LDJ Capital is a multi-family office, with their head office in New York, that has been involved in cryptocurrencies and crowdfunding since 2011. Founder and Chairman David Drake talks to James about Bitcoin—which is soon to reach its maximum of 21 million mined.


James West:     David, thanks for joining me today.

David Drake:     I’m glad to be here. Thanks for having me.

James West:     Sure. Why don’t you give me a quick thumbnail on who you are and what you do at LDJ Capital?

David Drake:     All right. So I am a novice hockey player who grew up in Sweden, came over to the US on scholarships and stayed there for 27 years.

James West:     Wow.

David Drake:     And today, here, my family office, we got involved with crypto and crowd funding in 2011. So it goes back a while. We actually set up some of the first conferences up there.

James West:     That’s interesting. I’m going to have to come to one. So I’ve been studying crypto a little bit since about 2011, when a friend of mine, who was not somebody I would expect to have a high level of sophistication in all things capital markets, called me and said, “I just bought 50 Bitcoins for $8 each. Do you know about Bitcoin” and I said “No, I have no clue what you’re talking about” and he told me about it. Of course, the rest is history. He didn’t sell them. So I’ve been watching it, and I read your article published on December 19th that sort of features the idea that central banks in G7 companies are set to buy crypto in 2018.

This is extremely intriguing to me and very much to the core problem I have with cryptocurrencies and Bitcoin in particular, is that cryptocurrencies – or Bitcoin, let’s focus on Bitcoin – Bitcoin is essentially, the value is derived exclusively from the demand side, created by the people who are developing it and programming it and pushing it out there. Everybody who hears about it and adopts it and buys it is part of the demand equation, and the supply side of that equation is limited by the fact that, at the current phase of evolution in Bitcoin, there are 1,800 Bitcoins per month right now that are being created?

David Drake:     There’s 21 million in total that have been created.

James West:     That will be created…

David Drake:     In the next couple of years you’re reaching that max, and that will be the maximum.

James West:     Right.

David Drake:     Now going back to your discussions about, you know, G7, and what countries are planning to do is, you know, I think if I may just jump into it: I feel that look, a lot of countries have inflationary currencies, and Bitcoin is not, nor does it come with any debt. So we’re imagining that they’ll be able to create their own money market baskets with Bitcoin. And remember, Bitcoin is a $260 billion market cap, and #2 and #3, Ether and Litecoin, is only a $30 billion market cap. So there’s more liquidity in Bitcoin.

James West:     Sure.

David Drake:     And you know, also, it’s an appreciating asset. So you can see them wanting to put that into their own portfolio over time.

James West:     Right, right. So if I buy Bitcoin using, if I buy it using, say, Euros, or if I buy it using US dollars, then at that point, does not the Bitcoin become a proxy for the currency with which I purchased it, until I exit it?

David Drake:     Yes, but I mean, these currencies are, you know, 1,000 times bigger in volatility. I mean, market size. So hypothetically it could be, but you know, it’s just too big right now with the currencies out there. The trillion-dollar market.

James West:     Right. So my point is that if the Bitcoin is supported exclusively by FIAT-sovereign, debt-based currency in, and the only way you can really spend Bitcoin meaningfully is by exiting Bitcoin into another FIAT currency, then my point is that FIAT currencies are backed arguably by the asset base and future productivity of the nation that issues the currency. Whereas Bitcoin does not have that association with a fundamental, intrinsic value, and that’s why, from one perspective, it is bound to fail.

David Drake:     Well, it’s a good comparison and a good argument to be making, and I don’t think Bitcoin will replace anything. I think Bitcoin will probably just continue growing in popularity and be another currency. Japan has already accepted it as a currency. On the flip side, you know, we have corporations like Hong Kong PWC who, in October, announced that they’re taking cryptocurrency and Bitcoin as payment. I think there’ll be more mass market acceptance of Bitcoin as we move forward, but I think also that it will become a currency that people will recognize and are recognizing, including countries, and eventually it might be part of a basket. But by no means will it ever replace currencies that are existing today, in my book.

James West:     Okay. So how do you play cryptocurrencies? What cryptos do you own, and what’s your sort of investment mindset towards them?

David Drake:     My family office got involved with lobbying to the Congress and got invited to the White House; I spoke at Parliament in 2011, ’12 and ’13, which was the precursor to crypto, and we invested a little bit at that time, more like a hobby. Today I invest in 30 different cryptocurrencies, and my investment is like the early investors: we buy and hold.

It wasn’t an intention to speculate and run a changes for these things when it approached its premium, 2009; there was to be a payment system, and to be removed from regulations and be autonomous, be immutable, and outside of the reach of the government, because of international crisis. They were saying Occupy Wall Street, revolution, and this was what came out of it.

Today, you have speculators, people buying it because their friends are starting, and we have that world enough who originally bought to hold. So granted, I’m involved in putting my own money into crypto hedge funds. I’m also investing in a crypto hedge fund in Cayman. But historically, us early adopters, we buy and hold. We believe in it, and we just hold. Now Wall Street is coming in commission with us and the speculators mass market. They want to buy it, but us original ones, we don’t sell; we just sit on it. So I’ve been enjoying the ride the last six months with my net worth, you know, triple.

James West:     Right. Okay. I want to focus now on the idea that it is not subject to hyperinflation. And since Bitcoin launched, we have had two successful forks and, by my reckoning, three unsuccessful forks. And now, correct me if I’m mistaken, and I do not presume to be a Bitcoin expert in any way, shape or form, but I think I can read; and each time a successful fork occurs, and we’ll use Bitcoin Cash as an example, the developers who hold Bitcoin, the developers of the Bitcoin hard fork called Bitcoin Cash, they get one traditional Bitcoin plus one Bitcoin Cash for every Bitcoin that they originally held. Is that correct?

David Drake:     That is correct. That happened in August, where they split from Bitcoin, Bitcoin Cash, and Bitcoin Traditional, with their new technology inserted. And that has to have a absolute majority vote to occur, and that happened.

There was another one that was supposed to occur a month ago but was refrained from it happening because people may have backed out of creating the sort. You have to have unanimous voting on it, and all the computers of the world that are involved in the Bitcoin ledger system, the tracks ledgers, are part of the voting system; they have a say in it.

James West:     Right, okay. But my point is that if the Bitcoin now has had a hard fork and now, so instead of 21 million Bitcoins, there’s going to be 21 million Bitcoin and 21 million Bitcoin Cash, is that not rather hyperinflationary?

David Drake:     If you buy Bitcoin Cash and hold it. Yes, I think that’s a good point. Maybe that’s how the expansion of Bitcoin will be in the future.

James West:     Right. So but then, if the group votes to – the developer group, on a majority basis, votes to hard fork the currency repeatedly, and there is nothing barring them from doing so on the most fundamental level, then is not Bitcoin exactly as prone to hyperinflation as is FIAT currency, if not more so, because the group that has to decide and controls it is arguably that much more self-interested in its proliferation?

David Drake:     I would argue it’s not. It gets a little complicated with printing dollars versus adding more Bitcoin. You’re not adding more Bitcoin, you’re adding more Bitcoin Cash and Bitcoin Gold. They have a different structure and they’re not the same. It’s a new currency, and it’s not another Bitcoin. So in that essence, no. in the essence of saying, can it keep on splitting? If there’s consensus. I mean, crypto’s been built on consensus, where the majority decides on what can be done and should be done. And consequently, people owning Bitcoin are part of the consensus. If you can convince them all to change something because it’s for the better of mankind and everybody agrees, then the majority of them, an active majority of them, have to vote on that and agree on it. And we saw not pass, couple of weeks ago, because the majority backed out and said they didn’t want to be supporting it.

James West:     Yeah.

David Drake:     So, yes and no, I guess.

James West:     Okay. Then that’s enlightening, but I’m curious as to, where does this mania in Bitcoin end, do you think? Is it just going to keep going, and ultimately all of the FIAT currencies will find their way into cryptocurrencies until there’s nothing left? And how does the central banks support that if they lose all their sovereign reserves to this alternative currency?

David Drake:     No, I think that’s a little too dire to assume that. The market is way too small. $260 billion Bitcoin market cap is nothing compared to the currencies; they’re multi-trillion-dollar market caps. What happens with anything new coming in, it finds an equilibrium, and right now equilibrium hasn’t been met yet, so it’s hyper-growth. People also love the fact that, look, I can behave like a foreign offshore company. I can take advantage of tax jurisdictions and legal jurisdictions because I’m now have a crypto coin currency, whose jurisdiction will be based potentially on what I am, but also on where the wallet is.

And consequently, the offshore camp has been enjoying different tax structures and liability structures and subsidies by having operations globally. Well, crypto gives that to an individual: removes the middleman and makes it a possibility for us to have more freedom in that aspect, and I think people love that.

Also look at, you know, countries that have tyrants and censorship. In that essence, you need to have a way to protect your wealth from being taken or stolen from you, because that sovereign entity might be doing things that are not even humane.

So there’s argument to the extreme on that side, and you have coins addressing that, and then you have coins that are trying to be a million times faster than Bitcoin, like EOS, I mentioned before. They want to be a million transactions per second, because that’s what Visa and Mastercard is doing, and to catch up to them and become relevant, you need to get that scale.

It’s a fascinating space, but we have to remember, this started with problem-solving. You know, libertarians, developers, though leaders saying, how do we solve the problem of removing regulation to create the financial crisis that happened, and how do we solve this with knowledge and sell leaderships? Now there are mass markets coming in. Coin base is bringing in tens of thousands of users a day, and they want to buy Bitcoin and Ether because they have the biggest market cap – Ether 30 billion. And then they’re going to do down to all coins, and most of those companies don’t have an operating business. But yet again, you can argue, hey, that’s exactly what a venture capital is! I mean, that’s exactly what venture capital is: you put money into an idea! That’s what [unintelligible] (0:13:50) now is all about.

So it’s not something new, it’s just highlighted because it’s being traded in exchanges. That’s where the hype is; it’s exchange traded and not regulated throughout the globe. You can take your, you know, imagine this was wheat: you can take that wheat and trade that wheat against corn, anywhere in the world, on these exchanges. That’s exactly what’s happening. So people start speculating; hedge fund managers are jumping in. ForEx organizations are jumping in. ForEx programs are just jumping in, and everybody’s getting on the bandwagon because it’s a fascinating space we’re in.

James West:     Sure. All right, David, we’re out of time. I could probably talk to you about this for hours and hours over overpriced bottles of wine, which I hope to do someday, but we’re going to have to leave it there for now, and I really appreciate your time today.

David Drake:     Thank you, and look, everybody can reach out to me on LinkedIn at David Drake, LDJ Capital. Love to share my article with you.

James West:     Sounds great. Thank you.