On The Brink with Castle Island - Weekly Roundup 04/29/22 (Elon buys Twitter, CAF Legalizes Bitcoin, Fidelity adds Bitcoin support for 401(k)s) feat. Dave Gray of Fidelity (EP.314)

Episode Date: April 29, 2022

Matt and Nic are back with news and deals of the week, joined by Dave Gray, Head of Workplace Retirement Offerings and Platforms at Fidelity Investments, who joins us to talk about Fidelity's new Bitcoin 401(k) product. In this episode:  Are airdrops taxable? CheckTemplateVerify drama in Bitcoin Central African Republic apparently adopts Bitcoin as legal tender NY State Assembly passes a bill banning Bitcoin mining with fossil fuels Fidelity adds Bitcoin to 401ks Will deep deplatforming on the internet influence Twitter? Can you actually open source the Twitter algorithm? Is the Twitter purchase an indirect way for Musk to liquidate his Tesla position? Learn more about Fidelity's 401(k) plans here Sponsor notes: Subscribe to the Coin Metrics State of the Network newsletter

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 into Britain's ailing economy with a new round of Concentive easing. 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. Bitcoin. Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. In this episode, is brought to you by Coin Metrics. And let's throw it over to the Metrics Minute. Today's Metrics Minute is brought to you by Bloomberg. Just kidding.

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So the bonds tighten. So quite a few things happened this week. Yeah, we had a busy week, busy podcast week too. Ria sat down and talked to with Pat Larson, co-founder, CEO of Zen Ledger, one of our portfolio companies, about taxes, crypto taxes, it's riveting. Well, I think 2022 was the worst tax year in the history of the crypto industry

because there were the most realized gains probably ever in 2021. Yeah, I think a lot of people got smacked around in 2021. And the gains were very complex in nature, right? It was NFTs, defy yield farming, air drops. Air drops you didn't expect. We still don't really know how air drops are treated, I think. It can't be that, you know, you can impose a tax liability on someone just out of the blue. So the school thought that if I air drop onto your address, something that I just,

locks you in. It's that can't be right. And we also live in this liminal space where you know, it's not like some things do have a market price. I mean, a lot of things can be expressed as prices. But it's also like liquidity is an issue. Are these things even tradable? Can you actually realize them? You know, there's a lot of stuff like that where it's not even clear that these are actually markets, you know, meaningful markets that you can engage in. So it seems unfair to say that it's sort of an economic gain on day one yeah yeah it's not like you have reference rates on these nfts you probably will at some point though yeah but not right off the bat i mean for illiquid yeah so tough tax here anyway uh you probably deferred odds are you

deferred i think that's probably the move uh and uh so i don't know when when's the next tax date is it September or something. I believe it's in October. October. So Zen Ledger wrote a good tax guide for NFTs. So for those you did defer, we linked that one in the show notes. And then I sat down with Bruce Fenton. The last time he was on the podcast, he was on with you.

This was a fun one. He's, of course, running for Senate in New Hampshire. So always great to talk to Bruce. It's unbelievable from a Bitcoin perspective how long he's been relevant. One of the things we talked about was just the, the people who get kind of bucked off the bandwagon over the years and people that get on the wrong side of history or, you know, get too ideological about a certain belief. But Bruce has really rode the way for a very long time. Yeah, I'm thinking my time is due to be kicked off the wagon.

You know, the people that get kicked off the wagon are the ones that sort of get to the point where they think that they're here to fix Bitcoin. That tends to be where people get bucked off. Are you trying to fix something? Are you trying to change something? Well, there was a lot of drama around CTV this week. I don't know if you saw that. I did, yeah. Do you want to talk about that a little bit, actually?

Let's, uh... I don't know if I know enough to really speak intelligently about it, but this is Jeremy Rubin's project, which he's been working on for years. And the CTV stands for Check template verify. Is that right? I believe so. And I think it would be a way to include covenants in Bitcoin, which are like conditional transactions.

And he's advocating for it to go to Speedy Trial. A lot of jargon here. Speedy Trial is actually how he activated Taproot around the time. And that was a new way to include a change in Bitcoin. Around that time, we didn't really have a lot of introspection around Speedy Trial, the activation method. because mostly we were excited to get Taproot in. Now in hindsight, there's a little bit more debate around speedy trial, especially as CTV, which appears not to be the consensus, you know, affirmative change, is using,

or Jeremy's trying to use CTV or speedy trial, whereby the miners would kind of have discretion over if things gets in. anyway, it's a mess, basically. So who's on the other side of this? So all the Blockstrom guys are against this? I would say, from what I can tell, this is not a scientific survey, but it appears to me that most Bitcoin developers are not in favor of the change. Because what I've seen is they mainly believe that we can achieve these kinds of transactions

in different ways without a bespoke change. And I mean, they've got a point. Bitcoin over the last five years has had two updates, Segwit and Taproot. So I think given how relatively trivial this is, it may not be warranted having a whole activation process just for this one thing. So it seems to me that most people are objecting on procedures.

grounds, not necessarily because they think, you know, endanger Bitcoin. Well, I don't know. This one's a little bit above my pay grade, I'll admit. I've been watching the drama unfold on Twitter, but don't really have a strong view on this one. Yeah, I definitely need to do a lot more work on this. Well, why don't we move over into some deals of the week here? A lot of deals. Big one to start, CERTIC.

Everybody knows them. They're the blockchain security and audit company. they raised 60 million from SoftBank and Tiger Global. That's on the heels of a raise just two weeks prior. So kind of double-dipping there. Well, this is a hot category. I mean, blockchain security audits, very hard to get one. A lot of them are sold out right now.

You have venture capital firms that are buying up security audits and using them as leverage to get into deals. You take our money. We'll give you one of the slots that we have. So it's a hot category for sure. Next one up is OpenC. They have acquired the NFT aggregation and analytics platform called Gem. It's an undisclosed sum, but this is an interesting play,

sort of a different layer in the NFT value chain going out and buying an aggregator. So almost would be similar if Coinbase went out and bought like an aggregator on top of its exchange. So pretty interesting move here by OpenC. Yeah, it's smart, I think. Jim very well loved in the NFT trading space. Next up we have Skybridge Capital. They've launched fundraising process for an investment vehicle that will focus on Bitcoin mining. I wonder what that's going to look like.

So exposure directly into virgin coins, I guess. Is that what they said, virgin coins? No, they didn't say that. But I mean, you know, you get the, there's kind of two schools. a thought on these products. One is that you get access to cheaper Bitcoins. You know, if you have the view that you can find a way to mine below the market value. The other one, of course, you get those clean coins. The cleanest coins are the U.S. Marshall coins, though. There's only 10% of coins left to be mined. So we're running out. We are running out of coins. Next one up is Zero X Labs, one of the original

decentralized exchanges, provider for infrastructure now for decentralized exchanges. They raised $70 million from Greylock, Pantera, Jump, and others. Then we got FlowT, their P-2P NFT learning platform on the flow blockchain. They raised four and a half million from Greenfield 1 and lattice capital. Next one up is gamer gains. This is a platform enabling a play to earn for non-web three games. They raised 5.8 million from Cadenza, FTX, blockfi, Tiger Global and others. Then we got Vertex protocol. They're a decentralized four platform. There is a 0.5 million from HackVC, dexterity capital, Jane Street, and others.

Next one is Mad Reality. This is a decentralized entertainment platform. They raise $6 million from Paradigm. Then we've got CXIP Labs. They're an NFT minting solutions provider. They raise $6.5 million from Gary V. Courtside Ventures, wave financial and others. Next is a fund update. So Dragonfly Capital has raised $650 million for their third crypto fund. Congrats to the Dragonfly team. Then we have Afriacs. They're a blockchain money transfer business based in Nigeria. They raise 10 million from Sequoia, Dragonfly, and others.

Next one up is Ando, a decentralized investment bank is one way to think about this. They raise $20 million from Founders Fund, Pantara and others. Then we've got Cogne. They're a digital banking startup. They raised $23 million from Hanwa asset management, Kaplan F.O., Salonaventure and FTX Ventures. Next is Rain. This is a company that is looking to provide corporate credit cards for Dow's. They raise $6 million from Lightspeed,

Coinbase, Uniswap, and others. Corporate credit cards for Dow's. That's kind of cool. Then we got Joe McCann is starting a fund called Asymmetric. They're looking to raise a billion. They've already established commitments from apparently GPs at A16Z,

Solana, CMS Tiger Global. I'm surprised this name wasn't taken. asymmetric is a pretty great fun right that's a good one um next one is foundry digital this is a mining and staking firm they are acquiring upstate interactive which is a web three software developer for an undisclosed sum so the the m&A landscape heats up who's going to go by um robin hood have you seen where robin hood's trading right now i mean wasn't you know don't people always post about the dry powder that these private equity firms have they haven't done anything with it there's a A lot of public names that could be taken out right now.

Well, I mean, I guess you got to make money to be appealing to private equity, right? So people were talking a lot about private equity firms in the context of Twitter, but Twitter doesn't really spit off the cash to support the debt load. Yeah. But I mean, what is Robin Hood at right now? Like $9 billion market cap? It's crazy. Well, maybe.

They have like $6 billion in cash, I think. A lot of people said that the Robin Hood trade was because people were stuck at home. and that just caused them to trade. But I just, I always found that explanation so unsatisfying. It's like, so what, you're bored at home? You decided like trade stocks. Like, isn't it just like a story about like volumes picking up and liquidity being injected into global markets?

I mean, a huge amount of liquidity was injected in 2020, 2021. Yeah, I never. I think it was more of a Fed balance sheet issue. Yeah. I never bought that thing about, oh, people are bored so they're trading. Like, what kind of logic is that? Yeah, I don't know. I was on it a lot.

I wasn't bored. But look at Coinbase right now, $27.2 billion. Not investment advice, by the way, on any of these. But they are spinning off cash. That's a banana's valuation for that company. So quite a few things happen this week. Obviously, Twitter was effectively purchased. That happened.

Yeah. So let's talk about that. When dogecoin on Twitter? So apparently the deal could take three to six months to close. And here's the interesting thing. I think this is the most interesting thing. A lot of the cash, Elon is stumping up, is coming against a loan that he's staking against his Tesla stock, which has a pretty low loan to value.

And if Tesla stock meaningfully falls, during the next kind of three to six months, he'd have to, he would be called on the loan. Which very easily could happen, I think. Honestly, in this market environment, could happen in the blink of an eye. It really could. So here's my theory is,

this is actually a way for Elon to diversify out of Tesla into Twitter and very uncorrelated asset in a way where he's compelled to do it. because he would have to sell the Tesla stock. So you think he wants to get margin called on it? I mean, I don't think it's pleasant. As someone who has frequently been margin called,

it's not a pleasant experience. But it could be that he sort of actually half expects this to happen because he knows how volatile the stock is. Yeah, it's interesting. The other, did you see the Bezos tweet around basically saying, hey, some people are suggesting that this puts China more. in the driver's seat for speech on Twitter because they have all of these aspirations for Tesla in China and these now become intertwined. And so Elon is not going to want to take,

take speech stances against the CCP. And then he kind of caveated that with, I don't really think that that's what it is, but he essentially put it out there. And Bezos literally basically joined Twitter to start concern trolling Elon. He had not been active on Twitter before. It's incredible. There's obviously some rivalry there. I mean, the Washington Post runs these like sponsored packages for China. They're like designed.

They're meant to look like the newspaper, but they're actually just add inserts. So, I mean, I actually think it's a fairly good point. I don't know if Bezos is the best person to make the point. No, I just think that that shows how personal this is. Oh, yeah. What do you think actually changes from the product perspective with Twitter? I mean, Elon clearly wants an edit button. It's very hard to know beyond that.

I mean, it would be perturbing if he does go ahead with his stated ambition to authenticate all accounts. That would turn it into LinkedIn. I don't think anybody wants that. Yeah, maybe if it's an optional feature, you can see how that might be interesting. everyone gets like an orange checkmark or something. The thing is actually that I don't think Twitter needs to change anything. I know everyone always complains about the product.

I think the product is completely fine. It doesn't need any changes. Like the issues most people have are with moderation. I don't know if there's a product decision that can sort of unlock tons of value. Like we all use Twitter all day obsessively. Clearly the product is good enough. Yeah, it's really just the discount. between the monetization of the product and the strength of the product.

Yeah, and I mean, maybe it doesn't monetize very well. So there'll be a lot of talk about whether or not this gets pushed into a protocol still. What was the name of the Twitter protocol? Blue Sky. Blue Sky. Wonder what happens there? So Blue Sky has apparently been spun out. So it's not even part of Twitter anymore.

Oh, there you have it. But I don't think it's really going anywhere. Well, that was the big kind of non-crypto story of the week. I'd say the big story in the industry is Fidelity. So Fidelity has announced that they will support Bitcoin in 401K accounts, which is huge. So Fidelity manages 20 million participants, 2.7 trillion in AUM in that channel. And this offering will allow plan sponsors, companies, to allocate, to allow, their customers to allocate, their clients to allocate up to 20% of their 401k assets into Bitcoin.

And it looks like micro strategy has signed up as the first customer of the platform. This, I don't know what to say other than this is a huge deal. I'm surprised that this didn't get more coverage, frankly, because you just look at how big this channel is and it is zero percent penetrated right now in terms of Bitcoin ownership. And that spot Bitcoin, right? Yes. Yeah, so it's not like GBDC where you're not getting direct Bitcoin exposure or anything like that. Yeah, it's spot Bitcoin custody debt fidelity.

So it's not like you can withdraw it onto a treasurer, but you can keep it in your 401K plan. That's great. Yeah, that does unlock a lot of AOM and a lot of retirees. One of the more interesting things about this was so the Department of Labor oversees these account types. by and large. And the DOL came out, I'd say it was two or three weeks ago, maybe a little bit longer,

with some, I was classified as skeptical guidance, basically saying come talk to us and we're going to really keep a close eye on folks that are trying to offer these type of plans. And Fidelity did it anyway. So that tells me that they feel really confident

about their position here. And, you know, I don't think they would have launched this without a very thorough understanding of the regulatory regime. So my guess is that you'll see other, you know, Fidelity competitors look at this and say, all right, time to get going here. So this is a big deal. So congrats to the Fidelity team.

That was obviously a long time coming. Hey, everyone. Matt, breaking in here. After Nick and I recorded this, we said, hey, why don't we go a little bit deeper on this topic? So we gave a call to Dave Gray, who's the head of workplace, retirement offerings and platforms at Fidelity, and who's been leading this initiative. from the product side of Fidelity. And we got him on the horn, talk for about 10 minutes.

So we're going to cut over to that right now and then back to the roundup. All right, Dave, well, we are really excited to hear more about this story directly from the source. So welcome to the podcast. This is your first appearance on the brink. Matt, thanks for having us. Appreciate the opportunity to talk to you about Bitcoin and 401ks. Well, let's start with just what was the origin story around how you guys started to explore this offering and decided that it was something for your customers.

Yeah, I'd say this really started as an innovation for our customers. And Fidelity has a long history of focusing on innovation for clients. Even more recently, the innovations we did in the digital asset space, like 2014 blockchain and mining 2015. We started to accept Bitcoin for charitable contributions for Fidelity Charitable. 2018, we launched FDAS, Fidelity Digital Assit Services, which is really all around the custody and the trading of Bitcoin. And we saw this as kind of a natural extension to bring to our customers.

I'll tell you, we have heard increasingly, particularly from young investors, and we have about 10 million young investors at Fidelity. And by young, I mean ages 18 to 35, that they're interested in really incorporating cryptocurrencies into the long-term retirement savings. And we've heard from plan sponsors that they're interested in, finding a way to do that for their employees. That was really the genesis, was taking the best of fidelity, what we're hearing from clients, and our spirit of innovation. It's a pain point for so many people in the crypto space that have retirement accounts and would love to have some way to get

exposure. It's also a pinpoint for a lot of people outside of the crypto space. So maybe just talk about the scale of the workplace investing group at Fidelity and, you know, the reach that you have in the United States. Yeah, I think that is actually one of the exciting things about. this. I mean, we serve about 24, 25,000 plan sponsor clients. We have probably 32, 33 million participants that we serve through those plan sponsors and over three trillion in assets. So we have a scale that is just unparalleled in the industry and by far and away the industry leader. And the other great thing about that is that through that scale, we have such a wide range of different clients across all industry types and all client sizes. And I'll tell you, as we've

rolled this out and announced it early this week, it's been really interesting to hear from so many different clients of different industry types and different size of plans expressing interest to learn more about it. You announced it in Micro Strategy. Michael Saylor's company was, I think, the first company that publicly announced that they're on board. So I assume for them, you have to dial it up to 100% Bitcoin exposure. Is that how that plan works? Well, it's not going to quite work that way. We do that 20% limit, but micro strategy will have to make a decision

of whether they're going to do 20% or something less than that. And that's a decision that's pending with them. I feel confident that Michael will make the right decision on that one. We'd love to just understand the product and how it works from the plan sponsor level and how would it actually work for an everyday person? Yeah, I appreciate that. So just to be clear on what the product is, it's not a mutual fund or a registered product.

It is an account that is set up at a plan level, so a 401K plan level account. That account will hold 95% or more in actual Bitcoin for that plan. And the remaining percentage will be in short-term money market instruments, simply because of liquidity, trade timing, because we're putting this into a 401k plan where everything works around a mutual fund timing. So another important thing here is that this is not in the self-directed brokerage option. This is in the core lineup.

And so how it works for an individual is when they go into their digital experience for Fidelity customers, we call it net benefits, whether it's the mobile app or whether they're going on their laptop, they're going to see this digital assets account. right alongside all the other funds in the plan, mutual funds, collective investment trust, whatever funds the plan has. And they're going to see that fund, and they're going to be able to then select that for payroll contributions, ongoing to payroll deduction contributions. They'll also be able to select that fund to rebalance some money into it or transfer from a mutual fund into the fund or from that fund back into a mutual fund. So it's fully integrated. Now, what

we've done though is we've wrapped around that education and information for for participants because we want to make sure though they that they know that this is different than a mutual fund and there's different volatility different risk different reward opportunities and we want to make sure that people can make an informed decision when they decide how much they want to put into it. I'd imagine that some of the infrastructure that Fidelity's already built around the custody of digital assets was a big benefit to the workplace group going forward here. So maybe talk a little bit about just how the building blocks all came together and maybe what's next.

Yeah, the way you described it is really perfect. It really is the building blocks of fidelity. So this is really a fidelity enterprise-wide solution that we are bringing and delivering to our workplace customers, plant sponsors, and participants. Really at the core of this is Fidelity Digital Assets. and their ability to trade and to custody with the highest levels of security, Bitcoin. And then our clients really benefit from that, right? Our clients don't have to hold a private key, right?

Clients, participants don't have to worry about losing a key. We take care of all that security for our clients. It's really built off of the experience we had with institutional clients and with institutional custody. So that institutional grade custody and security, bringing to our workplace. And in addition, it's really kind of the best of workplace investing, which is really our long track record of the best technology and record keeping and the best record keeping skills and professionals combined with our money movement capabilities and accounting capabilities. We felt like it was just a natural to bring all those together. And that's

exactly what the solution does. That makes sense. Tom Jessup has been public about the product roadmap on the Fidelity Digital Asset front and getting to Ethereum. Is that something that would impact the product lineup on the WS side? Yeah, we absolutely will be moving on lockstep with the enterprise and with Tom Jepso. So we have designed this digital assets account to not be just restricted to Bitcoin. Now, Bitcoin is where we're starting. But this structure could work for ether. This structure could work for a multi-coin.

approach. So we have a lot of flexibility. We have built this not with just this solution in mind, but where we're going. And if you notice in the title, it's Digital Assets account, and that we made it plural for a reason, because we do think that this is going to expand over time. Dave, that's great. I'm really excited about it. Where can we send people to learn more about the offering? Yeah. If you want to learn more about the offering, go to Fidelityworkplace.com backslash s, backslash digital assets. Awesome. Well, we'll link that in the show notes.

And thank you for coming on. It's always great to hear about these projects that Fidelity is doing. And it's a lot better than Nick and I just riffing on it ourselves to hear it directly from the source. So appreciate you taking the time. Well, I'll spend the time with you. Happy to come back and share more as we continue to innovate. So there you have it, right from Dave Gray over at Fidelity. I'm sure we'll be talking a lot more about this in the weeks to come,

really particularly interested in what the competitive reaction is to this. because this is going to make Fidelity's 401k offering a lot more attractive to certain younger demographics, I would think. So back to the regularly scheduled rundown. Why don't we move on? So it looks like Binance has recovered $5.8 million in stolen funds from the AXE exploit. The North Korean Lazarus Hacking Group was behind this, apparently. And it looks like they were trying to layer some money on the Binance Exchange. Not a lot of money, though.

So 5.8 million out of the total 600 plus million. So wonder what they were doing there. Yeah, that's curious. You'd think they'd know better than to move hacked or stolen funds on finance. I mean, these are sophisticated state actors. Yeah, I don't know. Is that like a payment for intermediaries or something like that? You'd have to think that maybe the North Korean hacking group relies on non-North Korean

assets for assistance in some of these things and maybe they're trying to get a few payments out or something. But curious fact pattern there. So there was a hack we didn't talk about, which was the beanstock hack. I don't think we covered that when it happened. No, we didn't. Let's talk about it. So I just thought this one was interesting because the attacker used a flash loan to push through governance proposal. which voted to transfer all the assets to the hacker.

I mean, it's kind of, so this is something that Linda Jang and I wrote about in our paper on like things that could go wrong in Defi. I think there had been one example historically of governance being used to steal assets or hack a protocol. Here we have the combo of flash loan plus coin, you know, on chain voting governance. and it's a toxic combo, basically.

It's a really hard one to protect against, too, because if you do a security audit, this is not the type of thing that will immediately show up and jump out in the code. And so you could go through this review, but you'd really need to be doing simulations, I would think, in order to find some of these exploits.

Well, it's just about system design. I guess you learn, you know, it's like all these safety rules are written in blood. Like enough of these things happen. You, like, learn, okay, we should add a whatever one week gating period into, you know, significant governance changes or something. But the idea of having corporate governance effectuated immediately, you know, literally within the space of a single block, that doesn't seem wise. I think it's

probably not the standard actually. There probably are, you know, delays built into this in a lot of other protocols. But this to me was just one of the most remarkable exploits that I've seen so far. This was one of these exploits where you just, who is the person that found this? And I would love to know what that brain looks like. It's just an unbelievable thing to discover that you could do this.

Yeah. So never before has so much leverage been available to you know, unethical people basically in order to steal assets on the internet.

Yeah, but honestly, like some of these things are happening with like 14-year-olds that don't understand the legal ramifications of it is my sense.

Right. So here's something that I'm not, I think we'll find out and we're recording this on a Wednesday, classic mistake by us. We'll find out over the next couple days this is real or not.

Reportedly, it's kind of hard to know, but apparently, Central African Republic has adopted Bitcoin as legal tender. So becoming the second nation to do so after El Salvador. This has been reported in the BBC. So that's sort of as real as it gets. There was a press release.

It's in French. There's only a French version of the press release. But yeah, so apparently Central African Republic has legalized Bitcoin. It's now legal tender there. All right. What type of GDP are you talking? Not material, if I had to guess. And I also don't think it's not a country, a country known for its high internet penetration.

So it may not be addressable to everyone in the country. Yeah, is there a crypto on ramp in that country? I mean, according to the BBC, 4% of people in the CAA. have access to the internet. So it's, yeah, I don't know if we're going to see a lot of uptake sort of day one. GDP here is, um, 4.2 billion dollars per year. Yeah, so definitely one of the most impoverished nations basically in the world. However, I think it's a story of sort of gathering steam and, uh, institutional credibility.

I don't think it'll be the last country to. to accept Bitcoin is legal tender. And the thing that cracks me up is every time you read about Bitcoin now in a missive from the IMF, they'll say something like Bitcoin is not legal tender, and then they put a little asterisk, and they say except for El Salvador. And so now they have to say except for El Salvador and the Central African Republic. So it just keeps getting longer. Yeah, it reminds me of the Biden executive order where they came out and talked about how many crypto users there were. Now that's a codified figure that just grows and grows. Right. So I don't know. We'll see what happens here. I don't know what the ambitions are of the leadership here. It's not really clear what they're trying to achieve. It could be simply that they want to raise the profile of the country. Clearly raised Lucchelle's profile, raised El Salvador's profile. I think it could just literally be marketing, basically.

Yeah, I'm interested to see how that goes. The other story that's unfolding is so the CFTC has announced that. that they will host a roundtable on May 25th. And the roundtable will be to discuss FTX's proposal to take their derivatives platform straight to retail. So to not have intermediated like FCMs, kind of at the helm of their platform, which we talked about with Brett Harrison on the podcast a few weeks ago.

So I'm going to be really interested to see what the outcomes are of this. There's a lot of traditional legacy players that won't want So we'll see what that roundtable looks like. And I don't know if that's going to be a public forum or not. We'll have to get a little bit more information about that. But it would be really interesting to understand not only who's at that roundtable,

but what is said and get a little visibility into that process. So elsewhere in regulatory, New York State Assembly has actually been successful in passing a bill, which would ban Bitcoin mining using non-renewable energy sources in the state. Yeah, not great. Not fully through, I think the state Senate needs to vote on it as well. But yeah, definitely a material development there and probably a template that might be used in other states as well, frankly. New York is actually not insignificant in terms of Bitcoin mining.

By my estimate, it's 7% of U.S. hash rate. So that's maybe 3% globally. So a fairly material amount. New York's just doing the best they can to alienate the industry. You know, there's a lot of talent in New York working on crypto-related startups. And I think they're putting it in jeopardy. Totally. Did you see this tech crunch article about,

about Brian Armstrong. So he, it was pretty interesting. I surprised this didn't get more uptick. So TechCrunch had this article. I guess it was last Friday and included some quotes from CoinBiss's Brian Armstrong around how Apple's app store has really hampered their product roadmap,

how they've had a bunch of features that they wanted to release. And a lot of these have to do with payments and direct DFI functionality. and he sort of suggested that, you know, there's probably some antitrust issues here, which like seems like a complete no-brainer to me. Like, obviously there are antitrust issues here. And it is completely hampered many crypto wallets and pretty much everyone, I would say, in the crypto industry who's had to go through these centralized ecosystem app stores. I'm surprised that this doesn't get more attention.

It's very clearly an issue around antitrust. Yeah, the app stores are basically. basically the biggest choke point on the internet. I mean, there's like two or three that matter. And if you're not on them, you're not relevant. So they're just the biggest pressure points, I think, on the internet right now. It would have been a whole lot different if HTML5 actually worked. Remember when Zuckerberg was trying to push Facebook through HTML5

and not have it go through the app store? There's a world where HTML5 actually, you know, I guess the user experience was just not good enough. But that would have been a far different world if we're just engaging on a browser on the mobile device. This would be something interesting to see with Twitter actually. Mark Andreessen has been posting about this. He's had a real resurgence in his Twitter activity.

Basically saying if Elon is successful in loosening the moderation standards at Twitter, Mark is predicting that Twitter had received pressure from the Google and Apple app stores to retitten their standards or risk being kicked off. And that's what happened to the free speech, quote unquote, focused Twitter alternatives like Gab or Parlor. And I think he's got a point, honestly. I think he's probably right. I think those will be the major choke points. And if not, them, then a deeper level.

of the infrastructure stack like AWS. So I think, you know, I don't even know if Elon's can be able to actually, what's the word, consummate this transaction. But if he does, I think he'll actually run into problems at the infrastructure level of the internet, namely the fact that there are very strong pressure points. And these are things you have to rely on. You can't be a sovereign company on. the internet you have to rely on these things cloud fill air a ws google cloud the app stores you're

totally beholden to them and so you don't really get to make your own decisions it's a great point and frankly the decentralized alternatives just aren't up to par yet in order to run something as complicated as twitter not remotely they really aren't good all not even close really think about how many dependencies twitter has how many services it relies on i mean it's just this and probably an astonishing number. And this is why if you look at Gab, it's actually interesting. They've been rebuilding everything that they rely on hosting domains, payments. They've had to sort of rebuild it all from scratch because they got kicked off of it all. Twitter can't do that. No. They're not going to, you know, they're too big. Now because also because people don't work. Yeah. And no one

shows up to the office. There's no one in the office. They're turning it into a homeless shelter. Yeah. So here's the question. What percentage of Twitter's workforce is Elon going to fire on day one? I mean, you would have to think that he's going to take a scalpel to that place. If it were me, I think it would be at least 20%. You would just go in. You know that I used to do this as a job. Right. Yeah. This is, it was like the George Clooney. Yeah, up in the air. Great film.

Go in there and, you know, it's a painful process. But I think the people you were firing were more sympathetic than maybe whiny Twitter employees. Well, maybe, yeah. Well, you're firing like blue collar, like, you know, working class people, right? It's never fun to fire anyone. It's, you know, people that are, you know, some of these Twitter employees probably also work at like Google. So they're just at home, cash and chat. Yeah, I think they're very employable.

I think if you're firing some of the work. and a timber mill. Those are like the kind of businesses you have to go in and got, right? Yeah, it wasn't fun. Yeah, that's tough. On this topic of Elon and sort of public networks versus closed private networks, I'm reading this book right now called The Founders, which is about the PayPal story.

And one of the critical technology crossroads that happened after the merger of PayPal and X.com, which is Elon's company, was whether or not they would build on Linux or Microsoft Stack, And Elon was a huge proponent of building on Microsoft, primarily because the tooling around Linux just wasn't there yet. And Levchen and a bunch of the PayPal people were all about open and Linux and did not want to build on that.

And that was part of the kind of the big tension that resulted in Elon no longer being the CEO. And it's just fascinating now to see Elon kind of gravitating towards public networks and away from these closed walls and also having this spat with. Gates, which is happening in public. So he's learned a lot over the years, it seems. So on that note, Elon has actually hinted at somehow turning Twitter into a protocol. Jack Dorsey has hinted at that or suggested that it should happen. I don't know how that would happen. People are talking about open sourcing, quote, the algorithm. Yeah, that's a new thing. I think that's honestly insane. I mean, I don't think anybody would be able to make sense of it,

frankly. My guess is it's this massive machine learning model, just enormously large, that, you know, tries to moderate and do anti-spam and strategically boost things and de-boost things that basically nobody understands and nobody can wrangle. If I had to guess, that's what quote-unquote the algorithm is. Probably no one even at Twitter understands it, frankly. I get the logic in wanting to have that because the appeal would be if you could subscribe to various algorithms and various filters. So I get the academic appeal to that, but I just don't know how practical it is. No, I don't think it is. I don't think it will be. I don't think anybody will be able to get it. It's going to be this ever-changing,

just colossal thing that they've been training and tweaking and prodding for years and years. Maybe nobody at Twitter gets it and it just kind of runs itself. did you see they put a feature lock in because they're so worried that people would jump in and disgruntled employees would tick down the side or do things? It's interesting because it actually has changed the dynamics. I mean, some accounts became unbanned. Some accounts had huge surges and followers. It's all very mysterious, honestly.

It is funny to think that we kind of exist in service to this algorithm because you can kind of sense sometimes when you're being de-boasted. And it's like a vision of the future that we're basically trying to ascertain the desires and, and, you know, tailor our content in order to please a literal algorithm. I mean, it's very true. Yeah. That's a real thing. I mean, everyone on Twitter does it basically is they subconsciously or consciously, they're trying to, you know, post such that the algorithm or, rewards them. It's kind of deeply inhuman in a way. It really, it's like a rat getting compensated

with like a treat and you're just on that dopamine rush. There's not even a scientist on the other end. It's just this, it's a machine. Yeah. This just broke. So Facebook, uh, meta now, I guess, they have posted a $3 billion loss in their metaverse division in the first quarter. Revenue growth is slower than it's ever been since the IPO. I don't buy the VR Metaverse. I don't think I would ever want to plug into a fully VR Metaverse. However, augmented reality with glasses, I think is going to be super cool. And I'm very, very excited about that.

But yeah, the few times I've worn VR goggles that's had me on the verge of hurling minutes into it. I've done it. I've played that boxing game on the Oculus. That's pretty cool. The thing is it takes you out of your context so much and it requires so much preparation. You have to like find a safe zone where you're not going to knock over a vase or anything. I mean, that just seems too disruptive to sort of your everyday. Whereas putting on glasses, which now you have an overlay on top of the real world,

that seems totally acceptable. Have you ever seen those YouTube videos of the people that are like looking over a cliff in VR? and they're just like they're so paralyzed with fear and like they end up falling it's just so you can yeah it's not for me yeah it's kind of a funny time i was feeling a little queasy to begin with it's not what it likes to not for you right now all right so we're recording this on wednesday i'm sure there's going to be a huge story that breaks on thursday maybe we'll we'll chime in and we'll do a rough cut if something big happens yeah maybe the twitter purchase will be called off i mean that honestly, I think if you look at maybe the price of options, you could probably develop

a model and find out how likely it is that the purchase doesn't go through, that it goes below the strike price. I think there's very significant odds that that happens and that Musk has to sell Tesla. I think the markets realize this. Tesla's been selling off. So it's also a self-fulfilling prophecy, right? Because if you think he might have to sell his Tesla stock, then you're going to sell your Tesla stock now, thus making it more likely. That's like the thing, I mean, Tesla could take a huge haircut of the founder's selling like, you know, half of his shares. That's just an enormous amount. It could happen for sure. There's a huge breakup fee on each side of this transaction too. The merger arb guys are probably having a field day.

And Twitter is not actually trading at whatever it is, 5420, right? It's not. So the market's also telling us there's a world where it doesn't close. I mean, we'll see what the SEC has to say, too. I mean, there's a lot of stuff to wrestle with on this one. Yeah, I don't see any antitrust considerations here, but yeah, they are going to have to go through all these things. Yeah, and I think when I talk about the SEC, I'm talking specifically about the impact on Tesla with this activity.

Yeah. I don't know how Elon has talked. climb to how many public companies is it now? How many, you know, multi-billion-dollar companies is he running at the same time? Five or six, yeah. All right, so I think that's it. Neither of us are in the Bahamas.

Hope everyone's having fun down there. Probably don't get, probably not listening to the podcast if you're down the Bahamas, but I hope you're enjoying it. See you next Monday.