On The Brink with Castle Island - Weekly Roundup 06/10/22 (What's in the Lummis bill, NY State mining ban, Custodia sues the Fed) (EP.325)

Episode Date: June 10, 2022

Nic and Matt are back for news and deals of the week. In this episode:  Greetings from a very hot Consensus in Austin Our takeaways from the Lummis/Gillibrand bill What the NY state mining moratorium means for miners The Central African Republic lays out its plans for Project Sango Custodia Bank is suing the Fed for sitting on their master account application Binance fires back at Reuters We break down a NY Times article on early bitcoin mining NYDFS issues new standards for NY-regulated stablecoins Were the inflation truthers correct about CPI metrics? 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 a sleek. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of Conjectureeasing. 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. And we're back to the old school way of taping this. So we are on a single mic in person at consensus. Yeah, so you're going to have to bear with us in terms of audio quality issues. Yeah, it's back to how we originally used to tape this. But the show must go on. We're doing this at about 3 o'clock Eastern time right now.

So a lot could still happen this week. this is when we could tape it. And you're about to go on stage with the one and only Abby Johnson for a little fireside chat. And that's how dedicated we are to the podcast, just cranking out these podcasts, middle of the day, just hot as hell down here. It's like 105 degrees. Yeah.

Look, I applaud Barry for his decision to take the conference out of New York. But at the same time, it's the middle of summer, and it's Austin, and it's 1,000 degrees here. I still think it's worth the tradeoff. I mean, you don't want to be having a crypto conference in the city of New York. Just a very, very hostile environment for a crypto company. You have to move it to Austin. So I very much applaud him. And we have some news regarding New York, actually, this week.

But first. Yeah, first, let's get into the metrics minute. Let's kick it over to you. I think I heard that there's going to be some interesting things about exchange volumes. Do I have that right? So you actually had the, a line there, which he's flubbed. You're meant to say, I've been really curious about crypto exchange volume lately. Oh, yeah. Let me recalibrate that. So the coin metrics, Metrics, Metrics Minute, Nick,

I've been really curious about exchange volume lately. You know, it's meant to be like a subtle segue into, anyway, it doesn't matter. Oh, yeah? Well, then you're going to love this week's Metrics minute presented by Coin Metrics. It's pretty good. Who's writing these? I like this. Yeah, so here we go. So May 22 was the first time when total Bitcoin and Ethereum spot trading was higher on FTX than Coinbase. Wow, not that. Yeah, that's actually pretty notable. Of the 145 new tradable assets added to Coinbase since January 1st, 2020, wow, that's a lot. 116 were ERC20 tokens. On June 1st of this year, spot volume on Coinbase was $2.5 billion, about a $1,000.000. about a billion was Bitcoin, 570 million was ETH, and 370 million was ERC20s.

Now moving to Binance, 70% of all spot volume came from USDT quoted markets. Wow, that is fascinating. Okay, well, that wasn't exactly the line, but close enough. Anyway, you know it. Coin Metrics is an industry leading provider of institutional grade, crypto market network data research, and risk management products. link is in the show notes for more about exchange volume and CM research just go buy an enterprise data contract really that's the call to action if you are at a at a big business that's doing anything in

crypto you need good data and that's what coin metrics is there for so that was the metrics minute and we had a busy week this week I mean just an incredible amount of deals announced this week that's every year at consensus you just have deals deals deals deals so we've got three actually in the castle island portfolio first one up is Tyb, which is a blockchain loyalty and rewards platform. They have raised $9.8 million from unusual ventures, Castle Island Ventures, Sogal Ventures, and others. Next up, also in the Castle Island portfolio, MASH, which is a content monetization platform using the Lightning Network. They raised $6 million from us, White Cat Venture Partners, and others.

I will also be joining the board in conjunction with that fundraise. Really excited to keep on doubling down on MASH. That's an exciting business. Yeah, so basically, internet content monetization is broken. It's all ad-based or affiliate-based or subscription-based. And shouldn't you be able to do pay as you enjoy? Well, I certainly think so, and so does MASH. However, the payments infrastructure we had online wasn't sufficiently granular or high-frequency

before. Lightning fixes this. I would say uniquely fixes this. this. So this is what MASH does. Low barriers to entry to enjoy monetized content on the internet. Very excited about it. Happy to join the board. Congrats to the MASH team. Next one up is also a Castle Island deal, Pinto, which is an Indonesian crypto brokerage. They raised 113 million in a series B from Pantera, Lightspeed India, Intudo, North Star and others. Congrats to Jeff and the Pintu team. Next up, outside of the portfolio, we have Entropy, a decentralized digital asset custodian.

they raised 25 million from Andreessen Horowitz and others. Next is a strategic investment. Coinbase has apparently made a strategic investment in a Singapore-based exchange called ZipMex. There was initially some reports that Coinbase was going to buy this company, but it looks like the way it netted out was a strategic investment. So continuing to see Coinbase invest via their venture portfolio in all sorts of businesses internationally. Next up we have Euler, like the mathematician,

they are non-custodial borrow, lend protocol on Ethereum. They raise $32 million from Han Ventures and others. Next is legible, a crypto accounting and tax firm. They have raised $20 million. It was led by EJF Capital. So that's a portmanteau of ledger and legible. I think that gets my early vote for startup name of the week. I like Euler.

Yuler is a good one. They're head-to-head for me right now. I love a good portmanteau. next up Annamoka brands. I feel like they're in this every single week. They have acquired, wow, also in great names. Noter Game. Noter Game.

How good is that? A mobile gaming firm incorporates physical items into its titles. Hopefully it does not burn down unexpectedly. Have you, I mean, my mind did not actually go to the cathedral, but went to Rudy, which is an all-time, all-time sports movie. I believe the cathedral preceded the university. I think, yeah, I think the church came first, but then Rudy, Rudy was second. So, yeah, maybe it is named after the school.

Next up, we have Navigate Web3 Data Sharing and Monetization Platform. There is $77.6 million from Distribute Global, Cracken Ventures, Alan Howard, and others. Next one up is Delphia. This is an algorithmic stock advisor. They have raised $60 million from multi-coin, FtX, Ribbitt, and others. Every time you see algorithmic anything, just after Terra, you kind of, not that this is anything bad, but I am triggered by the word algorithmic these days. Next up we have Calixie, a social platform, just names are just off the chain this time, social platform for content creators and their fans, founded by the NBA player Spencer Dinwiddie. They've raised 26 million from the H-Barr Foundation,

Annamoka Brands, Polygon, and others. Speaking of the NBA, what a Celtics game last night. I don't know if you got that, but we're up two to one right now. It's looking pretty good, knock on wood. All I know is that my beloved Miami Heat are out, so that ended the playoffs for me. Yeah, we ended that for you, yeah. I'm not actually a basketball fan,

but maybe the NFL will be back one day. We talk about it. Yeah, we'll talk about the NFL when it comes back. next one is a G-O'd finance. This is a staking solution for Dows. They've raised $3 million from multi-coin. Then we've got Samu Dai, a Dow tooling platform. They raise $2.5 million from FtX, Sino Global, Coinbase, Spology, Sir Navasan, and others.

Next one up is Virgo CX, a Canadian crypto exchange. Canada just had a tough run with crypto exchanges over the years. They have raised $8 million from Draper, Dragon, and others. I don't know if we talked about this on the podcast, but I finally finally, watched that quadriga documentary and uh that was ugly uh you feel bad for all the people that just lost their shirts and that quadriga scandal and think about the fact that was only 300 million or so and terra evaporated uh 50 billion or so yeah i guess a little bit different in the sense that terra evaporated a lot of just VC unrealized gains um whereas this quadriga thing was just people's life

savings. But a lot of it was UST. I would say the UST was the more material loss because people sort of trusted it. And there were fintechs whereby you could deposit into UST and things like that. Yeah, and there was that New York Times article. Some of the retail folks are starting to emerge here. We're going to

see a lot of class action lawsuits. Totally. Next up, Valkyrie, crypto asset manager. They raised 11 million from BNY.N. Mellon, Wedbush, and others. Interesting to see BNY invest in a crypto asset management firm. Boney just starting to make more and more moves in the space.

Good to see. Next one up is Scallum. This is a data and trade execution platform focused on defy. They have raised $20 million in a round led by Galaxy Digital. Then we've got MachineFi Lab, a Web3 IoT data collection platform. They raised 10 million from Samsung, Draper Dragon, Jump and others. We have another crypto accounting firm. Next is Cryptio, an institutional-grade crypto accounting.

firm have raised $10 million in a round that was led by 0.9. Wow, there's a lot of deals this week. So Ledger and Cathay Innovation are launching a $110 million fund focus on Web 3. Next is orderly network. This is a decentralized exchange built on the NIR protocol. They have raised $20 million from three arrows, Pantera, Dragonfly, and Jump. Then we've got Tatsumiko, an M-M-O-R-P-G game built on Discord has raised 7.6 million from Delphi, finance, defiance, and others. Super Team, which is a blockchain game, they've raised 10 million from Griffin Gaming,

powerhouse capital, Michael Eisner and others. Michael Eisner does crypto deals? Who knew? He was a, what a legend at Disney. Lastly, we have Solana Ventures and the Solana Foundation are committing 100 million to support South Korean crypto projects.

like Terra? Luna 2.0. It's back. Well, those are the deals of the week, just a ton of them. We've probably missed 10 or 15 deals because deals are just getting announced left and right down here at consensus. But we have some news this week.

So I guess let's jump off into the bill, the long-awaited bill. So senators Kristen Gillibrand and Cynthia Lummis have released a bipartisan proposal of a proposed regulatory framework for crypto. And it's pretty, interesting, I would say. So I'm going to just hit on some of the main points here. There's actually a great medium post that was put out by Senator Gillibrand. I guess the first thing I'll say is that

I'm not sure if this has any legs to it, but I think it's a good step in the right direction. So the first thing is this would set out a clear standard for determining which digital assets are commodities and which are securities, which is obviously a really tricky situation. this bill seems to take a view on that and would effectively put a bunch of these things into the commodity bucket. There would be more clear definitions amplifying how we, the howie test. And this would also very clearly assign regulatory authority over the digital asset spot market to the CFTC, which is going to be a very controversial, I would imagine, with folks that are more aligned with the SEC. There's some stuff in there about stable coins, strong requirements for stable coins to have disclosures, protect customers, have faster payments.

There's an advisory committee for guiding principles for regulatory agencies. There's all sorts of disclosure requirements that would be required by virtual asset service providers. There's something in here around a digital asset energy consumption study that they would be put forward by FERC. Is that how you say it? Federal Energy Regulatory Commission. And close enough. I mean, there's a ton in here, a couple more things. So it would direct the CFTC and the SEC to study and report on the development of a self-regulatory organization, which is desperately needed.

That would be the equivalent of FINRA, but for digital assets, it sounds like. There would be more and more studies. There would be a sandbox. You get the drill. A de minimis exemption, clarity on taxes. I mean, there's a ton of good stuff in here. I guess the question is, where? this go anywhere? Yeah, pretty exciting, honestly. I like a lot of this stuff. I like asking

digital asset platforms to follow some stronger disclosure standards for the assets they're listing so that their clients can make good decisions. I like the de minimis exemption. I like empowering the CFTC as opposed to the SEC. I think everybody should like that. I don't love this weird study on energy consumption. We talk about that enough, I think. I do like the idea of potentially setting the stage for a crypto SRO. I think that would be great. Desperately needed. I mean, there have been various attempts at these SROs over the years, but they just haven't gotten the industry buy-in yet. I think it's critical to have an SRO. So I think this bill shows a lot of maturity and a pretty deep understanding of crypto markets in general. And it addresses a lot of

the problems, regulatory clarity over what is considered a security, making sure that these digital asset platforms, the intermediaries are behaving well, tax questions, disclosure. Now, the prospects for it to pass seem close to zero in this current Congress, if we're going to be honest. However, I think the understanding is that at a minimum, some of these pieces would make their way piecemeal into subsequent legislation. So this is kind of a starting point. This contains a lot of ideas. Some of these ideas will make their way into legislation. And if there is a change in the political winds, in November perhaps, then maybe we would see something like this bill.

but don't hold your breath for it to be passed anytime soon. And so I guess why is this not a viable bill? Is this just general gridlock here? Because it is bipartisan. Yeah, well, bipartisan doesn't mean that all senators and certainly not bicameral support the bill. It just means that there's two members of two different parties that are kind of sponsoring it.

I wouldn't say that Llamas or Jellibrand have the cachet. to kind of push this through themselves. It's obviously great that it's bipartisan. A lot of these issues are not partisan. But yeah, I would say the main reason is simply that Washington is very inoperative right now and in advance of the primaries, you're just not going to see a lot of cooperation.

Neither party is going to want to give the other party a win. You're just not going to see a lot of legislation pass. And we're also looking at the summer recess as well. One of the things I'm most excited about this bill is the idea that the CFTC would play a greater role in the spot market. I think that would be huge. It makes a lot of sense from a few different perspectives.

I mean, obviously, Bitcoin and Ethereum are not securities. At least I think we've been pretty clear about that as an industry and we've heard that from regulators. And also just the SEC has a lot on their plate right now. I mean, you have the payment for order flow issue. You've got SPACs. You've got ESG. I mean, the CFTC just seems better equipped to regulate this spot market, in my opinion.

And just being realistic, I would say that crypto assets, certain crypto assets, in particular, Bitcoin, actually are commodities. Like, that is how I would describe Bitcoin. It is definitely not, it doesn't contain any cash flow or dividends. It's not a claim on the residual earnings of a company. to me, it is a commodity. So just from a philosophical perspective, I think the commodity futures trading commission should regulate commodities. I think that's pretty straightforward. It's kind of crazy. I think the U.S. is one of the only developed nations that actually has a separation between the regulator for commodities and the regulator for securities. But you could

actually see how this could be a mess even if the CFTC gets it. I mean, imagine a world where there's, you know, Coinbase has 100 crypto assets on their platform. Some get demon. to be securities, some are commodities. And so what do you just have the CFTC and the SECC and the SEC regulating you at the same time and giving you conflicting guidance? I mean, that could be a total mess. Yeah. So, you know, that's probably the future here is the platforms these things trade on will have multiple regulators. I do like that there's an interesting delineation of what constitutes a commodity versus a security in the bill. I expect that will be among the most scrutinized language because that's effectively the first time we've really been given a kind of a bright line test on this.

All right. So let's move on here. We'll keep an eye on that bill. Just a quick update on this New York State Senate issue around proof of work mining. So that bill has passed the Senate. And it would create a two-year ban on proof of work powered mining if you are not using renewables effectively. And it's sitting with the governor for signature, but she has not signed it yet. Yeah, so she almost certainly will sign it. So what that bill effectively does is, I know some of us were kind of meming about New York banning Shaw-T-56, what it actually does is if you are creating a new facility to mine Bitcoin with, let's say, a power asset which you own and you're doing kind of a co-located model,

and that is a thermal-based generation power asset, non-renewable, then you're not going to be able to get permitted for that. It doesn't mean that miners in New York are going to have to turn off their operations. They're still going to be able to be active, including miners using natural gas, for instance. It certainly doesn't mean that if you're using grid power to mine, especially in the north, upstate New York, you're not going to be off. However, you know, the optics aren't great. We're talking about a state going after a type of computation and going, after entities that are duly consuming electricity that they've purchased, which I would

say potentially raises constitutional issues in terms of 1A. I think there's probably questions about should states be allowed to determine what a valid use of power is and is not. But yeah, certainly not a good development here, but it also doesn't immediately directly affect any of the miners that are active in New York. But it definitely makes a statement. state in hospitable to future miners. I mean, if consensus ever, you know, if you ever want consensus back, my sense is that you don't want to sign this bill. I don't think there will be any consensus at the Marriott Marquis anymore if this bill goes

through. So elsewhere around the globe, pretty much the opposite of the New York thing is happening, which is our beloved nation of the Central African Republic. There is just a sleeper here, but they're doing big. things. So, um, I invite you all to read this deck. It reminds me of like, I think it's a hybrid of like the we work deck, if you remember the infamous we work deck. The one where the unicorn got stuck in the troth, but was trying to fly out. Yeah, that one precisely where there was the arrow, which was going down, and then it was sort of pathway to a bit, uh, positive. Um,

and it reminds me of a hybrid of the we work deck and of the, of the, the, you work deck. And of the the Neom plans. You know that city in Saudi Arabia, which is the futuristic new city called Neum. Not super familiar with that one. So it's a huge massive development where Saudi Arabia is trying to sort of diversify and build a massive tourist city, basically.

And Project Sango, which is the code name for the Bitcoin city in the Central Offering Republic, has sort of a bit of both. So basically, there's a lot in there, but it's going to be a Bitcoin city, and they're going to tokenize their natural resources, and they're going to have favorable tax policy,

and there's a lot of renderings of cool-looking buildings, and they're going to create a Bitcoin city down there in the heart of Africa. I'm probably going to be Wave 2 of tourism there. I'm going to wait to see how Wave 1 goes, but I'd very much be open for business on entertaining the idea of going to Sango for Wave 2. Yeah, give it some time. Central African Republic, one of the poorest nations in the world. It kind of reminds me a little bit of the Salvadorian idea of the Bitcoin City,

which I think is also probably on hold, given that they look like they're defaulting. I don't know why we need to do these like Bitcoin Fire Festival things. It's just you can be energetic about Bitcoin without creating a big thing, telling everyone to come and just not having things work. The Bitcoin Firefest thing is the bad meme. Yeah, to be clear, you don't need a Bitcoin City. just pass favorable tax policy, I guess, and maybe hold some Bitcoin in your sovereign reserves.

That's basically it. You don't have to do any more nation, states of the world. Well, let's move on to some other news here. So Custodia Bank, which is a Bitcoin bank founded by Caitlin Long. It's based out in Wyoming. They got the Speedy. So they got the Wyoming Special Purpose Depository Institution a while ago. And they have been applying for a Federal Reserve Master Account, and it hasn't happened, so it's been delayed. The company is now suing the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas, Kansas City, and they're charging that they have unlawfully delayed for 19 months, basically without acting on this master account. What do you make of this? Yeah, I think there's a lot of shenanigans here

with the Federal Reserve. I'm pretty sympathetic to custodia, formerly known as Avanti. is ordinarily, according to the lawsuit, it takes five to seven days to act on a master account application. This one has been outstanding for well over a year. And so I think basically the suit is asking the Federal Reserve to act, whether it is deny or approve the access. I see no reason why it should be denied. to me, this just looks like the Fed understands that they ought to grant the master

account to custodia. They're just unwilling to. But I would say precedent here suggests that you probably should be acting within a year. So I'm definitely on custodias side in this lawsuit. Yeah, I hope they can get to a good conclusion on that one. In other sort of banking and stablecoin news, so a bunch of stuff happened this week. So Japan passed some stable coin regulation, basically saying that stable coins in that country that want to be recognized have to allow full redemption. The same thing came out of the New York DFS this week.

It essentially suggested, and we should talk about this a little bit more in terms of how this impacts certain market players. But the NYDFS came out with guidance. There's kind of three baseline requirements. The first is that the stable coin must be fully backed by reserve assets. equal to the value of the outstanding supply at the end of every day. The second is that the reserve must be held in custody by a federally chartered depository institution and that it can only consist of reserves of U.S. Treasury bills, collateralized reverse repo agreements, deposit accounts, or other assets, whatever that means.

Cash, I guess. And then finally, that the reserve has to be examined by a CPA every single month and there needs to be an annual report. Seems pretty reasonable, I guess, on the face of it, but it'll be interesting. The net effect here could be that the realm of potential stablecoin issuers here just becomes a lot smaller. Yeah, and to be clear, this guidance applies to the issuers of stable coins

that are regulated by the NYDFS. There are some. They exist. Stable coins are issued on the New York Trust. charter, under the Nevada charter. Boston, a little Boston language. And under the state-by-state MTL and under no regulatory oversight regime, as the case with some stable coins.

So I found this interesting in terms of defining the types of reserved. I believe there's also something in here about the reserves backing the stable coin cannot be independently utilized by the banks for other purposes. And so that's a big one, right? So let's just use a hypothetical example that you have a stable coin issuer and they use a few banks in the back end. Now, those banks are doing fractional reserve off of their deposit base. And so it strikes me that that would actually become a really important distinction

in issuing stablecoins. It's actually something that Alan Lane was talking about on odd lots a couple of weeks ago, which I thought was a great podcast. It sounds like you're really just going to have to have immobilized cash reverse repo or treasuries in an account somewhere and not have any fractional reserve off of that. Yeah, but the thing is for banks, immobilized capital is pretty expensive, right? And it reduces your discretion. You don't want to really have a ton of immobile silo off capital.

There's also echoes some critiques I've read. of stable coins, I think originating with the FT and Isabella Kaminska, that stable coins are kind of a collateral sinkhole and they suck treasuries out of the system because they can't be redeployed or sort of re-hypothicated. And I'm also sympathetic to that, although maybe for maximum security and soundness, you wouldn't want the collateral to be repurpose for any other purpose. I mean, you can see why the executive order calls for a lot of analysis on stable coin infrastructure here. It's clear that this is, as this gets bigger, some of these systemic issues will come into play. And, you know, you'll probably have some entrepreneurs that look at this and

say, we're not going to go that path. We're just going to start a new layer one blockchain and do an algorithmic stablecoin. Right. All right. So why don't we transition over some finance news? So there's a There's a couple things this week. So there's a big Reuters article that came out that said that Binance was a hub for hackers, fraudsters, drug traffickers, and that there had been approximately $2.35 billion in illicit funds laundered on the platform. Binance actually came back at this pretty hard with a very long blog post refuting and providing a full trail of communications according to them, basically harshly criticizing the coverage and the data gathering process. who knows there only bring that up to say that they're they're clearly in the crosshairs of the media

they're also apparently in the crosshairs of the SEC so the SEC is reportedly investigating whether or not BNB is an unregistered securities offering B&B of course is the exchange token from finance it seems like the SEC would have actually a pretty strong case on this one I would think So I don't think I've read a blog post from a crypto, major crypto platform that's sort of this strident in pushing back against the press. This is really quite something. They also published an email exchange that they had with Roydus journalists claiming that that would vindicate them. So I don't necessarily have a view on this. I encourage you to read the whole exchange.

What's your take on this B&B situation? I mean, if it is an unregistered securities offering, does it actually change much? I mean, they're operating outside of the United States. I guess maybe they sold it to U.S. retail. Maybe that happened. But what would the impact here be? So BNB was released in 2017. Satri limitations for securities laws is typically five years.

So we're actually coming up on it. However, the SEC can always go to you and ask to a, extend it with a tolling agreement, I believe. So statute is not necessarily that firm. It was an ICO straight to all-comers retail. Obviously, if you participate in the ICO, I think they raised $30 million, you did extraordinarily well. That doesn't mean it wasn't an unregistered security. Probably looked like one. There's a lot of rev share mechanics in there, or rather revenue being redirected into a burn. They then changed the white paper, which is kind of like, changing your, you know, incorporation documents or your charter.

You really shouldn't be able to do that unilaterally or untransparently. So I believe they later altered the nature or purpose of the token to sort of make it more resistant to the securities law analysis. But that just raises further questions about should they have the right to do that? And can you just change the purpose of the token unilaterally? So, yeah, I think the securities law analysis, if you're not, you know, you know, would fall pretty firmly in the affirmative in the case of BNB. Now, that said, can the SEC actually do anything about it be, I don't know,

color me doubtful about that. I mean, the SEC still has the ripple case. That's been going on forever. Picking a fight with Binance here, it seems like that could take a while, too. All right. Well, I want to get your view on this New York Times article. Apparently, Bitcoin is not as decentralized according to the New York Times and a, a paper that doesn't seem like it was peer-reviewed at all. What's going on here?

Yeah, so shout out to Colleen Sullivan on this one for getting it on my radar. The New York Times had a front page print edition article plus 4,000-word article on the website called How Trustless is Bitcoin, really, subtitle in myth, the cryptocurrency is egalitarian to centralize and all but anonymous. The reality is very different. Scientists have found. And this is one of the most curious New York Times articles I think I've ever encountered. It is all based on this paper called Cooperation Among Anonymous Group Protected Bitcoin during failures of decentralization. So certainly incendiary title written by a bunch of seven different authors, the main one being Alyssa Blackburn.

I can grab this. And none of them are actually appear to be crypto experts. Some of them don't look like they don't have PhDs. They don't all appear to be actual sort of full-time academics. And the paper's not peer reviewed. It's not published in a journal. So it's very curious because normally you would not see glowing coverage of a manuscript like this.

written up glowingly in the New York Times, that's just very irregular, very irregular. It's a draft. You know, there's no real determination from serious peers that the paper is good. And actually, I read the paper, and I can tell you it's not good. It's interesting, but it doesn't find what they think it's finds. It certainly doesn't find what the New York article alleges it finds. So basically what it actually is is they look at early mining in Bitcoin for the first two years for the period before Bitcoin was worth $1, so the very, very early days. And they determined that there are about 64 major agents that were actually active in mining Bitcoin in 2009, 2010. Obviously, Satoshi was won, and early GPU miners were others.

The way in which they associate blocks to these agents is kind of interesting, similar to Sergio, learners analysis. If you remember reading about that with how Sergio determined what blocks Satoshi mined, I won't go into detail, but they use the same methodology. So they decide that there are a small number of agents active in the Bitcoin early days. They also find that at certain times, some of these agents had more than 50% of hash power and they mined more than six blocks in a row. Satoshi was one, of course. We know that Satoshi had the bulk of hash power in the early days, they also find that early GPU miners had control because they had vastly better computational resources than their CPU mining competitors. Again, this isn't new. We knew this. Lazzlow was an early

GPU miner. That's why Lazzlo got all the coins that Lazzlo spent on the pizzas. And that's actually Satoshi admonished Lash Lazzlo for doing that for accumulating so many coins, quote unquote, unfairly. So we kind of knew that there were times in the very early days before Bitcoin is worth anything when certain entities had lots of hash power. So it's not a surprise. But the authors characterized it as a surprise or they characterize it as ironic. So they say stuff like, quote, rather than relying exclusively on a centralized trustless network of anonymous actors, Bitcoin dependent on altruistic behavior by a group of anonymous agents. But that's just not true. You know, they also say, you know, these data determined that Bitcoin was often vulnerable to 51% attacks.

As Bitcoin's price neared a dollar, a 51% attack could become increasingly lucrative for the attacker, yet such attacks would rapidly undermine Bitcoin's credibility. They basically are implying that Bitcoin is extraordinarily fragile and that the actors were unusually altruistic and cooperative with each other in order to not plunder Bitcoin. But this isn't how 51% attacks work. 51% of tax, you don't just plunge your hand into the blockchain and pull money out. You need there to be commerce. You know, you need there to be an entity for you to defraud to conduct a double spend against.

Whether that's a merchant, it's giving you real-world goods or an exchange. Those didn't really exist. Bitcoin wasn't worth anything. When Bitcoin was worth a dollar, the market cap of all Bitcoin was three or four million dollars. So the prize was not there. there was no economic activity on Bitcoin. There were a tiny handful of exchanges happening on Bitcoin talk forms and things like that. So to say that Bitcoin sort of narrowly survived 51% attacks is to be completely ignorant of the

context, which was there wasn't economic activity. So there was no entity they could target for a 51% attack. And moreover, there was no money to be made doing that. So of course, when the stakes were low, it's okay that there was a small handful of agents that were mostly doing the mining. If you actually look at the paper, it became very decentralized pretty rapidly once the GPU mining era started in full in late 2010. So, you know, these findings are, you know, very mundane and not really news to anybody,

but they're being characterized as, you know, finding the Bitcoin is not anonymous, that the decentralization is a myth, that the miners had to be altruistic. Just none of those things are true. So, you know, the other thing is New York Times uses this paper to kind of allege that Bitcoin isn't anonymous. But in the paper, they don't actually deanonymize anyone. So they just, you know, cluster agents. They ascribe blocks to agents. So there is no deanonymization.

So basically the paper says one thing, and then the New York Times vastly exaggerates the findings. So anyway, extremely curious case here. What I want to know is why this paper got such glowing coverage. And so much time in the New York Times on the front page, 4,000 words, none of it makes sense. And if you read the paper, you'll see. there's nothing fundamentally novel in here. That was a struggle for you to get through that. Is that the lingering COVID cough?

I've got a little one of these like dry ones too. It's tough to play through the pain. Yeah, COVID 2.0 has not been kind to me. In theory, I'm better. But, you know, who knows? So just to kind of maybe put a bow on this, so it just seems like a crazy thing to put out there. It's not a concern for the network at all.

You're also not going to see this step function. increase from CPUs to GPUs. You're not going to have this equivalent above A6. So it's really a kind of a nothing burger. But it's interesting that, you know, from an influence perspective, that someone was able to get this published in the New York Times. To me, that's maybe the more interesting story is like how the heck does this thing actually get published?

Yeah. And that's the crazy thing is they didn't even bother waiting until they got this thing published in some sort of D-list journal or whatever. They just went ahead and wrote this review of a manuscript. script, which is just profoundly irregular. We do know there is this academia to the press pipeline. We see that with the fake science coming out of Dig Economist, you know, credit to him, he actually does bother getting his work, quote, unquote, published in quote-unquote peer-reviewed F-list publications, like the comment pages of nature climate change. So even the dig economist

plays the game where they hide behind academia and the veneer of academia. In this case, there was no publication. There was no journal. So it's literally just a random word doc with no actual peer review. So that's the thing that's astounding to me. So on the topic of the New York Times, looks like they're on board with this inflation narrative. Are they acknowledging inflation this week? Yeah.

So I'm actually, I've excoriated the New York Times the last 10 minutes, but I'm going to give them a rare dub. So I'm going to give them a rare dub. they actually came clean on inflation. So basically the inflation truthers were right. The shadow stats, quotas, the Chapwood Index users, the M2 and M1 posters, you were right. We were right.

The MSM, the inflation deniers, the anti-inflationists, they were wrong. And the New York Times top Fed writer, Jenna Smeyallek, she wrote this piece saying, hey, actually, the inflation methodologies are pretty questionable. They're not counting house prices right, which is a critique a lot of us has had, which is inflation uses owner equivalent rent, which is like a weird sort of fake survey-based metric, and it doesn't incorporate actual data from, you know, rental prices or actual house prices. So it understates the inflation rate, and they agree that the inflation rate would be 11, 12%, if you used real home prices, as opposed to 8% with owners' equivalent rent.

They also agree that economists do this weird thing where they assume that people start using cheaper products over time, which also drives down CPI, like people engage in this substitution. And if you pull that out, inflation also looks higher. So basically, even the New York Times is now admitting, hey, you know, inflation feels like 20, 25%. Yeah, maybe your intuition is more correct than the official CPI data. So just wanted to say the inflation truthers were right. Oh, there you have it. So I think that's it for the week. I'm sure we'll have more deals.

Certainly, there's a lot going on at consensus down here. There's like 18,000 people here apparently. It's a there's no bear market going on down here. And everybody is wearing for the most part long sleeves and pants and we're all very hot. Everyone's really hot. There's a lot of, um, there's some ICOs back here. I don't know if you caught that, but there's some, there's like some full blown ICU projects at this conference too. Yeah, it kind of reminds me of consensus 2018.

I don't know if you went to that one. Oh, I was there. I've been at every consensus, probably forever. That's quite the track record. I remember ICO mascots dancing around in the, was it the Hilton or the Marriott in Manhattan? Marriott Marquis. And I, you know, the price of Bitcoin had drawn down a lot, but not fully. And I remember seeing myself, bottom's not in.

I know. Well, maybe that means that bottom's not in now. I would be shocked if it were. I hate to say it. All right. Well, on that optimistic note, we will be back next week. Have a safe and healthy weekend and we will see you on Monday.