Bankless - SotN#24: Everything is bullish, with Nic Carter (Triumphant! 2017 vs 2020 Bull Markets, What's Different this Time?)

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Starting point is 00:03:25 Welcome to episode 24 of State of the Nation. We are in a bull market, my friends. Dave and I are super excited to be with you at the very forefront of it. Let's talk about State of the Nation. What we do is talk about what's happening in crypto and relate it to you in insights and action items. This episode comes out every Tuesday. We've released it on YouTube.

Starting point is 00:03:48 And it comes out live on YouTube and you also get it in Bankless podcast form. So however you like to tune into State of the Nations, audio, video, you've got it both ways. Today, we are bringing on Nick Carter. This is his fifth appearance on Bankless. So he is a veteran guest. We're really excited to have him to talk about the bull market. And then, David, what are we talking about after that? So Nick Carter is going to come on and talk about all the different metrics that are at all-time high.

Starting point is 00:04:18 for the Bitcoin ecosystem. We're also going to ask him about, like, well, why is this Bitcoin, why is this bull market different than the last bull market? Like, what are the new, what's the new infrastructure like? Like, why is this unique and different from the last time we've seen these bull markets before? Nick's going to answer that question for Bitcoin. And then the second half of the show, you and me, Ryan, are going to answer that same question for Ethereum, because Ethereum has gone through plenty of growth and maturity and development. And so a bull market that happens on Ethereum is not going to look like the same bull market that happened in 2017. So we're going to do a little bit of comparison here. Absolutely. All right, guys. And before we get to the show and

Starting point is 00:04:53 introduce Nick yet again, let's talk about a few things that are new. David, we had our episode with Melton Demir's coming out that came out this Monday, actually. And that was a spicy episode. It was a lot of fun. Like, I think it was the most fun I've had on a podcast for sure. Maybe it was also the spiciest episode where we got into this conversation about Bitcoin versus Ethereum and tribalism. But I, I feel like it ended in a really good place. What was your take on that? Yeah, Meltem is just a ball of energy.

Starting point is 00:05:24 And so making a show with her was a ton of fun. And she comes in with just a bunch of data and metrics. And she has slides that she shared. And so that was actually our first video podcast. And so the start of the conversation is all about how, like, the state of the world is now different, right? In the same theme of things that are different nowadays, she comes in and with just this torrent of data and shows like, well, the world is about to go. Basically, the conclusion was money printing.

Starting point is 00:05:52 This is a theme that you hear on all crypto podcasts, Bankless No Exception. And then we kind of turn into, we do a little bit of a pivot where we start to talk about identity, which is actually something that we've talked to Nick Carter about previously. It's like, what is the identity of a bitconer? Is she a Bitcoin Maxi? And she turned the conversation into the metaphor of Dante's Circles of Hell.

Starting point is 00:06:12 What circle of Bitcoinerism is melting in? And for what it's worth, I actually consider whatever, whatever circle it is, Melton and Nick are roughly in the same circle. They both understand the macro outside landscape and they are both self-identify as Bitcorners. But I wouldn't classify them as Maxis. Yeah, to be clear, Nick, who's listening to here offstage, we do not think this is a circle of hell that you're in with that. Just, you know, just FYI there. Okay. And then we also have an episode with Balaji, Strinawasson, coming out next Monday.

Starting point is 00:06:47 dude, I'm super excited about this. This was maybe our longest episode. I'm not sure if we fully edited it yet. But we're talking about the digital nation with Belaghi. It's just a killer episode. You talk about a ball of energy. Belaji is just like a ball of like revolutionary ideas. We got right into them and how they apply to crypto.

Starting point is 00:07:06 So that's going to be super cool. Yeah. We often talk about the metaphor of the nation state as a crypto nation, like a digital nation on a Bitcoin, a digital nation with Ethereum. Balaji is taking this a full step forward and making this much more concrete. And so that's basically what the podcast was about. How can we literally make a nation out of this world?

Starting point is 00:07:26 David, we've been promising that we've published some memes. And we also published some pretty slick memes that can be purchased. But I don't know, we're going to talk about this in the second half. But like, Ethereum hit its number. Right? We got staking up. Ethereum's going to launch. on December 1st.

Starting point is 00:07:47 The community rallied together. The community did its job. We played a minor role in helping on the meme propagation layer. It feels really good right now. I know we'll get into that in the second half of this, but super excited about that. It's a good day to be an Ethereum. Absolutely.

Starting point is 00:08:03 All right. Well, last thing to mention is, of course, this is Thanksgiving week, Black Friday deals. Ledger is putting out probably the best deal I've seen this year where it's like 40% off Ledgers. We will include a link in the show nets so you can get on that. I think it's good until this Friday. I think that's what we have as far as announcements.

Starting point is 00:08:24 Why don't we get to the opening question that I ask you every week? What is the state of the nation right now, David Hoffman? The state of the nation is triumphant. Not only did we get to the number of ether needed to deposit it into the smart contract to get the phase zero beacon chain up and rolling, but we absolutely crush that number. Like the acceleration curve of ether deposits just like went through the roof at the last possible moment. But then it just like shot way beyond it.

Starting point is 00:08:55 I think we're at something like 625,000 eth in the deposit contract, which is just like, even if it didn't get to that point, like it was still going to be okay. But the fact that like there's just this massive vote of confidence from the Ethereum community saying like, yes, let's get this ball rolling. We are ready to get this kick started. Let's bootstrap this network. We are all here together. There's no debate.

Starting point is 00:09:17 There's only consensus. And we really, as a community, we really seem to be moving as a complete, a holistic unit. And so that is something to be absolutely triumphant about. And also at the same time, the prices are reflecting this triumphal, triumphantness, whatever. This triumph. Triumph. Yeah. And so everything just feels really proud and things are being reflected as such.

Starting point is 00:09:44 All right. So Ethereum's are feeling really good. But before Nick Carter thinks that this is a bait and switch, we're just going to talk about it, the whole time. I think that Bitcoin community is feeling super triumphant too, wouldn't you say? I mean, like, all time high already exceeded in market cap. Bitcoin is quite clearly reaching institutional mind share. The Wall Street Journal had Bitcoin price once again on the front page,

Starting point is 00:10:08 this like illustrative boomer newspaper. It's coming back. And this time, Bitcoin does. not seem like a tool for scammers and, you know, in people trying to escape government controls, this time it's mainstream. The Bitcoin community, to me, has never, has never, like, seemed more triumphant than it is now. What's your take on that? Yeah, I would agree that. That would make sense. But I think if we also wanted to peel back the layer specifically into the Bitcoin versus Ethereum dynamics, which some Bitcoin maximalists spend a lot of time thinking about, Bitcoin dominance is

Starting point is 00:10:43 falling. And so Bitcoin as the dominant crypto store value asset is actually not currently something to be triumphant about. It is something to be triumphant about the total market cap and how the legacy world values Bitcoin, which are all the right reasons to be proud about Bitcoin. But if you are a Bitcoin maximalist who thinks that all other tokens are going to zero, you are not a happy camper right now. All right. Well, you just got a little bearish on Bitcoin for that moment. But now we will introduce Nick Carter. It's a pleasure to have him on. Nick is the general partner at Castle Island's Ventures. He is a co-founder of Coin Metrics, which is a fantastic crypto analytics firm that I use almost on a daily basis. He also hosts the podcast on the brink.

Starting point is 00:11:25 Nick, it is fantastic to have you today. Can you come in talk to us a little bit about why this time it's different with Bitcoin and the numbers showing all-time highs? This time is different. That might be a dangerous thing to say. but thank you for having me on. Fifth time, is this the fifth time? I think it's the fourth. I think it's the fourth. Are you sure?

Starting point is 00:11:51 Two podcasts and then this is the second state of the nation. Yeah, five would be too many. But I'm addicted to creating content. What can I say? It's all I can do these days. Well, you are moving right up. You know, I know you got your start on bank lists here, Nick Carter, but you are moving up to, was it last week?

Starting point is 00:12:13 Bloomberg? Bloomberg. Okay. And you know, who knows what might be in the future? CNBC, you know? TVD. Lots of outlets. The news networks need like a slightly younger generation of Bitcoiners to go and say

Starting point is 00:12:30 sensible things about Bitcoin. You know, they can't just have Novo on every time. That's a good to. No disrespect to Novo, but this new. That's kind of one of the things that's different about this bull market is like we have a new cohort of pundits and I'm bullish on the new cohort of pundits that are bringing brought on to speak about Bitcoin, especially if it's you, Nick. Thank you, gentlemen. Thank you. I do think it's important to like, let's get a slightly

Starting point is 00:12:57 more diverse array of opinions around Bitcoin and crypto out there. I don't know if mine are actually that unique necessarily, but it was it was great. Well, you do a great job, you do a great job, Nick, like, distilling all of those ideas, I think, and, like, coalescing and collecting them and explaining them. But, like, before you go into an interview with somebody like Bloomberg, do you have the voice of maximalists in your head at all from the community who are like, Nick, you can't say this? This is off limits. Or are you just totally open book and you just kind of speak your mind? Because it seemed like after the Bloomberg conversation, there was a little bit of a kerfuffle, I guess, on Twitter.

Starting point is 00:13:40 about something that you said. Can you talk about that? The buzzing of the cyber hornets is buzzing in my brain. I mean, obviously I know if I'm going to say something that offends the Orthodox bit corners. I mean, I think I said it when Joe asked me about the having. I was like, this is going to piss people off. And it totally did.

Starting point is 00:14:04 Well, he was, what did he say? He like goaded me into saying the having was priced in, which, He is right about, by the way. So, you know, the having itself was obviously not a direct catalyst for Bitcoin. Say it again. You know, it's just so, it's so naive. And like, it's such an intellectually impoverished opinion to have that, like, Bitcoin's supply schedule defines the trajectory of the Bitcoin price. Because it's so, so reductive.

Starting point is 00:14:37 It reduces this amazing, rich, multifaceted phenomenon to a single variable, which is effectively fixed. Right. So it's weak. It's just very weak. And people wrongly, you know, took that as me saying, you know, I'm not positive on the Bitcoin price. Like, buddy, I'm as long Bitcoin as anybody, okay, you know, in multiple different ways.

Starting point is 00:15:02 You're wearing the shirt, right? That's a shirt. I have a Bitcoin hat. So like, you know, like, I'm long Bitcoin in. intellectually, like the actual asset itself, et cetera. So I'm very positive on it, just not because of some like inane supply related metric, but for in my opinion, what are better reasons? And here's the thing.

Starting point is 00:15:23 Like, I think being pro Bitcoin because of stock to flow or like having, that's a very brittle thesis. Like if that's invalidated, then your whole worldview is shattered, right? So you actually want to be long Bitcoin for reasons that make sense so that you can be a good hoddler, you know? like so you don't just give up in a year or two if it doesn't hit like your arbitrary price thresholds. I know I'm not going to give up. And I think that's why or perhaps one of the motivations behind the article that we wanted to get you on to discuss the nine metrics that are at all time highs for Bitcoin, which to me are nine reasons to be bullish Bitcoin that are just not related to like the happening, right? They're outside demand rather than intrinsic scarcity.

Starting point is 00:16:05 Yeah, yeah. They're mostly demand side metrics or they might have something to do with financial infrastructure or even macro. But yeah, this was the reason I wrote this article is to somewhat demystify, you know, our current rally, you know, and like cast a little bit of light on market structure. You know, some of these things people don't pay that much attention to you. So I wanted to say, look, there's like good, real credible reasons why the bull, you know, has returned. By the way, before we get into the article, Nick, I just want to like finish off that discussion about Bloomberg. So like, you got some flak by a contingent of the Bitcoin community for breaking orthodox on something that I didn't even know was orthodox in Bitcoin culture. But like, what does that feel like?

Starting point is 00:16:56 It shouldn't be. Does it piss you off? Or is there still an element where you're like, well, you know, Bitcoin culture does. does need people with very strong opinions in order to sort of forcify its social defense structure. Are you just like, this pisses me off and then like I'm angry about it? I mean, I didn't catch your discussion with Meltem, so I don't know exactly what he said, but I think I understand the metaphor of like there being this like hardcore, you know, codder of like really, you know, like strong-willed holders that are the guardians of, you know,

Starting point is 00:17:32 know the views and the social contract and then you know percolates out from there but um with stock to flow in particular i just think it's a like a faulty opinion to hold so it's just like in my opinion not a valid model uh so it would be a big shame if that was somehow interwoven into you know the orthodox bitcoin doctrine because you know bitcoinism in my opinion should be more about like you know, the political objectives of the system and not about some, you know, contrived, some, you know, contrived mathematical models stipulating that it. So it would be a big, big shame if that was somehow interleaved into the most orthodox kind of set of core views. All right. Well, so let's talk about some of the views that probably almost all Bitcoiners

Starting point is 00:18:24 could share. And certainly we've seen this massive price run up. Like you started the article by saying it's entirely plausible, we could regain 20K level again, which, I mean, it's, it's quite a stunning assent from, what was the low on Bitcoin? We're like, 3,000. Do we get below 3,000 at all? Or it was 3,200 or so? Just above 3K on bit max, I think, yeah. Wow. And that was a year and a half ago, something like that. I mean, yeah, I was, oh, the low in 2019. Yeah. Yeah, really not long ago. But I mean, as Recently as March, we were wicking down to the 3,500 range. All right.

Starting point is 00:19:05 So it's crazy to think about. So this like kind of marks the beginning of the bull market, I think, for Bitcoin. So can you talk about some of these charts and like, let's go through the data here and tell us what's different or what's unique about this bull run or how we should view this bull run? I don't know where you want to start. But let's start with the first one. Addresses of $10 addresses that hold $10 worth of Bitcoin or more. Yeah, it's one of my favorite charts, any of these metrics of dispersion. And the point is, there's just more bit-coiners today than there were in 2017.

Starting point is 00:19:40 And there's a number of ways to get, you know, to apprehend this data. You could use a survey-based approach, which the Cambridge study is pretty good, I think. And they look at holders on exchanges. And this is just kind of more of a directional approach. It's not really telling you with any precision. how many bitcoins there are. That would be the wrong way to interpret this. But it just tells us directionally, look, Bitcoin's getting more distributed to smaller addresses. And of course, there's a number of different ways to get at this data. I could cut this data, you know, 20 different ways.

Starting point is 00:20:14 But to me, this is just the purest single expression of this dispersion. There's just more people that have heard about and own crypto today, as opposed to three years ago. So we have a more stable base. So this number basically has to go up and to the right for Bitcoin to be successful, right? Like we have to see. Yeah, 100%. And so like, and this is the fact that we are seeing it continue to do that and especially do that really, really strongly in the 2020s is just overall bullish. Yeah. And I would encourage you to look at this data for Ethereum too. I'm sure you have. Ethereum is showing that same dispersion, which guess what? That's not the case for every, of every blockchain.

Starting point is 00:20:58 Both of the major forks of Bitcoin showed concentration. And to me, concentration spells doom. Because it basically means, like, a lot of people sold their coins on exchanges and whales bought up the coins. So you see the address, the UTXO set actually shrink. And to me, that is a sign of morbidity. You always want to, because we're talking about brand new monetary systems, you want to be distributing that to the entire world's population.

Starting point is 00:21:25 So if it starts shrinking, you've failed. You're in the first inning. You've already failed. So this is particularly important, a particularly important metric for those crypto networks that are trying to become money or global money in any real sense. Undeniably, undeniably. And I've seen more attention on the dispersion metrics recently, but in my view, they're absolutely critical. I think everybody should be looking at them. Totally agree. All right. Let's move on to the second topic of open interest in the CME Bitcoin future. Why is this a important metric to pay attention to, Nick? This is actually probably the most important metric in the entire article. Wow. Yeah.

Starting point is 00:22:04 So the rally these days is characterized by participants that really, in some cases, can only participate in this market specifically. The CME is a market where if you're a large hedge fund or an asset manager or, you know, institution, as they say, you have likely already sort of done that counterparty risk analysis. There's no additional work that you need to do to get comfortable with this market, trading on this market. That's obviously not the case for any of these newer crypto exchanges where you have to do your diligence, you know, and you have to, you know, ascertain their trustworthiness.

Starting point is 00:22:44 The CME is, you know, deeply intertwined into sort of established financial plumbing. So the cash settled futures product is really critical. And the more open interest we see, that's indicative of a very certain type of market participant that in some cases is only able to trade on this specific market. So I gave the example of rent tech. That's probably the most successful and lucrative hedge fund in history. This was the one market that they specifically said they would be able to take their position. on a lot of these guys, a lot of these hedge fund guys, when they come out and say they're taking Bitcoin exposure, they're talking about the CME product. And a lot of Bitcoiners will listen,

Starting point is 00:23:29 we'll hear that and say, well, that's, you know, that's fake Bitcoin and it doesn't affect the spot price. But my response to that would be that the market makers that are trading on those exchanges are hedging their trades with spot Bitcoin. So I do believe that it does affect. the spot price of Bitcoin. There's like all these conspiracies, a lot of gold bugs like to say, you know, paper gold is totally decoupled or even suppresses the price of spot gold. A lot of Bitcoin are subscribed to that view as well. But I do think this is tremendously positive, more liquidity, more open interest on this product.

Starting point is 00:24:12 A few people complained to me that open interest is a bad metric, but whichever one you use to look at it, whether it's contracts or open interest. The number looks good. It's more liquid than it's ever been. So what's interesting is we've had a few other developments this year with like Bitmex being sort of shuttered, where it seems like regulators are really trying to clean up this space has been almost a theme. We also had, as you mentioned, Renaissance Technologies and CME, we also had the Black Rock CIO, managed eight trillion or so in assets, said something crazy positive about Bitcoin that you would have never heard in 2017. Do you remember 2017 and Jamie Diamond was big news?

Starting point is 00:24:55 Rap Poison Square. Was that when that came out? Yes. Like around that time, it was like folks like Charlie Munger and Warren Buffett and Jamie Diamond. But now this time around it seems like the tables have turned. And maybe it's partially because these institutions, well, now they could become Bitcoin bankholders too, right?

Starting point is 00:25:13 They could buy in. They didn't have a way to buy in before, but now with the CME, they do. This product, you guys remember, this product launched on December 16th, 2017, literally the precise top of the last market. And some people attribute it to the collapse of that market, which is kind of plausible. Like, you finally, a certain set of institutions had the ability to instrumentalize a short against Bitcoin, which they couldn't do before. totally plausible, or December 17, I guess they launched. So, yeah, this is really important. As you say, like, if you listen to some of the reasoning behind that Bitmex indictment, they also talk about this notion of unfairness, the fact that there's offshore derivatives exchanges which can

Starting point is 00:26:02 operate with less constraints or no constraints, and they can sort of outmaneuver these onshore exchanges, which are regulated. And the regulators, and the enforcement arms that sort of, you know, work on behalf of the U.S. state, they want to uphold the validity of the U.S. regulated, you know, capital market. And so one of the reasons they enforce is to maintain fairness and say, you know, you can't just go offshore and compete with our American regulated exchanges. And so I think that's actually part of the reason. It's that they want to inculcate this vibrant, you know, local ecology of marketplaces. And that's part of the reason why they go after the offshore exchanges for better, for worse,

Starting point is 00:26:54 is to protect and maintain the competitiveness of the CMEs and the CBOs of the world and the backs of the world and so on. So because there's more volume happening on CME, which is a U.S. friendly institution, what does that mean for the prospects of a Bitcoin ATF? Very, very positive. Extremely positive. That's probably the number one thing that the SEC called out is they are interested in more and more Bitcoin volume taking place at markets that are kind of U.S. regulated with surveillance sharing agreements where the market structure is apprehensible to regulators. And it's not very cypherpong of me to say, obviously, but that's the specific thing that the SEC called out. Right. That's what they asked for. Wouldn't it be interesting if the CME launched marked the top of the 2017 bull run and a

Starting point is 00:27:50 Bitcoin ETF marks the top of this 2020 to 2021 bull run? Or just continues it. Yeah. I mean, the first gold ETF, I think GLD that launched in 2004 that had a billion dollars of inflows in the first three training days. I think we're going to smash that record. with Bitcoin. I agree to smash that record. Yeah. Ryan, you got to keep your bullish head on, right? Okay.

Starting point is 00:28:19 Don't get off. Can you tell that I'm a little bullish and like fired up right now? New paradigm. There are no pullbacks, right? David. No pullbacks. Straight up. All right.

Starting point is 00:28:32 Realize capitalization. That's another metric that you've, I think, popularized. Nick, can you talk about it? Yeah. So realize cap, it basically just measures the value. of each individual coin at the time it last traded or settled on chain. So it's kind of a liquidity adjusted market cap. You can also see it as the aggregate cost basis of all holders. That's way, way above the 2017 highs. To me, this is a more pure market relevant measure of

Starting point is 00:29:02 capitalization than market cap is. What it shows to me is that, look, you know, Bitcoin costs, people are storing more wealth in Bitcoin than ever. Their cost basis is higher than ever. People are buying Bitcoin at higher thresholds than ever. In late 2017, we wicked up to these crazy levels and that was it. We weren't there for very long. There wasn't a lot of economic activity that happened at those levels. This tells us that we've been, you know, having Bitcoin commerce at these high levels for much longer and for much more sustained period. So we're way, way above the all-time high I've also heard this described as it's almost kind of a measure of the average Bitcoiner, basically their cost basis. So it's almost a measure of like the happiness of the average

Starting point is 00:29:48 Bitcoiner, right? So like this goes up and the average Bitcoin is really happy because they just made a, it just means they made a bunch of gains, right? So and then what's the average Bitcoin are going to do? Tell her friends about Bitcoin and how awesome it is and how much money they made. And then that creates this feedback loop, right? Is that another. way to look at it. Yeah, there's the flip side of that, though. I mean, if price outpaces the realized price or if market cap outpaces realized cap too much, you know, and you can obviously look at the ratio, it's a great, reliable kind of top picker, then people, it's an indication that people are going to take profit, most likely. Right. If the ratio gets too significant. And so I love it

Starting point is 00:30:32 for trading purposes. Wow. To me, it's one of the purest things that I've found in terms of of ascertaining where you are in the market cycle. And so where does this indicate that we are in the market cycle from your reading of it? Midway through Raleigh, but by no means at the extremes of 2017. I think the ratio hit something like five or six in 2017. I think we're in maybe the two range right now. Wow. Okay.

Starting point is 00:30:58 For growth. Awesome. Yeah. Keeping the bullish hat on. Let's keep that going. Moving on to the next one. What is this? Bitcoin options open.

Starting point is 00:31:08 Well, I'm personally going to need a definition for this one because this is outside of my area of expertise. I mean, this is like among the least consequential charts in the article, but so we don't have to dwell on it necessarily be an option. So open interest is the nominal value of all the outstanding contracts. And as you can see, it's mostly deribate that we're talking about here. But really the point is here, options give you more creative ways to express your opinion. of their price direction and volatility characteristics of an asset. And that just basically didn't exist before. It wasn't really an options market.

Starting point is 00:31:50 Does larger and larger open interest imply that more and more Bitcoins need to be held by the parties that are participating in this? That's a really interesting question. I'm not an expert on options, so I don't necessarily have a good answer for you. You mean like sort of as like a protocol sync? Yeah, exactly. Really the reason I included it was just that it shows that a miners, for instance, have more concrete ways to potentially hedge their exposure should they want to. And I happen to know miners that are using options to hedge their exposure.

Starting point is 00:32:32 All of this was not available at all during 2017. Basically didn't exist. basically didn't exist in size. And it just means that as a trader, you can engage with Bitcoin in a more creative way now. This is a super cool one, Nick, Bitcoin price and the Turkish lira. Why the Turkish lira? I love Turks.

Starting point is 00:32:53 I got many Turkish friends. But, you know, they're having a currency crisis. And guess what? The Bitcoin market in Turkey is booming. It's booming. There's a number of exchanges. BTC Turk is the biggest one. And of course, Bitcoin is well at an all-time high.

Starting point is 00:33:10 Really, the point here is it doesn't really matter which sovereign currency you look at it at, you know, in which terms. Like, could be the Turkish era, could be the, you know, Brazil and Real. Could be the Nigeria-Nayera, the Argent. Any of these kind of weaker currencies, Bitcoin is already well past its all-time high. And we have this dollar bias because we denominate our lives in dollars. But that's actually not the case for most people worldwide. They have forced to use these more inflationary currencies. So let's just sit back and remember that these hard monies, they look extra good when you denominate them in extremely soft monies.

Starting point is 00:33:51 Like the dollar is one of the strongest sovereign currencies. But there's so many other currencies worldwide that are super inflationary. And where are most people in like a turkey getting their Bitcoin? Is it something like local Bitcoin or are there exchanges? No, they have full sophisticated orderbrook exchanges in Turkey. So they're well provisioned from an exchange perspective. It's also a country where there's like a cultural offendi for gold. And I think one rubric or heuristic you could use would be it's kind of easier for the individuals living those places who are used to storing Valley outside of the state or the bank system to make their piece with.

Starting point is 00:34:32 a new thing like Bitcoin. Speaking of Turks that we all know and love, Meltham is in the chat saying that BTC Turk was the second ever Bitcoin exchange. So hi, Meltham, and thanks for the info. Shout out BTC Turk. Let's go. So to me, to me the Turkish, like you just said,

Starting point is 00:34:50 is just like this representative of other currencies, which there seems to be just the metaphor that I've gotten from Bitcoiners is like Bitcoin is the apex predator of currencies. And so Bitcoin is just, working its way up the line of weaker and weaker currencies, and it's gobbling up each one, right? Like the last one in line is just eats that one and then eats the next one, and it's just working its way up to the final boss, which is like the dollar, right? The dollar is the one

Starting point is 00:35:16 leading the charge. So it is, there's like this fiat herd of Wilderbeast and Bitcoin is picking off the weakest ones as they go. Yes. That's the correct. Totally correct. And here's the twist on that. Bitcoin helps the dollar predate on the other currencies. by the way. You know, like not just Bitcoin, but crypto infrastructure. We've all seen this. Crypto infrastructure is proliferating dollars around the globe. We're seeing these, you know, digital crypto dollarization, whatever you want to call it,

Starting point is 00:35:47 aggressively predating on these weaker sovereign currencies. My guess is that it's because of crypto infrastructure, not even necessarily the existence of Bitcoin. I know that's heresy as well. It's because of, you know, like public settlement. infrastructure allowing dollars to proliferate globally that kills off a lot of these weaker currencies. All right, Nick, do you have time for a quick side quest, quick detour? Because this is, I think, this is on point.

Starting point is 00:36:13 There we go. All right. Quick, quick side quest, right? So Circle partnered with the Bolivarian Republic of Venezuela. This is Jeremy and crew who basically Circle has USDC. and they are providing, this is almost like political action, wouldn't you say? Because they are arming the dissident government in Venezuela with USDC stable coin in order to circumvent capital controls. That's what's going on here?

Starting point is 00:36:49 Well, yeah. So what happened was the Maduro regime had some funds that were seized by, I believe, the treasurer. sees them. And then, you know, in the eyes of the U.S. establishment here, Juan Guaido is the legitimate president of Venezuela, and Maduro is actually a pretender to the throne, even though he has de facto power. And so that's the U.S.'s attitude to this whole thing. And so they didn't see anything wrong with, you know, appropriating the Venezuelan account that they could sort of get access to in the U.S. banking system because in their view, Guaido was sort of the legitimate president and Maduro was the pretender. So it's sort of in the eye of the beholder, whether you

Starting point is 00:37:37 consider this to be theft or sort of a rightful return of capital to where it should be. But so what's happening is that, you know, the U.S. said, okay, Guaido, you can, here's your budget. You know, these are these are funds that kind of belong to your government. And his move was to try and distribute them to medical workers in Venezuela directly using Airtium, which is kind of a fintech app, which is dollar

Starting point is 00:38:03 denominated. I had Ruben Galindo on my podcast. A quick little plug if you want to learn about this in detail. And so that's what's happening here. So it certainly is you could maybe discuss it as slightly imperialistic

Starting point is 00:38:19 or interventionist, but honestly, Venezuela is undergoing this dollarization anyway. In fact, the Maduro regime is in favor of the dollarization of Venezuela, because it's kind of a palliative measure. It's making the local population less angry with the regime, the fact that they can dollarize, so they decriminalize dollar ownership this year. So, you know, there's as much of a pull as there is a push happening.

Starting point is 00:38:48 And it's interesting. It's using crypto rails. So this is USC. This is not, you know, U.S. foreign policy intervention through the use of the SWIFT system, for example. This is like the first time it's being done through a stable coin. Well, there's a last mile delivery problem, right? Because, you know, people, there's no real market to spend USDC in Venezuela right now. So they still face the challenge of getting USC liquidity into Bolivars, which still exist,

Starting point is 00:39:18 or into actual physical dollars. really Venezuela dollarized with physical dollars, you know, like remember those things. Yeah, we used to use them before the pandemic. So there's, there's probably about two billion dollars worth of physical dollars circulating Venezuela. That's how they initially dollarized. Then it got more complicated. They used Zell, a lot of Zell. But the problem is that Zell is kind of powered by banks like Wells Fargo. And there's no sanctions on Venezuela, the whole country, but there are sanctions on members of the kind of regime, the elites. And if you're unlucky enough to have sort of, you know,

Starting point is 00:39:58 maybe your uncle went to the coffee shop that's run by the nephew of the minister of transport or something. And then, you know, he sends you a birthday gift. You might have become tainted by association in the transactional graph. Kind of like chain analysis taint that idea. So because of that, Venezuelans are constantly getting deplatformed from Zell. from all these fintech apps. So you see there's an obvious case to be made for the usage of stable coins or fintechs that are built on stable coins.

Starting point is 00:40:28 Really fascinating sandbox environment. But yeah, you do need to kind of close that loop a little bit and get local merchants to accept USDC if you want this to like fully work. It's super fascinating. Also interesting because I feel like there's something about that that was bullish crypto rails, right? but also like bullish non-sovereign currencies that are credibly neutral, like a Bitcoin, or we would argue an ether, maybe some element of die.

Starting point is 00:40:57 Because from like Venezuela's perspective from the anti-U.S. regime, right, their funds were essentially confiscated. And it's the same old problem of SWIFT where they're being kind of locked out of the existing system, right? So US's ability to exert some sort of control over something like a USC, where they can, they have a centralized apparatus where they can exert that kind of control, also makes space for the presence of a non-sovereign, uncontrollable, neutral currency, like a Bitcoin or an ether. I recently wrote an op-ed in Coin dust saying, you know, the U.S. should embrace crypto dollars because the alternative is the emergence of much less accountable for,

Starting point is 00:41:49 of crypto dollars like die, for instance. Yeah. And so they should embrace the somewhat, you know, fairly neutral kind of stable coin infrastructure and surrender their control over the system that they exert with Swift. Because the alternative is much worse for them. It means that they have no control over the financial system

Starting point is 00:42:11 if we go fully hashtag bankless. Yeah, that would make sense if you were the U.S. government. Hashtag bankless tweeted out. Bitcoin held by Grayscale. We had Michael Sonn and Shine on a couple weeks ago, and then we played the episode like two weeks later, and we had to change the titles because at first we started out like,

Starting point is 00:42:31 there's $6 billion in Grayscale, and by the time we actually shipped that episode, there's like over $10 billion in Grayscale. So this is blowing up, right? Yeah, and this chart's a little maybe cheating to use this one because it only goes up by definition. It cannot go down. Right.

Starting point is 00:42:49 Right. You know, so Meltem pointed this out on her podcast, I think, what runs my gears. GBDC is a black hole of Bitcoins or, you know, the equivalent for Ethereum as well. You can't get them out. You can only put them in. So it's the most unbelievable phenomenon really ever, I think, is it's just sucking all this liquidity in. And the only way it gets out is if, you know, they wind it up and there's an ETU. maybe and then they go into global settlement or something.

Starting point is 00:43:22 But really, that is, the prospect isn't even described in the documents as far as I understand it. So, yeah, the gray scale is absorbing so many bitcoins right now. It's preposterous. And some people say, well, that's because hedge funds are creating all the units of the trust to do this arbitrage play. But the reason that the arbitrage play is profitable is because there are investors on these brokerages bidding up the financialized Bitcoin product. So that's the reason that ARB works, because there's still that sustained bid pressure on the exchanges. Nick, I remember hearing, I think in one of your weekly recaps recently, where you noticed how Bitcoin tends to pump

Starting point is 00:44:03 during business hours and how that was associated with Grayscale. Can you talk about that connection? Because we just watched Bitcoin pump from like 18,500 to- Sorry, guys, I just lost you. I just lost the audio. Oh, you can't hear us? Sounds like he can't hear us. He can't hear us. That's weird. We can talk amongst ourselves, David.

Starting point is 00:44:23 Yeah. Okay, I'm back. I'm back. Sorry, my headphones just flip to my phone. So I had been listening to one of your weekly recap, weekly roundups with Matt Walsh on the On the Brink podcast. And you talked about how Bitcoin tends to pump during business hours, which is actually exactly what we've seen this morning, where Bitcoin jumped from 18,000 and a half to like 19,000. and then 200, and you associated that with gray scale. Why are you associating this with gray scale? I might be wrong to do that, honestly. Maybe they are running their operations on the weekend or

Starting point is 00:44:59 outside of business hours, but my guess is that either Grayscale or any of these institutions that are intermediating Bitcoin, custody, brokerage for, you know, those institutional clientele, the NIDIGs of the worlds, the Fidelity Digital Assets of the Worlds, I don't have precise knowledge of their operations, but my guess is that those U.S.-based, more institutional in nature organizations, are more likely to be active during U.S. trading hours. And the seasonality bears this out. I mean, I looked at on skew yesterday.

Starting point is 00:45:35 You have strong return profile during weekdays, and the absence of those returns on weekends, and the strongest returns in the last few months have been U.S. trading hours. So in my view, that's consistent with the existence of the bid during banking hours when those markets can really clear. So, Nick, one thing that keeps on, I think, surfacing as we're going through these metrics is this departure from the 27th, the difference between the 2017 bull market and the 2020 bull market that we've seen so far that you've described as in maybe the first. half, right? Maybe the midway point, maybe not even the midway point. And that theme is institutions, like we're talking about the CME. We're talking about this robust options activity. We're talking about Bitcoin holdings and grayscale trust. I mean, these are all institutions.

Starting point is 00:46:32 It feels like none of that infrastructure was available in 2017. Now it is. We're seeing it all go up and to the right, essentially. is the bull run that we've seen thus far a result of the institutions coming are here and has retail not yet arrived yet or is retail taking cut of this first? Who's leading this bull market is it different? Yeah, I would just say the capacity is very, very much enhanced and that just broadens the addressable set of entities that can get exposure to the asset class. Now, you know, we talk about institutions, you know, pension funds,

Starting point is 00:47:12 endowments, you know, like it's kind of a squishy term a little bit. We know anecdotally that, you know, sovereign wealth funds, we know that they have exposure to the crypto industry or a handful of them do in certain ways. Some of them through the venture vehicle, through, you know, some of those larger venture funds, some of them through startup exposure. You know, they're getting exposure in a variety of ways. I would say honestly, probably the biggest change that would just be the social acceptability of having a long position in Bitcoin among high net worth individuals and family offices. You know, people on Wall Street, they obviously didn't want to be involved in a like a retail

Starting point is 00:47:55 kind of clown show in 2017, which was ICO driven and hype driven. Nobody wants to buy the top from retail investors, right? Absolutely nobody wants to do that. But this time around, you know, those people have had time to think about it and devise investment thesis, there's macroeconomic tailwinds, which are incredibly real this time around. They weren't really present in 2017. So it's just become much more acceptable to have a Bitcoin position as, you know, this, you know, as a Wall Streeter or a billionaire, you know, or a dissident in Russia and you're trying to

Starting point is 00:48:31 offshore your wealth. I mean, all these people now, the, just the general atmosphere around exposure to Bitcoin and crypto has changed. And obviously, the plumbing is better. So you can actually get that exposure if you want it now. You don't have to mess around with a ledger or anything. So, you know, I think it's, you know, there's maybe a little bit more to it than just like the institutions are finally here. You know, it just sort of depends.

Starting point is 00:48:59 But basically, the industry can finally actually absorb capital from a variety of participants in a way that it just fundamentally could not do in 2017. Wow. Yeah, that's a huge change. All right. Stablecoin free float. There's a few more. We've got Staplecoin free float. We've got what else. Oh, Silver Gates Settlement Network layer, which is interesting. And then what else do we have? The growth of crypto-native credits. Yeah, which are the most, what's the most interesting thing to talk about of those three, Nick? Which would you like to dive into? Up to you. They're all very different. I had to kind of a contrary. take on the credit. I know a lot of Bitcoiners don't like banking. I was trying to say the credit, if you look at where these lenders are lending to and we invests in lenders, right? So we're a pretty direct understanding of this market. The consumers of this credit are arbitrage firms, market making firms, trading firms. A lot of these firms make markets. They're the reason that

Starting point is 00:50:04 these pairs are tight. You know, the spreads are thin. or, you know, that markets are liquid. So the incredibly liquid and integrated, you know, and like sort of no arbitrage markets that exist in crypto exists partly because there's so much credit outstanding because the cost of capital has decreased in the industry. So, and that's a great feature, right? You want the markets to be incredibly liquid.

Starting point is 00:50:33 So we have the lenders to think for that. That was the point I was making here. But this is huge, right? So this is like we didn't have any of this. Again, this is another thing we didn't have any of in 2017. There was no such thing as Block 5 for retail. Genesis from a lending perspective was just getting started. And to be clear, guys, what Nick is talking about is crypto, Bitcoin, in this case, collateralized loans, basically, where you can deposit your Bitcoin and then you can take a loan against the value of that Bitcoin. And that market has just totally exploded. and I think Genesis is certainly one of the leaders of that. So where do you see that, I guess, developing moving forward in this bull run, Nick? I think we're going to see the largest deposit-taking institutions, Coinbase is the world, all those exchanges,

Starting point is 00:51:28 realize that their destiny is to become a bank. So right now they're banks in the sense of, I will custody your gold coins for you and then give you back those same coins, right? But in the near future, they're going to become banks in the sense that they will give you the option to have an interest bearing account, and they will put your assets to work for you and create credit, the same way that commercial banks do. And I can see you shaking your head because this isn't very bankless. This is bank full, which is the wrong direction. Well, I think you've got an interesting slant on that where you talk about how Bitcoin specifically enable. a much more auditable trail here.

Starting point is 00:52:12 But like, let's talk about banks for a minute in the next evolution, right? So first they're starting with these collateralized loans. But at some point, banking, they love to make fractional types of reserve products, right? That's how they increase margins. Yeah. I mean, the banking I'm referring to is not Lombard loans, but specifically standard commercial banking with, you know, credit creation where. So you think that's coming? That's coming then.

Starting point is 00:52:40 Undoubtedly, undoubtedly. There's nothing which really stands in its way. And of course, you know, exchanges will probably give their depositors the option to have a full reserve account. So you'll sort of have the option, full reserve, not interest bearing, fractional reserve interest bearing. But there will be an explosion of credit, you know, simply because if you actually look at the yields in the crypto industry, the interest rates are kind of structural. structurally high. And so there's clearly an under provisioning of credit. Even though this chart is up and to the right, there's not enough credit being created in the crypto industry. There's a structural high demand for credit. Someone's going to satisfy that demand. My guess is

Starting point is 00:53:25 that one of the major exchanges starts to turn on interest-bearing accounts kind of in the near future. That would be interesting. I do want to touch on the stable coin supply because that's highly relevant to both Bitcoin and Ethereum. So I think right now there's roughly, there's perhaps even at this point over $25 billion in stable coins out there. And maybe I think we have like three or four billion in Tether at the peak of 2017.

Starting point is 00:53:52 And so not only is there less than that. Less. Yeah. Not only is there just straight up more stable coins. There's also more kinds. And they're spread across the ecosystem. Well, that's actually not totally true. There's like $3 billion on Tron and I think the rest is on Ethereum. So, Nick, when you see just a massive supply of stable coins out there, what does that tell you about the nature of this particular bull run?

Starting point is 00:54:14 So the one thing that pertains to Bitcoin is that Bitcoin was the, it was the kind of quote currency for exchanges, right? And it was the default currency pair for all crypto exchanges, kind of long-to-all-coin exchanges, derivative exchanges. And that changed in the last year. I think you guys have pointed out, too. these exchanges became largely tetherized. Tether became the default collateral. It became the default pair that things were traded against. And so what that will have done is that will have removed some of the structural kind of reservation demand for Bitcoin. So you know, you think about crypto exchanges as being a sync that Bitcoin, you know, falls into if it's the default asset. That

Starting point is 00:55:02 was eliminated largely, and then Tether became the default pair. So despite that, the Bitcoin is now trading back at its all-time highs means it's trading more on the basis of being kind of a pure macro asset as opposed to being, you know, like a reserve currency for the crypto industry. So that's a very positive thing in my view is that, you know, Bitcoin is largely eliminated from that reserve asset use case. Tether kind of replaced it, USDC as well. And so it's impressive that it was able to sort of recover from that loss of a major use case. And then as for just the, you know, I think what this allows us to do is just reason more carefully about what we use these things for. It's clearly stable coins are the default MOE in the crypto industry.

Starting point is 00:55:52 They're what people use to transact with. And then Ether and Bitcoin, people are using more as like the base collateral in these systems. I think that really clarifies what they're for. And, you know, we don't have to smash together all these different features or try and use. I mean, maybe you guys disagree with this, but I don't think that we have to force a square peg into a round hole anymore and trying to believe in retail. Bitcoin is this like payments asset, which is really not suited for. So the stablecoins as a cohort have taken over that activity. The other interesting thing is that stablecoin,

Starting point is 00:56:29 have a mutualistic relationship, I think, with, I know I've, for your newsletter that it might be parasitic, but my view currently is that it's highly mutualistic with stable coins and crypto-native assets because the stablecoins need something to trade against, something that's a liability-free. And if there's ever run on tether, what are they going to sell it for? They're going to sell it for the most liquid cryptocurrencies, because, you know, those can't be confiscated. If there's a worry that your stable coins can be freeze or confiscated, frozen or confiscated, you'll just trade it in for the most liquid crypto pairs. Yeah. I think that take could be right on, right? Because as you

Starting point is 00:57:13 said, there's always the concern or the fear that the birth of stable coins could lead to the demonetization of something, those crypto-native assets like a Bitcoin or an ether. But really what it seems to be happening is it's It's really totally killing the use case of 2017. I mean, part of the 2017 ICO fervor was these futility coins where any coin can be a currency and therefore have a monetary premium associated with it. I think the success of stable coins completely slatters that 2017. That was the lazy fat protocol thesis, if you will, right?

Starting point is 00:57:54 All we have to do is we'll create a protocol and then we'll create this medium of exchange and we've got our own currency and bam, we've got a valuation to compare with ether or Bitcoin, right? Well, like, no, just use USDC in defy, right? You don't need that. So it does, it does, I guess, almost like act as an apex predator in the crypto ecosystem and that it like eats these tokens that aren't a Bitcoin or an ether and can't rise above and create this monetary premium. It just eats all of those other impostors. it makes them more honest. You know, these payment tokens, if you're selling something as a payment token, you're going to be, you know, my challenge to you is, are you going to outperform a stable coin in terms of your qualities and your transactional usage?

Starting point is 00:58:39 This puts a gigantic hole in the ripple story, by the way. Yes. I want to address ripple. No and what. The gaping chasm in the ripple story, ripple is a bridge asset. That never happened. But guess what is a bridge currency, stable coins? 100,000 per cent. All right. Last question for you, Nick. Why is Ripple going up right now then?

Starting point is 00:59:02 Ripple's really popular in, you know, in like Japan and Korea. I don't necessarily have a ton of color. It could also be the people think the next administration is going to be favorable towards Ripple. That's plausible. Ripple invested a ton of money and energy in lobbying for good outcomes in D.C. maybe what's being repriced right now is their prospects of getting avoiding the security monitor moniker and being called a commodity so that is one theory that I have to explain the price section and it changes nothing about the overall fundamentals of the project yeah virtually no usage as a bridge currency yeah obviously just use stable coins instead yep that's exactly right Nick, thank you so much for putting the work into this article and then also coming on to share it with the bankless nation.

Starting point is 00:59:54 I'm particularly bullish, but again, looking at all of this data, it's nice to have the data to back up the bullishness. My pleasure, gentlemen. Thank you for having me back. It's always fun. Thanks a lot. We'll do number five pretty soon here, Nick. Guys, hang with us. We're going to do a quick sponsor break.

Starting point is 01:00:12 And then Dave and I will be right back with you to talk about the ETH side of the Equipation. in the bull market that's happening there. Stay tuned. Hey guys. The next sponsor is ledger and ledger is running a 40% off black Friday week sale. So if you haven't gotten your ledger yet, you are in luck for the week of the 23rd through the 30th. You can get 40% off of all ledgers on the ledger website. So if you are still using a hot wallet or you're just looking to get a backup maybe for a multi-sig or just for some more redundancy, now is the time to go get that ledger. There's a link in the show notes that can get you that 40% off Black Friday deal.

Starting point is 01:00:52 If you want to live a bankless life, you need to get a hardware wallet. There is no alternative for storing your crypto in a self-sovereign fashion. That's why I have four ledgers that I use to manage my different crypto assets, using the Ledger Live account as well. Ledger Live is like your home base for managing your Ethereum, Defi, and crypto accounts. It does a really good job of aggregating all of your different Ethereum wallets if you are the type of person that uses more than one. But you can also add other cryptocurrencies like Bitcoin or Cosmos or whatever your preferred blockchain is. And then it will display an aggregate portfolio of all your accounts at the main page.

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Starting point is 01:02:18 shop where you can get your preferred ledger hardware wallets. I personally like the ledger NanoX, but I also have both. They're both great options. When you own a ledger, you own your own assets in the way that they have been designed to be held by the user and the user alone. So go get your ledger today to make sure that you are as self-sovereign as possible. The bankless state in the nations are brought to you by WIREN. WIREN is defined. first self-building community-run project, which I just get really, really excited about. Wynne is a system that seeks out yield in DFI, and it does that in a number of different ways. A very aggressive way is with the vaults where you can deposit your preferred asset of choice,

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Starting point is 01:03:35 Check them out at y-earn.finance to get started, and also check out the stats page to see what other people are doing as well. All right, Bankless Nation, welcome back. It's not only Bitcoin that is in full beast mode. Full send. It's also ether that has gone full send as well. David and I are here to talk about this. David, let's start with that number. 524,288Eath. What is the significance of that number? That is the number of ether that we needed to have gotten deposited into the deposit contract last night. and we absolutely blew that number out of the water. We were talking a while ago, a couple weeks ago,

Starting point is 01:04:17 I estimated like 85% chance probability that we'd make it. You said 95% chance. The fact that we exceeded that number by like 25% more either than what was needed, it probably makes me think that the probability was even higher than 95%. David, I felt a little nervous. I'm going to be honest, the last probably maybe like three days before or so, because look, when you put, when you've got a reputation like we have, David, which is absolutely stellar. And you put guesses, sparkly, like indisputed, basically.

Starting point is 01:04:52 And you put percentages of 80% probability or like 95% probability, right? And you're wrong. Yeah. It doesn't feel great, right? It's a scar. And it looked like things weren't happening as quickly as we thought. Real slow. Well, even when we had Eric,

Starting point is 01:05:10 Connor on. It was funny because we had Eric Conner on. We're talking about like patriotic duty to stake and this sort of thing. And Eric Connor like leads ether, I think. And even he was like, well, guys, it only makes sense from like from a pragmatic investor perspective if you're making the returns. But the funny thing about it was Eric, Eric's tweet like two days ago was basically like, oh, change of plans. I've gone into staking. Like I'm doing this for real. Forget yield farming. And he stepped up as well in a big way. And I think many in the Ethereum community did. And this is just the Ethereum community delivering.

Starting point is 01:05:48 That's what makes me more bullish than the actual numbers here. It's like the community came together collectively to go accomplish something. And not only did it do it technically, but it did it socially in getting this contract funded. And now we have ETH two, December 1st, 2020. That is going to be the launch date for this new internet bond. and it's super bullish. Yeah. And you know what I think happened is like the deposits ticked up slowly, right?

Starting point is 01:06:16 And if it ticked up at the rate that it started to and if it continued that, it was totally going to miss, we weren't going to get there. But as that happened, the spots to fill became more scarce, right? Because if you're not in the deposit contract by the time the deadline hits, then you got to wait in line, right? So I think all of a sudden people like saw that first it started going slowly and then it ticked up a little bit in speed still wasn't enough but then it just like burst because the fomo kicked in like fomo of being part of east two kicked in and it kicked in really really hard

Starting point is 01:06:49 um so like i said in the in the intro to this uh to the show like just a massive vote of confidence to how strongly the community is rallying behind like the desires for east two like there's a lot of external fud coming like especially coming from like bitcoinsers who are like do the do does the Ethereum community even want Ethereum 2? How did the Ethereum developers even know that like Ethereum 2.0 is interesting to the Ethereum community, which to me is just like a total disconnect from reality. But if there was any debate about what the Ethereum community wants, like look at the numbers. Like we want each two.

Starting point is 01:07:23 We want it. We want it really. We want you to. Absolutely. All right. So here's something else. I think that kind of combats the foot and is basically a headwind going into the bull run for Ethereum.

Starting point is 01:07:36 over the last, I don't know, three years, this whole bear market, the narrative has spread that ETH II will never ship. It cannot ship. ETH is too slow. Every single Ethereum killer, so-called, started with this premise that basically we can develop, Ethereum is a great idea, but we can develop faster than Ethereum. We can do ETH2 better and faster than Ethereum can. Yes. And, you know, hundreds of million dollars of like projects were based on this entire premise. Like, yeah. A billion dollar ICO.

Starting point is 01:08:10 Right. That ETH would never ship, would never be able to conquer this. Definity near. Like Pocod. Like how many do we want to list? All of them. They're still out there. They're still out there.

Starting point is 01:08:19 So, and then what happened? It shipped. It shipped. Whoops. And not only did it ship like, this is not the entire like ETH II vision, the Serenity vision, but the hardest part. Like, talk to you, Justin Drake. Talk to Danny Ryan.

Starting point is 01:08:35 and we've talked to, talk to Vitalik. They will all tell you that this phase zero is the absolute hardest part to get right because this is the, Danny called it the heartbeat or like the brain of the operation. This is the consensus layer right here. And this is the launch of staking. So when you get that right, I'm not saying, you know, the next phase is just fall into place magically. It'll still take some time. But this was the big thing for the ETH community to overcome.

Starting point is 01:09:02 And we've overcome. Now it hasn't launched yet. So December 1st is no. another milestone here, but we've got a date now. And now the smart contracts are in charge. So that's what dictates what's going to happen next. Yeah, the, the, the ETH II will never ship. Like, all of a sudden, if you are still saying that, like, you have so much responsibility to prove that statement. Like, right now, the default position is that ETH II is shipping, right? And the market is starting to price that in, right? Okay, tell me about price, David.

Starting point is 01:09:30 I was priced on the last eight days. We're going to get there. We're going to get there. We can't talk about price yet because there's so many things to talk about as to why the price is doing the thing that is doing right now. One of them is just the removal of execution risk of Ethereum 2.0, right? Like that's a huge thing. So there's no way like people can still be legitimately saying that ETH II will never ship unless you have some sort of crazy knowledge that the rest of us don't have. Yeah, absolutely. It's definitely going to start ship. I mean, it's already out there.

Starting point is 01:10:00 So they can't say that. Like, where do you want to start with this then? I want to start with this. And so in 2017, the bull market had this underpinning of like, dude, we're going to be able to stake ether like in six months, right? In 2018. Yeah. It's coming in 2018.

Starting point is 01:10:16 Is that what you thought? That's what I thought. I was stacking my ether in order to prepare for staking. And so I was to. Now, yeah, right? And then it never came, right? And then like the bull market kind of ended. The ICOs are not a very good mechanism to capture value over the long term.

Starting point is 01:10:32 They're very fleeting. if ICOs stopped making people money, then people are going to leave, and that's exactly what happened. And staking didn't come in order to absorb that capital soon enough, right? Like, staking is coming in like seven days. Like, we missed that mark by roughly three years, like, whoops. But the whole underpinning of the bull market was by the prospect of staking eth and getting a return and ether scarcity as a result of that. And that was happening towards the tail end of 2017 bull run. Like that was at the end of the bull run. Now, staking is. here, really at the, even before the bull run for 2020 is really getting started. Like,

Starting point is 01:11:08 to me, the price action now is just a return to the norm, a return to fair values. Bull markets always happen when we shoot above and beyond that. But to me, like staking is happening before retail rather than after retail, but before people flood in, not afters. And so like the whole like genesis and development of Ethereum 2, all of the energy and capital and attention that got devoted to Ethereum killers back in 2017 and 2018, that's not going to exist. That's just going to exist onto Ethereum. That capital and energy is going to be directed towards Ethereum about the excitement of Ethereum 2.0. And instead of trying to fund your average Ethereum killer, it's much more likely that that capital gets deployed to trying to build some sort of crazy

Starting point is 01:11:49 awesome application on Ethereum. That's just a much more likely outcome in my eyes. And we're already seeing it absorb capital. You know, I tweeted this out. Let me share this with you, David, because this is super cool, I think. So one way to look at how much capital staking has absorbed is to look at sort of, like we've called it, the internet bond and the bond market. And if you look at the domestic bond market of other nations and you like chart all of the nations and how much in terms of bonds they've issued, ether right now at launch will be somewhere between El Salvador and Venezuela in size.

Starting point is 01:12:23 So if you plot it on kind of nations, it is number 145 with a 314 million. bond market. Actually, I just re-ran the numbers because the numbers in the deposit contract have gone up and ether price has gone up. We are now at $390 million in the market cap of deposits. Well, you know what? Then we just passed St. Lucia and we're right behind. Apex creditor of bond markets today, baby. Working our way up the line. We're trailing Uzbekistan. Okay. So now we're at 143. Not too bad. So this is what I mean. Of course, the non-sovereign bond market is absolutely. massive. We've estimated it like 57 trillion with a T inside. And of course, the big apex predator

Starting point is 01:13:06 in the in the bond market is treasuries, the old T bills. That's that's number one. But this is another interesting way of looking at the capital absorption of it. And David, there's another thing that wasn't present in 2017. And that is this. Defy. It was just a glimmer. I mean, like you saw a hint of it. I always argued that the 2017 ICOs were a form of DFI, right? It was permissionless fundraising, primitive. And it was very primitive in that sense of the word to you, because like there wasn't sufficient alignment between investors and stakeholders, right? That was just the start of DFI. Now we have a robust DFI ecosystem. So, what will that do, do you think, as a headwind going to the bull market? Yeah, and in stark contrast

Starting point is 01:14:00 to the 2017 ICO mania, like I said, the capital going into Ethereum, that was the thing that pumped ether to $1,400, that capital was fleeting. People didn't give a flying fuck about what Ethereum was or about bankless values or about self-sovereign money management. They saw ICOs number go up and they wanted to play the game. And when it became obvious that the game was like wrapping up and to a close and that people were making less money than they were making more money than people left, right? It was, there was nothing sticky about Ethereum, right? There's no reason to hold your capital there.

Starting point is 01:14:34 Again, Maker Dow wasn't created until December of 2017. And even in December of 2017, it had like a couple million dollars worth of eth in it. Defi as a term wasn't even coined until the middle of 2018. And then we kind of retroactively said that like, okay, well, defy I kind of started with Maker Dow, which means it started in basically the last, two weeks of 2017, so we can call it, it started in 2018.

Starting point is 01:14:59 Ethereum hasn't had a place to deposit capital and have it be sticky in any bull market ever, right, ever. And so like the whole, and like Uniswap has never seen a bull market. And Uniswap has as an application on Ethereum is one of the applications that locks up the most amount of value. Same thing with Maker Dow. Like right now, there is 2.75 billion in maker Dow. There's 1.7 billion in compound, 1.5 billion Ave, 1.3 billion in uniswap, half a billion in balancer, half a billion in synthetics, 0.8 billion in wiren. Nexus is up there as well. We had none of these things in 2017. Now in 2020, we have so many places for capital to come to Ethereum and then stay there and get sticky inside of an AMM or inside of some sort of collateralized

Starting point is 01:15:44 lending position. When I see a dollar coming into Ethereum, I see like, oh, maybe $2.000. 20 cents leaving in four years. Rather in 2017, I see a dollar coming in, I see a dollar going out. People aren't going to exit once they enter the bankless ecosystem. Right? I mean, even if you, obviously there's going to be a speculative type bubble in many defy tokens. That's totally obvious. But even if you invest in those things and then exit because the market gets over exuberant, out of control, are you going to exit into? fiat in your Wells Fargo account, right? Or are you going to exit to a stable coin on crypto rails now that you know how to use all of this stuff and deposit it into some Defy

Starting point is 01:16:29 protocol and get like a three to four percent return versus your Wells Fargo account that's giving you nothing, zero percent? Like the people in this bull run who come to DeFi, what you're saying, to come to Ethereum are actually going to stay after the dust settles because there's a reason to stay, right? Like you cross the bridge. and there's a whole carnival here. Now you can like set up shot. You can hang out. This is the frontier.

Starting point is 01:16:56 Make a tent, right? So. Water's fine. Totally different than 2017. I think that's bullish too. You know what else is here in 2020 that wasn't here in the 2017 bull run? Bankless. Bankless.

Starting point is 01:17:10 It was bankless. That's not what you're going to say. No, that's exactly 100% what I was going to say. There are two people that people love to watch that shill all of deep. Oh my God. And tell people about how to live a bankless life. And so they're going to come in and they're like, I'm interested about Ethereum. What's this Uniswap thing?

Starting point is 01:17:26 Where do I go to learn about it? They're going to find bankless and they're going to learn about living a bankless life. And they're going to be compelled by that argument. Here's the thing. And then they're going to keep their capital on Ethereum to base on that narrative. As the bankless community, we are creating a narrative here and a shared experience here. And David and I, when you see us on these things or when we're talking just the tip of the iceberg of the bankless community. We have bankless members in Russia converting bankless content into Russian and distributing that on like telegram.

Starting point is 01:17:56 We have bankless members in France spreading the message that way. And they've created a whole kind of like David and I are just doing we are just one small part of this movement in trying to like propagate it. But this movement didn't even exist in 2017 because defy didn't exist in 2017. It was just associated with like ICOs and scam. projects, right? And so we are planting a flag in the ground. If you're watching this, I hope, like you are too, to say, we're not just speculating in this asset class. That's part of it. Of course, there's going to be upside and opportunities. But we're setting up shop here. We're settling here. This is our home. Like, we are claiming this vast, open white space

Starting point is 01:18:39 and creating a new economy here. That's what I intend to do for the next decade, man. So. Absolutely. I actually. think that's one of the getting a narrative across during a bull market is really important. Like that's actually why we started promoting the whole Moloch thing. So like we had we had attention and we wanted to direct that attention towards the concept of like human coordination failure. Well, I love that quote that you say so much, right, which is basically, uh, don't let me butcher it, but you said the most bullish thing for Bitcoin and Ether is to be understood.

Starting point is 01:19:11 That's exactly right. Right? And like that's the same is true of defy in this, this bankless movement. and the the the theses that we have put out on the bankless program the protocol sync thesis the ether the triple point asset thesis um like the the concept and ideas that we put out so far have been proven right and so long as they continue to be proven right like i think that the bankless narrative will continue to be proven out and more people will be more people are compelled by theses that are proven right oh my god dude thank god that contract made it and we made it so so we weren't wrong our 95% prediction that would have destroyed our entire reputation around these things. We'd gone down to zero.

Starting point is 01:19:49 We wouldn't have gone. End of bankless. All right. Stable coins we already talked about. That's, you know, it's interesting. Like,

Starting point is 01:19:57 Nick Carter wrote an article for bankless where he argued the case. This is back in December of last year, that stable coins might actually be parasitic to ether. And now it seems like, and he was laying out the case. So he didn't, to be fair to Nick, he didn't totally subscribe to it at that time.

Starting point is 01:20:14 But we just talked to him. and he laid out the opposite case that stable coins are in fact bullish for ether, which is super interesting. Now we have almost $20 billion. $20 billion plus $20 billion worth of stable coins on Ethereum. One transaction away from purchasing ether. All stable coins on Ethereum are one transaction away from purchasing ether. 20 billion.

Starting point is 01:20:37 Pretty crazy. None of that existed in 2017. And as the global demand for dollars increases, which it definitely is, it's going to, that need is going to be serviced by Ethereum. And so it's just growing the tentacles. Yeah, absolutely. All right. So there's also some additional alpha to be found in Ethereum.

Starting point is 01:20:58 This is one of the points you raised to me when we were talking about this episode. What do you mean by that, David? Yeah, so I had a friend text me, a college friend, non-crypto. And so I'm starting to get texts, right, which is kind of how we know, like retail starting to arrive. And he expressed that his being bummed about how he missed the boat on Bitcoin, right? he missed the party. And I told him, like, well, no, you shouldn't think that because you haven't because the party's ahead of us. However, it doesn't matter that regardless, retail people and people

Starting point is 01:21:26 coming into this space after about hearing Bitcoin ever, you know, for 12 years now, up to 12 years now, like they heard Bitcoin back in 2013. They heard about it in 2015, 2017, and they still haven't bought it. So that cognitive dissonance about buying Bitcoin now, even though they've already known about this asset for like seven, eight, nine years and Bitcoin is at this crazy high, price tag of almost $20,000, there's going to be some cognitive dissonance there. And this is always true about bull markets. It's like people try and it's like, well, damn it, I missed the boat on Bitcoin. I'm going to buy this illiquid token that's going to pump 100x so I can like get up to where I would have been if I had bought Bitcoin back at $1,000. And those financial opportunities

Starting point is 01:22:05 are defy tokens on Ethereum. Yes, I totally agree that is bullish the asset class. Now, but I do have a worry about that too, David, which is XRP price has been pumping. And so your friend, unless he takes time to understand why Bitcoin and EF are as valuable as they are and understand a little bit about capital assets and the defy ecosystem, the ways we sort of define, like define things, that education path, then they could be like, oh, XRP is less than a dollar. It seems like the next Bitcoin. And by the way, this crypto YouTuber who has like 10,000, you know, 100,000 followers, says that XRP is going to be the next big thing. It's going to $1,000.

Starting point is 01:22:51 That's my worry for retail. Like, guys, if you're listening to this, don't let your friends who text you fall down these paths because those roads lead to a lot of pain and destruction. Yeah. And there's also, you know, I think Ripple and other companies that, benefit from these type of trades, like, are definitely culpable. And, like, they're, they're definitely leading, they're definitely, they're not doing it on purpose, but like, they could be doing a better educational effort in making sure that the people that are

Starting point is 01:23:22 purchasing their token are doing a more informed decision-making process, which they're doing it on purpose. Oh, yeah, but totally. However, some are not. So ripple, like we, you express this concern that ripple and light coin also just pumped. I actually don't think that's retail. I think that it is traders positioning themselves because that's what they think retail will buy. And I don't actually think we know what retail will buy this time around. I think that's an unknown quantity rather than a known quantity. I actually agree with you there. I don't think we've seen retail enter.

Starting point is 01:23:53 I think both of this has been institutions and people that were already bullish crypto doubling down on it. The people that have had come in that are new are people that were around. around in 2017 and then fully exited. And then those are the low hanging fruit coming back. So that's maybe the people that are coming back. That's who I'm getting the text messages from. Yeah. Right.

Starting point is 01:24:16 So like you kind of worry when you start to, I mean, it used to be when you start to hear from a taxi driver about an asset, right? And like the bubble Sierra, that's what they used to say. Well, for crypto, sometimes it's getting text from a friend. So far, I've only gotten text from people who joined crypto in 2017. And then became like dormant and were sleepy. and now they're waking up.

Starting point is 01:24:37 Right. I haven't gotten texts from, which I received a lot of these in 2017, the guy that is friends with the guy I know who heard that I know something about crypto and has this question about an ICA. Yeah, yeah, buying TRID, right? When I get those texts,

Starting point is 01:24:54 that's when I start to be like, okay. Right. Again, that's just a heuristic. But you know, another thing I hear sometimes, this is more from the, more like the, the Bitcoin only crowd, but it's this. I'm not interested in ETH until it's a globally adopted reserve asset.

Starting point is 01:25:13 Everything's solved about scalability and DFI runs the financial infrastructure for the world. This goes to your point about, you know, the text you received about some people, they just are in this crypto paralysis of, oh my God, should I buy or not? It's like so volatile. What if I, like, may try to time their buys rather than just taking action and jumping in, right? And like they'll hear something about some risk to ETH2, for example, maybe not being able to pull it off or maybe there's lots of concerns about ETH2.

Starting point is 01:25:47 And they wait and they wait until all of not only the risk has been boiled out of the asset class, but all of the upside has been boiled out of the asset class too. So like my retort to that is like if you're waiting for Ether and DFI to become the financial system for the world and for like central banks to buy into it and issue all of their like you're waiting you're essentially waiting until eth is 50k in price right like all the opportunity has been boiled out of it so people also don't understand this kind of risk reward

Starting point is 01:26:20 dynamic of you just got to take action sometimes if you believe in it i'm sure you have friends like that yeah yeah totally and i mean i was like this back in in 2017 where like i came in in the middle of middle to late 2017. So late to the show, right? Like I was the retail club being dumped on. It was the right of passage. And I'm past that point now. And so I would always, I would see people that I met who's like who bought OMG,

Starting point is 01:26:46 which was like the 2017 token at like a 20 cents. And then it pumped all the way to $20. And so what I would do is I would like backtrack me like, well, if I had deployed my capital at these prices, I would have gotten this rich, right? But you only ever get the full upside of the exposure if you, purchase it immediately, right? You have to be owning it all the way through. And that's why, like, I was totally okay suffering through a goddamn three-year-long bear market where I sought my ether holdings fall down to $82 because I know that if I sell, I'm going to have to buy in

Starting point is 01:27:20 later in order to access the upside. So why would I even sell now? You have to hold the asset for the entire lifespan of its cycle in order to access the full upside of its potential, right? Like, that's, that's why you baghold during bear markets because you don't know when it starts to go up, but you do want the full exposure of when it goes up. And so when it finally does go up, you finally feel validated. That's kind of what I feel a little bit like right now when I watch the price of ether, like bust through 500 and scream to 600. I feel a little bit like that.

Starting point is 01:27:49 Like, imagine if I had tried to time that. Like, no, I'm just going to make sure I gain all of the exposure to it by just being a bagholder. Yeah, absolutely. And it's still, we think, probably early. in the cycle, but I mean, to be honest, it would have been way better for you to buy ETH when it dropped below 100. Right. Right.

Starting point is 01:28:08 Just like in March, right? So that conviction is super important and it sort of separates the tourists from the, from the believers. And I think there have been a lot of people during the crypto winter. And this has been a particularly grueling winter for ether, right? A lot of people left, but a strong community stuck around. and, you know, it's just, it's fun to celebrate that. I think that, you know, there's some rewards there on that side of things. David, maybe we should end this with kind of like super bull case for Ether.

Starting point is 01:28:44 I've got a few ideas on that. But where do you think, like where do you think the market is taking us next? We said before that this is 2016, right? So it's a setup for next year, which is 2017. I still think that's largely directionally correct. What's your take? What's the next step of this bull market here? So if I want to put on my maximally bullish hat,

Starting point is 01:29:09 which I usually put on every single morning, I would claim that this cycle is going to be a longer cycle than last time. And that's what we've seen with Bitcoin. These cycles get longer and drawn out. And so saying like, oh, we're in 2016 and next year's 2017, well, we need to fit an extra year or maybe even two years in that. that time frame somewhere because these cycles are getting longer and there are just when you recapture the institutional side of the world institutions are by definition's bureaucracies

Starting point is 01:29:40 which have our big ships which have lots of money that pivot that ship really slowly and so I could imagine a very long slow drawn-out bull market where capital just constantly just trickles into the space over and over and over two years right and so like I maybe maybe even longer right and so that's That's why I'm particularly bullish on the concept of Ethereum 2.0 being in development in parallel to the Ethereum 1 defy chain. Because like that sentiment is that two year, two to three year long phase of getting Ethereum 2.0 out the door, I think it's going to run in parallel with a two to three year long bull market. So I think 2017 as a year could be two years long for us. And it's just a two year long. And this is something that I put out on the market Monday yesterday.

Starting point is 01:30:27 and it's something I've been chewing a lot on my head in my head recently is like the bull markets of this industry and why we were able to just like put it clear like bookends as to when bull markets happen and when they stop happening at least in hindsight the bull markets happen when the world around crypto turns its attention back to crypto and reprises the whole entire industry all in one go right yeah and so like it's it's a huge lagging effect like the last three years of crypto the attention of the world has not been on crypto. And so that's when prices bleed out and decline. Now the world is turning the attention back to crypto saying,

Starting point is 01:31:05 oh, there's a lot more here than the last time I was paying attention to crypto. I'm going to price things accordingly. And that's when ether price goes from 200 to 600 in like two and a half months, right? Like it happens really fast. And right now is when the purview, the eyes of the world, are turning towards crypto and repricing this entire industry. and I think it's going to be a two-year-long repricing event. I actually agree with you on that.

Starting point is 01:31:31 I do think we've used the analogy of 2017, but it's probably the case that 2017 is sort of an analogy that stretches maybe multiple years, right? I guess I'll leave with these thoughts. This was kind of my take on what things could look like in that two-year time horizon and looking at it from how much ETH supplies, is actually locked, right?

Starting point is 01:31:56 So we've been talking a lot about kind of the demand side, and these things are certainly triggers. But I also think what's coming in the next two years, again, not right away, this is the first milestone of ETH II, is a big change in the supply economics of ether as an asset. So let's say you get 25% ETH locked up by true believers who are in this for decades,

Starting point is 01:32:18 and they're here to stack Gwe, stack ETH, right? And then you've got 20% locked in DFI. Well, is that crazy? At right now, it's about 6 to 7% ETH supply locked in DFI, right? And at the beginning of 2017, it was zero. So could that double? That's not crazy.

Starting point is 01:32:39 As the institutions sort of come and as DFI projects do well, they might consider locking a portion of their capital into balance sheets. These DOWs are essentially a new, type of crypto capital formation tool. They're like a corporation. So that could take up, say, 15%.

Starting point is 01:33:01 Gray scale is already at 2 to 3% of all eth. That's locked. Could that rise to 5%? If you get 3% in staking, and we're already at half a percent right now at the very start, well, all of that, you add that up and you've got already 70% of eth supply pretty much locked. And then what's going to happen, David, is in 2020,

Starting point is 01:33:22 when the proof of work chain merges with the proof of stake chain, which is about to be launched, you get annual eth issuance going from 4.5% to something near zero, right? This will be less than 1%. Possibly, it could even graduate to the negative territory where we're actually burning more eth than we are issuing and minting. So what happens when you get demand but no supply? That's a supply-side crisis. and for a scarce asset like ETH, the only direction when that happens is up.

Starting point is 01:33:56 That, I think, is like a two-year bull case or a three-year bull case for what could happen to eat the asset. And if that's the case, we're not going to be staying at 600 for very long. Yeah, this is absolutely the right formula. I would tweak these numbers a little bit. I don't think you actually get to claim that there's never such thing as never sellers because there's literally a price for everything, right? And so like, yeah, I'm a never seller because I could never really reasonably see ether at like one million dollars per token.

Starting point is 01:34:26 But it's like, well, if you offer them one million dollars per ether, they're probably going to sell. Let me ask you this, though, David. So what happens, though, if your eth is going up in value, right? But also your ability to generate wealth on top of that eth goes up in value too. Right? So the ability to rather than sell your eth, why don't you just take like a very small portion of your supply and take. take out a loan on it, a collateralized loan on it. Or why don't you just put some of that youth, David, into defy or into staking?

Starting point is 01:34:57 And then instead of selling, you can earn a nice five to 10% return off that youth and you don't have to sell. This is kind of back to the like the Neo taking the pill, right? Like when this is all fully matured, you won't have to sell your ether, you know, because it becomes part of the fabric of the economy and of the financial system. So I agree with you. There's a price for everything, of course. But there might be, there might be some never sellers out there, at least a portion of your proceeds you might never sell because of this.

Starting point is 01:35:30 Yeah. I haven't considered defy as infrastructure to help support you not to have to sell your ether and be able to access liquidity from that in different mechanisms. That's an interesting take. That's an interesting take. That's pretty cool. Yeah. Okay.

Starting point is 01:35:44 So maybe we can generate like a cohort of like never sellers who like they still get the value out of their ether, but they do it from like loans rather than, rather than selling. One thing that you did not, I think you really priced down the supply of ether in staking. I think you said like three to five percent. I think that's going to be something like 10 to 15 percent. I think that's going to be a lot higher than that. Yeah. So these numbers, play with these numbers, as you will.

Starting point is 01:36:11 These are all supply sinks, I think, for. And then burn a fuck ton with EIP-1559. Which is, it's going to be native. to ETH too. And we will see. All right, David, I've gotten all the, like, my bullish feelings out on this podcast. So I'm feeling like it's pretty complete. Anything else you want to say?

Starting point is 01:36:30 Nope. I think we should wrap this up. This is as bullish episodes as they come. All right, guys, risks and disclaimers, of course. We are bullish on these assets, but this is not financial advice, not at all. ETH is risky. So is crypto. So is DFI.

Starting point is 01:36:46 You could lose what you're putting in. We're headed west. So this is the frontier. It's not for everyone. But thanks for joining us on episode 24 of State of the Nation. We are triumphant this week.

Bankless - SotN#24: Everything is bullish, with Nic Carter (Triumphant! 2017 vs 2020 Bull Markets, What's Different this Time?)

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