Episode #334: Peter Johnson, Jump Capital, “What I Think About Most Of The Time Is What Crypto Is Going To Mean To The World“
Guest: Peter Johnson joined Jump Capital in 2013 as its first employee, and leads Jump’s investments in the FinTech, InsurTech, and Crypto / Blockchain sectors.
Date Recorded: 7/14/2021 | Run-Time: 1:08:57
Summary: In today’s episode, we’re talking all things fintech. Peter shares a bunch of his investments, including his first ever investment in Personal Capital, which was acquired in a billion dollar deal. We also talk about the fractionalization of assets and Peter’s investment in former podcast guest Carter Malloy and AcreTrader.
As we wind down, we get into our Peter’s entrance in the crypto space and discuss both the potential for the Bitcoin ETF and their Y Combinator for DeFi.
Sponsor: AcreTrader – AcreTrader is an investment platform that makes it simple to own shares of farmland and earn passive income, and you can start investing in just minutes online. AcreTrader provides access, transparency, and liquidity to investors, while handling all aspects of administration and property management so that you can sit back and watch your investment grow. If you’re interested in a deeper understanding, and for more information on how to become a farmland investor through their platform, please visit acretrader.com/meb.
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Interested in sponsoring an episode? Email Justin at email@example.com
Links from the Episode:
- 0:39 – Sponsor: AcreTrader
- 1:32 – Intro
- 2:15 – Welcome to our guest, Peter Johnson
- 3:21 – Jump Capital’s origin story
- 7:42 – Peter’s decision to invest in Personal Capital
- 13:23 – Lifetime value of a high net worth investor
- 16:22 – The thesis behind Peter’s investment in AcreTrader
- 19:06 – Alternative Investments: Democratization Through Fractionalization (Johnson)
- 19:39 – PeerStreet, Episode #32: Guest: Brew and Brett, PeerStreet, “We Have Long-Term Aspirations of Disrupting the Entire Mortgage Finance and Securitization Market”
- 20:03 – Alternative investment areas Peter is watching
- 22:45 – M1 Finance’s innovative platform for self-directed investors
- 26:56 – How active traders benefit from TradingView
- 28:08 – Opportunities for innovation in senior FinTech; Fintech with Big Buttons (Johnson), Papa
- 31:47 – The genesis of Peter’s interest in crypto
- 38:33 – Peter’s excitement about Solana
- 41:32 – Peter’s 2021 crypto predictions
- 45:11 – Rethinking cash on the balance sheet; The Stay Rich Portfolio (Faber)
- 46:39 – Why investors will have to adjust their approach to crypto
- 48:19 – Workarounds to a Bitcoin ETF
- 53:39 – Interest-earning accounts in the crypto space
- 57:16 – Crypto in China
- 58:29 – International applications for stablecoins
- 1:00:00 – DeFi Alliance
- 1:04:06 –Peter’s most memorable investments
- 1:05:53 – Learn more about Jump Capital and connect with Peter on Twitter
Transcript of Episode 334:
Welcome Message: Welcome to the “Meb Faber Show” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.
Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.
Sponsor Message: Today’s episode is sponsored by AcreTrader. I’ve personally invested on AcreTrader and can say it is a very easy way to access one of my favorite investment asset classes, farmland. AcreTrader’s an investment platform that makes it simple to own shares of farmland and earn passive income, and you can start investing in just minutes online. AcreTrader provides access, transparency, and liquidity to investors while handling all aspects of administration and property management so you can sit back and watch your investment grow. We recently had the founder of the company, Carter Malloy, back on the podcast for a second time in episode 312. Make sure you check out that great conversation. And if you’re interested in a deeper understanding for more information on how to become a farmland investor through their platform, please visit acretrader.com/meb. And now back to our great episode.
Meb: What’s up, friends. Another great show for you today. Our guest is a partner at Jump Capital where he leads Jump’s investments in the FinTech, crypto, and blockchain sectors. Our guest shares a bunch of his investments including his first-ever investment, which was in personal capital, which was acquired in a billion-dollar deal. We also talk about the fractionalization of alternative assets like wine, art, and real estate and their investment in former podcast guest Carter Malloy and AcreTrader. As we wind down, we get into our guest’s entrance into the crypto space, discuss both the potential for the Bitcoin ETF, and my sushi bet, and how they built the Y Combinator for DeFi startups. Please enjoy this episode with Jump Capital’s Peter Johnson. Peter, welcome to the show.
Peter: Great to be here, Meb. Appreciate Carter from AcreTrader making the intro and getting me on.
Meb: Where do we find you today?
Peter: Based in Chicago.
Meb: Summertime in Chicago. Have the music festivals started up? Are you out on the lake? What’s the vibe like there right now?
Peter: It is beautiful. People are outside enjoying themselves, getting back into a post-COVID world. It is fantastic.
Meb: Awesome. Well, I’m looking forward to…usually get there a few times a year, hopefully, a few times in the coming 12 months, one of my favorite cities, TBD, but it’d be fun to hang out in person, which is starting to happen. I was just in Dallas and South Carolina, maybe up in Seattle and Colorado soon. So, listeners, hit me up. We’re getting to all sorts of fun stuff today, crypto, FinTech, farming, wherever else the world takes us. But for those who are listening and aren’t familiar with your company, Jump Capital, and has also got a little bit of a different origin story, let’s hear it. Tell us a little bit about what you guys are up to.
Peter: So Jump Capital, we’re a Chicago-based venture capital firm. We’re a thesis-driven, operationally-focused fund, typically making $4 million to $10 million investments across FinTech, crypto, B2B SaaS, and IT and data infrastructure are the areas that we invest. We’re somewhat unique in that we are funded exclusively by the owners and employees of a firm called Jump Trading, which we can talk some more about that, but a global proprietary trading firm, just an incredibly impressive firm, and that’s where the capital that we invest comes from. But yeah, as I mentioned, we’re investing in a lot of different things. I lead our FinTech and our crypto investments. I’ve been doing that for the last eight-and-a-half years. I’ve been with the firm since we started it back eight-and-a-half years or so ago. And yeah, my background prior to that is I’ve always worked with financial institutions.
I was with Deloitte Consulting where I worked with companies like JP Morgan, and Prudential, and State Street on strategy and technology issues. Went to Morgan Stanley and their investment bank. Worked with companies like E-Trade and Santander, capital raising and M&A, and really just saw all the issues with traditional financial institutions that just really, they didn’t have great technology, they didn’t have great user experiences, they didn’t have great products, they didn’t give good advice, I didn’t think. So saw that there was just this fantastic opportunity for new innovative companies to do something better and became interested in investing in those types of companies. So that’s when I joined Jump just as the firm was starting a little over eight years ago, and then yeah, over the last eight-plus years, we’ve become, I think, one of the leaders in the spaces that we invest and we’ve invested in a ton of great companies, companies like AcreTrader as well as TradingView and One Finance, Personal Capital, Voyager, Bitso, Bitco just kind of a whole list of great companies.
Meb: Well, good. We’re going to dig in deep. Does Chicago have much of a VC, sort of, scene? I mean, I know there’s like a gazillion of these big proprietary trading firms, but are there many other VCs in Chi-Town?
Peter: Yeah. It’s really, I would say blossomed over the eight years that I’ve been investing here. There are a number of significant firms. Some of them are backed by trading firms. There is us, there is GRW, there’s CMT, which are all backed by some of the trading firms here in town, but there’s also great firms like Origin Ventures, and Chicago Ventures, and OCA, and a number of other significant venture firms in Chicago. The space has really grown and seen a lot of success over the last few years. The tech scene, the venture scene in Chicago, it’s fantastic.
Meb: Well, I have…not your company, but my probably, arguably, worst interview story was with the proprietary trading shop, like right after 2000 in my early 20s and they will remain nameless, but I made the mistake of…the night before the interview, I had a good girlfriend of mine from high school who said, “Hey, let’s catch up. We’ll grab dinner. But first I want to take you to a martini bar.” Supposedly have the best martinis in Chicago and I said, “What’s a martini?” And you can see how this story goes, but the next day, my young 20-something memory was that an interview should probably be about an hour. And I think I must have been there for like six or seven hours and was doing, like, math problems and on and on and on and it was just the absolute debacle. Needless to say, my proprietary trading career was short. Jump, is that a van Halen reference? What’s the deal? Where does that come from? Do you know, or does that predate you?
Peter: It does predate me. I would say there are two prevailing theories on where it comes from. One is van Halen. The other more likely theory is that when you’re in the pits and you’re trying to put an order in, you jump to actually get people’s attention and get your order in. That’s where it came from.
Meb: Makes more sense. All right. So let’s talk about some themes and some ideas. Probably the easiest bridge to start with is a company and an area and a space that our listeners will be probably most familiar with, it’s had a few different names over the year, but I think it might’ve been also your first investment, and that it was recently acquired, but that’s Personal Capital. Tell us a little bit about the, sort of, origin story on that one and walk us through the time horizon.
Peter: So Personal Capital, it was the first investment that I led for us at Jump back in 2014 and the origin there was, as I mentioned, I had come from working with traditional financial institutions, wealth management firms, and just didn’t think that they had great products, great technology, they had high fees, weren’t serving investors well. And I also went to the University of Chicago, studied how investing should be done, at least from an academic perspective, and I didn’t think that that was being done in practice in a number of ways. So saw all of these problems with how traditional wealth managers were operating, at least in my view. So went looking for a solution that offered a better option for investors. Started looking at the robo-advisor space because that’s where…it was kind of the hot thing in 2014 was a lot of these robo-advisors were starting up and thought that it was a good solution, but I also thought it was an impartial solution for a lot of investors in that it, kind of, completely took out the human element of investing.
And I think that investing, for a lot of people, it is personal. It’s your money. It’s something that’s really important to you and oftentimes you want to talk to somebody about that and you also want the ability to consolidate all your assets in one place and have a good view of them and feel comfortable about where everything is. And found Personal Capital, and that’s what they were doing, they were offering free financial tools for anyone could aggregate their accounts, see that in one place, do kind of easy self-financial planning doing that, and then if you wanted to, you could have access to a real financial advisor who could provide advice, they could manage your assets for you, very low-cost index-based fund investing. Just, kind of, doing everything that I thought that the industry should have been doing for years. Founded by Bill Harris, the former CEO of PayPal and Intuit. So chased him down, took a while the chase down Bill. Finally got dinner with him in Redwood City, convinced him to take my money, invested in the company and then it was just a great experience over the next few years, working with a company until eventually they were acquired.
Meb: When you say $10 million checks, is that typically like a series A, sort of, timeframe or series B or…?
Peter: Yes. That’s typically where we’re coming in is that Series A to Series B investment. Well, we can go earlier, we can go later, but that’s our sweet spot.
Meb: The beauty of Personal Capital…I’m not one to hold back opinions over the years, but when talking about that sort of space, we used to do these tracking tables of all the various FinTech companies and their revenue, and where they sat. And the struggle with the wealth fronts and then the Betterments of the world, one is because they, A, had such a low fee, they had to scale, and still do to probably $100 billion, and they may very well become good businesses at $20 billion, or $40 billion, or $60 billion, or $80 billion for a VC, sort of, outcome.
But on the flip side, Personal had this human element that found a very accurate, sort of, product market fit and they did two things that were super brilliant in my mind. One was the account aggregator that pulled all your accounts in, in the early days, like there was Mint, and then Mint just kind of went the way of the Dodo. I don’t know what happened to it. I don’t know a single person who uses it anymore. I know a lot of people that use Personal and they had a really nice, and still do, free wedge into the premium offering. And then the second, of course, was the human element, which there are some adopters that liked the automation, but I think a lot of people still really like the human. Any comments, or do you think those are accurate, sort of, judgments on why they were so successful?
Peter: I think you hit the nail on the head. Those were the two really key innovations there. One was the dashboard, which shockingly there’s still, like, not a whole lot of competition for just having a really good dashboard to track your wealth. Personal Capital is the best out there now. Mint, as you mentioned, has completely fallen off. So that attracted a huge number of users. And then the human element, which I think, one, it’s a better experience for investors, for a lot of investors, and two, it allows you to have a business model that is much more sustainable. You’re not just racing to the bottom on fees because you’re providing real value, you can charge something for that value.
Meb: I was smiling as you were talking about all that. I just reminded myself that, one, I’d signed up for their aggregator a long time ago and I don’t understand why there hasn’t been more entrance or competition into that space. It seems like the all-time best possible foot in the door, but second is they married it with like a Ken Fisher-esque style of systematic onboarding. And what I say by that is like Fisher Investments, $100 billion, who knows how big now, asset manager at…By the way, not trivially reasonable…I mean, fees, they’re not a 10 basis-point money manager. I think most of the strategies are probably up around one, but what they’ve done is maniacally optimize the, like, behavioral psychology of…it used to be direct mail but now it’s like the process of contacting someone, going through meetings, onboarding, qualifying, downloading landing pages, all that stuff. And I haven’t seen anyone else in the industry doing it in a similar manner other than Personal Capital. I think they do a very…My voicemail gets at least one Personal Capital call per quarter from somebody. So that combination seemed like it was a perfect fit.
Peter: Absolutely. And it’s funny, there actually is a fair number of former Fisher people at Personal Capital. So I think that there’s a reason that that process orientation might seem somewhat similar there.
Meb: The insight that I think Ken had early that others have figured out, particularly this is more VC lingo than anything at this point, but is the lifetime value of someone who is a high net worth investor is a lot more in the investment management space because of inertia. So if you’re someone and you move a million bucks, 10 million bucks somewhere, chances are that’s going to be there 5, 10, 20 years. And so if you think about the lifetime value of a customer and then start to think about marketing and the cost you’re willing to pay to acquire a customer, well, I mean, one takeaway is you can just burn a lot of VC money, but the other takeaway is you can actually pay a lot more because that person will probably be there for a long time.
Peter: I think asset management businesses are fantastic businesses. And I think that some SaaS investors don’t realize that you just have this built-in negative net churn in that people are going to put in more money every year, the market over time is going to go up every year, and if you’re charging an AUM fee, it makes for a great business model.
Meb: That’s an insightful look. The Vanguard, they just came out with recent news on the direct indexing. And we used to always say, like, the low-cost robos are going to have a tough time competing because they have such a major cost advantage, they’re going to have to innovate in some other areas. And they have to an extent, I think in a couple of areas. There are a few areas that I’m a lonely commentator. I actually don’t see anyone else anywhere who’s ever talked about this, but this applies to, sort of, brokerages as well. I said the ability to potentially share, and it doesn’t have to be all, it doesn’t even have to be a majority, but a fraction of the short lending payment for order flow revenue. I said that, to me, the first brokerage or shop that does that would, I think, create a lot of goodwill, but I’m in the wilderness on that one. So AcreTrader, you mentioned. While we’re in the area of, sort of, investing, you grew up in the sticks, Minneapolis, right, or Minnesota. Where’d you grow up?
Peter: I grew up southern Minnesota on a farm, farm that’s been in my family for eight generations now. So yeah, farming is very, kind of, near and dear to my heart. If I remember correctly, you also grew up on a farm.
Meb: Yeah. It was just out there. The wheat harvest is a little late this year, but looks good, fingers crossed, knock on wood, as opposed to a few years ago when we were harvesting wheat and the combine burned down the whole field. That’s day-to-day normal in the farming world, disasters. But were you all dairy, were you all row crops or what?
Peter: Row crops, mainly corn, hay, basic things like that.
Meb: All right. So how’d you see AcreTrader come across your plate? We had Carter on the podcast multiple times, great guy. I’m now a consumer as well. May even go down to their conference this fall in Arkansas if I can get my act together. What was the original thesis there?
Peter: So as I mentioned, we’re a thesis-driven investor and our original thesis that kind of led us to AcreTrader was looking at the fractionalization of alternative assets. In this world that we’re in right now where equity prices are very high valuations, bond yields are incredibly low, high yield bonds are even incredibly low, it’s like, where do you invest right now? Like, where’s a good place to put your money? One place is crypto, and we might talk some more about that, we’re big investors there. But we’re looking at…our belief was that people would increasingly be looking for different types of assets, these alternative assets that they can buy and buy fractions of that they maybe wouldn’t have access to previously. So we looked at a variety of different things from art, to collectibles, to cars, memorabilia, all of these different types of alternatives that people are investing in now and kind of ranked them on their attractiveness of the asset.
And when we did that, farmland was one of those and it very clearly stood out to us as the asset that had the potential to be the next big winner here and had that for a few reasons. One is that it is an income-producing asset, that you actually…when you invest in a farm, you get rent, you’re going to yield on that investment. Two is that it just has historically performed very well, like strong returns, not a lot of volatility, very strong performance. And three is that we were entering a phase here where a lot of people are wondering what’s going to happen with inflation and farmland has historically been a very good inflation hedge. So when we put those together, farmland was the standout asset that we thought was poised for more widespread adoption. So we started looking at different companies in the space. Met Carter, you’ve had Carter on the show. Carter is just an absolutely incredible CEO. Comes from that world, knows it better than anybody else, like the process on how they do diligence on their farms and their investment process, it blew us away. So, kind of, the combination of strong thesis in the area plus just an incredible CEO and management team there at AcreTrader led us to the investment.
Meb: The opportunity there, and we’ve talked about this before, is a rare one where you have arguably one of the largest asset classes that is not well-represented by public assets in the world. Single-family housing maybe you could argue is the other one, but you have a handful of REITs or companies that are at least tangential to that, but farming is near impossible. I think there’s one or two farmland REITs at this point. So there’s the opportunity. I mean, it’s a massive effort, of course, but massive opportunity for the right groups to be able to offer that in a way that’s palatable to the broad investing base. So that’s a fun one. And you guys have this great post called “Alternative investments democratization through fractionalization” you put out a few months ago. We’ll link to it in the show notes. And it’s got some great charts on some of these categories you’re talking about.
And a lot of names that you’ve seen that have been either VC-funded or just bootstrapped that have tackled all sorts of parts of the ecosystem. You mentioned agriculture, but also art. A lot of these names listeners will be very familiar with, Masterworks, we have Rally, StockX, PeerStreet. They were actually one of the first guests on the show. Ran into one of the co-founders in the ocean the other day. Angeles, of course, Alto, yada, yada, YieldStreet, and others. What sort of areas in that, sort of, excluding crypto, of this, sort of, alternative space do you think are most interesting? And you can free to talk about names too and anything else.
Peter: Yeah. I think that one is revenue-based lending. I think that that’s a relatively new asset class, but there’s been the rise of companies like Pipe and others that are investing, are lending based on company’s recurring revenue basis and then giving individual investors the opportunity to provide that financing, which is kind of a whole new investment class that really didn’t exist before the last few years. I think that that’s really interesting. It’s an asset class that has a yield, which I think is interesting to a lot of folks. Art is also, I think, a really interesting one. It’s another one where a lot of people have an affinity towards investing in art and would like to own a fraction of it. Art has appreciated well over the years. It doesn’t have yield, so that’s one of the downsides of art, but it is something that people have a lot of affinity towards. You can put something like wine in that same category too where it, again, doesn’t have yield, but people have a strong affinity for it and a strong personal interest and it has performed well over time.
Meb: The interesting part about some of these companies, and I don’t know if any of them do it yet when you’re talking about yield, but I almost think there’s a way to potentially create yield where there is none. And the one example I think of when I think of the collectables is obviously to have a museum or display where obviously people would pay to come see it or use it as a lead gen for the actual company. But second is, and there would have to be a significant amount of insurance, of course, but some sort of system to be able to rent out these pieces to people or high net worth or family or whatever it may be for potential yield. I don’t know there’s some way to do it, but people smarter than me in that world could probably figure it out. But there seems like there’s a way to at least manufacturer it possibly.
I think that whole world’s fascinating. And there’s been a number of times when I’ve been initially dismissive. The one I can think of certainly in the early days with some of the collectables and shoe exchanges. After I went to Minnesota, ended up buying a expensive pair of shoes off StockX because all the friggin’ sneaker hags bought up all the supply on a limited drop of my team won the championship at the NCAA hoops a few years ago in Minnesota. So I’m a customer now either way. You had one company had some news today, you know what I’m talking about?
Peter: M1? M1 had some huge news today.
Meb: Want to tell us a little bit about what M1 is? I feel like they slide a little under the radar, but they seem to be catching some of these tailwinds and growing pretty big scale.
Peter: Yeah. M1 is scaling up in an extremely impressive way. The announcement today was that M1 Finance, they raised $150 million at a $1.45 billion valuation that was around that was led by SoftBank. And what M1 does is that they are, I would say, the best investment platform in the world for self-directed investors. So if you want to invest and you want to choose your own asset allocation, choose the funds, or the stocks, the bonds that you’re investing in, and invest for the long-term, that’s what M1 does and they do it completely free. They charge zero fees. There’s a few insights that they had, but I think one of the insights is they looked at the robo-advising market and they said, really the right price for providing asset allocation models is zero and we’re going to charge absolutely nothing. We have target-date funds, they have models. You can do aggressive, conservative, etc. You can follow different hedge fund strategies, but it’s choose your own strategy on there and they charge nothing for it. They make it all on the backend through securities lending and other products.
So that’s where they started, kind of best-in-class product for self-directed investors, and then they built a suite of other products on top of that. The next product that they built, which I think is just a fantastic product, is a borrow product. So you can borrow against your portfolio at 2%. I think that there’s really, there’s no other way. And you can borrow in like three clicks. Three clicks, borrow at 2%, just an incredible product. They have a debit card right now with a checking account, which is great. You can earn 1% on your cash, which is very impressive. And then they’re launching a number of other products on top of that. They are, kind of, building a full-service financial institution and I think they’re going to be the next-generation Schwab or Fidelity.
Meb: I’ve been very vocal about this. I was on CNBC last week and I said, “Look, there’s an opportunity for someone to be, sort of, the Robinhood of the investing world, but actually the good guy,” meaning like, look, instead of taking every possible optimization and behavioral nudge and shifting into something that’s not in your best interest to build this, kind of, next-gen version of whether it’s brokerage investment advisor too, at every possible fork in the road to try to help you in the right direction, who knows if it’s going to be M1, could still be Robinhood, but I think culturally, it’s going to be a challenge. And I think that’s a $100 billion-plus idea and TBD on who is really the big winner there, but love to see the innovation. I met those guys early, early in their adventure over some really terrible bar food. So it’s fun to see them scale and have a lot of success.
Peter: They’re taking that approach, as you mentioned, like nudging people in the right direction. They are very focused on how do we actually do the right thing for the long-term investor? Actually, they don’t let you day trade on the platform. There’s two trading windows during the day. If you’re a day trader, M1 isn’t the place for you. M1 is the place for long-term investors. They have a product called M1 Premium, which is you pay a relatively nominal annual fee and then they basically give all of their economics that they aren’t on the backend, they just give that back to you. It’s just a great model, it’s completely aligned with the investor and it’s something that I think is very different that you see from the Robinhoods and others in the world.
Meb: Cool. I just bookmarked them. I want to take a big dive back into M1. We’ll definitely reach back out to those guys. It looks like they’ve moved into the right direction. The Robinhood frustrations run deep on my side. As you mentioned, the buy and hold part. I remember the CEO of Robinhood said, “Most of our investors are buy and hold.” To which I was like cackling as like, your investors trade 80 times the average Schwab client. I’m trying to think of how you could possibly define buy and hold in a way to where a lawyer would agree with that statement. But enough Robinhood bashing out of me. My listeners have heard enough of that. So that’s awesome to see. We’ll check it out. Before we hop over to crypto, any other people, companies in the portfolio, or themes you’re looking at that you think are particularly interesting, innovative, or ones that you would like to see funded? Anything come to mind?
Peter: I mean, the one other company that’s really a standout from an investment perspective is TradingView. We think that they are the best product in the world for active traders that do like to look at charts that want to have a social community around trading. They have the best charts in the world, the best financial charts, and it’s the largest community of traders in the world. So they have 200 million monthly visits to their site. Yeah. It’s just a mammoth company that’s under the radar for a lot of people. Yeah. It’s the number one investing site in the entire world by traffic to their site. It’s just incredible, what they built. Anybody that’s into really active technical trading is going to know TradingView well, but it’s surprisingly under the radar for a lot of the rest of the committee.
Meb: What’s the business model? Is it a free premium or what?
Peter: Premium model. You can come to the site, use it for free. If you want the premium features, you pay a small annual subscription fee for that.
Meb: I need a new homepage. I’ll take a look at this too. This is turning into being a pretty useful chat. Got all sorts of new resources. There’s one more before we hop, because I liked the title of your piece. It was something about like FinTech with big buttons. Talk to me a little bit about what that thesis, what that means.
Peter: So FinTech with big funds, that was a somewhat cute name for senior FinTech or FinTech focused on the senior population. And our view there is that there is a ton of companies right now going after millenials and Gen Z. And when you actually look at where the assets are, the assets are with baby boomers, people in their 50s, 60s, and older hold the vast majority of assets. So how do you serve those people better? And that was the thing that we were looking at. Companies like Personal Capital, I think are going after that demographic well. But there’s a number of other issues that those folks face on managing those assets, on making those assets last, on passing those assets down. Kind of on the other end of the spectrum, there’s people that are trying to just make it for retirement and make what they have last. So there are a lot of needs there for seniors from a financial services perspective. I think it continues to be an under-focused on area by startups at least.
Meb: You guys started to make any investments yet?
Peter: We’ve been looking at a lot of things in that space. I think estate planning and wills and trusts is one of the most obvious areas for innovation there. We’ve been looking at a lot there, but we haven’t made any investments specifically around senior FinTech yet, but definitely is an area we’re interested in.
Meb: There’s been a couple really interesting ones. I mean, there’s a small handful of companies that if it crossed my plate and had the opportunity to invest and get on the cap table that I would do it at almost any price just because I loved the idea so much. Papa was one of those that it’s essentially pairing, A, being loneliness is an epidemic, but, B, old people too, especially heart-wrenching that generation that has so much to offer. But Papa was one of those type of ideas, but there’s a lot that are, sort of, in that genre that I think make a lot of sense. And as you mentioned, late in life, sort of, coordinating financial, I mean, it’s such a mess. I mean, even like we talked about this on the show years ago, when my father passed, despite being like a meticulous financial person, it was kind of a shit show and a lot of people have never been through it and then are kind of thrust into this weird situation.
The one I joke about, little earlier in life, but pandemic seems to be accelerating this for a lot of couples, was my joking domain of one-click divorce where you watch…every single person I know is like, “I get divorced, we will never do this. We’ll never fight over it.” And then you get the lawyers involved and, like, people just put their feet down on the ground over the most trivial things and actually, you know, it’s like $20,000, $50,000, $100,000 in costs. And seemingly there are not too many sites that would streamline that. So when you want to co-fund that, hit me up. I’ll work with you on that one.
Peter: The easy button for divorce. That’s a good one.
Meb: Yeah. Exactly. Where people look say, “Look, going into this, here’s what we agree on. Here’s what we’re going to do, optimize it. Anything else that we fight over, like it goes to charity or the kids or something.” But something where it’s just like, we want to be rational human beings before we get into the process, at which point we all know we can’t escape the black hole of negotiations and anchoring bias and everything else. So there seems to be a lot in that, sort of, world of paperwork. Anytime lawyers get involved, it gets expensive. You guys do a lot in crypto. Walk us through, kind of, the origin story, when you guys started getting interested, what was the aha moment for you and then as a firm, because you guys have done a lot of investments in that space?
Peter: Yeah. We’ve done a ton in crypto and we’re doing even more in crypto now. It’s a huge area of focus for the firm and really is where I spend all my time these days. So the genesis of our investments in crypto, and my experience in crypto, first time I really started paying attention was in 2013. And 2013 was when Cyprus seized their deposits or some of the deposits of people in that country and the price of Bitcoin kind of jumped on that news. And that got my attention because I was wondering like, “Is this real? Are people really taking their local currency and putting it in this magical internet money because they think it’s a better, safer place to have their wealth, or is this just kind of a narrative, and then there’s nothing to this?” So that’s what piqued my interest and got me reading the white paper and, kind of, going down the rabbit hole of what is Bitcoin.
And as I looked into it, realized that, yeah, this is really incredible. It’s a once-in-a-generation technological innovation in that for the first time ever anyone in the world can send value to anybody else in the world without the need for a trusted third party and like this is going to change the way finance works, this is going to change technology.
This is probably going to be the biggest thing that happens in my lifetime. So that’s when we started investing. We didn’t start investing right away. It was a long, kind of, process of research. Started looking into it in 2013, it wasn’t until 2015 we made our first investment, and then started investing, kind of started there and got heavier over time, investing in this space.
And we were doing that alongside…and that was on the venture side, the Jump Capital side. We were doing that alongside our colleagues on the trading side of Jump Trading, who at the same time, 2014, 2015, they started looking into trading Bitcoin. They had set up an initial just, kind of, R&D project, Jump Labs, which was this R&D lab at the University of Illinois, and started looking into the space, started trading it. They started ramping it up on the trading side and that gave them more validation to me that this is something that’s real when you have somebody like Jump Trading is putting some real resources behind trading this asset, like this is going to be something that institutions are going to adopt over time. It’s going to take some time, but they’re probably going to follow what Jump Trading is doing eventually.
Meb: Were you the sole cheerleader at the time as far as on the venture side, or were other people trying to corral and convince you, or was this, sort of, a team effort?
Peter: At the beginning I was the one crazy guy who couldn’t stop talking about Bitcoin. There was a couple of folks on the trading side who were, kind of, with me on that and then I hired an intern who came from one of Eric Vorhees’ early companies in another crypto space to, kind of, come and be crazy and look into crypto with me. Yeah, it’s kind of like, one, I was crazy and then we got a couple and then it was not so crazy and then it eventually became consensus, at least at our firm, that this is something that’s going to be really big.
Meb: I imagine you didn’t have the mandate, maybe you did, to start investing in the actual currencies themselves, or was it actual company picks and shovels? How’d that work for you guys?
Peter: Started out very much company’s picks and shovels, investing in the equity of exchanges, custodians, order management, execution management, all these things that you need. If crypto is going to be a new asset class, you’re going to need all of these services around it. And that’s where we really started investing and we’ve had a lot of success investing in those types of companies. And then over time that has evolved into now we also do invest in early-stage DeFi projects, which are typically tokens. So investing in those as well.
Meb: Talk to us about some of the early ones, or one you find interesting. We can dive into a couple of them.
Peter: So we’ve been investors in exchanges around the world. I think that that is one of the…it’s kind of our early thesis was if crypto is going to be big, it’s going to be big everywhere, but especially in regions outside of the U.S. where there’s really a more tangible value proposition for crypto beyond just the, kind of, trading use-case, which is, kind of, the main value proposition and in developed countries. So we invested in a large number of exchanges around the world, 10 or 12 exchanges around the world. Calling one out would be Bitso in Latin America that we invested in. And for us, that was a clear opportunity that there was a lot of people without bank accounts, certainly without brokerage accounts, a lot of remittances, just a lot of different things that crypto can do. And Bitso has now scaled to…there are more accounts at Bitso than there are brokerage accounts in Mexico by a very, very wide margin. And they are really becoming the core financial institution for a lot of folks in Latin America.
Meb: Is it a pure crypto interface, or is it something where a crypto, sort of, exists in the back and whirs in the background? What does the actual application look like?
Peter: It is a crypto interface. So as you come in, it’s targeted for people that at least have some understanding of crypto. They have different functionality as far as it can be used to send money peer-to-peer. A lot of money is sent via remittances that goes through Bitso because it’s a low-cost way to do that, but it is very much a crypto interface. What you’re touching on, I think what will be an interesting theme in the coming years is that I think we’re going to see a lot of frontends that are not crypto, that are not targeted towards crypto people, but just use crypto on the backend as the rails and the infrastructure to provide these services to people that don’t care about crypto and don’t want to know anything about crypto but they just want better financial services.
Meb: The exchange business is such a good business, along with that, like, market-making. I mean, you guys know it’s a proprietary trading shop there, particularly in an emerging area like that. Is it a Bitcoin-focused app for most of these exchanges or does it have, like, dozens of these trading?
Peter: Most of them are dozens of these trading. That’s what most consumers want. They want variety and choice. If you look at where the volumes are, most of it is in Bitcoin and Ethereum, but people do like having that option of the long tail of assets.
Meb: Interesting. So you’re eight years in, have some of these raised some serious maturity as far as either going public, getting acquired?
Peter: 2021 has been a big year for maturity of this asset class from M&A and companies going public. So we’re investors in two companies that are now public companies, Voyager, which is listed in Canada, OSL Group, which is listed in Hong Kong. We’re investors BitGo, which is a crypto custodian. It’s been announced, they’re being acquired by Galaxy for $1.3 billion, which is the first billion-dollar acquisition in the industry. Yeah., investors in BlockFi, which is in the process of raising another round, a multi-billion-dollar valuation. So yeah, you’re seeing these companies really mature this year.
Meb: What’s Solana?
Peter: We are incredibly excited about Solana. So Solana is a new layer one blockchain. It’s fast, it’s cheap, and it just, you can do things on Solana that you can’t do on other blockchains like Ethereum. So for us coming from the trading side, we look at things like, how do you build a decentralized exchange? That’s been something that people have been working on for years. And the way that it’s been, kind of, hacked on Ethereum right now is that you have these automated market makers. So you don’t actually have an order book because you can’t have an order book on Ethereum because the block times are too slow, it’s too expensive. If you’re paying gas fees every time you’re putting in an order or canceling an order, like that just doesn’t work. It takes several minutes to put an order or to cancel an order, just you can’t have an order book exchange or an effective on something like Ethereum. You can on something like Solana. Solana has very fast transactions, very high throughput, very low fees. So you can actually build things like an order book exchange on Solana and we think that a lot of applications are going to be built on Solana. It’s a superior technology at the end of the day for a lot of applications anyway. We don’t think everything will go there, but for a lot of things, especially around trading, it’s a superior way to do things.
So we’ve been, at Jump, collaborating on a lot of things that are built on Solana. One is Serum, which is a decentralized order book exchange, which is just really impressive, what they’ve built there. And another is Pyth. Pyth is a data oracle. So that’s solving the problem on how do you get off-chain data? Like, if you want the price of Tesla or what is a bond deal or those types of things, if you want to get that on-chain and build on-chain derivatives and financial products and risk transfer mechanisms, you need to get this, kind of, real high-quality market data on-chain. And that’s a difficult thing to do, but we worked with a number of other big names in the industry to solve that problem by taking our data, data that we own and that the other collaborators in Pyth own, and putting that into this data oracle and then publishing that to Solana, which again, very, kind of, high speed, high throughput, low-latency blockchain so you can actually build things using Solana, and Serum, and Pyth that really were impossible before you had these technologies.
Meb: So like, if you were to talk about where it stands as far as the horse race of, kind of, coming to maturity, is it now, is it, sort of, 2023 relative to some of the incumbents?
Peter: I would say the ecosystem overall, it’s very early, like the crypto ecosystem. It’s amazingly early. When you’re in it, it seems like sometimes people have been building things forever, but in reality, it’s an industry that’s only been around for 12 years and smart contracts and things like that have been around for much shorter amount of time. Solana, most of that activity has just happened over the last year. So it’s very early, I think, for all of this, but I think we’re going to see an incredible amount of maturity and big announcements and big things happening over the next year or so.
Meb: Well, we’re halfway through 2021, and like you did I believe the year prior, we got your 2021 predictions so we can throw some tomatoes and see which ones you get a little egg on your face, see which ones sound pretty good. I’m sure you remember most of these, but I’ll pull out a few and you can tell me how it’s looking. Well, M&A mania begins. That sounds like with what you referenced on the Galaxy acquisition, that would be a winner so far. Does that sound right?
Peter: I think that that one’s absolutely right. Big acquisition there with BitGo. We also did with Curve. That was another company in our portfolio that was acquired by PayPal. Another company, Digital Asset Data in our portfolio was acquired. A lot of M&A this year And I think we’re going to see more of it the rest of the year.
Meb: Your big number one seems like it certainly was happening. Institutional investors get FOMO.
Peter: I think that that happened. The number of big-name macro investors that have come in this year is really impressive. And I think you’re starting to see that shift where in prior years if you were investing in crypto, like there was a career risk to that. You might lose that money and you put your plan assets and magical internet money and you lost that, that’s a risky thing to do. I think we’re starting to enter a world where if you don’t put money in crypto and you lag behind your peers, that’s a career risk and it’s starting to flip to that other side.
Meb: We had Dan Morehead recently on the podcast and we were talking about macro guys in general and prior, the business career risk of being the lone wolf and saying you love crypto is one thing, but now you can say, “Look, Druckenmiller likes it, Paul Tudor Jones,” and you get fired, just say, “Well, the macro guys were in.” So I think you nailed it right on the head with that one. Number two, central banks buy Bitcoin.
Peter: I think we’re still going to see a big central bank buy this year. We did see El Salvador. They’re not buying it from the central bank, but they are as a country buying it for their trust to allow their citizens to convert Bitcoin to dollars. So we saw country buy Bitcoin and I think we still will see an actual central bank with a big buy this year.
Meb: All right. Well, we’ve got six months left. There’s two that I’ve spoken about at length, not necessarily Bitcoin-specific. Talk to me about number three, corporate treasurers ignore Bitcoin. That seems a little more anti-consensus along with the rest of yours. What’s the thesis there?
Peter: My thesis there, and I would say this one I got somewhat wrong. Treasurers have shown a lot more interest in Bitcoin than I expected. My view here is that there was a lot of talk coming into this year. Michael Saylor was putting Bitcoin on his balance sheet. They’re all corporate’s going to buy Bitcoin. My view said, generally, if you look at a corporate treasurer’s job, it’s short-term management of cash. Like, they’re not investors. They’re not investing in gold, they’re not investing in venture investments. That’s not what a corporate treasurer’s job is. They’re investing in cash equivalents. And I still believe that. The vast majority of corporate treasurers are not going to invest in Bitcoin just because that doesn’t the mandate of what they do. But you do have is you have some folks that control their company that have strong views, people like Elon Musk and Jack Dorsey, like they are doing that and I think you’ll continue to see some folks like that doing it, but Bitcoin as a mainstream asset on corporate balance sheet. As much as I would like to see it happen, I still think that we won’t go completely mainstream.
Meb: It’s funny on this one because this is something I was tweeting about actually a couple years ago, I said, one, as a workaround to getting a Bitcoin ETF approved, I said, I don’t understand why someone wouldn’t just load their balance sheet with it, which is what micro strategy seems to be doing. But then two, is we did a post a couple years ago talking about…it came out later as the stay rich portfolio and the concept was, oddly enough, a similar thesis to Saylor and others about what is really a safe asset and thinking about cash on the balance sheet, and we took it back 100 years and we said, “Look, on a real basis, this is what cash has looked like.” And actually, if you put together and it ends up looking sort of like the global market portfolio plus cash, an amalgamation of assets that are diversified, you end up with theoretically and technically and at least historically a safer portfolio than cash as measured by volatility, lowest drawdown, lowest 12-month return.
Now, no one on the planet is going to follow that line of reasoning probably besides Cambria, my company. We actually invest our corporate treasury, but it also applies to the individual who keeps a lot of cash on the balance sheet too outside of maybe the six-month emergency fund or whatnot. It’s just a different mentality. It’s interesting to see Saylor take that line of thinking and then go in a totally different direction. You’ve seen some people sprinkle a little bit of Bitcoin. My prediction is I think that the adoption that will happen next is people putting it in the portfolio as a portion of the overall global market portfolio. So what’s the crypto, sort of, ballpark market cap now? It’s like a trillion?
Peter: Trillion-and-a-half maybe right now, something like that.
Meb: So it’s in that, sort of, 1% range. I think it would not be out of the question to see, probably not corporate treasury, but asset allocation-style funds and people allocate in that, sort of, 0.1% to 2% range. Regardless of your opinion on crypto, it seems like a…when you talk, going back to your career risk, sort of, ideas, it seems like a low career risk downside, high upside business career decision.
Peter: Absolutely. It’s asymmetric on the upside and putting a small allocation in. It’s proven over time to be very beneficial to risk-adjusted returns to a portfolio. And yeah, I think it will become the norm. It’s one of the things that makes it just this very, very highly reflexive asset is as the market cap gets bigger, more and more investors need to pay attention to it. People start realizing like if you want to invest in, kind of, the world’s asset on a, kind of, market-cap-weighted basis, like academically you should do, at some point, you need to include Bitcoin and crypto in that asset allocation so as it gets bigger you see more of that, which makes it bigger and bigger. So it’s very reflexive in that way, which is one of the great things that gives it that very high upside potential.
Meb: That leads us to the next one. And this is actually a tweet I have going back to, I think, 2013 and my crypto positioning has always been a supporter. I’ve never been heavily, sort of, involved, but I tried to have a payment system that accepted crypto back in, I think it was 2014 for our idea farm site. No one used it, which sadly, I wish I had not done that because it certainly colored my perspective. I was like, “There’s no use case for this. Why not just use a United credit card and get the miles?” And we eventually shut it down. I joked that somewhere there’s probably payments that went through when Bitcoin was at 10 bucks or whatever it was all that time ago. And so I probably have a fortune in a wallet somewhere I don’t know about. But we said in a tweet, and I’ll have to dig it up, I said, “I’m willing to bet anyone dinner that a Bitcoin ETF…” I said, “It’s not going to make it approved by the end of the year.” Let me see if I can find it real quick. And I think 2013 and obviously that didn’t happen. And then it didn’t happen in the next year and it hasn’t happened in eight years since. What’s your prediction on the Bitcoin ETF?
Peter: At the beginning of the year, I predicted it would be approved this year. I think I’m going to be wrong. I don’t think it will get out this year. I think it should. I think it will be good for investors. It would just be a better investment product. Right now, there’s all these workarounds to invest in it. Things like GBTC, which is actually a good investment now because it’s trading at a discount but historically it was at a big premium, which wasn’t good for investors and people are investing in micro strategy as a proxy for Bitcoin all because it’s difficult to invest in Bitcoin if you don’t want to go to a crypto exchange or these other ways to do it. Just making it a mainstream, anyone can buy it in their brokerage account in an ETF is, I think, a no-brainer that the SEC should allow people to do. It’s safer than the way that people are getting access to it right now. It’s a better investment than a lot of investment products that are currently out there. So I think it should be approved. When it will actually get approved, I think is really difficult to tell after the volatility that we’ve seen this year. I don’t think it makes it easy for the SEC to pull the trigger on that. I also think that they have a lot of other things that are prioritized above the Bitcoin ETF at this point.
Meb: I like the idea…you mentioned the GBTC. I mean, they’re certainly trying to convert. I think there’s a tradable idea there where, last I checked, it was like a 15% discount to NAV. The problem with a lot of these closed-end funds for the listeners, I mean, we talked about Bill Ackman’s fund last year, there was like a 30% discount to NAV as they, kind of, often bounce around, but the higher fee funds often sit at persistent discounts because they’re expensive, and to sit in a fund that’s a 2% fee, it becomes a cost pretty quickly and that often there’s no catalyst for that discount to close. Now, in the Ackman case there is because they’d buy back the shares and in some funds case they are because they’ll convert it. But GBTC is certainly trying to convert into the extent they would convert to an ETF, the discount would close. There’s an opportunity, it seems like, this summer as a lot of the overhang on GBTC investor lockups occur, that that could get blown out even further in the next month or two, which seems like a reasonable speculation.
All that having been said, I don’t understand why they don’t approve one that owns a mix of futures. And the one that nobody is attacking of the like 50 crypto applications that I would certainly do it if I didn’t want to incinerate $5 million in legal fees is I said, you could go and just buy a bunch of the exchange-traded funds around the world. Now, the problem with that is obvious, if you’re a fund to funds and all these funds charge 1% or 2%, you have a big stinking management fee. However, if that fund did securities lending and returned it to the shareholders like we do, a lot of these crypto exchange-traded funds go off on short lending rebates of like 50%. So theoretically, you could not only cover some but more likely all or more than all of the management fee. I think you may see that, actually the first one, my prediction ready, it actually comes out as a mutual fund first because I think the SEC is more concerned about not capping it. So like, if this fund starts to get too big by owning all the futures or all the exchange-traded funds or other things, a mutual fund can cap it and say no more, no mas, ETF can’t, and an ETF gets into hot water if they stop accepting new money. That’s my prediction.
Peter: That’s a good prediction. I haven’t heard that one before, but I like it. That’s interesting.
Meb: I mean, we would love to do the exchange. I mean, I’d love to do the futures route. I would love to do the fund to funds route. I’d love to do a mix. But I mean, look, let’s be honest, it’s totally silly that it’s not out. That having been said, my prediction is that mutual fund comes first, but TBD. No one’s bought me a sushi dinner yet on my bet, so sadly enough. All right. What else we got here? We got…Talk to us about the interest-earning accounts. What does that mean? I feel like this causes a great deal of confusion for people.
Peter: It’s a great product right now. And a really interesting opportunity in crypto is that you can earn interest, significant amounts of interest on your crypto, on your Bitcoin, or just on your dollars. So if you have dollars, you take them to BlockFi or Voyager right now, I don’t know what today’s are, but you can earn somewhere between, let’s say 6% and 8% on those dollars just by depositing them with BlockFi or Voyager. It’s not an FDIC-insured deposit account, so you need to realize this isn’t the same as putting it in a bank account, but it’s a very high-yielding account that I think is quite safe. And what they’re doing on the backend is lending these funds out. And it’s either over-collateralized loans or loans to, kind of, very reputable, large trading firms is typically who they’re lending these out to. And these borrowers are willing to pay rates of 10%-plus oftentimes because there’s great trading opportunities in the crypto space. Crypto trading is a very capital-intensive business for reasons we can go into if you’re interested, but it creates these structural reasons that there is demand for borrowing within crypto that people will pay high rates for that. And then as a depositor, you can benefit from that. You can earn these high rates on your dollars or on your crypto.
Meb: So get into it. Who is the natural person that’s borrowing it? Is it people trying to do ARBs? Is it people just like exchange trades? What is it?
Peter: Yeah. There’s various types of trades. So the biggest borrower are trading firms. There’s other borrowers like there’s individuals that I want to borrow dollars back from my crypto to buy a house or buy a car. There are crypto miners that want to borrow for equipment. So there’s various types of borrowers, but the biggest borrowers are the trading firms and they are borrowing for a whole litany of different types of trades that they do. They borrow for cross-exchange arbitrage. When that exists, they borrow for the basis trade, buying spot, and selling features. They used to borrow a lot of Bitcoin for the GBTC trade when that was trading at a premium. There was a big trade that you could put on there to try to capture that premium. And then the, kind of, list goes on different types of opportunities in the trading space, but that’s why people are borrowing.
They’re also borrowing just to pre-fund on accounts. I mean, if you’re trading across the variety of crypto exchanges, it’s different than the traditional world in that you actually need to pre-fund all the exchanges. If you’re a big trader in the traditional world, you just go to your prime broker and you can trade across all the exchanges. That still doesn’t really exist in crypto, so you need to deposit across all these accounts. It takes a lot of capital to trade in crypto in a professional way. So that creates a lot of demand for this borrowing.
Meb: So you get to wave your wand, and I’ll give you two choices here, make a policy change or say there’s something, just a catalyst that would really accelerate what’s going on in the space. Is there anything that’s just so obvious where you look at it and be like, “God, I can’t believe why this isn’t happening, or I wish that this would occur?” Anything come to mind.
Peter: I think a safe harbor for DeFi just to remove the regulatory uncertainty that’s hanging over DeFi right now. Where that sits from a regulatory perspective, it’s very unclear, I would say, especially in the U.S. and that’s causing a lot of DeFi projects to just move outside of the U.S. They don’t operate here, they don’t offer our tokens here. I think some sort of safe harbor that protects investors, which you want to do, but also allows DFI to operate in the U.S. If I could wave a wand, that’s what I would start with.
Meb: I didn’t see any mention to China. They seem to garner a lot of press about being a big player in the crypto world. Any general thoughts, takeaways on our friends over there?
Peter: Yeah. They’ve really been cracking down on crypto. It’s been this staged crackdown over years where they shut down the exchanges, or at least the on-ramps into exchanges years ago, and now they’ve actually cracked down on mining, which was huge business in China. The takeaway for me is that this is great for crypto. One of the risks or fud within crypto has always been it was controlled by China, all the mining power is in China. If China wanted to take control of that, or those Chinese miners wanted to collude, like what could that mean for the Bitcoin network? That’s now gone. Chinese mining, all that has moved outside of China. A lot of that is moving to the U.S. A lot of that is also moving to green energy, which I think is good for the narrative around Bitcoin and the energy consumption. Net net what’s been going on in China is I think really positive for Bitcoin and crypto over the long term.
Meb: Interesting. What did we miss in the crypto discussion? I feel like there’s so much going on. We’ve, like, haven’t even talked about price, which is what I feel like everyone that’s, like, all they talk about. The areas we’re talking about to me is much more interesting. Any thoughts that we skipped over or is on your brain?
Peter: There are a lot of things that we’re spending time on within crypto. I would say the big one that we didn’t really talk about is stable coins. That is an area that has grown exponentially over the last few years. There are over $100 billion of stable coins outstanding now, which are U.S. dollar-pegged coins like USDC or Tether. And that’s something, I think, that that’s going to be double-digit trillions of dollars of stable coins over the next few years.
Meb: That’s a big prediction to put on there.
Peter: Reason being there is just massive demand for U.S. dollars outside the United States. If you look at where physical currency is, the majority of that is actually outside the U.S. The euro-dollar market, which is U.S. dollar deposits outside of the U.S. banking system, it’s not easy to quantify that, but I estimate that’s roughly $20 trillion right now. And with stable coins, suddenly anyone anywhere in the world can hold dollars. You just need a crypto wallet and you can hold Tether, you can hold USDC. You can hold UST, which is an algorithmic stable coin from Tara, which is a company we’re big fans of, big supporters of. So when you suddenly have this world where anyone in the world can hold dollars, I think that changes things in a number of ways. One is that I think we’re going to see dollarization in more countries. Like, if you have a weak currency, before people didn’t really have another option, but now if you can have a crypto wallet, you can hold dollars. And like what does that for currencies around the world? I think that that could be really geopolitically interesting.
Meb: Let’s talk about your Y Combinator for crypto.
Peter: The DeFi Alliance. It’s really something that has turned out just incredibly well. So this was, kind of, a project. Imran Khan started this and then he brought together Jump, TRW, and CMT, which are the three largest crypto trading firms in Chicago, three of the largest in the world, and said, “Hey, let’s collaborate on working with DeFi projects because there’s this gap in the market that trading firms want to work with DeFi. DeFi, they need to work with trading firms to get liquidity to their platforms, but oftentimes these two parties are speaking different languages. They don’t really know how to collaborate. Let’s start by creating this industry group just to bring these folks together.” And then we decided to build an accelerator top of that and that’s what we’ve done now is that there’s the fourth cohort just went through the DeFi Alliance accelerator. It’s the best DeFi projects in the world to go through that. The DeFi Alliance is, I believe it’s hundreds now that are part of this group. We’ve raised a fund on top of that that actually puts capital into these DeFi projects. I think that it is the premier DeFi accelerator in the world and if you’re building a DeFi, you want to get connected with trading firms, you want to get connected with some of the leading investors in the space, you want, kind of, mentorship and help and those types of things, DeFi Alliance is the place to do that.
Meb: It’s exciting. Check it out. That’s a domain, defialliance.com. We’ll add some of these to the show note links. Horizon, it’s 2021, we’re looking out to the future. What else is on your brain? What are you thinking about? Anything you’re confused about, excited about, worried about as we look to the, knock-on wood, pandemic, sort of, getting into our rearview mirror, hopefully?
Peter: I mean, I think what will be interesting…I spend my time in crypto and FinTech and wealth management, like what that means for retail investing. Coming out of this, there’s obviously been this massive amount of interest. People have been cooped up at home. Trading has been entertainment for a lot of folks. I mean, now we’re back open. People can go outside and do different things. And we see a lull in the retail trading, the crypto trading environment. I think we certainly could. So that’s something near-term that I think will be interesting to watch. Long-term, what I think about most of the time is just what crypto is going to mean for the world because I think that that’s really a big revolutionary thing that’s happening right now.
Meb: Anything in particular when you think of the adoption that we look back on, do you think people are not appreciating? So if we were doing this conversation 2030 via hologram, I’m on the moon, you’re on Mars, is there anything that you think people that you believe that just they are not appreciating either that’s consensus or not, but just something that…it doesn’t have to be a unique insight, it could just be one that you think is really important. So in other words, predict the future.
Peter: I’m not sure if there’s like specific things that we’ll point to. I do think that there are…from like Bitcoin as an asset class, I do think we’ll look back at what Michael Saylor is doing and Paul Tudor Jones and Ray Dalio coming in. Like, I think that those will be like real turning points we’ll look back on and like, this is when it became mainstream as an asset class. I think that we still haven’t seen things like stable coins and dollarization of the world or dollarization of parts of the world. Like, we haven’t seen those watershed moments yet. Crypto becoming the infrastructure that a lot of financial services are running on, which I think will happen eventually, like we haven’t really seen those yet. I think we’re starting to see some interesting things like compound releasing the treasury product where basically any FinTech, anyone can just plug it in and earn 4% interests and on the backend that’s going into DeFi.
Like, that’s really interesting, but I don’t think we’ve seen those big watershed moments that we’ll look back on. I think a lot of those have yet to come. We’re still incredibly early in this phase. Sometimes when I talk to people that aren’t in crypto and they’re not paying any attention to it, which is still like the majority of the world, I can’t believe what a lot of people aren’t paying any attention to because when we look back on it, this is just going to be a massive shift, I believe.
Meb: What’s been your most memorable investment? Good, bad, in-between.
Peter: So probably two, we’ve talked about both of them. One is AcreTrader, growing up on a farm that’s near and dear to my heart. So being able to invest in something that helps farmers and helps people invest in farms, that’s very memorable to me. The second one is TradingView, which we talked about, that one’s memorable for me because it was a non-consensus investment, both in the industry and somewhat even within Jump. We invested there in 2018 and I think a lot of people thought charting and a social network for traders, that just wasn’t a big idea. It was what a lot of people thought at the time. In addition, at that time, the team was largely in Russia, which I think it complicated for a lot of investors to get their head around. So it’s one of those things that was non-consensus in the industry. I feel like that’s where you make your money in investing, is being non-consensus and being right. I feel like that was one that was non-consensus investment and it just turned out incredibly well. As I mentioned, it’s the number one investing site in the world now.
Meb: Well, it’s crazy because it’s interesting because you would think, I mean, there’s so much competition in that world, but I guess on the flip side, there’s so much fat. I mean, we paid Bloomberg, I don’t even know, $20,000-plus for a terminal. So maybe there’s a lot of fat to cut out and you can tell Carter, I’m going to put him in a headlock this fall until he gets us on the cap table. I think they’re doing really cool work. Where do you guys stand in the fundraising process? My VC friends are always raising new ones. Are you guys closing, raising, in-between, both?
Peter: So we are just finishing up our sixth fund. It was a $200 million fund. We will be announcing our seventh fund very soon. I won’t say more than that yet, but it’s a larger fund. We’re doing some really cool things with it, but can’t be public with that one yet.
Meb: Exciting. Well, listeners, if they want to hit you up to invest or to chat with you, follow along with your writing, all that good stuff, where do they go?
Peter: Jump Capital’s website is jumpcap.com. I’m on Twitter. I’m @TheChicagoVC. Hit me up with anything interesting you’re working on.
Meb: This has been so much fun, Peter. Thanks for joining us today.
Peter: Thanks, Meb. It was a pleasure.
Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at firstname.lastname@example.org. We love to read the reviews. Please review us on iTunes and subscribe the show anywhere good podcasts are found. Thanks for listening, friends, and good investing.