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At the Money: The Tech Behind a Crypto Future · Masters in Business

• 0:00
  Speaker 1: Are you a taigno. Yeah, it just.
• 0:12
  Speaker 2: Sets the.
• 0:19
  Speaker 1: Show in canc What's the one? What's going on with
• 0:28
  Speaker 1: the technology underlying cryptocurrencies? What is bitcoin and other cryptocurrencies
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  Speaker 1: and what are their future? I'm Barry Retults and on
• 0:39
  Speaker 1: today's edition of At the Money, we're going to discuss
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  Speaker 1: all sorts of cryptocurrencies. To help us unpack this and
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  Speaker 1: what it means for your portfolio, let's bring in Matt Hogan.
• 0:49
  Speaker 1: He's the chief investment officer at Bitwise Asset Management. The
• 0:53
  Speaker 1: firm runs over ten billion dollars in clients crypto assets.
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  Speaker 1: So Matt, let's start with It's a really basic question.
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  Speaker 1: What is bitcoin? What is ethereum? And what use cases
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  Speaker 1: do these coins have? Oh?
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  Speaker 2: Amazing, Well, it's great to be here.
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  Speaker 1: You know.
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  Speaker 2: Bitcoin is a crypto asset. The way I think of
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  Speaker 2: it is the first way that investors can store wealth
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  Speaker 2: in a digital format without relying on any government or
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  Speaker 2: any bank. It's built on a major technical innovation called
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  Speaker 2: the blockchain, which took forty years to develop trying to
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  Speaker 2: figure out how to make this possible. Bitcoin broke through
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  Speaker 2: that in two thousand and eight, two thousand and nine,
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  Speaker 2: and it's been gaining steady adoption ever since. Ethereum is
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  Speaker 2: something more complex than bitcoin. If you think of bitcoin
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  Speaker 2: as digital money, you can think of ethereum as making
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  Speaker 2: money and compute programmable in a public setting, and you
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  Speaker 2: can build applications on that. You can build smart contracts,
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  Speaker 2: you can build stable coins, you can build other applications.
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  Speaker 2: I think it's a very exciting technology. But you can
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  Speaker 2: think of bitcoin as digital money Ethereum as sort of
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  Speaker 2: public compute and programmable money, and you'd be pretty close
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  Speaker 2: to realbum.
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  Speaker 1: So you mentioned smart contracts, I'm kind of fascinated by that.
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  Speaker 1: When we were talking about this a few years ago,
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  Speaker 1: the idea for smart contracts for concert tickets had come up,
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  Speaker 1: where hey, Taylor Swift is unhappy that in the US
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  Speaker 1: scalpers are buying up their tickets, keeping them away from
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  Speaker 1: the fans and selling them for five thousand dollars. If
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  Speaker 1: we were to put Taylor Swift contracts on Ethereum, she
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  Speaker 1: could sell her tickets at fifty dollars, and whoever buys them,
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  Speaker 1: if they want to resell it at a higher price,
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  Speaker 1: she says, great, this contract says, I get half of that.
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  Speaker 1: And so the idea is to encourage it going to
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  Speaker 1: fans and making it less profitable for scalpers. But even
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  Speaker 1: if they do scalp it, the artists themselves get it.
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  Speaker 1: How realistic our applications like that? And when might we
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  Speaker 1: see something along those lines?
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  Speaker 2: I love it. It's all going to happen very I think
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  Speaker 2: they're all realistic. Crypto enables frictionless, programmable money. So what
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  Speaker 2: you're raising there as an example of allowing money to
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  Speaker 2: be programmable, it's not just concert tickets. You could say
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  Speaker 2: the same thing about art. Artists are always upset that
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  Speaker 2: they sell their art and then at one hundred x's
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  Speaker 2: in price, and they don't benefit from that directly. And
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  Speaker 2: so this idea of attaching revenue streams downstream from it
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  Speaker 2: is something that you can do easily in the blockchain setting.
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  Speaker 2: The natural question is why hasn't it happened? Right, if
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  Speaker 2: we were talking about this two years ago and it's
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  Speaker 2: such a great idea, why hasn't it happened? And there
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  Speaker 2: are two reasons for that. One is that Crypto has
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  Speaker 2: had a regulatory cloud hanging over it. The SEC has
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  Speaker 2: been launching lawsuits against Crypto. There was concerns in Congress
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  Speaker 2: a senator was building an anti crypto army. If you're
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  Speaker 2: a mainstream corporation, are you going to build a new
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  Speaker 2: business in an area where a senator is building an
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  Speaker 2: army to crush you? You're not, So we didn't see
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  Speaker 2: any of that. The second is that blockchains were slow
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  Speaker 2: and costly until about a year ago. Sort of we've
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  Speaker 2: gone through in blockchains what we went through going from
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  Speaker 2: dial up to broadband Internet. Now we have highly performant,
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  Speaker 2: low cost blockchains that can perform a lot of transactions,
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  Speaker 2: and we have a positive regulatory environment. I think you're
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  Speaker 2: going to see a flowering of a million use cases
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  Speaker 2: over the next two or three years. In crypto they're
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  Speaker 2: going to blow people's minds. I think they're going to
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  Speaker 2: go mainstream. You're going to be using crypto apps without
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  Speaker 2: even knowing it, and I think people haven't woken up
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  Speaker 2: to that reality yet.
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  Speaker 1: So you're really suggesting where like nineteen ninety three in
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  Speaker 1: the Internet is that? Is that a good frame of reference.
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  Speaker 2: That is exactly right, and you're seeing these crypto apps
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  Speaker 2: pop up and break through people's consciousness. A good examp
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  Speaker 2: was polymarket during the election. Oh sure, everyone was looking
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  Speaker 2: at poly market for the prediction odds on who would
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  Speaker 2: win the president into the election.
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  Speaker 1: It was.
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  Speaker 2: It was in the Bloomberg terminal, right, the data from it.
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  Speaker 2: That was a crypto app. It could only be built
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  Speaker 2: on crypto. Crypto enabled it to happen, and yet no
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  Speaker 2: one was talking about that. So, yeah, it's nineteen ninety four,
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  Speaker 2: nineteen ninety six. On the internet. We're starting to see
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  Speaker 2: a few examples. Yahoo's jumping up, you know, Email is
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  Speaker 2: jumping up. Hotmail is happening, but it hasn't gone mainstream net.
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  Speaker 2: It's about to.
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  Speaker 1: So it sounds like there are a lot of new
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  Speaker 1: use cases for things like ethereum. Give us some other examples,
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  Speaker 1: because you're obviously much more knowledgeable about this then I.
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  Speaker 2: Stable Coins are one of the great killer apps to
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  Speaker 2: develop in crypto. A stable coin is a money market fund,
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  Speaker 2: but on a blockchain. Right, It's a way to access
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  Speaker 2: dollars on a blockchain. So why is that a killer app?
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  Speaker 2: There are two reasons. One, it puts a US Bank
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  Speaker 2: account at the fingertips of anyone with a cell phone,
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  Speaker 2: anyone at wear around the world, and if you're in
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  Speaker 2: Argentina or you're in Turkey and you can't easily access
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  Speaker 2: a US dollar bank account, but your currency has high inflation,
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  Speaker 2: you're going to want access to stable coins that's built
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  Speaker 2: primarily on ethereum. If you're in a sub Saharan Africa,
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  Speaker 2: there's a company called Yellowcard that's using stable coins to
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  Speaker 2: do country to country payments between business entities. It's growing
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  Speaker 2: at an exceptional rate. The US dollar is a phenomenal tool,
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  Speaker 2: and most people don't have access to it. Stable coins
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  Speaker 2: make that instantly accessible globally, and so I think that's
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  Speaker 2: a good example of how crypto can really go mainstream
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  Speaker 2: in a very fast rate.
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  Speaker 1: So let's talk a little bit about security. I recall
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  Speaker 1: ten years ago crazy numbers something like a lot of hacks,
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  Speaker 1: a lot of thefts, and we talked previously about passwords.
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  Speaker 1: Something like twenty percent or twenty five percent of all
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  Speaker 1: bitcoins have been lost because the owners either misplaced the
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  Speaker 1: drive it was on or misplaced the password. That sort
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  Speaker 1: of security issue seems to have been taken care of
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  Speaker 1: as this has become financialized and you can buy coins
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  Speaker 1: in etf fashions. Tell us a little bit about custody
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  Speaker 1: and security of crypto assets.
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  Speaker 2: Yeah, I mean, it's worth noting those stories always sound
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  Speaker 2: so ridiculous. How could these crazy people lose their password?
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  Speaker 2: It's now worth a billion dollars, But remember at the time,
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  Speaker 2: it wasn't worth a billion dollars. It was worth a
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  Speaker 2: few bucks. Right, somebody bought two pizzas for eighty thousand bitcoin.
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  Speaker 2: That's now worth a billion dollars. I sure hope they
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  Speaker 2: were good, But you know, you have to think back
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  Speaker 2: to then when bitcoin was trading for a few cents.
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  Speaker 2: People weren't as careful as they would be today. But
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  Speaker 2: the technology has improved exponentially. Now the way most people
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  Speaker 2: custody their bitcoin, their ethereum, their other crypto assets is
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  Speaker 2: through regulated qualified custodians with insurance from leading insurance providers
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  Speaker 2: who have been doing it this for years and have
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  Speaker 2: hundreds or thousands of people who help manage that securely.
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  Speaker 2: And the track record for those qualified custodians is sterling.
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  Speaker 2: And so I think it's really improved sort of exponentially.
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  Speaker 1: And to give you a sense of how long that's
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  Speaker 1: been going on, in November twenty seventeen, there was literally
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  Speaker 1: an episode of The Big Bang Theory where they talked
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  Speaker 1: about mining coins and putting it on a drive that
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  Speaker 1: subsequently got lost and back then in twenty seventeen, it
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  Speaker 1: was you know, tens of thousands of dollars. Today it's
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  Speaker 1: it's a whole lot more than that. So I keep
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  Speaker 1: hearing from some skeptics who are saying this is a bubble,
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  Speaker 1: all these cryptocurrencies are just speculative excess. How do you
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  Speaker 1: respond to that.
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  Speaker 2: Well, you know, they may be right, of course, that's
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  Speaker 2: what makes a market. But many of the smartest investors
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  Speaker 2: in the world are allocating to bitcoin and crypto. Stan
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  Speaker 2: Drcamiller is allocating to crypto. You know, Abbat Fidelity is
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  Speaker 2: allocating to crypto. Blackrock is building a huge business in this.
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  Speaker 2: Sixty percent of the world's largest hedge funds have a
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  Speaker 2: position in bitcoin. It may be that those people have
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  Speaker 2: a right point of view as well. When I look
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  Speaker 2: at crypto today, it looks to me like a technology
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  Speaker 2: that is just crossing the chasm from early adopters to mainstream.
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  Speaker 2: And as you get to gain that sort of mainstream attention,
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  Speaker 2: it's of course possible barry that the price will pull back,
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  Speaker 2: and the best performing asset in the world for the
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  Speaker 2: last couple of years, it could be due for a pullback,
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  Speaker 2: but long term, it's not at a mature state right.
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  Speaker 2: Bitcoin is not standing shoulder to shoulder with gold, Ethereum
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  Speaker 2: is not standing shoulder to shoulder with Amazon cloud services.
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  Speaker 2: We think of them at a discounted level until they're
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  Speaker 2: standing shoulder to shoulder. I don't think we've reached maturity
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  Speaker 2: or bubble level, you know, and I think we have.
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  Speaker 2: I think we're getting there, but I don't think we're
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  Speaker 2: there yet.
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  Speaker 1: So let me ask you a two sided question, and
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  Speaker 1: you can ask them answer them both. What are the
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  Speaker 1: skeptics not understand about crypto? Generally? What do you think
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  Speaker 1: the advocates either get wrong or overemphasize one of.
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  Speaker 2: The skeptics not understand is a really great question. I
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  Speaker 2: think many of them are anchored on the first time
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  Speaker 2: they heard about bitcoin, and something that crypto needs to
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  Speaker 2: admit is the first time many people heard about bitcoin
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  Speaker 2: or crypto was in a negative light. Maybe it was FTX,
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  Speaker 2: maybe it was the collapse of Mount Gox in twenty fourteen,
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  Speaker 2: maybe it was Silk Road and illicit use. And the
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  Speaker 2: problem is, from a psychological anchoring perspective, they have such
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  Speaker 2: a negative first take on bitcoin they're not able to
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  Speaker 2: evaluate it properly. They still consider things like what about
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  Speaker 2: the illicit use of bitcoin? Well, that Departs of Justice
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  Speaker 2: has come out and said that bitcoin's illicit use is
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  Speaker 2: so small and it's not worth you know, monitoring. It's
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  Speaker 2: much lower than it is for cash. So I think
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  Speaker 2: many of the skeptics don't evaluate where the data is
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  Speaker 2: today because they're taking a twenty twenty two or twenty
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  Speaker 2: eighteen or twenty fourteen view of bitcoin and crypto.
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  Speaker 1: I mean, we've seen some pretty extreme forecasts on prices
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  Speaker 1: that you know, kind of raise red flags. When people
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  Speaker 1: are talking about, you know, a million or five million
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  Speaker 1: as a bitcoin target, it seems like they're trolling us
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  Speaker 1: a bit.
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  Speaker 2: It does seem like they're trolling us a bit. I
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  Speaker 2: think they underestimate the efficiency of markets and the ability
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  Speaker 2: of markets to accurately value what an asset is. Just
• 11:47
  Speaker 2: because bitcoin has gone up in the past and crypto
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  Speaker 2: has gone up in the past does not guarantee that
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  Speaker 2: it will go up in the future. And there are
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  Speaker 2: significant foreseeable and unforeseeable risks in the future that we
• 11:59
  Speaker 2: should think about. Their regulatory risks, their technology risks, their
• 12:03
  Speaker 2: adoption risks. You know, look, it's hard to be the
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  Speaker 2: best performing asset in the world for ten consecutive years
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  Speaker 2: and then tack on an eleventh And I think there's
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  Speaker 2: probably just too much sort of assumption that there is
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  Speaker 2: a manifest destiny of bitcoin going to a million. There
• 12:20
  Speaker 2: is no such guarantee in the market. There's always risk.
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  Speaker 1: Well, well, the trend is your friend. That's the old
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  Speaker 1: trading desk statement. So that leads to a really interesting question.
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  Speaker 1: Are these coins an investment or are they a speculation?
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  Speaker 2: Yeah, they're absolutely an investment, and some of them have
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  Speaker 2: elements of speculation. Let me give you an example of bitcoin.
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  Speaker 2: I think when you're investing in bitcoin bar you're making
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  Speaker 2: two bets. One, you're making a speculative bet that bitcoin
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  Speaker 2: will stand shoulder to shoulder with gold as a store
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  Speaker 2: of value asset. Right now, it's about ten percent of gold.
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  Speaker 2: You're saying, I think it'll be twenty, it'll be thirty,
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  Speaker 2: it'll be forty, it'll be fifty, it'll hundred. The second
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  Speaker 2: bet you're making is that the US government has thirty
• 13:04
  Speaker 2: six trillion dollars of debt and is printing another trillion
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  Speaker 2: every ninety days. The store of value market is going
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  Speaker 2: to become more valuable in the future, and bitcoin is
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  Speaker 2: a piece of bet. To me, that's a fundamental bet,
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  Speaker 2: and the other one is a speculative bet about it maturing.
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  Speaker 2: The reason Bitcoin's performed so well over the last handful
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  Speaker 2: of years is both of those have come true. And
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  Speaker 2: if you have two bets that are both coming true,
• 13:29
  Speaker 2: you know it's not one plus one, it's two times
• 13:32
  Speaker 2: two equals four. It's it's sort of an exponential bet.
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  Speaker 2: So there's elements of speculation, but there are elements of
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  Speaker 2: fundamental investing behind these crypto assets as well.
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  Speaker 1: So to wrap up, investors should pay attention to the
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  Speaker 1: various coins, in particular Bitcoin and ethereum as a new
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  Speaker 1: technology that is crossing the chasm from early adopter towards
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  Speaker 1: mainstream investing. It doesn't mean that you outsize your position,
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  Speaker 1: and it doesn't mean that you oversize holding bitcoin. Think
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  Speaker 1: about this as a new technology that is starting to
• 14:07
  Speaker 1: be adopted more broadly in the world of both finance
• 14:11
  Speaker 1: and technology. And try and you know every beer commercial
• 14:15
  Speaker 1: ends with drink responsibly invest responsibly. If you want to
• 14:19
  Speaker 1: take a few percentage of your portfolio and throw it
• 14:23
  Speaker 1: into a bitcoin etf there's nothing terrible about that. You
• 14:27
  Speaker 1: just don't want to go hog wild and get sucked
• 14:30
  Speaker 1: into the bubble mentality. That's where people run into trouble.
• 14:35
  Speaker 1: Thanks Matt, this has really been interesting. I'm Barry Ridholts.
• 14:38
  Speaker 1: You've been listening to Bloomberg's at the Money See