Today’s interview is between Zach Friedman, COO and Co-Founder of GDA Capital, and Michael Terpin, Co-Founder of BitAngels and Transform Group. This interview was conducted as part of GDA’s family office conference in October 2020. In case you didn’t know, GDA Capital is hosting a Wealth Management Summit on Wednesday and Thursday (the 24th and 25th of March). We’ll have exclusive discussions with giants within the crypto space, and go into detail on what the modern portfolio will look like in 2021 and beyond. Sign up to participate here.
Zach Friedman is the co-founder & COO of Global Digital Assets (GDA) and its portfolio companies, which span across a variety of capital markets verticals in the blockchain industry. Zachary is also the COO of Secure Digital Markets (SDM), a leading global digital asset brokerage and holds advisory positions at several notable emerging technology companies. He has facilitated first-hand over $2 billion of digital asset transactions. Prior to making his foray into blockchain, Zachary has scaled ventures in both the consumer tech, and pharmaceutical industries, with a notable exit to WeWork in 2015.
Michael is the founder and chief executive officer of Transform Group. The company was launched in 2014, and they have served more than 200 clients worldwide, and even more notably, they’ve helped over 100 ICOs come to market. I believe that is the most of any organization in the world. He also has Transform Strategies which is the company’s advisory division and Transform Group also has a blockchain incubator and accelerator based in Bermuda called Transform Studios.
Mike is also noted for being the founder of BitAngels which is the world’s first angel network for digital currency startups. Previous to his foray into blockchain, Michael was also the founder of Marketwired and had a big focus on PR. Marketwired is one of the world’s largest newswire companies which sold to NASDAQ for about $200 million prior to being reacquired and doing a direct IPO. Additionally, Michael is the founder of Coin Agenda which is a global event series for crypto entrepreneurs and investors.
They’ll be discussing investing cycles, DeFi, the advent of cryptocurrencies, and much more. This interview was conducted at the Global Family Office Summit on October 20th, 2020. The summit is run by GDA Capital and featured many interesting guests that we’ll be featuring in future interviews.
Zach Friedman: So Michael, it might be good to start by discussing your involvement in the direct IPO of Marketwired. You’ve clearly been thinking about similar problems for a long time prior to the advent of ICOs. Can you give kind of a quick summary of why you initially got involved in the digital asset space and with ICO issuance in the first place? And maybe even touch on how your involvement and your conviction in the processes and landscape has changed over time.
Michael Terpin: Thanks, Zach. I guess in my career I’ve always been looking for the next big thing and to sort of get ahead of it. I started my first set of companies in the 1990s. Back then there was this big buzz around this thing called the web and being on the internet when it was still something that you could use if you went to university and had access to a Unix or Linux terminal. Linux was in its infancy then too.
The web started in ‘91 and I started getting involved in ‘92. Then in early ‘93 I came up with the idea for the first internet-based press release distribution company, since I was already running a PR firm that was big in video games and multimedia which was sort of the next big thing at the time in the early ‘90s.
And once I downloaded one of the earliest web browsers – I guess it was Mosaic – and saw that I could go and type louvre.fr and I would be transported in one click to paintings in real-time, I realized that this was an unbelievable game changer and it would be leading the next wave of innovation. So I pretty much tried to go and meet all the early Internet companies that I could in 1994 and launched the internet wire which became Marketwired and is now rolled up after the NASDAQ acquisition with another newswire. It’s now called Globe Newswire which is the third-largest newswire in the world and it’s currently owned by Apollo. And to wit, at Transform we spun off a company called Content Syndicate which has a deal with Globe to create a few new newswires including blockchain wire which is the only kind of dedicated blockchain press release distribution company. We have some innovation that we’re going to be rolling out involving digital assets in the near future.
I remember in 1995, trying to figure out who all the other internet entrepreneurs were and I think I came up with like 10 of them. There really just weren’t that many people who had active businesses in late ‘94, early ‘95. And most of them did pretty well, which kept me busy through the end of that decade. Sold my first PR firm and it’s now known as Financial Dynamics.
So we raised funds from Sequoia Capital to grow internet wire and we did a strategic deal with NASDAQ. Then we changed the name of the company to Marketwired because we just saw a much bigger opportunity to be dealing with public companies, their earnings, and being faster, better, cheaper, and not reliant on a satellite distribution as our competitors and peers were.
We then sold that in 2006, moved into social media, and started a company called SocialRadius. We were one of the early social media marketing firms and worked with bigger companies like Phillips and Marriott and also sort of helped pioneer viral video marketing. We did the “Yes We “Can video for will.i.am that got 50 million views, as well as a few other iconic campaigns.
And then in early 2013, I was kind of looking for the next big thing because social media had started to consolidate a bit and about every 10 years it seemed like some new game-changing technology came around. And so, in the ‘80s it was the PC and — rather, the ‘70s was the pc. I was way too young to be involved in business then. In the ‘80s, it was the network and online services, in the ‘90s it was certainly the internet which is a huge wave. In the ‘00s, it was social media and then 2013 is when I discovered Bitcoin and went right down the rabbit hole.
I could see that digital assets were going to be as big or larger than the layer of social media and I pretty much pivoted everything toward Transform Group which was a diversified services company. It is a diversified services company in the blockchain and cryptocurrency sector. With the PR firm since I’ve had PR firms over the years as sort of the first PR firm with about a two-year jump on the next firm to even get into space. We ended up rolling out some of the early campaigns.
The first ICO was Mastercoin. We helped launch Ethereum with Vitalik when he and Anthony Di Iorio were in Toronto before they relocated the foundation to Switzerland. And I’d worked with Anthony before. Anthony, by the way, is going to be one of our keynotes at the Coin Agenda next week at the fireside chat along with Erik Voorhees and a few other big names.
I saw that digital assets were going to be a thing that I wanted to really double down on, and 120 token sales and about 300 companies later, we’ve worked with most people in the blockchain sector between PR advisory and investor events with BitAngels. Along the way, I’ve sort of become an accidental thought leader by being one of the first investors in the space of note. I was on all the panels on how to invest in cryptocurrency. Do you want to buy equity in the companies or do you want to buy in the tokens? And what are the token economics?
So that’s been a very big part of my education. Studying how crypto markets act differently than equities markets in a number of ways that I can get into later, but I think the first big thing is that they run on four-year cycles instead of ten-year cycles. And they’re around the halving so we’re headed into what historically should be the next bull market.
In 2012 the halving was at $12 and in the fourth quarter of the following year, it was $1,200 or 100x. Then, it crashed back down to $150 about a year and a half after. After that, you had a slow kind of period of consolidation which has happened every cycle. And we then moved from the halving at $630 up to 30x to $19,000 in the fourth quarter of 2017.
Wash and repeat. We ended up having a crash down of similar amounts about 85 percent down to the lower round, the low $3,000s at the start of 2019 and crypto’s dead, Bitcoin’s down. But that’s really when I and other people were buying bitcoin. We’re acquiring more Bitcoin because that’s the time of the cycle to get it. And anybody who bought it under $4,000 is up 3x in a year and a half. Now we’re getting to the historic point where we hit the halving at $8,500. It won’t be up 100x by the end of next year. Probably won’t even be up 30x but I think 5 to 10x range over 8500, which puts you in a nice profit position from today’s 11,900.
Zach Friedman: Yes, so you touched on quite a few interesting things there. I’ll go one by one. What some of the attendees might not realize is how immature the market was back in 2013. I obviously had a similar story where when I discovered blockchain, dove down the proverbial rabbit hole, had a lot of interest, but the market was more mature in 2015, 2016 when I found it. From your side, you really had conviction and I see you as definitely a futurist because of that, and really your ability to predict the future goes without saying. Our market is still in its infancy but it’s grown substantially since your initial involvement.
What people from the outside looking in don’t realize when you talk about tracking the next bull market is they see the highlights of the top of the chart and the bottom of the chart, and they see the 85% drawdown, but what they don’t realize is that the volatility has reduced significantly. I think we’re in the longest time period tracking above $10,000. So we’re quite fortunate to see a more mature and stable market which allows us to really usher in that new era of capital because it’s required.
Michael Terpin: It’s stable until it isn’t, right? Because what happens in the equities market is pretty predictable. I mean, if we’re thinking in 10-year cycles, the decade is when you usually have your black swan that pops the overvalued market. It happened at the end of the ‘80s with Black Monday. In the early ‘90s, there were all sorts of pundits saying the stock market will never come back. And one of the top editors at Fortune, Alan Murray said, “Yeah, people are done with the stock market now. They got burned too badly. The yuppies are going to move to Vermont and live off the land and the ‘90s is going to be all about living with loss.” And of course, that was the perfect time to buy into the stock market. It was the biggest bull run in history.
And so being contrarian and as Lord Rothschild said, buying when there’s blood in the streets, even if it’s your own blood. It’s always been the right move in the markets. And you don’t have to be a day trader, you just have to go and buy stocks when there’s blood in the streets which I did the last time I made a sizable move in the stock market. I was all in cash going into the ‘08, ‘09 crash. I played the other end of the equation which is sell in May and go away because historically, over the last 80 years, it’s been shown that you do much better being out of the markets during the times of highest volatility during the summers through the middle of the fall and just kind of get in before the Santa Claus rally. And the years that you have like a huge crash, 29, 89, 2009 or 2008, ‘09, you were lucky to be out of the market and I got back in when there was complete blood in the streets and by April of ‘09, it was like you couldn’t lose on almost anything. And I bought the NASDAQ Index which was like $20 and it’s around $200 now.
It was just an easy way to get in and there are corollaries in the bitcoin market, except its four-year cycles. In the traditional markets, you usually have a slow seven to 10-year bull market pumped up by the Fed, printing money near the end of it. And they have a pop and a quick drop. It may not be 85% but in many cases, it’s been 60%, 70% over that year of drops. Certainly, you had the 50% drop in March when COVID became a reality. But with Bitcoin, you end up having the opposite. You have very slow bear markets, just painful slow drops over a year and a half or so. And then once during the four-year cycle, you have a parabolic run-up. That’s happened twice now.
In five or six weeks in 2013, it went from $2,000 to $20,000 in under three months in 2017. And I predict you’re going to see a parabolic run-up when there’s just a supply squeeze, right? I mean, they literally cut the number of new bitcoins available in half and it takes a little while for the continual new demand from bitcoins being taken off exchanges. The number of buy orders on OTC markets, the amount of buying interest on derivatives and futures exchanges. I mean, people are going long on bitcoin and at some point, there’s not enough bitcoin and the price just gets a squeeze in the positive direction. And that usually is when the retail crowd comes in and buys at the absolute wrong time. The time to buy was a year ago, the second-best time is probably right about now.
Zach Friedman: And you can look at these institutions kind of putting their foot down and starting to allocate some of their balance, the notable publicly traded companies like Square or Microstrategy.
Michael Terpin: To me, one of the biggest things was Fidelity saying that it’s fine to put 5% of your assets in bitcoin. I mean, you could hear my jaw hitting the floor.
Zach Friedman: Right now, you look at traditional portfolio allocation, which would say to have a 60-40 allocation to stocks and bonds, but because of interest rates and the Fed driving inflation, you’re not going to have that allocation into bond markets anymore. It just doesn’t make sense. So where does that money go? Some of the largest asset managers in the world are really just starting to explore this alternative, so it certainly is exciting.
Michael Terpin: Yeah, my wife and I typically will move back and forth between crypto and commercial real estate when the market’s really high. I’m happy to put it into crypto when the real estate market’s high and crypto’s low. The opposite of it, I mean, we’re selling real estate right now.
Zach Friedman: Yeah. And it’s hard to get fair market value on large real estate right now.
Michael Terpin: Well, we’re not selling shopping malls, it’s larger residential that we’re selling off.
Zach Friedman: Awesome. So, just to touch on two things you mentioned at the beginning, NFTs and DeFi. We talk about bull markets in various time trends. We saw the parabolic ICO run-up, and now the same thing has been happening in DeFi and the capital inflow. What you think the current state of DeFi is and what are its similarities between the boom in 2017 in the DeFi?
Michael Terpin: I like to go back to analogies to the growth of the internet. If you’re looking at the 2017 ICO frenzy, I think it’s sort of a corollary of what happened in the dot com era. You had this instant realization that the internet really was going to change the world. As recently as 1994, 1995, there were still people laughing at the internet. I still have a Newsweek article clipped out from paper basically saying that the internet was a joke and nobody’s going to want to read off of a computer screen. They’re going to want a fine print magazine like this and that the internet will be just the ash bin of history. It’s going to be just for geeks and freaks and it’s not going to ever replace fine print magazines.
Well, Newsweek, as a print magazine has been out of business for quite a while and the internet is now arguably one of the world’s largest sectors in the trillions, right? When Amazon first started out, it got laughed at. There were analysts who thought e-commerce was a joke. “They’re never going to beat a place like Walmart or Macy’s. The worldwide market for all e-commerce is less than the corner shopping mall in my hometown of Pittsburgh.” And yeah, that was true at the time. People don’t look at the pace of growth and at the fundamental advantages of the technology once it’s fully deployed.
In the early days of the internet, one thing keeping it back was that you needed to install a second phone line in your home and have this slow modem making noises in the corner. I remember the head of a major television network in Los Angeles was just laughing at me saying “our network is never going to be on the internet. I mean, my mom is not going to install the second line. She’s not going to put up with the noise.” And it’s just like, “Okay, that was 20 years ago. Here, mom, take your iPhone and watch Netflix on it.” The exponential increase of bandwidth, the exponential increase of ease of use, that’s not going to happen with blockchain.
And look today at how you get onboard into blockchain and the ease of use of many of these exchanges now and the ease of use of storing offline. Compare these first-generation hardware wallets to when I got in and you only had Mt. Gox and Bitstamp. And it was a different world and storing things offline meant writing it down on a piece of paper as a paper wallet and then storing that in the safe. So, we’ve had an exponential increase already in ease of use.
We still have less than 100 million people in the world who are using cryptocurrency and that’s up from under a million when I got in, so it’s already been 100x in seven years. And the next wave to get to a billion users I think is going to require the adoption of mobile carriers. And look, Samsung has already put wallets into some of their phones. Verizon was savvy enough to go and buy America Online for the marketing synergy and they bought Yahoo for the marketing synergy. Why don’t they buy an exchange? They could buy an exchange or partner with one and say, “Hey, switch to Verizon and you’ll get $200 of digital assets free. It will come from airdrops and include the hit new game, Angry Birds blockchain.”
That’s coming and that’s a way of instantly onboarding 100 million new users at a time. Because what do you need to go and onboard in almost every jurisdiction? You need KYC. You need to know the person is who they say they are, you need a photo ID, you need a proof of address. Guess what? Your telephone company already has that.
Zach Friedman: Why don’t you touch on DeFi a bit? It’s a hot topic.
Michael Terpin: Sure. So I think that right now, I had mentioned that 2017 was a corollary of the dot coms. In the dot com era, anybody with a business plan got millions from VCs hoping to flip it to Wall Street. In 2017, anybody who could figure out how to make an ERC-20 token and had a business plan was able to raise first hundreds of thousands, then millions, then tens of millions of dollars because they would flip it to Binance.
I could see what was going on when I saw how many digital currency funds were starting up. There was something like $8 billion that started up from like nothing over a period of about a year and a half, and you saw this wave of money coming in from wealthy investors who didn’t want to go and trade their own crypto but were happy to give it to the Polychains, the Multicoins the Panteras, the Alphabits.
I’m a limited partner of the Alphabit Fund, which is one of the early funds that has done very well in that space. In other funds, you could see that all of these funds came in with pocketbooks bursting at the seams and they had to go and buy things and so the gray ones would do wonderfully and then it was just kind of at the end of the merry-go-round, you had the wannabes just like you did with the dot coms. The bubble popped as they always do, and there’s a little bit more sobriety the next time around. I know DeFi markets don’t seem like sobriety but they do have much more fundamentals attached and decentralized finance is really the way that’s coming after centralized finance.
These are regulated entities that happen to have a cryptocurrency as sort of a loyalty reward component that you can add to your returns by ending up getting different loyalty points and/or use them as part of your collateral. And so that then opened the door for the wave of decentralized finance. And it’s hard for a lot of people to say, “Okay the smart contract says this, therefore I’m going to trust the smart contract.” But it’s been high risk, high reward. And if you were in early on Yearn.Finance, that basically said, “here’s our governance, and here’s what we’re going to do with it.” You read the code and can get in at $36. Then it went up as high as $40,000 within three or four months. You just don’t get thousand X returns, right? And in DeFi, some of the winners have gotten those. On the other hand, if you bought it $40,000, a month later it was down to $12,000.
And so it’s something you have to really study a lot and I think this is sort of the first wave of DeFi. I’m working with a project right now called Kingswap which is the first regulated DeFi. It’s a little bit of a hybrid, and I’m talking to a couple of other ones that are also components of regulation within a decentralized environment, and what that means is you’re not going completely through the banking infrastructure, but what you’re doing is you’re saying there’s a regulated entity.
So in the case of Kingswap, you go to the Monetary Authority of Singapore, you’ve got convertible notes and you’re going to have a trillion dollars or more over the next year move into these places that right now in CeFi, you’re able to get 12-14% on Tether which is basically USD. Try to get that from any bank in the United States or in Europe much less.
And in DeFi, when you include the returns from your tokens that are dropped for providing liquidity, I like to give the analogy of when a bank gives you a toaster for opening an account, except here they give you tokens that may or may not be worth anything. Uniswap gave everybody who put any amount on their exchange an airdrop of tokens that quickly went to $8, and they had given them 1,200 tokens.
Zach Friedman: And it was worth over $1,000 at one point for sure.
Michael Terpin: Yeah, and it basically became several thousand and it didn’t exist a few months ago. V2 just came out in August and now has more traffic than Coinbase. So we’re in a fast-moving space, you really have to pay attention to it. I tweet about it often – @MichaelTerpin is my Twitter handle and you can find me on LinkedIn. All my social media is just Michael Terpin, not Michael-Terpin, not Michael.Terpin. There’s a bunch of fake people out there pretending to be me and just know that I’m never going to ask you to send me bitcoin in a direct message. Unfortunately, there’s a lot of impersonators out there because it’s easy to do on social media but I fortunately have secured my name with no dots or misspellings on all the major platforms.
Zach Friedman: What are some of the risk factors that investors should consider in the current bull market with DeFi and digital but mostly DeFi? What risk mitigating strategies should they employ?
Michael Terpin: Sure. There’s a difference between participating in DeFi where you’re a liquidity provider, in which case you want to see how safe your principal is. Nothing’s risk-free, including the FDIC. And, particularly in our current environment, you want to see how safe it is, what’s your risk, what’s your return, and if you’re feeling that. You may never find the DeFi that you feel comfortable with or you may only go with the ones that are regulated. When I first got into DeFi, I studied long and hard and I had somebody who was really in the know recommend that I get into Yearn.Finance when it had jumped from $36 to $6,000 and I looked and said the risks are too bad and too big. I thought it was going to go back and I missed the run-up in a month from $6,000 to $40,000. But you really have to be paying attention to it if you’re going to play that game.
Zach Friedman: Yeah, I have a lot of people in my network who ask me where to blindly allocate their dollars in the space, so I see there is a big education hurdle, and it does require constant monitoring. It is still early stages, so there are risks if you’re not navigating the space properly and what we’re doing at GDA is more of a fund of fund model. We have various different strategies, algorithmic trading, those centered on like an index fund against the top 20. We have a DeFi fund, now we’re looking at launching same with an algorithmic trading fund and we use our expertise and experience in the space to provide the custody of the insurance, the on-ramp off-ramp, and facilitate the experience for our investor base and our client base.
Michael Terpin: All the good funds are going to be for accredited investors only at this point. I mean retail is going to be a long way down the road.
Zach Friedman: Yeah, so it’s unfortunate but it is just a piece of growth in any market. So Michael, just want to close out one last question here. In your perspective, what’s the next industry most ripe for digital disruption? You don’t need to dive in too hard, just what are you tracking that you think could be the next DeFi or the next NFTs? Where do you see the digital asset space in five years?
Michael Terpin: Sure. Yeah, I think NFTs are fast-growing and big and they’re easier to get your arms around than DeFi. It’s basically something that anybody can buy if you’re talking about just digital collectibles. It’s like buying art, right? You’re buying digital art and there’s digital art now that’s sold initially for $10,000 and then sold on the aftermarket for $100,000. And so you have to go and be a student of what that is. I’m involved with a couple of NFT companies, I’m an investor in one that is — it’s called Upland and it’s equity investment but they do have NFTs that you can go and buy representing buildings in San Francisco and New York City and it’s sort of a gamification model but then you actually get NFTs and they’ve been doing okay on the aftermarket and it’s just at the start of this.
When I first started researching some of these companies, they had like a couple of thousand users and then all of a sudden, they’re up 10X in six months and continuing to grow. So it’s still the very beginning of the NFT, non-fungible token marketplace and there are still fungible tokens as well.
Zach Friedman: I agree. I’ve worked this past few months in that space. Well, Michael, I sincerely appreciate the time today, it was a great discussion all around. For all those that attended, we will have a recording of the presentation, so we’ll follow up with a link and a follow-up message. We had over 250 attendees between Decentraland and this conference uniquely today, so it’s really exciting for our first event, we’ll definitely be hosting more. I think pretty awesome that, Mike, I think our talk broke bitcoin 12,000, so…
Michael Terpin: There we go, it was all the people from the family offices saying — hitting the buy button at once during the talk.
Zach Friedman: We had some users managing $20 billion of assets, who knows?
In case you didn’t know, GDA Capital is hosting a Wealth Management Summit on Wednesday and Thursday (the 24th and 25th of March). We’ll have exclusive discussions with giants within the crypto space, and go into detail on what the modern portfolio will look like in 2021 and beyond. Sign up to participate here.