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We don't think there are going to be very many cryptoc currencies. In fact, Bitcoin owns the cryptocurrency space when it comes to pure crypto. Bitcoin is the cryptocurrency. We think it's going to be uh the biggest one by far. By far. Welcome to the Master Investor podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders, and politicians in the world, giving you, our listeners, an edge.
Welcome back to Kathy Wood as well, who we caught up with earlier in the week, and uh she's still with us for a bonus crypto conversation. Kathy, thanks so much for sticking around. My pleasure. So, you are a big believer in crypto, of course. Are you a believer in all cryptocurrencies or only certain cryptocurrencies?
No, not all crypto or supposed cryptocurrencies. We don't think there are going to be very many cryptoc currencies. In fact, um there's cryptocurrencies and then crypto assets. Bitcoin owns the cryptocurrency space when it comes to pure crypto. And now we have stable coins uh which are cryptocurrencies as well uh but they are tied to the dollar uh because they're collateralized primarily by treasury securities.
Uh so Bitcoin is the cryptocurrency and we think it's going to be uh the biggest one by far by far. uh now it's focused on it's a monetary system rules-based the rule is quantity theory of money so 21 million units that's where it's stopping and we're at about 20 million units right now uh so that's quantity theory stable coins are are based as I mentioned before on the dollar and uh if you can find a way to use those stable coins which you can in the decentralized ized finan in DeFi, decentralized financial services.
You can earn money uh you can earn uh money from your stable coins. Uh just this last week, Coinbase introduced a product allowing holders of USDC who do not get the interest payments. They're not allowed to by regulation, but they're allowed to lend uh their or to loan their uh USDC in the DeFi ecosystem, and they can earn as of last week 10.4%.
So I I want to get into stable coins as a sort of idiots's guide if you can for me because I can see the argument why a dollar denominated easy to move around asset is attractive whatever people want to say in the underworld or in certain countries uh where assets might get seized or or or whatever else is the case.
What is the argument for someone that lives in London or someone that lives in New York? because you can transfer a dollar with great ease or a pound with great ease, earn interest, have it backed by the central bank and the government. What what's the what's the advantage of doing that via a stable coin if you're in one of those countries?
So, uh and and you're right, there are two major stable coins today. Tether is primarily outside the United States and outside Europe now after Mika or do you call it Micah or Mika? I either I don't know. Okay. The regulation uh so it dominates the the two have 90% of the market. Circle is quote unquote more regulatory compliant certainly in the United States.
Uh and and there is a Euro version of uh USDC in in in Europe which has not taken off. Uh so those are the big two. uh now why would uh we in the developed world you understand the the en emerging world and we thought bitcoin was going to serve that that role so stable coins coming along has taken some share from bitcoin which we didn't expect when we did our original analysis uh so in in this world what we're doing is taking the middlemen out of financial services and what are the middlemen.
You know, incorrectly or in in a not fair way, I used to say, you know, these are the toll takers. You know, it almost sounded nefarious, which it's not. Uh all of those middlemen in tra in the traditional financial world are there to lower risk the risk of a transaction to the various financial institutions participating.
uh when we move into the world of blockchain technology, it's peer-to-peer. The middlemen go away. So the way I like uh to describe it in a way that's more understandable, you know, for credit cards, uh it's automatic 2 and a half% tax on each transaction. Again, function of middlemen. Um that doesn't have to be anymore.
We will and and the tax will be anywhere from 2 and a.5% or 2% to 4% in the developed world or 25% if you're doing um uh remittances in the developed world like say Nigeria all of that flattens out and goes to feebased to the blockchains which will drop to 1% or less. So where are those fees at the moment?
cuz it's not like the cost of crypto mining and transaction cost at the moment is it hasn't got down to 1% yet. No, no, no. Um, all of this is going to happen over time. I mean, yes, if you're just if you're operating in the world of of just crypto, just I just gave an example of uh USDC, a person saying, "Hey, personally, I can lend that out for a 10.4% 4% rate.
I'm not going to get that anywhere else. So, that's one side of it. Uh and and that's kind of a a saving rate. And the those who are borrowing at 10.4% could never get that rate. They're too small. The banks won't have anything to do with them. So, that's the other thing that's happening because of des DeFi.
It is those who could not get loans or the loans would be prohibitively expensive now can. And savers on the other hand who are loaning the money out, they get a much better yield on their savings and but obviously take a bigger risk than placing that bigger risk in in a bank. But but these are transparent ecosystems
and uh you know many uh loans are over collateralized and so and we learned this during uh during three arrows and Luna and that whole meltdown. Uh anyone who was onchain uh their collater collateral was wiped out right away. uh uh meaning the financial institutions got their money back. Uh if you were in the opaque uh and very centralized FTX ecosystem, you lost all your money.
So it actually was safer to be on chain than to be at FTX, which of course was a fraudulent company. Let's touch on Bitcoin versus Ethereum because we had Tom Lee on a few weeks ago and uh he's a bull on Bitcoin, but he's even bigger bull on Ethereum. he thinks will will surpass the size of Bitcoin.
Why is he wrong on that? Why is Bitcoin always going to be bigger than Ethereum? Uh so Bitcoin serves three roles and yes and we would differ with um I know you get on very well with Tom and we do we do Yes. Yes. Uh so the three roles bitcoin as I mentioned is the global monetary system rules-based quantity rule to be sure uh and that alone is a very big idea.
It is also a technology so uh layer one blockchain technology never been hacked. The other blockchains cannot say that right. uh and and so that's why the monetary system is is based on it. Uh and it is the first of its kind in a new asset class. We we wrote our first white paper on that in 2016. Uh so a new asset class.
Uh so it's it's got three very important attributes to it. I do think uh that Ethereum is playing a very important role and therefore Ether uh the the the native currency in the DeFi ecosystem. Uh a lot of the fees are going to the layer 2s. Robin Hood for example announced that it was going to start its own layer 2 like Coinbase has.
It's called base. Uh they get a disproportionate amount of the fees. Now the question is are there going to be so many layer twos out there that um they're going to start competing against one another and confer more importance to the layer 1. Uh that is a possibility and that is why we're invested in ether and we do think it powers the DeFi world.
Uh but I think these competing interests are are maybe something uh that Tom and I can debate a little bit. you and and uh they're always great debates when you have them and very friendly and I know you're a buyer of of Bitmine, the company chair of what what about is there a long list of other crypto currencies that you're you believe in or is it actually a handful only?
It's really only a handful so far. Um which are the other ones? Well, of course we've got Bitcoin now in our public funds. These trades are public. So I can I can tell you our exposures are Bitcoin, Ether. We're finally able to get an acceptable from a regulator's point of view uh way to play Ether and we chose Bit Mine immersion and in the um and then Solana is the third one and and we can talk about that as well in terms of its role.
Uh that one uh is through well it's Breera Sports and everybody thinks I I or ARC just bought bought a bunch of sports teams which we did not. Uh this is the company uh into which soulmate uh is a a Salana treasury is being folded and supported by uh the UAE uh Middle Eastern and my mentor uh our advisor and my friend Art Laugher is on the board of that one.
Uh so so that's been very interesting. So those are the big three. Hyperlid is the new kid on the block and uh we're waiting to see how how that all plays out. It's it's exciting. It reminds me of Salana in in the earlier days and Salana has proven its worth and is you know there with the big boys. Uh so those those we think are and then of course there are other services a like money market fund and unis swap and and a few like that uh goto which is related to the the salana uh ecosystem.
So, we will play certain derivatives, but if you're talking about the the big boys or girls, uh those those those are the big three right now. And we because we're nearly out of time, I just wanted to come to to get your view in the end on on gold because it's actually a really interesting day for us to ask this question.
Gold and silver are up significantly. Uh of course, we're recording this on Monday this week. uh and Bitcoin and Ethereum 45 minutes ago when we started the conversation were down quite sharply and it's not often that that we've seen those two trade in that same way on the same day. Do you think the argument for gold is sort of stronger than ever in the I mean clearly the performance has been very strong this year.
Where do you stand on it relative to Bitcoin? Well, we don't own it. Uh and we're not saying it's going to be a bad investment either. It's just not what we do. You know, technologically enabled disruptive innovation. Uh but with my economics hat on, um I always take the performance of gold seriously.
Typically, it is a harbinger of inflation. I don't think that's the case this time. We monitor something called the metals to gold index. So, metal prices to gold prices that has dropped below 089 levels. And it's got me actually worried about, okay, what is going on out there? It could be related to China and they're still going through a deflationary unwind of the property uh uh the property um speculation there.
I think what's happening with gold this time around is geopolitical risk. And you'll notice on Friday night all of the chaos around H uh uh B1 visas, right? And I think that uncertainty it's like oh my gosh all of the you know the foreign students were you know from India and China and their parents and every looking at this saying what what is going on and personally I think it's just a negotiation with India that's going on and this will all be fine because we don't want to lose the best and the brightest from anywhere around the world despite what uh what you hear the rhetoric you hear right now.
So, I think that's all going to change, but it doesn't matter. The headlines are blaring and and people are saying, "Okay, what do I do?" And, you know, people with a lot of wealth, so maybe older generation are maybe, you know, shifting some into gold. They're not probably putting it into into the digital asset world.
Well, Kathy, we are out of time. I've taken you for for longer than we we were meant to run. It's been such a pleasure to catch up in person and a reminder to people that the full length episode dropped earlier in the week as well as this crypto uh bonus uh episode. Next week on the Master Investor podcast, we will be joined by Freddy Late uh the founder of Latitude Investment Management.
Make sure to tune in uh for that one. And if you've enjoyed the conversation, please do subscribe and leave us a five-star review. A reminder that nothing you've heard on the Master Investor podcast should be considered direct financial advice. More on that in our show notes if you'd like to see it.
The Master Investor podcast is produced by Paradine Productions and Master Investor Podcast Limited in association with Bird Lime Media. If you've enjoyed the podcast, please do subscribe on YouTube or click follow on your podcast platform and then you'll be automatically notified each time a new episode drops.
Uh, next week we'll be with Freddy late. Once again, a double thanks for two episodes with Kathy Wood. Thank you so much. Oh, thank you, Wilfrid. It was fun.
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