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They don’t need to get it right. They just need to get it. In other words, we’ve got to move forward on something here, and I’ll tell you why. For all of the people in the crypto universe, and there are many that don’t think we need regulation, let me point something out that would get everybody on board. It’s very simple quantum mathematics. Here’s how it works. The majority of the world’s invested capital, approximately 90%, is held by sovereign and pension funds. They own zero-crypto currency. For all the excitement about bitcoin 800 billion, that is absolutely a giant nothing burger. It’s totally irrelevant. It’s not held by any institutions that matter.
I’m an indexer and I’ve talked about this many, many times. There are many indexers in the world, but we service sovereign fund pension plans. Let’s say you’re an oil-rich country in the Middle East. You’re making 250 million dollars a day in cash in oil revenues. You don’t want to reinvest in oil. You want to invest in every other sector, so they’ll go to an indexer like me and say, “Index the S&P 500, less energy, fewer airlines.” That’s the kind of index we do, and so we see these fund flows every year, trillions of dollars of fund flows just going through the system every 24 hours. I always ask these institutions and sovereign funds how much money they would put into bitcoin, the granddaddy of digital assets. Everyone knows that.
What you’d allocate if you could? But they say they can’t because our compliance department won’t allow it because the SEC hasn’t ruled on it yet. Larry Fink doesn’t like it and he’s our biggest money manager and all those other reasons, but they would allocate 50 to 100 basis points now when you’re running a trillion dollar or 800 billion dollar mandate, which is some of the size of these funds. That’s a ton of money, and that’s a huge amount of demand that would come into the market. As bitcoin prices rose, they surpassed that one percent allocation. They’d sell it back down to one percent, but just as importantly, if it dropped below 1%, they’d buy it back up, so there’d be an eternal bid forever.
Volatility would drop dramatically. There’d be price appreciation in bitcoin. It would be good for everybody involved in crypto, but we can’t do it without policy. Everybody should just get off this. Let’s be rogue. Let’s be crypto cowboys. Forget all that crap. It’s time to get this real and get a tremendous amount of capital going into crypto because it’s policy and it’s regulated and it’s good for everybody because the largest economy on earth is financial services. I think crypto will be the 12th sector of the economy within 10 years because it adds so much liquidity, so much productivity, so much transparency, so much auditability. It’s so much better than what we’re doing right now, which is so expensive and so slow.
If I want to transfer capital over to Zurich to buy Nestle stock and Swiss francs, it takes me days and it costs me a fortune. It’s incredibly inefficient. I could do it in two seconds with a stable coin, and I can’t yet because we don’t have policy on both sides of the ocean that lets me do that, but it’s coming one day.
I think crypto and blockchain and the services and financial transactions are microtransactions. This blockchain auditability transparency is going to lend itself to all of it. With the ledger system, it all makes sense to me. I think regulators are starting to figure that out now.
As an investor, I don’t know which of these chains is going to win. Is Solana going to be Polygon? Should I be in Poland? What about the others? Ethereum, of course, is the big one right now, but it’s too slow for many financial services. What’s going on with, you know, Helium and all of these different ideas out there? So my strategy is to do the same thing. I do with stocks. I get diversification. I own 32 positions, 32 chain projects, and 32 different coins and tokens. I have no idea which ones will win over the next five years, but I don’t need them all to win; I just need a few to win, and that’s what diversification is all about.
I’ve made some investments in infrastructure. You know that old adage about the gold rush? You were better off owning and selling picks and shovels and jeans than trying to find gold because that was very hard to do.
The infrastructure of crypto is companies like FTX. Circle. I’m a shareholder. WonderFi. I’m a shareholder. Immuneable holdings. I’m a shareholder. I’ve given money to all of these projects because they make a lot of sense to me. I use them all. They’re centralized and decentralized. There are stable coins in there. And then there’s the FTX platform, which is the first compliant institutional platform I could find that my auditors and my compliance department finally agreed to let me use to store value.
Crypto to me when it was being frowned upon by regulators in a very harsh way. If you recall, 2017 was probably the height of when regulators were clamping down on tokens and different ways to tokenize assets like hotels and everything else back then. As a result, I’m very involved in the traditional financial services market where I’m highly regulated. I have to report almost monthly to both my internal auditors’ compliance department and external regulators all around the world that that’s the world I’m used to. I saw no relief coming from regulators.
Then what turned me around, what changed me completely, was when the Canadians, the OSC, granted the very first crypto exchange license attached to a dealer broker on a compliant platform. It wasn’t rogue. They told Canadian citizens they could transfer their cash out of their bank into this centralized wallet. You could trade Ethereum, Bitcoin, and more and more coins were added.
Then they announced the first bitcoin exchange-traded fund (ETF) in Canada. Then they announced the very first ETF that was for ethereum. They were moving forward with policy that was regulated. I immediately started investing in that because I saw it coming. I saw the writing on the wall and I’ve also made the assumption (this is a personal assumption) that the OSC, the regulator that granted that world order for the first time to a dealer broker, was well in touch with the SCC and other regulators around the world. They talked to each other every day. Perhaps Canada was used as a test tube or an experiment, and it was a huge success. That’s when I got involved in WonderFi. I became a shareholder there. WonderFi bought BitBy what was the first regulated exchange. That company has 800,000 registered compliant crypto accounts. It’s a model for the rest of the world.
So I got on a plane. I went to the United Arab Emirates, Switzerland, England, and South America and I started showing these different regulators, look what the Canadians are doing. Can we do the same thing in Canada, and that’s exactly how I’m spending my time now, trying to open up these new markets with the policies that have been put in place, tested and proven to work? Well, you know, I will give an example that everybody can relate to because in the early years of Amazon, 18 years ago, I was a shareholder both in the equity and the warrants. In the preference shares they used to have in those days, the stock corrected every 12 to 18 months between 38% and 58% every single year. Over and over and over again, people just couldn’t get their heads around what Amazon was doing. It continued that way for a decade.
So it’s no different than what’s going on right now with bitcoin and other cryptocurrencies because there’s no institutional demand yet for the product. People keep saying institutions are involved, but they’re not at all. And so if we get one of these bills passed here in Washington, which is why I’m here, I would love to see this agenda item move forward so it can be decided on after the midterms. I’m sure Biden’s very busy on other issues right now, but this isn’t going away, and these senators and congressmen and women know this. That’s why they’re bringing these and developing them. All of these senators are all over cable TV today talking about this bill dropping. It’s not the only one and certainly many of them will be discussing it in the weeks ahead, but the point is, as an investor, do you want to be ahead of this or behind it?
I think what happens is you get a binary increase in the value of crypto the minute people even sense policy and that’s going to happen sometime in January or March and so I want to be positioned before then. You are not required to do so, but I believe it is the best option in terms of niacin and being early. It’s like being involved in the internet in its most early days.
The same thing is going on here long term. It’s a great investment, but there’s volatility. 50% up, 50% down, and 60% swings. Well, that was Amazon twelve to fifteen years ago. Now it’s Bitcoin. It requires education. It’s taken me years and a lot of hours of reading and a tremendous amount of travel to get to the place where I’m comfortable making these investments now and understanding how this works. That’s not easy to do and the whole idea of a centralized and decentralized wallet. Many people don’t understand the differences between them, and yet you need both in the crypto environment. You really want both?
One of the most important investment thesis I have about WonderFi is that it provided me with both a decentralized wallet and a centralized wallet. There’s a centralized wallet and I don’t want to lose those customers. I don’t want to lose you as a customer if you started by setting yourself up on bit by, which is the Canadian regulated centralized wallet, and then decided you wanted a decentralized wallet with your NFTs in it. I spent hundreds of dollars on acquiring you. I want to offer both with a know your customer platform that provides the compliance and that’s what they’re building up there in Canada, but it’s education that’s holding everybody back. We’ve got to simplify this stuff. Learn about security and learn about password protocols. Learn about centralized versus decentralized systems. Check it out slowly, take baby steps into it, then you can put up real money.
[This article is a transcription of a video made by Crypto Diary]
Original video: hhttps://youtu.be/gvNcvBVNBYI ]