Blockchain Venture Capital & State of Crypto Funds

Transcript

foreign she was on no or she wasn't no she wasn't yet all right we'll see so we're live now Mark and I think you can kick it off okay hello everyone very welcome to our webinar meet the

blockchain VC uh it has been a few months since we to see VA crypto Valley Association uh had our last event it was at the beginning of the year um the landscape changed a lot so we'll discuss now at this meeting not only about our uh about Investments but also about the general scale estate of crypto and I'm very happy um to have demilsa with us head of research at the coin Telegraph and part of the investor working group of CBA and our guests Dan tapiro from 10t and check

Cornwall Cormac excuse me from Shiro and also Alice from stillmark very happy that you have all made it and that you're in with us and I'm looking very much forward to insightful discussion and maybe I would like to give the three of you then Jake Alice a quick um the opportunity to present what you are doing and then we'll start with our questions welcome everyone sure uh uh hi yes I'm uh co-founder CIO

managing partner of uh 10t we are a growth Equity private Equity Fund um that only focuses on crypto blockchain businesses that are you know a bit larger usually revenues more than 50 million so we're not Venture don't do early stage it's usually being later um the fund uh we have three funds 1.2 billion AUM we've invested in 20 companies in the space you can go to our website website and see what they are I put them out there um and as far as I know we're we're still the only fund out there that does this exclusively so I sent you beforehand I not really a VC

um we we you know we don't uh take as far as I I can as far as I can see we don't take um you know that kind of um early stage risk uh we don't really take business risk we're investing in businesses that are already um you know quite uh profitable so anyway that's us I come from just one second of the traditional world I spent 25 years in the macro hedge fund business um and um have moved my way over here into the new world uh a few years ago so thank you take rallies please

just go on Jay Corrales I think we don't have to I we just start to talk I don't have always to address you just uh however you feel all right I'm Elise Killeen I'm the managing partner of stillmark which is an early stage Venture Capital fund focused on companies building in the Bitcoin ecosystem and so what that means for us is that we are looking at companies that are advancing BTC as an asset or financializing Bitcoin we're looking at companies building second layer Technologies on top of Bitcoin or third layers are integrating those and then we're looking at mining companies

my background prior is in Venture Capital working in Enterprise Tech and infrastructure investing largely and in addition to this I'm on the board of directors at blockstream great uh hi guys I'm uh I'm Jake cormack and it's pleasure to be here I'm the founding partner of Chiron group uh we're based in Hong Kong and at our core uh a a conglomerate responsible for 10 portfolio companies covering all the major verticals from media to infrastructure to technology um our side of the business we are classified as a single family office and

we make various Investments across different stages either in the U.S private consumer technology space or in the crypto space we tend to partner with layer ones and we help them grow through our resources and invest in in the projects and applications that build in those layouts uh based in Hong Kong and uh we are we are growing so and it's a pleasure to be here and looking forward to kicking this kicking this off thank you very much um my question now just to start with what do you think about the recent events maybe also FDX and what does it have an impact on refining

your investment and also diligence process all right I can start so there was a few things that happened um to set up FTX as um a hub of Chaos in the crypto ecosystem for 2022. so I think the the failures can be divided into a couple categories which are just simple things that went wrong and can go wrong in in Venture Capital investing or in company building um and then on the other hand we had some sort of extraordinary activities that were happening in FTX and Alameda made possible by crypto of course and

and by the use of obfuscation um and the complexity of their business to the advantage of FTX so that regulators and others had a hard time understanding what was going on so From stillmark's perspective we're fortunate to have been able to avoid exposure to FTX and it seems as though exposure to companies that were immediately impacted by this and that's and that's twofold there's two reasons for that first we're focused on bitcoin and Bitcoin tends to be maligned as the boring ecosystem within the broader crypto field um but of course there's a benefit of boring which is that the fundamental um bricks are just being laid for what

will become this broader world we imagine of digital payments and Bitcoin is a store of value and so that tends to be impervious to some of the chaotic things that can happen in crypto and then on the other hand we're also very focused on our process of diligence and the application of a really traditional Venture Capital practice to this new field of Bitcoin and so some of the things that happened um here in terms of you know things that were overlooked for FTX or that perhaps were not discovered until it was too late those were things that I hoped that we would have caught just by taking a standard Venture Capital approach to evaluating the business

well I mean I'm just gonna chime in here I mean for me fgx is just a garden variety fraud I was talking about that before the call uh I come from you know the old world and this is just typical a young Trader loses money on a trade and then covers it up and takes money from clients which is it's a very clear line so I understand a lot of people and especially the traditional press I mean they've all sort of become apologists I hope that changes um we don't really need people like this at all in the space or connected to bitcoin blockchain crypto however you want to describe it so to me it's pretty uh clear uh cut and dry

thank you I mean my view is sorry please yeah my view is you've got a classic case of um lack of corporate governance and procedures uh married with rehypothecating client assets and leverage borrowing against them and then sort of creating this whole ecosystem and now we're seeing the contagion of that so I think my view is exchanges should never really be custodians or whole client money they should be intermediaries simply put and I think in order to get the evaluations the FTX sort of reached I think it's lost it raised its last valuation model

32 billion one of the valuation metrics that was based on was how many users were in were on the on the platform so I think FTX were enticing retail users with products and an easy to use interface High yielding products as well and I think that's sort of the core of the problem here so that's that's my view I would just like to also say for the record we uh have not really our companies have not really been heard I mean obviously FTX was taking Revenue away from some of the exchanges that we owned last year um you know Jake just mentioned enticing retail Etc um and pulling people away from I think stable

um you know proper exchanges so I I suspect that going forward we're going to see quite uh significant uh increase in revenue and some of those exchanges I mean I can just you know crack in Wabi Etc it was very clear last year that uh FDX had been pulling Revenue away so some of the early signs that at least allowed us to pass on those fundraises of FTX were the same signs um you know that as Jake mentioned sort of a traditional private Equity signs that are typical red flags you know um you know not being able to explain the source of of your profits I mean he he was talking about his well being generated from Cross exchange Arbitrage

buying one Bitcoin on one exchange selling another I mean if you've been in the investment business for any period of time you know you realize that that's not rocket science uh no one builds tremendous wealth that way there's no investment process there's no framework um you know I that's a it reminded me when he said that of a cross-strike uh split strike Arbitrage which is what Madoff said uh was his uh investment style or investment Focus I never could understand what that was back then um and so in the same way that you have these things that don't quite add up plus all the signs of you know the sponsorships all those obvious signs thankfully we we passed on that but I

mean I really think he I just reiterate should should move on and and let us all continue as they're saying on this big building and focusing on growing another question actually so quick did you when you when you guys had a look at FTX you mentioned it was you looked at it a couple of times uh was there a data room when you sort of assess yeah there was but I'm curious to know what it looked like yeah I mean we've looked at you know probably over 100 data rooms and you know we we even ranked the quality of the data rooms we we look at and there is a correlation as you would suspect that the companies that are completely open

um that you know share everything that don't mind having an external auditor come in and check numbers just like uh there's a company we're investing in now that's that way um no they were hesitant they were slow in getting us things um you know I we actually stopped our diligence you know relatively early in the process just because I thought that the valuation which was 100 to do I'm sorry um was um 30 to 40 times Revenue was just exorbitant and we tend to not invest in things that are let's just say over 10 to 12 times Revenue at least last year um and so for us that's a like very clear sign of excess and greed

um you know we passed on many different companies that wanted those type of valuations and I just said that because um the the companies that are looking for long-term partners that have a long-term view they're not there to show their you know their buddies that they can get a high valuation and then you know as he did pull money off the table which is a big you know another type of red flag that you know he pulled a chunk of those raises off uh for himself I I don't know how those um those investors allowed that but you know the type of founder who you want to partner partner with is not reaching for the moon day one right cares about a

long-term partnership with his investors and wants them to make money um coming in at a 32 billion dollar valuation um at 30 to 40 times Revenue I mean we're trying to make a 10x I know you the Venture people are trying to make 50 or 100x but we're just trying to make a five to ten X and you know to think that that could be a 320 billion dollar company in the next five to ten years was a bit of a reach for me so we actually stopped early um but of course they were there were there were hurdles to getting you know numbers Etc and they wanted us to sign all sorts of things and then at the end they came back and said well we could do

you a favor and we could give you a five million dollar uh piece and our average ticket size is 40 to 50 million like five million dollars we don't do anything even under 15 or 20 really so it was like when someone comes back and says they're going to do you a favor and they know what our ticket size is as well it just you know it it just was like no thank you please guys and 30 year old I remember what my skill set was when I was 30. I was pretty good but you know I you know you to think that I was gonna invest on those metrics with someone that age

who wasn't really a proper CEO or entrepreneur or Trader portfolio manager I you know anyway so there were a lot of signs I I hope that answered the question so that we can move on we have all together maybe one hour I would ask one question and then I'll hand over to the mails um now I mean we saw the last few weeks that of course these FDX had quite an impact on the whole Market uh valuations dropped again versus the equity Market which was becoming a bit

stronger again the last few weeks so my question here how what do you think and how not only related to ethics but General the market what do you think how long will the bear market last of course we all can't give clear predictions but just what what what's your God feeling Elise you're gonna go ahead so Bitcoin tends to lead us out of bear markets um so I guess I'll speak on behalf of Bitcoin you know we don't know it's a good point

um Martin to mention that we don't know what will happen in terms of the price of Bitcoin or other cryptocurrencies and in fact Bitcoin um bitcoin's exchange rate tends to do exactly whatever it is you would like it not to do um that said what we know historically is that what's pulled us out of bear markets has been bitcoin's having event which is the the block reward for Bitcoin miners getting cut in half but there's a couple other things that are positively correlated with bitcoin's price and fundamental value and those are Marching ahead so let me mention that we know from a historical perspective that adoption and the number of people holding Bitcoin is correlated

with bitcoin's price and the expansion of the utility set is related to adoption and thus the price those things are progressing at a very quick clip and we also have Tailwinds of some really interesting Innovations in the Bitcoin space things like tarot which allows you to get stable coins transacting peer-to-peer instantly and nearly for free on bitcoin's Lightning Network and if we imagine that that's the type of utility that can really Drive adoption of the use of these protocols then we can start to see the light at the end of the tunnel from in terms of the bear market and so I think there's a lot to be optimistic about and then my final note here is just to acknowledge the

work that Founders do in Bear markets and how that sets us up to really take advantage of the quiet space Dan May a really interesting point on FTX earlier that I'll Circle back to because it's related to this theme too he talked about the benefit one of the benefits of FTX collapsing is that healthier and more more mature exchanges those that are run by true professionals and not fraudsters are going to see this tick up in activity and in revenue and that's not just true for exchanges in fact what we saw after FTX collapsed was a peak a spike in people purchasing Hardware

devices to help them buy their own Bitcoin and so that that's indicative of a maturation of the market of people holding Bitcoin and people otherwise engaging with these Technologies and so we saw that happen and we also saw exchanges come out and talk about proof of Reserve which is a tool really for exchanges to be able to open communication with their user base and provide transparency that retail investors and institutions are demanding and so those are some of the themes that Founders are building against in the current bear Market that I think will put us in a really lovely position to see a significant uptick in adoption as as the price starts to rise

before I let Jake talk I just want to confirm that um you know we're a significant investor in Ledger and I think in the first week or the second week of November Ledger had a record week and I think they might be having a record month as well um so I'm just you know confirming that point people are moving off exchange and I think we all saw was it Jesse Powell of Kraken uh who said listen I want you to take your coins off exchange please put them into Cold Storage I mean I don't think we've heard that from any of uh The Exchange CEOs so it's just there are good actors in the space there are people who care about it

um who care about you know long-term adoption and so I don't know that's just in stark contrast to you know what we've been living through with the FDX but go ahead Jake I I didn't no I mean just just on the on the Ledger points um one of our portfolio companies is changely and changely facilitated all the slots in all the self-custody wallets and where we've seen a huge uptick of activity of people moving retail moving their assets off exchange onto Cold Storage instead of custody so there's that awareness um alongside with FTX uh collapsing we're seeing a purge of uh Wales that would use say FTX as a venue to manipulate prices as well so we're seeing that

being purged I think we're also I I expect to see someone of a reset um hopefully q1 Q2 but who who knows well I'm going to take a stab at who knows because if I was in the who knows business for 25 years and still am a little bit I mean I think Elise made a great point you know Bitcoin by the end of 24 I would bet with a high degree of certainty it is going to be at a higher price than it is today yes we have had you know rallies post havings or into havings um and Bitcoin as as a mature asset now does seem to trade with Trad fire liquidity Cycles a little more than

maybe it did five six seven years ago um I I think look for me at least uh Bitcoin is you know pure collateral um it's the highest collateral um I you know there's nothing like a Bitcoin you know I hate to call it digital gold because it's its own thing it's bigger than gold um even though I'm a gold Advocate I think it's just it's much more complex as much more many more use cases um and is it the core of this whole what I call digital asset ecosystem unlike um other people in the space who are Bitcoin bitcoiners um I do think there is room for other

chains um you know ethereum I think is also uh something that's proven itself over the last seven years um you know huge number of use cases there uh I am not a bitcoiner who thinks uh ethereum is fraud because of the pre-mine and all of that um bitcoiners tend to get a little too hung up I think on everybody else and they should just be focusing on building the Bitcoin uh ecosystem like elise's and I'm very bullish on Lightning I think that's a fantastic new layer too um but um the reality is is that I don't think and I can say this I think with certainty on there are many things you can say with certainty but I don't think

any of us really know what shape this world will take three four five years from now just as an example I think two to three years ago no one would have expected let's say the nft universe to grow as it has or the stable coin Universe to grow as it has um and so there are lots of things going on in the space that aren't Bitcoin but that I think reinforce the value of Bitcoin over the long term and bitcoiners might say well if all that Capital just came into Bitcoin uh we wouldn't have to worry about potential hacks and frauds and some of these other lesser chains I think that's part of growing and developing and maturing and

if it ends up that one day in the future everything is just Bitcoin that's great um and if if it's a multi-change main world where there are different use cases where you don't need the security functionality the apparatus around Bitcoin um you know because for me that's what's important about Bitcoin is that it's bulletproof that it's it's a security uh apparatus you you can be sure if you have your Bitcoin on on your Ledger uh No One's Gonna Take it from you and um these other chains you know in blockchain gaming as I said in some of these other areas you don't really need that functionality let's save that argument for another day um I I the space you know the space is

still growing um some of those metrics that we look at uh have hit all-time highs recently including the number of holders of Bitcoin but even things like developers um you know the number of developers um has just hit an all-time high that's in the space overall the number of dapps that they've written also at all-time high just recently so there's underlying growth in the the space and in terms of price I think q1 Q4 Q4 q1 is the low and I think there's a chance that we already have made the low in Bitcoin and ethereum I think we've made the low in the 10-year yield uh I've been saying for the last six months on Twitter that the FED is over tightened and I think

some of the data in the last month have just proved that right the Chicago Isom number came out yesterday at 37. um there's never been a time when the Isom Chicago icing was at 37 that we weren't in a full-fledged recession so I think growth and inflation and I've got a hundred other leading indicators that suggest that too and I posted them on Twitter um I think you know with a high degree of probability that growth and inflation are going to be lower next year and that will be positive for liquidity which I think will be positive for Bitcoin and ethereum uh even if um even if um actual growth slows down um you know activity slows down I still

think that the the interest rates that we have now are absurd and the inversion in the yield curve the 10-year at 360 and the two-year at 440 is the market telling you that the FED is over tightened so I see gradually next year maybe we're along you know we bump along the bottom for a little while maybe we're 15 to 25 000 uh you know along the bottom but um we are very active at this moment and buying um you know adding to our portfolio and we're seeing discounts now which we're we're very happy about um I know I went on a little bit there but there is a macro component to all of this now

um that I think affect Bitcoin and ethereum everything else outside of Bitcoin ethereum to me our Venture product projects um I you know I'm not discounting them but I they're just to me they're different they're different instruments so um I think if you're interested in the space and you're watching this uh Now's the Time to really get involved definitely yeah I mean I from you know looking back at the last kind of kind of Bitcoin 2000 2013 you know you know the price is starting to go up it kind of like peaked out at 2014 around like I want to say like around a thousand dollars or so and it took like three years until 2017 to get back to that point and then again in

2017 we hit like 20K and it took another three years to get to get back to that point and and so you know if we look at like 2021 you know December is kind of like this this peak you know if we take it three years out from that we're like 2024 December um so maybe like the end of 2024 you know we're looking at like you know uh you know going past the last all-time high um and and you know as Elise mentioned with the my with the housing coming up and you know spring 2024 that that all that all kind of like fits in very well with with you know the historic historical price movements although you know it might not exactly determine the future I I think also your points about

the macro economy Dan are you know completely spot on uh somebody from Europe asked me how Black Friday was in America because you know basically Europe's like having a really bad economic situation but America even though rates are so high you know it was like the lines for Black Friday were just like you know just ridiculous and so that was like negative because that that might signal to to the FED they can keep raising rates you know and then and then the markets you know responding to to Good News uh you know like we're not as bad off as they thought we were but then the you know that's a negative for the market because then that means you know they're going to raise rates again um so I I think yeah you have a great Point um I'm definitely

um buying now I think that this is a fantastic opportunity to to stack SATs and and get get involved in the market again um one thing is is you know talking about the use cases you hit on a couple different use cases Dan I recently you know there was a whole discussion about Bitcoin being a store of value Bitcoin being a global medium of exchange some people for a long time were talking about Bitcoin replacing the dollar and you know then we kind of saw well stable coins you know actually you know might be a better use case to replace the dollar and Elise you mentioned Taro and like kind of you know stable coins being built on top of Bitcoin which I think is fascinating

in a recent podcast with um Jack Peter McCormack you know Greg Foss and James lavish talked about actually Bitcoin replacing treasuries and and the and basically saving the dollar as the global Reserve currency only by having Bitcoin replaced Global treasuries as you know an a reserve asset so I wanted to ask each of you what you know for people that are coming into the space and think that there's no there's no use here there's no utility what is the utility of Bitcoin what is the use case here um what are the top use cases that you think are going to materialize in the medium term

at least you're Mississippi sure I can start so when we talk about utility I think it's important to not combine or confuse the activity happening with Bitcoin and other cryptocurrencies other cryptocurrencies including and especially ethereum these are very different things so when we look at what's happening in terms of traction with a cryptocurrency or on a protocol what we're and this includes Bitcoin what we're really looking for is stable activities so things that are not fad driven but that are going to be sustained through the duration so we're talking about not just one bull market cycle but several and

hopefully we're seeing a utility that's also extendable so let me give you an example of something that's not that has driven a lot of the traction on ethereum and other protocols just straight up gambling extreme speculation on long tail of um of tokens and on nfts and I think there's a great application of nfts somewhere but that was not the traction that we saw emerge in this last bull market to be very clear so going back to bitcoin's utility Dion talked about Bitcoin as being a secure and unchanging protocol and he didn't say this but I think he probably

meant to imply that one of the things that creates the security is the fixed nature of its rule set um and and the importance of this was referencing the premise of the question when we have a monetary system and that is sort of very Dynamic around the rules for participation and what we can expect from the institutions at the helm that's problematic increased a lot of risk for people and a lack of control Bitcoin is meant to provide the opposite a technically secure protocol but its policies are also secure and they're fixed it's very different from ethereum and other protocols but especially

ethereum so let's talk about what you can do when you have a protocol that's secure and its policies are fixed you can use it you can use its native token Bitcoin as a store of value or as a way to exit the system that you're otherwise in and so while it might not yet be a hedge um you know against the macro environment or replacement of the dollar it's a way to opt out and to do something different and to have your value stored within a secure technology but also a different rule set but we're actually seeing adoption of Bitcoin more broadly than that so we're absolutely seeing Bitcoin used

for payments in Emerging Markets we're seeing for payment that we're seeing Bitcoin use for payments between markets so I'm talking about areas where it's common to send a family member abroad to work and that family member will remain an important part of that that family's finances Bitcoins used for that as well it can also be used for some of the funner or flashier activities like gaming that are often referenced for other protocols but I want to pause there just for a second because in fact one of the things that folks in the gaming space want is to know that when they're sending a

transaction that is going to behave exactly the way they expect it to behave so these are really sort of simple things they've definitely become more important when large value exists so it's more importance in a transaction for your house for your car for the payment to be assured and secure but for that not to happen is still an end wins even when the transaction is small or meant for inactivity like gaming and so adoption in the Bitcoin space has really been really Broad and driven by these these couple of things which is the security of the technology and the security of the policies that exist around Bitcoin Jake you want to uh if if I may um I

believe Bitcoin has some Legacy limitations around the 10-minute blocks and this sort of question around how do we scale Bitcoin so I know for the users out there that aren't familiar with Bitcoin there's been some Forks that people tend to get confused there's the Bitcoin cash fork and the Bitcoin SV at least I was curious on what your views on these sort of forks are and the sort of layer twos that support yeah to facilitate these faster transactions and sort of to you know the costs there's great news here so lightning has matured also in 2021 we got this sort of stress test of lightning in El

Salvador's Bitcoin airdrop that was of course executed at the same time as Bitcoin was made legal tender in El Salvador we saw this Spike of course in activity because people were spending this thirty dollars of Bitcoin that they had been airdropped and all of that economic activity was happening on top of lightning Network actually primarily on lnd which is lightning Labs implementation of the lightning Network and so we really got to stress test the system and the great news is that lightning Network performed extraordinarily well um and and the better news than that is that the feedback that was used from that in-market test and others were happening concurrently in emerging

markets in other geographies but the feedback from that test the the the metrics that were gained informed informed tarot actually so what we saw with the airdrop activity was that people were spending their Bitcoin right you know how they spend it they went to the grocery store they took their family to dinner the Pizza Hut was a big beneficiary in El Salvador they went to the pharmacy and picked up meds for their kids and so and and I think another motivation of the spending was that the families that needed this money to pick up medication for their kids at the pharmacy could not tolerate the volatility that BTC currently has so if you're making 400 a month

um and you're spending 400 a month btc's fluctuations are not something that you have an appetite or an ability even to tolerate and so with that Insight lightning Labs went back they put their heads down and went to work and developed Tarot so that the families in El Salvador other emerging markets that don't have a debit or credit card but want to morph bricks frictionlessly interact with their local brick and mortars or folks across the globe but can't tolerate bitcoin's volatility tarot was meant to give you an ability to do just that so it's not just lightning Network though that's that sick mentioned here of side chains

like liquid Network and by the way this is relevant to FTX so block stream advances a side chain called liquid Network um that that essentially can allow you to apply a new a new rule set to your Bitcoin um that's defined by a set of stakeholders that are either familiar or just or unfamiliar with one another it really doesn't matter but if it had been applied to FTX there could have perhaps been some better policies or transparency around policies put in place including for inter-exchange inter-exchange activity and also exchange happening between Alameda and FTX so I'll leave it

there but the good news is Jake that Bitcoin is rapidly scaling through these second and third layer protocols and we're really starting to see the benefit of that in terms of adoption and expansion of utility sets thank you for the update that's that's exciting and fantastic to hear just curious how are they able to integrate Bitcoin Bitcoin payments into the sort of re the the the merchant and retailer network was it through points of sales were they able to use their their wallets to interact yes we invested here actually um so

um that's such a good question so this short story is is that Merchants need access to infrastructure in order for them to accept and send payments on Lightning Network and what we saw in El Salvador was actually local talent emerge to address that um problem set and pain point for merchants that needed to adopt lightning Network in El Salvador right and and it was a group called Ibex Mercado so Ibex Mercado comes from Guatemala the neighboring region and was able to bring groups like Pizza Hut Starbucks pharmacies grocery stores Etc Banks online providing lightning Network

infrastructure for them and then a smooth interface so that when you were paying in Bitcoin you had a similar experience but maybe even a quicker experience as you would have had if you paid with a debit or credit card and so it's not much different from Merchants adopting any sort of new proof POS system of course Merchants don't like to do that so the challenge for Bitcoin for lightning Network POS systems that offer this integration with lightning is to make it smooth not just from a user a purchaser's perspective but also from the Merchant's perspective as well I mean I think the audience should know

there are a lot of different sort of philosophical viewpoints as to how the future is going to develop and people move uh along the lines um where they have the greatest conviction and of course there's a Bitcoin only crowd there's a crowd that thinks about everything they're people who think that there's a hierarchy of cryptocurrencies some people think there should only be one I would just say my my sense on this is that you know uh human nature is what it is and um you know I think there there's always going to be more than just one hamburger place you know there isn't just gonna be McDonald's like I even if McDonald's makes the single best burger of all time humans are not gonna just go to

McDonald's there's going to be a Burger King they're going to be all kinds of burgers people are going to make burgers at home and I'm not saying that that's the best or most effective way forward but that is human nature and so I'm really not willing to bet sort of against that changing um and I think there is a little you know a little more uncertainty out there humans like to Tinker even to their detriment right so you know I sort of have that view on the other hand if we talk about the dollar um again from my coming from my background I I don't think it's really productive to talk about Bitcoin replacing the dollar is it theoretically possible I mean I guess so but you know it's like a bit of pie in the sky and

from the the from where we are today to replacing the dollar is you know miles to miles miles and miles to go before we sleep so I don't you know I don't see the it's productive I think again that's more philosophical and having studied philosophy and history in school and you know I I get it I I like that but my business really we're in the business of of uh making return for our investors and also helping the overall ecosystem grow in whatever way that it may grow and so I think tarot is fantastic lightning Labs is doing a great job I mean I think um the things that Elise

has mentioned are fantastic and especially in the emerging world where they don't have developed monetary systems and she mentioned El Salvador but there are plenty of other emerging uh countries that don't have a proper monetary policy at all or a currency policy for them I think it makes a lot of sense um but again it's just it's very early days there um I mean I I I I I would support that I mean I do support that um but I just think it's it's pretty complex just because we're still early uh in the development of all cryptocurrency and even for Bitcoin

itself right it's been 10 12 years but it's still relatively early and so you have people experimenting and it's supposed to be that way you're not supposed to stifle experimentation let those people fail right if if Bitcoin is going to be the only one true God then let the other ones fail and that's fine um that's what free markets are for and I I step back and I say look um the old world the Trad five world is littered with all of these interventionists if there's one thing I'm sure that all people in the space can agree is that um you know we're all for free markets and

um you know we have these failures there's no government coming in to save FTX there's no government coming in to save Luna it's all good stuff um and so you know let the Victor uh you know prove himself and herself and um you know I think that's a great natural process and shooting for replacing the dollar I guess is a I I I look I think a goal but you know to me it's sort of pointless um and I prefer actually to stay a bit under the radar and not get all of these uninformed officials all worried that you know their currency is going to be

replaced so um I I hope that answered the dollar question I just it's a bridge too far and I don't know why they're trying to cross it it's kind of the point and there are a lot of other currencies that will be worthless before the dollar like 175 other ones right so what are you doing why why bother right let's start with El Salvador and we can move to you know other places the South Pacific and you know let it prove itself maybe if I would like I would like now to change a bit our discussion I think we talked about FDX it's the impact now

Bitcoin it's um opportunities now especially coming back to FDX I mean lots of discussion now starting again about regulating our space and I think it's I mean so my question here to you is how do you see or what do you think is needed regular on the regulatory front um what do you see coming um if I may uh just from the away from the centralized exchanges more into the

self-custody and uh sort of or self-custody World we're seeing an increase we've seen increased activity into kyt know your transaction kyt is extremely important to uh for organizations to monitor uh wallets ensuring that they're not transacting and confirming while it's Associated and connected to illicit activities and if there was increased regulation or reporting around this kyt process I think that would discourage militant operators from uh from from transacting in in this space so from my standpoint I I'm in favor of kyt

I think it's very important and additionally kyc as well kyc is extremely fragmented and to you know for the whole to to bring the to enable mass adoption you need to you need Mass users in retail and in order for them to spend their Fiat into into crypto they need to pass kyc so I think having some form of digital passport or some form of unified process will one satisfy the regulators and to enable that seamless adoption of mass users so those two combined I think could be very empowering

from a from a regulatory standpoint and of course cleaning up the centralized exchanges there's a lot of work to be done my view still stands I don't think they should be holding customer assets I think there should be a custody that interacts with an exchange and they they transact that not only protects the consumers and the customers um but it also uh will in my opinion satisfy a lot of regulators well okay I mean I'll go um I think that um look I'm not sure that uh this world at least now can be regulated remember this ninety percent

of total World cryptocurrency volume is done outside of the US so the US can come out with its regulation uh even if it's friendly regulation that's for U.S people it's not for the rest of the world I don't think Europe is going to just fall into line and use U.S regulations or any of the other countries and again we're just talking about the importance of of Bitcoin for emerging countries they also will have their own rules people don't like being told what to do so I think part of the reason that we don't have a clear response to the FTX debacle is that it's you know is it doesn't come under Bahamas does it come under us there

aren't proper rules there there's no one there's no one to you know um to execute uh or to kick off a process at least at this stage I mean Madoff was in the U.S who went to jail right away so I think that's sort of the reason why we're in this nebulous area we do need regulation but it's got to be thoughtful and if the U.S overdoes it um I think it could stifle you know development and innovation in the space in the U.S and that's just going to be a very bad idea um so it's I think the real challenge is to get policy makers to understand exactly what is bitcoin what is a

blockchain how does it work you know what is this world about and you know the engineering of it the math behind it the cryptography this is not easy stuff so for us to just say okay you know we need regulation I just think we're we're still far away from getting a strong enough group of policy people U.S or anywhere to be able to understand exactly what they should be regulating so I you know I we can talk about it but I think it's also dangerous just to have some neophyte come in and say oh this is bad and you can't do this right

um it's got to be a lot more thoughtful than that and I I think we're far away still and it's not just what we should be regulating um but it's also who The Regulators should be listening to and trusting and what sort of questions they should ask be asking and research they should be doing and to bring this full circle one of the other benefits of FTX unwinding I think is that it folds dollars and influence on regulation away from the hands of someone that had Mal intent so as an example of what um SPF and FTX were lobbying for it was or lobbying against I should say it was

some of the true value of the ecosystem Sam was spending time lobbying against proof of work as an example and he had the ear of regulators and I think that that has that his brand has fallen or at least been significantly impaired will hopefully allow Regulators to start to demand more of themselves in terms of how they understand the tech and that would be perhaps one of the best outcomes of the FTX debacle one of the areas that Regulators that I would suggest Regulators pay attention to if they want to take action as a subject we already talked about which is proof of Reserve I'm not sure there's a good reason for exchanges or other custodians to not

provide a proof of Reserve practice and so that's sort of a way for Regulators to engage to start to learn about the tech that exists in the space to create transparency and better relationships between custodians and Retail users or institutions um and and to become active and we're hopeful that they'll do this in a thoughtful way I'm just I mean on the proof of reserves I I was speaking to a custodian in Switzerland recently about this and when I asked kind of why they don't have proof of preserves they told me that it can be a Target if you start to you know make it public what kind of you know reserves you have you know also I think

we saw you know was it Jesse Pollock Kraken that said we still don't have proof of liabilities if they're you know if the other side's not not audited by a you know a third-party auditor but I I think also you know Jesse Powell at Kraken he he made a point that part of this whole FTX thing is because the U.S wouldn't allow companies within the U.S to offer these attractive products that people wanted like these yield products and so people were leaving I mean for an exchange to offer them so people were leaving and moving their assets off to less regulated areas or areas where the U.S couldn't execute you know like to and you know make make them follow their laws easily so you know I think that

it's it it's very tricky um because also if we start to kind of my opinion is that if we start to really allow hard regulation here it's going to go more and more towards the same Financial system we have now and so I I you know I would I I'm I've been in crypto for about a decade actually now a little nine years and I'm from the original group of people that that really are you know allergic to this this type of stuff so it's hard for me to see you know now this backlash you know I think it's gonna have a lot of you know Regulators are gonna say this is a reason we should regulate and and try to you know use this as a as an excuse to to be overhanded now but um again it's which Regulators in which

countries and are they ever going to have a coordinated approach this is the most decentralized sort of you know uh concept of value that has ever existed so I don't you know I just don't see how they regulate you know in a consistent way and what you have is like with China they you know two years ago was right at the beginning last year they kicked out all the miners they banned Bitcoin again for the seventh time it actually seemed to work this time but look the system continued to thrive and grow so there is a scenario where even if you have very you know you have very intense regulation um from one country or another the

network will just morph and you know as it morphed after China's you know actions so I don't you know I I I'm not even sure what that will do um anyway so that would be maybe consistent with some of your hopes um as well right I guess like Hound's argument is coinbase they're listed and they report their assets and their balance sheets to the public so they could be some reporting strip from that which exchanges could follow let's just just a just an idea yeah I think when the company said we

have all of these private companies in the portfolio and they do need some work they need help in becoming what I call more buttoned up and if they want to tap into again I know this is a little bit of a different philosophy because even Equity the concept of equity is a legacy World concept but if they do want to become public and they want people to you know participate in their ownership of their businesses they do have to go through a pretty stringent um you know due diligence process before that happens um so I I mean I think there is something to be said for that my world my view has always been that the two worlds are going to in 5 10 15 years

from now come together that the digital asset world is building up on its own here this is the Legacy world and they're gonna come together at some point somewhere uh I don't think you just you know wholesale remove the entire or get rid of the entire existing banking system certainly not overnight um and I think people in that banking world are beginning to see that there is tremendous value here um and also corporations I mean I think now you have 300 or so I saw a list of corporations that actually have Incorporated some sort of blockchain into their business model and they're actually using it you know we can you know discuss whether is

it the best blockchain or not but the idea that their minds have opened up uh and are actually incorporating them um just sort of tells me that we are sort of going into this you know morphed world maybe I think we are not yet at the end but we are into now in the last 15 minutes and I think we had a vast discussion a very broad discussion about different topics and um I want to come back a bit to the VC market and have like the double full question one is the blockchain market

oversaturated with VCS or is it oversaturated with projects what's her take on I I don't know oversaturated with VCS I mean I don't uh don't really have a good sense for that I'm I'm not a VC Silicon Valley I don't know what they do I mean a lot of them invested in FTX but I don't know what that means really we all make mistakes um so I I it's hard for me to even make a comment on that um are there too many projects yeah there are probably too

many projects I mean I get at least I don't know a handful of emails every single day from people with different projects and ideas most of them 98 of them or whatever will fail but I'm not a guy who wants to stifle creativity or innovation and you know what let them go at it right and the best ideas will come to the surface eventually and you know whatever it is it is and the VC's job is to bet on those very early stage Concepts that's not something I really know much about but I mean I don't see why we would have a negative opinion about it it's just as I you know it's just normal

I mean I can speak speak for oh please Elise you can go ahead Jake okay thank you uh speaking on behalf of Asia Asia Pacific a lot of uh VCS or principal Capital has been wiped out from providing Capital to market makers and all these market makers had money on exchanges they were creating liquidity and they were lending amongst themselves and a lot of their Capital has been erased from the lunar contagion we've seen three areas Capital we've seen block five we've seen a lot of a lot of this vast Capital raised out of

APAC um but you know in the last month or so I've seen news that there's a lot of traditional investment funds are now coming back coming back into crypto for instance Man Group and they made an announcement uh several weeks ago they were uh setting up a fund to invest into uh into the ecosystem in respect to projects uh I guess when the good times are good and it's a bull market we do see a lot of uh tokens uh being uh being launched but uh first then I can I can say for q1 we're seeing at least four new layer ones launch and

we've ever with any new layer one there's going to be a new ecosystem there's going to be new projects there's going to be new DX it's going to be new utilities so I expect to see a lot of new projects um sort of launch q1 Q2 and throughout the year and it would be interesting to see what capital invest into those projects Elise do you have any thoughts on this push yes so we also love Innovation and experimentation and don't want to see that stifled anywhere the

um a quick caveat to that is that the challenge is you know sort of around the confusion that's created and that you know in in terms of marketing message messages or the way you promote the launch of a new layer one I can't even imagine with so many layer ones out there how people are justifying the launch of new layer ones but I bet you it's that they're somehow better than Bitcoin and the reason why I can bet you that is because we spent 10 years seeing you know thousands of layer ones launched that are better than Bitcoin um but sending that aside I don't know much about the crypto VC space I have a general understanding of how people make

money I think it's different from Venture Capital so here's how we think about Venture Capital we think about Venture Capital as partnering with the company early stage venture capital is partnering with an early stage company over the long term where that company's intention is to build a product technology value proposition that will sustain over the decades so we're looking to get in early when the Enterprise value of a company is low and to help that company build something that's meaningful for its user base and that will then affect the accrual of Enterprise Value and then when we sell we sell to sophisticated investors what we're seeing on the Venture Capital

side from a Bitcoin perspective is not much different from the general Tech VC space so there's a lot of activity in the early stages pre-seed deals seed deals and series a deals are still getting done because more Venture Capital has come into the Bitcoin specific space there's actually not even been a discounting of company valuations at those early stages that's been flat or if anything has gone up over the past several years now at the series B stage or later very similar to what's happening in the broader Tech Market there's a dearth of active Venture Capital participants right now

so there's more companies that need Capital than Venture Capital firms that intend to invest um that's what the market looks like right now in the in the Bitcoin private company landscape okay yeah also I'm curious about like maybe this is like a fire around Short Round how big is your portfolio um yeah and and approximately how many different type how many companies do you have in it for each of you uh I'll go uh so Chiron we currently have around 10 10 portfolio companies

all our privates and I would say all very different sectors different undertakings um but net asset value several billion dollars and growing I can go um we're we're the smallest of the group but our portfolio is comprised of 12 companies right now one not public yet but that we hope to be announced next week um Out of Africa and um the companies that we've mentioned

from our portfolio in today's conversation include Ibex as I've already said and lightning labs and also I'll mention hoseki by name which is a proof of reserves proof of assets company um still Marco's on its first fund and also has an active SBB practice yeah so we're 1.2 billion AUM uh between convex and the three funds and it's uh We've invested in 20 companies it's largely it's almost completely invested the third fund has maybe another sort of 40 percent to go um we're seeing um you know many distressed sellers at least mentioned there's no capital in B

in later rounds I will confirm that um I don't we're not seeing anybody who can you know write a 30 40 million dollar check right now and so we're in a great position I mean some funds that are in trouble are selling things to us at 90 discount to the previous round just because they need liquidity so you know um it's a pretty good time for us um and some of our existing companies some have had drops in revenue from last year of course but we've also have companies remarkably who are making more money this year than last year and it

might be the case now that ledger would be you know we'll do that we don't know just yet um you know we have a company um you know dare a bit that is making more ebitda I'm not than last year but just still churning I mean they have 94 of the total options Market in the world in Bitcoin and ethereum dominant company Kratos another company that does decentralized custody that's doing well figure is making more money this year than last year um we have also companies like Anna mocha that again will make multiples this year versus what they made last year even if you you know are

characterizing their revenue in a very conservative way there's an API in node infrastructure business that just had a record quarter so the exchanges are down 30 to 40 percent um but there are lots of other businesses that are doing okay so our portfolio has actually held up relatively well um and that's why it's again not not a venture portfolio some of our companies have between two to four years of cash on the balance sheet so you know I we're not you know we're I don't want to say they're impervious to the cycle but they certainly are insulated from all the volatility um again I may not we may not end up

making as much as a venture guy who is comfortable sitting with the massive volatility I mean net net but I think there's still tremendous returns uh you know with these sort of mid-stage companies um yeah that's it so how what would you tell now to our listeners I mean how should they take maybe Advantage now of the current market situation what what what what's a simple way to to profit from that well I would just say that if you have no exposure in the space and you're retail oriented person you're not a professional investor I think you have

to own some Bitcoin and some ethereum I think you can decide how much um whether it's you know 70 30 or 30 70 or 50 50. I I don't know but I think that um you know buying a little bit let's say every month for the next six months um I think it's probably a pretty good idea um you know and other people have other views about that and then get comfortable with understanding you know those two things I know Elise is going to say drop the ethereum but I I think that I'm just curious I have a question something is different yeah something I noticed different about this bear Market

that I'm curious about is that in in historical bear markets people say the thing to do is to buy Bitcoin and Dan in this bear Market I've been hearing people say Bitcoin and ethereum which is Bitcoin and Eid which is interesting to me because um of recent events in ethereum so I'm just wondering what's changed yeah I you know this was my recommendation in the middle of 19. it's my recommendation to every single person um who asks me what they should do how they should start um and look they should be doing their own work right do do some of your of your own work and if you think it's 90

10 Bitcoin ethereum that's great too um if it's 99.1 that's great too and if it's 90 10 the other way that's fine I think that those are two things you know they have achieved Network effect they're real they're not going away um you can have a different view about that but I I think that you know there's a big enough Community there are enough developers there's enough of a community I understand the difference between the fixed and not fixed but there's also debate about that and you don't need to get into all that so I mean I think people need to make decisions for themselves and so I suggest look dip your toe in this way

um and if you end up feeling that ethereum is not good and your 80 Bitcoin 20 thin then you can always sell it but to buy it as a portfolio manager over the years you know you don't really do as much work on something unless you personally own it right so don't go in 100 Bitcoin and assume the whole world that there's nothing else because that closes you off to a lot of possibilities and to learning more about what is going on if you then make the Judgment that oh ethereum is is nothing and it's going to zero then fine sell it um but I think you start with those two and um you know and I've said this from the

beginning I just don't I don't like the idea of rejecting wholesale a whole you know uh concept that you know maybe in 2018 it had improved itself I think by 19 it had and I actually think it's possible that Heath leads this next Bull Run um again the future is not what the past is and so I'm not saying that Bitcoin isn't the highest form of collateral I'm not saying it isn't you know have the best security and all of this other stuff um but I'm also saying that uh I think this world uh the The Tam total addressable Market of what I would call the digitization of value is so big that

it doesn't just have to be one thing um it's hundreds potentially of trillions why does every real estate piece of real estate value need to be specifically on the Bitcoin Network come on let's just not be greedy about this it's just like I'm just it's to me it's like uh you know I I get it trust me I really understand the Primacy of Bitcoin but I'm also not willing to reject every single other thing that's in the space I'm also not willing to make specific bets on who will be the winner of those other entities except I think ethereum has crossed the threshold so this has

always been my view why people are you know suggesting otherwise now I I don't really know I mean my guess is because the amount of eat that's actually used in transactions let's say to purchase nfts as an example has exploded and so if you look at the amount of data and I have a chart on this I think the amount of data that is held in the ethereum blockchain has just now passed the amount of data that is held in the Bitcoin blockchain even though ethereum is seven years younger um so but so what like that doesn't mean anything like it just okay so there's more you know transactions of you know

XYZ that are that are happening on that Network um I don't yeah that I mean again yeah my my comment is for the new users out there once you have some ethereum the options will start opening up and you can Venture down that rabbit hole get into D5 start doing micro transactions between games and it's just learning playing around within that huge ecosystem that's growing and that will be a stepping stone into other layer ones uh so that's that's my advice I think that we saw for a couple uh years there you know more people that started out in the Bitcoin Camp they

started moving towards ethereum like Peter McCormack and Leonard and they said well actually you know okay you can't have stable coins on ethereum and we care about we actually care about the world's poor and we want the you know we want inclusiveness for Banking and Financial Services and so some people started in Nick Carter's now in the you know in the ethereum camp sorry just to interject there that's there's a couple things that have been said that are just factually not true and especially around Lynn and Peter McCormick so I just want to make sure I heard that right you you know that they are not people that promote ethereum right well they're not people you know because that's not true Lynn Alden Peter

McCormack have publicly on their on on Peter McCormack's what Bitcoin did they've talked about how they see that stable coins are being used by some of the people they they care about that's very different from ethereum though someone but there's I think this underscores the importance of everyone doing their own research because it's not it's not fun to note that things are being said that are not true but there's a few things that have been said there here they're just factually inaccurate um and I mentioned the one about Lynn Alden because I don't think it's fair to attach someone's name to a dishonest

statement so I want to call that out um but she's written extensively about the difference between Bitcoin and ethereum and the importance of a network effect and what that means for ethereum and for Bitcoin and so I wanted to call that out and I think her writing is great so when someone mentions a person and Associates that person with a factual statement a great thing to do is to go and find that person's work yourself and and to read it but everything that's been said here including on a metrics perspective what people are saying or writing are all things that if people are curious they can go research themselves and see what

sort of activity is happening on each of these change in what volume and and sort of you know where people land we love innovation I've been in venture capital for 10 years we just want people to and I don't care at all what people buy I care what you sell so what you're buying what you're holding I don't care at all there's no judgment um but I care what people sell and how they sell it and this and especially because retail are involved and because people that don't have the same time and resources we do to understand these Technologies are sort of just hearing these memes or marketing pitches and I think that's really that can get a little dangerous and so I

think what I would say I think that the initial question was what do people recommend and I would say what I recommend is the same as in every every time I'm asked this question which is for people to do their own research think about what they see broken in the current system if they do and then to start to learn how some of these Technologies including Bitcoin and lightning can address that don't take my word for it and go to the primary source which are resources like lightning Labs um own blog the Bitcoin white paper or the original cyberpunk chat forms thank you for that I I don't want to argue with you at all but and what I was trying to say is that they came from a

very strong position in in the Bitcoin Camp I'm big fans of Lynn and Peter but and there is in recent it was about a month ago and I'll I'll try to send that out somehow on my Twitter so people can find my Twitter that links to this podcast but in that podcast they discuss how certain people in developing countries that want to have access to stable value and their local currencies aren't stable they do see how ethereum is being used for for that purpose you know to basically allow stable coins but what I wanted to say was even though we saw that kind of like some really you know you know Nick Carter and other people going towards the uh more towards the ethereum we're out like over over the last couple of years I think this whole

this whole recent collapse of FTX and Celsius that kind of you know drove people now back more into the to the Bitcoin Camp so I think there was like a little bit of a reversal there and recently I was speaking to someone that used to you know call themselves a crypto expert and now they're a they're a Bitcoin expert and so I think that we're seeing a little bit of a of a transition away a way back to uh to bitcoin only but yeah I I do I also encourage everyone to read Lynn's work directly I'm a huge fan of her writing so um I don't want to say that she's in the ethereum camp at all I just want to say she started out as you know very strong Bitcoin and you know we also saw that with other people you know Raul Paul and

and you know you know other people that started out you know more strong for Bitcoin and then kind of brought in broadened into ethereum one one thing that I always wonder is you know one of the main of bitcoin's main uh benefits is that it's decentralized but if the whole world was on bitcoin would it really be anti-fragile anymore I mean I think we would have the most centralized monetary in the whole world yeah it's also theoretical and you know what I I don't know what business everyone is in that is focused on but you know there's a difference between to me at least philosophy and then business and returns so I've been very focused on returns my whole life business is business

philosophical discussions and you know what is optimal and what might happen even in what you've mentioned you know what would happen if the whole world was on bitcoin I think it's you know those are all interesting things to discuss um but I you know I I'm not sure that I connect them with the process of making returns and with that I have to jump everybody I'm sorry um I please continue on but I have uh a call that I have to prepare for in eight minutes I'm sorry I'm gonna jump two okay thank you thank you everybody thank you very much I think we had a very Lively and interesting discussion and uh thank you for all

that you joined us and that you shared your thoughts thank you guys thank you very much Jake thank you very much everyone thank you to our audience thank you very much demilsa and we're looking forward to bring you some new content again in a few weeks or a few months uh for sure we see there is lots of stuff to discuss and uh absolutely let's see what December brings in terms of uh events but we'll be in touch guys thank you for having me thank you thanks thanks