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You have no idea how much the Bank of China owns. You don't know how many ounces they own. You don't know how many ounces I own. When there's a public ledger that says this address has this much Mhm. and you can't really trade it because you know the history and the provenance of that exact token. It's been used to buy this.
It was transacted over here. It went to this wallet. That lack of fungibility and privacy is a huge deterrent for broad structural adoption. That's what you need to then add another 10x of market cap. Mhm. So, is there room for a different crypto asset that solves for the privacy and fungibility? Yeah, and are there projects right now?
Yes, but they're very small scale. There's huge issues with them. Those are even more volatile. Um so, Bitcoin's interesting. Hey guys, welcome to Everyday Finance. Chamath Palihapitiya, a billionaire investor, has a very positive long-term view on Bitcoin, even though the market and economy are about to become very unstable.
He says that the delay by major banks of the Clarity Act is causing short-term market problems, but that a huge price increase is still coming and could push Bitcoin to a six-figure target. Chamath points out that Bitcoin's value has gone up by a huge amount during past having cycles. This suggests that the asset is currently undervalued and will rise along with the market recovery as a top risk asset.
He does say though that the market is in a state of limbo right now. So, investors should be ready for cyclical dips, hesitancy, and possible short-term shocks before the macro gains fully materialize. To be a very successful investor, you have to be extremely extremely single-minded. You need to come to your own conclusions.
Uh you cannot have others help you. Uh it is not a team sport. That is probably the single most important thing. Whenever I see teams of investors, I think these idiots are going to lose money. Or they're going to make a lot of noise and spend a lot of time and waste a bunch of people's money just returning the market beta.
I don't find that interesting. That's not being a good investor. You have to be really really really curious. And people say that a lot. The sensation that I can put my finger on is when I feel like I'm embarrassed to to tell somebody that I'm in this new thing. Um I remember when I invested in an NBA team in 2011.
The people around me were up in arms. My family office was up in arms. My best friends were up in My wife at the time, up in arms. Why are you doing this? This makes no sense. And I said, here's what And you know, it's almost as if what I've learned actually in my career is when people around you have that reaction, it's almost the best signal.
I agree with you 100%. Um and I had been reading a lot and I'd been reading about how to actually be a tech investor. Mhm. And the conclusion that I came to was, wow, the approach that I want to do is so unconventional. The The The risk of ruin was very high. So then I was like, well, let me just find the most totally uncorrelated asset and park I don't I can't remember it was like 25 or 40 million bucks or something.
So that if I lose everything, I still have this little thing and I can take care of myself. And uh that ended up being the investment in the Warriors, which ended up doing financially quite well. Um but it repeated itself with Bitcoin in 2012. I did the same thing. People got They were just so upset.
And I remember, you know, I I I would appear every now and then on like CNBC and just the vitriol and the hatred um and I was like you So, if you can wither the negative reactions of others, where is that coming from? It has nothing to do with you. Right? People are living their own journey. But what is happening in that moment?
What What is happening is something you are saying is attacking a core foundational belief that they have and it is touching such a nerve that they are just reflexively reacting. That is an incredible signal. Because what it tells you is you're onto something. It could still be a huge zero. But you now can bucket it into there is a there is the potential for a massive asymmetric outcome.
So, when when when I'm investing initially, what I was thinking about was how do I put myself in a position once I've So, I spent like still two, three hours reading a day. Mhm. Okay? It I would develop views. I would write notes. I would think about it. And then I would come up with these ideas and then I would just test them out.
Mhm. And man, people would just When when people reacted like ho-hum, I was like, okay, this is a nothing burger, not interesting. But when people had like this visceral reaction, I was like, I'm onto something. Doesn't mean I'm right, but it's something that triggers people. And I would use that as a way to amplify and spend more time.
Since then, I've added one more thing to this, which is now I have a different way of investing for large quantums of money, like super large quantums, hundreds of millions plus plus. There, I actually want consensus. Mhm. Because this should not be about any sort of existential risk or product risk of any kind.
So, when you're investing tens of millions of dollars, who cares? You can lose the money. It's not a big deal. When you're investing hundreds of millions or billions, you cannot afford to lose it. Risk of ruin goes up. So now I try to like context switch. Here I want you to just be I want you to just hate it.
I want you to just be Ugh, this is so gross. It's rat poison. Oh, really? Okay, great. I'm now I'm going to spend more time. Over here, oh, that makes Yeah, okay, that I understand. Which portfolio did better? Gross tonnage of dollars, this one. Sheer alpha, this one. Uh now, it's hard to say an individual position, like look.
Did you get out of your crypto? I don't talk about my crypto. Okay. Uh but crypto transitioned, you know, Bitcoin transitioned from being this bucket to being this bucket. So You think? Yeah. Volatility would suggest otherwise, no? Yeah, but you know, I think the reality is that Bitcoin for the most part at this point is there's a structural failing in Bitcoin that I think people will need to come and wrap their heads around.
The structural failing is that it is not So, if you think about like what is the value maximizing function right now for for a crypto asset to be broadly adopted, it needs to have the the the features that allow a central bank to adopt it. And there are two things that it lacks. You know, one is fungibility and two is privacy.
And so Bitcoin fails on those two dimensions. So it can never be a structural holding of a central bank. And that simple thing will keep it in the realm of ETFs and humans and satisfy those conditions? Yeah. Fungibility not easily. Both. You have no idea how much the Bank of China owns. You don't know how many ounces they own.
You don't know how many ounces I own. When there's a public ledger that says this address has this much, and you can't really trade it because you know the history and the provenance of that exact token. It's been used to buy this. It was transacted over here. It went to this wallet. That lack of fungibility and privacy is a huge deterrent for broad structural adoption.
That's what you need to then add another 10x of market cap. So is there room for a different crypto asset that solves for the privacy and fungibility? Yeah, and are there projects right now? Yes, but they're very small scale. There's huge issues with them. Those are even more volatile. Um so Bitcoin's interesting.
The Clarity Act is a big and rare bipartisan effort in Washington to regulate digital assets while keeping the United States as the world's economic leader. Lawmakers are pushing for a finalized framework around the spring timeline. Finding a middle ground between big crypto players like Coinbase and traditional banks is the biggest regulatory challenge.
This is especially true when it comes to how to handle stable coins and crypto platforms compared to fractional reserve banks. Policy makers say that these are two very different systems and that crypto firms should not be regulated the same way as FDIC insured banks, especially when it comes to how they market yields and consumer rewards.
All sides are still working hard to find a balance between new ideas and protecting consumers. However, the legislative process is running on a tight schedule as long delays later in the year will make it much harder to pass the bill. Well, I think that that's going to just be um a philosophical decision at some point.
You'll have gold back stable coins. You'll have all these other, you know, real world asset back stable coins. Anyways, but my my my point of view just getting back to the original framing is so the non-obvious thing is it's a you thing. Investing is all about you and you only. All this nonsense of like teams is nonsense.
Teams win. is your investment team, your family office? Uh it is one person that makes the investment decisions, which is me. And then there's a very trusted team of people that help me with all of the infrastructure of that, the complexity of that. Okay, so you think number one then? So you I'm just summarizing, yeah?
You, nobody else, no team, nobody in the front office of the venue. Two, have a very thoughtful understanding of what you're looking for when you're constructing a portfolio. How do I arrive at that? I think it's you can start by just having a very coarse definition of there's small and then there's medium and large.
Small should be about massive alpha. Massive alpha is generated typically in controversy. How do you arrive at controversy? By testing out these ideas and getting and just getting a sense of people's reactions to it. Mhm. So for example, like you know, going back to this crypto example, there are crypto projects right now that are completely fungible, totally private.
And if you ask people, they will have wildly divergent views. Mhm. That is a great setup for some of those crypto projects. Again, could go to zero, but could go to infinity. Yeah. So this bucket is always about just swinging for the fences. This bucket The medium? Medium and large is you can never be wrong.
But if would rather take a billion dollars and generate a 2x than go to a the and then risk then have a chance at a 5x, but there's also a chance of a zero. This is your data center energy and all of that. Well, so so this is about portfolio construction. Then you have to have a view of like what do you like and what do you want to see in the world?
Because the dollars that you have are really an amplification method to the point of view. So in my point of view, I have a very specific view on AI. I've been at it now for a decade. I have a decent sense of it, and I want to your view on AI overall if you had to summarize? I think it's a massive accelerant on productivity.
I think it will create levels of progress that are unimaginable. And I think we now need to build the tooling that allows people to participate in all of those gains. And if UBI? No, like you know, be be able to actually like work in it and be productive and allocate one's time. That was the same argument in the agrarian revolution.
Yeah. And we found things. And again, I I just think that the the odds are if you look at the last two or three meaningful evolutions of humanity through technology, every single time if you dropped yourself in that moment, you would have not had a precise way to answer that question. Yet, if you took the pessimistic view, you would have been wrong.
Mhm. I think that this is still one of those moments. And so, I suspect that to again today, we don't have a good language to talk about how we will all participate, but I suspect that if you take a pessimistic view of the answer to this question, you will turn out to be wrong. So, so anyways, back to so back to so my my point is that in in all of this, I have some specific views on energy and energy policy and national security and and so, that's where I choose to allocate
Right. the smalls and the mediums and larges. Right. But for somebody else, it could be biotech. It could be, you know, cancer research. It could be enterprise SaaS. It doesn't doesn't matter at that point. Right. How would you play AI now? So, here's the framework that I use. Um if you go back to the first generation of the internet, we had a conceptual framework called the OSI stack.
And the OSI stack was very powerful because it allowed companies to demarcate what the boundaries were. Where did they start and where did uh they end and then where did the next company start? And when you got those boundaries right, you had great companies get built. From Intel to Cisco to Broadcom to Oracle to you know, all of these things, right?
The question is, what is the conceptual stack for AI? Why? Well, if it maps back to history, again, it's not going to be exact, but it's going to rhyme, there will be a conceptual stack that we will look back on and say, "Ah, had we seen these boundaries, it would have explained all of the company formation and what needed to get built." So, we already know what some of these boundaries look like.
There's a silicon layer. Now, inside of silicon, there's a huge panoply of different things that one can do. Then above it are the foundational models. Quite obvious. Open source, closed source, world models, you know, and then above it, I think it forks. And this is where I diverge from a lot of people.
So, these two layers of the stack are the same. Then when it diverges, it diverges into software AI and then physical AI. And in physical AI, I think the two things that I believe is that it's all about being able to store energy and then actuation and locomotion. Because you could have the greatest robot in the world, but if the robot runs out of batteries and it just kind of hangs on a you know, you're dead.
And similarly, if you can't actually pass, you know, the numb match test, which is you know, what we call in robotics, it's pointless. So, there's all kinds of really interesting things that then pull you into the physical world. Batteries, rare earths, specialty chemicals, processing. And I've gotten very interested in it.
I find it very fascinating. And again, why? It allows me to make medium and large-size investments. Risk of capital loss is relatively low. These aren't like gargantuan returns, but they're fulcrum assets. Mhm. Right? Fulcrum assets meaning like these are things that if they exist will be pivotal. And with that will come the ability to find other next new things.
And on the software side, my big bet is this idea that I don't know what the machine is, but I would like to make the machine that makes the machine. At the same time, Washington is stuck in a deep partisan gridlock that is blocking important budgets for national security, immigration enforcement, and the Department of Homeland Security.
This is causing real-world problems like government workers not getting paid. Because of this, lawmakers have had to think of other ways to get things done politically, like budget reconciliation, to get around the strong opposition on divisive issues like election integrity and voter ID laws. In spite of these disagreements within the country, there is a greater focus on maintaining America's long-term economic dominance over competitors like China.
One way this is being done is by reauthorizing the Export-Import Bank. This bigger budget crisis, which is made up of central banks printing money, the effects of deflation, and the growing US debt crisis has led to dire economic warnings of either hyperinflation or a deflationary depression. This has made politicians talk more and more about Bitcoin as a possible part of a changing financial framework.
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