TFTC: A Bitcoin Podcast - #342: Dissecting the contagion with Parker Lewis

Episode Date: June 29, 2022

Join Marty as he sits down with Parker Lewis to discuss the contagion ripping through bitcoin markets and the incumbent financial system. Follow Parker Lewis on Twitter Read more from Parker Lewis Shoutout to our sponsors: Unchained Capital Braiins HodlHodl Upstream Data TFTC Merch is Available: Shop Now Join the TFTC Movement: Main YT Channel Clips YT Channel Website Twitter Instagram Follow Marty Bent: Twitter Newsletter Podcast

What's up freaks, it's your boy Marty here to introduce this rip of TFTC, sat back down with a longtime friend of the show, Parker Lewis, to talk about the contagion breaking out in Bitcoin and quote unquote crypto markets, the dangers of trusting your Bitcoin, the centralized third parties, what they sometimes do with that Bitcoin, what the deleveraging event in the Bitcoin market has looked like over the last few months. And of course, we touched on the broader macroeconomic landscape and the Fed's effect on markets, liquidity, inflation. Very dense rip. I think you guys are going to enjoy it. Parker works for Unchained Capital. And this rip was brought to you by Unchained Capital. This episode is essentially,

at least like the first hour, is one large advertisement for Unchained. you see everything that's going on with Celsius, the troubles at BlockFi, other trusted third parties and this is why Unchained has built their company and their products the way that they do they want to ensure

that you, the end user actually controls your private keys and control your Bitcoin, you have extreme ownership of it the Unchained Capital concierge team is your your Bitcoin driver's license school team. They're going to teach you how to properly secure keys and set you up with a

two or three multi-sig vault. You want to eliminate these single points of failure in your custody model exchanges, trusted third parties or single points of failure. As we're learning throughout the last few weeks and months, a single sig wallets are single points of failure. If you lose your wallet and your backup, you are shit out of luck.

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devalue their currency bitcoin wins in the world of fiat currencies bitcoin is the victor i mean that's part of the bull case for bitcoin if you're not paying attention you probably should be contagion contagion can we get away from it the wef will give us contagion and we will love it i think i actually might have had covet last week really yeah is that fourth or fifth time for you second time if i did have it yeah yeah i've had at least three times yeah we had uh we got we got the uh warning from daycare that somebody in uh my son's camp class tested positive and so they shut down the daycare for three weeks last week i think we need to get back to just saying we're sick just saying when we are yeah and i was like oh i got sick yeah that's what i'm trying to do

here i think i was a little sick earlier this week you look good feeling good yeah doesn't stop you even with the uh the sniffles and the sore throat i was running doing my push-ups my sit-ups getting it in freaks can't sacrifice your health no you can't you're gonna strengthen that health speaking of health doesn't seem like there was a lot of health in the uh the overarching bitcoin and crypto markets over the last two months what the hell is going on how are you viewing this as the head of business development and on chain capital yeah i think that um one is just par for the course for bitcoin right so um volatility is a natural function of you know i think i always anchor to the the fundamentals of bitcoin is valuable because there will only

ever be 21 million it has an immutable supply schedule um its price cannot be manipulated over short or long periods of time because its supply cannot be manipulated. And that is the starkest of contrast to the legacy financial system. And that when I think about what's happening in Bitcoin, we can talk about things happening within the Bitcoin world.

I think the overarching story is what's driving everything. And it's the fragility and the instability that will never go away from the legacy financial system. And while Bitcoin in year 13 is of significant size, it is still small in the context of the global financial system. If before this most recent sell-off over the last two months in Bitcoin, Bitcoin had a purchasing power around $750 billion to $800 billion. Global financial assets were $400 trillion-ish, right?

And so while we're in this period of transitioning over to Bitcoin as the global reserve currency and the currency that facilitates day-to-day transactions for the vast majority of all commerce in the world, that's the world we're moving towards. It's not that world today. The world today is anchored to a dollar system. And it is the dollar system and its fragility. and the fact that its money supply is managed which creates the the fragility and that when the fed tightens financial conditions liquid things get sold and bitcoin is something that's liquid and the world has to adapt around the changing financial conditions because bitcoin supply is immutable there's no one to step in and you know take bitcoin supply off the market to

have its market rate go up that bitcoin would not be of value to the world if that were possible um and what we have to deal with is volatility and so um i think we as individuals deal with it we as companies deal with it um but knowing that these things happen in bitcoin you prepare for them um so yeah and i guess that's one of the big questions that's been lingering in my mind over the last two months is i think we could argue that this deleveraging in the bitcoin and overarching crypto space started with the teraluna blow up and is this a product of the fed raising rates and what we're seeing particularly in the crypto space is those particular tokens and defi schemes are what many would consider extremely far out on the risk curve and so is a

deleveraging all the way out that far on the risk curve what we're seeing and sort of cascade in to the bitcoin markets and the bitcoin lending markets at all you said bitcoin there will only ever be 21 million bitcoin that's true but what we're coming to find is that a lot of these centralized lenders that were taking people's bitcoin and promising yield were using that bitcoin to lend it out on the back end re-hypothecating it uh to to use the technical term uh and and they're learning the hard way that there will only ever be 21 million bitcoin And if you don't have the Bitcoin at the end of the day and you give it out to individuals like Suzu and Kyle Davies at Three Hours Capital who are going to go gamble on exotic products with that, you're going to have some pretty massive consequences on the back end. yeah a couple things there so one i think that all of this kind of initial sell-off

is tied back to the fed and kind of combination of their signaling the market front running it and then their raising of interest rates on may 4th and then imbalances within the bitcoin market a number of what you described we can talk about in in detail that then created technical selling pressure um but my view and i always like to create this contrast between the dollar system and bitcoin to anchor to the fundamentals and then talk about it relative to the current market conditions is that there is a difference between dollar credit when banks create credit and actual bank reserves that are created via quantitative easing the only institution that can create more actual dollars is the federal reserve not the banks that borrow from the federal reserve

what ends up happening is you know we can talk about the history but dating back to the financial crisis fed inserts new dollars in order to sustain an existing amount of debt an existing amount of credit that credit cannot be repaid the market crashes fed steps in and doesn't print digitally creates more base money um and that base money reflects or materializes in a larger fed balance sheet that then induces more credit fed wants to take it out that causes a credit crisis a liquidity crisis and this will happen until the end of the dollar um add you know into perpetuity until the dollar hyperinflates um that function of the fed creating more dollars via quantitative easing is actually what creates the economic imbalance it's not just the fact that they print

money is that the function of printing money and manipulating every price in the world um actually fundamentally and permanently alters the economy and one where the economy is being sent false signals everywhere false price signals and then when the fed starts to take money out or even signal that it will then everyone knows the music is going to stop and in this case in this first six months of may which was different kind of in the in the run-up 2017-18 before the fed broke the repo markets was everyone remembers what happened in march of 2020 and so when the fed started to signal that they were going to tighten rates literally the selling of credit started dating back to december and it was because that was only two years ago and those

markets had memory but the creation of dollars and subtraction of dollars and the active management that money spy is what creates this massively imbalanced system and one of inherent fragility but banks creating credit does not create new dollars only the fed can that contrast to bitcoin and kind of what you brought up is that if the block fives of the world or the celsius's of the world lend bitcoin it does not create more bitcoin there will only ever be 21 million bitcoin what just happened is there's a lot of people that thought that they have bitcoin that aren't going to get it back um and that if those bitcoin were lent and leveraged and used as collateral um whether for cuspier um snake oil or to to borrow dollars and to buy more bitcoin whatever

they were doing with it um those loans got into a forced leveraging event as the fed was tightening conditions more broadly and then where there are massive market imbalances within the world of quote crypto those imbalances get eliminated because combination of there is no lender of last resort it is a free market people that make bad decisions either because they deposit their bitcoin into celsius or potentially block fi or any other one of these schemes they're not going get their bitcoin back and when there's technical unwinds forced eleveraging in the broader market i mean when you think about the the the global financial system if the global financial system contracts one percent that's four trillion of paper wealth that gets evaporated two percent

eight trillion three percent twelve trillion and so on bitcoin in total was 750 billion um so that created the initial selling pressure and then there was imbalance of people being caught off sides and in in the world of bitcoin and crypto and then when that forced deleveraging event that starts in a broader market comes in then there is no one to step in and save the day and those market imbalances get eliminated and that's bitcoin working um and that when when i think about bitcoin as a system as a whole it eliminates all moral hazard everyone is responsible for their individual decisions there will only ever be 21 million bitcoin if you trust those bitcoin with an exchange be a coinbase or a lender like block fire celsius you're put at risk right or if you

put them as collateral to a loan or done chain different risk but still that is your decision and only the individual that participates bears the consequences in the cases of celsius and a of other people who are actually lending bitcoin which we don't do um they got cut off sides and that when markets sold off forced deleveraging events happen in bitcoin um but nothing about that manipulates the supply of bitcoin the market imbalances and the price of bitcoin get eliminated and the the strong survive and people that have been through markets and been through the volatility of bitcoin that that it's about weathering those storms yeah it's a pretty big storm now and it's it's insane particularly to see celsius what they were doing particularly

putting it out locking people's bitcoin up and wrap bitcoin and then putting that in these crazy defi schemes the the fact that three arrows capital was able to go and get unsecured loans of Bitcoin just based on their reputation, which is proving to be a pretty false reputation. It was all facade. There was really no

material. What's the word I'm looking for? There was no actual performance behind what they were putting out there to the markets. That's one thing that's really been in my mind the last few weeks is that The overarching Bitcoin and crypto sphere that is trying to apply these incumbent financial system models to the Bitcoin market are learning hard lessons fast.

They're trying to recreate the credit system on top of Bitcoin. And as you just described, there will only ever be 21 million Bitcoin. And once markets move against you, you're going to find out who is well prepared to weather that storm. And many in the overarching crypto space were not, even in Bitcoin, like BlockFi, particularly needing a bailout from FTX if that materialized. Who knows where that process is right now, but it really highlights to me and why I've always been proud to have. And again, disclaimer, Unchained's a sponsor of the podcast, but it's for a reason because I think the way that you guys are building these financial service primitives on top of Bitcoin is the right way. And I think it's a good opportunity to sort of highlight the difference. I mean, you touched on it a bit right before my diatribe now,

but how does Unchained view the loan book and how does that differ from the Celsiuses and the Blockbys and the Voyagers of the world? Yeah, and I had never heard of Voyager, so I can only understand the people who found that place and decide to give them their bitcoin but um i will like there's a couple things to um kind of layout uh of differences and i think that you know you brought up the point of a lot of people look at bitcoin and they see this new form of money and then they try to replicate old models

um uh you know of of lending bitcoin rehypothecating bitcoin um because that is what the legacy system does and and what it's about why we've gotten to the point that we're at in terms of not only as a function of of moral hazard and money printing and qe bailing out rehypothecation and leverage on leverage in the legacy financial system but all of those not all but many of those same people came in here and said hey let's do the same thing it's just there's not someone to bail people out um and that's the system working but um kind of there's there's something that people oftentimes miss about rehypothecation um rehypothecation doesn't necessarily mean that your bitcoin is relent now it oftentimes is but but it doesn't necessarily

have to be an important part of not re-hypothecating so in the context of our loans one we don't lend bitcoin so we don't take deposits and pay interest in bitcoin and then lend bitcoin out to people like three years we don't lend bitcoin at all what we do is we lend dollars against bitcoin and we don't co-mingle clients bitcoin so all bitcoin tied to individual loans is secured in individual multi-sig addresses or vaults and that bitcoin is not re-hypothecated now what does that mean importantly which people oftentimes miss because they always assume it's relending that bitcoin remains in the title of our clients it doesn't become part of unchained estate it doesn't become an asset of unchained it doesn't become a liability of unchained

it is cryptographically segregated unique addresses our clients are able to hold one of their own keys but segregated in all instances and importantly the legal title remains in the name of our clients which ensures that our clients even in the context of our loans when they post bitcoin as collateral and receive dollars as loans against that that they do not have counterparty risks to unchain that if they make good on their obligations to pay their loans It doesn't matter what happens to Unchain, that Bitcoin is theirs and not ours. And that distinction is really important. Now, a lot of the ways that these lending platforms worked was deposit your Bitcoin,

whether in the context of a dollar loan or not, and we'll pay you interest in Bitcoin. Now, in some cases, it was post your Bitcoin and we'll issue a dollar loan, but we get the ability to rehypothecate it. and the title transfer so it becomes part of the estate if you read celsius disclosures they say this is now celsius's bitcoin it is owned by us not you right so that's one critical distinction but either in the context of say a celsius loan where they're lending dollars and bitcoins posted as collateral that bitcoin is no longer yours it is theirs and they they re-hypothecate it and they have the ability to relend it so like those being two separate functions um i believe that that

block five loans work similarly um i don't know as expressly but i believe they do but then in addition to that there are these separate programs whereas just deposit your bitcoin here and we'll pay you a rate of interest that was one of the issues um based on my understanding that uh block I ran into with the AG in New Jersey of those deposit accounts not being FDI-assured, being pooled vehicles, looking like a security.

But that apart, setting that aside of the regulatory issue, that Bitcoin was then being lent out. And I remember this very vividly with one of our custody clients who, in the context of our custody, not in the context of our loans, our clients hold two keys.

We have one. Again, all Bitcoin segregated, never becomes a deposit, not structured as a deposit, and no way can be confused as a deposit but in the context of our custody our clients have two keys and we have one and bitcoin's deposited which means that in that context people have permissionless censorship resistant access to their wealth um but we had a client that was thinking about having their or they had their bitcoin on blockfi and they're like oh well it's

it's at gemini because blockfi uses gemini as their custodian and i think because people became conditioned to this world of yield that they put their money in the bank account and it pays the rate of interest now today bank accounts don't hardly pay any interest but for people that are older than 30 years old probably remember some semblance of interest in bank accounts but that what i think was happening in this world to deposit your bitcoin to a celsius and have it be paid in interest or deposit to BlockFi and have it be paid of interest, people were thinking about the Bitcoin just sitting there because they historically don't think about their money in the bank as at risk, even though it is. It's just that when the banks

become insolvent, they get bailed out in the US banking system. Well, there's no one to bail people out, but still that mental model, at least in certain cases of people that I actually talked to was i put my bitcoin into that place they use gemini as custody therefore i trust gemini with custody and they just did not have a mental model of what was actually happening in the background and that even those that did i think thought that they were like when we issued uh dollar collateralized loans like even after all of that our loan book is over collateralized 2.5 to 1 in total each loans in managed individually but our our our collateral to principal is 250 percent the the principal value of the loans um that people that even probably knew that they were being

lent out probably thought that it was in some way collateralized um and that it was vanilla lending but in the context of bitcoin lending virtually all of it bitcoin denominated loans virtually all of it is to support trading activities now what people thought was happening was i deposit my bitcoin to a place like celsius or blockfi and surely if they're lending it out that someone's posting collateral oftentimes that wasn't the case but then in many ways they were they were prop trade effectively prop trading again not knowing kind of all the ins and outs of individual operations but they weren't just lending in a secured way they were potentially taking primary risk there was the the the reports of you know the the arb trade of gbtc and i and i

i was party to to one of these conversations i remember a couple couple years ago i don't know who it was i spoke to at three years capital um but they they had suggested the idea of creating an unsecured bitcoin lending program at unchained and um now we can't lend any of our clients bitcoin one on the lending side it's not rehypothecated and then two in the constant vault it's cryptographically not capable of that happening because our clients have their own keys but in that conversation this person was talking about risklessness riskless that i can make a riskless are 20 percent and i just remember getting off that call being like i don't know who these three arrows capital guys are but like we should not go anywhere near them can't touch

that with a 10-foot pole but it was the same philosophy of how people were thinking about the gbtc trade where gbtc was trading at a premium to um to bitcoin spot and people literally thought like that will always exist i'll say everybody um but a lot of people thought that would always exist um i remember seeing some leaked slides from a block try presentation where they were basically taking client assets and contributing them in to the trust taking shares i was at a premium with the idea of selling at a premium when the shares became unlocked and that's in my world that there's probably multiple definitions of prop trading proprietary trading like that is not a i'm lending to you based on either a balance sheet or a secured basis that's me taking primary risk

and you know seems like celsius was doing similar things and so there's just a whole host of layered issues where if you go back like one people a lot of people thought i deposited here it's like a bank or like like i literally had people say the bitcoin secured by gem and i'm like no the bitcoin's not there if they're making a yield on it's at risk then the next layer of people thought oh surely it's secured um and did not understand the degree of risk which was basically taking prop trading positions and that when the market went against them having a large client asset base um an outsized risk and truthfully you know people should have known better um i can understand why they didn't but again coming back to the fundamentals you know i feel i feel bad for a

lot of those people but bitcoin as a whole eliminates imbalances and whenever they arise that's what creates longer-term stability and that the market learns by trial and error you know we could have had the same conversation two years ago and you guys on your podcast have warned of these risks sometimes people only learn by touching the hot stove and you know a good example is this was before i was in bitcoin but mount gox like people got hurt there um and people learned and that set off a wave of investments in self-custody right and this is painful but people will learn sometimes they can't learn by anything other than than the market being brutal and in this in this case it's going to be 150 000 bitcoins locked up in celsius not actually at celsius

and a lot if not most if not all of that it's not going to go back to the people that they thought had bitcoin yeah it's fucked yeah and it's so are you witnessing people learning lessons at unchained like what how have you guys weathered this contagion event yeah i mean i think that um you know we we constantly learn um you know we learned from march 12 2020 we recorded a podcast that day um about five o'clock before the uh the next wave down that was that was an incredibly painful day um and one of the things that we did in response it's actually when bitcoin was moving higher from $20,000 to $10,000 to $20,000 to $30,000 back in the fall of 2020, early 2021, was we reduced LTVs, loan-to-value ratio.

So before we issued loans at 50% loan-to-value, now we originate loans at 40% loan-to-value. Um, and that create that extra cushion, um, ultimately kind of in, in this wave, um, helped like, you know, kind of us helping our clients be conservative, um, help prevent people from being in positions that otherwise could have resulted in liquidations. That's not to say that there were a number of clients that failed to meet a collateral maintenance call and would have had to require a partial collateral sale. But in March of 2020, it was getting to a point where their full loans needed to be liquidated.

That didn't happen. And really in these last two months from our side, It's been night and day from just control. There's probably one day when it started to feel like March 12th, 2020, the day that Bitcoin went down to 17 and a half. But practically speaking, while this has been seemingly constant selling pressure, there hasn't been any single day that has, in my view, come close to March 12th, 2020. always possible that it does um now given as much of the imbalance has already been eliminated you

know and that liquidity forms very quickly in bitcoin particularly as the price goes down um you know anything's possible in bitcoin i always prepare for anything to happen i think you have to have that approach and that you just you you manage risk by like by learning from past experiences, over-communicating with clients, getting them to post additional collateral. In this period of June, 50% more collateral has been posted to individual loans than existed before. 80% to 90% of clients have satisfied obligations either by just wiring in dollars or certain clients will call in and want to sell without needing to, to pay off a portion of loan but in aggregate today um you know we didn't have any loan losses and um never have in our

history and um that remains true today in our overall collateral position when we think about the overall health of our book is you know our loan to value is less than 40 percent um and that each time the price of bitcoin goes down um as a function of margin calls and clients posting additional margin or requesting liquidations or if they get to a scenario where a margin call expires having a partial liquidation um that kind of our the the health of our loan book improves as the price comes down and as we um service final and then on the custody side are you guys seeing people realize like oh shit i shouldn't be because even if you weren't holding your bitcoin on celsius or blockfi or voyager or whatever uh that the signaling going over there like if you're

sitting on coinbase or gemini or centralized exchange it's like okay like does this contagion spread into the services where i'm holding my bitcoin and should i seriously consider taking control of my own private keys yeah and one thing i will add on that last point like there is a very important like going back our collateral is not rehypothecated and all collateral is managed individually segregated not just from a legal perspective but cryptographically and what that does is it puts each person in maximum control in the context of our loans our clients do not have control of two of their three keys like they do in the context of custody but it puts every individual 24 7 in a position to manage their individual position and it and

it eliminates the possibility of the social socialization of risk or socialization of losses and it hasn't been an easy period of time for our team or times teams literally worked around the clock some days 24 7 literally calling clients one o'clock in the morning asking them what they want to do um so and it's been hard on certain clients and there's there's no getting past that But each individual client, that idea of eliminating moral hazard, each individual client, maximum control, able to post collateral, repay a loan when they want to. And overall, that has resulted in aggregate in far better outcomes to a point where not having any loan losses and that loan to value today, even at Bitcoin at 20%, at less than 40% loan to value. now in the context of our custody business we also offer vaults we also we offer trading 22 states working on filling out the map there and reducing minimums but in the context of custody

in the two weeks following the coinbase disclosure which happened in um in early may may 7th or 8th or 10th somewhere around there i'm not to confuse anything that's happening with Celsius and these other Bitcoin lenders like BlockFi with Coinbase. But there was a disclosure that Coinbase put out that said, in the event of bankruptcy, client assets may be considered general unsecured liabilities. And the consequence of that is that clients with deposits at Coinbase could be considered general unsecured creditors in the event of bankruptcy. The week following that announcement we onboarded more clients to vaults than we ever had in any single week before by a large margin um then and we can talk about the nature of that because it is all

related even though to my understanding i have no reason to believe that coinbase is fractionally reserved um or i don't i don't even know if they lend bitcoin but they're certainly different than celsius and blockfi so i don't want to confuse those two issues but like that happened cohen that disclosure happened as that price was moving from 40 to 30 and then there was that kind of wick down to 25 that that that may volatility that coinbase disclosure came out and the week following that more clients than we've ever had on board of the platform then after the celsius disclosure which was a sunday night i think june 11th when celsius halted all withdrawals that week following that was also the highest week even higher than the week that um coin base

came out yes so and that is the market test and like you know we we have clients that you know kind of you know like there's a there's a compounding effect right people learn by the market test people learn by trial and error and we had clients after the celsius um announcement and issues call and be like oh hey i've got my bitcoin on coinbase like need to get it off right and that you know more events of these are destined to happen and uh the market is learning in real time and so i expect that to continue to happen um you know again and we you know so many bitcoiners go out and talk about not your keys not your bitcoin and the risks of rehypothecation but until somebody gets on the wrong side of it or the risk becomes real and

real being if you don't take action your bitcoin might be gone lost or best case locked up in a and actually best case but likely case locked up in a bankruptcy for a long time then you start to act more quickly you start to act get take control of your private keys um and then you know kind of let other people suffer the consequences yeah i mean it sucks that people are losing bitcoin and they're learning hard lessons but hard lessons are good in the long run for the market as you just mentioned and again like coming back to unchained like you guys just from my perspective obviously we've had a long-running relationship between tftc and Unchained. You guys were the first sponsor

of The Bent before this podcast even started. And that's one reason I was comfortable knowing the concept of not your keys, not your coins, knowing the amount of work that Dhruv and Joe put into building the multi-sig structure that your company is based around.

Moving forward, having learned these lessons, do you think the market will begin to see the value in you guys focusing on multi-sig custody in everything that you do and then how do you guys see unchained benefiting moving forward from people learning these lessons yeah and i think i think the market of bitcoin holders

uh is is is coming that way you know it's been a gradual step i don't want to say the gradual and suddenly thing but like like that's been happening consistently over the past two years in these episodes it accelerates right um you know in addition to onboarding more clients in those weeks and kind of more clients than we've ever onboarded over the last two months in any two-month period also had more assets um come onto our platform now again it's not deposited to our platform like a legacy bank we're not in control of all the keys um but using unchained as a platform to help secure their bitcoin more assets as well have come on the platform in this period of volatility that is the greatest market validation that our approach um in terms of

long-term security and long-term sustainability is the right one because it's not an easy route to take no it's the harder route to take yeah yeah for sure um and most people you know again coming from the legacy financial world do not believe in this idea that that people will hold their own keys um and they are deniers of this reality that the longer that people hold bitcoin in possession of more knowledge the more likely they are to hold their own key by an overwhelming margin right that people come into bitcoin and they move forward on their journey uh they virtually only go one way taking control of their keys and what that means is that the people in the market that have the most access to information the most understanding this is where they end up

and that that is the fundamental that we anchor to we also anchor to us ourselves we're all clients of the platform um in in differing ways and there's a chance that somebody on our team doesn't use Unchain, but firstly from an executive perspective, we are. We're building things that we know that we need as individuals, and that's a signal that others need them too. And now what I think that we're starting to see is investors start to appreciate the distinction because it's not just the approach to security. It's the no rehypothecation. It's the general philosophy which is like i don't say is ideological it's really driven by security first principles and the elimination of moral hazard the elimination of socialized losses that you know

when we sit down with lenders to talk about you know kind of financing our loan book or expanding the capital for our loan book being able to sit down in the wave of all this and be like we only support bitcoin um and i always you know you know say it with an affirmation that we have a you know an economic perspective as to why that is the case we also have a technical perspective um but only bitcoin we don't lend bitcoin and things that look like securities and deposit taking accounts that aren't fdi insured um we only lend dollars we lend them against bitcoin all assets are uh segregated never pooled um that that regulatory clarity it's like there's two sides of it there's a regulatory clarity side of it and then there's the business side of it uh and that

business side is tied to combination of bitcoin and people holding their own keys and being able to see the the numbers and the amount of of people in in in wealth that are doing that that that's what reinforces the business side the regulatory side is reinforced by you know the taraluna bullshit i even hate saying having to say that word i had to learn what rat bitcoin was this week that what was that experience like fucking killed brain cells like i was like actively mad at myself as i was like trying to understand what it was um but like these people just create these and not just harebrained things but it's like you can't conceive of how dumb some of these things are but set it all aside it creates real regulatory risk and overhang you know when you

think about a company like coinbase they have functionally been um running a penny stock exchange exchange for people that are somewhere between you know gambling addicts um but what what it's functionally represented is a market for people like andreessen horowitz to dump their shit on retail investors without um you know virtually all the disclosures that typically would come with trading and securities um and these are all centralized things like you can't even call them currencies but they're centralized projects and they have a token and get them launched onto coinbase and then whoever was the holder of that they at the pre-mine dump it on retail like that was literally what's his name um the owner of the

uh jordan belfort oh yeah we'll kind of like jordan belfort but um he's the owner of the golden state warriors chamath chamath yeah yeah like he was talking to uh jason calcanis and david sacks about solana about dumping solana you know like yeah then he came out last week it was like should he go to a16z it's like dude the receipts right here you were talking about yeah it's like is it jordan belfort trauma you know like that whole racket um not only is it um morally bankrupt but for the companies that have enabled it particularly on the trading side which is again a separate issue from all the the legal issues that that places like celsius and potentially block if i will have coming out of this they exist at the exchanges too right and there's

there's more and more scrutiny coming because there are locked in massive losses that people that hadn't you know again a free market again i think that there's benefit to the market learning through these tests more so than potentially me writing articles about bitcoin and the fundamentals and gradually then suddenly um or the bitcoin standards like some people learn that way Probably majority of people learn by a market test. So not somebody that's going to come out here and call for more regulation. Not that. But the point is, from a capital investment standpoint, that creates real regulatory risk. Being able to be reinforced a Bitcoin only and not lending Bitcoin, not pulling client assets and anchoring to keys. yeah it's you know been 100 validated by the market and those allocating capital will start to not only appreciate the likes of unchained but every bitcoin only business being like those were the signal that did not get wrapped up in uh not just chasing a bad market structure but selling

snake oil and profiting off of people that that didn't know better that didn't have wealth that they can afford to lose yeah and it is enraging to a certain point like yes it's a market test yes it's possible because these are open systems that aren't overly regulated we're certainly not calling for regulation but as you just mentioned as retail investors lose their pants like what what do you expect to happen i mean gary gensler crew are probably licking their lips right now ready to come down with the hammer but then like when you consider the gravity of the situation unfolding in incumbent markets and traditional financial systems like the lack of focus on bitcoin only drives a lot of frustration in my life because it seems like the best chance at

creating a soft landing that jerome powell thinks he's manufacturing is by bolstering and strengthening the bitcoin network and the utility and services around it so that individuals can usher themselves into bitcoin in a more orderly fashion otherwise would happen and seeing the celsius's of the world block fives coin bases go out and just get distracted by this pure shit is infuriating the stakes are very high right now just globally and it seems like a lot of people are distracted yeah i mean i think that you know like i'll admit because i mean when i started buying bitcoin the coinbase was the only thing i think really existed so i still have the coinbase app i only like open it up to see um like how much the shit coin world is getting destroyed relative to

bitcoin um but like if you ever open up that fucking atrocious company's app like coinbase not as bad as as facebook as just like an overall entity probably probably but um maybe maybe there's a lot of people making a lot of money on facebook yeah there are um but but my point being that like open it up like they like hide bitcoin you know like literally it's it you gotta like you know there's things you never thought could exists on there it's like you know the dark corners of com rocket yeah i don't yeah i don't know that one but like you know the similar stuff um and that these places like there is a a real value like set aside the holds your own keys real value to and there's a reason why and

it's not for ideological reasons that that bitcoiners send their family and friends and the people that they want to help understand this to bitcoin only businesses because those places are fucking traps like coinbase where it's like or paypal or venmo or whoever you know whatever place offers a bunch of cryptocurrencies on an app um where someone gets on there to buy bitcoin they have unit bias and they start you know it's like the alcoholic you know looking at the bottle being like am i going to drink that and they're like no i'm not going to drink it and then they drink it you know um that that that is the same thing and by having an application that's focused on bitcoin not only are those people finding ways to deliver more value to bitcoin holders like when

i think about us we are actually developing infrastructure for the bitcoin network we are helping people secure their bitcoin hold their own keys be put in a position where they can have permissionless access to their wealth um and we're going to be building more and more applications that help people save bitcoin spend bitcoin that it's not just about trading or lending dollars where it's like there's an old world and we're transitioning to the new world and our goal is to put our clients in a position to have the most bitcoin and to make that bitcoin a utility for them in my world bitcoin being a utility is being able to secure your life savings and know it's going to be there and that no man woman bureaucrat or judge could stand between you and your life

savings like what unfortunately happened to people in canada where the life savings were zapped and to spend it because ultimately at the end of the day money is there to be spent to buy goods and services and to help fuel an economy like buying steak from um coal knc cattle save your wealth in a form of money that can't be manipulated, that you cannot be prevented from accessing, and then be able to spend that whenever it is you need it on more things. That is the infrastructure that's critical to Bitcoin. Those are the custody assets that are important. Lightning, increasingly important. But even the Bitcoin companies that are custodial offerings that are just Bitcoin, they are delivering value too. They are helping people

safeguard bitcoin they are not taking risks with those bitcoin at least not to to my knowledge of the bitcoin only platforms that i know of and it puts someone in a place where they're they're getting what they're there to do um get access to bitcoin and that for bitcoin companies to survive they have to actually develop infrastructure that's valuable to the bitcoin network and that's very different than what a coinbase is yeah as an example and it's much harder yeah like that's again i really want to lean into that like you guys unchained other companies like river swan bitcoin only cash app what block's doing it's it's the harder route there's a bunch of sirens out there trying to lure ulysses off off of his ship and into the water so they can eat him alive

and it's easy money it's so indicative of this fiat culture that that we grew up in and we find ourselves in it's it's fascinating again you can watch we have this beautiful technology like bitcoin that's providing us a vehicle to escape the madness and yet people just want to replicate it and and use it to keep scamming people yeah and i and i i don't blame them on one hand because bitcoin is hard to understand it's difficult to see um but when you once you see it you can't unsee it like once you understand that the real fundamental value in innovation and why 21 million bitcoin and and and why finite scarcity is not only so important but that like how it's actually achieved is like you know probably the will will be the most important

thing that's happened in any of our lifetimes from an economic perspective or from a technological innovation perspective um but that is hard to see at the same time and that when you have you know and put it to combination of silicon valley and wall street like virtually the same in my mind um that they're they don't understand bitcoin that's not say everyone there's good people in silicon valley that understand bitcoin um once it's casares being a um a standard bearer in my path to understand bitcoins it's not say everybody right but the a16z's the the traditional vcs um the wall street investment class they don't understand bitcoin but they start to pattern match it to money and they tried to just rebuild things that have existed in the financial legacy

financial system and legacy financial models and if you can't see bitcoin you cannot create value you can't see the fields so it's bitcoin is both hard to see but then when you anchor to that point when a lot of these people can't see it can't understand it it's also predictable that they're going to to pattern match to legacy financial instruments and they're going to build the wrong thing that's why that you could literally put 350 million in blockfi and have it evaporate um i think i i think well i i don't know if it was blockfi but around the time when blockfi did that raise um river announced they're like 12 million series a and i was like river's 12 million series a will create more value than the 350 million that was just invested

into BlockFi around the same period of time. Because if you're building the wrong infrastructure, it does not matter how much money you throw at that buyer. It's not going to create value. And so I really do anchor to that point. I don't fault people because I have an appreciation for how Bitcoin and how difficult it is to see.

But, you know, kind of at the end of the day, Bitcoiners and people that understand Bitcoin and investors that understand Bitcoin are going to be the ones that create value. Yeah. And so with all this being said, let's talk about the broader world outside of Bitcoin. I think we have Jerome Powell raise rates by 75 bps

earlier this month. There's expectations that'll continue to raise, but the prospects of the height at which he'll take interest rates are falling in real time. We have inflation running rampant. We have supply chain issues and energy and food particularly beginning to hit a very critical boiling point. We have stock market sell-offs. We're seeing Japan begin to lose control of their yield curve, which they've been successfully controlling for a matter of decades now. What are you seeing in the broader markets and how are you seeing this summer unfold as rates remain relatively elevated and markets react to that? Yeah, I think it kind of takes us back to our first podcast on the roof of your old place in Brooklyn where we talked about Ender's Game. And I haven't gone back and reread that recently, but I think I'm doing pretty good.

And that the same that was true then, which became evident in the fall of 2019 and then the spring of 2020, the same underlying issues exist today. You have a broader financial system that has too much debt, and there's two ways to deal with that. You can either restructure and eliminate imbalances by reducing leverage. or what the fed does which is print more money to be able to sustain unsustainable debt levels and unsustainable leverage and so um the same thing that the fed is trying to do today and i'll focus on the fed in the u.s system rather than what's happening in the jgb market in the end um just because i'm most knowledgeable about it and i and the same thing that exists here exists there um but but helping people understand the fundamentals of that is that when the federal

reserve creates new dollars to sustain existing debt levels what it actually does is induce more credit to be created by design um that is how the legacy financial system works it is a debt driven financial system. Um, it is what ensures that dollars as a function of time over time, um, will become less and less scarce or more abundant. Um, trillions more will have to be printed from this point in time, but in each one of these episodes, and I'll just use 2017 to 2019 and 2020 as an example, um, or maybe, maybe it's just helpful to go all the way back to the financial crisis. Time of financial crisis, ender's game basics. There was $52.7 trillion of dollar-denominated debt. There was only about $350 billion in the banking

system. And that's vanilla debt, fixed liability, fixed maturity debt. So every dollar had been levered and lent over 150 times. That is only possible as a function of the Fed bailing out markets over the course of decades leading up to the financial crisis. Well, fast forward to about september of 2017 in the post great financial crisis period the fed created 3.6 trillion net new dollars base money not banks creating credit new dollar reserves entering the system created 3.6 trillion new dollars one way to think about that is taking a system that has too much debt introducing more dollars that in a in a sense does deleverage it introduces more dollars to fund dollar liabilities in the banking system september of 2017 they start to

withdraw that 3.6 trillion and totally forecastable impossible to predict exactly when financial markets would break or which market would break first um started to withdraw the liquidity that they had put in pre-financial crisis and they were doing it quote slowly um but the first signs of that system not working where it was in late 2018 um that was when mnuchin called the banks like right around christmas it was like you gotta stop or do something you know like these people control um but then almost immediately after that the fed started to signal that it would start to slow its um balance sheet unwind um later in 2019 um but over the course of those months in 2019 and lead up to september or september the fed broke the repo markets

that basically dollars left that market as liquidity was was being drained as a whole and um repo markets spiked from like three percent to ten percent overnight and the fed the next day inserted 75 billion new dollars that explains what's about to happen um that but the but the difference being that that basically broke the market in september of 2019 the fed had to put in 500 billion dollars of new qe um stealth qe before then really breaking the broader markets in march 12th of 2020 again everyone associates it with covid didn't have to do with covid um and then subsequently they injected another 4.5 trillion from march of 2020 to today that those new dollars caused the credit system to expand when it otherwise would have contract

takes this problem of too much debt and not enough dollars and rather than letting credit restructure it's put new dollars in but those new dollars do not just sustain existing credit levels it causes and is designed to allow credit to expand further. So you have a system that has too much debt and you literally give a heroin addict more heroin. And so where we're at a point of today versus just two years ago, the credit system is probably expanded

by another eight trillion. So we're sitting just south of 90 trillion. So if you go all the way back to the financial crisis, there's 52 trillion, 52 to 53 trillion of credit. And built up over the course of a century, essentially, almost a century. Yeah, now today we're at $90 trillion. Fixed liability, fixed maturity, very vanilla debt. I'm not talking synthetics or derivatives or unfunded pension liabilities. And the Fed is signaling that it's raising interest rates, but my view of this world is the only thing that really matters is the Fed's balance sheet. that from the fed's perspective their only ability to to truly impact interest rates is

by changing the supply of dollars and that in response to inflation becoming out of control they have signaled that they will have quote fortitude and you know doing what the fed did in the 1970s albeit we're in an entirely different world today and they're not going to be successful in it of controlling inflation by tightening financial conditions well because we are in 2022 in this last violent period of of credit volatility and and the last liquidity crisis which what happened on march 12th of 2020 um or in that week leading up but then um massively kind of breaking march 12th 2020 the the fed has not even started to to unwind any any dollars from its balance they signaled that they would start early june but because that last period was only two years

past the market is front running they're saying i know the music's going to stop you know march of 2020 was 11 12 years past the financial crisis those those markets forgot these markets remember and and so credit has started to massively sell off over the course of the last six months really so the fed started to raise interest rates in the beginning of may but every time they say 50 basis points 75 basis points what matters is the market the market sets interest rates so the high yield credit market has um the market value has reduced such that the the yield on high yield credit has increased um 400 basis points for four percent right so what matters to those companies is not what the fed's doing with 75 basis points it's they've

already gotten their interest rate hikes because each time someone needs to go refi in the high yield market they're paying a higher rate by 400 basis points or four percent versus a year ago or where rates were in the last 12 months um the the ig market 300 basis points those companies that um are saddled with all this debt can't survive in that world so um what i think happens is the same thing that has happened historically because it is the identical problem that continues to exist the fed will start to shrink its balance sheet it will break credit markets and it's going to need to print more money than it ever has before in order to keep that 90 trillion propped up um and i think that the you know the whole thing is a travesty but the problem is they are

trying to rein in quote inflation um by quote tightening financial conditions and there's something fundamentally true about this fact that cheap credit access to cheap credit is what is used to finance development of the very goods and services that we need because the system is addicted to it like a heroin addict is addicted to heroin right so there is nothing about tightening financial conditions that's going to create more food or energy right um the fed artificially manipulating the supply of money to to cause interest rates to rise does not result in more oil coming out of the ground um if anything it results in less it's going to further screw up supply chains um and that the fed is trying to pull something out of

the 1970s playbook but we're in 2022 and the construction of the monetary system could not be further away from where it was then and so i think that um the fed is going to you know in summary of that long-winded answer they're going to continue to tighten conditions potentially shrink the balance sheet until credit markets break when they do they're going to have to print more money than they ever had this episode is going to further disrupt supply chains and cause inflation to be exacerbated throughout this period um and that's gonna i mean it's already um at a point that you know hurts me too but like some people like you know on different you know particular people on the lower end of the economic spectrum they get hurt a lot more um and uh and

so yeah i think um you know that that's my kind of explanation of fundamentals and also just like what i view as as about to play out over the next month or two yeah you never want to be the one never want to try to predict hyperinflation but something i've been saying on this show the last few weeks is the conditions that precede hyperinflation historically throughout the world and weimar republic is my favorite example you could use venezuela as another a very similar example are playing out here in the united states in 2022 like said it many times on the show hyperinflation is two parts it's part mechanical which parker just explained in great detail on the credit side and the expansion monetary base but then it's part social right

like it's a con game it's a confidence game at the end of the day like once people begin to lose confidence that the Fed or the Treasury has any control over the money. More importantly, they lose confidence and don't think they have any control over it. That's what really kicks off the potential for hyperinflation. And I worry that we are getting extremely close to that point when you add up the factors of just how bad we've messed up the supply chains with the lockdowns and a lack of political will to invest the necessary capital and critical energy infrastructure the food crisis that is coming with that i mean it's a product of the energy crisis because most people don't understand this but energy is a critical input in the food supply chain

um so yeah well it's technically a critical input in everything yes yes everything yeah yeah that's a very good point like i just gotta call you out it's very yes is it true but with food, it's becoming very apparent that the lack of raw materials, particularly with fertilizer needed to, and diesel to run the trucks to actually farm is leading to a food crisis that's becoming exacerbated. And then you couple that again with social things. I mean, I think people are starting to wake up to the fact that the vaccine rollout and mass vaccinating a whole country a whole world is probably not the smartest idea and we're beginning to realize the negative externalities that are coming with that rollout to be hitting a point where they're almost

undeniable they're undeniable to me but most of the world is still head in the sand like no it's not bad it's not bad but data that's coming out about adverse effects particularly people getting myocarditis and dying young uh life insurance claims data that's coming out and the fertility data that's starting to come out of many countries around the world um that fertility is falling uh materially you're talking about a 26 sigma event in taiwan with their latest uh birth numbers a nine sigma event in germany with their latest numbers and so you have a situation unfolding Where over the course of the summer, gas is going to go up, food prices are going to go up, and people are going to begin to realize that the vaccine is hurting people on a massive scale. And you're going to look at not only the Fed, but the federal government and be like, you guys messed everything up.

I have no confidence in your ability to control anything, let alone the monetary system in and of itself. So that's what, like, do you see that as well? I mean, I don't disagree with a lot of what, you know, kind of that whole framing. I think if I anchor to a fundamentalist that centralized control of things leads to bad outcomes everywhere and centralized bad outcomes exacerbate each other. um when i think about kind of the the economic the fundamental standpoint one point that i i typically like to bring up is that a lot of people associate hyperinflation with um with the function of printing money but and it is that but but it but at a root level and i think i wrote about this and bitcoin does not waste energy when i explain kind of venezuela about how they have all these energy resources under the ground but they don't have a currency

to be able to coordinate economic resources to extract that energy refine it get it to market now you know one of the countries that has more oil reserves than any other country in the world maybe second to saudi arabia literally can't get reliable power to their city centers um and they lose access to basic food, water, healthcare, that it is the money printing that creates economic imbalance because it allows imbalances to be sustained. And that economic imbalance

come the TFTC sign. The TFTC sign is imbalanced. It's taped to the wall. We're going to glue it up there tomorrow. Is that a sign? Like, I mean, it is a sign, but like I was about to talk even more shit about money printing and hyperinflation

and then like the wall starts falling. It's poetic. We're getting signs here, thumb signs. So the economic imbalance is sustained and that comes in the form of supply chains, not just being disruptive, disrupted, but the economic system and different parts of it not being able to respond to changes in prices because the money actually starts to break down

in its ability to coordinate economic activity and where that is materializing and one of the like leading indicators that i'm paying attention to you know kind of both by talking to people out in west texas or my contacts in the energy industry of like hey with with gasoline in texas at five dollars which is insane i can only imagine what it is in um communist places like san francisco but five dollars i'm like hey like are the producers like are we seeing any supply response nope like not able to find labor right well when you you know in different compounding bad centralization outcomes you know when you have this esg bullshit um where oil and gas has been vilified for years right years if not decades um and then capital investment stops going into

developing more capacity throughout the supply chain refineries um pipelines upstream those people go find jobs elsewhere right and then when we start to get supply shortages and supply and demand imbalances you can't just go get that guy back on the wellhead and drill the well and like supply imbalances do not correct themselves easily and so the point though is it's not just the money printing people think like prices go up because money being printed it's actually because as the money becomes more abundant its ability to function fulfill its primary fundamental role in the economy of coordinating economic resources becomes materially impaired and you you can't have suppliers just turn on like joe biden says

like bring gas prices down like that's not the way the real world works um and so it's actually as money becomes more abundant the supply of real goods and services actually becomes more and more scarce both relative to the um to the supply of money and on an absolute basis and the things that you don't that you really need don't appear at the grocery store don't um appear at the gas station and so like i'm not a doomsdayer but like that that is what feels like it's happening and when i talk to contacts in the energy industry they're they're communicating things like we're not you know like you know maybe want some producers producing more but in aggregate we're not seeing the type of supply response that you would expect and then i saw a chart i don't

know if it was brian gitt or the doomberg guys showing something similar that if you have oil at $120 a barrel and gasoline at State of Texas $5 for two months and you're not starting to see suppliers bringing more resources online, that is a signal that supply cannot respond. Now, that does not mean that maybe if oil goes to $120 that some additional supply comes online, but those are the leading indicators to say if increase in prices of the of the things that we fundamentally need like food and energy are not um that we're not

seeing supply response to bring more goods to market that to me is the signal that we're potentially kind of entering the early stages of a hyperinflationary event and some again certain producers will um i gave a presentation you know probably two years ago a bit bog boom called under the title graduate and suddenly and i talked about i was like hey i'm going to talk to you about hyperinflation day but make you feel good about it um there's nothing about hyperinflation that is good but it's easy to get lost in like the paralysis of negative economic outcomes and the instability that creates but bitcoin is the solution to that and even with bitcoin going from 70 000 to around 20 000 today nothing has changed about bitcoin's ability to

enforce its fixed supply that finite scarcity is its true innovation it is the ultimate solution it is the light at the end of the tunnel uh we're all probably going to have to experience a little bit more discomfort that we're used to in order to get on the other side of the instability that the fed and the treasury and congress help have helped create um but that is the source of optimism if there wasn't a solution if bitcoin didn't exist like shit would get real bad that is the thing that will ultimately create long-term stability in the world of bitcoin we tolerate i use it we me but generally anybody that's going to participate in the market has to tolerate that short-term volatility what they get in the long term is economic stability the fed system the

opposite for for years decades it's managed short-term stability um at the consequence of long-term instability and long-term volatility that's starting to to you know kind of burst at the seams and and always anchoring to that idea bitcoin is the solution to that problem like you know bitcoin does fix everything fix the money fix the world sign outside love it great addition the bitcoin commons um but a form of money that can't be printed is the solution to a form of money that is constantly debased and constantly printed and that is the underlying source of economic instability yeah but people can't get over the price volatility so what i want to transition is like how do we get this message out there and you you so that's why i want to ask you

particularly because you're out there spreading the message what has been most potent for you when you're on the road and having maybe the staunchest no coin or begin to open up to the idea that that bitcoin may be something that they should seriously consider and even further adopt with vigor potent and vigor in one sentence this was not a challenge um yeah i um you know different context different situations it varies um but i always try to relate it to the people that i'm talking to so if i'm talking to somebody on the oil and gas side i'm talking about a lot of these supply chain issues um and the lack of the ability to respond to increases in price and having the producers be able to capture that increase in price and that

you know kind of you know anchoring to this idea of proof of work um without using the shot 256 context being like you know you know what it takes to get a barrel of oil out of the ground or you know what it takes to get um natural gas out of the ground you cannot keep trading your real goods and services that can only be produced as a function of your time and human capital and physical capital for things that can be easily printed because they are actively devaluing in front of your eyes and you're experiencing on a day-to-day basis and i try to create a a more visceral appreciation for this idea of you produce barrel in the context of an energy program whether it's you know a rancher if i'm talking to coal um at knc cattle

or really anybody in in real industry you know producing real things of value that that human beings need to consume um not wall street products but um that those are the that that becomes most effective in these periods where um there are higher periods of inflation that like in my view will only get worse where this is not a period this is it's not transitory this is not transitory it's not i was told it was transitory not transitory uh is it putin's inflation is price like it's uh it's putin's inflation it's biden's inflation it's trump's inflation it's yellen's inflation pal's inflation bernanke bernanke's inflation cash carry's inflation anyone back to the 70s um bitcoin is our not inflation um but but but those are the ideas that i talked about

i think the hardest thing for them to understand is um you know if bitcoin's fundamental value is the fact that it's a fixed supply and it's resistant to inflation why is it going down when there's rampant inflation and i've gotten the question of like when does the inflation hedge or the inflation hedge trade start to really quote work and um so that's the that's the thing that's hardest to understand what i explain to people in those contexts is what we talked about really at the beginning which is um the global financial market's 400 trillion or maybe today it's like 350 trillion um and after kind of the those markets have sold off um and that while bitcoin is significant in size it is still small and that when the dollar which is the

primary funding currency in the world today largest economic system largest cross-border source of of credit when that system contracts it is still the 800 pound gorilla in the world and all liquid assets get sold in dollar deleveraging scenarios and bitcoin is liquid and it is well significant in size small in the grand scheme of things and so it's not so much that is bitcoin isn't working exactly as intended it is each block continues to be solved but even if the fed didn't print another dollar bitcoin would replace the dollar because even if the fed didn't print money that dollar credit system collapse damned if you do damned if you don't bitcoin's the solution in either scenario but trying to help them understand the volatility

and why in this environment if if this fundamental case of bitcoin is true why the reverse isn't happening in bitcoin and it will over time people zoom out um but they they you know my experience kind of understand the fundamentals when you connect it to work to real work and real productive value but then needing to understand the volatility in the interim and just as as has always happened happened in march 12th 2020 the bitcoin market finds a base a home liquidity forms the the herd is cold and balances are eliminated and when bitcoin doesn't die that is what sets off the next wave of market learning that people learn from that event more so than any other yeah and tell me if i've been smoking too much opium recently but i think with the bitcoin ecosystem

i hate using that word but the bitcoin market deleveraging at the pace that it is now maybe there's a little bit more to go there's a lot of minor miners that are overextended still questions in the air about other centralized lending platforms and centralized exchanges as well and whether or not they'll lead to more cascaded selling in the short to medium

term. However, it does seem like we're learning the market's learning lessons quick via this massive quick deleveraging in the Bitcoin market. I see a scenario where, again, you talk about things in energy,

in food markets becoming exacerbated throughout the summer bitcoin maybe at that point is already done it's deleveraging or is near the tail end of it markets are beginning to realize the fed doesn't have control inflation's not uh not subsisting uh they're going to revert course and begin printing money and lowering interest rates which is like all right is that what got us into this problem is that going to exacerbate the problem now and you have a situation where there's a potential for a mass sell-off in traditional markets and Bitcoin sitting there maybe at its base that you just described,

relatively cheap, significantly de-levered. And is that a point where people are like, all right, shit's hitting the fan in the traditional market. Let's give Bitcoin a chance. Yeah, I think so, ultimately. I would be very cautious, and I am both as it relates to my own thinking as an individual but also as we as we think about unchained plan and you know are aware and cognizant

of everything that can happen in the in the market volatility of bitcoin that so long as the fed thinks that they can control inflation by tightening financial conditions and forcing deleveraging in in the u.s financial system um that it is hard to believe that liquid assets will not continue to be sold um because the thing that i did not say before which is everything about bitcoin is about knowledge distribution more people figure out bitcoin as a function of time um but people cannot flee to something that they do not understand um as people understand it they adopt bitcoin and become accumulators part of what and how that knowledge is distributed is after these bouts of volatility

seeing bitcoin find a base and then seeing that it didn't die and that in a free market with no bailouts no one to protect anybody there is no moral hazard those imbalances do get eliminated and as they are eliminated the last seller marginal seller at a certain price leaves and new buyers come in. And the market learns from that event as a whole, just as the people who deposited Celsius learn about the risk of counterparty risk and trusting people that they shouldn't. So I think that ultimately it is be very weary of all asset prices as denominated in dollars so long as the fed is tightening financial conditions because there is a chance that this is this is the bottom of bitcoin um and that that we're already at that point of

last marginal seller relative to marginal buyer um the broader global financial markets in particular the dollar system still dwarf the bitcoin system and you know a lot of people in bitcoin do not understand it so um you know i haven't sold any bitcoin as bitcoins come down i never sold a bitcoin i only ever saved bitcoin never bought a shitcoin never traded on bitmex either um never put my bitcoin in celsius or block fi but um the the point is that people respond to chaos in different ways and you can only tolerate the volatility if you have some fundamental understanding of of why you own what you own um and so um at some point bitcoin becomes again uncorrelated it is uncorrelated

in aggregate because it is the only thing that's actually competing with the dollar all these other assets are just designed to create to generate or accumulate more dollars bitcoin is the only thing that is truly uncorrelated because it's actually competing at a fundamental level with the base money um so um i would i would not you know ever go out and say until the fed reverses course it's like bitcoin wins in in any scenario over time regardless of what the fed does so it's not just about money printing it's a superior form of money six ways from sunday but anchoring to that foundation being the fixed supply and the fact that it's censorship resistant um and so you know i think what what happens more likely is that the fed

tightens financial conditions inflation gets worse that freaks people out fed reverses course that causes inflation to exacerbate even more through that period of more people have figured out bitcoin from a fundamental perspective uh and bitcoin can kind of you know within that period of time finds its base um but just caution people to to be very wary um and it's not specific to bitcoin it's any it's any liquid asset any um if there's forced leveraging in the dollar system people are going to have to source dollars to shore up dollar liabilities because even though they've printed a shit ton of dollars um currently where the system since it's 90 trillion of debt a dollar nominated debt about nine trillion dollars so even though

that money printing delevers the system in a way or in a sense the world is still massively short dollars and the dollar is still what most people need to buy energy and food so um you know it doesn't change any of my thinking about bitcoin but just from a market uh environment and sentiment people need to be aware of it be aware be weary we gotta we gotta end on

a positive alright you ended on a positive I got got me all you just killed my hopium I no no like

no that is very hey is your boy walking yet my son my two week old yeah no not yet not yet

my oldest is yeah yeah I know that he's running I know that he's running away we got high hopes yeah for the youngest

he's got good tummy time though he's not walking yet but he's soon he's able to hold himself up on his forearms and move his head which is pretty

advanced for a two week old yeah the newest the newest Bitcoiner that I know yeah yeah he's a Bitcoiner already yeah

I had him create a private key with an open dime Bitcoin generation yeah the people that will only have ever known Bitcoin that's what gives me hope that's right

and that's the somebody with two children now you look at them and you're like holy shit we need to we need to fix this

because you're going to eat and you're going to eat you're going to be comfortable and warm when you need to be and cold when you need to be

and there's no other option like I hope share this episode with other people we need to get I think

the lesson I'm taking from this is better information better knowledge of Bitcoin how it works why it's important how it compares to the system that we all grew up in um leads to better decision making around where where you park your your savings yeah i think it's just the most beautiful thing about bitcoin is you know in aggregate as a system it is in control

of its own destiny and each is individuals we're in control of our own destiny um and i think that that is that is the source of hope that bitcoin is the answer from an economic perspective it is the solution to the problem that has gotten us to this point and people need to take that seriously that bitcoin scarcity is not a value if people do not understand it of why it's relevant and then if they put it at risk unduly and that it's very easy to sit there and not take possession of your private keys and think i'll do it in a week or i'll do it in two weeks and i know the thing about celsius but my bitcoins on coinbase i know they made that disclosure that um if you're learning on the tv it's too late it's too late you know i said that uh in the same presentation at bitblock

boomer was like if you're learning about your currency hyperinflating on tv uh you've waited too long um you know if you wait to get a we've halted withdrawals from celsius i'm sorry you've waited too long and so i think it's just a it's a function of having urgency um and taking it seriously um your bitcoin that is there one likely isn't there and two if they're rehypothecating it's not really yours uh you need to read the fine print um but you know with with what we're doing helping people control their own private keys um we've got a whole platform to help people take that step it is one of those things with great responsibility with great power comes great responsibility taking private key ownership is something that people shouldn't do lightly it's

um will my lifelong best friend our chief product officer at unchained he's probably the best analogy i've ever heard um it's not harder than driving a car but if you get behind a wheel without knowing how to drive, you could do some damage to yourself. And that's what our concierge process is designed to help people with that want to take that step, but are uncomfortable or feel like they have knowledge gaps, which many people often do. Really institutionalizing that process of putting people in a position to either go directly to holding their own keys when they buy Bitcoin or being on Coinbase, accelerating their process or Gemini, accelerating the process to take ownership.

So, yeah, I always anchor it at the highest level to Bitcoin being the source of hope. But, holy shit. We shouldn't have taped that with painting. Yeah, that was a bad idea. I actually thought about that. So, we'll end on that note.

The Bitcoin is the hope, but don't leave destiny in some fool's hands. Take control of your own destiny. Marketing guru of Bitcoin right here. Go get your Bitcoin driver's license test with the unchained concierge team. Every time you say that.

Can't pronounce it. Concierge? Concierge. Concierge? I'm going to start fucking it up. Concierge. That's right. Yeah.

That's what I said. You get it right about three out of ten times. I'll take three out of ten. That's Hall of Fame. Be weary. Extreme ownership. understand what's going on

share this episode with a friend Parker Lewis I mean I see you like in the office every day now it's always a pleasure come to the Bitcoin Commons come to the Bitcoin Commons

we'll make sure that the wall isn't falling down by the time you get here we've got we've got Bitcoin meetups the first three Thursdays of the month now

Austin Bitcoin Club first Thursday of the month actually second Wednesday is Austin Lightning Developers not second Thursday and then third Thursday

is BitDevs come to us and come to the Bitcoin Commons if it does was last week I couldn't make it two weeks

it was two weeks ago getting old yeah it was two weeks ago yeah last week was Houston oh shit yeah

yeah I had a good excuse not to be there I was having a child he's not walking yet no not yet but he's got a strong neck

go forth freaks spread the word peace and love bye