De-layered and durable: How DeFi will boost the finance sector’s resilience

Transcript

Angie Lau: Anthony, it’s great to have you here. We’re in the Bahamas. But when people think of you, they don’t think of you working with an FTX of sorts. You’re part of the Wall Street allure. You’re part of the traditional world. But you’re also prescient. We saw your moves into crypto well before anybody else made that move.

Anthony Scaramucci: Well, before some of the Wall Street guys — I mean, obviously, the Winklevoss twins got in there in 2014, and I think Sam (Bankman-Fried, FTX’s chief executive) probably got there in 2011 or 2012 — but yes, I think we saw what was happening and wanted to take advantage of it. And we got a lot of pushback. I had one client of mine — a sovereign wealth fund from the Middle East — said, ‘Listen, I have to fire you. I can’t have any cryptocurrency exposure.’ I said, ‘Ok, well, I guess you’re going to have to fire me, then.’ He didn’t fire me, and he called me at the end of the year and he said, ‘Well, thank you for pulling me into the future.’

And so that’s what conferences like (the Crypto Bahamas conference) are about. We’re trying to get as many traditional finance people to think about the future very, very differently. It’s a weird thing, but human beings do not like change. My grandmother had a rotary phone and my mother had a touchstone phone. And my mother is still using that touchstone phone. And I got to be on it. And her cellphone has got like a clunk to it. It’s like a flip.

Lau: Right.

Scaramucci: ‘And,’ (I said,) ‘Mom, we can get you an iPhone.’ (She said,) ‘I have no use for that.’ I got a friend of mine. He’s a multi-billionaire. He’s in his mid-80s. He doesn’t do his own email. He barks at his assistant. ‘Read email to me from Anthony.’ And then he dictates back to her. So you have a hard time. Human beings have a hard time making changes and embracing new technology, and so one of the reasons why we’re here is to get as many people as possible to create that bridge between traditional finance and the future of finance, which I think is going to be DeFi (decentralized finance), and I know you think it’s going to be DeFi, and I want people to be a part of it with us.

Lau: The dichotomy of that thinking is that money is no longer influential. I mean, investing in something is the cheapest way to get into technology. The builders are here, the blockchain projects are here, but it still needs capital. Now, the difference is that they don’t necessarily have to go to old Wall Street types.

Scaramucci: Right. That’s the brilliance of it. I don’t even think about this for a second. Last May, there was a wipeout in the cryptocurrency markets — probably a 50% drop. US$1 trillion was lost. I want you to imagine — because you’ve been covering the markets for a very long period of time — if that happened in the bank … the banking community, the money-center banking community … we had a US$1 trillion wipeout, we’d have, like, a four-alarm fire at the Federal Reserve. 

Lau: Absolutely right. 

Scaramucci: Ok. So, what’s happening is these decentralized properties are way sturdier. And I think what you learn from sociology, political science, biology (is that) things that are decentralized, are sturdier. And listen, I mean, the American government is actually one of the most decentralized governments in the world, which is the reason why it’s lasted 246 years. So, we’re about to enter an age of individualism, an age of libertarianism, and an age of freedom. And, by the way, this is why some governments — autocratic, authoritative governments — don’t like it. ‘Get it out of my country. Move your mining, move the assets. You’re not allowed to own it.’ Because they’re afraid of it. But I’m not afraid of it. I want people to embrace it. And you have a colleague that says it better than me. There’s no systemic ‘racism’ in this, because you’re an individual able to express yourself and you don’t have to come in to some centralized company and listen to a whole lot of nonsense and bunk.

Lau: That access to talent is also critical. I mean, people just want to be able to do good work. What kind of environment do you think you want to create? And also, as you see the space around you, what do you want to support?

Scaramucci: It’s a really good question. So, there’s a lot of different elements to that. I want there to be a media angle (because) people like you are so important. You can’t imagine the influence that you have, because you’re reaching people that need to know about it, but they’re almost a little embarrassed because they don’t know about it, so they can tap into somebody like you. 

So there’s a media angle, there’s a conference angle, and then … there’s a fintech laboratory angle, where we have a venture capital project going on and we have a coin project. We’re just going, ‘Own the underlying coins.’ And then, of course, we have our broader based several billion dollar fund, where we own hedge fund assets in there — guys like (asset management company) Point72 or Dan Loeb (the chief executive) at Third Point. But we have very big macro positions and cryptocurrencies like Bitcoin and Ethereum. So, for me, when I get up in the morning, I say to myself, ‘How am I going to get one more person that doesn’t understand it or hates it to at least embrace it and open their eyes?’ And that’s what I’m trying to do every single morning.

Lau: And they’ve got a big part of that here. What did they hear that was so different then, and why is the timing now? What’s the signal from the market?

Scaramucci: I mean, first of all, the FTX guys are brilliant guys. They’re young enough to be my kids. I think Sam is, like, six months younger than my oldest kid, or something like that, and he’s an amazing guy. And so he came to my small conference last September. He had a great time. He turned to me and said, ‘Hey, do you think we could work more closely together?’ So, we announced, six months ago, I guess, a deal with them, where we would do a conference in Abu Dhabi, Singapore, return to New York, and then my partner, (SkyBridge director) John Darsie, who really runs all of this, suggested that to Sam. ‘Well, why don’t we do something in the Bahamas, and we’ll make it specific to crypto? It’s your world headquarters. Now, we can showcase the Bahamian government, their progressive ideas about regulation. We can bring people down here. And then let’s discuss a layered curation of the editorial content.’ And so what do I mean by that? We want stuff for the younger people, but we also want stuff for people that are my vintage, so that somebody can walk out of a meeting and say, ‘Oh my God, I actually understand better what Bitcoin mining is.’

Lau: Did you get that feedback?

Scaramucci: I thought so. It’s my event, so I don’t want to be overly chest thumping. But I walked out of a situation. My wife was with me, and somebody came over to me — it was a person I knew for 30 years in the business — and said, ‘I got to thank you. First of all, I didn’t want to come to this.’ But he decided he was going to come — came on his own time, because his firm doesn’t have any crypto relationship, no crypto exposure. They can’t even have assets in crypto. But he came on his own time and he said to me, ‘I really have a better understanding of what’s going on. And I understand now, putting it in its most simplistic way, blockchain is a digital layering mechanism for the global economy.’ 

Lau: But that’s why it’s so dangerous.

Scaramucci: It’s dangerous, but exciting. Before we came on the air, my phone was lighting up. I had to call my bank to confirm my wire transfer to another party. You saw me do it?

Lau: I saw.

Scaramucci: I said, ‘Wait, wait. We can’t go live.’ I got to say, ‘Yes, I’m confirming.’

Lau: But this is why it’s so dangerous. It feels dangerous if you’re part of the legacy, if you’re part of traditional finance.

Scaramucci: Of course it’s dangerous. It’s gonna wipe you out.

Lau: Exactly.

Scaramucci: But here’s why I tell people, ‘Relax.’ Because in 1985 — to really date myself — I was waiting in line at a post office in Rome to be able to go to a phone booth to call my mother. I had to call her on Wednesdays because Wednesdays was Prince (brand) spaghetti day. So, I’m waiting for the phone booth and they gave you five minutes. It was US$15. I had an American Express traveler’s check. You’re probably not old enough to remember those, but I’m signing the thing over, and, of course, I’m lying to my mother, telling her I’m not drunk and … wrong, the whole thing. Right. And then the phone call is over. That phone call today is costless.

Lau: That’s right.

Scaramucci: Go to any cafe in Rome. I can log onto the internet and make that call. Does the phone company survive? And the answer to the question is, yes, they survived. They’re just doing different things now. And that’s my message to the TradFi people: ‘Relax. We’re all going to be fine.’ But you got to adapt. You’ve got to be a Swiss Army knife in this world right now. You’ve got to pull out another weapon. The one that you were using traditionally is not going to be the one you’re going to be using in the future.

Lau: And so, when you take a look at the landscape — and you’ve done that with SkyBridge, and you’ve done that with a lot of your bets — when you take a look at the landscape of blockchain projects and firms and exchanges, what does traditional Wall Street — the banks, the JPMorgans of the world (and we know what they’re all doing), but the BlackRocks, etc. etc. What do they need to do? You’ve criticized them for not doing their homework. What kind of homework do they need to do to take a look at the landscape and make those bets, because they’re not building right now, and to get in, it’s probably going to be acquisition time.

Scaramucci: Yeah, well, they’re doing two things. They’re ignoring it and they’re saying it’s rat poison and it’s worthless and it’s going to go away. And if they’re into it, they’re using their private equity capital to buy in the companies that support it. I find that odd, because the underlying tokens have to do well for those companies to do well, and yet they won’t touch the underlying tokens. Ok, so, guys, philosophically take a chill pill and really start to understand what it is so that you can embrace it. And here’s what I would say — because it’s the gradualism, it’s the incrementalism that’s usually the best process — so own a percent of it, own a half a percent of it. 

Say I’m wrong. Let’s say Sam Bankman-Fried is wrong. Let’s get all of these brilliant thinkers — (crypto investment firm Galaxy Investment Partners Chief Executive) Mike Novogratz people. Let’s say they’re all wrong, but at least get a toehold in there. Why miss this, if this is going to transform our society, where you and I are going to be able to transact with each other without permission? Let’s say we didn’t know each other, or like each other, or trust each other, but we trust the blockchain. And now I can send money to you or you can send money to me. I can buy your house over the blockchain. Someday, I’m going to be able to go to Starbucks, I’m going to take out my smart wallet, the barista is going to say to me, ‘Hey, you know what? We’re doing a share repurchase program here.’ I’m going to have tokenized Starbucks stock on my smart wallet and she’s going to say, ‘I’m going to give you 15% off if you sell some of your Starbucks shares to us right now at this lunch counter or this table counter. You want to do that?’ Click, click. Boom, boom. 

Lau: Your barista is your broker.

Scaramucci: But that’s what’s going to happen. I want to set this for you. It’s 1998. I have a fat-box computer. It’s connected by a cord to a mouse, and I’m trying to dial up the internet and you can hear the humming and the whirring and the burning. And it takes 35 seconds for my landing page to come on. And it’s AOL. And now, from the future and the DeLorean (car), comes Sam Bankman-Fried, and he pops out of the DeLorean, and he says, ‘Hey, I’m here from 2022. And you know what? You’re going to stream 4K video over this someday. And oh, by the way, not just you, hundreds of millions of people are going to do it. And you can’t see it today, but I’m telling you, that’s going to happen in the future.’ And that’s where we are with DeFi right now. It’s a little clunky, hard to understand. Protocols are just being built. We are so early. About 10 years from now, I’ll be buying my Starbucks with tokenized Starbucks stock with the barista. And you’ve got to need the vision to see that.

Lau: What needs to happen to see that?

Scaramucci: More technology. Well, you see, I have an opinion on pluralistic societies: It’s already over, because a country like China may not like it and the United States may have regulators that don’t like it, but remember this about Uber. No regulator wanted Uber. But you know who wanted Uber? The people. People wanted Uber. We have 73 million people in the United States that own a piece of a cryptocurrency. Good luck (resisting it), because that’s like a decentralized lobbying organization. It’s got to upset those people. (Miami) Mayor (Francis) Suarez was here at dinner with me the other night. He says, ‘Hey, you know how many people it takes to win the presidency?’ I said, ‘No, sir. How many?’ ‘Fifty-five to 60 million. You know how many people own Bitcoin? Seventy-five million.’ Trust me, these people are going to be pro-Bitcoin going into that (U.S.) presidential candidacy in 2024.

Lau: China just came out — they said, ‘Hey, we’re putting a pause on any enforcement on tech.’

Scaramucci: Right? Well, they have to. Why are they doing that?

Lau: For various reasons. But the big part of it is, if blockchain and crypto are going to be the next phase of growth, you can’t have growth in blockchain without the underlying security called crypto. 

Scaramucci: So that’s the point. They have to. They’re not going to miss it for the second-largest or the largest economy. But now you want to measure them. They’ve also got 1.3, 1.4 billion people. They can’t miss this. But here’s the thing about this. This is about individualism, and this is about empowerment. And that makes the world sturdier. It makes the world safer. Think about the autocrat Vladimir Putin — all that central authority and all the damage he’s doing to the world right now. Let’s take the keys away from the drunk-driving central bankers. ‘What are you guys doing?’ Take the keys away. ‘You didn’t handle the money right.’ Let’s give the money to nobody. How about nobody can run the money? Let’s have a decentralized process so no policymaker or politician can capriciously disrupt your money. 

My dad was a blue-collar laborer. He worked by the hour. You’re stealing his money when you’re inflating it away. Inflation is the most regressive tax you can impose on a society. Why don’t we cut it out when we help those people? Because you’re going to help the rich when you inflate, because they own the assets. Assets are just going to go up and down, but you’re stealing the money from my dad. Can we stop that, please? And that’s the future. And we have the technology now to create that future.

Lau: Where does the U.S. position itself? Right now we have the Biden administration. They just came out with the executive order. There’s a little bit more language in guidance. We have the SEC (Securities and Exchange Commission), the CFTC (Commodity Futures Trading Commission) now. We have the Federal Reserve starting to warm up to the idea of a digital dollar — Lael Brainard, obviously a huge proponent of that, now the vice chair. How do you see the next two to three years, even five years — probably like 20 years in crypto years?

Scaramucci: I’m bullish, because of the people and the analysts, and I got my 11-day Ph.D. (the length of time that Scaramucci served as the Trump White House’s communications director) on how Washington works. Brutal. But I’m telling you, follow the money and follow the people. And remember, these politicians, they want to stay in power. And these campaigns are marketing competitions. ‘So, wait a minute. If I’m pro-crypto, I’m going to stay in power? Then I’m going to be pro crypto.’ It’s just the way it’s going to happen. 

Also, let me give you one more distinction. I think it’s important for your listeners and viewers in the United States. The IRS has already deemed cryptocurrencies intangible property. And I didn’t learn a lot in law school — I learned probably two things in law school. Number one, don’t be a lawyer — I thought that was the most obvious thing. But the second thing was about property in the United States, the Bahamas, anything that’s tied to British common law. Yeah, property is sacrosanct, and so therefore, they can’t get rid of it. If I own it and it’s my property, they have to buy it from me. That’s called eminent domain. And I can trade it or sell it to you for a consideration. That’s been going on now for 900 years, dating back to the Magna Carta, and that’s not going away, and they’ve already made that decision. So, don’t forget that in the United States, when you’re hearing all this ranting and raving from some of these politicians that don’t like crypto, the IRS already deemed it property. So, you’re right. You’re not getting rid of it.

Lau: Well, listen, that’s a great point, because China has also done that in its legal system — that owning Bitcoin is a property right. That is an asset that can be protected. 

Scaramucci: They’ll come around to it.

Lau: You think so?

Scaramucci: I do. They don’t have a choice.

Lau: They’re already doing a CBDC (central bank digital currency). It’s in the soft-rollout phase. It’s probably already being implemented across the country, and we’ve been reporting on that. Do you see a bifurcation? I mean, how does crypto kind of create a parallel system, and how do we need to prepare when we take a look at the macro.

Scaramucci: Again, just think about it (like) an extension of other technologies. We had a horse and a carriage, then we had a horseless carriage. It made the migration over. And then we had to build roads and bridges and tunnel systems to carry those horseless carriages. So, this is the same sort of thing. You’re in traditional finance right now. We have these protocols and procedures that can allow you to do things differently. You’ll start to see that transition. You’ll start to see the regulators catch up to it. And there will come a day when we’re transacting with each other without that third party. 

The El Salvadoran government believes that they can have their citizens save US$400 million a year from expatriates moving money back into El Salvador, bypassing MoneyGram and Western Union, and all the exorbitant fees there. American Express, they have to come up with other ideas, because I could sit in a restaurant someday and I can pay the restaurateurs over the blockchain, wallet to wallet, and bypass the 3% surcharge. But people will come around. But if you’re in an elevator or I’m in an elevator, someone turns to me and says, ‘What about the blockchain?’ I say, ‘It’s a de-layering mechanism.’ We’re taking third parties out of transactions, which is reducing costs, and it’s improving the efficiency in society. Think about that. Think about how monumental that is. (Investor and software engineer) Marc Andreessen — when he fully understood it and he had his eureka moment — he said, ‘Oh my God, this is bigger than the Netscape browser that I myself created.’ This is even bigger than that. And look at the money that (Silicon Valley venture capital firm) Andreessen Horowitz has plowed into this industry.

Lau: It’s a huge play. Let’s take a look at the macro outlook. Where do you think we’re going to go? Where do you think we’re going to go in terms of price action?

Scaramucci: It could be very sloppy in the near term. There’s inflation, there’s a war going on. Unfortunately, the war is escalating. It’s not de-escalating, which has me upset and has the world upset. And so there will be a lot of sloppy trade activity right now. There’s still the specter of uncertainty in the United States related to regulation. But I think a lot of that stuff will end once we get a Bitcoin cash ETF in the U.S. We have them in Canada. We have them in Europe. We will eventually have a cash ETF in the United States. And what that will do is open up a floodgate of activity, because the minute they say that the cash ETF is okay, every wirehouse, every bank, is going to be, like, ‘I’ve got to have that as a part of my arsenal in terms of financial instruments in dealing with my clients.’ So, once that happens, you’re forcing everybody into the pool. 

(Financial services conglomerate) Fidelity did something very recently. They’re allowing for a 401(k) (retirement plan) product related to Bitcoin. I tend to think about how monumental that is. I’m old enough to remember when Fidelity transformed the stock market, the mutual fund industry, by offering those products and services to their clients through their 401(k) … 401ks were created. Now you’ve got US$2.4 trillion at Fidelity, and, for one case, just imagine a couple of percent of that going to Bitcoin. Well, I can’t. And Bitcoin’s got a fixed supply. Wake up, people. What are you guys doing? Wake up.

Lau: It’s only 21 million. 

Scaramucci: Yeah, but a couple of million has probably been lost in the early adoption. Some guys had it on their Blackberries and a clunky laptop somewhere. It’s been thrown into a landfill somewhere. We had that one guy. He’s trying to dig up the landfill. We probably read that story. The poor guy.

Lau: He’s got half a billion dollars, at least.

Scaramucci: I got US$50 million of Bitcoin on my laptop from 2013 or something.

Lau: But listen, the SALT Conference in New York in September. You’re also going to be …

Scaramucci: Singapore, November. Probably February, March for Abu Dhabi.

Lau: We’ll be there.

Scaramucci: Thank you so much. Great.

Lau: Absolutely.

What a great conversation, Anthony. Super-appreciate it. And thank you, everyone, for joining us on this latest episode of Word on the Block. I’m Angie Lau, Editor-in-Chief of Forkast. Until the next time.