Alex Mashinsky, CEO of Celsius Network, discusses with David Lin, anchor for Kitco News, the major investment themes of 2022, and which assets will perform the best.
We are continuing our outlook 2022 coverage from our Vancouver studio and joining us next is Alex CEO of Celsius network, Alex and I will be discussing the outlook on cryptocurrencies gold, the U S dollar and the state of. Economy in 2022 and beyond Alex of course is well known in the crypto space, but he had a very long career as a tech entrepreneur being one of the founders and creators of voice technology, voice over IP.
So we'll also be discussing the state of technological innovations around the world, Alex. It's good to see you again. Thank you for joining us. Hi, David. Great to be with you. Great to be with you too. Last time I spoke to was not too long ago. We were speaking in person in Miami at the. DFI conference. Uh, this time we are not in a conference, but, uh, our conversation will be lively.
Nonetheless, we'll be talking about your outlook for the following year. So I'll start by asking you what you think are the major investment themes of 2022. Yeah, so obviously it was saying, uh, uh, plans for tapering. It's not that they bring EDS, but just plans for tapering, uh, also plans for a maybe higher interest.
Uh, so money is going to be a little bit harder to come by, or, uh, this new coroner variant may a scuffle that, and we will have even more money printing next year. So really we are at a cross in the road and no one really knows which way it's going to go. Right. So, eh, the U S has been very accommodating, right.
That, um, which helped, uh, without, uh, growth gross domestic. And it obviously helped the crypto markets as well. And gold is only a kind of asset classes be going sideways, waiting for some resolution here. So I think for next year we really have to wait and see, uh, see what happens with, uh, with COVID see what happens with the consumer, what happens with the fed and what treasury slash, uh, the political.
Um, machine is going to do out of Washington. So Alex, some economists have positive that the higher asset prices we've seen in 2020 and 2021 or a result of higher speculation activity from excess liquidity, uh, by the fed. If you're saying that next year due to either tapering or interest rate hikes or both, um, we could have less liquidity in the system.
Does that not imply that we'll have less speculative activity as. It may really, that depends on, uh, what's going to happen to tapering and what's going to happen to money printing. And, um, you know, I think, uh, on the early signs of a slow down early signs of, uh, uh, shutdown or a slow down economic activity, I think the fed is going to reverse course and then, uh, risk assets are going to do well again.
Uh, but if, uh, we are seeing inflation continue to rise. We're seeing the fed the really locking horns with inflation, trying to put it back in the Pandora box. And then, then I think we're going to see asset classes, including Bitcoin and gold. Uh, actually take a hit first and then they may recover and, uh, uh, go higher.
But I think everything is going to take a hit first if tapering and, um, um, you know, The, the, uh, the yield prices or the, you know, the interest rates are going to, right. So that's why I'm saying you have to wait for at least a few more months to see which way the economy is going. So the labor, uh, Um, monthly numbers, a very important inflation numbers, a very important and, uh, um, you know, money printing, like you said, the fed printed that 40% of all the dollars that existed in the last 18 months, the stock market is up 40% in the last 18 months.
So, so those numbers match for a reason and because most of the liquid. Is coming from the fed and treasury into financial markets and not necessarily into main street. So characterize next year's theme is more risk on a continuation of risk on activity or more risk off. I think we will have a volatility and because of volatility, um, if there's a lot of volatility, because for example, inflation is out of control w.
Then, um, gold and Bitcoin are going to become even bigger, safe assets. But if, if we have single digit inflation and the fed is fighting it, then all assets are actually going to lose value because everybody's going to be hurting. And the opposite of if the defendant decides that inflation is not an issue and they can accommodate longer, then all asset prices are gonna go up.
So we have several scenarios here. And we have to watch very carefully what happens with each print each month and make decisions based on that to your point about the us dollar more dollars were printed last year, that in any other time in history, were you surprised at how strong the dollar has been maintained despite higher inflation, despite more money printing and despite monetary stimulus?
I wasn't surprised because the dollar is the reserve currency of. And it is the best looking house in a pretty bad neighborhood. Right? So if you are a, if you have Turkish Lira, the dollar looks amazing. If you have a, uh, uh, if you live in Venezuela and Argentina or any of these other countries that are struggling with a local currency, uh, converting your assets into the dollars, it looks like a smart move.
So because of that, uh, because of the risk increase in risk in many field currencies, you'll see. Mass migration to the dollar. And because of that, the dollar is strengthening. And despite the fact that the United States is printing trillions of dollars and the secret, the secret to the U S power that your success is the fact that we can continue printing dollars and not have the dollar collapsed because the rest of the world, we are, the United States is 5% of the population, but about 85% of all the transactions in a world that is really.
So the power of the us dollar in the military is you have to protect the us military to protect the us dollar don't don't come get confused with the us military, protecting the U S population. Wow. Can you expand on that? So they're not that they're more interested in protecting well, that, that, that goes without saying that that kind of applies to any country does not.
Well, if you look into deployment of where us troops and. Uh, ER, ER, you know, air force carriers and so on are deployed deployed, for example, to protect the oil region, the deployed to protect Taiwan, places like that, that are economically important for the, uh, maintain for maintaining the us dollar as the reserve currency that the petrodollar, uh, international commerce and so on.
So again, you're not seeing, uh, um, These tubes being deployed to protect our border with Mexico or border with Canada. Right. So, so I think most of the us Mike is here to protect the economic machine. It's a good thing. I'm not saying it's about, I'm just explaining that it's here to protect. The economic machine where the United States gets a free ride from the fact that most of the world is using dollars to transact between all the different countries.
I've watched your debate with Peter Schiff, not too long ago, hosted by Michelle McCory, a great debate, by the way. So your, your, your, your counterpart Peter had made some good points about the U S dollar. His position shared by other economists is that the U S is on a secular decline. And with it, a secular decline of the U S.
As, as the rolled a reserve currency, can the dollar lose its status as a world reserve currency? Can we lose, uh, the petrol dollar into something like the petrol yang or anything else? And to your point, about 85% of the global trade being transacted in us dollars. Is that going to last forever? I agree that long-term, you know, we don't know if it's going to take 10, 20 or 50 years longterm.
Uh, there's going to be a decline. You cannot continue. You know, the analogy I was doing, I was saying is that the us dollar is like this golden goose that laid golden eggs and what the United States does every year, we pluck a few feathers. We throw it out on the fifth floor and see if it can still land.
Right. And then we bring it back, let it lay a few eggs, like a few more feathers and see if it still lands. Right. So printing dollars continuously and hoping that the Google continue Lang golden there. And throwing it out of the window by risking our entire existence, uh, by basically, you know, put it in a safety net other than the us economy, giving free money, subsidizing everything on earth, including the us military, right?
Basically the United States is live living beyond its means and we are risking the golden goose. So instead of pulling back, instead of allowing markets to go through normal cycles, like a recession and we are effectively. Again, the fed is effectively maintaining that safety net under the entire us economy, creating zombie companies, just like in Japan and not allowing capital to flow freely to where it does the most.
Good. And the opposite of that is actually what's happening in crypto markets. Uh, capital is very efficient. The velocity of money in capital market is 20 times. Then it is in a traditional economy. So rich one is a fake economy in which one is the real, the velocity of money is higher in crypto markets.
Does that imply that people with cryptos are spending more cryptos you? What do you mean by that? They're spending it's the same dollar, uh, rotates 20 times faster. The velocity of stable coins is 22 and the velocity of the us dollar is one. used to be 2.6, these all, uh, uh, numbers that are available from Fred, from the government reporting agencies, Fred dub got my thing.
And you can see it used to be 2.6. Now it's 1.2. So the dollar lost over 50% of its velocity over the last student. And the same time crypto assets have gone from zero to over 20 X, meaning the dollar turns 20 times faster. It creates good. Right? So the same dollar is moving very slowly and traditional economy and very fast it's creates a lot of GDP, very fast in crypto assets.
That's why assets are moving or dollars are moving from traditional finance in. Did he find C5? I see. Okay. We'll talk about cryptos in more detail in just a minute. I want to talk about technological innovation in the U S and abroad. Uh, like you mentioned, the U S has spending beyond its means you mentioned many structural problems of this country, but let's talk about, uh, some of the.
Uh, do you see any, uh, tailwinds on the technology funds? Do you see any technological breakthroughs or innovations or major themes that investors should be paying attention to in particular in 2022? Well, to quote Winston Churchill, it said that America always does. This is the Eve of them losing to the Germans.
Right. And I said, I'm the other Americans going to help us on this? America always does the right thing, but only after it exhausted all other possibilities. So we are in the process of exhausting, all other possibilities. But, uh, the, I think the ingenuity, the innovation that the, again, the capital formation that the United States have is, uh, definitely, um, Uh, separates it from every other country in the world.
And I think we will do the right thing and which is enable our economy, enable our, uh, uh, companies and innovation, uh, to create the future of finance, reinvent, finance. And that's really what the largest opportunity. This is a fight for all the money in the world, right? China is doing it with the digital you want.
Um, and the United States us to decide, are we gonna create a CBDC or are we going to allow. Companies like Celsius and others to invent the future and maintain the dominance of the U S. As the empire, large stem bar in the world. Well, Alex, you, you're a tech entrepreneur. You've worked in tech pretty much all your life.
Uh, and now of course you're involved in crypto and, uh, and decentralized finance and FinTech. Tell us about the attitudes of entrepreneurs and venture capitalists today, versus those attitudes of the same group of people 20 years ago, during the.com era, what are they working on now? That's maybe different than, uh, than 10 20.
Yes. So I always joked that I've seen this movie before, so it's a little bit easier for me than others. And, uh, when in the birth of the internet, it was there, uh, the beginning of the internet when it kind of turned from a military. To be a commercial project. And, uh, we were trying to solve all the problems in the world, similar to what is happening right now in the, you know, in crypto where we trying to attack everything.
But it ended up that the incident was only good for a few things. And, uh, if you look at the largest companies in the United States today, I think most of them are one or another. Uh, internet businesses, if it's Amazon or if it's apple or if it's Google or Microsoft and so on. So the same thing is going to happen with this wave of innovation, right?
So the blockchain decentralization is only good for very few things, right. Then we know Bitcoin for example, is good as. Uh, yield, you can create yield or interest income on the blockchain, uh, in a much better and freeway than you can in a traditional financial system. And now we've been toying with defy and NFTs and all kinds of other stuff.
Right. But it's going to be, there's going to be a very few winners, uh, anyone to expect a hundred companies to come out of this, uh, has to watch the first movie again, where we have basically. Thanks five fangs. When the entire internet, I want to talk about some of the emerging themes or emerging trends, web three, being one of them.
Uh, just today on the 20th of December, Jack Dorsey caused an uproar on the internet by making this statement on Twitter. Uh, let me just read it. He said you don't own web three, the VCs and the LPs do it will never escape their incentives. It's ultimately a centralized entity with a different label note.
What you're getting into. Okay, last two impact there. What do you make of that statement? Well, I look, I don't think necessarily that VCs are good or bad. Um, we see is, uh, our deployers of capital and they usually chase opportunities where capital can do good and can return a lot on its outside. I think Jack is focusing on.
The centralization is basically saying don't allow these centralized entities to control new. If you're an innovator, try to build these things in a decentralized way, but even if you building in a decentralized way, you still need capital. And a lot of them is capital formation. The fastest capital formation is coming from, uh, venture capital.
And that's why, uh, they basically get in on many of these early stage projects, but for example, Celsius was not funded by venture capital. And I think Jack is planning to all this stuff he's developing with square and others, other projects are not going to be venture backed. So it's a combination of both.
And really this is all about the user, right? The, the billions of people around the world, voting with their pocket. For companies that are decentralized companies that are acting in your best interests, like Celsius versus, uh, companies that just create some normality for you, which is again, a punk and an Ft, uh, uh, you know, a DFI project or whatever.
So, uh, the question is, are you going off to this short term, um, um, appreciation or are you trying to build a future of finance? Okay, well, that's one of the things that I think are different. Where is different now than versus, uh, the tech tech era of 19, uh, 19 nine is the, um, back then during the.com boom and bust.
Uh, there weren't as many options for fundraising as there are today. Today we have a plethora of different fundraising options, not just VCs, like you've mentioned. Tell us about how a young entrepreneur or an engineer can raise capital in a decentralized manner. Yeah, they will do a hundred percent of it, right?
It's it's not just that. Uh, there are many ways. For example, there are many different, uh, capital formation, like for example, a Dao, a distributed autonomous organization where a bunch of people just get together and they fund this project that is autonomous, right. If it's not a really a traditional corporation, you can do a, uh, an ICO, an initial coin offering like Stetson.
Uh, you could still go to VCs or private equity guys, uh, but you can also basically get your community to come and back you up. We it's associates. We use, uh, several rounds with the community where we explained to them what we're going to build. They funded the project, and then we delivered that utility back to the community.
So the community is the main beneficiary from creating this infrastructure, but also the, the other side of the same coin. Is that the amount of code on the amount of development that you need is dramatically lower? Right? So, so where, in some of the like ARPANET the company I founded in, uh, during the internet, boom, uh, we had to raise $350 million before we went public, uh, to fund the infrastructure, build out the build voice of IP with nodes all over the world and so on.
So on. Uh, an 18 year old kid can ride few lines of code relying, mostly on existing infrastructure, right? And forking existing, uh, work done by you and a swap or by some other protocol, adding some value to it and create the future of finance. So the need for the massive amounts of capital just does not exist.
Right? So you can deliver much more with much less, and again, it comes down. Are you trying to do good first and then do. Or you're just trying to do well. Okay, excellent. Well, what does all this innovation mean for the crypto markets next year? We'll move on to your outlook on the crypto markets at large in 2022.
So I, I, you you've been asking me that question off for several years then ended up being an optimist, uh, throughout that period of time. I don't think, uh, I think the, both the fed and treasury are really locked in a vice there. They don't have a lot of. They're behaving as if they're options. They're telling us the telegraphing us that they're going to do this or that.
But the reality is that that they're going to support the economy. They're going to continue to reflate and the cause of that, uh, sooner or later, uh, both Bitcoin and gold are actually going to return much higher because basically people will understand that. Taxed, and then the best, you know, and we talked about that during the debate.
That that's one thing I totally agree with Peter Schiff and others, that there's no question that the traditional system trad transfer is penalizing you several times, and there's no way for you to escape that unless you detach yourself from being denominated in us dollars. So Bitcoin, I expect it to require again, 140 360,000.
And expect gold to go much higher than 2000. Stay above those levels. When people realize that those are the real, only two hours. That are not connected to that, uh, to the mothership, which is, uh, the dollar, um, final question on cryptos. And that will end up there. And now Bitcoin, I've talked to several entrepreneurs working in, uh, the transactional space of defy.
And, uh, they've been telling me that Bitcoin is still the coin that's being transacted. The most with the largest volume of trade is still being done with Bitcoin. Do you see that changing in the forefoot in the foreseeable future? Could something like USD T or USDA. Uh, take over as the predominant currency of choice in the crypto space.
Well, it depends how you measure these things, right? So if you measure it by number of transaction or dollar value, uh, but I do expect that they, a lot of the other project, like a theorem, for example, a cap because of the gas fees. So the gas fees are 10 times or 100 times higher than when they should be.
And the minute we sold all that next. Uh, you're going to see an explosion in the number of transaction Ethereum today. A lot of people who are trying to transact when they they're in block chain have to stop themselves, we'll try to do it later. So, um, Bitcoin still has a dominance, mainly because of all these obstacles.
Right. But if you look at the daily volume of tether, you would see that, uh, uh, the Bitcoin tether pair, uh, The theorem, the pair that really the ones, the two that have the most volume and tether does three times the volume or two times the volume of those two together. So, so today, if you, if you measure in dollar terms, I think, uh, that that would win out a, but if you measure in absolute, like how many blocks or how many transactions.
Obviously it's going, uh, any theorem still went excellent. Alex, I appreciate your insights. Thank you for your outlook for the following year and a happy holidays. We'll speak to you in the new. Same to you and we'll see you in 2022. We'll see if, if our prediction skins group, well, you've, you've had a track record of being right so far, so I don't see why you wouldn't be right again.
Uh, good luck to all your endeavors, but Celsius. And we'll talk more about Celsius next time. And thank you for watching Kitco news. I'm David Lynn.