Podcast Summary
Mark Yusko discusses the role of central banks and the current state of markets: Mark Yusko, a traditional finance expert, criticizes the markets for being a Ponzi game and expresses skepticism towards Ethereum as 'money', but acknowledges its potential and offers timeless investment advice for crypto newcomers.
Mark Yusko, a seasoned investor with a background in traditional finance and a growing interest in crypto, shared his perspective on the current state of the macro world and the role of central banks, particularly the Federal Reserve. He criticized the existing markets for becoming a Ponzi game and expressed strong opinions against the Federal Reserve's influence. When it comes to crypto, Mark is still exploring the space and holds a more skeptical view on Ethereum being considered "money," but he acknowledges its potential and sees similarities between his crypto investments and Ethereum's characteristics. Lastly, Mark offered timeless investment concepts for new crypto natives, making this conversation a valuable listen for anyone interested in understanding the intersection of traditional finance and crypto. The episode was sponsored by Aave and Balancer, two DeFi platforms that offer unique features to maximize yield and liquidity.
Balancer's New Features: Yield Generation and Gas Fee Reimbursement: Balancer v2 introduces yield generation for idle tokens, maintaining pool liquidity, and gas fee reimbursement through Bao Rewards. Crypto can serve as a wealth creation opportunity despite traditional markets' apparent growth being an illusion due to money printing and currency devaluation.
The DeFi platform Balancer has introduced new features in version 2, allowing idle tokens to generate yield without sacrificing pool liquidity and reimbursing gas fees with Bao Rewards. Mark Yusko, the founder and CIO of Morgan Creek Capital, discussed the role of crypto as a wealth creation opportunity for the new generation, emphasizing the importance of understanding the macroeconomic landscape. He highlighted that the apparent stock market growth may be an illusion due to money printing and the devaluation of traditional currencies. The conversation underscored the significance of being aware of the reference currency and the ongoing execution of the macroeconomic plan that could impact both traditional and crypto markets.
A century-long plan to transfer wealth from the average citizen to the top 1%: The economic system was deliberately designed to transfer wealth from the average person to the top 1% and banking institutions through inflation
The current economic system, which has been in place since 1913, was not an accident but a deliberate plan hatched by powerful figures like J.P. Morgan, John D. Rockefeller, and Amory Aldrich. This plan, which involved the use of fiat currency and the gradual devaluation of traditional currencies, has led to increasing income and wealth inequality. The COVID-19 pandemic served as an accelerant to this process, with 39% of all dollars ever printed being produced in the last 12 months. This system's ultimate goal is to transfer wealth from the average citizen to the top 1% and banking institutions through inflation, which can be seen as a hidden tax. The release of Bitcoin in 2008, during the depths of the financial crisis, was no coincidence and can be seen as a countermeasure to this fiat currency system. This intentional plan has been unfolding for over a century and continues to shape the economic landscape today.
From Bartering to Central Banks: The invention of central banking systems revolutionized the handling and exchange of value, but their control by private entities perpetuates inflation and justifies bailouts.
The evolution of money and banking systems has significantly impacted the way we handle and exchange value. From bartering to the creation of coins, the need for a trusted third party led to the invention of paper money and eventually, banks. The Rothschilds' central banking model proved effective, leading other countries to follow suit. However, the lack of a central bank during the late 1800s resulted in chaos. J.P. Morgan's actions saved the banking system, paving the way for the creation of trusts and eventually, the Aldrich Plan, which led to the establishment of the Federal Reserve. Despite its name, the Federal Reserve is not federal and has no reserves, and it operates to enrich the banks. This system perpetuates inflation and justifies bailing out banks during financial crises.
Inflation impacts the less fortunate disproportionately: Inflation functions as a hidden tax, disproportionately affecting those on fixed incomes, minimum wage earners, and retirees, while benefiting the wealthy.
Inflation functions as a wealth tax, disproportionately impacting those with fixed incomes, minimum wage earners, and retirees with bonds, while benefiting the wealthy. The ongoing trend of income and wealth inequality is a result of this dynamic, and the notion of inflation being beneficial is a misconception. The crypto and DeFi movement, on the other hand, aims to create money by the people for the people, eliminating the need for banks in the process. Central banks, such as the Federal Reserve, have historically stepped in during times of financial instability, but their actions can contribute to rampant inflation and money printing, ultimately leading to economic crises. The next move for central banks is expected to involve more money printing, and the future decade may require preparation for the consequences of this era of monetary policy. The historical precedent of empires and their reserve currencies ending in eras of inflation and cronyism underscores the importance of understanding this dynamic.
The New Battleground for Global Supremacy: Technology: China's focus on AI, 5G, and digital currencies positions it to lead the technological race, while US regulatory obstacles and resistance to change put it at risk of falling behind.
The global power dynamic is shifting from military dominance to technological superiority, with China aiming to lead in areas like AI, 5G, and digital currencies. The United States, once a dominant force, risks falling behind due to regulatory obstacles and an unwillingness to adapt. This technological race is the new battleground for global supremacy, and China's 30-year plan to become a global superpower underscores this intent. The next war may not be fought with ships, but with cyber and digital prowess. The US, with its legacy systems and resistance to change, risks losing its grip on power. The American empire's belief in its own supremacy, particularly in the realm of crypto, is misplaced as the US trails China in this critical area. The US's attempt to regulate and ban digital currencies risks pushing innovation elsewhere, while China embraces the future. The infighting between political parties in the US is often driven by media narratives, but the desire for anti-corruption remains a unifying force among the American people. Ultimately, the future belongs to those who can adapt and innovate, and China's strategic focus on technological advancements positions it well for the future.
Politics and Power: Compromises and Currencies: Politicians may make compromises for power, leaders prioritize wealth over citizens, and cryptocurrencies could serve as a hedge against currency devaluation. Many feel something is wrong with current systems, reflected in popular culture.
Politics and power often involve making compromises and taking actions that may not align with one's true beliefs or values, in order to gain or maintain access to power and wealth. This was discussed using examples of political figures like Ronald Reagan and Donald Trump, who changed parties to get elected, and current world leaders who prioritize preserving their own wealth and power over the well-being of their citizens. The discussion also touched on the concept of currency devaluation and the potential for cryptocurrencies like Bitcoin to serve as a hedge against this. The speaker also mentioned the idea of a "dictator playbook," where leaders enrich themselves and their cronies at the expense of the general population. The conversation also touched on the idea that many people have a sense that something is wrong with the current political and economic systems, but may not fully understand the extent of the issues. The speaker suggested that the popularity of shows like "Stranger Things" reflects a cultural awareness of these issues, even if the specifics are not fully grasped.
Perception of New Technologies: Older generations may view new technologies skeptically, while younger generations embrace them. This divide is seen in various industries and influenced by the internet and social media. Fear and uncertainty surrounding new technologies, known as FUD, is not new and has been present throughout history.
The way people perceive and interact with information has significantly changed due to technological advancements. Older generations may view new technologies as threats or unfamiliar, while younger generations embrace them. This divide can be seen in various industries, such as finance, where older generations may dismiss cryptocurrencies like Bitcoin as risky or even fraudulent, while younger generations have adopted them. This shift in perception is influenced by the immediacy and accessibility of information provided by the internet and social media. The fear and uncertainty surrounding new technologies, known as FUD, has been present throughout history, from the resistance to horse-drawn carriages to the rise of aviation. As technology continues to evolve, it's essential to recognize and adapt to these changes to remain relevant and informed.
A new financial era driven by innovation and young people: The digital age, with cryptocurrencies like Bitcoin, offers a wealth creation opportunity, financial inclusion, and a shift towards a more open and less controlled financial system.
The current digital age, specifically the emergence of money over Internet Protocol, represents the greatest wealth creation opportunity of this century. Innovation driven by young people and their experimentation with new technologies is what fuels this wealth creation. Bitcoin and other cryptocurrencies are part of this shift towards a more open, less controlled financial system, moving away from the Ponzi finance of traditional banking. This transition has the potential to provide financial services to the 40% of the world's population without bank accounts, creating a more equal and democratic society. While there are risks and challenges, such as the potential for market speculation and gambling, the overall trend is towards a more open and less indebted financial system. The speaker encourages staying informed and involved to reap the benefits of this technological evolution.
Understanding the Role of TradFi and DeFi in the Financial Landscape: TradFi provides structure and replaces some aspects of TradFi, while DeFi offers new opportunities for high-risk and low-risk investments. A mix of traditional and digital assets could be a good portfolio strategy, but security is crucial when using these systems.
The traditional financial system (TradFi) and decentralized finance (DeFi) both have their roles in the evolving financial landscape. Centralized finance provides structure and replaces some aspects of TradFi, while DeFi offers new opportunities for high-risk and low-risk investments. The current monetary system, influenced by central banks, has led to meme-driven trading and asset price inflation. To truly understand crypto and DeFi, it's essential to use these systems actively. Additionally, scarce assets, like digital assets, are valuable due to their limited supply and the misalignment of supply and demand. As investors prepare for the future, a mix of traditional and digital assets could be a good portfolio strategy. However, security is crucial when using these systems, so avoid using phone numbers for two-factor authentication and be cautious of potential risks.
Investing in scarce assets for expected scarcity and high returns: Investing in scarce assets like commodities, digital currencies, and private markets can yield high returns due to their scarcity. Innovation and illiquid markets offer potential for alpha.
Investing in scarce assets, such as commodities, digital assets like Bitcoin, and private markets, is crucial due to the expected scarcity and potential for high returns. The speaker believes that these assets will become increasingly valuable as natural resources become scarcer and fiat currencies are devalued through inflation. He also emphasizes the importance of innovation as an asset class and the potential for alpha in illiquid markets like venture capital and growth equity. The speaker's personal investment strategy is barbell-shaped, with a balance between private markets, scarce assets, and long-short equity. He encourages taking intelligent risks and being compensated for the risk taken. The speaker's belief is that in the future, having zero exposure to digital assets like Bitcoin will be deemed fiduciarily irresponsible.
Understanding Different Types of Investment Risks: Bonds offer limited reward and risk significant losses if interest rates rise. Equities have potential for high returns but risk a company's inability to pay back debts. Private investments face illiquidity risk, requiring a longer holding period and accredited investor status. Leverage amplifies returns but carries risk of substantial losses.
Investing comes with various risks, and the choice between them depends on an investor's risk tolerance and market outlook. Bonds, while seemingly low-risk, offer limited reward and are subject to significant losses if interest rates rise. Equities, on the other hand, have the potential for high returns but come with the risk of a company's inability to pay back its debts. Illiquidity risk, present in private investments, can lead to higher returns but requires a longer holding period and access to accredited investor status. Leverage, a tool to amplify returns, also carries the risk of substantial losses if the underlying asset's value moves against the investor. Ultimately, understanding these risks and their potential impact on an investment's value is crucial for making informed investment decisions.
The evolution of pension funds and its impact on individual investors: The shift from defined benefit to defined contribution plans reduced costs for companies but left individual investors with limited options and poor advice, leading to wealth accumulation for mutual fund industry and financial institutions, while average investors faced barriers to accessing private markets and creating wealth.
The shift from defined benefit pension funds to defined contribution plans in the late 1980s significantly reduced costs for companies, but came at the expense of individual investors. This was achieved through lobbying, which some may view as corrupt. The mutual fund industry became extremely wealthy as a result, but the average investor was left with limited investment options and poor advice. The speaker argues that it should be illegal for young investors to own bonds due to their long-term investment horizon, and instead, they should focus on growth assets like venture capital, real estate, and commodities. However, this would not be profitable for mutual fund companies. The speaker also criticizes the influence of large financial institutions in shaping investment rules and regulations, such as the failed Fiduciary Act. He believes that the average investor is at a disadvantage due to various barriers, including accredited investor rules and limited access to private markets. The speaker sees networks, such as Amazon and Bitcoin, as the future of valuable companies, and advocates for direct investment in protocols or networks as a way to democratize access to capital and wealth creation. He envisions a future where all assets are digital and can be owned in fractional pieces through algorithms, making investment decisions more accessible to everyone.
The scarcity of assets drives up their value in collectibles and emerging markets like Ethereum: The scarcity of assets, such as rare Porsches and Ethereum, increases their value due to high demand and limited supply. Ethereum, as a leading emerging market, offers unique investment opportunities in innovative technologies and commodities through its native asset, ether.
The scarcity of assets, whether they are collectible cars or unique investment opportunities, drives up their value. Mark Yusko, a renowned investor, emphasizes this point with the example of rare Porsches and the emerging market of Ethereum. Ethereum, as the world's largest digital native emerging market, offers investment opportunities in innovative technologies and commodities, often making ether the commodity asset that powers this economy. Additionally, decentralized finance (DeFi) on Ethereum provides access to public markets for illiquid assets, allowing for faster investment opportunities. However, the automation and accreditation barriers in traditional investing can limit access to young people and non-accredited investors. Overall, Ethereum's potential as a leading emerging market and the value of its native asset, ether, continue to be significant areas of interest for investors.
DeFi and Crypto Skepticism from Traditional Institutions: DeFi and crypto skepticism overlooks the technology's potential for greater access to capital and higher returns for a larger pool of people, not a scam or Ponzi scheme.
The rapid growth and success of decentralized finance (DeFi) projects like Uniswap and the wider cryptocurrency space is causing traditional institutions to view these innovations with skepticism, often labeling them as Ponzis or scams. However, this perspective overlooks the fact that these technologies allow for greater access to capital formation and venture capital opportunities, leading to higher returns for a larger pool of people. This multiplier effect, which was previously limited to the wealthy, is now being realized by a broader audience. Furthermore, the comparison of these returns to those earned by venture capitalists is misleading, as the latter are not labeled as Ponzis despite their significant gains. The underlying technology, such as Ethereum, is not going away and is viewed as the foundation for the digital economy, much like TCP/IP was for the internet. The law of increasing returns explains that concentration leads to higher wealth and that the technology that gets critical mass first, not necessarily the best one, prevails. Therefore, the success of DeFi projects and cryptocurrencies should be seen as a positive development, not a scam.
First-mover advantage in crypto: The success of a crypto technology or asset depends on gaining critical mass first, illustrated by Microsoft's MS-DOS and Bitcoin's early adoption. Ethereum's first-mover advantage in smart contracts and DeFi leads to more use cases and potential for innovation.
The success of a technology or asset in the crypto space doesn't solely depend on its superiority, but rather on its ability to gain critical mass first. The Microsoft example illustrates this, as the team behind MS-DOS returned to Seattle and signed up for DOS instead of meeting with the founders of CPM due to the latter's reluctance to engage. Similarly, Bitcoin's success can be attributed to its early adoption and the longer it survives, the longer it will continue to thrive in an open-source world where copying and improving is the norm. Ethereum, with its first-mover advantage, now has more use cases and potential for innovation, much like TCPIP became the base layer of the Internet. The DeFi world, which generates real revenues, is a testament to this. Although Bitcoin may still be the preferred monetary asset for some, the potential for profit and innovation in Ethereum and DeFi should not be overlooked.
Bitcoin vs Ethereum: Different Roles in Cryptocurrencies: Bitcoin as digital gold, Ethereum as versatile toolkit for apps; Bitcoin as store of value, Ethereum as diverse applications; Coexistence and distinct purposes in digital economy
Bitcoin and Ethereum serve different but significant roles in the world of cryptocurrencies. Bitcoin, as a digital gold, is seen as a store of value and a potential base layer protocol for the "Internet of Value." Ethereum, on the other hand, is viewed as a versatile toolkit for building various applications, including decentralized finance (DeFi) and non-fungible tokens (NFTs). While both assets have potential to hold monetary value, Bitcoin is more likely to be used as a scarce, digital alternative to gold, while Ethereum could potentially have a more diverse range of applications. Disagreements and diverse opinions are essential for seeking truth and advancing knowledge, and it's important to remember that different cryptocurrencies can coexist and serve distinct purposes in the evolving digital economy.
The Future of Finance: Decentralized Finance and the Role of Ethereum: The future of finance is moving towards decentralized finance (DeFi) with Ethereum potentially playing a significant role. It's crucial to understand the differences between investing, trading, speculating, and gambling, with investing being about holding assets based on belief in their true value and diversification reducing overall risk.
According to the discussion, the future of finance is moving towards decentralized finance (DeFi) where every asset, including stocks, bonds, currencies, commodities, derivatives, and structured products, will be on smart contracts. Mark Cuban, an investor, believes this is not a far-fetched idea and that Ethereum, the second-largest cryptocurrency by market cap, could potentially have a significant role in this transition. Moreover, the conversation touched upon the importance of understanding the difference between investing, trading, speculating, and gambling. While none of these activities are inherently good or bad, it's crucial to recognize the unique characteristics of each. Gambling, for instance, involves placing bets where the odds are against you, and the longer you participate, the more you are likely to lose. Investing, on the other hand, is about holding assets based on the belief that their market price doesn't reflect their true value. By diversifying your investments, you can potentially reduce the overall risk of your portfolio and increase your chances of long-term success. For new crypto investors, it's essential to keep an open mind, strike a balance between conviction and adaptability, and be aware of the different types of investment activities. As the crypto landscape continues to evolve, understanding these concepts will be crucial for making informed decisions and navigating the complex world of digital assets.
Balancing concentration and diversification in investing: Embrace risks in youth, diversify for long-term wealth, differentiate skill from luck, learn from failure, seek mentors, have conviction, strive for intelligent risk-taking, accept being wrong
Successful investing involves balancing concentration and diversification. The speaker emphasizes the importance of taking risks and concentrating your investments when you're young to build wealth, but also recognizes the need for diversification to protect and grow that wealth over the long term. He encourages investors to differentiate between skill and luck, embrace failure as a learning opportunity, and seek out great mentors. The key to doubling down on successful investments is having conviction, which comes from doing the necessary research and analysis. Ultimately, investors should strive for intelligent risk-taking and be willing to accept that they will be wrong sometimes. The speaker's anecdotes illustrate the potential rewards of successful investing, as well as the risks of being overly cautious or relying too heavily on luck.
Exploring the Value of Twitter for Learning and Connecting: Twitter offers opportunities for growth, learning, and connecting with others. Embrace new ideas, cut losses, and maintain a disciplined approach to investing. Don't get stuck in complacency or blame, and try out new opportunities.
Twitter, despite the potential for criticism and mistakes, is a valuable platform for connecting with people, learning new ideas, and taking calculated risks. The speaker emphasizes the importance of evolving with new ideas, cutting losses, and maintaining a disciplined approach to investing. He also encourages trying out new opportunities and not getting stuck in a mindset of complacency or blame. The speaker's experience with meeting new people and gaining insights through Twitter illustrates the potential benefits of using the platform as a tool for growth and learning. Additionally, the speaker encourages listeners to follow him on Twitter for insights and to leave 5-star reviews for the Bankless podcast to help spread the message.
