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Ken Griffin Talks Crypto, Digital Currency and The Future of the Economy | DealBook Online Summit

Ken Griffin
Founder, CEO, & Co-Chief Investment Officer at Citadel
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DealBook Online Summit 2021
November 10, 2021, Online
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About the talk

He’s a billionaire and philanthropist. Founder of a hedge fund giant. And the market maker behind many investors’ daily trades. What trends and opportunities does he see in the shifting market landscape, the economy and the changing role of regulation?

About speaker

Ken Griffin
Founder, CEO, & Co-Chief Investment Officer at Citadel

Ken Griffin is the Founder and CEO of Citadel, one of the world’s most respected and successful investment firms. Ken started trading convertible bonds from his Harvard dorm room and founded Citadel in 1990, shortly after graduating. Today, Citadel manages over $30 billion in capital for its partners including pension funds, endowments, foundations, hospitals, governments, sovereign wealth funds, and private individuals. In 2002, Ken founded Citadel Securities. Citadel Securities is a leading global market maker, delivering a broad array of fixed income and equity products to banks, broker-dealers, government agencies, corporations, insurers, and sovereign wealth funds around the world. Ken has given nearly $800 million to educational and cultural causes that drive community engagement and improvement. In 2014, he donated $150 million to support need-based financial aid at Harvard, the largest gift in school history at the time. In 2017, he gave $125 million to the University of Chicago to support the Department of Economics. Ken serves on numerous boards including the Board of Directors of the Chicago Public Education Fund and the Board of Trustees for the Art Institute of Chicago. Ken earned his bachelor’s degree from Harvard University.

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Welcome back. My next guess is Ken Griffin, the founder and CEO of Citadel today, the hedge fund manages more than 40 billion dollars of capital earlier this year. So those market-makers to do Securities became a key character, became the GameStop Saga. Securities handles, more than a quarter of the trading volume in the United States, stock market in the changing landscape, the economy, and so much more can thank you for being here. And they can bring her again, cuz you were with us nearly 10 years ago on this, I would say stage but we're here works with some great to be here. A

sense of what's happening in the economy right now. And what's happening in the markets importantly this morning. We saw the inflation Rose 6.2% in October versus a year ago was the biggest jump in 31 years. I just wanted to get your sense, your feel for what's happening right now. So with a place to run 862 which is like you said, the highest in 31 years, the theory that this is true. Satori is starting to get long in the tooth. And markets are starting to wonder how fast will the supply chain Dynamics? Rectify themselves. So as to bring inflationary pressures back under

control, and how fast does this increase in inflation translate into higher wages that will become a more structural problem for the economy in terms of persistent inflation longer. So we're at a precarious Crossroads today than I think any of us anticipated just 9 or 12 months ago. The feds hands going to get pushed pretty hard here by this spring today and they're going to have to make some pretty tough decisions around both the pace of paper and the speed with which they raised rates in 2022,

given what you just said. Let's be clear on way street sense. The start of the pandemic straight-up, we have credible, correction. Which was breathtaking in both the breadth and magnitude. And then from the bottom of that correction. It's been one way for equities. And so in any Dynamic, where every time you're rewarded for just taking reskin and bedding. Bigger. In a sense, the market has great momentum because of that. Why would you buy more stocks today? Given the

positive reinforcement you've seen for the lantern, you're in change. Is that rational to you though? I mean, when you sit around with your guys, at the office, you say this makes a lot of sense. You said, this does not make any sense at all. I think it's really Frosty. We saw that the price correction of Passover. Last two days. We're seeing a market. That is showing signs of real frothiness where you at some pretty significant stock price moves on relatively small event. So, I worry about that. As as we move away from fundamental values as multiples, can incredibly hide,

any form of either policy are or a company. Having a, a bad spell is going to result in a pretty traumatic repricing of equities. You mentioned Tesla. I just have to ask. What did you think? When you saw Elon Musk pulling the twitterati or whether he should sell 10% of the company. Does that say? And I mean, like, look, we live in a whole different world. I've I've known Elon for a long time. I never thought we'd let our ownership stakes be dictated by a poll on Twitter, but I think it was a move by him to highlight some of the issues

at play with respect, wines tax policy. We don't want tax policy to drive Great Outdoors, like Elan out of their seats. I mean, if you think about it, so cross the small number of American afternoon or something, radically changed our society over the last 20 years, much for the better or for the worse, but these individuals like Elon Musk like Jeff Bezos transport life and we want to keep them in control of their companies, as long as they got the energy me in bishan to keep moving the business forward. So you don't want to tell him, I personally don't

want to see him selling now. He has his own reasons for selling that's up to him. But I like to see our great companies controlled by the founders. I had so much Vision later, but since we're here, There is a view and a a question about great wealth in America. You have great wealth in America and whether you should be taxed at a higher rate than you are currently paying. So it's it's fascinating if we look at the United States and contrast Europe, Europe have much higher taxes, 30 years ago.

Now think about the last 30 years name, the great success stories in the world. How many occurred here in America? Microsoft on Amazon Tesla SpaceX Apple, the list goes on and on and on Zoom virtual world courtesy of Zoom. This just doesn't happen in Europe in the same way and has made America. The great great source of innovation is the fact that our entrepreneurs are well rewarded for what they create. See you at you think the people would have to leave if there was no I'm not worried about that. I'm worried about a

cultural shift. I'm worried that people no longer say. It's worth going all-in on a dream. That's, that's an important shift in the United States. Will go at a time and time again, no risk at all. I mean not a college. I started. I could have gone to the best bank. I could have taken us a path. I started a hedge fund with a dream. You are Moscow me. I was there in the early days of Space X. I mean this man funded this idea that a private company could launch rockets better than NASA. You might

say he's crazy. But if he didn't have the sense that he could be rewarded for doing so would that story been written? And these stories are written in America? They're not written in Europe. So I want to make sure that we think about tax policies that maximize revenues to pay for the substantial costs that we have in our country Social Security education, National Defence, Public Safety. And at the same time that we think about policies that encourage entrepreneurs, give it to one of the issues, though, with Elon, in particular, and people of great

wealth. I think of Jeff Bezos in certain circumstances and others is that they are able to take out loans against their assets and they can effectively in certain cases live on them forever. The question is whether there should be a policy at almost sent potentially fairness. I know this is a tough word or a controversial word. What people say, this doesn't make sense. I'm pay. And they're not. I think he's actually really important word and the idea that you can create dynastic wealth and never pay taxes would be incredibly problematic to

the both of us and her today or this country. And that's part of the reason I say that has an estate tax in Roth V, highest state tax that comes into play. When people do past. I think it's important that we understand that first most of the great wealth in this country was created by people who are alive today. I mean, they figured out what the different ways to use trust and other things to do. I love Carrie, but Gary's pretty good. And pretty quick with his words. There's a tremendous

amount paid in state tax by Ralph this phone. Number people more importantly. By giving people a charitable exemption, far more money goes to charity times of people pass. Keep that in mind, and I think that you're allowed to give charity versus paying taxes on your, on your passing. If you haven't paid taxes over the course of your life. There are some real time together, but I think we want to be very careful to think about the fact. You may feel really good

to soak the rich. I think you'd rather have your iPhone. and you think it's neither or I think it's either, or you're convinced him either work for a second because there's a question about Inflation. What the feds going to do. And there's a question about who, the chairman of the FED is going to be come next year. Do you like this picture? I think he is doing a terrific job over his course, if it tender. Is that a polite way of saying that you would not have him again? Actually not. I think he's done a terrific job. He's been

under he served under the Trump Administration is doing his damnedest to execute on the fed's Mandate. The van has a dual mandate price, stability and full, pointment. That's the domain, meaning he's doing it, right. I think he's doing the best he can do given the policies that come out of, Washington. I think we have forgotten, the FED is not all-powerful. The FED lives in the world were policies that come out of Washington are far more impactful on full point. Then changes monetary policy. We're still at 3

million. Americans are employed today than pre-pandemic. There's 3 million Americans. Fewer in jobs today than pre-pandemic and there are ten million open jobs. Okay. Why is this Washington has been far too? Generous in their stimulus in their household transfers and show on over the last few months of the pandemic. They have not been targeted enough. How we generate relief for American families that are struggling, and I was in the White House in March of 2020. I think Trump is advocating for Social Security.

Payroll holiday, right? Is the waitress has just lost her job. It's a person who teaches, who just lost their paycheck. We need to address the Americans who just been forced out of the workforce. They can't find a job tomorrow and they don't have the savings to pay for dinner. We've got to protect those people. But we've taken this too far. We now need to have policies that encourage Americans to go back to work to get back to full employment. That's the job of Washington. Paul can

only do so much against the challenges that are created by policy missteps in DC. It sounds like you're suggesting this infrastructure bill is going to actually increase inflation. Be a structure bill. There's two Bill's right there and there's no doubt. The infrastructure bill is going to increase inflation. It's also going to address some critical concerns of our country. Seriously, there's pros and cons. This was a good piece of legislation ports. Airports closing the digital divide. He is a really important undertakings that we need to address of the country to invest in our future.

This spending bill is just a pork. That's awesome borrowing money from our children or grandchildren and great-grandchildren the pay for a set of agenda items that are not going to increase employment. Right here right now, and it's going to put incredible inflationary pressure into play. I'm worried about that. What do you say to the politicians, including President Biden who says that the infrastructure plan, and this spending bill will actually help on those issues because it's going to allow more people to get into the workforce because there's going to be a paid leave, and other

things that you might put into the social spending basket that you and I are going to find attractive or interesting but we don't have the fiscal freedom to spend the amount of money that we're about to spend in that bill. Particularly. With the obligations commitments that we made to America retirees. The Baby Boomers are leaving the workforce. We promised them a retirement and frankly, a modest wanted that we have to deliver on that promise and I worry about the intersection of driving up spending driving up

inflation, driving down and send it to work. And then paying for this by said of soap, the rich tax policies. When the real bill for the commitment that we've made America retirees, has yet to come do and we had better damn auto that obligation said today, is that he blame part of this inflation story on the price of energy. You play in the energy markets in a very big way and I'm curious what you're seeing and Tibbett agree that there is a debate happening on one side. You're getting people to look. Yes. G. This whole idea of you. She's actually causing this and then there's

other people say no, this is actually just a cyclical situation, which you think it is. This is a complicated situation. I can't pick either. The two is the path. What I can tell you, if the following, we are discouraging, the production of fossil fuels in North America and were destroyed in that production at a moment. I'm where we have yet to translate or transfer to a green economy solar wind. And if you want to be green you're going to talk about nuclear. This is a 20 or 30 year, journey to get to where we want to get to. In. The meantime, natural gas is the bridge to the cleanest

possible future. And I think a present spot on managing animations for examples of important way to reduce the impact we have on global climate but discouraging domestic energy production and making America beholding to the Middle East. Is mind-blowing to meet, I cannot believe that we are in a predicament. We are where we are. Once again asking Saudi Arabia to provide us with energy. I find it outrageous. When do things, when it comes to inflation and when you think about the Market's you invariably get to a topic of cryptocurrency? We talked to Tim

Cook who was with us yesterday and he said that he's been now playing with Bitcoin and ethereum itself is not prepared to put that on the balance sheet of Apple just yet. But where do you stand on crypto-currencies and Bitcoin especially if people think about that? Is now a hedge against frankly inflation. That's the argument. We haven't a moment time. Will we have a variety of asset classes, where the ascertaining of values very difficult, you know, if you and I think about a bank, we might say it's a trade, it 12 times, we can debate, should be 13 or 14, but when

you have to Value cryptocurrencies, what is the basis that you use for valuation? And it really comes down to do. I think somebody will pay me more for tomorrow? In this world of incredibly lacks monetary policy. Where we have pushed a tremendous amount of money into the hands of household, both with direct government transfers, and a reduction in the ability to spend money. We couldn't go out to dinner a year ago. We couldn't go to the morning. Say, your ago. We couldn't go on a trip, a year ago. So we've created a whole new class of Savers because we

couldn't spend the money in your ago. Some of this money has has moved into assets. Like the memes talks like, cryptocurrency and created spectacular mark-to-market. Well, but the question is, is what underpins that. Well, I don't know the answer to that the theories that I hear the most attractive one, is that one of these cryptocurrencies will replace the current payment rails. Visa Mastercard will be displaced by a crypto solution that will be a lower cost of making payments happen between businesses and consumers. I don't fully buy that. I don't buy it for a lot of reasons. For one who

deals with fraud risk. You have your wallet, you leave it in the room back. There you walk out and somebody takes it. Are you worried about your Visa card being used by somebody else? That's exactly right. You know, the bank will make right by you, but about what was your crypto wallet, and somebody spent all the Bitcoins in your account who's going to make you whole for that? So there's a number of issues that haven't been addressed by crypto in the theory around. How payments be made more efficient? And for that matter, the early generation cryptocurrencies Bitcoin, for example, Bitcoins

incredibly expensive to manage payments on. You've seen the energy footprint, a big huge contributor to global warming. If you think about it, like, it's believable. So, if we take a step back, People are very focused in a world of new ideas and New Creations. I love that part of America by worried that some of the passion is misplaced when it comes to cryptocurrencies doing this on their own or calling you saying. Hey, man, there was a twenty-one-year-old internet flew to Chicago from a New York office a couple years ago to tell me why was missing the big picture of Bitcoin. I wish I

had bought the Bitcoin recommended that I bought but I did that what we talked about was blockchain and the power blockchain it. And I said, I said, I still don't see many solid commercial use cases. And to this day. We don't see many solid commercial. Use, Chase's really interesting technology. Powerful way to maintain a decentralised ledger around the world. It's really not the solution. I think we're going to see Bitcoin, be replaced conceptually by the aetherium replaced conception by the Next Generation cryptocurrencies that will

have the benefits of a higher transaction speeds lower cost per transaction. Perhaps people start to think about how to deal with security and fraud prevention better. So you're not worried, you missed it. I'm not worried about the opposite way. I think the train is some sense. Still in the station. I think we're still trying to understand. If we want to hit this world of decentralized finance, and we want a payment system. That's low cost effective. Is it going to be solved by the crypto Community? Or is it going to solve for example, by digital dollar? The Chinese are

making up bet all in on a digital remember be, that's their bet. They've banned cryptocurrencies in the country's, they're going with the digital currency. So, I think this is very much in the early Innings still. There's a connection and you mentioned it between crypto and memes talks and boy. Do you know about meme stocks? Because you have been on the other end of a meme garage. If you will on Twitter and elsewhere over, what happened with GameStop, and what happened with AMC and what not. I was hoping I was curious. If you ever talk to young person who has a view

that you're in the middle of this. There's this issue a payment for water flow which people have lots of debates about whether they're getting for best execution or whether you are either front-running them or getting a, they're not getting the best execution cuz you're skimming a penny off and you're giving that Penny to Robinhood eight of them. But we must live it up in a pretty interesting, Echo chamber because most the 20 year olds, that I know are really grateful for the current market structure America. I mean, to make a point. When I go to trade, I can trade far cheaper on Robinhood

or on Schwabs platform or Fidelity or E-Trade, then I can trade At New York Stock Exchange, they love this dinner with a friend. He's like a price Improvement. You don't get that in exchange base world. You get that in today's wholesale. Market that the SEC structured roughly 25 years ago with the introduction of Regulation and a mess. So who's the people that I deal with love? The fact that is a retail investor. You basically trade instantaneously and you get a better price than you get on Exchange. They love that. Now the whole GameStop

conspiracy theory, I mean, that's come and gone. It was it was fascinating to to be in the middle that can do for you. Like a bad comedy joke, I mean, 2nd Saturday Night Live, so I do not have a Twitter account. Work in your office, but I mean people coming down and then just tell me what's going on. But if it persists to this day. I mean, it it researched a few weeks ago and then died back off. What do they carry guns with the head of the SEC is going to do when it comes to pay me

for flow. I don't know the most efficient Equity markets the world, and the SEC, Unleashed competition with real animals and that has been a huge windfall for all people saving for retirement. Retail investors day trading on on the back of the SEC. In reducing competition with regular mess. Everybody want. Are we going to go back to free regulate in the markets and taking back the competition? That is allowed Americans to save so much money. When trading, if that's what he does. It's a

it's a tragedy. If he's looking to fine-tune our system. There's a course ways to improve our Equity market today. We've gone to the SEC with concrete proposals. There's no reason that stock traded a $0.01 bread in highly liquid names. We should make that half a cent. We should cut the grass braids in half a hundred percent in favor of it. That's okay. We'll get an increase in. Volume will get increase in participation will do fine. I'm not worried about it and are hedge. Fund is one of the largest Traders is Fox in the United States for

all of the endowments and Foundations at investor hedge fund. Lower transaction costs, put more money on the bottom line for people that trust us were their money. So, Better for the markets. Catching more questions for you. One is related to DSG. There's a huge amount of money that's moving into into ESG oriented funds. And I wonder whether you think that ten years now on a corpsman spaces, those funds will outperform. I think the better question will be, will those companies outperform? Write the floor

finds at that floor. Fans continue to sell stocks will outperform just because people be paying a higher and higher multiple, the question. Correct. The question is, do we get our corporate governance? Do we get a better world to live in do those things happen? That's the real question. And then the other question is, is this the right way to achieve policy example, if we look at global warming and you and I would both agree, we should try to reduce the carbon output of the world. There's, there's no resent point. Where have you ever ever gone to sleep

at night and worried about having food? Been lucky enough not to and that's because America is the Bread Basket for the world. So we have a lot to lose in a world. That's a warmer world compared to much of the rest of the world. We should protect it as a natural resource, but we should think about the cost that we pay for that insurance versus other options that we have for the same Capital. Whether it's early childhood education, whether its work in R&D. And in Pharmaceuticals, I mean, for example, of America success in Pharma moderna Pfizer,

the I mean, these are unbelievable stories. So I worry about the indirect Nature by which ESG policies work versus, for example, a carbon tax. We want to get too much more cost-effectively, then the hidden tax, a mandates comments, just a couple weeks ago about what's happening in Chicago, when it comes to safety. Citadel is based there, you have offices around around the country as well around the world. You really think of moving? Absolutely. I mean, since I spoke with

the economic Club of Chicago, just a few weeks ago. One of my partners walking on his door 6:30 in the morning. Saturday man comes up with a gun right to his head. In the office on Monday. I don't know if I work my whole life to live like this. Sweet, that's a good story. Lots of good stories to 24 year old was shot, a few days ago. A few blocks where my kids go to school. I brought this issue up in Chicago and you have to respond to. My governor was call me a liar. Show me, nor did he take this problem on. I'm going to

make our streets safe again. I'm going to make sure that every child in Chicago, where the white black or brown is going to be safe. He took them home to call me a liar. It's all about politics for him. It's not about our people. So what do you do? I'm going to make sure that if he runs again that I am all in to support the Canticle beat him. He doesn't deserve to be the governor of our state. But are you planning to stay that comes down to whether or not we're willing to embrace to policies in Chicago that we need for people to be safe and secure. Ken Griffin, thank you so much for being

here. It's good to be here. Preciate it. Thank you for give me back.

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