🎙 82 - Investing in the Future | Cathie Wood, Chris Burniske, Yassine Elmandjra

welcome to bank list where we explore the frontier of Internet money and internet Finance this is how to get started how to get better and how to front run the opportunity this is Ryan Shan Adams I'm here with David Hoffman and we're here to help you become more bangless wow David Allstar cast today Kathy Wood came on the podcast uh two analysts former analyst Chris berinsky whom Bist listeners already know and also yine Elam madra and wow it was just a fantastic conversation almost felt

like we were in the room with them brainstorming the future of crypto with these incredibly Savvy investors just uh wealth of information almost like Insider information as well as you were kind of witnessing an ark invest meeting on crypto yeah this this was an interesting Peak inside of the Dynamics of Ark invest right it felt little bit like a reunion we have Kathy and and current crypto analyst yine also back with with Chris briski who uh you know has he has his thoughts like intertwined

into the crypto side of Aran vest so seeing that dynamic in this episode was was really really powerful I think my favorite part about this was uh and we talk about this a lot at bank list these aging fragile Antiquated institutions and Kathy and the team over at Arin vest really put this into a New Perspective that I really really enjoyed which was was these institutions keep on looking backwards in order to form their Investments they keep on looking into history and that has left such a massive opportunity for people who are actually

forward-looking which is the whole point of investment in the first place and so they the institutions of the world which on the bankless program we criticize as like I said as being just old Antiquated institutions have really given a ton of opportunity for retail Investments and Retail educated retail investors to make some of the brightest and most informed and most precise investments in this space uh and that has really caused a massive division in Wall Street uh about like the approaches to things like Tesla the and of course the approach to things

like crypto where the traditional institutions of the world rejects crypto yet the retail n retail in investors of this world really help bootstrap these networks in the decentralized way that they were always supposed to be in the first place um and gosh there are so many other things in this conversation that I totally agree with that though DAV like even their metrics are wrong even their investment metrics are wrong because what they're they're based on the past and they're based on assets that existed in the past Kathy at one point in time called herself uh rebellious people in Wall Street thought

she was rebellious um called herself an odd duck and I was just reflecting on wow that fits exactly into uh into crypto crypto natives we are odd Ducks we are rebellious uh by nature but we are looking at this asset class and projecting it into the future and sometimes we look at the outside world and we're like what are you guys doing like how are you missing how are you missing this it's so obvious and I think Kathy sees some of that too just the the the obvious nature of how big crypto is

going to be and how quickly it's going to get there one at one part in the conversation David she actually blew my mind too uh won't reveal like where exactly that is but when we were talking about Banks and um asking whether they felt threatened um yeah she had a really interesting response on that that totally blew my mind the other part I thought was really cool Ryan is that their crypto analyst Yen said that he's actually used some some bankless content to inform some some AR andest analysis onto ether and ethereum which I feel

very very proud of that we've actually been able to to influence the way that Arc treats uh some of these crypto networks that we hold so dear yeah and that's what this is this whole crypto Discovery process it's like just one big group conversation online right like so many of our ideas were actually influenced by Chris berinsky who also in this conversation today so it's just this um feedback this open- Source feedback loop of like discovery on what this asset class is what the relevant metrics are and uh this is all about how Kathy and Arc invest think about this

asset class so absolutely fascinating discussion guys I know you are going to enjoy this so sit back enjoy One Last Thing Before We Begin David and I have a special d brief today there were some after the podcast conversation that we had with Chris and Kathy and Y want to fill you in on what they said after the podcast I think some interesting tidbits there so to get access to that you have to subscribe to the bank list premium feed that is available for for all Bank

list premium members we'll include a link in the show note so you become a a premium member and get access to that as well without further Ado we want to thank the sponsors who made this episode possible and then get to the conversation bankless is proud to be supported by Unis swap Unis swap is a new paradigm in asset exchange infrastructure instead of a cumbersome order book system where trades are matched with other humans Unis swap is an autonomous piece of software on ethereum which is what Ryan and I call a

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founder of Arc invest legendary investment firm Kathy founded Arc in 20 14 Focus disruptive innovation they do actively managed ETFs that's the product Arc just passed 50 billion in assets under management earlier this year and they've delivered some of the best returns That Wall Street has had to offer all through one thing and that's investing in the future so it's no surprise they were also early to crypto Kathy great to have you how you doing uh great to be here Ryan I'm doing fine and

I have uh you have two other individ ual I know you're going to introduce of whom I am so proud so why don't why don't you take it away well these are these are fantastic individuals as well uh the next is yassen elandra Yen joined Arc in July 2018 as the lead crypto asset analyst where he focus focuses on crypto assets of course the portfolio allocation of them the institutionalization of them he also has a specialty in onchain metrics yine great to have you as well great to be

here Ryan thanks for having me and bankless Nation you also know Chris berinsky from a previous bankless episode uh he's a venture capitalist in partner at placeholder VC before starting placeholder he actually worked for Kathy as a crypto analyst back in 2014 back when crypto was called like next Generation internet uh and he led the firm to become the first public fund manager to invest in Bitcoin Chris thanks for having for coming back with friends this time good to have you sir

thanks for having us py are are those asset numbers outdated by now oh yeah we're um I think we're a bit north of 75 billion Cong congrats yeah well done congrats been blessed with great talent so uh fantastic and you you've been blessed with some foresight too which we're going to get into first but just to give everyone some context of how we're going to do this podcast I feel like what we're trying to do is paint this beautiful tapestry of crypto investing so Kathy's going to help paint

the picture uh y's going to add the detail and Chris is going to add color as we go and I got to ask before we begin um when was the last time this dream team the three of you guys were assembled together or is this the first time I don't know believe it or not it was earlier this week did I forget that that's true we were on a I'm I thought you meant physically together phys physically might have been your book signing Chris I might be wrong on

that uh yeah crypto assets book Chris yeah that's how I met Yen three and a half years ago and that's actually I like to think how I landed my job at ARK uh but it was a it was a funny story where I actually stumbled upon uh Arc through Twitter and I was following both Chris and Kathy at the time and I was a college I was a senior in college and at 11: p.m. right before I was going to sleep I see a tweet from Chris of make

sure that you come to my book signing tomorrow in New York at 5:00 a.m. and I was like all right I have to go so I end up booking a train ticket that night uh and that's where I met book Kathy and Chris uh and that was kind of in the middle of my my interview process so look you I don't know how many people that book brought into crypto but I am one of those people actually so I started to really get interested after reading uh Chris's crypto asset book it was kind of foundational to uh me coming up in the space so Chris you brought a

lot of good people into crypto sir thank you thanks you guys that's gratifying to hear and I learned a lot of it from Kathy and Yen's hustle worked you know for everyone who's out there trying to get a job in the space um showing up physically and um displaying your passion and your ability to commit in that way um is Meaningful so attend those attend those book signings guys that's what you have to do J crypto all right so we're definitely going to talk about crypto today but first I think we

want to uh do do some highle orientation here and Kathy we want to understand a bit more about how you think how you think about investing and I think as David and I were talking about doing this show one thing that really struck us is um you Arc has seen an insane level of success I think by doing one thing very simply and that is pricing in the future today like no one is pricing in the future like Kathy and Arc invest your talented analysts and and that seems to be the investment thesis for Arc and I I want to ask this question to

orient us what makes you think this future that we're always talking about is so close oh my goodness uh we are on the threshold of uh an explosion in Innovation and crypto is symptomatic of it uh the seeds for what is about to happen were planted during the 20 years that ended with the Tekken Telecom bubble those seeds have been gestating for 20 to 25 years sometimes 30 years

and are now beginning to Blossom uh and that's not even the right word they're they're they are exploding into into existence so we think there are five major platforms 14 different technologies that are all uh getting ready to move into The Sweet Spot of their s-curves and there are going to be convergences between and among these Technologies so you're going to have one scurve feeding another feeding another

uh and creating explosive energy and explosive growth and I think in the in the crypto space uh we're going to see blockchain technology and artificial intelligence converge and cause explosive reaction so it's it's pretty exciting uh just to get back to um investing in the future when I when I uh was trying to explain to someone what I wanted to do before starting Arc H and who's not in our business he said to me

oh you mean that in that the future of investing is investing in the future and I said you got it well now when I started in the business that's the only that's the only way people thought about investing and then we went through the teeken Del Telecom bust and then the 0809 Meltdown and we ended up with huge risk aversion in the markets and a a a tendency to invest very much like the broad-based indices out there uh in

other words not adding much more value than the indices themselves and the indices are where they are because of what has happened historically the largest companies the most heavily weighted companies in these indices are there because of their past success but if we're right and all of this disruptive innovation is about to explode well they are In Harm's Way Kathy in a presentation that Arc gave in that the Big Ideas 2019 there's

a slide that you guys have uh that talks about illustrates some sort of relationship between Innovation and investment and just the development of Technologies and the future and on the very right side of this graph where we are currently today 20 you guys have it just like soaring up and to the right with exactly what you just said like so many different Technologies all hitting the peak uh of steepness of their s-curve all at once so a couple questions here have we ever seen any sort of alignment of the stars with how

many different Technologies are like really hitting their strides all at once and what makes you believe that this is actually true yes well this uh chart uh was uh was drawn by uh Brett Winton or developed by Brett Winton uh who's our director of research and uh he was working with academic literature to try and understand uh what would be the productivity or the impact on productivity of the combination of these

uh uh platforms uh and what what he's depicting here is the productivity uplift is going to be unlike anything we've ever seen we've only we've had multiple platforms evolving at the same time only once before and that was in the early 1900s telephone automobile and electricity and uh that that world uh there was a that that was the technologically enabled innovation of

the time and and transformed our world completely let me put some numbers on where we are now in 2019 when we did this chart uh we um we uh uh evaluated the market cap around the world associated with truly transformative uh Innovation that was that year it was7 trillion so it was less than 10% of the global Equity market cap that's public

Equity uh the next year last year that doubled to 14 trillion uh and we did have a very good year last year we believe that in the next five to 10 years that number is going to north of 00 trillion do uh but what what we're not saying when we so that's the upside uh the downside will be in the broad-based benchmarks which have uh

been beneficiaries of the traditional World Order and are now going to be disrupted and disintermediated so in order to to summarize this section about like this explosive Innovation what what is the current market holding true that you think the market is fundamentally wrong about uh I think um the pace of innovation and the convergence uh between and among these platforms uh most investors have never

seen exponential growth well they they recall seeing it once it was during the tech and bubble and that ended badly uh and that's why there's been this allergic reaction to Innovation and High valuations um most investors have a one-year time Horizon maybe 18 months we have a five-year investment time Horizon the early years of exponential growth when we're at low numbers in terms of

the base uh the numbers don't look that much different from linear growth but when you uh go out five years the difference between exponential so Revenue growth rates in the 25 to 50% range per year and uh and let's say GDP growth which might be 5% at best night and day uh and I think what gives us uh the differentiation is our starting point we start from the top down trying

to size markets and we Center our research on on something called rights law rights law is a relative of Moors law uh Moors law is a function of time rights law is a function of units and uh and actually rights law has worked better in the semiconductor industry than Moes law itself during the last few years uh and so that's how we get to numbers like um uh the electric vehicle space 2.2 million last year but the

costs are dropping to such an extent now that we think that number is going to 40 million almost half of uh Global cars sold uh in five years actually more like four years now uh no one has that kind of a accelerated growth in their models they've never seen it before so they're not modeling it in the future but rights law is a very good guide just just to hop in and emphasize this point because

I'm sure you seen and I both have built these these right law rights law models um Kathy's saying like as you increase the units of production there's a certain cost decline curve to that technology um and so that's a lot of arc's work of being able to predict out five 10 years what are the costs of these things going to be based on the the units produced um there's this other thing that was coming to my mind as Kathy was talking and Elon Musk has this line of Fate love irony um which always

messes up my head but um when I think about how backward looking a lot of traditional Finance has become that comes at the same time and the backwards looking is as Kathy saying focusing on indices and investing based on the past that's happening at the same time that the world is changing at an accelerating rate and so there is this this tragic irony that people are more and more backwards looking in their investing at least institutions are while you know

the opportunity is getting larger and larger in the future and I think that what what's great about that actually is it opens up a space for retail um and you know Arc is predominantly I think retail favored with growing institutional respect and I think that will only grow over time but the opportunity is really for retail to catch up to institutions you guys say front run the opportunity but it's just retail being future looking while the institutions are backwards looking well

said absolutely and this kind of this this you know tragic irony that you're talking about Chris kind of gets into a another question that's been on my mind which is this like we all have haters out there David and I we have we have haters you know doesn't take long go scroll our YouTube comments you know every once in a while there's lots of people who are are willing to um you know trash what you're doing and Kathy you have some haters too there's an anti- Cathy wood ETF out there I've heard critics call what you're doing unprofitable Tech that's what they call your your sector um our friend from real

Vision R Paul was just on recently and he says part of this is because people are fundamentally afraid of change is there something to that why do you think there are like the haters of the world um disparaging the work that you're doing and kind of your method um actually I feel very comfortable when when I'm in that kind of situation if everybody loved what we were doing and were and and they were chasing it uh I'd feel much less

comfortable so I'm kind of used to it I've faced it uh actually inside the traditional world as well as I became an otter and Otter duck uh and my uh counterparts were becoming more Benchmark sensitive so you know it was kind of seemed like to them at least uh rebellious uh so are they afraid of change um I think there's muscle memory Associated certainly at the high level

management associated with the tech and Telecom bubble and many Equity uh uh leaders went down and uh basically seeded power to the fixed income uh market so many of the leaders of financial firms came out of the fixed income world uh because of the tech and Telecom bus many e Equity uh leaders lost their jobs then and then again 0809 and so you have this very

conservative group of people who really uh haven't managed equities ever uh and and actually understand more Benchmark sensitivity since that's how that work worlds World Works um um and I I suppose this just seems like again an odd duck running around uh with her head cut off you know uh they they're not willing to look at the kind of research we're doing

which we provide freely out there in fact we provide our uh Tesla Model right and to help to educate people saying look we've done the research that supports these numbers and I think the biggest surprise to me is that giving the research away spoon feeding them with the model has has not changed much uh but I think it will change we we're just going to keep if we're right if we are right uh

then those who H are wedded to benchmarks are going to lose their jobs I would I would I would only add that your research has educated retail right institutions might might be um dismissing it currently but you have your following Kathy youen has his following like arc's team has been empowered to connect with their audiences and while there are haters of Arc there's a much larger Army I think

of lovers on you know Reddit and Twitter and everyone cheering on what Arc is is doing um based on the open source research which is been it has been wonderful in fact there's a concept called accredited investors in in our World accredited investors um have to meet certain income and asset thresholds be before they can invest in anything risky uh which the

SEC deems risky uh now Hester purse at the SEC is fighting this concept and so are we we're trying to democratize investing and give these opportunities to um to anyone now if you ask me who are the accredited investors in our space I'm going to tell you it's the retail they know because they're reading our research and you know these the these Investments uh they do not many of them

do not make lightly they want to study everything we put out those are the truly accredited investors so hopefully we're going to be working with the SEC uh over time to to to change that Dynamic well said you what you want to add to this yeah I was going to add that you know hate really kind of signals that you're onto something most of the time there's that whole like famous quote of like first they ignore you then they laugh at you then they fight you then you win like that's that's kind of what we're seeing in real time here um

you know I also add that I don't think it's a coincidence how align kind of the crypto adoption curve or the crypto ethos has been with kind of arc's trajectory as well you know it starts obviously at at the open- source research ecosystem L where you know we want the information we we we acknowledge that the information is commoditized so the best way to use that information is to share it with the world so that it can battl test our assumptions it's going to be out there it's open source same thing is is happening in crypto right you have

readily available data that anyone can access it levels the playing field uh and then in terms of the adoption curve as well I mean the first to to kind of bootstrap these networks are retail investors um there and and and they in a in a lot of ways um were way ahead of the curve relative to institutional investors where now institutional investors are have just begun to dip their toes um in Bitcoin let alone you know other other crypto assets so um there's some high alignment it's and

it's really interesting to kind of see that play out in real time so Bank list listener I I hope you can begin to see the lens through which Arc views everything and it's very much aligned with with a crypto lens I heard things like open- Source analysis heard things like S curves and exponential growth um you know cath Kathy talked about herself as an odd duck I feel like an odd duck I feel like a rebellious investor when we're talking about these things I'm sure many of you listening will resonate too um so let's get to that topic of maybe maybe one of the oddest things

around you guys started doing crypto in 2014 that had to be that had to turn a lot of heads of course and I know you have five technology platforms you're investing in so genomics is one artificial intelligence is a second robotics is a third energy storage uh and then also blockchain we we can call it crypto on this podcast so let's talk about that last one the weirdest one maybe the most understood maybe the most rebellious to date I'm not sure this question for Kathy I'm curious at the highest level what do you see in

crypto well again my aha moment was uh after Chris had really written the the paper could Bitcoin serve the role of money we're just working from a very basic level and uh it was we were talking about a$6 billion dollar market cap at the time or network value as we were calling it and uh we had art laugher take a look at this paper and uh

he looked at it and and helped us we wanted it to be absolutely correct from an economic point of view he looked at it and he looked up and he said wow he said this is what I've been looking for all my life this is a rules-based monetary po policy a global rules-based monetary policy and I ended up saying oh okay well if that's true how big could

this become and he said well how big is the US monetary base and at that time it was 4 and a half trillion now it's 8 trillion uh because he he was dimensioning it as though it would be the reserve currency a reserve currency out there so that that so A a global inter rules-based inter uh monetary system hugely important uh for Humanity I believe uh and I share a Arts view I

was educated by him so that's not surprising but uh and then uh I think the idea again Chris wrote the book we're we're dealing here with a new asset class also for for investors uh unlike anything uh um we've seen before and you know unlocking huge productivity uh and um creating inclusion like we've never seen before globally so I think uh and decentralized