The Breakdown - ‘Bitcoin and Ethereum Have Gone Completely Separate Directions,’ Feat. Bully Esq.

Episode Date: December 25, 2020

Bully Esquire is a Crypto Twitter personality, lawyer, founder of AlphaMarkets and host of the “Bully Esquire” podcast. In this conversation, he and NLW discuss what was good and bad about the DeFi boom of 2020 and more. Find our guest online: @bullyesq

It sort of drives me crazy when I see Maxis and Ethead's fight. I'm like, you guys are talking about completely different asset classes doing completely different things now. Ethereum has DFI. They're out there creating this sort of global internet defy platform, Web 3.0, so to speak. And Bitcoin is like hard money, store value, like inflation hedge. Those are completely different things. It's like comparing gold and Tesla now. Welcome back to the breakdown.

with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by crypto.com and nexo.io and produced and distributed by coin desk. What's going on, guys? It is Thursday,

December 24th. Happy Christmas Eve. Today on the breakdown's end of year extravaganza, we have a fun one for you. Bullie Esquire is a lawyer, shit poster extraordinaire, and as of late, podcaster. I'm joined by one of the most colorful characters on crypto Twitter for a super fun 21-minute conversation, just like all of these great end-of-year talk. So without any further ado, let's get to the chat. All right, bully. Welcome to the show. Hey, man. Thanks for having me.

So big year for you, tons of stuff going on, new podcast. Very exciting. I'm thrilled to have you here. Yeah. Yeah, it's been really awesome. 2020, I mean, for all its faults, personally, has been really good. Yeah, like you said, I launched a podcast. I've launched a little side business too doing online marketplace for fintech folks, buying self-services. So yeah, I've been a busy, and then I also have my real job and crypto and a family. So it's a whole bunch. Love it. Well, we are going to do 21 minutes of fast, fun year-end review and year-forward predictions. So let's kick it off with the kind of frame-setting question. What was the most important economic story of 2020? I mean, I think it has to be COVID-19 and then sort of the cascading impacts that that's caused.

If you look at the U.S. federal balance sheet, I think we're up, what, $10 trillion in 2020, which is, you know, basically a third of the entire national debt. So it's been quite a year. And, you know, that all ties into, of course, the Bitcoin narrative that we all know and love, like the store of value, the hedge against. inflation and you know, you got to think just given the Fed's insane money printing of 2020 that, you know, there could be some long-lasting impacts on the cryptocurrency space as well as the economy and financial policy and global economics and everything in between. Yeah, I mean, so one of the questions that I've been asking folks is what assets surprised you most over the past year? And a lot of the macro folks have been like, I mean, dude, obviously

the answer is Bitcoin. Not even because I didn't have convicted. before, but just because it's been so at the center of the conversation. And I guess that kind of gets me to my next question maybe is, you know, for you, when all is said and done, what do you think the biggest stories in either Bitcoin or just crypto more broadly were? Yeah. I mean, the Bitcoin path has been really interesting. And sort of back to your original question, I think if you asked me that question, which asset has been most interesting, I might even say gold, just because gold was perfectly positioned to like take this narrative and run with it. And then early in 2020, when we saw the equity crash in March, everyone was like, oh, Bitcoin's just tied to equities and it's not living up to its sort of idea of a store of value.

And then, you know, over the last couple months or so, I know equities are going gangbuster, but you're also seeing Bitcoin just sort of take on that mantle while gold dies. So I'd actually say that gold is probably the most surprising asset, just given its inability to keep up with Bitcoin. I think we all know Bitcoin is coming and it's going to do what it's going to do. But I sort of thought gold would keep pace with it. But the macro issues we all thought were coming where gold would eventually be flipped by Bitcoin may happen a lot faster than everyone thought it would. You know, everyone was saying, oh, next 10, 20 years. Like, I mean, we're just 20x from gold's market cap now. So it could happen faster than people think.

That has been super fascinating, especially because there was a period there where actually gold and Bitcoin were super correlated, right? It's almost like it stayed correlated just long enough to super cement the digital gold narrative to help bring in the sort of traditional guys. And then it totally uncoupled to make them look like they had this brilliant bet. It's very very convenient for everyone. Yeah, it is interesting. And I don't want to get too far out there, but there is some issue with gold maintaining its value, right? Because you can, what if an asteroid is mine that has, you know, 10 tons of gold or something? everyone talks about, well, what is Bitcoin secure? Could Bitcoin be hacked? And I think really the sort of

worry should be the gold bugs having some sort of catastrophic event happen that crater's the price of gold. I guess, you know, so you kind of got through what assets surprised you most as well as, you know, just the interesting question around gold. What else were you paying attention to in crypto outside of that kind of top line Bitcoin narrative? Sure. I think the most interesting thing to me has been watching Bitcoin and Ethereum go separate directions completely. And this is one thing I talk about a lot on Twitter. And it sort of drives me crazy when I see Maxis and Ethead's fight. I'm like, you guys are talking about completely different asset classes doing completely different things now. I mean, two years ago, three years ago, sure, Bitcoin and Ethereum were competitors. But now it's like

Ethereum has defy. They're out there creating this sort of global internet defy platform, Web 3.0, so to speak. And Bitcoin is like hard money, store value, like inflation hedge. Those are completely different things. It's like comparing gold and Tesla now. So I think that in my opinion, that's been sort of the most interesting thing that's happened in the crypto space. And in particular, I mean, I've been really interested in the defy stuff. I know there's been a lot of scams, a lot of rug poles.

But on the other hand, like if you really look closely at what's going on there, like you're finally seeing the maturation of this platform. into something that is really staggering when you think about it. If you actually step back and consider decentralized finance and the impacts that could have on the global banking system and the global financial system, like it's almost hard to even contemplate just because it would be so massive if like, you know, if they actually pull it off. What do you think the biggest risks for that space are? Well, I mean, security seems to be a big risk.

I had a talk with Matthew Lysig who wrote out of the ether about the Dow hack. And if you remember, Ethereum was forked over 55 million that was hacked from the Dow. And we've seen double that this year in Ethereum hacks on defy. And no one's talking about a hard fork now. So, you know, I think a lot of people are getting the card in front of the horse, building products that aren't safe taking people's money when they should really be focusing on security audits and building out a platform that they are confident in that has no bugs other than testing and prod as the saying goes. So, you know, I think that's probably on Ethereum side,

the biggest issue. Bitcoin to me, it's like the biggest issue there just seems to be the rate at which it's growing. I don't know. I mean, I get a little nervous. But on the other hand, it's healthy growth when you look at insurance companies and microsystems and Square and all these giant corporate conglomerates jumping in and buying hundreds and hundreds of millions of dollars of Bitcoin. You're like, okay, well, yeah, it's up almost eight times since March. But on the other hand, like, there's a lot of institutional action supporting that. Kind of, I guess, another area that I'm interested in your take on is how much have you been spending time watching either the stable coin or the CBDC space? Yeah, I mean, I love the stable coin space. I really think that that is one of

the true promises of cryptocurrency is like, you know, everyone's like, oh, it's so volatile. I can't use it to do transaction. But like stablecoin fixes all that and it all occurs on chain. And then you have this really sort of rich data set. A couple that with smart contracts and the sky's the limit there. So the stablecoin stuff is super interesting. And I think it kind of adds to the underpinning, I guess, plumbing of the cryptocurrency space, allowing assets to move freely. And you're seeing a lot of the usage of stable coins in the defy space to collateralize debt and farm yield and things like that. So it's becoming more and more important as these products become more sophisticated and advanced. So the stable coin is the backbone really of the cryptocurrency economy. And you're also seeing a shift away from tether, which had some dicey legal problems and came from kind of an interesting background.

so to say. And, you know, now you're seeing USDC and I guess Gemini as a stable coin. I even read that Avanti, the new bank in Wyoming, Caitlin Long as spearheading, is going to do their own sort of commercial paper stable coin called an adbit. So the stable coin market isn't slowing down. There's a stupid law that was presented in Congress to try to regulate it. I think you'll probably see some regulation. I hope it's not that one. But, you know, on the other hand, I think that Congress and regulators need to be careful not to come in and pass some hamfussed law that just crushes the sort of blossoming development you're seeing on the stablecoin side. This episode is brought to you by crypto.com, the crypto super app that lets you buy, earn,

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no fees whatsoever, no credit checks, and flexible repayment. Not to mention, the APR starts at just 5.9%. Stay on top of your investment game with nexo.io. And remember, it's your crypto, your credit, your choice. Get started at nexo.io. What do you think at the Stable Act? I feel like I've seen your attitude on Twitter has been like, I think you tweeted, stupid laws get introduced in Congress all the time, guys. So presumably you're not worried about this one in particular. But I guess are you worried about that sort of sentiment getting more traction? Yeah, I mean, I'll defer to like Center and the experts on the legislative side of the bench. But I mean, my general thought is, and this goes with privacy, it goes with FinC, it goes with FN, it goes with SECC. Like, I think regulators

are trying to be careful and thoughtful in their approach to cryptocurrency to balance both obvious need to have some level of regulation to tamp down on securities fraud and terrorist financing and things like that. But to not make America backwater technologically, You know, I saw somebody note today that a lot of terms of service on a lot of exchanges and cryptocurrency sites are like, the following countries are prohibited. Iran, North Korea and the United States. And it's like, well, that's not a good group to be in. And we really want to be seen as sort of a pillar of innovation and a place where entrepreneurs

want to come and develop cool new technology that builds jobs and capital markets and not crush that. But on the other hand, the United States has always had sort of the oblobler. to be the adult in the room and, you know, not let the party go too crazy. We saw what happened in 2017 with the ICO heyday. So, you know, there's a balance that needs to be struck. And luckily, you know, we're getting really smart people who know a lot about crypto in senior leadership positions in regulatory departments. I mean, look at Brian Brooks. He's the former chief legal officer of Coinbase. And he's now the head of the OCC, which is the highest banking regulator in the

federal government. So, you know, we're making strides. I hope that advocates like Coin Center can keep Congress from going too crazy now that we have a new administration passing something that can potentially crush a sort of an infant industry like crypto. Yeah, do you have any thoughts on how the sort of election results impact the crypto industry? Or you kind of, I mean, we're all just sitting and waiting. It's going to be a lot conditional upon who gets chosen for certain positions. But I'm interested in your take at kind of a high level. Yeah, I'm going to steal some smart people's thoughts on this who I've talked to about. So Haley Lennon and Peter Van Valkenberg, Haley's at Anderson Kill.

She's a partner there. And Peter's a, you know, obviously director of research at Coin Center. They said that Trump obviously hated crypto, but he didn't do much about it. And I don't think like the Treasury of the SEC have been big friends to crypto over the last four years. That said, you know, you just don't really know what you get. I know Elizabeth Warren has been infamously critical of crypto, particularly on the ICO side. And there's a lot of consumer protection that the Democrats might want. And that was sort of the genesis of the Stablecoin Act saying, well, we need to protect consumers.

So I think if you're going to see some crypto regulation, it will probably be on that side of the aisle over the next four years. Judging what happens in Georgia, though, it looks likely that Congress will remain split. So most of that will probably come from the executive. I mean, Biden has been relatively moderate his whole career. So I don't see him bringing on like, you know, Elizabeth Warren to run treasury or something. Hopefully, Peter said this. He doesn't want crypto to be a political issue on either side. He just wants to be left alone.

And I think that's the best sort of hope we can have is that no one party picks it up and is like, cryptocurrency is amazing because then the other party is inevitably going to try to crush it. as sort of a political ploy. So, you know, the more we can just kind of keep quiet on the political front and continue building and rooting out the bad folks on our own, the more likely it is that sort of the legislature and the executive maybe just let us build in peace. Yeah, that is the hope. I think it feels like the one negative externality of a growing price and all of this attention from traditional markets might be more scrutiny rather than less, but I guess we'll have to wait and see. That's a good point. And one thing I will mention on the Bitcoin side is like, okay,

we're in price discovery mode. We're in full-blown price discovery mode right now. I think last time I checked Bitcoin's at 23,000. And if that really gets out of hand, if you really see some like runups to, you know, 30, 50, 100, I think you're going to start to get the intention of some very high-level ranking officials in the U.S. government and abroad. saying, hold on, can Bitcoin challenge the dollars hegemony as the, you know, basically the asset in charge and the global currency markets and things? And if that starts to happen, you may see some harder pushback on the Bitcoin stuff too. So I don't know what the future will hold, but I agree with you. The more price goes up, the more attention will probably

end up getting as an industry as a whole. Yeah, I couldn't agree more. I guess, You know, this kind of gets me to another question that I wanted to ask. Obviously, you kind of dug into the space in a big way during the 2017 run. You know, just how different does this year feel to you? How, I mean, you know, people have a tendency to try to make direct analogies and there's so much fodder for it, obviously. But, you know, was defy this year just ICO 2.0? What, you know, how, how is the feel different for you? Yeah, I feel like there's just a lot less sort of drunk, dumb money this time. Last time it was just like people were throwing tens of thousands of dollars at anything. And I guess you're seeing that a little bit with the defyke.

But I mean, on the Bitcoin side, the run feels a lot different than it did in 2017. Like you're not seeing the Bloomberg articles. I'm at least not getting any friends or family like texting me or calling me. It just seems like retail interest is a lot less on this run and that institutions are really pushing the Bitcoin side of the price action on the sort of alts and stuff. I don't know. I mean, I think people, just the space as a whole has grown up a little bit. And, you know, there's, I think there's just overall generally less interest in alts than there used to be. And maybe that's just my own sort of maturation as someone who's been around the space for four or five years now. But it's just like the defy stuff was exciting. And like I said earlier, I think that a lot of those projects hold a lot of promise. But on the other hand, I mean, it's hard to compare. compete now with Ethereum and Bitcoin. And like it almost seems like the layer one wars are winding down a little bit and the layer

two wars are just beginning where, you know, you're, I think it's hard. I think it would be hard as a developer or creator to be like, I'm going to build a cryptocurrency network from scratch in 2021. And I'm going to go out and compete with Ethereum and Bitcoin. And maybe time will prove me insanely wrong on that point. But it's just like, you know, eventually like you just have to pick a winner on that and then start trying to figure out solutions for some of the issues that that naturally occur on layer one platforms. I mean, if you look at Bitcoin and Ethereum, they both suffer from critical privacy problems in my point of view. It's insane to me that we still have a system where any transaction that occurs on the network is completely public.

And, you know, if you're talking about collateralizing debt instruments over Ethereum, like, why the heck we? would you want anyone and his mother to be able to view that data? So, you know, I think maybe the narrative will shift over time to say, okay, well, now we need more creative scaling solutions. We need more creative privacy solutions and we need to build systems that can actually take on these problems that the cryptocurrency space originally attempted to set out to conquer. Super interesting. There's so much here.

I'm glad you're doing this podcast now so you can explore these things more because it's really, really good stuff. I guess maybe just to round us out, I've been asking everyone, what's one prediction that only you have? It could be about Bitcoin, you can be about crypto, it can be about the economy as a whole. You can take that in any direction. Hmm. Oh, man.

That's a tough one. I do think, well, I don't know if this is a prediction so much as just like an observation. Maybe some people would agree with that, but it seems to me like what crypto has been busy building is basically a mirror of the existing financial infrastructure and that we need to be careful not to basically create something that takes all the bad components of the existing traditional financial system and gets rid of the good stuff. So one thing I talk about quite a bit is China's recent foray into digital. currency. And, you know, I don't think that that's an effort to sort of decentralize control or make privacy and sort of a priority. I imagine that central governments embrace of this technology is mainly focused on, you know, gaining more insight and line of sight into citizens' behaviors and use patterns and more control over sort of currency and the levers. And the levers

that are associated with it. So it's not a super clear answer, and I guess I'm waffling a little bit, but I'd suppose that what I worry about with crypto is that we just basically end up recreating the financial system that we sought to decentralize in the first place. And on the Bitcoin side, I think, you know, I question whether or not institutions buying up Bitcoin and getting an ETF from the SEC and, you know, having heavily regulated on and off ramps is really what Satoshi Nakamoto had in mind when he went out and built this decentralized currency and network. So, you know, I suppose that's my concern is that there's

two paths ahead of us. And it seems more and more likely that the, the path of blockchain could be just a mirror, an emulation of the current financial system with some of the worst attributes of it. But we'll see. I hope I'm wrong there. Let's make sure we come back. and check in on that. I think it's definitely one of the defining questions as we head into 2021. This is super fun, man. I'm really appreciate the time. I'm glad we got to do this. And everyone, if you're not subscribed yet, go listen to Bullies podcast. It's new. It's fun. And I'm excited for you to do more of it. All right. Thanks a lot. Nathan, I appreciate you having me on. And I'm looking forward to listening to all these. All right. Cheers.