Grant Williams (00:00:10):
Before we get going, here’s the bit where I remind you that nothing we discuss should be considered as investment advice. This conversation is for informational and hopefully entertainment purposes only. So, while we hope you find it both informative and entertaining, please do your own research or speak to a financial advisor before putting a dime of your money into these crazy markets. Now, on with the show.
Welcome everybody to another edition of The Grant Williams Podcast. Ah, crypto. We’re going to talk about crypto today and we’re going to do so with one of the most thoughtful people in the space, Travis Kling. Travis is someone I’ve been following for a long time, and as anyone regular listeners to this podcast know that crypto is not my world.
As I’ve said in the past, echoing one of my good friends, it’s just not suitable for me. I understand the appeal. I understand bits of it, but my knowledge is by no means what it needs to be to opine articulately on the space. But my guest, Travis Kling is the antithesis of me. He’s in the space. He came from a traditional background, as you’ll hear in finance. He wrote a couple of pieces recently which really, really struck and called me, a recent one that was published by our mutual friend Ben Hunt, the Epsilon Theory, about financial nihilism and another long Twitter thread he wrote at the beginning of February around the idea of stop pretending in the word of crypto, the numbers going up and just embrace it.
I wanted to talk to Travis to have a thoughtful debate about a part of crypto, which has fascinated me for a long time. What I can promise you is I got everything that I wanted and so much more. Travis was brilliant. I thoroughly enjoyed talking to him and I hope you enjoyed the conversation too. Travis, welcome to the podcast, mate. It’s very, very good to meet you. I’ve been looking forward to this for… Well, actually not that long. I’ve been wanting to talk to you for ages, because I’ve been fascinated by what you’ve been saying. But your recent article about financial nihilism or tweet thread or I got it from our mutual friend, Ben Hunt, made me finally get my finger out and give you a call. So, thanks for doing this for short notice.
Travis Kling (00:02:19):
Happy to be here, Grant.
Grant Williams (00:02:20):
I would love to give people a sense of your background, because your career trajectory is a really, really interesting one and it began at one of the worst possible times to begin a career in the industry. So, take us back to the beginning and walk us through that career trajectory.
Travis Kling (00:02:33):
I won’t spend too long on the very beginning, but I did interview with Bear Stearns for an investment banking job in fall of 2006. So, that’s a fun, almost got the job. It’s crazy, they ended up not hiring an analyst class that following year. Anyways, so I did 10 years in traditional finance before jumping into crypto. That was in late 2017, I got into crypto, and the 10 years was a pretty straightforward trajectory. It was energy investing, mostly oil and gas, some power and alternatives. I did a couple of years of oil and gas M&A out of college. Then I went to Magnetar Capital in Chicago for four and a half years, doing long short energy equities and non-control private equity and debt in the energy space. That was right in the middle of the shale boom.
So, we were involved in a lot of cool financings for the shale industry then. Then in the middle of 2015, I went to Point72 in New York. I was a portfolio manager there running a long, short energy and materials equities portfolio. So, not a tech guy by background, not a guy that was particularly passionate about technology. Crypto attracts a lot of people that were like that. That really wasn’t me. I liked game theory in college when I was in grad school. I liked mechanism design type of stuff. I always found that fascinating and it ended up being the beauty of the mechanism designed that in May of 2017, when I finally sat down and read the Bitcoin white paper and I just fell down the proverbial crypto rabbit hole in the summer 2017.
Just got obsessed with it like a lot of people do. After about reading that, I had to start from the very beginning, because I didn’t know anything about computer science. I didn’t know anything about cryptography. I did about 300 hours of self-study and convinced myself that all this stuff was going to be a big deal. I left Point72 December 2017 to pursue crypto full time.
Grant Williams (00:04:24):
The reason I find this so fascinating is you went from being in the world of the most material of the material. Oil and gas investing is just such a physical intensive, you pull this thick black stuff out of the ground or you pipe it somewhere. It’s so tangible and you went from that to this intangible space around Bitcoin. As I say, like you, I read the white paper. I found it fascinating. As a guy who’s been interested in gold for a long time, it immediately made sense to me the first time I read that, which was probably actually early. It was probably 2012, 2013, I read the white paper initially.
It was one of those things that made sense to me, but I was really busy doing stuff and it didn’t grab me in a way that said drop everything and follow this rabbit hole. So, help me understand what it was about it that had that effect on you, because it’s happened to a lot of people and I’m always curious to understand where that came from.
Travis Kling (00:05:20):
As I was going from 50 hours of self-study to 100 hours of self-study to 200 to 300, I kept coming across revolutionary concept after revolutionary concept. What I mean by that is I would read something and I would go, “That seems like it’s never existed before.” Then I’d have to go do five hours’ worth of research on the internet because it wasn’t my domain expertise. Then I would come to the conclusion that, yeah, this Byzantine Generals Problem thing, I don’t even really understand it, but this does appear to be a step change in this. If that actually works, that seems like that’s going to be a big deal. Smart contracts, the idea of a smart contract seemed like we had never had something like that before.
If this thing actually works, that’s going to be a big deal. I started getting this feeling, this gut feeling in my stomach. The only other time in my life that I had ever had that gut feeling was when I took an Uber for the first time. I was living in Chicago and Chicago was the second city after San Francisco to get Uber. So, it was very early and some friend told me about it. I downloaded the app. It was black car only at the time, black car picked me up from my apartment, drove me to store something like that, dropped me off. I feel like it was early 2012, spring of 2012, but I think that’s right. Anyways, I remember standing on the curb and the Uber driving away and I go, “That’s going to change everything.”
Because I wasn’t a technology investor, I wasn’t used to having that feeling. I was an oil and gas guy, so you don’t feel that way about oil and gas stuff. Then I remember I joked afterwards as Uber went on to do what it did, that I should have just quit my job the day I took that Uber and walked into Uber and said, “Look, I’ll do biz dev for you or whatever, pay me in shares.” I would’ve been the 50th employee or something. I would’ve worked out great. The second time I ever felt that way was when I got about 100 hours into crypto.
Grant Williams (00:07:14):
Those real world experiences are really, really powerful. I’ve had a couple of those myself. They were just things that happened that I invested in. I didn’t go and work for, I didn’t go all in or anything, but they worked out really, really well, because they were very real. But again, the formative years of crypto were very raw, were very high on promise and conceptual ideas and the future, and very low on anything real. So, for me personally, and I’d be curious to hear your experience of that, for me, there wasn’t enough there for me to say, “Okay, I’m going to devote a lot of time and energy to this.”
I could see the promise, but I don’t know, it just didn’t grab me the way it grabbed a lot of people. So, describe as you went down that rabbit hole. Talk to me about that journey, because I’ve seen it described in multiple ways. I’d be curious to hear your experience.
Travis Kling (00:08:08):
I know this is going to sound like an insane thing to say given my career trajectory, but I am actually a pretty risk averse person and I invested mostly in the midstream sector of energy, which as you know, is the safest part of the whole complex. Contracted cash flows margin like a tollbooth highway deal. I’m not a sports gambler, never have been. Don’t really like going to casinos. I would never go skydiving. I don’t like doing stuff like that. I don’t play poker. I’ve been very analytical my whole life and I think markets always struck me as the most amazing problem. I was drawn to that more so than the gambling thing.
So, what happened to me was I got to about 300 hours of self-study on crypto and I backed into this high conviction view that it seemed very unlikely that the world looked at all the stuff that was going on in crypto. Remember summer 2017, I don’t know how much you’re paying attention, all kinds of bullshit. There was so little differentiation between Bitcoin and ETH and Ripple and anything else. The value propositions, the investment cases, they may not be all that fleshed out now, but I mean they really weren’t fleshed out in 2017. The market had no idea how to think about this stuff really, I don’t think.
What I said was I looked at all of that and I said, “It strikes me as very unlikely the world’s going to look at all that and they’re going to say none of that matters at all.” None of it matters. That seemed very unlikely to me, and I felt like I was early enough that it was going to be like I started working for Hotmail in the early ‘90s. That ended up not working out that well maybe, but I probably position myself really well. Because when I left Hotmail, I could go do another internet job that was a great job or whatever. I thought about it like that as well too.
Grant Williams (00:09:56):
For someone who’s risk-averse, I think what you did speaks to the power of the pull of crypto when you read it and it connects with you. I understand how strong that pull is, but it’s still a big, big decision to make, especially considering where you were at the time you made that decision. I mean you were in a chair that people would’ve crawled over a broken glass to sit in and you decided to walk away from it. So, how did that process form in your mind and how did the conversation go when you told these guys, “This is what I’m going to go and do”?
Travis Kling (00:10:25):
I thought it was going to be me giving my two weeks’ notice, which I was ready to do. They had me stick around for another couple months and talk to them about what a crypto business would look like inside of Point72. Mostly for regulatory reasons, at the time, they were coming off SEC restriction and we’re about to raise outside capital for the first time in however many years. There’s so much regulatory uncertainty, think about late 2017, the amount of regulatory uncertainty around this stuff. So, it made total sense to them and it was that Uber feeling. It was that Uber feeling.
If I had not had that experience, I do think there’s a real chance that I would not have been willing to make the jump, but I think having that and having that play out the way it did and it just feeling the exact same way. I was never a trader before I got into crypto. That’s worth mentioning as well too. I was not a trader at Point72, and at Magentar, we had guys that traded positions for us. I was a fundamentals based investor, did some quantumental type of stuff at Point72. If we end up talking about what I do at Ikigai, we can talk about quantumental, but it just ended up being that gut feeling that I think great traders feel that way about trades.
Grant Williams (00:11:40):
It’s interesting, because I think if you are not a trader or you haven’t been a trader, I can’t think of a crazier market to cut your teeth in than crypto particularly. I think actually, it’s interesting, but you say you are risk averse and I think every trader has to have a little bit of that in them because you have to manage the risk effectively. That’s the thing that will kill you as a trader, but you also have to balance it with a willingness to take risk and it’s a really, really tough thing to get right. How did you wrestle with that?
Travis Kling (00:12:11):
Yeah, I spent my career as a risk-adjusted returns investor, that term risk-adjusted returns. At Magnetar, we had a long, short energy equities book, but then we did a bunch of middle of the capital structure stuff. So, I spent a lot of time thinking about being long liquid common equity versus doing a mezzanine piece of debt with warrants versus doing a… We did a lot of convertible preferred, hundreds and hundreds of millions of dollars of convertible preferred, participated in dozens. Like I said, this was the shale boom, participated in dozens of IPOs of energy companies. So, spent a lot of time thinking about risk-adjusted returns there and then went over to Point72.
Now you’re in this, as most people know, this extremely sophisticated risk framework that you’re operating within and you’re squeezing out very tiny slices of alpha and then you get to crypto. I’m still trying to be a risk-adjusted return investor, but that concept is a completely fucking different concept when you step into crypto. I talk to my investor base a lot about that and about what does the concept of risk-adjusted returns even mean in a world as wacky as this one, as unproven as this one, in a world where the fat tail of returns, which is the most risky, if you hit these right, you get compensated in a way that…
I mean everybody knows what you’re talking about. I mean 100X’s are commonplace. You pick these up walking down the street, you can get a hundred 100X if you’re playing in a certain part of the crypto market. So, we could have a whole podcast just on that concept.
Grant Williams (00:13:53):
No kidding. But when you set up Ikigai, what was the original idea? What were you setting out to achieve with that?
Travis Kling (00:13:58):
Our offering documents are very broad. We can do whatever we want to with very little exception. A quantumental approach was always the way that I thought about this market. I was existing in a quantumental world when I was at Point72. I don’t know if that term was invented there, but it was being thrown around a lot there when I was working there. Very early on when I was going down the crypto rabbit hole, a quantumental approach seemed to make sense to me, because I was learning about what on-chain metrics were for the first time.
Grant Williams (00:14:24):
Well, let’s just define that for people, because there will be people that don’t understand what quantumental means, so just flesh that out a little bit.
Travis Kling (00:14:30):
Quantitative and fundamental, put the two words together and you’re just trying to find data that you can tell a fundamental story with that helps you make better investment decisions. That can mean a lot of different things. Obviously, it means different things in different asset classes and it means different things at different funds. For me, in crypto, I started learning about what on-chain metrics were for the first time, and this looked like quantitative data that was telling a fundamental story about the activity on this blockchain. Even back in 2017, people were having conversations about a relationship between value accrual and activity on the blockchain. I came into crypto and valuing shit was the only thing I had done since my junior year in college seriously.
I had done it in a bunch of different asset classes. I had done it up and down the capital structure. I had done it in really, really liquid stuff. I had done it in completely illiquid stuff. So, when I was first getting into this, I was starved for anything that people had ever written about or talked about valuation. By the end of 2018, I had probably read, because people had written these research papers, academic papers, and Chris Burniske wrote this book and this guy named Willie Wu was throwing around these different on-chain metrics. By the end of 2018, I had read 85% of everything that had ever been written about crypto valuation. As it turns out, all of it has holes in it.
Grant Williams (00:16:02):
But you still have to come up with the things that have the fewest holes in them to try and build… You’ve come from a world where you’ve learned a way of analyzing things and now everything’s up for grabs. So, you don’t have things to fall back on that have worked for other people in the past. You’ve got to build it yourself from scratch.
Travis Kling (00:16:19):
It was a true whiteboard and a Wild Wild West type of scenario stepping into crypto. So, when we launched Ikigai, we were always doing a lot of qualitative work and simultaneously doing a lot of quantitative work. We had qualitative research analysts and quantitative research analysts and just trying to spend a lot of time at the intersection of those two things or just building out those silos separately and then just seeing what you could do in the middle ground. Like I said, we started working on the fund six years ago, launched the fund December of 2018. So, this has been a saga, this long journey that’s ebbed and flowed through lots of qualitative stuff, lots of quantitative stuff.
Grant Williams (00:17:02):
You launched that right at the time when we had the power pivot in conventional markets and we saw what happened there. You’ve ridden that wave, and now suddenly, you’re in a place where you are still trying to understand what this asset really is. You’re still trying to understand the promise, the future, the reality, all that stuff, but now you’re trying to manage risk through that process in the wildest markets perhaps that most people are ever going to see in their lifetimes. How did you do that? How did the incredible amount of work you had to do on one affect the day-to-day stuff you had to do on the other?
Travis Kling (00:17:40):
So the large majority of what we have done in… Ikigai asset management is the name of the business. Ikigai is this Japanese concept you may be familiar with. If you Google it, you see the Venn diagram of what you’re good at, what you like to do, what the world needs, what you deserve to be paid for. If you find these four things, you find your Ikigai. I like that concept a lot. That’s what we named the fund after. The large majority of what we have done in Ikigai’s history is trade Bitcoin with a pretty heavy quantitative approach with the purpose of outperforming holding Bitcoin net of fees through cycle. We’ve done other stuff. We’ve traded ETH quantitatively as well too. We’ve had about 15% of the portfolio historically or up to 15%.
It’s actually historically been a lot less than that, but we’ve always had a little room in the portfolio for what I call qualitative liquid venture type of bets. So, bets that don’t have very strong quantitative investing foundation to them. That would be like in the spring of 2001, you see Sam Bankman-Fried tweet, “Sell me all the Solana you want at $3 and then fuck off.” Then you buy some Solana and it goes from $3 to $2.60. That’s a qualitative liquid venture bet. We did not have all the quantum infrastructure underneath that we do for Bitcoin and Ethereum. As you know, if you show up to the crypto markets and you got $5 million you want to put to work and you go, “How can I put this to work?”
As you know, there’s about 100 different ways you can put it to work in crypto. There is a lot of different ways you can put that to work. What we have mostly done has been quite a narrow tranche of all of the things that you can do in crypto. There’s not a lot of other people that do it because we don’t do high frequency. We never have done HFT. In hedge fund parlance, it is mid-range with a discretionary overlay. That discretionary overlay has looked like a lot of different things. Sometimes there’s zero discretion. So, that’s mostly what we’ve done.
Grant Williams (00:19:43):
How do you maintain the discipline that that needs in a world and in a space that is certainly to an outsider like me seems incredibly ill-disciplined? Not ill-disciplined in a foundational way, but rather built on a lack of discipline being actually an advantage that you would actually take some of these crazy bets and take some of these things. How do you maintain amidst all that and the euphoria and the hype and, you said, 100X’s lying around everywhere, how do you stay focused? This is a fantastic story of Stan Druckenmiller right in the .com bubble. He finally couldn’t sit out anymore and lost a billion dollars of Soros’s money in a heartbeat. How do you stay out of that and maintain that discipline?
Travis Kling (00:20:28):
I usually don’t get into this part of the story too much, but I know your listener base is a little bit different than most of the podcasts to do. So, I think guys will appreciate this. At Point72, they expect you to create an idea factory to have a high level of repeatability to your investment process. You got this idea factory and you put a bunch of stuff on the front end of it and then you turn the crank and it spits out alpha on the back end. So, when I got into crypto, I was looking for that, because I didn’t know how else to build… I was not a venture capital investor. I had done zero venture investing in my life, zero early stage investing in my life. So, I was looking for repeatability.
This quant approach, which our strategy now is I was not a quant investor, just to be clear when I was in traditional. I’ve never written a line of code in my life. That remains true. But over the years, I’ve now developed what I’ve would call a very good layman’s understanding of quant. I’ve got guys that worked with me for years that do all of the heavy lifting there. That at the end of the day was I was looking for repeatability. I also from the very beginning got the sense from just talking to investors as we were trying to raise money and scale up the fund, that if I could convincingly outperform holding Bitcoin by trading Bitcoin and we use a little bit of leverage, but very, very little leverage historically that that’s just a product that people were willing to put money into.
This was like 2019, that’s when we were trying to scale up the fund. You got to remember that’s a really different crypto market, 2019. There was very little appetite to put money into liquid focused crypto fund. So, I was looking at this market going, “I got to figure out a way to make a business out of this.” That’s what I ended up being focused on.
Grant Williams (00:22:12):
The two pieces you wrote recently, the financial nihilism piece, which we’ll come onto, but the piece you posted I guess just a few days before that, and I forget the exact title. It’s a long title, but it’s basically about, okay, let’s stop pretending about what this is and just own it.
Travis Kling (00:22:27):
A lack of pretense that any of this shit does anything or will ever do anything.
Grant Williams (00:22:31):
There you go. Okay, right. So, those two pieces for me, I think, are arguably the most honest assessment of what the reality has become in that space that I’ve read. I was so fascinated to read them, because you want to put your arm around it and go, “This may well be the reality. You know what? It’s okay. It’s absolutely fine. If this is the reality, it’s not a problem.” So before we get to what you actually wrote in those pieces, because I want to go into them in some detail, let’s talk about your journey through the idealistic Uber 2.0 moment where, okay, this is going to be something meaningful to going through all the craziness that you saw and managed to somehow keep a sane head amidst. As your understanding and your projections change, walk me through that journey because I’m fascinated by that.
Travis Kling (00:23:21):
So again, came from a very institutional, very buttoned up career trajectory, jumped into crypto. It’s like a shitshow inside of a dumpster fire basically. That was true from the moment that I walked into this ecosystem and I’d never met people like this before seriously. It was immediately apparent that some of them were the wealthiest guys in crypto and no regulations, complete Wild Wild West, Ponzi’s and scams and scammers to a degree that I had never seen before. Layers of risk, so much risk, opaque risk, unknowable risk, fat tails, exchange risk, hack risk, smart contract, obsolescence risk, these layers and layers of risk.
I still believed in the underlying technology, and in my head you’ll hear me talk about this consistently, Bitcoin goes in a completely different category than everything else. I’ve thought that for years. That view developed not at the very beginning. Like I said, I didn’t have that view in 2017 and not even, I think, in 2018. I think over 2019, I started understanding what Bitcoin was, and I think it was 2019 where I came up with this little tagline that I’ve said many times since then, which is Bitcoin is a non-sovereign, hard cap supply, global, immutable, decentralized digital store of value. That’s six adjectives. That’s a lot of adjectives, but each one of them is important in their own right.
It is an insurance policy against monetary and fiscal policy irresponsibility from central banks and governments globally. That’s the tagline. My conviction around Bitcoin being purpose built for that, that conviction was strengthened and I felt like the world was going to need it. Then you fast forward to March 2020, fed does 3 trillion of QE in six weeks, mailbox money, deficit to GDP that we haven’t seen since World War II, and then it’s just locked in. Now, you go, “Okay, that is what this thing is.” I have worried about the ecosystem around it for a long time, because there’s so many bad actors in this space. Bad actors are attracted to crypto like a moth to a flame. That has been true forever. I could go on a 15-minute rant about why I think that is, but let’s just put that to the side.
I think most people would agree with that. Bad actors are attracted to crypto like a moth to a flame. I got the sense that Bitcoin is inherently anti-fragile, and like a snake shedding its skin, it can have bad actors wrapped around it doing bad things and it can just wiggle out of that. It doesn’t mean that price will not go down a lot temporarily. As it sheds that, it will and it has. To the extent bad actors get wrapped around Bitcoin again and Bitcoin has to shake itself loose at that, price will go down a lot again for that reason, but I came to believe in the inherent anti-fragility of Bitcoin. Then I think maybe it’s a separate question about looking at everything else other than Bitcoin.
Grant Williams (00:26:44):
As your understanding and your thoughts around it changed and evolved, how did you handle that? Because I think in that community, there’s a great need and a great desire for people to talk to each other, to either reinforce the narrative or challenge the narrative or there’s that, “we’re all in this together frontier stuff and we need other people around us that we can talk to.” How did you manage the shift in your thinking that brought you from where you were originally to the first of those pieces that you wrote a week or two weeks ago?
Travis Kling (00:27:22):
So at the beginning, the good news was the asset in crypto that I came to believe in the most was also the asset that I learned how to outperform holding by trading. So, there was confluence between how I would put my investors’ capital to work and what my principles were or partially principles, but also my assessment of what this landscape was, because this is 2019. I just could not get myself to understand the value proposition of everything outside of Bitcoin and the relative valuations of what this stuff was. So, I just happened to have confluence there. Then I think the way it’s developed for me over time has been as I’ve watched centralized authority abuse that authority.
That’s a broad statement, but it’s true in governments and it’s true in big tech companies. Technology has been monopolized. I don’t love the way some of these technology companies are acting. It is very apparent that we are rapidly becoming much more intertwined with technology, that ascent is breathtaking with how fast it’s becoming. I get nervous about that setup. It strikes me that just smart contract platforms in general have these potential, and I use that word. That’s the important word. It has the potential to combat that in a way that I think looks like it is going to be very important for humanity. It’s true for social media companies, it’s true for companies like Google, it’s going to be true for AI that decentralization has the potential to provide this alternative.
But as 2022 unfolded and the magnitude of the damage that was able to be done by bad actors in this space, and when you just looked at the most powerful influential people in crypto in 2021 and then you fast forward 18 months, two years, and how many of them are in jail, indicted, if they didn’t commit criminal fraud, they committed brutal civil fraud or they just blew up their business so bad, just bankrupted these things into infinity, right? The apex of this was FTX, which you may or may not know. My fund was heavily caught up in, and in the soul-searching that I was doing in the wake of all of that, I came to realize that for as much as I had been worried about bad actors in the space prior to this, that it was actually worse than I had even thought.
That this was an attack vector that the space was not taking seriously enough, that the attack vector that we had from bad actors doing damage to this ecosystem was big enough that it really put the entire potential at risk of this whole technology. You keep doing what you’re doing, you’re going to keep getting what you’ve been getting. That if we didn’t change something about the self-regulation of this ecosystem, which that’s a nebulous term in crypto, maybe we’ll get help from actual governmental regulations. Lord knows we need help from governmental regulations and that’s not like me to say something like that.
As you can probably imagine, I’m libertarian in leaning, so it’s not like me to go, “Oh, government, come help me. Come get yourself involved in something that I care about in my life.” That’s not like me, but we need help from governmental regulations and then we have got to change self-regulation. Me coming to that realization, it changed my tone, it changed my public tone. I write this monthly update letter, these two tweet threads that went so viral, the one that being reprinted. These were main sections of this monthly that I’ve been writing for five and a half years. My tone changed there. My tone changed on Twitter where I’m pretty active, because I just felt like I had been given some voice in this space and I felt very obligated that I need to crank the volume up on this.
Part of it was a regret minimization strategy, which that’s not the only way you should plan your life, but I think it is one useful tool in the way you plan your life. The way I thought about it was I’m pretty sure if I just stay being an investor in this space, this asset class can be worth a lot more in the future than it is today. If I just stay here, I’m going to put a bunch more dollars in my bank account. But there’s a very real chance that you fast forward 5, 10 years down the road and all this stuff’s worth a lot more than it’s worth today, but it is fulfilled very little or none of its potential to make the world a better place.
That’s not an outcome that I’m willing to live with unless I just shout from the fucking mountain tops about us trying to do better. So, for folks that have been following my voice, that is how I would characterize what I’m trying to do over the last year or so. These two threads were in direct service to that goal.
Grant Williams (00:32:44):
I have to say beautifully done, because I find looking at it as an outsider, it’s a difficult space to be unemotional and look at the space through cold, clear eyes and say, “This is what I see happening. Not all of it’s good and not all of it’s what we want, we can do better.” Because I’ve seen people try and do that and get piled on, because they don’t believe in the tearing down, whatever the narrative is. So, it’s a very difficult thing to do. I think that the piece about giving up the pretense, which we’ll come to in a second, is a really, really important piece of writing.
I think I commend you on it. It was just beautifully done, beautifully articulated, and the core of it is so important for people to understand. But I have to think that what you saw through the shitcoins and the NFTs and all that moment in time, that last wild, wild bull cycle must have shifted your perception as to what this is, what we’re spending our time trying to build here, and why.
Travis Kling (00:33:49):
They say in philosophy or whatever, there’s like an is and an ought. There’s not a lot of ought in either one of those pieces or there’s no ought in there. This is me calling a spade a spade, which I’ve tried hard to do in the years that I’ve been in this industry. Just call a spade a spade. As we were closing out on 2023, moving into 2024, we’re getting these spot Bitcoin ETFs. There’s this meme of three up, one down, you familiar with this one in crypto? For people maybe that are, it’s just basically Bitcoin is the best performing asset of any asset for three years in a row and then it’s the worst performing asset of any asset the fourth year. Then it starts it over again, and it’s done that three full cycles in a row. We’re now moving into the meat of the best part of three up, one down.
You’re doing it now with spot Bitcoin ETFs and you’re doing it with the Fed getting ready to ease presumably. You’re doing it with the halving that’s coming up. That just looked like a straightforward walk to all-time highs, but it was happening because I was around for the last one and caught the tail end of the one before that. This just looked like a very different setup to me this time. The defining factor to me of why this time looked different was this lack of pretense. So, I just wanted to give people, this is how I see this and in service of people just being more eyes wide open, because maybe I can keep retail from getting torched as badly as they have in every other cycle.
I don’t know if it’s going to make any difference at all or not, but at least I can try do that. Then as you probably know, this was something that resonated with people broadly to a degree. I’ve done some viral stuff on Twitter before. I’ve never had anything resonate the way that this thing resonated.
Grant Williams (00:35:49):
No, I understand that because it’s not a world I spend a lot of time in. I came across it multiple places, and each time I read it, I felt more and more engaged with it and with you and with the sentiment in it. But explain to people what that first article about, the lack of pretense, which I guess you wrote early February, was it? I think if I remember rightly.
Travis Kling (00:36:10):
Yeah, February 1st. Yeah.
Grant Williams (00:36:11):
Yeah. Talk us through what you said in that piece, because there will be people who haven’t read it and I’ll include links to it in the transcript and stuff, but let people know what it was you said because I found it incredibly profound.
Travis Kling (00:36:21):
So one of the crazy things about this thread is it immediately came true in spades. As soon as I fucking wrote the thing, it came true in stunning spades, which is just I’m not trying to toot my own horn or whatever. It’s just crazy the way it happened. February 1st, I said, “It looks like Bitcoin has a free walk to all-time highs.” Then it went up 44% or 46% in a month, and then now it’s up another 20% this month. It walked straight to all-time highs. Then I said, “It looks like ETH for the same reasons also has a free walk to all-time highs. It looks like ETH’s walk is probably just a little bit delayed from BTC’s walk, because it looks like ETH is probably going to get a spot.”
Some 3 to 12 months after, the spot ETFs were approved and you’ve got this Dencun upgrade that’s lowering the fees. Not to get too down in the weeds on this stuff, but it had some protocol things that were good and there’s an ETH burn mechanism. There’s a lot of reflexivity to the burn mechanism. It just looked to me like we can argue about how far beyond prior all-time highs, but ETH’s going to go back to 4,800 and it’s going to keep going. Then I said, “Crypto has never had the cover fire of its two biggest, most Lindy, most headline assets having this free walk.” In the prior cycle, we used to worry about the work that Bitcoin and ETH were going to have to do to get back to all-time highs.
Before the COVID crash, January, February of 2020, Bitcoin’s probably trading $8,000, $9,000. We were all going, “How are we going to get to 20?” Then we know how we got to 20. The Fed did 3 trillion of QE in six weeks, and then Paul Tudor Jones wrote a letter calling it the fastest horse. That’s how we got there. But at the time we were worried about it. That’s not the setup here. It’s like the space doesn’t have to worry about working to get its two biggest assets to an all-time high, which means you get this free for all. Then on top of that, there’s not enough meat left on the bone in BTC and ETH, more so I would say in BTC, because now once you get to prior all-time highs, let’s call it 70K for round numbers, well, how much more are you going to get from that?
You can get a double, 140. It’s like you’re going to get a triple or you’re talking 200. That just feels like a little bit of a stretch. That’s just not enough. That’s not like people aren’t in this thing for a double basically or not crypto native people. Crypto native people are not in this. Crypto native capital is not in this for a double. I think there’s a broader array of opinions about where ETH is going to go this cycle, but ETH is mired in this competitive landscape that Bitcoin has no competition in crypto. It’s by itself. It’s competing with gold. It’s competing with US treasuries. Obviously, the TAM on those are so massive that it’s like you’re in a good spot. Whereas ETH is like I got to compete against Solana and Celestia and Aptos. There’s a data availability and all the L2s and it’s modular versus mono.
That’s a different type of fight that this thing has to fight. So, people just immediately are thinking, “We’re moving down market cap.” So there’s this other meme about how capital flows in crypto, which is BTC runs first and then ETH runs and then the large caps run and then the small cap and the shitcoins run. People have seen this before, and they just assume it’s going to happen again. The mimetic reflexivity of it is so strong. The mimetic reflexivity concept for people that are listening to this that are in crypto, they know how strong this is. For people that aren’t in crypto that are listening to this, you have to understand this is an incredibly strong thing that is present in this ecosystem. It drives the behavior and the price action of these things to a degree that before I got into this would’ve been unimaginable to me.
Grant Williams (00:40:16):
But the thrust of that piece was… I don’t want to paraphrase you, correct me if I’m wrong. It’s like, listen, it’s going up. It don’t have to have some higher purpose for it to go up. It’s okay to say, “Look, I’m buying this stuff, because it’s going up, not it’s going to save the world.”
Travis Kling (00:40:31):
I think I leave the reader to decide that.
Grant Williams (00:40:33):
Yeah. I’m saying that’s what I took and feel free to tell me I read it completely wrong, but that was the feel I got and I’m not even in the space, I felt relief to see someone in the space right there. I did, generally like, “Okay, okay.”
Travis Kling (00:40:46):
Yes. So, I said what I thought was going to happen, which was the prices of these things are going to go up a lot and that is going to happen without a step change in real world use cases that lead to a large increase in end user demand, that those two things are divorced from one another. How you want to act in that situation, how you want to position your portfolio, that is your decision to make, but do not expect they are to be some change in… This term fundamentals, what does that even mean in crypto? What does that even mean in crypto?
But to the extent that fundamentals means these technologies are solving real-world demand, real-world problems, and there are many millions of users coming to that because it is solving a problem or providing something that people want and then there’s a token associated with that. That’s the reason why the token’s going up a lot, that you should not expect that to be the case. To the extent that you don’t have those types of fundamentals, there’s no reason to think it’s not going to pull back as hard as it’s pulled back every other time, which is the alts do, a lot of them do it down 95%, which most people that are crypto investors don’t have…
Down 95 is like a weird math. This is a friend of mine saying, “You know what a token that’s down 95% is? It’s a token that was down 90 and gets cut in half.” So that helps people frame just how big of a drawdown. There’s certainly not this fundamental end user demand reason to think that that’s not going to happen again. So, act accordingly. Be eyes wide open about that.
Grant Williams (00:42:42):
You went through the response you’ve got to that and I’ll let you talk about the numbers, but I was really encouraged by the percentage of the responses you gave in terms of people who were on the same page, people who pushed back thoughtfully, and people who said, “You don’t know what you’re talking about.” So walk us through that, because again, I was surprised by, encouraged by the percentages you laid out.
Travis Kling (00:43:04):
So I got many, many dozens of pieces of feedback from people on this thing from every which away. Lots of public Twitter stuff, lots of Twitter DMs, lots of Telegrams, lots of texts, lots of emails. My friend Nathaniel Whittemore who I think you know, Nathaniel did a short podcast just about that himself. Lots of different types of feedback and it was just overwhelmingly strong agreement. That was from hardcore crypto domain experts all the way through to the relatively crypto uninitiated. For the crypto natives, there was varying levels of begrudgingness to this. There were some people that were mad, they’re like, “Yeah, this is going on, but you didn’t have to pull the curtain back about it.”
I’m intuiting that, but I was getting the sense that there was some people feeling that way or that there’s crypto people that want to lie to themselves. They want to lie to themselves about what’s going on here. They want to feel the excitement of getting wrapped up in the technology. This can be guys that generate incredible returns in crypto, because they can sell themselves the story that maybe for somebody that didn’t come from a venture investing background, this story just sounds ridiculous to me.
But selling yourself the story, if you can sell yourself the story in crypto and then sprinkle in just two pinches of risk management, you can generate earth-shattering returns in this thing, because it just acts like that. Yeah. Like I said, there were some pushbacks, but there actually weren’t any pushbacks that I did not address in the caveat section of the second thread. I don’t have anything to report back really of substantial pushback that wasn’t actually covered in the caveats if you read that part.
Grant Williams (00:45:00):
So all of that brings us to this piece you published this week about financial nihilism or last week perhaps it was. I’m losing track of the days, and this is something dear to my heart. I recorded a podcast. The last in-person podcast we did right before COVID, I was in New York and our mutual friend Ben Hunt and I sat down with Demetri Kofinas in his studio when studios were a thing. We talked about this, and I’ve always given Demetri the credit for framing that as an idea, this idea of financial nihilism. I didn’t remember it this way, but it seems from what people have been posting this week that that podcast is where he first talked about it and the three of us kicked this idea around.
It wasn’t fully formed, but you did such a beautiful job this week I thought of putting some meat on those bones too, because this idea of financial nihilism, I think we understand the two words in isolation. You put them together and it’s fairly self-evident what it means, but what you did in your piece I think is help explain it other than pure degeneracy. So, I don’t want to steal your thunder, because I think the thunder is yours and not mine. So, walk us through your case around financial nihilism, where it comes from, what’s driven it, and why it’s important.
Travis Kling (00:46:16):
All credit goes to Demetri, because I was not aware of that four years ago. I said at least two and a half years ago, because I got on Twitter and I was trying to find the oldest mention. So, he came up with that pre-COVID, right?
Grant Williams (00:46:31):
Correct. December 2019, I think it was.
Travis Kling (00:46:33):
So I don’t think I was really seeing it then personally. I think I needed to get on the other side of the mailbox money and the COVID response, zero interest rate, helicopter money situation. Then that’s when I saw it and labeled it that. I was aware of obviously of wealth inequality before that. I think for a long time, crypto broadly, Bitcoin specifically has had this. For a long time, people have thought about at least Bitcoin as this way to protect yourself against monetary and fiscal policies that drive wealth inequality. To the extent that you could characterize that as financial nihilism, I think there’s some truth to that. But the way that I reframed it was the idea that the cost of living is strangling most Americans.
Upward mobility opportunity is out of reach for increasingly more people and that the American dream is mostly a thing of the past. Then I throw one statistic on there that to me is the most easily emblematic of this, which is median home prices divided by median income, and that is just at this completely untenable level, because I think the white picket fence, that’s so emblematic of the American dream, and then you can just translate that directly into one chart. You go, “This is out of reach for people.” You see it pops up in a lot of different ways and it causes distortion in risk taking. That’s the other side of it. It’s like this is present, this is why this is present. Here’s some charts that help characterize the manner in which this is present.
Then it’s like, “Okay, and then what does that make people do?” Okay. It makes people gamble a lot more, casino gambling and sports gambling. I show some statistics about the incredible growth that’s happening there and causes the rise of zero DTE options trading and shows some math around the unbelievable increase in the popularity of zero DTE options. Then it causes people to invest in crypto and to just invest in meme coins. This tweet thread is intimately intertwined, financial nihilism and lack of pretense.
These concepts are intimately intertwined. In some ways, I think my very current view, my March of 2024 view, looking at how cryptos trade over the last year, over the last couple months, how it looks like it’s going to trade is that this financial nihilism concept, this is incredibly present in this current crypto market. This is a big, big chunk of what is driving people to act. Then this was another thing that even since I wrote it has been rapidly coming to fruition as soon as I wrote it with the speed that I never dreamed would’ve happened, but it’s been crazy.
Grant Williams (00:49:28):
But what does this mean? Because you made the great point. You talked about parlay bets, you talked about zero DTE options. It’s funny, I’ve been fascinated to watch the commercial breaks and just about every sport event I watch, which is basically all I watch on TV. If I’ve ever got the TV on, it’s normally because I’m watching some sport on there. The commercial breaks are now almost exclusively gambling apps, gambling sites. It struck me that they’d make this big fuss about offering a hundred to one if you pick in the Premier League Soccer. If you get all 12 results correct, you get a hundred to one. I’m like, “That’s ridiculous odds. It should be a thousand to one that you’re going to predict these things.”
Yet you can feel this palpable sense of to your point about a double, a triple, that’s not enough. I need the chance to make a 100X. I need the chance to make 50X minimum. If I’m not doing that, it’s not even worth doing it. What happens with a mindset like that? Because unfortunately, the nature of odds dictate that it cannot end well. It’s not that it might not end well, but the nature of odds making the nature of the house tells you that it literally cannot end well. So, what happens to that, do you think?
Travis Kling (00:50:39):
The way I frame it is basically why not put $500 into a meme coin that could 50X, knowing that you could very likely lose most or all of it. It’s not like the $500 is enough to make any difference anyways, but neither is $1,000 or $5,000. That’s a mindset that’s becoming pervasive in America. That’s financial nihilism. It’s the zeitgeist through Young America, and it’s just a huge driver of shitcoining. It is the driver. I don’t know if that answers your question exactly.
Grant Williams (00:51:14):
Well, I’m just curious to understand how you think this ultimately plays out because the conditions for a longer cycle for Bitcoin are there. I understand that and ETH too. I understand that. I can understand how you can make a case that these cycles can go on longer, but we know not just from the meme coins and the shitcoins, the previous cycle, assets of this ilk, we know what happens to them. We just know. It is not debatable because there’s no there. They are pure expressions of emotion and we understand how those emotional cycles go. The price of Jeo Boden and the price of Elizabeth Whorren or all these crazy things that are getting all that, we know what’s going to happen to them.
But my interest is around the mindset when it does, because the first cycle sucked in a whole lot of people. A lot of them lost a lot of money, and I would suspect fewer of them got out with some real money. That’s great. This time around, it’s obviously sucking more people in, because it’s sucking in the people that made money last time and all the people that wish they had and didn’t get involved. So, more people sucked in this time, which means more people end up losing money this time around. Where do we go from here?
Because the nihilist approach is gaining strength and momentum and it’s making people crazy. I mean, people have taken the craziest bets imaginable and understanding that most of them will come off badly. You are going to end up with this entire generation of people who feel even more disenfranchised, because they feel that they’ve been screwed up by the system. The boomers have got all the wealth. The Gen Xers are caught in the middle. The millennials didn’t really help them out, and now we’ve been screwed because our shitcoins have gone to zero. Where does that lead do you think? Because it terrifies me.
Travis Kling (00:53:03):
There’s a few different moving pieces in an answer there. At least one of them, you’re going to know more about than I am, which is what I say is that individuals choosing to act out of financial nihilism are doing so in direct response to and in imitation of the monetary and fiscal policies of the Fed and the US government.
Grant Williams (00:53:25):
Which is such a great point, such a great point.
Travis Kling (00:53:29):
I would completely defer to you and just pose a question back to you, how much longer do you think that can go on? One thing I will qualify this with, which I think is an important one, is that I thought that this was ZIRP and QE Infinity and mailbox money type of behavior, but you’re seeing it ramp again now with interest rates at 5.5% and the consumer certainly not obviously even in anywhere near as good a shape as they were back then. It looks like you can’t just say, “Oh, this is ZIRP QE infinity type of behavior,” because we don’t have that right now. I want to pause and hear what you say. I have other things after that to say, but I want to hear your response to that.
Grant Williams (00:54:20):
I think you’re absolutely right for starters. I think this is an echo of that behavior, but the behavior of the Fed, Treasury, central banks around the world, however you want to broaden it out to, and they’re all equally culpable, is not an attempt to generate extraordinary gains. It’s an attempt to keep things together. So, the success they have, the gains in asset prices were to an extent a part of the design. We want to create asset price inflation, because the idea initially was trickle-down effect, right? People feel wealthier. They spend more, blah, blah, blah. So, I understand that. But what they’ve done is exacerbate the situation, but the man in the street doesn’t necessarily recognize what’s gone on with this.
They get this profligacy here. They’re starting to see it represented in the inflationary pulse coming through, but directly because of QE, no one is driving around at a Lambo saying, “Hey, look what QE got me.” They’re driving around the Lambo saying, “Look at my Polkadot got me.” They’re doing that. It’s like the connection is one dot. So, people can connect it to and go, “Okay, if A, then B.” I think your point is 100% valid, but it’s a lot more opaque in terms of causation.
So, whilst people are doing it as a response, I think it’s a knee-jerk response, not a well-thought-out response, i.e. You know what? Because of QE, I can see why the boomer’s houses have gone up in value. I don’t know if that answers the question, but I just don’t think there’s such an obvious clear correlation between the two.
Travis Kling (00:55:53):
Yeah, no, I appreciate that. The lack of pretense, that thesis, that was a specific cycle call. That was like, “This is how I think the next 18 to 24 months are going to look in crypto.” I wasn’t making a guess beyond that, but that guess was partially informed by my view that over that time period, let’s call it 18 months, that it looked like the Fed was probably going to be pretty supportive directionally. It was like if the Fed was embarking on the beginnings of a tightening campaign, instead of an easing campaign, that would’ve been a different thesis, because I would be very worried about. We have every indication to think that crypto broadly is very… It is tied to monetary policy for sure, and that’s a longer topic. So, that was a cycle call.
The financial nihilism call, this is a longer call. How you think and when you think the chickens come home to roost on the monetary and fiscal policy irresponsibility from the Fed and US government or from central banks and governments globally, as you know, I like to say, we have the best monetary policy house on a really shitty monetary policy block. So, we talk about the problems the United States has, but it seems like we’re in a better position than every other major economy on Earth, but how these chickens come home to roost and what that looks like, I don’t have that much of a view on it. It just didn’t seem like it was going to happen in the next 18 months.
I think that gives crypto room to act this crazy and be driven by this much financial nihilism and this much lack of pretense. Then I think to the extent that we are able to continue down kicking the can and the “chickens don’t really come home to roost” in a major way, we just keep doing these manageable pullbacks, however they’re going to have them, and then they flood the market with liquidity and it solves them. We just keep doing this for some amount of time. Crypto will just keep cycling as well too, and they’re just going to be other shit. It’s going to be the three up, one down memetic reflexivity that’s so incredibly strong. People go, “Oh, sorry, this year is the year to be in the vaporware casino.
So, I’m just going to step in and see what games we’d be playing. What games we got this cycle, guys? Because now is the year to be in the casino.” Then the last thing I would say, which is this very big picture point, a lot of times there’s a deeper why in things. I have this natural tendency to sometimes find the deeper why more interesting. Maybe it’s the deeper why that might not even be driving just raw price action, but I just find it inherently more interesting. Financial nihilism is a result of and preys on a bunch of evolutionary tendencies that are millions and billions of years old in humanity. It’s just scarcity and greed and herd behavior and keeping up with the Joneses. These are millions and billions of years old in us and trying to think that we are just going to be able to shake that off strikes me as a fool’s errand.
Grant Williams (00:59:11):
Yeah, no, I completely agree. I think this idea of history rhyming is for no other reason to your point there, it’s us. It’s not history. It’s us doing the same stuff and over again. We can’t shake it. I was talking to Michael Howell about this, and if what you’ve described is a tailwind for crypto and I have no reason to believe it isn’t, he made a great point to me that this isn’t about interest rates anymore. This isn’t about the Federal Reserve or the central banks of the world managing interest rates. It’s about them being able to provide an environment in which $350 trillion can get refinanced, right? That’s the gist of it. That’s where we’re at now.
We’re past the point of thinking about the debt being paid back, and we’re at the point where the only thing that matters is, “Can it get rolled over?” Of course, that is the reality. If that is the reality, then no matter what inflation does, realistically speaking, the thrust of rates is going to keep them as low as we can for as long as we can and then try and sweet talk our way out of the line of the sandwich drawn with inflation, because we can’t afford to fight that battle anymore.
Travis Kling (01:00:24):
I actually have a few more macro minded questions. How would you balance that in one hand and this view of inflate our way out of the debt in the other hand? Those are like opposing stances, what you just said, right?
Grant Williams (01:00:37):
No, no, absolutely right. I think ultimately, it’s a combination of the two, right? There’s much of it as you can inflate away without the inflation becoming a problem for Joe Sixpack. That’s ideal, but as we’ve seen in the last 18 months, you’re never going to be able to achieve that. You’re not going to be able to allow it to rise to 2% and then stay there. It just doesn’t work that way. Now, the problem I think is now is where the wage hikes are starting to get embedded and the expectation for wage hikes are starting to get embedded. Now they’re in a really, really sticky situation. We just saw the data from Japan. They got really high wage increases out in Japan, which is a problem there, and I suspect will ultimately lead to the Bank of Japan change in policy.
The Fed haven’t been faced with that yet, because the wage hikes are not the same structure as they are in Japan, the way they work in terms of annual negotiations. But there are enough headlines about big companies that employ lots of people like Amazon and Walmart giving big raises. Of course, the more people they employ, the more people that have neighbors who they talk about their 10% wage hike and the more you embed this thing in the system. So, they’re in a really sticky situation. If I have to handicap how they’re going to try and get out of it, I have to think that the one option they cannot allow is for 350 trillion of debt to get defaulted on or even 10% of that get defaulted on. It just doesn’t work.
So, they will tell a great story as to why 3% inflation is okay, you can start. They’re right in the opening chapters on that story right now, and then it’ll be why 4% inflation is okay, but I don’t think people are buying that anymore. That feeds back beautifully into your idea about this financial nihilism that I don’t believe what I’m being told. I don’t trust the institutions. This is classic Forth Turning stuff, and I’m not going to just submit and do what I’m supposed to do and toe the line and behave like a good citizen. I need to get mine and crypto offers me a chance to do it. Jeo Boden offers me a chance to do it and I’m going to take my chances, because I don’t trust you to provide them for me anymore.
Travis Kling (01:02:45):
I’ve got another question for you. So, this is a premise that I’ve thought about I think since 2020, which is what if you just assumed… I’m a Bitcoin guy, so I’ve talked plenty of shit about the Fed in my day, but what if you just assumed that the Fed was correct and that the actions that they’ve taken, what appears to be… Let’s throw Congress in there for good measure. So, we’re looking at monetary and fiscal policies and you’re saying what they’re doing appears to be so untenable is actually the right move and they’re correct. They’ve got information asymmetry. They know stuff we don’t know, and that’s the right move. Then you ask yourself the question, “How is it that that would be the right move?”
This idea I came up with or heard somewhere was what if technological innovation… I feel like I’ve got a better handle on this now, because I now have been a technology investor for a while and sitting at the outer edge of that in some ways. What if technological innovation is so inherently deflationary that the government can just print to high heavens just to stay flat, just to get us 2, 3, 4, 5% annual inflation? They’re so terrified of deflation because they’ve been taught to be terrified of deflation, and that’s the reason why they’re doing this. All this money printing, the proverbial robots are going to take everybody’s job and everything’s going to get so unbelievably cheap by technology and 3D printers and solar energy and blah, blah, blah, all this shit that you can just print unbelievable amounts of money and just tread water on that. What do you think about that?
Grant Williams (01:04:18):
Well, let’s pick it apart. Do I think that they haven’t maybe thought this is a possibility? I suspect they have, because it offers a very convenient why for what they’ve done that is much more palatable than we have tried to keep things together and we have prioritized the owners of assets to make sure that asset prices stayed high in order to generate this wealth effect, blah, blah, blah. But we have overtly gone essentially against our mandate by picking a segment of society and catering to them in the hopes that from there, it would feed down to other people and everything would work out fine. I think that’s what they’ve done and I think they were at the beginning right to do it, but they should have pivoted much, much, much quicker than that.
So, whilst I have no idea if you’re right and you can look at what’s happening technology now and see the speed with which it’s picking up the pace of innovation and make, I’m sure, a very good argument as to why you can extrapolate that out and it will lead to this and it will lead to that. Ultimately, that leads to massive deflation, universal basic income, all these things. I’d never say never, but I would temper that with my lack of faith in big institutions, my lack of faith in the political class, because I think certainly over the last 20, 30 years, they have become purely political animals. Whilst I think politics has always been about first getting power and then once you’ve got power, everything goes out the window in an attempt to keep power.
I think previous generations of politicians had the leeway to, as part of their quest for personal power and party power, throw bones to the public and make things a little bit better for them along the way. I think where we’re at now, that latitude has gone. I don’t think they have the ability without going more into debt and compounding the problem more. So, I think the Fed is filled with geniuses, a lot of very smart people at the Fed. I think they have the information asymmetry you talk about, but I think they can’t use it in a nonpartisan way. They can’t look at the information and say, “Okay, the information is telling us this is what we need to do, so therefore we will do it.”
I think they look at the information and go, “The information is telling us this is what we need to do, but we can’t do it because of the constraints we placed upon ourselves. So, what’s the next best thing we can do?” I think as soon as you make that decision, you lose the advantage of the asymmetry and you run an even more elevated risk of making yourself look foolish. I think we’re in that emperor’s new clothes phase of the Federal Reserve and other central banks where they were all geniuses and they’ve been forced into not being able to act as the data’s telling them to. It will make them look what they are, which is emperors without clothes, who are doing what they can and what they have to rather than the right thing.
I don’t think it’s the right thing for society. I don’t think it’s the right thing for equanimity amongst every stakeholder in the social contract. I think they’re in a really bad spot now. I really do. I don’t think they’re ill-meaning individuals. I don’t think there’s some great plot to enrich the boomer generation at the expense of everybody else. I just think it’s a case of who’s got the assets. The boomer generation have the assets, so they’re the lucky ones. I spoke about this a long time before that ultimately, this has to end in one way and one way only, which is a massive transfer of wealth from rich to poor, which means from old to young. I don’t know how that happens, but it has to happen.
It’s either going to happen peacefully with the boomer generation slowly dying and leaving their houses and their wealth to their grandkids and their kids or it’s going to happen through taxation or it’s going to happen through social unrest or it’s going to happen through the current cohort of politicians all dying or finally taking their leave of the Congress and the Senate and being replaced by 30 and 40-year-olds who have their own constituents to take care of them, who will prioritize them. But it’s not going to be simple, and I don’t think it’s going to be particularly peaceful in the sense of without strife. Jesus, that’s the longest thing I’ve ever talked to my podcast.
Travis Kling (01:08:42):
No, it’s great. This term, the great wealth transfer, have you had any experts on about that?
Grant Williams (01:08:48):
No. It’s something I’ve looked at and I’ve thought about a lot and I’d love to talk to people far smarter than me about it. I think it’s so important.
Travis Kling (01:08:56):
That’d be a great episode. You got to be pretty good at data and you got to have access to a lot of data, I think, to be able to drill down into that headline number and actually get enough granularity that you could start making a little more specific calls on… People just throw the headline number out there. That’s what I did in my monthly, I referenced this. I think it was the 53 trillion was the greatest great wealth transfer, and I can’t remember who came up with that number. It was in a Fortune article, but you would like to know how much granularity can you get underneath that to start getting a sense of what are the constituents of that? Can you start making some guesses about the timing and the manner in which that’s going?
I consider this and a lot of crypto people consider this to be a great long-term tailwind for crypto is that by hook or by crook, boomers are going to let go of these assets and some very meaningful amount of that is going to end up in the crypto ecosystem. Maybe five years ago, you could argue that crypto wasn’t going to make it to that point, but I think it’s now traveled far enough now to know Bitcoin is certainly going to be here. ETH almost certainly is going to get an ETF and move into this separate echelon. Then there’s obviously just such rabid demand for all the other stuff. As that wealth transfer happens, it’d be difficult to imagine you not getting some meaningful inflow into crypto from that. We can argue about the specifics of that.
The one other thing I was going to say in response to what you said was the Roman saying, give them bread and circuses. Isn’t that the saying? So that’s going to be a big component, I mean it already is, goodness gracious. It already is, but you would think it’s going to be even more of that. It is easy to imagine virtual reality. The line that I had in my monthly was run that out 20, 30 years. What do you think that’s going to be like? Like if Dave Portnoy and Ready Player One had a baby.
Grant Williams (01:10:59):
Yes, it’s such a great line.
Travis Kling (01:11:02):
I said it as a joke, but it does burn into your mind. There’s good reason to think that it is going to look something like that and that you are going to placate the bread and the circus is going to be a pair of goggles and UBI. You can go anywhere in the world in these goggles, and there’s going to be a million different ways to gamble. There’s going to be a million different ways to earn gig economy type of stuff. Lots of digital work type of stuff. I always use capture. This is going to be a slice on top of UBI for… I don’t even know how many billions of people probably.
It is easy for me to imagine us generally going that way. I do think that how dystopian or utopian that ends up being remains to be seen and that I use this term, this is a fight worth fighting. Crypto is very wrapped up in this. Decentralization is very wrapped up in this. That is a fight worth fighting, because how dystopian or utopian that ends up being, I believe that that is yet to be written.
Grant Williams (01:12:08):
I think it’s a great point. When you think about dystopian, people are probably well advised to think more about the dystopian outcome, because by definition, the utopian outcome, you’ve got nothing to worry about. So, you should spend your time worrying about the dystopian outcome. In every single dystopian movie we’ve seen, every single dystopian sci-fi book that’s been written, the world is much more centralized. There’s always this the evil empire, and they’re power hungry, and they’ve centralized power and centralized control. So, I think that’s something that people need to think about if they’re gaming out potential worlds that we might live in.
Of course, the beauty of it is the world might look nothing like anything we’ve dreamed up. I’m sure my grandfather had he lived to see Vision Pro goggles and FaceTime would’ve gone, “What witchcraft is this?” But Travis, I’ve enjoyed every minute of this. I’ve kept you way longer than I planned to. I’m so sorry about that, I haven’t infringed on anything in the rest of your day. It’s been a really, really enjoyable conversation and I hope we can continue it, because I was so delighted to find you, to find your work, to find your thinking, and to find someone as thoughtful as you in the crypto space. I think that your voice is incredibly important and incredibly powerful, and I commend you on the way you’ve been using it and the reasons why.
Travis Kling (01:13:24):
I appreciate it, Grant. I thought it was a really good conversation. Thanks for having me.
Grant Williams (01:13:27):
Well, listen, before you go, let people know how they can find out more about you, the fund, your Twitter handle. I mean, you’ve got all the Twitter followers you’ll ever need, but you might maybe want a few more.
Travis Kling (01:13:38):
Yeah, Twitter’s probably the best jumping off point, @Travis_Kling, K-L-I-N-G, and there’s a link to fund information. Then through that, you can get to the content depot that we have that’s got all my historical monthlies. You can sign up for the monthly that comes out the first of every month there. So, appreciate it.
Grant Williams (01:13:58):
Terrific. All right, my friend, listen, I wish you well. Again, thanks for giving up so much of your day. I really appreciate It.
Travis Kling (01:14:03):
It was a pleasure.
Grant Williams (01:14:05):
Well, there you have it. That went on far longer than I thought it would, and I was hanging off every word that Travis said. It was just fascinating to be able to get the chance to talk about so many aspects of this story with someone as thoughtful as Travis. I’m immensely, immensely grateful to him for giving up a big part of his day to spend that time talking to me. As he said, @Travis_Kling is his Twitter handle. It’s K-L-I-N-G. His firm is Ikigai, I-K-I-G-A-I, and it’s at ikigai.fund. You’ll find out more about what he does there.
I will advise you whether you’re in crypto or not to follow Travis and sign up to just about anything of his you can get your hands on, because he’s such a thoughtful guy in a very noisy and sometimes very thoughtless space. So, again, my tremendous appreciation to Travis, and as always, my appreciation to you out there for listening. I’ve enjoyed every second of this, and I’ll be back again with another podcast in the not too distant future. Thanks for listening.
Nothing we discussed should be considered as investment advice. This conversation is for informational and hopefully entertainment purposes only. So, while we hope you find it both informative and entertaining, please do your own research or speak to a financial advisor before putting a dime of your money into these crazy markets.
