On The Brink with Castle Island - Weekly Roundup 05/14/21 (Tom Brady is a Bitcoiner, Elon betrays us, Tether's questionable reserves) (EP.213)

Episode Date: May 14, 2021

Nic and Matt are back for an insane week. In this episode:  Tom Brady is a Bitcoiner Elon betrays us Do virgin coins exist? Binance under investigation by the DOJ Bitwise launches the BITQ ETF Palantir thinks about buying Bitcoin Diem partners with Silvergate We break down Tether's questionable reserves 46 million Americans own BTC Elon's bad tweet New FUD dice just dropped The changing Bitcoin energy mix landscape Content mentioned in this episode:  Nic Carter in Coindesk, The Virgin Bitcoin Fallacy Nic on Bloomberg/What'd You Miss This episode supported by:  Sovryn, DeFi on Bitcoin Eventus, global leader in trade surveillance, market risk and transaction monitoring solutions

So you are holding in your hands the new dice. We finally got them. It's exquisite. It's a beautiful orange. This is like that scene in American Psycho where they're looking the business cards. This is a glossy 12-sided dye with letters on it. It's orange.

It's not quite the Bitcoin orange, as you know. As the brinkers will know, we had supply chain issues with the orange. So it's a slightly more reddish orange, Mars orange, dare I say. Still the same fuds though. Well, new fuds, but still the same high-quality fuds. Yeah, to be clear, the fuds are all new.

Let's have a look at some of these. Energy waste. Classic. Climate. Classic. Visa scale. Helps China. Wow.

Helps them. Helps them. Inefficient. government ban quantum NSA that's a good one NSA came up

well yeah they came up with Bitcoin I hope they came up with it because that would make Bitcoin a virus that escaped from the lab how cool

that would be really cool the lab leak hypothesis for Bitcoin and just Satoshi's stack is owned by the government what a story yeah how sick would that be

Satoshi return that's a fud that barely barely snuck on the era I thought he did return um is that

that would be news to me Craig right no Craig is he's doing some aggressive stuff for sure he sued a bunch of actually yeah

I should probably roll that back sorry Craig yeah I don't know if he if he's a brinker so anyway these are my these are my favorite

maybe aside from the first edition but this is off Bitcoin Orange almost Bitcoin Orange V4 there have been four editions of the dice now I don't know how many more we can do because we're going to run out of Fudd at some point

No, there's always new Fudd There's always new FUD Yeah, though the critics will come up With some new crazy stuff, I guess And anyway, we're selling these in pairs On our website on the brink dot shop On the brink dot shop I actually met in person this week

With our On the Brink dot chop guy And I gave him some of our original dice I actually gave him the first three books So he's like he's now got a full set. Yeah. Now the question is how many of you will become legendary dice collectors have all four vintages? I would wager that virtually no one has all four because we distributed them in such a sort of ersatz's way.

Well, so V3 was like at a kind of a niche conference that we put it on. That's right. V3 we made 500 for a conference called Off the Chain that we hosted here in Boston. That was the only way to get it. V1. I sold it on lightning. I manually fulfilled them. I screwed up a lot in fulfillment.

A lot of people didn't get them. Sorry. Lost a lot of money doing that. V2 was probably the most dispersed one. That was the blue one. To get V1, you sort of had to see me at the Baltic Honey Badger Conference.

That's when I was handing them out. To get V2, V2 is pretty widely available. V3, virtually impossible. V4 will be the most democratic fud dice issuance ever a fair launch dare i say a fair launch they never work if there's one thing that grin has taught us you can't replicate the bitcoin phenomenon that's right so this will try and do the first ever or second ever successful fair launch uh with these physical nfts on the brinkdash shop on the brink dot shop get you fud dice brought down by bad mortgage

investments leeman which has 25 000 employees will be liquidated the federal government 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 constituted 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 the Bitcoin. And before we kick it off, just a little word from our sponsors.

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Dot app. Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. And I am not buying a Tesla. Yeah, I wasn't going to anyway because I don't want to die a fiery death by things of the autopilot, but I'm especially not buying one now.

Teslis are just stupid. I never liked him. I never liked him anyway. You know it's a handsome electric car? What's that? The Porsche T-C-C-C-C-C-Kan. Porsche T-C-C-C-Kan. We should get a podcast sponsor, the Porsche T-Tacan.

Yes, it's a good-looking car. This is not a sponsored comment. You know, and my week was going so well. Tom Brady came out at the laser house this week, And I just, I mean, I didn't even know what to say. That's like your two favorite things together in one. How often does that happen? It's unbelievable.

It's incredible. So then I pulled out my, I don't know if you can see behind me. This is, and this is not a video podcast, but I have a 2001 Patriots World Championship, Wheaties box, never been opened. Brady on there. I think Antoine Smith is on there too. 2001? Yeah. That's the first one.

That is his first Super Bowl. Yeah. And you have something that says Flutie Flakes. I've got Flutty Flakes too. So Doug Flutie, who is also a legendary quarterback with the Patriots, maybe not as legendary as Tom Brady. But he had his own cereal when he was on the Buffalo Bills, and I do have some flutty flakes. That's quite the shrine you've got up there coming together.

You've also got a block clock, which is showing a pretty disappointing Bitcoin price, dare I say. Yeah, Bitcoin, it's crashing. It's over. It's over. The experiment is over. Elon killed it. It's worth $50,000 and it's dead. It's dead. It's melting down the earth and Elon is to blame. Man, freaking Elon. Should we, I mean, how do we even address this? Where do we start? Yeah, so we can get into Elon in a little bit, but maybe let's start off with some deals. But before we do, I don't know if you caught the episode earlier this week with Katie Chase, Chief Operating Officer of Coin Metrics.

very well-reviewed episode. Triumph, an episode for Katie. She just finished diligence for Goldman for that series B. So congrats to Katie. Seriously, good work. I mean, that's not an easy task. Some good war stories about the early days of Fidelity in that one as well. And then you wrote a piece for Coin Desk this week talking about KYC'd mining pools and

clean bitcoins. Yeah. So I don't know if you heard, but there's. certain miners, including Marathon, are now apparently advertising their ability to mine OFAC compliant or, you know, heavily KYC'd blocks. Yeah. And that just made me think about this old chestnut of virgin bitcoins, you know, this theory that Dan Matashevsky repudiated when he came on the show, but this is the theory that

that certain buyers would prefer freshly mined coins because they don't have any taint. And like you want your dollars fresh from the printing press. You don't wash them? You don't wash yours? Dollars? You don't wash them? No, I've never washed a dollar. Have you washed a dollar?

No, but I mean, that's basically what we're suggesting here with Bitcoin. Yeah, so I guess the analogy is if you don't want someone else's greasy mitts. on your physical currency. It's kind of the same thing with these Bitcoins. But anyway, there's a bunch of practical difficulties in this. Once you start transacting with the Bitcoins, they're no longer virginal. They're no longer pristine.

Fees are an issue because- No one ever thinks about the fees. They don't talk about the fees. The fees come from existing Bitcoins. The pools tend to distribute Bitcoin. So there's already transactions happening when miners collect their coins. So there's all sorts of difficulties. I'm not sure Virgin Bitcoins are actually real.

Also, the other thing is there's no such thing as like specific units, distinct units of Bitcoin with persistence. There are no Bitcoins, Jerry Brito. Correct. Jerry is absolutely right. Craig Wormke wrote a great paper on this. I'm always going to encourage people to read it called electronic coins. There's no individual unit of Bitcoin. They're not distinct.

UTXOs track quantities of Bitcoin and they're sort of interchangeable, they're getting mixed up all the time and it's virtually impossible to track a distinct unit over time. So anyway, the virgin Bitcoin thing doesn't really make sense. It doesn't make sense at all.

The best way to clean your bitcoins is to have the U.S. Marshal Service steal them from you or seize them from you and then auction them out. Those are the cleanest coins in the world. That's correct. That is absolutely correct. So that was that And I guess there were some deals this week as well

Well I mean we're kind of skipping over You did just appear on Bloomberg That's why we're recording late Yeah it's late I don't know if the link is out But yes I went on Bloomberg once again And you know have a much improved mic Every time they complimented my mic

And so I got a new one The one you're hearing And yeah they Joe Wisenthaw asked me if Bitcoin was going to move to proof a stake to solve its energy problem. Well, I've talked to some Bitcoin people over the years. Some early Bitcoin developers even thought that Bitcoin might move to proof of stake. But yeah, he was kind of goading you a little bit. But I think the big story was your face.

Your sunburn is just epic proportions at this point. Oh, yeah. Yeah. And, you know, I kind of deserve this because I was denouncing sunscreen the other day. and actually a lot of people got really mad at me because they're saying that I have a responsibility to, you know, use my platform, I guess responsibly, which I totally disavow. And so then I got very sun's burn when I climbed this mountain because the sun reflects off the snow. You're a smart guy and I'm surprised you didn't realize that that was, you know, how the world works.

Yeah. So the bottom half of my face is roasted. The top half is fine. So there's some sort of solar angle reflection issue. It's a little bit disoriented because disorienting. It's not where you'd expect to see a sunburn. It's almost as if you get like slapped in the face or something. Yeah, it's like an inverse sunburn.

But I spent like three days out there in the sun. I was climbing this mountain successfully, I may add. Way to go. Thank you. and yeah, I'm completely roasted. However, I do, you know, I still kind of stand by my thoughts on sunscreen. I'll get into them, but not on this podcast, I guess, you know, maybe when I launched like a lifestyle and nutrition brand.

Yeah, well, we'll be waiting with bated breath for that. Why don't we hop into the deals? So there's actually not as many, maybe some weeks. First one is Ciena Network, Privacy, D5 platform. There is 11.2 million in token sale to NGC, inclusion capital, Lotus Capital, and FBG. Next one up is Babel Finance. This is a China-based crypto lending company. They raised $40 million from Zoo Capital, Sequoia, China, Tiger Global, and a few others.

Now, this one I think kind of suggests that we're running out of names at this point because it's called Nephi, N-I-F-I. It's N-F-I-N-F-F-I. Neefi? I mean, I don't know how you pronounce consecutive I's in English, but anyway, it's a decentralized exchange built on Ethereum scaling solution NAMI. Also, that rolls off the time. MII. They raised $3 million from Dharma Capital. Next one up is Paraswap. This is a Dex aggregator. They raised $3 million from blockchain capital, White Star, and the Defi Alliance. So then we've got Jenny Dow

that aims to democratize access to especially rare NFTs through fractionalization theory 7 million for multi-coin the YouTuber

Mr. Beast and others Mr. Beast Here we go Mr. Beast Do you know Mr. Beast? No I've never heard of Mr. Beast He's this

he like gives away a lot of he'll like give away like hundreds of thousands of dollars to like homeless people. I don't know where he sort of gets the money from, but yeah, that's like his whole thing. Well, that's nice. Next one up is detrade, not to be confused with E-Trade.

This is a derivatives platform on the Pocodak network. They raised $6.4 million from three arrows, defiance, polychain, and parify. Then we have Atras, a trace, I guess. The names are just hard this week. Right. Hard. hard names. Really struggling here. Decentralized referral network, they raised two and a half million

from the founders of Deribit and Coinstone Capital. Next one up is bullish global. That's a lot easier to say. That's the subsidiary of Block 1. So block one being the company behind the EOS blockchain. So they raised $300 million to launch a new exchange. And it looks like the backers include Peter Thiel, Alan Howard, Novagrots, Lewis Bacon, and some others. So that's a raise yeah that's actually a pretty monster deal didn't really get a lot of attention this week very interesting to see block ones transition from you know an eos company to sort of just a general crypto infrastructure firm it's kind of like a bitcoin company they have a massive war chest of bitcoin and it looks like they're building an exchange um you know to support that

yeah i mean just think about what was there supplement with the cc 25 million 40 millions something like that. Yeah, I mean, it wasn't much. And the total raise was in the billions, right? And they bought a bunch of Bitcoin low. They got 100, 200,000 Bitcoin thereabouts. If Bitcoin does what do we think it does, Block 1 are going to become oligarchs solely through their Bitcoin position.

Yeah, it could be one of the biggest companies in the whole country. In the world, yeah. They've got more Bitcoin than MicroStrategy. Micahistratology is in the sort of 90K Bitcoin range. Sailor's trying to catch up. He does keep buying to his credit. He is getting there. Lastly, we have Alice, a defy application built on the Terra Network,

raised $2 million from Arrington Capital. All right, so let's get into the news. Obviously, this Elon thing is news. So I'll tee this up a little bit. So he posted on a tweet on Wednesday night. Mind you, not a tweet from Tesla and not an 8K. And I'm going to start to read it here. So Tesla has suspended vehicle purchases using Bitcoin.

We're concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel. Cryptocurrency is a good idea on many levels, and we believe it has a promising future. But this cannot come at great cost to the environment. Tesla will not be selling any Bitcoin, and we intend to use it for transactions as soon as mining transitions. to more sustainable energy. We're also looking at other cryptocurrencies that use less than 1% of Bitcoin's energy slash transaction. Pretty confusing here on a number of levels.

I guess there's a lot to dig into. So my first reaction here is that not a lot of people were paying for Teslas with Bitcoin. So this is like a completely economically irrelevant announcement. They were using, what payment processor did they end up using for this? I think they're actually using BTC pay server. Okay.

So, you know, if more than five people bought Tesla a Tesla with Bitcoin, I would have been shocked. So it's not like a, you know, people think Bitcoin's going up in value. They're not going to go buy a Tesla with it, by and large, I'd say. The other kind of issue here is just that there's a lot of factual inaccuracies with the post, which we'll get into.

But my, I guess my overarching takeaway was just, confusion that Tesla and Elon Musk would deploy $1.5 billion towards buying Bitcoin and actually not understand it very well. It just seems baffling to me from a fiduciary perspective. Yeah, that's absolutely right. I mean, it's not like Elon is the greatest steward of shareholder value. I mean, you know, certainly Tesla stock has gone up historically. But I mean, this is very odd. his prior tweet was do you want Tesla to accept Doge? Literally the tweet before that. So he's tweeting about accepting cryptocurrency.

The next tweet is, looks like he's under duress or something, saying that they can't accept Bitcoin because of its carbon outlay. Repeats the per transaction energy cost myth. I mean, you know, it talks about coal, being used to mine Bitcoin did Elon even write this tweet? I don't think so. I think his chief compliance officer wrote it or something.

It doesn't make any sense whatsoever. Also, if you want, like, if he wants to mitigate the climate, the carbon impact of their engagement with Bitcoin, turning off transactions for Bitcoin makes no difference whatsoever because we're talking, you know, a few hundred dollars in fees. The gigantic hoard of Bitcoin that they bought, and continue to hold, 100% moves the needle from a carbon perspective because that increased the value of Bitcoin and 90% of minor revenue comes from new issuance, from block rewards. And the unit

price is what affects that. So they did the opposite of the thing that they should have done if they really wanted to reduce their climate impact. So their words and their actions are completely at odds with each other. So I've heard all sorts of conspirators. theories about this. I mean, I refuse to believe that Elon, I mean, he's a smart guy, and there are a lot of just factual inaccuracies in this, the per transaction, you know, scaling myth being probably the most egregious one. And I actually refused to believe that he hadn't done his due diligence around putting $1.5 billion of Bitcoin on the balance sheet. And so, but I'm puzzled as to why this happened. I mean, there's definitely conspiracy

theories out there that he has shareholders that have big ESG mandates that. are leaning on him in some way. They're definitely conspiracy theories about governments that are giving subsidies to Tesla for particular USG mandates. I've heard that. I've heard some 4D chess conspiracy theories around he's introducing new technology to improve the efficiency of mining. I mean, the conspiracy theories are everywhere here.

I mean, I guess Occam's razor is just that he's a little bit crazy. We know he's crazy. It seems that he's crazier than ever. There's the other point that someone made that Tesla is facing pressure for their primary business line, which is selling carbon credits. Apparently they make more money doing that than selling cars. And I guess there is some discussion around the fact that this might impair their ability to do that. Yeah, not much else to say. But anyways, it creates a ton of media frenzy and gets you invited on Bloomberg.

So people are talking about it. I mean, I take no joy in the fact that people, like, my inbox gets slammed by journalists whenever Elon says something stupid about Bitcoin's energy consumption. I mean, his follow-up tweet was terrible, too. Like, to be clear, I strongly will be even crypto, but he can't drive a massive increase in fossil fuel use, especially coal. Like, this is why we need to get good numbers on Bitcoin's energy mix. miners, if you're listening, please work with Cambridge. Give them your data because the numbers absolutely bear out the fact that Bitcoin is getting less and less coal dependent every day and is being decarbonized. For a fact, we know this. We know that Inter Mongolia was one of the four

big provinces in China where mining occurs, one of the two big coal provinces along with Sing Chong. I learned how to pronounce that. And Inter-Mongolia banned Bitcoin mining. So that takes away half of the coal impact of the China miners. China miners generally are leaving. We know that ASIC manufacturers had all their supply bought up through 2020 by American buyers. American buyers. The American grid is much reduced in terms of its coal dependence.

It's not actually the renewables have done much. It's that natural gas has come to take over in the U.S. Natural gas is way better than coal. They're totally different. Natural gas is way, way better. This greenage plant that Elon complained about in one of his tweets, this plant that came back online in New York State that people are upset about, it was formerly a coal plant.

It got retrofitted into being a natural gas plant. That's another thing that people don't understand. They think it's a coal plant. It's not. People think Bitcoin is mine with coal plant. coal, they're just not looking at the truth. They're not looking at the reality. And yes, granted, like, miners have to do a much better job. We can't do it. We're not minors. All we can do is ask them. The Bitcoin community needs to do a much better job disclosing where, what kind of energy

they're using, what the breakout is geographically. But the fact of the matter is the Bitcoin's dependence on coal is being reduced. It's not increasing. It's being reduced every single day. it doesn't bubble up to a sound bite the way Elon bubbled his side of the story up. Right. So I said something like that on Bloomberg, actually. I said that, you know, look, we can resent the Bitcoin energy critics as much as we want. But at the end of the day, it is still our duty as Bitcoiners to encourage as clean mining as possible. The best possible thing that could happen would be obviously if China bans,

Bitcoin mining outright, barring that as much onshore mining as possible, U.S. grid-based mining, European-Canadian mining. You know, these miners are publicly traded now. They're going to benefit from being more ESG-minded. So the trend is good. The trend is good. Yeah. So Bloomberg is reporting that Binance is under investigation here.

So Binance, of course, the largest cryptocurrency exchange in the world, unregulated, I believe, domicile than Malta, but who knows. And they're under investigation from the Department of Justice and the IRS, which are, you did not want to be under investigation from the Department of Justice or the IRS. Yeah, it's unclear what's happening here. Doesn't sound good. It's kind of fud season right now, I must say. You got to climb the wall of worry, right?

As you always say. That's right. We got some new fud dice right here. I don't have Binance investigated by the DOJ on here It's yeah I mean well so DOJ My mind immediately goes in the Bitmex direction around the

Bank Secrecy Act and whether or not they had People that were on the platform laundering money Potentially people on the platform from sanctioned countries Who knows Yeah we're I don't know I mean I feel like of all the regulatory agencies The DOJ is the one I would least like to be investigated by.

I don't think I'd want any anyone investigating me. But yeah, DOJ, I don't want the Southern District kind of calling me. No, thanks. I mean, IRS got to be pretty bad too, frankly. Speaking of which, tax day is coming up. I mean, I've met Gary Gensler. I don't want Gary Gensler giving me a phone call other than to say, like, you know, hey, let's catch up.

But I don't want an investigation. I think you're safe. for now. Knock on wood. Next one up is Bitwise asset management. So portfolio company of ours, they recently announced this week the launch of the Bitwise crypto industry innovators ETF. So BITQ is the ticker.

So this is a new product that allows investors to basically get picks and shovels oriented exposure to crypto infrastructure companies. So you don't hold the underlying. So I think this will be a really popular product, basically getting exposure in an equity contacts to the companies that are actually doing stuff in the crypto space. Yeah, this is the first ETF with crypto in the name, fun fact. Yeah, so you're going to have this on your statement, which is great. So all these banks that hate crypto, you know, you got to put, this is the crypto innovators

ETF. And, you know, there's a lot of banks that are not crypto innovators. They don't like this stuff. I was looking at the constituents. You know, it's taken a long time. But I think now we're finally at the stage where there are public names. worth owning that are doing crypto stuff. So I feel pretty okay about this vehicle as a tool of exposure.

Obviously, the Coinbase IPO changed everything. I mean, that is a high quality name. Obviously, they had a bit of a disappointment with earnings today. But, you know, there's real companies with real cash flows. Maybe some of the miners are a little questionable. I'll say it. But, you know, there's enough public names where, you know, you can actually put together.

these baskets and they make sense. Next one up is VanX. So they have filed for an Ethereum ETF with the SEC. So they filed their S-1. And obviously this is going to go under review. I'd expect we'll see more of these, but I'm not very confident in the Ethereum ETFs right now. And I'm actually not that confident in the Bitcoin ETFs either,

for that matter of which I guess we can get into. Yeah, I mean, the SEC has said some pretty bare kind of hawkish things on the Bitcoin ETFs. I guess maybe that goes with a regime change that the new commissioner wants some time to dig in and develop their own perspective on these things. So it's sort of not looking too bright for the ETF discussion. Meanwhile, GBDC, this is the GBDC show, minus 20% premium or 20% discount. So kind of tough on the ETF front right. Yeah. And so what you're referring to is there's some comments from staff this week from SEC staff talking about how volatile Bitcoin was and really kind of suggested to me that staff does not support

this. So we'll see. But probably one of the forcing functions will be these 19B4 forms that have been filed. So Van Neck has one on their Bitcoin ETF and Fidelity and CBOE. Well, I guess CBOE filed it, but it's for Fidelity's Bitcoin ETF proposal. And that basically starts a, a 240-day shot clock, so to speak, on a decision. So Vanek was first and Fidelity was, you know, 20 days after or something like that. So we'll find out soon enough. But I've long said, I think the facts and circumstances support an ETF at this point, especially since the spot market is more mature.

But it seems like the staff at the SEC might not agree with that. Yeah, it'll be really. I think Catherine Greifeld said it, you know, she's Bloomberg's ET. reporter that, you know, the consensus among the crypto enthusiasts was an ETF in 2021. And I think we probably were part of that consensus, frankly. And we might well be frustrated in that. So the way it goes on. Yeah.

And so some more SEC news. So Grayscale is seeking SEC reporting company status for their digital large cap fund. So this is just a. progression to bring that product under more oversight and eventually they would want to bring, I'm sure they would want to bring that to an ETF discussion, but some point down the line. So the progression here, I'd imagine would be Bitcoin ETF approved, Ethereum ETF approved, you know, basket ETF funds approved at some point in the future. So elsewhere in public names, Palantir suggested that they're thinking of adding Bitcoin as a

balance sheet asset. Yeah, well, this is how you do it. You come out on the earnings call. You say we're thinking about it. If you say you're thinking about it, that means you're doing it. We should go back and talk and play, find the tidbit where we first talk about the micro strategy earnings call. I think it was Q2 earnings 2020.

Yeah, that was like, yeah, about July 2020, where, where we, you noticed it. I'll give you credit for that. Probably the first first guy in the crypto space. I noticed that and we were totally nonchalant about it. Yeah, I had a good tipper. But, you know, that's how you do it, I guess. But with the micro strategy one, you know, here it's a small company. They have an earnings release.

All right, maybe they'll go out and buy like five, $10 million worth of Bitcoin. I mean, this guy just went all in. And he just disclosed. he bought an additional $15 million this week. So, I mean, how much Bitcoin has micro strategy bought? They have in the 90,000, 9-0,000 range. That's incredible. So little did we know back then that he was just telegraphing that he was turning

his company into a Bitcoin holding vehicle. So on the Palantir front, though, I want to go back quickly. So people thought this one, so first of all, Peter Thiel affiliated company. So we're going to have to give Peter Thiel some credit here because I was pretty mad at him when he, you know, suggested that China controls Bitcoin or whatever. But I think the people that said he was playing 40 chess were right because it, you know, he sent the signal to the U.S. government that we've just started taking Bitcoin more seriously. And then a bunch of sort of governors and, you know, representatives and policymakers started to echo what he was saying. and now, you know, Palantir is maybe picking up Bitcoin. Palantir obviously is a, you know, very sort of U.S. government affiliated.

I mean, I would say they're part of the military industrial complex, frankly. They are, the government's a huge client of theirs. Yeah. So kind of an interesting situation to see such a U.S. government proximate firm signaling a pro-Bitcoin stance. Yeah, along those lines, Stan Drucken, was on CNBC earlier this week, talking about the end of the dollar's supremacy as the global reserve asset in predicting that it would be over within 15 years and saying that it would be distributed ledger technology-based asset that replaces it. So that's a pretty bold statement.

The thing is, when you have these transitions in, you know, reserve assets, there's typically a geopolitical transition. So there's a transfer of power. So, you know, the catalytic of moments are wars typically right World War I ended the pound you know the dollar really caught on after World War II you know these things tend to be accompanied by war times

the question is you know can we move from a nation state paradigm to a distributed sort of internet first paradigm you know do we need a geopolitical realignment to occur

for a non-state currency to become the reserve. I would posit that we're, not that we're in a post-war era, but the nation states are just less important as organizing units. Yeah, I totally agree with that. I mean, I also would posit that corporations

are a lot less important as organizing units. Less important, really. I mean, I would say, you know, Facebook and Amazon and Apple have, you know, more power than virtually any corporation has happened. in the last 50 years or so. Well, I guess what I'm trying to say is that the nation state, you know, being one issue, the secondary issue is just the way that people work, I think, is there are a lot of experiments

going on right now. A lot of them in the Ethereum ecosystem around Dow's, around, you could imagine people working for distributed autonomous organizations as opposed to corporations increasingly in the years to come. And so I definitely agree that corporations are on one end of the spectrum. with the Amazon's and the Fang stocks becoming more important than nation states. But on another end of the spectrum, who people choose to work for, that's changing too. Yeah.

I mean, the sovereign individual thesis, the kind of, you know, biology's thesis, we're seeing Hungary, creating a tax haven for Bitcoiners. They're certainly not the first state to create a special crypto economic zone, as I call them. I mean, it seems to be happening. And if you think about, you know, how Bitcoiners, for instance, identify, you know, you can have an Armenian Bitcoin or American, Saudi Bitcoiner. They'll probably have more in common with each other than they have with their countrymen. Totally. So it's been fascinating to me.

So I'm a big fan of the bankless guys podcast. And I know you've been on there a bunch of times. It's a good show. It's a good show. So they organized a Dow. and for those who aren't familiar, distributed autonomous organization. And they,

it's an incredibly vibrant community. And so they have, they're essentially trying to decentralize the operation of their whole media franchise. And so I don't know what the analogy would be. It's like a distributed coin desk meets, you know, a merchandise company meets a tech firm or something. It's just,

it's a fascinating experiment. And you really see the grassroots, enthusiasm of the people that love these guys' podcast and love their content that they're putting out. And it's, it really is what you're saying around how you can have someone that's on a totally opposite side of the world, but organized around not a political construct

or geographical construct, but just around ideas that they share in common. It's really cool. Side note, do you see that your block clock is exactly 50K right now? Oh, wow. Is yours too? Yeah, we, well, we have the same block clock.

I didn't know if we're synced up, but... Yeah, but you're right. It is very, very interesting to see. And that is what, in conclusion, makes me think that it is possible for a crypto asset to, you know, supplant a sovereign currency like the dollar eventually. Because these are not just currencies, they are the nexus of these political organizing units. and these, you know, tribes are political entities. I mean, Bitcoiners have beliefs that go far beyond just money. And there's 46 million of us in the U.S. now, 46 million.

Yeah, so that was a crazy. So Nidig put out, what you're referencing is Nadeg put out this survey that says 46 million Americans own Bitcoin today. And the second part of it, I kind of doubt a little bit, but it says 80% of the response. at the survey would move their Bitcoin holdings to their bank. I mean, I'm not moving my Bitcoin holdings if I had any to any bank. I'll tell you that. I think you'd be surprised. A lot of people do trust their banks and they're not keen on getting a new brokerage account anywhere. I mean, younger people are okay with that, but a lot of people have stuck with their bank for decades. I'll go with the crypto-native firms that actually know what they're doing.

well once we discussed last week it looks like nideg is turning on this functionality with f iS so maybe people genuinely will be able to have bitcoin exposure in their banks i'm sure yeah i'm sure it's coming for sure so alex gladstein has been indefagitable oh indefatigable indefatigable recently with his writing and he wrote this great piece uh financial and privacy in the post-cash world. Wait, that no, that's not the one that I wanted to highlight, actually. Okay. Damn it.

That one is good also, but wow, he's been writing so much. He's been writing more than me. He had this great piece. Check your financial privilege. And it was really, really well done. It's kind of this long narrative piece where he interviewed. views, Bitcoiners in, you know, a bunch of emerging and frontier markets, so Nigeria, Sudan, Ethiopia, so a bunch of case studies for how Bitcoin is helping people abroad, which

Westerners just don't understand. And, you know, I find that a rejection of Bitcoin is almost always grounded in this sort of privileged Anglo-Centrism where people can't even conceive of what it's like to have a monetary or financial system that doesn't work. So really, really fantastic piece by Alex. Yeah, he's putting out some amazing content. So Facebook's DM network has partnered with Silvergate. So it looks like what's happening here is that they're stepping away from this Swiss-based foundation approach.

And they're going to start in the United States here as probably money transmitter, I would think. And they're partnered with Silvergate to do a dollar-backed stable coin. So it seems like DM is going to start just a simple one-to-one dollar stable coin, which makes a ton of sense to me. From a regulatory perspective, it's just a very clear rule of the road, straightforward thing. This exists already. And with Facebook's distribution, you get that wallet going with stable coins.

Maybe you can layer on some other public blockchain-based assets there. Maybe eventually they get to their broader vision of the original Libra vision. but this seems like it's a step in the direction of actually getting something in the hands of their users. Here's an OTB projection right here. People are totally sleeping on DM and it's going to be really big. I know everyone is super down on DM or Libra right now, but it's clearly launching. Stable coins are obviously a killer app, blockchains. and I think it'll be, you know, they'll be the providers of probably the largest stable coins within a year or two.

And kudos to Silvergate Bank here. I mean, I was having a cup of coffee actually in the flesh with a bank executive the other week in person. It felt good to be back, you know, doing these in-person meetings. And I was, they were a comparable size bank, I would say, to Silvergate. And they were not aware of Silvergate's activities. And I'd have to say like Silvergate and signature and to some extent SVB fly a little bit below the radar in terms of how active they are in the crypto markets. But if stable coins take off the way we all think they are, this is going to be a, you know, talk about that bitwise crypto innovators ETF. Like, you know, you're going to have some exposure to the Silvergate's the signatures of the world.

Those companies are really well positioned, I think. Yeah, Silvergate has just been quietly executing like crazy over the last two, three years. And they've become a kind of a critical piece of the fiat infrastructure that serves the crypto industry. Yeah. I mean, unbelievable execution. Yeah, so Facebook's not going to like JP Morgan to get this thing launched. They're going to Silvergate Bank. I mean, that's how crazy this is.

So from the probably the most regulated stable coins to the least regulated stable coins, we had some very interesting disclosures today regarding to. Tether. How did this go below the radar? This was completely overlooked. Completely overlooked. And it's astonishing, actually. And we're going to be intellectually honest here. So, like, set this up. So Tether released a breakdown of their reserves for the very first time since 2014, which everyone has been asking for. And here's what they say. So cash and cash equivalence, 75.85% of the reserve.

Okay. What's the rest of it? Not bad. It could be worse. Okay. Secured loans. What the hell is that? 12.55%.

To be clear, none to affiliated entities, which is a sly callback to their prior indiscretion, shall we say. Okay. Corporate bonds, funds, and precious metals.

9.96. What the hell is that? And then you have other investments, including tokens, other investments including tokens, 1.64. So here's my takeaway. It's actually not backed. I mean, I guess it's sort of quote unquote backed, but they're not matching the risk of the reserves and then the liabilities. They've got some Ken Griffey Jr.

rookie cards, 0.04%. Stamps, 2%. I mean, what is a hodgepodge in here? Precious metals do not have a return profile matching the dollar at all. I'm kind of flummox that this didn't get more. So if they came out with this report like six months ago when Tether was the big kind of wall of worry issue,

the whole market would have said, oh my God, Tether's not bad. And they would have been right. To be clear, we've been, we've sort of defended Tether. I mean, our position has always been like, look, Tether's kind of a stain on the industry, frankly. And more transparency is what is needed. We're getting transparency. It's just that they have the wackiest portfolio ever, which is like pretty unbecoming for a stable coin, which is effectively a money market mutual fund.

It should all be treasuries. It should all be treasuries. Yeah. There's no reason for them to have digital tokens, corporate bonds, funds, precious metals. There's no reason to have that. So the worst part for me is actually commercial paper. So 75% cash and cash equivalents. What they call cash equivalents is 65% commercial paper. Commercial paper is like corporate debt, which is considered to be liquid. I mean, but it's not always liquid.

Lehman could not stay in business because they could not continuously roll their commercial paper. I mean, it's not always liquid. Liquidity is transient. It waxes and wanes. It's not there when you need it. It's there when you don't need it. I mean, this is not considered liquid in all situations. And that's 50% of the reserves.

Somehow we just kind of focused on Elon this week, but this is a, very big story, I think. This is probably the more scandalous thing. And again, you know, our point has been like, look, we know people that have redeemed and created Tether, you know, the conspiracies around Tether are probably not the case around it being completely unbacked. I mean, it's backed by something, but it's not backed really by the right stuff, frankly. We've got a bunch of Wheaties boxes, Tom Brady rookie cards.

I mean, this is just a hodgepodge of assets. It's crazy. It's crazy because their job is to match the asset and the liability to match those risk profiles. This portfolio does not do that. Not, you know, there's probably not actually going to face any issues over it because I doubt that they'll have a run on the bank and, you know, they've got enough sort of high quality liquid reserves to deal with probably virtually any redemption scenario, but still, I mean, this is crazy. I mean, I want to know what the NYAG has to say about this. They're due to do their first NYG disclosure this month. Yeah, I don't know if they could clean this up.

I don't know why they wouldn't. It's just shockingly ugly. Keep in mind, though, their float is $60 billion. So getting in and out of these positions requires really material trades. Right. So changing gears a little bit. CoinDesk reported this week that Millennium. 0.72 and Matrix Capital are all in varying stages of standing up their

crypto trading operations. And so that's huge news, right? There's some massive talent at those places, huge AUM, big hedge funds, all getting into crypto trading. It's going to be fascinating to see what these, you know, quote-unquote incumbents or whatever you want to call them, like the real deal, other asset class trading firms and hedge funds, how they do in crypto. This is a totally different beast.

I mean, you can stick to the regulated venues like the CME and whatnot and trade on those. But are these guys going to go down market and get into like D5? Because, you know, I wouldn't want to be squaring up against a CMS or three arrows if I was one of these guys. I do wonder. I mean, the operational constraints are considerable. What I've heard from quants is that, you know, quant themes that have been obsolete in traditional markets for decades still work in crypto. Obviously, as these firms break into the market, they will exploit those concepts and then they will not work. But frankly, crypto is the most alpha-rich environment, probably, especially from a quant-signal perspective, just because there is so much.

retail activity in it still. Yeah, absolutely. So I'm saying it half in jest, I think there's a huge opportunity there and those three firms will be taking advantage of it. I mean, there's a ton of opportunity in this market. So to foreshadow Monday's episode, we, so we had Alex Thorne on and talked about Dogecoin, but it looks like you got a little bit of press from Bloomberg here with your gripping about Dogecoin. It sounds like you're one of these guys that like lost a ton of Dogecoin, so I'm sorry. I didn't lose that much Dogecoin. I don't think it was that much. I don't remember.

I threw away the laptop so I can't have been that much because had it been much, I wouldn't have thrown it away, logically. I've got one of those stories right now, though, on an NFT that is like pretty valuable and I'm like

I'm one of those guys right now. I mean, everyone in crypto is a story like that. So basically I'm the Stefan Thomas of Dogecoin. Just kidding. I really didn't mind that much. But yeah, Bloomberg had a funny profile in me that made me sound like a total boomer where I'm complaining about Dogecoin and how all the kids like it and they don't appreciate the good old coins like Bitcoin. I can't believe I'm washed up already at 28. What happened? I don't know. This Dogecoin thing is really cut me by surprise. So Galaxy put out this

amazing piece, which we talk about on Monday with Alex talking about it being kind of the most honest shit coin there is out there and there's a ton of usage on dogecoin i mean i like alix a lot he's great he's good friend but doge coin irritates me so much uh especially with elan relentlessly pumping it i mean come on like where is the cc and all this look i'm not you know a statist or anything but he's moving the market with his tweets it's a doge is not a security Can you do that with commodities? I don't know. But it's going to be the reserve asset for Mars.

You know, that's the thesis. Well, so I'm pretty dispirited by that. I mean, do the dogecoin holders know that it's merged mine with light coin? Did they know that the inflation was a literal bug, which the founders decided to keep? Do they know, you know, that it's a fork of a fork of a fork? Do they know you cannot withdraw from Robin Hood? Do they know that the code base hasn't had any development in a year?

No, they're getting Segwit. I heard they're getting Segwit. Do they know that it doesn't actually settle faster than Bitcoin? In fact, it settles much slower if you consider the settlement assurances, hello? It doesn't matter. It's a meme. All that matters is memes.

This is painful. It was funny in 2014. I was into it. It was funny. that was like seven years ago. Jokes on you. I guess it is. I guess it is.

I'm, yeah, I'm being mocked by the Doge corners. The TikTok zoomers are mocking me. It's Doge. It's, you know, Vitalik wanted no part of this dog thing.

He just dumped his Shiba. That was a really fascinating move. I mean, kind of risky, I think, to, he could have done nothing. He could have done nothing. He donated it.

at that right? Yeah, but I mean, you know, the, that's like a blood donation. I mean, there's a bunch of retail traders that piled into that thing, believing that, you know, the share of the coins that had been allocated to Vitalik would not move. Yeah, but I think he's setting a president. He's like, don't send me these coins and give me, you know, a piece of this network in the future because I will not play that game. Yeah. He probably didn't really have any good choices there. This might have been the least worst one, but certainly, he invoked the ire of a lot of I guess Shiba owners

Shiba was the coin It's such a what a wild world that you can impose a tax liability on someone like that Just Vitalik here's a bunch of coins that are worth a lot and Good luck with your taxes I also question you know the WSJ said that it was a billion dollar donation I mean marking it to market like that for a coin that illiquid is wrong to be clear, but like be a little bit more skeptical,

guys, you can't liquidate a billion dollars of that stuff. Come on. But yeah, hell of a move from Battalic, really. Kind of crazy that everyone

was just watching his wallets in real time. What a week, though. I mean, this is one of those weeks where I think we're going to age in dog years here.

This is tough. This can't keep up at this pace. I wish there was more good stuff this week instead of crazy maddening stuff. But there's a lot of that. Definitely a lot of that. Well, maybe we'll have some good stuff next week.

I think people like this little Doge deep dive. We're Doge podcast now. We're going all Doge on Monday with Alex. I'm sick of, I'm sick of Doge. But yes, you did that one with Rhea. Your new co-host, I guess. I'm being replaced. Rio was pretty good.

I'd give her a 10 out of 10. All right, that's okay. That's okay. I clearly don't have a role in this podcast anymore. I made my peace with that. All right, everyone. Well, we will see you on Monday. Have a safe weekend.