On The Brink with Castle Island - Weekly News Roundup feat. Matt Hougan 5/29/20 (Goldman's Bitcoin note, Coinbase acquires Tagomi, the end of the CSW saga) (EP.84)

Episode Date: May 29, 2020

Matt and Nic review the top stories of the week in the cryptoasset industry, featuring special guest Matt Hougan, global head of research at Bitwise. In today's episode: Tagomi is acquired by Coinbase Matt Hougan's response to Goldman's bearish note What wealth managers are saying about Bitcoin today Light at the end of the tunnel in the CSW saga? BitClave's punishing SEC settlement Calibra rebrands A new paper on Bitcoin Vaults

Hey everyone. This week's episode is brought to you by CASA, one of our portfolio companies. Let's be honest, how confident are you feeling right now about the security of your Bitcoin? Every quarter we hear a new horror story, exchange hacks, exit scams, a friend losing their pin, or someone passing away and having their family come up empty handed. The best way to keep your Bitcoin safe is to hold it for yourself. And CASA is the easiest and the safest place to do that. They have one of the most well-respected teams in the industry, amazing design, and 24-7 support that will help you every step of the way. Premium memberships also include the Bitcoin inheritance planning product, white glove support for large Bitcoin purchases, and services that were previously only available to ultra-high-net-worth

customers. If you're ready for security upgrade, you can get started with a membership for as little as $10 a month, and as a special offer, use the coupon code Castle to get 10% off. head over to keys.casa to get peace of mind that your Bitcoin is safe. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis.

The Bank of England has pumped 75 billion pounds more to Britain's ailing economy The new round of course it's good easy. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called a Bitcoin. Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. Nick, are you getting good at running with your mask on? Not really. It's a really unpleasant experience actually.

And it basically makes running impossible. And like your face gets really moist, you know. It's like it's deeply unpleasant. They're requests for startups. I need something that is like you can actually run in. I've been running in these, these face masks that are, well,

they're just like ski masks. So I've been running with like the thing that you pull up over your neck, the neck warmer thing. And it's hot out. It's like 85 degrees here. Yeah. That's not going to work. I mean,

the problem is that like if a mask is any good, then it should be terrible to run in because it should actually, you know, constrict the airflow. There's a whole like, thing where like some people are wearing masks some people aren't wearing masks some runners are like putting them up only when they run by you like it's tough to know what you should be doing out there yeah the running mask etiquette has not been ironed out at all now now so we need to figure this out if anyone has a good idea let us know i kind of want to mask that's just cosmetic that i can wear while running i feel like that's basically what we're doing right like it's not like we're out there running with 95s. We're kind of, like, I just bought 20 bandanas. It's kind of just for show.

It is, yeah. Well, I guess we're not trying to make this a political podcast, but we're struggling with the masks. Nobody else has this problem because every other city, there's no mandatory mask law, especially not for runners. Yeah, so I guess we just docks ourselves. We're both in Boston. This is a Boston problem right now. All right. Well, this was a busy week. And we actually have an interesting podcast today. So we're going to have a guest today, Matt Hogan, from Bitwise. So we're going to get to that. We're going to pipe Matt in a little bit later and talk about some big news. But it was another good week for podcasting. We had one of our, I guess you could call him a recurring guest now on the podcast earlier this week. Yeah, I want to make him a frequent guest, although it's up to him if you want to do that. But yeah, we had Dan Medashevsky back on. Number one. one historical episode for us, his first appearance. He's awesome. I mean, everything he has to say, and he has so many insights about just how these markets are operating. So CMS Holdings, Dan from CMS Holdings, we should say.

I thought that was a great episode. You guys talked about Tether, talked about CME, talked about a bunch of stuff. Yeah, it was another really, really good one, short and sweet. You know, we're moving to a shorter format here. I think it's, you know, we're evolving a little. little bit. Yeah, well, we'll keep on listening to the feedback. So we had a few deals this week, and I want to talk about Tagomi first. So this was a big one. So Tagomi has been acquired by Coinbase. So for those of you who don't know, Tagomi is a crypto asset brokerage platform.

So they're based in New York City, founded by Mark Bargava, Jennifer Campbell, and Greg Toussar. And I guess the thing to take away from this is that this is a big move for Coinbase to move more into the institutional market. So this is coming on the heels of Genesis, which is a DCG company announcing that they're moving into prime brokerage. We had an announcement from BitGo this week, that they're expanding, moving up the stack from custody into more prime brokerage offerings. And this is a good positioning for Coinbase, you know, hiring a great team, getting some technology from Togomi. So very exciting, I think. Yeah, definitely a statement of intent from Coinbase and a good outcome for the investors and obviously for the team itself.

So good news overall. And then a second deal this week was Coin DCX. So this is a cryptocurrency exchange. It's based in India. They raised $2.5 million from Polychain and Coinbase ventures. To me, the interesting part here is just where this is. And especially with the regulatory landscape in India, a couple, what was it a couple months ago, it was impossible to have a cryptocurrency startup in India, basically.

And now we're starting to see a new financial infrastructure built around it. So really exciting. That happened quick. Yeah, there's two big jurisdictions where crypto went from effectively illegal to pretty much legal in the last six months maybe. So India is one. Korea is another. Two really significant turnarounds. and places where the banking sector had entirely walled off crypto previously.

So it keeps happening, you know, like I think a lot of policymakers are realizing that crypto is not just a transient phenomenon and that they might as well actually, you know, harvest the revenue from these exchanges and these startups. Yeah, I mean, the innovation is going to happen, whether or not you let it happen in your country or And so it seems like India has started to embrace it. And we'll probably start to see more custodians and exchanges and some of the plumbing get built out around this use case, or just around this asset class, rather. So really exciting, I think. It's interesting how exchanges are still like a valid business in 2020, you know, 11 years on.

New exchanges are still getting funded. New exchanges are still being successful, getting market. share. It's the original, you know, like commercial use case and it is still probably the biggest sector in the whole industry. Yeah, I mean, well, is it any different from any other asset class? I mean, under the buttonwood tree, right? I mean, people are going to be exchanging. There's new exchanges in equities and new dark pools that are popping up every year and, you know, new ways of transacting. So I think we should expect to see this for the the foreseeable future. There's different types of exchanges. There's just a lot of stuff to build.

Yeah, I guess some people might see it as like an industry failure that exchanges are still the most popular way to get exposure, you know, from a startup perspective. But, you know, ultimately this is still a monetization event and we need those interfaces to go between the industry and the individual. So I guess it makes sense. A lot of traditional exchanges that would have loved to be a seed investor in, you know, CBOE, CME, you know, wonder what those seed stage deals looked like back in the day. So it's a good business model. So this week, one of the top stories of the week was a report that was put out by Goldman Sachs, which title of the report is U.S. Economic Outlook and Implications of Current Policies for Inflation, Gold, and Bitcoin.

It was the 15th in their COVID-19 series. It was put out from their consumer and investment management division. So, you know, a lot to talk about here, a little bit of a negative take on Bitcoin, actually. So what we decided to do was bring in an expert. So Matt Hogan, who's the global head of research for Bitwise Asset Management, which is the creator of the world's first cryptocurrency index fund, joins the podcast. And Matt has a deep background in traditional financial services, who's the chairman of Inside ETFs. He was the CEO of ETF.com. And he helped to create the world's first ETF rating system. So someone who's in these discussions with institutional investors,

so figured who better than Matt to come on and talk a little bit about the Goldman news. So here's Matt. Matt, thanks for joining the podcast. Thanks for having me. I'm really excited to be here. Matt, before we jump in, I want to talk to you about a bunch of stuff that's been happening in the industry this week. And it's very relevant, the person with your background coming on and talking to us this

week, a week that Goldman Sachs put out a report. that talks about Bitcoin in a pretty negative context, actually. But before we hop into it, could you just maybe give your introduction so the folks are familiar with your background in Bitwise? Sure. Yeah. So Bitwise, everybody probably knows, a specials crypto asset manager. We created the first crypto index fund and run the largest crypto index fund in the world. My background before Bitwise, I joined from the ETF industry. So I spent 15 years in the ETF industry building a company called ETF.com, create the first research and classification and

data system in the ETF space, the largest conference, really focused on bringing ETFs into the financial advisor community. So my experience is on educating financial advisors about something that is new. And that's what I've been doing in the crypto world as well, talking to financial advisors every day about why this is an interesting area of the market for them to get exposure to for their clients. That's great. And I'm sure a lot of those advisors are reaching out to you this week and asking you, what is your take on this Goldman report? So maybe set the stage for us. I guess what was this report? And then let's get into some of your reactions. Sure. Yeah. So this definitely caught the attention of crypto Twitter, caught the attention of some of our clients and some of the people we're talking to about potentially investing in space. So Goldman did a big picture call about COVID. and the economy and gold and included about eight or nine skeptical slides about crypto and Bitcoin. Most of the arguments in here aren't new ones, right? They talked about it being a greater fool asset where people are only buying because they hope that someone else will pay a higher

price later. They put out statistics about its use in criminal networks. They talk skeptically about its role in a portfolio. They're not new arguments. I will say, I guess, two things before we dig into deconstructing their arguments. There was a lot of talk on crypto Twitter where people were sort of almost excited or dancing on the grave of Goldman about this report saying, oh, they just don't get it. This is exactly why Bitcoin is going to a million. I actually think those takes are wrong. We want Goldman Sachs and their clients to understand the value of cryptocurrencies like Bitcoin and to get allocations to crypto. The same wealth clients that Goldman Sachs is talking to are similar to the people we're talking to.

And I think they're the next major big users of Bitcoin and investors into crypto. So we want them to come along for the ride. Clearly, though, looking at this report, they're not yet. And they may be tired arguments, but they're arguments that are worth sort of debunking credibly with data. And so hopefully we can do a little bit of that today. One of the things that really sticks out to me is that we're still sort of in this phase of what is Bitcoin. I mean, this is a very novel thing. If you read some of Goldman's reports from 2014, they were actually comparing Bitcoin

to a payment network. And they were doing some market-sizing analysis, looking at the remittance market and what percentage of that could Bitcoin capture. And obviously, that narrative is kind of shifted. There was a wave of startups that were funded with the idea that Bitcoin could replace Visa and could replace Western Union. But we're kind of, you know, in a different place now. And so a lot of people think about Bitcoin as maybe a digital gold.

or some sort of a virtual non-sovereign commodity. But it's really, it's a new thing. So what is your just overall sense of how we should be talking about what Bitcoin is? Let's start with Bitcoin, I guess, before the other crypto assets. Just what is Bitcoin to an institutional investor? Yeah, I think it's pretty simple to explain that. What it is and what I think it should be to an institutional investor is an emerging non-sovereign store of value, An emerging form.

You can say digital gold, but that makes the assumption that it's already at the level of gold. When in fact, what it is is sort of ascending to that level. So it's an emerging store of value. It's a store of value with some risk and higher reward characteristics. And then it's an asset that has deeply out of the money call options on various use cases down the road. And those may be payment use cases. They may be remittance use cases. They may be use cases we haven't thought of yet.

It's an interesting technology. but its primary role is a non-sovereign store of value. Its primary role in a portfolio, which is also important to talk about, is, I think, the ultimate alternative asset. It's an asset that combines low correlations, high potential returns, and daily liquidity. So it has a portfolio role, and then it has a use-in-the-world role. And I think the way most institutions are thinking of it is as digital gold with these sort of optionality on future use cases that may be determined.

That makes a lot of sense. One of the great quotes from Satoshi that I was looking through yesterday, back in the original kind of days when Bitcoin was just started, he said, sorry to be a wet blanket, writing a description for this thing for general audiences is bloody hard. There's nothing to relate it to. And I think you're doing a really good job putting it into a framework that people can understand. But I think we have to remember that this is a novel thing.

this is a new invention. It's hard to understand. Couldn't agree more. It's a platypus. It doesn't define perfect categorizations. And people like me who come from traditional finance try to put it into buckets. And it always breaks a little bit. So I think that's a I think that's absolutely right. It's it's hard to get your head fully around of and it looks different from different angles. Yeah, we see this in the in the slides the Goldman put out. They say cryptocurrencies including Bitcoin or not an asset class. What do you make of a lot? that, how would you, would you say they could be a constituent of an existing asset class, or would you just disagree and say, actually, no, but you know, I think they are an asset class.

That's another term that's hard to bucket in. I think of them as, and we'll take Bitcoin at first, it's really an intangible commodity. So you could put them in inside the commodity asset class. Now, it has different return characteristics because it's a, it's a, it's a commodity, commodity with emerging use cases as opposed to current use cases. And when they talk about, and I just think that that changes the way people need to think about it. I don't think it's irrational to think about an intangible commodity that has future use cases and investing on the understanding that the rest of the market doesn't see those use cases

yet. But I think that's, I would bucket it within the commodities asset class. I think at least Bitcoin fits nicely within that asset class. But it does have these different return characteristics because it's talking about more or less future use cases as opposed to current use cases. So with that in mind, would you say that some of these maybe misconceptions are persistent because of the nomenclature of cryptocurrency? People compare it to sovereign currencies and they think that it doesn't map well to the reality. Yeah, I think cryptocurrency is a terrible term. I think both parts of that are bad.

Crypto scares people off. Currency doesn't define what it is. If we called these blockchain assets, Goldman would be writing purple pros about how wonderful they are and how they represent the future of everything. But cryptocurrency is definitely a bad term. I think, again, the right way to think about them,

intangible commodities focused on a future use case. And I think it's a really interesting framework when you combine all those words together in terms of what it means on where the value stands and where it's going. On the use case front, so one thing Goldman does cover use case-wise is the less salubrious use cases for Bitcoin.

So, you know, everybody knows that there are these enormous Ponzi's plus token is a recent example. And one of the tools investors used to get access to it was Bitcoin. You know, naturally the focus on this, not particularly surprising. how do you characterize the kind of darknet usage of Bitcoin within the broader kind of transactional usage of Bitcoin? That's a great question. From an investment perspective, I like to think of what could happen.

So if we recognize that there is this dark net or criminal usage of Bitcoin, what does that mean from an investment perspective? And I can envision three scenarios. So one is that nothing happens, that forever. and always the market is like it is today with a small fraction, a tiny fraction being used for dark net and criminal activity, the same way a tiny fraction of cash is used for those sorts of activities. And in that world, this whole narrative doesn't have any impact on my investment. In another scenario, there's a concerted but not overwhelming sort of regulatory development

that puts AML KYC around the edges of the Bitcoin ecosystem and makes it slightly more tolerable for mainstream that's worried about this criminal use case. And that's what we're seeing. And I actually think that's a strong positive for Bitcoin. I think that removes headline risks, invites more institutional investors in. So I see modest but positive regulatory enforcement

being a positive for Bitcoin. And then the scenario that you worry about is a massive regulatory crackdown, people demonizing Bitcoin, ownership being made illegal. And that would be negative for the price of Bitcoin. I just see that as very unlikely, at least with Bitcoin. I think it's more likely with privacy coins. I think that's a narrative that could take hold with things like Monaro. And you could see harsh regulatory crackdowns. But I see slides like that.

And I think, well, that's going to cure itself and the cure itself is going to make this asset class more acceptable. to a wide range of investors. And so I actually see that as an incipient positive for Bitcoin and most other cryptocurrencies. I found it interesting that we had this classic canard, which has trotted out, which is Bitcoin in the context of historical bubbles, which is, it's funny you see these charts and they are constantly trying to fit Bitcoin's recent returns to the returns of other bubble assets and history. but each time they have to kind of update the chart because like you can't actually fit all Bitcoin's historical price performance on a chart against the tulip bubble or something

because Bitcoin has increased by so many more orders of magnitude so the chart would be unreadable. I was actually a little bit shocked to see this because you don't typically have bubbles that are this durable in the last four decade and don't really unwind. So I don't know if you had a reaction to that slide. Yeah, I did have a similar reaction to that slide. I mean, look, Bitcoin came from nothing. So its returns over from nothing to something are going to be exponential. Yeah, the comparison to NASDAQ is just a silly one. You know, I was thinking about why it is that sort of mainstream traditional financial investors

have such a hard time rocking the idea that this new thing could emerge and be worth hundreds of billions of dollars. I think I came up with two reasons, which I think explains why they trot out these charts. The first reason is that Bitcoin existing is something of a miracle, right? At the early stage of his existence, the likelihood of his success was really, really low. And the likelihood that there would be this enormous ecosystem with penny wide spreads and institutional market makers and acceptability in 200 countries was vanishingly low. And so people who come to it for the first time can't imagine the past, passion that got it from zero to one and therefore have a real difficulty imagining how it could

get from one to a hundred so they they dismiss it. And then the other reason is I mentioned earlier that it's an intangible commodity and sorry to go a little bit geeky here, but that changes things. If you imagine you had a physical commodity today that you thought would have future use cases in 20 years, you couldn't buy it today because the storage costs of holding it and waiting for those future use cases to occur would be too high. If you bought oil in the 1800s waiting for the car, you would have lost all of your money. But with Bitcoin, because its storage costs are effectively zero,

because it's an intangible commodity, you can buy it today holding on for future use cases and wait for that to occur. And as a result, more of the value of those future use cases have been ported back to today than people are traditionally comfortable with. Now, not all of it, I think still vast amounts haven't been ported back today, but there's more today than people are used to.

And so that sort of, I think, confuses people because they don't have the mental framework of how so much future value could be ported back today, how you could have a $160 billion asset that people don't broadly understand its uses because it's just different from anything that has existed before. I think that's why they trot out, those two reasons are why they trot out those tired charts. And I guess to your point about, you know, Bitcoin's Valley being. the discounted future. Also, unlike other commodities, we effectively know what the total stock of Bitcoin will be. And in fact, about 87% of it has been issued already. There's less risk of dilution, you know, like the oil you might have had in the 1800s, this became much smaller fraction of

the overall stock with time as more of the commodity was created or found. 100%. Yeah. It breaks all of those frameworks in really interesting ways. And when you when you put all those lenses on the pricing today is easier to understand in a traditional financial setting. But I think most people haven't, most people from my kind of background haven't thought through all of those differences and how it's just not like things in the past. And I think that's confusing to people. So Matt, this kind of comes at an interesting time, this report. There's been a lot of really interesting developments, positive developments, I think, in the Bitcoin and crypto asset ecosystem over the past few weeks. I mean, we've seen some prime

brokerage moves. We've seen, you know, Coinbase acquiring Tagami. We've seen Genesis acquiring Volt and moving into prime brokerage. We've seen Bitgo making some moves. So that's great. We've seen this Paul Tudor Jones news. You know, he's getting actively involved in the space, RENTEC. So what have you been monitoring? I mean, what are the big news items that you think matter and that folks should be paying attention to from an institutional perspective? I think that's right. I would add, we've seen Goldman Sachs doing a whole call on an asset class that's the size of Toyota. They're doing it because they're getting a lot of inbound interest. And that's what we've been seeing.

There's really been a sea change since the start of this year in professional money and its attitude to the crypto space. So Bitwise focuses on the financial advisor space. You mentioned the Paul Tudor Jones example. But there are dozens of these examples of professional investors who weren't serious about this asset class in the past and that are now. And I think the reason for that is twofold. One, as we've discussed before, they can now be, right?

There is a sufficiently robust ecosystem surrounding this asset class for people to actually invest at a professional level. Their funds, there's custodians, there's regulated insurance, their prime brokerages. They're all the things required to make that possible. And then the second is this extraordinary period we're living through with infinite QE and Jerome Powell's infinite pot of money. And I think there's this

feeling amongst professional investors that they don't know how it will play out. Even someone who articulates that he's confident how it will play out like Paul Tudor Jones, I don't know if that's true. But what they do know is that the tail of outcomes has expanded outwards. So the outcomes of severe inflation have become fatter. The outcomes of deflation have become fatter. It's just just a weird market. And when you're in a market with elevated risk, you want to hedge those exposures. And so we're seeing people more willing to take small allocations to something like Bitcoin or crypto that really does provide an effective hedge to those edge assets. So all of those stories are important. Paul Trudey Jones is maybe particularly important

because he was so public and he's so well known. One of the gating factors that we encounter working with professional investors is this sort of career risk or headline risk, not wanting to be first, not wanting to stick their neck out for clients. And the more examples like Paul Tudor Jones that are investing specifically in in cryptocurrencies and not in venture capital funds, but actually in the actual currencies, gives them sort of air cover to make those investments. So I thought that was important one. But broadly speaking, the space is professionalizing. It's such a an extreme and accelerating rate. It's really amazing to think back a few years ago to a time when, you know, there weren't anyone, no one was banking, cryptocurrency startups, spreads were all

over the place, arbitrage was a mess, there were no insured custodians, there were no regulated custodians. That was two years ago. It was unbelievable how fast it's come. And if you continue that evolution two years into the future and think about a market where we have an ETF, where it's truly professional where we don't see the kind of crypto flash crashes we saw on May 12th because the options and futures markets are more robust. It's just a game changer and it's not very far away. So each of those stories is independently important, but in aggregate, they just give such a sense of momentum to where this market is going that I've never been more bullish than I am today. Yeah, I agree with you. I want to dive into that RIA channel, that financial advisory channel a little

bit more. You know, historically, it had been really hard for a couple different reasons for that channel to activate. And some of it was infrastructure around, you know, how do you get access to these things from a custody perspective, from a liquidity perspective? That was difficult. The other thing, of course, was just having a thesis around why you should care about them. And we've talked about that, specifically around Bitcoin. And I know that you're talking about other asset classes as well. But when you look at that channel right now, I mean, what are some of the things that could really activate that channel in a way that it's not activated right now. Yeah, I think it's still primarily technical and access. And I'll give you a very specific

example using Bitwise. We exist to serve financial advisors. We're well capitalized. We've built the most efficient on-bramp than we can. If you come to me as an advisor and you want to invest across a hundred of your clients, you have to send me a hundred different wires. How many financial advisors want to send me a hundred different wires for a two to five? percent allocation in their portfolio. Now we're moving to solve that, right? We're working to get our fund trading on the OTC markets in the same way as GBTC. We're obviously working with the SEC to develop an ETF, but there is still this massive logistical hurdle between financial advisors and investing. And what that means is that the level of conviction you need from those advisors to make that investment is really, really high. You have to be

as sure about this asset class or this commodity as you and I and Nick are. And so it's a small fraction of those advisors that are doing that. Now that said, it's really happening. This year, in fact, unlike previous years, in previous years you'd have advisors or we would have advisors who would make allocations

to one or two clients who were probably pushing them to do it. This year we're starting to see advisors make allocations across all their clients despite the logistical hurdles. And I think once those logistical hurdles come down, once it's available at all custodians, once there's an ETF, or even once there's an OTC-traded index fund, it's going to be a flood of assets. And it's important for people to remember, and people don't get this because we talk about institutional investors all the time. Financial advisors control as much wealth as institutions in the U.S. They control over $20 trillion. So this is a huge

market. I think it's the next market. And it really has changed this year. We are seeing those client-wide allocations in a way that we weren't seeing before. So many different things happened this year already that might have made people more interested in, you know, non-state monetary assets. Is there something in particular that comes up frequently in these conversations or is it just a whole confluence of factors? It's really a confluence of factors, but it's interesting that you bring that up. I remember when the Soleimani air strike occurred and Bitcoin ripped, I forget, six or eight percent, that immediate reaction brought people in because they started to see, oh, this really is a geopolitical

hedge. And then each time Chairman Powell goes out and trots out a new program and the price goes up, that brings people along or Paul Tudor Jones brings people along. But more than anything, more than anything, it's that Fed balance sheet chart that you get from the St. Louis Fed that just, you know, makes the 2008 increase. People just look at that and they know, again, I don't think it's that they know what's going to happen. They just know that something could happen. And if something could happen, why not have 2% of your allocation? And increasingly, just to add to that, they're choosing Bitcoin instead of gold because of the potential for exponential returns. If you're going to have a small allocation, it doesn't do you much good.

The best you can hope for is it doubles. You really need the asymmetric returns that Bitcoin exposes you to. So it is amazing that the Soleimani Air Strike was a huge deal. We published a whole investor letter about it. We did calls about it. Media call. Now, like the idea that that mattered seems absurd. we've advanced five years in the narrative of why a non-sovereign digital store value is important

in the space of five months. And it's just a really interesting moment. That feels like it was about five years ago at this point, the Soleimani Air Strike. So much has happened. Right. Yeah. Exactly. That happened in 2020, right? We thought that was going to be the big catalytic event of this year. It's amazing to think that even mattered to us, right? And it really did. I was like, wow, this is a proof point. People are going to return to this over time. I can use this in slides at conferences for a year and a half. Now, the idea that we're even talking about it here just seems quaint because we now exist in this world of an $8 trillion or $7 trillion Fed balance sheet, infinite QWE, CBDCs, Paul Tudor Jones.

I mean, it's just incredible how fast it's developed. And it'll be interesting to see what happens in the future. Matt, so I think that's an awesome place to leave it. And you guys are putting out such great research over at Bitwise. So for the folks who are looking to get maybe a counter perspective to the Goldman report this week and to learn more about what you're doing over at Bitwise, where can people find out more? Sure. Just head over to bitwiseinvestments.com. I'd point out in particular, we just published a

white paper on the case for Bitcoin in an institutional portfolio that can be read almost like a point-for-point deconstruction of the Goldman argument. So look for that on our homepage, sign up for our newsletter, and keep studying this space. Well, you guys are doing great work. Thanks for joining the podcast today. Thanks for having me. All right, so that was great. Always enjoy chatting with Matt. I think he has one of the richest perspectives on this. And, you know, unlike hearing from us, this is a guy who's actually talking to, you know, these types of investors every single day, high net worth individuals, RIAs. He's really in the trenches just every single day talking to folks and seeing how this narrative is changing. So I love chatting with Matt. I learned something new every time.

Yeah, I remember when he joined Bitwise and it caused a stir because it's like, wow, this guy is a Titan of the asset management industry and he's, you know, come over to the dark side. He's joined crypto and caught the bug. And that was kind of a big deal at the time. And it's, you know, not for no reason. Matt has an amazing grasp of these concepts and an amazing ability to kind of bridge the gap, too. I agree. So with people like Matt and Teddy Fusaro and Hunter, I think the industry is in a good spot. So actually, why don't we talk about something completely off topic, but that was a big story this week. So I got a big kick out of this Craig Wright story. So I think we need to set this up a little bit and just maybe start from, you know, who's Craig Wright, this fake Satoshi character?

And let's get into what happened this week around the cryptographic signature. Yeah. So it's complex, but basically Craig has been effectively represented. that he, you know, is Satoshi, or he was part of the group of people that is Satoshi. For about five years now, five full years, he's been making these representations. Eventually, he got sued by the estate of his claimed partner, Dave Klyman. And that lawsuit's been rumbling on for a long time. And the lawsuit's been a kind of a source of constant hilarity because Craig keeps saying things and they keep getting invalidated.

But really what happened here was like kind of the culmination of five years of nonsense. And it was like supremely ironic, you know, in like kind of an amazing poetic way. Like a Greek tragedy almost. And it like, it's such a beautiful case study because it really speaks to the ethos of this industry, which is trusting cryptography over human subjectivity. So with that said, what happened was the judge asked Craig to produce a list of addresses that he purportedly owns, again. It's very unlikely that he actually owns any of these. And so he produced a list of effectively addresses that people think Satoshi owns, or just really early Bitcoin addresses,

which haven't moved in, you know, 10, 11 years. And these actually got unsealed by the attorneys for Ira Klyman and then resealed. But the important thing is that Craig committed to this list of addresses that he claimed in court under oath that he owned but did not control. so that was the crux of the matter. He owned these addresses, but he didn't control them at the present time. And then they were unsealed and then resealed. It's like I've been following so many complexities

and twists and turns in this case. And then once that had occurred, so Craig had effectively attested to claiming that he was the owner of the addresses and that he couldn't move them, the guy that actually owns them signed a message, cryptographically with the addresses with like over 100 of these addresses saying yes i'll read it so

let's get it exactly so Craig stephen wright is a liar and a fraud he doesn't have the keys used to sign this message the lightning network is a significant achievement however we need to continue to work on improving on-chain capacity unfortunately the solution is not to just change a constant in the code or to allow powerful participants to force others out. We are all Satoshi. Yeah, so not only did he like entirely obliterate kind of Craig's argument here and repudiate him and so on. He also put in a jab of big blockers, which is pretty funny. But yeah, so this is signing a message with keys is something that we can verify cryptographically, guarantees that you control the private keys. So this isn't something that requires us to trust

the source or anything like that. Just through mathematics, we know that the person that signed this message, based on the signature, the address, and the message, we know that they control the private keys. So this completely invalidated Craig's under oath claim, and basically puts the cap on the saga. I don't know exactly what all happened, but the case is basically over. He's been discredited. And this narrative that he's been building for the last five years, that he controls all these addresses, he's going to move the bitcoins, et cetera. It doesn't strike me as very true. But the most beautiful part of it is this whole thing began when he played this trick on people like Gavin Anderson to represent that he did indeed control these early addresses. And that was

basically artifice. He didn't, you know, actually sign the early addresses, right? It was a trick. It wasn't real. And then now, you know, years and years later, the person who actually owns these early bitcoins went to the effort of actually signing with them cryptographically a message that, you know, he is the owner and not Craig, even after Craig had attested to owning those addresses in court. So it's really, you know, deeply, deeply, kind of profoundly ironic. in a really dramatic way. So it's great. Maybe this is the last time we'll have to talk about Craig Wright on the podcast. That wouldn't be the worst thing. I think it's basically over. And like we've thought it was over for a long time.

But it's, I'd say it's as good as over. I mean, really the big event that was meant to happen was the Tulip Trust was purportedly meant to be opened in January 2020. That didn't happen. And so it's like a little bit like those cults where they say, oh, the world's going to end. on a specific date, and then the date comes around and like, oh, yeah, we must have, like, misread the ancient texts. It's actually this date, like, two years in the future. So Craig had, like, used those mulligans multiple times, but he kind of ran out at the end. It's like, you can only be wrong about moving Satoshi coins, like, you know, X many times before people give up and stop believing, you know, on your prevarications.

I'm happy if this is the last time we have to talk about him. Why don't we change the topic to another kind of group of people that's in trouble with the law, actually, this week. So this just came across this afternoon. We're recording this on a Thursday afternoon. From the SEC, unregistered 25.5 million ICO issuer to return money for distribution to investors. So it looks like the SEC today has announced charges and a settlement against a company called Bitclave, which is headquartered in San Jose, California. They conducted an ICO, raised $25.5 million.

It looks like it was, what was this thing? Like a cloud storage on a blockchain? I don't really even understand what they were doing. But it looks like they got kind of slapped around here by the SEC. Deservably so, by the way. Yeah, it's interesting that the SEC is still working through this backlog dating to, you know, 2017, and probably earlier too. But this one seemed kind of like a statement of intent.

I know we've said this about a few of these, but this one was actually pretty serious, the damages in the end. So Big Clave had to pay a disgorgement of $25.5 million, which, you know, assuming they actually did some corporate activity over the last three years, they probably don't have $25.5 million to spare.

Pre-judgment interest of $3.4 million and a penalty of $400,000, and there's a fair fund being established to return money to injured investors, and they have to transfer all of their tokens, their CAT tokens, which are the tokens they sold, to the fund administrator for permanent disabling. And they have to get a delicit from every trading platform. So this is a really comprehensive rebuke and wind down of the entire project, which is like more onerous than some of the other kind of,

resolutions I've seen here. Yeah, so we're going to continue to see, my guess is that we're going to continue to see quite a few of these ICO projects settle with the SEC over the next few months. Yeah, I'd never really heard of these guys, but that's a size of a amount of money. And keep in mind, the statute of limitations just runs and runs. So you're never really out of the woods. And the one thing the SEC does is if you're close to reaching the expiry for the statute of limitations, they ask you in some cases to voluntarily extend it. So they have time to bring the case. That's not a fun conversation, I'm sure. Yeah, you got like a week to spare and then they, you know, you get an email from the SEC, you know, but yeah, I mean, you know, there's a lot of these

that need to be wound down. I've never even heard of this one. So there's lots more. Well, let's talk about some happier news. So Genesis, which is the trading lending, prime brokerage business of DCG, they hired Josh Lim this week to lead their new derivatives market making business unit. So this is a big time hired. Josh used to be a circle. He used to be a galaxy, really well known and respected in the industry. And I don't know how many times we have to say it on the podcast or the newsletter, but I mean, geez, this Genesis and DCG franchise is just firing on all cylinders right now, really well positioned. Yeah, speaking of another, of firing all cylinders,

Facebook has rebranded its Calibra business unit, and it's now called Navi. I think that's... Novi. I pronounce it. Okay, well, I don't know if there's a style of guide, but they keep making moves here with Calibra and Libra. So I know a lot of people said it wouldn't launch,

but it looks like it's going to launch. I mean, I would not be sleeping on this effort. I think this thing is going to launch. It's going to be successful. They have enormous distribution through WhatsApp and Facebook and Instagram. So I would not be betting against this right now. Yeah, and Facebook is moving towards more e-commerce. And this kind of suits that.

So, you know, they've also made the other smart move, which is becoming more, you know, like sovereign currency-friendly. So looking more like a cross-border stable coin project. And they've added some high-quality members to the consortium. My hope is that they can lean on the crypto infrastructure, which has been built already, the wallets and the exchanges, which would really be a huge legitimation of what the industry has done the last 10 years. Yeah, I think it seems like that's the way it's going.

So see it as big net positive. And they're hiring some great people, as he said. So we'll definitely keep an eye on that one. All right. So I think we're pretty good on news for the week. Why don't we just highlight a few things that people might want to check out for reading or watching over the weekend. So a couple things off top of my head here. So Masari and BitStamp, they put out a nice research paper.

It's called Bitcoin's third having a thesis for institutional investment. I think that would be worth checking out. So it's kind of a polar opposite view of the Goldman Report, I suppose. And then if you're looking for something that's pretty technical, I'd actually recommend reading a paper that came out. So it's called Custody Protocols using Bitcoin Vaults. And it was sponsored by King's College, London, and Fidelity Center for Applied Technology. And it was co-authored by Jacob Swambo, Spencer Hamill, Bob McElrath, and Brian Bishop. So it talks about making custody more secure using pre-signed transactions.

It's pretty technical, but really glad to see this type of work being done. I think it pushes the industry forward. Yeah, and it is a demonstration that Bitcoin has these embedded, quote-unquote, smart contract functionalities built in. Basically, this paper makes the case that Bitcoin is more extensible than people think it is. One interesting, fun fact, so Bob McElrath, who's one of the co-authors of the paper, he and I started Fidelity on the exact same day. I remember that.

So you guys were in the same orientation, both working on Bitcoin stuff. Yeah. And so that totally blew my mind because I was like, hi, I'm Nick. Like I'm here to work on Bitcoin. He's like, I'm Bob. I'm here to work on Bitcoin.

And I was like, wow. Like, how many people do they, like how many Bitcoiners are they hiring right now? Well, Bob's a smart dude. So it's good to see this paper. come out. A couple other things. So Chris Dixon from A16Z Crypto. He gave a good interview with Fortune's Robert Hackett. I thought that was worth checking out. And there continued to be just a ton of good podcasts coming out. So Jeff Roberts went on unconfirmed. I think he was also on the Pomp podcast.

Lars Shin had a discussion with a bunch of these smart contract platform folks. So Arthur from Tezos was on there. Zachie from Cosmos. Ilya from Near. Rob from Pocodot. So that was a good conversation. There's just a ton of good content being pushed out. The Winklevoss Twins were on what Bitcoin did. So golden age of podcast content. Yeah. And we have some pretty good ones coming up next week, actually. More on the crypto dollarization series, which does not end. Yeah. No, well, it's not ending anytime soon and the assets continue to rise. So we've been enjoying seeing the adoption. USDC. I was, I talked. I talked. to a group of people that were building an early stage company today and exclusively using

USDC. So we're starting to see some real businesses using this stuff. Yeah, we not only are, you know, various nation states dollarizing, but the blockchains themselves are dollarizing. So I don't know if a lot of people expected that to happen, but that's been the big trend of 2020. Well, I think that's it for the week. I hope you can figure out a mask situation for your runs. Me too. Yeah. I might just buy like some loose mesh and wear that even though it's not actually protecting me against anything. It's like a you almost need something like a beekeeper's helmet.

It's the thought that counts. So that's it. Thanks for listening and we'll see you on Monday with the new episode.