Look, there are real concerns
about inflation right now.
Buy gold. Buy gold. Buy gold.
And basically all the big gold
macro guys are saying that.
None of them are saying buy Bitcoin.
Prevailing narrative that Bitcoin is a store of
value is the only narrative and that is
failing in a world where we've seen two
trillion dollars printed overnight by the US
government. And so I've been thinking, you know,
in the event that Bitcoin doesn't break
out and actually become
modern through the world.
What else could all of this kind of play out?
Something else fill the gap.
Because if there is demand for global
currency, global payment rails, settlement rails
and Libra can fill that gap.
And people want that, then
that's where it's gonna go.
What's up, YouTube? My name is Jackson.
Today, I'm joined by co-founder of Multicoin Capital,
Kyle Samani and CEO of Civic, Vinny
Lingham. How's it going today, guys?
Hey, how are you, Jackson?
Great to be on the show. Hey,
Jackson, good to be on the show.
Thank you. Yeah, thanks for coming on, guys.
So let's get started.
Kyle, you are the co-founder and managing
partner of a crypto investment firm.
And Vinny, you made the first ever
Bitcoin investment on South Africa's shark tank.
How do you search for companies to
invest in in the crypto space?
Yeah. So, you know, we do a lot.
I mean, broadly speaking, there's two ways
to make investments inbound and outbound.
So on the inbound side, you know, we've
written our three legged theses on our website.
We publish those and share them with the
world, hoping that the companies that, you know,
whatever they're doing fits in one of those theses,
it should be obvious that we are a
good fit. And we generally make a pretty
concerted effort to be engaged in the community
online, going to events, sharing our thought leadership
so that we can send signals to
the entrepreneurs up there that, hey, these are how
we think and why we think these ways,
and that if you're building something that is
aligned and how we think then you should
reach out to us.
It was a very effective practice
over the last couple of years.
That kind of covers the inbound.
On the outbound side, you know, we internally,
just like we are reading and thinking and
learning all the time. And occasionally we
got to have a conversation internally where
we're like, hey, like, this is a
big opportunity, let's go find a team.
And when that happens, then we will
start using systematically, just like calling
everyone we know, looking at all the companies
tangentially, you know, in that space and
trying to kind of try and find the
right company to really express that view.
I know we've been fortunate to do that
now and on a couple of different instances.
Vinny, so I'm curious, how do you appraise
a company, start up token or project you're
thinking about investing in?
Is there a set of criteria that you use
that helps, you know, when you look at that
company? That that's the company I
want to be invested in.
Look, everyone's different, everyone has their own sort
of mental models for how they look
at these things. My personal one is I look
at the founder, the team and what they've done
before. And so the history and
past and the area of expertise.
And that for me is the most important thing.
Because in the start up world
you're going in really early.
Things are going to change.
It's going to be pivot off the pivot.
It's going to be you know, it's just
there's so much variability, right, in the tech
world. And the industries are
so volatile as it is.
So it's always about the team. Can
they stick together all the way through?
Will they keep fighting for survival?
And then once that's once
it's clear that hurdle.
OK, what problem is this
team trying to solve?
And do I believe they have the background and
the technical expertise to go and do it?
And often I find that they have
the passion, but not the technical expertise.
And I always advise and go find a
technical co-founder, find someone who can help you
build this. And those are the
things I'm an early stage guy.
I'm a, you know, series A seed type investor.
I want to just to back the
team to go get it done.
Kyle, what does your criteria look like?
Are there any specific or key indicators
that you keep an eye out for?
Yes, as many kinds of suggest that every
investor is different in how they prioritize
things. And that certainly
varies across stages.
I tell you that both myself and Tushar, my
co-founder, we are very, very focused on market
and really understanding the
size of the market.
The existing players, you know, wedges to kind of
build a footing and then how you can
handle the footing, what's kind of
your asymmetric insight about that?
And those are things we spend the majority of
our time and effort on is really, really
focused on market. Once we are comfortable with
the market, then we really, really go
into the founders because at the end of the
day we're going to work with these people for
a long time. And so getting comfortable that
they are you know, they have the right
founder market fit. All in all, the more time
I spend investing, the more time I really
value the importance of counter market fit
because being a founder is really hard.
And like if you don't have the right story
and context for why you're doing what you're
doing, you're going to give up, you're going
to give up eventually, you don't have
talent along the way.
And making sure that we really understand what's
motivating the founder to pull that off.
This is kind of our next big thing
after we really understand a market structure.
And I mean, we saw a
lot of projects, especially in 2018.
And I guess that sort of tapered out in 2019.
How do you see the number
of crypto startups and crypto projects?
How is that number evolved
over the past few years.
And where is it now, Kyle?
Yeah, so I'd say that on an absolute basis
for the number of companies as decrease from
the peak, which is probably called a mid-18, but
there was just a lot of noise in that,
so I don't kind of put too much view on that.
Today the number of teams is lower.
Or new teams, I should say, is lower.
But there's certainly higher
quality signal teams.
The people who bother to stay in crypto at
this time or who have gotten into crypto even
after the crash are typically the kinds
of founders you want to back.
And so the signal to noise
ratio has increased quite a bit.
Do you agree with that, Vinny?
Yeah, I think so, too.
I always like, I've always spoken about the
tourists, you know, people who come into
industry when it's hot and when it
fizzles out, then they just leave.
And then when they realize everything's taken off
and they want to get back in again.
And we haven't got to the point where
they want to get back in again.
But the same thing happened
in the dot com era.
You had people like quitting their jobs as
teachers at schools and firemen and policemen
all jumping in to start companies and the
dot com era like literally, these are famous
stories. Same thing happened in 2017 where people
who had no business being in this
industry in tech were coming into the tech
industry and they were like people from social
media and whatever else.
Trying to become technologists in a tech
startup and they just can't easily contribute,
in the moments when things get tough they go
back to what they used to doing, what they
know how to do well.
And that is definitely what's happened.
Yeah, because we saw a huge influx of
people and then we saw them all leave.
And the people who stood behind, the guys
are still sticking up through the tough times
like myself, Kyle, the founders
that we back, etc.
These are the guys that are actually going to
build the future in the day because they
stuck out through the hard times because
it doesn't get easy, it gets harder.
And if you're not willing to stick it out,
then you just don't have the passion for the
industry. And then you should go to
the industry you do have passion for.
So let's switch away from talking about the
crypto space and let's talk more about crypto
itself. Kyle, you recently tweeted: "What if the
ultimate use case for crypto is not
non-sovereign money, but just global payment rails
in which all assets are bearer assets
?" What role do you think crypto will play
in the future of the global economy, Kyle?
Yes. So, you know, one thing that's right
now is a really interesting time thinking about
crypto. A lot of the kind of quarterly and
monthly Shedge fund letters from the big world
macro funds are coming out now.
So Bridgewater, Oaktree, Elliot, a
lot of these guys.
And a pretty common theme you're seeing through
all of them is they're saying, look,
there's real concerns about inflation right now
buy gold, buy gold, buy gold.
And basically all the big
macro guys are saying that.
None of them are saying buy Bitcoin.
And so that is a little concerning right
now, saying like, look, like this is almost
certainly the largest kind of inflationary.
This is likely to be the largest inflationary
crisis of the last hundred years or maybe
the last 50 years. And people are saying
buy gold, not buy Bitcoin, even though Bitcoin,
in our view, is objectively better than gold,
that actually being a store of value for
all kinds of reasons. And
so that's a little concerning.
And so I've just been thinking through, well,
what if this just doesn't break through and
goes around for thousands of years?
And so it's just very hard
to break that amount of inertia.
And so I've been thinking, you know, in the
event that the Bitcoin doesn't break out and
actually become modern digital gold, what else could
all of this kind of play out?
And then it's kind of I'd say very obvious,
very, very large market is using just the
crypto payment rails to just facilitate
large scale global commerce payments.
And so it really borrows probably like
the strongest instantiation of this where they're
saying, look, like we're going to take
this technical framework that like crypto really
pioneered with public key cryptography with an
open ledger, with all these things, buying
assets — the bearer asset.
And we're going to focus on scaling that out
to support billions people and make it as
cheap as possible to make
payments work around the world.
And it kind of enables smart
contracts on top of that.
And that to me is,
although it's not the same.
It's a very distinct vision from
just digital gold for everybody.
It is a still a massive scale vision with
a strong, strong focus on enabling people to
change how they interact with money.
And I think a lot of the crypto people
who are just digital gold bugs are kind of
missing, missing that just different framing.
Vinny, if Bitcoin continues to fail as this
digital gold, do you see this outcome as
occurring as well? Well, I mean, you
say the outcome of people using alternative
currencies. Yeah, I think that's what
I've been saying for years.
I said if Bitcoin can't scale
- Lightning Network doesn't exist.
Can't really scale. It's no way,
right, after three years of waiting.
It was supposed to be ready
18 months time back in 2015.
So Lightning's not working.
There's no way to scale Bitcoin for
it to become a payment rail.
So then prevailing narrative of Bitcoin is a
store of value is the only narrative and
that is failing in a world where we've
seen two trillion dollars printed overnight by the
US government. Governments around the world
creating money, Bitcoin's failing to rally
not even like to its January highs.
Its all time highs.
Right. So this is a big problem.
I think that the narrative because like I
never bought the narrative of digital gold, but
I do buy the narrative that Bitcoin
could be a global payments rail.
But that would mean the block size increases,
etc, which nobody wants to do in the
community. So it's stuck in
this store of value hypothesis.
So what happens? Something
else fills the gap.
Because if there is demand for global
currency, a global payment, real settlement rails
and Libra can fill that gap.
And people want that, then that's where it's
going to go because ultimately utility is
going to drive value. And so if it
is utility moving money cheaply around the world.
And there is also services that can do it.
It's going to take off to the largest,
and I agree with Kyle on that.
I will say, though, I do disagree around
what the inflationary aspects of the money
printing that has been happening is.
Right. Because what's really happening is that the
US dollar is gaining in its dominance,
right, in its index on other currencies around
the world, because other currencies — So
the COVID-19 crisis is causing governments and
other currencies around the world to fail
and that is slow failure.
But it's failing because those currencies are
really running very high deficits and very
close to the line and debt
to GDP ratios, which are absurd.
And now the economies have been crippled by
COVID-19, they have to print more money.
So particularly Gresham's Law kicks in and
people start spending that currency, but
they're gonna stop putting
their savings into U.S.
dollars. So there's like demand
for US dollars globally.
And because global money supply is 70
trillion, you print 2 trillion dollars.
It doesn't really make a huge impact in
the money supply, especially since most of that
is dollar based or dollar denominated.
And there's demand for more.
So as we see the rest of the
world moving towards dollarization effectively, I think
Paul called it that.
The inflationary pressure of the dollar is actually
very muted at the moment and they can
probably print another two trillion dollars and not
see inflation rear its ugly head just
yet. So it's too soon to
tell when inflation kicks in.
But for now, the dollar is the
store of value for the world.
Do you think that crypto will ever have the
power to displace the dollar as the dominant
global currency? Potentially, I think there is
potential for it, but the real question
is, is it crypto native, which is like
something like Bitcoin or Ethereum or is it
tokenized currency?
There's two very different things, right?
Tokenized dollars is not replacing
dollars in a sense.
It's just moving into a
transportable, you know, form factor.
Right. It's moving from bank
accounts to a distributed ledger.
It's still the same amount of dollars where
something native like Bitcoin or Ethereum is
a totally different asset class.
What are your thoughts on this, Kyle?
Yeah, I'm pretty skeptical that crypto is going
to replace the dollar on any time scale.
In the event the dollar is not the gold
reserve, that is a scary, scary, scary world to
live in. And I do not want to live
in that world because that transition will be very
painful. I think crypto can challenge a lot of
long tail fiat currencies, but I think the
dollar is out of the question.
How do you see the current COVID-19 crises
affecting cryptos role in the global economy
now and as we move, as we
potentially move out of the crisis?
I think that there kind of, there's a
few lenses, the big obvious lense is that
governments around the world are engaging in
large scale quantitative easing and they're
monetizing — they're printing money like crazy
and monetizing their debt by printing new
money. This is definitely the largest
monetary experiment in human history.
And I'd say it is relatively intuitive that there's
a lot of risk here and this could
really backfire and just kind
of create an inflationary spiral.
It does not happen. I'm not saying it
will happen, but it is a pretty reasonable
conclusion to draw that the risk of
that happening is increasing by the day.
And if that happens, that's probably good
for Bitcoin, because Bitcoin is disinflationary
fixed fly. So I think that's a pretty obvious
case for crypto coming out of this crisis.
I think the other ones that are a
little more interesting, that are more nuanced is
looking at as consumption pattern
changes, travel patterns change.
How can you use this technology
to kind of ride those trends?
So like video is booming, right?
Like Zoom and all these things
are blowing up right now.
There's some unique crypto enabled technologies
such as Livepeer that make it
dramatically cheaper to transcode
video at scale.
And so like that's very under-discussed and
we're fortunate to be large investor in
Livepeer. Music, right?
Concerts are like and like large scale public gatherings
are not can be a thing for a
while. And so artists are looking for new
ways, like new channels for distribution, new
ways to remix their work
and other artists work.
And there's companies like Audius that are super
focused on trying to facilitate that kind
of new creative consumption.
And so I think while those aren't nearly the
same sort of macro scale as gold or digital
gold, I think there's a lot of kind of tail
use cases where crypto is going to be a
really powerful enabling new technology.
And we're really excited about some of those.
Vinny, do you also see COVID-19 as spurring
the integration of these more niche by use
case tokens? Yes and no, I think there's definitely
going to be some of that and I agree
with largely what Kyle said there.
I would add that I think COVID-19 does
bring in some concerns around governments being
undermined in their efforts.
So imagine this, right?
Imagine you have an isolated economy.
I use South Africa, for
example, because I'm South African.
Imagine that. You know, the government's printing
money to keep social welfare going
because people are starving right now.
The country's in lockdown.
It's a total crisis. The IMF is
giving them 80 billion rand, etc, etc.
There's 500 billion rand stimulus package, about
30, 40 billion dollars less out the
change, the fluctuations. But the point is people
there are using the fiat onramps to go
from their local currency into Bitcoin or
into whatever cryptocurrency they want to sort
of protect their wealth from
the governments eroding the currency.
What happens when the government sees that this
is happening in such a large degree that
it's undermining their efforts and it's weakening
the currency even further and creates a
hyper inflationary sort of spiral?
Right. Is it everywhere? If nobody locally
is in a sort of controlled geography.
Once the local currency goes, the government is
failing and the economy is in trouble.
There's a COVID-19.
Governments have to stop the fiat on
ramps into crypto for that market.
They are going to if they haven't already,
and in some countries I know they have,
they're going to other countries the moment
they see the spiral out of control.
So it is interesting that there's this, like,
barrier, if it becomes even slightly too
much of a threat for a government, they're
going to show it off in certain countries.
Now, that doesn't mean it globally doesn't have
an impact, but this means of that country
demand it'll go become a black
market currency in those countries.
So Bitcoin in particular.
But it is interesting how there is probably some
sort of limits on what, I mean the
institutional buyers would just be locked out
in that country with institutional buyers
right now could legally go and buy
Bitcoin to hedge themselves against rand devaluation.
If the government outlawed it, they
just couldn't do it, right.
So you'd only have retail buyers and black
market traders and that reduces demand for
that currency. So it's kind of weird.
Kyle, what do you think?
I think that's what's going to happen in
some countries when people start fleeing out of
their currency. Yeah, I think that this
kind of global monetary experiment, the first
order implication is not the
crumbling of the dollar.
It's the crumbling of long tail fiat.
And those people are probably going to
flee their low budgets for the dollar.
And so that to me seems like the kind
of first order impact and I think Libra could
potentially over the next few years just line up
as the kind of perfect way, before the
actual rails to make that happen.
But so does the government start banning Libra
right wether its Libra or Bitcoin like this
is reflexivity sort of feces in this
effectively that the more successful these cryptos
become against local currencies then more goverments
just react viscerally towards it and
block it. So then it doesn't actually gain
traction in that market because of that
reflexivity. As we move forward with COVID-19
and from an investors perspective, what do
you think is the most important aspect of the
crypto space that needs to be developed in
order to enable growth of the space?
I mean, I think the most bullish thing that
could happen would be a large number of the
global macro hedge funds saying buy Bitcoin.
I think the next most bullish thing that
could happen would be CPI, consumer CPI
increasing, which for the last
decade it has really not.
And I think those two things would really
drive that kind of narrative for crypto.
At this point, the actual
market structure is there.
The exchanges are there.
The fiat on ramps are there.
The derivatives markets are
there, they're mature.
You have futures, you have options, you have
a spot, you have global access, like you
have custody, you have prime brokerage, you
have banking like all of the market
infrastructure is finally there to
support large scale capital inflows.
And so I actually feel pretty good that if,
you know, people wanted to move a trillion
dollars into crypto, it would be doable
today with the kind of infrastructure that's
there. What's not there is the people recognizing the
need for this and why this is, why
this is a step function better than the
kind of technology solutions of the past, like
gold. Vinny, do you see
those same points of growth?
I'll add one thing to that. I think what what
I think is still needed is the scaling of
all transactions and transaction
fees and cost reductions.
If you look at Civic wallet launching soon,
you know, we're in testing right now, beta
testing. And one of the biggest issues we
really do have is the cost of Ethereum
transactions for stablecoins can be quite
high, especially the micro transaction side.
And so Ethereum needs to figure out scale or
someone else needs to replace it with a more
scalable, cheaper solution.
So, you know, we're obviously back as
in Solana, we think Solana's technologies
fantastically well suited for
this sort of environment.
And this is one of the biggest issues in crypto
for over a decade is how do you scale
crypto? And so until we get the point,
we can scale this so that transactions are
throughputs on issue and
costs are reasonably low.
I think it's one of the difficult things to
build use cases in the market right now
because how do you use something which is, you
know, 50 or 100 times more expensive than
a simple database transaction or
even more in some cases.
So speaking of development, Kyle, you recently tweeted
that over the next 36 months, Asia
will become by far the most important
market for DeFi and permissionless crypto more
broadly. Why do you think Asia will
become so important in the crypto space?
I think Asia is already the
most important market for crypto.
All the mining is there.
Most of the mining is there. Almost
all exchange activity happens in Asia.
The substantial majority of retail
users today are in Asia.
There's not much retail in the U.S.
And so I think already definitively today,
Asia is actually the hub of crypto.
I think over the next 36 months, I'm really
thinking a lot about DeFi and the growth of
DeFi. And I think the problem in the US is that
people in the US do not want to be off of
the US dollar and they're very happy with
Visa, MasterCard, PayPal, you know, the kind of
tools they have today. I think the opportunity for
DeFi is going to be in serving people
who are unhappy with some part of
their existing kind of service infrastructure, whether
it's the currency they have or whether
it's the surveillance that they're they're
undergoing. But the people who want for some
reason to opt out of the current financial
either fiat regime or that
the payment rails themselves.
Those are the people to who DeFi
is going to appeal to the most.
And I don't think any of those
people basically live in the US.
I think almost all of
those people live in Asia.
And so I think with a pretty high degree
of confidence that over the next 36 months, DeFi
is going to become just absolutely, like the ratio
of DeFi consumption to in Asia and the
US is going to just balloon.
Vinny, do you also see Asia becoming or continuing
to be the DeFi hub of the world?
So maybe on the
technical side, it's possible.
I slightly disagree with Kyle.
I think that the interest rates that DeFi
can offer would be attractive to people around
the world and more even more in the US
where interest rates are super low, zero at the
moment. If people can build safer, more
secure, insured, smart contracts, for example,
with the liquidity pools exacerbated that, even
though the biggest crisis we had in
crypto like last month, you know, there was
given the size of the market, those
relatively few hiccups in the DeFi space.
Right. Even when the market dropped 20,
30 percent in a matter of hours.
So I think that if you can package good
DeFi offerings to consumers, you don't have to
call it DeFi. If it's something like, hey,
deposit coins, dollars in this wallet and 5
percent annual interest or
8 percent annual interest.
That's appealing to anyone, really.
And what all they care about
is, you know, is it safe?
Is it insured? Is it recoverable
when I lose my money.
And how safe is the money? Like these
are things that go through consumers head.
So I think it's more about what is the
product offering as opposed to whether or not Asia
will win or not. It doesn't matter, like if
the offering is solid and it's global people
around the world will adopt it.
Great. Well, thank you guys very
much for coming on the show.
I appreciate your insights.
And the future of crypto looks bright.
Thank you, guys. Jackson, thanks so much
for having us on the show.
Thank you, everyone, for watching.
That was Kyle Samani, co-founder of Multicoin
Capital, and Vinny Lingham, CEO at Civic.
My name is Jackson. And if you guys enjoyed
the video, hit that like button and subscribe
to our YouTube channel.
