How are you? So, you know, big shout out to Joe and Amanda for having such a diverse group here today. Um, diverse enough to have a lite like me on stage. I spent my career as a macroeconomic investor, and what macroeconomic investors do is we try to kind of take complicated things and make them simple enough to boil down for us to invest in. And so broadly it's been one where you're looking at countries and big trends, inflation, growth in countries, and investing in fixed income markets, currency markets, equity markets, commodity markets. The other word for macroeconomic investor is speculator. Sometimes it has a bad word, but when you're a speculator, you spend a lot of time looking at bubbles and spend a lot of time understanding the psychology of investing. And I'm going to spend some of my time today talking about that.
When I first started public speaking, I was really, really bad at it. And I had a friend that said, "Before you get on stage, think about how you can serve the audience." And the moment you think about how you can serve the audience, then it's about them, not you, and you're not nervous. And so I thought about how to serve today. And so I'm going to spend a decent amount of time at the end taking questions because you're a strange audience for me. I'm used to speaking in front of audiences of traditional investors, people that have all had the same kind of canon of knowledge going into the day. But this is a diverse new space. There are some people, I'm sure, that haven't invested, but a lot of you guys are part of this giant growing community and part of this movement. And so you know a heck of a lot more about this than me. I thought I'd hit on a few things: A, how I got involved in the blockchain and, you know, Bitcoin and Ethereum space; B, how I approach the space, what's my investment thesis; C, talk a little bit about are we in a bubble or not, and what does that actually mean; and then D, you know, how do I see the future, and, you know, what are the parameters I'm going to use to both make investments and get excited. I'll try to leave you with a little bit of optimism. This has been a pretty optimistic day.
So, like the introduction said, I was at Fortress Investments. I got a call from a friend and he said, "Hey, I heard about this thing, Bitcoin." And I had him. So I Googled it and, you know, I started doing a little bit of homework in it. And as a currency investor, it attracted me because Bitcoin was a currency, right? And so we looked at it and it was trading at about 100, and real quickly decided it was worth a little bit of investigation. And didn't know if the long-term prospects would work, but understood a few things: that there were enough anti-government, anarchist libertarians out there that were going to buy in; that there were enough people in the developing countries that were looking for safety that could buy in; and that at that point there was still an insecurity around our own monetary policy in the developed world. And so we thought, we don't know if it'll work in the long run, but damn it, this has got the markings of a bubble. People are going to buy this and it's going to go a lot higher. And so we bought a bunch and started investing.
And like most things in investing, when things start going your way and you start making money, you dig in a little deeper. It's like, geez, it's never that easy. And so we started digging in and getting more and more excited. Made some venture investments. I either prophetically or absent-mindedly made a big proclamation that Bitcoin would go to $10,000 when it was trading about $150, and it went to $10,000. And so for a moment everyone thought I was very smart. It went, you know, shortly back to $250, and people forgot about me. And quite frankly, we lost a lot of enthusiasm in the space because it went sideways. And then I was lucky enough to — I didn't get fired from my job, I left my job, but I didn't leave in the most graceful of ways. And, you know, when you're recovering, you look at your portfolio, and I said, what are we going to do with these investments? And so the one guy I knew that knew a lot about this stuff was Joe Lubin, so I called him and came over here to Consensus in Bushwick. And I expected to find my old college pal, his dog, and two analysts, and instead I found this very dynamic community of not just young programmers, but even guys my age, people from the business world, people from programming, coding. And I started thinking something's on here. And it took Joe about 30 minutes giving me the Ethereum pitch, you know, to get me to buy in.
When I think about the overall value proposition to this space, one number hits me: that there's 65,000 people have downloaded the Ethereum, the Consensus development apps. And so I thought not just the 50 people that worked for Joe at that point, but 65,000 people around the ecosystem are working on this project. And so I started developing my own investment thesis that these things aren't digital currencies at all, that you need to think of them as digital equities. And that for me, they're digital equities with massive workforces that we're getting for free. Because the way I think about it is each time a transaction happens in the Ethereum space, right, you're using a little bit of Ethereum fuel to fuel that transaction. And so the value of Ethereum should be some rough calculation of the net present value discounted of future cash flows. Those cash flows are each transaction times a teeny bit of fuel. And so as you see adoption, and as you can imagine adoption going this way, you can see valuation going. And so it was a really easy bet when I walked into Joe's office and the total market cap of Ethereum was $80 million. It's a harder bet today at a $12 or $13 billion market cap, but I often think AutoZone, a company that, you know, sells and fixes combustion engines, is still trading close to a $30 billion market cap. And so when you step back for a second and you look at the broader picture, the total market cap of the Consensus ecosystem still is very, very low relative to other companies that we don't think of as game changers.
Now when I think of the ecosystem as of the entire space and I add all the ICOs in Ripple and Bitcoin together, we're getting on $100 billion. And I think that's relatively significant. It means a few things. It means one thing: regulation is coming, right? When you're a small experiment, people don't really care that much about you. But when you start hitting $100 billion market caps and people start making and losing real money, the regulators are going to perk up very fast. Two, I give everyone one cheap piece of advice because I know the community started in this kind of anti-government, libertarian, deep-seated space, is to pay your taxes. The tax man is coming. There are real fortunes that have now been made and maybe will be lost in this space. And so I'm fairly certain that the price move has grown up faster than the community has grown up. And so it's going to take a little bit of time to fill in that piece of it, but compliance, regulation, all of that's going to be needed around this space for it to have its long-term success.
The question, are we in a bubble, is an interesting one. So bubbles always happen around the same kind of things. They happen around things that become so inevitable, you're like, of course. The railroad bubble: railroads are going to change the world, and they did. The internet bubble. I remember in 1999 I bought an MP3 player because I was going to go on this long race in the Sahara, and they were like, "That thing can hold 10 songs." I was like, "No way." And so I listened to the same 10 songs for seven straight days, but it was relatively cool because it was so new. When I bought the thing, the salesman said, "In 10 years, you'll be able to buy one of these. It'll have every song ever recorded on it." And I was like, no way. And when I think about it, the promise of the internet, what we believed in the internet in 1997, 1998, 1999, we far outstripped it, right? The internet is so much more ubiquitous in our life now than we were dreaming it could be in '97, '98, '99. Yet many of those companies never got back to those prices. So bubbles happen on things that are going to happen. And so this is going to be a giant bubble. Why? Because this experiment, this idea, distributed everything — first in Bitcoin, then in Ethereum, and now in this broader blockchain movement — has gone from, I think, experimentation to implementation.
And so as this is going to happen, prices are moving, and you can see it right now. And so I'm certain we are going to be in a bubble, and that we're in the bubble at this point. Now, great fortunes are made in trend. Who in this room bought ether under $10? And who still has all the ether they bought? Every hand goes down almost except three. So what's hard about this is these are really venture investments, but there's liquidity in them. So you can sell. The hardest thing to do is to stay in trend. We used to say you got to handcuff yourself to the seat. And so if it was a venture investment, if it was Facebook, you put your money in Facebook like smart old Peter Thiel, he sold all of his on the IPO. You know, the moment there was liquidity, boom, get me out. Would have made a whole lot of money if he had stayed in trend. It's hard to stay in trend. So one of my cheap pieces of advice is in the companies that you really think are game changers, stay in trend. There are going to be Pets.coms in this space. I've seen a bunch of them already, and they're going to be Google's, system changers, and Amazon's. When I look at Amazon, Amazon went from 1 to 120, then it kind of went back to 10, and then it went to 900. And so it took 15 years for once it got back to 100 to get to 900. And so don't fool yourself: the law of large numbers works. Now that these companies have big market caps, it's going to be a lot harder for them to move as fast. The money isn't going to be as easily made. But the good companies you want to stay in.
So bubbles — what else can I tell you about bubbles? There are some good benefits of them. And I think part of what's happening in this community right now is great that there's money being poured into the development in lots of these new businesses where there's real money that are going to give people time to build out the infrastructure necessary, right? Starting a new project, venture people are always begging for small amounts of money, and now there's real money here. So there's a real opportunity to have some of these ideas on stage, you know, come to fruition in a much faster pace than would have been a few years ago. And so I think that's all a net positive.
For this to really work, though, we need to have the bigger story. And I think what's interesting about this for me is there's a deeper story than just the back of the TV. And I try to explain this to my mother. And when you talk about databases, no one really gets that excited. Distributed databases, they don't really get excited either. And most of the applications that we're hearing about and seeing really are just adding efficiency to a system. So even all the great ledger work that banks are going to work on — as a customer of the bank, maybe your fees go down a little bit, you're not going to notice it per se. People that get fired at the banks are going to notice it as efficiency comes to those jobs and we cut out whole levels of bureaucracy, but that's not going to catch the imagination.
I think the interesting story and the bigger story than is being told out there in the mainstream press is that this could be a very disruptive technology when it comes to pricing things that we don't price. So are we going to start exchanging goods and services in ether or medium or bitcoin? No, we're not. These aren't digital currencies. And the reason is currencies need stability, right? Ether's gone from 1 to 130. That's not stable. That's awesome if you own it, but it's not stable. Even Bitcoin this year has almost doubled, or it has doubled. That's not stable. But what's interesting is at one point our data, our personal data, our biometric data, the data of our actions, the data that we see on our likes on Facebook and Twitter and WhatsApp, our brain data — Elon Musk has his way and he can connect into our brains — all of that could potentially be on the blockchain and be monetized. And that's interesting because if you can take your individual data back, it's a source of wealth. And I think the big story for the long — the story that will get people excited about is once they can start seeing that, because it fits in with the societal problem we're having, right? The start of the internet really accelerated the gap between rich and poor both here in the US and all around the world, right? So we have this tiny funnel at top that's making all the money. At one point, two things happen: there's more redistribution or there's revolution. And so we're going to have redistribution. And this could be one of the most elegant ways of redistribution of money that's out there, right? I've been studying a lot about UBI, right? Universal basic income. I honestly believe that a version of that is almost guaranteed to happen in the next 30 years, 15 years, 20, 10 years. But maybe if individual citizens start getting compensated for their data, for what they're doing, it's just a better way, at least, of that part of that redistribution. And so to me, that's the best of the optimistic stories of Ethereum and blockchain.
I do think be careful out there. You know, having watched markets and bubbles my whole life, we're in a short-term frenzy. It will shock me if it just keeps going the way it's going without some major pullbacks. There were five 70% corrections in Amazon on its way up here. And so there are going to be big corrections in this space. Manage your enthusiasm and your DNA, your testosterone wisely, because you can tell even with the vibrancy here, egalitarian, and it feels like part of the DNA of this country is having a sub-middle class. We're having a really hard time getting there. Like we had Obama, he said, "I'm going to be the redistributionist president," and by the end of his eight years, with having instituted Obamacare, putting a 3.9% surcharge on everybody for Medicare, for Obamacare, with raising the top tax rates 5, 6%, all of that, the rich-poor gap just kept going one direction. So, you know, this is a hard thing to change because it's happening from technology and it's happening from this kind of global labor arbitrage. But at one point I think this Trump revolution — it could have been a Sanders revolution — is the world recognizing that, or the US recognizing that, the last 30 years left 65, 70% of America behind. You know, 60% of America doesn't have $1,000 of savings. So guess what? Those 60% of people didn't buy one share of ether because they didn't have the money to. So they don't get to participate in this movement. And so I honestly think we're getting there very quickly. We got there before the Age of Ultron started, right? Every conference you go to talks about how AI and machine-based learning is coming and coming fast. And so we need to start imagining a world where people do less, not more. And that has to have some redistribution in it. And so this, I think, could be kind of a very crafty way to re-empower the individual.
