RAOUL PAL: Tyler and Cameron, great to get you guys on Real Vision. You have been a very requested guests for us. Finally stalked you on Twitter to get you here. CAMERON WINKLEVOSS: Thanks for having us. TYLER WINKLEVOSS: Thanks for having us. RAOUL PAL: Not at all. Listen, obviously most people are familiar with your backstory, but I want to just start with the backstory of why Bitcoin? When did you get bitten, and how has your thinking evolved from then? We all have a ground zero where we all got the epiphany.
Talk us through a bit about that, starting this whole space? CAMERON WINKLEVOSS: Sure. We were actually on vacation in the summer of 2012 in Ibiza of all places, where you find great investments and ideas. We were recognized by a guy from Brooklyn, from the movie, The Social Network. He started talking to us and said, hey, have you guys ever heard about virtual currency or Bitcoin, and we had not. We started talking and connecting. Then when we got back stateside, we started to read a lot about it and we are like, wow, this is an incredible thing. We were used to social networks, and we realized that this is really like a money network. You could, for the first time ever, basically send value through the internet like an email. That was the big aha moment from a technology perspective. Then when we were looking at the characteristics of Bitcoin, and the fixed supply and understanding, we started to build this gold framework early on. Once we thought about it and concluded this is like a store of value, and an emergent one, we started buying pretty quickly.
We purchased our first coins in the high single digits. The market cap was like under 100 million at that time, it actually quickly grew that fall over the next six months, probably in part due to our purchasing to some extent, though, we try not to impact the market. That is really the origin story of our relationship with Bitcoin and cryptocurrency. It started on a beach in the Mediterranean. The last eight years have been we have been addicted to this space.
It has been really fun, but I would say that our goal 2.0 thesis or framework really has not changed in terms of how we think about the asset for the past decade. RAOUL PAL: Interesting. My Bitcoin moment was 2012 in Spain. I was living there, and we have just seen our banking system always go under. The whole of Europe, it almost collapsed. Having just gone through 2008, having gone through that, and I was writing about it, and I was at the heart of the whole thing at this roundtable with a whole bunch of macro guys. One of them came along and said, listen, the answer you are looking for is Bitcoin. That started me exactly the same time in the whole space.
Did you figure out that there was a Metcalfe’s law adoption pattern that could evolve here with the system of money? How are you thinking about it? Gold 2.0, outside the store of value, which is pretty well known, how are you thinking about this network effect? CAMERON WINKLEVOSS: I am sorry, I did not mean to cut you off, Tyler. I was just going to say that we started talking to Bitcoiners pretty quickly, and the energy we got from a lot of these folks was like, these are the smartest people in the room, especially the people who worked on protocols who are deep in that space.
When we tried to kill the idea, we really had trouble figuring how this thing does not work long term. Everything is going digital. It is all going streaming. It makes– RAOUL PAL: Hi, I’m Raoul Pal. Sorry to interrupt your video – I know it’s a pain in the ass, but look, I want to tell you something important because I can tell that you really want to learn about what’s going in financial markets and understand the global economy in these complicated times. That’s what we do at Real Vision. So this YouTube channel is a small fraction of what we actually do. You should really come over to realvision.com and see the 20 or so videos a week that we produce of this kind of quality of content, the deep analysis and understanding of the world around us. So, if you click on the link below or go to realvision.com, it costs you $1.
I don’t think you can afford to be without it. CAMERON WINKLEVOSS: the idea, we really had trouble figuring how this thing does not work long term. Everything is going digital. It is all going streaming. It makes sense that our hardware money is now going online and that first version, of course, is Bitcoin becoming gold. We really felt like this is going to happen, and that was pretty exciting and fun at the time. Tyler, sorry. I did not mean to cut you off. TYLER WINKLEVOSS: Also, one big aha moment was this is the first money that was built for the internet. It works like your email. It was not built by bankers. Credit cards, it is like a square peg, round hole. They were invented by bankers before the internet existed. People try to shoehorn them, given the illusion that it was works on the internet. PayPal is a great example, but when you look under the hood, it really does not work on the internet. It is not purpose built for the internet. Bitcoin was the first internet money in the world.
When you realize that, you are like, whoa, that is a pretty big idea. Then when you realize that money is the greatest social network of all, Bitcoin is maybe the greatest social network of all also. As you said, the way you value a social network and network effects is Metcalfe’s law. You do not look at it like a cash producing company, or an equity and try and do some discounted cash flow model. That is why a lot of like Wall Street and finance people go astray, because they take their frameworks, they are like, wait, it is not a company does not have cash flow, it is worthless, there is no intrinsic value instead of looking at, like how you value Facebook, and how each additional user provides additional utility to the other user without even knowing it.
If I am the only person in the world who has a phone, it is not that valuable, because who do I call? All of a sudden, if, Raoul, you buy a phone then I can call you, and by you purchasing a phone, you have brought utility to me. The more people in the world that do that, the more valuable it is, and it does [?], and it is just ends where n being the nodes, being the users on the social network, being the users of Bitcoin, and that is network effects. We know how strong network effects are, because we see the market cap of Google, Facebook, and Twitter, big tech, and how hard it is to unseat these companies. Google took a run at social. It was called Buzz. Fell flat on its face, because one of the things about network effects is that users become the biggest champions of the network. Nobody wants to upload their pictures 10 times to 10 different social networks. Once you pick Facebook or your social network, you try and kill consciously and subconsciously all the other ideas, because you just do not want the overhead of doing all your connections again, building your social network online again. You become the greatest ambassadors for that. It is really hard to unseat even Google, almighty Google, which was much bigger than Facebook back then could not do it.
When you have the first money ever built for the internet, you have the social network effects of money itself, and you put Bitcoin next to gold, and you compare the traits that make gold “gold”, and you realize that Bitcoin equals or surpasses is superior than gold, and all those categories that we think make gold valuable, then you are like, this is a really big idea. RAOUL PAL: The other thing that really intrigued me about the whole thing is– and it has dawned on me more and more as I see the tribalism in the space, which is a bug, and a feature is the fact that it is such powerful behavioral economics. It is an incentive based network that is incentivized by money and you could not build a better incentive system for a network, the money itself with an intrinsic value that has a store of value.
It is extraordinary. CAMERON WINKLEVOSS: Yes, people on Twitter are working for retweets, and people on Facebook are working for likes. With Bitcoin, you are working with value. If more people buy into the system, your value does go up. Yes, the incentives are incredibly powerful. TYLER WINKLEVOSS: That happens in all asset classes. Once you become a homeowner, you will never look at real estate the same way. Once you buy your first car, you will never look at a car the same way. It just disciplines your eye. That is what I tell a lot of people, just put a little chips on the table, get into Bitcoin, get into crypto, it will focus you to learn and then you will get it. There is a transformational shift that happens with people. Once they start feeling the pulse, they get in it. It is very positive. For me, that is how I learned. I have to put something at risk, a little bit of skin in the game.
In this case, we put our whole bodies in the game because we started a cryptocurrency exchange and custodian called Gemini, has 330 employees and growing. We are investors in Bitcoin, Ether, and other coins. It all started with buying Bitcoin, but learning about Bitcoin and not writing it off, and really just asking some basic questions that most people cannot seem to do and they are like, oh, it is just a Ponzi scheme, and then they- – RAOUL PAL: Here is the thing. You started investing in 2012, 2013 is a bull market event, it then collapses. That is the first collapse you have had to deal with in this. Then we obviously have the second one. Where did you get to in questioning yourself in your thesis every time you see it during this 90% down cycle, because it is [?] thing to do.
TYLER WINKLEVOSS: Before the 2013 crash, though there was the Cyprus bail-in. The Cyprus government said, we are going to hair cut every bank account over $100,000. If you have a million euros, we are taking 900,000 of it, that is what happened. Took a cut off everyone. That is when Bitcoin really hit the mainstream, at least, of businesses like CNBC Squawk Box. You really could not turn on like Bloomberg or some business network without hearing about it. Because people realize this is the only asset in the world where a government could not do that, or it would be very difficult. When we saw that happen, we knew there was going to be a catalyst. We had built our thesis in 2012. When we saw that happen, we are like, the thesis is playing out. This is exactly how it is supposed to work. That was very invigorating and encouraging, because we are like, yes, the world is starting to get this. Then of course, there has been downturns and crypto winners, but overall, that was super encouraging. I remember where we were at the time. We were in Miami.
I think it was in March of 2013, which is a scene that was captured in this book, Bitcoin Billionaires by Ben Mezrich, which we were portrayed in. It was quite an exciting moment, obviously really sad for the folks of Cyprus, but hopeful because Bitcoin actually existed and this was not that far off of, which you mentioned, the crisis of 2008, which we all lived through, and saw how devastating that was. That happened, and when you have those moments, you are like, okay, we are on to something. This is going to be a thing. Just like the reasoning before, there is like an inevitability about it all, just like there is an inevitability about the internet. I just could not figure out a way how this would not work, and really to shut down Bitcoin is to shut down the internet.
You really have to strip the cables. You basically have to become North Korea. That is such a risky gamble for a government, because you have cut yourself off from the internet. It is not just Bitcoin. It is social network is big tech, which are the greatest economic drivers of at least the US economy right now. Our calculus was that governments are going to have to learn to work with this, because they cannot stop this because stopping it is to stop the internet. RAOUL PAL: Come forward to the next bull market, I went out 2016. Suddenly, there is a bunch of other cryptocurrencies that are coming into the front, and then we are seeing the forks. I got out into that because I did not understand the forks and how this is going to play out. How were you guys thinking about that at the time, because that was a whole different world we will have to deal with then. CAMERON WINKLEVOSS: 2016 and 2017, what was an interesting bull market, but a lot of it was driven by Asian retail and people who thought that you could raise capital through token issuance without going through the traditional regulatory path. That pretty much proved to be false.
It did show the power of the Ethereum network and what could be done with smart contracts, and that ability to program decentralized apps. It showed what was possible in a first MVP. It is like the pets.com of crypto. Of course, it blew up in a big way. Ethereum peaked at 1200 a coin and is now around 600, which feels a little more real, though, it is an undervalued asset. Of course, Bitcoin, rode that wave and benefited a lot too from retail customers understanding really the properties, and for the first time, there is a way to access cryptocurrencies in a mainstream way.
When we were getting involved in 2012, we had to go to Mt. Gox, which stands for magic, the online gathering exchange. It started out as a magic card exchange, and then pivoted into Bitcoin, when Bitcoin was worth pennies, and probably the greatest business pivot ever, except for they ended up famously imploding a few years later with a lot of value because they just got ahead of their skis so to speak. They, all of a sudden, were on top of 95% of Bitcoin volume, trading volume and billions of dollars of value. It was just two people in Tokyo and there is no licensing or any real infrastructure behind it. Anyway, we bought a lot of our first Bitcoin on Mt. Gox. That was a scary proposition. Fast forward to 2017, you could go to places like Gemini, the exchange we have built, basically onboard like you would on to a broker dealer, any brokerage account or open up an online bank, and buy Bitcoin so it is accessible for a lot more people at that time. It brought in a lot of new people into the system.
Fast forward, obviously, the market cooled off, and we are now back at 20,000, or close to $20,000 Bitcoin. It is a much different story with much different facts. One of the biggest facts has been the growing deficit in fiat regimes across the globe, not just in the US. The US is actually on a relative scale, doing okay, comparatively to other countries, but our debt to GDP ratio, I believe, is 135%. We are closing the year out at 135%, which is higher than where we are to. Back then we had full employment, and now, we have record unemployment. It is a different set of facts, and the deficit has been growing every year over the past decade, even though we have technically been out of the financial crisis of 2008 and 2009. That basically ended in 2009 technically. The recovery was we were out of that cycle and on the way up.
Despite a tremendous bull market, where we have had incredible gains in the stock market, not saying the underlying economy and businesses or wages, but the actual stock market, and yet we are spending more than we make, and we are printing money to basically finance some portion of government operations. Add a pandemic on top of that, and people or Wall Street veterans and people who understand how the value is eroding and the specter of inflation are saying, wait a second, this math is starting not to work. This is not manageable. How am I going to protect my value? This time around, people are turning towards Bitcoin. You’ve got Paul Tudor Jones. You’ve got Stan Druckenmiller. You have Michael Saylor of MicroStrategy putting hundreds of millions of his publicly traded company’s Treasury into Bitcoin. They are not going into gold. If this were the 1970s, 1980s, or 1990s, or even 2000s, gold would be the classic hedge and the classic bet. This time around, people are saying, wait a second, there is this new thing.
It is engineered like gold, but it is actually better. It is built for the modern day. That is, we think, going to be the trade of the decade. Even today at $20,000 Bitcoin, we believe that buying in at 20,000 will be the best trade you can make over the next 10 years. RAOUL PAL: I came out of that macro community, so all of those guys are friends of mine, we all grew up in that whole space. One by one, I think Dan Morehead was first, then it was probably– I do not know if you know John Burbank, and then probably Novo, and then one by one, all the macro guys got it.
For the same reason. This is before COVID. The sheer amount of alpha you can generate in this space and the sheer magnitude of the opportunity is enormous. Now in my conversations with people, it is moving from everybody having their own PA accounts to everybody starts getting their funds, and Paul was the first to go, and then Stan as well. We are seeing it literally everywhere. You guys, having the exchange and you built out as an institutional platform to start with, then you have been more involved in retail, but I am guessing you are starting to see some of this institutional flow as well. Are you starting to see these conversations being had? CAMERON WINKLEVOSS: Yes, and we can say anecdotally, that we are having some really interesting conversations from high net worth Wall Street veterans to sovereign wealth funds that are dramatically different today than even eight months ago, or a year ago.
People were getting closer and starting to see the light. I think a lot of these sophisticated investors have been quietly buying Bitcoin. That is what we are hearing. That is what we are seeing. Then of course, some people are being vocal about it. It is a much different crowd than last time. Gemini caters to the entire spectrum, though at times, we have focused on institutional type products and that kind of trust and audits and things like SOC 1, SOC 2, and all those things, because that is really important to the institutional crowd.
That is what they come to expect from a platform. One of the things that was damaged a lot early on in crypto was trust. You have these stories that are headline grabbing, and scare people away, which is really unfortunate, because there would be more people in crypto if the earlier entrepreneurs had done a better job of protecting their customers. That was a big part of our story the first couple years is building the most safe, reliable platform out there that is compliant. RAOUL PAL: Here is a question. Do you think the narrative of not your keys, not your crypto is behind the times? Do you think that is still a Mt. Gox and earlier they narrative? Do you think the space is now actually secure enough to hold your significant balances on exchanges? CAMERON WINKLEVOSS: Not your safe, not your gold, not your server, not your emails. TYLER WINKLEVOSS: Not your servers, not your tweets, Twitter got hacked. RAOUL PAL: That’s right. CAMERON WINKLEVOSS: Right, or you can get deplatformed. We think it is a spectrum. I think, Tyler, you wanted to say something. Go ahead, jump in.
TYLER WINKLEVOSS: I was going to say like, look, there is going to be the tinfoil hat crowd, and the gold bugs who will never be comfortable using or trusting Gemini, but the major exchanges in the space have not had any incidents for years. Ourselves, Gemini, Coinbase, Kraken, we have been incident free, for years. We actually are all holding billions of dollars of value. The space is not only ready, it has also been doing it, and it will continue to do it. The average person is willing to trust Google with their email for the ease of use and the reliability and the simplicity of GMail.
Very few people have the energy and the brain damage and the skill set or want to go through the brain damage to run their own email server. You are going to see the same thing there that with email, and crypto, like pirate radio, there is all these very private secure ends of the spectrum that never get mainstream adoption. That does not mean that the other end is less secure, it is just it requires a little bit of trust in us.
CAMERON WINKLEVOSS: Nobody uses PGP. It is just too annoying. We use it but obviously, the average person, it just really never had– TYLER WINKLEVOSS: We use it depending on how sensitive the information is. CAMERON WINKLEVOSS: Exactly. It is not a one size fits all. It is what are you doing, and what are you trying to– if you are trying to transport passwords or secret keys, obviously, you are going to encrypt it. The challenge has always been the experience and the ease of use. That is why we think that 95% of people or the vast majority of people are going to use simple, easy, reliable platforms like Gemini to get into crypto. Maybe they will get in. Look, I got into AOL, I got into the onto the internet with the AOL CDROM. They onboarded millions of people around the world. I still do not have an AOL email address. Some people do, they never left the AOL garden or experience, and that is okay. TYLER WINKLEVOSS: The two issues with trusting Gemini let us say are, are we going to run away with your Bitcoin? I think that answers pretty much– it is no, but other people think it is no, too. We are regulated by the New York State Department of Financial Services, you know who we are.
We are just not going to run away with your Bitcoin. It just does not make any sense for us to do that. The second question is, okay, are we securing your Bitcoin as well as you could secure it yourself? The answers are probably yes. Very much yes for almost 99.9% and I do not think anyone can secure your Bitcoin better than the way we do it. You are either matching Gemini or you are below it, because we have the best security experts in the world, and our cold storage system has been engineered with hardware security modules. It is distributed.
It is multi-sig, it is geographically distributed, multiple custodians. I do not think there is any company or individual in the world who has engineered a better cold storage security system than us. It is one of those things that like, you want to leave that to the experts, and most people are not experts, and they are more likely to lose their password, get it stolen by the person who is coming in to fix the sink. All those stories you hear, the person, the laptop in the garbage dump, and they are digging it out, and stuff. It is a very hard problem. We spent years and much money and many experts solving it. The chances are that someone else is going to solve it better than us are very low.
Then your only question is, can you trust us not to run away with it, and the answer is, yes. That is why the Geminis, and the Coinbases, that is why 99% of the world will rather use those than try to do it themselves, because it is more likely that you will screw it up. Look, these are the same people who say, oh, not your keys, not your Bitcoin. Most people get into a cab, and do not even put a belt on. It is just like, what? Physics does not work in a cab? I have heard this argument like, oh, only in the front seat, I wear a belt.
Wait, okay, so physics stops working in the backseat. RAOUL PAL: People misprice risk all the time, humans are [?]. TYLER WINKLEVOSS: This is the best one. During COVID, you see people on city bikes with a COVID mask and no helmet. It is like, nothing to protect my brain up here but I just want to protect my lungs from COVID when– and they are young people, and they are like low risk people. They are totally screwing it up. That is a long-winded way of saying that overall, people will choose to use companies like Gemini to custody. RAOUL PAL: Where are you going with Gemini? What is your grand vision here? Where do you want to go with it? TYLER WINKLEVOSS: We are global. We are in many, many countries. There is a list on our website, but US, Canada, UK, Europe, Singapore, Hong Kong, Australia, so most of the world, and I am leaving out some countries, but it is there. Right now, it is buy, sell, store crypto, but we want to increase those money verbs to earn to spend, earn, all these other behaviors that you do.
We started off and we very much were a fiat on ramp into the crypto universe. If you have cash in your bank, and your value is there, you want to put your value in cryptocurrency get onto the blockchain, you open up a Gemini account, because you can link your fiat bank and we are a fiat on-ramp into that world. Right now, the world still maturing. The crypto universe where people still do most of their banking, most of their finance activity outside of crypto, but we want to keep people, we want to get people over the bridge and stay there so they can actually never leave the crypto universe. The mainland is legacy finance, crypto is an island but we want to see that inversion where crypto becomes the mainland and legacy finance is just this dinosaur that is like slowly fading away.
RAOUL PAL: It is layering on financial services layer to the existing store of money layer is the next phase. You said transfer of money in and out, that is the first thing. Storing is the next, and then there is all the other things we do with money such as– TYLER WINKLEVOSS: Yes. Like okay, you can buy, sell Bitcoin, you can store your Bitcoin, your ether, but generally speaking, your equities activities happen outside of crypto. Also, could you trade a share of Apple? Basically, Gemini is a one-stop shop in all assets.
Bitcoin is gold on the blockchain, ether is like digital oil, but every asset in the future is going to be on a blockchain. Equities we are already seeing this with non-fungible tokens, digital art, and collectibles. We have a platform for that called Nifty Gateway. All these things that are assets like the comic books you grew up reading, the baseball cards you collected, those are now being put on a blockchain because everybody realizes, or people are starting to realize the physical nature of it is actually not a feature, it is a bug. It is not about the physical nature of it. It is the scarcity. It is the uniqueness. All of these assets are going to move on to blockchains, and Gemini is your one-stop platform to do whatever it is you want to do, whether it is you want to issue, sell, turn.
RAOUL PAL: How far away are we from the tokenization of everything from IP rights to social media styles through to physical property? How far are we from it? We know it is coming, but it feels like it is a heavy slog to make much progress. CAMERON WINKLEVOSS: That is a good question. Yes, it does feel like a bit of a slog, and that there is going to be other things like DeFi which is decentralized finance, which is all these financial services being rebuilt permissionless on the Ethereum blockchain, so you can go post-collateral and borrow or lend or trade in these decentralized exchanges. That has been exploding over the past six or so months. RAOUL PAL: And imploding as well. It is doing the classic early phase– CAMERON WINKLEVOSS: Exactly. It fits and starts a little bit, and some projects are taking off and others not doing so well. It is this Cambrian explosion of new ideas and financial services reimagined in a permissionless fashion. That is really exciting to see, that unbundling and attacking a lot of these centralized things that exists in the legacy financial world. In terms of artists’ rights, for example, I am not really sure.
There is probably good headway made in the next decade, I am not sure exactly where it comes from. If you have seen that movie, Searching for Sugarman, the way they found him is they followed the money. They are like, where are all these royalty checks going? They tracked it to some PO Box in Detroit somewhere, and they were able to locate him that way.
When you look at people, if you have ever done like a commercial or something, and you get a royalty, and sometimes the royalty is like less than the postage of the stamp, they send you and you are like, pull out a check, and you are like, it is 20 cents. It costs more to put this together. That is so bad. CAMERON WINKLEVOSS: We actually got a couple of those from our cameo on Silicon Valley, we get something like $1, $1.23.
RAOUL PAL: And you will find all the middlemen have taken all the middle. You could have had $3, but we are staking all of that. TYLER WINKLEVOSS: Totally. No, maybe it was a million? I do not know. RAOUL PAL: Exactly. CAMERON WINKLEVOSS: Yes, we have no way to verify that. That is really how money and checks and all that stuff has been working for a long, long time. That obviously all goes on to a blockchain of some sort and gets digitized. I am not sure there is a ton of motivation from within the current system. That is the irony. Who solved, music was broken, who solved it? Silicon Valley. Movies were broken, who solved it? Silicon Valley, Netflix. It usually comes from the outside, because the insiders are just not incentivized to change anything. You see this with the most recent election. People are worried about, oh machines, fraud, all this stuff.
Who is changing it? Nobody is actually incentivized to change it. Once you are in power, you just accept the status quo, because it is generally better for you than the challenger. We could have changed our voting systems for decades. Of course, we have not, and there probably will not be much movement on that front for a long time. Regardless of whether or not there is fraud, the system, the fact that it is a mail-in a ballot system seems a little bit broken. TYLER WINKLEVOSS: Mail-in 2020. CAMERON WINKLEVOSS: Yes, and we have not really solved the identity problem, a mail-in ballot. You draw your signature. Some human is looking at your signature versus what is on file, how does that work.
RAOUL PAL: That is extraordinary. Because India solved this with its Aadhaar system, which is fingerprint or retina scans. Look, that is not distributed, but digital KYC and digital identities, and that has to come as well. Because even in this world of social media, it is desperately needed now that people have some verifiable entity, who they are. Because trust is important for them. We talked about trust before, but trust is breaking out all over the place because of these new systems.
CAMERON WINKLEVOSS: Yes, and I think that there will naturally be probably some resistance in the US to things like retina and all that stuff. India did it in one fell swoop overnight, like literally you have no choice, gun to your head, you better sign up or you are not going to get paid. In the US, there is a lot of people who would be against that.
Looking at things with the vaccine rollout or the discussion around that, many people like do not trust it and will not do it. That is one of the challenges to distribution is actually getting people to take it. Not trying to go down into that area but it is an example of how one of the challenges– we will keep it out of there for now. TYLER WINKLEVOSS: Going back to the conversion conversation, we deal with this in Nifty Gateway, too. We are not trying to convert the boomer art collectors, like the 75-year-olds who collect paintings and who buy paintings from Chelsea galleries.
This is our collection for the next generation. CAMERON WINKLEVOSS: Tyler, sorry. Can you explain what Nifty Gateway is? For people who do not understand. TYLER WINKLEVOSS: Sure. It is a platform to buy, sell and store non-fungible tokens. The acronym is NFT, or you can say Nifties for slang. Basically, they are one of a kind assets that represent art, digital art, or collectibles to get picture. Then artists can go on Nifty Gateway, and create one piece of work, maybe for 10 additions, or like two of two. It is all enforced by– the scarcity is enforced by the blockchain. If you think about like Instagram, you go on Instagram, you click liking a picture. What if each picture on an artist’s profile was an asset, and there could be five of them, or 10 of them? Instead of clicking and liking, you could actually purchase, and it was a supply and demand market.
You own one of five of these in the world. There will never be more than five. You could authenticate in the blockchain it was created by this artist. It is like putting money, economic supply, and demand on top of Instagram. RAOUL PAL: We have seen it in the gaming world, with skins. TYLER WINKLEVOSS: Totally. RAOUL PAL: Digital assets have valued. I did not grow up in an era where it did. Most of us did not, but the Gen Z only know that world.
We think buying a shirt from a fancy place or expensive watch is our value statements and our status symbol. They do not mind whether it is digital or real. TYLER WINKLEVOSS: No, they buy a dance in Fortnite, they go to raves inside Fortnite. The only problem with buying and collecting those digital assets is you are trusting the publisher. If Epic Games goes out of business, or prints more of the battle axes, and all of a sudden, yours is not that scarce. Whereas with Nifty Gateway, we put that all onto the blockchain. The scarcity, the additions of what the artist is doing is enforced by the math cryptography of the blockchain, the same stuff that enforces that there is only going to be 21 million Bitcoin.
You could actually buy a Nifty and people have bought them, NFTs are worth $65,000, or even more, because the scarcity being enforced, the authenticity, all the forgery problems in the traditional art world are gone. Our audience, it is a range, but it is like a different type of art media. It is a different type of collector, and we are not relying on converting the existing art world, we are building a new one. RAOUL PAL: Do you think that is going to just remain as art or do you think you are going to end up with all sorts of NFTs on this? TYLER WINKLEVOSS: Well, you can do different things. We have DJs creating art that is 3D moving picture with a soundtrack.
CAMERON WINKLEVOSS: Like an album cover. Instead of– TYLER WINKLEVOSS: And you are only one of the few people in the world that own this music video. You can box digital assets. Digital art has been around forever, but how do you package it? How do you buy it? How does an artist create like a digital art and sell it or make it scarce? RAOUL PAL: What does somebody like Getty not put all the Getty Images on a blockchain? Because they have a problem with IP rights, and it solves huge amounts of their problems. They bought all of the digital rights to everything and then distribute it.
I can say it beyond just an artist but just anything with digital rights is a huge problem in the current internet world, and blockchain solves a lot of them. TYLER WINKLEVOSS: They totally should. What I found is that that is very much like a generational thing. I never meet someone who is under 25 who is a skeptic of Bitcoin or cryptocurrencies. They grew up digitally native. They grew up more online than they did offline. More of their life, the things that are important to them, their social tribe is on social media. It is about getting likes, it is online. They rarely go offline. You meet someone over like 55 and chances are, they are a skeptic of Bitcoin, because the mind loses some plasticity, you build these skills, you become a banker, a partner at a bank, and all of a sudden, this thing is going to disrupt it, and this mountain that you climbed, you’ve got to come down and climb the wall. RAOUL PAL: Also, you have an inherent need for the status quo to continue the more you are invested in it.
You have an investment that is 20 years old. TYLER WINKLEVOSS: You should up your game. You still had to make money, you are on top of the hill, like, this is a great game, let us keep it going. You are Gen Z, you have nothing to lose. You did not spend 25 years building an asset, building a skill set, building a core competency, that now you have to disrupt to stay relevant. It is a blank slate. When someone says Bitcoin, you say, cool, what is that? That is new. If you are entrenched, it is innovator’s dilemma. It is why these companies end up stop innovating. They just protect the franchise, and they die a slower or very fast death. It is the same thing with cryptocurrencies. We do not have to convert the boomers, although, I say a lot of the boomers get it, especially the really sophisticated ones who understand what is happening at the Fed, who pay attention to the money printing, to the deficit spending.
The US has only run a budget surplus four times in the last 50 years. Ross Perot, the independent candidate in 1992, he ran on balancing the budget. He was slamming the panic button and be like, this is crazy, that was 1992. Before all the printing that happened after, it was before the printing in the crisis, the TARP, and it was before the printing in the last decade, and it was before this. That was like 30 years ago, he was getting traction, because he was worried about what was happening to the US dollar. It is getting to a point now where, how do you get off this track? Both parties, there is no hard money party anymore. It is not like the Republicans, the Democrats are not the same thing when it comes to printing, running debts, and financing government operations.
The question is, how does this end? At some point, the math becomes so impossible. I do not know who said compound interest is the eighth wonder of the world. RAOUL PAL: I think it was Albert Einstein. TYLER WINKLEVOSS: Albert Einstein or Warren Buffett, maybe it was Gandhi, I do not know. Basically, you want things compounding for you, your wealth growing overnight, and compounding, but you do not want your debt obligations compounding against you. That is obviously what is happening and the ability for us to actually service our debt is just going to be impossible, not believable. The math just will not work out, and these fiat currency regimes will collapse. I hope they do not, but who is going to get us off this path that we have been on? RAOUL PAL: That leads me to the next bit, Central Bank Digital Currencies. They are clearly coming.
They are all, the ECB, the BOJ, the IMF, the BIS, the Bank of England. Everybody is saying it is coming. That is going to be another gamechanger. It is also a gamechanger, because even today, you just saw the G7 are like, wow, you can tell that they really do not like stablecoins. What is your whole thing about how this is going to emerge? Because the stablecoins, cryptocurrencies, and central banks all in the same space, can they all coexist? CAMERON WINKLEVOSS: Well, the Central Bank is showing their own currency digitally. That is just like a different factor of fiat, so I do not think that solves the underlying– RAOUL PAL: It is all fiats’ problem, but it will change. If we talk about the actual change, here is another thing that can change the system for a while longer, and so fiat does not– CAMERON WINKLEVOSS: It is interesting that we would be moving off like physical printing presses to a blockchain or node like system. I think that does benefit the entire space, but it still takes me back to the fiat problem. I think the reason why central banks do not like stablecoins in the current iteration is because they are issued by private companies. One of the companies that wants to issue one is one of the largest companies in the world, Facebook.
RAOUL PAL: It is the largest network in the world. CAMERON WINKLEVOSS: Exactly. It is a massive project with massive scale, or potential scale. Money has been the domain of governments for a long, long time. They do not want to cede that control. That is where a lot of that Fudd around stablecoins is coming from. Tyler, you have done a little more thinking on this area. TLYER WINKLEVOSS: Well, it is bankers have been the protectors of the currency. They are the distribution pipes when the government wants to get it out. All of a sudden, Facebook or private tech companies will become the issuers of these stablecoins, and they will really be the protectors of the currency.
I think it is more coming from bankers who do not want to lose their post position on when the Fed prints money, or whatever, it comes to us, and you got to come to us. Bankers are like the miners of fiat currency. They perform a service, they get paid. RAOUL PAL: The Central Bank Digital Currencies might clear out the banks anyway. TYLER WINKLEVOSS: Totally. I am not sure, I have not paid too close attention whether the banks like that, but yes, why would not every US citizen have a bank account with the Fed? RAOUL PAL: Why not? Yes. As long as you’ve got a FinTech layer on top, then we can get all the services like Gemini, I can use all my stuff, I can mingle it around on-ramp and off-ramp. Why do we need a bank? CAMERON WINKLEVOSS: That is a great question.
TYLER WINKLEVOSS: Was not there a huge issue of even getting people in the US like their check, their stimulus checks? Email. CAMERON WINKLEVOSS: It is actually hard to do helicopter money. TYLER WINKLEVOSS: I cannot believe we are talking about snail mail to get people money, or to cast votes in 2020. It is really embarrassing. We have even [?] invented, we have cryptography, we have all the building blocks to get people their money, help them to cast their votes by sending an email, and we just cannot get our act together to do it. RAOUL PAL: We cannot even do helicopter money. My thought process is this entire thing is going to change and integrate fiscal and monetary policy together.
Now, that still accelerates the endgame, which is you are giving an unlimited check, but what you’ve got is actually pretty powerful. Because you can create stimulus, you can create behavioral incentives with Central Bank money now, because I can give you a negative interest rate because you are a saver, while I can give somebody else a positive interest rate, because they are students. I can also give you a stimulus because you own a restaurant, but you have to spend it in these places. It could all be programmed now. I was listening to Benoît Cœuré from the ECB and now the BIS, they are clearly going to go down this path where you’ve got programmable money.
It is fascinating because macro policy changes forever, fiscal and monetary all merges. TYLER WINKLEVOSS: That sounds great. I read this article a long time ago, Self-driving Money, and it said a lot of this stuff. We could actually know the supply of M1, M2 down to a penny. We know everything. The Fed can pull the levers, like you say dual interest rates help certain sectors, certain people. It would be just so much more scientific, and advanced and data-driven. RAOUL PAL: Yes, you can use big data, you can use behavioral sciences, and you can create all sorts of incentive based systems because then you’ve got a purely incentive basis the way you can [?]. This is governments we are talking about, and they are going to fuck it up for everybody by becoming China because they cannot help it, because they want power. TYLER WINKLEVOSS: It probably would bring some transparency to– What is that? RAOUL PAL: Like TARP where there is wall of money just goes to all of these people, you cannot do that with a Central Bank Digital Currency because it is all trackable. TYLER WINKLEVOSS: How do these conversations go behind the curtain? It is like the Wizard of Oz. The Fed, it is a mystery, and there is no clarity on how the decision is made.
It is just like wave the magic wand, Powell says this, or that. It is insanity. You would never invent money, and have it look the way it works in the US. Let us put 12 people behind a curtain and have them pull everything and I got it. We will distribute it to this elite class of bankers, and that will go well. No wonder the bankers always end up on their feet when there is an issue or whatever. More transparency, more scientific data analysis behind this, that is all great, but I love the fact that Bitcoin is not coming from a government. I love the competition aspect of it. Then people can just get a Chinese menu of choices and be like, I trust Gemini stable coin, because I know the twins or I saw them on this podcast, or I am going to go buy DAI or use DAI because it is algorithmic. Bitcoin is non-government, it is just digital gold, and the US are pretty privileged that we have a pretty good fiat currency, but Zimbabwe, Venezuela, Argentina, it is so sad. The wealth that gets just destroyed with inflation and defaulted currencies. They take ferries over to Uruguay to get dollars, you buy motorbikes, you buy bricks, you do all these crazy things, because you cannot trust the currency, it is all these capital controls.
These people need options. The governments need to stop having monopolies because as the famous folk goes, power corrupts, absolute power corrupts absolutely. CAMERON WINKLEVOSS: That is a good– just reminds me on the point you are asking about what is next for Gemini. One of the areas, one of the things is we are in most of the developed world but at some point, I would really love to get down into the developing world, where crypto is really needed in a big way, whether it is hyperinflation, or there is just not an infrastructure or a system there.
There is a billion plus people unbanked in the world and many unbanked people, and this technology can solve for that problem better than any that we have seen to date. That is the longer game, is trying to get into those areas that really need it. Because I do not think Bitcoin, people are not clamoring– now, people see the light in the US, but it is not the necessarily the most pressing priority for some individuals, as it is, in say, Venezuela or other hyperinflation environments. RAOUL PAL: I was introduced to a family office in– where are they now? They are probably Mexico City, they are a Latin-American family. These guys were mining Bitcoin in Venezuela for zero cost up until the government shut them down. These guys were very involved in the space, and basically setting up a multifamily office for these big Latin-American families, which is about 10 trillion of wealth down there. All of these guys have to have dollars and they cannot get them half the time, because they are getting cut off from here, or you either got currency restrictions, or you’ve got an imploding currency, it is very hard to get your money out. These guys are building a multifamily office, because everybody is understanding Bitcoin very quickly, and how useful it is.
These guys used to be dollars and gold. They are thinking, wow, okay, Bitcoin really solves a lot problems, because they do not have this dollar shortage issue of trying to buy dollars. You just buy bitcoin, and you do not have the same issue. I think all of these guys, whether it is in– if you look at the exchange volumes, it is Venezuela, it is Colombia, even South Africans are huge users of this because they’ve got the inherent problems of currency controls and weakening currencies. TYLER WINKLEVOSS: Yes, even look at the central banks are stocking up on gold. They say everything is fine. QE infinity, no big deal.
This is normal. Do not really listen to what they say, look at what they do and how they act. They are stocking up on gold because they understand what they are doing. They understand the problem they are creating with the money printing. One day, not too far from now, that is going to be central banks stocking up on Bitcoin, just like Michael Saylor and MicroStrategy. Just like Jack Dorsey and Square, every company, multinational or whatever, public-traded, every large company is going to need their Treasury invested in Bitcoin. It will be irresponsible not to. Central banks are going to do the same thing. Sovereign wealth funds. When you look at the fact that only two companies that we know are publicly traded and we would know because they have to disclose this if there was more, out of all the companies out there, it is so early if every Fortune 500 or 1000 company does what these two just did.
A tremendous amount of wealth comes into this space because Bitcoin and crypto has primarily been a retail phenomenon thus far. It has really been driven by people’s personal accounts, not really their hedge fund money, their LP money, but really their personal money. That started to change as we mentioned before with legendary investors like Paul Tudor Jones, Stan Druckenmiller, and now, we have companies that are doing this. The dominoes are starting to fall, and eventually, it is going to be a central bank, and some very smart companies may take– a country is going to take a huge position in Bitcoin and talk about it. RAOUL PAL: Game theory suggests that if it is the hardest form of money, one of these countries is going to have a change of government, is going to say we are going to solve the problems, and we are going to buy bitcoin as part of our reserves. TYLER WINKLEVOSS: I tweeted about this. I said, the trade of the century is still out there for a couple of people, a couple of hedge fund managers.
It will be as great as the Soros breaking the pound trade. A couple people take $100 million position in Bitcoin hedge fund managers and go talk about it, whether it is a Bill Ackman, Ray Dalio, or anyone who’s got a fund. Our thesis is that Bitcoin 30X-es from here because it is digital gold, it disrupts gold. Bitcoins market cap is 300 billion. 300 billion, gold is 9 trillion, the above ground gold is 9 trillion. If Bitcoin’s market cap is 9 trillion, then each Bitcoin will be worth $500,000.
$100 million trade in Bitcoin right now for a hedge fund will turn into $3 billion. RAOUL PAL: I have not ever seen a risk reward like it in my entire career, and I have been doing this 30 years. TYLER WINKLEVOSS: That is why it is so crazy that it has not happened yet. Maybe it is happening, and we just have not heard of it. That is why Michael Saylor just bought 50 more million Bitcoin. People say, oh, is 19 too high? Well, it is not too late.
Look at what Michael Saylor just did. He took $50 million in Bitcoin position, because he obviously thinks that is going up. CAMERON WINKLEVOSS: There is a psychological barrier around 19,000, 20,000, and people are a little scared of it for some reason. They think it looks expensive. Our viewpoint, of course, is that look, if you bought into Amazon in 2014, it might look expensive compared to where it was in 2000. Still an amazing trade, it is probably up what? Five, six times from there? That is a tremendous trade. It is probably doubling every, every year. We think there is a 25x, 30x from here on the conservative bull case if Bitcoin were to dethrone gold, but we think it actually has greater promise than that because a lot of people cannot really get access to gold, if you think about it, whereas really anybody with an internet connection gets access to Bitcoin, and there is more smart devices on the planet than people. Yes, the access will be there for digital gold. Super, super exciting, but interesting to see the emotions and the irrational aspects of the market sometimes.
My feeling is if we preach the 20,000, when we breached the $20,000 barrier, it is all bets are off, and things start running in a pretty exciting way. TYLER WINKLEVOSS: Like the four-minute mile, as soon as Roger Bannister broke it the next week, and then kept– like it became, oh, yes, four minutes is not that big of a deal. Look, the game theory is that you do not want to be the last one into Bitcoin. Two publicly-traded companies have done it. A couple of hedge fund managers have talked about it. It is really early, but you do not want to be the last manager in. RAOUL PAL: Somebody gave me a great tip.
Now, we are humans. Humans are pretty stupid. We anchor ourselves in certain things. You’ve got a chart on the screen, which we all look at, it is a Bitcoin chart. The all-time high is 20,000. We look at that, and that is what we anchor ourselves on. The little trick is change the scale on your chart and squish it down to the bottom. What happens is you immediately think, oh, it has only just started its move. It is the same chart. It is behavioral anchoring. That is what I urge everybody to do, who is like thinking, oh, it is expensive, behaviorally anchoring the chart. The other thing I do is use regression lines and you can use it on the log chart. Suddenly it gives you just a pretty simple understanding where price moves and how it moves, and it just moves on to meet carcinomas itself.
CAMERON WINKLEVOSS: It is so thematically, if you just do something simple like regression analysis and plot that line, you are like, oh, okay I see where it is going. Yes, there is peaks and valleys, but we always say, if you are taking a Bitcoin position, prepare to hold it for five or 10 years. Do not get in if that is not your time horizon, just forget it. The same is true with gold. Who wants to trade around gold? That is not the trade here, but if you can hold this thing– and I think the same is true for ether for five to 10 years, then $19,000, $20,000 entry point is going to be very high an entry point.
It is so interesting how as humans, we have these anchoring and biases and things like that. TYLER WINKLEVOSS: The other big one is a lot of people are like wait, I want to own one whole Bitcoin and they do not realize, A, that they can own a fraction of a Bitcoin but there is like a mental block or a psychological– RAOUL PAL: Because again, the anchoring bias is gold coin, banknote, physical things. The anchoring bias we have is that is all you can own. TYLER WINKLEVOSS: That is all you can own, or my ego says I need to own a whole one.
I have heard that from young people as well. There was a movement early on in Bitcoin to move at a decimal point, the micro Bitcoin. That never really took off. I guess if Gemini and Coinbase, and all of us said, hey, let us make Bitcoin 2000– RAOUL PAL: Bitcoin share splits. Is that what you are talking about? TYLER WINKLEVOSS: Or just change our UI, but no. It is like you have 200 of this, or it costs $200 or something. CAMERON WINKLEVOSS: Yes, it is. They split companies for that purpose. Here is an interesting fact. There is something like 40 million plus millionaires on the planet. There is of course only 21 million Bitcoin. There is not enough whole Bitcoin, not that you have to buy a whole for millionaires on the planet. To Tyler’s earlier point, you do not want to be the last one in and there is going to be millions of millionaires that will never own a full Bitcoin. RAOUL PAL: I love that. It is empowering. I have always said to people, just to finish off, I have always said to people, this is the biggest legal frontrunning opportunity I have seen in my entire life.
Because we know the institutions have to come in, the more the market cap goes up, the more the institutions have to come in. It is a ridiculous reflexive loop. When you’ve got the best performing asset class on Earth, that is market cap is now becoming investable by institutions, it drags in institutions, which brings the market cap up which drags in institutions, that cycle is to play out, has even started. CAMERON WINKLEVOSS: A lot of people do not understand that aspect that for some institutions to invest in an asset class like Bitcoin, it has to have a certain size. Because they are only writing a check of $50 million or $100 million per investment.
Like if Bridgewater, I think one of the largest macro hedge funds in the world says, hey, we want to put a Bitcoin trade on, they are not going to be buying millions of dollars, they are going to be buying a billion plus dollars. If they look at the market, and the economic bandwidth, or liquidity is only $100 million, they might say, well, if we buy 1%, we are just going to own too much of this thing. Let us just wait for it to get more expensive counter-intuitively, and then we can go in. We are getting to that threshold where institutions can actually get in based on their rule set or bylaws or whatever it is. There is those institutions who really want to get in and wanted to get in at 100 billion, and they cannot convince their management. RAOUL PAL: The whole space is short upside call options. It is a really complicated thing. Now, the price rises, everybody has to buy back those call options, because as the price rises, they have to get in, it is going to be a true experience.
TYLER WINKLEVOSS: We were having conversations a couple years ago with institutions, and they are like, it is just not expensive enough for us right now. As your point and at some point, they will see like 100,000 Bitcoin, they are like, okay, we are going to [?] within that, and it goes even higher. It has not even started. We are just seeing institutional, sophisticated people start to trickle in, but the biggest money is still on the sidelines, but it is coming.
It is so inevitable. It has been from my point of view, since I started looking at this eight years ago, like, Bitcoin was always going to happen. It just we did not have the computer science breakthroughs to make it possible. It was always going to happen, and it is going to happen. It is happening. RAOUL PAL: Guys, thank you so much for your time. Really enjoyable conversation. Hopefully, we can give people something to think about as well.
TYLER WINKLEVOSS: Yes. CAMERON WINKLEVOSS: Thank you so much. RAOUL PAL: Take care. CAMERON WINKLEVOSS: Awesome. See you. NICK CORREA: Thank you for watching this interview. This is just a taste of what we do at Real Vision. To learn more about the complex world of finance, business, and the global economy, click on the membership link in the description. Give us 7 days to change your life. This will be the best dollar you’d ever invest..
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