September 15, 2021

Investing in the Future | Cathie Wood, Yassine Elmandjra, and Chris Burniske on Bankless with Ryan Sean Adams and David Hoffman

Check out the Bankless episode page

Key Takeaways

• Price in the future today – the future is closer than you think.
• Institutions keep looking backwards to support their investments rather than towards the future. Retail investors could be rewarded for their forward-thinking approach
  • Many industries are approaching a sweet spot in their innovation S-curve
  • ARK predicts $100 trillion dollars will be globally committed to innovation in the next 5-10 years
  • Most investors have never seen exponential growth – creates an “allergic reaction” to innovation
  • ARK invests in 5 main tech categories: Genomics, Artificial Intelligence, Robotics, Energy Storage, and Blockchain
• Crypto is symptomatic of an imminent explosion in innovation
  • Due to the open-source nature of crypto, the wealth of data accumulated can be incredibly valuable to growth assessment and adoption
  • It’s politically neutral, transcends borders, and is a new mechanism for global economic activity
  • Crypto’s openness and competitiveness drives down costs which entices private sectors to adapt for increased profitability with the removal of banks from business processes
    • With open networks, you can not hide inefficiencies
• “Follow the developers” – Cathie Wood
  • While Cathie references the rapid utilization of Ethereum in the NFT marketplace in this quote, this is a great thing to observe in all innovation spaces
• “Ethereum is a new capitol coordination system, which is a powerful lens” – Chris Burniske
  • Ether can guarantee a yield and risk-free rate through proof of stake
  • Cathie will be studying earnings season closely to understand if banks are searching elsewhere for untraditional yields like crypto
• Cathie, Yassine, and Chris also give their thoughts on what’s next in the world of Crypto

Intro

• Cathie Wood, ARK Invest CEO (@CathieDWood), Yassine Elmandjra, Crypto Analyst (@yassineARK), Chris Burniske, Former Crypto Lead (@cburniske) join Bankless to discuss ARK’s analysis on the future of innovation as well as key fundamentals in the crypto space that can inevitably change the world.
• Hosts: Ryan Sean Adams (@Ryan_Sadams) & David Hoffman (@TrustlessState)

ARK’s Investing Strategy

• Price in the future today – the future is closer than you think…
  • Early 2000’s bubbles (tech, telecom, housing) created risk aversion in markets and tendencies toward investing in lower value indices
    • “Fate loves irony” – Elon Musk
    • There’s more innovation than ever but institutions maintain their backwards-looking investment strategy – this could give a leg up to retail investors for being forward-thinking (ARK provides tons of free open-source educational resources!)
    • Large blue-chip companies maintain their market cap based on past success, not what is to come
    • Most investors have never seen exponential growth – creates an “allergic reaction” to innovation
• Many industries are approaching a sweet spot in their innovation S-curve
  • In 2019, around $7 trillion in global equity is committed to transformative technology
    • 2020: $14 trillion
      • Next 5-10 years: Upside of $100 trillion
• ARK centers their research around Wright’s law which is a relative of Moore’s law
  • Moore’s law: function of time
  • Wright’s law: function of units
    • Worked better in the semiconductor and eclectic vehicle space
    • Factors in the correlation of units of production and cost decline
• ARK invest in 5 main tech categories: Genomics, Artificial Intelligence, Robotics, Energy Storage, and Blockchain

Bitcoin

• Bitcoin: A Disruptive Currency by Chris Burniske
  • Explains Bitcoin’s potential as a global rules-based monetary policy
  • Bitcoin, as it functions in decentralized finance, explores new possibilities in efficiency and inclusion
• ARK started researching in 2015 on if Bitcoin can be a new asset class
  • Crypto is symptomatic of an imminent explosion in innovation
• The first attempt at non-state money can be a tool for freedom in undeveloped nations
  • It’s politically neutral, transcends borders and is a new mechanism for economic activity
  • El Salvador has recently rolled out Bitcoin as a legal tender
• Due to the open-source nature of crypto, the wealth of data accumulated can be incredibly valuable to growth assessment and adoption
  • This doesn’t exist in traditional assets 
• The market narrative has accepted Bitcoin as digital gold since roughly 2017

Ethereum

• The Fat Protocol Thesis – Google, Facebook, Amazon value is created in the application layer rather than the protocol layer. Blockchain creates value in the protocol layer through token economics.
• “Follow the developers” – Cathie Wood
  • When it comes to researching crypto, follow how the developers create utilization
  • On Cryptoslam, you can see almost every NFT operates on Ethereum
  • Cathie is thoroughly impressed with NFTs ability to reward creators
  • Higher programmability in Ethereum than Bitcoin
• “Ethereum is a new capitol coordination system, which is a powerful lens” – Chris Burniske
  • Ether as an asset has been interpreted as a digital commodity that can demand a sizeable premium compared to physical commodities
  • Ethereum can be a productive financial asset; it acts as an internet bond
    • Ether can guarantee a yield and risk-free (minimized, pending the US remains solvent) rate through proof of stake
    • Cathie will be studying earnings season closely to understand if banks are searching elsewhere for untraditional yields like Crypto
    • “There is going to be a lot of creative destruction, these banks are going to be losing share to the crypto world” – Cathie Wood
  • Ethereum passed Bitcoin in fee revenue which can be interpreted as a proxy for demand, interest, and usage is undeniable
• Ethereum has the power to influence financial globalization on an equal scale

Fintech & De-Fi

• The Fintech Mullet – Fintech in the front, De-Fi in the back
  • Mastercard, Visa, PayPal, Square have all been getting involved in crypto
    • Cathie believes Mastercard and Visa see the writing on the wall as they are ‘hostage to the banks’
    • PayPal and Square have made strides with their digital wallet features – the consumer and merchant have the opportunity to benefit from each other
• Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlota Perez
  • Early innovators -> Private sector adoption -> Public sector adoption
  • We are currently in the private sector phase
    • The banks hold everyone hostage through ‘costs of doing business’ meaning we don’t really live in a financially free market, crypto’s openness and competitiveness drives user costs to almost zero
    • Private sector adoption is not just trendy, it improves profitability with the lower costs
• De-Fi succeeds on the convergence of artificial intelligence and blockchain technology
  • With open networks, you can not hide inefficiencies
    • Our current financial inefficiencies and unfairness exist because they are hidden

What is Next for Crypto?

• Yassine is optimistic about the progress crypto has made so far!
  • More need for education and regulatory clarity for value proposition
  • Don’t remain complacent at the protocol level
• Chris believes crypto is inevitable
  • Spends a lot of time thinking where the power and capital will concentrate
  • Power and capital have always had a tendency to corrupt… must ensure broad enrichment, the amplitude of societal impact will be dictated by our own self-control
  • “Capitol is created from the capitol, just as life created with life” – Chris Burniske
• Cathie believes the more times we go through volatility, the stronger the network gets
  • This instills more confidence in investors
  • Continue to support developers to continue to strengthen the network

CryptoBankless : bitcoin, crypto, ethereum, investing
Notes By Drew Waterstreet