ethereum through the ETFs. It's the broader sector's term for that to happen over the next 12 to 24 months.
What about Australia? Are you, is it pulling forward yet? Is it, are people coming through? Are institutions investing? I know family offices have because they, they've always been earlier, but, you know, Australian retail is not really involved. Australian institutions definitely worth while you've got massive pools of capital that's trapped there.
>> Yeah, I think on the, on the ownership side, it's actually not too bad. If you look at, there's a survey out that I think had Australia at number two on, uh, on ownership across population size.
>> Oh, wow.
>> Last week. So Australians, you know, you've spent some time in their market. They're not afraid of risk, and they're not afraid of gambling. Right. So, um, you know, it, it's, it's a capital market that's been built off kind of blue sky mining. You know, dig a hole could be worth zero, could be worth a billion dollars. So, Australian, you know, Australian investors are used to handling volatility and, and allocating to volatility, and that goes from institutional down to retail. Um, so I think the retail ownership here is actually pretty good. So I think it's like 30, 40 billion of retail sort of ownerships. If you look through some of the surveys, average holding sort of 10,000 is actually pretty good penetration. The local exchanges in particular done a pretty good job of of educating and expanding that market. Um, I would say the institutional market here probably lags substantially what we've seen in other kind of developed markets where retail is probably at the sort of forefront. Institutional markets not. Institutional market here is incredibly conservative, as you, as you point out. It is a huge pot of capital. It's probably, you know, our pension
>> they're massively regulated in what they can do, right?
>> Massively regulated and extremely tied to long-tail, um, long-tail risks. Right. So, I mean, you know, the, the catchphrase that I've kind of used in my business when we've started, and this is when, you know, when I started DACM, I've spent most of my time meeting with offshore LPs, is, you know, Australia is a great place to sell a toll road or an airport, not to, uh, not to forget funding out of our institutional market for sort of, you know, frontier tech, and that matches the liabilities, um, and the risk framework of them, the money they're managing. Now, I think that changes over time. We've seen one of the biggest, kind of, one of the biggest and oldest, um, institutional investors down here, group called AM, which has been around over 100 years,
>> manages close to 100 billion, made the first step into Bitcoin back in, uh, back back around mid-last year, got reported on at the end of last year.
>> Um, and I'm not sure whether they could approve the cause they actually had their largest inflow month, uh, I think in seven years on January on the back of that, from basically differentiating themselves as a Bitcoin owner. So, I think momentum on the institutional side, um, is positive, but Australian institutions, probably rightly so, given their money and their manager is super conservative about allocating sort of, sort of high-risk, higher-volatility assets.
The other feature of the market that has has been really interesting is stablecoins, obviously after the Genius Act, that's been good. How do you see this playing out now, and how beneficial is it to the underlying kind of value accretion of the networks?
>> Yeah, look, I think, um, to be honest, I kind of been banging on about this for years, and it's one of the key reasons I got into crypto when, um, started to trade around a bit on the exchanges. Started to see the frustration back in early '17, you know, Bitcoin would have you high teens, low 20s spreads across exchanges between say Bitfinex and Poloniex. I was kind of like, this is weird, like, but, you know, and then I'd be trying to wire cash, and it'd take 5 days to turn up, if it turned up, and you, you kind of get why you've got those disparities. And then found this thing called Tether, which back then operated on the Omni blockchain. And it kind of made me super excited that the, the IQ behind this system is sort of super smart that someone's worked out, let's unitize dollars and allow them to move at blockchain speeds. Now, I think Tether was like 10 to 20 million bucks at that point in time, and actually minted some back in, I think March '17, and sort of worked it out, and to be honest, it was one of the key reasons I committed to the space. I thought if people are coming up with such cool ideas like that, this space has got a real future. Um, and then we see where it goes today, and it's obviously growing into kind of the BMW of the space. And if you think about it, the ability for Tether's at both a utility level for crypto, but also at a strategic level for the US, I think is quite incredible. Like, I guess we've been kind of early advocates that the ability, and I think we've kind of held it because we live in Asia, and we've seen that penetration of, you know, Tether, particularly through through Asia, from both the retail level up to the sort of, up to the, you know, corporate level. You know, we meet family-run businesses that do hundreds of millions in revenue in Tether through Asia every year. Right. And they're selling, you know, building materials or, or traditional,
>> furniture, or whatever.
>> Yeah.
>> Yeah, and, and they're taking Tether, right? And, and I guess you just, I think Asia's been at the forefront of that, and I guess we,
>> because they've got a lot of friction, capital controls, if you got like a Renminbi Yuan cross, right? It's not liquid. So, the, but if you can just do it in stablecoins, you can make instant payments, dollars in, dollars out, instantly.
And they have, you know, they're ring-fenced to pretty small amounts of US dollars, they get rationed US dollars from their banks, right? And so they've got more customers that want to give them dollars than they can finance for their traditional routes. And so, it's no surprise they then turn to stablecoins. And so we've been, and, and if you think about it, and you go down to the smaller level, you know, if you're a, a Thai retail investor or user, um, you try and open a US dollar bank account, right? Like, you're just not, I mean, that's even hard in the straight, right? Getting a US dollar bank account, you need to be certain size. You've got to go through a whole bunch of KYC, AML to prove that, and size to to the bank that you can justify it. Now, if you've got a phone, if, if you've got a smartphone, you can get 10 US dollars right now.
And the US has figured this out. I mean, Scott Besson's gone, "Oh, this is how we dollarize the world, and we can fund like $3 trillion of short-term notes via stablecoins."
>> Yeah. And, and that, that Thai investor or that Cambodian consumer that's now got $15 US on their phone, that's $15 of pure incremental demand for treasuries, which doesn't exist, right? That sounds like small dollars, but if you, you know, that's the bulk of the world's population. So, if you start scaling those numbers across the world's population, it looks like a pretty good sponge for some of the sovereign selling we've seen in treasuries, right? Like, it's kind of the counterpoint. It kind of surprises me that Besson's kind of seems to be the first guy that got this. Um, because from our perspective, it's been that, um, incredible kind of push into developed markets that can develop that sort of demand for US dollars that they kind of need to fund where they want to go over the next 5 to 10 years. Um,
>> yeah, and also part of this is the Eurodollar markets, which have been the traditional source of funding, don't operate very well because a lot of the banks in a lot of countries are now constrained. So people can't get access to dollars. And as you said, the Eurodollar market, you can fund corporates, but you can't get individual dollars. And now it's gone to the TAM is now 8 billion people. I mean, that's a big [ __ ] TAM.
>> Yeah. And you've got, you know, look at most reports now, 6 or 700 million people using, uh, crypto in some way. Stablecoins kind of at the frontier of that. I think if I bring it back to from an investment perspective, and, and how we see it playing into, I guess, kind of where we operate, um, I think one of the interesting things, and, and, you know, I've, I've got a, a traditional, trad-fi background, albeit seven years in the past now, so like to sort of do a lot of crossover events to sort of get the temperature read on, you know, how traditional finance views crypto, and how the crypto natives view crypto. I think we're probably in a weird spot where we've probably seen the biggest divide in that actually that I've ever seen in my time in crypto, with the reverse that traditional markets, traditional investors, traditional investment banks super excited about crypto, and the crypto native people are kind of in the doldrums and depressed. And I'd put stablecoins as kind of flipping a lot of that sentiment. You know, stablecoins from our perspective are an incredible killer use case where it just kind of talked through, but it's also a very simple revenue-generating use case. It's the sort of thing that you can take to a Goldman's commitments committee, to an IPO committee, a JP Morgan or Morgan Stanley, and they can get it. They can get that that's a business model that makes a bunch of sense. And here's a use case for this thing called crypto that we've been sort of skeptical about for the last five, five to seven years that makes a bunch of intrinsic sense to me. And by the way, it's already making a bunch of money. So, in a, in a weird way, it's also being what I'd say is that kind of, um, uh, that wedge that sort of pushed crypto into the traditional finance world and has allowed it to sort of get through those barriers, has kind of stopped that crypto kind of investment logic getting through over the last five or seven years. And, you know, I attended the Goldman conference, which is a great conference every year in in London in June, and, you know, stablecoin summer was probably the most, you know, uttered phrase throughout that. And for the first time, I think we sort of, the, the, the attendance there flipped. I think it was kind of three-quarters traditional finance, quarter crypto people. So, and stablecoins is kind of that use case that's putting crypto on the map. Now, I also think it's also one of the killer use cases for growth for on-chain, right? Like on-chain liquidity revolves around US dollars, and bringing more and more of that on-chain, um, is a no-brainer. And we're starting to see more traditional businesses like a Robin Hood, right? Like if you look at the profit margins they make on crypto versus, um, versus traditional, versus equities, like it's chalk and cheese, right? And the, the, the extra profit they can make. So, the incentive for traditional finance to bring stuff on-chain have never been stronger.
The other thing that's interesting to me was the Circle IPO, right? It traded at a massive premium to revenues. And I've seen this before. It's either like a full-on retail frenzy speculation, which it wasn't, or the price is telling you something that is not priced off discounted cash flows, that they're pricing on Metcalfe's Law, that it's a network. And then you saw the announcement, I think it's called ARC, that they did. It's like this huge labyrinth of people involved, and they're like, there you go. They're actually building a money network from scratch with, you know, instant velocity, and the market is going to price this very valuably.
>> Yeah, I think, you know, it helps when you've got a, a Treasury Secretary of the US saying that, uh, he wants stablecoin supply to grow 10x over the next 5 years. I mean, you know, you cover, you cover a lot of traditional assets, you don't get that kind of backdrop in any kind of asset class, right? Like you don't, even in the most, even in the greatest of tech markets, you don't get, sort of from a top-down push for growth statistics like that. So, I think when you look at, uh, Circle's performance as an equity, you got to compare it with, you know, what are, what are the growth rates in other equities that people have access to? And, you know, I would see this as one of the failings of the crypto market now. I, I don't think the crypto market gets the insane growth rates that it's achieving and the profitability that it's achieving, because we're kind of being used to this triple-digit growth and we're kind of, I guess, in our own little world for so long that we kind of forget that the growth rate that crypto generates is just off the charts compared to even traditional tech. I think I saw a good stat the other day. I'll caveat this because we, I haven't done the research myself to back it up, but like three of the fastest five startups in the history of the world come from crypto now, right? I think it's Axiom, Hyperliquid, and Pump. And if you look at Pump, I think in the first 18 months, it's made like $800 million of revenue. Uh, which is about the same as the profit number. So that doesn't happen, that's never happened in tech before. And there is no other asset class where you've seen that sort of growth and that sort of profitability over those sorts of time frames.
That's also directly investable. So AI is growing faster. What do you, what can you do? You buy Nvidia. I mean, this, if not, it's part of Google's balance sheet and part of Microsoft and part of Meta. You can't get pure exposure very easily.
>> Yeah, and I think that goes to Circle's success, right? Like I would argue even on the crypto side, it's kind of hard to get direct exposure to, uh, to stablecoin minting, at least apart from say, an Athena. But, and I guess that's what the beauty of Circle and its positioning with equity investors, it's that pure look-through to that underlying sort of tailwind they've got around stablecoin growth and, and minting.
What do you think about Athena? I still have a lot of red, red flags about that business model. I mean, guys, a great guy, they're smart people, but I kind of been around so many times to realize if you manufacture yield from arbitrage, somebody's going to blow up at some point somewhere.
>> Yeah, I think, you know, we're a supporter of that. We think the, um, I think at the moment, you've got the, the strength of stablecoin demand and growth, um, I think is unquestionable. I think the ability for the issuers to maintain control of their yield, I think has to, has to decrease over time. So, Athena is kind of at the one end of the spectrum in terms of giving that yield back. Um, whereas we've got the Circles and the Tethers, which get to keep 100% of that in that moment. So, yeah, I think Athena is a great, is, is a great test case, one that's been super successful to date in a model that sees that yield distributed to the users. Um, because I don't think the Circle and US and the Tether model longer term can sustain that kind of ring fence around keeping all the yield for themselves. Now, how that gets distributed is another question, but, you know, looking at Athena, I think it's a pretty, it's a pretty robust example to date of how you can grow something or bootstrap something by giving that yield back. And I mean, the growth metrics are kind of incredible, um, and, you know, developing that model around generating that yield, there should always be some sort of basis yield around that. Now, they're probably going to make, if, as they get more successful, make markets efficient themselves, and that yield drops, but I can't see, I think that's the model we end up with more like an Athena, and we've had with the Ser and Tether today.
And what about the private stablecoins that have been launched? That was like, really, are we doing this all over again? This is like the 2017 thing where we're going to have these private networks. But that's seems to happen. They're building their own Layer 1s. Um, not even Layer 2s.
>> Yeah, I think, and I think this is the interesting contest that crypto keeps to throw up against the world. Like when you start to, and look, I hawk back to the internet versus the internet. Like you had this,
>> you mentioned this before,
>> you had this ongoing battle for years between people that wanted to sort of, you know, the internet's great, but I need to control it. And it's kind of like, well, the internet is great because you don't control it. So, yeah, and you had this tug-of-war until one of the, you know, until you get that clear winner. And I think if we looked at stablecoins, you know, part of the reason, you know, that that Thai consumer owns Tether is because, you know, because it doesn't have to go through the AML and the KYC that you'd have to go through to open a bank account. And you can argue, well, is that right or wrong? But the reality is it doesn't scale if you wrap that compliance framework around it, right? Like, because it doesn't make sense to make that user go through that compliance for the revenue or the 10 bucks of usage that you're going to get out of it. So, yeah, and it's not because these people are using it for nefarious means. It's like, if you're in the Philippines and it's $10 you're sending to your aunt, it's just makes no sense. And half of these people don't have a passport and they don't have, you know, it's like it just can't be done that way.
>> Yeah. And, and so comes down a question to the US. Do you want that extra demand for treasuries, or do you want to keep the AML KYC wrapper around it? Um, I think, look, I start with a pretty simple rule when I look at all technology. I think technology trumps regulation every single time, and particularly technology that enhances user experience and utility. I think it's extremely hard to ring-fence, um, technology within within old regulatory frameworks. And we've seen this time and time again. Now, you could argue, I mean, the one I always harp back to, which is an old one, is, and not many people seem to know this, but it used to be illegal to send a fax direct to an end user in the US. Like, under the regulatory regime that existed when faxes came along, some of you, some of your listeners probably don't even know what a fax is, but when faxes came along, you had to actually under law send it to the US Post Office before you sent it to a person. And they were supposed to hand-deliver it to the end user. And that's just nuts, right? Like, that's just regulation, and it's not going to exist. And even Uber, right, a much more topical recent example, in most markets, Uber was illegal, right? Because you had taxi licenses in a regulated market, but it was better tech, and users wanted to use it. And so regulation kind of falls in line because at the end of the day, the, the, it's a strong government that stands in front of a product that lowers costs and people want to use, right? And so, you know, I start with a, you know, you get this tension for some period of time, but regulation always follows technology in my view and catches up, and where there's utility and user demand, regulation meets it.
There's another narrative that's gaining traction. I just want to get your view on it because it is interesting, is privacy and this kind of rise of Zcash and the idea of zero knowledge. And, you know, because as we build out this, and blockchain is getting co-opted by the institutions and the governments, that if we're not careful, we've just given our bank accounts publicly to everybody on the internet. And somewhere within this, if we see where Europe's going with regulation, I mean, Australia has been, you know, regulating individuals highly, the UK has, Canada has. It's like people are like, you know what, we probably still need privacy as a main thing. How are you thinking about that? Have you been involved in that trade at all?
>> Yeah. So, if we looked, if we look back in history, it's probably one of the trades we got wrong at launch. So, when I actually launched this fund, we had two kind of key themes. One, that with proof of stake, proof of stake blockchains would take over the vast majority of crypto. We got that one right. Um, second one was that privacy coins looked grossly undervalued, and as we saw growth in the monetary assets like Bitcoin, we would see a commensurate growth in the privacy, um, spectrum as well. And so, you know, and, and so I mean, if you look at any economies, right? Like, you know, as a normal economy grows, the black market in that economy sort of grows side by side. And I don't want to ring-fence it the exact analogy, but yeah, it's, it's a similar thing that we would, we would, we thought our view was we would have a dominant monetary asset, which has become Bitcoin, and there would be a dominant, dominant, um, privacy monetary asset that would would be much smaller, but would serve a market that would grow at a similar rate to that. Now, I think we, we got that wrong. I think a couple of things happened. Those markets didn't get the liquidity. Um, they lost a lot of their utility because frankly, they got offboarded by most exchanges, right? And so they didn't have that liquidity to meet the
users. Um, or maybe we were just seven years early, and we're starting to see that.
Well, there's a lot of people who've owned this stuff for a long time saying this is one of the foundational principles of crypto, and people forgot it for a while because the governments weren't involved, and because big banks weren't involved. It was like, doesn't really matter. And now suddenly it's like, oh, okay, maybe it does.
Yeah. I think, you know, and when we launched our fund, had pretty material holdings in Monero, and it was, you know, one of our biggest holdings for probably a year and a half now. The chart actually is not too bad. If you look at it compared to Bitcoin, it's not a disaster, particularly versus a bunch of stuff. But, you know, maybe the times come. You've seen, as you mentioned, you've probably seen, you know, you've seen governments move much more on a censorship level than they were seven years ago, and you've probably seen a regulatory regime get less intense, um, in terms of their combat around some of these assets. So, we are at an interesting point. So, it's not a complete surprise. I think the only thing I would note from us at an institutional level, they're still sort of difficult assets. The whole, you know, I remember working with our auditor to try and prove that we own the Monero, and to be honest, that was kind of one of the best, that was kind of one of the best sales pitches we actually, I actually saw firsthand. He's actually trying to prove that we owned it to our auditor was super tough, um, which is a valid, which is a validation of how hard it is to actually track.
I love it. And what about, uh, the AI crypto nexus trade? Um, you know, Barry Silbert's still chilling towel, which seems interesting, seems to be getting a bit of traction. What are you thinking of looking at in that space, or nothing really interesting for you yet? Just observing it.
Yeah, I think it's, I think it's super interesting. I think the, um, uh, just like stable coins look inevitable, AI intersection with crypto looks inevitable as well. And, you know, stable coins is a key part of that.
Yeah. I just think, you know, the, the concern we have of the market, the speculative premium in crypto at the moment is kind of non-existent to negative, and the ability for, uh, crypto markets to support big ideas at this point, um, is pretty low. So I think, you know, for funds that, you know, on a venture side, where you could take a longer-term time frame, where you can have a five-plus year view to see this sort of build out happen, I think it becomes a much more investable asset class to sort of see that happen over time. I guess, you know, we have some exposure to the near, for example, um, we have, we've got some exposure in our venture fund around tow, um, but it's very much, we, we would say from our perspective, we're still on a sort of seeing how it shakes over the next three to five years. We got huge conviction that the intersection of AI and crypto will be massive. Where, where that utility lies and who the winners are, I think we're still a long way from knowing. The other one that's on my radar screen that's at that nexus is the digital ID idea, idea, like the Worldcoin idea is like that's inevitable, whether it's Worldcoin or whatever format, but somebody's going to have to do that because we need a token to pass to get onto all of this stuff without proving who we are, and to prove we're humans, proof of humanness.
Yeah. And it's just such a, it's just such an incredible, uh, um, such an incredibly big idea, and I think it's such a frontier sort of tech idea. I think we're a little way away from the market.
So what you're saying is the secondary markets don't have the liquidity or the capital to reward the long-term big ideas right now, generally.
Yeah. I would argue particularly on, and that's why we're seeing that disconnect. I mean, Worldcoin's a good example, right? Like I've seen, you know, some of the best perspectives I've seen on the need for, for exactly what you're talking about, that sort of, that sort of proof of life, proof of realism, um, comes from Mark Andreessen, right? Like he talked about, you know, one of the best examples he gave, which resonated with me is, you know, as you start to move forward into elections, how are you going to tell what's a real Donald Trump interview and statement versus what's just an AI generated one? I mean, and we're seeing on the other side, you're seeing, you know, the ability for AI to generate what looks like to be real. We've kind of crossed that nexus, right? Like you can kind of fool the vast majority of the world using AI. So, the give and take of that is one scams, but particularly around things like political advertising, political statements, you're in a world where you, how do you know what's real anymore? And so, you have this huge idea that Worldcoin's looking to serve. And then it becomes, you know, super unsurprising to us that you then you see, you know, A16Z moving to the market and buy a massive amount of Worldcoin off the market, 'cause they kind of get the long-term trajectory there, that the short-term.
I didn't see that they bought a bunch on the open market.
Yeah. Well, from the foundation, I think it was, you know, I'll get the numbers wrong, but it's a, it's a pretty big number in the, in the kind of nine-digit number of dollars into Worldcoin from the foundation, because they can take that long-term bet. I can see, see the long-term, um, trajectory here.
And if it's started by Sam Altman, he's probably got some decent plan of how to integrate this into something broader.
Yeah, because I think we can all see the use case there. But it's a, yeah, that's a big idea, right? And I guess I would argue, I would suggest we're in a market where we've seen a massive disparity between crypto day to be able to value big ideas well. And so we'll start to see that disconnect happen more and more, where longer-term investors with big patient capital will start to buy and fund these ideas.
Years, and I suspect they'll do super well over the next three to five years from short-term people that are looking for the next thing with a month-to-month trajectory.
And so it's difficult in hedge fund land right now because there's a lot of value and not enough momentum, and we've gone through a horrific year of chop so far, really. Yeah, Bitcoin's managed to eke its way higher. Ether's rallied from its lows, and it's now kind of in line with where it should be. But it's tough, right? Because unless you're a trader, you can't make money. You can't sit on anything because there's not enough liquidity. So the alts market bleeds, even if it's, even if it's cheap. But it gets, it's, it's super attractive, some of this stuff.
Yeah. I mean, I mean, the high-level stats are, if you know, depends how you cut the numbers, but anyway you look at it, app revenue now is, you know, multiples bigger than blockchain revenue or protocol revenue. It's grown triple digits over the last 12 months, and almost all, all indices that include apps and strip out mega caps are down 50 to 80%. So.
And you've been flagging this for a while, that the DAP economy is going to be the big thing, and it is, but the market's not rewarding it because of the shortage of capital, it seems.
Yeah. And, yeah, I, I think the interesting thing is, you know, how token prices perform doesn't stop the revenue from growing. So the apps continue to do their thing, right? And they continue to generate, you know, seven to 10 billion dollars in revenue. Um, and there's only a, that dam's got to break at some point, right? Like you can't have tech that's growing at triple digit, quadruple digit in some cases, that trades at low single-digit, you know, multiples of revenue at some point in time. That's kind of got to give. And I think that's where DAPs were kind of an interesting sort of first look, and it'll be interesting to see where they go, particularly as we sort of work down the stack over the next 12 months. At some point, liquidity will find that value. Um, but patience is required.
Yeah. And it's not like we haven't been there before. It's just been, it's just been a very, it's a very frustrating market, and we probably end up finishing much higher into year-end, and you've waited all year, and all the returns come in two months. I mean, we're kind of used to this kind of ridiculousness of this market.
Yeah. And it's, it's a tough market, but I 100% agree that the traders have been the only ones rewarded in crypto. The traders and Bitcoiners have both been the only ones kind of rewarded in crypto for the last 18 months to even two years. Yeah. And that to me means that there's a bigger opportunity than people can see, 'cause a lot of people have got their heads conflated with like, it's the end of the cycle. It all failed. Crypto's dead. And I'm like, no, I think the cycle's been extended for a bunch of reasons, and liquidity is this reason. And once you see it through a liquidity lens, it completely explains what we've been talking about. And then why there's all this discounted stuff. So therefore, once liquidity flows, you're going to see a rerating of the space in a way that people don't even believe is possible again.
Yeah. Because I mean, if you look at 2021 as the analogy, right? Like you saw fees spike dramatically, usage on crypto spike dramatically in that sort of second half of 2021, as you know, you sort of saw people become completely, um, insensitive to fees. You saw the Luna start to go nuts, all those sorts of things, right? And then it drops off a cliff. Um, with that cycle mentality, we've seen prices effectively fall pretty dramatically, like I'm spoken about outside of the majors, but revenues continue to grow. So, we're seeing that disconnect between the reality of what's actually happening on-chain. You know, DEXes now make up 25% of spot value. Uh, we've seen, I think apps now make about 3x what protocols make in terms of revenue, and that's not looking back. That's based on, you know, prices have fallen that whole time that that's been growing and growing and growing. And so, you know, we've got this bizarre disconnect now. They can last longer than people want them to last, but they break always at some point, like at some point you'll see that snapback, where just like in the internet days, right? Like we're, you know, the analogy we kind of see, um, and helped to sort of build this thesis, if you look at the overcrowding in the, what I'd say is the infrastructure phase of the buildout of the dot-com boom of, you know, the Juniper Networks, the Nells, and the Cisco. Um, and then the, if you look back on today and look, some of them are still super successful companies, not to take away from that, but you look back at where the value is today, it's at the app and user level, right? The Googles. Yeah.
Because in the end, the.
In the end, the network is a utility, although, although because of token economics, you capture some of that. So yes, I mean, the network value still goes up because you're building on a network and you create Metcalfe's Law value, but the applications layer is the thing that drives it.
Yeah. And I think, and the application layer has been super helped because network fees have been dropping dramatically, and so you've had this, and that's through, not through usage, that's through just efficiency gains, right? And, and so, and Solana has probably been helpful to sort of put that pressure on everyone in the space to continue to push, because it kind of proves what you, what sort of use cases could be driven by sort of low-fee, super, super speed, you know, blockchain. So I think you've seen this drop in revenue, and they've kind of been the, the sacrifice of the protocol layer dropping their revenues, which has boosted app usability, but also app profitability, right? And now you can generate, you know, 60,000 meme coins in a day, um, and people can experiment with weird stuff because, you know, fees are dropped. Um, but apps haven't seen that pressure on the fees, right? And we've seen people like, you know, people like Uniswap, people like Aave, that have been around a very long time now, well, particularly in crypto years, they haven't seen the pressure on that sort of fee levels that we've seen at the blockchain level. They've been able to keep that moat.
So where is, when you look at it, is it still on Solana that's capturing most of the app stuff, or is it DeFi on Ethereum? Where, where are you seeing the particular value? Because the problem is, is Aave and bloody Uniswap have traded at huge discounts forever. So it's not like the market ever wants to reward them.
No, but at some point that breaks, right? But at some point they make so much money and buy back so much of their token that you sort of see that break. And we're starting to see some, particularly at small cap level now, some of the small DeFi tokens, some of the biggest buyers each day is their buyback, right? And so when you get to that sort of framework, you kind of go, well, looks pretty asymmetric, right? If the revenues can basically hold this token where it is because they're buying back 25% of the daily revenue for some of these smaller liquid coins. From us as an investor, it feels like that's pretty asymmetric, right? We're, we're investing alongside a revenue buyer, and we, you know, when demand returns, and when they, when you can actually get some multiple on these cash flows over time, it looks pretty asymmetric to us. But, you know, markets can remain inefficient way longer than most patient than most capital can hang around. And I think that's probably what we've seen at the altcoin level. I think when we look, when we look at apps, yeah, I think one of the things we've seen change over the last probably 12 to 18 months is crypto is probably.
What I'd say is consolidating around those use cases that it's kind of proven work now.
And so we would see, particularly on the venture side, because we work across both venture and liquid, right? That's right.
On the venture side, we're probably seeing a consolidation in those use cases. We've gone through that sort of crazy period where everyone's kind of thrown everything at the wall to see what sort of works. And now with stable coins, with DeFi, we're starting to see there is some use cases here that generate a bunch of revenue. And that risk return of backing that next crazy idea probably doesn't look as good as just putting more money into sort of the use cases that have proven product market fit. Now.
When I think about it, is the issue is, is a lot of this is like a bit of a circle jerk of the same clients moving from one chain to the other and from one DeFi protocol to another. It feels stable coins is going to bring the new people on for DeFi in a scale that we're not really prepared for, because you know, if you have a stable coin app that works really well, that can be built on like a network and it can go to the end user in Thailand, and you build borrowing and lending on it. Okay, we're now bringing in net new people doing net new things on-chain, and it's not us shuffling money around to try something out and make a few bucks, right?
Yeah. The, the, the, the framework we put about around that is kind of moving from the from the sandbox to the mass market, right? And, you know, us moving stuff around to try new, uh, try new apps or new stable coins or new ways of actually trying to generate yield from those stable coins is, uh, can be, yeah, rewarding for the people that take that risk. Super productive for apps in terms of finding that product market fit and developing that robustness. But we would argue that crypto's come to the end of that sandbox phase. Um, and we're now in that mass market phase. So we would also frustratingly say that crypto is probably super long tech expertise, super short marketing expertise.
Yeah.
And so we're in that sort of interesting period now where we've got that stable coin sort of buy-in on that sort of traditional fintech investment banking world, married up with that sandbox technology that you and I and all our crypto users have helped develop over the last seven or eight years by just kind of putting it through its paces. And we think we're in that sort of mass scale market. Like I don't know if you've been following, like people like Revolut starting to onboard stable coins, right? So you're starting to marry that real fintech distribution and marketing now with those crypto rails, even Robin Hood, right? Like making, bringing a company that has that kind of global leading ability to actually market products, get them in users' hands, and make them super usable, right? And they understand how to make this stuff usable by broad, broad global.
What about the other side of the promised land, which was the Web2 to Web3 conversion? That seems to have completely ground to a halt right now. I just don't see a lot of stuff. Yes, there's a bit of sandboxing going on with encrypted messaging, you know, um, on-chain messaging. There's a few things, but it's kind of, none of that's happened yet.
Yeah, but isn't that what we're seeing with stable coins? I mean, the people like the Revoluts, people like.
Well, that's, I think, I think there's the whole bunch of financial applications, and then the non-financial use of blockchain at scale for companies like Facebook and Google, and, you know, digital ID being one of the kind of dominant cases, you know, having creator economy tokens, all of that stuff that's supposed to be there, it just, it just never gets traction. Again, it's probably because of the reason that you said, there's not enough long-term capital yet in that space. Um, at, at liquid level, liquid market level, at VC level, there is, and, you know, many people have put money into that kind of space, but nothing on the on the liquid side yet.
Yeah. But I think that's kind of what we tested out in the sandbox stage, right? There's a bunch of stuff that doesn't work that well on-chain. Like there's a bunch of use cases that were tried. Um, but, but, you know, on-chain, the cost of bringing them on-chain, or, you know, or, or the cost, or, or the use benefits of doing it.
Yeah. The benefit, the benefit of having the transparency and those sorts of things that we all know that.
Bringing something on-chain can add, just didn't add up to that, I guess, the drop in usability. So yeah, our view is we look forward is we'll see much more of a marriage between some parts of on-chain tech with some parts of what I'd say, sort of fintech, traditional, um, you know, pub.com, right? Like, yeah, pub.com's kind of proving now that the marriage of streaming capabilities with the ability to generate a meme coin is kind of a marriage made in heaven for that attention economy. It doesn't mean that that streaming capability needs to be a fully on-chain thing, right? They're just marrying up that.
And that's, I, I see that as experimentation of where the world is going in the world of AI. We need to get paid for the communities we're involved in and how we do stuff because we're not doing the same jobs. And so I, I love that experimentation. Um, I also think that the pump.fun thing and the whole Solana meme coin thing was really testing, battle testing at scale, instant capital formation around ideas. That's really disruptive. It's super disruptive, and we've already seen it sort of morph from this sort of niche thing to this insane kind of volume game in a pretty short space of time. You're starting to see people wrap trading apps. You suddenly see people wrapping streaming apps where you can have, you can stream some form of video and effectively have click this button if you want to generate a coin based off it, or buy and sell it, right? And that's insane new capital markets that's going to come up with some weird stuff, but it's going to find some killer use cases as well. The next stable coin type use case can come out of those sorts of things. So I think one of the things interesting themes we're seeing as well, and, and, you know, this is a focus of us for, you know, funds we're bringing to market, is the real sort of split between at a generational level as well, and we kind of saw this in, um, uh, back in the dot-com boom, hopping back to that as well. You saw a massive divide between the people that were using online, online use case, online apps, users, media versus those that were still in a traditional kind of world. And, uh, you know, from our perspective, if you look at all the metrics around what Gen Z and millennials want, it's on-chain, on-chain delivery of those sorts of things matches where they want to be, like just in terms of point, click, get things done fast. Like the barriers to, uh, the barriers to entry for a bunch of these sorts of things for these new people coming into markets around finance and insurance and investing and media in the traditional world just don't stack up. They're just not going to go to a bank and fill out a 20-page form with their, even in developed markets, with their passport. It just, it makes no sense to them. It just doesn't match with how they want to live their lives. And so we see this real generational divide that we also think from an investor perspective, you always want to invest behind sort of the growth generations. And the millennials and the Gen Z's are where they are. And I can just see this sort of new, new media landscape growing on this on-chain, on this on-chain sort of growth phase that particularly Solana seems to be leading as a place to be for the next five to 10 years. Now, that doesn't mean everything in these apps is on-chain, and, you know, every video is streamed through some on-chain technology, but it means it's married up with that point and click on-chain capability.
Yeah. The other one that's been a really interesting rise is prediction markets. And it just shows you how you can abstract away options because they're a lot of these are option markets. You know, you can bet on where Bitcoin is going to be at the end of the year. Like, will Bitcoin break $150,000 by the end of the year? It's like a 13% chance, which is stupid low. Um, but that abstracts away an option down to the probabilities and makes it ultra easy for people, just point, click, shoot, done. No onboarding with Robin Hood and Coinbase or the Interactive Brokers. None of it in seconds.
Yeah. Because you've changed the market from needing a quant to price it for you to a retail investor with a red and green button, right? And I guess that's my kind of sandbox to mass market example of where you've got some good marketers and some good, some good kind of like UX developers that have said, hang on, we can reinvent this product to capture a whole bunch of people that would never use something like this in the past. And I think, you know, we're kind of seeing similar, I don't know if you follow some of the, some of the gambling apps as well. They've seen incredible growth as an Aussie, like Stake.com down here, and and Shuffle, which we're an investor in, just incredibly resilient.
Growth of marrying, you know, traditional gambling type apps, and Stakes, uh, Shuffle's got a really interesting lottery app as well with that on-chain rail, and making these apps much, much faster, much easier for people to use. Um, and so we put those in that sort of, when I talk about, you know, what are the, what are the verticals that have found product market fit that are going to attract the capital over over the next three to five years, we'd put, you know, prediction markets and gambling solely in in one of those categories that we think's got a lot of growth over that period.
The other one that I'm fixated on as well is is asset management. We can see the Apollo and BlackRock and everybody, they want to tokenize their funds to try and sell them to investors, of which these are illiquid assets with tokens. Retail don't want that rate of return. But what I see on the other side is the rise of these vaults where you can create baskets, you can do stuff instantaneously, and it becomes a much more efficient for individuals to create asset management firms. You know, think of how difficult it is to start a hedge fund, right? The amount of paperwork and cost to do it, when basically you can do it on-chain for zero cost in seconds, and people haven't, it's, that's just early, but it's coming.
Yeah, I think we're starting to see the growth of that through some of the platforms like Morpho and those that are are starting to make these accessible to people like us that want to bring asset management capabilities on-chain. Now, I think that becomes, that just becomes a function of the growth of stable coins, right? Like the more stable coins there are looking for investment and yield opportunities on-chain, and that's been, you know, a market's growing at 40, 50% per annum and probably accelerates from here, the more it will attract, you know, traditional asset managers to try and capture some of that allocation. I think the other factor that probably gets overlooked a little bit and became clear to me talking to some of the massive traditional, um, I won't name names, but some of the massive traditional managers that are bringing assets on-chain. It's not just that they want to experiment with some sort of cool technology. They also see some of those dynamics I spoke about earlier, where they've got a declining user base of frankly older people that are dying, right? That have been trusted these brands with their pensions or their treasury investments over the last, you know, 100 years, but they're not replenishing the tube. They're not replenishing the funnel at the front end with the millennials and the Gen Z's as they start to get more investment capital into markets because they don't have the funnels to catch them because.
Because they don't want those products.
Well, I would argue they probably, they may want those. Some of them want those products, but they're not going to fill out a 50-page form, right? And they're not going to go through the hassle, right? So, I think as you would, like just with prediction markets, as you lower the friction for them to have some of those products, I think you will find users for them. Um, but these companies realizing that if we don't reinvent our distribution channels to match where youth and capital is going, yeah, we're going to die pretty quickly. We're going to go the way of the newspaper publishers, right? We're not going to capture that new user. So, it's, I think we've moved from that sort of, you know, they're not just checking out the tech. They're not just bringing stuff online just because, you know, some tech guy wants to try it out. They've kind of realized that if you take a five to 10 year view, they kind of got to, or they're going to miss the market. So, we've covered a lot of ground. Looking forwards, you still think the year-end finishes strongly, and what do you think about 2026 overall? What's your best guess? Considering most of us thought this year would have been stronger than it is. So, I'll give you a, I'll give you a mulligan anyway.
Yeah, look, we think the market finishes higher at year-end. I think the 10th of October was a pretty, pretty idiosyncratic shock to crypto, right? And I think we're probably just going through some of the consolidation that comes out of that, some of the reductions in liquidity, and you would have seen the short-term liquidity drops through that sort of period were kind of insane. So I think, you know, we're just sort of working through, continue to consolidate and work through that. Um, but from my perspective, at a macro level, liquidity is only going one way as we look out over sort of three to five year view. Crypto continues to perform at that sort of that fundamental level. Like if we, if we'd seen token prices drop like they have 50, 70% in most indices over the last 12 months and revenues that fall had fallen as well, you kind of go, well, you know, that's the same.
I mean, that's what happened in 2022, and that's typical of the structural bear market side, or the cyclical bear market, but this is not like this at all.
And we've seen the opposite, right? And at some point, something's got to give. Like users aren't going to stop, you know, the users that are driving so much of the fee pull in crypto today, aren't going to stop using just 'cause token price, because app token prices keep going down, right? And stable coins continue to grow. So at some point the weight of revenues, the weight of buybacks make the market get more efficient. But my caution is that takes time.
Brilliant, my friend. Well, good to see you, and let's see how it shakes out over the next few weeks and into the end of the year.
Thanks for having me again. Good to speak again.
All right, see you soon.
Cheers.
So Richard, as ever, is full of insightful information. He has a lot, lot of history, a very thoughtful, um, framework and approach to his investing in crypto, and I think it's very important to share that with you guys so you can see the kind of work that gets involved when these hedge funds make bets in this space. Anyway, hope you found it useful, and I'll see you next time. So, you obviously like this video enough that you've got to the end. That's quite a big task. But listen, do me a favor, hit the like and subscribe button, and also check out what videos next, 'cause I think you'll love it. But if you want even more, and when I'm talking more, I'm talking about member-generated ideas, incredible alpha research, everything there to help you in your journey, just head to realvision.com/join for the best financial intelligence out there and the pure alpha that's within the platform.