The Breakdown - ‘If You’re Not Radicalized, You’re Not Paying Attention’ Feat. Nic Carter

Episode Date: March 31, 2020

In this wide-ranging discussion, Castle Island Ventures founding partner and Coin Metrics co-founder Nic Carter joins @NLW to discuss: Why corporations weren’t adequately prepared for any serious economic trouble, much less a global pandemic  Why government backstopping the corporations leads to inappropriate risk-taking  How stock buybacks became a boogeyman of the current crisis  Why the crisis is actually four crises in one: health, economic, financial, and geopolitical How Covid-19 could accelerate the US’ withdrawal from the world and China stepping into the void  Why the response to the handling of Covid-19 could lead some to authoritarianism  How stablecoins are allowing global market exposure to the world’s most in-demand currency: the USD  Why stablecoins and central bank digital currencies look the same but are functionally opposite  Why a ‘naive safe haven’ narrative was never correct for bitcoin Why bitcoin was designed for exactly this type of moment.

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Tuesday, March 31st, and today my conversation is with Nick Carter. Nick is the founding partner of Castle Island Ventures. He's the co-founder of Coin Metrics. He's known for his incisive and eloquent. essays on medium, and generally for being just a really broad thinker in the space. So originally I wanted to have Nick on to talk about the difficulty adjustment that happened last week and some of the Bitcoin mining properties coming up in Bitcoin mining narratives

that I'm seeing emerge. But instead, where we ended up taking the conversation was a much broader look at the way that this set of crises, a health crisis, an economic crisis, a financial crisis and a potential geopolitical crisis are cascading into one another. We talk a lot about crypto-dollarization and how stable coins are allowing people to opt out of their local monetary regimes and into what is currently the most in-demand currency in the world, which is the U.S. dollar. We talk about Bitcoin and where its narrative status is and whether people should be frustrated or whether the principles behind Bitcoin and what makes it so unique and special have been functioning just as they're supposed to. So it's a really wide-ranging conversation. It was super fun to have. Now,

as always, caveat with long interviews, we edit these very, very minimally to capture the feel and flare of the whole conversation. But that said, let's dive in. All right, we're here with Nick Carter. Nick, thank you so much for joining. Thanks for having me on. So wild times, we were just talking a little bit about the, you know, changes to life and the disruptions. and, you know, I wanted to bring you on to talk to you about a variety of things, but there was a tweet that you shared a couple days ago that I so perfectly summed up how I had been feeling that I wanted to just start from there. You wrote, if you're not radicalized, you're not paying attention. And then there was a second great line about Zuccotti Park, but I'll hold that one aside for a second. But what, you know, I imagine that that probably meant a lot of different things to you. But when you were writing it, like, what is the feeling behind that? I mean, take me into, how you have been perceiving this radical shift that we're living through. I'm just upset. I'm upset and disappointed.

If you're my age, you lived through the financial crisis. You might have just been coming out of college or just getting out of high school trying to start your career. And that made life very difficult for a lot of people my age. And that was when we learned the meaning of the word or the phrase moral hazard. You know,

the fact that if the government is there to guarantee and to bailout failure, then we're going to have a lot of waste and just a lot of wasteful activity. And that was sort of limited to the financial sector in 2009. And instead of society hitting the reset button after that, we just had virtually every other sector engage in obscene risk-taking. And now that everything looks like it's collapsing, you know, the expectation is that the government is going to come in and bail out the entire corporate sector in the U.S.

And it's just so unbelievably disappointing. It's like memories are so short. We learn nothing. And in response to this corporate fragility and misallocation of capital, it looks like effectively these corporations that have failed us, their directors and managers are going to be rewarded. And, you know, I grant that it's appropriate to give individuals a bailout to deal with the economy being forcibly turned off for a few months. But most of these bailout funds are not going.

The stimulus funds are not going to individuals at all. So that's what I'm expressing disappointment about. I don't think it's possible to say, well, this is what had to be done. I don't think you needed to arrange a stimulus this way, specifically with the vast, vast majority of it, going to shareholders in corporations that have manifestly failed to manage risk. So that's why I'm upset.

And, you know, this is the second time, in the last 10 years this is happening on an even greater scale now. So it's pretty unacceptable to me. One thing that I thought was interesting is that the context or the justification for radical action is that it's a radical unanticipated time, right? I tweeted out the other day. So obviously, Taleb wrote a piece called Corporate Socialism, where he made the explicit point that a pandemic like this was not only not a black swan,

It's in fact his example of a white swan, right? An extreme event that is entirely predictable, at least on some level, you know? And I think that the interesting thing about it is that's not to say that, you know, every corporation in America should have had a pandemic plan. But I think that the point that you're making has to do with just fundamentally the ramping up of risk with the assumption of a backstop becoming just business as usual. Exactly. Yeah.

And not only were they unprepared for a pandemic, even like a minor economic slowdown. They were in a state of extreme fragility, brought on by this implicit guarantee that the government had signaled to the corporate sector in 2009-10, we will support you if you fail. That guarantee is completely perverse.

It means that these corporations and the shareholders expected to be bailed out if they failed. And so we got the most indebted, highly leveraged, fragile system probably in the history of America. And, you know, it's interesting because the COVID-19 crisis is an extremely acute shock because it's a hundred-year crisis.

You know, you don't get those every hundred years. But even a crisis of a much smaller magnitude, my guesses would have triggered a similar economic collapse or a similar financial collapse because we were just due. And a lot of people are saying, oh, this is an exogenous shock. like we couldn't have possibly foreseen something like this. You know, we were right to be bullish and so on. But I think that's completely false. The cracks in the system were already showing even before COVID-19 showed up.

It brings up an interesting question of whose job specifically it is to be conscientious of risk and weigh that against levering up further to take advantage of, you know, crazy asset prices, right? Crazy stock market, whatever it is. And that feels like a question that is not being answered because it is someone's job to think about all sets of scenarios, not just the thing right in front of you, right? Yeah, and like if you're a publicly traded company

and you're making decisions on the basis of a crisis that might hit once every hundred years, your shareholders are going to have a problem with that. But it's not a binary thing. they just were not prepared at all. The fact that these corporates had actually made a trade that increased their fragility by effectively selling insurance by levering up and buying back their stock, you know, they went in the directly opposite direction of what might have been prudent

in terms of building a robust system and the ability to resist shocks. So not only were they unprepared, they were actually primed for collapse at the slightest sign of danger. So, you know, I can forgive them not anticipating a pandemic. What I can't forgive is plundering their corporate reserves, returning it to shareholders, and not having any buffer whatsoever. So this is the interesting thing about the fast-moving, kind of narrative is, well, one, right now, people are so worried for themselves that I don't think that we've seen the full extent of the incredible animosity that will result at some point

when people really kind of grok the how much went to Main Street, let's say, as compared to these corporations. But it does seem to me that so far, the early indications are that buybacks are going to be the boogeyman of this cycle. Yeah. And what's interesting is this was part of Warren's campaign, I think maybe even Sanders' campaign, before the ferroar over bybacks got started. And it was a fairly unpopular thing.

And, you know, I even, I was saying, well, Warren's ire at bybacks was a little misplaced. It definitely was a bit of a boogeyman. But, you know, with a few months of additional context, it actually seems quite prescient. My guess, so I think there are stipulations attached to some of these stimulus packages that you can't return capital shareholders if you're a recipient of funds here. But it might also be the case that corporate governance changes entirely here. And we're kind of at an inflection point where directors actually have a significantly impaired ability to return capital of shareholders in perpetuity.

It very well may be that the popular anger over buybacks is so significant. that they get outlawed, you know, for the foreseeable future, which I think would be a bad result, but I wouldn't blame our representatives if they went ahead and did that. Yeah, I mean, one of the things that I have felt like watching this whole thing take place is how much our responses are limited, the longer that we wait to react to something, it's almost like the more that you inevitably overreact,

and careen between extremes, you know, rather than actually solving this. We've seen this. I mean, even Cuomo has said this in terms of the health dimension of this, right? Is that the full lockdown was mandated, was necessitated by the fact that we were behind in fighting this, right? There was no time to have a sophisticated position where there was some tiered set of closures and nursing home, you know what I mean? Like there was no time to actually think in a sophisticated way about that. It's just brute force. And I feel like there's an inevitability of, reaction on the other side of this too is people just, I'll tell you what, we're scared right now, but being scared is a big, unfun emotion. And being scared tends to turn into anger, I think,

because it's easier and more crystallized. Yeah, I think policy and crises looks like a sine wave with an expanding magnitude. You don't get gradualist approaches to solutions. You get extreme responses and the lockdowns are perfect case. If we were slightly better configured or better prepared institutionally for a virus like this, if we had some collective knowledge of SARS or H1N1, maybe we would have reacted better, but we were pretty unprepared in now. So we have to impose these extremely draconian measures. In fact, my state, where I am here, just got the lockdown order earlier today, which apparently is going to come with fines of $5,000. which is kind of crazy to me.

Well, this is the interesting thing is that the lockdowns that we've been under so far, you know, so I'm obviously speaking to you from New York. So we've been a little bit ahead of basically everyone except San Francisco or the Bay Area. And so far, it has been a voluntary social contract type thing, right? In fact, Cuomo has gone to pains to try to walk that line. But what you're seeing around the world is that that is, you know, I mean, we had news reports over the weekend that the National Guard was being used effectively to go house to house to house in Rhode Island or was going to be used to go house to house to look for New Yorkers,

which is an extreme escalation. The fact that you're seeing fines that may not seem like much, but that's a pretty big escalation, right? And then, of course, there's other parts of the world where I think, so I've been watching what's going on in Hungary where effectively they just got themselves a dictator and and leaving quarantine is punishable for something like eight years in January. jail or some crazy number like that. Yeah.

Which brings me actually to another tweet of yours that I thought was, was, we'll feel more pressing in as time goes on that this is actually four crises, not three, right? So a health care crisis, an actual economy crisis, a financial system crisis, and also a geopolitical crisis. Do you speak a little bit more to that? Yeah. And, you know, relating to the point you just made about the different reactions of different

governance regimes to this crisis. you know, my fear is that we're going to be running the numbers when this is all sudden done, and we're going to see that authoritarian states probably did better than democracies. I mean, you know, TBD, but my guess is that states that have the ability to unilaterally compel lockdowns in an extremely forcible way will most likely escape the brunt of this. And, you know, history could prove me wrong, and that would be great. But if it proves me right, then I think we're going to get a disillusionment with the model of liberal democracy is the best way to organize the society. Because you do get complacency.

You look at the governors of the states. They've operated on very different timelines. There wasn't a lot of urgency. We don't have technocrats in power. We don't have the ability for our leaders to exercise unilateral discretion. you know, so there's a heterogeneity of outcomes and just generally speaking, things move more slowly in these kind of regimes with more systematize, you know, legitimate governance. So there's an unfortunate trade-off there. It seems like we just weren't well equipped to deal with this from an institutional perspective.

And I think there's going to be significant disillusionment with a Western model and probably in some countries an embrace of maybe the Singaporean model or God forbid the Chinese bottle. So yeah, referring to that tweet, it's hard to really perceive what's going on because of the fog of war, right? We're all individually concerned about our safety. We're concerned about finding, you know, a sufficiently rural area where, you know,

maybe life is going to be working normally for a few months here. But, yeah, I mean, we obviously have a public health crisis. that's undeniable. There's also a financial crisis. And I remember people saying, well, you know, we're only going to get one financial crisis. Every lifetime,

we're going to get recessions, but we're not going to get financial crises. Well, if you look at some of the numbers, they look worse than in 2008, 2009, are specifically with respect to our financial plumbing. You know, we have some of these ETFs, which are profoundly illiquid,

and they're trading at significant discounts than that. That's a financial phenomenon, right? that we have gold markets being significantly dislocated. We have the Fed stepping in in the repo markets, of course, as they were doing before this COVID-19 thing took off. So we have a concurrent financial crisis. We have capital markets drying up, right? That's my little corner of the industry.

We're still active, but lots of those private equity funds are just sitting on their hands right now. So access to capital is really difficult. We obviously have an economic crisis. you know, TBD on how long that lasts or how severe it is. I think it's, you know, the really sharp shock that we've seen here in terms of the macroeconomic indicators, I think people are slightly overrating the damage there because it can easily rebound on the way up, given that nothing is actually being destroyed, no, you know, none of our infrastructure is being destroyed as what happens in a war, for instance.

But, you know, we definitely have a concurrent economic crisis. But the one that I think, or I allege, people are overlooking is a geopolitical crisis. And this kind of started, I would say, when Trump took office and had this deliberate policy of being more isolationist, and the signs were kind of there. So, you know, he's putting a lot of pressure on our allies in the EU to pay their way. In NATO, we have situations like the Philippines tearing up their own. mutual defense treaty with the U.S. We have

South Korea, signing treaties with military treaties with China. So those relationships were already fraying. The U.S. was already stepping back from their stature in the international system. But the U.S. had the overwhelming majority when it comes to soft power

globally because they control all these international institutions. By which I mean, the U.N., the IMF, the WTO, even though the director of the IMF is typically European, the WTO, the WTO, the WHO, right? So the U.S. set up all these institutions, you know, under Bretton Woods, with the implicit guarantee that the dollar would be the reserve currency, and the U.S. would sanction and protect those trade routes, right? And increasingly they've been stepping away. Other countries have been disillusioned with them.

those institutions are obviously fraying. In the last decade, China has set up alternatives to many of those institutions, or they've effectively infiltrated and delegitimized the ones that still exist. Look at the WHO. They're just publishing Apologia for the Chinese regime. You know, the Taiwan issue is a wedge issue

that they bully a lot of these institutions with. And we're increasingly seeing an embrace of, you know, Chinese soft power. And they could really capitalize on the situation right now. They're already turning that narrative tide back against the U.S., whether it's in a deliberate propaganda way or just by virtue of the fact that they maybe actually did perform better in this crisis. And you can imagine a situation where they create a package that consists of, you know, PPE, masks, prophylactics, potentially even a vaccine, let's say if they make one, surveillance infrastructure, both for conventional surveillance and for, you know,

track and trace and a package of aid and, you know, financial aid. And they go out to the third world and they say, look, you know, the U.S. has done nothing for you. USAID has done nothing for you lately. Why don't you just, you know, make some concessions and we'll come in with this package. and will help you, will help you the, you know, the governing regime, retain your grip on power and tackle this medical crisis. And all you have to do is just make us your, you know, your favorite son or your preferred trading partner or let us install a military base in your country, you know, or give us exclusive rights to your ports. You know, they could extract really

extreme concessions. So right now, I believe that China is, you know, there is kind of a will there, won't they, situation where we were wondering, a lot of those Western policy types were wondering, is China ever going to make their move and try to unseat the U.S. as the de facto global hegemon? It seems like not only are they making really aggressive moves right now, I mean, watch the South China Sea in the next few months. I'm sure something will happen there, but they have an huge unprecedented opportunity to potentially dethrone the U.S. even from a soft power perspective. And so that's something that makes me extremely nervous and I'm pretty concerned about

right now. Well, I think interestingly, too, that's going to coincide with more people than ever before in the U.S. retreating from globalism, right? I don't know if you've noticed this as well, but the number of people who aren't necessarily, who kind of have grown up in a highly globalist-minded kind of perspective, who are now saying, like, huh, maybe I buy this argument that manufacturing is a national security issue, right? Internal manufacturing capacity, all these sort of things. You're going to have a very different landscape that I think to your point, it could accelerate a trend that's been happening, right? The

U.S. retreat from the world has been a trend for a long time. And so if you have that simultaneously amplified, right, by people in the U.S. kind of retreating within, at the same time as there's kind of this expansionary policy on the other side, it could get very different, very fast. Yeah, it's shameful that it took us this long to realize that supply chains were a national security issue because it was obvious, right? And now we have China is able to have an extremely strong negotiating position because they're effectively, they manufacture the vast majority of our pharmaceuticals, you know, even some of our defense equipment is manufactured there. Like, it's catastrophic.

And the trade that people have to make, which is reversing the trade of the last 50 years or more precisely 40 years, you know, everything that's staying open China is accepting more expensive supply chains, you know, more expensive consumer goods in exchange for sovereignty and freedom. And we've been making the precise opposite of that trade

for the last 40 years. So I don't know how easily it's going to be. to reverse. And this is why there's so much demand from the kind of establishment elites in the U.S. that we keep those supply chains open. You know, we retain our quote unquote harmonious relationships with China and so on, that we stay intertwined economically, you know, with the theory that that can avert conflict. But, you know, before World War I, Britain's number one trading partner was Germany, that didn't stop them going to war. So let me ask a question to bring kind of the some part of the crypto side of this into.

How do you think that the crypto dollarization or just the rise of kind of these central bank digital currencies impacts this? Because, you know, obviously you have China who's racing out to get their currency forth. And the concern from regional partners, right? Like Japan has been beating down the door of the U.S. saying that there needs to be, a counterweight to that because they anticipate it being a huge lever in terms of expanding this kind of vassal state, you know, the network. How do you think that that impacts what we're seeing right now? And maybe not just from the China perspective, but obviously we've also seen a pretty

big shift in the Overton window around a U.S. digital dollar even in the last couple weeks. Yeah, and I think a lot of that discussion in the U.S. was really catalyzed by China's DCEP project in this view that we have to keep up. We have to do something. You know, I talked about it with Larry White, you know, a few weeks ago. And I don't really see why the Fed would want effectively nationalized payments, nationalized commercial banking. We have a effectively private industry that does that. You know, those are not tasks that the government typically does.

I don't see the urgency to do that. I know some people say, well, the stimulus payments, it's going to be difficult to distribute them on a direct-to-consumer basis. wouldn't it be great if we had a digital dollar so that we could just deposit Federal Reserve digital dollars in people's accounts directly? Fine, but like, do you really want the experience of going to the DMV when you get your banking services from the Fed? No, thank you. So I do think, though, that China has grasped that if you control someone's finances and more generally someone's credit relationships that you effectively control that individual and you have

full transparency into what they're doing and what their life is like. And so you've granular discretion to modify their behavior in any way. I don't see why we would want that in the West. that doesn't seem something that comports with our values in the Constitution. I can see why it might be appealing if you're an authoritarian state, so I'm sure they'll probably try and export that as well, you know, if they are able to successfully build this tech stack. But that's pretty much the opposite of the virtues of cryptocurrency, in my opinion. Cryptocurrency is about removing encumbrances.

Even stable coins, stable coins are very, unencumbered relative to digital dollars. The interesting thing about stable coins is not that they're digital, it's that you're relatively free to do whatever you want with them. And I know a lot of people will say, well, you know, they've all got the ability to freeze contracts and they've all got terms of service where they can cut you off or whatever activity, but they actually don't do that. So there's an implicit social contract that stablecoin issuers have with their end users, which is effective Effectively, we're going to create what we call or what they call or what I guess analysts call,

permission pseudonymity, which means, yeah, if you want to create or redeem your IOUs, your tokenized fiat, yeah, you have to interface with us, you know, tether or circle or, you know, Paxos. But within, you know, on the Ethereum blockchain, most of them on Ethereum, you can pretty much send it to whomever with no requirements for, you know, identifying your counterparty or reporting that to anyone. So that's actually kind of a resumption of the physical cash standard that we've had for hundreds of years and which is now being eroded away. So it'd be great if we could actually retain that. So to me, like central bank digital currencies and then stable coins, they like sort of cosmetically look the same.

But if you look at their function and what people use them for, they couldn't be more different. Well, this is what's been, one of the things that's been interesting now is seeing, so I did, I did the show today. We're recording this on Monday. It'll go out on Tuesday. I just did my show today about how or how not the COVID-19 crisis was changing the narratives of different parts of the industry.

And I was talking about stable coins. And I think that the thing that's interesting right now with stable coins is that they're a little bit wrapped up as well with the world's incredible hunger for actual US dollar exposure versus anything else. And Hasu wrote a great piece on CoinDust this morning about the growth and inflows, you know, to tether and everything else as well. But it's interesting because it, in some ways, it feels to me less like a narrative shift, right?

Like, I actually want to ask you about how you've seen the Bitcoin narrative shift at all over the last few weeks. But in the case of stable coins, it's actually just functional. You're seeing people do this, you know, this money flow into an approximation of a U.S. dollar when everyone is trying to get access to U.S. dollars. Yeah, it's something that took me a while to understand. And initially I thought stable coins were just for traders to move money around exchanges and retain them within the crypto industry while going risk off. But it's become clear to me in more recent months that stable coins actually have a genuine usage here, even for non-traders, just for regular people.

And it's just a matter of entrepreneurs creating products around them that maybe abstract away some of the complexity and just reinforce the fact that these are unencumbered dollar IOUs and typically in offshore banks, you know, that are always convertible, a par, redeemable, and you can use them without restriction. That's a very powerful thing. Those are digital dollars outside the economy. of the banking system, or at least out the confines of the local banking system.

And that's where dollarization has fallen short a lot of times. In places like Argentina, Zimbabwe, Ecuador actually had a product, a product like they had a central bank digital currency, which was dollar-denominated. In all those cases, the banking system was the point of failure that the government used, because typically they wanted to confiscate the value of individual savers. They wanted to confiscate savings from the general public. And so they were always able to lean on their local commercial banks to confiscate funds in various roundabout methods.

And stable coins instead, they take a single governance regime, whether it is tethers, governance rules, or the Circle Consortium or something else, you know, there's like 50 stable coin issuers maybe. And it outsources that or exports that, rather, to the whole world, which is pretty cool if you ask me. And my guess is that those monetary arrangements are going to be more suitable or there'll be demand for those overseas monetary arrangements in places where physical dollar cash is hard to obtain in the local banking system doesn't support dollar deposits and savings because they're, you know, denominated in whatever the local currency is. And the truth is that even though we make

fun of the dollar as Bitcoiners, the dollar is pretty much the best sovereign currency relative to all the other ones. And in a time of crisis, people have dollar denominated debts. They need dollars. That's why we've seen dollar rallying so much. really breathtaking, actually, in the last couple weeks. And I think what the ultimate effect of this will be, you know, I don't think cryptocurrency or Bitcoin is going to destroy Fiat. I do think it potentially accelerates the destruction, a lot of weaker currencies, because it gives these non-financial rails

to flow out of some local currency and into a currency of your choosing. Most of the time, that's the dollar. That's what people are familiar with. In some cases, they already have a feeling for what it's like as a unit of account. They might have some dollars, some physical dollars. So I think, you know, in the near term, the biggest contribution of cryptocurrency is not, you know, catalyzing some hyper-bitquinization event and toppling all the central banks. It's giving people easier access to the dollar or to a tokenized representation of the dollar

under a number of issuers of their choosing. And I'm sure there's going to be more and more credible ones. We'll see what the Libra does here. That's a pretty interesting thing. So that's kind of the concept I've been obsessed with for the last few months. And in the last month, I think the supply of stable coins has gone from about four and a half billion to just crossed eight billion today. I could easily see it over 50 billion by the end of the year.

It's fascinating to take a step. back and reflect on it in the larger context of the idea of cryptocurrencies or even the Bitcoin project allowing people to opt out of their local monetary regime, whatever local means. And we're seeing that happen in real time, but it's through this vehicle in a lot of cases of stablecoins pegged to the US dollar. And there's other ways to do it. Like I was talking to an entrepreneur last week. And what they do is they short Bitcoin on Bitmax.

And so you have a market neutral position, which is dollar denominated, that effectively gives you a U.S.D. stable coin. But with Bitcoin as a collateral. And then, of course, you have Maker die with ether as a collateral. So there's all sorts of interesting monetary arrangements, which can be done here. But the important thing is just giving people optionality and the ability to exit their local system. And now the fact that there's quite a few significantly liquid stable coins, now it's finally actually plausible. after, you know, 10 years of trying here. I could talk to you about that for all day, but I want to talk or maybe shift for just a minute to Bitcoin in this context. Obviously, any time you have big events, there is a rapid jockeying and competition to control the Bitcoin narrative. What has surprised you or not surprised you either about Bitcoin's performance or about Bitcoin's narrative over the last few weeks?

Well, the performance has been, you know, know, disappointing, I would say. But what's been shocking has been how disillusioned people have been based on, you know, a couple months of underperformance. You know, it's crazy that people bought this. You know, I've never really been a proponent of the quote-unquote safe haven narrative, at least not that in the naive form that Bitcoin would somehow mechanically appreciate if the S&P 500, you know, collapsed. In fact, historically I've said I think it would sell off in a recession, which has done so far, it's been disappointing to see how dissolution people have become. And I think they've forgotten what Bitcoin is. Bitcoin is an emerging monetary

alternative, and it's a project that will take decades to reach maturity. And we're still at the earliest stages. We don't really have Bitcoin banking yet. We are still building out layer twos. All of the exchanges are pretty immature, and they have issues. They have issues. for a number of reasons. We're still figuring out key management. You know, so, you know, the institutional infrastructure to Bitcoin is still quite limited. You know, there's lots and lots of questions around it still.

The fact that people expected to have reached maturity already, and not only that, they expect it to behave in a very specific way in terms of price action relative to the macroeconomic, other macro assets, that's a little shocking. If you narrow your expectations, your expectations to such a tight tolerance, of course, it's going to disappoint you, you know. But ultimately nothing's changed about Bitcoin.

And what has changed is all of our central banks are easing and all of our governments are creating massive stimulus and acting very capriciously. That's precisely why Bitcoin exists. So, I mean, if you're willing to be disenfranchised by Bitcoin based on, a couple of weeks of price performance. Maybe Bitcoin wasn't right for you in the first place. Well, I think one of the interesting things that you kind of bring up is, and this is why narratives are so interested in me.

People are, it's funny because people assume that because I'm interested in narratives, I like trying to kind of push one narrative or another. But what I think it's fascinating is about how invested in them people get. And they like so quickly change rather than kind of viewing it as this constant ebb and flow. And it's fascinating to watch because, well, one, at first we had this uncoupling of the uncorrelated narrative from the safe haven narrative,

which is they'd kind of gotten bunched up together in Bitcoin. And then secondly, we had an unwinding of a start of people actually asking, well, what are we talking about when we mean safe haven? To your point, I like the way that you described it as a naive version that's like, you know, their number go down, our number go up kind of thing. And what we have now emerging is almost in a weird way. It's not a new narrative so much as a memory of the, like, it goes right back to, the, you know,

Chancellor on the brink of a second bailout narrative, right? Which has been sitting there embedded in the code from the beginning of, uh, of the context in which it was created and the symbolic moment of, uh, of the, the kind of the central bank money printing apparatus revving up right at the time as, as the Bitcoin having is,

is coming down the pipe. And, you know, the, the, the interesting thing to watch has been there has been, I've been keeping track of basically at, at this point,

anecdotal evidence of growing interest in Bitcoin. in that context, right? And I've seen it in terms of, you know, you can point to Google trends. You can see it in terms of the average growth of crypto podcasts and Bitcoin podcasts in this time as compared to what the rest of the industry is seeing, which seems to be a 15 to 20% decrease. And again, it's all anecdotal, but I think that there is a, there's a very clear contrast to be made here that I think is pretty interesting. Yeah, and it's strange that some notable commentators in the crypto realm are so disappointed by the price reform. I guess that's a function of an industry where everyone owns the asset or is generally speaking along

because this is the moment for crypto enthusiasts to step up and say, hey, look, we created an alternative, which is not totally immune, but much more immune to political discretion. And I think this is something that's been lost a little bit. You know, the dollars purchasing power is actually increasing at a time when effectively lots more dollars are being implicitly created, which is confusing to a lot of people, right? But that's because the dollar is exposed to all these other dynamics, not just the supply side dynamics, but the demand side, especially from emerging markets. But, you know, it's not strictly speaking, the purchasing power, the Bitcoin, you know, unanticipated purchasing power collapses due to inflation the Bitcoin hedges against. Bitcoin does much more than that.

It insulates the money from political discretion. So under a Bitcoin standard, you don't have the ability to bail out, you know, corporates that might have taken on too much risk. The money is issued in a very specific way. and it's issued in a free market way. So the only way to get it is to compete in the market to be a mentor of Bitcoin. That's a very profound thing. To me, the monetary issuance traits are absolutely critical and often overlooked.

And the whole point is to eliminate discretion in the system. That's where these crises come from, in my opinion, from the implicit guarantee. That's why you get the risk-taking. Now, granted, there's plenty of cases in the crypto industry. where protocol developers do create slush funds and they monetize their protocol proximity, so to speak. So you have Cantion insiders in some of these other protocols, but very much not so in Bitcoin. And that's one of the things I like about Bitcoin.

It's predictability. It's institutional stability. The fact that we're all on even footing in terms of the money supply, the fact that it really is robustly free market and how the units are issued. You know, those are the things that really matter, and nothing has changed from that perspective. It's a pretty good way to round out where we started, I think. But I've been doing this thing. We're at the end of our conversations.

I'll ask people just, what's the biggest source of pessimism or concern for you right now? And what's one thing that makes you optimistic? Well, I mean, I think life in the West is going to get worse on a continuous basis. for the next decade at least. So we have that to look forward to. I think we're going to have a long de-leveraging cycle here, which is inevitable, and that's always painful.

But I'm optimistic that we still have an industry of people that are really ideological and really committed to building alternatives to that terrible system. And people accuse Bitcoiners are being pessimists, but I'd say we're optimists. We're actually trying to change something.

We're not just being doomers and being super apathetic about everything. We're actually conducting praxis. We're trying to manifestly build an alternative so that not everybody is trapped into these cycles of debt and leverage and crisis. I certainly appreciate you taking the time today. I appreciate you continuing to build and build through that cause for pessimism. So thanks for hanging out, Nick. Thanks for having me. A lot to digest in that conversation, as you can tell.

I guess one interesting point that I wanted to just highlight a little bit is this idea that stable coins, USD-based stable coins, are allowing people to opt out of their local systems and what that might mean. I think we're seeing some profound, profound changes in how power is going to be organized in the world that comes next. And it's fascinating to see how, from a financial perspective, from an economic perspective, this digital asset that maybe once most of us thought was just useful for crypto traders is becoming something that could be much more significant in how people look at

the systems of money that they're around, right? How powerful governments can actually be, especially in emerging markets around their monetary regimes. Really fascinating stuff. Appreciate Nick being here. And I appreciate you guys hanging out and listening. So that's it for today's breakdown. We'll be back tomorrow. And until then, stay safe, guys. Peace. Thank you.