Bitcoin as an “Unprecedented Call Option on the Future” (w/ Raoul Pal & Dan Tapiero)
DAN TAPIERO: Part of the problem with macro, and I think the public funds is that with all of the algos and computer programs and everything that's entered in the last 10 years, you just have so many eyeballs looking at every single asset that flashes on Bloomberg. I've had this view for the last 10 years that the way to make real money is to be involved in things that people can't see, that people can't do, that people aren't aware of or have difficulty doing like Bitcoin, is extremely difficult for people to buy, even though-- mostly because it flashes on the screen and they think the volatility is insane, or they can't handle it. If they were really to do the deep dive on Bitcoin, I think they'd see a whole new world open up and if you position it correctly, and size it correctly, it's a position I think all institutional portfolios, including endowments, all need to have is the 1%. RAOUL PAL: When you go to the endowment and you say this and you should buy Bitcoin, what do they do? They laugh at you? DAN TAPIERO: Yeah, but no, I think we have some forward thinking people. I think they're open to it. Because, as I was saying, the Wences Casares view, which is get off zero, that all institutions should have at least 1% is a very powerful argument. I think if you look at a basket of, and I think Dan Morehead's done this work of digital assets, a basket of companies over the last five years, actually, this is a basket of cryptocurrencies that he put together, if you had had that basket or even just Bitcoin, let's say over the last five years, if you long Bitcoin, if you'd had 5% of your portfolio in Bitcoin in a 60/40 portfolio, your performance would have doubled. A 60/40 portfolio, the performance would have doubled over the last five years with a 5% allocation of Bitcoin. If you add just 2% or 3%, or 1% or 2%, you're looking at adding 20, 30 percentage points to performance, and for an institution that's massive. I think there's never been as much-- I've never seen as symmetric a bet as exists with Bitcoin and the risk reward for institutions to even dip a toe into the sector. Whether it's owning Bitcoin, or whether it's owning a basket of the companies that are growing up in the digital asset ecosystem, some of those companies were worth zero four or five years ago, you take a look at Binance was worth, five years ago did not exist and today, it's probably a $10, $15 billion company. You're having tremendous wealth creation going on underneath. I speak to different institutional investors and some of them, they've never heard of any of these companies. Imagine you're talking to a guy running billions of dollars who's never heard of Coinbase. It's almost impossible to think that for us, not that Coinbase is the be all, end all the greatest company, whatever, but it's a large company in the space that's been around for seven or eight years that is making a ton of money, that has good management, has a hundreds of people working for them, offices all around the world, they're making money. It's not like some fledgling operation run out of someone's garage. There are probably 50 companies in the space that are real businesses, real businesses worth let's say over $100 million. As an example, you think about where we're talking about where's the next thing where if the macro world is dead as an example this world to me is in stark contrast to that. I'm so-- about that because I see how dead and over macro is. RAOUL PAL: It's like my monsoon theory. If you've got a bunch of old indebted countries like the West, then look for countries that are the opposite like the Middle Eastern countries and countries like India, you look for the complete opposite. Macro is a dire opportunity set, the digital world is unlimited upside and looks like a call option. It's really interesting.