Bitcoin's Thrilling Risk-Reward Opportunity (w/ Raoul Pal & Dan Morehead)
DAN MOREHEAD: The other thing to think about is, this is actually the best time to invest after a crisis. If you look at the returns for venture, for the years, the decade coming up to the last crisis, so 1999 to 2008, the average return of venture funds was 6.28%. These are numbers from Cambridge Associates, one of the most respected advisors out there. Then in the years 2009 to 2015, the returns tripled to 18.21. That is our strong view, is that over the next two or three years, there's going to be some great opportunities to buy things at much cheaper valuations. Then we were seeing a year or two ago when everything was at record highs, the whole world was perfect. RAOUL PAL: That's total sense. Again, this is still early phase so the ability to be able to pick up cheaper investments in the space, if you're right about the macro view about where this is going, and obviously, I agree with it, we don't get many of these opportunities in our lifetimes is my view. I've not seen risk rewards like this, ever. DAN MOREHEAD: That's why I'm all in, is that like you say, this is a call option on the future payment rail of the world and yeah, it could go to zero, but it could go up 10x, you just don't see those trades in a generation. RAOUL PAL: What do you think is going to happen to all these central bank balance sheets at the end of this? Because if this goes on a bit, they're going to have to do extraordinary amounts. That obviously should help Bitcoin in the end. What's your view on that whole situation? DAN MOREHEAD: I lived in Japan, I was trading interest rates, Nikkei, back in the early '90s. They had overnight rates at 6%. Then they had what they call the Japanese recession, which was sub 3% growth, and then oops, it's a real one. They invented zero interest rate policies, or they called it the lost decade. That was 25 years ago like, rates I think are going to be zero for the rest of our careers. With that, with no more monetary policy as a lever, then you have to start extending what assets you'll put on your balance sheet and how much money stocks to create. We've seen the first fiscal stimulus package the US Congress passed was $8 billion. That was about three weeks ago. Now, we're at 2 trillion. There's a great line attributed to Senator Everett Dirksen, a billion here, a billion there, pretty soon you're starting to talk about real money. It's trillion here, it's trillion there, it just has to have an impact. We're already seeing it, the intended impact's already helping the S&P be a lot higher than it would absent that stimulus package. Real estate doesn't have any real time pricing. It's hard to see where that is, but it's obviously higher than it would be had the $2 trillion not been allocated. I think you're going to see it in all other assets. Cryptocurrency just being one of them. RAOUL PAL: Gold is the other one that people focus on as well, but it's traditionally done well in these markets when the value of money broadly falls because there's excessive amounts of it. DAN MOREHEAD: Crypto is a lot from its low on the 12th or 13th , it's already up 40% or whatever. You are seeing the impact start, but I think over the next 12 months, you're going to see it more fully get priced in. RAOUL PAL: I'm personally accumulating as much crypto, Bitcoin as I can right now, just because I too believe that within this, the hard money elements of Bitcoin, even discounting for the volatility, but looking at the risk reward makes it an extraordinary opportunity that I have literally never seen before. As you know, I've been involved in this space on and off since about 2012. I just don't see any other outcome. I've never-- even for gold as well. I think, look, gold can go up three to 5x, Bitcoin can go up 50 to 100x over the next five years. You don't see a whole asset class go up 100x, but you've seen it, because you've been involved from the beginning, I guess. Also, how do you deal with the volatility? When you first got into this, you're not used to taking 90% drawdowns but now you are. Talk to me a bit about that. DAN MOREHEAD: Oh, yeah, I know, it's hard. The market's super crazy. It goes up 1,000% and down 90%. It's already done two huge round trips since 2013 when we lost your fund and a couple big ones in the year two prior to that, when I was studying it. What I try and tell our investors, I try and tell myself is, even though this-- it's basically a venture with a real time price feed. You're investing in a very early stage project but there are tokens that trade on little apps every two seconds. What I like to tell people is although our Bitcoin fund offers daily liquidity, you should invest with a five to 10-year horizon and try not to look at it. It is true that for anyone that's ever bought a Bitcoin and held it for four years, they've all made money. If you can do that, that's great. Unfortunately, human nature is very procyclical. Unlike many others, when it's going up, it feels great and you feel so smart and you feel like you don't have enough and then when it's down 80%, you're super bummed and you're trying to rationalize why you ever did this stupid idea anyway. I might only suggest to people try and think about it in a five to 10-year time period and only put in as much as you can afford to lose, because there is a chance that all goes to zero, but there is a chance that goes up 10 or 20x so try and stay focused on the super long term. Then we've seen in our own inflows massive pro cyclicality, huge fractions of inflows coming at the highs and very, very little comes in like right now when the market's way down. If you're an investor and you have the emotional and financial resources to invest, you want to invest at the lows, and then potentially scale out at the highs rather than having the FOMO devil whispering when it's at 20,000 and getting in. RAOUL PAL: You must have a wry smile in your face when you see one by one of our old friends, the old macro guys all coming across to you, whether it's John Burbank, whether it's even Dan Tapiero, whether it's Alan Howard, whether Jim Palazzo, you name it, one after the other is basically crossing the Rubicon and going into this new world. You were the leader in that by a long way, so I'll give you credit for all of that, but it must make you laugh a bit. DAN MOREHEAD: Oh, it's great. No, it's great. It's all the old same friends of mine, like Mike Novogratz and Ivan Palin and after 35 years, we're still doing it. It's hysterical. I think it's because our job has always been look for big global disruptions. Man, this is disrupting global payments, remittance, gold, and it's disrupting money and money is a $100 trillion market, now $102 trillion. It's not surprising there's a bunch of global macro investors that are the ones that really, really are embracing this. RAOUL PAL: Disrupting money. That's a great, I've not really thought of it that way, but it is disrupting money and the whole system of it.