The Last Gasp From Wall Street

To investors,

There is an article in the Wall Street Journal titled “Bitcoin Is Soaring This Year. Goldman’s Crypto Skeptic Isn’t Biting.” The piece profiles Goldman Sachs’ Wealth Management Chief Investment Officer Sharmin Mossavar-Rahmani, who happens to be the firm’s second-longest tenured partner.

Although Sharmin has a storied career and deserves every ounce of respect she has earned throughout the years, there are numerous claims in this specific article that are inaccurate. I thought it would be helpful to go through them one-by-one.

First, Sharmin was talking to a Goldman Sachs intern in 2022 and posed two questions: “Have you thought about what it’s worth? Have you thought about at what point you’ll get out?”

These are fair questions to ask about any investment asset, but the questions are harder to ask about a native currency. For example, if I asked someone what is the US dollar worth, they would likely have a hard time quoting an acceptable answer. If I also asked an American at what point will they get out of the US dollar, people would look at me like I was crazy.

Bitcoin, the world’s largest and most valuable digital currency, is becoming the native currency of the internet. An entire generation that spends most of their time in front of a screen, and mainly interacts with other humans in the digital realm, sees bitcoin as the global internet reserve currency that serves as the default store-of-value.

The second point Sharmin makes in today’s article is “We do not think it is an investment asset class. We’re not believers in crypto.” This is a tough position to take on a $2.5 trillion asset class that is currently seeing tens of billions of dollars invested into it year-to-date from sophisticated institutional investors.

Sharmin is essentially claiming that she is smarter than everyone else and she is smarter than the market. Everyone else must be wrong. It is kind of wild to think this, but even more insane to say it out loud to the Wall Street Journal.

It would be one thing to say that you don’t think bitcoin’s future is bright. You could say that the assets may not be worth what people are valuing them at today. But to claim that the $2.5 trillion industry is not an asset class is simply detached from reality.

Third, WSJ’s Gregory Zuckerman writes that Sharmin’s “view is based on the fact that it is nearly impossible to accurately value cryptocurrencies, which don’t produce earnings, cash flow or dividends.” This is an easily disproven point and it highlights that Sharmin has likely not done the work to study the assets and the industry.

For example, bitcoin produces earnings via the block subsidy and transaction fees. Rather than those earnings being captured by a centralized entity on a single P&L, the earnings and cash-flow are captured collectively by the decentralized network participants. If you were to count up that revenue, you would see that bitcoin is currently producing more than $21 billion in annualized revenue from the block subsidy alone.

If you take this analysis a step further, there are plenty of blockchain protocols that allow for staking, which can be compared to dividends and/or cash-flow. I am not claiming that these assets are companies, nor am I claiming that it is a perfect 1-to-1 comparison, but I am stating that various crypto assets have earnings, cash-flow, and dividends. This means that Sharmin’s claim, which I find to be an intellectual crutch used by people who haven’t done the time to study the industry, is inaccurate.

Fourth, Sharmin claims that investors should steer clear of cryptocurrencies because of the crimes they facilitate. Again, this shows a lack of awareness of basic facts. As it has been proven time and again, nefarious or illegal transactions using crypto makes up less than 0.5% of all crypto transactions. Additionally, when compared to fiat currencies like the US dollar, crypto is not even in the same ball park in terms of popularity. And if those two points weren’t enough, law enforcement leadership has routinely told me that the public ledger component of a blockchain makes it very easy for them to track criminal activity, so they prefer when people are using these assets for criminal behavior.

Lastly, Sharmin points to the fact that bitcoin is “too volatile” to become a medium-of-exchange and that the industry “creates absolutely no value in any shape or form.” The idea of bitcoin being too volatile is really a comment on the exchange price between bitcoin and US dollars. One bitcoin continues to equal one bitcoin, just as one dollar equals one dollar. But since 2020, the US dollar has lost 25% of its purchasing power and bitcoin has gained 800% of its purchasing power — I will leave it to you all to decide which one of those scenarios is better for holders of the respective assets.

On Sharmin’s point of no value being created “in any shape or form,” this is obviously incorrect given the $2.5 trillion asset class, multiple public companies valued at tens of billions of dollars, more stablecoin transaction volume than Visa, and the most popular ETF launches in history.

After reading the Wall Street Journal article, I realized something — we are watching a last gasp from the traditional financial system. The old guard is screeching about their antiquated world view that is being disproven daily for the last 15 years.

The transition from an electronic CUSIP-based financial system to a digitally-native system is not going to happen overnight. It will take decades. But the trends are clear and the well-respected, highly accomplished people like Sharmin Mossavar-Rahmani are unfortunately going to be on the wrong side of history.

Hope you all have a great day. I’ll talk to everyone tomorrow.

-Anthony Pompliano

Anthony Scaramucci is the Founder & Managing Partner of SkyBridge. This conversation was recorded at Bitcoin Investor Day in New York.

In this conversation, we talk about his thesis on bitcoin and cryptocurrency, macro environment, political landscape, who will be the next president, and future outlook for bitcoin.

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