The Breakdown - The Breakdown Weekly Recap | April 18 2020

Episode Date: April 18, 2020

The entire week's shows in one convenient episode  Monday | Off Tuesday | The $20,000 Human IPO & 5 Other Stories That Have Nothing to Do With COVID-19 Wednesday | What the Economy Will Look Like 6 Months From Now, Feat. Ryan Selkis Thursday | Libra vs. China's DCEP? The Battle for the Future of Money Heats Up Friday | Why Money Is Losing Its Meaning, feat. Jared Dillian

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 Saturday, April 18th. And as with every Saturday, I am bringing you the full run of episodes from this week, all strung together for easy listening experience. And as always, I just want to quickly kind of summarize. what I thought the week was about. I've been trying to kind of turn my attention to really

understanding what happens next in the context of the post-COVID-19 world. This is, of course, acknowledging that we're still very much in the midst of things and who knows what will happen as a weird hodgepodge of openings and closings and unfortunate potential second waves and all this sort of stuff happens. But I do think that we're at the point where we can start to really ask from an economy standpoint, from a social standpoint, what some of the long-term impacts might be. One of the trends that I am watching most closely has to do with the role of the dollar in the world and the role of competitors for the dollar's place. We have this interesting phenomenon of on the one hand, the dollar being such a strong asset relative to everything else in these times

of crisis, well, at the same time, the huge, huge kind of issue or concern around inflation as so much money is pumped into the system. But in the short term, what we're seeing is that the demand for dollars is even spilling over into digital forms of dollars like Tether, like stable coins. The amount of USDC circles stable coin that is available, the total supply, has gone up something like 65% since the beginning of March. So, huge, huge inflows into digital representations of dollars. Meanwhile, you have China trying their very, very best to get out ahead of the digitization of money with their DeSep.

We saw a ton of information this week about China's blockchain plans, about the app that they're testing that will allow people to interact with the DeSep, their digital currency. So I think in some ways that's really a key part of the story of this week. Top that off with Libra announcing that it had shifted. its model and would now be basically a set of different fiat peg stable coins rather than a single basket currency. I break that all down in one of the episodes this week if you're interested. So on Monday, we were off. On Tuesday, I released an episode called the $20,000 human IPO and five other stories that have nothing to do with COVID-19. That basically was about a crypto story

and the trend that it related to. On Tuesday, or sorry, Wednesday, I had Ryan Selkis from Masari. on to talk about what the economy will look like six months from now, right? So shifting again, this attention to the future of a post-COVID-19 world. On Thursday, I broke down Libra versus China's DeSep and really talked about this battle for the future of money and everything that we had seen from China this week. And then finally, yesterday I had Jared Dillion from the Daily Dirtnap on to talk about why money is losing its meaning, which is an awesome, awesome episode. I really think you'll like it. So anyways, guys, that's the show for. for this week or the set of shows for this week. I hope that you are having a good weekend

wherever you are. If you're in New York in the Hudson Valley, it's snowing. I hope you are somewhere where it is not snowing because it's April and that's ridiculous. But anyways, guys, until next week, be safe and take care of each other. Peace. 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, April 14th. I hope that you guys are coming back off of a great Easter weekend. Maybe you took a long weekend. Maybe there's no such thing as a long weekend anymore because of quarantine. But either way, I hope you're doing well. Earlier today, I went to Twitter to ask what people wanted out of today's episode. I said that it was either going to be option one, five evolving COVID-19 narratives such as dollar strength, contact tracing, supply chains, and declinification, or option two catching up on the crypto

conversation, such as Libra stablecoin risks, ton regulatory issues, and more. And by a two to one margin folks voted for option two, catching up on the crypto conversation. Now, this could be a small sample bias, but I do think that I've noted. a certain amount of corona fatigue in the podcast market, let's say. And I think there's a few reasons for that. One is we've now been in this for a really long time, right? The hype and just heightened everything of going into lockdown and watching this unfold before us. Well, scary and tumultuous is also something that we want to watch in a really close way. And you could see that in how people were paying attention in the first couple of weeks. Now we've

sort of settled into a new norm. We've settled into a new reality. And in a lot of ways, we're just past the point where all we want is for it to end, for us to go back to some sort of normal. Now, I've said before on this podcast, and I will say it again, that I don't believe there's another normal on the other side. I still think we are woefully behind in terms of figuring out what it looks like to get us back to work and all too willing to create this dialectic between health outcomes on the one side and economic outcomes on the other, which I just don't believe exists. Furthermore, I do want to reinforce that what I want to do with this podcast is use the principles and the ideas of Bitcoin and Crypto more broadly as a gateway to explore systems

of power and larger economic issues as well. So I will be continuing to cover COVID-19, and in particular what the post-COVID-19 economy and society and tech landscape looks like as we do start to work our way out of this. But you guys are ready for a little bit of crypto content. It looks like, so that's what we're going to do today. So I'm going to look at five crypto trend stories that have nothing to do with COVID-19. The first will be about Coinbase custody enabling staking for Pocodot's dots. The second will be a bank shutting down or an exchange shutting down that was predicated on telegrams token launching. The third will be a $20,000 human IPO. The fourth will be a recent acquisition from Shapeshift. And the fifth will be

stable coins as a threat to local currencies. So let's dive into this not COVID-19 episode of the breakdown. Okay, so for each of these themes, I'm going to do two things. First, I'm going to say what's the story, and then second, I'm going to talk about the broader trend. The first story is Coinbase custody is preparing to let its clients stake Pocodot's dot tokens through a partnership with Bison Trails. Basically, the long and the short of it is that these clients of Coinbase Custody will be able to delegate their dots to the validators of Bison Trails and earn staking rewards because of it, making it just super easy to participate in securing the network and earning those staking rewards. This is not totally new for Coinbase.

Coinbase custody already supports staking of Tazos and is in fact the largest operator of a Tazos staking validator. That's the story. What's the trend? The trend has to do with what this year, one of the themes that this year was supposed to be about that has gotten so far hijacked, which is we're seeing a set of contenders on the base layer. These Ethereum killers or would-be Ethereum killers, Tazos is matured. into this quiet giant while PolkaDot is really about to have its shake at everything. I've even seen some folks in the Ethereum community say, hey, listen, if 2020 goes by and Ethereum hasn't been killed, an Ethereum killer hasn't been crowned, maybe we can stop using that language. Now, I don't think that necessarily the stakes of the game are just Ethereum killing or not, but I do think that one of the underlying themes and trends of this year is

seeing the emergence of these major proof-of-stake networks as competitors to those other base-layer chains. So I think that this is interesting to watch less in terms of the specifics. This is something that Coinbase Custody has made clear is going to be a part of what they offer, but more in terms of that trend of watching a story that maybe we've forgotten about in all the madness, which is the contenders for new types of base-layer blockchains coming online in a major way this year. So that's number one. Coinbase custody is going to be enabling staking for Pocodot's dot tokens. Next up is Telegram. So Telegram has been mired in a lawsuit with the SEC around its $1.7 billion token sale.

And part of the outcome or part of the problem with the proceedings for people who are interested or who are invested in that sale is that they have blocked the distribution of tokens while this case is ongoing. That has created problems for a number of different ecosystem actors who were supposed to be here to build their business around this new telegram blockchain. One of those companies is Black Moon Crypto. It was an exchange that aspired basically to be the first to sell these telegram tokens, and it will now be closing.

They said that it has to do with high regulatory compliance costs is the main reason. They told CoinDesk, after in-depth analysis, we concluded that running a crypto exchange in compliance with all modern European Union regulation, including the fifth anti-money laundering directive and licensing requirements that are constantly changing unpredictably and unfavorably is not competitive to unregulated alternatives that are available in the market at the moment. So that's the official story, but clearly there has to do with the fact that these telegram tokens are just locked up. That's the story. What's the trend? Well, the larger trend has to do with Europe in specific, but more broadly, just clamping down of the regulatory

environment everywhere in the world. One of the things that has become clear if you watch regulatory signals is that the longer that crypto goes on, the longer that it lives rather than dies, the more that regulators are saying, well, look, if you're going to exist, you're going to fall in line with our regulatory apparatus. There was some indication of this earlier this week, in another report in which the European Parliamentary Research Service said that they should work to cover, quote, regulatory blind spots for crypto assets in that AMLD-5 legislation that came about in 2018. Effectively, this research service says that there are big categories of the crypto industry that are just not covered by AMLD-5, and that more recent rules such as those set out by the financial action tax. task force or FATIF are better akin to what needs to be. So you've got on the one hand this exchange shutting down because of the regulatory mire that telegram is facing along with high regulatory

compliance costs in Europe, while Europe is actually, or the European Parliamentary Research Service at least is saying that those requirements need to be even more stringent. I think we're going to see a lot of this over and over and over again this year as nations around the world really try to pin down crypto in a way that fits with their existing models. So expect more of that, I think, in the coming months. Here's something a little bit different. Alex Masmej has sold $20,000 worth of personal tokens on the Ethereum network. These Alex token holders will receive collectively 15% of his income in the next three years

and will be able to trade the tokens on Uniswap. This is a story where the story is the trend itself, or at least it's one of the first indicators of something which seems like it is an inevitable trend. There are in the traditional finance world, this concept of ISAs or income share agreements that have been bubbling for a long time and are having, if not a mainstream moment, certainly a more mainstream conversation than they had in the past. You can actually sometimes go back and look at what people were talking about in Silicon Valley 10, 15 years ago now and map that to. what might be tried at least, if not become mainstream, 10, 15 years later. So this is a guy who's

deeply immersed in the Ethereum world. He's worked on DOWs. He's known for work on NFTs. And basically, he wanted to, I think, dog food this idea and actually do this in a big way. So the way that he describes it is a blend between a small income share agreement and a human IPO. There are approximately 200 token holders of this. So I guess just by math, that means the average token holder has $100 of this Alex token. Additionally, he offered almost a Patreon style or a Kickstarter reward style incentive structure for additional things like one-on-one sessions, access to his network, and possible participation in the seed round of his next startup. I think this is an idea that people are really interested to see how it plays out. And I think for me, the reason that actually this is one

where the crypto part isn't dismissable is the exchange element. One of the things about this whole concept is that when you introduce liquidity where people can actually make bets and make different arbitrage decisions on the basis of how they see that asset performing, it can really change the dynamics around who's willing to participate in this sort of. of ISA human IPO type thing. Now, there's a ton of conversation to be had about all the, all the challenges, all the downsides. This ISA idea is absolutely not without both risks and a ton of detractors who have, I think, meaningful, meaningful arguments. So there's a ton to dig into if this concept interests you, but I do think that we're getting to see live a real, a real

experiment in that. Now, he got press in the block as part of this. and one of the sections is called personal tokens as crisis tool. And Alex says, I'm affected by the crisis. I'm making less money. So this is what I found to bring myself up and turn this crisis into an opportunity. I think this is going to be very popular because people would need to be on the payroll. So I promise that this wasn't about COVID, but my overall point is that when you have a singular economic moment like this, everything becomes about that moment to some extent.

So I tricked you, there is at least a little bit of COVID-19 context. This type of moment, which is such a liminal moment, a transitional moment, a moment that exists between paradigms, right, where we have clearly and irrevocably left some paradigms in the past, but don't know yet what the new paradigms are, are the fertile fields where this type of experiment is going to happen where it's going to be generated. I think that it's both interesting and in some ways not surprising that this, type of experiment is happening now in the shadow of such a transitional moment. So that's number three, the 20K human IPO. Shapeshift has acquired non-custodial crypto wallet provider Portis for an undisclosed sum. Portis is an Israeli-based company. The four remaining employees will now be part of the Shapeshift Office. Financial details of the deal are unknown. And ShapeShift CEO, Eric Vosven he's described the partnership this way. He says, after integrating Portis's SDK or software

development kit into the ShapeShift platform last year, we recognize the depth of their tech and how closely aligned our values are. They really built something special, making self-custody extremely easy. As our relationship evolved, acquiring Portis became a natural next step. This is a cool acquisition, something that makes tons of sense, I think, for both companies. but there is a little bit of detail, and again, I tricked you, there's a COVID-19 context. You are, I believe, about to see an extraordinary amount of M&A activity over the next, call it six months, especially if there isn't just this crazy full V-shaped recovery. Right now, the larger markets are operating with extraordinary levels of confusion in a lot of ways.

We still have an economy both in the U.S. and largely globally that is pretty much offline. If you look over at China, going back to work does not mean going back to work at 100% or even really 50%. It's really, really variable. You're seeing second wave infections in places like Singapore. There aren't really plans for exactly how we get back to work. We're still hanging hopes on testing regimes that aren't available or medicinal regimes that aren't proven. So there's so much confusion in the market right now. Meanwhile, NASDAQ is back up above where it was in December.

So it's almost like you just can't get signal right now. There are people who will argue to the hilt that this is a fast-moving exogenous shock that will be solved and that the Fed's action helped. There are others who say that there's just no way that this is real and that we're destined for something else. So anyways, this is all to say that it's very hard to pin down where we actually are in this market cycle. And by the way, that's not to blame anyone who thinks one thing or another.

this is an event that is basically without precedent in modern times and in a modern economy context. So we're not necessarily supposed to know. All we can do is kind of listen to everyone else and try to make the best decisions we can. In the meantime, though, no matter what, insecurity reduces the ability for startups to go out and access more capital easily. There has been a major, major power shift from entrepreneurs who had been accessing capital extremely cheaply, extremely easily, relative to other times in history, back to the financiers. Anyone who has dry powder, anyone who has cash right now is in a position of power. What that's going to mean in terms of the entire startup industry, including crypto startups, is a lot of companies that can't make it to either

a profitability or be the status they need, the metrics they need to do their next round. In fact, it's not even necessary clear right now that VCs are willing to tap into their dry powder to do the next round because they don't really have an incentive to rather than waiting a little bit longer and seeing what happens. So you're seeing that across the traditional tech industry and I think you're going to see it in crypto a lot and the way that it's going to come home to roost is that the companies who not only survive but do well in the context of volatility, which is primarily companies like the exchanges, are going to be just great big sucking maws for talent from the rest of the industry, right? And so here's the key line from the block piece about this acquisition of Portis by Shapesh.

Founded in May 2018, Portis was reportedly on the verge of shutting down earlier this year after eight employees were laid off and co-founder quit in January. So this was already a company that was struggling. Going into this crazy economic environment we were having, I'm sure, just pushed that over the edge. And this company, this is a great outcome, right? This is not being dismissive of this. I do think you're also going to see acquisitions and M&A that happen just because of the power position that companies are in, not necessarily because the company to be acquired needs to. Binance and coin market capital is a great example of this. I think that finance was already interested in acquiring coin market capital.

It's clear that CMC was looking for an exit proposition long before this happened. But, you know, if they had waited a little bit longer with the way that ad prices are plummeting right now, who knows what? what the bidding war would have been and what the price could have been in terms of how much lower it could have gone. So this whole M&A provoked by this larger macroeconomic landscape thing is going to be a big part of the story, I believe, of crypto in 2020. You're going to see a lot of recalibration and redistribution of talent to more exchanges, frankly, and to other big players with dry powder. So as with everything in this economy, it's a good time to be someone who has cash and options. and a much tougher time to be someone who is looking at months of runway. The last of our crypto trend stories that have nothing, okay,

maybe a little to do with COVID-19, is this one. A G20 watchdog, the Financial Stability Board, has warned national regulators to review standards and address any possible disruptions caused by global stable coins such as Libra. So the FSB is basically a G20 body designed to advise on, ways that governments can improve the global financial system. They released a consultation report today on Tuesday and said, quote, many activities associated with stable coins were already covered by regulatory frameworks, but there are other risks for which national regulators

could be left unprepared. Now, they focus on stable coins being untested at scale, having hidden vulnerabilities that emerge only as they go mainstream. And so if governments start to rely on stable coins, or if economies more broadly start to rely on. on stable coins for making regular payments, there could be serious operational disruptions that affect real economic activity. So this is interesting to me, frankly, almost entirely in the new context of our kind of global economic shutdown right now, where one of the major and dramatic impacts we've seen is that there has been one true, above all others, flight to safety asset, and that's been the U.S. dollar. People have wanted to be a lot of. People have wanted to

to get into dollars, they have dollar-denominated debt. There's a million reasons why, and that is playing out, not just in the way that we see the dollar strength relative to other traditional currencies, but in the way we are seeing new USD-based stable coins being minted. There are something like two to three billion more tethers than there were just a few months ago, and most observers, most researchers think that a big part of that isn't just crypto whales moving to safety within the crypto ecosystem and waiting to deploy that dry powder. But in fact, people around the world who are looking to get out of those local currencies who are being hammered by the dollar strength or the relative dollar strength and into a dollar approximation, right? It's easier to get into tether in some

places than it is to get into dollars, right? So that is a hugely significant force in in where the crypto economy, where this kind of new digital asset economy, meets traditional markets. And I think it's something we're going to talk about a huge amount more this year. There's an excellent, excellent piece by Max Bronstine and Avi Feldman, I think I talked about last week called about crypto dollarization that you should really go check out. I actually, I did discuss it on Friday's show. But it's a hugely important trend. And I think that one of the things that this document, this G20 watchdog document might be feeling, right, even though they're not mentioning it, is that the Overton window on actually using these crypto dollars, right,

these stable coins, is shifting really quickly in the context of crisis. And that could create more problems faster than governments had anticipated in terms of basically private competitors to their currencies. So a really interesting report, but especially an interesting trend. All right, guys, so I tried to keep it focused on crypto. I tried to keep it on stories that I thought were relevant. As I said at the beginning and throughout, I do think that when there is something that sets the entire kind of social, political and economic tone for the whole world at once,

which this has done in a way that nothing else has done, basically, in history, it's going to have impacts on absolutely everything we talk about. But hopefully you enjoyed this trip down a few key crypto stories and what trends they represent, and I will continue to try to walk this line between that insider crypto content and some of this big macro stuff that I think is so important as well. But as always, guys, thanks for listening. Thanks for hanging out. If you have suggestions, ideas, stuff you want to hear about, people you want to hear from.

Hit me up on Twitter at NLW. Subscribe, like, rate this thing. Help us get it bigger. Help us grow the audience. Help us grow the community. And thanks for listening, guys. So until tomorrow, be safe and take care of each other. Peace.

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 Wednesday, April 15th, and today I am joined by Ryan Selkis from Masari. First, a little context for this conversation. Last week, I spent a lot of the week and had a lot of my guests, basically. trying to argue that there is no normal to go back to after this coronavirus crisis ends. I think that's because in part, the health issue is not just going to abate even if we get it under control.

Getting it under control is going to involve some serious changes to our habits in terms of masks, in terms of social distancing norms, in terms of temperature checks in key buildings, in terms of contact tracing, all of these things which make our day-to-day lives look fundamentally different. But also economically, there are so many things that are unlikely to just spring back to normal. On the most base level, some businesses that have been out of work and out of business will go permanently out of business because they just couldn't deal with this challenge, even with government stimulus. You also have more structural issues like changes to the way people work that won't easily shift. So there are all these second and third order effects that that basically

means that there is no normal to go back to. Now, over the last week, I've sensed this kind of resignation and fatigue even a little bit with thinking about coronavirus as people accept that there is just this new normal and they're a little unmoored as they look to the future because they're not sure what their lives are going to look like next. Now, certainly we hope that people can get back to work healthily and safely as soon as possible. But even on the other side, what are our lives going to look like? So what I want to do over the coming weeks is start to shift gears with some of my conversations that are related to the larger global trends, larger macro economy to understanding what the world of the future, now that this COVID crisis has

happened, what that world looks like. And so I wanted to start that with someone who was very early on in the crypto community of kind of going all in, frankly, on their coverage and emphasis on the coronavirus as a potentially hugely destabilizing force. Ryan Selkis is the CEO of Masari, which is a transparency platform. It is a data aggregator in the context of on-chain FX. And it is a content platform in a way, almost just by virtue of the audience that they built through their newsletter, through their podcast, unqualified opinions. and Ryan started sounding the signal and the alarm on coronavirus really early, as did other members of his team. And so now that it's been, you know, a couple months since that started, we've started to see shifts in how it's shaped at the crypto industry.

Ryan is joining me to talk about those future-looking topics. So we talk about why the market rally right now is something of a relief rally, and we're also in a psychological relief rally as we grapple with what this new normal might be. We talk about the second order effects both positive in terms of new opportunity, but also negative that are concerning Ryan. We talk about how the crypto industry in terms of asset prices, in terms of venture financing, in terms of all these different dimensions, has or hasn't surprised Ryan in its response to this crisis. We talk about privacy and contact tracing. We talk about big structural changes that are unlikely to go away. So I think it's a really great primer, a really great start to be thinking about what the world looks like, six months out, nine months out, 12 months out, five years out, and how what we're experiencing right now is accelerating that. And most of all, how what we do right now can actually shape that.

So I hope you enjoy this conversation as much as I enjoyed having it. Now, as always, long interviews are edited very, very lightly. So knowing that, let's dive in. All right. We are back with Mr. Ryan Selkis. Ryan, how are you doing, buddy? Mr. to you, I appreciate that. That's far too kind.

I'm doing well. I'm in the Citadel in an undisclosed location, which basically means on the East Coast, but not in the epicenter of New York. And I've been rather enjoying having 50% of my call Zoom bombed by my either one-year-old or three-year-old. So if you hear anyone in the background, it's because they've broken in.

to my lair. And everybody typically loves it. So I just don't even care anymore because I just invite them on camera. And, you know, they're a hit. And people enjoy looking at them more than they enjoy looking at me. So it works. It's so funny. I posted the video from the BBC from like, I don't know, probably four years ago now,

five years ago where the guy's doing this very formal looking interview and the kid rushes in. And then the second kid toddles in and their like little bouncy chair or whatever. And then the mom risen tries to get everyone out. It turns out that guy was just from the future. Like, that's all it was. Yeah, and we've seen a couple episodes since then. I like the one.

I can't remember if it's CNN or the blonde anchor that had her little kid come over and start playing with the microphone. Did you see that one? No, I missed this one. From just like last week. And she's like, hey, mommy's on TV. Please don't play with that. But it was like a pandemic redux of the classic clip. But I don't think that anyone can top that other one with the mom.

just, you know, scrambling in on like all four is trying to drag them out. I mean, just the heroic effort to get those kids out. That was incredible. So listen, you know, we were talking about doing this. Like, obviously you and I have been talking about this, the context that we're living in for a long time. You were one of the early canaries in the crypto community who really decided to kind of put some of your reputation at stake to go all in on really talking. about this as the important context for not just the crypto industry, but the economy at large.

And I feel like, we were just talking about this, I feel like there's been this interesting transition over the last week, week and a half, where just the natural fatigue of this thing has set in in some ways, where, you know, the first couple of weeks were crazy and wild and scary, but exciting in this strange way and just because of everything was upended in a way that, you know, we couldn't possibly imagine. And people were still getting. fired up about trying to understand the response and what the right decisions were. Now we've been in it for a long time and people are just settling into this frustration and thinking about how we get out of it and thinking about what comes next. And I wonder,

where is your head right now in terms of the, I guess, you know, feel free to take this in any direction, either where we are structurally from from dealing with this crisis, getting back to work or in terms of the way that the market and the economy is understanding it and if they're doing that correctly. I think we're in a relief rally right now. And I'm not just talking about the stock market. I think it is really related to people's psyches. And when I say that, I'm thinking maybe, hopefully, the worst is over for this first wave of

the health crisis. You started to see hospitalizations dip. Cities like New York look like they're at or past peak in terms of acuity. You already saw, you know, 2,300 on the S&P. So what does that, you know, I mean? Is that at the bottom? Some of the big banks are saying that's the bottom. So in terms of people's portfolios, they're feeling a little bit more confident.

You've got the stimulus program that has been passed and out the door. the payroll protection program is going to be a bit of a mess, probably gets expanded so that more small businesses can take advantage. Regardless, you have massive unemployment benefits extension, and in fact, some people are going to make more money being unemployed now than they were previously when they were gainfully employed because the federal package plus state is ultimately going to come in at north of what some of these folks might expect from their paycheck. But all these things are in the three to six month variety in terms of relief. And that's with respect to health outcomes.

That's with respect to economic relief. And it's really with respect to just social relief as well. And most people, I don't think, are capable of internalizing the quasi-permanence that we could have in terms of social distancing. what that means for day-to-day life, different large swaths of the economy, and just how different the future of work, of play, of politics, is going to be impacted by something like this that just reset and, you know, shocked so many supply and demand curves one way or the other. And so when you talk about, you know, what comes next, what you're really talking about is

just the incredible number of second order and third order effects that you have to think about and ultimately how you're going to position yourself, your company, your family, and just have a sea change in attitudes, expectations for what the next couple of years are going to be. You know, the best case scenario is we find a vaccine for this thing or that it kind of gradually dissipates and we gradually get to herd immunity. But I think most people are an agreement that hurt immunity would be very, very expensive in terms of lives lost. A vaccine is not a foregone conclusion because coronaviruses are notoriously difficult to solve this. Now that the reason to be optimistic is because, you know, you've got the whole world working on one problem,

and it's so profound in terms of its mass, you know, societal wide impact that maybe people will solve it this time around or come up with treatment options at work. But you also don't know if if there's going to be different strains of this thing, you don't know if it's going to be easier for people to get reinfected. You don't know what the long-term health effects are and whether some of these asymptomatic cases ultimately lead to more acute problems going forward, what the long-term impact is on your lungs and what that means for mortality and all these just unknown, known unknowns and unknown unknowns that are, you know, continuing to play out. And so, you know, I spend, you know, most of my non-crypto, non-day-to-day time, not thinking about the health crisis anymore, but just how the world is permanently different.

The concept of a V-shaped recovery is, I think, incredibly naive. And the concept of things going, quote, unquote, back to normal, I also believe is incredibly naive. So what does that mean? And how do we, you know, make the most of this? how do we invest around it and come up with a smooth, graceful transition wherever we can, but not try to kid ourselves that, you know, we're going to go back in time and things will ever be as they were back in January. So this is an interesting point in an interesting area of nuance.

I think, you know, unsurprisingly, given that it's a public debate, but the lack of nuance has been one of the most frustrating things for me, particularly as it relates to actual, like, we have debated everything we can about getting back to work and restarting the economy, except how to do it, right? We've talked about when. We've talked about who gets to do it now. That's the big kerfuffle versus just how, and the immense number of steps it takes to actually do it, right? And this is obviously not everyone, but on a broad policy level.

And I think that an interesting bit of nuance coming from what you just said is acknowledging that there is no, quote, unquote, returning to normal doesn't mean, necessarily a blank set of scary things. It just means acknowledging certain realities and figuring out new ways to operate within those contexts. And I think that that's a really important conversation for people to have so that when they think about they're not being a normal, they can actually try to take advantage of those normals, basically accept what they can't control or can't change, fight what needs to be fought, and maybe actually adapt in a way that's positive outcome for them to things that could be opportunities. I'm interested in what you think about the conversation

happening now around contact tracing as one of the important parts of bringing the economy back online. This is obviously something that for folks in the crypto community who are particularly sensitive to civil liberties issues, privacy issues, self-sovereignty, it's a real point of conversation. And it hasn't had a, it hasn't actually been a universal, we shouldn't do anything like that. It's actually been a kind of a more complex conversation. So I wanted to get your take on what you're thinking about and seeing in that dimension. You know, I think Preston Byrne had a terrific post that captured a lot of my thinking as well. And I'm just pulling it up right now. I'm a libertarian and I'm going to download Apple and Google's anti-COVID contact

tracing app. And he kind of lays out his reasoning why. You know, in a crisis, no one's a libertarian, I guess, is like one pithy way to think about this. And I think I and many others that are concerned about the surveillance state, about the decline in individualism and kind of self-sovereignty, the accesses of, you know, the Leviathan. I think, you know, there's there's also a pragmatic streak in most people as well, right, even that have this political ideology. So if you think about, you know, if you want to go back to farming on your own estate and you want to move to Montana and, you know, you want to be introverted and live like the Unabomber and never rely on anybody else in society ever, then, yes, you can be. radically self-sovereign and not abide by the rules that everybody else in our state, our communities, our countries, whatever level you're thinking about, are going to abide by. And I think if this thing is as deadly and is as destructive and it is as economically dangerous as it has

proven to be, then some of the rules around surveillance and contact tracing kind of go out the window. Now, how do you prevent that from becoming permanent, right? So really what you're talking about is how do you reset the defaults so that you can truly have privacy for 99.9% of cases, and in some cases, maybe even more privacy than you had before. But for that 0.01% that basically you need to be online and submit to contract tracing, maybe anonymize or otherwise, with respect to containing this virus, there is no other option. I mean, there is.

It's herd immunity. And that could be, you know, 3 million dead Americans or, you know, a couple million or or could be worse. And on top of that, you could have pretty extreme consequences long-term for people's health. I mentioned you don't know what the long-term ramifications are on the lungs. You don't know what the long-term ramifications are with that many deaths and that many severe health consequences on the labor market either. So it's not like if everybody went back to work and we just took this robotic approach to, you know what, the economy is the only thing that matters. Fuck everybody that's too weak. This is a good Darwinian exercise.

let's just get back to normal. Even if you did that, there are still many, so many repercussions to that line of thinking that it would just be catastrophically bad. So you have to agree that maybe the only option that we have is being smart about where there are red zones versus green zones, how people actually self-identify or self-quarantine, and what programs need to be put in place, both technologically and socially, to make sure that this just doesn't cause social revolution in and of itself. If you tell people, you know what, you're not allowed to go to work and you need to, you know,

basically wear this ankle bracelet. And by the way, we're not going to give you enough support. So you're just going to gradually bleed out, lose all of your savings, and we're going to bail out all of the airlines and Carnival Cruise line. Then people are going to say, you know what, fuck you. I'm going to buy a gun and I'm going to actually revolts. And I'm not exaggerating here. I mean, if those are the options that you're giving otherwise young, healthy people,

hey, for the good of everybody, you basically need to learn to code or otherwise take a vow of poverty and just do this for the good of the U.S., and by the way, all of the money is going to trickle down, we promise. Or you need to actually get real about what some of the other alternatives are to be a little bit more strategic. I tend to think that what is going on on on the West Coast right now and what's going on in New York with these state alliance, is probably the best path forward, and it's going to be one of the most exciting experiments to see how it plays out. Because I think most people at this point, regardless of your politics, look at what the federal response has been, and all they see is failure. FDA, CDC, obviously the administration, but Congress isn't off the hook either. And the more power you can put into

state and local communities to solve the reopen and how the better. I agree. So let's actually talk about a couple of the unintended positive consequences of this. So going back to where we started with contact tracing in Preston's essay, a couple of his key points are, one is around the volunteerism of it in the sense that he might feel differently about this if it was mandated all of a sudden. But Google and Facebook have been very aggressive with their posturing at least that they will not allow this to become mandatory. So much, though, in fact, that strategiary yesterday was all about how this was laying bare, something that we all had a sense of.

But the fact that these tech companies that are of a size and scale that they do actually operate in a semi-autonomous political space, right? Not entirely, but they do have a certain amount of power that they can throw around. And this is an example of that. I think that this idea of voluntarism in this context is actually pretty profound. So, you know, Preston is saying that it's a, this is obviously a key part of a kind of a libertarian ethos is that people when given the right information will do the right thing in some ways. And another couple of data points on this. One, we've seen people actually comply with these orders to stay at home so far, right?

And, you know, in some places, these are being enforced by fines and things like that. But we haven't seen any sort of martial law, right? Cuomo, I feel like especially during the first few weeks, is aggressively trying to get people to do this voluntarily, right, and make it feel that they were not prisoners in their home. CDC came out with a study that says something like 90% of people are complying, right? Like, people are actually doing this right thing voluntarily, even though it's difficult from an outcome perspective. And so I think that one of the ways that that levels up is that maybe we can have a different

relationship with asking people to do things by explaining the real issues, right? You know, I think part of people's frustration with the guidance around the masks is that rather than just saying, like, yes, masks are going to help, but we really need the N95s for our health care workers, we had this, you know, two to three month period of lying about it, right? And it's, you know, Ben Hunt is called this the noble lie where whosoever in power uses a lie that they think is okay because it buys them more time to solve the problem and then gets to the other side of it and hasn't solved the problem. So I think that there's this interesting thing happening.

And I think that the state alliance piece of this may be another interesting dimension where you actually, you know, you're seeing kind of two very different trends happening at the same time. One, all of the inputs for greater dependency and reliance on the federal government are being put in place. While at the same time, you're seeing this mass wave of kind of agency, whether it be an individual community levels all the way up to your point to these kind of state alliance levels, which is a really interesting and perhaps unexpected outcome of this. Following from that, though, one thing that I

did want to come back to or one point that you made had to do with this question of the question of health outcomes versus economic outcomes. There was a very sort of, you know, to some people, clickbait report in the Business Insider, CEO of a major pork factory talking about how there could be a major food crisis supply chain issue in America because these factories are shut down. And they were talking about how their factories weren't shut down just because, or one of the factories wasn't shut down just because of state mandatedness. It was shut down because something like 293 workers had tested positive for COVID, right? And so I think this gets to your point about why there can be no binary, just turn the

economy back on is that, you know, a plant can't work if half of the people all of a sudden get get the actual coronavirus, you know, three weeks later. I guess one thing I'm wondering, and maybe you haven't spent any time with this, but have you spent any time looking at the return of Asian economies and seeing actually how productive their economies are? How much, you know, how much is China actually back online in terms of manufacturing? Because You have to think that they're dealing with the same thing in terms of factories and plants and processes and all this sort of stuff. Well, it certainly seems like they're picking up again in terms of how quickly, you know, I've basically only seen the same anecdotal evidence. To a certain extent, I don't know how much it matters, right?

Because the much bigger issue is, you know, what's happening from the consumption side of things in the U.S. and in Europe. and there's going to be this ebb and flow between east and west in terms of demand and how quickly production ramps back up. I just don't see this kind of magically getting better within the next six months, even, you know, year, 18 months. There's probably a permanent shock to some of these different markets in micro. I think in the, you know, in the U.S., the shortages are probably to be expected because of those supply and demand shocks.

Same thing, you know, kind of worldwide. But I don't think we're going to have like a wholesale food shortage. I don't think we're going to have a wholesale, you know, commodities or, you know, tech and material shortage, at least in the kind of near and medium term, because there's so much international desire to get back to work and get the supply chains greased again that. you don't have to worry about like the trade war like you did even a few months ago. I think on the surface it would seem more risky that you're going to have like a cold war between the U.S. and China. But people are, if they don't already, slowly realizing that both countries need

each other, you know, now more than ever just from a supply chain redundancy standpoint and from an economic restart standpoint. So regardless of whether everybody in America, blamed the Chinese for the outbreak of this virus and how out of control it when or everybody in China, you know, blame the Americans for scapegoating them and, you know, labeling them the kind of scourge of the world right now. But, you know, to a certain extent, it doesn't matter. You can't, you can't just turn on a dime and rebuild all that capacity in the U.S. or anywhere internationally. And you wouldn't necessarily want to because the shocks are. just too great. So I think the good news for those are in New York and California,

so much of the digital economy remains okay, right? You're going to have certain consumption that is permanently decimated or certain industries that take a significant medium term hit, but it doesn't change the need for STEM, new software, new automation, if anything, like all of those shifts have been accelerated. And the much bigger issue is just, okay, what happens if everything goes to Amazon, everything goes to drone delivery, we have autonomous cars, we have autonomous trucks, and, you know, software continues to eat the world, but, you know, maybe there's a five to 10-year acceleration. And then that starts to happen in financial services, right? So this is the goal of crypto. What if our

timeline got moved forward by five years, 10 years, what does that mean to banks, physical bank branches and all the retail locations and workers that that employs? So, you know, all this has really done is accelerate trends that were already in motion and, you know, set them and fast forward and to much, you know, more of an extreme level than we've seen. So that's a great segue to another question that I wanted to ask you about. How has the impact on the crypto industry or the response of cryptos been compared to what you would have expected? And that could be in terms of asset performance. That could be in terms of industry trends like M&A and fundraising. But, you know, anything that's either confirmed suspicions or surprised you vis-a-vis this industry?

Nothing has surprised me so far. My co-founder, Dan McArdle, wrote in July of 2018 a thread about how Bitcoin will perform and what the narrative will be when there is the next financial crisis and next recession. And the whole premise was Bitcoin is not a safe haven. It's not an inversely correlated asset where people will flock to it in times of distress. and it will ultimately act no differently than gold did during the 08 crisis. When there's a flight to liquidity, all correlations go to one, and that is going to include Bitcoin as a risk asset, just like it did with gold. Long term, if people are concerned about currency weakness, emerging market currency

crises or failures, if they're worried about the destruction and debasement of the dollar or other existing reserves, that's when the digital gold and gold narrative plays out and ultimately this has to be a cycle in which, you know, Bitcoin does well. As Bitcoin goes, so goes the rest of the industry in terms of asset performance. And asset performance leads to investment around the rest of the industry, which trickles down into VC, it trickles down into DeFi experiments, it trickles down into all the other layer one applications and protocols that are being built. And then I would argue it also trickles down to a certain extent to stablecoin infrastructure because any service provider that is tailor made for Bitcoin, Ethereum, and other

crypto asset support is being repurposed to support stable coins. You look at Anchorage and Bison Trails and all the exchanges and how they're thinking about supporting these dollar pegged or relatively stable assets. And it's basically all the the same rails and all the same infrastructure getting built out. So I think nothing has surprised me in terms of asset performance. Nothing is surprised me in terms of venture funding because it's kind of like, you know, the time for nice to haves is over. And the time for need to haves is here. And it's in some respects, good for crypto and the entrepreneurs within that we've already lived through two depressions, at least I have, right?

You know, 2015 was a depression. 2018 was a depression in terms of, you know, asset prices and the fundraising environment and just, you know, general attitudes towards crypto. And literally, you know, our markets went down 80 to 85 percent in both those down drafts. So, you know, from a crypto standpoint, this is not a huge deal, what's happened. And now that the, you know, governments worldwide have stepped in and basically is that we're going to do whatever it takes to prop up asset markets and prop up economies and make sure that, you know, people are getting paid and fed.

And, you know, we're basically just footing the bill today for, you know, maybe at tomorrow's expense, but who cares? We're solving the here and now problem. I think if Bitcoin doesn't rally, if people don't see the benefit of other Web3 applications, of privacy applications, of moving outside and building a parallel financial system of parallel internet and information economy, then the jury's out whether we ever actually had to escape velocity. because the conditions are perfect or should be perfect to get people excited about the decentralization of everything. And in particular, the decentralization of money if they're thinking about how to protect their assets in a future inflationary environment. One of the most interesting things, I think your point about rebuilding infrastructure to handle stable coins is really interesting because one of the more fascinating things that's happened is despite the potential that we're creating future inflationary conditions for the dollar right now

because the dollar is the world's one true safe haven asset and everyone is trying to get in and everyone is concerned about their dollar denominated nets and everything one impact of that is that you've seen a huge influx of capital into dollar denominated stable coins right that's been one of the hallmarks of this and I think what's interesting about that is that is actually an early indicator of your point of people moving into the space because of a need, right? It's not even just theoretical for the future. It's that if you are in an emerging market where you're having a very hard time getting access to actual U.S. dollars, and there's this thing that allows you to get dollar exposure effectively, even if it's not exactly the same, that would be a really desirable alternative.

and that's what we're seeing, which I think is kind of at least one early indicator that we may, that the crypto economy is doing something that it's supposed to, even if it's not the highly ideological, everyone moves to Bitcoin because they're worried about fiat to basement, right? So one of the things that you mentioned earlier and something that we've been talking a lot about here is second order effects. And I think, you know, we've talked about some second order effects that might be positive, some that are negative, and some that the jury's out. So I wonder if maybe we kind of wrap up with just, you know, what are the second order effects that you're most nervous about?

What are the second order effects that you're most excited about or you think have the most opportunity, either for you, your team or just kind of us as a society more broadly? And what are the second order effects where you're curious, but you're watching? Because you're just not sure what to make of them yet. Second order effects I'm most worried about has to do with the, this is probably third order effects. Yeah, I'm using that term loosely, I guess. Yeah, so second order effect is we have 30 million unemployed and they don't have a clear path to go back to work and there's state-by-state discrepancies. So you have a very hostile dynamic between the, you.

The states that currently comprise about 40% of the U.S. economy, the seven northeastern states around New York, that are forming a coalition to reopen the Western Seaboard, Pacifica, and then, you know, everywhere in between, you know, maybe we'll further balkanize similarly. And in a scenario like that where the attitudes are very different and there could be set ups for conflicts in terms of the economic restart and teams just going off their own different directions, I think you've got real threats to the very fabric of the U.S. That's order of magnitude more concerning in Europe. and it's because you have different governments, different fiscal situations at all the member states, and ultimately the only thing that's tying it together right now is some loose cooperation via the IMF and the European Central Bank and some of the nations that are contributing in Brussels. So it's not a foregone conclusion that the euro stays intact and the EU stays intact.

And it's not even a foregone conclusion that the U.S. stays intact, at least in its current form, the longer this plays out. And I think that, you know, that degree of unrest gets accelerated and more and more pronounced as these different regions grapple with unemployment in particular. That's the spark. And it doesn't help to have, you know, an outside. absence of leadership at a federal level. It only kind of exacerbates this trend and makes it it more likely that we could have a negative outcome. So I think that's, you know, I mean, that's the biggest one that I think you could think of. The associated with that, it's emerging market currency collapses and which dominoes might be the first to fall,

you know, if any, and what ripple effects does that have on global supply chains, on geopolitics, and ultimately on, you know, the next most vulnerable currencies. So you could see a scenario where there are some emerging market crises and currency crises, and then people start asking the question, well, what about the euro? And after a little bit longer, you know, the U.S. gets up to 10 trillion in in debt, or sorry, 10 trillion in terms of Fed balance sheet assets and 30 trillion in long-term debt, at some point, you know, people start asking, well, U.S. is pretty dysfunctional. Europe's pretty dysfunctional. China is not that much better, but at least they're funding us through their Belt and Road

initiative and giving us more relief than we're getting from the West. So maybe we should start thinking about this digital one. those are, I think, the just geopolitics on a European and U.S. standpoint and then currency crises internationally have to be the biggest things that everybody is thinking about if you're in crypto and you've been thinking about the money-like elements of Bitcoin for years as part of your investment thesis. I think, you know, in a less important but still, you know, extremely new standpoint, what does this mean for the future of work and the future of cities? I tend to think that cities are going to be just fine.

People have short memories. If you are young and single and looking to, be part of a vibrant community and have all the benefits that you and I know have enjoyed living in major cities, you're still going to go there. I think the labor force dynamic probably changes and this probably accelerates some people that are in their 30s and 40s, their move out of cities and into the burbs because they're going to be able to. They're not going to be as many requirements on, you know, quote-unquote, knowledge economy workers and finance and tech and wherever actually tethering themselves to a chair in an office. And instead, you know,

you can make the argument where that's going to be healthy and it could bring down, you know, commercial real estate prices, you know, rents in general in the cities because those with more disposable incomes that are higher up the earning power food chain, just one after the other start to say, fuck this, man. I'll come to the city. once a week or I'll come to the city, you know, for for a week a month or whatever, but I'm going to relocate my family here because there's a yard, there's a community. I've got my own space. We're going to be in this for a long time. And, you know, there's really no upside in being in a city if you're under lockdown. And if this is a new normal, then, you know, what's the point? I've got, I've got, just personally

speaking, I've got two little kids. We left for a three-month rental in another state. so that we had a yard, so that we had the ability to, you know, go run around outside and not just be cooped up in an apartment. I don't think that goes back to normal. I think, you know, my wife and I, we're not living in a palace right now. This is just, you know, a friend of our families, you know, three-bedroom little cottage. But it's enough for us to say, you know, look at what we would spend in New York, look at what we would spend in the suburbs of New York. why are we doing this if I can manage a team remotely or if I can contribute to my team remotely? And I just, I don't see that going away.

You've basically forcibly trained people on how to work remotely. And the concept of going back to an open office space for so many people is just maddening, right? So I think that third trends is just, you know, what happens to the future of work and how does everybody virtualize? Yes, absolutely. I mean, you know, preaching to the choir here is, you know, we kind of live this life permanently. And it was driven by, you know, I think, I've said this before, I think that 20, which cities you decide to spend your 20s in will have a more outsized impact on your career than college. You know, I think it already is happening, but I think that especially now. And so I don't think it's necessarily that people will just start in suburbs or rural. And I actually think that, by the way, like, rural, you know, just outside the band of, of city's real estate pricing is where people will find themselves, like two, two hours away from wherever the key city they want to be near is. And I think it will reshape things for people who are deciding to do the family thing. Let me let me let me just one thing on that. I do think that crypto changes that pretty

significantly. If you think about how people build their brands and where they they live. You know, Vitalik is a nomad. Vlad is, you know, who knows, who knows where he is. You know, Zucco is in Colorado. You know, Andreas is all over the world. You've got a ton of people that have kind of risen up the ranks, you know, just by being online and, and putting out good ideas. So it's much less important about where you are. I mean, you, you yourself, are not in a major city any longer. And you haven't been since you first got into the industry, right? So I can go down kind of the quote-unquote influencer list.

And for as many people as there are in SF and New York and Berlin, there's, you know, just as many, you know, pretty high-profile contributors that are either digital nomads or that live in North Carolina or Florida or, you know, somewhere in kind of the Midwest. the mountain, you know, Valley. It's, I don't think as important in this industry, and I think pretty soon that's going to be true in general for larger and larger spots of the tech financial services and,

you know, entertainment communities. Completely agree. I do think that part of what makes crypto so interesting in that front is that it's, you know, arguably the first technology industry. that grew up everywhere all at once, right? It didn't have one geographic locust that raced out ahead. It really kind of was distributed from the get-go. All right, Brian, I've kept you for a while.

Last question, what is your biggest cause for optimism right now? I think crisis brings opportunity. That old Rahm Emanuel quote, never let a crisis go to waste. some of the institutions, not some, I would say almost all of our institutions are rotten. They've been corroded over the course of decades. And every once in a while, you need a forest fire to just burn through. And the transition is painful. The reason for optimism is recognizing how

awful the situation might be and how challenging the time period might be is kind of step one. Step two is, you know, what are you going to do about it? And what do you build to help accelerate that transition and make it as painless as possible or at least as tolerable as possible during the painful period so that on the other side, maybe it's 10 years, 15 years, but the result is a much better form of society than, you know, what we're going to be. You know, what or what we've been living with for the last 10 years. I mean, you know, things are bad right now, but January, they were pretty shit for a lot of people, too.

It's not like, you know, globally, there was this kind of kumbaya moments. And in the West, you know, this has been bubbling up for years. It's why we got Trump. It's why we almost got Bernie as a nominee. It's why you have so many kind of far-right nationalist leaders that are rising up and this kind of tension between borderline fascism and borderline communism in so many countries. It is this haves versus have-nots environments that I think gets thrown into fast forward. And that probably creates a series of crises.

It's probably painful, dangerous, scary for a couple of years. But if leaders can actually step up in tech, in kind of a new wave of politics, then, you know, there's a fighting chance that what comes out the other side of this is fairer. It's more beautiful. It's more sustainable than what we had otherwise. And you don't get opportunities like that unless there are deep crises that proceed them, unfortunately. I couldn't agree more. Well, listen, Ryan, thank you so much for hanging out today. And I guess actual last question, just because I know there's a ton going on.

What should we be looking out for from Masari for the next couple of months? Mainnet events. Mainnet dot events. We're doing a fully virtual summit June 1st through 3rd. I believe that you're going to be participating. We've talked to. I know you're interested and we just got to kind of square away the details, but we've got over 100 speakers.

You know, my name is down for anything you need me for. Exactly. Exactly. Well, that's why I love you, man. It's easy. Well, it's going to be, I think it's going to be the biggest virtual events of the year. We're kind of going all out on it for those that don't remember. I used to run Coin Desk and the consensus conferences.

So I've wanted to do a large-scale event for a while. Our team has a zillion ideas for how to pull this off. Starting with the fact that this entire conference is split session. So there's going to be a main stage and unconscionation. conference and individual breakout sessions going on concurrently from the hours of 8 a.m. to 2 a.m. every day, the main programming is split between 10 a.m. to 1 p.m. East Coast time and then 8 p.m. to 11 p.m. East Coast time. So that we're able to loop in as many time zones as possible. Now, the only group of folks that get a little bit shorted is the Europeans that are going to have to either deal with

kind of middle of the night hours for the evening sessions. But otherwise, you know, we're able to pull in people from Asia, from both coasts in the U.S., and for the most part, from Europe during the lion's share of time that this is going to be open. And we've more or less solved the time's issue. So how do you get creative about networking, about happy hours, about expo, you know, all these things that mimic the live event experience? We are very, very excited for this event. And really, if you want to see everything else that Ms.R. is working on, you should plan on bookmarking June 1st through 3rd for the mainnet. And we're going to be featuring a lot of our work there. But most importantly, the work that the rest of the industry is doing to accelerate

ourselves five years in the future, given some of these shifts that we've seen as a result of the coronavirus. Oh, and last, certainly not least, 50% of the profits are going to relief efforts. So it should be a no-brainer for people to join, put it on their calendars, make sure that they can get as close to live events without actually traveling as possible, and then be hopefully a part of the solution as well. This is one of those areas where I think we're going to see a ton of innovation, forced innovation and experimentation, right? Necessity is the mother of creativity in this case for sure. Ryan, thanks for hanging out. I'm sure we'll be talking more soon. Awesome. Thanks, Ryan kind of said it all, but I just want to briefly reinforce this point at moments of transition

or moments of opportunity. I said that last week on my episode on Friday, and I really, really believe that's the case. This is not to be glib about the challenges that people face, but these really are the most opportune moments to have high leverage to make major shifts, both on a personal level, but also on a structural societal societal level. I can almost guarantee that some of the next wave of huge world-shaping companies, projects, organizations, networks will be formed in the cauldron of this very challenging time. So hopefully that gives something for us all to think about and to participate in as we're going through it. But as always, guys, I appreciate you listening and spending some of your quarantine time with me. So until tomorrow, stay safe and take care of each other.

Peace, guys. 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 Coin Desk. Welcome back to The Breakdown. It is Thursday, April 16th, and today we are talking about the battle for the future of money. It is heating up. What money looks like in the future is almost certainly going to be different than what it looks like today, and boy, are we living through some accelerated times when it comes to that. So originally, this episode, so it was going to be almost entirely about China. We've had a number of different announcements over the last three days,

including the announcement of a national blockchain committee, the announcement of the Blockchain Service Network, BSN, which is set to go live around the world soon next week. And we saw the first screenshots of an app for interfacing with China's digital currency, the DCEP, which I'll call DeSep from now on just for ease. But then this happened. This morning we got news that Libra was making a bunch of big changes. So that's actually where we're going to start.

We're going to look at what those changes are and what they mean for Libra's place in this battle for the future of money. So last year, one of the more interesting commentaries I heard around Libra came from Raul Paul, who Bitcoiners are now well acquainted with, the founder of Real Vision and an interesting thinker about markets more broadly. What he thought was interesting about Libra was this basket of currency's approach to a global reserve currency where you took the power away from any one single currency like the US dollar and you had it pegged to a variety of assets instead. That to him was the real interesting disruption because it fundamentally shifted the power balance. For those of you finance and monetary historians out there, you will remember that when the Bretton Woods order was being designed

post-World War II, Keynes was not in favor of having a single currency, i.e. the U.S. dollar, be the world's reserve currency. He proposed something that would be a supranational world currency administered by a central bank that represented the whole world that would be called the bankor. Yes, that's where the name Bankor of that protocol, of that platform of that token came from, which is interesting. Anyways, he was convinced that that was the right approach to a global reserve currency. The U.S., however, had just one World War II and was going to throw its weight around being the security apparatus for the entire world, and in that context, the U.S. dollar was always

going to be the world's reserve currency in that new global order, in that new system. Libra in some ways proposed to make itself the bank or but 70 years later. This was one of the most contentious parts of the Libra proposal for the U.S. in particular. For other governments as well, you saw comments from a French finance minister, Bruno Lemaire, very quickly saying that this undermined French monetary sovereignty and they wouldn't allow it. And when you had David Marcus and later Mark Zuckerberg testify on capital Hill, this was one of the key sticking points that it potentially undermined the dollar's place in the world in an explicit way. And their answers at first were kind of, well, you know, the dollar still makes up

50% of the basket, so it's still the biggest, but that's different than having it just be the dollar. This wouldn't have been such an issue if they had just pegged it to the U.S. dollar. By the time Zuckerberg got to Capitol Hill in the fall, if you'll remember, David Marcus went when the Libra was proposed in the summer. There were some indications that they were willing to maybe shift on this particular point to concede on this particular point. The news we got today is that concede they have done. There now will be, instead of this Libra, this single token that is a basket or backed by a basket of currencies, there are going to be a number of different fiat-denominated stable coins. So there'll be a Libra Euro coin, there'll be a Libra-USD and et cetera, et cetera. The only concept

of a Libra that sits across those or is something that is different than those is actually just going to be basically a digital construct. It would be a smart contract that's weighted, but backed by those actual Fiat peg stable coins. So that was the biggest shift. They've backed off what some people thought was the most interesting part of the entire proposal. The other part, which is similarly predictable, I think, is that they will no longer be, even considering permissionless participation that will be only accessible to regulated crypto firms, KYC, et cetera, et cetera, right? So it's basically going to be even more compliant with FATF type rules and KYC AML rules around the world. So two of the big shifts. Now, David Marcus announced

a number of other kind of smaller shifts in terms of how things are operating, but those certainly are the biggest. Let's hold the permissionless participation piece aside for a bit. I think that was most people would have predicted that maybe we'd get there. But the single currency model instead of the multi-currency basket model, I think is pretty big in terms of what Libra might mean in the battle for the future of money. The block, the way that they described it is that it said to them that the Libra was clearly positioning itself to be a helper to central banks who are thinking about digital currencies. And I think that that's dead on. I think that we've moved from something where the implications were really, you know, no matter what they said,

an asset that operated fully outside of the monetary sovereignty of nations, to something where Facebook is kind of positioning itself now, or I guess I should say the Libra Association, is kind of positioning itself now to be the chief consultant on CBDC projects. You've seen over the last few weeks, months, et cetera, as the coronavirus crisis has happened, And as people have seen the need for easier to distribute stimulus and all this sort of thing, a new interest or a growing interest in digital dollars and digital currencies as a mechanism to distribute funds. As that interest grows, it would not at all surprise me if some governments actually say,

well, from an implementation standpoint, we can either rebuild this entirely by ourselves or we can just go work with the Libra Association. So I think on a fundamental level, that is the new positioning. Because really, what this new Libra stablecoins will do is just make it easier to interact with the traditional fiat. So I don't necessarily think that this was particularly surprising. I think that governments groked pretty quickly the implications for this huge part of their power, which is printing money, which, by the way, we've seen a huge need for, at least in their

eyes over the last couple months. So the idea that Libra didn't have that big piece of its proposal go through, I think, is, like I said, not surprising. Still, though, it definitely means that they play a very different role potentially in the battle for the future of money. So something to keep an eye on, something to watch, but really interesting developments. Let's shift over to China now. So the first thing I want to talk about is related to Libra. When Libra was announced, the country that had the strongest, most immediate response was China. China announced that their digital currency project was being supercharged and was going to be coming out maybe within the year, although obviously that didn't happen.

And they were really putting the pedal to the metal on a project that they had initiated five years earlier, right? They didn't start work on this in the wake of Libra. They had started it earlier, but the presence of Libra of a private company potentially invading their monetary sovereignty was something that China was very disinterested in. Now, interestingly, when China started getting aggressive about announcing its timelines and its plans for its digital currency, that, I think in many ways, that reaction more than just Libra being announced itself, is what triggered the rest of the world to pay more attention to Libra as a project and to take it more seriously. In fact, by the time that these hearings were happening, especially Zuckerberg's hearing, one of the chief, if not the chief argument to Congress and to the Senate about why this project should be allowed to proceed, was that China was doing it and we needed to keep up. So we had some very interesting developments this week on the China digital currency front. On Tuesday, the Agricultural Bank of China shared some screenshots of a test interface for this. DSEP that made it to WeChat. They were flying all over WeChat. They got quickly confirmed as

real. And so we got our first look at the potential interface for the Chinese Central Bank Digital Currency. Now, the Agricultural Bank of China, ABC is one of four state-owned banks. So this is an official source. And the interesting thing about the actual screenshots is that they showed an application that was being tested currently, right? It's available for download from the ABC website. It offers a registration function but is only allowing whitelisted users, and those users are coming from, and this test is being carried out in four cities currently, four regions currently. Now, Matthew Graham, who is the CEO of Sino Global Capital, he was on the show about a month and a half ago, I guess six weeks ago now, talking about the state of blockchain in China as well as what lockdown looked like. It seems a million years ago, because it was before we were locked down, and they were just starting to come out of it. but he posted a nice thread on Twitter about exactly this.

So I want to pull out a couple of the pieces because he obviously has a differentiated perspective on this. So he says a DeSep wallet application from a test that included the Agricultural Bank of China was inadvertently published. It's important as it's the first time we've seen pictures of the working DeSep wallet application, which is rumored to have a targeted late 2020 release date. The pictures show that progress on DeSep is being made

and clarified some key details about the development process, players, geographies, and functionality of the system. So one key point here that I want to hang on for a second is this idea of progress being made. China has been clearly leaking things and making kind of intimations that progress is being made and things are going well, but as with that sort of source of information around basically anything at this point, everyone takes it with a grain of salt. The fact that we're actually seeing things with our own eyes, I think is a notable part of this. A couple of the key bits of analysis from Matthew and Sino Global Capital. The first has to do with geographies and showing that four cities represent the test geographies.

Shen Zhen, Zhang Shen, Zhu, Zhu, and Chengdu. Apologies, I'm terrible at pronunciation in this case. So his argument is that these are separate areas of China that are tier one or tier two cities, home to tech talent, and that in particular, Jean-Jean is interesting because it is a newly established development hub for an economic triangle in the country. The point, though, broadly is that it's geographically diverse areas, so they're getting lots of different types of feedback. Functionality, he pointed out that there's a lot of similarities with Allie Pay or 10 cents, WeChat Pay, basically 10 Pay, but argues that there's a touch offline payment functioning that's interesting

because it allows a user to complete a transaction via NFC, near-field communication, even went offline. Now, in terms of the key players, as I mentioned at the start, it came from the Agricultural Bank of China, which has 300 million customers. But I think Matthew's analysis here is really important. He says, we previously knew that DeSep would be a two-tiered system, tier one connecting People's Bank of China to commercial banks and other financial intermediaries, tier two, then connecting commercial to retail customers. Behind the scenes, R&B is sent to the PBOC's DC issuing treasury, digital currency issuing treasury, which then issues the currency to ABC's commercial bank digital currency treasury account at the PBOC. The commercial bank in this case ABC then debits the customer's

DeSep account, ensuring a one-to-one backing with Fiat RMB. This eliminates chance of over-issuance of M-0 as DSEP is not so much issued as it is converted. This is a really key point, right? And I'm adding this color commentary now. It's not so much issued as it is converted. This also makes the, quote, issuance of DeSep a bottom-up approach starting from the user's own bank wallet as opposed to top down from the PBOC. So long story short, we have a lot more information than we had just a couple days ago about China's digital currency, and it is very clear that they are moving forward with it. When they do, if they push it out later this year, it will be absolutely the largest scale experiment of anything like it of its kind. What impact that might

have on the U.S. and whether the U.S. feels urgency to get in the digital dollar game, I think is yet to be seen, TBD. Certainly right now we're dealing with a scenario where the U.S. dollar is proving itself to be the one true safe haven asset in the world, which could create some countervailing pressure, I guess, for the need to innovate. But it's going to get weird and it's going to get interesting. And it's very notable that China is pushing forward so aggressively. So two more little bits that aren't about necessarily the future of money per se, but are still about China and its relationship with blockchain. On Tuesday, they announced the National Blockchain Committee, a group that is meant to set industrial standards. It has 71 members, including executives from Baidu and Tencent, as well as

representatives from universities. Notable, Tencent and its affiliates filed the most blockchain patents in 2019, so this isn't necessarily surprising. But another sign of movement on the blockchain front, which was then honestly put to shame by the announcement of the BSN, the blockchain surferral. The blockchain service network. So this is basically a way for blockchain applications to be easier and faster to be built by both Chinese enterprises as well as by individuals, or not just Chinese enterprises, excuse me, but by anyone, right? This is a key piece of infrastructure. And so it is not itself a new blockchain. It's basically developer rails into a specific set of permission and public blockchains, although the public blockchains that it plugs into will only be available outside

of China. This is run by the State Information Center, which is a government agency in China. And we have heard about this before. It was first announced in October 2019, a consortium of companies from telecom, finance, and tech. But it is here now, after six months of testing, roughly, it is coming for domestic commercial use. It started being available yesterday in China, and it is theoretically going to be available international use on April 25th, abroad, in this case, meaning places like Singapore and Hong Kong first. Now, in their white, paper, they basically make a lot of comparisons about how much cheaper it's going to make things.

So they use a figure comparison of it costing $14,000 roughly or 100,000 R&B to build a blockchain local area network now, while BSN would reduce that by something like a factor of 50. They use the terminology of the internet of blockchains. And a specific quote that I pulled was, this will encourage a vast number of small, medium, and microsized enterprises and individuals such as students, to use the BSNs. to invent and innovate, thereby accelerating the rapid development and widespread use of blockchain technology. Now, they said that over the beta period, 2000 developers signed up, including one third of those being representing enterprises and another two thirds just being individual

devs. But here's really, to me, the absolute key line. As the BSN takes hold in worldwide countries, it will become the only global infrastructure network that is innovated by China whose gateway access is controlled by China. So that's from this white paper, from this announcement. As the BSN takes hold in worldwide countries, it will become the only global infrastructure network that is innovated by China, whose gateway access is controlled by China.

Let's talk about the significance of this. It would be too easy to just dismiss it as, oh, another enterprise blockchain thing. I think it's much more than that. So what is the significance of this move, this aggressive push? I think there's a few different pieces. One is the changing perception. China wants to change its perception, technologically speaking,

from just a copycat innovator to someone who's actually innovating more broadly. I think that's a meta theme that's been going on for longer than just cryptocurrency, but it is a piece that's worth noting. A second piece, which is really important, is this idea of technology diplomacy. We've seen China's Belt and Road initiative where they use infrastructure to go kind of try to get influence in places around the world, controlling this sort of key piece of. of digital infrastructure is a mechanism to go extend their sphere of influence. And I think that that actually is the key piece here in some ways, this controlling a key piece of infrastructure.

Again, they literally say it, the only global infrastructure network that is innovated by China, whose gateway access is controlled by China. I think part of this, frankly, has to do with preventing a private company like Facebook from another country from gaining a monopoly on digital currency. I think this is tied up much more closely than we might seem at first glance with the DSEP, with this digital currency process. But this is important because this idea of China controlling a key piece of global

infrastructure when you're talking about applications that include smart cities, that include identity registration, data storage, like there's obviously significant stakes in who controls this. I think it's a hugely important to pay attention to even though it's not money per se, right? it's not money crypto, it's the enterprise, it's the blockchain side of things, but hugely significant news this week. And again, what you're seeing across the board, whether it's the DeSep or the blockchain service network, is that China is trying to position itself as the world leader in this technology set and in its implications and money. So it's essential that we keep track of that. I will try to have

more guests in the next few weeks, few months who have unique insight to it versus just kind of armchair review and commentary like me. but hopefully this helped you understand a little bit of this news. A lot came out this week around Libra and digital currency more broadly. So thanks as always, guys, for listening. I'll be back tomorrow with another excellent episode of The Breakdown. I'm very excited for it. We have a really cool, different guest.

Until then, be safe and take care of each other. Peace, guys. Welcome back to The Breakdown, an everyday analysis, breaking down the most important stories in Bitcoin, Crypto, and Beyond, with your host, NL. The Breakdown is distributed by CoinDesk. Welcome back to the Breakdown. It is Friday, April 17th, and today we are talking about a topic that I think many of us can relate to.

There was an op-ed from Bloomberg going around all week called Money is Losing Its Meaning. And the central thesis was that while the U.S. may not be on a Venezuela-style crash course to hyperinflation, it is risking faith and trust in government-backed money by just creating so much seemingly out of thin air. And this is not a perspective that's limited to Bitcoiners. This is infiltrating Normies, where people start to ask these uncomfortable questions about markets and economy and money itself when the government can seemingly just make more of it for anything they need. The author of that piece, Money is Losing His Meaning, is Jared Dillian. Jared is the editor of the Daily Dirtnap, which is a markets and economy newsletter that has been publishing

since 2008. Before he started writing this newsletter, Jared was actually a trader with Lemon Brothers. He has a really interesting and diverse background, and I wanted to bring him on to discuss what's happening in the markets right now, why money is losing its meaning, and what it means for all of us. Now, Jared has an interesting story vis-a-vis Bitcoin as well. I first came across last year when he wrote a very interesting thread around how he was a former Bitcoin skeptic who has become a believer. Central to that point, and I'll let him describe it himself in the interview, but the key piece is that it was never skepticism of the underlying. It was about the bubble during 2017 and 2018. He ends that thread with a sentiment that I think many of us share. The need for

stateless money has never been higher. This is a great interview, a really good conversation. We talk about everything from buybacks to market rallies to the Fed and so on. So I hope you enjoy it. And as always, long interviews are edited very, very lightly. So knowing that, let's dive in. All right. We are back with Jared. Jared, thank you so much for hanging out today.

Thank you for having me on. Glad to be here. Awesome. Just for context, I'd love you to share a little bit about your background and what form you're thinking you're writing. Now I know what you do primarily is writing and content creation. But tell us a little bit about how you got here for people who may not be as familiar with your work. Actually, I had a completely different path coming out of college. I went to the Coast Guard Academy. I was, I was an officer in the Coast Guard for five years after that.

And while I was in the Coast Guard, I got my MBA part-time from the University of San Francisco. And I also got a job on the P Coast Options Exchange as a clerk on the floor. So I got to see the whole dot-com bubble, you know, up close and personal. And from there, I got a job at Lehman Brothers in New York. I was in the associate class of 2001. For seven years, I worked there. For the first three years, I traded index arbitrage. And the last four years, I ran the ETF trading desk, which was a really big job. When I took over, I think we were ranked like seventh or eighth in terms of market share. I grew it significantly at the end. We had, I think we were ranked second in terms of market share. So that was a lot of fun. And after the bankruptcy, you know, the whole time I was at Lehman

Brothers, I was writing a lot of market commentary, just Bloomberg messages. And they kind of like, they went viral. This is before things went viral. So I had a pretty big list. And I started the Daily Dirtnap, which is the newsletter I'm still writing 12 years later, which is a macro. sentiment-based newsletter. And it's grown about 10x over that time period. And that's what I do today. I do some other stuff. I write newsletters for Malden Economics.

I used to write opinion pieces for Forbes. Now I write for Bloomberg opinion. Gosh, what else? And I have another venture, which is a personal finance venture. I have a radio show called the Jared Dillion Show, is currently on five stations and trying to grow that syndicate. So that's kind of my other line of business right now. The life of an independent content creator, right? Yeah. Yeah. You got put it out everywhere and kind of try to bring it back. But no, I love it. I mean,

you know, I think a lot of folks in the Bitcoin and crypto space are, you know, they get a lot of their information and perspective from this sort of class of independent conduct grater. So, you know, always excited to have kind of this type of voice on the podcast. So speaking of Bitcoiners, I know that you had kind of a journey with Bitcoin. And for a lot of the folks who know you in the Bitcoin community, they got to know you through a thread from last year. But I'd love to hear just, again, for context for people who don't know as much about you, you know, you kind of shifted your perspective a little bit from,

call it late 2017, early 2018 to towards the end of last year. So take us through that journey. Yeah. I mean, I never was in doubt of Bitcoin or the technology. My feeling in late 2017, early 2018 was that it was a massive bubble. I mean, this is, you know, when I invest or, you know, when I write, my focus is on sentiment. and I'm really, really good at spotting extremes and sentiment, whether it's extreme bearish or extreme bullish sentiment. And, you know, what I saw towards the end of 2017 was extreme bullish sentiment.

I remember the thing that pushed me over the edge of the time. I had this, there was this woman I went to high school. In fact, we were, we were, she was my girlfriend in seventh grade or maybe eighth grade. She was my girlfriend in eighth grade. And we're friends on Facebook. Now she is divorced two times. she lives off alimony and she's a piano teacher. Okay, that's her income.

And she sent me a Facebook message asking me if she should buy Bitcoin. And I said, oh my God. Like this is, this is definitely the top. So I was like a very noisy Bitcoin bear. And I was pretty public about it like on Twitter. And there was a lot of Bitcoin. There was a lot of crypto people that were, you know, coming after me. and it was a little bit ugly.

But like I said, I never had any objections. I'm not anti-crypto or anything like that. I just felt that it was a huge bubble. And it's going to sound like I'm going to sound like, you know, I'm calling tops and bottoms and showing off. And like this is like an ego thing, but it's really not. But, you know, after the price went down for a while, then I started really doing some work on it.

And I said, you know, this is really interesting. And I started to warm. up to it when it was around 4,000, but I didn't actually pull the trigger all the way until it was at 10,000. But it was around that time that I wrote that tweet storm, which kind of went all over Twitter. So, you know, especially in this environment, you know, all the money printer go burr and all that stuff. Like everybody gets it. Like, you know, we are living in an MMT world right now. And I'm also a gold investor. So I have, you know, I probably have like 10,000. times as much money in gold as I do in Bitcoin because I'm a little bit old school, but still,

like, you know, that's kind of when I started to warm up to it. Yeah, it's interesting. And I think that you're right. This moment is having a lot of people kind of perk up and ask these fundamental questions about money that folks who are interested in Bitcoin tend to ask, right? And so it's interesting. One of the things that I wanted to do is your last three op-eds for Bloomberg have been really interesting. They've all been kind of in the larger context of the lockdowns and the coronavirus crisis from an economic standpoint. So the first one was from late March, and it was about just how weird safe havens are behaving. Now, that's evolved a little bit since then, obviously, in terms of how gold is performing. But, you know, what have you noticed in terms of, in terms of this question of

safe havens. I even, I saw a Wall Street Journal article today about how investors are freaked out because safe havens are going up at the same time as stocks are going up. Well, I mean, the focus of that piece was I was talking about how people's perception of safety, it has totally been turned upside down. You know, if you go back, if you go back six months ago, if your mom walked into an Edward Jones office was $700,000 and told the Edward Jones guy, the financial advisor, that she wanted to be in something safe, he would have put her in stocks. Okay. Now, he would have put her in like, you know, high dividend stocks or value stocks, whatever, but he still probably would have given her an allocation in 100% stocks. And basically, you know, in the early part of this crisis, nothing, nothing was working.

I mean, you had days when bonds weren't working, stocks weren't working, gold wasn't working, and everything that people thought was safe had been totally turned upside down. And now, you know, gold has rebounded a lot since then. Bitcoin has rebounded some. I mean, that's, you know, when you're talking about definitions of safety, like that's what I think is definitions of safety, things that you can't print, things that you can't create out of thin air. So I would say, gosh, 30% of my portfolio is in that type of stuff. So, yeah.

Yeah, it's interesting. And we're seeing, you know, the numbers are starting to roll in with, I think, the highest percentage of cash in portfolios since September 11th. And, you know, so I guess I'm interested in your kind of larger take right now of where we are in the life cycle of this crisis from a, from a markets perspective. Obviously, there's still a lot of pain in the kind of pure economic sector of people being out of work. Yeah, I think from a market standpoint, I mean, I don't want to get too deep into the Federal Reserve, but they've, the Fed has effectively, this is a place if you do. Yeah, okay. Well, the Fed, I mean, the Fed is

effectively backstopped, the credit markets. and by extension, the equity markets and the bond market and the mortgage market. And really like, you know, there's a lot of traders out there who are saying, well, we can retest, we can go down, we can go down to 1800. It's really, it's not possible. I mean, the Fed has spent about $4 trillion on this and this idea that they'll spend $4 trillion and not another trillion if they have to is kind of absurd. Like they've, you know, they're all in.

And I think that, I mean, look, like one of the things, you mentioned my piece in the 10th man today about chaotic neutral and that kind of type of stuff. Like you just, your only choice is to play along. As distasteful as you may find, if you are morally opposed to what the Fed is doing, that's fine. But you have to play along. Yeah, I loved your line. the last line of that piece was, yes, capitalism is ending before our very eyes. It is unspeakably awful. Might as well make some money off of it.

Yep, exactly. I think it's really interesting. I think it's a refreshing perspective to be able to hold agnosticism in terms of kind of how you engage with the markets and not have that be mutually exclusive from your principles in terms of the way that you think should be. right, but like you only have so many vehicles and you're voting with your writing, right, your content in terms of those principles and in terms of what you stand for and the type of policies you want to see while also, you know, being kind of clear-eyed and like I said, you know, agnostic about what the actual context is. Yeah, I think you have to trade things not as

they should be, but as they are. And that's really the crux of it. One of the things, one of the things that I noticed also from that piece. And or maybe it was an earlier piece of yours, but you talked about buybacks. And one of the things that we saw sort of more at the beginning, right, before everyone got focused on the stimulus package, was that buybacks had started to become a, the kind of boogeyman, right? The blame factor for part of this. Do you see that continuing as we get kind of out of the immediate urgency?

Do you think that we're going to have a different conversation about buybacks? Is that going to be a political football, basically? Yeah, it is. I mean, I think a lot of things. First of all, we've known for a long time that buybacks were the source of most of the gains in the market. Torsten-Slock and Deutsche Bank put out some charts. This was back in like 16 or 17 and showed that pretty much all the gains in the stock market were coming from buybacks. Okay.

Now, in a lot of people, I was opposed to buybacks on the grounds that corporations trade their stocks incredibly badly. They buy them back on the highs and then inevitably something bad happens. The stock goes down and they have to issue more stock on the lows. So they're buying stocks high and they're selling stocks low and they destroy value all the time. And IBM is the perfect example of this. I mean, before the crisis, IBM had 140 billion market cap and they had spent 160 billion on buybacks more than the entire company was worth. So I think the political blowback here, you know, it was funny like AOC had a tweet on this and, you know, about the airlines, about the airline buybacks, how they spent 96% of their free cash flow on buybacks and now they were getting a bailout. And I looked at the tweet and I was like, son of a bitch, like I actually agree 100% percent.

with AOC on this. Like she absolutely nailed it. And, you know, a lot of the buybacks were, you know, explicitly for the purpose of enriching management, for sure, you know. So I think I think the smart thing to do would be like if we were in a 1980s Reagan Volker world, we would eliminate taxes on dividends and make dividends and buybacks equal from a tax treatment standpoint. So then companies would pay more dividends.

But really where we are right now is where we're moving towards getting rid of buybacks and also discouraging companies from paying dividends, anything that reward shareholders at all. If you look at dividend swaps in the United States, we're projecting that dividends are going to be down 40% in a year. So it's actually not just buybacks. It's dividends as well. Yeah.

It's interesting. I mean, this gets into another conversation a little bit, which is what the political will to make any of these real changes is going to be after this, right, in the wake of this. Like, let's say we get the economy back to something that's turned on. And we're actually looking to elections. Like, it's hard for me to imagine exactly where the will is going to come from for anything that isn't just the easiest sound blight or tries to find someone easy to blame, you know? Well, I think in the case of buybacks, I mean, I think I understand where you're coming from. Like, you know, there was a point, there was a point in time in our history back before about 1983, I think, where companies couldn't do buybacks because it was considered manipulation. And I actually, I wouldn't be really that sad if buybacks went away.

So, you know, it's a knee-jerk, stupid, you know, political reaction. to what happened. In this case, I would actually sort of agree with it. Like I said, I think there's better ways to do it. But if, you know, if tomorrow we decided to make buybacks illegal, like, I actually wouldn't be sad about it. So, yeah, no, I think that that's right, that it's, it could be the instance of that sort of reactive or hyper-reactive instinct working, you know, working out ultimately. I was thinking about this also, though, in the context of, the context of of your, I think it's the middle of these last three pieces, the coming tax bill will be large and ideological. And effectively, kind of where you're landing is that in an MMT world, as you've put it,

which would be interesting for you to define a little bit, just the way that you see that, tax rates will be driven entirely by ideological concerns rather than practical concerns, such as revenue collection. And I thought it was interesting, particularly in the context of Ray Dalio tweeted yesterday, I believe that after the coronavirus subsides, we will begin to talk about how we will pay the multi-trillion dollar bill for the stimulus package and who should get what in this new world order. That will be a defining moment because we will see, then see if we can do it with mutual consideration and sacrifice, or if we can't and we'll fight instead. If we can do it together smartly with consideration, it will be great. If we can't, it will be

terrible. And it's just hard for me. I read that. My first instinct was like, are we really going to have that conversation. It feels like we're just going to not. You know, we're going to kick that ball down the field. But yeah, I'd love to, I'd love to hear more about kind of this take of yours about living in an MMT world. Well, I mean, basically, you know, with the two, so our budget, we were, we had about a $5 trillion budget and we were collecting about $4 trillion in revenue. So we had a $1 trillion deficit. So that deficit is about 5% in GDP, which is high, but not, I mean, it was much higher during the Obama years during the financial crisis. So it was high, but still sort of manageable. So we just spent $2 trillion on the stimulus. Trump tweeted that he wants to do $2 trillion on an

infrastructure package. My guess is we're going to come back to the student loan issue at some point. That's $1.6 trillion. My guess is also that we're going to do another stimulus package at some point. That seems in the cards. So you could actually have, 2020, you could have $10 trillion in spending in $4 trillion in revenue for the government. And there's no amount of taxes that you could possibly collect that could pay for that. It's not an issue of taxes. In fact, tax collection in that scenario is incidental to financing the government. And how the government is financing itself is by issuing debt that the Federal Reserve buys with printed money. So in effect, in an indirect way, the Fed is directly financing the federal government, and that is the definition of MMT.

So in an MMT world, if the government is sort of freed from these constraints and they no longer have to depend on tax revenue to finance themselves, if they're all doing it through the central bank, then you could set tax revenues wherever you want. You could set them at zero. You could set them in 100 percent. You could set them at 50 percent. And so in that world, the whole discussion on where taxes are is going to become purely ideological because in ordinary times, there's practical concerns. If you raise taxes too high, then people avoid taxes and there's distortions. If you lower taxes too much, then you don't collect enough revenue. But all of these practical concerns go out out the window in all of our discussions about taxes going forward are going

to be about inequality and economic justice. It's interesting because, and I think this bridges into the last piece, which is the thing that, like, I've been wanting to invite you on for a while, but when I read this last piece, it's like, I've got to get you in right away. Money has no meaning anymore. Money is losing its meaning. So the interesting thing that I've noticed is as the forms of engagement from the Fed get increasingly more exotic is the way that one Bitcoin investor has put it, you're seeing this really interesting thing happen where people are,

asking questions like, well, if they can just do that, right? If they can just authorize billions and billions, trillions of dollars for seemingly anything they want, why the hell are we paying taxes? And by the way, why not student loans and why not mortgage it? Why does anyone pay for anything, right? And it's this intellectual, slippery slope for people that, you know, as folks in the folks in the Bitcoin community are slapping their hands on the table and being like, see, this is what I've been screaming about like a crazy person. But for a lot of folks, there is this, there's new, the Overton window on what the hell money is, is opening in a big, big way. I'd love to hear what inspired this money. Money is losing its meaning post because I think that really hit the

nail on the head. Well, part of it was just the big numbers. I mean, part of it was, you know, and we kind of went through this in 2009. In 2009, the Obama administration under Larry Summers passed the $780 billion stimulus, which was massive at the time, an $800 billion stimulus. And here we passed a $2 trillion stimulus. And basically, the first thing that came to mind was these numbers are becoming so large that they are not really having any meaning. And pretty soon we're not going to be talking about trillions. We're going to be talking about quadrillions.

I mean, it just becomes, and like you said, it's a slippery slope. it just becomes all imaginary. So that was sort of the genesis for that piece. Yeah, it is a really interesting. I mean, I guess where, what do you think from a, the piece and maybe I'm putting words in your mouth, but it felt to me like your first order concern in the immediate term wasn't the USA turning into Venezuela, right, hyperinflating. It was more the loss of faith in the money system, right, in the current.

as a whole. Is that accurate? Yeah, a lot of people focused on the Venezuela part of the piece. And they, you know, because I said there's, you know, we are not going to turn into Venezuela for sure. Like I've, I've known some Venezuelan expats. We've had this discussion. The U.S. has much stronger institutions. I mean, yeah, we could get there, but it would take 50 to 100 years. So that's not really a relevant discussion. But, yeah, I think, I think the piece, it's really just a loss. of confidence in money. And this is, there was an interview with Paul Volker. I can't remember who did it.

It was PBS. PBS did an interview with Paul Volker like back in the 80s. And Paul Volker basically said that one of the government's primary jobs is to instill confidence in money. And that's one of the things that the Federal Reserve is supposed to do. And I think what, the thing that motivated that piece was we are at the early stages of a loss in confidence in dollars. We're at the very early stages of it. And that's what motivated that piece. How do you think that that, because it feels like we have this weird two kind of

conflicting forces going on right now. On the one hand, the whole world is desperately trying to get into dollars so much so that we're even seeing in the crypto space, you know, billions flowing into USD stable coins, right? But on the other hand, you have all of these conditions, which to your point, are creating the context for people to lose fate. How do, you know, how do you see that battle playing out? Or is it just impossible to tell because we're in such new, new territory? Yeah, I mean, there's a group of people out there who are really bullish on the dollar. They talk about a shortage of dollars and they talk about capital flows and stuff like that. I'm not really an expert on those types of issues. And it's, it's not just that, I mean, there's a lot of

reasons that the dollar would appreciate versus other G10 currencies in this environment. So I guess from a trading standpoint, I mean, like being long, the dollar is not unreasonable. But I'm just talking about a loss of confidence in the Fiat money system in general. I mean, this is something that crypto people have been talking about, like you said, for years. And like now it's actually happening. So one of the really interesting things we've been. doing on the show is it's kind of trying to keep track of second order and third order impacts, right? So things that are triggered because of this. So a couple that I've noticed you discussing

that I'd love your take on just because I think everyone right now is trying to make, like we've gotten to the point of acceptance that this thing is real, you know, the impact is going to be significant. And now people I think we're trying to make sense of and process how, right? So two that I noticed, one had to do with savings and spending habits. So you tweeted something to the effect of you think that consumption patterns are going to be permanently altered. Do you think that this has been enough of an impact that people will start to actually save in a different way? Yeah, I mean, our savings rate right now is 8%, which is low by historical standards, but it's not the lowest. The lowest it got was 2% in 2006.

But still our savings rate is pretty low. and, you know, look, like we've all been living inside for the last month. So my consumption patterns have changed. I look at my credit card bills month over month and they're down 60 to 70 percent. And everybody I talked to is the same thing. And what people actually like my brother, who I would characterize as a free spender, he really likes to spend money. He called me up the other day and he's like, you know what?

like I'm saving money and I like it. Like I'm actually putting money away. And I think for the first time in a long time, people are seeing what it's like to save money. So I don't think we can expect that, you know, after the lockdown ends and everybody goes back to normal, that those consumption levels are going to return to what they were before. I think we're going to get to 70% of what they were before.

And the economic impact is going to be massive. I mean, people have estimated that, you know, out of all the restaurants that have closed down to the U.S., 100,000 of them are going to stay closed. And it's, you know, it's absolutely true. Yeah, I think that's one of the things that we're radically underestimating is the number of small businesses and sectors that are just going to get wiped out because they just couldn't deal with how long this went for. Or maybe they were teetering already and decided to pack it in, you know. I think there's going to be a lot of carnage in that space that I don't know if we're pricing in, at least on kind of a mental level yet. So the other second order effect that I noticed a discussion of from you on Twitter has to do with colleges. This is something that we've talked a lot about on this show as well.

It's hard to imagine the university system returning to anything that looks similar to what it was before. Yeah, I mean, and colleges and universities have been very poor stewards of capital. I mean, it's been a big bull market in higher education. And they haven't, you know, except for the schools with big endowments, I mean, most colleges are completely unprepared for this. They haven't put anything away. They don't have any reserves. And, you know, I was discussing this today with my wife. She works in higher education. You know, there is going to be a little bit of a factor where, some kids do go to school or stay in school because their job prospects coming out of the crisis are going to be pretty bleak. And that happened in the financial crisis. The number of people enrolled in colleges actually went up. But from a long-term perspective, in terms of just the actual act of learning in a classroom, I mean, that has just changed forever. And if you think about this, like when people think about how they're going to spend money on education, and they can spend $10,000 on the University of Phoenix or $80,000 on Stanford for the same product,

which is basically an online education. And by the way, University of Phoenix is better at it because they've been doing it for years. Like the whole economic calculus just totally changes. I think one of the things that you're going to see is almost like a depackaging in some way of of college where you won't think about it as this one potential purchase item, but it's like, where are, there's a learning aspect, there's a credentialing aspect of it, and there's a social aspect of it, right? And those things can actually be unbundled to some extent, you know, like, I think that you're seeing, you're seeing so much activity over the last 10 years in terms of,

you know, professional networks, distributed professional networks that do a lot of that networking where you used to only have your college or your alma mater, right? You have, you know, cities He's just playing the role of that social impact for a lot of people. And then you have the credentialing, but the part of the problem, I think, fundamentally with the university business model over the last 30 years is that everyone was sold that basically the middle and lower tier of colleges sold the same value proposition that the top did when it's just not the case from a credentialing standpoint. You know, you're not going to get that value, that return on investment. Yeah, and a lot of the, a lot of the middle and lower tier schools actually had the same price point as the higher tier schools, which is the thing that's kind of strange. The unbundling is absolutely true. I mean, a lot of people were going to school for the social experience.

I mean, they were going for the fancy dorms and the swimming pool and the climbing wall and, you know, all the luxury gym and all that stuff. And, you know, once you unbundle that and you can say, okay, this is the, this is the, this is how much I'm spending. for the education piece, and is it really worth the extra $70,000 for all the rest of it? I think people are going to come to the conclusion that it's not. So, I mean, when you talk about, I mean, if I were to put a number on the number of colleges and universities that would actually fail in this environment, I would say it would be 20 to 30%. Yeah, I think it pushes a lot of places over the edge. And then I think actually in some ways, like just the idea of a university failing will probably

trigger a lot to actually think about it. That's like an unthinkable thing right now. But again, I feel like that's one of those Overton window shifts where all of a sudden people will not just assume that all these universities that have been there forever will be there forever. Yeah, I mean, there's a lot of these discussions are being had in every school in the country right now. And basically, these budgets were on a razor's edge before.

And they're looking at this and they're saying, okay, like, even, even, if our enrollment is flat, we're going to be down X number of millions of dollars just because of all the revenue we lost at the end of the spring semester. So, but, you know, enrollment is probably not going to be down. Enrollment is probably going to be lower. And then you have to think about places to cut costs. And there's like easy places and hard places. And it's, you know, they're going to have to look at athletics, which people haven't looked at in the past. They're going to have to look at administration, which they haven't looked at in the past.

So even for the ones that survive, it's going to be very, very hard. You're, you know, a big part of your job is to sit back and try to observe everything and understand how they all, how all these factors come together. Are there other parts of the market that have been particularly interesting to you or more of these second order effects that you're thinking about kind of going forward? Or is it more just day to day trying to understand the latest developments? Well, I will say that I don't know about second order effects. I can tell you that what the Fed is doing in the credit markets is kind of at the front of my mind right now. I mean, it's explicit support of the credit markets. And, you know, this isn't the first time this has happened in history.

I don't remember, I think it was like 2014 or 15 that the ECB started buying corporate bonds and people thought that this was this temporary liquidity facility. And guess what, like six years later, they're still buying corporate bonds. Actually, it was longer than that. It was like 2012. And so they went from the European financial crisis all the way to Greek bonds trading in negative yields, right? So what the Fed is doing right now is not going to be over in six months. It's not going to be over in a year. They're going to be buying credit for years out into the future.

And if you, you know, I think those distortions that like what the ECB caused are going to happen in the U.S. And I just think it's, I think that's really the easiest trade out there. is to be long credit. What do you think for those who are just trying to wrap their head around this, how does this shake out in terms of what do the distortions look like? I guess it's a way to ask the question. Well, I mean, going into this, you know, high yield spreads were so low. Your typical high yield bond, your double B bond was trading in about three and a half or four

percent, which was incredibly low. And then in the early stages of the crisis, they got out to about 10 percent. I mean, it'll get back to those previous levels and lower. Like the Fed support of the credit markets is unconditional. And it's going, it's, you know, it's like with QE. I mean, we started QE in 2008 and we didn't end it until 2017. And along the way, it created a huge amount of distortions. You know, one of the things that people were talking about with QE back then was that how it created inequality.

Because basically QE made asset prices go up. and the people that owned assets were people who had money. So it actually, QE was the primary driver of inequality. That was one of the major distortive effects. And, you know, there's going to be distortions that come out of this that I can't even comprehend right now. In all this, you know, because I think a lot of folks share some of these concerns, what has you right now most pessimistic and most optimistic looking forward? I think what has me most pessimistic is the arguments that we're having about the shutdown.

And what, you know, like it's like anything else, like it falls along political lines. Like there's a lot of people who are clamoring for an end to the shutdown. They tend to be conservatives. There are lots of people who want the shutdowns to continue longer. Those tend to be liberals. and there's not a lot of common ground there. And I'm sort of like looking ahead to an environment where there's, you know, there's a showdown between the federal government and the states.

And it just, that makes me very pessimistic. The part that I'm optimistic on is, you know, I think that we will find, you know, one of the things I said in one of my 10th man pieces was that the PPE that hospitals needed. They were going to get the PPE that they needed. The free market, the invisible hand, provides whatever people need at low cost. And that's happening. You saw all types of entities creating masks and stuff like that. So that fixed.

The same thing is going to happen to the vaccine. I think we're going to get a vaccine earlier than expected. I'm sort of optimistic as to how the virus is going to play out longer term. It's interesting. One of the, we've talked about. talked about this a lot in the past few weeks, but one of the things that's really, I think, optimistic for me too, is that in this context where there's more reliance in some ways, at least from the markets, on the government than ever before, you're not really seeing people

necessarily just kind of like turn over and like slide, slouch into dependency culture. You're actually seeing the opposite effect for a lot of folks where they're finding this resilience and investing in community and figuring things out because they just can't wait, you know? And I think that there's a lot of people who are going to come away changed from that and do interesting things. Yeah, for sure. And, you know, this is, none of this is being centrally planned. Like, you know, Trump is not a dictator. This is, none of what's happening is being directed by one person anywhere. This is, it's, it's the market. It's happening collectively. And like you said, it's people acting individually to serve their own best interests.

And that's how we're getting through this. Where can people find more of your ideas that they want to keep track of all this? You can follow me on Twitter at Daily DirtNap. I'm a contributor at Bloomberg opinion. You can read my editorials there. My newsletter is called the Daily DirtNap. I've been publishing it since 2008. You can find that at www.

daily dirtnap.com. And if you want to subscribe, you can, you can reach out to me there. Love it. I guess actually one last question since you've been writing this since 2008. Do you have, I mean, it might be so hard to tell, but how does your gut sense or feel of this crisis differ from 2008? Man, you know, well, it was funny because when I was at Lehman Brothers, I ran a performance. proprietary trading book. And I was, I was part of a group of people that was, you know, I was actually betting against the housing market. I was, you know, buying, I was like shorting the subprime lenders

and doing all that stuff. But I vastly underestimated how bad it would get. And I remember there was a moment when I was sitting in my office on 3rd Avenue when I just started my newsletter. And I had my business bank account at one of the banks. And I looked at my Bloomberg and I looked at the stock price at the bank. And immediately I thought to myself, my money is actually not safe in the bank. Right. And that was like, that was a terrifying experience. That was an absolutely terrifying experience. That absolutely nothing was safe. Now, we went through this a couple of weeks ago, but I think, I think we're out of it now. But, you know, the financial crisis started in the summer of 2007 and it ended, you know, the stock market bottomed in March of 2009. I mean, there were

stretches of weeks and months of that kind of fear. And it seemed like it went on forever. And this is a little, this is different. I mean, the difference today is that, you know, back then with the financial crisis, we knew, we kind of knew how it was going to play out. We knew that there was too much leverage in the system and we had to de-leverage. But this is something totally new. We've never dealt with this before. There's no model for it. and there's a lot of unknown, so I think that makes this a little bit more scary. Jared, I really appreciate you hanging out. I'm sure the audience did. Thank you so much. Thanks. You're a great host. Thanks for having me on.

One of the things that I appreciate most about Jared's perspective is the dispassionate analysis, the ability to hold simultaneously extremely principled positions, but also not get swept up in them. I think it's a really important way to look at what's happening right now because people need to be nimble. We need people to be able to act. And if we get caught up too much in our ideology, it can be slow moving for us, right? It can actually impede us. I think that it's often unpopular to not push forward with your kind of extreme points of view in social media. I hope you enjoyed that perspective from Jared.

I know I did. It's Friday, guys. I hope that even though the days have sort of lost meaning for a lot of us, that you're looking forward to the weekend. You're going to spend it with people you love. So until next week, be safe and take care of each other. Peace.