TFTC: A Bitcoin Podcast - #403: Dissecting the Banking Crisis with Parker Lewis

Episode Date: March 13, 2023

Join Marty as he sits down with Parker Lewis to break down the causes of the banking crisis from first principles. Follow Parker on Twitter: https://twitter.com/parkeralewis 9:15 - Is it happening? 11:40 - The Fed caused bank failures, not crypto 19:15 - SVB balance sheet 24:49 - History of bank cash assets 30:07 - How QE is done without QE 38:51 - The cycles accelerate every time 44:52 - The system is built for moral hazard 49:39 - Trust in traditional money is failing 57:06 - Will Bitcoin be blamed? 1:00:54 - Bitcoiners shouldn't waste their time 1:03:42 - Bitcoin's most important next steps 1:09:57 - Bitcoin Takeover 1:13:34 - Bitcoin is more important than ever 1:18:12 - QE5 is here 1:23:13 - Wrapping up Shoutout to our sponsors: Unchained Capital River CrowdHealth Bitcoin Talent Co 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 emergency rip of TFTC. A lot going on in the world right now. There's a banking crisis underway, unless you were living under a rock. If you are, if you have been, good for you. You don't get to miss out on all this fun stuff. It's not fun. It's serious. but I brought Parker back on because this is the theme of our conversation

over the last gosh five years is you can you can focus in on the individual crises whether it be 2008 2020 with the crisis we're going down going through now and try to point out individual actors

whether it be Silicon Valley Bank signature as bad actors or bad risk managers But the overarching theme that underlies all these crises is the Federal Reserve and their policy. These crises are inevitable with this policy. Parker breaks it all down in this episode. But before we get to the rip, I do want to read the top four boosts in the last episode with Lynn Alden, which was titled The Fed is Losing Money.

So very good back-to-back if you want to get an understanding for the Fed losing money. And then it's policy creating a crisis that Parker and I described. These are good back-to-back episodes at KRSH 20,000 sats. I reckon the private sector is more sensitive to fed policies than the public one. So I find it more likely that supply destruction will be stronger than demand destruction, at least here in the communist leaning Western most part of East Europe.

We think ourselves to fancy too fancy to embrace balkanization and heedlessly follow Western policies like children trying to win favors with older peers. that is only what is perceived through social media and politics in the real world we will win yes we will thank you for the sats krsh at blockchain bug 5 000 sats two thumbs up at fightless birds flightless oh no fightless birds 1 000 sats feeling pessimistically optimistic after listening or is that optimistically pessimistic i don't know and at michael Matt Tuliff great episode

shout out to you guys for the boostagrams if you're participating via the value for value model and podcasting 2.0 thank you for your support if you're not and you're listening on Apple, Spotify podcasting app that's not podcasting 2.0

enabled just give us a 5 star review subscribe give us a 5 star rating and then write a review It helps us go a long way if you're listening via YouTube. Give us a like, subscribe, hit the notification button. I think people are going to need this information,

so I think it's important that we pump it as much as possible to make sure people are getting the signal throughout all the noise. There's a lot of noise, and Parker just provided the world with a lot of signal. So I think you guys are going to enjoy it. It was brought to you by our good friends at River. River survived the chaos of the weekend. People were worried. I have many bank accounts

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looking for a job in the Bitcoin space, this is the best place to go. And then on top of that, if you're hiring in the Bitcoin space, if you're a company looking for the best talent, Bitcoin talent.co, their team is the best equipped to go find that talent. They understand Bitcoin, they understand multisig, they understand lightning, they understand mining. If you need somebody to help you get talent, these are the people to do it. Go to bitcointalent.co tell them the tftc sent you and enjoy this for it with parker lewis heavy times freaks heavy times but let's ground ourselves the fed is the problem here we have a solution with bitcoin it's time to batten down the hatches focus and begin building a better future for our

children you've had a dynamic where money's become freer than free when you talk about a fed just gone nuts all all the central banks going nuts so it's all acting like safe haven i believe that in a world where central bankers are tripping over themselves to 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 probably should be parker is it happening define it are we are we watching a systemic collapse of the central banking system here in the united states i think we're seeing the onset of the next financial crisis and there will always be

an ex-financial crisis until the the system collapses entirely i think it's hard to predict or you know is this the last cycle um it's probably not but um i think that this is you know if there was 2008 and there's 2020 this is um a financial crisis that is consistent with the scope magnitude consequences of that yeah is it the onset of the crisis are we like in the middle of it because obviously i mean the how you define lead up right like going back to 2019 2020 or even 2008 the first in 2008 people often look back to bear stearns but it was really the summer of 2007 when the writing was on the wall when the first cracks happened so i think the cracks in the

facade had already happened and then it's when things get to crazy town and just start falling apart when i say that we're in the crisis it's you know when it becomes obvious to a wide range of people yeah no this is why it's great to be here in the bitcoin commons and have access to you in person because i think considering what's going on today what has been going on over the last week obviously the tremor started with silvergate he had a run on that bank last week spread to silicon valley bank then we wake up this morning every regional bank stock uh has traded has halted trading uh we had signature get shut down yesterday it seems like something is happening on the back end of the banking system a lot of the pundits are like oh this was

a a crisis onset by crypto and the risk taken there but i think building on the conversations that started many years ago on my rooftop in brooklyn talking about ender's game uh building up to today i think sitting down with you and getting into the first principles of actually everything that's going on from a liquidity profile behind the scenes is very important so you've been looking at charts over the weekend and diving into some stuff that will pull up on the screen but at the end of the day this is a crisis that seems driven by the fed and their interest rate policy over the last year yeah i think that that's something we should talk about where um to an extent this does feel or part of this feels like choke point 2.0 but um i think

that that the bigger thing that's happening in that ultimately people will say that you know the crypto sell-off had you know caused silver gate and then um and then there were knock-on effects but in reality um and i think um who somebody put out a tweet about the unrealized losses for all the banks and it's important to recognize that this whole mess is 100 a function of the federal reserve like they set it up you know and knocked it down themselves um i think the the statistic is there's 700 billion of unrealized losses on bonds that the banks hold right and uh we can talk a little bit about that but the fed functionally printed a lot of money started to, uh, to create a dynamic where there was out of control inflation. And then in an

attempt to try to rein that in, they started aggressively raising interest rates, which caused the value of bonds, which the banks held to collapse, or, I mean, collapse is a strong term in terms of bonds, but if bonds drop by 10 to 20%, um, that's a significant, uh, reduction the market value of bonds and that is really what caused silvergate issues right it wasn't the outflow of demand and i think you know we'll go into a lot of other things but take the opportunity just to to give silvergate credit that they withstood a 70 to 80 percent drawdown in deposits they did not need to be taken over by the fdic they weren't taken over by the fdic Um, the, the thing that created issues for them was that in the, in the midst of them

needing to, um, to satisfy deposit withdrawals in that intervening period, the Fed increased interest rates seven or eight times to four and a half to 5%. And it didn't matter what you were holding, what credit instrument, the, the, the value, um, decline that happens when you raise interest rates, cause those, cause those losses to be realized. Um, and, and then that created, um, the big issues, which then, uh, Silicon Valley bank signature, realistically, any bank that was holding treasuries or mortgage backed securities or any credit instrument right um they the fed created a hole um and and they didn't just create the hole by raising interest rates they created the hole by withdrawing or basically draining

25 of all the cash that existed in the banking system in a 12-month period after inducing a massive credit expansion so it's not just the mark-to-market issue it's that they were creating a mark to market issue by raising interest rates but at the same time they were taking actual dollars out of the system um and the weakest were going to be exposed right and silvergate wasn't the weakest silicon valley bank might have been the weakest right they you know silvergate sustained an 80 percent drawdown in reserves didn't need fdic um or the fdic didn't shut them down and at the end of the day that happened over a four-month period silicon valley bank boom a day 24 hours gone yeah um no and i saw alex leishman tweeting over the weekend that even

though silvergate has since shuttered their doors they're still processing withdrawals even to this day yeah and i went in that to say like this is 100 about the fed the fed printed a shit ton of money in between september of 2019 and may of 2020 and then in a more controlled way through 2021 functionally or at least through the fall and that's when inflation really started to rip right and then started to get a lot of pressure and also in their kind of core function of quote price stability tried to rein that in by jacking up interest rates and literally on on both sides on the consequences of flooding the system with a bunch of reserves as well as then how they tried to exit that this had nothing to do with quote bitcoin crypto um like didn't even

have anything to do with ftx um it had had to do with the fed and they might like to say hey look over there but like if you look at what's actually happening systemically fundamentally um it's all of their you know of by for the fed um having nothing to do with bitcoin yeah this problem becomes like very obvious too when you consider the fact that post 2008 dodd frank comes to light and it changes like the reserve requirements or the capital requirements and they dedicated like a tranche of banks reserve capital to these quote-unquote risk-free bonds so as you're jacking up rates the price of those bonds is going down and as a bank you're required by law to hold a basket of those of those treasuries in capital reserves and

the problem seems pretty obvious when we think about it now in retrospect even though it's hard to even call it retrospect as it's happening right now but thinking about it like oh they put these capital requirements in for these assets that are very tightly correlated to fed policy like you raise rates the bond prices are going to fall and so that the capital in that that that requirement is going down and so then maybe you got to pull from from more liquid deposits buy more bonds which then creates a liquidity crisis if people want to withdraw and then it's an exacerbating doom loop yeah i mean could we pull up the it might be if we could pull up this uh silicon valley bank balance sheet just to like talk about like

some of these dynamics looking actually at um a bank balance sheet okay um we zoom in a little little bit loading. Yeah. I don't know how this will zoom. Okay. My eyesight's good enough for there. Yeah. Perfect. Okay. So, and this is Silicon Valley bank. It looks like it, but Silicon Valley bank. Yeah, it must be. Yeah, it is. Okay. So they have, so as of December, They had $13.8 billion of cash, and then they had $26 billion of available-for-sale securities at fair value, so it's $26 billion, then held to maturity securities, $91 billion, and then – because – and I'm not going to – like, they have probably some of these loans are in a different category. bro like if you see the 74 billion in loans right that those loans at amortized cost that is functionally like the core of a bank's business like that's that's them issuing loans to to their customers the 26 billion and the 91 billion that are up in total investment securities

that that is them buying bonds that's not them originating loans and holding those loans That was the Fed increased their balance sheet to stem a 2020 financial crisis, and then they can't go out and issue loans. They can't create demand for loans, so a bunch of deposits flood into their system, and what do they do rather than hold those deposits as reserves? They went into the market and bought treasury, which is very different than originating loans. Now those, those 74 billion of loans, those, those are highly illiquid and, um, the, you know, kind of just like drawing the distinction between what those two things are. Now, if you go down Logan and you see like they had 173 billion of, of deposits. So, um, and I don't know what break, see, we've got demand deposits of 80 billion and

interest bearing deposits of 92. I don't know if, you know, to what extent those interest bearing deposits have time, you know, kind of like where a demand deposit, you can show up tomorrow and get your money back. A time deposit is generally like you can show up in 30 days or 60 days. Um, but realistically what happened was, and I think my order of magnitude might be slightly off, but if you scroll back up Logan, that they, they started having, um, basically I think in, in Silicon Valley banks case, because a lot of their customers were venture back customers, they were cash burning. So their, so their deposits started to decline on net, um, at the bank level and they needed

to sell some of the available for sale securities and the held into maturity securities well when they did that because the value of those had gone down and this is the exact same thing that happened at silvergate they had to realize losses of like when they bought them versus when they needed to sell them and they incurred a two billion dollar loss well if you aggress if you're sitting on over a hundred billion of um even if they're short term but i think in the cases of silken valley they were longer duration like mortgage-backed securities mortgage-backed or just longer dated treasuries what do you what does the fed expect to happen if they flood the system with a bunch of reserves and then those naturally flow into okay the bank's gonna buy

credit instruments and then you jack up interest rates and now what what the fed functionally did was they created the hole in these bank balance sheets they should have told them like hey don't Get rid of all your credit instruments before, but that's what the bank is in the business of holding credit instruments. There might be a distinction between the loans that they originate, that $74 billion, and the $120 billion-ish that they're holding because they didn't have anything else to do with the cash. But that is ultimately what created the environment that made them so susceptible to a bank run. But it's not specific to Silicon Valley Bank. it it's systemic is that every bank yeah i mean there was stats going out over the weekend like the four major banks they're sitting on these losses as well well not realized yet but yeah

and i and but the other point i bring up is that that 700 billion i don't have the tweet i think it was caitlin long that put it out that had like that showed the unrealized losses on the bond portfolios of 700 billion but um the point being the bitcoin in total is 400 billion right so like um that that unrealized mark to market loss is a direct consequence of the fed having raised interest rates seven or eight times and um you know the the fed funds rate going from zero to four and a half percent or whatever it is today yeah and bitcoin's probably like 450 billion market cap today with the price screaming up towards 24 000 but like in the context of the banking crisis that was all businesses built around bitcoin and crypto and that market cap is

even significantly lower yeah than the whole bitcoin market cap so logan can you pull up the the cash assets um for the banks yeah because and then can you um can you move the um the time scale from like to basically that period where it looks very low is um is like basically pre-qe um yeah so one of the things here is that if if you go to 2000 or like leave it leave the chart as it is but if you're kind of looking at the 2017 time period the amount of and what we're looking at here is the cash ask like the total cash that the that the banks hold so the left side of the bank's balance sheet if we were just looking at silicon valley bank's balance sheet it was the $13 billion, that in 2017 when the Fed started to signal

that they were going to start to undo QE, the total cash the banks held in total was about $2.4 trillion, and they withdrew about $700 to $800 billion of cash, basically just going into a black hole, and that caused the repo markets to break. they're basically taking the building blocks of liquidity out of the system it's just going into a black hole um and in so from 2017 to 2019 two-year period they drained 700 800 billion of reserves which equated to 33 of all the cash that was in the banking system and the important thing

i wrote about this and bitcoin is not a hedge as well as ender's game which we talked about several years ago is that when that happens the amount of debt liabilities that exist in the system do not magically change they're basically just taking out the liquidity that could be there to fund it so it's like thinking about like in in arithmetical terms like the numerator stays the same but the denominator gets shrunk massively and what they functionally do each time they drain reserves is dollar for dollar introduce incremental leverage into the system the liabilities don't change the amount of cash to service them does and the ratio goes out yeah it gets blown out so when we look at what has happened over the last 12 months

or really since june you know they they took out um over a trillion dollars right and there's still more cash but the credit system is also expanded expanded significantly and so they took out more dollars in a shorter period of time they took out a trillion dollars which is about 25 percent um so you said well they weren't as aggressive but it's like no they took out a trillion dollars over a six to eight month time period whereas they took out a um 700 800 billion over a two-year time period and that resulted in the financial crisis so everything that can't like like people can kind of get lost and like the consequences of the bailout and the moral hazard but it all comes down to what the fed is doing and it's like it is it is all a function

of the fed and it all comes down to the amount of liabilities that exist in the system specifically debt liabilities as well as the dollars that exist in the system that could service it and if you take out 25 of all the cash in the banking system after having induced massive credit expansion this is what happens and it's also why it's systemic to all of them right like we it's difficult to know until the dominoes start to fall as to who the weakest is but when they drain the reserves from the system it is actually what induces the bank run because it exposes the weakest um the the dollars come out from one place but then it's like a it's like a suction um whoever is weakest is going to be exposed first yeah and like you said taking these dollars out of the

market adds leverage to that credit exposure or that credit exposure as the monetary base was expanding as cash was being injected into the system was already essentially being leveraged as well when you think about the context of silicon valley bank like they were issuing loans to startups or vcs vcs looking for bridge loans to their next capital call or startups trying to monetize before they go public or get acquired as well, which is both levered bets. Yeah.

But, yeah, so I think that's all right. But what's actually happening is it's not specific to Silicon Valley Bank. No. Right? Any, I mean... Well, like, bringing back to the context of the weakest get exposed first,

like venture companies are high-risk endeavors, right? So it makes sense that it may start there. Right. But it could also be that if you if you have a bank that has a high concentration in commercial real estate in a market that is, you know, a low growth market and the Fed starts to increase interest rates significantly, like that's probably just as prime a place to look as any. right um that there's probably a lot of what might appear to be idiosyncratic reasons why someone is weakest but it's all correlated because the fed is slowing everything like it's not a coincidence that venture slowing down at the same time that the fed's draining capital out of the system and you know it's all related to each other yeah so where do we stand now i mean is this what forces the hand the feds revert well i think that one thing i would say is

So I guess last night came out that the Fed basically fed in collaboration with the FDIC in collaboration with Treasury because I think it required all three of them to – someone can correct me on this. But I think that it required all three of those constituents, including their boards, to basically determine that Silicon Valley Bank was systemic or what's currently happening is systemic such that they can go – such that the FDIC could go beyond their – $250,000. Yeah, to insure all. So basically they came out around 5 p.m. before the market futures open and said that they were taking care of all of the insured and uninsured deposits of Silicon Valley Bank and that the signature bank had been shut down and entered receivership. and that they had this new facility which they called something like the bank term loan facility and this is this is the other this is a crazy thing because each time each with each passing financial crisis they have to do something crazier and what they did yesterday was insanely crazy

yeah um and then there were a few things that were crazy one the fact that they stepped into to backstop all um insured and uninsured deposits because the thing with silicon valley bank was that like 93 or 94 reportedly of their deposits were uninsured um that was crazy too but then kind of if we go back to the financial crisis of 2008 they started qe with just treasuries and then they expanded that to mortgage-backed securities and there were people in at the time in the fed including richard fisher who was the dallas fed president who basically was like we are operating like a hedge fund we shouldn't be choosing uh sectors of the economy advantaging one or the other and there were other people in the fed that said like don't don't call us a hedge

fund like you know that's not what we're doing um but but that kind of movement away from just buying treasuries into treasuries and mbs and that that then kind of normalized um the fed using mbs or mortgage-backed securities as a way to pump more dollars into the system well then in 2020 whenever you know like the market broke again for predictable reasons because they were draining the dollars of liquidity that the highly leveraged system needed it wasn't just treasuries and mortgage-backed securities it was um they basically started creating uh funds to buy corporate credit um not just corporate credit but muni bonds like basically the the leaky ship was bursting at every at every seam and they had to they had to buy every form of credit out there

when you go back to 2019 i'm not sure if this was a credit facility but during the repo spasm they added a new facility that essentially allowed them to fund hedge fund margin trading accounts that i know i i remember seeing like reports about that but i never dug into that myself to verify whether or not i thought maybe like some hedge funds were participating in like the the um they got access to the window oh they got okay that's that was the facility that they added in 2019 via proxy like dfmic or something like that yeah but basically just like kind of highlighting that they had to they had to go plug the the leaky ship at more points um because the credit system was collapsing that's that's functionally what's happening the credit system

is collapsing when when we're seeing this um and this time the thing that they've added the wrinkle is oh okay so the problem was that we started we flooded the system with a bunch of dollars and the banks, certain of them, probably most of them went and bought these mid to longer duration securities. They start increasing interest rates. The market value of those loans comes down and as inflation is going up. And then what they've done now is they said, okay, so say you've got a treasury and I think it's, it's not just specific to treasury, but I think it's everything that counts as like HQLA or like a highly liquid quality assets. Not a hundred percent sure, but basically let's just use treasuries as an example. If you have

a treasury that's trading at 90 cents on the dollar and say you have a hundred million of that and say that that's worth 90 million, if you were to sell it, they'd say, you don't have to sell it, come to the fed, pledge it, and we'll give you a loan of a hundred million. That is functionally QE, right? If they were doing QE, they would say, oh, you have a treasury worth $90 million. I'll buy it for $90 million. You give me your treasury, and I'll give you cash. I'll credit your account with another $90 million.

That's what they're doing. They're just not saying it, right? Because they're saying, hey, no, we'll actually do you one better. We'll give you $100 million, the par value of it, and we'll take those as collateral. it's basically a repo but a repo not at market value at at par and the reason why they did that was because as these bank runs were happening or are happening presently um and i don't i don't expect that um why they would stop really and we can talk about why that is but as silvergate had to sell and realize losses like anytime you have to go in the market and sell a loan

the market is setting the price of it so then boom if if they if and i i'm not saying this in the sense that like they should have done something differently i do think i mean like i do something differently but the whole system is fucked so it's like damned if you do damned if you don't like yeah they're stuck in the worst catch 22 of all time but if they had allowed silicon valley bank to uh not necessarily not i'm not talking about bailing out the depositors but if they had allowed it to remain open and not shut it down on friday then as those um depositors had said send my money to chase or send my money to wells or send my money to city then that 120 billion or however much was left i know that they had sold a 20 billion dollar portfolio for a 1.8 billion

dollar loss the only way that they could have continued to satisfy that was to sell credit instruments cascading loss yeah cascading losses for for the next bank for them because because if they have to sell mbs or they have to sell treasuries then the next weakest bank whether it's first republic or whoever else is weak which they're all weak because the whole banking system is insolvent and not to pick out a few but the point is that in order to satisfy those withdrawals they're having to move the market lower and so then it creates an actual larger hole for the next bank that gets in the same situation um and again that doesn't the the issue of in of guaranteeing uninsured deposits except from that that that's really what what you know my view

why they had to like stop the the svb piece um because there's a knock-on effect but that then informed how um i think why they basically said hey don't you don't need to sell these credit instruments post them here and we'll give you the full value what they're going to have to do is they're going to have to reintroduce the formal qe to to walk the value of those bonds back up they're going to have to be the buyer that gets the values of the bonds back up so such that that is actually the most quote capital efficient way to stem this massive collapse of the bank run like they'll convert this post your you know post your unrealized losses here at the fed and we'll give you the mark to market value at par um or not at mark to market but at par and then over time

we're gonna have to go back to the market and be the buyer of these bonds and then as we get the value of the bonds back above par you can then you know reverse out of this take your take your bonds back we'll give us cash you know that's how i see it playing out doesn't seem good and when you think about like the compression of these crises obviously we had 08 start unwinding in 2017 fast forward end of 2019 beginning of 2020 credit problems arise at the reverse course print money for two and a half years or yeah two and a half years like beginning of 2021 yeah like 2019 to the end of 2021 yeah and so that's a two three year period and obviously we have this aggressive rate hike regime the last what's called year not even yet and now here we

are beginning of 2023 q1 2023 having to reverse course again yeah march 12th is a day that it's Like March 12th, 2008 was when Lehman failed, I think. I mean, March 12th, 2008 was when David Faber famously went on CNBC and asked somebody at Goldman why they weren't, or maybe, no, he asked someone at Bear Stearns why they weren't, why Goldman was failing to novate trades. And that was basically the collapse of within a few days. then march 12th of 2020 and then march 12th yes you know 2023 yeah yeah yeah so it seems like

things are accelerating like that the pace at which they're losing control yeah i think i mean i think that's apparent um that more people you know the system is more levered they have less control they you know each time in my view if you think about what's actually the mechanisms by which they try to quote fix the system it always the the function of introducing new dollars it's like the the problem at its core is one of leverage both in terms of the total amount of debt in the system as well as the relationship between debt and the available supply of dollars that can fund the debt. And if anybody's interested in learning more about that,

they can go read Bitcoin is Not a Hedge that I put out earlier this year. But that is the core of it. And each time the thing breaks, they have to put more dollars that they had put in before, but also the system needs to be growing. the credit system in order for it to not collapse needs to be growing and as the credit system becomes larger that's actually it necessitates more nominal credit be created for it to grow because a certain amount of liabilities are rolling off each year right so um so what

what functionally happens is they have to print more money each time as the system becomes more and more fragile that induces more and more credit creation which then as they try to, you know, reverse out the consequences of it as it, you know, kind of manifests itself in inflation and volatility. Then each next time, it's like, the timing's impossible to predict. But I think what is foundational or fundamental about it is that the problem only gets worse. Yeah, the outcome's very predictable.

It's just when it will happen, nobody knows. But again, another important point to really dig into here. Well, and also, but on that point that you're making about the timing, accelerating it's like if you look at what they did was post-financial crisis they waited until 2017 so they introduced cash from 2008 to 2014 then they started raising interest rates in 2015 but they didn't change the balance sheet until 2017 so from the last dollar that they put into of the system to when they started to withdraw, it was three years approximately. And then they withdrew 700 to 800 billion over a 24 month period. Well, they put 5 trillion in the system

over a two year period versus 3.6 trillion over a five year period from the 3.6 trillion was 2000 into 2008 to 2014 so like they're accelerating the they're they put more money in the system five trillion from september of 2019 to september 2021 and then that had set off this i mean realistically it was a cumulative build-up of all the money that they've printed over decades but it gets exacerbated and they start to signal in the fall of 2021 that they're going to raise interest rates which they start in march but they didn't start withdrawing the liquidity from the system until the summer of last year 2022 well they took out a trillion dollars in less than a year right so they put money in faster they took money out faster what does that

do accelerates the timeline of the of whatever financial crisis was going to happen yeah and i don't the point i was going to make too is like another important thing to lean into which you touched on but we didn't articulate it this way is that every time they add more cash they have to get unique in the ways that they add cash in 2008 we'll buy your mortgage back securities 2020 we'll buy your corporate bonds your muni bonds who knows what's going to happen now but not only are you introducing more cash into the system but you're expanding the landscape for potential moral hazard right because the announcement they made last night with the fdic the treasury and the fed saying essentially so we're going to backstop all your deposits like there's no scenario which

depositors are not going to be able to get their cash and that introduces moral hazard to the banking sector we're like oh they're going to they're going to backstop all of our deposits like we can go take any bet we want well i think that um yeah i think in maybe we talk about kind of moral hazard like the whole system the system is built on moral hazard so it's difficult to say that the incremental moral hazard that they have introduced materially changes the um the broken incentives that that already existed they they certainly do but to like folk that's like focusing on the the edge rather than the core um i think one of the things that um you know bill ackman uh jason calcanis david sacks have been out there hammering for a

a silicon valley bank bailout um now the shareholders weren't bailed out but the depositors were and there's the depositors have more value than the than the shareholders did and the same for signature whoever it might be and they said like now's not the time i think i saw something from larry summers too that guy's a clown um but um saying like now's not the time to be lecturing us about moral hazard it's like realistically now is always the time but they're also right in the sense that like the system from its from its most rotting core um got to where it is because of moral hazard the moral the ultimate moral hazard is the fed has the ability to print money and so we can kind of focus or get distracted on you know kind of the the occurrence of the day

but the moral hazard was when the financial crisis happened they they always had the ability to print money and they did it in a wide scale way larger faster than they ever had before but it was functionally the same and and what they did though from a um from a legal perspective they they i think they codified too big to fail like they they said these banks are systemically important banks they are too big to fail like and and when these guys are out there it's like they're both wrong from like they were they were wrong in the sense that they were all like these guys they're only looking out for themselves they don't give a shit about america about main street about jobs they were worried about their money interests right let's just be

absolutely clear about that um but they also weren't necessarily wrong in the sense of like this is a this is a real problem but and and i think one of them said like if they were maybe they were all saying this and this was this was the the broken um thing about it was if you do not bail out silicon valley bank depositors then there's going to be a bank run everywhere well even today there was a silicon valley bailout and the logical thing to do is to like still is to move your reserves to a too big to fail bank like because what they didn't do was guarantee all deposits for all institutions so if you're sitting there at institution you know three through a thousand, they have not guaranteed anything. And, and if you're in a scenario where

your, your bank has been taken over by the FDIC and you're waiting to learn whether or not what they're going to do with that next one, you still have the incentive to move your deposits to jp morgan to wells fargo to city like they codified that in 2000 in the in the period after the financial crisis they they basically said hey we've got this moral hazard of too big to fail banks which everyone knows that we're going to bail out oh wouldn't this be a great idea let's let's make this law that these banks are too big to fail what do you think is going to happen? You know, like, um, and so when they bail out, you know, the 93% of deposits that were there, it's like, I don't really care. The whole, the system is broken,

you know, like it just hopefully wakes some additional people up to the fact that it's broken and that we accelerate over to Bitcoin. But the moral hazard, basically the moral hazard was always there. It was the fed can print money. They can, they can choose who and when they bail people out. Um, humans are fallible. They always will. Um, in terms of like, you know, not, uh, they will always bail people out. They will not always use that power, um, radibly, um, or in an unbiased way. Um, and you know, like there's a reason why Signature Bank's out of business today and First Republic's still open. No, maybe First Republic isn't open by the end of the day. doesn't seem like over 24 now bitcoin's ripping holy shit yeah like but that but that's the other

thing that comes back to it which is um people you cannot figure bitcoin out if you have no knowledge of it but there are people that have been aware of it that were on the periphery that weren't yet there and then they see this and they realize holy shit i can't trust anybody or they realize holy shit this whole thing is based on trust right so imagine four days ago you didn't know what bitcoin was you knew it was out there but you hadn't like you hadn't started to think about it well when all the banks fail you can't just magically understand bitcoin but there's a large swath of people that next wave of adopters that were looking at it and saying like this doesn't make sense, but maybe, you know, like, you know, I'm not going to totally dismiss it.

And they've got $10 million in their bank account. And then this shit happens. And they're like, holy shit. Like, yeah, that's how they've dealt with, um, Silicon Valley bank and signature. And if you think about the psychology, it's like, that's connecting the dots for a range of people, you know, over the last three days. And they're not all of a sudden we're going to move all their money over but they're gonna be like yeah let me let me get some of these chips off the table because that those things that the bitcoiners have been telling me about that i didn't think that the banking system would have an all-out collapse or that um uh 170 billion dollar deposit bank like silicon valley bank could be you know seemingly perfectly fine one day and literally

gone than next yeah um that maybe maybe i need to own bitcoin because it does solve this problem of eliminating trust from the system well that's been the most interesting thing over the last few days is obviously we talk about number go up 21 million like you want the scarce asset we want a sound monetary system but i think the real value prop of bitcoin that's being highlighted over the last week is the lack of counterparty risk if you're appropriately holding your private keys like i think silicon valley bank going under and for a three-day period people being like am i going to be able to access my money really drove home the concept of holding bitcoin in a wallet that you control and whether the price goes up

or down no matter what you're going to have access to that money yeah and probably most realistically in this scenario the fed is going to print a shit i mean one well that's there's a certain what is the magnitude of the next right but there's a certainty they're going to have to print a shit ton of money like i would say that they're going to have to print more money than they have before in the last episode to contain this um the you know bigger boat needs more dollars to to plug the leaky shit um and the the boat is leaking in more places and that's becoming apparent to people um so that that's a cert like they will have to print more money i mean they've admitted so much like in my mind qe5 has started as of last night um the

the swap facility is functioning the same so so that's there um but there will like there's some recency bias to this too which is like normies will get all worried and then the fed will make sure that they can get their dollars and a certain swath of them will just go back to their daily lives and say that that was a scare yeah there's going to be more turbulence in the market but the fed the fed took care of it right um so it's not going to be like i don't i don't expect that like magically everyone who you know is cognizant of what's happening right now is going to connect the dots but i do think that at a fundamental level that idea of and satoshi nakamoto whoever he might be um you know in terms of like you know the prescience of you know one of

his quotes was i think it was from february 2009 right after you know a month after bitcoin was launched where he said the problem with um traditional currencies i think it's the term he used the problem with traditional currencies is all the trust that's required you know we have to trust central banks not to print money we have to trust that banks do not you know lend the money out in waves of credit bubbles and that trust has basically been broken well this you know 2008 broke that trust but the system sustained itself or persisted it just became more fragile 2020 the same thing now the same thing each time those people will say you know or not those people But more and more people on the margin will look at it and say, yeah, I value this thing, Bitcoin, not just for different reasons, but more people will value it.

And they will come back to this episode around counterparty risk, around the fact that their entire monetary system is based on trust and that trust is broken. And the more people that that signal reaches, when you're talking about a, you know, that signal has reached $170 billion worth of depositors, right? At least, that's Silicon Valley Bank. I mean, if you add it up with First Republic, because the First Republic depositors are sitting there in the same scenario, that's $170 billion. 100% of those people do not connect the idea to Bitcoin. But the signal has been sent to all of those people. holy shit this is fragile and my money is based on trust and that will be a key building block for a lot of people to then say like hey this thing bitcoin 21 million and i don't have to

trust anybody i might not understand exactly that but that that makes sense if it if it holds yeah completely i mean i had a number of conversations over the weekend of people hitting me up like oh i finally get it and then like in the bitcoin space too but due to the fact that it has been hard historically to get a bank account. I know many people in the space who are running companies who had a large dollar amount sitting at these banks, seriously considering, hey, I can't wire it to another bank. I don't have a JP Morgan account. I don't have a Wells Fargo account. I don't have a Bank of America account. The smartest decision I can make right now to preserve my treasury or the cash in my balance sheet is to wire money to a

bitcoin exchange convert it to bitcoin and hold it just wait till this blows over yeah i mean i think that if if you are down the bitcoin rabbit hole that is a very logical thing to do it's the only thing that you can do to eliminate trust and what do you get with that same time you get to hold something that is finitely scarce right um that only becomes logical for people that are far enough down the rabbit hole to connect those dots. Now it might move people down there further to take a chance to be like, shit, I can't wake up and have this all be gone or a fraction of it be gone or not be able to access it. And that's when you also start to realize that when we talk about this word trust, it's really about access, right? That there's, we talk about permissionless access

to the Bitcoin network, that people still realistically need access to the, um, to the us banking system but that that access point isn't inherently fragile because it is centralized and you can get zapped and out overnight yeah it just happened like we just said to many people over the last three days yeah so i mean going back to that point of the state of the bitcoin industry their access to banking like we mentioned earlier I mean do you think that this I have an opinion on but I want to hear yours is this

choke point 2.0 or is bitcoin and crypto being caught up in broader systemic issues I think it will be used as a patsy as a scapegoat I don't think it's obviously I don't think it's driving any of this I agree

that it's purely fed driven but I do think I don't know it's like the conspiracy theorist because there's a lot of perfect sequence of events that have happened starting this time last year where you just have the blow-up of Terraluna, the blow-up of 3AC, the blow-up of BlockFi, Voyager, Celsius, and inevitably FTX.

You get a cooling-off period, then boom, first bank to go down to Silvergate. Second bank is somewhat tangentially related, Silicon Valley. And it seems like if the government wanted to point in the last three months you've had Elizabeth Warren saying this is creating a systemic risk like these companies should not have bank accounts

I think they're rearing the narrative engine to pinpoint this cause of the crisis on Bitcoin and crypto but no I don't think it's a cause and I do worry that it could be successful in painting that narrative

and it could be hard for businesses to get bank accounts to begin onboarding people to bitcoin but who knows yeah i mean i think that um there's clearly constituent what's the saying that uh never let a crisis go to waste yes right that i think this is something similar where the fed has caused a crisis i don't think that they had um bitcoin in mind but then others will seize on it to try to make people in the world of bitcoins lives harder right um i don't think that it's a coincidence that um signature out and that they there were there were reports on bloomberg that there were at least three other banks like like realistically there's a lot more

than three other banks that are in a similar situation but it's like signature out now i would guess that more banks are going to be taken over by the fdic so it's like hey maybe it was It's just this capital could move a lot quicker based on the nature of the deposits. But that at the end of the day, Bitcoin's there to replace the dollar. And that the idea of everything is good for Bitcoin and that Bitcoin strengthens in stress

that people are going to go out and find other banking relationships. right and so if we're here in austin again like now all the regional banks seemingly have problems but um but jp morgan's also banking coinbase right so um really they were and i expect that they still are um i know that coinbase was using silicon valley bank and um signature as well but um that people are going to go have to rely on relationships to get access to bank accounts but at the end of the day bitcoin has to survive independently of the dollar system and that episodes like this will actually accelerate that process right and that's um i don't want to turn

to it just yet but that's like part of my issue with this whole noster thing too that's like there's a lot that needs to be built like well i wasn't expecting you to bring up that well everyone's fucking around with like social apps it's like you know for the last month and a half two months like then the banking system collapsed and then the banks that that bitcoin companies have been relying on are gone overnight but everyone's talking about social apps you know i see now and we're in the middle of this i see parker's been screaming at me in the comments for like two months like stop talking about monster we've got to fix this money system first it's like if you didn't have access to the us banking system as an on-ramp what would you

build right that's what people need to be thinking about in bitcoin because that's what that's ultimately what's going to have to exist and that on the one hand it's going to make a lot of people's lives more difficult of like access to banking because the bank dollar system is still the predominant system and it's like we can't we can't put our heads in the sand and act like that's not the case but ultimately that won't be there it'll all have to be rebuilt and so thinking about when when these type of events happen when whether it's choke point or just you know like go back to when i mean this was before i was even in bitcoin but just using as a relatable example when mount gox failed it'd be like oh shit this shit you know dreams over and

it's like no what what did people what did the free market do it set off a wave of of advancement of self-custody right what what will this do it will set off a wave of advancement of of transactional circular economy application yeah and and not just like circular economy in the sense of like um i'm gonna go buy it in good but but the tools that are necessary to um to make that happen right because it's not just like as easy as i'm going to facilitate a payment like there's a lot of infrastructure that needs to get built between then payroll services then you know so it's like what what if i couldn't rely on the dollar system to to be this intermediary good what would i do um and i and i think that that will set off a wave of people thinking i'll say like

everything that people decide to build is just going to magically work or that they're going to get the timing right but those are the type of things that happen when you know kind of everyone's waking up and saying oh yeah like maybe i took this you know i can use the dollar as an intermediary for granted what would i build if that weren't the case because it seems like now maybe i need to be thinking about that on a on a much shorter time horizon well with this context in mind what is your priority list of things that need to get built look like i mean i think it's ultimately facilitating direct commerce um and that doesn't mean like hey we really got to focus on this word circular economy but it is like hey like thinking about you know what would it look

like to um pay for power in bitcoin or what would it look like to pay for gas in bitcoin or um you know how do we educate the people that have the resources because education is a big part of this right like the i think the biggest risk to bitcoin is surviving the the dollar's destabilization event because the dollar coordinates economic activity and we all rely on the dollar um and that it's making bitcoin functional and viable as a direct um competitor or or like a functional in directly facilitating commerce and directly facilitating commerce means not using the dollar as an intermediary you know so so and the analogs is what what are all the thing how are all the ways that the dollar are used right um because like an e-commerce payment is different than a

um utility bill like if you were thinking about settling oil for dollars it would be different than if you were buying something on the internet and it would also be different than if you were buying something at a point of sale system yeah right in person so like the word payment has many different variants if you were managing payroll in bitcoin how would you do that uh there's a lot of privacy concerns when you start to think about, you know, well, if, um, a company was, you know, out of a single transaction paying all of its employees, then every employee could theoretically know, you know, like what everybody else is making. Right. So, um, the word payment is like overly broad, right. But it's thinking about all the different types of transactions

and then what are the most important or what are the most important relative to where we find ourselves today so that's like one half of it the other half of it is like help educate people who have critical skill sets or that you view as critical right because there's everything subjective but things like you know energy and food and transportation and you know right like the getting getting those people to be in a position to be able to see this like one of the things i put out yesterday it was like we got to get buckies i saw i retweeted that you know where but it's like well there's actually a technology that needs to be built um and when i say technology i use the term loosely there's infrastructure the software infrastructure that would need to

be built if someone wanted to be able to take bitcoin and payments for as a gas meters running It's similar to what companies like, um, Sonoda or, um, um, Satoshi, Satoshi energy. There's a few others distributed charge are thinking about like ways to, to use the lightning network to facilitate payments. But, but realistically it's like, Hey, if, if nobody who sells gas accepts Bitcoin and the dollar hyper inflates, that's a real problem. But how, how are you going to get there? Just using it as a, I'm not saying gasoline is like the only thing we have to be

consider but but what what i'm talking about is like thinking about the problem first somebody that sells gas has to know enough about bitcoin to be willing to deploy it right or to be able to put themselves in a position to receive it that's one half of the equation the other half of the equation is well how would you technically do that you know would it be feasible and um and things critical points because when i think about something like that it's like okay well if someone who was delivering gas to you know a community of people well they've got a bunch of customers too because then they got to go up the chain right because there's ultimately that's oil and refining and getting it to gasoline um but like thinking about like the critical economic

points that matter the most um because those things don't just magically happen overnight and if people are diligent about spreading the word the more people that have bitcoin and understand bitcoin at the at the point of the dollar destabilizing the more probably the less pain that's going to have to be felt yeah i completely agree and now i see why you've been telling us not to focus on master for the last couple months yeah i mean it's like if you go into a full-on banking crisis it's like it's like being thrown into the you know being thrown into to water when you either sink or swim yeah right and that that's also why um you know i don't get too caught up i like i i do think that there is a like the hypocrisy of like the people like bill

ackman and um david sacks and jason calcanis like it like to a certain degree it makes your blood boil but then you have to kind of put that down and be like honestly like the whole system is broken and you got to keep your eye on the prize um it's like yes those people were looking out for number one they don't give a shit about you know they're not patriots they're not you know they're not in this for the american people um and and if you kind of detach from like some of the cronyism that happens like yeah it's like yeah so silicon valley people got bailed out whatever like the whole the whole system is broken and we have this new system bitcoin and but if we don't focus with urgency to to build the things that we need and get distracted then it's not to say that

i mean bitcoin will survive it's just we either have to tolerate more pain of economic instability or less and the more focused and the um the quicker um that we can build infrastructure to divorce from the destabilization of the dollar the better agreed and again it's pretty crazy that this is all happening right now as we're leading into the bitcoin takeover at the end of this week there'll be a lot of bitcoin events here in austin during south by southwest throughout the week and again talking about the motivation the front end the first order that you need to knock down before you get to that implementation is educating these key stakeholders throughout the economy about why bitcoin like how has the events of the last few days sharpened what we're about to do this week

in austin yeah i really think about it as like this is bitcoin week every every i like to say every every week is bitcoin week in austin which it is um more and more bitcoiners are showing up to the shores um from wherever less uh they're retreating yeah falling back yeah um consolidating um and but so tuesday we've got um the austin lightning developers meet up here at the commons wednesday we're having an hrf event with alex gladstein human rights foundation kind of talking about what he's doing not only with the human rights foundation but also in around bitcoin to advance freedom throughout the world thursday we've got a series of events lisa's doing a lisa from base 58 is doing a node larp so kind of uh i've never done it i'm looking

forward to doing it um an interactive kind of red mastering bitcoin kind of understand fairly well how bitcoin transactions work but a live interactive session where you're actually participating in at a technical level to understand that um then we're having awesome bit devs later that night and then that that leads into the bitcoin takeover on friday where the commons will be wall to wall. We've got 20 speakers, 12 talks, um, kind of cover the range of, you know, the kind of really trying to do, do a number of things through the takeover. But, um, it's really built for people that are highly engaged in Bitcoin as well as expanding the tent and sending that signal to, um, new people as much as being valuable, which is hard to solve

for both of those two. Um, but, but striking a balance to kind of go into kind of deepening people's understanding of bitcoin while it's like sending a signal to stakeholders that might not be as engaged or engaged at all to say like yeah i thought that this thing bitcoin was uh you know kind of just like another thing to trade on the screen but there's a bunch of people here that are laser focused and a bunch of smart people doing a lot of interesting things building infrastructure and talking about bitcoin on a plane that i had never thought about it on um and And so, you know, really that's what the takeover is about. And I think that it happening this week where we're in the midst of, you know, bank runs

and bank failures and systemic crisis, that I think it will sharpen a sense of purpose of why people are here, sharpen a sense of engagement, also help galvanize people. Because it is like, it was a little bit scary. Like, you know, what if you went to the bank and your debit card didn't work? You know, like that would be like, what the fuck would you do? you know so um it's not to make light of any of that um but i do think that it happened you know the takeover in bitcoin week in austin this week happening with the backdrop of what's happening in the legacy financial system it does renew a sense of purpose as well as individual focus of

of why we're here what we're doing um and how we're going to move forward yeah what would we say to those those people that we're trying to bring in to expand the tent like this week you think any of them are saying like i can't go to austin like things are too crazy i need to put my house in order because the banking crisis is unfolding why should you take time this week to come learn about bitcoin yeah i mean i think that um there are certain people i mean like if you work for signature you work for silicon valley bank like i get it but um anybody else It's like the time now is like the only way we're moving forward is, is by forward direction. Um, and that now is the time to engage.

So it's like it, like everyone has to take care of their, their home base. Right. But, um, but you have to do that while you continue to move forward. And there, I would view, you know, it's like, I'm so glad that the, the takeover is happening this week because it is that it is a galvanizing force but it also refocuses where it's like whatever you were doing on whatever timeline whatever interest you had in bitcoin it should be accelerated by this agreed right you should be more motivated than ever if you're building in the space and that's another interesting thing to bring up obviously bitcoin was birthed in the

aftermath of the 2008 great financial crisis between now and then we've had european credit crisis cyprus uh like 2012 2011 2012 yeah um fast forward covid in march 12 2020 and now today 2023 we have this banking crisis bitcoin's reaction to this particular crisis that's unfolding right now seems to me to be very different than in the past like it seems like it's at a point of maturity where people are treating it differently in the midst of these crises yeah well one i think that the crises are all different um and the timing's also different right like um i mean it remains to be seen but um the the timing is different in the sense of like bitcoin has been going down for two years you know or like and when i say down like i really try

not to think about it like you know like stock trading but like there's been a lot of selling you know, from really starting in the, in March of 2021, April, right? Like now kind of like rebound a little bit, but then, you know, end of 2021, 2022 is like, that's all, it all feels like one cycle to me. Um, and so it's just like anybody who was a weekend, like, it doesn't mean that somebody else doesn't, you know, have some liquidity need that pops up because of everything that's happening or get skittish or doubt something for some random reason but that any we can has functionally been selling for a long time already and there just isn't that and you know directionally can't be that much more marginal selling pressure because if you're still

holding bitcoin after all the shit that's happened um you probably know something that other people don't and that does not mean that everybody does right information is imperfect and there's still a chance that there's weak hands there but that directionally there's a lot less of them so at the same time that that setup happens that oh yeah there's this other banking crisis or another banking crisis that has happened that's reinforcing the exact reason that you were there in the first place that each next time that that happens you would expect some different behavior now in a dollar liquidity crisis though everyone still needs dollars so everyone has to be like massively like have your head on a swivel you know like survive all weathers don't expect that

just because bitcoin's rebounding in the face of this like that is both a very good sign that's like keep your eye on the ball like you know check your six you know prepare your life that at any point bitcoin could drop 40 overnight or 50 overnight because it can and it has um but i do think like taking in what's happening it is all relevant like all this is playing out at a time where um weak hands have already been shaken violently out of the bitcoin tree um what is unfolding is exactly what bitcoiners broadly have been talking about why bitcoin is so important um and they're starting qe5 right um so um the the future is uncertain but 21 million bitcoin they're gonna print a shit ton of money yeah i mean you have to imagine there's a hank paulson

like character somewhere throughout the banking sector on his knees in front of the biden administration or jerome powell like you need to step in and not only step in but step in massively yeah i mean shit that was jason kalkanis and david sacks and you know but i hear you like i'm just saying like in like the political climate i bet i i would guess that you know people in the administration were looking at you know things that those people were saying online saying we need to do this i'm sure there were people within the fed that were saying that as well um it's inevitable though i think like that's that's what i try to you know kind of rise above the fray like this isn't about this episode it's like if i think about the broadest

picture because people were also talking about this where that wool if deposits aren't insured above 250 which they never were but like if like if they actually honored the the system then people are just going to hold treasuries and i it's like whenever silicon valley banks sold their deposits their reserves to buy treasuries somebody else now has them so 100 deposits are held always by everyone 100 of reserves are 100 treasuries but if you like look at the broad dynamic um the i think the amount of deposits that are out there which is kind of demand deposits time deposits m2 is like 22 trillion if you if you put we don't need to pull it up but but the um the amount of cash all cash the banks have is four trillion or no three trillion it was four trillion and then

they took a trillion out so there's seven x levered to deposits right because like in addition to deposits there's you know which is one form of credit is there's treasuries and there's mbs and there's all these things you know like you want to get real scared like go look at the fannie mae balance sheet they have like something like 70 billion of cash and like four trillion of loans holy shit you know um and they've got a reserve against them of like 0.2 percent so um but but the point is that like as soon as you go beyond there are 22 trillion uh like m2 is 22 trillion deposits 22 trillion those are claims you know not all demand deposits but but you know i don't We could pull up the distribution, but a deposit is a deposit in someone's mind that if they show up to the bank and they ask for it, it's there.

$22 trillion of those, and the banks will only have $3 trillion. So it doesn't matter if you say, I'm going to honor all insured and uninsured deposits from Silicon Valley Bank. That is the dynamic that exists. And if you have this too big to fail scenario, the people are going to have the incentive to move. But it all comes back to the fact that there's too much debt and there's not enough dollars and the amount of debt necessitates that they have to print more money. and the whole economic system breaks down because as they print money the actual utility of the currency degrades

or debilitates to the point where it can no longer function and we are certainly accelerating that path of when it no longer works yeah I mean to fix the systemic crisis that exists in the banking sector sector you have to create a systemic currency crisis with the value right the value because because if because if you think about that world 22 22 trillion of deposits three trillion of actual cash each time there's a run the reserves stay the same the deposits stay the same they're

just moving from the weak to what is perceived to be a stronger place and the only way to make The system as a whole, quote, stronger is by increasing the $3 trillion, such that the relative movement of the deposits on top expose a bank as being insolvent less and less. And that's what they will have to do. That's what they always have done. and so they will have to increase the money supply that it will cause the function of credit to stabilize increase but the currency itself will degrade

because it will exacerbate it will allow existing imbalances to be sustained and cause greater balances to grow yeah you heard it here first for xqe5 has started started yesterday started yesterday about 6 30 p.m eastern yeah less than 24 hours ago

anything else we should add before we wrap up here I mean I think it's just to stay focused and it's like not to get caught up in the what's happening at the edges it's like I kind of had this like mixed emotion where it's like

it doesn't really matter whether they bail out Silicon Valley Bank doesn't matter whether they bail out and like how you're thinking the depositors got bailed out 100% it was a bail out Signature Bank the same the only one that didn't need a bailout was sort of like um you know so and others will need bailouts too but that it doesn't it doesn't really matter because like it's like it doesn't

doesn't matter where the crisis the next crisis was going to uh where the symptoms of it were going to emerge first they were always going to have to print money and bitcoin ever since you know 2009 or a few years after when it's when it you know kind of initially probably fortified that it works has been the solution so nothing has changed in that regard right and like people can be pissed off that um some wealthy people got bailed out but like getting hung up on that is distracting distracting um and that the the productive use of something like this is like okay let's let's refocus on what it is we're building how we're doing it what timeline how we think about it um because at the end of the day like bitcoin is not like any anybody who thinks

that the dollar and bitcoin are going to coexist in my view or it's like they're either living in fantasy land because they and they don't want to think about the what what it means for the dollar to destabilize or um or they just haven't connected the logical dots that that it it won't make sense to have a currency sit on top of bitcoin or in parallel i've never i've never liked the theory that bitcoin's going to strengthen the dollar like it'll be i think that is i think it's it's literally just something that people say um you know oftentimes because they don't want to become a political pariah um but it's also not accurate you know like if presented with a scenario where i could have bitcoin and it would be trustless and i could have permissionless access to it and

i could have you know both permissionless access to hold it as well as to transmit it that is always going to be better than any other currency um if you put a dollar on top of that well give me the bitcoin everyone's in that like in that trade-off um and so i think that kind of the the productive thing to do is say okay like we're not always going to live in this dollar world and um and there's things that if we start to say like hey maybe this this non-dollar world is sooner than we think it might be because of you know the accelerating events probably always has been the history was written but you know what am i going to do different today with that knowledge um because it is an immunizing function for bitcoin boom a few banks that everyone relies

on gone well some people are going to survive other not everybody might but some people are and the ones that do are going to adapt and it is going to create this further decentralization of the bitcoin network because ultimately the decentralization of bitcoin's liquidity comes in direct commerce someone selling something at a store a car dealer selling cars that liquidity builds and right now liquidity and bitcoin is logically and and i think reasonably consolidated in the most liquid asset, which is the dollar or the euro or the yen or whatever currency it might trade against. But ultimately money is not only the most liquid good, it's the good that has the greatest diversity. And that when people think about selling a stock for dollars, that's the

thing about the dollar is liquidity, but the dollar's liquidity is goods and services. And that's what Bitcoins will become. And we don't have to focus on like, we need circular economies. It's just that we need to be building infrastructure to allow for direct commerce, to allow for Bitcoin's liquidity to diversify. Because that's where it was logically going to go anyways. And now the risk to the system is more clear and more present than it was to a lot of people yesterday. Batten down the hatches, freaks. And come to all the Bitcoin events in Austin. i've got a few tickets in my back pocket um that i've held on to so if uh if there's any

if there's a freak or two that that sees this and says hey i need to get to austin this week just for the freaks yeah dme dm parker i was gonna say batten down the hatches get focused if you aren't invigorated right now and motivated to fix these problems because like you said it was a bit unnerving over the weekend to watch all these banks fail and prominent people prominent companies not able to access their money really drove the problem that we're trying to fix to the four very aggressively in a short amount of time we've got a lot of stuff to build yeah we've got a lot of people to educate a lot yeah that's a big part of education like helping people that have these skill sets that are critical

to our energy supply chains particularly way more important than a lot of other things agreed all right let's go get to work yeah peace and love freaks okay