Mark Cuban: "ETH Has an Advantage Over BTC as a Store of Value"
In this week’s Defiant podcast episode, I speak with Mark Cuban, Dallas Mavericks owner, billionaire investor and Shark Tank star —and Defiant subscriber :)
It’s been hard to pin down if Cuban is a crypto skeptic or believer. He has questioned the value of bitcoin and called its price surges a bubble, but he has also accepted crypto payments for his basketball team, and tweeted about using Aave and selling NFTs. You’ll have no doubt after listening to this interview where he stands: Cuban is a crypto bull, but more specifically a DeFi and Ethereum bull.
He says his general stance hasn’t really changed; he still believes bitcoin can’t be used as currency, but thinks its underlying narrative has strengthened, to become powerful enough to support it as a store of value.
But what he’s really excited about is smart contracts, which are allowing developers to make any decentralized application they can dream of, sparking innovation and compounding network effects, and most importantly, laying the foundation for what he calls “friction-free banking.”
Because most of this innovation is happening on Ethereum, he believes ETH is becoming a better story of value than BTC.
We talk about NFTs and how he believes they’ll be a game-changer, predicting digital collectibles will overtake the physical collectibles market. We also talk about DAOs, and he muses how much better Wall Street Bets would be if it was a blockchain-based forum where users could pool their tokens and invest together.
Cuban also goes over his takeaways after using DeFi dapps like Aave, and talks a bit about his portfolio, which right now holds more Bitcoin than Ether. But that may change. He says when there are pull backs, he’s buying more ETH, not BTC.
The podcast was led by Camila Russo, and edited by Alp Gasimov.
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CR: Mark has made waves recently in DeFi. He's been tweeting about using Aave and buying and selling NFTs. So that's really cool to hear. And I'm really excited to talk about all that stuff with him. But first, let's go back in time a bit and just tell me about your crypto journey. Like what first got you interested in crypto and Bitcoin? And what was kind of your first reaction to this?
MC: So, I'll go back to the beginning. When Coinbase first came out, you know, I like to play with technology, I'm a tech geek and have been for a long time. And so I tried it, some people sent me some Bitcoin because it was dirt cheap back then and wanted me to see it. But the conversation back then was mostly about it becoming a currency. And that's why they're called cryptocurrency, which is really a misnomer, right, because very few of them if any of them are actually currencies.
“I like to play with technology, I'm a tech geek and have been for a long time. And so I tried it, some people sent me some Bitcoin because it was dirt cheap back then and wanted me to see it.”
And so as somebody who had written software, and I did a lot with distributed databases, my very first company, we were a systems integrator. So I would write multi-user applications, distributed applications. And then I sold my company to CompuServe, which had a worldwide network that VISA was on and I did a lot of business with Lotus Notes, which had replication servers. And so I really had an understanding, not as much as some people, but what I felt was a strong understanding of distributed databases and decentralized databases.
And so I was all in on blockchain. But like any other new programming language or platform or anything, there was a long ways to go before blockchain was really going to be ubiquitous. But even back in the beginning, I remember getting into arguments with people by Southwest back then. I was all in on blockchain, but the argument on Bitcoin in particular was always it was going to be a currency. And over the next five years, I was certainly a naysayer. And to this day, I'm not a believer that Bitcoin will become a currency. And most bitcoiners aren't even saying it's a currency anymore. And when they had the split in 2017, that kind of confirmed right, you're not going to do it. And I've listened to all the talk about lightning over the years, and how that was going to change everything, and it just hasn't.
“I was all in on blockchain, but the argument on Bitcoin in particular was always it was going to be a currency. And over the next five years, I was certainly a naysayer. And to this day, I'm not a believer that Bitcoin will become a currency.”
So long story short, what really started to change was even after 2017, and the big price movements, over the last year or so, you've seen people, maybe two years only start to refer to Bitcoin as a store of value. Nobody's really talking up the whole currency thing any longer. At the Dallas Mavericks, we started taking Bitcoin for tickets and other purchases back in, I think, 2015. And I think, ever since then, we've sold maybe $300 worth.And I did it because I wanted to see if people would actually use it as a currency.
And back then, some people tried. You had people going across the country trying to live off a Bitcoin and all that. But now people are like, no, I'm not going to spend my Bitcoin as a currency, I want to see it appreciate. So what really changed was one, watching people change their mind about it being a currency, and start recognizing that it's only a store of value; and two, starting to see the maturation of blockchain apps, particularly on Ethereum; and then three, this past summer, watching on DeFi go nuts.
“So what really changed was one, watching people change their mind about it being a currency, and start recognizing that it's only a store of value; and two, starting to see the maturation of blockchain apps, particularly on Ethereum; and then three, this past summer, watching on DeFi go nuts.”
So for me DeFi, I really was okay now, blockchain in particular, is really starting to mature. You're starting to see applications that are really coming into play. You're starting to see NFT. And it's not so much just about how much is sold and market value, but more just that people are becoming more comfortable with it. And so we're starting to see these applications that are just popping up left and right.
And it reminded me so much of the early days of the internet, where the mid-90s people started talking about internet applications, but the internet had been around for 10 years, right? But it was mostly in universities. And so it was very analogous to what's going on with blockchain. You had early adopter applications. You had banks and private organizations trying to use blockchain. You had people trying to come up with new ways to use it. And then bam, smart contracts came along, and it just blew up. And Bitcoin no longer was all about, well, it's going to be a currency and people would argue about the block size and all that shit, right? It was more now, okay, what can smart contracts do?
And now that people have come up with these ideas, and people are starting to put money into it, you're really starting to see it. So that's what's got me really excited lately. That was a lot longer answer than you expected. Right?
CR: No, I love it. Because you touched on a lot of other topics that I wanted to bring up in this interview. Because I think it's kind of hard to pin you down because you present yourself sometimes as a Bitcoin and crypto skeptic and sometimes as a crypto bull. And I think now you've kind of explained why that happens.
Bitcoin as Reserve Currency
MC: So here's where I'm a skeptic. First, whenever somebody would argue it was going to be a currency, that's where I was a skeptic. Because you put aside the transactional issues and speed of transaction and cost of transaction, that's one thing. And even the complexity side of it, that's another thing. People don't fully understand wallets, and even with the MetaMasks and everything, it's still complicated for a lot of people and dealing with keys and seed words and all that kind of stuff, physical keys, that gets really complicated.
But where you see me really start to get skeptical still when it comes to Bitcoin, in particular, is the whole thing where people like to talk about fiat. Well, there's so much inflation in fiat and there's so much money printing, that this is a hedge against fiat, which is the exact argument that gold bugs make. And I just disagree with that completely. I don't think that there's any correlation between what happens with the Federal Reserve and what happens with the price of Bitcoin. And you hear me say it all the time, and it gets people mad. I said, well it’s just supply and demand? And they're like, well, of course, it's just supply and demand, just like everything else. But the reality is most fiat money is digital right now.
They’re there in storage. Right? And there will be a point, I believe, when sovereign governments have their own digital coins, because it's going to be cheaper. We lose money on every penny minted. We lose money on every nickel minted. There's just so much cost and stupidity associated with how we've always done those things. But it's not an inflationary issue. And that's where I really start.
“And it reminded me so much of the early days of the internet, where the mid-90s people started talking about internet applications, but the internet had been around for 10 years, right?”
And if you look at gold, there’ve been scenarios where people thought, oh, gold will really appreciate now, because inflation is this or inflation… It just doesn't happen. If everything went to hell in a handbasket, and we tried to use gold: people just hit you over your head and take your gold.
CR: So let me take the position of kind of the hardcore bitcoiners. And so their argument goes something like no fiat currency has been able to survive over a very long period of time. Governments debase their currencies, they become hugely in debt, they're not able to pay back their bonds, and the whole system collapses. And so the argument goes, when that's happened before, Bitcoin and distributed ledger tech and cryptocurrencies weren't around, this time they are. So when fiat and the US dollar collapses, there will be this other financial system that will be there waiting for the world to converge to crypto.
MC: That’s a narrative, and I get that. But the reality is reserve currencies tend to stick around for as long as there are reserve currencies. And there's always multiple currencies that then become if one falters, another one pops up. You have China doing their best to become a reserve currency. You have the United States doing its best to sustain itself as a reserve currency. I'm not a currency historian. But you've got the British Pound that's been around for generations, for hundreds of years, used to be a reserve currency, but hasn't collapsed yet. It's gone up and down relative to the Euro, and relative to the dollar. But where you've seen currencies collapse, like Argentina and other places, or Venezuela or wherever, yeah, you've seen some Bitcoin being used because it's available and assessable. But at the end of the day, it's always pegged to the dollar.
And no matter what, in order to spend it, you've got to convert it to whatever that reserve currency is going to be. So you can hope that Bitcoin increases in value faster than the dollar or whatever inflates, but you don't know that for certain. And there's so many uncertainties there that you can create the story that saying, well, what else would it be? But gold bugs would tell you it’s going to be gold and someone else will tell you, it could be platinum, whatever. Because commodities should inflate at the same rate that inflation is. Because they're scarcity issues there as well, you got to get them out of the ground etcetera.
So it's not that it definitely won't happen, but you can't really value that right now to say there is, without question, Bitcoin acts as an alternative or as a hedge to fiat, because there's no evidence that the hope that it will, just like for gold bugs, it will. And in Argentina, I was just talking to somebody about this, back when their currency collapsed, gold itself was useless, but people ended up using commodities and food, and even gold jewelry became kind of a trading point, because gold in and of itself. But there are people that will tell you, gold is the fallback currency and has been for thousands of years. It's just a narrative.
CR: Right. Yeah. And like, you implied the fallback currency, if the dollar collapses, may well be like the Chinese Yuan or something, like there might be another fiat currency that becomes the reserve. Yeah.
MC: But I’m not going to say it’s the Yuan, because I think China inflates their currency more than anybody, and controls it more than anybody. But yeah, I mean, there's always a currency there to take its place. And they subsidize it too, that's the difference with Bitcoin. Where the United States has become fiat around the world, because you can spend $1 anywhere. They'll take it in Russia. They'll take it in China. They'll take it anywhere. It's always had somebody promoting it. So China gets the Yuan out in places because of their Silk Road policy where they're building things there right, and they're subsidizing and the exchange is you take our currency. And the United States lends money or borrows money in dollars. And so there's a lot of subsidies going on that Bitcoin doesn't have the benefit of because it's decentralized.
CR: Okay. So that's kind of where you're a skeptic, because you don't see it as a currency and you don't you don't see it as kind of a fallback to fiat.
MC: Do you see it ever becoming a currency?
CR: I'm not sure. I haven't really made up my mind. Like, I see the argument. I do believe kind of the way that the different governments are running their currencies is untenable and unsustainable. But yeah, I'm not sure if we'll actually see everything collapse and everyone going to crypto because of that.
Bitcoin as Store of Value
MC: Now, let me tell you what I think we could see. So to me, sovereign governments holding gold is ridiculous. Here in the United States, we have Fort Knox holding all our gold, like it means something. It means absolutely nothing other than the fact that as long as it's in Fort Knox, and they don't sell it, the price of gold doesn't go down.
Now imagine, and I could see this that as countries get into digital coins and they think that Bitcoin has perceived value, doesn't even have to have real value, just perceived store of value that enough people in this country believe in, I could see sovereign governments selling that gold, or at least half of it and owning some percentage in Bitcoin, some percentage in Ethereum and whatever they do with USDC, Tether, something, right? I don't know, specifically what would happen, but I could see that happening.
“I could see sovereign governments selling that gold, or at least half of it and owning some percentage in Bitcoin, some percentage in Ethereum.”
Because a lot of this is just trust. What do you trust? Who do you trust? How do you trust it? Bitcoiners, and rightfully so, trust algorithmic scarcity, and that's okay. But there's a lot of underpinning trust that goes in there as well. You got to trust electricity rates. You got to trust availability. You got to trust that nobody can get to 51%. There's so many issues that you have to address.
“Bitcoiners, and rightfully so, trust algorithmic scarcity, and that's okay. But there's a lot of underpinning trust that goes in there as well. You got to trust electricity rates. You got to trust availability. You got trusting nobody can get to 51%.”
But if the government goes to digital in the way that it should, absolutely. And maybe the genesis of that is that every kid that's born just like you're required to get a social security number, you open up a digital bank account, the equivalent of a wallet where people can, you know, so like when we have a stimulus like now, you could do direct deposit digitally, as opposed to having to send too many people a check and so you get the extension there. Maybe based off of that, they go out there and sell some of that gold and buy Bitcoin or other crypto assets.
CR: Yeah, that’d be amazing to see. And I agree, it's like a more logical step or more expected. So you do see it at least, if not the currency aspect to it, the digital gold aspect to it, like the store of value of aspect to it?
MC: Absolutely. Because I've always said for years and years and years long before Bitcoin that gold's a religion, and it’s what people want to pay for it. And then goldsters will say, oh, there's intrinsic value, there's the manufacturing usage. Well, that's minimal. And then there's jewelry. With jewelry, why do we pick gold over silver? Because historically, people thought gold's more valuable than silver. There's no intrinsic value more to gold than there is to silver, we just value it that way. And it's the same way. Narratives sell value. Narratives sell store value.
“There's no intrinsic value more to gold than there is to silver, we just value it that way. And it's the same way. Narratives sell value. Narratives sell store value.”
So yeah, I believe in the store value story. And I believe now that you're seeing more companies dive in and use it as that store of value, that gives it authenticity. And so yeah, I think it's going to continue to be. I still think there's questions whether there are other crypto assets that might also become significant stores of value. So we'll see what happens there.
CR: Okay, and that leads me to my question about Ethereum and Ether. So earlier in the conversation, you said that seeing DeFi grow and all these different protocols also helped you kind of change your perception about crypto. So can you tell me more about that? Like, do you think Ether can become as a suitable store of value as Bitcoin is? And what in DeFi made you become more bullish on crypto in general?
DeFi and NFTs Echo The Internet of the 90s
MC: Well, so the biggest limitation right now are transaction costs. They're ridiculous to do anything. And because of that, it actually reduces, it puts a lid on the number of actual transactions. And you see people being pushed towards private blockchains, like top shots and different NFTs, and different tokens and stuff like that. But at the same time, I think if ETH, and I don't remember all the new things that are the 1559, where they're going to burn Ethereum and 2.0 where hopefully, the transactions will be faster and cheaper. But like some people say, 2.0 is right around the corner, and always will be. So I don't know what's going to happen there.
But smart contracts are real. And smart contracts on blockchain remind me of the early days of the internet when people realize that there is a network effect, and that with just HTML, and then some basic JavaScript, you could do a whole lot of business and create a whole lot of new businesses. So there were companies that only sold books in bookstores and then Amazon came around. There were only radio and television, and then AudioNet putting audio and video as broadcast.com came along. And now streaming is ubiquitous. But it took 25 years to get from there to here.
“And smart contracts on blockchain remind me of the early days of the internet when people realize that there is a network effect, and that with just HTML, and then some basic JavaScript, you could do a whole lot of business and create a whole lot of new businesses.”
And so we're right at that point right now where smart contracts, in particular, on top of blockchain allow people to take anything that's digital, and turn it into a product and sell it. But what's really changed everything, I think, in terms of the smart contracts is the fact that it's becoming friction-free banking. Even though you have to over collateralize, it's easier to borrow in seconds. I guess it depends on where else you'd be borrowing, but still relatively high transaction costs. But still, if you've got $200 in Ether or Bitcoin and you want to wrap it, and then you want to borrow $100 at 2.3%, it takes you 15 seconds. Right? And that's incredible.
“But what's really changed everything, I think, in terms of the smart contracts is the fact that it's becoming friction-free banking.”
And that now starts to really begin to disrupt the banking industry. That's not to say they're going away tomorrow, but as more applications come along, and more importantly, more trust comes along, and the friction of opening up a wallet and understanding it is reduced. And again, I'll give you an example that goes back to the early days of the internet.
I started streaming with our company in late 1994, early 95. In order to stream, and now everybody just, you got the cord, you stream, it's no big deal. Back then you had to have a powerful PC, you had to have a modem, maybe you’re corporate, but most people are looking to have a 56k modem which don't even exist anymore, I don't think. Then you have to download TCP/IP software, which is what allows you to connect from your PC to the internet. Then you had to download an application that allows you to receive the audio or video packets and play that on your PC. That was a lot of work and that was a lot of hassle.
But people wanted it so badly that by the end of 1995, we had a million plus people downloading all this junk in order just to be able to listen to their favorite radio station or sports team. We would have 50,000 people listening to Chicago Cubs baseball games in the office at one time in 1995. So there were people willing to do that. You're seeing the same thing now.
People are so upset and so left out of the banking system in a lot of respects. Before anybody knew who I was, before when I was broke, like living six guys in a three-bedroom apartment, and getting turned down for my credit cards, once I got those first credit cards ripped up, and my lights turned off a couple of times, nobody was going to lend me anything. Even if I had $25,000 in the bank, and I wanted to keep it there, and I needed $5,000, it wasn't going to happen.
Now all those people, regardless of how they got their money, maybe it's just a stimulus check, and with their $600 they just bought $600 worth of Ether or ETH, and so now they want to borrow 100, just to pay a bill…
CR: And they can do it.
MC: You can do it for a lot less than borrowing off your credit card or elsewhere. That really changes the game. And then you start simplifying it, reducing friction versus traditional banking. And I can see just like I saw in the early days of the internet how all this is going to just go nuts, and it's going to have a significant impact, and it's going to change the game. No doubt about it.
“That really changes the game. And then you start simplifying it, reducing friction versus traditional banking. And I can see just like I saw in the early days of the internet how all this is going to just go nuts, and it's going to have a significant impact, and it's going to change the game.”
And then on top of that, you've got the same opportunities with digital goods and NFT and the variety of tokens involved there. I mean, for Gen Z and younger Millennials, everything, you value digital, more than you value physical stuff. Other than a house and maybe a car, a house appreciates, hopefully, but that's the only thing that's more valuable than the digital assets that you own. Now you can start to sell those things.
And just like, again, the early days of the internet when you had Napster and you had the old school music companies trying to stop everybody and sue everybody. This changes that game completely now with digital goods. When I started playing with it, and realized that there was a little thing that said, resale percentage, so that when I put up something for sale, and it got resold, I got a percentage, and it could track it every time it's sold forevermore, and I would continue to get paid now for a zillion years. That was a game changer. That changes how music, how video, how the internet is going to work forever.
“When I started playing with it, and realized that there was a little thing that said, resale percentage, so that when I put up something for sale, and it got resold, I got a percentage, and it could track it every time it's sold forevermore, and I would continue to get paid now for a zillion years. That was a game changer.”
If you're a professional photographer, you should be putting your stuff, you know, I like Mintable, I like Rarible, there’s OpenSea, but OpenSea doesn't do series yet. And so I use Mintable and Rarible. But yeah, like on Mintable just putting it in their store and it’s no cost until you sell. If I'm a professional photographer, and I put all my pictures up there first, not on Twitter, and let people buy them there or send them from Twitter there, and that way you can offer commercial license and anytime it's sold again, you keep on getting paid. And same with music or music video, instead of it being on YouTube, put it where you can tokenize it and keep on getting paid. That's enormous. That is such a game changer that traditional industries that sell digital goods haven't even recognized that.
CR: Okay. First I just want to say it's crazy to hear you talk about kind of Mintable and Rarible and like using NFTs. It's amazing. Because we live in this very niche space and all of us following this day to day, recognize it's like super small. And like, most of the time I tell anyone outside of this bubble about any of this, and it's really hard. Yeah. So it's just great to see you talking about all this stuff.
MC: Yeah, that's what I've done my whole career. Like my first company, after I got fired from a software job, I created one of the first systems integrators. And there's an old company called Novell, which did local area networks, and we were one of the first three in the country. We were one of the first. I mean, I can go down a whole long list. You know, the first in streaming, I had the first all high definition TV network when everybody said no, high definition is a joke, no one's going to spend that much money.
With the point being that I always try to find little niches that I think can blow up. And it's not that Bitcoin or crypto is a little niche, because obviously there's a lot of people that have been in it and did big things with it for a long time. But now you're starting to see that ecosystem around it all the extensions that have come from Ethereum and from Bitcoin. But we haven't seen them apply to real business yet and that's not completely fair. But you know what I mean, right? It's not like every business is saying, how can I implement NFTs for the sale of my digital goods yet? And to me, that's just an enormous opportunity.
CR: Yeah. Okay. So there's like a lot to unpack. Because you talked about DeFi and you also talked about NFTs and digital collectibles, so going back to DeFi, I’d just love to hear more about what protocols have you been experimenting with and like your thoughts on actually using this stuff?
Yield Farming Takeaways
MC: Yeah. So I've played with staking with Aave because I wanted to see how it worked. I’ve done some yield farming, not as much as some other people, because it takes so much time to make sure it's done right and you've got to track everything. And there's not a lot of utilities out there that just let you manage. And really, the hard part of it isn't jumping from 6, to 19, to 58, and that's only there for two days, and all the ratios and everything. The hard part is knowing exactly what's trustworthy and what's not. Because all of a sudden, their pool just drops to nothing, or what is TVL drops significantly, then you can get bought in and you're toast. And there's so many new ones popping up.
And like the early days of the internet stocks, a lot of it is narrative. Someone releases a token, and they go out and get some of their friends to buy some saying, look, we're going to be first and we're going to push up the token value, and then they get out and move on to the next one. And so unless you're there to be able to follow those narratives on a minute by minute basis, which I'm not, it's hard to jump around. So when I talk about yield farming, for me, it's more, okay, I went to Uniswap or I went to Aave too and I did some swapping, and I jumped around between yields and just to experience it, or I staked so I get my two Aave every month. And so where I get my RARI tokens when I post stuff there.
And so you don't need to live it. And by the way, I've got a friend that lives this every minute of every day, and is making 10-15% a day, but you really got to commit to it. And so I played with it and so I understand it, and I look at the various tokens. And I bought one, like bizarro token, just to see what happens. I put in $10,000 and I'm not going to say which one because it'll go to the moon and everybody will dive in, and I don't want that responsibility.
But I'm fortunate that I can afford to mess around with it, and take some of the risks. And I bought some Sushi, just because I love the name Sushi. And I've gone on the different marketplaces to try to see the differences and experience all the different, FTX, you name it, I'm trying different things there. And I've got wallets all over the place, trying to keep track of them all, and it's just more, I'm not here to tell you that I've become an expert in it, but I've really got an understanding of it by using it.
CR: Nice. What are some of your key takeaways after experimenting a bunch?
MC: So the key takeaway is, once it becomes simple to understand wallets, like an Aave, it takes a little time to, not a long time, a little time to understand their whole concept of deposit and withdrawal and staking. Because you deposit it into there, then you withdraw it, so you can stake and it doesn't make immediate sense. And so, just trying to understand all the nomenclature there has to improve.
And so once the applications are there to simplify it, and Coinbase is trying to do some of that, but Coinbase is too big now. They've got to deal with so many clients that it's really hard for them to do it and they'll get there eventually, but it's going to take time. And so the whole concept of wallets has got to be simplified. The whole concept of accounts within wallets has got… You know, so when you're on MetaMask, because the way I set it up when I was just learning, my MetaMask on my iPhone is different than my MetaMask on my Android Phone, which is different than my MetaMask on the web, on my browser. And then in order to sync them, I got to delete this one, and then go out and do that one. And it didn't make sense to me when I tried to sync and I put in my password and it didn't work.
And I understand why now it doesn't work, because the account one doesn't match up to be the same as account one from browser to phone, to mobile version. But all that stuff has got to get simplified. When it does, so just like, back when we started streaming, you had to visualize what could it be? Could this replace regular television? Yeah. I thought it would happen a lot sooner than it would, but that it did.
But I can see how banking is turned upside down by this. Because every Bitcoin you own, every ETH you own, it becomes a bank, or your wallet with that becomes a bank. And you get to be your own personal banker, depending on your account balance. And so if you're able to save enough rather than putting it in a bank account, or a savings account that earns next to nothing, and I think over time, as there's winners and losers, you're going to see the yields come down.
“But I can see how banking is turned upside down by this. Because every Bitcoin you own, every ETH you own, it becomes a bank, or your wallet with that becomes a bank.”
Because now, it's because of the inefficiencies that you get to take advantage of some of these things. But even then, the friction to being your own personal banker by having your own bank account that you control in your wallet, and you're able to use DeFi to give yourself a quick loan at a small percentage, while hoping your asset increases in value, that's a big deal. Now, there's still risk, obviously, that you could go down in value significantly. And so how you hedge that, I think there'll be ways to hedge. If you put in $500, will never let it drop under $300, but here's the limit on what you can borrow, and that type of stuff. You'll see variances in the collateralization, the over-collateralization. Even with all that hassle, once you get your arms around it, it's a lot less hassle than going to deal with the bank.
ETH as Store of Value
As more people realize that, then you start seeing that rush. And so that's why I got involved. That's why I think Ethereum is going up and up and up and up because that's the easiest way to yield farm. Bitcoin is not an easy way to yield farm for most people, right? You've got to do your swaps and dah, dah, dah. But Ethereum is easy, and that's become the currency for most swaps, and it's become the currency for a lot of smart contracts. And so people are seeing that, and as more people are coming in, I think that's what…
You know, I've owned a lot of Ethereum since they started doing smart contracts for three years, whatever it's been. I don’t know all the dates. But yeah, I think Ethereum right now has an advantage over Bitcoin in terms of regular people, as a store of value. Because as more people get into NFTs, all they're going to know is Ethereum, and they're all going to have to buy Ethereum in order to do it. Right?
“Ethereum right now has an advantage over Bitcoin in terms of regular people, as a store of value.”
CR: Wow! Okay. So you think Ether has an advantage over Bitcoin as a store of value?
MC: Right now for new people coming in, yes. Because here's my logic and I know everybody’s going to bitch atme, right? So if I decide I like digital art, how do I buy digital art?
CR: With Ether.
MC: Yeah, and if there's 2000 people a day coming in, relative to the size of the number of people doing this, that's impactful. Because every now and then one of them is going to be a “whale”, and they're going to buy 1000 Ether. And because they want to go out there and be able to buy that big artwork, and then on top of that, you're going to start to see music and entertainment videos and movies, for that matter, hosted on OpenSea or Rarible or wherever, because that's a better way to sell it. And what are they going to see? And what are they going to have to do if they want to do their own store? They’re going to have to spend their $500 or $600 in Ethereum, half an ETH just to be able to play the game. There's nothing in this ecosystem that says you have to buy Bitcoin first in order to transact or do something within DeFi or within any of the digital goods marketplaces. Right?
Digital Collectibles
CR: Yeah. So that means you think that NFTs, and digital collectibles, digital goods will be the way to bring in more people into crypto?
MC: Yeah. Now, what Dapper and Grow are doing with NBA Top Shots, that’s kind of a unique environment, and that's bringing people in, but that's getting them excited about digital goods. There are Moments there. Right? And so I buy all the Moments for Dallas Mavericks, at least I’ll have one for every player on the Dallas Mavericks that's available, just so I can learn it. And so you go to CryptoSlam, and you get to see the number of customers and you get to see the number of users. And you see that number creeping up. And those people are becoming more and more comfortable with buying and selling digital goods.
And look, NBA Top Shot is going through a whole lot of grief right now, just in terms of being able to keep up with the volume, and a lot of them are, right. Because blockchain doesn't scale great for some of these applications in terms of the user interface and the UX. But most people coming in right now fall into two categories: store value, I want to make some money, Bitcoin, right? Well, if you’re an investor first, Bitcoin. But everybody else, collectors, why would they buy Bitcoin?
“I buy all the Moments for Dallas Mavericks, at least I’ll have one for every player on the Dallas Mavericks that's available, just so I can learn it.”
CR: Right.
MC: Well, I'm still learning this. You got to tell me if you think I'm right or wrong.
CR: Okay. No, I think you're right. I mean, just to be able to be involved in DeFi and NFTs, digital art, digital collectibles of any kind, I'd say 99%, or a large majority of all that activity is happening on Ethereum. I know that there are other blockchains trying to capture some of that market share with NFTs like Flow, I think, is doing a lot on NFTs. But I mean…
MC: Flow, I called it Grow, but yeah, sorry.
Store of Value
CR: Yeah. So no, that's absolutely the case. And I think there's kind of a solid narrative, you talk about narrative around Bitcoin as a store of value and digital gold. And I think that's not going anywhere. But because it has that kind of one, simple by design architecture that it just can't be that layer for decentralized finance.
MC: No, I get that. I mean, when you pick the block size of one megabit, or whatever it was, and now that's the whole reason behind what is it, Bitcoin Cash or Bitcoin SV, whatever it is that's designed to do transactions, it made its bed to be a store of value. And the algorithmic scarcity is a great selling tool, it's a great narrative, and that's not going away. And I can see the argument being made for people to put it in their treasury and to use it as an alternative. And that's good.
But part of the problem is for those people who want to yield farm, trying to go through the process of going into Wrapped Bitcoin, and making that swap, you got to hope that the people behind Wrapped Bitcoin are doing their job to make sure that it tracks exactly right. And there's some risk associated with that. And it's just complex and hard to do. I mean, not…
CR: I mean, there's no reason to go and wrap your Bitcoin if you can just directly do it with ETH.
MC: Yeah. End of story.
Stamping Out the Competition
CR: Yeah. Okay. So I wanted to ask you about digital collectibles. Because I saw this blog post you wrote, which I thought was great, and where you talk about how you collected stamps as a kid and that helped you see the value of NFTs now. Can you talk about that?
MC: Yeah. I wrote a blog post on blogmaverick.com. And what I said was, when I collected stamps, I started out just because my mom got me involved with it. And it was cool, you learn history. And then all of a sudden, I would go to stamp shows, and I realized the inefficiencies of the market. Like literally, I could start at one end of a stamp show and buy a stamp for $0.50 because that stamp dealer valued it at this grading, right, and then walk down the hall and a different dealer would value it at a higher grading and it was worth 100 times as much.
But what I learned that's applicable is one, you have to do a grading. What's the quality of the stamp? You have to deal with protecting it, because if my little brother got a hold of it, it's over. You have to deal with physically selling it and transporting it. And then you have to deal with buying and selling it, the actual transaction. That's a whole lot of pain points that could go wrong, particularly the physical side. There's the tear, the this, the that. Right?
And then when NBA Top Shots came along, I initially was, I mean that's ridiculous. Like everybody, I was just like, I'd rather have the card. And then I realized, wait, if this is all about being an investment, I like the idea that I have a Luka Doncic’s moment. I have that sense of ownership, just like if I have a Luka Doncic trading card, which I've got a bunch of right here. It's cool that I can hold it, but I never hold it, except when I do it in these Zooms, right. And so there's no value to being able to hold it or put it up on the wall.
And so I have all the sense of ownership of a stamp or a trading card, but none of the hassles. It's there. I can show it to somebody, and the people will say, well, there's that same video elsewhere on the net. Well, there's that same Luka Doncic picture everywhere on the internet too. So that's not an argument. And so, I can put it up on a marketplace, I can see what it's worth. I don't have to worry about grading, and I can transact like that. And because you're using Flow, and Dapper, the volumes kind of create problems, but it's supposed to happen immediately. And it's the same with any other digital good as well.
And like I said earlier, with other digital goods, once it goes into the marketplace, I can keep on getting paid. That's the ultimate, “Oh, my God” moment ever. That's where you say, oh, shit, this is going to be so much better selling. Like, if I'm a musician, if I'm a photographer, I've got a company that distributes movies, we're figuring out a way at some point. Like the Dallas Mavericks with tickets, so that when that ticket gets sold again, and again, and again, I get paid 15-20-30% every single time, and 30% may be high, but we don't want people to resell it. Right? We want people to buy it and use it. So it might even be higher than 30%.
And so that ability is crazy important and that's what people aren't seeing yet. And that's why, I think, it's so much better buying and selling digitally than physically. You don't have any of the hassles. Maybe you can argue the transaction costs are still too high, and hopefully that gets worked through. Maybe everybody ends up moving to a private blockchain because of that, like, Flow, but we'll find out. But that's like arguing over Microsoft browser versus Netscape browser back in the day.
“...once it goes into the marketplace, I can keep on getting paid. That's the ultimate, “Oh, my God” moment ever. That's where you say, oh, shit, this is going to be so much better selling.”
WallStreetBets DAO
CR: Okay, so I think I would just like to have my opinion here on like, the private versus public blockchain out there. So definitely, I think the future is in public blockchains. Because what we're seeing with Ethereum, this explosion in innovation, and composability, DApps working with other DApps, and just people being able to just go there and not ask permission to build or to use, that's only possible in public blockchains. And I think that's the killer use case.
MC: I agree 100%. Being able to look at the history of transactions across the board is amazing. The decentralization is great. But some people argue that even Ethereum is not fully decentralized because of the creators. But at the same time, let's assume that it is, I still think there's going to be applications for private, where they open source it, right. And then open it up after they've built some usage. And so I could see happening where, like, Flow, gets really, really big, and they start encouraging people, then they open source all of it, and decentralize all of it because they built the user interface that drives people to it.
CR: Right. Maybe they can start as private but then gradually decentralize and go public.
MC: 100%. Yeah, it will be interesting. We saw what happened with GME and the stock market. Now, just imagine if WallStreetBets, instead of being just a forum, was a blockchain-based forum where everybody put up one Ethereum, and everybody would then...you took half of it, you over-collateralized it, everybody contributed, and you looked to see how many participants you had in WallStreetBets blockchain, and then everybody voted on what stock to invest in. Everybody got a token to pick which one they invest in. And then, everybody agreed how often they would review that investment. Is it by the minute? Is it by the hour? By the day? And then you can put a council together where people can assign their voting because some people don't want to deal with it every minute of every day.
Now, all of a sudden, that WallStreetBets forum is now organized with blockchain-based governance, decentralized governance, where the users get to vote. Oof.
CR: So you've just described the WallStreetBetsDAO, like a decentralized autonomous organization.
MC: Yeah, that's exactly what it is. Well, just think if that were the case, now all of a sudden with all that power, just like you see with NBA Top Shots, you see the prices going up, because the demand is there and people HODL them. Now, there's going to be good companies and good stocks and bad stocks, and even with a WallStreetBetsDAO, they're going to make mistakes, they’re going to lose money. That's just the nature of it. And people that are going to get in, just like people got into Bitcoin at 17 and then sold it at 6 or 3, there's going to be people who lose money. But when it comes to creating power for the small investor, a WallStreetBetsDAO could be crazy.
“Now, just imagine if WallStreetBets, instead of being just a forum, was a blockchain-based forum where everybody put up one Ethereum, and everybody would then...you took half of it, you over-collateralized it, everybody contributed, and you looked to see how many participants you had in WallStreetBets blockchain, and then everybody voted on what stock to invest in.”
CR: It'd be amazing. Okay. So I also wanted to ask you about WallStreetBets. You've been, like, a real vocal supporter of the group or movement, if you want to call it that. But why is it you kind of rallied around them?
MC: Because I mean, I know Wall Street. I've made a ton of money from Wall Street. I've fought the SEC. I'm not of the mind that all hedge funds are bad, right? They're all trying to screw everybody, but the advantage is given to the bigger investors. No one argues when Carl Icahn, who's a huge investor, and Bill Ackerman, who's a huge investor, you know, Carl Icahn tries to create a short squeeze off of Bill Ackerman’s shorts. No one complains when he does it.
Back in the day when Volkswagen went nuts because of short squeeze, and it was funds that did it, nobody complains about that. When the SEC lies and says they're trying to protect the little investor, but they use these things called Administrative Law Judges and defeat the ability for a small investor who gets sued by them to have a jury of his peers or her peers in order to contest it, all these things are weighted against the small investor.
So to see what happened with WallStreetBets, and realize that when you can bring a bunch of small investors together, even though like I said in my Reddit, there's going to be pain. Not everybody's going to make money. Not everybody's going to understand it. People are going to make mistakes, and it's going to be painful. The concept of it, of coming together, I think is amazing, and I love it.
Now, what I saw is what I just explained to you. Knowing what I know about blockchains and DAOs, and again, I still have a lot to learn, there's no reason why that same concept can't move to a DAO, right, and have it work that way. And that's the concept really that I saw. And that's what I think will end up happening. Because when it's informal like that with WallStreetBets, you don't know who infiltrates. And you don't know who's the loudest and who people will believe most, and people have to make those decisions just through their gut, because you don't really know each individually.
But that whole concept of density of small investors to create power is no different than Merrill Lynch having 30 million small accounts, and putting out a buy on a particular stock or a price target and trying to get all their investors to buy it and the stock price goes up. It happens every day all the time. And then there's also high-frequency trading and algorithmic trading, where they're not investing, they're just trying to take advantage.
And actually, one of the downsides of the WallStreetBets thing is that all these high frequency traders, Citadel Virtue, etc, who I used to own shares in, they made a fortune because they front ran all these things. So I think there's an opportunity for smaller investors to put their buying might together. WallStreetBets was the first implementation or execution of it. But I think, again, now that I'm becoming more and more of a blockchain bigot and seeing what governance can do, I think Wall Street, WSBDAO has a lot, if and when that happens, it might be 5 years, 10 years, never. But wow, I mean, could you imagine, then all the rules are out there, it's open source, it's decentralized. Everybody knows what they're getting into and you kill all the advantages that big Wall Street firms have.
CR: Yeah, and there's no Robinhood to stop you from trading, if you're trading in DeFi?
MC: You know, I'll go Shark Tank. And by the way, I got to put my pitch and watch Shark Tank Friday nights on ABC. But in Shark Tank, what we'll say to companies all the time is you can grow too fast. And imagine if you have too many sales and not enough money to pay for the inventory, or you spent too much on inventory, and you don't have enough cash for other things. That's what happened to Robinhood. When they had so many buyers come in, then all that margin dollars, when you buy on margin, it's Robinhood that has to put up that cash to pay for the stocks. When they buy and sell options, that's Robinhood or the market maker they're working with it that has to hedge all that. And that impacts the price in the market.
And then there's the clearing house that has to deal with making sure all the stock is conveyed from buyer to seller. And they have requirements for cash as well. And so when all those things happen so fast, Robinhood didn't have enough cash. And Robinhood’s biggest mistake beyond not having enough cash is that they weren't transparent about it. They basically go ‘it's a governance issue,’ trying to make it sound like they can't make a mistake. They should just own it, ‘guys, we just grew too fast. I'm so sorry. And we shouldn't shut you down.’ Now, people would still hate them, but at least more transparent. Robinhood will never know what this could have been, because Robinhood crushed the natural source of buyers on the day that it needed it most.
Inside Mark’s Portfolio
CR: Yeah. No, it was crazy to see. Okay, we're running out of time, but I really wanted to ask you about your crypto portfolio. First, what percentage of your assets are you holding in cryptocurrencies? And if you can say, how that's split, is it mostly Bitcoin or Ether?
MC: It's a small percentage, maybe. I don't know, because I don't even know what my full net worth is. I don't, mark to market it every day. But it's a decent amount. All I'll tell you is across Bitcoin, Ethereum, Aave, not so much Sushi, and like I said, I got a couple smaller tokens I don't want to mention that I just have small positions in, and Litecoin. Other than Litecoin, you'd see me in the Whale listings for all of them…
CR: Between Bitcoin and ETH, is it split like halfway or do you own more of one or the other?
MC: I own more Ether in terms of just number of ETH. I own more in dollar in Bitcoin. But that's changing. I'll wait for a little pullback on Ethereum since it's had a run up, but I just bought some Aave yesterday. So right before its run up, I've been buying Aave for a while. But I'd say if I'm going to buy new stuff, that's probably a better way to answer it, I’d buy Ethereum on a pullback before I buy Bitcoin. And so when Bitcoin pulled back to $30,000, I didn't buy more. When Ethereum pulled back to $1,000, I did buy more. And if it did that, again, I would buy more, because for the very reasons we discussed.
“But I'd say if I'm going to buy new stuff, I’d buy Ethereum on a pullback before I buy Bitcoin.”
CR: Okay, and then a couple more questions I had is, do you think the digital goods marketplace, by market cap, do you see it surpassing the physical goods, like physical collectibles by market cap in our lifetimes? Do you see that kind of switch?
MC: Just like we saw records go away, and we saw CDs go away, and DVDs go away, so collectibles will pass. Now you'll see those companies, Panini and everything, they're smart people there. They’ll get into digital. If anything, companies have learned, you've got to give people what they want, how they want, where they want, when they want it at the price they'll buy it at. And so they'll get into digital as well.
The Next Unicorn
CR: Okay. And then last question, if this was Shark Tank, and you had to bet on the next FinTech unicorn, or the next DeFi unicorn, which would you put your money behind?
MC: I wouldn't yet. I think like the early days of the internet, 99% of the companies aren't going to make it in DeFi, maybe a smaller percentage in digital goods, because I think there's a marketplace, early mover marketplace advantage. But part of the challenges of DeFi is making sure you have enough money available to you in order to scale. And so there's going to be a lot of companies that try to put out a story for their tokens and try to build up a good financial base and won't make it. And so I still think it's early. And then there'll be breakthroughs in terms of UI and UX where it gets a lot easier and a lot less friction. And we haven't quite seen those. And there's no assurances that the incumbents that are there right now are going to be the ones to do that.
CR: Okay. So for you, it's still a little bit too early to invest in a DeFi startup?
MC: It's not that I won't invest in DeFi, right? Because like the early days of the internet, you invested in the pick and shovels more than you tried to pick the winners. There will be some winners. Like Amazon and eBay were early players and they managed, but 99% of those early internet companies didn’t make it.
“Because like the early days of the internet, you invested in the pick and shovels more than you tried to pick the winners.”
The Big Bubble
CR: True. Okay. And then you've made this analogy between crypto on the internet or like DeFi on the internet, if you had to say like in what year we are in terms of the internet, like are we 1970s, 1990s?
MC: I would say we're in 1997 or 1998.
CR: Okay. So like, right before the big bubble?
MC: No, during the big bubble. So like, you've seen these market caps, and those are the equivalent of market caps of stocks. And so you're seeing some that you've got your Bitcoin, set that aside, you got Ethereum now that's worth 124-125 billion, it's like one-fourth or one-fifth of Bitcoin. And we'll see what happens with these new things. So if Ethereum starts burning, and that number of outstanding Ethereum goes down, that'll change. But I still think it's 97-98, like my company went public in 1998, and then the internet bubble crashed in 2001. So we're still, let’s just say, early, but a third of the way through.
CR: Okay, interesting. So we still have some way to go.
MC: We’ve got a long way to go because of user interface stuff. Again, like the early days of the internet, the user interface stuff was a pain in the ass. And the user interface stuff right now is horrible. It's horrible. And that's why, you look at NBA Top Shots, they're starting to do it right, Rarible, OpenSea, Nifty, Superrare, there are a bunch of them that are starting to get it right. Mintable doesn't have quite the user interface, but they figured out they need to improve their user interface, but they're free, so to say. Yeah, a lot of this is going to change and that's where the opportunity is. And that also means that people coming in are going to create some cool apps that we have not seen yet.
And I’ll close by one thing. In the early days of the pandemic, I would always say that when we look back at the pandemic of 2020, there's going to be a bunch of companies that we look back and say, they changed the game. That's DeFi. America 2.0 is going to be built on blockchain. And a big part of that is going to be DeFi. And the fact that everybody was home, got stimulus checks, and was able to spend all this time to learn it and deal with it, that changed the game. America and this pandemic was changed because of DeFi.
“America 2.0 is going to be built on blockchain. And a big part of that is going to be DeFi.”
CR: Amazing. That's a great way to end. Thank you so much, Mark. This has been awesome. I really appreciate it.
MC: We have to do it again. And keep up the great work with The Defiant and keep on sending me the scoop because I love it.
The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Spread the word and share!
