Why I sold all my ETH | Richard Craib, Numerai

Transcript

All [Music] right, everyone. Welcome back to another episode of Empire. We are joined by my co-founder Mico. No, Santiago today. And we have a really special guest, Richard from Numeraai. He's the founder of Numeraai, which is um actually Richard, why don't we let you explain it so I don't royally botch this. What is Numera? Well, Nimai, the the unique thing we do is we're we're a hedge fund, but we give away all of our data and allow data scientists around the world to model our data and submit predictions to our fund. We only trade equities. So, the people who are modeling our data are

only trying to predict what's going to happen with stocks. But uh we do also have a cryptocurrency NMR that's used to stake models um and uh that's a way basically for us to find get have have our users have skin in the game um and uh and allows us to trust their predictions with our with our with our portfolio. Awesome. Uh it's really fun to have you on the show. I remember when Mike and I were launching Blockworks in late 2017 um you Numeriai was one of the models that we looked at for why token a tokenbased organization could actually scale and could actually work and I remember specifically looking at Numera in the

early days and I think you guys maybe had been around for around two years if I remember correctly launched somewhere in 2015 um and so it's really nice to have you on the show so yeah yeah it was late 2015 and then the our coin came out almost 5 years ago now. So yeah, been around for a while and some of the early ideas we we had have kind of been applied in so many projects. So it's good to hear we inspired you to some extent. Exactly. So anyways, Richard, we wanted to have you on the show because you posted a video that went kind of viral on Twitter the other day earlier this week uh with the title saying, "I bought Bitcoin at excuse me, I bought Ethereum at 26 cents and now I'm selling it at somewhere around 2500 bucks." Right? So,

uh, public math here, somewhere around like a 10,000x on this thing. And by all, uh, from an outsiders point of view, you're running Numeraai, you got in the in the early sale of Ethereum, and you'd probably be this like crypto bull like a lot of other people who got in. And it's kind of rare to see someone exiting their full ETH position um, at this point. And so just wanted to have you on and and just maybe if we could start by saying why did you do this and kind of what what what happened and what what's the run-up to this decision and and what was the decision and and why why did you do this? You know, I was just working out and then I got I uh like like at all good decisions are made like most good uh Twitter posts start.

Yeah. Doing some pull-ups uh with my trainer and then I was like feeling good and then I started feeling bad. I was like, "Oh, crypto, what a mess." And then I was like, "You know what? I'm out." So, that's just how it happened. Um, but I all these things I've been thinking about for a very long time, very seriously, because uh you know, you don't want to be part of something that's that's not good for the world or um you know, life's too short. Uh and and so certain things like the stable coins uh really really bothered me and I never really said anything about it and I started to feel like uh this is bad. I should I should uh maybe take a position here um and sort of put my money where

where my mouth is, which is that you know the the economy uh the way the the macro environment is right now is completely different to the last five years, last 10 years and Bitcoin which was born in this one huge boom cycle and uh credit cycle and monetary policy cycle may not be uh may not be as the returns of Bitcoin, the future riskadjusted returns of Bitcoin may not be as attractive as they as they were. I also calculated the sharp ratio of Bitcoin and of Ethereum and uh so that's a risk adjusted return and they're less than my my own hedge fund.

So, uh risk adjusted, I should be putting more money into my own hedge fund. I already have a lot in it, but uh it's nice because it's it's neutral to the market. Uh, and so I just I just thought I should sell my Ether. But yeah, was not trying to um get a million views on my my my postworkout video of my thoughts on crypto. So, Richard, I don't know you very well. Um, but I do know just from having followed you over a couple of years and read your blog post and things like that that you're a really calculated person. And so why are you selling? So I so a little part of me doesn't believe that you were doing some pull-ups and then you just

said, "All right, I'm I'm hitting the sell button on all of my Ethereum. I I know that a lot of decision making went into this. Why sell now? Why sell in this at this exact moment, you know, May of 2022, there have been bare markets in the past. You've rode those bare markets out. The market's been going down now for six months. Uh the market, we don't know what's going to happen in the future, but like why this moment, May of 2022, are you choosing to sell?" Yeah. Well, I've I've had uh uh diamond hands, right, the whole time. There's been some huge uh huge Ethereum drawdowns and problems. Um that didn't bother me at all. Uh but this time it's it's it's different because uh first of all the macro environment uh

seeing that venture capital is having this huge draw down uh private equity uh is having this huge draw down uh tech stocks are having this huge draw down. You know what happens when those things have have draw downs? There's interesting thing people don't know. When banks go down, it creates huge uh systemic risk, right? Like the financial crisis. And then um governments step in and help. When there's a pandemic and there's huge systemic risk, governments step in and help. When rich tech nerds are uh having massive draw downs in their tech companies,

no one could be happier. Uh and so no one's going to bail out um the market. Uh and uh the price to book ratio is sort of like a way of looking at the uh S&P valuation was uh five uh about six months ago. Tweeted about it. Uh it's like the highest it's ever been in in my career and exactly the point where it got to in the financial crisis. Uh some of my friends said but uh you know the price book doesn't matter. It's measuring assets. All the tech companies have intangible assets. Uh there's not going to be a draw down in in the market. Uh the only way you could have a company like Netflix underperform the

S&P is if um the government were to shut down the internet. This is the type of stuff people people my friends were telling me who are like professionals. Um, and so I was always quite skeptical that there would be a kind of like one-sizefits-all forever portfolio, which was own a lot of tech, own a lot of VC, own a lot of crypto. And uh, and now it's pretty clear that all of those things are the same bet. They're all correlated with each other. Um, and the whole point of investing is to make a balanced, diversified portfolio. That m might sound kind of boomer, but uh as a mathematician myself, it's just a matter of fact.

Uh you do not do you do not put all your money into one thing um and think that this is this is a good good way to invest. Uh, and uh, it's also not a good idea to say think you're diversified if you own both Bitcoin and Ethereum or you own both USDT and US and think you're diversified. Actually, you're not at all. Uh so people are kind of waking up to this and uh it's going to be very sad and yeah kind of within a few hours of me posting my video. Uh you know you a lot of you were talking about you US already but

that was still at 99 cents uh when I posted my video and then a day later it was it won one uh almost like yeah went to like 30 cents at one point. So I think and by the way I did not predict that you don't really follow these things that much but uh it just seems like a very very we're about to enter a very very different world. There's a lot to there's a lot to unpack that and I saw Richard your your follow-up video today where you kind of talked about the macro and essentially what the Fed by keeping artificially low interest rates for such a long period of time what they've encouraged uh market participants to do right which is to just take a lot of risk capital gets allocated poorly. That's how you get

these like frankly like Dogecoin and Sheibba and GameStop and and all that kind of stuff. The government the government the US government created uh US the the US government created Luna uh not Docoin. I Yeah, I would I would tend to agree with you. Um and it's funny because I heard people make that argument about uh actually in the great financial crisis and I didn't really fully understand what they were talking about actually um until watching some of this stuff play out in real time in crypto. uh when the government sets the incentives uh to take risk, people take risk. Um you getting people getting wired $600 to protect to have money during the pandemic uh and then they were just buying

Bitcoin with it. Um walk me through because it seems like a lot of what you're what you're drawing on here is this like very macro sort of view of the world. So maybe we could start with your macro framework in general like if you had to like this particular moment in time, right? Crypto's puking, right? USD is exploding, all that kind of stuff. This pain is not entirely isolated to crypto, right? There's been a massive selloff in uh across broad equity indices. Uh I think the NASDAQ is down like 3% today, but it's been down. It's like seven straight down weeks. Uh a lot of the tech stocks, you know, are just getting smoked, right? It's like Pelaton and Zoom, but even other ones like PayPal is down like 80% off its high. So, walk walk us through kind of your like macro framework right now for central banks,

governments, um and you know, interest rates especially. Well, again, I I'm a quant. I don't I I don't like macro. I don't really follow macro. Um so the only things I know about macro are like common sense. Uh and so like if you have um if you have the price to book val, I'm not going to be buying the S&P. Uh if you have the S&P crash in COVID, which it did, uh and the VIX goes to 80 and people think the world's going to end because of a virus that's like nearly identical to flu.

No offense if you disagree. Um then uh then uh okay, yeah, I'm in. I put all my money in. I was like, the government is going to bail everybody out and they're going to make they're going to force me to buy. Uh okay. moved like $4 million into S&P 500 literally at the at the tick of of the 80 the 80 VIX. Um, so like this is the type of thing you can do very rarely. Uh, but you sort of pick your spots and there's going to be, you know, in a in a in a long career I might see I might see two more uh two more bubbles like this. Um, and you know, you

just have to be you have to have the common sense to be like, well, I clearly don't want to be exposed to the the rundown in all this. So, you know, well, the reason the reason I'm asking kind of for the macro framework here is it seems like, right, the a big part of the reason, right, why the faith in Ethereum is gone or maybe you don't you aren't as convicted as you were when you bought in at the ICO is just there's a lot of like tom foolery and shenanigans that's caused by uh you know, government policies, right, about interest rates and encouraging people to take risks, etc. Um, so my question for you is obviously that has caused you to, you know, change your conviction so much that you're moving out of something that was at one point like a super risky bet

and you had some amount of conviction in like riding it all the way up and all the way down, etc. So, I'd love to get your I don't know if you've thought about this, but like what an unwind of the government's policy kind of looks like, right? If that policy that encouraged everyone to take risk, like what does that look like played it back in reverse, I suppose, then how does that translate to crypto for you? Yeah. Well, the go the Fed is and the government, you know, they're very concerned with inflation because it's a it's a real uh it really affects people. It affects poor people. And so it's it's very ugly if you think about the mechanics of of of uh central banking.

Uh you you want interest rates to be low to encourage people to invest badly. So you make the interest rates low and um and then and then the rich people get richer and then and then uh because of that there's inflation and so the poor people get poorer because the the rich people don't give a [ __ ] about inflation because they they don't care whether a burger costs $1 more. So it's actually a very evil thing I think. Um, and so that's that's like the backdrop here.

Um, but yeah, uh, my So, yeah, now I I just feel like, uh, they what they're going to every because everybody knows about inflation basically. Uh, and everybody's seeing it higher than ever for for a long time. They're putting pressure on politicians and you know Biden's not wellliked in the polls and things like that and no one buys that it's like because of Ukraine that we have inflation. Um so they're going to basically say why why have you confiscated my money by printing money? Why have you confiscated my my savings and given it to rich people uh and basic or or given it to

the crypto um market. Um so it just sucks. It just sucks for people and it's always like this. There's always an overreaction to times of like crisis. Um and then there's inflation. Uh and now it's exacerbated with supply chain [ __ ] So, it's uh it's a it's not a pretty situation, but the government has to do something and the the Fed, their job is like to have a safe dollar, and the dollar is, by the way, doing well. Uh, you know, most everything it's doing well because everything's going down.

Um, so they're going to want the the inflation to come down and they're going to do everything. They're going to pop every single bubble that they created to get it down, I think. So, you're right, Richard. Like, that that's what's happening, right? Tiger is down what 60 or 70% off its highs. Uh, a lot of the things that Mike mentioned, the S&P NASDAQ is absolutely tanking. Crypto, right? Bitcoin and ETH look like they're doing well. They're down like 50 60%. Don't get me started on the other L1's, right, that are down like 70, 80, sometimes 90%. So, when you say like move out of ETH into kind of quality outside of obviously your hedge fund, where are you allocating capital? Where where is the quality right now in this

kind of market? Well um as as you know, we were just talking about my friend Olaf. Uh, I invested in in Poly Chain and so they pay me paid me out a lot as well in the beginning of this year. Um, Poly Chain for example, like Polychain is allocating only to crypto. So you are still allocate. So you're still long on crypto. It's just ETH specifically. Well, I don't have any money in the fund anymore. And uh I whenever they do pay me out like a sort of dividend, um I don't put it into crypto. Uh I put it into my own fund. Now, there's definitely going to be a time, I think,

when the markets crash a lot where I'm like, well, geez, now I definitely want to have some uh some more S&P or even more Ether. Uh but uh that doesn't seem to be like short-term what I would buy. So yeah, I think I have about uh $17 million in Numerize fund. Um and and uh we'll we'll put more in it uh in the next couple of months from this Ethereum sale. Um it's going to have nothing like the returns I should I should mention.

It's going to have nothing like the returns of Ethereum or anything like that, but it's going to have better riskadjusted returns. suck. So, uh, my interpretation of, so Jason just asked basically like in this, you know, as the Fed withdraws liquidity from the market, uh, and pops all these bubbles, where pockets of value, and you said a market neutral hedge fund, that's pretty bearish for the market overall. Like, if that's where we're getting returns from, uh, market neutral hedge funds and, um, you know, there's not that much else out there, uh, of value, I guess, in your opinion. Um, or cash.

Uh, yeah, or cash. Yeah, exactly. What's the time frame on that, Richard? like what are you looking for? What signals do you look for to say, "Okay, never mind. That that that period of time is turning. We're going back into a period where like I'm going long equities or what are you looking for here?" And what's the timeline? Yeah. Well, um I think it it depends how quickly things uh get smashed, but uh you know, it's always hard to get excited about crypto when you have something like Luna, uh which was, you know, in the top 10 of crypto or something like that. Um it's it's very hard because you sort of well, I know all of this stuff. If I look at the s of

top 20 coins, you can find seven that you know are going to zero. Uh then this is not a good time to be in crypto. Um and so if it got if it got to a nice clean world of like okay there's Bitcoin, there's Ethereum um and then there's a handful of other things. Uh and then I don't see too many too many dogs on the top hundred. Uh uh then but I think I push back on that Richard because if you look at the top 10 in 2017 you like Bitconnect right like we had some like glaring scams in the last month and then it went down so and then it went down and and then it went down. So, but that's my but that's my but that's my question is like so then Bitco Bitconnect popped in January like 15th or 20th of January of 2018 Bitconnect

pops and we really kind of drudged down for like two years and then March of 2020 uh was like max pain right March 12th I think it was 2020 and everything everything kind of just tanked 50% on that one day and boom going long from there you made a phen that was a phenomenal decision so in your mind are you looking for something like that or are you like I'm out of crypto I'm I'm done with this industry. I'm out of it. I'm I'm turning my back and and not looking back. First of all, I wouldn't call it an industry. That's that's giving it too much credit. Uh it's uh you know, people used to call it a space, the crypto space. I think that's more appropriate.

You don't you don't think something that had two trillion dollar market cap is an industry? Uh did you check it today? Well, now it's down to one, but yes. So, you don't think so? Yeah. Yeah. I mean, I I Yes. I would call it an industry. I would Yeah. Well, uh, no, I mean industries make products and the the if the product is speculation. So, if you think about if you think about what where are the where are the revenues coming from in the entire crypto industry? Who are the biggest who are the biggest people who've captured the most money?

The exchanges. It's exchanges. It's it's friction in transaction cost like on unis swap. Um so you got FTX, Coinbase, all these people capturing where what other revenue sources are there. So you your product is trading in speculation. But how is that different? I mean how would you define at a high level what is the product of Wall Street? Ah very good point. The finance industry wouldn't be allowed to exist if they weren't for this incredible spin-off benefit, which is all the [ __ ] companies in the world get financing and the companies are doing real [ __ ]

things. Uh, okay. So, it's like, uh, I don't really like look around you. Everything you see is made by companies who have access to capital. Maybe you can say to me, well, I'm in the metaverse. Look around me all of these NFTts are created on crypto or something like that. Maybe you can say that. But you can't say that the the social and public good benefits of the stock market which are critical uh or anywhere close uh to crypto. Uh people have said to me things like but yeah there was one guy in Ukraine who was in the in a war and then he moved all his money into USDT or

or USDC. So, I I disagree with that. I I know where you're going with that. That's that's that's [ __ ] That's like a tiny little use case or whatever. I think my push back is like I think I'm more optimistic maybe than you are on what this stuff creates in 10 years. And maybe it's too too basic of an analogy to compare it to the com bubble. It's overused. It's overplayed. I get that. But like, yeah, all these websites in 1995, like no one's doing anything with them. You're not transacting on them. And then useful things get built. And like I think I'm optimistic that useful things will get built and that the first thing that ever gets built is financing, right? And so yeah, that's kind of what like NFTts right now are is like financing mechanisms and ICOs and and Ethereum. Like these are all just early

ways to finance new companies that will eventually be useful um and and have products. But it sounds like you disagree with that. Here's what I here's what would be nice, I think, and this is maybe a world we can hope for, which is what if you could raise money in an ICO um and you didn't have to uh pretend you were doing a a community governance project. You could say this is a company and these coins we're giving you are shares and we are going to operate like a company um and like build real things um and that would be an amazing thing.

Do you know one of the first you know remember the DAO? Do you know one of the first projects proposed for the DAO? So this was the DAO. They had all this investment money pulled in from people and then they were going to one of the first proposals was can you invest in this French electric car company. Um, so the all the all these young people very enthusiastic about crypto and then they want to do something awesome like invest in an electric car company and then the government says this is a security. Uh, these people are taking investment risk. Um, it's much better. The regulators are kind of telling you it's much better if this was

an art project and had no value uh beyond the art value. Um, and it's much better if this was a kind of uh governance token thing. Um and so the sad thing I think is that all the energy of young people uh which is very powerful for moving the world forward uh those people wanted to make uh investments in companies but the government banned crypto being used for securities and so people found weird ways to make it be used uh for obscure kind of laring and it didn't

matter because uh the demand was so strong uh and the advertising was good. Yeah, I think uh I mean there's certainly there's certainly a lot of merit to that. I think a a lot of the weird uh circularity that I think gets criticized in crypto pretty fairly is uh has to do with securities laws less so than a genuine desire to like pay out uh contributors. I would say uh you know one one alternative way I would reframe this a little bit or maybe like an alternative uh timeline I could suggest to you is you know a lot of the speculation in crypto that it's very famous for like Dogecoin and Sheba Enu etc not many people who are actually serious participants in crypto like that in fact most people resent that it

exists at all um and I think you know in the stock market right where companies actually create legitimate products and services I don't think anyone's cheering for uh like not to pick on any particular companies but like the the Nickelas of the world right which somehow right um uh got this like whatever it got up to like 20 billion valuation at in Spackmania right that's a that's a bug not a feature of the government the Fed deciding to blow an asset bubble so you know instead of maybe looking at crypto as uh a result of the Federal Reserve pumping you know trillions of dollars into the economy causing all this speculation. There actually might have been a future for crypto uh or a

past for crypto where it wasn't quite so speculative and mania driven and it might have still worked like sons any of this ludicrous speculation around like Doge, Sheibba, these [ __ ] NFT projects, all that stuff like there is still a legitimate I think use case especially for something like Bitcoin. I think open- source smart contract uh you know like protocols where people can actually build applications on them and and kind of crowdsource that that there's a legitimate value being built there. The problem is it kind of gets overshadowed by this. So, in a weird way, I guess you could look at it as like the Fed created crypto with this crazy speculation. Or you could look at it as they actually made it a lot worse and a lot more volatile because one

thing I've been thinking about now having lived through multiple market cycles is it kind of sucks, you know? It kind of sucks. Like it would actually just be better if it went like this, right? Instead of like this because it's actually very hard if you are trying to build a legitimate business to plan because you don't know what demand is real. You don't you don't know how to build into your revenue forecast. It's like very very difficult. So I I my my my framework on is not that the Fed actually created crypto. I think they actually made it worse just like they made the stock market worse.

I think there's something to that for sure. I mean the one thing we know so you know all this is like kind of a strange coming for me because I created a cryptocurrency. It's on Ethereum and uh we could we would not have existed without it. It's so critical for our business and and the functioning of the business and we have no plans to leave Ethereum uh with our cryptocurrency. But one of the things I started saying to our communities, I mean trying to tell them, you know, and never try to I try to never hype the coin in any way. Um I try to say what we really want from this coin is for it to be low volatility, uncorrelated from other other things. that's the only

things we should be optimizing for. Um and and you want some volume and liquidity and and stuff on other on exchanges, but I think and so it's strange to say that like I have uh at one point I was a billionaire in uh in NMR and I don't I'm not trying to get back to being a billionaire in that way. Hey, I don't mind becoming a billionaire for my hedge fund, but um I want the coin to be like sensible. I don't want people to get overly excited about it. I've had people like kids [ __ ] emailing me after we we gave away the coin. We didn't even do an ICO.

We just gave it away trying to be nice guys. And kids, like 16-year-old kids emailing me telling me like I should burn the coin because they put their life savings into it. And and I was just like, "This is so weird." Like this is a coin for like a data science community of like a few thousand data scientists that are like math machine learning geniuses and now the volatility of our coin is affected by this speculator class which has absolutely no purchase on what what they're even doing. Um, and those people are being onboarded onto these exchanges, kind of sold a story.

Uh, you know, like I don't like this stuff like FTX paying celebrities to like renaming stadiums. Like it's gross. Everybody knows it's gross. But that's just marketing. That's not a crypto thing. That's a But what are you marketing? That's a marketing. But what are you marketing the you're marketing that a user should come buy and sell things on your platform instead of going and sell buying and selling on another platform in the same way that Figure and uh all of these other all SoFi are big sponsor Robin Hood you know they're all big sponsors of sports they know there's a kind of implicit thing that like you can make a lot of money if you get involved in this

I mean it's might might even be explicit I think Binance is even explicit you can get a lot of money. You make a lot of money if you're involved in this. Um, and you know, as I I made a lot of money being involved in this, but there's a sort of limit to, but no one was marketing it to me. No, no. I I I do think you make a really good point there, Richard. Like, and we're seeing it with US, like there should probably be better. I don't I don't know. I hate like disclaimers or whatever, but some some better understanding of the risk that you're taking. Yeah. I've actually I've got a question.

Sorry, Jason. high level what is the alternative? So people like here here are two um here are two kind of narratives or schools of thought. Uh every investment opportunity there should be a free market. Investment opportunity should just be there for anyone to take. And then there's one where it's like people should actually be protected. All right. The the crypto what you were looking at in crypto is the free market. That is what the free market looks like. Highly less regulated. That is the natural outcome of that. The pros is that anyone can do it. Anyone can get in. And yeah, there's some like shadiness involved, but it's not in the other.

It's not I know what you're saying, but it's not quite the free market because it doesn't have all the assets. So those people that are in the free market for crypto cannot buy Apple stock cannot invest in Numeriiz hedge fund. Uh cannot and that is a regulatory issue. Correct. I would basically correct I what I would actually say is it needs to be way more free the market. All right. But like but like right at one point the stock market was like crypto. It was like anything goes blah blah blah. And then eventually someone said, you know what, I think that marketing is like a little bit gross and I think it's too risky for these people. And they and you

layered on these successive rules and you got a C SEC, a CFTC, and that's and that's what you have in this system, which essentially says we are going to protect you people. Um, and we're not going to let you take this risk, but uh in the process, we will eat that risk and we will reap all the rewards at a high level, right? Those are kind of the trade-offs. And I actually think like a lot of the problem that we're problems that we're facing today is the the result of of creating that system where only a select amount of people are allowed to take risk that only they really understand because everything else has been watered down. And don't confuse the the mob you know like we're looking at the inevitable result I think of system A and crypto is just going in the crypto is a counter

it is a overreaction to everything that is wrong in the system. That is how I view crypto for all its pros and cons. Exactly. I think that's exactly right. And and there's so much of that that I've seen. I mean, early when I came to America to start Numeraai, um I was shocked that people I met, friends of mine who were like in their 20s, um couldn't uh invest in my company uh because they weren't accredited. And I was like, this is the [ __ ] United States and a college educated person can't invest in a company that is that was like bizarre to me that that's a that that's a thing. There couldn't be

anything more evil than that law. Um and uh it's it's so harmful and and so you so you think well the law is protecting the investors and it's like oh really now that same person who couldn't invest in my hedge fund uh goes and buys coins and goes and buys gets leverage on Binance and all of that trading activity is in a kind of fake economy that isn't driving any real uh business. I mean, the more volume there is in Dogecoin, I hope you would agree, there isn't more activity in the real world. Whereas, if my company didn't get an investment, we wouldn't be here and

we wouldn't have employees and we wouldn't have built technology. You know, I didn't really connect this until right like, all right, one of the big travesties of what the Fed did in 2020 was the pure the the magnitude of the misallocation of capital. And look at where every one of those stocks, the ones that went like that, look at where they all are now. They are at or below their previous levels. All of them. All of them. It's nuts. Um, and actually I think crypto suffers through that same problem. Like if you were in the space, like I am a believer in this space. Um, and a little part of me dies when I look at the top 10. Yeah.

I And I see Dogecoin up there. Like what the literal why, you know? And I think that's probably, you know, like these old these like oldtimey boomer stock market investors who are like GameStop is the devil. And it's because they believe in the system and they're like, "This is a mockery. This is a mockery of the damn system." And it's I think it's the same base instinct. You're like, "What the hell, man?" Yeah. What the hell? You know, uh I don't know. I think it's the same urge. Capitalism. Uh, you know, the the amazing thing is if you kind of let people do their own thing um and invest freely and they have a free market for capital, uh, good things will happen.

And the the free market for capital piece is is what we aren't. The exact definition of capitalism, you have a free market for capital. Nope. It's controlled by the Fed, the capital. uh the the interest rates. So, it's like uh this is a kind of strange world to operate in because now I've got to like like even like I've got to like be like, well, this is like I was saying earlier, there's certain types of bubbles the Fed will bail out, but there others they won't. So, I'm like, oh, what type of crash is this? Oh, it's a tech crash.

Oh, then the Fed's not going to save the market. And it's this horrible world and you're not no one no one can think clearly uh about what to do with capital if if there's all these alterations uh by the Fed all the time and uh and I don't Yeah. So that that's pretty annoying. Super annoying. I it makes it really difficult like on a it actually impacts like Jason and my life, right? Because as as a business owner what you're trying to do is you like people always call it forecasts. You're not forecasting when you're setting revenue goals. You're setting targets, right?

And you're saying, "This is how much revenue I have. This is my profit margin. This is how many employees I think I can hire in a year." And the Fed is doing explicitly is creating demand. Like liquidity equals demand, right? Liquidity equals credit. Credit equals demand. So therefore, when the when the Fed pumps liquidity into the market, they're pumping demand into the market. And like that just sucks because you you never know what's it's hard. harder to parse out what is legitimate organic demand for business or what they can just take away like that right is difficult I was I had a startup during this big bubble of tech and and low interest rates now there's someone who's happening who happens to graduate from Stanford today

his life is going to be completely different because of Fed decision making he won't be able to raise money for a startup as easily as I was able to and there'll be 10 other problems uh created by this uh this basically distortionary influence. So the market by the way the free market without the Fed's influence would also have ups and downs but in some ways I could take those more than these. Yeah. Though you could argue though though though you could argue that now is truly the best time to be uh getting into like being an employee at a tech company now. Now now like getting in right now is the best time. getting in maybe last year, the year before, uh you probably have a bunch of RSUs that are

you're never going to be in the middle of those things, but now actually is probably one of the best times. Um, Richard, I want to ask you, so when you think about I I still need to pull out more of your thesis on crypto because I'm still having trouble understanding if like you don't think the investment is there and the investment is is not where you want to allocate your capital or if you or if you think that NFTTS, Dows, all these layer ones, like if you just think they don't they won't they're like they're they're going to zero because when I think of something like a Dow, I'm like or just honestly crypto in general, like get get smart contracts, get crypto out of it, change the word crypto to something else. The world is going more digital. The world's going more remote. The world's going global

first. The world is going uh issuing equity is an absolute nightmare. Uh working with my current with Wells Fargo and Bank of America and JP Morgan is an absolute nightmare. And no one's fixing those problems and no one's building for that world. And when I see crypto, it's like you're building better financial tools and you're building for like a world that's global and remote and digital first. So get all crypto stuff out of it. I just feel like crypto is kind of building for that world. But it seems like you might dis you okay so you okay I think it is but I also think why why is it annoying and hard to to use to use a bank website or make a transfer um and I used to think well the banks can't attract any talented you know front-end

engineers because they're not cool and so they're never going to be able to make their products good um or useful. But then I I now actually feel differently about it. I think like they can make it good. Um but they like uh yeah they're the talent that was taken away to Silicon Valley. They the they can make it as good as they want but the regulations will make it hard. So uh like I've had so many issues with my bank you wouldn't even believe. like I it's just like every few days they'll like call me about something uh or like

freeze my account when I'm traveling or like all these types of things that you do and they're doing it because there's some law that they're reading like the letter of the law and they're saying now you got to do a KYC flag on this guy now you got to do this now you got because it's a fraud now and it's like all this stuff but I don't think they would do it if they like didn't have to do it so it's the fact that crypto is not really pay following the laws because it sort of can't because it's decentralized. Um that that's why it's a bit easier to do. It's not because of the technology as much as people might think. I think uh question for you on that. So, you know, you could make a very similar argument and people have uh about the

internet uh and the internet essentially as being a a gigantic regulatory arbitrage in general, right? Taxation is different, labor is different. uh and you you could have you could have been standing there, you know, shouting into the wind that hey, it's not really first principles uh why the internet is succeeding, but here we are. And you know, as much as the the one thing that I always push back on a little bit when I because I listen to these macro shows and I I I love listening to these guys and I I I agree. I think tech has gotten way out ahead of its skis. I believe in interest rates. I believe the Fed has blown asset bubbles. But then I start then I sit down and I think to myself, okay, but is the world going in the when the world when all this process

reverses? are suddenly steel and coal companies and like you know manufacturers are they gonna become the sexy companies again and I gotta tell you I don't think they are. I think it's a one-way track and I think the Fed has like blown it and they can exacerbate the problems but the world is moving in one direction and like valuation might have gotten out of whack but like I used to be a consultant. I used to work for these like big manufacturers, these distributors. The world is not moving in that direction. I got to tell you, they basically exist so that people sorry in like the Midwest have like jobs and can support themselves. Like it it need oil companies uh you know like and they are doing extremely well right now.

Warren Warren Buffett when by the way Warren Buffett's beating the S&P this year by quite a lot. And Warren Buffett's beating the S&P. because the basic stuff like bubblegum companies and oil companies and stuff are are kind of more attractive than the tech stuff. So, it's a hard year to have crypto be a good year. I know I and I'm like kind of being facitious here. I I know they do legitimate good work. I totally understand. I think we're all getting reminded of that frankly right now. But, uh but you know, I I do I do also think at the same time the core premise holds like my gener like the millennial generation, the Gen Z generation, it's clearly moving in in one direction. I don't I don't think I don't see those companies successfully competing for for talent uh moving forward into the future. And I I will say, you know, one

thing that's always given me hope uh for crypto throughout booms and busts and whatever is the immense amount of talent that it attracts and something that's invisible to folks who haven't been in the industry for a while. You know, when Jason and I, we first started throwing these events in 2017, it was like I don't want to segment people like this, but I just for simplification purposes, I'm going to say like 75% like the equivalent of dogcoin memecoin traders and like 25% like real ex like goldman, like real people trying to build real stuff. And it's flipped. It's definitely now like 75% really they consider like this is the industry I'm going to spend my career in very legitimate actually trying. And then you still do have like 25% of people are like flipping dog coins and they're like

happy to tell you about it. So well I think that's if there if there's any but that's probably because of the price. Um so the the the FTX um can recruit people because they're a valuable company now and their coins are valuable and on and on and they're benefiting from all this stuff. Um, and so suddenly normies on Wall Street start saying, "Oh, I read this newspaper article and then I went down the rabbit hole and uh now I'm in crypto." It's like, yeah.

Oh, really? You're inspired by crypto in 2022, uh, 13 years later. Oh, really? Yeah. So, there's a lot of those kind of people um that they're trying to do their best, but they're they're a bit normie because they're just responding to to price incentives uh and then retroactively making a a narrative about it. Uh, so I would say that yes, there's a lot more people in crypto, but maybe they're only there because the price mechanism, the sort of failure of the prices of crypto to be realistic has created a way for, you know, A16Z to pay

$20 million to a lobbyist uh to go lobby about crypto. Yeah. So, not saying that again, I'm not bearish on crypto. I didn't say in my video it's hasn't it's going to zero. I didn't even say it has an expected return of zero. I just said the risk adjusted returns are not even remotely as good as they used to be. Yeah, I I think that the riskadjusted part of that is super important to keep in mind. And you know the other thing uh is the stock market has right in in past uh generations. I mean it can trend sideways or down for like 10 years right I mean just this up only thing does not

necessarily have to continue at infinitum and yeah I don't know I think I think overall I mean you know what is encouraging actually about crypto as well I but first of all I agree exactly with your model I think people get sucked in by the price but then some of them stick around. I mean frankly that's what happened to me and Jason like both of us got sucked in by the price and here we are 5 years later. Um so there's something to it. um definitely lost a lot of money in the beginning but whatever. uh you know so I think I don't know um prices are prices are what one of the things people don't really get Elon Musk actually says this really well it's like prices prices of things it's not that important what the price is what's important is like the what they do if

you have the price of things be really distorted um like then human beings uh like human capital gets misallocated so you could have a situation where and I'm not going to be too negative here, but like what if all of this stuff that's been happening in crypto is like 10 years of completely misallocated uh efforts. The the fact that like there's like thousands of people who like millions of people who have all this knowledge about like layer twos and like the merge and like this kind of stuff. Maybe all of that is like fake

knowledge. Like they've just been reading like a sci-fi book and then and then they're just Sorry, hold on. Has that ever So I I think I love how you said that about what if all of this misallocation of capital is really becomes a misallocation of human capital. I I think that's such a brilliant way of framing that. But when in history have we ever had something like innovation that's out of a bag like something new is created and a massive amount of capital and human talent comes comes into it. There's always booms and busts, right? Oil, railroads, tech, internet, there's always booms and bust, but it's but it's really hard to put the, you know, the genie back in the bottle, right? And like that rarely happens. So this would be like a one in a hundred

time where like the genie's out of the bottle. a trillion dollars of capital is flowed in, hundreds of thousands of people, and then it just all kind of like goes back in the bottle, you know. Yeah. I I think um it's uh it would be, you know, I don't think that's what will happen. Um, but I think the key to making it not be that way where this has all been like a laring experiment is to have real securities be on the blockchain all over the place because suddenly then the blockchain is uh the tech's being used for something that is

like clearly perfect for you know small private companies making making stocks. Um, but there has to be some regulatory framework for that, I guess. But that would be a bit better than like, hey, we're make doing an NFT, drop, you know, look at these pictures. Uh, join the Discord. Uh, [ __ ] you. No, only live once. Uh, we can do better, guys. We can build more. Yeah, I hear you on that. Um maybe uh you know to use your analogy Jason for the railroads uh I think for me the big difference is just time in general like stocks assets correct in price or time and the people who laid the foundation

for the railroads didn't see the returns they got way out ahead of their skis a bunch of capital got raised it laid the found laid the railroad tracks and then like the next wave came in and they built the the trains and they made all the money. Uh so uh I I don't know. Um yeah, I think I guess that could that's exactly, you know, maybe what's what's happening. Um like and by the way, again, my entire company that I'm putting my life into and all my money into could not exist without Ethereum staking. Uh so we're using it for a thing that works really well for what we're doing. And I think there's many other people who will be able to find use cases uh for it. the scaling stuff in some way is maybe the

problem. Like I think Twitter would have turned on um stake your tweets, stake your profile to get the blue check mark. They would have turned all that on if Ethereum uh was kind of working by now. Um and that would been would have been fun. Uh but but and they'll get there, I think. Um and that will make the internet more useful. Maybe um Richard like one thing. So I I I completely understand the concern um and critic. I think a lot of it's I would push back on some things, but I think a lot of it's valid. What is within crypto like can you describe to us like originally what is it that drew you in and like what is one thing that you're still like positive on or excited

about or like this if it if it just worked this could be pretty cool, you know? Yeah. Um there was actually it's funny we're mentioning um Olaf and Polychain and I remember he came up to me he was almost like working next to us. He was like working in our office uh uh at at a time and he said you know there's this project called um uh maker and uh should we put some money into it and Olaf's fund had $2 million. Now it's two billion I think. Um, and I was like, they're making a stable coin. Oh my god, this would be so valuable. I even said to him, if the only thing that comes out of crypto is a stable coin,

that would almost make the whole thing amazing. Like, you have this sort of Bitcoin, which is like your digital gold that's scarce. And then you have stable coins, which is like, you know, your Swiss bank account you can keep. And I was like, even if that works, if only that works, crypto will be a really amazing thing for the world. Um, and so when I look back now, we do have stable coins. Um, they're just terrible. Uh, makers maybe a better one. Um, so when I do look back, I actually think I think there's some sense of like I'm disappointed, but actually if I look back, I'm like, this has been amazing. Like I think

there's plenty of good stuff that's happened in Ethereum. Um the one thing I hate is how much it's kind of about speculation and trading versus like solving problems and like Numera's use of staking. We had a huge problem that was going to break the company which is that we couldn't trust the models we were receiving and by forcing people to stake them we could now trust them because they had skin in the game. And that small thing uh is super powerful. Uh, and so yeah, I I I think uh I'm not I'm not that I'm not that I'm definitely not anti- Ethereum as a technology. I was very enthusiastic about it. I loved the idea of like internet finance, all this stuff

was so appealing to me that it was very inspiring to me. I was reading the Ethereum white paper at work as a quant and while reading it I had these quant papers and they had the Ethereum white paper and then I sort of like put them together to make Numeraai. So all of that is a very important part of my life and so I I I still am enthusiastic about Ethereum as a as a potential. All right. I think uh you've already been super generous uh with your time.

Richard Jason, I don't know if you have any other closing questions, but it's been great for me. You made me think, Richard. This has been really really interesting. Yeah, really, really interesting. So, I appreciate it, Richard. All right. So, so what's next for you, Richard? Are you close are you turning unfollowing everyone on crypto Twitter and just uh running the fund and and turning off your crypto brain? Yeah. Well, I'm making some um might make some enemies being uh honest, but then I think maybe more people will be honest. I do think in private a lot of the people insiders in crypto that I know are like, damn, this is kind of getting a bit out of hand. Uh but don't say it publicly and I think they should.

Are you going to make enemies with future videos? Do you have more videos planned? I don't I keep saying I should I need to try to stop thinking about this. What? I have no [ __ ] skin in the game anymore. So, I need to just uh work on my hedge fund, which is doing dandy. Nice. Well, congrats, man. I'm I'm happy for you. It's been awesome seeing what you've done with New Mariah, and it's cool to see Yeah. 2017 is this just this little thing that recently launched a token and to see what it's turned into. Uh yeah, super super happy for you and uh just impressive. And yeah, we're rooting for you. Even though we tend to disagree on some of the crypto things, still rooting for you. So, Well, I'm also, you know, trying to uh

again make a case that I feel I always I always it's always good to think have both cases. You can make both, right? I agree. Yeah, I think so, too. Yeah. Yeah. Indeed. Indeed. Yeah. Awesome. All right. Well, be well. Um and we'll talk soon. with [Music] whatever.