Q&A | Jason Calacanis

Well, first of all, thank you very much for coming out here.

It's my pleasure, Nick. Thank you.

You spoke a lot about democratizing investments to the community.

I hope.

I was just wondering what your views are on the current trends in initial coin offerings in the blockchain space.

Okay. Bancor is a Draper company that was at the LAUNCH Festival. Are they in the room? Anybody from Bancor in the room? Okay, so we'll get super candid. I didn't understand the idea exactly. It was like, oh, Bancor is for people to do ICOs, right? That was the basic idea?

I won't get into it, but more or less.

So, a company that does ICOs has raised $150 million in ICOs to do ICOs. I think the SEC is going to be knocking on their door at any minute. And I think that a lot of the companies who are doing it are companies that didn't get venture. And so to me, it looks— there's a lot of red flags. The SEC has a very specific concept. If it looks like a security, if people think it's a security, if some portion of people think it's a security, I can't speak for the SEC, but I know that when they— when it walks like a duck and it quacks like a duck. It is a duck. It might be a duck. So it feels like equity to me. And the people who are investing in it are investing in it for a return, not for the utilization of it. If the people investing in it, whether it's Bancor or any of these, are investing in it to see the coin appreciate, it's going to be viewed as a security. And if you don't know who bought the coins, which people don't know who bought the coins, it's a mystery, right? It's anonymous. If you don't know who bought the coins, How do you know ISIS or the mafia or money laundering people or whoever have bought the coins? We have financial regulations in this country for a reason, and it's a serious reason— money laundering, tax evasion, etc. These ICOs, to me, seem ripe for abuse. If they are ripe for abuse and they look like equities and people are buying them for that reason, this is not going to end well.

Yeah. Right.

Now, as an entrepreneur and an investor, I look at the technology and say, wow, my friend Brock Pierce is doing an ICO for a fund, and if I could, in my next fund, if I did a next fund, say anybody can buy, you know, I'll take $5 million of it and sell it to people, and then, or anybody who buys my fund, if it was all an ICO, the LPs would have liquidity. And be able to actively trade my angel investing, this would be miraculous. So it does seem amazing to do this, but we have regulations in this country which are deadly serious. And I can tell you that the regulatory organizations in our country are humorless and they are not apt to debate your interpretation. They're going to take the strictest interpretation. So, if you are thinking of doing this kind of stuff, you better be buttoned up and you better be prepared. I would not spend that money and I would be prepared for a visit and I would be prepared to give that money back or settle with the SEC. Be careful. You're in the ICO business?

Yes.

Have you done an ICO yet?

No, we're in the process of doing it right now.

We're looking at different domiciles.

Switzerland, Singapore, Papua New Guinea.

Listen, and if you're here and the shareholders of your company are here and you put a shell over there, that doesn't mean—

It doesn't matter.

It does not matter. So this is another misconception people have, is that like, well, if you're an American, you are bound by American law, right? And if you go to another country and you bribe somebody, if bribes are okay in that country and bribes are not okay here, you will be brought to justice here for bribing people. So in Germany, a bunch of Germans, I remember reading about it not too long ago, were bribing people in the Philippines or someplace, Indonesia, I don't know where it was. It was someplace where it's kind of traditional to give people 10 grand under the table to consummate a deal. And yeah, they all went to jail in Germany because they were bribing. They were not representing German citizens well abroad. You need to be super careful. I do think it's promising. I am intrigued. I would like to see the SEC make a comment. They have yet to make a comment, correct?

They will likely be making a comment in the fall of this year.

The fall of this year. So, the question is, do you want to put yourself, your investors, at risk between now and then? I don't think there's a rush to do this, and there is obviously some sort of a gold rush, but it seems very speculative to me that $30 or $50 or $100 million is showing up. And that some of that money is not in some way tainted or manipulated. And I can tell you this, Bitcoin is probably the most manipulated currency. Here's a story for you. If you and I owned, let's say, I don't know, $10,000 in Bitcoin 5 years ago, it's now worth $100 million each or $10 million each, and we wanted to sell it at maximum value. And let's say over the last 5 years, we created hundreds of thousands of wallets. And you and I, with these hundreds of thousands of wallets, each created every day randomly, at random times, from random IP addresses all over the world. It'd be pretty easy for a developer in this room to do that. They could probably script it in a couple of hours. And then we randomly created a script that sent volume back and forth, because it is free to transfer. And now we're sending random amounts from random places, whipping $100 million in Bitcoin to create volume. This would make it seem like Bitcoin is a very viable currency, wouldn't it?

Sure would.

Let's say if we're in China and we've got all these Bitcoin miners on hydroelectric dams where we got the money for free and we're manipulating it, and the rule of law is not as stringent as here, and we're trading hundreds of millions of dollars in Bitcoin, and then the price goes from $200 to $2,000 and we sell a little bit as it goes. And then we stop selling our bitcoins to each other and the volume goes down and everybody gets nervous and sells all their bitcoins. It goes down to $200 and then we do it again and it goes back up to $2,000 or it goes up to $1,200 the first time, goes to $200, comes back to $2,700, which is what it did. That's exactly— yeah. Does it not seem plausible that some group of people Who have anonymity and who can create unlimited number of untraceable accounts could do something like that? Well, they can. And the one thing I've learned about human nature is that if— because I'm a gambler— if people can get an edge, they will get an edge. If a system can be hacked, it has been hacked. Not will be hacked, it has been hacked.

So I very much appreciate that answer, and it's very clear that the utility of a lot of these projects are far disjoint from the actual market value. One of the, I guess, small follow-up questions that I have in this respect is the actual fundamental technology of some of these things is quite groundbreaking, yet there's clear regulatory hurdles in the future that are looking to stifle these in particular geographic regions.

Yeah.

So I was wondering what would be then the middle ground on the regulator side to still Tame something like this, but allow it to expand and allow it to grow in the real value that it can create?

If you look at non-accredited investors investing, it took the SEC, I think, 3 years, a process of getting public feedback and going back and forth. And this— I don't know when the JOBS Act happened, but it might have been 4 years ago, 3, 4 years ago when Obama was president. And May and June is when they started doing it. So, it sounds like it's a 2 or 3-year process. 3 and a half years ago.

What's that?

3 and a half years ago. 3 and a half years ago, so it took them 3 years probably to get that done, or 2 and a half, 3 years. So, I think it's a 2 or 3-year process where they will solicit feedback, people will have to be SEC compliant, there'll have to be some regulations. If I buy this coin and I want to redeem it, or if you spend the money, if you raise $150 million and you have no audit, Should you be able to raise $150 million from citizens without knowing who they are and with no audit? Well, if you raise $1 million, you need to have an audit. So I think you should have an audit. So if Bancor raises $150 million, they should have to audit that spend and put it out there and, you know, maybe give a period in which people can redeem the money back if they change their mind, they get cold feet, especially if they're non-accredited, not sophisticated investors. And they probably have to clear some hurdle of if people are buying it overseas, that we know that they're not using it to take money from a terror— from a rogue government or a rogue organization or a billionaire who wants to support terrorism. How do we know that somebody didn't just buy a bunch of Bancor coins, transfer them to somebody else who then sold them, and then that person who sold them is going to blow up a building? We don't. You could be funding all kinds of terrorists with this stuff. And I'm not saying that to be alarmist, but you're going to— bad people in the world, bad actors are going to abuse these systems. They've abused every system. They abuse the postal mail. People are sending deadly heroin from China. What do they call it? Fentanyl? Something like this. It's supposed to be 1,000 times stronger than heroin. These 2 kids who were 15 years old died in Salt Lake City. They bought fentanyl off the internet for $50 on the dark web. One kid gave it to 2 kids. The 2 kids took it. They died instantly from some crazy super heroin from China. We are living in a William Gibson novel at this point. People are buying shit on the dark web. Kids are taking it and dying. Bad stuff happens when you have anonymous systems that are untraceable. Other times anonymity is beautiful, but we as a society have a lot of work to do in figuring this stuff out and regulating it, because random money moving around is very dangerous. And I'm a libertarian. I believe people should be able to take drugs if they choose to. I believe that you should be able to buy these drugs in a drugstore and have it regulated and make sure people aren't taking bad doses and let them get help, and maybe they sign a waiver like, I agree, I don't want help right now, but if I do want help, I can walk next door and go into an opioid clinic. But people are gonna take drugs, so, you know, you gotta figure out a better way to deal with it. But boy, this ICO stuff, when I see stuff like this, I get very nervous. People are gonna go to jail, I predict.

Yeah, honestly, for somebody who's not in the space, you're scarily on point, and I'll end with that. Thank you very much.

I read.