RAOUL PAL: Dan, as ever, fantastic to get you
back on Real Vision. How are you? DAN MOREHEAD: I am well. Thanks very much. It is always
fun to see you. RAOUL PAL: Listen, you are at heart still a macro guy. First, I want to
get an update on what you think the macro is right now particularly pertaining to what it means for
cryptocurrencies. Then we will talk about some of the really interesting research you guys have done
recently as well. DAN MOREHEAD: Yes, as a global macro investor just been looking around the world
all these decades looking for trades that are asymmetric, not correlated with everything
else, and Bitcoin is still by far the biggest one of those trades I have ever seen. It has been
around for 10 years, so it has had some movement, but we still have a couple more decades and
everything that is happening in the fiscal and monetary stimulus arena is just unambiguously
very good for cryptocurrency pricing. It is a really exciting time to invest in this space.
RAOUL PAL: How do you think the macro plays out over the next year in terms of fiscal and monetary
stimulus? Because everyone is trying to get their heads around? Is it inflation? Is it deflation?
Is it a mix between one and the other? How are you thinking about right now? DAN MOREHEAD: Well, it
is massively inflationary for things that cannot be quantitative leads. That is where some people
get confused. Most of the items in the CPI basket can be eased. It is mainly consumer goods, and
flat screen TVs and things like that. You can make as many flat screen TVs as you want. Actually, the
world has a huge amount of excess capacity right now, so CPI and inflation is probably not going
to do very much. Inflation and things that cannot be used like gold, or Bitcoin, or even shares of
the S&P 500, those are all going up because the amount of paper money floating around with which
you can buy things like that is going up at an unprecedented rate. RAOUL PAL: Do you think the
central banks are going to continue to do more? Historically, you tend to see them go all the
way through the cycle through the bottom of the economic trough, and through the other side. How
do you think it plays out in terms of central bank action? DAN MOREHEAD: They have to keep
going. The economic impacts of the pandemic are bigger than most people expected. They
are going to persist for quite some time. We have had some V-shaped recoveries in
the past where something bad happened, 9/11 being an example where a really bad thing
happened, everything shut down for three days. Then in most cases, people could get back to
business and get going. This is a barrier to economic activity. It is an invisible little
thing that is preventing people from going into businesses. There is also a psychological shock.
There is a lot of trauma out there with people, are going to be very slow. I got an inbound email
from Fandango offering me $5 off a movie ticket. I am like, it is going to take a little more than
$5 to get most people back in a movie theater. Those will persist for a very long time. One of
my main yardsticks for when this thing is going to start getting back to normal in the economic
impacts is getting schools open. In the US, 40% of households have a child
under 18. It is really difficult. If a parent is homeschooling a couple kids, they
are not able to work very well. We have seen statistics from the BLS that women have left the
workforce at a rate of four times as fast as men, because they are bearing the brunt of
homeschooling their kids. Until schools are open, I just do not think the economy can
really function. When it does not function, something has to take up slack. In the US, we
have both fiscal policy and monetary policy. Fiscal is on hold, and we are still waiting
the outcome of the US elections in January 5th when we will find out whether we have a divided
government with a Democrat in the White House and a Republican Senate. If that is the case,
it really falls back to the Fed. The Fed is the last thing that can act. So far, the Fed
has already-- RAOUL PAL: Hi, I’m Raoul Pal. Sorry to interrupt your video - I know it’s a
pain in the ass, but look, I want to tell you something important because I can tell that
you really want to learn about what’s going in financial markets and understand the global
economy in these complicated times. That’s what we do at Real Vision. So this YouTube channel
is a small fraction of what we actually do. You should really come over to
realvision.com and see the 20 or so videos a week that we produce
of this kind of quality of content, the deep analysis and understanding of the world
around us. So, if you click on the link below or go to realvision.com, it costs you $1. I
don’t think you can afford to be without it. DAN MOREHEAD: a Democrat in the White House
and a Republican Senate. If that is the case, it really falls back to the Fed. The Fed is the last
thing that can act. So far, the Fed has already printed an unprecedented amount of money. The Fed
chair has said it is literally unlimited. Then the incoming Secretary of the Treasury, Janet Yellen,
when she was commenting on the crisis a few months ago, she said that the Fed could do much more,
including buying equities with printed money. As you know from Japan, that does not always
work out great. RAOUL PAL: The Japanese is still ongoing. They are now earning about 60% of the
entire equity market. Unbelievable. Obviously, we have got at some point, fiscal is going to
get pushed through. At some point, I do not know, Biden comes in, feels like it is going to be at
peak virus. There is going to be risks of further lockdowns until they can roll out vaccines. Do
you see the economic risks for the time being in the shorter term being to the downside, before
things start picking up again? DAN MOREHEAD: Before talking about the risk, I would love to
comment on Japan. I lived in Japan in the early 1990s, and they invented all the policies we are
dealing with. They invented quantitative easing, they invented ZIRP, zero interest rate policy.
They invented buying equities with printed money. They have invented all these things, and there was
a time we even used to call that the lost decade. That was 30 years ago. These policies have not
worked in the long run. I think we can learn a lot from Japan's experience, it is going to take
a long time. As we transition to more fiscal stimulus, more monetary stimulus, the results
are going to be slowed to be seen. The economy is going to be very slow to grow out of this. In the
2008-2009 Global Recession, it took about two and a half years to regain the GDP output we had prior
to the crisis. Unfortunately, this is a bigger, deeper stranger crisis, and things can take
quite some time to regain all the economic activity. RAOUL PAL: We are both quite focused
on Bitcoin and the whole digital space but let us start with Bitcoin first. This is a very different
bull market, isn't it? There is a lot going on here that we have not seen before. Talk me
through-- you have seen similar from emerging markets and other things when nobody is involved,
and then suddenly everybody starts coming, what are you seeing going on? How do you think this
is going to evolve over the next 12 months or so? DAN MOREHEAD: The only thing that is the same
as 2017 is the price. Bitcoin is at exactly the same price it was at the end of 2017, but the
quality of the underlying fundamentals, and the global macro case is really orders of magnitude
better. In the last three years, so many projects have gone live, so much more has been built on the
technology side. We touched on the global macro case for massive paper money printing has
to be good for fixed quantity assets. Then another huge development is just the ease in which
hundreds of millions of people now can buy crypto. If you remember, in 2017, it was really hard to
buy crypto. You have to take a selfie with your passport and send it in, wait for a week, the
website crashes then you buy a few Bitcoin. Now, we have firms like PayPal and Square that make it
instantaneous for people to get access to crypto. That is a huge driver that has just begun,
and that in of itself is a big story. There is so much different at this rally, which is
coincidentally the same price it peaked out last time than it was in 2017. RAOUL PAL: One
of the things we are seeing, and I presume you are seeing it too at Pantera level is the rise of
the institution in the space, the family offices, and others. What are you seeing in that? What
are you hearing? DAN MOREHEAD: In the early days, obviously, it was just cybersecurity experts
who were interested in Bitcoin. Then it was high net worth individuals. Now, you are seeing
larger firms bringing on investments to Bitcoin. In the institutional space, you have seen
firms like Cambridge Associates say that blockchain is a valuable asset to have in a
portfolio, you see most major endowments invest directly in blockchain assets. You are starting to
see obviously some famous global macro investors like Stan Druckenmiller and Paul Jones investing.
Then I think over the next two or three years, you can see pensions, endowments, really broad
now, the institutional purchase of crypto assets. RAOUL PAL: Have you spoken to Paul about this yet?
Have you got his rundown on where his head is at with it? DAN MOREHEAD: I have not spoken to him,
but I did read the takes in his investor letter. He said literally the same thing that Stan
Druckenmiller and others have said, it is like gold in the 1970s. That analog is so pure and
perfect in my mind. In the 1970s, we had quite a bout of inflation, US long bond went to 13%, and
so gold was a much better place to store your wealth in than paper money. We are having the same
thing here. Huge increase in the amount of paper money is going to drive up the value of fixed
quantity assets. RAOUL PAL: You wrote a paper that was really interesting about the supply and demand
dynamics that we see right now. Talk us through that a bit because a lot of people started talking
about it, because it was really simple, pure, and clean. Talk us through that. DAN MOREHEAD: I
had a conversation once with one of my Tiger Cubs friends, he is a TMT investor and say, hey, we do
not trade Bitcoin because there is no cash flows to discount so we cannot value it. That is really
the thing that eats at people. It is hard to value cryptocurrencies. One line would be, there is
no cash flow as the dollar/yen but that does not stop people from trading it, and they have been
trading it forever so you can get your head around a currency. The simplest way to think about it is
literally Econ 101 supply/demand graphs. You have a supply graph that I think is very inelastic,
very vertical. It takes much higher prices to pry Bitcoin out of people's hands. Obviously, the
Bitcoin money supply formula is fixed so it does not matter what the price is, you are still going
to get six and a quarter Bitcoin every 10 minutes. I think the demand curve is actually the
opposite. It is pretty flat. It is basically price insensitive. Certain number of people just want
to buy bitcoin each month, and they buy it, and most do not really stress about what the price is.
You have this little Econ 101 supply/demand graph. There has been two huge things in the last six
months. The first one is, the supply got cut in half. That is what the halving is about, there
is half as many supply. That moves the supply curve been a very big to the left. Then demand
has been growing for lots of reasons. Just to distill it down, the biggest news is PayPal. You
and I have been invested in crypto for a while, we are really psyched. We have been trying to
evangelize and get people interested in the space. We have gotten a community, maybe 100 million
people, something like that, own cryptocurrency, PayPal has 300 million people. They just brought
the ability to buy crypto to three times as many people as we have. In your Econ 101 supply/demand
curve, that is a demand shift that just jacks up the demand curve, because there is just a lot
more people that can buy it. When those two things happen at the same time, it drives the price
up a ton. That is basically what we are seeing, and the proof of it is in a graph we put in our
last investor letter showing the flows through PayPal's servicer itBit in exchange, and they
are steady and constant until PayPal went live. Then they have been growing at such a rate
that now, PayPal buys more than all of the newly issued Bitcoin. There is one firm that is
buying more than the entire supply of bitcoins. As you remember, for Econ 101 is if you are
buying more than all that is supplied, you have to have a higher price to motivate somebody
to sell. That is basically the dynamic that supply is shrinking, demand is expanding at
a rapid rate, and it is driving the price up. RAOUL PAL: When I look at this, and I see that
these platforms are now onboarding, like PayPal and Square, and there is the Grayscale Trust, that
basically has already tipped supply and demand. Then you are about to try and jam in all of the
institutions into a market with no supply. Part of me thinks that maybe everybody is underrating
their price targets, because I have not seen something like this before, where you
have got this lopsided demand/supply, and then you are about to throw in all the
biggest investors in the world. DAN MOREHEAD: We actually wrote something on this in April about
what happens in the halving. Every four years, the number of Bitcoin issued is cut in half. The
past obviously does not predict the future, but it often rhymes, so it is worth going into.
In the first having, they were cutting from 50 bitcoins every 10 minutes to 25, and there were
not that many bitcoins outstanding. There was actually 15% of all the outstanding bitcoins
was the reduction in supply. The price went up a lot. Four years later, the halving was obviously
half as big, and there was a lot more outstanding Bitcoin. It had an impact on the stock to flow
of about 5% of the outstanding bitcoins, and the price still went up 900%, which as you know,
happens every few years in Bitcoin. This halving, again, half as big as the last one, there is a bit
more Bitcoin in existence. It is about 2% of the stock of Bitcoin has been reduced in supply. If
you use those ratios, it would be about a third as big as the previous thing, which would be
a 300% return. That is possible, and in April this year, we graphed where that would be, and
it put you at 110,000 per Bitcoin in August next year. We are actually pretty close to that pace
right now. It has doubled basically since then, and probably will not get all the way to that
level by August of next year, but it can easily be two or three times the price it is today in
four or five months. RAOUL PAL: Part of me just feels the structure of these halving cycles might
change just because of who is coming in, because it was basically retail before. It is driven by
retail cycle, but you are trying to squeeze an elephant into the bathtub now. You just saw it
with Rick Reider talking about it and then Fink talks about it immediately afterwards, even knew
exactly how many hits they have in the website about the Rick Rieder interview. It is like
BlackRock is clearly following this very closely, and it feels like they are all coming.
I had a conversation on Real Vision last week, it was in fact out today,
with the largest RIA firm in America, and they are just desperate for the ETF. He
is educating everybody. He is educating the whole RIA community, Ric Edelman. Then the next
part of that is the moment that ETF comes out, there is a whole lot more people to come in and
still, no more supply, and the supply does not change really. DAN MOREHEAD: That is the point.
I know Ric and he is a huge proponent of Bitcoin, that there is so many institutional investor
classes that really have no exposure yet. Most of the IRA platforms do not have an offering
like our Bitcoin fund on their platform yet. Obviously, the big Wall Street wirehouses do
not yet have a Bitcoin or blockchain offering. As those channels open up, make it easier for
the hundreds of trillions that are invested in stocks or bonds to be able to put 30, 40
basis points in the blockchain, that is a huge number on our little market, and it will exert an
enormous upward pressure on the price. RAOUL PAL: How are you thinking-- you can see there is a lot
of noise about regulation coming into the space, which I argue with the crypto community. They
do not want regulation, but they want the price to rise. I am like, well, if you want the price
to rise, you want the institutions to come in, you have to regulate to do it. What are you
seeing in terms of regulation must be closer to it? What do you think about where it is
so far? DAN MOREHEAD: Six or eight years ago, I actually used to say that Bitcoin suffered from
a lack of regulation. Some libertarians would be bristling at that comment, but I mentioned even in
their spirit that if they want Bitcoin and other blockchains to be important, there is a certain
amount of regulation that is going to make them more successful. If you want Bitcoin to take over
the world, there is some regulation you need. In most countries, it is pretty well resolved.
In the US, which I know the best, we must have regulatory bodies ruled. Even seven years ago,
the IRS ruled in 2013. Treasury ruled in 2013. The CFTC has been very supportive of Bitcoin and
we have had futures on the CME for three years. Most of the agencies that have ruled, recently
OCC allowed any national and chartered bank to custody cryptos. It was a huge announcement. Most
have been very positive. Then I think the big issue in the regulatory space is China said it is
game on, they are building their own blockchain. Other countries basically have to do something
about that. If you are a regulator and you abominate China's bringing a blockchain out, you
still have to do something about it. That really puts the clock ticking for all regulators to
address blockchain. The US Federal Reserve just began a project in the Boston Fed to work
with MIT on a US Central Bank Digital Currency, and all major countries are going to have
to have a digital currency strategy going forward. RAOUL PAL: That seems clear. The IMF,
the BIS, the ECB, everybody is pushing it. It seems that most of them are pretty urgent to
try and get it out. How do you think that is going to affect the stablecoin market? Because
that is where there seems to be talk of more regulation. Mnuchin was on the tapes yesterday
at G7 mentioning it. How do you think that plays out? DAN MOREHEAD: I think that all the central
banks creating their own essentially stablecoin or a currency that is pegged to a main currency just
brings way more people into the space. We had that worry 18 months ago when word was starting to
leak out that Facebook was going to launch its own currency, and that was terrible for crypto and
terrible for Bitcoin. In the end, it is great that any well respected institution, whether it is a
central bank or a company like Facebook that has 2.4 billion customers, that brings credibility
to the space, and essentially just makes the pie a whole lot bigger. If you have billions of
people using it, the pie is much bigger. Yes, each slice might be a little narrower, so Bitcoin's
share of the overall tokenized asset market will be smaller. If you bring billions of people
into the marketplace, that means the value of Bitcoin or the value of XRP, or Ether, whatever it
is, is going to be higher. RAOUL PAL: What do you think Facebook is going to do in this? Obviously,
they are launching their dollar stablecoin, and I have got chat with the guys from Facebook,
or from what is it called? An IDM I think it is, in January. What are they doing with a wallet?
Because the wallet is going to be interesting here as well. Because if they can use this platform
for either storage or exchange of digital assets, then that is a huge gamechanger for everyone.
DAN MOREHEAD: It is, and I certainly do not have any insider information on what Facebook is
going to do. Obviously, they want to make it easy for their users to do retail purchases. Not just
in their own domestic country, but borderlessly. You are seeing that with Alipay is allowing
1.3 billion people to do commerce online. Facebook, the Fed, all the other entities
that are in the payment space really need to emulate that. RAOUL PAL: It is not
all about Bitcoin, as you and I have talked about. I just want to know where your head is at
with the other digital assets. One of the most contentious one seems to be XRP. I did a big
piece on Real Vision about it. How do you see that project? Because you have been invested
in that for a long time now. DAN MOREHEAD: It is easy to be extremist on currencies, and some
people think it is all one versus all another. There is going to be a single digit number, [?]
important blockchains. In the long run, there will not be 2000, but there will not be just one. We
are invested in Bitcoin and XRP. At various times, we change our views. We made a very strong call
in our March investor letter that we want to go much longer Bitcoin relative to everything else.
Bitcoin, we thought would do well in the aftermath of the pandemic's economic shock. Now, I think the
other currencies are going to outperform Bitcoin. This is not to inspire a bunch of hate trolling,
but Bitcoin is [?] but I just think other things can outperform it, and partly, it is just Bitcoin
is the mega cap. It cannot go up and down as much as the tiny, little, small caps do. We are in a
massive bull market, so the smaller cap things have high beta. They are going to outperform.
Bitcoin is 62% of the market cap right now. Got up to just below 70%, and a few years ago, it
was down to 32%. A quick metric would be I think, Bitcoin dominance and drift down, by Bitcoin
going up, everything else going up a lot more. RAOUL PAL: What is the most exciting
thing you are seeing on XRP, and what is the most exciting thing you are seeing on ETH
right now? DAN MOREHEAD: XRP is fueling the cross-border money movement that we had everybody
interested in talking about for a long time. Currently, blockchain enabled cross-border
money movement from the United States to Mexico is getting close to 10% of all of that, very
important, 25 billion out of remittance quarter. That is a huge success for an industry use case
that that is really making people's lives better. If you think about remittance, for those of us in
finance, the average remittance cost is 9%. It is just a number, whatever it is, 900 basis points,
but for the migrant, that is a month's wages. The migrant has to work for an entire month just to
pay their remittance company. If you can send it with crypto directly, it is almost free. If you
have to pay an agent like [?] or somebody like that, it is a percent or two, but still, it
is already changing people's lives. The most important thing in Ethereum is ETH 2.0 going
live, going away from proof of work, which is wasteful, obviously, to proof of stake to allow a
much more efficient system. RAOUL PAL: How are you seeing all these DIY projects? Because this is
a very typical early phase where things launch, things blow up, whatever, and then eventually,
something establishes some dominance and things. Where are you seeing that space? Have you
even invested in that? DAN MOREHEAD: Yes, we have been invested, and it is important.
One of our themes on Bitcoin and blockchain in general is essentially the way the internet is
finally changing finance. If you think about it, the internet changed everything else in our lives,
but it did not touch remittance. Like I said, it really did not touch credit cards, they
still charge the same as it did in the 1960s. Did not change correspondent banking, still
extremely slow to send money from here to the UK or whatever. Blockchain is the thing that
is disrupting all those finance oligopolies, basically, and DeFi is one subset of it and it is
essentially taking the middleman out of borrowing and lending or other finance applications.
The borrowing and lending one is the easiest one for people to get their heads around.
Banks lend to credit card borrowers at 17%. Then they give you zero on your deposits. There
is obviously a lot of room in there to do it in a way that is better for both the borrower
and lender. That is basically what DeFi is, it is allowing people to borrow money at more
affordable interest rates, and then allowing depositors to get the majority of that interest
rate for themselves. We have seen that amount of value lockup in DeFi go from pretty close
to zero a year ago to 12 billion today. It is a huge achievement for our industries.
It is great for those of us that are involved. There is trillions of borrowing and lending going
on out there, hundreds of trillions actually. There is a huge a couple decades to go. RAOUL
PAL: What else are you seeing that is interesting? You are seeing on the horizon and thinking, okay,
that is going to be interesting? DAN MOREHEAD: We are really excited about Polkadot because it takes
all the advantages of Ethereum but does it with much more throughput. We are invested there. The
DeFi explosion has been an important development. Decentralized exchanges as well, same deal as
why have a heavily collateralized middleman holds everyone's assets when you can hold them in code.
We have seen the exchange space explode there. Now, there is even things like 1inch, they
are supplying the peripheral activities to exchanges. I am seeing a lot of activity in the
defy space. RAOUL PAL: What are you guys doing at Pantera right now? What projects have you
been working on? DAN MOREHEAD: We have had a resurgence in venture investing over the last nine
months, basically, since the pandemic started. There have been quite a number of interesting
deals out there. The investment in ICOs and protocols had slowed down dramatically after the
pandemic. We have done a couple deals in October and November. There is a few ICOs that are
interesting. Then for that fund, and particularly, there is a lot of deals like Filecoin
and Polkadot that we have been invested in for many years that have just gone live, just
started trading. That is about it. It is good to see the fruits of all these years' investment.
RAOUL PAL: How do you figure out early stage, when somebody has got to technology, how the hell
do you figure it out? It is really hard to know, what is going to be a winner in this space
that early on. What is the process you do to look at these things? Because so many people
think, oh, it is all scams. That is the narrative that goes on. It is not, it is about doing
your homework. How the hell do you figure it out? DAN MOREHEAD: There is a misunderstanding
about ICOs, and that they were invented in 2017 at consensus or token sovereign, and
they did their thing, and they went away. The reality is they began in 2013, they were just
very rare. My partner Joey Krug [?] Augur in 2015. There is two or three important protocols coming
out each year. At the height of the boom, in 2017, there was 50 coming out each week. Obviously,
that is not sustainable or natural, and so that has gone away. We have gone back to what it used
to be is there are a couple each year that are very important that we are investing in. Then
we evaluate, and it is pretty similar to venture so you have to go through all the same things
you would with an early stage venture protocol. Obviously, they are very tech heavy, so it is
nice to have our co-CIO having started a protocol. The big difference is you need a
community. It really is different than building some venture-backed
company that builds some cool widget. If the widget works better than somebody else's
thing, and it is cheaper, it is going to sell. Whereas here, open source protocols, you need to
motivate a community to create it and developers to build apps on it. That would be the only extra
dimension that we are evaluating protocols on, is whether the founding team is likely to be able
to build a community that becomes self-sustaining and lets the project grow. RAOUL PAL: In other
words, the tribalism in the space is a feature, not a bug. DAN MOREHEAD: It is actually. That is a
good way to say it. RAOUL PAL: Because you see it, and what is interesting about this space is
the behavioral incentives align perfectly, because when you are dealing with money, and the
value of the token goes up, the more the community grows, the more you will make money from it. It is
incredibly a powerful dynamic if you can get it to take off. DAN MOREHEAD: Sure, and all spirals work
in both directions. When it is a positive spiral, everyone is piling in building more code
drill, and more apps, it all works better. Then unfortunately, when protocols do not work,
and people are bailing for the project, then it is hard to get the momentum back. RAOUL PAL:
Are you still finding that operating within the different parts of digital asset space, you are
still finding significant alpha? I guess in these markets, you must be finding quite a lot of alpha.
DAN MOREHEAD: I think so. There is two sides, too, the protocol side and the venture side. The
protocol side, there is a lot of focus on Bitcoin because it is the biggest thin. It is a thing that
everyone knows, everybody knows. It is up 160%, but our digital asset fund that trades all those
assets is up 200%. Other things are up 300%. There is a lot of opportunity to create
alpha that is beyond just Bitcoin. Again, Bitcoin is a great proxy for the industry,
but there is a lot of value being created elsewhere. Then on the venture side, we just are
barely starting to see public companies buying Bitcoin or investing in Bitcoin enabled companies,
but we have five or 10 years of legacy finance firms buying crypto-oriented companies. From a
venture standpoint, it is very exciting times because we really have not yet seen a full
acquisition of a good sized crypto company by a major legacy finance player. In 10 years, you are
going to see a lot of that. RAOUL PAL: Yes, that will be a real benchmark. In terms of running the
portfolio of digital currencies that you guys run, what is the process by which, is that trading?
Is it more asset allocation slightly slower? How do you approach that whole space? Because
a lot of people do not know how to approach it, they get the cadence wrong. How do you think
about it? DAN MOREHEAD: In two of our funds, it is an essentially a buy and hold strategy.
Obviously, our Bitcoin fund is marrying the performance of Bitcoin itself. Then our ICO fund,
we are investing in pre-auction ICOs. There was a time in 2017 that they sometimes became liquid
very quickly. These days, because of US SEC issues and other things, it is typically at least a
year until something becomes liquid, and then some things like a Polkadot or a Filecoin,
we might hold for many more years after that. The pace on investing in preauction ICOs is such
a multiyear basis. However, when we are trading liquid currencies like ETH, XRP, Bitcoin, we
do take two approaches, discretionary approach and quantitative. The easier one is quant. We
have 20% of our fund in a quantitative model that is trading every hour. It is looking at
what is cheap, rich, and making those trades. On the discretionary side, it is a bit more
semantic and it changes much more slowly. One of the big parameters would be Bitcoin
dominance, what percentage of the fund we want to have in Bitcoin versus other things.
Sometimes, we make big trades on that where we change the percentage of Bitcoin dramatically.
Then within the rest of the portfolio, we are looking for protocols that we think you are
going to outperform in the next say, three or four months' timeframe. It is certainly not-- we are
not trying to trade for hours. That would be the thing we always tried to share with our investors
and then with yours that are thinking about the industries. Although tokens have a real time
price feed, that does not mean one should trade them all the time. I was having an interview with
Mike Novogratz, he was talking about the first time you called to talk about Bitcoin 2013, he
said, yes, I am trading Bitcoin. I was like, no, you are gambling, because there is no data in 2013
upon which you could make any rational choices. There is a lot of data now, but we really want to
remind people that we are trying to get 5x and 10x multiples over the next several years rather
than worrying about a couple basis points every few hours here. Investors should think about
allocating an amount of their portfolio they are willing to lose, and keep it in for three,
four or five years and think of it much more like venture. RAOUL PAL: It feels like it is a
semi-liquid venture. You get a mark to market, which is sometimes annoying. Half the time,
you would rather not get the mark to market so you can just run the position with your eyes
shut. DAN MOREHEAD: It is. I keep thinking if TCP/IP had a real time price feed in the 1970s, it
probably would have like gone out of business and no one would ever be using the internet. It is
a double-edged sword having real time prices on crypto currencies. RAOUL PAL: Final question,
Dan, what do you think is going to be the best performing digital currency over the next
12 months? We have established we all think Bitcoin is going up, you have established that
you probably think its dominance goes down. Because that is the point in the cycle. What do
you think is likely best guess, gun to your head, going to be the best performer? DAN MOREHEAD:
Hard to say, but if I have to pick one, I will actually pick Polkadot. It is about 10%
of the value of Ethereum. It has more than 10% chance that it is very viable competitor. I think
all cryptocurrencies can go up a ton, but if you want to pick or trade this and have
a call a year from now and check in, I will go with Polkadot. RAOUL PAL: Well, like a
true macro guy, you have the right to change your mind at any second. Dan, listen, as ever, great
to catch up with you. Good to hear your thoughts, and we will catch up with you again soon. DAN
MOREHEAD: Great. Thanks so much for having me on. RAOUL PAL: Yes, not at all. Take care. NICK
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