On The Brink with Castle Island - Weekly Roundup 06/23/23 (FTX and K5 clawbacks, Prime Trust chaos, ETF frenzy) (EP.433)

Episode Date: June 23, 2023

Matt and Nic are back for another week of news and deals. In this episode:  Bitcoin hits 30k Wyoming's stable token developments The story behind FTX's mammoth $500m outflow to K5 global Why was SBF spending hundreds of millions cozying up to talent agents? Do Kwon will spend 4 months in jail in Montenegro The Bitgo Prime Trust acquisition falls apart Deutche Bank applies for a crypto license in Germany EDX officially launches Blackrock files for their ETF and others follow Our theory for why Blackrock is filing now Is the SEC back-channeling to Blackrock? Was surveillance sharing really a blocker for other ETF applications? Does the notion of spot market surveillance even make sense for a global commodity? What's the deal with the Bitcoin bathhouse in Brooklyn? Sponsor notes:  Coin Metrics STATE OF THE NETWORK - The Signal & the Nonce, Re-imagined In this issue of State of the Network, we showcase a novel analysis that sheds light on Bitcoins energy consumption, efficiency and e-waste

Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of Concentute Easy. You've printed a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called a Bitcoin.

Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. And this episode is brought to you by Coin Metrics. And here is the Metrics Minute. For today's Metrics Minute, we're looking again at the Coin Metrics recent report characterizing all the A6 on the Bitcoin network. They were able to use a new methodology to determine for the first time the full composition of hardware active on Bitcoin. This allowed them to precisely target the energy consumption. In 2022, they found the Bitcoin consumed around 90 billion kilowatt hours. Cambridge estimated at 110, the White House at 120, and Dig Economist at 170.

So the new, more accurate estimates are coming in much lower than those of the previous most authoritative sources. By determining what A6 are active on the end network and looking at market prices, they were also able to determine the cost to acquire enough hardware to 51% attack. the network. Even though this is a naive estimate, this figure stands at roughly 2.7 billion, much lower than you might have expected. More in the Coin Metrics report. That's attached in the show notes. That's your Metrics Minute. And that was the Metrics Minute. What a busy week. A lot of TradFi stuff this week. Are we back? Yep. Is it safe to say that we're back? Or is that premature? I mean, I'm getting text messages. Is Bitcoin back from like my high school buddies? So maybe.

Maybe we are back. I'm feeling back. Did it ever leave? I guess they sort of did after FTX. We left, but now we're back. I mean, after what, after the two weeks ago episode, which was chaos, two weeks ago was Coinbase versus Binance, sorry, SEC versus Coinbase, SEC versus Binance. There's the Prometheum stuff. Look, I'm seeing some green shoots.

Bitcoin's up. We hit 30K. 30K Bitcoin. So on the back of all these ETF applications, we also had some interesting stuff. We finally did the Wyoming deep dive, which has been out there hiding in plain side for a while, but Wyoming is doing a stable coin, which is, that's incredible. Yeah, that episode with Minority Senate leader Chris Rothfus, who is a fascinating person, by the way. I mean, technologist crafted space policy in the White House decides to, well, actually,

it's not full-time working in the state senate, part-time, it seems like it's full-time, decides to make Wyoming the blockchain state. They pass 30 pieces of legislation pertaining to digital assets. The speedy. They pass something under the uniform commercial code, making digital assets a form of property. And now they pass the stable token. Wyoming, as early as this year, could have effectively a stable coin issued by the state. That's pretty cool. It's incredible. So they have a past law in Wyoming that would enable them to run a stable coin. So they would take in U.S. dollars. They would immobilize them. They would go buy U.S. treasuries. So they would buy T-bills. They would issue them on a number of public chains, it sounds like he said, not just one. It would look like USDC or Paxos or one of these competitive private market chains or private market stablecoin instruments, which is just incredible to think about it. I mean, you look at the,

net interest income that you could earn on that, and it's going to the permanent fund there. So Wyoming has its own permanent fund. It's effectively a sovereign wealth fund, and the proceeds of the Stablecoin initiative will go to K-12 education. So as Chris Rothfuss actually said, it's for the children. Yeah. So we got a lot of questions on the Stable token, and I don't have the answers, to be clear. We're just the, we're the intermediary here.

Okay, we don't have the answer. answers. However, here's a very short FAQ for you. Will it be on Ethereum or what blockchain? We don't know. They said multiple blockchains. They want to be technology neutral. Will it be permissionless? As in, will it be like USC? We also don't know that's an ongoing discussion. Hopefully, it ends up looking much more like a USDC, so a blacklist model as opposed to a white list model. And as you say, where will the rent? Will it be interest bearing? No. No interest will be passed along. The net interest income will be retained by the state and their permanent fund for schools. That's your short FAQ. More to come. I mean, TBD, let's see what they. And he did say,

Chris did say the logo is going to have a horse and a rider on it. I don't know if they're going to be minting physical commemorative coins. I hope we'd get one. I would like a, coin which has a chip in it which is a claim on some on chain coins so fizzy digital coin okay yeah you want yeah you want it like an nft yeah so i want to go from physical cash and then well then we level up and we have stable coins you have digital cash and then i want to go back to physical so round trip it back to physical that'd be great pretty good pretty good Well, that was a great episode. Shall we hop into some deals of the week?

Yeah. So first up, we have Waterfall, NFT Trading and Pricing Protocol. They raised $4 million from Electric Capital and Pantera. Next one up is a potential M&A deal. So Republic has made an investment in INX, which is the security token platform. This is a $5 million investment that comes with the option to buy the company at a later date. For a second, I thought you were saying, EX and I was panicking a little bit, but this is I-N-X, no relation.

I-N-X, yeah, which is the one that did not do the deal with F-TX. More on them later. I mean, we've just, just minutes ago, we made a discovery around F-TX, which is... John Ray has been such a busy man. Astonishing. I mean, here we were thinking F-T-X stuff couldn't get any crazier, and then some new crazy thing happens. More on that in a second. Next up we have Concordia, a DeFi Credit Protocol.

They raise $4 million from Tribe and Cracken Ventures. Next, we have Neutron, which is a smart contract company building in the Cosmos ecosystem. They raised $10 million from Binance Labs and Coin Fund. Then we have North Stake, a crypto-staking platform. They raised $3 million from Pre-Sead Ventures, Morf Capital, Fundfare Ventures, and Delta Blockchain Fund. Should we do the bad boy? You know what? Yeah, we haven't played the music in a few episodes. Let's hit it. Bad boys, what you're going to do? What you're going to do when they come for you?

Bad boys, bad boys. What you're going to do? What you're going to do when they come for you? All right, bad boy, Sam Bankman-Fried. This one is wild. So there is a clawback. John Ray, man, this guy, he is billing out at a pretty insane rate, but he's looking to clawback. some big money here. So there is a lawsuit here that was just filed in the state of Delaware. It's against Michael Kives and Brian Baum and their companies, which are K-5 Global Holdings. This is a, I guess Michael Kives is this big hot shot celebrity talent agent that had a big venture capital private equity fund. And it showed up in the initial disclosures as they got $500 million. It looked like an LP commitment initially.

We're starting to find out a little bit more about this and they're trying to call back the money. The nature of the case rundown from John Ray and his team on this are insane. So let's just get some background. So in February of 2022, SBF attended a dinner party at the house of defendant Michael Kives, which he's a talent agent and Brian Baum, who I guess works with him. So true to Kives' reputation as a high profile super network. super networker rather, the attendees at the dinner included a former presidential candidate,

actors, musicians, reality TV stars, and multiple billionaires. During that same weekend, SBF joined Kives and several A-list celebrities at the 2022 Super Bowl. So in an internal note, SBF drafted two days later, he gushes about Kives as access to celebrities. He described him as probably the most connected person I've ever met. He said that Kives and Baum were something of a one-stop shop for relationships, that we could utilize. It goes on to say they want us to work with them on Democratic politics and maybe invest in them or some other stuff. I don't know. Well, invest in them, they did. So not two weeks later, the terms of this deal are insane. So the parties had not agreed to

final terms, but they basically had a term sheet out there. This term sheet would cause SBF to wire $300 million to K-5's bank account. And to kind of rewind that a little bit, the way that these typically work is you have a term sheet, you make an investment. Typically there's a 30 to 60 day process to do due diligence. Turns out in this process, SBF, the day after the term sheet, wired $125 million to Kives and $125 million to bomb immediately, not to their companies, just to them personally. Later, when they did the long-form documents, he sent another $200 million. This is incredible for a total of half a billion dollars transferred to Kives and Bomb

in just under three months after meeting them. My jaw is on the floor right now. So he basically sent a half a billion dollars to these guys because he thought that they could get him connected to celebrities and to Democratic politicians, it looks like. This is just breathtaking stuff. Sam Bankruptry was treating his balance sheet like it was an absolute hot potato. Like he couldn't get rid of this money fast enough. What was this guy thinking?

So, I mean, I get the access and wanting to get closer to these people. But in what world did he think that this was not going to come back to bite him? So he was willing to spend half a yard for the sake of relationship building with these guys that were connected in entertainment. there was no deliverable. What was the objective of this money? What was he receiving on the other end? Well, to answer that question, Kives and Bankman Fried first connected via email when Kives helped introduce SBF to world-renowned Australian musician Saya. Well, that's pretty good. He got to meet Saya.

An introduction to Saya. I mean, yeah, she got some good songs. I don't think it's worth half a billion dollars. Bankman Freed attended a dinner party at Cavs' house alongside high-ranking politicians, a cent-a-billionaire CEO, and various other celebrities. So there's that. He also got to meet the former U.S. ambassador to the Bahamas. I think Sam's campaign of paying for influence is the most inefficient one we've ever seen in world history. Like, you know, maybe he had to sort of overpay because of his distinct lack of charm. So there's sort of a premium on his ability to infiltrate these circles. But I mean, the amounts that he was paying and what he was receiving in return is completely disproportionate. I mean, he didn't net anything out of this deal.

I mean, I wonder what these guys did with the money. Because ostensibly, they're running an investment company that was making investments into startups and things like that. So, I mean, a lot of this money could theoretically be gone and just be at startups right now. So this is all presumably to be clawed back. I think there's a very fair case for this money to be clawed back. There wasn't a clear investment being made. It wasn't done with the proper diligence. It was done all very informally.

So it looks like the K5 Fund 1 LP has invested $252 million into eight companies, which included SpaceX. in the boring company, which are, of course, founded by Elon Musk. So Elon's going to find his way into this story, unfortunately, for him, one way or the other. Well, SpaceX is apparently looking to IPO soon. So now that the IPO window is reopening.

So there may actually be the liquidity to effectuate this secondary sale. Maybe they'll make some money. My question is just who's doing... So this reference is, okay, you did a quick and dirty term sheet. They immediately sent the money. And then there was a longer form. docs, who is actually working on these longer-form docs? Like, what lawyer or business person in their right mind would be going through this and

thinking that this was an okay thing to do? I mean, and the lawyers in the story were, the FTX GC was portrayed when all the news broke as kind of the adult in the room, I guess, if I'm recalling that correctly. Yeah, I mean, they had the Freiburg as the GC, who's turned state's witness, I guess, But, I mean, who's structuring these deals from an investment banker perspective, too, is the question. I don't think that he had anyone on his team that was sophisticated enough to do these, despite the fact that he had a head of product, head of Corp Dev guy who was wearing all those hats. I mean, that guy wasn't, he was not exactly like a global titan of investment banking.

Yeah, I don't know if he would have had the chops to do a DCF model. No, no, certainly not. So that's pretty big FTX news there. That one is just bizarre. So next up in Bad Boys, Mr. Doquan, he's so outstanding. He has been sentenced to four months in jail in Montenegro for forging his passport. Presumably that is in addition to whatever charges he's going to face in South Korea. Yeah, so I think the deal is he's going to do jail time in money.

Montenegro and then get extradited to South Korea. And then the U.S. also has charges and wants to extradite him. So that's kind of hard, man. He's going to do three separate countries jail. Is that on the table? I'm guessing that Montenegro is the least pleasant of all of those jail systems. Yeah, that's probably a safe bet. Can't be worse than Bahamas.

Can't be worse than Bahamas. Although SPF, didn't he just stay in the... the medical clinic the whole time he was in the Bahamas? Remember when that news broke and then we all started reading about the Bahamanian prison? And how bad it was. It was just unspeakable horrors. Yeah, Sam's created a real mess here. Not to mention the fact that now the FTX bankruptcy estate, they have spent $120 million

on advisor fees between February 1st and April 30th of this year. What an unbelievably large number that is. that causes me physical pain it's just crazy I mean I guess they're going to claw back I wouldn't be surprised if they get to 100% recovery on this but at what cost man

wow yeah I mean people are optimistic about FGX 2.0 what can I say that might be the only way out of this mess but if they keep delaying it the more it's delayed the more the fees eat and everything and then there's nothing left

they'll launch it whether it's them launching it or someone who comes in and does a jv with them they'll something will happen there that's for sure so elsewhere in custodian news the bitco bitco man they love to have acquisitions blow up their proposed acquisition of prime trust has collapsed or rather bitco is terminating it prime trust also disclosed today that they'd received a letter from the Nevada regulators. So it's kind of hard to stay on top of the story because it's very unclear what's going on with prime trust, but all is not well in prime trust land. I think that's an understatement of the century. And I think this is BitGo just seeing that this is a dumpster fire and walking away. So there's a fortune interview that Mike Belchie at Bitgo did today.

And in it, he just basically tells you what's going on. He says investors were not realistic about the state of their business two weeks ago. He said, we don't have the finances they need to complete the terms that they asked for in the term sheet. He goes on to say, we're not a charity. So he declined to give more specifics on what was discovered during their due diligence. He says, the state regulator asked them to freeze the assets because they need to go in and sort things out. That happens when something's wrong. So, I mean, it's safe to say that prime trust as a whole here, I think. how a custodial institution that in theory is just holding its client assets in segregated reserve has a hole in it is that also has MTLs and is you know domicod regulated in the U.S.

is baffling to me. I don't know what else it could be. I mean, they have an asset freeze. This has been speculated for a while. And they just went through a due diligence process where, the guy who is going to buy it says they need to go in there and clean this up. This really underscores, as a Bitcoin exchange or intermediary brokerage, this underscores the importance of building your own back end, your own stack,

your own custodial stack. A lot of these firms outsourced it to Prime Trust. They were just wrappers on Prime Trust. And now they're completely exposed. This fortune reporter asked what it meant for prime trust customers, and Belchie said, quote, it's probably going to be a struggle for them. That's not what you want to hear from a prime trust customer. I mean, I kind of understand it with these sort of like loosely regulated offshore lenders and things like that.

But with, I mean, prime trust, their whole thing was that they had the MTLs, that they were based in the U.S., that they were the conduit between crypto and the banks. And it looks very messy. Yeah, it's in no word on, so they raised $100 million like 12 months ago or something. It's just a weird story. This is also causing issues for the stable coin TUSD, although they came out today and said that they did not have a dependency on prime trust and they were still functional.

The market is showing jitters around TUSD. So it's a busy week for TradFi. So why don't we hit some of the highlights here? We're going to have to talk a lot of VTF here. But let's rattle through a few of them. So Deutsche Bank has applied for a digital asset license in Germany under Baffin. So that's pretty interesting. Another kind of firm here, so it's called KASIS.

This is the Credit Agricol and Santander asset servicing arm. So they have gained approval to launch a custody business in France. So a couple banks there getting in the mix. And then we had news this week that EDX, which is the cryptocurrency exchange, the new one that is backed by Citadel, Virtue, Schwab, and Fidelity, they have officially launched and they did another fundraise, bolted on some strategic capital. And then lastly, the ETF thing is off to the races. So at the time we recorded last week, I think it had just been a rumor, but they formally filed BlackRock did for a Bitcoin ETF. on the back of that wisdom tree, bitwise, Valkyrie, Invesco, probably more by the time this actually comes out have applied for Bitcoin ETF as well.

So a lot to hop into here, but TradFi is definitely making some waves this week. Yeah, where to start. I mean, it has to be the BlackRock filing. Of course, they have such a great track record, over 500 successful ETF applications, and I think only one denial. They hadn't previously applied for Bitcoin ETF and have finally jumped in here. Kind of interesting to understand their motive. I don't think anyone really knows why now, specifically, as opposed to any other time.

To me, my interpretation is that simply the SEC back channeled something to them, indicating that now would be an opportune time to get in the queue. And then on the basis of that, a bunch of other firms that had previously filed or had had intention to file jumped back in because there weren't many ETF applications pending when BlackRock jumped in. You had a bit of a theory as to why BlackRock might be jumping in, raising their hand now, right? Yeah, I mean, so I did this tweet thread. It is a theory. I'm a bit confused by the whole thing. So, I mean, I've seen some analysis and some speculation that Black Rock's inclusion of surveillance sharing agreements is the touch that's going to allow them to crack the code on the Bitcoin spot ETF.

And I'm pretty skeptical about that. So, you know, every SEC denial has talked about, hey, there's no functional spot market that is regulated with surveillance sharing agreements between the exchanges. And you have to have those in order to demonstrate that this is a fully functional spot market. So BlackRock has not a lot of detail in their filing, but says that they're working with Coinbase and NASDAQ on surveillance sharing. So I assume that's, hey, we're going to use NASDAQ software. We're going to have Coinbase liaise with the futures market operator, and we're going to have some surveillance between those two venues.

To me, I'd be really surprised if that's the missing piece, because Coinbase is still a relatively small percentage of the overall spot market. finance controls the lion share of that thing. So I just don't think it would be sufficient. I also think that probably Bitwise, Fidelity, Van Eck, all these other guys, if they thought that that was going to be sufficient, they would have just included that language in their applications.

It's not like BlackRock uniquely has some resource that these other asset management titans don't have. Yeah. So if that was the key to unlock it, why didn't everyone else just do it? Yeah. So if you just believe what I just said, which again, I don't know if that's true, but if you just take for granted that surveillance sharing agreements, the way they have it written is not the magic bullet, then I think it's one of three things. Number one is it's either just BlackRock could be sending a political message and saying, hey, we need the SEC to stop being completely out of control as it relates to digital assets. So that's possible. Number two, I guess it could just be a trial balloon, just see what they say. Maybe they, it'll go through, but BlackRock doesn't lose ETF approvals.

Like they basically never do. I think they've only lost one. So I don't think it's that. The third thing it could be is they might actually think that one of the commissioners at the SEC will take a different look at it this time. And I actually think that could be possible. So the logic train on that one would be in 2018 when the Winklevoss's Winkleweigh, when they got denied, Hester Perce was the only one that dissented.

And she had a bunch of great arguments, but the first kind of primary one was the proposed rule change that Winklevoss had. She said it satisfied the requirements of the Exchange Act under Section 6B, which is all about these surveillance sharing agreements. So she basically took issue with the delineation between the spot market and said that, hey, the Winklevoss guys have a good plan on preventing manipulation on the ETP shares. which are based on the futures, the functionality of the futures market. So, you know, I thought that was a good denial.

Obviously, back in 2018, it was really early. So then in 2020, Wilshire Phoenix and ARCA had another one, ARCA NYSE, not ARCA the hedge fund. So they had another ETF proposal. She dissented on that one and went into more detail around the surveillance sharing agreements. So it's still just her in 2020. But then notably in 2023, there was momentum here. So she was joined in her dissent of the Vanek Bitcoin ETF proposal by Commissioner Mark Yuwaita, who's a Biden appointee.

He's a Republican, though, but he's a Biden appointee. And they jointly argued that the commission is using a different set of goalposts versus other types of commodity-based ETPs. And they wrote this really, and go to my Twitter if you want to read it, but they wrote this really compelling rundown of other companies. commodity exchange traded products and how the SEC was not treating Bitcoin on par with those. So, you know, I guess my question is, would there be news or further analysis that could get another commissioner at the SEC? Maybe like a Crenshaw is kind of who I'm thinking, that could persuade maybe Crenshaw to see the world in the same light that Eweida and Pierce do.

And I don't think it would necessarily just be, hey, Hester Pearson, Ueda, have these great arguments, and they're really effective at, you know, talking. I think it could actually just be the data. So if you go and you look at what fidelity has presented to the SEC, they had a remarkably data-driven analysis in September of 2021 that goes into detail on the functionality of spot market versus the derivatives market. It does this great lead lag analysis around how the derivatives market actually leads the price versus the spot market.

And I think it addresses the key issues for why the ETF has been denied so far. Bitwise, around the same time in 2021, did a 100-page, very data-driven analysis on why it actually should just go through with the letter of the law. So my net net on this is, you know, Fidelity and Bitwise have really shown you in a black and white context why the SEC's argument is wrong. And so all it takes is one more commissioner to hop on board with this. and maybe BlackRock just thinks that the time is now, or maybe they've gotten some back channel that, hey,

we're thinking about it a little bit differently. Yeah, I kind of support the theory that something political has changed at the SEC. And, you know, I could kind of imagine a world where they're now able to tell the story that, well, hey, we cleaned up crypto markets, we chased finance out, We send these enforcement actions to all these exchanges, and now we're going to coronate BlackRock as the sort of trad-fi guys that are going to come in and clean it up and do it right as a way to take some of the political pressure off of them, given the aggression they've shown to the markets. So I could see them positioning now a BlackRock ETF is kind of an olive branch to the industry or to the, sort of representatives in Washington that are pro-crypto that have been critical of the SEC. Because the surveillance sharing thing, as we said before, it doesn't make that much sense to me.

Also, it feels like a completely pretextual or contrived. Because if you actually zoom out and you think about what Bitcoin is, it is a global commodity that is produced globally, you know, majority produced elsewhere, right? traded globally, held by 50 to 100 million people globally with exchanges in every major jurisdiction globally. It's not a commodity. And that's similar to oil or gold or silver or any other global commodity. It's not something where there is just a U.S. securities market. It's not like Apple stock that trades on two exchanges in the U.S. and is held at one custodian in the U.S. So the notion of surveilling the global market for Bitcoin is incoherent.

If a US-based securities regulator is saying, we are going to disapprove this commodity to ETF unless you, the issuer, can prove to me that you are surveilling, able to surveil the global spot and futures market for this thing, that's an impossible to reach threshold, right? You can only surveil a portion of the market. So if you think of it in context as just another global commodity, it seems like a crazy high borrowed it clear to say, we need you to understand the nature of this market and keep it free of manipulation. I mean, look at oil. Oil is a market where there is a literal cartel that controls the price of oil called OPEC, right? Yet, there are still ETS that track the price of oil. So the fact that

there are entities that are outside the U.S. that are able to be price setters or influence the price, that doesn't mean that we can't have products that are financialized, wrapped versions of oil in the U.S. Well, I was going to have a great reaction to what you just said, but our podcast just got interrupted for 10 minutes because some window fell apart at your house or something. So I trust that whatever you just said about commodity markets was really smart. I agree. Yeah. I don't know what's happening in this building. There's always some nonsense going on.

But the podcast goes on. Okay, they can't stop us. So the last thing on the Bitcoin ETF, I would say, is that the game theory optimal thing to do right now, I think, is it. if you have a Bitcoin ETF on the shelf, just refile it because there's no way on Earth that the SEC is going to give BlackRock a monopoly on Bitcoin spot ETFs. So they have to approve a bunch of them at the same time, or else this is the biggest scandal in the history of financial services to just give one monopoly for the Bitcoin Spot ETF. Yeah. So, you know, I've kind of been, the SEC said this in the past. They're not just going to improve one.

so I trust the till adhere to that, although, look, would I put it past them to also engage in some colossal scandal? No, I mean, that's the kind of thing they would do these days. But I've been somewhat amused at people compiling lists of all the firms refiling their ETFs and be like, Fidelity is jumping into Bitcoin for the first time. It's like, no, clearly the correct decision here is to assume that BlackRock knows something and to refile. which is not that expensive. So all these firms jumping at the same time, that doesn't mean there's been some C change

and Tradfai's acceptance of crypto. It's just that they're logically refiling because BlackRock jumped in. So the other thing that kind of feeds into this regulatory thing is this market structure bill is going to get voted on as to whether it gets out of committee in July, it looks like. Anatoly from Solana said that if this were to pass, it would make the U.S. the best place for crypto startups overnight.

It's that easy, which I totally agree with. I think as an industry, we should be laser focused on the stable coin legislation and the market structure regulation, because those are the two things that's going to amplify just the amount of capital that can flow into this industry. There's just so few banks and broker dealers and market participants in the traditional financial services world that can do anything now. and if you just look at the quantum of capital that could start to play if these things get passed. Plus you get a Bitcoin ETF, that's the type of thing that sets you up for a really nice end of the year. Well, we've expressed our skepticism that anything is actually going to pass in this Congress, but both bills, I think, are essential here and would reverse a lot of the damage

that's been done in Washington. Here's an interesting story. There's a bathhouse in Brooklyn called Bathouse, and they post on Instagram that they are heating their pools with Bitcoin mining. They were all excited about it. This was seized on Twitter. Joe Wisenthall, our good friend over at Bloomberg, tweeted this, and boy, did people not like it. In fact, they hated it. So because this bathhouse is being somewhat innovative and mining Bitcoin and using the heat to heat the pools, so they were obviously going to use that electricity anyway to heat their pools, right? So mining Bitcoin with, let's say, very little to no ecological impact. They are now at the center of a scandal.

And their clients hate that. So if they were if it was GPUs for AI or if they were cooking pizzas and using the waste heat to mine the baths, I think it's fine. Since Bitcoin's not fine. Christmas lights are totally fine. Yeah, Christmas lights are fine though. I mean, I think the problem is that they're in Brooklyn, you know, so it's, you know, it's not going to be a crowd that likes Bitcoin anyway. Although there are a lot of crypto people in Brooklyn. That's true.

That's true. Williamsburg is kind of a little hub of cryptocurrency. activity, but maybe the bathhouse consumers are a different demographic. I've never been to a bathhouse. I guess if it's like a Bitcoin bathhouse, I mean, it doesn't make it that much more appealing to me. It's good for you for having Bitcoin miners at your bathhouse, but that's not exactly a selling point for me. I don't think they're pushing Bitcoin down anyone's throat. I think it's just they happen to be doing this and they admitted to it and now they're in trouble.

Although I, during NYT, NFT, NYC actually went to a NFT party that was at a bathhouse, which was pretty funny. It was just like an ordinary party. It just happened to be in the sauna. At a bathhouse, they had a... In a Banya. Why? A Russian Banya.

What's the point of that? I don't know. It's the dick butt. Are we even allowed to say that? It was the dick butt, NFT collection. and that's where they had their ball or their gala. So is it like a proper like forum for people that like get dressed up and go to gala's or is it like a locker room? Well, I mean, the dress code was what you would wear to a Banya, a Russian baths.

I don't think anyone was in a tuxedo. Sometimes I just think I'm getting too old for this industry. They had an ice luge. which was in ice sculpture in the shape of a dick butt with the Luge element where you could. That's like pre-FTX level crypto stuff right there. I was honestly impressed by it. I mean, of all these NFT projects,

they seem to have carved out some sort of niche for them. I actually have a good friend who about a year ago told me that his best trading idea was being as long as you could of the dick butt collection. And I told, I thought that he was a complete, I almost left the restaurant when he told me this. I thought he was a complete lunatic. And turns out he, you know,

that was a generationally good call. Yeah, I mean, to be fair, I guess. So Meltem has really gotten behind that one. And she was on Raoul Paul's Real Vision talking about this, which that's like, he has like Drucken Miller and those type of guys on his podcast. And he had one about dick butts. Yeah, to be clear,

I'm not endorsing dick butts. I'm just saying they threw a good party. And I asked said friend at the time when he was really endorsing dick butts to me, and I asked him, well, what's the premise of your enthusiasm? Like, what is it that's so good about it? And he's like, well, you know, it's just a funny meme. It's just a funny, accessible memes. And memes are going to be a big part of culture going forward.

And I told him, I don't think it's a funny meme. I don't see how it's funny. How is it funny? It's not like my type of humor. No. I agree with the idea that there's value in memes. I think it's very pure oil, but either way, they've done well. So that's sort of the bathhouse section of the podcast.

All right, well, it's good to see. I mean, that sort of reminds me of that 21 Inc original idea where you'd have mini Bitcoin miners attached to your household appliances, which I still think that was such a good idea. And I guess they just couldn't get the tech fully working, but maybe that'll come back, where you'd just be running a Bitcoin miner every time you take a, you know, take a shower. Your hot water heater is firing up and you're just mining Bitcoin.

I mean, there are actually a number of startups that are doing this, like for agriculture, for greenhouses. So there's Bitcoin mining. There's heaters you can get that have miners in them. It just seems very convoluted, to be honest with you. I think it's an idea that it is, people will build it. I think it's just a matter of can you actually figure out the economics in that? Because you need to be constantly mining Bitcoin and you need to be to do it at an attractive energy price. So, you know, in a world where a lot of Bitcoin miners go to, you know, shale fields and things like that, maybe it just doesn't work to have your hot water heater be mining

Bitcoin. Yeah, the other thing is we need hardware improvements to plateau because, you know, you buy a heater for years. You don't want to change out the guts of your heater every few months. And so we kind of need ASIC development to slow down. so that you're not constantly refreshing the CAP-X. So I don't think it can work really as an idea until that has occurred. All right.

So I think that's it for the week. Busy week on the Trad V front, I'd encourage everyone to go read our newsletter and get into this FTX clawback, which is just so crazy. I just can't get over it. Every week that goes by, new information comes to light here. So that's that's it for the week.

Yeah, we will see you on Monday.