The Breakdown - The Breakdown Weekly Recap | April 4 2020

Episode Date: April 4, 2020

The full week's episode, in one convenient file. Monday | Bitcoin, Stablecoins, DeFi and Privacy: How COVID-19 is Changing Key Crypto Narratives Tuesday | ‘If You’re Not Radicalized, You’re Not Paying Attention’ Feat. Nic Carter Wednesday | How Coronavirus Is Accelerating the End of Globalism, Feat. Peter Zeihan Thursday | 5 Reasons For Cautious Optimism In Crypto Friday | Will DeFi Even Matter In A Post-Corona World? Feat. Matt Luongo  

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 4th. And as every Saturday, this is an extended episode that has all of the rest of the week's episode mashed into one for your long walking around the house from room to room because that's as far as you can go. or your death-difying errands out to get additional supplies, whatever it is.

This is all the episodes in one. But what I like to do is recap a little bit about what the theme of the week was or what the feel of the week was. And I think that this week was interesting because if you go back two weeks and listen to this episode last week, I was really nervous about the degree of politicization around the response. to coronavirus, particularly this idea that the health outcomes and the economic outcomes existed as two competing countervailing polls rather than as something that were inextricably linked together. That changed this week. We had a full admission from the White House on down that this was a thing that couldn't just be turned on or off and we couldn't just restart the economy

because we felt like it, right? And so because of that, I think that there's now an opportunity to talk about what comes next in a way that didn't before, right? Last week, people were discussing and debating is the cure worse than the disease, but it was highly politicized. This week, we have a chance in going forward next week to actually discuss what it looks like to win this war. And I think that that's a really important point that we're not really discussing. Balaji Shredivasa, who has been ahead of the curve on all of this, wrote an interesting tweet this week where he basically said, there are so many people who don't realize that there's no normal on the other side of this. And I think that that's very true.

We're not going to return to normal in a way that looks like what our lives were before. There are going to be thermometer stations and temperature checks at every mall, at every store. There will be significant number of stores that just don't open. because they've gone under in the meantime. There will be changes to our social habits, to our working habits, you name it, right? We are going to emerge from this change. Now, we will emerge, but not well unless we actually start to think about what it looks like to properly put back a society and economy that can handle rolling waves of this disease.

So that's what I'm thinking about a lot this week and going into next week. I'm going to have some guests on the show to talk about that. to talk about second order effects and the changes. But this week, just to give you a quick recap, on Monday, I did an episode about key crypto narratives and how COVID was changing them, right? What's the narrative of Bitcoin in a post-COVID world? With the narrative of stable coins in a post-COVID world, et cetera. On Tuesday, I had Nick Carter from Castle Island Ventures. Really, really great show. I titled it, if you're not radicalized, you're not paying attention. And I think that's the theme and the vibe of that show is just getting into it.

to the frustration of the moment. How coronavirus is accelerating the end of globalism was Wednesday with Peter Zeyon. I mean, this is probably my favorite episode that I've ever done. Peter thinks so broadly about the world and how it is interconnected and what changes are. And basically, his argument is that for 30 years, America has been withdrawing from global leadership, leaving the order that it created effectively. And there's going to be huge implications for everyone in the world because of that. And this is accelerating them extremely. in an extreme way, right? He thinks that for every quarter we're locked down, basically, we're taking a year off the time scale of that change happening. On Thursday, I did five reasons

for cautious optimism in crypto. Now, I don't want to be a glib about how challenging it is out there. In fact, we got also on Thursday the jobless report, which had 6.6 million people, 10 million total over the last two weeks applying for jobless claims. But I do think that there are some signs that people are turning to Bitcoin in particular and crypto in general during this crisis. Finally, on Friday, I had Matt Luongo from Thesis Company, Keep Project, TBTC, come on and talk about a bunch of different things, bridging Ethereum and Bitcoin, what that means. But also, a key question is, will Defi even matter in a post-coronavirus world? What is the narrative for Defi in a post-coronavirus world? So a great set of guests this week, a great set of shows,

I hope you enjoy them, and I hope more than anything that wherever you are, you are staying safe. So until Monday, guys, stay safe and take care of each other. Bye. 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 Monday, March 30th, and today we are discussing narratives. It's hard to believe that we are really less than a month into the widespread acknowledgement

of the coronavirus crisis. And so fast already, so much has changed. And I thought it would be interesting in this context as we prepare to expand the duration of the social distancing period for at least another month through April to actually ask how much this crisis is changing the narrative of some key aspects of crypto. I'm going to start with Bitcoin, and then we're going to look at stablecoins, defy, cash slash digital dollars, or central bank digital currencies, and finally, privacy. All right, so first up is Bitcoin.

And obviously, Bitcoin as the biggest asset in the crypto space, the asset that everything is really built around, has the highest stakes in some ways from a narrative perspective. And we've seen this play out in some pretty interesting ways over the course of the last few weeks. The long and the short of it is that what's been up for grabs a little bit is Bitcoin's narrative as an uncorrelated or a safe haven asset. And actually, let's start by unpacking those two things because I feel like the first thing that happened in this crisis was a decoupling of the uncorrelated narrative from a safe haven narrative. These are actually two separate things.

The idea of an uncorrelated asset is something that doesn't move in concert with other types of assets. The idea of a safe haven is something that moves perhaps in opposite directions as other types of assets. So if you look at gold as an exemplary safe haven and you think that it moves in a way that's oppositely correlated to equities, that's what you would expect in times of crisis. Now with an uncorrelated asset, it might move opposite to other things, but the point of it being uncorrelated is that it doesn't really engage with or respond to the same set of stimuli that a correlated asset does. So it's not a safe haven by definition in the sense of going in the opposite direction of equities markets or whatever you're trying to provide a safe

haven against, but is something that just is moving in its own fashion. Arguably, the last few weeks have been one of Bitcoin's most correlated periods ever as it relates to stocks and equities. And there's a couple reasons for this, which we've discussed on the show before. The first has to do with just the flight to liquidity that we saw. As markets started to tank, people had to get their money into cash, and it didn't mean that they got to sell what they wanted to sell. They had to sell anything they had. Bitcoin is a highly liquid asset comparatively. And so, of course, it was going to be liquidated as part of that larger crunch to just get the cash that you needed to settle and move on and survive as a business, right? So that was one part where we did see that correlation. Now, another part of

this narrative sort of story that we've been paying attention to is the fact that for the last couple years, there has been a concerted effort from people in the Bitcoin world to go get institutional investors to get off zero, as the Morgan Creek phrase was, to have some small allocation as a hedge. Well, when you spend a couple years convincing those institutional investors to get involved with the asset, that means that their behavior vis-a-vis that asset is likely to be more correlated. They have to make decisions from the standpoint of an entire portfolio versus part of what gives Bitcoin its historical lack of correlation is that its investor base represents such a different set of people, such a diverse, weird, global set of buyers. Now, it's not to say that

those aren't there, but when you do have larger concentrations of Bitcoin within institutions, I think it's natural to expect some amount more correlation, which we've certainly been seeing. Now, there's one other interesting dimension to the Bitcoin narrative evolution in the context of the corona crash, which has to do with its sound moneyness, the fact that it is a fixed supply as compared to fiat, which is showing its fiatness right now in dramatic fashion as central banks rev the money printer in order to just try to provide some amount of solvency and liquidity to these markets and ensure that they don't just go off the cliff. There are many in the Bitcoin world for whom that is exactly the context that really matters about Bitcoin,

right? This idea that it is a fixed supply that can't inflate the same way that a central bank can just print more U.S. dollars. That narrative is certainly picking up steam in the face of extraordinary government intervention, both from the U.S. but also from central banks around the world. Now, of course, we're not likely to see inflationary impacts immediately in terms of the way that this government stimulus happens. So this narrative is likely to stick around and be debated for a while. But what's interesting to me, again, from a narrative shifting standpoint is Bitcoin has a lot of different dimensions to its story. It has this sound money story.

It has the digital gold story. It has all of these different pieces. And in some ways, what we see going on is not so much a. wholesale rejection of one narrative for another, but more a uncovering of which narratives really matter what draws people to Bitcoin in times of crisis. And I think that's a really important dimension of this. Safe havens are safe in part because of collective belief. There's more to it than that, of course, but it's part of it. And why it's so interesting to watch this happen now is that what people are being drawn to Bitcoin for is that fixed supply in the face

of so much money printing. And there's reason to think that there is interest being drawn to Bitcoin. We're seeing rises in Google trends. Michael Casey from CoinDesk pointed out that the Bitcoin 101 pages on that site have been growing and growing and growing in terms of people finding it there. We've seen more interest in Bitcoin and Crypto Podcasts, even though around the industry podcasts are down something like 15 to 20% as a whole. There are all these anecdotes that suggest that as the money printer revs up, some portion of the

population is looking to see what else is out there and finding their way to Bitcoin. So again, we're now back in narrative territory where we can't use the kind of scorecard of the market day to day. And cynics will say, well, that's just Bitcoiners resetting the goalposts, but whatever, I'm not here to debate them. What I'm here to do is to tell you how I see this narrative evolve. So has COVID, has coronavirus impacted the narrative of Bitcoin? Absolutely. We are now in another extraordinary moment of government intervention in markets,

and that is bringing out that side of the Bitcoin narrative in a huge, huge way. All right. Next up, let's talk stablecoins. How has or has COVID-19 and the ensuing crash impacted the stablecoin narrative? Well, it's very clear that there have been impacts in terms of stable coin, in terms of transaction volume, in terms of new stable coins minted, that coronavirus and the market around it has created an impact. The question is whether it will have an impact on narrative as well. But first, let's talk about some of the numbers. And I'm using an analysis from Hasu, who's an independent researcher, that was on CoinDesk earlier today.

He says, since Bitcoin fell from its 9,000 range all the way below 4,000 before consolidating around 5,000 in mid-March, stable coins as a group have seen net inflows of around $2 billion, a 33% increase. This represents the largest surge in demand ever. in line with the dollars demand surge in traditional markets. Most of these inflows went to tether with $1.55 billion since the start of the year, but USDC and BUSD also gained $170 million and $150 million respectively. Now, what's to explain this?

Hasu has three answers which I think are compelling. First, he says we've seen a flight to safety from risky crypto assets. So he thinks that there are folks who are maybe bullish on crypto in the long term, but in the short term are just trying to get that dollar exposure like everything else, which gets us to a second point. Second, he says there is big demand for USD from emerging market currencies that are weakening against the dollar. So right now, as the entire world floods into US dollars, one of the impacts of that

is that currencies that aren't the dollar necessarily fall. Even the British pound is down 9% on the year against the dollar. The Brazilian Real is down something like 25%. The Russian ruble is down 25%. Everything, every asset in the world really is down against the dollar because it's seen as the one great safe haven. In that context, as people are trying to get their money into dollars, it can be difficult. There is literally a crunch in terms of the amount of actual physical dollars available. Tether becomes a really interesting asset in that context.

Hasu says it's become one of the best ways to dollarize in places like China, Indonesia, Russia, and Brazil. Now, Hasu's third point has to do with something that I think we'll get into later as well, which is that the physical reality of coronavirus specifically has made people less interested in cash, not to mention that just travel restrictions mean moving cash around in big ways has become extremely difficult. So in that context, basically a dollar on the blockchain has a lot of valuable properties, at least in the short term. So these are all really interesting reasons. I think what's for sure is that there's a lot of money flowing into and through stable coins right now. They're playing this interesting role that maybe we wouldn't have anticipated.

In terms of their narrative, I think the interesting thing is that their narrative is a little bit caught up in some ways with larger dollarization issues, right? Larger issues of the dollar being the world's currency. People aren't flocking to these things as an expression of their interest in cryptocurrency necessarily. It's just becoming an actual valuable tool in the context of, of a market gone haywire. And it's interesting to me to think about

whether we'll see a narrative compression in some ways between stable coins and digital dollars, more specifically. Will there be space for digital versions of other fiat? Or is that something that's going to be relegated to the junk heap of history in 2019 and 2018 as the whole world moves to the dollar? I think that there's a lot going on.

But I think that the interesting thing to me, I guess, if I had to sum it up with stable coins, is that maybe the narrative is shift. a little bit, but more importantly, they're just being used in a very specific way at this moment in time that will have larger implications in the long term, not just for their narrative, but for their adoption. So stable coins, yes, I do think that the COVID crisis is impacting their narrative, but I think much more, it's impacting their trajectory by the way that they're being used. All right, three, since we're already almost here, let's talk digital dollars, central bank,

digital currencies, and cash. This is obviously in the family of things that we were just as it relates to stable coins. So let's maybe go back through that in reverse order. Cash is in a really interesting spot where on the one hand, specifically U.S. dollars are in high demand, but cash itself is perhaps one of the least desirable assets because of the potential that it could be transmitting coronavirus, right? And this is something that at first people were maligned in the crypto world for even suggesting. I remember a F.T. Alphaville piece that was basically saying that crypto people were taking advantage of this, then governments around the world started to come out and say that, you know, you should probably be wary of cash

because the disease can live on cash and paper products and yada, yada, yada, yada. So cash itself has this weird two-part question right now where USD itself is in high demand, but the actual physical cash is more question than ever. It seems likely to me that we will see heightened push for a digitization of that system. Now, a second most of the first. moment for this came when last week during the debates around the stimulus, one of the proposals, Nancy Pelosi's proposal on last Monday, had a digital dollar built in as a mechanism to distribute stimulus funds to individuals and people around the country. Now, this didn't last long. We talked last week. We did a whole set of episodes about this and why it didn't work and why it involved

too many questions of the fundamental nature of the relationship between citizens, commercial banks and the central bank, but I do think that it probably shifted the Overton window on that digital dollar conversation. I feel like there were staffers, at least for many different legislators who had to actually engage with that idea. And I think that as this all unfold, there will be more interest in a digital U.S. dollar, right, that gives governments more power to react nimbly as well as avoid some of the downsides of cash than there was before. So I absolutely think that this is going to increase significantly the interest in digital dollars. From the leadership perspective. Now, when it comes to like the average citizen, does it change the

narratives? One of the critiques of central bank digital currencies is that there hasn't really been a demand for them. In fact, that's what the chair of the Bank for International Settlements said just weeks before Libra was launched. He said there's just no consumer demand for CBDCs. Well, obviously Libra changed that, and I think this is a second inflection point in the narrative lifecycle of digital dollars, of central bank digital currencies, but particularly and most importantly in the context of the U.S. markets. Obviously, we've seen China is racing ahead on its digital currency and has been for some time. I think that we are going to see the U.S. start to have a real conversation with itself, at least at that leadership level, about whether it needs

something like that and how fast it needs something like that. So this is one where I absolutely think coronavirus has accelerated thing by a matter of years. Huge, huge, huge narrative shift among people who get to decide whether to pay attention and whether to care about this. Next up is Defi. And Defi is in a really interesting spot in terms of narrative. So I will just say right now that I think there are less narrative implications so far for Defi than perhaps some of these other things that we've talked about like digital dollars or stablecoins or Bitcoin. But I don't think that they don't exist at all. And I think that they come and kind of maybe two sides. The first is we have seen some validation of concerns in terms of

risks to the system from big volatile changes, right? Like MakerDAO has had its experience of issues on Black Thursday as it related to this 4 million of loans that kind of went unfunded. There are challenges there, right? DFI is still extremely early. So I think that for those who are paying attention, you could argue it both ways, I think. You could argue that the system is shown resilience, you could also show that there's some real risks still inherent in the system. But I think that that's kind of insider baseball. And although the narrative implications matter because there's some new information that we have to assimilate, I think that the more interesting question is what the narrative implications might be in the long run for Defi coming

out the other side of this. Now, I think that the most interesting part is kind of a confluence of two factors. And maybe now I'm actually, even as I'm saying this, I'm arguing for a pitch for defy even more than just what I anticipate. And I think that the confluence of two factors are, on the one hand, I do think that the conversation about and the demand for the programmability of money is going to be much higher after this. So many of the logistical issues as it relates to stimulus have been around like how to actually move money around and, you know, ifs and butts, right? We're using blunt tools rather than scalples because we haven't had, in part, that programmability. I think that you're going going to see more and more of a conversation around how money gets programmable. And in that conversation,

there's going to be two options. Either one, that's just a conversation about the mechanism of a digital dollar run through the Fed that's basically just a representation of the USDA, or there's going to be people who argue that that programmability of money needs to have some amount of decentralization, too, right? We're going to see, and this gets, we'll get into our last topic in just a minute, a huge attempt to consolidate power from governments. And not just in a malicious way, although there will be plenty of that. If you're watching what's happening in places like Hungary,

there's going to be a lot of people who take advantage of an extraordinary moment to grab extraordinary power. But even in the leading democratic societies, there will necessarily be a claimant of power on the part of governments that is extraordinary as compared to what normally happens. whether they withdraw that or not is going to be one of the great challenges for the years falling

out of this and how we as citizens kind of try to push that power back away from the locus of the state is going to be a huge question. In that context, defy could be an interesting place that some people get to as having both on the one hand those exciting properties of programmable money but also on the other hand that shift away from centralized authority. Now, that's a lot to ask, a very nascent system. But I think that from a narrative perspective, if I was in Defi and if I really cared about the future of Defi, and obviously I do, I'm here talking about it. I've spent enough time thinking about this to have an opinion on it. But I mean the folks who are really investing their whole lives and souls into making this real. That's kind of the narrative direction that I would

be looking at. So to briefly sum up, Defi, I don't think that it's had a huge narrative impact yet from the coronavirus, but I do think that in the wake and in the rebuilding, there is potentially a really important narrative stake. All right, last up is privacy. And this I think dovetails nicely from what I was just saying about defy. This is another kind of forward-looking one. It's only been in the last week or so that people have really started to have this conversation about the civil liberties implications of coronavirus. But I think it's a really important conversation to be had. We've seen going back to February or January, even in China, surveillance as an apparatus has grown and grown and grown in the context of states trying to track the virus, right, using citizen data

from phones to see where people are moving to try to like pin this down. In different parts of the world, it's more or less pronounced. Some places it's happening kind of quietly and some places it's very explicitly happening. Last week in the stimulus bill, the CDC got $500 million to develop a data collection program. Now, this wasn't highly articulated, right? This is a bill that came together very, very fast, but there's going to be implications there. You're going to see states around the world try to use this moment to grab the power that they think they need to fight this and other issues. And a lot of times that's going to include things in terms of the power of surveillance that we wouldn't normally allow. I think that this is a conversation that has more

going on than just privacy coins or privacy tokens. So I don't want to even want to reduce it to that. I think that there is a strong sense of individual sovereignty, though, across the crypto community that's going to be highly threatened in the times to come. So here, Here's the pessimistic and the optimistic side as it relates to the narrative shift around privacy. The pessimistic side is that it feels inevitable, and in fact, we're just seeing it, so it is inevitable, that governments are going to push privacy farther and farther down the line and grab more and more ability to surveil based on especially digital data. It's just, it's already happening and it's going to happen more. That doesn't mean we can't fight about it or fight it as it happens,

but it is certainly a thing that is happening. So there's deep cause for pessimism there because it's being validated in front of our eyes. The cause for optimism is that historically, people who care about privacy haven't had mainstream demand support behind them. People are willing to trade their privacy for convenience. Now, I don't know necessarily that this changes that. In fact, I think that it could go the opposite way, where the fear is so great that people are even more willing to surrender their privacy than normal. But there will be a group of people for whom this issue highlights the importance of real protections around personal privacy. And where we see lines get crossed, it will mobilize and potentially radicalize some portion of that group, growing and swelling the ranks of people who do

care about this as a political issue. So my hope, my optimism as it relates to the privacy conversation is that even though we are headed into what is likely a harder time, a worse time, a more surveillable time, at least some new group of people will be there fighting alongside us. Anyways, guys, that is my take on the narrative shift across Bitcoin, stablecoins, defy, digital dollars and privacy as it relates to COVID-19. Let me know what you think. I'm really interested. I think it's important to have these conversations even as we're living through it because

all we can do is shape the next thing that happens and then the next thing that happens after that. And so wrapping our head around how things are changing and how we want to see them change is really important. Anyways, thanks as always for listening. We'll be back tomorrow with another episode of The Breakdown. 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, March 31st, and today my conversation is with Nick Carter. Nick is the founding partner of Castle Island Ventures. He's the co-founder of Coin Metrics. He's known for his incisive and eloquent essays on medium, and generally for being just a really broad thinker in the space. So originally I wanted to have Nick on to talk about the difficulty adjustment that happened last week and some of the Bitcoin mining properties coming up in Bitcoin mining narratives that I'm seeing emerge. But instead, where we ended up taking the conversation was a much broader look at the way that this set of crises, a health crisis, an economic crisis, a financial

crisis, and a potential geopolitical crisis are cascading into one another. We talk a lot about crypto-dollarization and how stable coins are allowing people to opt out of their local monetary regimes and into what is currently the most in-demand currency in the world, which is the U.S. dollar. We talk about Bitcoin and where its narrative status is and whether people should be frustrated or whether the principles behind Bitcoin and what makes it so unique and special have have been functioning just as they're supposed to. So it's a really wide-ranging conversation. It was super fun to have. Now, as always, caveat with long interviews, we edit these very, very minimally to capture the feel and flare of the whole conversation. But that said, let's

dive in. All right, we're here with Nick Carter. Nick, thank you so much for joining. Thanks for having me on. So wild times, we were just talking a little bit about the changes to life and the disruptions. And I wanted to bring you on to talk to you about a variety of things. But there was a tweet that you shared a couple days ago that I so perfectly summed up how I had been feeling that I wanted to just start from there.

You wrote, if you're not radicalized, you're not paying attention. And then there was a second great line about Zucati Park, but I'll hold that one aside for a second. But what, you know, I imagine that that probably meant a lot of different things to you. But when you were writing it, like, what is the feeling behind that? I mean, take me into how you have been perceiving this radical shift that we're living through.

I'm just upset. You know, I'm upset and disappointed. You know, if you're my age, you lived through the financial crisis. You might have just been coming out of college or just getting out of high school, trying to start your career. And that made life very difficult for a lot of people my age. And that was when we learned the meaning of the word or the phrase moral hazard. you know, the fact that if the government is there to guarantee and to bail out failure,

then we're going to have a lot of waste and just a lot of wasteful activity. And that was sort of limited to the financial sector in 2009. And instead of society hitting the reset button after that, we just had virtually every other sector engage in obscene risk-taking. And now that everything looks like it's collapsing, you know, the expectation is that the government is going to come in and bail out the entire corporate sector in the U.S. And it's just so unbelievably disappointing. It's like memories are so short, we learn nothing.

And in response to this corporate fragility and misallocation of capital, it looks like effectively these corporations that have failed us, their directors and managers are going to be rewarded. And, you know, I grant that it's appropriate to give individuals a bailout to deal with the economy being forcibly turned off for a few months. But most of these bailout funds are not going. The stimulus funds are not going to individuals at all. So that's what I'm expressing disappointment about. I just, I don't think it's possible to say, well, this is what had to be done. I don't think you needed to arrange a stimulus this way, specifically with the vast, vast majority of,

it going to shareholders in corporations that have manifestly failed to manage risk. So that's why I'm upset. And, you know, this is the second time in the last 10 years that this is happening on an even greater scale now. So it's pretty unacceptable to me. One thing that I thought was interesting is that the context or the justification for radical action is that it's a radical unanticipated time, I tweeted out the other day. So obviously, Taleb wrote a piece called corporate socialism, where he made the explicit point that a pandemic like this was not only not a black swan, it's in fact his example of a white swan, right?

An extreme event that is entirely predictable, at least on some level, you know? And I think that the interesting thing about it is that's not to say that, you know, every corporation in America should have had a pandemic plan. But I think that the point that you're making has to do with just fundamentally the ramping up of risk with the assumption of a backstop becoming just business as usual. Exactly. Yeah. And not only were they unprepared for a pandemic or even like a minor economic slowdown, they were in a state of extreme fragility brought on by this implicit guarantee that the government had signaled to the corporate sector in 2009-10. We will support you if you fail. that guarantee is completely perverse. It means that these corporations and the shareholders expected to be bailed out if they failed. And so we got the most indebted, highly leveraged, fragile system, probably in the history of America.

And, you know, it's interesting because the COVID-19 crisis is an extremely acute shock because it's a hundred-year crisis. You know, you don't get those every hundred years. but even a crisis of a much smaller magnitude, my guesses would have triggered a similar economic collapse or a similar financial collapse because we were just due. And a lot of people are saying, oh, this is an exogenous shock. Like, we couldn't have possibly foreseen something like this. You know, we were right to be bullish and so on. But I think that's completely false. The cracks in the system were already showing even before COVID, 19 showed up. It brings up an interesting question of whose job specifically it is to be conscientious of risk and weigh that against levering up further to take advantage of, you know,

crazy asset prices, right? Crazy stock market, whatever it is. And that feels like a question that is not being answered because it is someone's job to think about all sets of scenarios, not just the thing right in front. front of you, right? Yeah. And like if you're a publicly traded company and you're making decisions on the basis of a crisis that might hit once every hundred years, your shareholders are going to have a problem with that. But it's not a binary thing. They just were not prepared at all. The fact that these corporates had actually made a trade that increased their fragility by effectively selling

insurance by levering up and buying back their stock, you know, they, you know, they, you know, they, they went in the directly opposite direction of what might have been prudent in terms of building in a robust system and the ability to resist shocks. So not only were they unprepared, they were actually primed for collapse at the slightest sign of danger. So, you know, I can forgive them not anticipating a pandemic. What I can't forgive is plundering their corporate reserves, returning it to shareholders and not having any buffer whatsoever. So this is the interesting thing about the fast-moving kind of narrative is, well, one, right now, people are so worried for themselves that I don't think that we've seen the full extent of

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

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

to return capital of shareholders in perpetuity. It very well may be that the popular anger over buybacks is so significant that they get outlawed, you know, for the foreseeable future, which I think would be a bad result, but I wouldn't blame our representatives if they went ahead and did that. Yeah, I mean, one of the things that I have felt like

watching this, watching this whole thing take place is how much our responses are limited, the longer that we wait to react to something, it's almost like the more that you inevitably overreact and careen between extremes, you know, rather than actually solving this. We've seen this, I mean, even Cuomo has said this in terms of the health

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

I think, because it's easier and more crystallized. Yeah, I think policy in crises looks like a sine wave with an expanding magnitude. You don't get gradualist approaches to solutions. You get extreme responses. And the lockdowns are a perfect case. If we were slightly better configured or better prepared institutionally for a virus like this, if we had some collective knowledge of SARS or H1N1, maybe we would have reacted better, but we were pretty unprepared in now.

So we have to impose these extremely draconian measures. In fact, my state, where I am here, just got the lockdown order earlier today, which apparently is going to come with fines of $5,000, which is kind of crazy to me. Well, this is the interesting thing is that the lockdowns that we've been under so far, you know, so I'm obviously speaking to you from New York.

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

New Yorkers, which is an extreme escalation. The fact that you're seeing fines that like may not seem like much, but that's a pretty big escalation, right? And then, of course, there's other parts of the world where I think, so I've been watching what's going on in Hungary, where effectively they just got themselves a dictator and leaving quarantine is punishable for something like eight years in jail or some crazy number like that. Which brings me actually to another tweet of yours that I thought will feel more pressing in as time goes on that this is actually four crises, not three. Right. So a health care crisis, an actual economy crisis, a financial system crisis, and also a geopolitical crisis. Do you speak a little bit more to that? Yeah. And, you know, relating to the point you just made about the different reactions of different governance regimes to this crisis, you know, my fear is that we're going to be running the numbers when this is all sudden done. And we're going to see that authoritarian states probably did better than democracies. I mean, you know, TBD, but my guess is that states that have the ability to unilaterally compel

lockdowns in an extremely forcible way will most likely escape the brunt of this. And, you know, history could prove me wrong, and that would be great. But if it proves me right, then I think we're going to get a disillusionment with the model of liberal democracy is the best way to organize a society. because you do get complacency. You look at the governors of the states. They've operated on very different timelines. There wasn't a lot of urgency.

We don't have technocrats in power. We don't have the ability for our leaders to exercise unilateral discretion. So there's a heterogeneity of outcomes and just generally speaking, things move more slowly in these kind of regimes with more systematize, you know, legitimate governance.

So there's an unfortunate trade-off there. It seems like we just weren't well equipped to deal with this from an institutional perspective. And I think there's going to be significant disillusionment with the Western model and probably in some countries an embrace of maybe the Singaporean model or, God forbid, the Chinese model. So yeah, referring to that tweet,

it's hard to really perceive what's going on because of the fog of war, right? we're all individually concerned about our safety, we're concerned about finding, you know, a sufficiently rural area where, you know, maybe life is going to be working normally for a few months here. But, yeah, I mean, we obviously have a public health crisis. That's undeniable.

There's also a financial crisis. And I remember people saying, well, you know, we're only going to get one financial crisis. Every lifetime we're going to get recessions, but we're not going to get financial crises. Well, if you look at some of the numbers, they look worse than in 2008, 2009, are specifically with respect to our financial plumbing. You know, we have some of these ETFs, which are profoundly illiquid,

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

lots of those private equity funds are just sitting on their hands right now. You know, so access to capital is really difficult. We obviously have an economic crisis, you know, TBD on how long that lasts or how severe it is. I think it's, you know, the really sharp shock that we've seen here in terms of the macroeconomic indicators. I think people are slightly, slightly overrating the damage there because it can easily rebound on the way up, given that

nothing is actually being destroyed. None of our infrastructure is being destroyed as what happens in a war, for instance. But we definitely have a concurrent economic crisis. But the one that I think, or I allege, people are overlooking is a geopolitical crisis. And this kind of started, I would say when Trump took office and had this deliberate policy being more isolationist, and the signs were kind of there. So, you know, he's putting a lot of pressure on our allies in the EU to pay their way. In NATO, we have situations like the Philippines tearing up their mutual defense treaty with the U.S. We have South Korea signing treaties with military treaties with China.

So those relationships were already fraying. The U.S. was already stepping back from their stature in the international system. But the U.S. had the overwhelming, you know, majority when it comes to soft power globally because they control all these international institutions, by which I mean the U.N., the IMF, the WTO, even though the director of the IMF is typically European, the WTO, the WTO, the WHO, right? So the U.S. set up all these institutions, you know, under Bretton Woods, with the implicit guarantee that the dollar would be the reserve currency. And the U.S. would sanction and protect those trade routes, right? And increasingly they've been stepping away. Other countries have been disillusioned with them. Those institutions are obviously fraying. In the last decade, China has set up alternatives to many of those institutions, or they've effectively infiltrated. and delegitimized the ones that still exist. Look at the WHO.

They're just publishing Apology for the Chinese regime. You know, the Taiwan issue is a wedge issue that they bully a lot of these institutions with. And we're increasingly seeing an embrace of, you know, Chinese soft power. And they could really capitalize on the situation right now. They're already turning that narrative tide

back against the U.S. whether it's in a deliberate propaganda way or just by virtue of the fact that they maybe actually did perform better in this crisis. And you can imagine a situation where they create a package that consists of, you know, PPE masks, prophylactics, potentially even a vaccine, let's say if they make one, surveillance infrastructure, both for conventional surveillance and for, you know, track and trace. a package of aid and, you know, financial aid. And they go out to the third world and they say, look, you know, the U.S. has done nothing for you. USAID has done nothing for you lately. Why don't you just, you know, make some concessions and we'll come in with this package and we'll help you, will help you, the, you know, the governing regime, retain your grip

on power and tackle this medical crisis. And all you have to do is just make us your, you know, your favorite son or your preferred trading partner or let us install a military base in your country, you know, or give us exclusive rights to your ports. You know, they could extract really extreme concessions. So right now, I believe that China is, you know, there was kind of a will there, won't they, situation where we were wondering, a lot of those Western policy types were wondering, is China ever going to make their move and try to unseat the U.S. as the de facto global hegemon? It seems like not only are they making really aggressive moves right now. I mean, watch the

China, South China Sea in the next few months. I'm sure something will happen there, but they have an huge unprecedented opportunity to potentially dethrone the U.S. even from a soft power perspective. And so that's something that makes me extremely nervous and I'm pretty concerned about right now. Well, I think interestingly, too, that's going to coincide with more people than ever before in the U.S. retreating from globalism, right? I don't know if you've noticed this as well, but the number of people who aren't necessarily,

who kind of have grown up in a highly globalist-minded kind of perspective, who are now saying like, huh, maybe I buy this argument that manufacturing is a national security issue, right? Internal manufacturing capacity, all these sort of things. They're going to have a very different landscape that, I think to your point, it could accelerate a trend that's been happening, right? The U.S. retreat from the world has been a trend for a long time. And so if you have that simultaneously amplified, right, by people in the U.S.

kind of retreating within at the same time as there's kind of this expansionary policy on the other side, it could get very different, very fast. Yeah, it's shameful that it took us this long to realize that supply chains were a national security issue. Because it was, it was a, obvious, right? And now we have China is able to have an extremely strong negotiating position because they're effectively, they manufacture the vast majority of our pharmaceuticals, you know, even some of our defense equipment is manufactured there. Like it's catastrophic. And the trade that people have to make, which is reversing the trade of the last 50 years or more precisely 40 years, you know, everything's staying open China, is accepting more expensive supply chains,

you know, more expensive consumer goods in exchange for sovereignty and freedom. And we've been making the precise opposite trade for the last 40 years. So I don't know how easily it's going to be to reverse. And this is why there's so much demand from the kind of establishment elites in the U.S. that we keep those supply chains open, you know, we retain our quote-unquote harmonious relationships with China and so on, that we stay intertwined economically, you know, with the theory that that can avert conflict. But, you know, before World War I, Britain's number one trading partner was Germany. That didn't stop them going to war. So let me ask a question to bring kind of

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

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

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

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

Cryptocurrency is about removing encumbrances. Even stablecoins, stable coins are very unencumbered relative to digital dollars. The interesting thing about stable coins is the not that they're digital. It's that you're relatively free to do whatever you want with them. And I know a lot of people will say, well, you know, they've all got the ability to freeze contracts and they've all got terms of service where they can cut you off or whatever activity, but they actually don't do that. So there's an implicit social contract that stable coin issuers have with their end users, which is effectively we're going to create what we call or what we call or what I guess analysts call permission pseudonymity, which means, yeah, if you want to create a, we're going to create a lot of what we call or what we call, I guess, analysts call permission pseudonymity, which means, yeah, if you want to create a, or redeem your IOUs, your tokenized fiat, yeah, you have to interface with us, you know, tether or circle or, you know, Paxos. But within, you know, on the Ethereum blockchain, most of them on Ethereum, you can pretty much

send it to whomever with no requirements for, you know, identifying your counterparty or reporting that to anyone. So that's actually kind of a resumption of the physical cash standard that we've had for hundreds of years and which is now being eroded away. So it would be great if we could actually retain that. So to me, like Central Bank digital currencies and then stable coins, they like sort of cosmetically look the same. But if you look at their function and what people use them for, they couldn't be more different. Well, this is what's been one of the things that's been interesting now is seeing a, So I did the show today.

We're recording this on Monday. It'll go out on Tuesday. I just did my show today about how or how not the COVID-19 crisis was changing the narratives of different parts of the industry. And I was talking about stable coins. And I think the thing that's interesting right now with stable coins is that they're a little bit wrapped up as well with the world's incredible hunger for actual U.S. dollar exposure versus anything else. And Hasu wrote a great piece on coin dust this morning about the growth and inflows to tether and everything. everything else as well. But it's interesting because it in some ways, it feels to me less like a narrative shift, right? Like, I actually want to ask you about how you've seen the Bitcoin

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

And it's just a matter of entrepreneurs creating products around them that maybe abstract away some of the complexity and just reinforce the fact that these are unencumbered. dollar IOUs and typically in offshore banks, you know, that are always convertible, at par, redeemable, and you can use them without restriction. That's a very powerful thing. Those are digital dollars outside the confines of the banking system, or at least out the confines of the local banking system. And that's where dollarization has fallen short a lot of times in places like Argentina, Zimbabwe, Ecuador actually had a product, a product like they had a central bank digital currency, which was dollar-denominated. In all those cases, the banking system

was the point of failure that the government used because typically they wanted to confiscate the value of individual savers. They wanted to confiscate savings from the general public. And so they were always able to lean on their local commercial banks to confiscate funds in various roundabout methods. And stable coins instead, they take a single governance regime, whether it is tethers governance rules or the Circle Consortium or something else. There's like 50 stable coin issuers maybe. and it outsources that or exports that, rather, to the whole world, which is pretty cool, if you ask me. And my guess is that those monetary arrangements are going to be more suitable or there'll be demand for those overseas monetary arrangements in places where physical dollar cash is hard to obtain. And the local banking system doesn't support dollar deposits and savings because they're, you know,

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

That's what people are familiar with. In some cases, they already have a feeling for what it's like as a unit of account. They might have some dollars, some physical dollars. So I think, you know, in the near term, the biggest contribution of cryptocurrency is not, you know, catalyzing some hyper-bitquinization event and toppling all the central banks. It's giving people easier access to the dollar or to a tokenized representation of the dollar under a number of issuers of their choosing. And I'm sure there's going to be more and more credible ones.

We'll see what the Libra does here. That's a pretty interesting thing. So that's kind of the concept I've been obsessed with for the last few months. And in the last month, I think the supply of stable coins has gone from about $4.5 billion to just crossed $8 billion today. I could easily see it over $50 billion by the end of the year. It's fascinating to take a step. back and reflect on it in the larger context of the idea of cryptocurrencies or even the Bitcoin

project allowing people to opt out of their local monetary regime, whatever local means. And this just, we're seeing that happen in real time, but it's through this vehicle in a lot of cases of stable coins pegged to the US dollar. And there's other ways to do it. Like I was talking to an entrepreneur last week. And what they do is they short Bitcoin on Bitmax. And so you have a market neutral position, which is dollar denominated, that effectively gives you a U.S.D. stable coin. But with Bitcoin as a collateral. And then, of course, you have MakerDye with ether as a collateral. So there's all sorts of interesting monetary arrangements, which can be done here. But the important thing is just giving people optionality and the ability to exit their local system. And now the fact that there's quite a few significantly liquid stable coins, now it's finally actually plausible. after, you know, 10 years of trying here.

I could talk to you about that for all day, but I want to talk or maybe shift for just a minute to Bitcoin in this context. Obviously, any time you have big events, there is a rapid jockeying and competition to control the Bitcoin narrative. What has surprised you or not surprised you, either about Bitcoin's performance or about Bitcoin's narrative over the last few weeks? Well, the performance has been, you know, disappointing, I would say. But what's been shocking has been how disillusioned people have been based on, you know, a couple months of underperformance.

You know, it's crazy that people bought this. You know, I've never really been a proponent of the quote-unquote safe haven narrative, at least not that in the naive form that Bitcoin would somehow mechanically appreciate if the S&P 500, you know, collapsed. In fact, historically I've said I think it would sell off in a recession, which has done so far. It's been disappointing to see how dissolution people have become. And I think they've forgotten what Bitcoin is. Bitcoin is an emerging monetary alternative, and it's a project that will take decades to reach maturity. And we're still at the earliest stages. We don't really have Bitcoin banking yet.

We are still building out layer twos. all of the exchanges are pretty immature and they have issues for a number of reasons. We're still figuring out key management. So, you know, the institutional infrastructure to Bitcoin is still quite limited. You know, there's lots and lots of questions around it still. The fact that people expect it to have reached maturity already, and not only that, they expect it to behave in a very specific way in terms of price action relative to the macroeconomic, other macro assets, that's a little shocking.

If you narrow your expectations to such a tight tolerance, of course it's going to disappoint you, you know. But ultimately nothing's changed about Bitcoin. And what has changed is all of our central banks are easing and all of our governments are creating massive stimulus and acting very capriciously. That's precisely why Bitcoin exists. So, I mean, if you're willing to be disenfranchised by Bitcoin based on a couple of weeks of price performance, maybe Bitcoin wasn't right for you in the first place. Well, I think one of the interesting things that you kind of bring up is, and this is why narratives are so interested in me. It's funny because people assume that because I'm interested in narratives, I like trying to kind of push one narrative or another. But what I think is fascinating is about how invested in them people get.

and they like so quickly change rather than kind of viewing it as this constant ebb and flow. And it's fascinating to watch because, well, one, at first we had this uncoupling of the uncorrelated narrative from the safe haven narrative, which is they'd kind of gotten bunched up together in Bitcoin. And then secondly, we had an unwinding of a start of people actually asking, well, what are we talking about when we mean safe haven? To your point, I like the way that you described it as a naive version that's like, you know, their number go down, our number go up kind of. thing. And what we have now emerging is almost in a weird way. It's not a new narrative so much as a

memory of the, like, it goes right back to the, you know, Chancellor on the brink of a second bailout narrative, right, which has been sitting there embedded in the code from the beginning of the context in which it was created. And the symbolic moment of the kind of the central bank money printing apparatus revving up right at the time as the Bitcoin having is coming down the pipe. And, you know, the interesting thing to watch has been there has been, I've been keeping track of basically at this point anecdotal evidence of growing interest in Bitcoin in that context, right? And I've seen it in terms of, you know, you can point to Google trends. You can see it in terms of the average growth of crypto podcasts and Bitcoin podcasts in this time as compared to what the rest of the industry is seeing, which seems to be a 15 to 20% decrease. And again, it's all anecdotal, but I think that there is a, there's a very clear contrast to be made here that I think is, is pretty interesting.

Yeah. And, you know, it's strange that some, you know, notable commentators in the crypto realm are so disappointed by the price reform. I guess that's, you know, a function of an industry where everyone owns the asset or is generally speaking along. because this is the moment for Cryptoanthesias to step up and say, hey, look, we created an alternative, which is not totally immune, but much more immune to political discretion. And I think this is something that's been lost a little bit. You know, the dollars purchasing power is actually increasing at a time when effectively lots more dollars are being implicitly created, which is confusing to a lot of people, right? But that's because the dollar is exposed to all these other dynamics, not just the supply side dynamics, but the demand side, especially from emerging markets. But, you know, it's not strictly speaking, the purchasing power, the Bitcoin, you know, unanticipated purchasing power collapses due to inflation the Bitcoin hedges against.

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

opinion from the implicit guarantee. That's why you get the risk taking. Now, granted, there's plenty of cases in the crypto industry where protocol developers do create slush funds and they monetize their protocol proximity, so to speak. So you have Cantion insiders in some of these other protocols, but very much not so in Bitcoin. And that's one of the things I like about Bitcoin. It's predictability. It's institutional stability. The fact that we're all on even footing in terms of the money supplied, the fact that it really is robustly free market and how the units are issued. Those are the things that really matter, and nothing has changed from that perspective. It's a pretty good way to round out where we started, I think,

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

But I'm optimistic that we still have an industry of people that are really ideological and really committed to building alternatives to that terrible system. And people accuse Bitcoiners of being pessimists, but I'd say we're optimists. We're actually trying to change something. We're not just being doomers and being super apathetic about everything. We're actually conducting praxis. We're trying to manifestly build an alternative so that not everybody is trapped into these cycles of debt and leverage and crisis.

I certainly appreciate you taking the time today. I appreciate you continuing to build and build through that cause for pessimism. So thanks for hanging out, Nick. Thanks for having me. A lot to digest in that conversation, as you can tell. I guess one interesting point that I wanted to just highlight a little bit is this idea that stable coins, USD-based stable coins, are allowing people to opt out of their local systems and what that might mean. I think we're seeing some profound, profound changes in how power is going to be organized in the

world that comes next. And it's fascinating to see how, from a financial perspective, from an economic perspective, this digital asset that maybe once most of us thought was just useful for crypto traders, is becoming something that could be much more significant in how people look at the systems of money that they're around, right? How powerful governments can actually be, especially in emerging markets around their monetary regimes. Really fascinating stuff. Appreciate Nick being here. And I appreciate you guys hanging out and listening. So that's it for today's breakdown. We'll be back tomorrow. And until then, stay safe, guys. Peace. 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 1st. April 1st, guys, we are starting the first full month of lockdown in many places in the U.S. and certainly the first full month of global awareness of just how devastating the coronavirus can be to not only health outcomes, but to our economic and global systems. And that's kind of the subject for today. So yesterday I discussed with Nick Carter how this is really not just a health, crisis or an economic crisis or even a financial crisis, but it is in fact a geopolitical crisis as well. Well, my guest today is one of the foremost geopolitical thinkers in the world. Peter Zion is a geopolitical consultant and the author of the recent disunited nations, the scramble for power in an ungoverned world. Now, Peter's thesis is that for 30 years, basically, since the end of the Cold War, America has been withdrawing from the American-led global order, and this is consistent across,

administrations, across politics, and partisan boundaries, but it comes with some very significant implications. And as the geopolitical shift happens, we're also dealing with issues of demography, as he'll get into. But for him, coronavirus is something of a wrecking ball, which is just rapidly accelerating these trends, which he thought were happening over the course of call it the next five or ten years. Basically, in short, his thesis is that the end of the world, as we know it, with an American-led global order was coming sometime in the next decade. But as you'll hear, for every quarter or so that the coronavirus crisis continues, we're losing another year off that with some pretty massive implications. So this is an important conversation for me. I really care

about not just Bitcoin and Crypto, or not even just the macroeconomic context for Bitcoin and crypto, but how those things fit into the world at large. And Peter is one of the best, thinkers I've come across when it comes to how all of these different factors from finance to economics to politics to demography come together to shape the world that we live in. So I hope you enjoy this conversation as much as I did. As always, caveat with long interviews, we edit these very, very minimally to capture the feel and flare of the whole conversation. But that said, let's dive in. All right, we're here with Peter. Peter, thank you so much for joining. Pleasure to be here. So we were just talking about this a little bit before, but

you know, I think that the conversation that I'd love to have is how coronavirus is accelerating a larger set of ships. But to get into that conversation, I think we need to go back and look at that's larger set of shifts. So I wonder if you could kind of give us the short version. This is admittedly a ridiculous question, but the short version of this big pattern that we're living through in the world, which is obviously the subject of your new book, This United Nations. Sure. So we've got two overlapping things that have not. nothing to do with one another that are kind of crashing together at the same time, just purely coincidentally, that are ending the era of globalization for good. Step one is geopolitical.

So at the end of World War II, the Americans were there on the plains of Northern Europe facing down the Soviets and realizing that they had no chance in that fight. We needed allies that would be willing to intersperse themselves between us and the Soviets. And that basically could not be done if you want to occupy them. So what we did is we bribed them. We basically paid everyone to be on our side. We created a global structure that allowed anyone to go out without need of naval cover, purchase any sort of raw commodity, bring it home, metabolize it into a finished good, sell it within their own market or more likely export it to the United States and export their way back to being a first world country. It was the first time it had ever been done. In the past,

if you were a naval power, you used that to forge your own empire. And for this time, the United States used its naval power to help everybody else recover. It worked great, and eventually it did defeat the Soviet Union. But when we got to 1992 and the Soviet Union had collapsed, we never bothered to kind of reset our foreign policy for the new age. So we kept providing all of these strategic goods for the global commons so that the world could grow. but the U.S. no longer got any sort of security in response. 30 years later, we've gone through four presidents, Clinton, W., Obama, and now Trump,

with decreasing interests in maintaining that system. So it was always going to collapse under whoever we elected three years ago. It's just a question of how organized that collapse was going to be. Okay, so that's piece one. So the U.S. is just done. And without the United States, there is no power, there's no coalition of powers that can hold it together. Piece two is demographics. People in their 20s act different from people in their 40s act different from people in their 60s. When you're in the 20s, it's all about consumption. You're

raising kids. You're going to college. You're buying homes. When you're in your 40s and your 50s, it's all about the savings. The kids have moved out. The house has been paid down. You're saving for retirement. And then when you're in your 60s, it's about whittling away at those savings and basically just kind of idling away and being a net consumer of capital. Well, global birth rates started dropping in the 1960s and really accelerated in the 70s and 80s. So we are at this weird moment in time, demographically, that's never happened before, where we have very few young workers doing the consumption. We have a lot of mature workers who are doing savings,

and we have a rising number of retirees who are consuming. But within the next few years, and it depends upon where you are, it's one to six years based on the country, The world jumps from a bunch of mature workers to a bunch of retirees. So at this moment in history, capital supplies have never been higher. And very soon, the capital will go away and the retirees will basically consume it all. And we have to move to a completely different economic model that is not based on consumption or trade. So both of these were coming to a head anyway.

Both of them were going to crash into the system we understand sometime in this decade. What coronavirus has done is fast forward. it because if we are offline as an economy for the better part of a year, there is not enough time to get through this debt overhang that we're going to have, to set up the supply chains and the way that they used to be in the aftermath. So we have probably just ended the greatest expansion in American history, the greatest expansion in human history, and we're not going to see anything like it again in our lives. So this is, I think, a really important point for a lot of folks, we have been living inside a normal that is fundamentally abnormal over the,

over the course of history, right? Absolutely. And so that has an economic dimension, a geopolitical dimension, a structure of economies dimension. And so let's, I guess, start to piece off, go a little bit more into the coronavirus and how it's accelerating the shift. I mean, which piece even to start with? You know, I wrote down to those trust in institutions, the power balance within nations, the power balance between nations, possible monetary outcomes.

I mean, I guess, like, you know, you've been trying to sift through it. I've been reading your dispatches kind of every day, piercing through it. And I think one of the things that's so interesting is that it's this cascading set of crises that are all, you have to almost unwind and unpack them each, but they are kind of inextricable from one another. Yeah, they absolutely reinforce one another. And that's one of the big challenges in playing this. forward while the change is going on. It's kind of funny. Back in February, we had started our next book project, because we knew that the world that we understood was going to end. And so we wanted

to provide kind of a guide for what it was going to look like on the backside. What's the future of agriculture and manufacturing and finance? Talk about being overtaken by events. Trying to figure that out while the change is going on, when the change is being compressed into months instead of years is a task that has so far occupied every waking moment that we have. But we're working on it. But let's just pick a couple of pieces. Probably the most obvious is going to be manufacturing. The whole concept of global manufacturing and just in time supply and economies of scale and competitive advantages is the idea that in an environment where transport is safe and cheap and there are no restrictions on interstate commerce.

You can break up supply chains into dozens, hundreds, thousands of independent steps, and each facility producing each specific product can be done in a different location and then come together in multiple locations for ultimately assembly. That model doesn't work in an unsafe world and it certainly does not work in a world under quarantine. you have to... Actually, I want to pause, sorry to interrupt you, but I think that I was trying to think through what are parts, you know, I've been familiarizing myself with your work over the last few weeks and thinking a lot about this. So I want to make sure to not leave people behind who haven't spent that time. One of the key other parts of the setup for this is we've been living in a world where geography didn't matter. And that's one of the big shifts. So I want to make sure that we add that dimension to this because it's kind of relevant in this context that you're discussing. Well, yeah, sure. The global order, the whole idea was international world. borders don't matter at all. We're all part of the same economic system. It started with just the United States, Western Europe, and Japan. By the time we got into the 60s, we had included Southeast Asia, most of the neutral countries in Europe. And we continued on to expand, expand, expand,

because the larger that family of nations was, the less economic opportunity and strategic opportunity the Soviet Union would have. But then we got to the end of the Cold War, and we decided everyone can play. So we really have had this truly global. globalized world, global in scope from roughly 1990 to the present. That was never sustainable. That was never going to be economically viable in the long term because ultimately somebody has to pay for the security environment. And the American consumer has limits as to how much it could absorb. It was one thing when the rest of the world combined was roughly the same economic size, I'm sorry, the rest of the free world combined was roughly the same economic size

of the United States. When it gets to be double or triple and the Chinese are thrown in for good measure, it's just no longer viable. Ultimately, the order was a strategic one, and it was designed around the indirect subsidization of everyone else. When everyone else is poorer than you, that works. When everyone else is a peer, it doesn't work at all. Okay, great. So, yeah, this is just such an important, relevant context as we talk about this unwinding. So I interrupted you as you were talking about the manufacturing system as it was set up, which is where you could take all these component parts from everywhere and bring it back together. Right. It was all about who had the best advantage comparatively for each individual widget. In an environment of cheap transport and

safe transport, that makes perfect sense. But once borders start to harden because of health reasons, that just goes out the window. And so what we're seeing is this massive, frantic, panicked retooling of the American manufacturing sector to build things that normally we would import. And that It means shorter supply chains that are closer to the consumer. Now, this isn't something that is going to long outlast the coronavirus. A couple reasons why. Number one, most of the people who are, say, retooling for things like respirators, they are not undoing their other manufacturing lines.

They're just using their expertise in their labor force in new facilities. Second, a lot of this retooling is done at the machine shop level. Those are small shops usually employ no more than a dozen people. They're very quick at absorbing capital and new technologies that they can adjust on the fly. So we're establishing these new supply chains that really play to what the structure of a more disorderly world is going to be, more adaptable. Third, you don't just go back and cost structures have changed radically in just the last five years. One of the big outcomes of things like the Shale Revolution is the United States now has the cheapest electricity in the world without subsidization. A lot of these raw materials and intermediate materials that you need for most modern manufacturing are now actually generated in the United States at a cost point cheaper than anywhere else.

So we've known for a couple of years now that there is almost no manufacturing process that you couldn't build the industrial plant for in North America and have it operational. rate in terms of labor and input and taxes and transport at a lower cost point than what already exists in East Asia. Now, the sticking point with all of that, of course, is the industrial plant is not free, and it was already existing in East Asia. But coronavirus completely negates that. And so we're building it now in a panic because we have to. And at the end of the crisis, even if global structures went back to normal, it would still be cheaper to operate in North America. This is a permanent shift. So this is something interesting too.

There's another dimension of the manufacturing, which is that I've seen more people who wouldn't have thought about this before coming to the realization and tweeting out about manufacturing as a national security concern, right? And these are people who come from every political spectrum, but who are like, crap, we probably should be able to produce medicines here, you know, or what have you, right? And all of a sudden, it's like there's a political dimension. to this too in terms of where you get the will to do different things.

In a internationalized globalized system that's based on American security commitments and trust, the idea that your medical supply chain could be in another country makes perfect sense. But we're not in that world anymore. And even before coronavirus hit, I don't think most people realize how much of a political shift there had been in this country on issues of trade and linking economic and national security together. of the 197,000 Democrats who are trying to get the ticket, every single one of them said that Donald Trump was being too soft on China. So the degree to which the average American left, right, or center has already changed their opinion on what accounts for national security and economic issues shifted before coronavirus.

and that was before people started dying. So this, it would take a generation to unwind this paranoia. Paranoia is probably not the right word, but this new appreciation for the circumstances and go back to a more trusting world. You know, other countries just don't have that kind of time. It feels as well like there's going to be long-lasting psychological impact of this isolation. It's not going to be a forgettable moment, right, where things just go back to normal in the same way for people. And I think that that's relevant, mostly in the context of making citizenries more open to radical shifts, I think, in some ways.

That's probably going to happen. I mean, it's a little early in the crisis right now to know for sure. But the idea that you, you know, you throw a few thousand extra deaths and an economic lockdown into a city, and that doesn't change them as kind of a reach. The question is how deep is this going to be? The only real point of comparison we have right now is a Spanish influenza outbreak at the end of World War I, but there was a lot of other things going on at that time. In addition to the war itself, shortly after the outbreak was dealt with, we had the roaring 20s immediately followed by the Great Depression.

I don't mean to suggest that those are necessarily going to be parallels that we're looking for, but we went through an extreme amount of social re-engineering in the 20s and the 30s, and then, of course, in the aftermath of World War II. What we're more likely to see this time is some sort of broad overhaul of national security, which was going to happen anyway because of the change in the global system. And also health care.

Now, an overhaul of the health care system, wow, talk about something that is long overdue. The Obamacare system didn't bring us health care reform. It brought us health care payment reform. And so if it takes this to finally get us to get a health care system that is, you know, in the top 50 of the world finally, that would be great, but one miracle at a time. All right. So we discussed a little bit about this idea of accelerating shifts that were

already happening in terms of manufacturing. We actually ended up touching on accelerating certain shifts in terms of domestic politics. But another dimension that I think is really interesting, especially for people kind of coming from my little corner of the Bitcoin or in crypto world, is changes in the global money system. And I know that you've written about both the impact on the euro or a potential impact on the euro as well as the strengthening of the dollar going around. So I wonder if we might dive in there. Sure. So let's kind of break that into two topics.

Step one, let's talk about currencies and the likely path forward for that. Step two, let's talk about economic structure in general. Okay, so currencies. The United States has announced a $2.2 trillion stimulus, fiscal, and recovery program, combination of bailouts and checks to people, loans to business, that sort of thing, every dime of which is fueled by deficit spending. So we're talking 10% of GDP as a supplementary program, which is entirely based upon money that we don't have in the bank.

This is on top of a deficit for the Trump administration for the current fiscal year that is like the third largest in history. So just a huge amount of quantitative easing, debasement of the currency, printing of currency, whatever your preferred phrase for that concept is. And the dollar has gone up. The degree to which the United States is the sole, sole store of value in the global system was already pretty extreme in the last two years, and it's only gone up during the crisis. Because there's nothing that the Europeans can do in terms of stimulus spending without actually raising

debt, even if they decide to do something like QE, like the United States has done, they don't have to have to have the debate, which last time took years, over who gets how much of whatever the stimulus spending happens to be. And no one wants to throw money any more money than they have to in the black hole that has become Greece. Italy, despite the death rate and how tragic that is, has had 30 years to clean up their banking sector. They've actually gone the wrong direction, and no one in Europe wants to be responsible for paying for that. So aside from some German debt, because, you know, because there's actually a shortage of high quality debt in Europe, the Europeans are having a hard time raising the capital that is necessary to deal with this crisis, whereas the U.S. can just flip a switch, and that's what we've done. Investors look at that, and they're wondering, okay, which of these systems is still going to be around in a few years?

And they're all flooding their money into the United States despite all the deficit spending. As for other countries around the world, the Japanese aren't interested, the Chinese have capital controls, and the Brits are an economic, structure that's about one-sixth the size of the United States. And that's that's everybody. So if the euro continues to exist, it will exist over a shriveled, demographically spent

economy that is no longer capable of exports. That's not a functional block. And that's their best case scenario. More likely, this whole thing just breaks up and the United States basically absorbs a huge amount of capital from Europe. China is a bit of a black box because what data they do share, they tend to lie about, but we know that 99% of the yuan in circulation is all within the mainland. It's not an internationally traded currency at all. And folks, that's everyone. So we've got a centralization of financial holdings in a singular economy that is no longer interested in holding up the ceiling of the world. That's actually a fairly stable system, because if the United States was interested in what happened with its currency on a

day-to-day basis, it would probably manipulate it. But since it really doesn't care what the world looks like, it becomes the perfect store of value. So love it or hate it, the U.S. dollar is where it's at. And in the last few days, since the stimulus spending was finalized, it's even versus gold, which, you know, if there is any environment where gold should be doing well, it's right now. So it's it. It's the U.S. dollar or nothing. Broader global structures, broader global economic issues. If the global demographic is aging past the point of mass consumption and even past the point of mass savings, capitalism doesn't work. The concept of greater market size, greater interconnections, greater financial heft, greater technological advancement, more and more and more

and more. You know, this is basically the economic model that we have been in since the time of the Columbus expeditions. This isn't because of the order. The order just put it on steroids. Well, It all ends this decade. And with coronavirus, it might all be ending right now. We need a new ism. We know socialism doesn't work. We know communism doesn't work. We know Nazism and it doesn't work.

And we're pretty sure that capitalism is in its final days. What's next? No idea. But I will point out that in the past, when humans have come up with different economic isms, we have tend to argued about them relatively strenuously. Now, the United States is the last major. country that has to deal with this. We've got the best demography going forward. We're the only country that if you include immigration is actually above replacement levels. Our average age is

five years younger than the Europeans and even younger than that than the Japanese. We're now younger than the Chinese on average. So this process has happened here more slowly than everywhere else, and we've got a hell of a head start on everyone else. So we probably have more than a decade to figure this out, but we're going to have to watch the rest of the world struggle with this at a time of severe economic dislocation over the course of this next decade. Hopefully we'll learn a few things. Well, we're already seeing the power vacuum isn't the right word, but the thing that always happens in times of crisis where power shifts radically and gets consolidated very quickly.

Obviously, I think Hungary is kind of the canary in the coal mine isn't even the right analogy. Holy crap, hungry. But we're seeing. this already, and it's hard to imagine how this doesn't just wreak havoc on less state. I mean, it's wreaking havoc on incredibly stable countries, relatively speaking. So the idea that it won't just absolutely tear asunder, you know, certain places is nuts to me. Yeah, Europe is probably the best example there. In an open world of limited borders, the idea that you can have a medical supply chain that stretches through a number of countries makes perfect sense. But one of the first things that

happened even before they announced travel bans. The Europeans closed their borders to medical trade. So, you know, if you need to access four different countries in order to build a ventilator, you're out of ventilators. For the larger countries, Switzerland, I realize they're not in the EU, Germany and France, they can make this work because they've got a fairly large, diversified manufacturing base as it is. But if you're Portugal or the Czech Republic, you are absolutely screwed. And it's only in the environment of the order. that these countries have been able to exist without having to worry about their own defense. You move into a world where that is, where economic self-sufficiency and military protection are

actually issues. Most of these countries simply go away. So let's talk about a little bit actually now. The context of the conversation is Corona as a catalyst, but this is obviously a larger pattern and that's the point of the conversation too. So let's zoom to the other side of this. Maybe it's coming a little bit faster, but what happens in the context of kind of geopolitical relationships, the power balance between nations. I mean, one thing I feel like especially right now is there are a lot of folks who are looking over at China

and they see the US in withdrawal, they see China on the expansion, right? I mean, again, our little corner of the world is interested in things like the DSEP, right? The digital currency and what that might mean for the Belt and Road Initiative and all these sort of things. But let's talk about,

Well, one, maybe start with the relationship between the U.S. and China, how this changes or doesn't change anything. And then two, more broadly speaking, in the scramble, if there will be a scramble, you know, on the other side of this, how does that play out from a geopolitical perspective? Well, I think the best way to start that whole conversation is talk about the reality of China. Anyone who thinks that the Chinese are rising is reading too much Chinese propaganda. They're kind of desperate with their own system politically and economically right now. as I mentioned earlier, the average Chinese citizen is now older than the average American. So their capacity to have a consumption-led system that is not dependent on international

interconnections is pretty much ending right now anyway, and that was before coronavirus. China's system is very heavily internationalized, and that is a very new thing in Chinese history. Traditionally, the Chinese have never been able to punch out beyond the first island chain. Those are the lines of islands that roughly parallel the coast from Japan to Taiwan to the Philippines to Indonesia to Singapore. It's kind of forms in a coastal waterway system that any sort of naval power has always been able to keep China blocked up in. And it's only under the American-led order that everyone on all sides of that chain have been on the same side. That is the strategic environment in which China has been able to unify and become wealthy.

And as soon as that strategic environment breaks, China simply goes away as a significant power, much on a regional sense, much less on a global sense. So they are on borrowed time. They know it. And President Xi is doing everything he can with propaganda to try to convince the world otherwise and that there's some new era about to happen of Chinese glory.

He doesn't believe it. But if he can get enough people outside of China to believe it, then maybe they'll have a little bit of traction. That's part of the reasons why some of this coronavirus propaganda was so intense trying to shift blame away from the Chinese Communist Party and especially Xi personally to anyone else. And it absolutely backfired, most spectacularly, when they tried to blame the Italians.

And everyone in Europe just kind of turned a page and turned their back on China to whatever degree they could. Where to go with this next? It's what's those giant topics that touches everything. So that's my favorite. It's like, welcome to the black hole. Yeah, exactly. If you're talking about relationships,

between the United States and China. The thing you have to keep in mind is that there is no aspect of that relationship that the Americans do not control, and there is no aspect to that relationship that the Americans decide to change the parameters of that would not benefit the United States. We're seeing that in manufacturing right now.

We saw that in finance last year. We're seeing that in currency right now. So the next big steps are likely to be more direct American actions against Chinese interest as a result of some of the propaganda. Picking a fight with the United States at any time is not necessarily the best idea. Picking a fight with the United States when they had their smallest footprint militarily in the rest of the world that they have had since the 1920s is the very definition of stupidity. And picking a fight with the United States when they're scared

is borderline suicidal. So I expect a sanctions regime on China versus any number of industries for any number of reasons. Some will be linked to COVID, some will be linked to oil trade with Iran. It's really a short list. And I also expect a broad collapse of Chinese relations with most of the rest of the world because of one belt, one road. The first big infections that we saw outside of China were in Iran. That wasn't by accident. Those are just Chinese engineers going back and forth. And Iran is a real country. It has a medical system. That's why we noticed it. other places that the Chinese have been in Southeast Asia and Africa, you know, it's just they don't have medical systems to detect this sort of thing. We probably already have rampant, raging

epidemics in most of these places. And it's not going to take a lot of epidemiological investigation to determine where it ultimately came from. So let's talk, I guess. So one of the interesting points that you made around China is the backfiring of a propaganda campaign. I feel like the place that Americans have seen this, although it's still kind of in between a little bit, is particularly around the World Health Organization. And you've seen this in the context of tweets from the WHO basically parroting the Chinese line in January saying it can't be transmitted human to human. And again, you know, the trust in institutions falling thing is nothing novel. It's been a long-term pattern as well. But I think that we are seeing this acceleration. And

interestingly, it's almost the international institutions are getting hammered as well for having been potentially captured in some way by interests around the world. It depends on which institution you're referring to. If you're talking about things like the United Nations, well, those only work are if the United States is very actively involved, we really haven't been involved for 15 years ever since the Iraq War. If you're talking about things like the World Bank and the IMF, those tend to be a lot less politicized, they still are completely dependent upon the first world countries backing them

up financially. But to this point, there really hasn't been too much lost in confidence in those institutions from the top. I have no doubt that they're going to have a smaller remit moving forward, but I don't think we're going to see kind of like the collapse and confidence that we've seen with the United Nations. World Health Organization is kind of in between. The statements they made on coronavirus early on were obviously wrong and they were obviously catering to the Chinese, but you got to put themselves in their shoes. They knew that something was happening. They knew what was going to be bad. And the only source of data they had on it was the Chinese. So if they did not report in a way that the Chinese felt was appropriate, they just weren't going

to get anything. We know we haven't gotten all the data that we need out of China. We know they've been lying about every aspect of it. But what little we've gotten out has been because of the World Health Organization. So I don't feel great about it, but I'm probably not as willing to condemn them as much as other people. That's interesting. I think that's an interesting nuance to the position. I think maybe then the challenge gets to a broader question of just China's information policy of the global order and what people think about that, you know, in some ways. Well, the Chinese Communist Party's first and foremost goal is the survival of the Chinese Communist Party. And When Xi took over five years ago, they basically went into a series of political lockdowns

and purges where anyone who has any sort of independent opinion or thinking capacity was either imprisoned or killed. So we now have a one-man dictatorial system. He's got a cult of personality that's far more intense than anything existed for Mao. He has more authority over the Chinese system than any of the Chinese emperors of him old. He is the most powerful Chinese leader in the history of the Chinese people. means the capacity for catastrophic mistakes is huge because you don't say things that will disagree

with the party line, but with the line of Xi, and you do not want to be the person who brings bad news. So everything that I have heard from people who are within the Chinese system is that Xi is far more temperamental than Trump and is far more willing to punish his subordinates than Trump. You know, Trump can't just point at a guy at the Washington Post and say, I want to want him dead. She's been doing that for years. And so the degree to which we get doctored or completely fabricated data is just kind of the norm now. And the fact that anyone treats any Chinese data with any sort of respect anymore, I honestly kind of find it funny. Yeah. Well, that's one of the the big jokes in this situation is people, when people still to this day say, oh, the U.S.

has surpassed China's X, Y, or Z, right, in terms of the body count of the coronavirus. Yeah. But Something you have to keep in mind with coronavirus specific. Everybody's data collection is different. There is no global institution to collect data on that. In fact, in the United States, there isn't a national program yet. So you've got to look at the specifics of the case. So South Korea is a great example. Everything is basically linked back to one megachurch, which was attended by a bunch of 20 and 30-somethings.

So their data is a good cluster study, but it actually shows very, very low fatality rates because most of the cases that they picked out were young people. Italy is the opposite. Most Italians live in two and three generation homes. So once a virus gets into the population, the elderly cannot shelter in place. They are simply exposed. So all of a sudden, this wave of sick elderly people came in and hit the hospitals. The Italians had absolutely no warning, but they only tested the people at the hospitals,

you know, people in their 60s, 70s, 80s, and 90s. So of course their fatality rate was much higher. We haven't had a situation that's roughly analogous to what the United States, States is about to experience yet. The closest is probably what's going on right now in Spain and France. And I got to tell you, it doesn't look great. I want to almost zoom out from here. My first instinct to air was to say, okay, well, then how does this play off for the next three months? But that's almost, that's really difficult. Let's work backwards to that almost from a different question, which is, you know, you have a sense of what the world looks like on the other side of

the U.S. is full retreat, right? The end of the end of the, of this system that we've been in. You thought maybe it was going to be a decade from now or sometime in the next decade. It seems like it might be here. I guess the question is two parts. One, what does that world look like? You've already explained some parts of it,

but about as a whole. And then two, has the coronavirus changed anything about how you think that it plays out in terms of which country stand to benefit, in terms of, basically in terms of anything other than the speed with which change has happened. Yeah, let's start with that latter piece first. The coronavirus is changing the speed.

The countries that are going to be able to survive this intact are pretty much the same ones that we're going to survive before because they've got a better demography or a better governing system or a military that is right-sized to their needs or they can go out and get what they need. Those factors haven't changed. Coronavirus is just greatly excited related to the times table and there might, might be a cultural shift in some of these places that change the way that they choose to interact with the world. world. Probably the best example is Japan, which will still need some sort of manufacturing supply chain that integrates with other countries. Coronavirus might make them a little gun-shy

about that, and that might change the nature of kind of this new imperial Japan that's going to emerge. But let's talk general structure. You've got two phases. Phase one, I call the disorder, and that's just the breakdown of the global system, and everyone's scrambling to try to either take advantage or just survive in the new environment. So global trade goes away, global agriculture goes away, global energy goes away, global finance goes away. All of these things that have allowed our world to function in the way that we're familiar with just break down. And we move into a system where the United States basically draws a hard red line around the Western hemisphere and says the rest of you, you're on your own, unless you can bring something to the

negotiating table with us that we really, really want. We will no longer pay you to be on our side. but you have the option of paying us to be on your side as long as you keep paying. The most gross and obvious example of that right now are the military negotiations with Koreans, where the Trump administration has said, yeah, that $800 million a year that you pay us to keep our troops there, try $5 billion, and then we'll renegotiate next year to see if that goes up. And so the United States is in the process of closing down its military facilities in Korean, bringing the troops home because the Koreans think that this is a bluff. It's not. In any country that can't bring something to the table, cash is always good that the United States wants is basically left on its own.

For countries that import the majority of their food stuff, which is, you know, about 50 of them, that's the end. Unless they have a way to guarantee that they can get food supplies, I mean, that's just it. We've seen huge population booms in the last 70 years, a tripling of the population. In the Middle East, it's been a sex tuffling. unwinds, we have famine, we have financial crisis. Because if you think countries that had 100% or 60% of GDP in debt or a problem in a global order where the system was flush with capital, what happens in a global disorder when it's not. A lot of these places break. One of the things that we have forgotten in the world before the order, in the world before World War II,

is it was pretty normal for a stock or a market to go to zero at some point. That was kind of the natural end of things. It's only since 1945 in this era of global security and growth that we just became used to the ups and the downs and the ups and the downs. Usually recession is a contingency ending event. We're going to go back to that good and hard, and the adjustment to that era is going to be more than enough to shatter a lot of countries. Once we get past that, and that process could take five years in some regions, it could take 25 years in others. We did get to a new multipolar order. The United States continues to reign more or less supreme over the Western hemisphere and has largely turned its back on the rest of the world. And you'll have these

pockets where local powers have enough capacity to impose a local order on their own neighborhoods. Japan in East Asia, Turkey in the Middle East, France, in Western Europe, and it's entirely possible that the United States will have a partner come competitor in South America in Argentina. But that's it. Those five countries are the only ones that are likely to have any sort of long-term staying power in a world without the United States holding up the ceiling. What is it about those countries? I mean, I know this is the kind of key of the book, but for people, I'm sure there's a few people who just said, wait, Turkey in Argentina, what are you talking about? Sure, yeah. It's like, aren't these financial basket cases? I really get it. Yeah, so it's, I don't want to use these as hard and fast requirements. Sure. Context is everything. But the first thing you want is a reasonable demography with a reasonable concentration of young people.

Because if you've lost young people, then your country's going to die in the next 30 years anyway. I mean, if you don't have anyone in your population under age 40, I'm sorry. You just don't have a sustainable system from the get-go. step two, you have to have a system of borders that you can actually work with. They have to be relatively secure versus your neighbors, and the interior of your country has to have a significant chunk of usable territory. Kind of think of it as a crunchy candy. You want a hard coating that's hard to get past, but kind of a gooey center that's easy to work with. Argentina, for example, has the second best chunk of well-river navigable waterways overlaying by perfectly temperate farm-like. in the world after the American Midwest. I mean, there's really no way the Argentines can screw it up,

and they've been trying year after year for 90 years, and there's still the richest country in Latin America. I'd just give you an idea of how hard you have to work to break something like that. France is probably a close third. Third, you need to have either internal energy supplies or relatively close energy supplies or the ability to go out and get energy supplies. We like to think that the green revolution of solar and wind is going to change energy, and in some places it will.

In the United States, that might be right. But most parts of the world just aren't sunny or windy enough in order to get baseline, mainline, I'm sorry, baseload power from it. So you still have to have access to fossil fuels. If you kind of throw those categories together, these five states are really the only ones you can pull it off. Now, they all have exemptions where they're going to have challenges. So, for example, Japan has an absolutely horrible demography, worst on the world, and has no indigenous energy. But what it does have is the world's second most powerful expeditionary Navy. So we can go out and interface with chunks of the world that it wants to, and it's going to have access to the Western Hemisphere in a way that the Chinese won't.

So they're going to be able to import and establish political military links to countries that can provide them with what they need. And in exchange, the Japanese have a market, the Japanese have military protection, the Japanese have financial strength. So they have things to trade. Turkey's borders are maybe not as good as, say, France's or Argentina's or Japan's, but everyone around them is kind of a mess. So the military is right-sized for the challenges in front of them. Every story is different, but these are the five that are going to determine the future of the human condition. What do you think, how does this change the lived experience of, if you are, I mean, I guess it's different everywhere you are, but if you're an American, how does this actually feel to live

through the next decade? We're going to have a change in our workforce. It's probably the single biggest change we're going to have because we're going to have to do more with manufacturing, lots more small batch manufacturing machine shops. And so this concept of the gig economy and everybody kind of doing their own thing, that is not going to go away, but it's going to be far less emphasized than it has been in the past, because we're not going to be able to just make money on services and import the stuff we want. We're actually going to have to go out and build some of the stuff we want.

Now, again, the degree of change, the Americans' workforce is going to have to go through is minor compared to most countries because we still have Mexico. Mexico is our greatest demographic, political security and economic partner. They became our largest trade partner last year. It's a position they will not give up in our lifetime. the relationship between the two countries has become quite beautiful, and even the Trump administration has stopped haranguing the Mexicans on economic issues because he realized that it just wasn't resonating even with his core constituents.

So this is something that we can adapt to. All of the other problems that we've been talking about in the United States, most notably say the retirement of the boomers, you know, these are real issues. These are normal issues. These are issues we're going to have to deal with. But they're not system challenging issues. the American evolution to whatever's next is going to be relatively slow. We face no broad-scale industrial collapses once we get past this coronavirus problem.

How much do you think, you know, the coronavirus has accelerated things? I know that's hard to put a pin in, but is this a one or two-year shift in acceleration? Is this a five-year shift? Is this a decade-long shift? Or is that kind of contingent on what happens next and how it happens? I'd kind of say that every quarter we're dealing with coronavirus speeds up the process by about a year, just kind of if it was a rule of thumb. Best guess, according to the folks at the CDC and Fauci, if you haven't been following Fauci, you definitely follow Fauci, is that we're going to have a relapse in the fall and that the summer is going to be of limited use in limiting, in reducing this. We're going to face a horrible year. There's no way around that.

Okay, so that's three quarters right there. That speeds it up by three years. Well, what was supposed to happen in 2022, 2023? That's the year that the majority of the American baby boomers and most European baby boomers were supposed to move into mass retirement. So we really only had two to three years left of what we considered be a normal financial world. We've now lost that.

So 2021, it's going to feel like we're in the late 2020s when it comes to global degradation. I'm trying to think if there's anything else before I wrap it up. I've kept you for an hour or two. I think I'll just do my standard my standard outro question, which is a subjective one. So I've been asking everyone on this show sort of at the end, as I've had recently, one source of pessimism, one source of optimism as you look forward over the next few months. Sure. Optimism is easy.

We are trying out a number of new technologies when it comes to vaccine manufacture and development. And so far, they have wildly outperformed our most optimistic expectations. We're two to three months ahead of where we would expect to be with normal vaccine development for coronavirus. In fact, we're already well into our first set of human trials. It is possible, not likely, possible that we will have a functional vaccine that has entered production workers by the fourth quarter or at some point in the fourth quarter. That would be amazing and that would really break the back of this. A lot of things have to go right. Nothing has to go wrong.

And these are all untested techniques. We just have no basis for comparison. But right now it looks pretty good. So that's the optimism. The pessimism. So many parts of the world were living in complete abject denial about the end of the order. Europe, I would say, is the greatest concentration for this. just the sheer insistence that everything was going to be fine and all they had to do was outweigh

Trump and the world would go back to normal where the Americans pay for everything. I mean, it was just, it was assinine, but it was probably the dominant view around the world. Add in coronavirus and all of a sudden we have 10 years of transition smashed it into a year or two. Most places in the world weren't going to be able to deal with the new disorder anyway and having absolutely no adjustment time while also under economic and political lockdown, you know, some countries just aren't going to emerge from the coronavirus.

Well, on that note, I feel like that's it. We've just teed ourselves up for the inevitable request for an episode two with you. But until then, I really appreciate you hanging out for a little while. Where can people find you if they want to learn more? Sure. So the website is Zion.com. That's Z-E-I-H-H-E-H-E-H.

I'm on Twitter at at peter zion.com and we are now doing consulting on all types so if you go to either the website or the Twitter feed you can find out more we do consulting sessions we do webinars and we do mass zoom conferences for broad audiences wherever they happen to be awesome well thank you so much for your time again today I really appreciate the chance to zoom out with you pleasure you guys take care Quite a way to end the podcast. Some countries just might not come out of the coronavirus. You know, we're already seeing just heaving of political systems and economic systems, and in many places we're still on the crescendo up. I think one of the things that I appreciate so much about Peter's perspective is that it's not politicized in the sense of shooting or aiming for some outcome.

It is just raw, unfiltered, and unglamarized. reality at the best that he can make it out. Now, of course, there are so many factors here. There are so many variables that could change that taking too much stock in any one type of prediction, I think, is really difficult. But what I think Peter offers is the ability to see all of the ingredients together that make up his predictions. And that creates, for me, a much more value because you could listen, you could hear all the things that he's saying and maybe come to your own conclusions. And as always, you know, we're Bitcoiners, ultimately. We like to come to our own conclusions. We like to trust, not verify. But I think Peter provides and presents a pretty

compelling case for how the world is changing. And so I hope you enjoy this episode. Let me know what you thought. Hit me up on Twitter at NLW. And we will be back tomorrow for another episode of The Breakdown. 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 CoinDesk. Welcome back to the breakdown. It is Thursday, April 2nd. And today we are going to try to do something where we start with the bad and lead into the better, if not good. So today I want to talk about jobless claims because that is the important news vis-a-vis understanding the impact economically speaking of the coronavirus crisis in America.

and then I want to segue, though, into something that is more homegrown crypto-related. So I want to look at five positive indicators for crypto going forward that look at the last few weeks and look at what might happen over the next quarter and try to have a slightly more buoyant picture. Now, I don't want to be, as I've said, a number of times on this podcast, Pollyannish, about just how serious everything is, which is why I want to start with these jobless claims. But I do think that in all the gloom and misery, there are some interesting indicators. in the crypto industry specifically that should give us some cause for optimism.

So let's talk about jobless claims first, and then let's get into those five positive indicators for the crypto industry. All right, so first jobless claims. Last week on Thursday, we got the report that in the previous week, 3.3 million people had filed jobless claims, which was a 4x increase over the previous high, which was from 1982. Now, this was devastating enough, and as we went into this week's report, there were a no of different estimates going around. Wall Street journal surveyed economists and they came back with

another 3.1 million. Morgan Stanley was betting on 4.5 million new claims. Goldman Sachs was saying something like more like 5.5 million new claims. Well, the real numbers topped all of that at almost 6.6 million new claims, which means that over the last two weeks you've seen almost 10 million people file jobless claims. Now, on the one hand, this isn't surprising, right? We've based basically forced huge swaths of the economy to shut down. Really, anyone who can't work from home or a very small number of essential services. So, again, on the one hand, this isn't unexpected. On the other, it still is a shocking number to actually think about the human toll of the economic fallout of this crisis. Now, you remember last week where I was getting very nervous and frustrated

with the politicization of the crisis in the sense of creating a red versus blue health outcomes versus economic outcomes. My contention was that this was a ridiculous and farcical conflation of things and trying to pin these two things together as though they were mutually exclusive outcomes was just lunacy. I do think that we've retreated a little bit away from that rhetoric this week, largely because the president has shifted his tone entirely and is now talking seriously about 100 to 200,000 deaths, and in fact trying to shift the narrative to that being a potentially a positive outcome, at least relative to the millions that could have died otherwise. Because of that, because of the extension of Trump's kind of 15-point rules and social distancing, at least through

April, because you're starting to see states who have been long-term holdout, such as Florida, start to impose stay-at-home rules, you don't have quite the same level of politicking around health versus the economy. However, now that we're away from that, I think that it's probably the right time, if not a little late, to talk about figuring out the exit plan. Because right now, there is no exit plan. There isn't a real process for how we get back to work. And what's becoming clear is that it's not going to be as simple as there's some normal on the other side, right? We have the benefit of watching other places around the world who have contained their crises now try to go back to work and see what's happening. And it's very different than the normal that we

experienced before, right? There are strenuous temperature checks and containment procedures and testing procedures in countries all over the world. In China, you've seen extended shutdowns again. You've seen movie theaters had to be shut down last week. So there's clearly fear of secondary outbreaks. And that's something that we need to be nervous about as well. So the reality is that we have to accept that there's no normal on the other side of this. We have to design not only for how we get back to something resembling a normal economy while also dealing with health outcomes. These are no longer things that you can talk about inextricably from one another. They are just part and parcel of the same experience.

Now, there are templates for this, right? There are plenty of people out there who are showing what it looks like, or societies, rather, showing what it looks like to contain this and start to get the workforce back in action. And the longer that we delay, the more devastating this economic toll is going to. be. The markets seem right now to me to not really be pricing in just how devastating this jobless rate is. And I think my guess is that that's because people are still holding out hope for this V-shaped recovery, where at some point we flip the lights back on and everything just happens. The problem is that that doesn't take into account the number of businesses that will just have

to shutter on the meantime, right? Small businesses don't tend to have a huge amount of operating cash. It's not like they can just hang around. We've barely begun to deal with issues around mortgage and lending markets, which you're going to create more and more pressure as well on just a variety of businesses, right? So there's all of these challenges, and they just get compounded the longer we go. And we have to, first and foremost, I think it's clear, deal with health issues. But we have to start designing for a future in which people, there is it, basically, we're going to live in an liminal in-between state for a long time, where this thing is not fully contained. but it's contained enough and we've got good enough procedures that some part of the population can go back to work and we can start to get things moving again.

Until then, almost everything that we're seeing is just going to get worse. And until then, frankly, I believe that the numbers that we see in markets aren't going to reflect the real pain that is actually being experienced. So really important to take this seriously, really important now that I think hopefully we're through some of the politicization of this whole health versus economy on the one hand is over, we can maybe actually start to have the right type of conversation about how we deal with health while also getting the country back to work. That's the Corona update for today. When you have 10 million people out of work in a country over a course of two weeks, I think it's

significant enough to talk about in a podcast that is nominally about markets and crypto. But let's shurn our attention now to the actual crypto markets. And what I have noticed over the last few weeks as a few positive indicators. All right, indicator one. What are positive indicators for the crypto markets? First is volatility. So I noticed last week that the S&P 500 had been officially more volatile than Bitcoin the trailing month.

So according to the Fed, S&P's 30-day historic volatility was 200%, compared to an average of 27%, while Bitcoin was at 138% from an average of 65%. Now, I don't think that this is something that we should be cheering too much about. I think it's likely something temporary, but I do think that the increased volatility in traditional markets is a pretty good recipe for crypto traders, at least, to be able to better understand and participate in those markets in a different way. Scott Melker, who's on the show a few weeks ago, said something similar. In a tweet from March 27th, he said,

the benefit of trading equities used to be that a valuation was simple and somewhat formulaic. It's likely that there will be no earning season now, meaning that it's nearly impossible to know what a stock is presently worth. U.S. stock market, welcome to crypto. No guidance, no earnings, no idea what companies are worth. We've talked previously on this podcast about just how difficult a time markets are having right now pricing anything. And, you know, as I've said then, and I'll say again, I think it's because until we have any semblance of understanding how to make health outcomes work and actually solve this issue, it's going to be very difficult to deal with economic issues as though they are somehow divorced from that. But either way, one positive indicator, at least for traders, at least for people in crypto, is that we're used to volatility in a very different way. And certainly the regular markets, traditional markets are going through that now. So that's number one. Second interesting positive indicator is that stable coin issuance is way up. On March 31st, coin metrics posted that there had been over $1.4 billion worth of Tether

issued on Ethereum specifically since March 1st. Tether's total market cap is now over $6.4 billion. Hasu, who's an independent researcher, also wrote an article on CoinDesk about this as well, talking about why he thought that might be. Now, one of the answers is likely that crypto traders are moving from more risky assets in the crypto space to something that is comparatively less risk like tether, right? So that's one. That's what you'd see traditionally in a market situation like this. But there's likely a bigger reason, which has to do with, again, the larger markets themselves. There is a huge demand for dollars all around the world right now. And getting dollars is actually quite difficult for people, right?

This is why the Fed has set up these swap lines with other countries where they're allowing central banks from other countries to actually get access to U.S. treasuries and U.S. cash because they're worried about that cash crisis around the world, right? Right now, the dollar is the asset around the world. It is the most significant asset around the world. And I think part of what you're seeing, and this is what Hasu argued as well, with the increased issuance of U.S. D-denominated stable coins, is that they're creating. creating a mechanism for people who have or from places that have a harder time accessing

that cash actually have exposure to something like it. So I think it's a phenomenon that is bigger than just the crypto industry itself, but it's interesting to show how this part of the crypto industry, which is stable coins, is actually creating an avenue for people who are functioning in traditional markets and in traditional lines to actually get exposure to the asset that they want, even if it's sort of a synthetic crypto version of it. Now, one additional note on this, Raoul Paul wrote an interesting note that he called the dollar standard crisis. And I'll read part of it just because I think it's powerful. He says, less available dollars in a world of a massive dollar shortage drives up the dollar,

creating a shortage both home and abroad. Money printing does not make the dollars available. They get stuck in the financial system and hoarded. Money for the banks, no money for the debtors. It can only mean a massive uncontrolled dollar rally. QE will not fix this. swap lines will not fix this. A debt Jubilee would fix this or multiple trillions of dollars in write downs and defaults. It is the dollar's strength that brings the world to its nadir just like the 1930s. It is the dollar system that is the really big problem. The dollar has eaten all of its competitors and now it is going to eat itself. This eventually breaks the dollar after a super spike as global central banks are forced to find alternatives. They're already working on

digital currencies for exactly this. Now, Raoul has a particularly bleak view of this. Others disagree. I think his point is worth noting, though. And I think specifically I want to talk about the digital currencies aspect of this. So a number of people in the comments as he tweeted this out, said, well, what do you mean by that? He has been really interested in this idea of a global basket of currencies denominated digital currency, right? Like what he saw so interesting about Libra was not anything about Facebook per se, but about the idea of an alternative to the USD as the world's reserve standard because it would be denominated in a basket of currencies. That he thought was the major disruption. So it's interesting to see that he sees this happening a little bit and is

bringing it back into the conversation here. Now, right now, also, it seems like just everyone is focused on dollars, and it's hard to ignore that fact. Yesterday, you heard Peter Zion on the podcast talk about why the dollar is poised to just be so strong for so long coming out of this. but there is some interesting counter indicators as well. Yesterday, news broke that the eight member states of the Shanghai Cooperation Organization, which include China, Russia, and Pakistan, had decided to conduct bilateral trade and investment, as well as issue bonds,

in local and national currencies instead of U.S. dollars. So clearly you're seeing some pushback against trying to create different types of economic blocks. I would expect that as we see the fallout from this and just this was going to be a part of the next 10 years no matter what and with Corona just accelerating things. But I do think that you're going to see these regional blocks try to pull themselves away from the dollar. How successful that will be is going to be really hard to say. But long-winded way of connecting stable coin issuance and the growth in stable coin issuance to the demand for dollars as a positive indicator for crypto, I think that when we talk about onboarding new people and getting people familiar with the tools of cryptocurrencies and getting them exposed to the ideas, the fact that there's such demand for

dollars, whether digital or not, could be an on-ramp that actually is relevant for this industry. So that's number two. Stablecoin issuance way up. All right. Number three, buying the dip. One of the things that a number of different people noticed, I'm thinking Hunter Horsley from Bitwise asset management, for example, is that even as the craziest action was happening in Bitcoin markets, right, Black Thursday from a couple weeks ago, it seemed like there were more buyers than sellers on Coinbase. Well, Coinbase followed up and said that yes, that was true. So let's just read from their exact statement. In the 48 hours during and immediately following the drop,

we saw record-breaking numbers compared to our last 12-month averages, 5x increase in cash and crypto deposits totaling 1.3 billion. 2x increase in new user signups, 3x increase in trading users, 6x increase in total traded volume. But beyond just a rush, two things are clear. Customers of our retail brokerage were buyers during the drop, and Bitcoin was the clear favorite. Our customers typically buy 60% more than they sell, but during the crash, this jumped to 67%, taking advantage of market troughs and representing strong demand for crypto assets even during extreme volatility. So what this means is that there was a thesis that the drop in the Bitcoin price reflected everyone who was in institutions, right? Everyone who had all of a sudden this huge

cash crunch having to liquidate their positions in anything that they had, including, unfortunately, Bitcoin. And it wasn't necessarily a mark of conviction. It was just a economic reality based on the particular type of drop that we were seeing in the wider markets. this seems to indicate that's the case because not only did those folks end up being the only sellers, right? We saw that the actual hodlers who are mostly focused on this industry come in to scoop up the remnants for cheap. And what's more, you saw even more people coming in, which I think gets to our point number four. One thing I don't want to talk about in terms of positive indicators right now is this idea that this is going to cause hyperinflation, right? That the huge amount of

underprinting is going to cause an incredible amount of inflation, which is exactly what Bitcoin is made for. The reason that I don't want to talk about that is that it's a huge topic. It deserves its whole conversation that's not glib, right? That is serious, that thinks seriously about what the implications might be. If you want to learn about that, think more about that. I highly recommend my podcast with Preston Pish, who's incredibly eloquent and thoughtful about exactly this. And we will talk about it even more, right? Because it is the overarching kind of narrative context. However, let's actually speak about Bitcoin narratives. At the beginning of the crisis, as things started to move in lockstep with the equities markets, a lot of people were out

with their pitchforks around the safe haven narrative saying it was dead, saying it was over, saying it was whatever. But what's happened interestingly is that as the money printer go burr machines have revved up, the original chancellor on the brink of a second bailout narrative of Bitcoin has risen back to the top, that this is the one free market and the one of, undeascible asset that's still out there in a world of things that are just being printed into infinity and into oblivion potentially. So that narrative has been surging back to the forefront. And I think what's relevant is understanding how it's impacting people who aren't just in our industry, right? There are indicators that there are people who are saying, okay, on the one hand,

we've got unlimited money printing over here. And on the other hand, we have this asset, which keeps getting more and more scarce with its having coming up right around the corner. over here, that drives interest. We've seen anecdotal evidence in terms of Google trends. We've seen that in terms of publications and what people are reading. We've seen that in the stat from Coinbase, 2x increase in new user signups. And we saw that with Cracken, who reported an 83% rise in signups and a 300% increase in verifications, which means the people who actually go all the way through the KYC process to deposit Fiat in the wake of everything that's happened. There is clearly growing interest in this differentiated field even despite the price crash. So I think that that is a

positive indicator that the narrative message of unlimited money supply growing and growing and whatever that might mean over here versus this limited money supply over here. It's clearly causing more people to look over at this industry and more blood, more people, more fiat. All of that is good net net for Bitcoin and for the crypto industry as a whole. So that's number four is the gross in interest in this sound money in a world of fiat everything. All right. Now, here's the last one, and I'm sure some of you were wondering if I was going to talk about this today.

Finance is set to acquire coin market cap, or I guess it actually has at this point. It closed on March 31st for a total somewhere between $300 and $400 million. Now, that's mostly in equity and B&B we're hearing. But regardless, it's a huge total. It makes one of the biggest acquisitions in crypto history. And I think that this is important for a few different reasons. Let's talk first, though, about Binance's motivations. One that stands out is traffic, right?

Finance and Coinbase are in constant competition, as well as every other exchange, for traffic to exchanges to go get those new users to get their money onto the exchange and start trading. Well, coin market cap has significantly more traffic than Binance, right? It has something like 80% more traffic than Binance, which means it could be an incredible feeder for that site. A second possible motivation, although one I'm a little bit more skeptical of, has to do with revenue. Coin market cap makes anywhere between $25 and $40 million a year based on your estimates and was probably making even more than that at the height of the ICO boom through advertising. It's one of the top thousand sites in the world, according to Alexa. So it's a,

it's even if finance may not be that interested in the revenue in the short term, it certainly de-risks it as an investment. Although, interestingly, it seems as though Binance might have some plans for its business model that take it away from advertising, in which case, revenue was clearly not a motivation, and it really was something different. But either way, at least in its current incarnation, I think revenue derricks the investment from Binance's perspective. A third possibility has to do with data, right? Coin Market Cap has sometimes been criticized for trafficking in data that isn't necessarily fully verified. Sites like On Chain FX and Nomics basically were built to improve the quality of data in

crypto to avoid exchanges that engage in wash trading and stuff like that, whereas coin market cap has kind of just let it all hang out there for anyone to see. But they've been doing that for a very long time, right, since 2013. So there's a huge amount of historical data that Binance might find valuable. The last part in the one that's really interesting, though, is optics, right? Being seen to be this big force. and it seems like that's part of the goal here, right? In the block's follow-up article,

so the block broke this story at the beginning of the week, and then it was confirmed just today. In their follow-up article, it seemed that someone close to CZ was saying that this wasn't about the revenue in the short term. It was about being able to act kind of countercyclically to the market and just do something big and have conviction and vision for the long term. So this gets me to why I think this is a positive indicator for crypto as a whole.

this is a space that is young enough that it has to be built at least to some extent on belief, right? It thrives on people being passionate, engaged, willing to build towards uncertain futures. When we see activity drying up, when we see transactions drying up, and we see prices going down, that contracts the amount of energy and passion and excitement people have for this industry. Whereas when you see big M&A activity, when you see active things happening, when you see millions of dollars changing hands, that gets more people to be involved. Now, of course, there is an amazing, powerful cohort of Hodlers of last resort for Bitcoin specifically who will ensure that it's pretty hard, I think, to kill this industry or at least

Bitcoin once and for all at any point. But to the extent that we're interested in just growth and expansion of the actual Fiat coming into this space, I think big moves like this one are really, really valuable from an optics perspective. So those are the five indicators that I think are positive right now for crypto. As I said, I don't want to be poliand. or overly reductive about the real economic pain out there, nor do I want to overstate how good a place crypto or Bitcoin even is in relative to the rest of the world. I personally think that it's likely that there's more economic pain in traditional markets. I'm worried about continued knock-on effects and things like real estate. I think that traditional markets could fall a lot

further. And I think when that happens, there are maybe even more people who don't want to but have to sell some of their Bitcoin. So I don't want to be glib about this. I also don't want to prescribe people just putting their money into Bitcoin. I think right now is a time when everyone is trying to do two things, first survive and then figure out how to thrive. And unfortunately, there's going to be a lot of people for whom Bitcoin falls into the thrive category and they can't get there yet. So this is all my big caveats about how far I'm willing to go with how positive things are. But I do think that these are interesting counter cyclical narratives and indicators that are worth having some optimism around and some hope in. So that's the show for today, guys.

I appreciate you hanging out. Let me know what you think at NLW on Twitter. I will be back tomorrow with another episode of The Breakdown. 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 Friday, April 3rd, and today I am talking with Matt Luwong. Matt is the founder of Thesis, which is a company that has many companies underneath it. Fold, many of you may know, as the Bitcoin Rewards Shopping App, Keep, which is a solution for keeping anonymous private data available to public blockchains, and most recently, TBTC, which is basically a bridge between Bitcoin and Ethereum. I wanted to talk with Matt about a few different things.

First, why Bitcoin on Ethereum? Why try to connect these chains? Matt shares his journey from getting into Bitcoin in 2013, having a moment in 2016 where he was on the one hand really supportive of this narrative shift and focus on Bitcoin as the base asset for a new financial system, right, a competitor to central banks, while also understanding that for his payments-focused projects, there were going to be tradeoffs that maybe weren't the best for him. That led him to Ethereum. And so we get into the history of Bitcoin on Ethereum and things like that. So that's one part of our conversation. Another part of our conversation has to do with

just how Bitcoin as an asset and Ethereum as a technology can transform the entire financial system. Matt uses this analogy of Bitcoin as attacking central banks and Ethereum as creating opportunities to go after retail banks, which is interesting. And finally, we talk about something that I've been thinking about a lot for anybody who listened to Monday's episode, No, what the narrative is for defy in a post-coronavirus world, right? I think that the narrative for Bitcoin in some ways, in many ways, will never have been stronger or clearer, right? The more that MoneyPrinter go bore, the more that you look around and see what's not like that. And there's very few things with Bitcoin being perhaps the most diametrically opposed. But what is the narrative for Defy in that

context? Is it just a plaything for developers, or is there something more there? So that's our conversation. I had a great time talking to Matt. I hope you enjoy it, and I'll be back in a little bit with the wrap-up. All right. We're here with Matt. Matt, thank you so much for joining today. Hey, great to be here. Thanks for having me. So lots of stuff to talk to you about. I was just kind of giving you the rundown. But before we dive in, you have a lot of Twitter handles and companies, it seems, that you are related to. Can you explain how thesis relates to Fold, relates to Keep relates to TBTC, for those who aren't familiar? Yeah, sure. Well, obviously, you know, I get tired.

to one brand and I got to switch a lot. So I got in the space in 2013 and I founded a payments company that eventually became Fult. So Fold's actually quite old, though I think most people are more familiar with it as a more recent Bitcoin rewards company. So in 2016, I kind of felt the tides were shifting. Bitcoin as payments, that narrative was dying and we were really starting to focus on this store value narrative.

And so, you know, I was looking at what what's the right angle for Fold and where are my interest as an engineer as well as a startup founder. And eventually early 2017, that led to a new project called Keep. Now, I knew what Ford was doing was incredible, but maybe I wasn't the right guy to run it. And so we found a new team to run Fold that took over in 2017. and we realized that we had these pretty disparate projects and stuck under one corporation. So we created thesis because, you know, I think something that I learned about myself, but also about my team is we like to work on lots of interesting things. We want to ship software that people use, but then we also want to do it again, right?

And so, so yeah, so Fold is now its own company. Thesis is the parent, has a pretty helpful. healthy ownership in both Fold and Keep. And I think what we'll probably talk about today, TBTC is Keep's latest project. Awesome. Okay. So let's talk about Keep because it feels to me like the part of Keep was also inspired by a need that's that spun out of Fold, right, that came from Fold.

So maybe you can talk about Keep a little bit. I mean, you know, and I might lose the Bitcoin audience right here. But the need came from as we were working on Fold, we were working heavily with secondary market gift cards, right? So gift cards that people didn't want anymore in that they sold. But it was a huge pain, right? And since then, they've done all sorts of things to, you know, basically run operations better than I ever could. But for me, the problem was, well, I don't really want to deal with people. I'd like to have, you know, just sort of a decentralized market where I'm a participant, but I don't have to have all these relationships and I don't want to deal with all these

jurisdictional differences. So I started working on a decentralized gift card marketplace. And, you know, as a as a Bitcoiner, I went to, I mean, over the years, I went to like Omni and I went to like sort of all the second layer stuff that happened on Bitcoin. I looked at models like OpenBazaar and, and more recent ones. And finally, I actually ended up playing with Ethereum. And so by early 2017, I, I kind of thought like, you know, Ethereum's not ready for prime time.

Actually, in some ways, I still question if it is. But so I started building on it. But the first thing that I ran into was that there was no way to actually custody private information. So when I heard about all these smart contract developers, I assumed that they had at least solved like some basics about like how can I interact with the system and, for example, include KYC information, but not share it on the public chain. But it turned out that, no, it was incredibly early days. And so as an engineer, I've got a pretty strong computer science background, as does my team, we started diving into how to solve that. And that's when my co-founder tapped me on the shoulder and he said, you know, this work you're doing on like private data and confidentiality is much more interesting than this market we're trying to build.

Why don't we focus? And so that's what led to keep. It's a confidentiality data layer for Ethereum. But what that really means is you can include basic references to private information and custody private information without exposing it to the whole chain. So give us an example. Maybe let's talk not at first, I guess, about TBTC because I know that's the first application of it. But like what's a big, dumb, not have a computer science background way out?

When you think about this in 10, 15 years, Yeah, that would make it clear for someone. Well, you know what? I'm going to make it clear a year ago rather than 10 or 15 years ago. So let's say we wanted to replace something like Equifax. So let's do it, right? This is like something that's sort of this accidental institution in the U.S. credit scoring. It was cobbled together.

Clearly, we've seen that they have all this power that makes no sense and the consumers haven't really given them. So we haven't really consented to this. So let's replace it, right? So if you want to replace Equifax, you very quickly run into some simple things. So I'm interacting with this decentralized system. It's going to do credit scoring. But I need information.

I need like private information. Where does my social get stored? It's very simple. So, you know, if you're using something like Ethereum, you can't put it in a contract because the whole world will see it. Every node will see it. Or you can trust someone off chain to do it, in which case, you know, great, you've added this Rube Goldberg machine, but you haven't actually solved

anyone's decentralization of power concern, right? Someone still has your information. So what keep lets you do, and this is just like the simplest use case, is take something like a social, have a user, enter it, shard it across many, many, many custodians, and then govern them via smart contract. So like, let's say smart contract needs to know, well, this is a social, it's a valid social. The user can shard that across many, many people. people, those people can prove to the smart contract that that's true. And then you're off to the races. Obviously, now replacing Equifax is a lot more than storing social security numbers. I wrote a blog post about it way back when. But that's kind of what we're trying to do with

Keep is like, what are the institutions like Bitcoin exists to replace central banks? What else can we replace with this tech? That's a perfect segue, I think, into TBTC. So let's start with first what it is. And then let's talk about why Bitcoin on Ethereum or Bitcoin or Ethereum as a Bitcoin side chain. I mean, explain TBTC and then give me the motivation, I guess. Yeah, sure. Well, you know, the motivation, it's pretty like pedestrian. But I, so I moved from California to Atlanta not that long ago.

And, you know, the houses are a lot cheaper in Atlanta. And so, you know, my wife was like, let's buy a house. We had our second kid on the way. And I was like, okay, cool. We'll do it. We'll settle down. Let's do it. And she was like, okay, so time to sell your Bitcoin.

And I was like, that doesn't feel right. I don't, I'm not. No, I don't want to do that. Please don't make me do that. And so I said, I bet we can get alone with it as collateral. And look, I've been in the space a long time and there's lots of like clever things I can do. People love to be like, well, didn't you know about X? But, you know, so I was told there's a lender in town who's script.

friendly. So I went to talk to this lender. And they said, yeah, we love crypto. Sell your Bitcoin and come back in 30 days. And we want to ask where the money came from. And I was like, no, dude, I'm not trying to like avoid the IRS or something. I just want to use this as collateral for a loan. It's hard money. Let me. It's super collateral, right? Let me use it. And so, and so now there's this proliferation of loan desks, and especially if you're in the know or if you've been in the space for a while, you can solve this problem. But at the time, it was still early days. And so, uh, so yeah, so this has kind of got me thinking. One of my, um, feces about crypto, mostly about Bitcoin, but it is about like the whole space and not just Bitcoin is that like in addition to needing hard money,

crypto is also a chance to kind of have millennial money. Like I don't want to talk to someone to get financial services. That's ridiculous. Like that doesn't feel right to me. And so the same way, I don't want to talk to someone to get a loan against my Bitcoin. I should just be able to do it, especially because I've got the collateral, right? It doesn't require a reputation. So this let me think, what if we had something like MakerDAO where you could take a stable coin loan against collateral, on chain, permissionless. You don't have to talk to anyone. And that's what got me working on TBTC. So this is really interesting. I was reading some of the things you've written, or rereading them, I guess, because, you know, kind of my job is to follow everyone's

everything in this space. But one of the things that I thought was really interesting is, I guess it brings this together. The idea that the conflict you felt of the shifting narrative and call it 2016 around Bitcoin where, although it might be worse in some ways for a business that was in the payments type space in that use case, the idea of Bitcoin as a hard money. as a digital store of value as an alternative to Fiat that was arising felt right. And it also felt kind of inevitable in some ways, like it based on just how it continued.

And so what I hear from you, which is something that I've watched, it's been interesting to watch Defi totally take over the Ethereum narrative from, you know, back when we were talking about world computer and decentralized apps and things like that, because it is this dimensions of finance, right? you have the what is the base of the financial system and is it you know non debasable is it fix supply all these sort of things but then what can you do from like how do you redesign the services that sit on top of that and interestingly that's really kind of where the break between bitcoin and ethereum has been bitcoin is focused on i think rightly from a development perspective

making sure to protect that core foundational piece while ethereum has gone off and done all these experiments and what this new set of services looks like. So it sounds like that was kind of, that's what brought it together or that that connection, that confluence of two things is kind of what led you to TBTC. Yeah, I mean, it's even more than that, right? So we have a few really interesting kind of like social things going on. So one is, what is this tech good for? Right.

But already a lot of people would be like, why are you even talking about tech, right? A lot of people in our space would be like, no, no, no, this is about hard money. And you know what? It took me a few years, but I agree. I think that the biggest thing that we can do is take on central banking and change people's relationship to money. But the tech is still interesting. And so, you know, part of this Bitcoin Ethereum split is, on the one hand, it's conservative thinking about money, right? In terms of left-right conservative.

But on the other hand, it's also, Bitcoin makes very conservative tech choices because the idea is, well, you know, know, we need to exist and we're building the airplane while we're flying, and so we should be very, very careful. Ethereum has taken the large-cap crypto version of move fast and break things. Now, compared to the rest of the space, I can actually say that's not true. They're starting to grow up. But still, you know, the engineering is of a just, they just, they do move fast. And I have seen things break.

on the flip side, that's also where a lot of the tech optimism went, right? So like a lot of us felt, I mean, briefly, you know, with the block size debate in Bitcoin, I almost felt expelled from the community. I eventually realized that it was much better for the chain for corporations to not be able to wag the dog. It's better for governance. It's better for the money. But it did really also feel like as an engineer and as someone who was a technical optimist

that I was being pushed out. And so today, you know, this is kind of me being able to come full circle. Just because I think Ethereum as tech is an interesting place to play and an interesting place to develop new tools, I don't think it's necessarily the best asset. In fact, I said the other day, like our net worth is maybe 90, 95% Bitcoin. I'm not big on diversification. And so, so, you know, my take is kind of like Bitcoin, the asset takes on central banks. Ethereum, the technology, can take on maybe, maybe retail banking and maybe some kind of other

interesting use cases around privacy that we're still exploring. Okay, perfect segue. So talk about what exactly TBTC is and maybe also what makes it different than other projects like it. Yeah, sure. So TBTC is a Bitcoin side chain on Ethereum. I think two projects that are interesting to compare it to might be liquid by blog. lockstream from the Bitcoin side and then WBTC from the Ethereum side.

So if you're familiar with Liquid, the basic idea is that you take your Bitcoin and you put it into this 15 signer multisig. And the multi-sig participants are all, you know, there are folks in the space we know, like Unicoin and a variety of exchanges. And then what they do is once the Bitcoin's in that multi-sig, they have this additional chain where they're notarizing back and forth, and you can move your money faster. There's a two-minute block time. You get confidential transactions. You get some other nice things out of it. And then if you want, you can request to move your money back, back to the Bitcoin

chain. So that's interesting. I mean, it lets you do more with your Bitcoin. But you're also sort of saying, like, I hope these 15 participants are honest. And at any time, time, you know, they could decide, like maybe for political reasons, not to give you your money back. But it was a good step in the right direction. So it's not quite the 2014 side chain ideal, but it's an attempt. On the Ethereum side, you know, it's different. So on the Bitcoin side, we're like, how can we make Bitcoin move faster and do more things? And on the Ethereum side, they're just desperately looking for collateral. All these DeFi projects are minting stable coins and putting out loans, but most of it is over collateralized.

And there's only so much ether, right? And so they're interested in bringing Bitcoin in or a representation of Bitcoin in onto the Ethereum chain. And so the first effort to do that that I'm familiar with was WBT. And the basic idea is that you have, you know, I mean, there's a lot of white paper and words around it, but the reality is there's a single Bitcoin bank, and the Bitcoin bank is Bitco. You put your Bitcoin in.

go bank, and then they give you script on the Ethereum chain that hopefully you can redeem for your Bitcoin. And so, like, maybe for traders, that's a good way to get some price action on the Ethereum chain. But I mean, for me, like, I don't, I mean, that's, it's just the same as putting a whole bunch of Bitcoin in an exchange. So in the same way that I'd rather not trust 15 signers with my Bitcoin and a promise, I'd rather not have to like, you know, ask, like mother may I when I want to withdraw from something like WBT. So what TBTC is is it takes these two ideas and it kind of tries to make them as trust minimized as possible.

Sometimes we say trustless in marketing, but this is a very loaded term. So we'll say trust minimized. The basic idea is that instead of having one 15 member multi-sick like liquid, we have many. So every single deposit into TBTC of Bitcoin has many signers that are. randomly chosen. So that's another big difference. They're not people you know and trust in the community. They are randomly chosen from a pool of candidates. And that's each deposit. So instead of this single peg, you have many little pegs called a federation, called federations, plural, actually. And then the second thing we do is like, on top of this mechanism, each member of a

federation has actually put down collateral on the Ethereum chain. So they have put down ETH worth significantly more than the Bitcoin that they're custody. And the idea is that if they misbehave, that can be taken from them and it can be restitution to any depositors that have been harmed. And then the last step is we use, and this has been around since the Satoshi days, SPB proofs to actually tell Ethereum, look, this Bitcoin deposit from the Bitcoin chain. It has actually happened and prove it to the chain. So what's cool about this now is you can open, you can call it a DAP in your browser or like a program on your machine, whatever. And you can only talk to the Bitcoin and Ethereum chains.

Nothing else. You don't need to talk to me or my team or a Bitcoin bank. And you can actually deposit Bitcoin. You can mint TBTC on the Ethereum chain. And you can redeem from Ethereum back to Bitcoin. And you don't have to ask anyone. If anyone tries to block your withdrawal, you end up taking 150% of your attempted withdrawal from them. And so it's it's sort of like economically trust minimized.

And I think it's the closest we're going to get to a, to a, I mean, to sort of the dream of side chains to this two way peg between Bitcoin and Ethereum until, you know, Bitcoin does decide to eventually soft work and make it easier to build trustless side chains. So tell me about the status of this now. You know, this project, you announced it, I think last August maybe. But it's now, there's a new milestone, right? Yeah, April 27th. We're going live. So we've been on TestNet for a while. We've been on TestNet since December.

We've actually been working on the project for about a year and a half now. And we've actually, I guess I don't want to scoot myself, but I'll say we've just passed audit. We'll be sharing audit results early next week. So we're doing this thing. We're taking it to market. And, you know, I hope. hope people will be judicious and start slow when they start to play with their Bitcoin. But I think they will.

Most of us don't want to lose it. So, yeah, people will actually be able to do this on Mainnet and start using their Bitcoin via TBTC and things like Maker and compound, really just the whole Ethereum ecosystem. It's going to be really interesting to see folks that haven't, you know, on the Ethereum side, folks have not, are really not familiar with Bitcoin culture these days. and then on the Bitcoin side to sort of see what there is out there and what there is to play with with this new tech. So I'm pretty excited. That's awesome. So I've seen, I was telling you, I wanted to ask you this before because I think it's an interesting way to come out at it. So I've seen tons of excitement from people who kind of flit between these worlds and who are excited about, you know, kind of have a similar thesis

to you in terms of this Bitcoin base and put interest in what you called kind of millennial finance, right, disrupting the other sets of layers. What are the best critiques, though, you've gotten? The things that are kind of, you know, maybe it reflects things that your team has already thought about or just, you know, has pushed you in new directions. I feel like that's a, I'd love to hear that. Yeah. Well, so there are a couple pieces.

And they're the things that like, I mean, I consider it, frankly, consider them awards. I've welcomed hardcore Bitcoin or criticism of this project because I feel like if we can make it through the Bitcoin social immune system, that means we're doing our jobs. So yeah, so let's see. Let's list a couple. So one is one that's been really high on our team's mind, which is governance. So governance is like a fun thing that some Ethereum folks like to play with. And don't get me wrong, I do think it's interesting. But coming from Bitcoin, for me, like governance is voice or exit, either we all agree or we split up and anything else is not something I'm comfortable with with my money. So for me, I think governance is an attack vector and we need to minimize

governance as much as possible. So one of the things, you know, was people were poking at, well, do you have admin keys? What can you as your team do? So what our team has done is we have just whittled down all governance we possibly can while still trying to build a system that's safe. So, like, I think it's totally unacceptable that our team could have any sort of kill switch. Obviously, we can't seize funds. That would be ridiculous. But on top of that, like, I'm like, well, what if there's a zero day? What if there's a huge hack and the team knows about it first? How are we going to let people know? And so we did add a, I call it a red lever, basically a lever or a button we can press that will pause the system for,

10 days. It allows withdrawals, but it doesn't allow any new money in. And we can do that one time for 10 days. And that's, and that's it. So I think that's on the governance side, I've just like said, how can we make sure that we have no kill switches, no access to anyone's funds. You know, and so I thought that was, that was not only was the focus on governance great, but it also just kind of gave me the extra backbone to really think about this and how to minimize it. Another, another one that comes from, you know, this has come from Peter Todd and Dan Held, and we've been so upfront about it that no one would possibly miss this, is there's a price feed. So I'm talking about how these signers are bonded in Eath, but how do we know how much for them to bond? We have to use a price feed. So I have a pretty fancy decentralized, trustless even approach to this problem.

that I believe avoids most of the core issues around oracles and trusted price feeds. But there is no way that I'm going to feel comfortable putting that into production probably for another six to 12 months. It's interesting. I'd love to talk about it so outside the scope of our conversation. So what we've had to do, though, is say, okay, what is the best price feed mechanism and how can we make an attack on the price feed? like how can we keep an attack on the price feed from having this all just fall back to a centralized system, which is like, why are we doing all this work if the price feed can just collapse the whole thing? So what we've done is we're using makers feeds.

They've actually, we'll be announcing shortly, they've just deployed a BTC ETH feed for us. And we'll be publishing, you know, a rough idea of where those prices come from and whatnot. So people know that it's a good index. And then what we've done is we've designed the system. so that basically, if someone messes with the price feed, they can start forcing signer liquidation. And so signers might lose a small bit on slippage for auctions, but it's designed in such a way that it doesn't impact depositors funds at all. So that's really been our response. It's still there, though.

It's still a significant risk for signers if they don't trust makers feed. And then the other thing that we've added, which is our other little piece of governance, is if Maker were to decide to just stop using the feed and just turn it off one day, people can all withdraw their Bitcoin, and that's not a problem. But in case there is community consent that the price feed is being attacked, we can add a fallback feed where if the price feed starts erring out or acting crazy, it'll switch over to the next one. So those are the two big approaches we've taken to mitigating that risk.

And then I hope to ship a new version that will actually have no price speed and a new approach. I'm just going to think, I got one more comment on this, which is I say ship a new version. So if people are familiar with Ethereum, often ship a new version means the team upgrades their supposedly immutable smart contracts. TBTC has no upgradeability. Once the code's out there, we hope it doesn't have a bug. We have no power to upgrade the system. So if we do ship a new version, it's going to be begging exchanges and community members to move over to the new one.

Interesting. I do think there's a whole additional conversation we could have maybe a little bit down the line on that or come back to the price feed question. But I think it's super interesting. So I want to use the context of talking. about MakerDAO to actually shift from maybe some of the technical specifics of this new project to a narrative question. It's something that I've been thinking about a lot, right? So presumably one of the main functional enabling opportunities of TBTC is for Bitcoin to provide the underlying

collateral for Defi applications, right? And so, you know, obviously we are now living in a very different world than we were living in even three months ago. And a lot of my time recently has been spent thinking about what happens on the other side of this, right? Assuming we can figure out the right combination of health systems to actually allow people to go back to work and return to some normalcy and all this sort of stuff, which fortunately right now is looking bad. But Bitcoin has a pretty clear spot from a narrative perspective in this new world, right?

I mean, we are now back full circle from a narrative perspective to Chancellor on the brink of a second bailout. It turns out that that bailout just never ended, right? And so you're already seeing these interesting signals that while Bitcoin has been following from a price perspective, equity is more than it ever has. You are also seeing anecdotal evidence of new people flooding into the system. And perhaps it's around that clear contrast between MoneyPrinter Gober over here and the half inning. or, you know, as we're calling it now, as of the last 24 hours, quantitative hardening or quantitative tightening, right? So Bitcoin, there's a clear story.

I'm wondering what, one thing I'd think about is, what is the narrative for defy in a post-coronavirus world, right? Where does this idea of millennial finance fit in a post-corona world? I'd love your thoughts on that. Yeah, yeah. So first, just, it's hard to not be a triumphalist right now as a Bitcoiner. Because whether or not the markets know it yet, we're having a moment. And when everyone wakes up from their QE hangover, Bitcoin will be the winner.

And I don't know quite how long it will take, but I know it's happening. So I guess it's worth saying, you know, I'm obviously worried about people's health and safety. I have a family myself that I'm worried about. And I don't know what choices I would make if I were trying to deal with this as some sort of central planner of an economy, as we're kind of realizing that's the situation we're in. However, we're going to win. And the way that I see this is, first, if Bitcoin wins, the space wins. And if Bitcoin loses, we all lose, period.

The ideas of a flippinging or of any other asset in the space becoming more relevant are ridiculous to me. I think the only one that I'm actually worried about is fiat-pegged stable coins like Tether. So that said, what is Defy's narrative? What I'd like Defy's narrative to be is things need to be different. We need to opt out of the system. Here is how you can opt out of the rest. Like, great, you've opted out of USD or whatever your local currency is by your local

kind of regional controller. Now you need financial services. Now you need liquidity. you need cash flow loans, you need, you know, kind of the various things that we've come to expect from banks. And I think that already there's this fintech trend of unbundling banks. And I think that all this sort of like the new systems win when old systems crumble, if we can be resilient by the time we're necessary.

So I think that for folks that aren't just Bitcoin holders, this is a chance to like basically build as fast as we can, and then and then be prepared for this influx of new users. Now, that said, I still think that the Defi narrative needs work. And the reason for that is that all of this, all of these, almost all of DFI is about over collateralized loans. And the few places in DFI where you see under collateralized loans are usually ended up getting attacked.

And so I think that, I think. that maybe the most difficult part about unbundling the banks about that narrative is the fact that we are still all hard money and none of us are putting our actual reputations on the line. I don't think I have an answer for that yet, but if all, if defy's entire narrative is Bitcoin, but with access to your equity in USD, I think that's pretty powerful. It's super interesting. I mean, in some ways, I would almost rephrase what you said. I think that the narrative is there, right? Like if you were, if this allowed you to opt out of Fiat, defy, the version that you are

intempting to build allows you to opt out of these other parts of the system that are calcified in maybe similar or even different ways, right? It's more, I think what I'm hearing from you and something that I agree with is the challenge of making that real for a broader set of people, right? It does not do that much good to create a new financial system that can only be participated in by a certain percentage of wealth holders is not a new financial system at all. It's just a replay in different ways of what we have. Yeah, I mean, I love Galtz Gulch, but that's not all I want to do with our new economy. Love it. All right. Well, Matt, thank you so much for taking some time today.

Really exciting stuff to hear about TBTC and everything else you have going. on and appreciate your thoughts on the world as well. One of the things that I really appreciate about Matt's approach to building projects is his work to understand the context into which they're going to land. So often we have developers and teams and entrepreneurs who build things because they're interesting without consciously thinking about how the audience of early adopters is likely to receive it. You know, Matt's building in a contentious space where there is tribalism.

We've talked about it on the show before. So I think that getting out in front of it and saying clearly, this is what I believe, this is why we've made these decisions, these are the things that I'm uncomfortable with and what we're trying to do to solve them. I welcome your critiques and your feedback, I think is a powerful starting point. Now, some of those answers, of course, won't satisfy critics, but at least we're having the right conversation about the specifics. Anyways, guys, that's it for me today for this week.

what do you think the narrative of Defi should be in a post-coronavirus world? Is there a place for it? Is it bigger than just Ethereum? I mean, this is something I've been exploring for the last three months of whether defy is moving away from a narrative perspective of exclusively being tethered to Ethereum. And I think that it probably is. And even the folks who are very invested in the Ethereum community have indicated something similar to.

But I want to know what you think. Hit me up on Twitter at NLW or anywhere else you can find me. Thanks for listening, guys. I hope that you are headed into a weekend full of calm and the opposite of anxiety that I think so many of us are feeling. But I will be back on Monday with another brand.