Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Eric Wall: Arcane Assets – The Future of Digital Investments

Episode Date: January 6, 2021

Eric Wall is the Chief Investment Officer at Arcane Assets, but you may already know him from his writing and his presence on Twitter where he offers valuable insights on crypto markets. He joined us on the show to share with us his deep and timely insights into the current bull run and how this compared to 2017, where it is headed from here, and also he opens up on his normally guarded thoughts on the future of Bitcoin and Ethereum.Topics covered in this episode:Eric's background and how he got into cryptoEric's experience working with Cinnober and NasdaqUsing blockchain as an underlying substrate in the traditional finance ecosystemAn overview of Arcane AssetsEric's thesis behind BitcoinThe current Bitcoin bull runHow Arcane deals with transaction fee problems and solutions that may address these over the coming yearsUsing the value proposition of Ether when Bitcoin is store valueEric opens up on how he thinks Ethereum will become adopted in mainstream financeWhy does the Bitcoin community reject tokens?What is different in the current bull market compared to 2017Eric's predictions on how this bull market will play outEpisode links:Arcane AssetsArcane CryptoNine Bitcoin Charts Already at All-Time HighsCrypto Market Structure 3.0Arcane on TwitterEric on TwitterSponsors:1inch: Discover the best rates and most efficient swapping routes across leading DEXes. Optimize on gas cost and execute DeFi trades faster with 1inch V2 - https://epicenter.rocks/1inchShow notes and listening options: epicenter.tv/373

This is Epicenter, episode 373 with guest Eric Wall. Hi, I'm Sebastian Quigio and you're listening to Epicenter, the podcast where we interview crypto founders, builders, and thought leaders. On this show, we'll dive deep to learn how things work at a technical level and fly high to understand visionary concepts and long-term trends. If you like Epicenter, the best way to support us is to leave a review on Apple Podcasts. If you're on a Mac or iOS device, the easiest way to do that is to go to Epicenter.rocks slash Apple.

And if you're new to the podcast, be sure to subscribe on. on iTunes, Spotify, or wherever you get your podcasts. I hope everyone had lovely holidays, and I wanted to wish all of you a very happy new year 2021. I'm optimistic that things will begin to stare in a more positive direction this year, and I hope that we'll be able to do things like travel again and go to conferences. So in case you haven't noticed, Crypto is going through a pretty significant bull run at the moment.

And today's guest is fitting in this context. Now, keep in mind, this interview was recorded in early December, which seems like an eternity from where we are now. To their guest is Eric Wall. He's the CIO of Arcane Assets. There are a European crypto hedge fund. But you probably know Eric best from his writings and his presence on Twitter where he offers really valuable insights on crypto markets and crypto as an asset class. In this interview, Brian and Frederica discussed the current situation with Eric. And how would she be compared to the 2017 Bull Run? There's some really interesting differences between these two market events. What's different this time? Who will come out as the winners and who will get

wrecked? And where can things go from here? Which I think is the most interesting thing to speculate about. They also discussed ways in which Bitcoin and Ethereum could evolve to, well, particularly accommodate increasing demand from institutional markets. Now, the institutional market demand side of things is something I had very little knowledge about before listening to this interview, but it was really interesting to understand how that's, in many ways, driving this bull run. I'm sure you're aware that bull markets are often accompanied by increased transaction fees. One inch optimizes transaction fees on all your trades and discovers the best prices across

all dexes and AMMs. I'll tell you more about one inch later on, but if you want to check them out now, go to epicenter. dot rocks slash one inch so they know you heard about them on epicenter. And with that, here's our conversation with Eric Wall. So we're here today with Eric Wall. He is the chief investment officer of arcane assets. And he's been involved in the Bitcoin space for a while,

and the crypto space for a while. I've often enjoyed some of his analysis and insights. And he's marched, he's been in this fairly sparsely occupied space of like, you know, very Bitcoin bullish, but also kind of open-minded to other things and not as maximalist as many. So I found his perspective interesting from that point of view. And so glad to have you on. Thank you very much.

Glad to be here. So it's always interesting to hear kind of like how did people get started and like what triggered initially their journey in this strange land of crypto. So what was it like for you? Yeah, for me, I was a computer science student at the Lund University here in Sweden. And we were having computer science courses and studying, for example, the tour network. And it was sort of during my exploration of the underworld of the darknet that I came in touch with Bitcoin for the first time. I have an article bookmarked about Silk Row that's from 2011,

but it took me one year from reading about it for the first time and bookmarking the article. So it was in 2012 that I decided for the first time to try making a small investment. And that was on the Mount Gox Exchange. So obviously two years later, I would lose all of my bitcoins on Mount Gox. So I am still one of the creditors of the Mount Gauks exchange. So yeah, it became like an interest for me. I wanted to understand. I've always been interested in computer science, but I've sort of, if I hadn't

gone into computer science, I think I would have gone into finance. And one thing that struck me as interesting about Bitcoin was that you had a new asset class and it was like a clean slate where this instrument was trading, but there was very little, it was largely uncorrelated to the rest of the market, and it was like turning a new page on something where I felt like I had an opportunity to get in here, and the information that I would be able to accumulate on this asset class, I would have a chance to be one of the first and one of the foremost persons to accumulate knowledge on the subject and then trade it successfully.

However, quite embarrassingly for me, initially and during my first years, I started trading using technical analysis. And it took me until a couple of years into my computer science studies that I learned how to program my trading strategies and backtest them. And after having done that for a while, I realized that there was very little empiric evidence for estimating that what I was doing was successful and seeing that it could be potentially successful. in the future. There was no empirical basis for what I was doing. So there was no scientific science behind using technical analysis. And that's when I started to think, you know, maybe there is a better way to trade Bitcoin. What are the other factors that I can look at and see what types of information moves the market? So I started to read Bitcoin mailing lists. because that was at least a couple of years ago,

technical developments in Bitcoin was something that inspired people to become bullish on the asset. That was something that was driving the price. So sort of being able to forecast and understand where the technological development is going, at least then you were doing something scientific that you could have a relation between cause and effect and you could understand that, okay, if this thing happens, then that's good for Bitcoin. and then maybe I can enter a leverage position here before most people know about this technical development. And then once it hits the press and people start to speculate based on that activity, let's say for example, that somebody invents the lightning network and all of a sudden people start talking about,

oh, Bitcoin is finally going to scale now as a medium of exchange and that causes people to speculate. So keeping track of those types of development, that's sort of how I started to go from being just this person that was trying to understand how do I speculate in this asset class as a regular Forex trader into someone who was studying the protocol on an in-depth level? So at the end of my computer science, it was a master's degree that I was doing, at the end of that of my university period, it was time for me to write the master thesis. So I wrote the master's thesis on Bitcoin, sidechains, blockchain technology in general and oracles.

So when I came out from the university in 2016, I think I was one of the first or only people in Sweden that had an academic computer science based background on blockchains and Bitcoin. So that's sort of how I started my career. And then you joined a company named Sinopa. What they did is they provided financial technology for exchanges and clearinghouses. Can you talk a little bit about what you did there? Yeah, so Sinovro was actually the company that put out the master thesis proposal for the master thesis that I later wrote. And what they were mainly concerned about and what they wanted to understand was if it was possible to leverage the technology that was powering Bitcoin to build a distributed securities depository. So in finance, you have exchanges.

That's where the orders get matched. And then you have the clearing layer. and then at the bottom you have the settlement layer and for securities securities are settled in central securities depositories CSDs and it happens all over the world and that was a component that Sinober

hadn't previously built and they were looking into building such a component that was going to be based on blockchain technology so most people don't know a lot about Sinober and I think that people will know even less about the firm moving forward now that it's been acquired by NASDAQ and it doesn't exist anymore. But before they got acquired by NASDAQ in 2019,

they were the largest independent provider of market technology, so exchange and clearing technology. They were the largest competitor to NASDAQ for about 20 years. So I joined the firm as someone that would help them understand blockchain technology and later on I would take full responsibility for leading the blockchain and cryptocurrency strategy at the firm. And I can tell you one sort of funny thing on my first day that I joined Sinober, the firm, we had a customer there and it was the Canadian the Canadian securities depository. So it's called the Canadian Depositories of Securities,

CDS. And they were becoming a client of Sinober to receive exactly a settlement compulsory. component, the CSD component that I was talking about previously. And it was my first day on the job, and I had just traveled up from Lund to Stockholm. And I had a 40 degrees fever, but I had taken multiple painkiller so that I wouldn't miss my first day on the job. And on that first day, they told me that, okay, so we have the Canadian CSD here. And they've just said that they are not going to purchase a CSD solution from Synobor unless it is blockchain based. And Eric, you are the only one that knows anything about CSDs running on blockchain technology.

So why don't you go in and, yeah, tell them what we have in store for them. And, you know, I am a computer scientist and I had at this point in 2016, I still had a very not in-depth understanding of finance yet that would come later. So during that meeting, and I was still confused about the financial term. So when they asked me if the CSD component would be able to settle equities, I had to figure out equities. Is that security? Yes, equities. That's stocks, right?

So it was very difficult for me to jump in that quickly, but it was like learning the fire test, right? You get thrown in and you have to learn everything on the spot. So those couple of years that I worked for Sinover came to be a period of extreme learning where I had to figure out how the entire plumbing of financial infrastructure for regulated markets work. So yeah, that's sort of how I got started there. Wow, thrown in at the deep end. You already said that Cinebo was then acquired by NASDAQ and you worked for NASDAQ for another couple of months before you left, right? So what was it like to work at NASDAQ? Because from the outside, it seems like this gargantron gray organization and tell us about this.

I'll try to use nice words about this experience, but basically what happened was that the Sinober company, they tried to spread out their businesses in too many fields at the same time, and during that our treasury, like the cash balance of our company, became dangerously low, and the stock price subsequently dropped. And NASDAQ saw that as an opportunity to just outright acquire the firm. So I had at the time been structuring and building out my position in the firm so that I would have full control over the blockchain and cryptocurrency strategy and build out my trust within the firm so that people understood that if I say that this is the best direction for our company in terms of what we should do with cryptocurrency, then I wouldn't have to argue with people. People would just, you know, after I had proven myself within the firm, they would just pretty much accept that. I knew that what I was talking about.

So when NASDAQ acquired the firm, it happened at quite a weird time for me because I had just sold a matching engine. The same matching engine that we delivered to the London Metal Exchange and the Australian Securities Exchange, it's like a world-class, highly performant, I think it's the fastest matching engine in the world. And we had just assigned a contract to deliver that technology to BitStamp. And they now run on that technology. But while the ink was right about to touch the paper with a deal with bit stamp,

that's when NASDAQ made their bid on SNOBER. So then, you know, my whole process of building a cryptocurrency offering from within Sinober sort of got shaken a bit by this whole NASDAQ acquisition. And later on, not long after the acquisition from NASDAQ was complete, they shut down the entire cryptocurrency offering that I had built and just replaced it with their own. So my work, the things that I had been working at, Sinoba pretty much got shut down by the NASDAQ acquisition. And after when the merger was starting to happen, I got thrown into the NASDAQ blockchain team. And still NASDAQ today, they're not a cryptocurrency first company.

They do deliver matching engines to some cryptocurrency exchanges. But I was all about, you know, I was in Cenobe, I was all about, you know, actually meeting the cryptocurrency industry head on. I was, we were one of the 500 first companies to run a lightning node. And we were really trying to engage with this technology, whereas NASDAQ sort of want to have a backseat in that whole, in that whole development. So the team that I got thrown into was still a team that was working on trying to blockchain everything. So they had a blockchain network between some mutual funds and some banks, and they were trying to onboard customers onto this private blockchain. And I got to sit down with the team and look at how they've architectured the blockchain that they were using.

And I could notice several points within this blockchain architecture where things were happening in a completely centralized manner. And so I raised the concern that you have a blockchain, and it has the blockchain name on it. that you're not actually getting any of the benefits of a blockchain when you're matching orders in a centralized manner, and then only later, they were just using a blockchain as a place where you could record events that already happened, but there was no decentralized aspect to that at all. So I think that's probably the main reason why I didn't stay,

why my relationship with NASDAQ wasn't long-lived, was primarily because that, yeah, there was some disagreements between me and the team on how you do blockchain correctly, I would say, yeah. And also another thing, one of the first things that they told me when I joined the firm was that you don't have to worry, you know, on NASDAQ, you'll never have more than six bosses above you. And, you know, I was used to having just one boss and I thought that was sometimes too much, So having six bosses and you have to try to navigate a cryptocurrency strategy with six bosses above you,

where from each step, from each boss, the knowledge about cryptocurrency and blockchain decreases. And at the end, it's basically no knowledge at all. So that's not the, yeah, for me, I think I was better suited to work in a startup. One inch is a decentralized exchange aggregator that sources liquidity for, the top dexes and the AMMs to save you money and time on swaps. One inch finds the best possible trading paths across over 20 supported liquidity protocols and splits them up across multiple market depths. I started using one inch last summer and since then it's become my go-to aggregator.

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Just use one inch. And you can let them know that we sent you by go to epicenter. Dot rocks slash one inch. That's one inch. We'd like to thank one inch for their support of the podcast. Actually, around the similar time, I was working for this enterprise blockchain startup too. and, you know, we were kind of a technology provider to, you know, to some banks and, you know, insurance companies. So I'm kind of, you know, I'm a bit familiar with that space, although I haven't touched it as well since late 2016.

I'm curious, like, how is that all played out, you know, this entire effort that happened, you know, it started with, you know, R3 was at one point, like a big, and there was this digital asset company, right, was doing a lot of, things and, you know, a bunch of others. And, you know, they're basically relying on the premise, right, that you could use blockchains as this underlying substrate in the traditional finance ecosystem, right? So you wouldn't have to deal with cryptocurrency so much, but you could use it in there and, you know, get all of these benefits and improvements. Have you followed this at all? And, like, how do you think that has developed? Um, yeah, so I was, uh, for, in 2007, I think I was as immersed and involved as you can could be in that whole space. We had conversations with R3 and we were running blockchain experiments on hyperledger fabric.

We were way deep into all of that. And the problem that I identified was that if you wanted to build a financial substrate using blockchain technology for a large network of participants, That was very difficult to do because when you had that many people around the same table, making progress was extremely slow-paced and difficult. And at the same time, there were some startups that were acting in a much leaner fashion that basically developed the whole solution with one or two parties, and then after that tried to get buying in from existing networks.

And that also proved very difficult to do because the existing incumbents didn't want to get onboard into a system where they hadn't been participants in producing that solution. So fundamentally, I found that the two paths that you can approach the problem, both of them have bootstrapping problems. So in 2018, around that time, I said that while I think that eventually I believe that the entirety of finance, at least if you focus on the settlement, aspect of it will run on a blockchain-based network. I didn't find it that it was productive to be engaged in this industry at this point in time because, you know, it could happen that

the permission sector finds a solution and starts using that. But it could also happen that they instead connect to the open blockchains and start using those. And that's a much more interesting and generally a place where innovation truly happens and where there's a lot more passion. It's a decision between do you want to try to make the internet happen

through the means of an intranet or do you want to go to the public open, borderless internet and try to bring on the masses from there? So I chose to go the public route. I have more faith in the possibility of that being a successful finance.

So I, in 2018, I basically left and I cut all my, you know, I stopped reading all the information that was coming out from the private blockchain space. Now I've heard from some of my colleagues that are still in that industry that the private blockchain space for finance is still moving forward. And that, you know, they are pretty excited about where things are going. But I haven't seen like any firm examples of any real world deployment where people are using these private blockchains in a way that should be noteworthy for us or something that we should pay attention to. Yeah, now the CIAO at a fund named Arcane Assets.

So that's obviously a hard gear change coming from the permissioned blockchain space. So I know that for regulatory reasons, you can't tell us everything about this fund. But can you tell us a little bit? Yeah, sure. And I mean, I suppose it sounds like a gear change, but from my perspective, it was something that I had been doing from the moment that I got started in the cryptocurrency industry. It was like I was doing it on a personal level where I was managing my own cryptocurrency portfolio. And I was doing that starting with Bitcoin from 2012 and kept doing that in 2014, 2015. In 2015, in 2000. 2017, when sort of the mainstream got attracted to the cryptocurrency industry and they start to talk about, okay, we want exposure to cryptocurrencies. But I've heard that Bitcoin is not scalable or that it's consuming as much electricity as a small country. Shouldn't I have some of these other cryptocurrency assets? And then I found myself in the position of advising them and trying to correct the misconceptions that they had.

And if they wanted some old coin exposure, you know, I can facilitate that. but I want to make sure that we subtract 99.99% of everything that's just pure bullshit out there. And even I think sometimes in many cases it would even be better decision to have short positions on some of those altcoins. Because that can be a profitable strategy if you want to maximize your Bitcoin holding. So I had all these requests and I started actually in 2017 as a sort of side project while I was still working at Synobor to launch a fund. together with two other financial professionals in Sweden. So when the NASDAQ acquisition happened, and I quit NASDAQ, then I sat down and I wrote a list of all the different opportunities

that I could join and participate in in the cryptocurrency market. And running, managing a fund was on that list. And then I just eliminated all the different options on that list until I was only left with one or two. And then I chose to go down this route because it is genuinely, like if I could imagine, you know, one dream job, one thing that I can imagine myself, you know, waking up and, you know, completely being in love with what I do, then managing a cryptocurrency fund is the thing that gets me closest to the things that I'm passionate about. And for those who know me and follow me on Twitter, you know, that one of the main things that I am passionate about is debunking altcoins, reading white papers, finding flaws. So by running a fund, I can put that interest of mine to full-time use so that I can just detect what are the things that we should avoid in the cryptocurrency fund should be avoiding. And there was a Norwegian company that had recently launched. It's called Arcane.

It's about to become a publicly listed company. It will be the second company in the Nordics that is publicly listed cryptocurrency. the currency company. And they were very happy to embrace my ambitions at the firm and facilitate so that basically all I have to do is decide on portfolio construction and all the other aspects when it comes to building out the partnerships with custodians, exchanges and complying with regulation, all that would be taken care of by Arcane and I will only manage the fund. So that's sort of the ideal relationship between me and the arcane company. And we started the fund in April and I have been managing it since. So far I'm very, very happy with that job and what it's

been like, especially in this type of environment, which we have been in, which has been extremely exciting and interesting. But yes, sadly, I cannot talk about what the strategy of the fund is and other metrics about the fund because we do have to abide by MIFT two regulations and they are extremely, extremely harsh when it comes to talking and marketing cryptocurrency funds to retail investors. So yeah, I cannot say that much more about that unfortunately. Okay. Well, then let's let's dive a bit into sort of talking about your own investment thesis and

how you think about, you know, different assets and, you know, their value proposition And let's start with Bitcoin, which is the thing that, you know, you focused on the most. What's the case for Bitcoin? What's your thesis behind Bitcoin? At this point in time, during all these eight years that I have been looking on at Bitcoin, I don't think that there has ever been a moment where I've been as bullish on Bitcoin as I am today. And the reason for that is quite simple, really. And I think this has been repeated in multiple outlets.

as of late, but it's just that Bitcoin is becoming accepted as an asset class in the mainstream view. So you have some of the largest hedge funds in the world and largest asset managers in the world that are now looking at Bitcoin, not as this weird, funky technology that is used by people who want to purchase drugs on the Dartmouth. Like genuinely, when I speak with these hedge funds today, like what the conversation is about is how much liquidity is it in this asset class? If we want to allocate $200 million, will there be enough liquidity for us to enter? And more importantly, will there be enough liquidity for us to exit the asset class? So it's being treated now completely as, you know, how they would look at any other asset.

It's just an investment opportunity for them now, not this strange thing. And I think that the only think that Bitcoin needs to succeed is that people start to think about Bitcoin in a serious manner because when you start to treat Bitcoin as a real asset class as an investable good, and then you start looking at the fundamental properties of Bitcoin and you look at the, how scarce is this asset, what is the supply? For example, if you start comparing it to gold, you will immediately recognize a number of different advantages that Bitcoin has. And not only in terms of how easy versus hard it is to transfer the asset or how you can program the asset, but also in terms of what is the market cap of Bitcoin relative to gold.

And it's orders of magnitude's difference, right? So in terms of the return profile, like how many multipliers of returns that you can expect, if Bitcoin continues on this trajectory, then it's looking like the investment opportunity of a decade or a century or a millennia even. So the investment case for Bitcoin, I think it's just that this is, if we look at the most recent announcements from, I think the CIA of BlackRock, which is the largest asset manager in the world, came out and said that, you know, cryptocurrencies are here to stay. Bitcoin could replace gold. and that's just on the back of number of other high profile investors such as Stanley Drucken Miller,

Bill Miller, Paul Tudor Jones, each of these investors coming out and just talking about Bitcoin and that completely, like this, the rhetoric and the phrasing on how they talk about Bitcoin now, it would have been, like if we sent,

if we screenshoted those articles and we sent them back to Reddit in 2016 and we saw what people wrote, that would be like, you know, people would say like, I mean, yeah, in my most optimistic dreams, this is what I thought was going to happen, but seeing it actually happen is like it's so bizarre and it's really like it's, it's, it really blows my mind to understand that we are in a point in time now where this is actually happening. And I think that, you know, now we've had enough macro investors that have endorsed Bitcoin in such a way that, you know,

The acceptance is there, and it's only a matter of time before this acceptance spreads to other investors. So I really do think that Bitcoin is going to become, like this store of value use case that we have talked about in the cryptocurrency industry, this store of value use case for Bitcoin, I think it's going to happen. I don't think that there's any way that we can put the genie back in the bottle. It's generally going to happen. And if the store of value use case for Bitcoin happens, then the medium of exchange aspect that comes later in this evolution, it follows naturally. Like if you are completely comfortable with storing your wealth in Bitcoin,

then you wouldn't feel strange by accepting Bitcoin as a form of payment for something, right? Like if somebody wanted to settle a debt in Bitcoin and you use Bitcoin as a store value asset, then that wouldn't be a strange thing for you to do. So I can sort of see now how all of these things will just unfold one after one and that we are on a trajectory in such a cemented way that it's starting to look like, it's starting to look like instead of it being a long shot, it's starting to look like it's unlikely that this wouldn't happen, you know? So I went on a Stefan Leveras podcast recently to talk exactly about this because there are, of course, you know, some issues as well, especially when we talk about me, Bitcoin as a. medium of exchange, people will immediately start to talk about, you know, okay, so how are those, how is the Bitcoin blockchain going to process all those transactions and what are the transaction fees going to be? And if the transaction fees are going to be very high, is that going to lock out,

you know, the poor people out from the system? So there's a lot of, once we get into the medium of exchange era of Bitcoin, I think, there's going to be a lot of other problems that we'll have to address and that we'll have to solve. But I think that. that where we are now, where the store of value use cases getting cemented, is at least, you know, a very, very big and important step on the way there. I think that was a great explanation and I very much agree with your assessment. I mean, the thing that strikes me here is so I became interested in Bitcoin in like middle 2013, which was just like when this bull market of 2013 was starting.

And the interesting thing is it was the same stories that were like, We sort of told back then because it was kind of obvious to everyone, okay, well, if this is really, you know, the price potential was obvious, right? If everybody starts using this as store of value, then the price would go so high. And then obviously, you know, institutional investors and stuff, they will start holding this. And then if one recognizes even a chance of that happening and the signs like some probability, then it kind of makes sense to like front on this. And then it becomes a self-fulfilling prophecy. that was already there as this expectation back then. And I remember people were like, yeah, this is going to come.

And the Bitcoin ETF was already, you know, this kind of image people were aspiring to. And it's interesting that you had, you know, back then, of course, it didn't happen. And then you had the 2017 bullmarking again, it kind of didn't happen. And now it's happening. So why is it happening now? It really felt like it's the way that you described it's like Bitcoin was in a way like a rigged game from this. It was rigged in such.

a way that we could sort of see all of these steps fall together ahead of time, but it was still like just seeing it actually play out in reality is a wholly different experience from fantasizing about it. But yeah, why it's happening now, I mean, I think that the most obvious answer to that question is, of course, that we are currently right now in a period of the greatest monetary expansion of all time. I mean, if you look at the money supply charts since the corona virus pandemic spread and the government, the fiscal and the monetary responses to that have inflated the money supply, I mean, those are, that's, I mean, that's got to be the trigger. I mean, if you look at what Paul Tudor Jones and Rock and Miller and these other high profile investors

that we were talking about previously, what are the rationale that they are giving and they are almost always referring to the macroeconomic environment. And about the macroeconomic environment, I know that a lot of people are talking about, you know, that we are headed for hyperinflation. And I don't think that inflation, you can measure it in a number of different ways. It's kind of a sticky issue. But I think that the fundamental driver that is catapulting Bitcoin into the spotlight right now is not necessarily the macro.

economic factors themselves, but it's more about the narratives that the macroeconomic factors give consequence to. So when you see central banks expand their balance sheets and you see the broad money supply that is out there that's actually out and circulating in the economy, when you see such heavy expansion happening there and it leads you to start to think about scarce assets in the economy, a more positive light. So it's not necessarily that something needs to have. I don't think that the global financial system needs to collapse in order for people to start thinking about the negative sides and the impact that the central banks have on the economy for people to start looking at Bitcoin.

And I think it's pretty interesting. If we go back to in March, I remember distinctly, I remember two different forecasts. One was given by Mike Novogratz and the other was given by Arthur Hayes, who's the CEO of BitMex. Both of them in March immediately as the stock market plummeted and the money supply was being expanded, that's what both of them predicted at that point in time that we would see Bitcoin at $20,000 by the end of the year. So I don't think that anything necessarily needed to happen other than the Bitcoin. that Bitcoin would be brought back into the limelight. And what's been beneficial for, like, what's been so beneficial, like, I think Bitcoin

has been quite lucky in a way that we had this huge bull run in 2017. And like you said, you know, nothing really happened in 2017, except that a lot of retail investors were speculating on Bitcoin being adopted by the institutions. And then after the CME futures launched in December of 2017, They're retail, you know, you couldn't, you could no longer front run the institutions anymore because the, the CME, the Chicago mercantile futures, they were out there and they were available to institutions. Well, at least the retail, retail investors thought that they were, but in reality there's a more complex process for that, how that really works. But so, so, so the only thing that happened when, when those futures launched was that the retail demand disappeared from the market. Because there was no, you couldn't front run Wall Street anymore and then demand disappeared.

and then prices collapsed and we went into a three-year bear market. But what was really lucky about that was that at least in 2017, Bitcoin got sufficiently large and there were sufficiently large transaction exchange volumes that it got a number of industry participants, like a large industrial actors, such as, for example, fidelity to start to build out a custody solution, for Bitcoin and you had other futures market launching, you had options exchanges launching, and professional custodians launching and ways that you could aggregate execution flow from different trading avenues. So all these different tools that sort of institutional investors

want when they allocate to Bitcoin, because Bitcoin peaked in 2017 and it was put on the map for many of these players, the infrastructure slowly got built out and got hardened over time, So now that the macroeconomic environment, the catalyst for the macroeconomic environment happened in 2020, all that infrastructure that we needed for Bitcoin in order to be able to truly blossom had been built out. So the timing was perfect. I mean, I describe it as like 2017 was like a knock on the door so that everybody had time to get all those things together and get their papers done so that when the real train departure was coming three years later everyone had all their stuff in order so that's where we are right now all the bags have been packed all the passports have been stamped and we are

ready to go so it's a i think it was very lucky that you know we had exactly three years time to prepare everything and that's i think that's you know exactly what we needed so the timing is just you know like a godsend i think so you think the primary value proposition of bid coin right now um is store value. So if you look at how miners are compensated for keeping the network secure, the mining reward is actually going down and down and down. So in the end, basically, the only fees that will go to miners who in effect keep the network secure will be from transaction fees, right? So how does, how is this commensurate with this store value hypothesis? is.

That's always like the one question that sort of puts a nail. I think that it's probably the best argument or one of the most difficult arguments to tackle as a Bitcoin. What are we going to do? Like are the incentives to secure the network going to be strong enough when we rely on these volatile transaction fees? And as we've seen, you know, transaction fees can sometimes be very high when there's a lot of load on the network. And then they can be like drastically, they can be like 1% or even less of that when, you know, it's not like a linear function. Like you increase the load by 50%, then transaction fees don't necessarily increase 50%. They can increase 5,000%.

So it's this sort of unstable dynamic and building a security for the system based on that very unstable incentive. Yeah, I mean, that's that is a problem, right? So the way that I see it, it's going to take a number of years, decades even, before the block reward becomes so small that it's going to be a problem. And I think it's very difficult to start to sort of, it's very difficult to have a conversation right now about how are we going to tackle the problems that we're going to face several decades from now. I think that, you know, we are still in a phase where this problem is getting better understood and more studied. And the technological solutions that you could possibly design to address that problem, they are also still not. I mean, I don't think that we have a clear answer on what the best answer is yet. But I think that, you know, somebody explained it that Bitcoin is a bet on human ingenuity.

So it is, in one way, a bit. bet that we have the brain power within the cryptocurrency community to eventually address even problems like this. And I think that, you know, 10 years from, I mean, who knows what type of solutions that we could come up with to address this problem? I think that, for instance, if you look at the Ethereum, they've just, they have one method of addressing this problem, which is called the... Ethereum Improvement Proposal 1559, it's a way that harmonizes transaction fees over time.

So I think that we still have so much to learn, an experimentation that can be done in terms of how consensus networks both handle fees and how they secure themselves over time. So I think that it's perhaps premature to say that, oh, we're never going to find a solution to this problem. I think that we will almost definitely find a solution to this problem. And even, and I'll say something that sounds perhaps not very kosher to what other bitcoins find to be kosher. But, I mean, let's say, okay, let's say that Bitcoin, we weren't able to secure Bitcoin on transaction fees alone. And we need, let's say, a 1% inflation rate in Bitcoin.

Let's say that that's what we need. And let's say that all the Bitcoiners, they refuse to, this would be a hard fork in the protocol. It would be a new currency. Let's say that all the Bitcoiners, they refuse to get onboarded onto this fork because it would, extend the Bitcoin supply beyond 21 million and that's the cap that everyone, you know, loves so much. But, you know, somebody can still take the Bitcoin UTXO set and they can secure the Bitcoin UTXO set under any type of mechanism, any type of consensus mechanism that you want. So, for instance, you could secure Bitcoin using very small inflation. That could be one way to do it.

You could secure Bitcoin by using, let's say, a highly distributed. federated chain that just signs transactions on a trusted basis where you just trust them to act in the best manner for the network. You could potentially do something like Ethereum is doing where you're securing Bitcoin under proof of stake and you allow a sufficient portion of transactions fees to be burnt over time so that the inflation rate in the system still nets out to plus minus zero and that's how you would still have the cap limited to $21 million. And we are still so early in trying to figure out the solutions to these problems. I've listed three different options and I'm just some guy. And let's see who can come up with

better solutions 10 years or 20 years from now, right? That is super interesting. And I love your answer here. I agree with you. There are going to be many solutions. And you know, you mentioned a bunch. And I think they're all, you know, they all sound pretty plausible. But the big issue is, you know, if you think back to the block size debate, and of course for people who've been in Bitcoin, probably newer people don't remember this much. But for years, that was the thing that dominated, like, you know, the Bitcoin discussions and there was such, such controversies around it. And it was really about a very simple parameter change to say, basically, oh, do we want to stick with a one megabyte block size?

or go to something higher. And, you know, what we saw was just an inability to come to some agreement about how to change things. And, of course, there is a big benefit to that. Because if it doesn't change things, you know, you can rely on this, right? You don't have to worry about Bitcoin kind of changing in these unexpected ways. And, you know, that's a benefit in some ways over something like Ethereum. But then at the same time, I think if all of the solutions you propose, they are much more radical changes, right, than a block size change.

And I think as Bitcoin actually gets more adopted and more dispersed, and more people hold it in different ways that maybe have also less connection to how does the system actually work, I think it will just become harder to make those changes. But to go back to that block size debate, I mean, we have to also keep in mind that something did happen, right? We did increase the block size. Segwit was a block size increase.

So we had this block size debate, but it actually ended with Bitcoin increasing the block size. So something did happen. So we didn't increase the block size by 8 megabytes or more than that. And we didn't come to agreement on how to increase the block size for the future. But at least we did something, right? And I think that all it's going to take, like, in the block size debate, it was still like people understood, I mean, the block size debate started in, and started to heat up in 2015, in 2016, but the transaction fees were still pretty low then. It was only in 2017 where the transaction fees reached like $20 at its peak. and that was

so that was not the climate that the block size debate had been discussed in by that point in time we had already deployed segregated witness right so I think that if we are in an environment where there's a lot more urgency I mean it's just going to take that

someone when we are reaching a point where the subsidies or the block awards are getting scaringly low people are going to analyze the hell out of this and some university or trusted academic institution is going to come out with very convincing evidence that in three years time we're going to have an unstable dynamic. Some people will say that's FUD and then one

and a half year down the line, we're going to start to see the effects of that happening. And it's just going to take, you know, I still believe that most of the Bitcoin core developers, like if they are prevented with hard evidence that this is not going to work, then And they will say, yeah, that's not going to work. So we have a few different options of what to do now. Either we stay on this chain that has no inflation and we just hope that the transaction fees are going to resolve themselves, like they're going to secure the network and be stable enough in order for that to be viable.

If it gets sufficiently bad, there's going to be sufficient urgency for a large portion of people to want to try other alternatives. And if they don't want to try that, if there are people who stay on a chain, doesn't work, then that chain is going to go to zero and a fork of the system is going to continue living on. And the nice thing about it is that all those people that had UTXOs, like all the people that had Bitcoin on the fork that died and didn't survive, all those people are going to have Bitcoins on the system that does survive. So you don't actually have to make a decision. You just, you can hold your Bitcoin. It doesn't matter which fork of Bitcoin, even,

and I'm not saying that we necessarily, you know, I have to play nice with the Bitcoiners that are listening to this podcast. I'm not saying that Bitcoin needs the hard fork to survive, but let's say it has to survive, then you're still going to have Bitcoin on whichever fork of it survives, even if it has inflation or if it is federated or using an Ethereum type of solution where you burn transaction fees to keep the supply intact. So yeah, I think, you know, urgency is going to be the key here. And whatever happens, those own Bitcoin are going to own Bitcoin under surviving solution. I think that's a completely fair point to make.

So the other big tribe in this ecosystem are the Ethereum's. So you are somewhat of a rare breed in that you are not a big Bitcoin maximalist or an Ethereum maximalist. You live somewhere in between. So what do you use the value proposition of eth when Bitcoin is store value? Yeah, I think the value proposition of ether has gotten pretty clear. this year. For me, it's always been very difficult to talk about. Ethereum, because most of my community friends, they are Bitcoiners, and they see, they're never, they're never going to shake the idea that Ethereum is the scam. It's Vitalik's pre-mine scam, and he was doing

fake quantum computers before, and Ethereum is filled with bugs, and everybody's just going to lose their money. And, you know, so it's, it's, I, I do see, you know, a value in Ethereum as a platform. But it's hard for me to talk about that. So I didn't do it. It took a long time before I was, until I said, fuck it, you know, I'm just going to say what I think in this regard. So while I wasn't, you know, public about it on Twitter, when I spoke to my people that I was speaking to in real life and I was speaking to my bosses. Now, I wrote an email to the CEO of Sinobrand in the end of 2018, where I was describing what defy was going to be like. And this was shortly after I think the defy word was invented.

So in my email, I didn't know whether to call it open finance or decentralized finance because it was so new. But the way that I saw it was that all these. different financial primitives that we see in Ethereum today, for example, you have different ways to do lending, different ways to do leverage, different ways to build decentralized exchanges, different ways to build stable coins. All of those are different components that can interact with each other and they can build exactly like what you would see in, when internet started happening and you could see how people were starting to build on each other's small portions of internet solutions.

So if somebody built a website, you can build another website that reads from that website. If somebody builds a scripting language that you can use on a webpage, you can reuse that on another web page. So you have this permissionless environment for innovation on the internet,

and that's what allowed it to become successful over time. And I think that we are seeing that in Ethereum today, that you have all these people that are experimenting with different ways, to build financial primitives. And I think that's exactly what, if you want to revolutionize finance, not just create the store value asset, if you actually want to revolutionize finance, and then I'm talking about the exchange business and the clearing businesses and the settlement networks, if you want to

impact that in a way that is transformative in the same way that the internet has been transformative for how we produce read and view content, then a network like Ethereum is exactly the type of network that you would want. And if we look at what's happening in the Ethereum environment today, I mean, we are seeing that innovation happening. We are seeing things developing so quickly that it's impossible for human being to keep track of it. And what I think what most Bitcoiners do is that they get lost by looking at the failures that happens in Ethereum.

They look at the defy hacks. But why don't you look at the examples that are successful? Why don't you look at the examples where you have composability between different smart contracts? I mean, many Bitcoins, they like to do funny speculative things on exchanges like Bitmakes. They like to go 10x long leverage or they like to trade with options on Deribit. What's so nice about Ethereum is that it doesn't have to be like you can view Ethereum as one large exchange, but any builder can come in and start to build their own specific individual. component. So for instance, you can build a, there are some people that are only focusing on

building flash loans in Ethereum. That would be like the equivalent of you would have a whole company working inside of Bitmex to build one specific function inside of that platform. And those, that company in the Ethereum version of this, I mean, they don't have to shake the hands with Bitmex to get the chance to build this component. And once the component is built, everybody else can leverage that component and the market will sort of decide which flash loan component is the best flash loan like which one pays the lowest fees so you have a marketplace of ideas where the best ones will survive of course we're going to see hundreds and thousands of them that weren't well-designed fail on the way why we find the good components that will survive

and then we'll have good components that can interact with each other and it's going to be, you know, if you can, and you can get this experience today. Like you can use Ethereum today and you can play around. Like you can play around with the different defy tools. Like you can use leverage. You can swap your assets to a stable coin. You can use that stable coin as collateral for another leverage position. You can play around with all these different things.

And when you're doing that, and you're only using your Metamask plugin in your browser. You don't have to sign up with each new different. You just go to a new website and then you execute a new financial product. I think that once you play around with that and realize how open and free finance could be, then I don't know what kind of person you need to be to make the argument that, no, all financial innovation is going to happen inside of single centralized companies. and that's the best way to do.

If that's the way that you think, then I don't think that you have understood anything about what drives innovation and how much permissionlessness is a factor in creating innovation. Cool. I think that was a great explanation of sort of Ethereum,

and I think both Frederica and I certainly agree with you. What about Ethereum as an asset? I mean, you've talked about how, you see Bitcoin being on the track of becoming this like asset that's accepted in mainstream finance. And so far we've seen various of these investors go in. And I think in general, they've always talked about Bitcoin and adopting Bitcoin. Do you think like how do you think Ethereum is going to kind of get adopted in mainstream finance? And what about, you know, all of the other crypto assets?

that's an interesting question because I I do often play it safe when I talk about Ethereum I talk about it as this permissionless open network technology and sometimes I even say that Ethereum is a side chain to Bitcoin and its main utility is that you can now use trust minimized Bitcoin derivatives to engage in all these funny stuff that we've kept out of Bitcoin and I don't I often don't take on any like reputational risk

by talking about what I think about the Ethereum asset in particular, but I can do that. Now, I think that I'm shedding my skin and I'm at a place now where I feel comfortable to express my own ideas. And I think that personally for me, if I have to choose a cryptocurrency asset, I am sold on that concept that having predictability on the monetary policy is what's going to be most important for one of these assets to be successful in the long term. I think we are still, as a humanity, we are still having like these ownerless digital assets I think that building a structure that makes it predictable

that's the only way that you're going to look at the digital asset and think of it as a real thing and not just something wishy-washy cyberspace you know something they can change and if you want to store value in something you want that predictability so if I have to choose if I have to choose something I still choose Bitcoin as the asset of my preference but as an investor, I can't only bet on what I think. I have to make bets on what I think that other people will think. That's what investing is all about.

It's all about understanding how other people will look at this asset. And from that lens, I do think that it's looking bright for Ethereum. Because while many Bitcoiners disagree that Bitcoin has a negative environmental footprint, because we often talk about how Bitcoin is revolutionizing green energy and how it's seeking out the most energy sources that have been trapped and that it's actually much more lucrative for miners to be using renewable sources of energy. I think that that's a complex argument. And I think that Ethereum, if they can successfully deploy proof of stake,

which many Bitcoiners don't think that they can, and I definitely think that they do can do that. Then I think it's going to be appealing. to a large portion of investors when you say, we don't burn any electricity. We just lock up our liquidity and come to consensus that way. And they're going to say, wow, that's so smart. So you don't burn a whole country worth of electricity

on securing the network, but you are as secure because if somebody creates a conflicting block in Ethereum, the amount of capital that the violating party gets slashed is more in proof of stake than it is in proof of work, then they're going to say, you know, wow, how come Bitcoiners didn't figure this out? So I think this environmentally, and especially where we are going in terms of the environment, like if you just put the environmentally friendly label on any product,

that's going to be appealing to a large portion of investors. And I think what the, like, it's very interesting what the Ethereum is doing now with the EIP 1595, where a portion of the transaction fees will be burned. And that's perhaps going to make Ethereum be. even more like Bitcoiners always obsessed about the stock to flow ratio, right? That the units that get minted in relation to what this total supply is needs to be as small as possible. And the asset with the lowest stock to flow is going to be the asset that everyone will store their value in. Well, I think that Ethereum might get a higher stock to flow, a higher because the stock in relation to the flow, then the stock to flow needs to be high.

I think that Ethereum will have a higher stock to flow than Bitcoin. And so if you say that we have a network that doesn't have any environmental impact and we have a lower, we have a higher stock to flow so the asset is more scarce, I just think that that's going to be appealing to a large portion of investors. And especially, like there are other metrics that you can look at as well, like which network is settling the highest number of billion dollars in transaction volume on the network. And if that's going to be Ethereum because they are settling all the stable coins and they

are doing their exchange settlements on chain instead of off chain, which in the way that Bitcoin is doing it, then people are going to look at like Ethereum. They're doing more transactions in the network. They're transferring larger amounts. They are environmentally friendly. And there are also other things that Ethereum can do extremely well. For example, building privacy solutions within the protocol so that you can. send round an ether or a stable coin where the sender the receiver and the amount has been

anonymized by zero knowledge proofs you can do that in ethereum too so i think that there are a number of different reasons why i can see that investors would look at ethereum and they they would pretty much look at it the same way that you know bitcoins think that mainstream investors look at gold and bitcoin so here's one asset here's another asset this one does a lot of things better and It's cheaper. So obviously I should have a position in that one because if it reaches the valuation of the previous one, which it should, because it's more secure, it's faster to doing more transaction volumes. It's less of an environmental footprint. I mean, that's why I think that's the investment thesis for Ethereum for me.

And that doesn't mean, you know, that I necessarily think that the loose monetary policy or whatever is the, or a flexible base layer that is prone to bugs is the best way to build a monetary system. but you know I have to bet on what I think that other investors will do and I think that other investors for a long time will will see Ethereum in the same way that Ethereum see Ethereum. I'm not saying all of them will so I think that I'm still major primarily I'm optimistic about Bitcoin but the the factors that play in favor of Ethereum are so large that I think it's a good investment and you can't have 100% of your net worth in Bitcoin right? you got to take at least 10 or 20% and put it in something else. And I think that Ethereum is excellent as one of those other things that you can have in your portfolio.

Another way that the Bitcoin and Ethereum communities differ from one another is the Bitcoin community's almost categorical rejection of all things token, right? Where do you think that stems from? and why do you think, from my very Ethereum biased eyes, it feels very stubborn because token economics, you know, they work, you know, at least to some. I mean, I'm not going to say that every token design is a good token design, but I'm going to say that there are many things you can do with a token that you can't do without.

So this almost categorical rejection of tokens seems weird to me. Can you explain that? I think I agree with you. In the beginning of 2020, a lot of people were making forecasts for the year. And I only made one forecast. And my forecast was that we would see governance tokens come back. These dividend earning governance tokens that we see now in a lot of these platforms like Compound, Uni, Avi. That type of governance token, it has a lot of issues.

but I think like genuinely, why is the stock market so large? It's because people want to own equities of successful businesses. And that's exactly like, of course that's going to be happening in the Ethereum landscape as well. Actually, it was a bit of a shock to me because I was one of those hardline bitconers that had also become very negative towards every different type of funny token, like all the different tokens on. Ethereum, what was the purpose of all those things? But I think that these new types of tokens that you have on Ethereum today, they

are very different from the tokens that we saw in 2017. In 2017, the type of tokens that people were launching were basically, like, I have a service that runs on Ethereum, and in order to use the service, you have to pay me in a specific currency. It's like, why can't I just pay

you in ether? Or, you know, why do I need to pay you in this shitty illiquid, volatile token? And I think that And then there were a few other tokens Like some of them were like just upfront Breaking Securities Law So I think that Bitcoiners saw all these failed

token experiments and came to the conclusion that, you know, we have seen hundreds and thousands of different token experiments All of them have been embarrassingly poorly designed and failed in number of embarrassing ways And I think that now it's 2020 And we have governance tokens now that are more equity resembling and actually can actually benefit some decentralized protocols

because they have voting rights and they take away some of the control from the central operator. Like if you need to have an admin key in a smart contract, you can distribute the control to a number of token holders, then they can vote on changes that need to be implemented into the smart contract. I mean, that's generally like a good thing. It's an improvement of the centralized alternative, and it at least creates a modicum of decentralization in many of these financial stuff that you have on Ethereum.

But I think that, you know, being a Bitcoiner is hard. If you have been a Bitconer for many years, you are constantly getting attacked. Like people are always, like the mainstream media is always coming out. Like using misinformation to slander Bitcoin all the time. The old coin industry is also fighting with Bitcoin by talking about how Bitcoin is slow and that there is no reason for a cryptocurrency to be doing only. six transactions per second. And like, Bitcoin is, it's such a hostile environment. You're getting attacked from all different fronts. And I think in order to survive in this climate for a long time,

you build this sort of immune system, like a rhetoric, like it's a shell that you build around yourself where you have the same answers to everything. Like so in order to not get lost in the weeds with all these people that want to distract you from working on Bitcoin, you just have this immune system where you shut everyone down. As soon as, they say something, you say, well, you're a scammer, and that doesn't work. And I think for those people that have limited time, like, not everybody has the privilege that I have, like my job is literally to look at different token constructions and scalability solutions and privacy.

Like, I have time to look into all that stuff. But if you are like a normal person, you want to get into cryptocurrency, you learn Bitcoin, and then the soon as you step out of Bitcoin, you get eaten by wolves, right? And you learn that. Like you, that happens to you. For a lot of people that try to do something out of Bitcoin, they do get wrecked. It happens a lot. So then they build this.

It's like a survival instinct. Like you have to come up with a solution. Like how can I be a bitpointer and how can I survive in this climate? And that's why I think that they are the way that they are. And I think it's just a it's a time constraint. It's they don't have time to meet every argument all the time. But that, of course, yeah, it does lead them to miss generally, genuinely useful things. That's why I always get into arguments with Bitcoins. Like, for instance, when

roll-up technology was new, that's a specific layer two type of scalability solution that works on Ethereum. And frankly, I think it has a lot of usability advantages over Lightning that, like now I think that perhaps roll-ups are a more interesting short-term scalability solution than Lightning can be. I cannot talk about that with Bitcoiners because it comes from Ethereum, so it needs to be a scam, right? So yeah, it's an immune system. It does cause some problems. That's how I, that's how I summarize the situation. Yeah, that makes sense. And I think it's definitely, but you know, when I speak with people who are like not so much in the crypto space and they come in and, you know, they interest in different tokens, then it often just shows like how

hard it is to assess like the quality of a project if you're not really deep in the industry. And of course, it's very true that there's just so many bad projects that have very, very high market caps. And so I think from that perspective, it makes a lot of sense what you're saying. And I think actually it's the saying like, oh, yeah, let's put 80% like, I don't know, 80% in Bitcoin, 20% in ether or something. It's probably a great strategy for like, you know, 98% of people who don't want to actually spend the time and like go deep. Right. Yeah. So we talked a bit about, you know, this bull market and you've spoken about, you know, first of all, this infrastructure that has gotten built out, you know, after the 2017 market that's now here with, you know, custodians and a lot of these other types of service providers. And you've talked about the macro environment.

You know, what else is different in this ball market? I think for a person that really wants to understand how the Bitcoin and cryptocurrency landscape has evolved, I think that there are two articles that I can recommend that's really good reading. And the first one is by Nick Carter, where he talks about nine different Bitcoin charts that are already at their all-time highs. the second one is by Arjun Balaji where he talks about how the market infrastructure has changed and I think those two pieces together they overlap pretty well but they give you sort of a cohesive picture of how things have transformed in the in the industry if you look at for what it's like for an institutional investor to get exposure to cryptocurrencies as an asset class today

So, for instance, I can name some of the takeaways that I personally found was very useful. If you look at the liquidity of cryptocurrencies as an instrument in Bitcoin in particular, if you went to an OTC dealer in 2017, these spreads were between 50 and 200 basis points. And now, three years later, it's decreased from that to between 5 and 20 basis points. So it's basically an order of magnitude tighter spreads. And for institutional investors, tight spreads, that's like, that's their bread and butter. That's what they want. And the reason why that has happened has to do with a number of different things.

For instance, one major thing that has happened in the industry that we didn't have before are lending institutions. So now you can loan both retail investors and institutional investors can loan Bitcoin. which they couldn't before. In 2017, there was basically no lending at all available. And now it's a $3 billion, like it's a massive industry right now. You also have to make a cryptocurrency transaction can be quite tricky sometimes in terms of the security. Like if you want to sign, if you want to execute a Bitcoin transaction on the mainnet, if you're like, you cannot, if you're an institution, you cannot just do it from a laptop.

You can't just sign a transaction on that laptop because then that person would have the, power to send that transaction wherever he wants. And most like multi-signature solutions that you can use have before been too clunky, too untested to use. Nowadays you have solutions where you can use like multi-party computation solutions that aggregate signatures in using very nice trader-suitable workflows so that you can sign on-chain transactions in institutional caliber capacity. So it's like the infrastructure has gotten much more matured,

in that way. And that's also reflected. Like if you look at the volumes that we're seeing in different Bitcoin products, you can look at the options market. In 2017, we barely had an options market for Bitcoin. Now it's a booming market. It's getting very large. The futures market, traditionally, the spot market has been the main one, the driving one in the Bitcoin industry, but now three years later, it's actually the futures market. That's the largest market in, that's trading the largest amount of volumes in the cryptocurrency industry. And that has to do with the fact that there are more professionalized players trading these

markets now. The Chicago market had a change that everyone was expecting in 2017 to bring the institutions into Bitcoin. That didn't really happen. In 2017, barely anything happened when they launched. But now spot volumes in the retail market are still far away from their all-time highs. It's still like if you look at how much volumes the retail people are doing on the spot markets now when we are approaching the all-time high, it's still a bit away from where we were in 2017.

But meanwhile, if you look at the institutional platforms like the C&E, then we are already at all-time high volumes there. So while the retail market has sort of been lagging a little bit, the institutions have sort of come in and the retail market haven't really, I think it's kind of funny, like the way it happened in 2017 where the retail market was trying to front from the institutional investors. And the only thing that they got was this big collapse or Bitcoin crash from $20,000 to $3,000. And then the institutions really did come in successfully, slowly, before anybody noticed it. And now we're back at $20,000. And now it's the retailers that are like, oh, where's my big? Did I have some? Did I sell at the bottom in 2018?

So like they tried to beat Wall Street. And I think that for a lot of retail investors, they kind of failed at doing that. So that's a bit sad, I suppose, to see. Yeah, but we can go now through a number of other different things that have changed. I think one of the one of the things that I want to. make sure that I mention is that Bitcoin used to be the main trading pair to all other types of cryptocurrency assets. So if you had light coin, it would have the majority of its volume in the light coin, Bitcoin trading pair. But now the largest trading pairs on all exchanges in terms of

volume are stable coin denominated. So instead of Bitcoin being the central asset to all these other cryptocurrencies, you now have stable coins like Tether, USDT, that is now the centerpiece to all these cryptocurrency markets. So that's also very interesting to see. I think that was bound to happen. I mean, you cannot have all these other assets priced in yet another volatile asset. You need, I mean, the dollar for what it's worth, I mean, it's still the most stable one in terms of volatility. So that was bound to happen. But it's still like a major shift in how this industry works and and how it operates. I have a long list of other examples.

I don't know. Maybe it will get too boring to go through all of them. Well, one thing I would love to ask you about, and you brought this up, right, which was, you know, the enormous retail interest we saw in 2017, 18. And how do you think that's going to play out? So let me step back.

a little bit. How do you think this bull market overall is going to play out? Because the last time, right, we had this insane fervor, crazy exuberance. It went up like a rocket and then down like a rocket. And then it was kind of dead for a while. And of course, it was very retail driven. So how, you know, how long do you think this bull market is going to be? What is going to end this bull market and when is when are retail investors going to come in and in what way? Yeah, I think those two questions are heavily interlinked. I think that the bull market is going to end the moment when the retail interest sort of climaxes in exactly the same way as it did the last time.

But I think that meanwhile, the institutional interest is building up for Bitcoin and Bitcoin is appreciating in value. right now it's mostly institutions driving this but that's going to drive in the retail investors as well so i think that for the for the short term or midterm we're going to see retail investors and institutional investors driving up the price of bitcoin sort of in parallel with each other in a like a joint force and but i do think that it's impossible with an asset like bitcoin to avoid the phenomenon where speculation and fervor gets the better of the retail investor. So I think it might take longer this time to reach the peak because we might have this.

Nick Carter described it in a nice way, I think he called it. Instead of having a meltup, we have this sort of slow burn. So that could go on for a longer time where Bitcoin just keeps growing and growing. But I personally do think that once, Bitcoin crosses the all-time high, which is going to happen pretty soon. Bitcoin is going to come back into the mainstream press, the retail people who dismissed Bitcoin. And I think even though that there were a lot of people who got attracted and actually bought cryptocurrencies in 2017, they were an even larger portion of people who looked at it and said, that's a bubble and I'm not going to buy any.

But the way that the psychology of the markets and in Bitcoin in particular works is that, yeah, it's easy to dismiss something the first time that you see it. Like you've never heard about it before. It's gone up 2,000% in a year. You don't understand how it works. It's probably a scam. Warren Buffett is saying that it's rat poison. Bill Gates is saying that he would short it if he could. like all these people that you turn to are looking skeptical about it.

So it was it was a easy decision to make that Bitcoin was a scam in 2017 and I think that that's generally how most retail investors are much larger portion of those who actually bought it, I think rejected it. But when it comes back like a second time now and now it's coming back with all these endorsements from like people that you would never have believed would, doors Bitcoin, like Stanley Dracon Miller is viewed as some like the greatest investor of all time, it has that type of endorsement. And BlackRock that is saying that it's going to compete and start to out-compete gold.

I think that with that type of endorsement, when it comes back at you and these retail investors that just wrote it off as nothing, when they see it coming back, they're going to understand that, okay, I was wrong to dismiss this the first time. Because if I was right, then it wouldn't be coming back. like most financial bubbles, they don't pop in your face and then they swell to the same exact same size again. If that happens, that's the best way that you can convince somebody that they made an incorrect assessment of what it actually is. So I think that the retail investors, they are going to come back and they're going to come back in large numbers. and what's inevitably going to happen when that happens is that I mean retail investors they are still so skittish when it comes to holding an asset that they don't they can't see and they can't touch so I do think that we're going to have a big run-up and we're going to have a very tragic collapse at some point and I mean that's just the nature of Bitcoin I Bitcoin always crashes it's going to crash again even though we're going to land much softer on a higher level this time

because there are institutions that can do a fundamental valuation of Bitcoin and really make the assessment that no, Bitcoin shouldn't be worth less than 5% of gold. And if they make that assessment, then Bitcoin shouldn't be trading under $20,000. So they're going to be buyers under $20,000. So we have like a price floor now, which is going to, at the end of this bull run, we're going to have a price floor that is going to be much more robust because there are serious allocators behind the asset class now. But we're still going to have that same type of overspeculation and hysteria could even become bigger this time. So I don't want to give price

points, like where I exactly see this happening and I don't want to give timeframes either. But yeah, that's my general sentiment that it's going to happen again. But if you just hold, you're going to be better off than you were last time. Do you think volatility is the biggest risk facing the crypto industry right now or do you see something else? No, I personally, I don't see volatility as risk at all. It's just the growing pains. Like it's having acne when you're a teenager, right? It's uncomfortable. It looks weird, but it's not necessarily a bad thing. Like everybody goes through that every asset class in the world that wants to go from $0 to $100 trillion needs to be vulnerable. How could the asset not be volatile

during that time if there is no, if it isn't easy for a normal person to do the valuation. The most obvious risk is the same one that are still keeping a lot of people on the sidelines. And I think perhaps Ray Dalio is the best example, who's a person that Bitcoiners believe, like he would be the ideal person to understand Bitcoin because he has the right type of understanding for gold and for financial markets. and he completely understands how the central banking regimes leads to financial bubbles and unsustainability. So why can't he, like, why isn't he on our team and why doesn't he understand Bitcoin? And that has to do with that he can't envision a future where Bitcoin would be allowed into the financial mainstream,

that the governments would come in as soon as Bitcoin becomes sufficiently large to be a real threat. and they would ban it. And they have different ways to do that. They can make it extremely cumbersome to use through taxation. They can also do it the way that's looking more likely that they're going to do it now, which is by imposing KYC on centralized exchanges and making sure that they cannot withdraw Bitcoin to a wallet that hasn't previously been approved and whitelisted by the exchange, that they know the name and the user of that wallet.

So they can try to destroy the privacy of Bitcoin. And that would be a way for them, I suppose, to co-opt the system. Because if you remove privacy from Bitcoin, you also remove its security, because at the end of it, you would have a network that would be much more where the gates would be much more closed. The network would be more permissioned. And if everybody stays in these exchanges and they don't see any point of withdrawing to a wallet where the government can still track you, then they can start to do other things. Like they can introduce fractional reserve banking on these exchanges so that they wouldn't

be fully collateralized by actual Bitcoins in the exchange. And then we're just coming back to this exact same type of financial infrastructure that we have today. So I think personally, I don't think that it's going to happen. I don't think that the, I think personally that the Bitcoin is. too hard to stop. And even though that you can successfully stop it in one country, I don't think that you can stop it in every country. And if you cannot stop it in every country, the only thing that you are doing when you're trying to fight Bitcoin is you're shutting yourself out. You're

shutting your own population out from Bitcoin while other people in other countries are getting to benefit from the value appreciation, while your own population doesn't benefit from that. and it's going to make your own population poorer while the other people will become richer. So I think that when governments realize that, that they're only shutting themselves out by trying to fight this thing, that's when they're going to stop trying to fight it and start trying to win on being Bitcoin optimistic.

But I wouldn't say that I know that this is for sure, that Bitcoin is going to beat the governments for sure. I think that if I had to come up with one big risk that could disrupt this whole industry, I would say that the biggest risk is that the G20 gets together and puts out extremely adverse regulation for all types of cryptocurrency assets. That would be the worst thing. It could definitely happen. And I think that that's just one of the risks with our industry, right?

Yeah, absolutely. Well, let's, let me ask one last question. So let's say all your Bitcoin dreams come through. And, you know, Bitcoin is like wildly successful. And, you know, you're looking kind of, let's say, 15, 20 years in the future. If you think of kind of like your average person, let's say where you live in Sweden, what do you think the biggest change is going to be because of that, like in their, in, you know, in their life and in their own reality?

I think that the absolutely largest change for an average person is their whole mindset when it comes to how they deal with their finances. Because right now, if you have money in your bank account and it's starting to reach a point where you don't want to see this portion of cash get swallowed by inflation. And I mean, I personally do not feel comfortable leaving, let's say, 100,000 or 1 million Swedish croner.

On a bank account, I don't feel comfortable doing that because I know that it deteriorates in value over time. And the inflation that we have, it is still substantially, large that it is a problem that you would be stupid not to invest in other things. So most people today, they know they feel the urgency to invest their capital in the stock market or buy real estate. So those are the two things that people do with their capital, I would say primarily buying index funds or buying a house. But if Bitcoin, if we reach this ideal scenario where

Bitcoin becomes a universal hard money where the supply is fixed, then you're not going to see depreciation of your wealth over time. You are actually going to see appreciation of wealth over time just by holding off in Bitcoin. So then you won't have to allocate your capital. You won't have to lock up all your capital in a house for your entire adulthood. And you don't have to have these scary real estate loans that make you sleep with fear every night that the housing market is going to collapse and you're going to go broke from that. And you're not going to, I think that it will create a much less nervous climate for people in terms of how they manage their wealth.

And I think it's going to deflate some of these unsustainable asset bubbles that we have in the stock market. and it's going to return a lot of assets to their sort of rational pricing. So a house could, for instance, be priced by the utility value of the house. Like, what do you actually want to pay to live in a house and not how much of capital do you want to deploy to your mortgage because that's a good way to deploy capital? So it's going to deflate a lot of asset bubbles, and it's going to decrease stress, I think, for a lot of people.

And I think that if you don't have to have your capital locked up in loans or in the stock market, and it could be like your capital could actually be the same currency that you have in your account, then I think a lot of people are scared about that Bitcoin is going to lead to this environment with nobody spends their cash and the whole economy is going to collapse. I think that the easiest way to get people to spend is to allow them to have cash in their wallets. I mean, now we force people to deploy the capital to large assets, where they are locked away and people don't touch them forever. But if they instead have just Bitcoin, and that's where the value is aggregated, then I think that they're going to have no problem. Yes,

I can pay a bit more for this coffee. Look at how much Bitcoin I have here in this wallet than they, and I think that it's going to create positive effects for commerce. And of course, there's going to be major consequences also on a national level between how countries can settle debts and these currency wars that we are now seeing between so many countries where they are playing around with their monetary policy as a type of a war mechanism almost. I think that's, if we can get away from that, that's also going to be usually beneficial. Perhaps that's going to be an ever bigger, have a bigger impact on the world, but it's a bit more difficult to reason about how exactly that would look like.

Cool. Well, thanks so much. It was a pleasure that I really enjoyed to hear of you have a bit of a Bitcoin and Ethereum and I think there's so many interesting points. So thanks so much. And I'm excited to kind of like follow along your thoughts and this crypto future ahead of us. Thanks so much for having me. It was a pleasure. Thank you for joining us on this week's episode. We release new episodes every week. You can find and subscribe to the show on iTunes, Spotify, YouTube, SoundCloud, or wherever you listen to podcasts. And if you have a Google home or Alexa device,

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