At some point in the future, five or 10 years, there's not going to be this concept of public or private. I think all investable assets will be ownership will be recorded on a blockchain at some point in the future. I think things will trade 24/7.
Hey everyone, welcome to the Level Up podcast presented by the Medici Network, the exclusive community for financial institutions to engage with blockchain native funds and founders. I'm your host David Brerder.
And I'm your host Sean Farrell. Before we kick things off, make sure to hit the subscribe button and follow us on Twitter for the latest episodes.
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Now, let's get into it. Our next guest has built an entire business telling people outside of blockchain why they need to be in blockchain and he's done it very successfully and I'm very excited to have him here. I've been trying to get Barry Silbert since 2018 since our very first event and I'm very excited that one of his former employees, my partner David Brerder and Sean Farrell, the host of our Level Up podcast are here to interview him. So guys, please join us.
All right. Can I start with a story?
So, Eric, who was just on stage, Eric, if you're still here, I'm gonna give you a shout out. So, when I first heard about Bitcoin in 2011, there was nothing online. There was like one wired article. There was nothing you could read. There was no way to study up on it. And Eric was the second person that I ever met or talked to who had any knowledge of what the hell this Bitcoin thing was. And I don't know if people got it from this fireside. Eric is a pioneer. He's a philosopher. And Bitcoin wouldn't be here, wouldn't be where it is today without Eric. And people now know Eric for Venice and what he's doing on that front, but he truly is the Bitcoin OG and we all owe him a debt of gratitude for getting Bitcoin to where it is today. So, take that.
We got to give the pioneers their flowers while we can, right?
On that, I think David has some flowers to give yourself.
Well, look, that's a great intro actually to kicking it off. So, you know, you went from meeting Eric, getting involved in Bitcoin. And then you went on from Second Market to founding DCG and Grayscale. You know, a little personal story, I'm thankful to you because when I first got into crypto, I think it was 2015, I bought GBTC and so that was a gateway for me. Maybe, you know, talk us through the early days when you really kind of took the full plunge from Second Market to building DCG and what that looked like.
Yeah. So, I heard about Bitcoin in 2011. And I think like most people, I was completely dismissive and skeptical and I said, there's no way that this thing is going to be successful. And I think that at the time the price was maybe a dollar or two. And I said this is not going to work. But I thought that's such a cool idea like decentralized digital money. And I just kind of kept an eye on it. I forgot where we got the prices back then. I think it was maybe like a peer-to-peer market or something and then the price went like to $10. I was like, ah, damn. I missed it. And for about six months, I just kept on thinking about it. I became obsessive about it. And every kind of question that I had about it, I came up with a reasonable explanation or response or defense. And I remember I distinctly remember getting to the point, and this was in early 2012. I was like, I think that this has the potential to be completely transformative. And if I don't have the cojones to do something, I will regret it the rest of my life if it actually becomes something. And so I started buying Bitcoin below 10 bucks. And then it went to like $2 again. I was like, I'm an idiot. And then eventually it recovered. And this was like 2012. And when it went to like 50 bucks, 60 bucks, 70 bucks, I was like, okay, well, I'm an investing genius, of course. And so I said, but I should really diversify out of this. And so I started taking the Bitcoin that I had bought and I started looking for companies that were building infrastructure within the space. And back in 2012, 2013, there were, I mean it was Eric's company, BitInstant. Brian hadn't yet formed Coinbase. And so there were just like a handful of companies that I was using Bitcoin to invest in. And to answer your question, had I just held on to that Bitcoin and not made those investments, I would have done much much better. But it was important because that infrastructure that was built is kind of on the shoulders on which the industry ultimately was built. So I got to the point in 2013 where I said, okay, this thing is rocking. And Second Market was the company I was running at the time. And I said, okay, well, the best way to bring more people into this market is to create some kind of investing vehicle. Because at the time you could only buy Bitcoin from like Mt. Gox in Japan and a few other smaller exchanges. And so that was the creation of the Bitcoin Trust, GBTC. And then that turned into Grayscale and then that turned into DCG. And today we have five wholly owned subsidiaries. We've invested in 400 plus companies and we're kind of I think really kind of the epicenter of all that's happening which is a lot of fun to be in.
That's great. So maybe that's a good segue to talk a bit more about Grayscale. I think that would be the next big chapter in the story. Obviously we know how you started with Bitcoin but how did you take us through what you observed through the maturation of the space, different assets that you viewed were suitable to be held in this ETP wrapper and just broadly how you interpret the progress that we've seen from an asset management perspective over the past few years.
Yeah. I mean, wow. When we launched the Bitcoin Trust, I think the entire market cap of Bitcoin was, I don't know, maybe $10 billion was like the entire asset class. And you look at creating on-ramps, all the companies that did it, Grayscale and Coinbase and Eric's company, it was all important to kind of make Bitcoin investable. And look, the asset class, had you told me then that Larry Fink would be the number one spokesperson for Bitcoin, I would have laughed and I would have said, I'm not sure that's a good thing, but I would have laughed. And here we are today and brokerage firms are now suggesting allocations of 1 to 5% of crypto or Bitcoin in your portfolio. So, the asset class is here to stay and I don't really do much talking anymore. But I've certainly gone on the record to say I think 99.99% of crypto projects are complete dog and they're not investable and they have no reason to exist. But there's been millions of tokens created. So, out of the millions of tokens that have been created, I do think that there are some really important interesting infrastructure projects. There's things on which the stablecoin rails are being built, the tokenization revolution is happening. There are some really interesting projects at the intersection of crypto and AI. So, if you kind of look at the asset class today, here to stay, Bitcoin is digital gold is finding its way into a growing number of portfolios. The institutional pools of capital haven't really even started allocating yet. From a Grayscale perspective, the team has been very successful getting its products onto the largest wealth platforms but they actually haven't even flipped the switch yet. They haven't even given permission for the advisers to start actually advocating for allocation. So I think there's a tidal wave of capital that's about to flow into the asset class. But those asset managers, the wealth managers, they're only looking at Bitcoin right now. Some of them are thinking about Ethereum. None of them are looking at anything below Ethereum at this point.
I just want to ask, one risk that I hear from TradFi people a lot is this quantum risk with Bitcoin. You guys obviously hold quite a bit of Bitcoin through GBTC. How are you guys thinking about that risk and just how it evolves?
Well, as the chairman of Grayscale, I have the fortunate position of not having to worry about that type of thing, but I do know the team is very focused on how best to secure the assets of its customers and clients. Grayscale is using third party custodians, the Coinbases of the world. Personally, on the quantum front, I think the risk is completely overblown. I think it is not happening anytime soon. And I like to think that the developers and the community within Bitcoin are going to figure out a way to collaborate. It's very hard as you guys know it's very hard to push through any improvements or upgrades to Bitcoin. There's lots of examples in history where there's been wars that have happened. But I think that the quantum risk is overblown personally. And if there is going to be a group of people who are going to figure out how best to develop quantum resistance, it's certainly going to be the Bitcoin community.
Now, if there's a fork, I suppose it's not going to be like the prior one. You're not going to get involved like everyone else.
We don't need to relive that.
Yes. So, no, I'll stay out of politics.
You're going to stay out of your politics.
All right. Maybe one other just kind of related topic on Grayscale. Obviously you've seen a lot of regulatory changes and I think the industry has to thank you for getting the ETFs through. It wasn't for the legal battle that Grayscale did. Might not be here today with those. Maybe we would with Trump, but it would have been a lot.
I mean, who sues the SEC? Well, Grayscale did and we kicked their ass, which was great.
Yeah. I mean, I think there is probably needs to be a lot of thankfulness in that and with the battle you did. But the regulatory front has evolved now. There's a lot of companies going public and I think that since the new administration's come in you saw a wave of companies, Circle, others. I'm not asking you to speak specifically about the filing with Grayscale but maybe just talk us through how you see the capital markets landscape for public companies in the digital asset industry today.
Yeah, look, I think we're, fast forward, I don't know what, 10, 15 years since I started doing seed investing in the space, and we're finally at the point where there's companies that have great business models, product market fit, real revenue and profits. And so, it's exciting to see these companies that are finding their way into the public market. Look, it takes too long. One of the things I'm most excited about is the potential for capital formation to evolve thanks to things like tokenization and stablecoins where you can, right now if you are running a private company or invest in a private company it takes you 10, 15 years to get liquidity and that's just crazy whereas in the world of crypto you can launch a project and access capital and have liquidity on day one. So I do think that while there are going to be a growing number of companies that are going to find their way into the public market in the next few years who have reached this kind of scale of maturity. I am even more hopeful that we're going to see over the next five or 10 years some real regulatory clarity around tokenization but also some real attempts to create some type of bridge or something that exists between the private and the public status of a company. I mean, it's crazy that the most exciting, fastest growing, most valuable private companies in the world are not going public until they're trillion dollars in value. That's terrible for US markets and terrible for investors.
Do you think we just see both worlds merge, private and public stock anymore? It's just something between.
I don't think, I think at some point in the future, five or 10 years, there's not going to be this concept of public or private. I think all investable assets will be ownership will be recorded on a blockchain at some point in the future. I think things will trade 24/7. I think that it'll be a global, it'll be a level playing field globally. I think there's going to be very little friction. I think it's going to open up a lot of fantastic opportunities for investors and I think it's going to lower the cost of capital for people who want to start ideas or start projects. I mean, it's just really silly that retail investors in the US, they only have access to whatever 5,000 kind of publicly traded companies when you can go buy 5 million tokens across these exchanges all of which are worthless, most of which are worthless.
You said it, I didn't. That's moved down the DCG stack. Another large entity within the DCG ecosystem is Foundry which I think has the most hash rate out of any mining pool. Is that correct?
Largest mining pool in the world. Yeah.
Yeah. And so I think a pretty topical conversation to have, it's been tough to find outperformance in the crypto market. One area of outperformance that has been a safe haven for a lot of folks is the miners and they've done really well not because they're mining a lot of Bitcoin because they're actually converting to AI HPC compute and being rerated on that. And I'm curious what your take is with the perspective of operating the largest mining pool on all of this hash rate moving from Bitcoin to AI, does that pose any kind of risk in your mind to the network, open the door for non-economic actors to move in or does it open opportunity for other folks to move in and mine more profitably?
It's a really interesting time, I think, to be a Bitcoin miner. The economics are relatively shitty. And the capital available to them is fairly limited and there's absolutely this opportunity to better monetize your infrastructure by catering to the AI industry. So, but what's interesting is over the past few years we've seen, Foundry has seen this with the pool, but there's also been a bunch of headlines about Bitcoin mining moving away from miners into energy companies, governments, states. And so I do think that over time we're going to see, and I think this is probably a healthy thing, I think we're going to see mining kind of move to more of a utility type concept. It won't be the sexiest investment you can make and it won't be the one that has the highest upside, but I think it'll create some interesting investing opportunities as that shift happens. But today, look, the Bitcoin miners are not diversifying outside of Bitcoin. And we own a mining business called Fortitude. Which we have gotten very excited about Zcash. And so, Fortitude has been ramping up its Zcash mining operations and the economics around Zcash mining are dramatically better than Bitcoin mining. And so it's a great time to be investing there because the public miners are essentially not investing at all in buying more equipment and building out their fleets.
So why Zcash then? I think that's a good, let's start with that point because I was talking with a leader from the leading Zcash DAT and I asked him why aren't we seeing these miners convert to mine Zcash? So I'll pose that question to you. Why are we seeing that hash rate move over and
I mean they can use the same money and go buy Nvidia chips and make a fantastic return as compared to Bitcoin. And I think for the most part, their shareholders, if they're public companies, what their shareholders are now investing in are companies that are scaling up their AI infrastructure. And the last thing that they're going to do is invest in machines that are going to mine something other than Bitcoin, especially something that is a financial privacy focused token.
