Money 3.0: Mark Yusko from Morgan Creek

In this episode of Money 3.0, Abra founder and CEO Bill Barhydt is in conversation with Mark Yusko, the  founder, CEO, and chief investment officer at Morgan Creek Capital Management and managing partner at Morgan Creek Digital.

Bill and Mark talk about the investment case for Bitcoin and cryptocurrencies and why large investors like institutions and endowments are starting to pay attention to crypto.

Check out the full transcript below, or listen to the episode here:

Bill Barhydt: Hello everyone. Bill Barhydt here. Welcome to another exciting episode of ABRA Money 3.0. Really excited to have Mark on the show. We’re going to get into a lot of topics ranging from institutional investing in cryptocurrencies, Morgan Creek’s philosophy, Mark’s personal philosophy on investing, his thoughts for 2020 and a whole bunch more. So, let’s get into it. Mark Yusko. Welcome to Money 3.0.

Mark Yusko: Oh, Bill, thanks for having me. Great to be with you and looking forward to the conversation.

Bill Barhydt: Let’s get right into it. So, we’re in a bit of a short term run up over the last few weeks. Those of you listening may be in the future, it’s January, 2020. We’ve seen a bit of a run up in crypto. Do you think this is the year or this is the quarter where we start to see true institutional money coming into the crypto world or does it happen so gradually nobody notices it. What’s your thesis/ take on that?

Mark Yusko: Yeah, look, I think it’s like a kid growing. When you’re hanging out with them, they don’t seem to grow at all. And then, someone who hasn’t seen him for a while, like an in-law goes, “Oh my gosh, look how much you’ve grown.” And I think the same thing’s true here. Look, institutions act very slowly. They tend to be herd followers. So, I don’t know that there’s any one quarter or one year where we’re going to see any big light switch go on and institutions suddenly invest.

Mark Yusko: I think, the leaders, some of the big endowments and foundations that are normally the leaders in adopting new innovative strategies, have already dipped their toe in, maybe half a toe. And, I think the big guys, pension funds and sovereign wealth, I think they’re still struggling with basically the small size of the overall asset class.

Mark Yusko: So, I think we’ll make continued progress. I think the halving is a big deal. I think there’s going to be a lot of activity this year, a lot of price movement, and one thing you know about institutions, they definitely suffer from FOMO and they like to buy what they wish they would have bought. So, they will be more active at the end of the year than the beginning.

Bill Barhydt: Okay. So, let’s break that down. If you go to a university, endowment, or a large commercial bank, I’m sure you’re talking to those folks all the time. There’s probably a different discussion in 2020 versus 2015, right? Where a lot of-

Mark Yusko: There was no discussion in 2015.

Bill Barhydt: Okay. So-

Mark Yusko: They wouldn’t even return your calls.

Bill Barhydt: Right, right. So, what’s their perspective now? Obviously, some may have returned your calls over time, but how have things changed in those discussions over the last three to four years and what do you expect is going to happen now throughout the course of this year?

Mark Yusko: Yeah, look, it’s a really great question. Six years ago, and you and I have talked about this and we’ve been together in San Francisco. So, six years ago I came to San Francisco and hung out with my friend Dan Morehead, and he said, “Hey, I’m shutting down my hedge fund. I’m going to start this fund to focus on blockchain technology and Bitcoin.” Like, what? You’re going to do, what? Why would you, one, why would you send back $1 billion? Two, what exactly is Bitcoin? Three, okay, I get blockchain infrastructure, technology innovation.

Mark Yusko: Okay, love that. I’m in. Now, that was the first of my many bad decisions, right? That fund’s up 11 X, Bitcoin funds up 150 X, so missed that one. So for the first two years, a lot happened from 2013 to ’15. I wrote about Bitcoin in my quarterly letter, I write these long quarterly letters.

Mark Yusko: I wrote one paragraph, one paragraph in a 40 page letter talking about Bitcoin might be an opportunity. It had just gone from $1,000 to $500, first quarter ’15 and I had clients say they’d fire us, literally say, “Don’t talk about that stupid stuff. It’s not a real asset.” And so, that’s how little interest there was in 2015.

Mark Yusko: You fast forward to first quarter 2017, again, two more years. That’s when the FOMO was starting to begin. And, you had seen a few intrepid endowments, foundations step up with Andreessen Horowitz, or with Paradigm, the spin out from Sequoia. But, there wasn’t really a ton of interest yet. And actually, I’m early on Paradigm. Paradigm wasn’t till later in the year. But, there really wasn’t a lot of interest. I use the example of back then, two years ago, we launched Morgan Creek Digital, operating subsidiary of Morgan Creek Capital, and 90% of the people we called on, existing clients, new prospects, 90% said, “Don’t darken our door. Don’t even talk to us.”

Mark Yusko: Now, the ones that did meet with us, 90% of them said, “No, not interested in your first fund, go away.” So, that’s 1%. That’s a tiny number. But here we are two years later, 2019, ’20 and now 70% still won’t return our calls. But, that’s a three X increase. That’s three times as many prospects. So, that’s actually pretty good. And, we have been successful in getting six institutions across the line into our venture funds. But look, we’re so early, we’re so early in this transition, which is awesome. It’s huge.

Bill Barhydt: So, now when you talk to an endowment or a bank, are they interested in cryptocurrencies or is it more about, let’s talk about blockchain still, or is it, let’s talk about stablecoins. What do you think is really driving, if anything, their interest in our world today?

Mark Yusko: Yeah, look, I think it’s a great question again and, there are three answers to the three sub-parts of the question. So, I would say the bulk of people are like, “Don’t talk to me about cryptocurrencies. That’s speculation for the drug dealers and the bad people out there. And, I don’t really want to talk about cryptocurrencies. They’re too volatile. I’m a fiduciary, I can’t have that in my portfolio.”

Mark Yusko: Well in fact, the first client, first big client we got into our venture funds … So, we started first with a venture capital fund to do infrastructure investments in the underlying companies that build out the infrastructure like Abra and others, and people who are trying to build out awareness and the use case for crypto. Later, we did a joint venture with Bitwise and did a digital asset index fund because some of our clients said, “Hey, I want some crypto exposure too,” but our first client for the venture fund said, after two-and-a-half hour board meeting the guy goes, “So wait a minute, I got to go tell my guys that I just committed their pension to drug dealer money?”

Mark Yusko: I’m like, “No, no, that is not what you’re going to tell them. Okay. What you’re going to say is faced with the future of traditional assets, 2% from bonds, low single digits for stocks, we have to make seven and a half as fiduciaries. We’ve got to find alpha. We’ve got to invest in innovation. We’ve got to look at venture capital. So, that’s what we’re doing.” He says, “Okay good. I can get behind that.” So, I think there’s a small number of people, very small who are willing to look at blockchain infrastructure and invest in innovation.

Mark Yusko: Then there’s a small number, even smaller, that are willing to put a little bit and speculate in cryptocurrency itself. And I think, the thing that people just don’t want to talk about yet as institutions is how does this whole ecosystem change? What we believe, and I know you believe the same thing, that every stock, every bond, every currency, every commodity is going to be tokenized. It’s all going to be digital. They’re going to be the same assets, they’re just going to be digital and cryptographically secure. And so, everything in a fiduciary’s portfolio is going to go this direction, so they better get ready.

Bill Barhydt: Yep. Now you’ve actually almost structured your entire life around this idea. Talking about Morgan Creek, right? You’ve got a venture arm. You’ve got a capital market’s arm. How does this all fit together then with this broader thesis of crypto that you’re talking about?

Mark Yusko: Yeah, look, it’s been a great journey, and 15 years ago we launched Morgan Creek Capital. We started as an advisory firm. We did some fund to funds. We did some direct investing, did some co-investing. We still have many of those businesses. We still run private equity fund of funds. We still run a Chinese growth equity fund. We still run an emerging markets fund, a long short a hybrid hedge fund.

Mark Yusko: But, over the last six years, I’ve gone from spending 0% of my time in the crypto space and blockchain space, to probably admittedly 75%, 80% of my time. And people say, “Wow, that’s crazy. Why would you do that?” I’m like, “Well look, I think this evolution of technology is, we go from mainframes in the ’54 to microchip in ’68, to personal computers in ’82, internet in ’96, mobile net in 2010, to the trust net or the blockchain era or the internet of everything in 2024, still four years away.”

Mark Yusko: I think it’s the greatest wealth creation opportunity I’ll see in my lifetime. So we are spending a lot of time. I went out and I partnered with some guys to build Morgan Creek Digital. We run a venture fund, so we raised a venture fund one, two years ago, about a $40 million fund. We’re out raising our second fund a $250 million venture fund. Closed on about 65 million of that, led by these two big pension funds out of DC. And, first pension funds to cross the chasm. So, we’re pretty proud of that. And, we also did the digital asset index fund to get people some exposure to liquid crypto. And as I said, we have capital markets activities. We make direct co-investments across the space and we’re looking to help any way we can advance the ecosystem.

Bill Barhydt: Yeah. And so, you’re clearly not busy enough and you need some work to do. So, we’ll give you a list right away of how you can help the ecosystem.

Mark Yusko: I appreciate that. Maybe I can volunteer to work with you guys a little bit. That’d be-

Bill Barhydt: Yeah, that’s phenomenal. You’ve got to be one of the busiest groups in the crypto space with your hands in incredibly interesting things. So, talk to me a little bit about your international perspective on all of that. Right. So, everybody, most people here in SF where I am, they’re very SF Silicon Valley-centric. But obviously, it’s mostly US-centric. What’s your … this is obviously a global phenomenon, which is one of the things that excites me the most about it. And so, what’s your take on that? What do you see differently in your travels outside the US versus in the US how do you think it’s going to evolve over time?

Mark Yusko: No, look, you personally at Abra, as a company have been so great in thinking about this globalization, and really embraced the global nature of this asset or these assets, plural. What I think is really amazing, right, is Americans, we’re really funny, right? We suffer from home market myopia. We think all of the smart people live in America. Where you live, they think all the people live in one zip code. And, I’m like, there’s some pretty smart people in Japan and China and in Russia and Estonia and some other places, parts of Africa, Latin America. There are smart people all over the place. And, I’ve been blessed, I say I have the best job in the world for my career.

Mark Yusko: I get to travel around the world talking to the smartest people in the world about investments. It’s awesome. And, I’ve been in every continent and many, many countries and I spend a lot of time, to your point, outside the US, so I was just down in Brazil and Rio, talking to cab drivers about cryptocurrency and talking to asset managers about stocks and bonds and talking to people about political .. they’ve got their version of Trump down there that everybody actually loves. It’s interesting.

Mark Yusko: So, I think what is really important about this point that you bring up is one, home market myopia is very dangerous. You should never have the bulk of your assets in the market in which you live. We live in a global world. There are global opportunities and it’s not just Americans… The people in Japan have too many Japanese stocks.

Mark Yusko: People in the UK have too many UK stocks, people in China have too many Chinese assets. So, all of us suffer from it, but it’s very dangerous to your wealth longterm. And if you think about the biggest opportunities in the world, they tend to come out of these areas of innovation. And, innovation doesn’t just happen in Silicon Valley. It doesn’t just happen in the United States. Some of the best innovation on the planet today is happening in China.

Mark Yusko: They are crushing us in things like AI, 5G. South Korea, by far the dominant player, and Japan, too dominant players in crypto in terms of innovation, and some of the early wealth creation. One of our biggest wins was the first Korean crypto exchange. So-

Bill Barhydt: It’s cool.

Mark Yusko: Yeah. And, I think about this set of opportunities. You look at a country like Venezuela where the dictator playbook, the dictator comes in and he puts all the assets with his cronies, then he devalues the currency, steals all the wealth. And, the only way to protect yourself was to move out of bolivars into something like Bitcoin. So, there are these incredible new use cases for blockchain technology for cryptocurrency all around the world. And other places are saying … what I Marvel at is, I think the US is high teens, percentage of crypto activity.

Mark Yusko: Yet, we think we’re everything. No, we’re a small minority percentage of the global activity, and yet we think we’re the big dogs. So, we’re important and we have lots of important companies here. We have a lot of important entrepreneurs and you’ve backed some. We’ve backed some. And, I think that’s going to continue to evolve. But I think, you have to have a global perspective. I think you have to look beyond your borders. And the thing that I love about blockchain in particular, is it will create a borderless world, that we will go to a truly borderless world.

Bill Barhydt: Yeah, Focusing in on that borderless world. Let me talk about the venture side of the business for a second. Do you see the opportunities more in, let’s call it, enterprise blockchain? Do you think more about consumer banking, finance, DeFi? Do you think about all of it? What are the exciting bets that … or what are the potential that you are excited about? I guess is better way-

Mark Yusko: Yeah, look, we think about all of it. And we focus on infrastructure, picks and shovels. I’ve always been a picks and shovels guy. My pinned tweet, my Twitter account is @MarkYusko is, you make the most wealth, or the most wealth is created when you invest in something you believe in before everyone else even understands it. And, that’s been true forever whether it’s personal computers, the internet, mobile net.

Mark Yusko: When Google bought Android in 2005, people laughed at them. When Jeff Bezos, started AWS, Businessweek, wrote a story saying, “Hey Jeff, go mind the store. Don’t waste your time on that stupid stuff.” So, people don’t understand true innovation and the greatest investors always overweight innovation.

Mark Yusko: So investing in innovation is really important. So, I’ve made part of my career a huge overweight to venture capital, to innovation. And, as we’ve built out Morgan Creek Digital, our primary focus is on investing with great innovators and great leaders, great technologists.

Mark Yusko: So, we invest across everything from tools, to enterprise solutions, to exchanges, to providers of financial services, to DeFi, anything that we think is going to further the adoption and broaden the use cases of both the technology and the things that have been developed so far. But, the way the way you do that and the way I really think about it is, the thing I’m most excited about in our portfolio, is this company called Figure. They are an extraordinary company that has found an extraordinary use case for, that applies to a very, very large market.

Mark Yusko: In essence, they’re their lending company. They’re going to do, they’ve done the first loans on the blockchain, but more than that … A lending company like Lending Club or whatever, that could be a $4 or $5 billion company. Great exit, like Plaid or one of these other recent deals, fine, that’s great. But, if you disrupt and recreate DTCC, okay DTCC, which is the backbone of all securities transactions, does 1.8 quadrillion dollars of volume a year. I don’t even know to write that number. I didn’t know how to write that number. That means too many zeros.

Mark Yusko: And so, you take a little piece of that and a company that recreates that on blockchain it has the potential … I’m not saying it will be, but it has the potential to be $100 billion company. So, we’re excited about that. We have an investment in Coinbase and we think that’s an interesting transaction. Another thing we really like and to your point, the defi space, it’s not absolutely defi but creating financial services on blockchain, is a company called BlockFi. They do some really interesting things and don’t call them a bank. It’s like QE today. It’s not QE, but it is QE. It’s like, okay, can’t call them a bank, but really they’re doing banking on blockchain.

Bill Barhydt: Yep. So, we have this thesis here, which I think marries really well with what you’re talking about. And, we talk about exponential technologies here. You’ve probably heard of Singularity University, they talk about it. There’s some other professors that talk about it. My take is, is that as human beings, we’re not wired to think in exponential terms well or easily.

Mark Yusko: I’ll summarize. We suck at exponential math. Oh yeah, that’s a technical term, Bill.

Bill Barhydt: Yeah, exactly. Compound interest is the easiest example for most people to get their arms around. People who’ve done it, get it, but they get it after the fact. They’re like, “Oh yeah, I’m really glad I did that.” It’s hard to explain to kids who are in the here and now, but then that’s just a simple example. Somebody asked me last night if they should short Tesla and I said, “Look, I don’t do that anymore. I don’t have the time to sit down and evaluate short term thinking on stocks.” But, let me put it to you this way. People are grossly underestimating how huge the transformation is from traditional combustion engines to electrical and we haven’t even started yet. And, they have a three year headstart and they’ve had it, it seems like their headstart has been forever and nobody’s even come close still.

Bill Barhydt: But again, when you look at every aspect of that, there’s exponential technology in batteries. There’s exponential technology in supply chain. And, it seems to me that the same thinking is going to apply to the world of cryptocurrencies, moving money around, bypassing traditional banks, using blockchain, smart contracts that allow cross border transactions and supply chain to happen in a way that wasn’t possible before. And, to your earlier comment, it’s going to be like before you know it, all of a sudden it’s going to be 15% of transactions and then 20%, just like online advertising.

Mark Yusko: Your point is so well taken and I think I’ll get this right, but people get the gist, even if they prove me and say, “Oh Mark, you were wrong.” But, the gist is, if you take 30 linear steps to get across a room, you take 30 exponential steps, you go around the world twice.

Bill Barhydt: Yeah, that’s right.

Mark Yusko: So, the thing is about that we’re on the verge of … I have this great chart and it shows the internet 1.0. There was a pretty significant amount of wealth created an internet 1.0, companies like Intel and Microsoft and Cisco. They did okay. People made a lot of money and it looks like this incredible parabolic growth curve. And then, you plug in internet 2.0, with the mobile net and you look at companies like Facebook and Alibaba, and suddenly that little internet 1.0 looks like a little blip on on the graph.

Mark Yusko: It’s just a little tiny beginning on the left hand side. And then, internet 2.0 starts to go really parabolic. Well, internet 3.0, which is where cryptocurrencies and blockchain technology starts to take over and all the things you’ve been talking about and all the things you’re actually doing it Abra. All this thing starts to go up at an alarmingly fast asymmetric asymptotic rate and then, the size of the area under the curve dwarfs internet 1.0 and internet 2.0.

Mark Yusko: So, I say all the time, this is the greatest wealth creation opportunity I’m going to see in my lifetime and it’s just math. And, I actually have a hashtag for it, just math. This is not rocket science. It is literally just simple, as you said, exponential math. The problem is the human brain isn’t wired for exponential math. If I ask someone what’s two times two, they’ll say four.

Mark Yusko: If I say, what’s 17 times 21, that’s the limit. That’s the proven limit of human intelligence. So, how do you think people are at nonlinear regression or exponential algebra? It just doesn’t work. And so, as we think about why do most people miss these huge investment opportunities, who bought Amazon when they went public and held it for the last 20 years? Jeff and his mom and dad. That’s it, because nobody believed it and every time it went down a little bit, they bailed. So when was the good time to sell Amazon? Never.

Mark Yusko: So, same thing with Bitcoin. it’s been the most volatile asset over the last 10 years. It’s always been the best performing. Now I actually don’t include the first five years, that was mostly drug dealers and a few other people, but the last five years, those are real.

Mark Yusko: That’s a real asset class. You could have put $6.7 billion into the asset class, which is 1% of all endowment and foundation assets over the last five years, and the endowments would have earned 9.2 instead of 7.2. And, had gone to zero, which was a non zero probability five years ago, it would have gone to seven. That’s a ten to one upside downside ratio. It’s an investment and just got to get there. So, hashtag get off zero, as a fiduciary today, as an investor, you cannot have zero exposure to this asset. You can’t.

Bill Barhydt: Yeah, I’m sensing a little excitement here. So, that’s great. Let’s leverage that excitement to make it real. So, it’s January, 2020 probably February by the time people are listening to this. What are your top three theses or predictions or whatever you want to call them for 2020, as it relates to this world?

Mark Yusko: Yeah, look, I think, so one, and everybody’s talking about it and there are two camps. One is, it’s already priced in and the other is oh, it’s going to be huge. And it’s the halving. The Hal-finning as I like to call it, in deference to our dearly departed brother in crypto. Maybe Satoshi Nakamoto, if we want to go deep in the conspiracy rat hole. So, but look, the interesting thing about this is if you look over time, what is mining? It’s an unfortunate term. Mining implies digging and production. That’s not really not what mining is. Mining is simply pointing computing power to secure a computer network.

Mark Yusko: And, the Bitcoin blockchain is the most secure network in the world. Never been … one fraudulent transaction ever, hundreds of billions of transactions, not one fraudulent transaction. And, it’s the most secure and most powerful computing network on the planet. Why? Because people are compensated for contributing hash power or computing power to the network.

Mark Yusko: So, every time the halving occurs, what is the halving? It’s the reward that’s paid to miners per every 10 minute block. Okay, gets cut in half. So, it was 50, then 25, then 12, and a half and go to six and a half. Every time that happens, if you think about it, just the math is, that the price needs to adjust to compensate the miners because the miners’ costs are basically fixed for electricity and cost of hardware.

Mark Yusko: And so, the price will rise. And as soon as that adjustment occurs, what happens? People see movement. And since, the ecosystem is still mostly guys and guys are hunter gatherers and we only see things if they’re moving. My wife says, “Go get the ketchup.” I open the refrigerator door, there’s no ketchup in here. I can’t see it because I’m moving. So, if it were moving I could see it.

Mark Yusko: But what happens is, the FOMO kicks in and we’re going to get another spike after the halving this year, probably in price. And, could we break the all time highs? I actually think we could. So, I think this is going to be a very exciting year for the price of the Bitcoin network. I don’t think really anything fundamentally will change because fundamentally all it does get better every day, every week, every month.

Mark Yusko: The fundamentals just get better and better, more adoption, more uses more wallets. So, I think that’s one thing I believe. Second thing I believe is, that the expansion of use cases of blockchain technology broadly and specifically things like a theorem and other DeFi-related projects, I think will start to rapidly expand again to your exponential point, is it’s not a linear expansion. It’s an exponential expansion, but at the beginning of exponential growth, it looks linear.

Mark Yusko: It doesn’t feel that big. But as you start to get further out on the curve, the asymptotic movement starts to increase and I think that’ll happen. And, I think we’ll see some really exciting projects and use cases. And then third, I do think to your first question, I think we will finally start to see a little bit of what I like to refer to as the great wall ‘o money.

Mark Yusko: There is a massive amount of capital in institutions that these fiduciaries are struggling and they’re faced with this very sad dilemma that we know the return on bonds for the next 10 years, 10-year yield is what you make for the next 10 years. That’s 2%. We know that equities are highly stretched in valuation and likely the forward looking returns are going to be subpar, probably low single digits.

Mark Yusko: And, we know that the illiquidity premium, while it’s still positive, is probably going to be challenging for everybody to be 100% illiquid, because they have to pay for the withdrawals from the pensions and things. So, I do think that a focus on innovation and particularly innovation as an asset class, is going to continue to rise and that’s going to draw people into this space, and people are going to finally one, return our calls and listen to our pitch.

Mark Yusko: But also, they’re going to see the benefit of focusing on that innovation, focusing on that blockchain is a technology, it’s a technological evolution. It’s not revolutionary. It’s evolutionary. And, it truly is just an operating system, the same way that DOS was the operating system for personal computers. TCP/IP is the operating system for the internet, IOS and Android operating system for the mobile net. And, blockchain is the operating system for the internet of everything or the internet of value.

Mark Yusko: And probably the three point, or three B on three A is maybe the biggest realization will be that the same way that the internet changed information over IP, and then voice over IP. So, voice over internet protocol, money over internet protocol. People will find, they have that aha Eureka moment and realize this really is the biggest thing technologically we’ll probably see in our lifetime, which is the complete transition of money and how we think about money.

Mark Yusko: And, we move to a borderless world where there’s frictionless transactions and it’s all enabled by this incredible technology that allows us to move anything of value over internet protocol without a trusted third party, without an intermediary, without a rent seeking intermediary. So, the banks are all static because they’re all reporting record earnings. Yeah, right. It’s not record earnings. They were handed money by the tax act for contributing to the Trump’s campaign and so now they get to report one year of good earnings. Ooh, big deal. Okay. Their longterm prospects are really less bright given that they can be disrupted mightily by blockchain.

Bill Barhydt: Yep. Yeah, I totally agree with that. You mentioned Figure, very bullish on that space. Abra is also, we very quietly already lend in the background, work in that area. I think there’s a lot of opportunities in DeFi, and to me it’s like an unbundling almost of the banks, back in favor of the consumer. You think about fractional reserve banking, that system is not set up really to help the consumer. It’s really set up to optimize profits for the banks at the risk of the consumer.

Mark Yusko: Wait, wait, wait Bill. You’re telling me that the Rothschild cabal that has been in charge of the banking system for about 400 years is self interested? That they don’t have the consumer’s best interest at heart? And that from 1776 to 1913, a dollar was worth a dollar in the United States? A little fluctuation around the Wars, but basically it was worth a dollar? And since the creation of the Fed, which is basically just a copy of the Rothschild’s original investment bank, the original central bank in the Netherlands, the dollar has gone from a dollar to five, cents.

Mark Yusko: So it’s just a stealing of wealth and loading it up into the banks. So, I could not agree with you more. Banks have been under attack for a decade with FinTech and that’s been great. And, it’s taken this whole idea of peer-to-peer activities to a new level, but blockchain takes it to a whole new level and gives us weapons to finally put banks in their proper role, which is custodians and safe keepers, not profit machines to enrich the 1%.

Bill Barhydt: Yep, totally. I couldn’t agree more. We could do a whole episode, we should-

Mark Yusko: I don’t even feel strongly about-

Bill Barhydt: I want to get a panel together of people who are looking at this whole unbundling and historical perspective on banking and do nothing but have a crazy conversation just on this unbundling and how we historically got here.

Mark Yusko: Oh, I’m totally in. We could do a five hour marathon.

Bill Barhydt: Totally.

Mark Yusko: Five one hour shows. It would be legendary. It’s awesome.

Bill Barhydt: You know, kind of related to this, you’re online. I see you at Marc Yusko on Twitter, obviously Pomp your partner and [crosstalk 00:31:33] is super active. He runs one of the most popular podcasts in crypto, I think it’s called Off the Chain. I’ve been on twice. I think I’ve actually been the only person who’s been on twice. And, one of my questions is, you guys, you obviously espouse Bitcoin 24/seven when you’re online, and you do a fantastic job of that.

Bill Barhydt: But, you also managed to stay out of this hyper maximalist discussion about everything else is a waste of time. The only thing that matters is Bitcoin. And obviously, there’s no way you guys aren’t doing that without having a conscious discussion that, we’re not going to get in the middle of that. It’s very obvious that you guys have been done a good job of that. What is your thought on that? It’s clear that you have, Tom had fans who are maximalists who think everything else is bullshit, but at the same time, he doesn’t put himself in the middle of that fight. He’s okay to talk about a digital dollar. Whereas, a lot of those maximalists think that’s just a complete waste of time.

Mark Yusko: Yeah. Look, well, one, I really appreciate the feedback and I appreciate the kind words and there’s a reason that I teamed up with Tom. I met Tom two and a half years ago. We were both investing in this little company called Lyft. We were one of the early private investors and we met 20 minutes. We didn’t really spend much time together.

Mark Yusko: And then, I heard him on a podcast actually with O’Shaughnessy and I was like, “Oh, that guy’s kind of smart. I should spend more time with him.” So, I started following on Twitter and I went like, like, like, I seemed to like everything he tweeted. And then, I start thinking, “I would have said that. Wait, I did say that.” And, I would say it’s like talking to myself, a younger, better looking version, but it’s like talking to myself and so I got to spend time with them.

Mark Yusko: So, I spent time with them. One hour turns into three, three turns into eight, eight turns into five days. And then, it’s like, we got to work together. And I think, the big thing that we bring to one another is I’m the old guy. I have the gray hair and the wisdom and he’s the young guy with the enthusiasm and the tech expertise. But together, I think what we’ve created is to your point, is this platform that pushes for the development of the ecosystem, but recognizes that at the root of that, is this technological evolution and there are different components of it. For example, Bitcoin, we do believe is the ultimate monetary system. We think it will longterm, be a replacement for fiat currencies by and large. And, that terrifies the governments, because they don’t want to lose control of their central banking cabal.

Mark Yusko: But, in the short term, they’re going to fight back and they’re going to create digital currencies, and we think they should create digital currencies. And look, I always say, I hate to quote Ricky Bobby, but if you ain’t first, you’re last and whoever is first to create a digital global currency will have the potential to disrupt the US dollar as global world reserve currency. I think China will be first. I think they will win. And, I think that’s been their plan all along. They’re planning in 30 year increments and we can’t think in three minute increments in the United States.

Mark Yusko: So, maybe three hours. So, I think that’s part of it. The second part of it is we focus on venture capital and we focus on investing in innovation. And, what we realize, and Pomp was very vocal about this a number of years ago, that look, the ICO thing was destined to be a disaster because look, all in ICO really was, was crowd funding of a pre-seed stage idea.

Mark Yusko: Pre-seed stage investments have a 95, 97, 99% failure rate. That’s not surprising and that’s what they should have, because the 1% or 3% that survive become awesome, hundred backers, 200 backers, whatever. That’s the whole idea of pre-seed stage investing. But, to think that that all of those alt coins were somehow, or utility tokens were somehow going to be successful, was crazy.

Mark Yusko: And everyone says, “Well, they’re all crypto.” No, they’re not. A cryptocurrency is a decentralized currency that can act as a store value, more medium exchange. There are about a dozen, okay. Bitcoin’s by far the biggest and I think will be the longterm winner because the law of increasing returns. Paul Romer won the Nobel prize explaining why that works. And if the… I think becomes the www. of the internet of value, I think it’s like TCP/IP, and I think there’ll be other winners like Polkadot or Cosmos or others.

Mark Yusko: And, we’ll create a stack, a protocol stack just like the internet protocol stack. There used to be 80 internet protocols, eight zero. Today there are five that matter, HMTP SMTP or HTTP, SMTP, FTP, www. and TCP IP. That’s it. And everything that is built on top of that, created lots and lots of wealth in terms of applications and products and services. And, I think the same thing’s going to happen in blockchain technologies or protocols.

Mark Yusko: So, we can have these what seem to be disparate views, because we want to invest in it all. We want to invest in pre-seed stage deals, but we don’t do it in the right structure, in a venture capital structure. We want to invest in liquid protocols. We want to do it in the right structure like digital asset index fund. We want to invest side-by-side and growth equity companies like yours.

Mark Yusko: We want to be in the right structures and encourage entrepreneurs and encourage the technology and encourage the growth because look, the genie’s out of the bottle. This is not going away. Everybody’s saying, “Oh, it’s going to zero.” It’s not going to zero. It’s just not. And, no matter how many times it goes down, 50, 60, 70%, again, it’s just like Amazon. Amazon, 20 years been a public company. It’s at a double digit draw down every single year. Average draw down, 31%. Twice down. More than 90.

Bill Barhydt: Wow.

Mark Yusko: Okay. Volatility is your friend in wealth creation. Everyone fears it, but you want to seek it and you want to have the ability to make lots of small investments. Some of them go to zero, but you double down and triple down and quadruple down on the winners and you ride these winners to great, great wealth creation by again, focusing on innovation, invest in innovation, treat it as an asset class, and then partner with the smartest, most passionate entrepreneurs.

Bill Barhydt: That’s awesome. We’ve got to use that in our-

Mark Yusko: Oh, feel free.

Bill Barhydt: In our people investing. That’s just fantastic. Well said advice. So, if I’m an entrepreneur and I’m convinced that after this, which I’m sure thousands are going to be, that Morgan Creek should be investing in my company, where do I go as an entrepreneur or do is there a website? Do I just go to-

Mark Yusko: Yeah so, and that’s the way you can get to us. So, MorganCreekcap, C-A-P.com is the website. Email, just [email protected]. I don’t really, not very good at email. I kind of suck at email actually. Technical term., I’m actually pretty good at DM on Twitter. Not great, but I’m better at that. So, @MarkYusko, you DM me. It’s a good way to find me. And, Tom’s easy to find too, but he’s more popular than I am. But no, we’re out there. We want to be reached.

Mark Yusko: We haven’t talked about our other partner, Jason Williams. So, the three of us are on Twitter a lot. We’re easy to find but seek us out. Look, our job is to partner with great entrepreneurs and I’ve made this a habit for the 30 years that I’ve been doing this, that I want to talk to everybody because I never know when the next great idea is going to come through the door.

Mark Yusko: I don’t have a monopoly on good ideas. In fact, I don’t have lots of good ideas myself. I like to borrow or steal good ideas from good, smart people. But, I do have, I had a great mentor, very lucky. I had a great mentor, Julian Robertson, famous hedge fund manager. He’s mentored so many great people and I’ve interviewed them all. And, I asked him what separates Julian from the other great hedge fund managers? What makes him one of the best of the best? And every single one said the same thing and I’ve tried to emulate it.

Mark Yusko: They said he has an uncanny knack for pressing his winners. When wrong, he admits it and gets out to live to fight another day, but he will double up. And, that ability to double up and to press your winners and to really ride the innovators and the wealth creators is an amazing thing. And if you think about your own portfolio, that’s what we should all do. We shall make lots of little bets and then we should press the ones that are winning and we should not worry about the ones that go away. But, most people do the opposite. They water their weeds and pull their flowers because they’re so worried they’re going to lose their gains.

Bill Barhydt: Right. Fantastic. Okay, so Mark Yusko. Thank you so much. On behalf of the Money 3.0 Abra community, this has been awesome. One of our best episodes, I believe, and can’t wait for people to be hearing this. And so, yeah. Thank you so much for joining and let’s wrap it there. This was a really exciting episode. Thanks again for joining.

Mark Yusko: Bill, thanks for having me. I love doing podcasts with really smart people who have prepared in advance, have great questions, and I could talk to you all day and it was just so much fun.

Bill Barhydt: Well, we’re going to take you up on that. We’re going to be back. We’re also going to revisit the predictions. We like that, so yeah, we’ll, we’ll wrap it there. Thanks everybody. Have a great day and we’ll see you next time on Money 3.0

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