The Breakdown - 'Crypto IS Macro Now': Raoul Pal on Bitcoin, DeFi and the Transformation of Power

Episode Date: August 7, 2021

On today’s episode, NLW is joined by Raoul Pal. Raoul is the founder and CEO of Global Macro Investor and Real Vision, whose Real Vision Crypto community has raced to more than 100,000 after launching earlier this year.    They discuss: The U.S. infrastructure bill and the increase in regulatory pressure The current state of inflation and why markets disagree about its impact Why transformation and technological change are the main forces shaping markets and society  Why DeFi is particularly threatening to central banks Why Janet Yellen is the embodiment of the central bank and the federal government coming together  The real future of NFTs  Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW The Breakdown is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Only in Time” by Abloom. Image credit: Nuthawut Somsuk/iStock/Getty Images modified by CoinDesk.

This is the unlocking of everything. The unlocking of IP rights, identity, tokenization of real estate, tokenization of cash flows, tokenization of all sorts of things. Everything can change. So I think this is much bigger than anybody really realizes yet. Welcome back to The Breakdown with me, NLW. It's a daily podcast on Macro, Bitcoin. coin and the big picture power shifts remaking our world. The breakdown is sponsored by

Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, August 7th, and that means it's time for the weekly recap. But this week we have something extra special, and I am not alone for this weekly recap. My guest is Raoul Paul. You guys know Raoul, he's the founder of Real Vision, a new type of finance site community content. hub that has absolutely exploded. And for me, one of the things that makes Real Vision so powerful and different compared to traditional financial media is that although it's nominally about finance, it's really about change, about transformation, about technology. As you'll hear in this conversation, those are pretty much what Raoul sees as the biggest factors in finance. Real Vision

launched Real Vision Crypto earlier this year, and that community already has more than 100,000 members discussing watching content and being a part of this insane movement that we all call home. In this conversation, we talk obviously about what's been going on in Washington, D.C. We talk about the larger macro context. We talk about why crypto is eating macro. We talk about defy in the macro context. So it's a really interesting conversation that I know you'll enjoy. So without any further ado, let's dive in. All right, Raoul, welcome back to the breakdown. It's great to see you again.

Always good to be here. We were just talking about this. I started to prepare like I normally do. I normally go through a couple months of tweets and make sure I have like a full script. And this time I was just like, I genuinely do not need to do that. We can just let this one rip. It's been so crazy, obviously, right now when we're recording it. So let's get your take first around the U.S.

infrastructure bill, the crypto amendments, the larger set of regulatory machinations swirling around. I mean, you know, you've been uncharacteristically quiet on Twitter about it. So I was super excited to ask you, like, how have you been observing it from your vantage point? What I'm trying not to do is get in the middle of it because we all know that there is a fight going on between how people want to regulate the space. We know regulations coming. So I'm just kind of observing it. I am not a US citizen, so I can't call my senator or a congressman or do what it.

I can't do anything about it. And I kind of think these things just have to play out. Yes, if you can get behind it, get behind it. The craziness is clearly somebody has a bug bear within the current government administration that they want to use crypto and kind of beat it down. Again, it's no real surprise to any of us. If crypto is a competitive product to both aspects of government, the financial system, and many other things, of course they want to throttle it back as fast as they can. I mean, they're so far behind in regulation.

I mean, I don't fear the regulation currently of securities versus non-securities. The big fear is they haven't even started defy yet. When they do that, it's going to be a bloodbath. because they really don't like this, but they're so far behind it. And then they've got to get onto NFTs, and then they've got to get into community tokens, and then they've got to figure out Dow's. I mean, this ongoing battle is not going to be a battle that's won today or over the weekend, depending, you know, which vote goes through.

It's actually going to be a battle that we will see and be fighting for the next probably seven years. I think it's a refreshingly longitudinal take, let's say, because obviously everyone who's and kind of fully in the thick of it for the last five days feels so kind of intensely acute right now. I think it's a good reminder that it was an inevitable part of a much larger thing that was going to happen. Yeah. And, you know, whenever I start getting a bit of a wobble, you know, the market falls and then there's the ESG

and then there's China and then there's this and then there's like, you know, we've been through quite a lot in the last, you know, five months. But I step back every time and look at the chart of adoption and look at the fact that it's growing twice as fast as the internet did with the same number of users back in 1997. The internet was growing 63% a year and the entire digital asset space is growing 113% a year and just realize that this is the fastest growing adoption of any technology in all recorded human history. And all of this stuff we're seeing is noise. And that really helps me all the time is like if you just figured that out, that simple thing with Amazon, you could also have been

the richest man in the world, along with Bezos. But nobody did, because we didn't understand these network models. We didn't understand, just trust that log chart and just, that's fine. It should just continue like that, as Facebook has since 2012, same log chart, never moved. But some of those big moves are up and down 50%. But in the end, it's all noise. Now, Facebook's had all the regulatory hurdles. They've had competitors. They've had all their S-curve moments. And yet, adoption goes up. And so that's kind of how I look at it. Yeah, I get it. I observe it, you know, much like you observe the positives like El Salvador, you observe the negatives like ongoing regulation and realize this is just all part of the story. So one of the things that's interesting kind of picking up from a place

that you mentioned is the, you know, someone having a bug bear in the administration. It looks increasingly clear that that's the Treasury Department all the way up to Yellen, who the Washington Post this morning was reporting, has actually been on the phone with Senator Wyden, Senator Lummis and Senator Toomey. And it's particularly interesting in the light of this additional legislation that was just put forth by Don Beyer that is really focused on authorizing a CBDC and is focused on giving the Treasury Department sort of veto power and approval power over stable coins. What's your take on the latest around CBDCs? How have you seen? seen that discussion, that dialogue evolve over the last, you know, six months since we've

chatted. And maybe perhaps has anything surprised you or has this basically just been the course that we expected to see, you know, as soon as this started to become a bigger feature of the kind of global landscape. I did that video of the Bitcoin Life raft, I don't know, a year or so ago. And one of the things I talked about was the blending between central banks and government, that's what Yellen is, right? She's the blend because she's the central banker who's turned into the government. And central bank digital currencies that are that path is to get rid of the independence of central banks because you kind of don't need them because they don't set interest rates any longer. So therefore, money from Treasury in, money from

treasury out. And therefore, Treasury funds itself in the same way. So I think there's bigger things changing. And so there is a lot of protection around the central bank digital currencies. We're seeing the same kind of noise from the ECB. They're struggling with this. Because on one hand, they want to be open and build an open system on which others can develop, but it's moving so fast they're not to do. And again, I mean, I don't think the central bankers have figured this out. Or maybe they have, and that's why they're pushing back now, is that if you continue with the maths of the adoption, we get to a billion people by 2024.

That, to them, will feel like they're losing control really fast. So the central bank digital currencies, you know, I follow it a lot, but it's not changing its trajectory. They're all coming. I think they all come in the next four years. And I think they're going to end up having to choose the private sector partnership because there's no way that they can innovate fast enough to deal with it other ways. So they will own maybe the on-ramps and off-ramps and you'll have a government wallet that will be part of it.

There will be both, and if you follow, I've followed very closely the BIS on all of this. Benoit Curie. He released a video last week showing the various paths and there's going to be wholesale CBDCs. So that's the interbank market, retail CBDCs. And then are we going to have smart contracts in CBDCs? They're not admitting that yet, but of course it's coming. So it is moving. And I think what we're seeing is government's freaking out and central banks freaking out

because they're trying to have conversations in government style, which take years. Well, you know, what should we call our coin? You know, that's 17 committee meetings have to decide what they call it. You know, while the private sector is innovating at a speed that they just can't comprehend. I wrote a long article about this, a lot of this. and it's a much broader actual conversation is what you see everywhere and you see it on Twitter,

you see it on the Bitcoin community versus the other community, you see it on the gold bugs versus the crypto crowd, you see it on the vaxxers and the non-vaxxers, you see it in the Tesla haters and the Kathy Wood haters,

the climate change denies and the pro-climate change, break all of that down. What is it? It's a fear of change. Technology is moving at such a pace that it's actually breaking apart society. And it's only going to get worse. And I turn this the exponential age.

So what we're seeing on Twitter all day, which is really polarized nowadays, is a function of this technology. And what we're seeing from the central banks and Janet Yellen is exactly the same thing. It's the fact that technology is moving so fast and nobody feels in control of it. This is an interesting segue. I wanted to get your thoughts on some of the more sort of just general macro kind of landscape things that have been going on, conversations about inflate, the X Factor of the Delta variant, all that sort of stuff. But I was reviewing some of your tweets recently, and you had posted a bunch of macro charts, and someone was like,

yay, macro rowls back. Like, yeah, it's good to see you. And you tweeted, literally all the guys I know in macro care more about crypto because it is macro now. It's the future. And it sounds kind of like that's what you're describing a little bit here. And you're actually giving body to it, to personality to it, in someone like Yellen, who's not only the convergence of central banks and governments, but is also the convergence of technology being the biggest issue that central banks have to deal with,

or at least in some ways. That's right. The most macro thing that's happening is this technology. The technology of genetic sciences, cryptocurrencies, artificial intelligence, robotics, EV, battery technology, distributed computing power, internet of things, wearable technology. All of this is hitting adoption phase at the same time. And anybody like this, where's macro route? Macroral doesn't give a shit about dollar yen. Because my job as a macro guy is to look for the strongest, most powerful trends and invest in them. Now, what's different about this time around is this trend is a secular trend that is exponential.

So actually, none of us have been given this before. Yeah, we probably got given it with the internet in 2000, but we didn't see. it. Some people saw it and did very well. Most people didn't see it. But this is the trend that everybody's waking up and going, okay, I get this now. And so they're like, I honestly don't care. Interest rates, yes, they're interesting, a bit of fun. You can make a trade. But when you've got something that's exponential in nature, it's a lot more attractive and it's a lot better use of your capital than it is messing around and, you know, will gold go up another 20% or 40% over the next year? I mean, people just don't care.

And, you know, the world's greatest macro investors, so many of them have just completely walked away and said, this is the new macro. This is where the returns are. So I go to where the returns are. That is my job. And they've gone. I mean, Alan Howard is one of the most famous macro investors of all time. Alan's a good friend of mine. I speak to Alan weekly.

We haven't spoken macro since, well, traditional macro, since June last year. the only conversations we have about crypto. That's showing up in his portfolio now, too. You can tell. Oh, yeah. He's one of the most prolific private investors in the world now in this. So he pops up everywhere. So, I mean, that's interesting. But the macro itself, you know, you asked about the macro itself. The world is battling over again a similar thing. And it's actually this technology narrative. There's two big narratives at play. one is inflation, inflation's back, central banks, they've caused it, it's going to run away,

everything's going to get destroyed. And then the other hand is people like myself saying globalization, technology, debt and demographics mean it won't stick. That's basically the argument. But the point being is inflation isn't defined properly. And this is why it ends up being such a shit fight on social media and everything. everywhere else. It depends how you define it. So if you look at wages, there's been no inflation over the last 40 years. If you look at asset prices, they've gone up a lot. If you look at food

prices, they've gone down. If you look at electronic prices, they've gone down. And everybody points to the thing that's gone up for them and say, see inflation. The two key things have been outside of housing, which we'll come on to, is healthcare and education. So education now is starting to deflate and it'll go negative soon. And with technology, it'll go massively negative. So why is education now deflating demographics? We've just put the pig in the python and it's come through the other end, which is the millennial generation. So the demand for education has gone down. It's like obvious. So why are we left with healthcare? D.

We've got the oldest population of the largest group, which is the baby boomers, and they need all the health care, and they haven't paid enough in premiums. So, of course, it's going up. So that's nothing to do with government or anything else. Sure, government regulation could lower the cost of goods in those areas, but really, that's driven by demographics. But the problem is asset prices, because assets, what are assets? Assets are future consumption.

So you buy an asset now and then you sell it in due course to spend the money on something else, right? Their future consumption and you want them to go up over time. They're going up too fast that you can buy less of a house than you could have done a year ago or less of, you know, less Bitcoin or less Apple shares, whatever it may be, right? All these fixed assets, they've just exploded in price. And that is, I think, to do with the other factor, which is everyone's talking about inflation and the central bank printing, but there's no real evidence in CPI. The evidence is in assets, and that's to do with devaluing the value of fiat currency. So there's these two kind of push-pull things going on.

I think inflation itself, once you put up inflation, we're seeing it now in the data all over the place. My view is that the US economy and the global economy slows down rapidly, is that you higher prices on people, they stop spending. And that's absolutely clear in the housing market right now. It's absolutely clear in the car market. It's clear in big ticket items is you've raised prices on people and people stop spending because they can't because their wages didn't go up. So I'm looking for a slowdown ahead, generally speaking. I always say the bond market is the truth and the bond market yields have been falling and falling while everybody's been screaming inflation. I take it super seriously when the bond market does something different.

What do you think about the rising conversation around delta variants, Lambda variants, and I'm sure there'll be another variant soon? Is that something that will be a force in this? Or do you think this is a sort of inevitable hiccup, but we'll figure out, basically is it more political than functional in the short term? No, I think it's functional. I think it's real. and I think it's, as you alluded to, these kind of things will have ongoing echoes for quite some time.

You know, it's another disease we have to live with. And, you know, the more vaccines get upgraded and the more people get comfortable with it and the more people get herd immunity to some variants, we'll get new variants. This is going to be ongoing. But less. The actual issue is, yes, at the margin, if we're seeing a slowdown potentially in the horizon, and we will see a further slowdown because, you know, some parts of the economy will, again, lock down. Look at Australia, fifth lockdown.

We're seeing, you know, New Zealand won't reopen. The Cayman Islands where I am will not reopen. And then Japan, who got it right, then got it so badly wrong. So Japan got it spectacularly right, got rid of the virus very early, closed the borders, and everything was fine. But then forgot to get vaccinated, opened the board and said, let's have the Olympics with the Delta variant. and now it's exploding. So Japan is the third largest economy in the world, and they're going to lock down. And what does that do for global supply chains and all the other mess?

So, yeah, it's at the margin. It slows down the global economy. It will never be the same as it was in March 2020 and April 2020. But at the margin, it doesn't help the case. So it sounds like the take is it's real, but it was sort of the inevitable learning to live with it as an ongoing thing that's going to evolve as a virus. And we're kind of in that, this phase of figuring out what that looks like and varied responses, varied kind of case loads. And it's just a new factor, right? It's just a thing that now exists permanently.

It was hard to price before because we hadn't seen it before. And now it's something we have to understand. And we saw this with terrorism back in the early 2000s. You know, it was 9-11. Then I think it was Madrid. Then I think it was London. Three events. And in the end, they had less economic impact on people. Yes, people lost lives and all of that, but the economic impact became less as people understood how to price the risk and what it meant. So I think it's the same with this, unless something dramatic changes. But that was the same with terrorism, unless something massive really happens. But generally speaking, when everybody's on high alert, the probability of bad outcomes goes down. When everybody's not on high alert, the probability of bad outcomes is

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What's your take these days on Bitcoin and all of this? Obviously, we had a surge of interest in, you know, a new bull run by institutional investors finally catching up around Bitcoin that kind of proceeded all the way up through the early part of this year. And then it's sort of, you know, stumble after stumble after stumble after stumble. I guess maybe, you know, two parts of the question. One, just kind of what's generally your take on Bitcoin right now. Are you in a, it's doing its thing and I'll just keep letting it's do its thing mode? Or two, as you've kind of watched the this recent set of FUD, the resetting of the global hash rate, what of these pieces feels more or less significant to you as a long-term factor in the shape of Bitcoin the asset or Bitcoin the network? Nothing because the adoption curve is basically unchanged. So it still keeps doing its thing. So I've just let it do its thing. So, you know, we all know what the problems are.

We all know that Tether will get cleaned up at some point, whatever that is, right? We all knew that the mining had to be get cleared up. We all knew that the, the ESG element was part of the story that had to be cleaned up. So I just think these are, you know, and regulation is the other one, right? These are things that we all know. So they're not unknowns. What could an unknown be? Okay, that's a different issue.

You know, could something here change that outcome? I don't see that yet purely because it's an unknown and I don't see what that black swan is. So I just let it do its thing. I mean, I put out many tweets to try and reassure people who said, look, you need to expect a 50% pullback in any bull market in something that is a 65 volatility asset. If it continues within its log trend, there's nothing to worry about. So go and do something else. But people love narratives.

I prefer the long-term narrative. Other people get sideswip by short-term narratives. Now, it is difficult to know which one is really going to change the trajectory, but really it's that adoption curve. Is something really changing that? Now, there is one thing that changed it, I think, and I think it's the rise of Ethereum, because Ethereum is growing at twice the pace with more applications, more developers, and a lot of other things. And that has actually taken money away from Bitcoin. And the other thing is, there was a lot of very hardcore Bitcoiners that,

fear that other token ecosystems could attract capital. And to therefore fight it, this Bitcoin toxicity and stuff has come into the story. And what that did was the reverse. It always happens. Most people who have a fear make it happen by mistake. And so what happened is a lot of people went, you know what? I don't need all of that. So Ethereum kind of makes sense to me.

So I think there's been a bit of that. And Ethereum's growing up twice the speed because of that. But I think that will settle down. I think it'll settle down once the price starts going back up again and Bitcoin establishes its trend. I think that level of fear within the community, we talked about fear before. It's the same fear. It's the fear of change, fear of other things.

I think that will die down and everyone will kind of settle within the framework. So, yeah, overall, nothing's changed. Let's talk about Ethereum. So this week we had EIP 1559. and the sort of new fee burn structure, right? Transactions are now organized differently that a base fee is burned as part of every transaction. And there's actually a lot of pieces of this.

So if you just look at going back to narratives, the narrative that people have been excited about was ETH becoming deflationary, the base level asset becoming deflationary because more Eth gets burned than is issued. For people who are actually in it, it's actually not, that wasn't the intention of the proposal. The proposal was about making transaction fees smoother,

in transaction fees smoother, making it easier to use Ethereum. But it's very clear that the narrative capture, the thing that has excited a lot of people is this idea of how it changes ETH as a base asset, as a store value asset. Do you kind of buy that narrative? And that doesn't mean you have to go fully believe it's ultrasound money now or it's the way that they've kind of canonized it. But how much do you think that that sort of deflationary element built into the ETH transaction structure changes or would change the way that, say, an institutional

investor would look at it. Well, I just wrote a whole piece on this in global macro investor, and the title gives it away the world's greatest trade. And I wrote that, published that last week, and I just said, listen, look at what's going on here. So, ETH right now has the fastest adoption rate at scale of any of the protocols. There's huge demand, NFTs are the next wave. There's so much going on in space. And against that, you've, You've got the move of the coins off exchange for staking, which is a huge number and growing every day. You've then got a bunch of people holding it, so they put it off exchange and in wallets.

So you went into yesterday with only 13% of the free flow of Ethereum available. And then, and it's got exponential demand, and then you reduce the supply by burning, by whatever margin actually, it ended up being roughly what I thought it would be, which was more than most people thought. It's actually quite a big deal. And the next phase after this is that the price is going to be rising just because we're in that point in the market and the demand is big. And so everybody is going to be incentivized to stake. And you can see it in the number of coins in exchanges at 13%. This is going to fall to below 10.

There's no free float. and the demand is going up exponentially. We're going to see an exponential price rise. That is the only outcome of this. Now, when we get to the ETH 2.0, let's say it's March next year, and everybody unlocks, there could be a complete collapse, you know, by the rhythm to sell the fact as everybody unlocks. But I think I've never seen a setup like that.

I think this setup in ETH is better than Bitcoin wasn't in March 2020. So that, I mean, that's an interesting comparison point, because that's what I was just going to say. It's like you almost hop, skipped and jumped right over the narrative side of that and just pointed to market structure, right? And supply and demand. And, you know, simple forces, which, by the way, is exactly what we were saying about Bitcoin around the halving, which was a highly rejected by traditional, you know, by Tradify people. We were saying, look, look, you know, like this is just, it is just literally supply and demand, you know, even if you don't buy the narrative. If enough people do that there's a thing. So it's interesting to hear you kind of almost give the same setup in this case.

Yeah, look, I mean, people call it the triple halving and I get it and it makes sense. You rarely get a setup like this because the other part is the macro setup. The macro setup is I think global growth comes out weaker for the next nine months. And I think the Federal Reserve, even if they talk about tapering, will end up accelerating QE. that's how I think this plays out. That's what the bomb market is telling you. Once the crypto market sniff this out, they're going to explode. So what we've got is a macro that's potentially there.

Macro stories develop slowly, right? They're not quick narratives. It's month-by-month data. So we will see this over the next three months, that we will probably have a global slowdown. We'll probably have the Bank of Japan having to print for the reasons we just talked about that Japan has totally screwed up the virus. They will do it in size.

Chinese economy is in the toilet right now. They will probably do something. So we've got stimulus coming from Asia. Do the Fed do more? Do the Europeans do more? Well, generally they have. Generally, they've generally cut rates twice after every recession. So they're likely to do it again for a number of technical reasons.

So we have rate cuts and this perfect setup with no supply and demand in the middle of an exponential bull market. I mean, you don't get these often in your life. One of the things that you had mentioned when we were first starting to talk about the regulation side is this, the catch-up that they're playing and that you weren't worried about, is this a security or not type of thing. I, by the way, share that. You know, when I read Gensler's speech, I was like, listen, if our regulatory conversation in the U.S. is the SEC reasserting its authority to determine what is and isn't a security and that it's ultimately about investor protection, that is a conversation that's so easy relative to the systemic risk, this is a threat to the system kind of challenge, right? They are fundamentally different conversations that may come from some of the similar

type looking people. But one of the things that you mentioned potentially on the other side of that is defy. And we don't have that much information yet around just how sophisticated the understanding of Yellen or the Treasury Secretary's, you know, the Treasury Department's understanding of these things are. But it seems like it's very clear that stable coins are a lot scarier than them than Bitcoin, for example. And it's a lot, all of a sudden, Defi is a phrase that is coming up in every speech, right? What's your take on the regulatory risk around Defi right now? So again, if we go back to what we talked about before, they fear change. And this is

something where they lose control. Because the cozy world. in the past was the Federal Reserve, the banks and the Treasury were all this nice little group and they talked to each other and set interest rates. So there was an old friend of mine, a friend of my father's, and he was one of the old English discount brokers. A discount broker in England was the guys who set the money market rates. But he was of the very old school. So what I knew him, he was still in his 80, he was in his early 80s and he would go on the train to London in his silk top hat, black top hat, his waistcoat, and he would go to the Bank of England on a Friday and set the discount rate. And then they would have a long lunch

and drink port and then come home after a four-hour lunch. And that's how the money market's operated. No wonder people fear change. That sounds awesome. We should totally go back. I know. But that's how the, and then the banks would then use that discount rate. And so that's the world that these guys know. And suddenly we've got rates that don't mirror the money market rates. What the fuck? Where's this rate coming from? Now, we all know there's relative degrees of risk.

Some are staking, which is lower risk. Staking ETH is not a particularly high risk thing, but using a particular DFI protocol of which we don't know, is there a rug pull mechanism within it by mistake or purposeful? We don't know, but they don't like the fact that the market is setting its own rates. And the borrowing and lending function does not come under their control. That's a loss of control of money. This is why stable coins matter so much to them because they need that digital rail.

So then if they can control the digital flow of money, they can probably accept stuff like defy as an applications layer. but if they don't own the flow of money and they don't own the applications layer, what do they own? They own something in the past, a legacy. This is freaking everybody out. And, you know, Defi, they understand that it is disruptive, but they kind of would wish that defy was done by J.P. Morgan. You know, and it doesn't work that way.

Although we will see some stuff set up by banks that mirrors this. because that's what the central bank wants and the treasury wants. They just don't want it to change because they don't know how to deal with it. I mean, it's fascinating time we live in. Outside of the crazy ups and downs of markets, it's a fascinating time to see basically everybody losing their shit about everything because of change because it's too fast. Man, it's interesting.

So I think giving big credibility to exactly that thesis that you just just described is the fact that, well, one, the first thing that we're seeing being targeted in this cycle that's new this cycle, really, in specific, is BlockFi's interest account, which is a yield generating account that's connected to a borrowing and lending platform that they don't control, to kind of put it in the phraseology that you had. Second, that the first complaint, the New Jersey complaint that kind of set off the wave of the rest of them called it a decentralized finance platform, even though, you know, people in Defi were like, wait a second, that's not exactly. Not exactly. You don't know my definition, but still, like, it's very clear that that's when they say decentralized finance, what they mean is this set of things that involve borrowing and lending and yield that we don't control are suspect. And especially, I think, yield. I think that this is, you know, as someone who thinks a lot about in addition to big kind of picture power flows, what markets crypto products, what brings in new audiences, let me tell you, trading crypto is great. But when you're talking about a mass audience, a yield of nothing or negative over here and a yield of 4%, 5%, 8% over here is an unfathomable change. So much that you have to assume that as soon as Wall Street notices and determines that that is actually available at scale, that it's a very different world that we're living in.

And this, if you join the dot very quickly, and I've been talking about this, there's two parallel universes and people are migrating across. That is that adoption curve. Once people realize that yield is available here for different mechanisms, but it's available and it's more because it's not controlled as much by the central banks, even though I don't think rates are abnormally low. I think they're driven by all of those secular factors I talked about, but more people are going to migrate across. The more people migrate across, the less control they have over the economy on the traditional side.

because then if they're setting interest rates to move policy and to stimulate the economy, but less people are reliant on those interest rates, then it has no velocity. So I get it. Of course they're scared. And I would be scared if I was in government because how do you control economies any longer? You know, we've used interest rates as a way of controlling economies for as long as there's been central banks. Before that, it was private sector, but we don't know how to do that. anymore. So yes, it's a big problem. And it's actually maybe a structural problem for how we can

control economies. The good thing is, is over in this new parallel world, our money doesn't get destroyed, and we do get yield, and we actually feel safer in that world. But these other guys don't get that yet, and they don't want us to know it either. Ultimately, I think the good news and the bad news in some ways is that power tries to hold on to power. And it's almost like, the power itself is what matters, not the mechanism of the power, but they're always going to try, you know, attempt one is to keep power by having the thing that they've always done, be the thing that people still want to do. Once they realize that the thing that they've always done is not the thing that people want to do anymore, then they try to regulate out of existence that thing,

or then they try to co-opt it. And, you know, the question is the fricacy, the seven years that you're mentioning or longer that it's going to be, are going to be a lot of the powers that be resetting how they can interact with this new thing. what their power is relative to that thing. And boy, is the infrastructure bill amendment battle just like exhibit A of that through that lens, you know, of what is our power going to be in this new world? It's also going to be generational. So as the baby boomer generation leaves its position of power, leaves the labor force, and, you know, they're getting older. And, you know, they'll be at the end of their life cycle, and that gets exchanged with the millennial generation, blended

with Gen X and blended with Gen Z, then you'll see change. And people will be open to wholesale change. It's that kind of fourth turning moments. And this is what we're going through. We're in the middle of the fourth turning right now, and you can feel it and see it everywhere. And it will change. You know, you see whether people like her or not, people like AOC are so wildly different and wildly dangerous to the existing status quo because she completely understands how to navigate

the new world. And I think we will see, you know, I think that that change, the political change is to come. And out with the old and in with the new is the thing we will see over the next seven, eight years. One thing that I do think is encouraging about what's going on in the U.S. right now is that that one of my great fears is that this would just be lumped in as any other partisan issue. It would have been very easy for it to do so, crypto as a whole, right? With one side hating it and one side loving it and that, it just being kind of reduced to that. It's been blurry, right? I mean,

it was blurry because Trump tweeted about how he hated it and Steve Mnuchin obviously hated it for the same reasons that it seems like Janet Yellen hates it. But then if you go to Congress to Senate, the fact that it was the Democratic Senate finance chair, Ron Wyden, who is the one who's pushing this amendment saying this is the wrong way to do this in combination with Cynthia Lummis and Toomey I think matters. The fact that it's a bipartisan group that's on the other side that's fighting it matters. It makes it have more room to almost allow it to be generational, which I think is better for us than if it was strictly along party lines. I think that's dead right because anything on party lines just becomes a total polarizing thing. And that becomes a gridlock

because by the use of social media, the role then is to actually split the sides even further apart because then you cement your voter base. But whether you've got something like this that's in the middle, you can't split it out. And I think that's a very good thing. I think that's a really smart observation of yours is it actually is a better thing for the whole space

because you can't split it out. You can see it. I mean, don't kid yourself. You see it very clearly on Twitter. There are paid for bots. whether it's Russian bots or whether it's political bots that are purposely creating problems and trying to divide communities of people, the people who fear change, the people who want change, the Bitcoiners, the other coiners.

And it's really interesting, you click on some of these Twitter accounts, they follow like three people. And they come with these really bold statements at you in the middle of some discussion. And you realize that these are actually paid antagonizers. They're all over the place right now because people can see how fragile things are. I mean, yeah, it's concerning. But this, the point that you're saying is good because you can't then force it down that line. Let me ask you about something I've noticed. You have been clearly down the NFT Dow rabbit hole over the last few months.

It seems like it's something that's super interesting to you. I'd love to hear what, you know, how you're thinking about these things, what's gotten you interested in them? What are you watching? What are you observing? It's kind of broadly, what's making this a particular area of interest for you right now? So when I first got into this space, a guy called the Mill Woods and Chad Cascarello talked me through it in 2012. And they came back the following year to my global macro investor roundtable event. Maybe it was 2014, two years later, and explained about smart contracts. And they said that, okay, this is opening the doors to tokenize other things,

insurance contracts, whatever it may be. And then that got my mind opening to the fact that I had, when I first saw Bitcoin, I realized that we could put securities on a blockchain. So custody, settlement, transfer, everything could go on a blockchain. And I thought, okay, this is the answer to everything, that everything has to go on a blockchain, and it will. And so the rise of the smart contract was that. So I kind of knew that this is where it was going. And then it randomly happened that it started with CryptoKitties.

And then that died out. And everyone was like, see it was a stupid fad. And then the gaming industry kind of took it up. And then suddenly the art market exploded. And now it's like this art gaming hybrid. community stuff, you know, the board eight yop club and all of this stuff coming out, crypto punks. And it's community-led art and identity on the blockchain. So that's great. But that is just a small smidgen of where this is going. This is the unlocking of everything.

The unlocking of IP rights, identity, tokenization of real estate, tokenization of cash flows, tokenization of all sorts of things. Everything can change. So I think this is much bigger than anybody really realizes yet. It seems like it's a niche part of and a bit of fun that's generating a lot of money suddenly. But really, if we look back in five years' time, we'll be an entirely different world. I mean, everything, I think, gets basically tokenized, and NFTs are that. But what I'm really excited about is something bigger than that.

And that is how do you organize human societies? Complex adaptive societies are organized basically through a leader, a vision, a mission, and a value system. That works for religion. It works for governments. It works for countries. It works for pretty much anything. It even works for societies, charities, all these things. So the breakthrough is in tokens, whether they're fungible or non-fungible, in creating value around communities.

And as we all know, all of us in the space, Bitcoin is a community, Ethereum is a community, which is what makes it somewhat sometimes abrasive and sometimes welcoming. But it's a community and it's bound by a system of money. that makes it incredibly powerful, as powerful as powerful as a nation state, which is why the government's now fighting it, because it's as powerful as a nation state. But when you start looking at community as the core business model for the world, because once you have community and you add a set of rules and the leader and all of these things, plus the value exchange or the value system, you have network effects.

You can grow communities and businesses much larger. So I think the entire world's business model is going to adopt tokenization and built around communities. Now, Dow's are an adjunct of that, but I think the big movement is this. I think if you look at Facebook DM, it is two things, and it's bloody smart. It is a stable coin that is owned by them, and it's going to be in the US dollars, and it's going to be regulated by the US. And it allows an exchange of value instantaneously amongst three and a half billion users. of Facebook. Now, there'll be some regulation that stops it rolling out to all three and a half to start with, and we'll go through the same fight we're seeing with Bitcoin and all the other stuff,

but it will get there. Three and a half billion people are now on a level playing field. You're in Ethiopia, you're in Hudson River Valley, you're on the same playing field. You can pay the same thing with the same money instantaneously. Remittances, everything is solved by using that giant network. Okay, we know that, but it's also a community token. It just doesn't go up and down in value, but it becomes a utility. Because then if you make that the money of Facebook, then you've created a much stickier, larger society. Now, if you've listened to where Mark Zuckerberg is going, he's going clearly into the metaverse. So what is the metaverse?

That's a digital world. So if you have a digital world and digital money, you're a sovereign state. This is where this is all going. This is much bigger than anybody understands. Every business you know will tokenize, including yourself. As will Real Vision, as will Disney, as will Amazon, as well Apple, as will YouTube, as will Google, everybody. Because, of course, behavioral economics with inbuilt monetary incentive plans are clearly the most powerful business model ever invented. And we saw it with Bitcoin.

There is no surprise that digital assets are the fastest growing adoption of any technology in all human recorded history. It's unlikely ever to be repeated again. And it's because of the behavioral incentives that are built into this. It's absolutely staggering. So that's what I'm thinking about. It sounds like we have the setup for our next conversation. I've already got the title too. It's we're already in the metaverse.

You just don't know it yet with Rao Paul. I'm up for it. And we might need a glass of wine and it might be a couple of hours. Yeah, seriously, that sounds like when, do that one in person when everything's back. Listen, always wonderful to have you here. So much fun thinking about the kind of bigger picture dimensions of these things with you. So thank you, thank you for your time. And I really appreciate you hanging out.

Always enjoy it. So thanks so much for having me again. All right, back to NLW, just for a really quick wrap up. The thing that I'm thinking about now, a little bit after recording with Roel, is this idea of a generation gap versus a partisan gap. As I said in this conversation, I really don't want to see crypto and Bitcoin fall into just another partisan football. I think that would be very detrimental. It would create huge numbers of problems for those of us who want to actually create space for this in the larger policy conversation, or at least not have that

larger policy conversation, try to find ways to sucker punch us at every turn, as we've been seeing. And in that, it's really encouraging, actually, that there is more of a generational gap than a partisan gap. If you look at Congress, there's a wide swath of younger Congresspeople on both sides of the aisle that get this technology, that are excited about this technology, that want to be a part of American innovation. And that's obviously not to say that the boomers in Congress or in the Senate can't get it. Some of the folks who have been the biggest advocates obviously aren't millennials. But it's still worth noting, and I think that's a really powerful and important point. Anyways, I hope you enjoy this conversation. There's so much more that we could dig into around it. But for now, I appreciate you listening. And until tomorrow, be safe and take care of each other.

Peace.