On The Brink with Castle Island - Weekly Roundup 10/30/20 (Iran stockpiling Bitcoin?, more bank charters, is Paypal a Bitcoin Sidechain?) (EP.143)

Episode Date: October 30, 2020

Matt and Nic cover deals and news of the week. In this episode:  Matt's bike is stolen in mysterious circumstances Our top takeaways from the Brian Brooks interview with Laura Shin The state of financial regulation in the US as it pertains to crypto Is the permissioned pseudonymity model of stablecoins sustainable? SoFi's application for a new bank charter approved Why lowering the barrier to entry for new bank charter approvals is so important is there any merit to personal tokens? Avanti gets their SPDI charter approved Why Avanti's Avit stablecoin is so interesting What is the legal enforceability of stablecoin transactions? Accounting and tax questions with stablecoins Coin Metrics partners with KPMG Is the Iranian Central Bank accumulating Bitcoin? Why Iran adopting Bitcoin demonstrates its value proposition FTX offers equities – is it compliant? Is Paypal a Bitcoin Sidechain? Content mentioned in this episode:  Brian Brooks appears on Laura Shin's Unchained The Cambridge Center for Alternative Finance Bitcoin mining map Apolline Blandin on On The Brink

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

So out of this worry, we have something called a Bitcoin. Bitcoin. Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. And I got my bike stolen last week from the WeWork. That's my Wii Work update of the week is I got my bike stolen. So the bike thieves did not take the year off. They're still out and about.

They're active. It was, so it was locked. The lock was cut. and I can't get to the bottom of this because I went to building management and tried to figure out what happened. And I was told that the video system went out from 423 to 428 and the bike was gone. So just mysteriously, the video cut out for five minutes and my bike was gone. And I was told this, like, do they think I'm an idiot? Like, they just expected me to believe that.

So the, what is this like Mission Impossible where where the video goes out for the precise amount of time that it took to do the heist? Yeah, they were just like, hey, you know, I got really bad news. You know, we have a camera back there, but the camera went out and the bike was there at 423 and it was gone at 428 and we don't know what happened. It's like, well, I can tell you what happened. It doesn't take a genius. What's the uptime? many nines are they, you know, maintaining on this video feed? I don't know. It's very hard to get information. It's also very unclear what the person would have done with the bike. I mean,

Bitcoin was surging. It's really possible that this was part of a, just a Boston-wide effort to steal bikes, liquidate them and buy Bitcoin with them. That makes a lot of sense. Was it a nice bike or like just an average bike? I mean, it's just a very functional bike. It was like a one-speed road bike, but it got me to work every day. And now I have to walk every day. In the rain. I had to walk in the rain today. Yeah.

So I'm without a bike and I've got a building management that's telling me that it just mysteriously cut out for five minutes. So we're in the market for new office space. Yeah, I don't buy this five minute gap thing. That's the most suspicious thing I've ever heard my entire life. I just like preposterous. Yeah. And you'd think that the existence of the camera alone would be.

be sufficient to dissuade potential thieves. But so I guess this thief just like gambled and, and they got lucky maybe with the camera going out for precisely five minutes. Well, is that your interpretation? I mean, I don't want to jump to any conclusions, but it seems like a pretty convenient fact pattern that it went out for five minutes. Sounds like you're spinning conspiracies. Spotify is going to de-platform us if we, you know, get too far into conspiracy territory. Well, I don't want to throw too many conspiracies theories out there, but it just seems like a little bit suspicious to me. And I will say, we work wasn't very helpful either. So we've got a lot of gripes this week. No beer, no bike. So I don't know. You know, the price of Bitcoin was surging all weekend. So I guess

that made me feel a little bit better in my lack of bike having mood. Yeah, you can't be two-side when Bitcoin's kind of doing what it's doing. You know, it's hard to be hard. Hard to be. Hard to to be sad when number grow up. Well, I guess getting into it, we did have a couple really good podcast guests this week. On Monday, I sat down with Joel Revel. Joel is the co-founder and CEO of Two Ocean Trust. And that was actually a big story of the week. So Two Ocean Trust is a Wyoming chartered trust company.

They offer services to high net worth individuals, advisors, family offices. They were granted a no action letter from the Wyoming Division of Banking. to provide custody services for both traditional and crypto assets. And so they're able to do this under Wyoming law with this no action letter and they're able to serve as a qualified custodian, which means that under the Investment Advisors Act of 1940, which is also known as the 40 Act, they can custody for advisors. So this really is, to me, it's a pretty groundbreaking story. I mean, under the SEC custody rule, investment advisors are required to hold their assets with a

qualified custodian. And to my knowledge, this is the first time that a state banking regulator has come out and explicitly said that they believe that a certain company hits that threshold and is a qualified custodian. So really kind of opens up the aperture of what they can do as a business with this no action letter. We keep talking about Wyoming, but they just keep doing interesting stuff. We got more Wyoming news coming later on in the episode. But yeah, really cool. I mean, two oceans did not go for these SPDI. They went for a trust company. They got this no action letter.

So just a constant flow of interesting information out of that state as it pertains to digital assets. You were busy. You had another episode. You did Yohan Turpin with Wintermute as well. Yeah. And these are kind of turning into some of my favorite episodes, just talking about the specifics around market structure and how this asset is trading, how these assets are trading. So, Yohan is the co-founder of Wintermute, and they are a market-making firm and also run an OTC desk.

They do a bunch of things in the longer-tail assets as well, and they really see themselves as a technology firm. So we talked about building that business out. Johan is, he has been across a variety of other types of assets over his career. So just talking about some of the idiosyncrasies of crypto assets was really interesting. So I'd recommend people check that one out as well. Well, we're on the topic of podcasts. I guess we can recommend a couple.

I know this is out of order. But the one podcast I really liked this week was Laura Schen's interview with Brian Brooks, the acting control of the currency. I thought it was so good. Yeah, Brian Brooks is great. I mean, what's it going to take to get him to be the full-time non-acting controller of the currency? That would be great. Yeah, there's all these regulators.

I don't know if they get out of office, if their party loses power kind of thing. I think that might be the case with a lot of them. So maybe there's going to be a total shake-up here. I guess we're on the cusp of some important political event. I sort of forgot what it was. There is some big news out there. Yeah, people seem to be out on the streets voting and so on.

I don't exactly know. But either way, we have a... Our current crop of top financial regulators is very interested in and largely pro-Bitcoin and cryptocurrency, as far as I can tell. The one big, big takeaway I took from this was, first of all, Brian Brooks was like a little bit salty from his time at Coinbase where they couldn't get good bank relationships. And he said that was part of his inspiration for trying to make banks work better with crypto companies. which was really cool to see how that manifested in the guidance. He doesn't like the state-by-state money transmission licenses that all these startups have to go for, which makes a ton of sense.

It's really unreasonable to expect a startup to have 50 different regulators. Basically makes no sense. And the last thing that he said, which kind of blew my mind, was he completely understood the privacy model of stable coins. whereby issuers have a relationship with the people creating or redeeming the stable coin, and they have no relationship with people that might be transacting with it. And those interior hops could be hundreds of hops before there's a redemption or creation event. And he was totally understanding of that.

He described it as similar to the way an ATM works with cash. And he seemed totally fine with it, which was really the first time I'd heard a top regulator address this. and made me feel very comfortable about the way it works. Whereas previously I was thinking, well, it's a taking time bomb. They're going to do something about it. It was super bullish. I mean, he really understands some of those nuances,

a very granular level. It was very kind of optimistic interview and made you feel like there was a lot of clarity, even forthcoming for a number of banks that are looking to do things in the space. You know, you definitely do feel his frustration from being a coin base and having some of those struggles on the banking side. I mean, really, like we keep on saying,

it's really just still two banks are really fundamentally critical to this whole industry at this point. So it's Silvergate and Signature really at the bleeding edge here. And it's really them too that are dominating just banking services for companies in this entire industry, which is great for them, but it's kind of a point of failure for the industry. And he also made some reference, which kind of happened later in the week. He talked a little bit about that there would be a new bank charter coming out, and it looks like that happens. So Fai's application for a new national bank charter was conditionally approved later in the week. So they are obviously a kind of a diversified financial services firm at this point, started off as a student loan lender.

But they have a subsidiary business unit called SOFI Digital Assets that is regulated like a money transmitter. So it's an MTL MSB. And so certainly the range of products that they could offer under that subsidiary could potentially be a lot different if they were, in fact, a bank as opposed to a money transmitter. So it's great to see these type of activities being pushed. You know, hopefully Brian Brooks can, you know, maybe we can find a way to keep him in office regardless of the outcome here. Yeah, I mean, his credentials are impeccable. and he's really evolved his view on crypto. I mean, I remember, I said this before,

but I remember I was on a panel with him in 2018, actually at the IMF, and he said a bunch of really mean stuff about Bitcoin. I got super mad, and I turned bright red. The video was not released. The video of the panel was not released. But if it had been released, you would have seen me turn as red as a tomato,

because he said that China, and controls Bitcoin, which, as we know, gets me really fired up. So it seems that someone at Coinbase, you know, maybe guided him on the right path. And now he's got all the correct views about Bitcoin. I think you just have to travel the idea maze. I mean, everyone has an idea maze. And, you know, you bounce around, you take a look at private blockchains. You think those are pretty cool for a little while. What's the deal with XRP? Is Iota? really an internet of things protocol. There's a lot of hops you got to make. Yeah, but here's the thing that's so interesting about what Brian's trying to do. He's trying to kind of revitalize the bank sector

and make it easier for a broad array of entities to get bank charters. And that's kind of in concert with what's happening at the state level. But here we have, you know, the federal bank regulator saying, hey, we want to make it easier to get bank charters. And, you know, if you actually look what's happen in this country over the last 30 years, the number of banks has been crushed. So there's been a huge amount of concentration, consolidation in that industry. We've gone from 15,000 banks in 1990 to about 5,000 banks today. And the average size of banks has gone up. And the thing about banks is that smaller community banks lend to smaller businesses. So as those community banks evaporate and get rolled up into bigger ones, you get less of that distribution of credit to smaller

businesses in the economy. So you get a less equitable distribution of credit. So reversing this trend is really critical, in my opinion. And I think that's partly related to what the crypto industry can do in terms of bring more vibrancy to this industry. But it's also just a function of regulators becoming okay with the creation of new bank charters, fintech charters, et cetera, just a more diverse array of entities here. So that's why his stance really excites me. Yeah, so that was a really good podcast. Another good podcast while we're on that topic. Nate Madri from Coin Metrics appeared with Yassine on Arc's podcast. I thought that was really a great podcast talking about Bitcoin as a macro asset. Yeah, and if you haven't seen Arks to

recent pieces on Bitcoin. Talking about Bitcoin is this economic institution and then looking at some key data points. They're incredibly good. I mean, ARC is just a juggernaut now. They have, they were completely unknown about three, four years ago. And now they are one of the best known kind of actively managed, you know, ETF providers, I guess you'd call them. And their performance has been unbelievable. So I think their AOM is up to 20 plus billion now. That's what a franchise over there. All right, why don't we move into some deals? There are a few this week, nothing, you know, no monster deals, a lot of early stage deals. So a few to start out with here. So overstocks, Medici Ventures, which is their venture subsidiary that mostly focuses on crypto assets,

they have acquired a controlling interest in Bit. Bit is a blockchain company. They're focused on central bank digital currencies. So overstock continues to make investments in the space. Yeah, the next one is Figment, which is a Canadian blockchain infrastructure provider. They raised $2.5 million from FJ Labs, XDL Capital, BKCM, and some others. The next one is INX. INX is that company that went public, actually. So they're a crypto asset exchange. They went public with an IPO with an asset that is tradable over the Ethereum. blockchain. They have acquired Open Finance, which is a U.S. broker dealer that's focused on crypto assets. And here's something you may have seen on crypto Twitter role, which is a

social money startup that involves, I believe, enabling individuals to tokenize themselves, if I'm not mistaken. They raised a million dollars from Fabric Franchers, iOSG, and some others. If I had tokenized myself last week, I would have lost that the tokenized. would have gone down as my bike was stolen. Do you think that the, are you sure that the value of a personal token tracks the value of one's assets? I don't know.

Is this like an actual thing yet? Do personal tokens exist in the real world? Yeah, they 100% exist. Yeah, there's, I can name some, I was thinking about picking up some, Tom recently. Well, I know about that Alex. So there's Alex, that was the first one.

There's Tom, dollar sign Tom. And who's that? Tom Schmidt over at Dragonfly. Oh, he has one? I'd be long that one. So his tokens are convertible. They're redeemable for, I think, a meme, like a custom bespoke meme. And I will say Tom Schmidt's meme game is really good, actually.

I don't own any, so I'm not pumping the token right now. But there's a variety. I think there's a personal token that's redeemable for an hour of legal work. I believe, which is kind of interesting if you think about if the value fluctuates a lot, they could end up really being committed to provide legal work for pennies on the dollar. So that's kind of a situation you don't want to be in. Yeah. Or some of these also income sharing agreements?

Is there sort of an intersection of those two categories? I've seen some of that. And that's when you get into sort of dangerous territory with regards to securities laws. And actually, I was looking at some of the personal tokens. and some of them are, they have a market cap in the multiple millions. I think the best known one is probably that artist RAC, RAC. So that kind of makes sense to me why their token would be worth a lot. But we're talking about, you know, regular folks who have personal tokens and the many millions,

which is a little mystifying to me. Yeah, wow, that's crazy. All right, well, let's move on. Two more deals. the graph, which is a data indexing protocol, they raised $12 million in a token sale. And lastly, we have defy dollar, an India-based stable coin company. They raised $1.2 million from divergence, ventures, standard crypto, and accomplice. So a bunch of deals this week.

Let's move into the news. We already talked about the two ocean news, but thought that that was great. And also they announced that they're working with a number of companies in the crypto asset space, including Talos and Anchorage, who are both part of that platform as well. So congratulations to the two Ocean team. Yeah, so some other news. This is very exciting to me. Yvante Financial got their SBDI charter approved by the Wyoming State Banking Board,

so they're the second ones to get it after Cracken Financial. This doesn't mean that they are a fully fledged bank just yet. they still need to get access to the Federal Reserve. I think their local branch would be the Kansas City Fed, if I'm not mistaken. So they still have some milestones to cross before they're fully operational and ready to go. Yeah, so it's super exciting. And it's great that I think it was an eight to nothing vote. So it was pretty, you know, there's some strong support there.

I guess the two things that I'm interested in seeing both from Cracken and Avanti is getting that Fed window access. That'll be huge. Be curious what the process is like there. How does that happen? When can that possibly happen? And then the other thing is just New York. So will New York honor reciprocity? Will they allow New York-based customers to become customers of Avanti and customers of Cracken using this license?

That is the big question that everyone wants to know. So, and if they don't, I think we're going to see a court fight. So the interesting product that I'm looking forward to from Avanti is their stable coin. I don't even know if they're going to call it a stable coin, but A-V-I-T. And the premise there is that this would be a stable coin, which is backed by potentially base money, I think, assuming they get access to the Fed. and given that they're kind of a full reserve institution, it wouldn't really have the risk of a normal bank, which, you know, it operates on fractional reserve. And under the Wyoming law, which really clarifies digital asset transactions, it clarifies

legal context. That's a legal context, which is missing from most other stable coin transactions. This is something that Caitlin says a fair amount. if you talk to her about stable coins, is that legal enforceability for stable coin transactions is very unclear. So if you look at the USDC Terms of Service, which is a really fascinating read, by the way, not that I recommend going around reading a lot of Terms of Service, but the USDA one in particular, there's a lot of interesting stuff in there. And there's a paragraph where they say, I'm paraphrasing, but it's effectively, you know, it's very ambiguous what the enforcing.

of USC transfers would be. There is a lot of legal regimes, and, you know, there's still not a lot of clarity around that. So, Caitlin's response to this is, well, let's clearly delineate what the enforceability of a stable coin transaction is. And so this is her take on the idea. So I'm pretty excited to see what that actually ends up looking like. Yeah, that'll be exciting to see. On that point of USDA, in the Wintermute interview this week, Yohan talked about closing their venture round of financing and they accepted a number of investors using USDC. So we're starting to see that more and more just USDC being used as actual dollars.

Now, the accounting treatment of that is a whole other question. You know, you have companies like Luca that are doing quite well in a corporate context because, you know, as those stable coins fluctuate, you're creating tax balls. events, I guess, in the eyes of some people. So there's a lot of open questions around whether or not the IRS should do de minimis exemption and sort of wrap some of the stable coin issues into something like that. Yeah, it seems, it's weird because stable coins do fluctuate because they exist on markets and they're exposed to market forces. And it's not necessarily that, you know, market participants are collectively revaluing these stable coins at a discount or a peg. It's just the natural flow of leverage and getting exposure and getting out of positions just means

that they fluctuate. But if they're all redeemable for a dollar, then you'd think that, you know, the tax authorities would be mindful of that. But this is just one of those big ambiguities that we still really don't have good answers to. So another story this week, KPMG and Coin Metrics have announced a strategic alliance to bring a new product, actually a couple new products. Actually, a couple new products to market, including one called Farum, which allows financial services firms, exchanges and brokerages to monitor public blockchains for a number of network anomalies. So 51% attacks, fee irregularities, other types of unusual events that could impact inbound and outbound transactions. And KPMG also announced that their new chain fusion product will integrate

Coin Metrics's Atlas product, which is kind of a universal block explorer, I guess, search engine, whatever you want to call it, that sits on top of number of public blockchain. So this was an exciting announcement this week. Yeah, this is a really big step for CM. Super exciting to see KPMG investing so much in that relationship and helping them bring these products to market. Feram in particular is a very exciting, interesting project, which I don't think there is much precedent for in the crypto industry. Basically, what it allows service providers to do is to evaluate the settlement risk of transactions on a number of blockchain. and evaluate the reorg risk and the likelihood of a given transaction settling using a bunch of

different risk parameters. So super, super cutting edge stuff, you know, relies on some pretty deep tech R&D, which I really haven't seen anywhere else. So I think to the extent that some of these proof of work chains become easier to attack and the service providers like exchanges end up being the targets of these. attacks, they're going to want to invest in these kind of risk analytics, whether it's through Farram or from another provider. So something that I think would bring a degree of maturity to the industry, allowing these entities that are getting targeted all the time to have a better

sense of whether they're being attacked and whether these chains or they have abnormalities or working normally. So there are a number of interesting earnings calls this week. micro strategy comes to mind. So boy, oh boy, that investment. You had a good tweet about that. What was your tweet? I mean, they made a ton of money on that Bitcoin purchase a couple months ago.

You said something about how to make $100 million or something. It's not as fun to just like repeat a tweet that I've made on the pot. You know, it's like now we're mixing the mediums. So they had, I think they had a record earnings announcement. And it was, you know, obviously the Bitcoin on the balance sheet has gone out pretty significantly for those guys. The other one was Silvergate. So Silvergate is the bank, and they recorded Q3 earnings.

A few highlights here. They had $586 million of additional deposits from cryptocurrency-related companies, and they saw a big surge in their Silvergate Exchange Network, the SEND business, which is a settlement between intermediaries, exchanges, brokerage, firms, funds, things like that. So they did $36 billion in transfer. this quarter, that was compared to 32 all of last year alone. So that business seems to be growing really nicely as the crypto market grows nicely. And they also had, they highlighted

Sen leverage, which they're starting to do crypto-backed loans as well, kind of lines of credit. So, you know, these companies that are performing really well on the public market with their crypto asset exposure is, you know, I think folks will start to notice that. It's refreshing that there's more and more public companies that have elements of their business that have to do with crypto always gives you a bit more insight. I mean, it's going to be so interesting when and if Coinbase goes public to get that additional transparency into the nature of their business, right? Because right now, you know, not that they're secretive, but they're just fairly untransparent. So I'm personally looking forward to to being able to track their progress in a more

granular way. Yeah, I mean, there would be some interesting S-1s. Coinbase would be a great read. If digital currency group ever went public, that would be a hell of an S-1. I think people would be really surprised at the rate of growth at that company as well. I think on the micro-strategy call, that was probably their best attended earnings call ever. if I had to guess. Yeah, I mean, all these analysts were asleep at the switch two months ago when he made, or his last earnings. He pointed out. He was like, you know, we might be looking to diversify our balance sheet into something like gold or, you know, Bitcoin.

Not one follow-up question. Just completely asleep at the switch. And then Michael Seeler came out and said that he'd also personally bought 17,000 Bitcoin. Yeah, I don't know if I would have done that if I was him. That's bad opsec, Michael. Don't tell people how many coins you have. Just tell everyone you sold it tomorrow. Yeah.

So he loves the coin. And the interesting thing, the thing I like about him is that he's happy to FOMO in at the top. You know, he's not about, it's like there's a lot of these guys that bought a bunch of coins back in 2011. But, you know, that doesn't really move the needle for people these days for people that are outside looking in. They want to see evidence that there's billionaires that are. happy with the current price and valuation, they're happy to deploy into. And that's the key benefit of Michael Saylor because he's fomowing in at current market prices. That matters. You know, then people would be like, oh, he's just like me. Yeah, you know, Raul Paul is doing the

exact same thing. Talk about bullish. If there was a Mount Rushmore of bullishness, it would be Michael Saylor and Raul Paul would definitely be too on that list. Yeah, Raal Powell's kind of like overdosing on bullishness right now. I've never seen anything like it. But I mean, everything he's saying is correct. Yeah. I just keep thinking about Lin-Elden's thesis on all of this. I mean, 70s was an inflationary decade. Forties was an inflationary decade. You look at debt to GDP. You look at inequality metrics. Society periodically has these big resets where you have to reduce the inequality, reduce the debt burden. How do you do that inflation. There's almost no other way to do that. So all of the signs point to that,

or alternatively, extremely deep, negative real rates and the people that own treasuries get crushed, basically. When Alden had an interesting tweet this week about making a presentation to a bank board of directors, not about Bitcoin, but Bitcoin came up and she espoused her bullishness. Yeah. Talk about being put on the spot. just make an ad hoc, extemporaneous presentation on the merit of Bitcoin with no slides. But you have to respect it. If you're a board member at one of those banks, you know, you got to be asking people, what do you think about Bitcoin?

So there was some new, in terms of Bitcoin adoption news, I don't know if this is adoption from the right quarters per se, but there's new forms of adoption happening. Yeah, this one is a little bit murky. Honestly, I think it's pretty interesting. So we're still parsing apart the news here. I've asked some of my Persian friends to help me with it a little bit. But what's happening is it appears to be the case that Iran has been discussing rules

or is putting into place rules whereby minors, are meant to sell the Bitcoin, they mine directly to the Central Bank of Iran so that the Central Bank of Iran can use those bitcoins in trade finance, effectively. And in an effort to route around the dollar, clearly, as we all know, Iran is heavily sanctioned right now. The other thing is that it looks like a lot of these miners are subsidized by the state. So this one way of interpreting this is that Iran is accumulating Bitcoin by subsidizing the energy for miners. And actually empirically, if you look at where bitcoins are being mined based on the Great Cambridge Energy map, which looks at mining pool geolocations, Iran's hash rate has risen.

So there actually might be something to this story. So I would be shocked if countries were not mining Bitcoin and potentially other types of crypto assets as well. So I guess I'm not surprised at all by that. What do you, I mean, what do you make of this? Is this something that is a big news story? I think so. I mean, to me, this looks like the first admission that a major, that any central bank really is actually stockpiling Bitcoin. And I know there have been rumors that North Korea was behind some of the exchange.

hacks and that's how they were getting Bitcoin and other coins. And there are rumors, in fact, very credible rumors that the Maduro regime in Venezuela, they run a crypto exchange business. They have the petro. You can pay for your passport renewal in Bitcoin. So most likely the Venezuelan government does own or control some measure of Bitcoin. They also confiscated a bunch of miners, presumably they're still running them. But this is the first widely reported, you know, overt admission that a central bank is holding Bitcoin. So I'm going to go ahead and declare this the first central bank to hold Bitcoin first of money. All right. Well, I guess we'll have to figure out how to weave that narrative into our Bitcoin 101 introductions that we do for folks.

So, and by the way, just looking at the numbers on Cambridge's great site, which is really amazing, and we did an interview with Apollin about this specifically. I'll put them the show notes. Iran's current share of hash rate is about 4%. That makes them the sixth biggest miner, the sixth biggest country in terms of mining. So really meaningful share of hash rate. So this is the point where people start to get those analogies. ready of, you know, a lot of countries that are maybe not friends of the United States also hold a lot of U.S. dollars as well. Is that kind of where we're going with this? I mean, my interpretation is, you know, what this demonstrates to me is Bitcoin's credible neutrality. You know, it can be mutually used by people that are enemies and states that mistrust each other. And, you know, clearly the Iranian central bank is thinking to themselves, look, we need an alternative payments

and settlement system. Bitcoin is sufficiently trustworthy that we can allocate some of our resources to it. So they clearly believe that the U.S. cannot get to them through the medium of Bitcoin. They can't sanction them. So that's just another endorsement for Bitcoin's neutrality and it's apolitical nature. And that's why some of these pariah states are thing of taking advantage of it. And to me, that's Bitcoin's best quality, is that it doesn't matter who you are. The protocol will treat you just the same. And of course, you know, the service providers at the edges of the network, they get regulated. But Bitcoin itself is indifferent to your identity, and that's what makes it so good as a monetary asset. And, you know, ultimately, any monetary

asset is going to be used by people we disagree with. You know, a lot of dollars are out there you know, they were sitting in El Chapo's vault or whatever. That doesn't make dollars illegitimate. These, you know, these monetary technologies will get used by good and bad people. That doesn't make them bad technologies. Yeah, that's well put. Did you see this news this week that FTX is going to be offering equities on their platform? Yeah, I will admit that my first reaction to this was thinking about the ABRA settlement with

the SEC, and before that, the Elaine Owe had a, was it the Sandhill Exchange, which offered kind of equity derivatives in a kind of a crypto context. And they also had a settlement with the SEC. So there's a lot of precedent for the SEC taking a very dim view of these equity derivatives. I guess maybe that's not the whole story, right, though? Well, I don't know. So for those who are not familiar, FTX is outside of the United States. They're not regulated by any U.S. regulator, but they are one of the largest derivatives exchanges in the crypto asset space. It looks like they're doing this partnership with a brokerage firm of some sort. So I'm not sure if maybe it's a little bit different than Abre. We definitely won't jump to conclusions on the implementation detail.

But yeah, I think you look at something like this and it immediately makes you think of Sand Hill and ABRA and a couple of these other venues that have tried to do derivative products representing equity securities. And I guess traditionally the US regulators haven't really loved that idea. What was the other one? One broker, I think, met a similar fate. Now, that's not to say that there's a guarantee that the SEC will step in here. And also, if you look at the way they've been engaging with the crypto industry for the last couple of years, it could well be the case that FTX, even if they expect some form of enforcement here, is weighing the cost of that enforcement against the returns from offering these products. And they're making an expected value decision.

They're saying, well, actually, the fines tend to be pretty de minimis, and we think this will be a big product line and we'll make a lot of money on it. So on net, it's worth it. So that could be the calculation they're making. Yeah, as long as you're not running into any bank secrecy act, violations. That's when things get really ugly. And there's definitely no indication that I'm aware of that they're doing anything on the K. Y.C. or compliance side that would be out of bounds. Speaking of which, Arthur Hayes still on the loose, huh? I don't think there's an international manhunt for Arthur Hayes. I think probably the U.S. knows where to find him if they wanted to. I mean, I think with the cases like this, you know, like you're afforded a little bit of leeway. They're not going to send intrapole after you for that. Well, I'm sure that it's just a case where his lawyers are negotiating surrender terms and things like that. I'm going to go on the record. I don't think any of the Bitmax founders are going to actually go to jail over this. I think there'll be a plea.

I don't have inside information. I just think there'll be a plea deal here. And they'll be an enormous fine or something and get probation. All right. Well, hash that into the operative in its prediction. Another piece of news, Bitwise, the asset management firm hit $100 million in AUM this week. So congrats to them. Congrats to the Bitwise folks.

Definitely a lot of demand in the RIA channel for these type of assets. I also saw that Facebook released a research portal for cryptocurrencies and blockchain. I liked it a lot. Some pretty hard tech going on there. So kudos to Facebook for putting out some great research. I saw David Marcus congratulating his alma mater PayPal on the launch of their product. I also saw that Jeremy Aller bought some Bitcoin through PayPal, so I guess you can actually use it now. Yeah, I was not aware that it was, you know, I'll have to pop open the app.

I have not used it yet. The Bitcoiners on Twitter would say it's not actually Bitcoin. It's a Bitcoin IOU until they allow withdrawals. Those guys are smart. They're going to figure out the withdrawal thing. I wouldn't people need to settle down a little bit and give them a break on that. I'm sure they'll have withdrawals pretty soon. So here's a question, which we were discussing in the Bitcoin Clubhouse last night,

which you should totally join, by the way. I think I'm on it. But you know, you guys are just talking on Clubhouse all night. I got stuff to do. Oh, yeah. No, I was addressing the audience, not you, the individual there. Okay, thank you. Yeah.

So, you know, second person, plural. you. Anyway, you the listeners should join Clubhouse and sign up to the Bitcoin room so that we can dominate the front page of Clubhouse with constant Bitcoin chatter. That's the objective. Anyway, we're talking about this. We're talking about is PayPal a side chain for Bitcoin? You know, because part of what they're going to do is they're going to let you make transactions with merchants. So it kind of looks like a payments L2. or possibly a side chain. You lock your Bitcoin in there.

Maybe one day you'll be able to peg out the Bitcoin from PayPal. To me, it looks a little bit like a side chain. What do you think? That's interesting. Yeah, I guess to the extent that brokerage firms and custodians or sidechains, I guess that's probably what it is. But it's not a trustless side chain, right? It's certainly not trustless.

The difference is that if you put your coins into Coinbase, I mean, now it's a little different. But it used to be pretty hard to sort of get them out for payments purposes. But this PayPal system is sort of directly intended to facilitate commerce, you know, using Bitcoins that you're holding with them. So I think one of the more interesting things they could do. I mean, there's so much they could do with this. But you could imagine some of their merchants just deciding that they want to hold X percent of Bitcoin in their treasury.

So for every dollar that comes in, put a certain small percentage into Bitcoin and just hold that way. as opposed to U.S. dollars, and it almost turns into a savings account at the merchant level. I think that would be really cool. I'm, you know, I'm still hoping and expecting that they will allow withdrawals, but honestly, I'm pretty convinced that the PayPal news is totally underappreciated and probably the biggest news of the year for Bitcoin. Yeah, it's huge. And, you know, they'll allow withdrawals, I'm sure.

They just need to figure out a way to be compliant with the travel rule. and they'll figure that out. Well, best of luck, PayPal. Let us know if you need any help. Please allow withdrawals. All right. So I think that's it for the week. What a week.

We'll see what happens. Price-wise, last weekend was kind of crazy. Let's see what happens. Yeah, I don't really have any expectations for how the election should affect the price of Bitcoin one way or the other. Who knows? Yeah, I guess, well, this time next week when we're doing this podcast, we'll figure out who the next president is or we won't know for another still trump or maybe we won't know yeah yeah could be chaos yeah chaos in the streets you know people always say bitcoin you know they don't want to go long

bitcoin because they don't want to go long on chaos right it's like i don't want to be long bitcoin because the world in which bitcoin succeeds is a world in which i don't want to live right it's like uh it's weird philosophical justification for not being long a financial asset but um i don't know. Have you looked around the world recently? Looks pretty chaotic to me. Just one man's observation. Yeah. I mean, I took a walk around downtown Boston today. Not a lot of things open. All the restaurants are closed. COVID's back. Central banks are doing all kinds of crazy nonsense. I don't even know what they're up to now. Well, we'll be back next week. We have some really good episodes next week. We're going to release two episodes, I think, two interviews next week. Some really good ones.

Some pretty groundbreaking stuff, really excited. All right, everyone. Have a great weekend.