Episode 11 | Part One: SkyBridge and the World of Tomorrow

Gregory Shepard, an entrepreneur who's built and sold 12 businesses, a recipient of 4 private equity awards, TEDx speaker, and Forbes author. This is The Boss Podcast with Gregory Shepard.

Is Bitcoin about to go mainstream? This week, SkyBridge Capital announced the launch of the SkyBridge Bitcoin Fund. But is cryptocurrency something entrepreneurs like you or I should get involved with? Joining me today is the founder and co-managing partner of SkyBridge. He's Anthony Scaramucci. Anthony, welcome to the podcast.

Hey, great to be on. Thanks for having me.

It's my pleasure. So first of all, how much more fun is it to talk about money on a podcast than to talk about politics after your stint in the White House?

Yeah, as long as I'm not in divorce counseling on a podcast, I'll talk about anything. You follow what I'm saying? I mean, when Dr. Phil took me on and he took the chainsaw to my forehead in front of my wife as her and I were going through marital problems. Anything above that is a good day, Greg.

Fair enough, fair enough. I wanted to talk to you a little bit about Bitcoin and your involvement in Bitcoin. And, you know, how much have you invested and what does SkyBridge do with the Bitcoin fund that you offer to investors right now?

So, you know, just to step back, uh, less my 11-day fiasco in Washington, I've been on Wall Street for 33 years. I started at Goldman Sachs. I left and built and sold a successful registered investment advisor. And then that advisor got sold to Lehman Brothers. And I was at Lehman Brothers for a few years and I left to start SkyBridge about 16 years ago. When I returned to SkyBridge after my White House debacle, I told my peers there, I'm the founder of the firm. That's one of the cool things when you get fired, Greg. You can't get canceled if you own your own firm. I just went back to go work at my own firm. And I told my team that we needed to grow and expand our product line. The first product we did was an Opportunity Zone fund pursuant to the 2017 tax reform. But we were studying Bitcoin, we started buying a little bit of Bitcoin, we started buying some other digital assets. And then over the last 3 years, probably back in March or April, we made a decision that we were going to have a Bitcoin fund. And over the last 6 months, we've We've accumulated about $300 million of Bitcoin. We put $25 million of the firm's capital into a Bitcoin-specific fund on December 22nd. So we've had reasonably good performance since then. The coins are bouncing around a little bit right now, but we're still up about 28% over that 13-day period of time. And what are we doing? Well, we believe that Bitcoin will be a generational transformation of the way human beings store value. Where gold has been the standard of value storage, if you will, for the last 5,000 years, in the world of digitization and encryption, Bitcoin, we think, will replace gold or at least be a complement to gold. And a result of which we've decided that there's a lot, lot of room to move here. In terms of number of users and the exponential platform of growth of those users and the scale. You know, Bitcoin right now is at about a half a trillion dollar market cap. Gold is at a $9 trillion market cap. Imagine if we're 50% right, this could move 6, 7, 8, 9 times over the next 3 to 10 years. So for those reasons and many others, we wanted to have a dedicated fund to it. One of the things I did at the early part of my career, Greg, is I democratized the hedge fund space. If you come into SkyBridge Series G, we have a $50,000 minimum. You can get the world's best hedge fund managers in that product like a Steve Cohen or a Dan Loeb over at Third Point. You don't have your $25 million minimum to make it in their fund directly, but you can come through our fund into their fund. I sort of feel the same way about Bitcoin, we wanted to create a very easy, low-cost solution for people where they could be guaranteed on storage. Our storage platform is in partnership with Fidelity Digital Assets, where we have this very simple pure-play approach. If you look at the space, Grayscale is the industry leader. They're charging 2% for their product, but because their product is on the pink sheets, Greg, It's trading at a 30% premium. Our product, you'll be able to buy the coin itself at its net asset value, and we're charging 75 basis points. So it's a low-cost solution. I think the only negative, which I, you know, don't necessarily think it's a negative, but some people do, is our lockup. We have a 3-month lockup. We're really trying to guide people to a buy-and-hold strategy.

Yeah.

So having that 3-month lockup for some people is a is a speed bump. For others, they think it's fine. The reason we have to do it that way is that it avoids the trap of being in a quote-unquote ETF. The SEC is not ready yet to approve an ETF. Maybe they will at some point, but I think the coins will be at $50,000, $60,000, $70,000 by the time they do that. This is a way for our clients and people that are interested to get early access to cryptocurrency. In our case, we've chosen the industry leader And it's a buy and hold strategy on that coin.

Okay. Okay. And what do you see as a risk? I mean, what do you, you know, when you think about this in terms of a risk for you and your investors and your team, do you guys see any risk, any downside? You have to ask that question, right? So—

Yeah. No, listen, I mean, well, marked up in the front part of the spec prospectus is Surgeon General's warning label. We expect tremendous volatility. Now, there's a big difference between volatility and risk. As an example, if you studied Amazon.com, if you studied that stock from its initial public offering in 1997 to today, you have arguably one of the best investments that could have ever been made in human history, but it was extremely volatile. You had 6 periods of time where Amazon.com dropped at least 50% in terms of what its price was in the public marketplace. And so if you look at Bitcoin, Bitcoin went from $17,000 to $3,000 a little over 3 years ago, sort of the 2017 time period. It built itself back up to $34,500, almost $35,000 over the weekend. It's had a 15% correction in a few days. It's trading at around the $31,000 level as we're speaking. And so one of the big things is extreme volatility. Having said that, if you're willing to take the 3 to 5 year bet that we're willing to take, I don't necessarily equate volatility with risk. If anything, volatility, because of the uncertain nature and the early adoption aspects of what we're doing, volatility may be able to provide you with a more opportunistic entry point into Bitcoin. So yeah, um, That's one of the big risks, though. I tell people, listen, this is for 1% of your assets, 2% of your assets for right now. I'm not a ranch bettor on Bitcoin for my clients. I have way more Bitcoin as a percentage of my net worth than that because I've done the homework and I have a lot of confidence in it. But here's what I would say to you. Over the last 10 years, if you took a dollar and you put one penny into Bitcoin, 99 cents into cash, Well, that asset allocation model outperformed everything, you know, beat the pants off of the S&P 500 and obviously did it with way less risk.

Yeah, I interviewed Tim Draper, uh, a little bit ago, and, and so sort of like, you know, you look at his scenario and he put what, $48 million into Bitcoin and ended up being a billionaire, right, out of that. So he's certainly had good success. I guess it— a lot of it has to do with timing as usual, right? So if you look at it and you say, okay, well, there's So many solutions out there to gain larger exposure and so few institutional investors that are involved in it. Why do you feel right now is a good time for you and the investors to get engaged in this? Because a lot of people have been standing on the sidelines, right? Just kind of watching and going, okay, I know that this is going to be good. Well, is it going to be good? You know, how could you put to rest some of those thoughts for some of the people that are listening?

Well, listen, those are the right questions. And first off, Tim is a friend of mine, was very instrumental in helping me organize this fund. Obviously, he's a huge Bitcoin believer. What I would say is, after studying the product or studying the unit, if you will, you're either going to get around to and draw the conclusion that this will be an acceptable value store or it isn't. If you step back, you look at 5,500 years of Recorded human history, we have used wampum. We've used seashells. We've used gold and silver bullion. We've used a number of different things, including just flat out paper and electronic digits on a computer server as stores of value or value transfers over the 5,500 years. What this is is basically an encryption. It is a code. And that code is impregnable. And if you're accepting that that code is creating a ledger between human beings, and so if I own the code and I transfer it over to you, there's value there if you've made that acceptance. And for some people, that's esoteric and it requires a very big leap of faith. And they say, well, that's a bunch of garbage, it's worth nothing. But if you really understand it, you understand the scarcity value of it. There's only 21 million. Coins out there, uh, and all of a sudden this ledger becomes accepted. And if you look at the 120 million people that currently own Bitcoin, uh, that are accepting that value transfer between each other, uh, then you can see the possibility of where Bitcoin can go. And so in Draper's case, he bought it at $48 million, he's sitting on a billion dollars of Bitcoin. But here's what I would say, if we're right There's no reason why a $30,000 coin couldn't trade to $300,000 to $500,000 over the next 5 or 10 years, because once it becomes more accepted— and remember, it's a neural network, it is a platform that is expanding exponentially, uh, and so when you think of Facebook, that is a neural network for social networking. When you think of Amazon, that is a neural network for retail purchases. If you think of Bitcoin as a value and a monetary network and an asset liability ledger, all of a sudden, once you see it and it clicks, it becomes very, very compelling. And so why is this a good time for it? Well, because others are not there yet. So we think it's still very early innings. We think that this is an opportunity where you're watching Paul Tudor Jones, Stan Druckenmiller, some of the industry geniuses in the hedge fund space start to allocate to it. And, you know, we know that the institutions, due to their caution, will be late adopters.

Right.

And so for those reasons, I'm telling clients a half a percent, 1%, if I'm right and a $30,000 coin manifests itself into $300,000, you got to win. You're going to experience the evolution of digitizing the store of value for civilization. And we think that if you look at Bitcoin in its 12 years since its inception, it's been attacked over 6,500 times. There's been 65 other types of coins and cryptocurrencies that have tried to supplant Bitcoin. And yet Bitcoin has over a $500 billion market cap. And for these reasons, you know, Michael Saylor is a good friend of mine. You mentioned Tim Draper. When you get an asset over $100 billion in capital, it starts to become the proverbial industry leader.

Mm-hmm.

This is now 5 times that, on its way likely to 10 times that. And for those reasons and so many more reasons, we're convinced and we're putting our money and our clients' money where our mouths are related to it. Now, will it be volatile? Certainly it will. There'll be a ton of skeptics out there that will challenge it. There'll be people that are in the stock, in the, in the asset itself, that will start selling it as it goes up. But that was true of Amazon, that was true of Tesla, that was true of Facebook and other great ideas and great advances in the world of commerce.

Yeah, I mean, I think about it, and when I explain it to people, I say, so a gold bar would be like Bitcoin, and a silver bar would be like this other company that does it, and so on and so forth. So they understand that a coin is literally Like I try to give them a visual, a golden— this is a gold coin and it's worth this much and it's worth this much because there's supply and demand, right? There's only this many and this many people are buying them and so on and so forth. Would you explain to somebody who's listening who is used to doing venture capital or used to doing bonds and stocks and that sort of thing, and there's a lot of them out there that are still just thinking this bit, I've heard of it, but How do I understand it? What analogy would you use or comparison would you use to help people understand Bitcoin?

Well, I think your gold analogy is a good one, but, you know, gold is cumbersome. The portability of gold is difficult. The gold bugs will say, well, there is some manufacturing uses for gold, but if you really stop and think about it, that doesn't justify the $9 trillion of market capitalization. What justifies that is people are saying, okay, this is to me a store of value in replacement of currency. And again, you have to think about it from a ledger perspective. And so to really get your arms around money— and every 5-year-old has this dilemma, they're holding a piece of paper in their hand and they turn to their parents and say, well, Dad, this is just a piece of paper. Why is that person willing to give me a slice of pizza for it? And well, the answer is because the paper represents a ledger. Right now we have the OZ. He's going to provide us a service. We're going to hand him this OZ, which is an asset that we got from the society, and we're going to exchange this asset with him. Now that piece of paper has been accepted now as a value transfer among human beings. And so now if you think about it from that perspective, if you have an encrypted code, there's only 21 million of them on the internet. And they can be transferred back and forth between each other, well, all of a sudden you have this portability, you have this feature that in so many different ways is way better than gold. It's easier to store, less costly, uh, it's impregnable, it's very hard to steal, particularly if you're, you're guarding it at a place like Fidelity that has cold storage, meaning, you know, their servers are taken off of the internet so they can't even be hacked into. You've got a new age storability. You have a new age ledger. And so don't go by me. You know, I was a skeptic. You know, when I first saw it in 2014, I wasn't ready for it. It was $400 a coin. I would tell you right now at $30,000 a coin or $31,000 a coin, it is way safer. And I have more belief in it than I would have at $400 a coin because it was still being challenged. And the idea and the concept was still quite new. Uh, 7 years later, $30,000-plus. I see the possibilities and I see where it's going directionally. And I would, I would tell people we're in the very early innings, and if they can accept some level of volatility pursuant to the analogy I just gave you on Amazon, uh, then own a piece of this. You can own it with us. We're the low-cost provider now if you have $50,000. You can store it with us. We have Ernst Young doing the accounting, Davis Polk Wardwell doing the legal work for us. You've got our brand and Fidelity's brand backing the product. And so, or at least Fidelity, you know, we're holding it in storage there. I think they're one of the safest pair of hands in the industry. If you think of all of those things, you say, okay, yeah, I see what he's saying. He may be right. I want to put a small piece of my overall asset allocation In that zip code, you know, Tim Draper, Stan Druckenmiller, guys like Paul Tudor Jones. There's a slew of people. Michael Saylor just put over $1 billion of his company MicroStrategy into Bitcoin. He's using it as a form of currency reserve for his company. They're seeing something. They're visionaries. They're on the frontier of something. Maybe they're seeing something that I should take advantage of for myself.

All right. Well, stand by, Anthony. Coming up in part 2 of my talk with Anthony Scaramucci, the founder and co-managing partner of SkyBridge, Anthony shares his thoughts on what his former boss leaving the White House will mean to financial markets.

So, you know, I want to be fair to the president, but I do think that the marketplace, frankly, my experience is that they're tired of the oscillations of Trump tweets, tired of the oscillations of the president's personality, particularly around trade. And the variability and the lack of predictability. Thanks for checking out the BOSS Podcast with Gregory Shepard. Get more on Greg's Business Operating Support System, BOSS, at GregoryShepard.com. This has been a production of Forbes Books Radio.