Invest Like the Best with Patrick O'Shaughnessy
00:35:39 · Patrick O'Shaughnessy, Micky Malka
[00:35:39] S0: If you think all the way back to your original investments in the crypto ecosystem, you're probably the earliest of the well known investment firms that was involved in Bitcoin very early and then tons of businesses in that space. What has surprised you about how crypto has evolved based on your early expectations in 2011, 2012? And how do you think about it today? [00:36:05] S2: We started doing this. People looked at me and said, what are you doing? The only people using this are drug lords and money laundering. But yes, if you read history, money always starts with those use cases. It always finds low hanging fruits, but then over time, it just gets better and it gets clean and bad actors move on to something else. And I think that's what's happened here. What is blown away if if you ask me in 2011 or '12 that in 2024, in the presidential election of the USA, the topic of Bitcoin as a reserve for the country will be a debatable aspect that candidates will be talking about. I will say no f way. Or that we had a listed ETF in the same year that the SEC chairman said [00:36:55] S0: Never. Never.
00:36:55 · Patrick O'Shaughnessy, Micky Malka
[00:36:55] S0: Never. Never. [00:36:56] S2: Or that countries around the world have bought it as a reserve currency in their balance sheets. It's been only fourteen years or fifteen. It's insane. I mean, gold has been here for thousands of years. And yet this instrument, this technology, this aspect is doing it in 15. I cannot imagine what the next fifteen look like. It's just I'm more energized. When I grew up in Venezuela, my mother gave me a little note that I wrote when I was eight or nine asking the zooferry to give me dollars because I didn't trust my currency. This is before the first maxi devaluation the country had in thirty years. And when my kids were losing their tooth, I was giving them Bitcoins. And it was $20. So my oldest kid has like two or 3 Bitcoins just from her tooth. And my other one has less and the third one has much less. And for them, was automatic and you can see it. So when you see young people understand concepts, our role as we get older is to see through their eyes. Use our knowledge, but see through their eyes. And that's what excites me about where this is going. I think we're super early still. [00:38:07] S0: Can you explain the importance and just like general concept of stablecoins as you see it and the role that they play in the world that's unfolding?
00:38:07 · Patrick O'Shaughnessy, Micky Malka
[00:38:07] S0: Can you explain the importance and just like general concept of stablecoins as you see it and the role that they play in the world that's unfolding? [00:38:15] S2: So growing up in the early eighties and mid eighties in Venezuela, we were having maxi devaluations. Like the dollar was 4.3 bolivares to the dollar for like thirty years. By 1983, it started to devalue. By 1989, it was probably almost 10,000 bolivares to the $1 So the only way you could save, my family saved, and there were doctors and middle class family, was we were buying American Express travel checks every week. I walked with my mom to the bank branch, we did a line, and whatever bolivares we had in his private practice, in the private practice, we will buy travel checks and we will store travel checks. And once a year, once every couple of years, we'll go to The US and deposit them in a savings and loan institution. That's how we saved. [00:39:09] S0: Isn't that insane?
00:39:10 · Micky Malka
[00:39:10] S2: It's insane. But what was it about the travel check that gave you the safety? It had the American Express logo, it was dollars. It had a serial number, you kept it. You didn't sign it both times, it was yours. Stablecoins are travel checks in today's world. It is instant dollars anywhere in the world that you can control and move anytime at a cost of zero. And they're backed by guess what? Dollars. In treasuries actually. To the point that when you think about the size of stablecoin market right now, there's almost $200,000,000,000 of stablecoin. People are willing to forfeit making 4% or 4.5% of yield in order to have it at least saved in dollars. So imagine the opportunity costs where they're willing to sacrifice their yield just to be able to have access to dollars. So the use case of the stablecoin, first, it starts with consumers always. All these cases start with consumers. Consumers, real time, anywhere in the world, not for Americans, so we can get dollars on our checking account, on our Robinhood account, on our Venmo, on our Square Cash. We have dollars everywhere. But if you're outside The US and you don't trust your currency or you wanna diversify, you will love Stablecoins just away. And that was a low hanging fruit. That was the minimum use case. Funny enough, that's not when it started. They started because there were exchanges, crypto exchanges all over the world. And it was so hard to get into the fiat rails and come back that somebody said, we're gonna put a stable coin and people can just move it around. And that was the true case. It was trading and moving dollars from one exchange to the other. Consumers took it over. What we're starting to see now is companies and treasury management of companies using it. It lowers their cost of capital. It's instant. There's less resistance. They have a lot more control. So the volume of stablecoins movement on any given month is now... You can graph it against Visa Networks payment volume, and it's not crazy off anymore. And that's only with 200,000,000,000. Imagine when there's a trillion dollars sitting there and 2,000,000,000,000. It will get there.
00:41:18 · Patrick O'Shaughnessy, Micky Malka
[00:41:18] S0: What will this mean for Visa and Mastercard and some of the big important incumbent financial institutions that have also been some of the best stocks to own with some of the best business models? [00:41:30] S2: I think for them it's a problem. And people like Visa led by Ryan understand this, and they're probably doing an amazing job on trying to be present in the crypto rails and make the network connect efficiently and tokenize dollars and be part of this and make sure not to lose that business. Time will tell. But they get it, he gets it. But when you listen to the other extreme, to Jamie Dimon saying, this is all evil. This doesn't work. I do it myself. I have our own JPM coin. I can do it on my own system. Well, they're defending [00:42:05] S0: The castle. [00:42:06] S2: The castle, which they have to do. It's their mandate. He's doing what he needs to do. There's nothing wrong with what he says. But that's the battle between the established nation states or to the new network states.
00:42:06 · Micky Malka, Patrick O'Shaughnessy
[00:42:06] S2: The castle, which they have to do. It's their mandate. He's doing what he needs to do. There's nothing wrong with what he says. But that's the battle between the established nation states or to the new network states. [00:42:18] S0: So if we have this grid that's changing on the bottom layer, above that is identity and the incredible important role of data. And then you've talked about compounders as well as a key area of focus for your investing discipline today. What else in that middle piece is most exciting to you? What does it feel like the world needs in terms of technology or companies or products or infrastructure? You and I have talked about a couple of companies attacking the identity piece specifically. What else has you most excited about? Like people that are serving the world's technical mass and giving it what it wants?