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By Mike Larson, Editor-in-Chief, MoneyShow
Transcript
Larson: Hello and welcome to our latest MoneyShow Money Masters Podcast segment. I’m Mike Larson, editor in chief at MoneyShow. And today I’m speaking with Charlie Shrem, a long-time fixture in the cryptocurrency world. He is editor of the Crypto Investor Network, a network of investors buying and holding crypto, as well as a founding member of the Bitcoin Foundation. And of course, he also hosts The Charlie Shrem Show podcast.
Welcome to the podcast, Charlie.
Shrem: It’s good to be here.
Larson: Thank you so much for taking some time out here. I mean, obviously this space is really getting to the forefront of investors’ minds given everything that’s going on out there. So, before we get to some of the recent sector developments, we’re going to have viewers and listeners that are heavily involved in the crypto space, as well as those who may not have any exposure at all.
So, for their benefit, would you talk briefly about your background and some of the things you’re involved with now?
Shrem: Yeah, absolutely. Thanks for having me. And it’s really kind of great. I love doing these shows and talking about the positive stuff that’s been going on in the industry because I’ve been in the space for so long. Going back to like late 2010 or early 2011, the last days of Satoshi, if you will, I started a company called BitInstant that allowed people to buy and sell Bitcoin.
And back then it was only Bitcoin. There was no other token or any other cryptocurrency. And the whole Bitcoin community was super small, relegated to like a few chat rooms and Internet forums, you know, online. And at BitInstant, at one point I think we were like 30% or something – or even a larger amount – of all the Bitcoin transaction volume that was happening on a given day during those two years. And we were like that primary tollbooth.
It was amazing because we realized that there were just so many people that were so interested in Bitcoin. I think we checked it out, every 30 seconds someone was buying Bitcoin from us. And to me that was just a fascinating thing. It was so beautiful back then.
Now it’s like there are millions of people buying Bitcoin every second. It’s not really a big deal anymore. And I went on to found the Bitcoin Foundation and spent the last ten years just traveling around the world, speaking. I spoke at so many MoneyShows as well on behalf of Bitcoin and crypto.
Since Bitcoin has “grown up,” I’ve invested in and advised and helped launch half a dozen different Bitcoin and crypto startups. A couple of years ago, I also started a VC fund called Druid Ventures and I’ve been spending most of my time investing in Bitcoin and crypto startups, and I think we’ve made like 15 investments in this last bear market. So, my bags are filled up. I’m ready to go.
Larson: It’s great you mentioned that, I was going to get to that in a minute. But since you brought it up, I think your comment that the best time essentially to invest in the space is when you have a phase of the Bitcoin bear market is interesting. So, I’m wondering, what are some of the companies that you’re looking at there? What are some of the interesting things that are attracting you as an investor who knows the space very well?
Shrem: There’s a lot of pros and cons, right? And with Bitcoin and crypto, our bull and bear markets are like supercycles. They happen every three or four years. Bull market, bear market, bull market. A lot of the times, the first thing that you have to get over – and it did take me a couple of bear markets to get over this – is that it will come back on the other side some point in the future.
To me, Bitcoin and crypto, these prices have not matured yet, so they’re not just going to, like, plateau and flatline. They’re still zero-sum games. You have to believe that Bitcoin and crypto will continue to grow and succeed in the future, or they’ll just all go to zero. We’re still at that point yet. I love, you know, personally bets and investments like that because the odds are more simple. You’re either going to make a lot of money or you’re going to lose your original investment. You can’t really lose anything more than that.
And so, once you get over that first psychological idea that the next bull market will come, you can kind of tuck in and say, all right, let me spend this bear market doing it the right way.
And during the bull markets, every company looks great. Every company looks amazing. The team is amazing. The product is amazing. The go to market strategy is amazing. The token can be great. Every check can be checked, every box can be checked, every flag can be green. It’s very hard. It’s very hard. You have to trust in only your gut instincts.
During the bear market, it’s a lot easier because what’s happening is only the really good companies have figured out a way to keep their burn down to a minimum. Usually they’ve figured out a way to stay in survival mode, but if they’re good ones, they’re using their money to grow and build and prepare themselves and pivot for the bull market.
I love companies like that. I love ones that have used bear markets to, like, build their foundations, prepare, and then set themselves up for that for the future. It’s hard to do during that bull market. What you can do is you can look at which companies have made it through. That’s usually like a great first thing I look for. First thing I do, before I even look at the team, before I even look at what the company does, is if they’re not a new company, I look at how they fared during past bear markets. And if that makes me happy, then I’ll go onward and I’ll look at like, who the team is, have they been successful before, stuff like that.
Larson: Now, before we shift and you kind of talk about some of the things that the mainstream media is looking at, like the Bitcoin ETFs, I want to talk a little bit more about these specialty parts of the market. I mean, things with the underlying blockchain technology, some of these developments that you’re seeing with use cases and so on. But the actual technology behind it and the companies you’re investing in, what are some of the interesting things people are doing and companies are doing that you think are going to help this sector continue to evolve?
Shrem: Okay, so everyone here is going to give you different answers. I’ll personally tell you what I’m really excited about and what we’re investing in, and there are so many answers now. The first answer that everyone’s going to give you and I’m going to give you is AI.
There’s a huge relationship between AI and crypto. I really believe that. I fundamentally believe that Bitcoin, and maybe even crypto – and I know that I keep the two separate because Bitcoin is its own thing and then crypto is more of the tech. Bitcoin is the hard money, the one that you want to hold for the future. And then crypto are these other technology projects that are using the technology that Satoshi Nakamoto used and built with Bitcoin to change the world and make Decentralized Finance or to do something better, faster, more efficient.
The people that can invest in those and learn about them early on could potentially, you know, get in on some of these projects before Blackstone and some of the other ones find out about them. I think that Bitcoin will be maybe like the currency for the incentivization for AI. That’s because all the AI companies – just look at what we use now, ChatGPT, Bard, Grok, whatever – whatever AI software we use, all these applications for editing videos, for podcasts, all the tools that are consumer-ready now, they all rely on centralized databases and centralized machine learning. And that’s the data – OpenAI’s value, they scraped all this data and everything and they’re selling, and it’s all closed source.
But how do you keep that going? It costs a lot of money to, like, keep that going. So, if you could incentivize millions of people around the world somehow to be feeding you data in real time and you’re paying them for that, in a in a way that protects people’s privacy. I think there’s a really cool relationship there between crypto and AI.
I like what I’m seeing. So, you’re also seeing a lot of RWAs now. They’re called Real-World Assets. That’s the term you’ll see floating around. Basically, they’re just like the newer term for security tokens, or tokenized securities. Taking a security product that exists – whether it’s a Treasury or it’s investing in a startup or it’s like owning a piece of your cheesesteak restaurant, or it’s owning a piece of a consortium of real estate deals. Those are all security assets. They’re like security instruments. A lot of the times, the paper actually says, “This is a security instrument.” Tokenizing those and having them freely tradable and liquid in a secure, compliant way, that’s going to be a multi-trillion dollar thing. And you’re seeing that really grow now in a big way.
So, I’m also excited about growth and scaling on top of Bitcoin. You have like already $1,000,000,000,000 worth of people, a trillion dollars’ worth of Bitcoin locked, sitting there, and people are doing nothing with it. People are trying to figure out a way to let you use your Bitcoin without having to give up control of those keys to a centralized exchange or like a third party. We saw FTX, Voyager, Celsius fail. People don’t want to give up their assets again. But they want to make those assets work for them.
On that note, I’m seeing a lot of startups in pledged assets, which is so unique. I didn’t even know this. You can pledge an asset and then, like, you can get property insurance. Or, you know, do all these different types of financial maneuvers. Having Bitcoin as a liquid but secure asset like that, one that is like real estate and that you can use, that’s pretty awesome. Like digital gold, if you will. But gold can’t really work for you, while Bitcoin can. So, there are a lot of people trying to do stuff like that.
And then on top of that, the last thing I will say, what our fund’s mandate is, is that pick and shovels are what we’re investing in. We’re getting really excited about any company or any team of people that are building out the plumbing for the crypto industry. That could cover any aspect – developer tools, Software-as-a-Service companies. Think any type of company that services the internet today, like Salesforce or ISPs, stuff like that, but for crypto and for Web3.
Larson: Right. Again, sometimes everybody gets caught up in the investment case and just watching what Bitcoin is doing on a day-to-day basis and not really looking at the technology behind it. So, I’m glad you were able to share some of those intriguing things that are going on behind the scenes. But I do have to shift to the public markets now and talk a little bit about that.
I mean, you had a really interesting tweet back on January 7th, and if you don’t mind I’m going to read it off. It said: “I’ve been preaching Bitcoin from every rooftop since 2010, and only now are people taking me seriously. Is this what Noah felt? THE FLOOD IS COMING. Prepare now.” What did you mean by that? And what are you seeing as you’re getting this mainstream big money, institutional money coming into the sector?
Shrem: I really fundamentally believe that anyone who wants to own their own Bitcoin, the clock is ticking. And what I mean by that is, there’s enough Bitcoin in the universe, because Bitcoin is divisible by like eight decimal points. You’ll always be able to get some. But a lot of people want to be in that “21 Million Club,” they tell me all the time, and to be in that 21 million club you’ve got to own one Bitcoin.
Not only is Bitcoin getting more expensive, and it’ll continue to do so, but the ability to even just get that much Bitcoin – you don’t want to realize that in the future, it’ll take you a year to accumulate it. Like, so little Bitcoin will be available on price discovery exchanges. All these major public institutions want to custody it for you. Because if you actually like kind of joke and say maybe Bitcoin, which could become this $20 trillion asset let’s just say, maybe it was created by a government entity to just create another asset that they can hold on your behalf and charge you for. It’s a shame if that’s what Bitcoin becomes.
So that’s why I’m always pushing people to hold it on them, you know, to get hardware wallets, to get software wallets. Just figure out how to custody Bitcoin on your own. It’s very easy.
Larson: Well, you know, we obviously have to talk a little bit about the regulatory environment. You were on the Bitcoin Base Case Podcast a while ago and talked about Gaetz and Warren kind of “using our jobs and our livelihood for political gain.” How do you see things sorting out in Washington over the next couple of years and at this stage in the crypto evolution?
Shrem: That’s a great question, and it’s like that regulatory reckoning, when is it coming? People outside of crypto think it’s like a reckoning. But people in crypto, we’re are at the edge of our seats. We’re begging, begging for clarity, we’re waiting. All these things that I talked to you about recently, like, I gave your listeners maybe 15 good startup ideas to do. Half of them are risky to start because there’s no regulatory clarity. We don’t really know how to treat these things.
And it’s not black and white, that’s what I’ve learned. It’s not a black and white answer. There are so many facets to law. There’s tax law, real estate law. There are different implications of how Bitcoin and different crypto companies can be classified. So, I know there’s a lot there. But I really want to push, for the regulators who are listening to the show, to try to push for more clarity on that.
I think it’s coming. The election season is coming. You’re going to see Bitcoin and crypto be a big part of that. And so, I do think that you’ll see crypto become more of a weapon that’s used on one side or another. But it’ll bring about some sort of crypto renaissance.
Larson: Now, through this a raft of ETF approvals that happened, there was a BlackRock ETF ad that I saw people kind of making fun of on Twitter. Sort of like a “Boomer ad” for how these ETFs work. So, if somebody is watching this, let’s say they’re a novice. They haven’t been involved in the space before.
If they’re an investor who is starting to dip their toes in this market, what’s your advice for them as someone who’s been involved for years and years?
Shrem: It’s a great question. And the best part about the ETFs is that there were always tax implications to buying Bitcoin. It was a risk you had to face to move money out of whatever you were comfortable with. The framework – not just sending the wire out, but the legal and regulatory framework about where your money is, right? 401(k)s, IRAs… if you take money out, there are tax implications to that, there are future financial considerations that everyone has. But now you don’t have to worry about those things. There are like 11 Bitcoin ETFs. Not only that, but there are also probably another dozen Bitcoin and crypto stocks. Companies that either mine crypto or Bitcoin, or maybe they invest in a bucket of different Bitcoin or crypto companies.
I would tell listeners, go check those out and dabble in those. Have fun with that. If you’re not comfortable buying and investing in the actual crypto now, we’re not in those days anymore where you need to. You don’t have to like take risks anymore in terms of like losing your keys. I know five minutes ago I was telling people to, like, hold your own keys.
But I’m talking to the advanced people. I want those people who are already comfortable in crypto to take the next step and self-custody. But if you’re just getting started, check out the ETFs, they’re really cool. Check out the differences in them – I will say that. For example, Bitwise, 10% of the fees that you pay go towards paying Bitcoin core developers who are working out there for free, for 15 years, building out on top of Bitcoin. So, there are a bunch of different ones that do different things.
Larson: Any of those public companies that that are involved in the space that, again, somebody might be interested in beyond the ETFs, you’d be comfortable naming?
Shrem: Yeah, I have a great list actually. I’ll share it. So, first I would start with Iris Energy (IREN). Cipher Mining (CIFR). MicroStrategy (MSTR). Swan. Bitwise we’ve talked about. I’d look at Coinbase (COIN). I’d look at Bitfarms (BITF). I’d look at Bitdeer (BTDR). I’d look at HIVE. And I’d look at Bit Digital (BTBT).
These are ones that we’re looking at. There’s a lot now. There’s a lot there, they all have different costs. You know, I’ve studied, for example, the mining stocks.
Larson: Yeah.
Shrem: Not financial advice, of course, but I’ve studied that. So, for example, like Core Scientific, their cost to mine a Bitcoin is a lot less than, for example, Hut 8 or Bitfarms. So, I would tell you to look into these and see what’s the difference between the mining stocks. Why are some companies making more than others? Look into the management. There’s a lot.
But it almost feels like, the reason that it’s so hard to make money on Wall Street nowadays is that there’s no more informational arbitrage. Everything is high-frequency trading. Information is valued within seconds and traded upon. If you figure something out, some hedge fund figured it out first. You can be a self-directed investor, but you have to like – and the MoneyShow, people like at the MoneyShow are always really smart because what they do is they find like a niche industry that large-caps aren’t investing in yet before everyone else does. And they can get in early and they’re smart.
Crypto and Bitcoin is still… even the publicly traded stuff, there’s no informational arbitrage. There aren’t hedge funds buying this stuff. There aren’t higher-frequency traders. It’s still, like, not-sophisticated investors. And that’s why I kind of love the industry still.
Once it becomes the way I described it before, I’ll be out of a job. I won’t write a crypto newsletter anymore. I won’t need to have a crypto podcast anymore. People won’t need to read my stuff and listen to my stuff in order to get information to make trades off of it. It’ll all be done for them. You’ll have portfolio managers. But find me a good portfolio manager now that does Bitcoin and crypto stuff. They don’t exist.
Larson: Well, I guess that’s a great thing to wrap up with.
Well, Charlie, listen, thank you so much for the time you taken out here. Everyone. Thank you for watching or listening. Again, Charlie, thank you so much for your time. Have a great day.
Shrem: Amazing. Thank you so much.
Originally published on MoneyShow.com
