The Breakdown - The Breakdown Weekly Recap | May 9 2020

Episode Date: May 9, 2020

The week's complete show run in one convenient file.  Monday | Why Buffett’s Bearishness Should End V-Shaped Recovery Talk Tuesday | Why Crypto Matters for Financial Inclusion, Feat. Celo's Marek Olszewski Wednesday | Surveying the Carnage: How Real Estate, Travel and Music Are Faring During the Crisis Thursday | 9 Reasons Why Bitcoin Has Never Been Stronger Going Into A Halving Friday | The Rise Of The Dollar Killers, Feat. Niall Ferguson & More [Money Reimagined - Part 2]

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, May 9th, and this week, as every week, I am bringing you the full compilation of the week's episodes all put together for a convenient single-run listen. before I do that, I like to give just a little bit of a sense of maybe what happened this week. And I have to start with the bad news first. But there will be good news, don't worry. The bad news is that it's becoming increasingly clear that rather than using this time of shutdown

to actually get our medical system to where it needed to be and our ability to test to where it needed to be, we've just kicked this can endlessly down the road debating stupid things like when to open up rather than how, and we're going to pay the price. We are going to go through a long, painful process of fits and starts of fake reopening and closings and shutdowns and expect this forever, basically now, or at least for the foreseeable future, because we simply haven't done the actual hard work of figuring out how to solve this crisis. It's immensely frustrating. It's incredibly disheartening, and it sucks. So that's the bad news. The bad news is that we have just failed, mightily in our obligation to our people to actually be able to address a virus.

Second, though, and this is the good news, for those who are in the Bitcoin and Crypto community, the Bitcoin halving excitement has fully taken hold. The halving is anticipated on Monday evening. It is the four-year or every four-year event during which the Bitcoin Block Reward subsidy gets reduced by half, meaning even more intense minor competition, even more need for efficiency in mining operations. And it is this year in particular narratively aligned in an unbelievable way with what's going on in terms of money printer go burr and just the rampant stimulus happening everywhere, right? You have on the one hand, the government talking about how its mandate is to have unlimited money, infinite cash, to solve whatever problem it needs to solve, to backstop,

whatever at industry it needs to backstop. Meanwhile, Bitcoin is reducing its issuance by half on the way to a full and firm hard cap. Now, we in the Bitcoin world can talk about this to our faces are blue, but when Paul Tudor Jones, one of the most famous hedge funders of all time, a guy that some people think put the hedge in hedge fund, comes out and says that he is a Bitcoin bull. Well, you have to take notice and pay attention. For those of you who haven't had a change, to read Paul Tudor Jones letter about why he is going long on Bitcoin. It is an absolute sight. And what it comes down to for him is his fear of what he calls GMI or the great monetary inflation. It is an astounding shift for a major, major power broker on Wall Street

like this. And frankly, is a signal to a huge number of other managers that this is a space to play in. So it's hard to overstate how big a deal that is in terms of signaling value, especially going into the halving. So that's, I think, unbelievably positive and just reflects an overall, incredibly bullish week for Bitcoin as it got up and has been nudging against 10,000 for what feels like a couple days now. This week on the show, we started with a recap of Warren Buffett's conversation at the Berkshire Hathaway meeting last Saturday and why his bearishness should in my estimation and any discussion of a V-shaped recovery. On Tuesday, we talked with one of the founders of SELO, which is a project looking to actually

legitimately and seriously address financial inclusion with cryptocurrencies, with blockchain, in a way that I think is much more sincere than a lot of other projects who have used that language. On Wednesday, I do a deep dive on three industries that have been just absolutely shattered by the COVID-19 crisis. real estate, travel, and music. On Thursday, we shift and do a little bit more positive. I go through the nine reasons that I believe that Bitcoin has never been stronger going into a having. And then yesterday on Friday, we dropped episode two of the breakdown special four-part

money reimagined series produced in conjunction with next week's consensus distributed event by CoinDesk. This is a look at the battle for the future of money. Last week's episode one was all about the paradox of the dollar and how the money printer go burrower. meme could be simultaneously true and the fear of inflation could be simultaneously true with a dollar that is stronger than ever. This week we look at whether there are currencies that could actually compete with the dollar. Will we see the euro or Libra or China's DeSep actually be able to even come close to dethroning the dollar? Or is it that we're heading into a world where there isn't just one single currency world order where in fact we're moving to a multipolar multi-currency world? It's

a really interesting conversation. It features Neil Ferguson, who a lot of you have read his books, The Ascent of Money, is maybe his most famous, and a number of other great, great guests as well. So check that out. Anyways, guys, wherever you are, I hope that you're having a great weekend. Please, please, please, hug, kiss, send flowers to or otherwise, pamper, your mothers. They're the best thing on the planet, and we appreciate them so much. To Jesse, the mother of my little baby. I love you, and I'm so, so proud. of the mother you are. That's it, guys. Have a great weekend. And until Monday, be safe and take care of each other. Peace.

Support for this podcast and this message come from Eris X. With ErisX, you can trade spot and regulated futures on cryptocurrencies through a licensed U.S.-based exchange. ErisX believes in fair access for all. Sign up today to take advantage of zero fees and learn more at erisex.com slash consensus. This episode is also sponsored by the Stellar Foundation. The Stellar Network connects your business to the global financial infrastructure, whether you're looking to power a payments application, or issue digital assets like stable coins or digital dollars. Stellar is easy to learn and fast implement. Start your journey today at stellar.org slash coin desk. Support for this podcast and this message come from Grayscale Digital Large Cap Fund.

In times like these, diversification is key. Consider gray scale digital large cap fund, ticker symbol GDLC. It's the only publicly traded investment. product that offers diversified exposure to large-cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash coin desk. That's g-r-a-y-scale.co-co-slash-co slash coin desk. Welcome back to the breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond. This episode is sponsored by ArisX.com, the Stellar Development Foundation, and Grayscale Digital Large Cap Fund. The Breakdown is

produced and distributed by CoinDes. Here's your host, NLW. Welcome back to The Breakdown. It is Monday, May 4th, and today we are talking about Warren Buffett and the Berkshire Hathaway Annual Shareholders Meeting, which was, because of COVID-19, a virtual event for the first time ever. Before we dive in, why are we talking about the Bitcoin is Rat Poison Square guy? I think there's a few reasons.

First, understanding how people who disagree think is, is kind of relevant if we are trying to go out and evangelize Bitcoin. So that's part of it, but it's a smaller part. But a larger part of it is that Bitcoin operates in a macro context, at least for most of the market. Sure, there are people who are hodlers of last resort, Hodlars forever, basically, who don't even care what's going on in the larger markets. But there are many holders of Bitcoin for whom the market context is relevant.

And we've seen that. we've seen the correlation with parts of this market over the last few months. And when it comes to understanding that macro context, Buffett is a good barometer, especially because right now everyone in the larger markets is trying to figure out if this is going to be a V-shaped recovery, right? A fast bounce back, pent-up demand, that everything kind of just goes back to normal. Obviously, those who are thinking about second and third-order effects tend to not think that there's any real normal to go back to in quite the same way.

but as markets really, really hope for and try to manifest and try to self-fulfilling prophecy, this V-shaped recovery into being, understanding what Buffett thinks is an interesting way to explore the possibilities there. What we're going to do is we're going to talk about the event and a few key notes from it and then maybe try to wrap it up and understand broadly where Buffett thinks we are. First, what is this event? Well, for those of you who are not familiar, this event has been called Woodstock for Capitalist. Last year, for example, there were 40,000 people who came to Omaha for the event, leading to something like 21.3 million in business for Omaha overall, including 6.7 million

for hotels. So obviously, just for the city of Omaha, this is a huge economic hit to have this be a virtual event this year. Because Buffett is so influential, even people who don't hold Berkshire Hathaway stock, who aren't shareholders, pay attention to what goes on. at this meeting. This year, Buffett answered questions for about four and a half hours, which I think is pretty impressive stamina for an 89-year-old, regardless of what you think about their particular decisions. But either way, let's look at a few of the key facts and figures from the presentation.

First, it was a bad Q1 for Berkshire, like it was for a lot of people. Forty-nine point-7 billion reported loss for Berkshire. Now, interestingly, and this will be a large part of our conversation today, is the size of their cash holding. They're sitting on 137 billion in cash, which is currently one-third of their market cap. Why that is relevant, we'll talk about in just a few minutes. First, though, let's talk about the banner headline that was reported everywhere, which has to do with their airline stake. In April, Berkshire Hathaway sold 6.5 billion in airline stocks, including all of their stakes in United, American Delta, and Southwest. Chimoth Palahapatia, who is the CEO of Social Capital, who some have called our generation's

Buffett, was live tweeting this, and he says, Buffett dumps all airline stocks. That says something to me. If he thought it could rebound, he wouldn't have sold and possibly look to own more via converts or debt. Instead, he seems to think it's impaired long term. This is exactly what Buffett said. He said, the airline business, and I may be wrong and I hope I'm wrong, I think it has

changed in a very major way. I don't know if two or three years from now, if as many people will fly as many passenger miles as they did last year. The airline business has the problem that if the business comes back 70 or 80%, the aircraft don't disappear. This echoes Chimot's point, and we're seeing something that is a consistent thread, which is a little bit more bearishness than we would have maybe expected from Buffett. And that bearishness based on the inability to predict how certain types of behaviors are going to shift in the months and years to come. Buffett here is basically saying that For this particular industry, one which they had a reasonably sized stake in, there's unlikely

to be a immediate recovery because people will try to avoid doing the thing that the industry does. This is something that we've talked about in the context of restaurants too and theme parks and other places where you're around lots of people. These are voluntary activities in a lot of cases and people might try to avoid them because of fear of disease. So bearishness in the context of airlines, but perhaps that's not surprising, right? The travel industry feels too many like one that's going to be the most hard hit in the long term because not just the shutdowns, but because of consumer changes. But what other industries did Buffett talk about?

Well, one, he talked a lot about the oil and energy industry in, again, very bearish terms. He was talking about the price of oil and basically said, there's a lot of money, and this is a direct quote, there's a lot of money that has been invested that wasn't invested for $17. WTI price or West Texas International for oil. He predicts that basically there's going to be lower production because of the low price, that oil is a business that's not about one big geological hit, but is about arbitraging the likely price of oil over time, and that that's going to create downward pressure in terms of actual production.

He went so far as to say that he actually supports subsidies, at least in the short term for the oil industry. And perhaps most distrously, he pointed out that the struggles in the energy industry, which is a huge part of American business, could actually have knock-on effects in the banking industry because of loans to energy companies that basically could squeeze the balance sheet of the banks who made those loans. So we have airlines and travel as a bearish industry.

We have oil and energy, which has been dealing with the twin supply and demand shocks of what's going on in the rest of the world, alongside these shutdowns which are causing people to use less oil. And here again, we have bearishness. So we're now bearish airlines, bearish oil and energy. Real estate was another one that has potential impact to teeter over into a banking crisis. As businesses that are shut down, can't afford to pay their leases, then that spills over into those landlords, to commercial real estate, which spills over again into banking. Buffett actually came back to this point about the shifted supply and demand curves for a number of different types of industries. He talked about supply and demand for retail

shopping space being very different than it was before. He talked about supply and demand for office space being really different than it was before. And a lot of these things are accelerating or seeing acceleration around trends that were already happening. He also talked about other small businesses in the context of newspapers and advertising declines across the board, right? If no one's buying cars, that automakers aren't advertising and so on and so forth. Effectively, I think the key point here is that what you're starting to see is that this bearishness is not industry by industry, but is related to the interconnection between these industries, and certain parts of this huge demand shock dragging lots and lots of things down.

And this gets us to why I wanted to do this podcast. I think far too many of the articles and headlines that I saw about Buffett's presentation focused on his final concluding message of never betting against America. But I think the reality is so much deeper than that, And the reality is that it's very clear that this is a man who is usually jubilant and usually optimistic and usually leverages his positions and the size of his assets to take advantages of downturns who is sitting on the sidelines in a big way. And that's the story. One person who did get it was Andrew Ross Sorkin, who wrote, his words often betrayed a deep sense of concern about the immediate

future. And more than his words, he spoke with his wallet. He usually relishes a down stock market to take advantage of lower prices. Not this time. Buffett said, we have not done anything because we don't see anything that attractive to do. This is really important to put in context. First, this is a person, and this is, again, Sorkin points this out, that said every decade or so dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it's imperative that we rush outdoors carrying wash tubs, not teaspoons. So that's Buffett's general position is a big kind of buy-the-dip, take advantage when there's blood in the street's kind of mentality. Let's bring this up to something real. A month after Lemon Brothers

went bankrupt in 2008, he wrote an op-ed where he said he was buying stocks. Now he's sitting on cash and actually said, our cash position isn't all that huge when you think about worst-case possibilities. We don't prepare ourselves for a single problem. We prepare ourselves for problems that sometimes create their own momentum. You can bet on America, but you kind of have to be careful about how you bet. Christopher Cole, who is a volatility trader and the CIO at Artemis Capital, put it pretty simply. He tweeted, never seen Buffett this bearish before. Now, if Buffett is so much more bearish than people might have expected, the key question is why. And really, the important thing is not that he was reading some special numbers that only he

had access to about the virus or anything like that, it's that he is living in the reality of unknown unknowns. His basic position is that we simply do not know what might happen next. He said, specifically, I don't believe anyone knows what the market is going to do tomorrow next week, next month, next year. Even more, though, it's not just the market, it's what this virus is going to do, how it's going to interplay with government regulation, whether we're going to deal with a second wave, whether we're going to deal with rolling lockdowns for years until we have a vaccine. There are all of these unknown unknowns that create an incredible difficulty in actually knowing what to do. And that's why he's sitting on $137 billion in cash and not taking advantage of cheaper prices to dive in.

Support for this podcast and this message come from Eris X. With ArisX, you can trade spot and regulated futures on cryptocurrencies through a licensed, U.S.-based exchange. ArisX believes in fair access for all. Sign up today to take advantage of zero fees and learn more at erisX.com slash consensus. This episode is also sponsored by the Stellar Foundation. The Stellar Network connects your business to the global financial infrastructure, whether you're looking to power a payment application or issue digital assets like

stable coins or digital dollars. Stellar is easy to learn and fast to implement. Start your journey today at Stellar.org slash coin desk. Our final sponsor is Grayscale Digital Large Cap Fund. In times like these, diversification is key. Consider gray-scale digital large-cap fund, ticker symbol GDLC. It's the only publicly treated investment product that offers diversified exposure to large-cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash coin desk.

That's g-r-a-y-scale.c-o slash coin desk. Now, one more quick point, something that I thought was extremely interesting from the conversation. Buffett is a champion of Fed action and the speed with which they got involved to try to write the economy. It was very clear from his comments. He was very laudatory of Jerome Powell. But at the same time, you can tell that there are some questions that he has about the implications of such aggressive quantitative easing, money printing, pick your term. He said, it's probably the most interesting question I've ever seen. The most interesting economic question. I've ever seen. Can you keep doing what we're doing? We've been doing it for a dozen years,

but we're testing it with a lot more force than we've ever tested. We're doing things and don't really know the consequences. That was all about the degree of intervention from the Fed into markets. Now, this wasn't the only interesting note about the Fed intervention that came out of this. Danielle Di Martino Booth, who was here last week, quoted this on Twitter. She said, Buffett said, there was a period right before the Fed acted where we were starting to get calls. They weren't attractive calls. After Fed acted, a number of firms were able to get money in the public market, frankly, at terms we wouldn't have given. Basically, what Buffett is saying is an affirmation of what Pomp said on this podcast a few weeks ago. It wasn't that companies weren't

going out to raise the money that they needed. It's that they thought the government was the dumbest guy in the room. Companies came to Berkshire Hathaway, came to Buffett asking for money on terms that Berkshire Hathaway wouldn't have done, didn't do, and then got money on those terms from the government. This is why Danielle Booth wrote in this tweet, the Fed is killing capitalism. This is the great concern, that it becomes easier, becomes more advantageous to becomes incentivized to focus on, as Mark Yusko put it on this podcast as well a few weeks ago, your relationship with whatever the current administration is. It is a smarter, savier thing to do in times of crisis than just building a resilient

business in the first place. So what's all to make of this? One, I think that it should be sobering for people who are still holding out hope for this V-shaped recovery idea that such an unflappable optimist like Buffett and someone who is so used to taking advantage of crisis like Buffett is nervous, is sitting on cash, is parking his money outside the markets right now. That tells you a huge amount. Second, I think that this affirmation of the notion that the Fed's involvement in markets is

effectively hampering the free flow of capitalism in some ways should also be noted. But three, I think the real key notion here is that there's just no normal that we're going back to. The economist actually wrote a piece about the new normal or the no normal, and they called it the 90% economy. And in their estimation, the 90% economy, which is the economy that comes next has three features. It's fragile, which has to do with the fact that the prospect of future lockdowns means less long-term planning and less long-term planning means less investment in the future. So it is a more fragile economy. Second, it is less innovative.

Now, their argument is that basically innovation happens when people are able to interact with each other face-to-face. And I think you could maybe debate that, but here we are, 90% economy first is. fragile, second is less innovative, and third, which is much harder debate is it is more unfair. We've seen studies showing that people who are making under 20K a year are 2x as likely to lose their jobs as above 80K, and it's just very hard not to understand or see how the industry is being most impacted by this right now, being most impacted by the shutdowns, run along socioeconomic lines, class lines. It's why there's this new class tinge to the questions of when to open

back up. The point of all of this is that it may be that in certain parts of the country we are opening up, and it may be that in certain parts of the country, we're actually flattening the curve and beating back the virus from its worst possibilities. But there are still huge, huge structural questions that are going to last so long beyond this initial first wave of coronavirus that the biggest, best-known, most respected investors in the world are taking seriously. So if anything, the idea of some V-shaped recovery just because the markets are going up, I think should be tampered down a little bit by this. Anyways, guys, that's it for today. Like I said, I wanted to give you a little recap of what is a hugely important and influential event for

a variety of different types of investors. Let me know what you think. Hit me up on Twitter at NLW. And until tomorrow, be safe and take care of each other. Peace. Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond. This episode is sponsored by ArisX.com, the Stellar Development Foundation, and Grayscale Digital Large Cap Fund. The Breakdown is produced and distributed by CoinDesk. Here's your host, NLW. Welcome back to The Breakdown. It is Tuesday, May 5th, Cinco de Mayo, and I'm sure by now you've already seen the memes going around that say something to the effect of, imagine a world where Cinco de Mayo falls on Taco Tuesday

only to be ruined by a virus named after a Mexican beer. But that's the state of where we are. It is Tuesday, the 5th of May. And today, I wanted to do something a little bit different. For those of you who don't know who aren't familiar with my background, I spent about a decade in San Francisco doing tech before moving back to the East Coast, where I live now in the Hudson Valley and focusing entirely on crypto and content marketing in this podcast. And the third of the thing that got me into tech was actually working with a company called change.org, because when I was in college and then for the first couple years after, my focus was entirely on social impact and in particular, the relationships between people from different places, how you build networks of action

that could include both people on the ground actually experiencing problems as well as international networks of support. What was the right way to actually create change and make a difference? I think that on the one hand, I am loath to say that everyone just needs to take care of themselves and that everything should be left to communities. But it's also, by the same token, very clear to me that the role that international communities have in local communities has to be led ground up from those communities. We can't impose solutions or it's just a different form of kind of interventionism that we've had in much more pernicious ways for years. This was my focus. This was where my life, my career began. And I've never lost interest in that. In fact, for those of you who have heard me

on other podcasts like Peter McCormick or Pomp, it was actually coming around and seeing Bitcoin in the light and in the context of ground up social change versus just a technology that really pulled me all the way in. One of the things that I keep a pretty close eye on is these projects that are focused on something like banking the unbanked or whatever the way that it's phrased is. projects that are specifically designed to use cryptocurrency to solve issues relating to poverty and financial inclusion around the world. The greatest example of this narrative so far was Libra. When Libra launched, it was very much focused on this narrative of banking the unbanked. The whole first video clip that they launched with was all about that. When David Marcus went and

testified before Congress, it was all about that. And frankly, people did not buy it. Congress. didn't buy it, Senate didn't buy it, and by and large, the public didn't buy it. It seemed to me, or to a lot of people, rather, that it was a front, right, a narrative front, even if they cared about that issue, that it was so clearly secondary to them just kind of getting off this project. My guest today is Merrick Olshevsky, one of the co-founders of the Selo project. Sello is basically Libra if they actually designed a financial inclusion crypto protocol from the ground up. I was just reading actually a note about the project from Olaf at Polly Chain Capital, who invested in Sello. One of the things that he made note of was that what got him excited about it

was that it was so clearly designed for that audience, including, and this I think is really important, as he put it, an agent network of on-the-ground exchanges who look sort of like the local Bitcoins network. The point being for him that Sello was actually trying to go after this use case of financial inclusion in a sincere way, and bringing what cryptocurrencies could offer to that world, namely decentralization and permissionlessness versus centralization and control in the case of existing systems like M-Pesa. So this conversation is a lot about how SELO came to be, what it does differently from those centralized systems, and a new announcement about additional members joining what they call the Alliance for Prosperity. I think it's a really interesting

project and it's a very sincere attempt at this financial inclusion question. So on this Cinco de Mayo, an international celebration where we're all stuck in our homes and on the verge of potentially the most inward focused national versus global moment in our history, enjoy this episode about the prospects of one protocol as it relates to a global issue of financial inclusion. As always with interviews, this is very lightly edited to keep the conversation as close to its original form as possible. All right, we are here with Merrick from Sello. Hey, Merrick, how are you doing? Hey, Nathaniel. I'm doing well. Thanks for having you. Yeah, thanks so much for joining on. So a bunch of stuff to get into today, exciting announcement from you guys, but I want to take

it back a step first. And for those of our listeners who aren't familiar with SELO, could you just describe what you're doing and how it came about? Yeah, absolutely. So Sello is a financial platform that makes financial tools accessible for anybody with a mobile phone. And we started about three years ago when SEP, Rennie and I, the three co-founders for C-Labs, who had previously all met at MIT around 10 years ago, we started looking at something that we could do that was big and impactful and very mission-driven. We ended up looking at the problem of financial inclusion, as many of your listeners, I'm sure, are aware. There are 1.7 billion people who are unbanked. Globally, 1.1 billion people who don't have access to government-recognized IDs.

And when we looked at this problem, we couldn't think of anything else that was more compelling, more impactful to work on. And at the time, crypto continued to advance. Proof-Stake was around the corner. I mean, I think people were getting comfortable with the idea of finally being able to be useful as a medium of exchange. And then likewise, mobile phone adoption continued to grow. I think we just right now passed the kind of $6 billion smartphone mark in terms of number of smartphones that have active mobile subscriptions. You know, that number continues to grow.

And so two years ago, we saw this future where anybody with a mobile smartphone would be able to transact using crypto assets irrespective of whether or not they have a bank account or not. And so we wanted to build for that future. And so that was really the starting point of SELO. I don't want to go too deep into the kind of technical design of the system, but I think it is relevant for people who are trying to kind of grok how you're approaching this financial inclusion challenge to talk through just the system, the design of the Selo system or the ecosystem as a whole? Absolutely.

Yeah, so SELA was really designed through and through for this kind of mobile use case. We wanted to recreate Venmo or PayPal, but in a fully permissionless manner. And so if you think about it, what are the things that you'd have to create in order to make something like that work? I think, number one, it has to be mobile-friendly. We worked extremely hard to create a like-client protocol that can sync with our proof-of-stake BFT-based consensus protocol really, really, really efficiently. We actually use BLS signature aggregation to aggregate all of the different signatures that all of the validators are providing into a single multi-sig. we use this concept of epoch-based thinking, which means that our validator secondally change roughly once per day.

These two things together give us a 17,000 times reduction in the amount of data that you have to download relative to something like Ethereum. But then we wanted to go even beyond that. And so we implemented snark-based cryptographic proofs that prove that a header is part of the chain, allowing you to really sync with the chain in a fully peer-to-peer manner with just a few 400-byte snark proofs. So that was the first thing. The second thing was around stability. If you think about using a cryptocurrency as a medium of exchange, it needs to be stable.

And while there's been a lot of advances on that front over the past couple of years, stable coins today are still not that usable. And I think this is primarily because meta transactions didn't work out, I think, the way people had hoped. And so it's just difficult to send them. And so on the seller platform, you can actually pay for transaction fees in tokens. And so when you want to send some cello stable value, for example, the cello dollar, you can actually pay for that transaction fee in cello dollars. And that makes it just much more intuitive and much easier to send stable value assets around.

And then finally, we saw that people were just really intimidated by public key-based addresses. They were long to people. They look funny. And people were always nervous about copy-based mistakes. And so we worked really hard to allow people to send value to phone numbers instead of of these public key-based addresses. And we do that by creating effectively a PKI or kind of a map that maps hashes of phone numbers to wallet addresses.

And this allows people to find each other really easily by phone number. They can find each other's wallet addresses really easily using this mapping. And then critically, in order to make sure this mapping is correct, we have a phone verification protocol, a decentralized phone verification protocol. where when you sign up, you get paired with a number of randomly selected participants on the protocol who then send you cryptographically signed text messages. You resubmit these back to the protocol, proving that you have access to that phone number with high probability

and allowing you to then add this entry into this PKI. And one thing that's really, I would say, neat about this design, is that it allows you to send the payment to someone even before, before the recipient has signed up. And so if you want to send value to maybe a family member and they don't have a public key, public private key pair yet, that's not a problem. You can, on the cello platform,

you can really easily send that payment. In fact, the seller wallet doesn't really even differentiate between whether or not the recipient is on cello or not, other than you pay a slightly higher fee when sending the transaction. Okay, so one of the things that I appreciate about you guys is that it's very clear that the design is from the ground up thinking about this particular use case, right, this particular customer set. And in fact, you know, you actually have a blog post, I think, about your theory of change, which is a type of language that's pretty, be foreign to, I mean, most people in crypto, most people in economics in general, right? It's a social impact language.

But I guess to peel this back even farther, getting aside kind of the technical design aspects for this protocol, what was the theory of change? What was the theory or the belief set around why existing mobile money solutions didn't solve the challenge for the unbanked, right? So not cryptocurrency-based solutions, but the existing mobile money solutions that exist all over the world. Yeah, that's a great question. You know, I think there's probably a number of reasons why, you know,

there's large populations that do not have access to kind of the financial tools and services that you and I take for granted. You know, I think at the end of the day, one of the advantages of building something that's crypto-based, as I'm sure many of your listeners are aware, is that you actually get to involve your users with actually operating the network, and you actually can build kind of a community, almost a movement together. And I think it's just very hard for any centralized service

to accomplish that, especially if they're targeting kind of a small market with, you know, with maybe not a lot of kind of typical target customers that they would otherwise look for. And so I think one of the advantages of being kind of crypto-based is that we can be much more inclusive right from the get-go. We can even reward people for running the network. One of the things that we're working really hard on right now is the ability for anyone to send those text messages. that sign up new users. Right now, it's only validators

who are elected through the proof of taken system that can send those text messages. Longer term, we want anybody with an Android phone to send those text messages. It turns out that on Android, you can send text messages programmatically. And this means that you can install an app that connects to the network,

and just as new users are signing up, if you get randomly selected, you can send that text message. And in so doing, actually get rewarded for sending that text message. And so I think a lot of people are really excited about how Bitcoin allowed anyone in the world to earn crypto assets just by, initially just by running some software on their CPU. We're really excited about the vision where anybody in the world can earn crypto assets just by running something on their mobile phone. In some ways, what you're talking about, and you hinted at this, but maybe we can go further, is that there are centralization risks for a system like M-Pesa, right? And part of what's the

point of having a cryptocurrency network is that you avoid that, right? Or you try to avoid much of that. You minimize that as much as possible. I'd love to hear if you guys had any more thoughts about that, of the risks of kind of these centralized services in the context of mobile money or just what, not even just risks, but what costs we've seen associated with them. But then there was another thing that you mentioned as a differentiator of SELO, which was permissionlessness and the idea that it was a permissionless system. I'd love to hear also why does permissionless matter in the context of this financial inclusion use case? Yeah, I think it's very important.

I think if you want people to work together, to improve it, to help it, help it reach. each the masses, you need a really big number of companies that are working together and are making this happen. And one of the advantages of blockchain-based systems is that you can encode the rules of the game into the system and incentivize a large group of people who would otherwise not necessarily. work together to work together knowing that there's no risk that they may over time somehow be excluded. And so that's one of the appeals of the cello system for people who are joining the cello

alliance for prosperity. There are 50 companies in the alliance as of, I guess, recently. And then as of today, 20 new companies, we just announced that 20 new companies have joined. And so it's exciting to have an alliance that's actually growing, not shrinking. And I think it's that inclusive, permissionless aspect of it that is really appealing for many of these folks. That and our mission. I think our mission is one that really resonates with a lot of different companies. And there really is an opportunity to do something big and meaningful here.

Support for this podcast and this message come from ErisX. With ArisX, you can trade spot and regulated futures on cryptocurrencies through a licensed, U.S.-based exchange. ArisX believes in fair access for all. Sign up today to take advantage of zero fees and learn more at ArisX.com slash consensus. This episode is also sponsored by the Stellar Foundation. The Stellar Network connects your business to the global financial infrastructure, whether you're looking to power a payment application or issue digital assets like stablecoins or

digital dollars. Stellar is easy to learn and fast to implement. Start your journey today at Stellar.org slash CoinDesk. Our final sponsor is Grayscale Digital Large Cap Fund. In times like these, diversification is key. Consider Grayscale Digital Large Cap Fund, ticker symbol GDLC. It's the only publicly treated investment product that offers diversified exposure to large cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash coin desk. That's G-R-A-Y scale.co slash coin desk. I think that the alliance is really interesting, and I want to hear more about the new participants who have joined.

But one of the things that I think is really interesting is that one of your investors, Olaf from Polly Chain, wrote about what made you guys different and why he was excited about you. And one of the three aspects was this idea that you were from the beginning thinking about go-to-market, right, that you had as he. He put it, an agent network of on-the-ground exchangers who look sort of like the local Bitcoin's network. And I think this is so important.

And I'd love to hear more about what the status of this actual network looks like around the world right now because the great challenge of trying to replace a centralized system, you know, like a Venmo or an M-Pesa or whatever it is, with a decentralized permissionless model, a network-based model, is that you have to get people comfortable accepting a different type of currency, and that usually also involves building off-ramps so that there's as little friction as possible for them to accept that and then get it into whatever currency they need to pay their bills to pay their debts in. So I'd love to hear more about first, kind of just the way that you've thought about go-to-market and building this ground-up network, and then second, how the

Alliance for Prosperity plays into that. Yeah, absolutely. And I should add that I'm more on the engineering front. And so I think this is actually a really, really great topic for. for my co-founder, René, our CEO. But the alliance really plays a massive kind of role in this. I think many of our alliance members are established companies that have existing customer bases, and they're really excited about the potential of cellar technology and what it can do to their customer base.

And so they're working, to integrate with cello and bring it to those customers. I think one example of this is both Coinbase and Anchorage. We're early alliance members. We announced them in the first wave. And just recently, they both announced that they're supporting cello for custody. Likewise, Project Wren, which is a carbon offsetting company. They were one of the earlier alliance members as well, and they, as of this past week,

are now receiving cello currency on the cello main net release candidate to carbon offset the running of the network. And so we've seen a number of these companies already, even though the alliance is only a month and a bit old, start actually working with the cellar community, either building on top or integrating with it to advance its mission. Longer term, I think you'll see a lot more of the alliance members that exist in our target markets, launching and announcing support. Just the other day, there was a company that announced an integration with MESA, where you can convert cello currencies to MESA and Kenya. And we're seeing a lot of different initiatives like this throughout a number of our target markets. I like the way that you guys kind of organize this alliance into a variety of different categories, right?

This helped me understand better how you think about this network, right? So you have companies that help you accept, help you acquire, help you build, help you earn, help you educate, help you give, help you grow, help you lend, preserve, send, save, secure. So those are the categories that are just on the website. And I think that that reflects an ecosystem level understanding of that. So today, I know that there was an announcement. Is it 20 new members that are joining? The 50 that initially launched in last month, I guess?

Yes, exactly. So we've almost grown by 50% in the past month. Merrick, can you speak to how you guys think about who you want to join? Like when you go out and try to recruit what you're looking for? Absolutely. And I think you hit the nail on the head when you mentioned the different use cases. you know, we've broken down the alliance to a number of different use cases between kind of earn and give and spend. And so we're really looking for alliance members who really

kind of fit each of these different categories and can help the cello ecosystem kind of reach the target kind of audience. And so early on, I think we're a lot of the first alliance members are focused on getting the network up and running. Again, I mentioned Anchorage and Coinbase with their announcements. They're helping folks have great custody solutions. Likewise, we're also helping developers build on the platform. Both SELO camp and the blockchain social impact coalition have run or are currently running incubators that are on the cello platform, allowing people to build on the cello platform. And then we've, and then on the give use case where we're partnering with folks like give directly who are really excited about using.

the SELO platform for enabling more efficient cash transfers. Likewise, on the SEND use case, there's a number of companies that are very excited about bringing remittance support to the platform. ABRA and a few telcos come to mind. SELO is a very great platform for sending remittances, because if you want to allow your customers to send value to anyone in the world. That phone verification protocol that I mentioned before allows you to allow these companies to build that support

without having to then go and partner with every different telco and every different region globally. And so these companies have found sell out to be really, really compelling. Let's shift for just a minute to kind of like larger narrative context. So last year, Libra launches, and it's using a lot of the same language, although in a highly theoretical kind of place. And some people kind of looked at it as maybe a more cynical approach to banking the unbanked. For you guys, was that frustrating? Was it just validation of this larger mission? I guess I'm just interested in kind of, you know,

you've clearly spent a lot of time doing the hard work in these places of building up this network to actually kind of pursue this particular market and try to serve this particular customer base. How did that change, if anything, how you had to operate or the context that you were operating in? Yeah, I think from a validation perspective, I think it was definitely very big. I think it became very clear to a lot of people that the impact of something like this would be big and it just became a lot easier to talk about what we were trying to accomplish. Obviously, I think Libra has a very different approach. I think the permission part of it makes it a lot harder for them. I would say to actually have that same impact and to actually really follow through with that mission.

I think the initial approach of also having a stable value asset that was not pegged to local currencies, but instead would be valued at kind of the price of this kind of commodity basket that they were holding on behalf of Libra owners meant that I think in many local markets, it probably wouldn't have been a good option for a medium of exchange. I think there are a lot of reasons why what we had been building was more compelling to our alliance members and to others. How has the run-up in stable coins this year impacted you guys at all? Again, maybe it's just more awareness more broadly, but the top. total circulating supply of stable cloyance has exploded this year, you know, in large part, it seems, due to demand for U.S. dollars around the world. But there's also a larger ongoing

conversation about the emergence of central bank digital currencies with China currently starting to pilot something and even the conversation in the U.S. heating up. How do those larger kind of stable coin or CBDC discussions impact you guys? Yeah, a really great question. and I actually wrote an op-ed about this on Coin Desk last month that you might find interesting or that your audience might find interesting. I think you're absolutely right. There's been a massive run-up in stable coins this year. I think we started at around $5 billion total supply at the beginning of the year.

I think we're well over eight at this point. And it's interesting. If you look at what these stable coins are used for, it does still seem like they're used as a safe haven asset, as a currency to arbitrage between centralized exchanges. The overall defy space is still only around $800 million inside. and so it's significantly smaller than what these stable coins, the supply of these stable coins. And the other thing you'll notice is that most of these stable coins are Fiat backed. So there's over $8 billion stable coins today,

but only $100 million of that is in dye, which is just a very, very small percentage. And that's a real shame. I think there's a lot of people working really hard to make decentralized programmable stable coins a reality. And it's a shame that they're not able to compete against these Fiat back stable coins just yet. And luckily, we think that that's hopefully about to change. One of the reasons why I think both SUSD and I haven't been able to get to the kind of supply numbers of these Fiat back stable coins is because their designs inherently don't tie the supply of the stable value asset to the demand. Instead, they tie it to the demand for either lending against something like ETH or maybe staking SNX and.

earning some rewards from that. And so luckily, there's been a whole bunch of research on how to create programmable stable coins that expand and contract the supply of your asset to meet demand. Sanyarage shares is a fairly well-known design that basis looked to implement a couple of years ago. And so SELO actually uses a hybrid of this approach and what maker is doing today, which gives you the best of both worlds. On one hand, it's crypto asset over collateralized, but on the other hand, the supply is tied to the demand. So if there's strong demand for these table value assets, then the protocol will automatically expand the supply to meet that demand. So where is the project right now?

How far along are you guys in terms of actually bringing this out into the world? Yeah, great question. So two weeks ago, a quorum of community validators launched the release candidate for the mainnet. It's a proof-of-stake PBFT-based consensus protocol, and so they all kind of agreed at a certain time to start effectively kind of mining blocks and the PBFT consensus had to kind of agree on its first round and started to run. So that was really exciting to watch. Since then, there's been a few upgrades on the platform using on-chain governance.

So I mentioned that Project Wren is receiving rewards to offset the carbon required to run network. So there was a proposal that enabled that. And then also the full proof of state consensus mechanism was enabled as well last week. And so the network continues to run. It continues to be healthy. If everything continues to look good over the course of the next few weeks, then again, through on-chain governance, the community will vote to upgrade that network into what will be deemed mainnet. And so mainnet is really around the corner, which is really exciting. It means that hopefully we'll be able to get kind of the seller wallet with the stable value

assets in the hands of many, many people soon. Well, like I said, I think this is a, it's a fascinating area. You know, my background before getting into crypto and even before getting really deeply into technology was in a lot of the sort of social impact stuff that, you know, you guys are working on now. So, you know, I'm excited for how you guys continue to build and to see how this works out in the world. For people who want to learn more, where can they find you? Yeah, so cello.org is the primary website. If you want to sign up for a newsletter, I would go to news.com.com. If you want to go to our Discord channel and just chat with people, I would go to chat.com.

And if you want to follow along with events, Sellow is doing round four, or C Labs, I should say, is hosting round four events, virtual events a week. I would check out events.cello.org. Awesome. Well, Merrick, thank you so much for hanging out today. Absolutely. Thanks for having me. So that is a taste of the Selo protocol, the Sello project. I think what makes it interesting for me is, as I mentioned at the beginning, the attempt to clearly integrate this network building exercise in the context of their alliance for prosperity,

in the context of their go-to-market strategy from the ground up, because I do think that the greatest challenge for a cryptocurrency, a decentralized solution to answer the problem of financial inclusion, is the adoption of a new currency, making it easy to use rather than just something that is this extra laborious burden, right? I don't think that we can overestimate the friction that would allow for a centralized solution,

centralized mobile money, to be a better option for most people as they live their lives. I think that there are clearly, if you could have that wide-scale adoption of a cryptocurrency, big improvements from fees to control to permission to access the network that cryptocurrencies would bring. But again, the adoption question is the key. So it's excited to see a project making a sincere run at building the network that you need to go along with it. Anyways, guys, that's going to do it for me. I hope that wherever you are,

you are having a good, sunny Singo de Mayo, and I'll be back tomorrow with another episode of The Breakdown. Until then, be safe and take care of each other. Peace. Welcome back to The Breakdown, an everyday analysis, breaking down the most important stories in Bitcoin, crypto, and beyond. This episode is sponsored by ArisX.com, the Stellar Development Foundation, and Grayscale Digital Large Cap Fund. The Breakdown is produced and distributed by CoinDesk. Here's your host, NLW. Welcome back to The Breakdown. It is Wednesday, May 6th, and today we are following up on a conversation we've been having in some way for weeks, which has to do with second order effects. what it means to the world that the economy of basically everywhere around the world has been shut down for so long to fight this virus.

I wanted to actually have a chance to go look at a number of different industries, and rather than just talk theoretical second order effects, actually look at what's happening. This crisis has been going on long enough now that we actually have numbers and more estimates coming in, and it's really bleak and crazy and in some cases even surprising. So what we're going to do is I think this is going to end up being a couple days at least a series called Surveying the Carnage. Today we're going to look at travel tourism and transportation, we're going to look at the music industry, and then we're going to look at real estate.

Travel tourism and transportation first. This is a sector which I think everyone knew right away that the COVID-19 shutdowns, the COVID-19 pandemic would have an outsized impact on. This is the first set of actors, the first set of businesses that are forced to shut down in any sort of situation like this. And obviously, this was going to be a hugely impacted industry. Just for reference, tourism is 10.3% of global GDP. So this is a significant part of the world's business.

And the first estimates that have coming in, which may even be low, to be honest, are that we're likely to see 100 million jobs lost in this industry, a $2.7 trillion decline in travel tourism GDP around the world. So these really staggering numbers that, again, just looking at how those numbers are broken down between Asia and the U.S., it's clear there from a few weeks ago or even longer when it was not clear just how bad this was going to be in the U.S. So overall, we're seeing a huge, huge, just destruction of that industry. But let's look at some specifics. flights. Airlines are obviously one of the most impacted industries. They were the vehicle by which this virus was able to spread everywhere and as fast as it did. We saw over the weekend, Warren Buffett

had made a major disinvestment from the American airline industry. Berkshire Hathaway sold something like $6.5 billion in airline stocks, their entire stake in major American airlines. And the reason that they did that is that they don't believe fundamentally that this industry. industry will recover in a way that looks approximate to what it was before. They think that even if it comes back, 70 or 80 percent, that might be good. Those airlines are still going to be dealing with all of the planes, right? They still have all of their capital expenditures, and that makes it just unattractive for them. That was a pretty big indicator to a lot of people about how Buffett was thinking about the economy as a whole. Overall, we've seen the average number of commercial

flights daily fell from more than 100,000 in January and February to 78,500 in March to 29,400 in April. So one quarter roughly of the flights that were happening in April that happened in January. Passenger revenue for airlines is estimated to plunge something like $314 billion in 2020, a 55% drop from 2019 levels that's according to the International Air Transportation Association. Airlines for America testified before Congress and said that U.S. airlines are at risk of bankruptcy if they're forced to refund non-refund non-refundable tickets or tickets that were canceled by passengers. So even after these bailouts, there are huge structural issues for the airline industry.

Now, what about hotels? This is another industry that is obviously hugely impacted by the coronavirus and shutdowns. Average daily rate is down something like 17% in the U.S. while revenue per available, room is down 50%, and it's worse in basically every other region. That's just the U.S. Speaking of hotels or at least residential travel, let's talk about Airbnb. Airbnb was in the news yesterday when they announced that 25% of their workforce, 1900 jobs were being cut. This is a company that people have been watching in the context of the crisis for a while, and the numbers are just terrible. They expect revenue to be less than half of what it was in 2019. They saw bookings per week go from upwards of 550,000 in February to less than 100,000 at the end of April. 1.5 billion in

bookings simply evaporated in March. And there's just so many problems here. One dimension of this has to do with Airbnb's own financing. We have lived in a context of very cheap growth capital for a very long time. It's one of the byproducts of low interest rates and the push among public market investors to move to private markets to find yield. In that context, what companies were supposed to do was outspend to see growth. They weren't supposed to race to profitability. They were supposed to race to growth. Airbnb hasn't gone public yet, and because of that, they have to rely on private markets for capital. Last month, they went to those private markets to get $2 billion to short up their finances. Part of that, about half came from a five-year loan from institutional investors

that pays an interest rate of 7.5% plus the benchmark London Interbank offered rate or Libor. The other half came from private equity firms, Silver Lake and Sixth Street Partners, and was much more expensive than their recent valuation. So they are paying an interest rate of 10% plus LIBOR as well. And they also get warrants. Those private equity firms get warrants that can be converted into shares at a valuation of $18 billion. The last valuation that Airbnb raised at in 2017 was $31 billion. So you're talking about, you know, 60% of the value of the previous high raise. So this is a great deal for private equity firms. Once again, it proves that having cash available when the markets go bad is always a great place to be. But either way, Airbnb has had to

aggressively shift to get money on worse terms than they might have expected. But it is a isn't just Airbnb itself. Airbnb is an ecosystem of small entrepreneurs who are making money through the platform. AirDNA estimates that Airbnb has about a third of the properties are single properties, so single property owners who just have one listing on Airbnb. One third are 25 plus. So these are usually larger companies, or at least medium-sized companies that own lots of properties that do this as their business model. But then a third of Airbnb listings are people who have between two and 24 properties. And that's a lot of where the biggest pain is being caught. A lot of those folks are just regular people who started renting one and then took out a mortgage

to offer a second and then took out a second mortgage to offer a third because it's a good business model. When everything is going right and you can make 2X what you would make from a regular long-term rental, it can make sense to have those extra mortgages, can be a good business model. But these super hosts are in real, real trouble. An article in the Wall Street Journal profiled a number of those medium-sized renters. Jennifer Keller Hatslets of Michigan spent $380,000 to buy two Michigan properties in 2018. She and her husband had cashed out their financial instruments and borrowed $100,000 from employers to furnish them. they were expecting to net 7,000 a month after mortgage payments, which is a huge supplement to their

income. She was a pharmacist, her husband is a school teacher, but now because of this, they can't make mortgage payments. No one is booking, so they either have to borrow more or simply default on those. And there are so many more stories like that. Now, Airbnb has tried to help hosts in some way they'd said they would pay host 25% of what they would have received for canceled bookings. They created a $17 million fund to help top-rated hosts cover their mortgages, but it's capping those grants at $5,000 per host. So if you have 10 properties, that's not going to necessarily make a huge dent. Finally, there's another issue, which is that there's going to be questions around demand

and regulatory viability of this going forward. These sort of short-term rentals were already in a difficult regulatory space, and you're seeing temporary bans on them in a lot of places. Florida, Pennsylvania, Vermont, Delaware have all created temporary bans on Airbnb properties and other similar listings from similar companies. Sonoma County, Myrtle Beach, South Carolina have similar restrictions. Who knows what it's going to look like after this? Who knows when Airbnbs will be allowed to operate again in these different places?

It could very well be that hotels or the hotel lobby or just old-thinking, old-school kind of minded politicians just try to blame this type of engagement, this type of economic activity, and single it out again. So I think that there are real structural questions within the context of home shares. We could talk about travel and tourism's destruction ad nauseum. It could be multiple, multiple shows. But one other dimension that I wanted to hit on really quickly, just because it again came from news this week. Disney's quarterly earnings came out, and they reported a 58% reduction in operating income in their theme parks. It's their worst hit business line, obviously. And the interesting thing is that that's to be expected, right? Things are shut down.

Obviously, they're not operating. However, I think that the bigger question is demand and capacity going forward. In May, Shanghai Disneyland was allowed to reopen, but forced to operate at 30% capacity. It wouldn't at all be surprising. In fact, it seems like the most likely outcome that any sort of public space business is going to be forced to operate, at lower capacity, and that could change fundamentally the business model and the business viability of these different types of entertainment companies. Speaking of entertainment, I want to shift now to the music industry. The music industry is just brutalized by this in a way that makes some of these other

economic plights look like nothing. I mean, the concert industry loss is basically total. So Polestar was predicting a record year this year of 12.2 billion in concert sales. It's now likely to drop 8.9 billion. So you're talking about basically 75% of the industry wiped out. All of the industry wiped out from the moment these lockdowns went into effect. Basically, there's not going to be a concert from the middle of March to at least through this year. And some industry insiders are starting to plan for 18 to 24 months at least of no concerts. until a vaccine or some major medical breakthrough that makes it more viable. What's more, this is

likely the industry that's going to be the absolute last to open. You're talking about a super congested space for a completely voluntary service, right? This is the opposite of an essential service, even if it's so at the heart of so many people. Joe Spalding is the president and CEO of Boston's Box Center, which operates a 3,500-seat Wang Theater and the 1,500-seat Schubert Theater. He said, we are going to be the last industry to open, and there are a lot of reasons for that. We are an organization that has crowds, and it is impossible in our theaters to self-distance, period. And not only is it impossible for the audience members, it's impossible to lower the capacity to try to do that. So his point is that this isn't a restaurant where you just have the tables farther away.

People crowd into where they're going to want to see the artist from. It's just not possible. Toby Mamies, who's a rep for Alice Cooper, said there is no best-case scenario. right now that I can see for the live event world. The best case scenario in the real world is that people stop dying from this thing. Clubs are shutting down permanently. There's more than 1,200 venues and promoters have formed an advocacy group, the National Independent Venue Association, and they're trying to figure out how to get access to some of this federal stimulus. This is a group for whom the PPP loans didn't really fit. They didn't work with their model. You're seeing this

supported by a number of different politicians. You have 28 congressmen and women who have signed a letter about it who are asking for musicians to be included in the next stimulus bill. And the music industry as a whole, rather, not just musicians, but musicians, live event venues, etc. You have issues of when to put out albums. The logic of albums often has to do with when you can get to tour, how you can promote it in person. The problem is that there's no real good option. You can't just have everyone wait and put out music at the same time when this is all over. Rob Light, who's the head of music at CAA, said, if everyone waits and then drops a record in January, have you created more of a problem?

You may have more outlets, but you also have 50 pieces of product out there. So what are you competing against? Smart people are stepping back and looking at each project and saying, what are the tools I have and how do I use them? It's the same for all these tours and festivals who are planning on reopening in Q4. This may be solved simply by them not being allowed to, but imagine that every festival tried to crowd into a single quarter. It's going to be so much competition.

There's going to be market oversaturation. Then finally, there's the question of shifts in consumer demand and consumer preference and consumer willingness. A recent Reuters poll found that only 40% of Americans would be willing to attend sports or entertainment events before a vaccine was available. Who knows how that changes when we have totally had it up to here with staying inside and being stuck in?

it may be that that is a reporting bias right now that has to do with how people are feeling as they're scared, and that might double. But even if you have 70% or 80% of people who are willing to go back to it, you still have a significant loss to the industry, right? There's still significant economic harm in moving from a record-breaking year to a year that didn't exist at all to basically a year that's set back five years or 10 years. And I think one thing that's really important in all of this is one of the real powerful and problematic knock-on effects of this virus and the shutdowns is that it just absolutely destroys the weakest. And in the context of music, music isn't a natural selection like other types of capital markets might be. Music is an industry that is

extraordinarily difficult and extraordinarily centralizing, right? It concentrates resources and promotion around a very small number of artists and a very small number of sounds, a very small variety of sounds. But music and why it's so important to people is that there are genres for every taste, there are blends for every taste. Small artists are only viable because they can tour. You can't as a small artist sell enough of your music to have a career. You have to tour. Even before all of this, one of the biggest challenges in the music industry and the way that it's designed is that artists couldn't make a living without touring hundreds and hundreds of shows per year, which can be just absolutely destructive to relationships and health and all this sort of things.

So musicians as small businesses are just absolutely destroyed through this. And there is a huge and uncalculable cultural loss to that sort of destruction that I think is hard to rock as we're sitting here. As someone who loves music, loves this diverse panoply of different types of sounds that we have available to us who loves the fact that in the modern world, everything is discoverable. This is an industry that I'm really concerned for, and it's really, really hard out there for right now. Support for this podcast and this message come from Eris X.

With ArisX, you can trade spot and regulated futures on cryptocurrencies through a licensed, U.S.-based exchange. ArisX believes in fair access for all. Sign up today to take advantage of zero fees and learn more at ArisX.com slash consensus. This episode is also sponsored by the Stellar Foundation. The Stellar Network connects your business to the global financial infrastructure, whether you're looking to power a payment application or issue digital assets like stable coins or digital dollars. Stellar is easy to learn and fast to implement. Start your journey today at

stellar.org slash coin desk. Our final sponsor is gray scale digital large cap fund. In times like these, diversification is key. Consider gray scale digital large cap fund, ticker symbol GDLC. It's the only publicly traded investment product that offers diversified exposure to large cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash coin desk. That's g-r-a-y-scale.co-co slash coin desk. Last up, let's look at real estate, and real estate could absolutely be its own category. In fact, it could be multiple categories, right? So we're going to talk about both commercial and residential real estate. This is another area like travel and tourism where I think people

have groked the second order effects much more quickly than perhaps in other areas. Let's talk commercial real estate. One obvious dimension of this is that as stores and retailers are forced to close down, they're not going to be able or they're going to be unwilling to pay their rent, and we're seeing that in tons and tons of different ways. Just by one little example, Empire State Realty Trust, who owns the Empire State Building and another 13 commercial properties in the New York region, said that it collected only 73% of its April office rents and 40% of its retail rents. So less than half of retail rents

and less than three quarters of office rents. You're seeing issues coming up between retail tenants and their landlords around trying to rewrite leases to include pandemic escape clauses. So this is obviously something that landlords often oppose and is setting up for protracted legal battles there.

You have some really interesting things happening where the fundamental structure of the way rent works is changing. We've been in a system where landlords want predictability of rent revenue over anything else, any potential upside, but in lots of cases, that model is shifting. So Ross Stores said last month that it would pay a rent equivalent to 2% of sales when its stores open. So it's basically exchanging a fixed rent for shares of commercial revenue. We work, which has been one of the most hampered businesses by this, had already been looking to switch to more revenue sharing agreements and have, has tried to accelerate that shift. It's even hired two brokerage firms to renegotiate its real

estate deals along those lines. This was already happening in some places. Neiman Marcus and other retailers at New York City's huge Hudson Yards mall. They pay their landlord a percentage of sales rather than a fixed rent, but this wasn't the norm. And now you're seeing more and more this shifting. Now, for some landlords, this could be an interesting and dynamic opportunity. But what it does is it's going to be hugely culling to retailers that can't perform, right? Michael Phillips, who's the president of a real estate investment firm called Jamestown, said, the days of being the landlord as an overlord to collect rent are over. And then there's the potential for banking spillover. Commercial real estate is a huge part of the business model of banks. Real estate in general,

commercial real estate debt is $3 trillion. Residential mortgage debt is $1 trillion. If you start to see significant defaults in that area that could be significantly impacting to banks. TREP research estimates that over the next five years, we can expect 2.5% loss rate default, compared to 0.1% last year in commercial real estate. Now, the good news is that this is lower than the defaults at the peak of the great financial crisis, which was 4.4%. Still, you're talking about billions and billions, tens of billions of dollars in losses for banks in the context of that. Overall, commercial real estate is going through a revolutionary moment. It's impacting retail, it's impacting office space, and we're just going to see more of that.

But what about residential? Residential is really weird, and in fact, in some ways, this whole set of pieces surveying the carnage was inspired by an article I read yesterday, why home prices are rising during the pandemic. First, let's talk about what you would expect. Sales for new homes fell 8.5% in March. Redfin home buying demand was down 15% in April. Mortgage applications are down 20% in April. But home prices are up 8% year over year. So what gives? Why is this happening? Well, there's a few different reasons. First is that sellers aren't cutting prices. They believe that because people can't see their house, there's no way for them to know how good it is or how valuable it is. So there will

willing to wait, basically, for people to be able to come back to the normal home buying process. Effectively, they're making a bet that this is a temporary shock. There's also a supply issue. There was already a supply issue and a shortage of homes before this crisis, and there's a lot of reasons for that that, again, deserve their entire own episode. One of the more salient points that I've heard over the last few weeks is I asked Preston Pish about why we weren't seeing inflation show up in a big way, although we'll come back to that perhaps in tomorrow's episode in the context of food, but why we weren't seeing inflation show up when

we were seeing so much money printing. And his argument was effectively that the places that you see inflation aren't just the normal stuff in the consumer price index, which is how inflation is measured. You see it in asset prices. Homes are one of those. Homes are an asset where, especially boomers, will often buy a second home as an investment asset that just keeps going to. up in price. Because of that, it's created a dampening effect on the market as a whole because millennials and other homebuyers can't afford those houses, and it's not worth it to those boomers until they need that revenue to actually sell them. So you have these structural issues in the real estate industry in general, but then that's exacerbated by the fact the supply issue in this

context where if you are thinking about selling your house, if you have any choice right now, why would you list your house? Why, when people can't even come see it, when everything is shut down when there's so much economic insecurity. You just wouldn't sell it. You don't want to sell it right now. So basically, you do have a demand shock, but you also have a supply shock, and that is keeping home prices buoyant. The other piece of this is mortgage forbearance. All of these policies in different states and around the country have impact on preventing basically a wave of distressed sales. Something like 7% of mortgages were in forbearance in the week ending April 30th, according to a mortgage data company,

Black Knight, and some homeowners can get forbearance for up to a year. So basically, you have this suspended issue where if everything goes back and people can catch up on their payments, maybe we won't see an impact, but it maybe is more likely that we see the impact on home prices and distress sales coming months down the line or even year down the line when these forbearance periods end. But then again, there's a political dimension. In a widely retweeted tweet from Monday of this week, Representative Ilhan Omar from Minnesota wrote, Suspend, with a line crossed out through it, cancel rent and mortgages on Twitter. She didn't go on to expand this in Twitter,

and it was certainly designed to engage a reaction up in here. And it did. 70,000 people liked it. 10,000 people retweeted it, and probably an equal number actually responded to it. We're having a national conversation about totally restructuring the economy. And when you see an elected representative be able to simply suggest canceling, not suspending, not providing forbearance, but canceling rent and mortgages, who knows what the hell is going to happen next.

So the point of this is that we are in a weird moment. The second order effects are starting to happen. We're starting to be able to see them, track them, understand them. And I think it's really important to look at all of these different industries to see how they're interconnected, to understand what happens next and what we can do about it. That's it for today, guys. I'm going to get into a number of different issues, assuming that you like this. If you all tell me you hate it, I won't. But I think tomorrow we're going to look at maybe education,

the film industry, sports, restaurants, meatpacking and food prices, which is having a huge challenge and advertising. And maybe we'll go through those a little bit faster. But let me know at NLW on Twitter, is this type of episode helpful? Are you enjoying these economic fallout episodes? I think it's really important, but I want to make sure it's serving you too. Thanks as always for listening. And until tomorrow, be safe and take care of each other. Peace. Check up Bitcoin, surging more than 15% this week. Our very own crypto baller says another big breakout could be coming.

So, BK, how many days is it till they halving? It's about 11 days to the halve it. And so what that means, what people should know is that, as the whole world is quantitative easing, Bitcoin's about to be quantitative hardening. So they're going to cut the daily supply. The software is going to cut the daily supply. It doesn't mean that the price of Bitcoin is being cut. in half. It just means that the daily supply is being cut in half. You might want to think about it

like oil, where all of a sudden, in 11 days, half the oil rigs are turned off, and so therefore that supply gets reduced. In the past, this has been a catalyst for very, very, very big runups. We've had a tremendous runup coming into this. It's got some wood to chop around 9,000. But I think in the medium to long term, you now have an asset that is going to be more scarce than gold based on the stock-to-flow ratio in an environment where the entire way. world is printing money. Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond. This episode is sponsored by ArisX.com, the Stellar Development Foundation, and Grayscale Digital Large Cap Fund. The Breakdown is produced

and distributed by CoinDesk. Here's your host, NLW. Welcome back to the breakdown. It is Thursday, May 7th, and for those of you keeping track on that clip from CNBC's Fast Money, with Brian Kelly. You just heard, one, quantitative hardening in the face of quantitative tightening, two, make sense comparison between Bitcoin mining and oil rigs as it relates to the halving, and three, an argument that Bitcoin will be more scarce than gold based on the stock-to-flow ratio. Ladies and gentlemen, today we are talking Bitcoin bullishness on the way to the having. Nine reasons, maybe 10, I can't even keep track anymore, why Bitcoin has never been stronger going into the halving. There has been a distinct shift in tone around Bitcoin Twitter and

crypto Twitter over the last two weeks away from just the incessant look at coronavirus, economic outcomes, to really getting excited about this particular moment, and I think symbolically what it means. So this episode is all about nine reasons why Bitcoin has never been stronger going into a halving. First, let's talk price. Oh, it's so crass. It's not the big thing. It's about the long term, sure, but price matters. Around the time of recording, the price of Bitcoin was at 9,500. It is surging. And of course, this number is higher than previous halvings, but what's important is why the number matters. Number go up is what attracts a huge portion of new people that come into the Bitcoin space. It attracts them to come join the network, which increases demand and increases

security in a virtuous cycle. But what's more, even for those who care about converting Bitcoiners into really believing in a similar set of outlooks on the economy and on society as a whole, there has to be some door that they walk through. And for a vast majority of people, or for at least a significant number of people, that door has to do with a growing price. The fact is, this is not just a price that's static. It's a price that's going up in the lead-in. This price rally seems to be coinciding with the upcoming halving. That matters even more when it comes to that symbolism of attracting new attention. You're seeing it all over Bitcoin, Twitter, or people sharing text messages and DMs from their friends of people who are getting that

FOMO feeling as they watch the price grow. There's another reason, though, that the price matters as well. It matters for mining. On CoinDesk on Thursday, April 30th, they reported that even older machines that we assumed would be obsolete are starting to be able to, again, make money at these prices. So according to the Minor Profability Index, which is tracked by mining pools, including Pool in an F2 pool, older mining rigs like Bitman's Antminor S9 or Canors, Avalon 851 can now generate at these prices a 10 to 20% gross margin at an average electricity

cost. That's huge, right? More miners being able to participate and make money means higher security in the network, which gets us to our second reason why Bitcoin has never been stronger going into a halving. Mining is surging in advance of this event. On Sunday, May 3rd, Glass Note reported that the hash rate, aka the processing power of the Bitcoin network, was hitting all-time highs. So that hash rate, which is such an important part of the Bitcoin ecosystem, is at all-time highs as miners start to crowd in. On Friday, May 1st, there was also this interesting little anomaly where usually miners mine six blocks per hour, 10 minutes per block, in a one-hour period, a 63-minute period, that miners minors mine 16 blocks on Friday. So the point

here is that there's a huge increase in hash rate. It's surging advance of the halving. Some critiques have said that that hash rate craters in the wake of the halving, right? Because there's certain machines that just aren't profitable anymore. They're not going to be able to compete with such a reduced output, right? A 50% reduction in the block reward means that some amount of miners are going to lose out. Well, the thing that's interesting about this argument is that as much as we debate whether the halving is priced in when it comes to the actual kind of asset price of Bitcoin, I think it's a much stronger argument that when it comes to businesses that are designing for the future to believe that they have designed their system or to understand how the halving is going to impact their business.

In other words, the halving is much more priced in when it comes to minor profitability and what mining businesses can expect than it is in terms of just the random consumer asset price at any given time. So I don't believe that we're going to see a 50% reduction in the hash rate overnight. I think that you're going to see inefficient miners cut out of the network and other miners pour into make up that processing power to try to get the reward that remains. That's the game theoretical explanation or the game theoretical outcome that is most likely. So number two on our list of nine reasons Bitcoin has never been stronger going into a halving, hash rate. There's another dimension of mining I want to talk about as well, though, which is mining competition. There's so many

indicators that mining competition is just growing. Miner maker eBank filed for a 100 million dollar IPO in the U.S. last month. On April 17th, MicroBT, which is a competitor to Bitmain, rolled out three new high-end Bitcoin mining devices. There's also new types of actors getting involved in mining. Great American mining company has come out live. They are a company that helps oil and gas producers in America build a digital pipeline for stranded gas. They help miners of traditional energies or oil and gas producers use the excess energy that would just have to be flared off in the case of natural gas, for example, to power Bitcoin. mining to recoup some of that value. I think that's a hugely and potentially transformational

business. For those of you who follow Marty Bent, he's involved with that. There's new excitement around even the American mining industry. There's so much new mining competition going on. I think that's incredibly bullish. Number four, accessibility and services. There's a ton that I want to talk about here. But long and short of it is that there has never been an easier moment to actually get onboarded and brought into Bitcoin in a meaningful way. First, we have a wave of Bitcoin-only services that have arisen in the last year even. You have River Financial. You have Swan Bitcoin. You have CoinFloor, which actually switch to Bitcoin only. These are all services that allow people to get their first Bitcoin, to routinize savings and dollar cost averaging into Bitcoin,

which allow them to manage their Bitcoin. These are Bitcoin-only companies. They're not messing around with the casino model of altcoins that other exchanges took in the 2017-2018 boom, instead they're really focused singularly on this asset. That gives them an opportunity to focus on differentiated levels of service, differentiated types of products and services around Bitcoin specifically. So this Bitcoin-only service movement, I think, is hugely valuable for the quality of the experience for people who have come into the industry. But when it comes to getting onboarded,

if you don't happen to find your way to one of those comparatively smaller, companies now, you also have Squares Cash App, which is as mainstream as it gets, and boy, oh boy, is it crushing when it comes to Bitcoin. We just found out yesterday that last quarter, $306 million of revenue of Squares Cash App, more than 60% of their revenue for the quarter, came from selling Bitcoin. That's up from 178 million in Q4. A huge, huge jump in this crazy, crazy horrible month that everyone experienced because of the COVID-19 shutdowns. Gross profitability of that Bitcoin doubled as well for Cash App. This is just huge. When you have a major mainstream financial application that is racing to beat out the Venmo's

and everything else in this world, you're going to have more people who don't know anything about Bitcoin coming in through that than just about anything we could invent in our industry. So you have both this incredible growth in Bitcoin-only services for people who come in, but then this amazing mainstream way for people to get their first Bitcoin. Number five, let's talk Bitcoin infrastructure for a minute. I mean, this is so obvious and so immense. This could be a dozen categories on its own, but let's just talk about three little areas. The Lightning Network.

Lightning Network is creating huge new opportunities for not only Bitcoin, but the reimagination of the web as a whole. By enabling smaller transactions, it allows for people to integrate Bitcoin into applications in totally new ways. In fact, you even have multi-coin capital just recently discussing the idea that Lightning may allow Bitcoin to be a better foundation for Web3 than the smart contract platforms they once thought would actually form the basis of that. There's so much we could say about Lightning, but suffice it to say that it is hugely differentiated in terms of how strong Bitcoin is now compared to any other having in the past.

There's also a wave of self-sovereign hardware. Hardware that allows people to actually take control over the hardware experience of Bitcoin and to participate to securing and supporting the network by running nodes. So you have Nodal, My Node, Razpie Blitz for running Bitcoin nodes and Lightning nodes. Just tons and tons of these independent self-sovereign hardware solutions, meaning that this isn't just a software and money revolution, but a hardware one as well. This is something that Marty Bent loves talking about. Another area that is huge that's been going on is the work on privacy, right? Bitcoin has not

historically had privacy as a major focus, right? You can follow the flow of Bitcoins, but there are lots of use cases that people don't want to have that level of exposure. You have companies like Samurai, Join Market, Wasabi, all working on privacy solutions in the context of Bitcoin. So all in all, take this together and the infrastructure around Bitcoin has again never been better. support for this podcast and this message come from Eris X. With ArisX, you can trade spot and regulated futures on cryptocurrencies through a licensed, U.S.-based exchange. ArisX believes in fair access for all.

Sign up today to take advantage of zero fees and learn more at ArisX.com slash consensus. This episode is also sponsored by the Stellar Foundation. The Stellar Network connects your business to the global financial infrastructure, whether you're looking to power a payment application or issue digital assets like stable coins or digital dollars. Stellar is easy to learn and fast to implement. Start your journey today at Stellar.org slash CoinDesk. Our final sponsor is Grayscale Digital Large Cap Fund.

In times like these, diversification is key. Consider Grayscale Digital Large Cap Fund, ticker symbol GDLC. It's the only publicly traded investment product that offers diversified exposure to large cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash coin desk. That's G-R-A-Y-Scale. CO slash coin desk. Number six, institutional awareness.

The infrastructure around Bitcoin isn't just for the self-savorn hardware crowd. There's also so much more for institutions and institutional investors than has ever been possible. In the wake of the 2018 crash after the 2017 boom in altcoins, a lot of the focus in institutions was people like Morgan Creek Capital going out and behind the scenes trying to convince people and big buyers, right? pensions, endowments, et cetera, to get off zero, to have some exposure to Bitcoin. Well, it worked. And you know how we know it worked? Because when there was a huge market crash during the coronavirus,

the first wave of the COVID-19 shutdowns and crises, Bitcoin crashed too. The reason for that is that there was exposure to Bitcoin from investors who had to flee to cash. There's a famous maxim which holds true, which is that when you have to sell in a liquidity crisis, you don't get to pick what you sell. You have to sell whatever you can sell. Bitcoin just got washed up and caught up as part of that whole cycle. So although it was very painful, at least briefly, to see Bitcoin's price crash from 9,000 down to 3,800, in some ways it was a reflection of the fact that the last year and a half, two years of advocacy inside institutions had actually succeeded. Because of that, we were more correlated in the short term with other assets because Bitcoin is liquid, right?

So institutional awareness, it's a weird way to think about it as the evidence being Bitcoin's correlation in a crash, but I actually think it holds. I believe that a lot of those investors are going to want to come back. I believe that a lot of those investors, you know, some of them just bought a little Bitcoin hedge because why not, and that's fine. Others, I think, probably got into it and started to believe in it, but again, they were forced through their fiduciary responsibility to get out of it when they needed to just get to cash. So there's that whole side of things. What's more, though, you have so many more institutions actually involved.

You have the Intercontinental Exchange who's involved in the industry via their sub-brand backed now. You have Fidelity, who's built their Fidelity Digital Assets program. You have Eris X, which is backed by TD Ameritrade, NASDAQ, CME, and dozens of other traditional financial institutions. And that list goes on forever. There has never been the same amount of institutional awareness and legitimacy and participation going into a halving as there is today. Seventh, narrative relevance.

You know I'm going to talk about narrative right now. And frankly, you heard it at the beginning from Brian Kelly. The first thing he said, the contrast between quantitative easing everywhere and quantitative hardening in Bitcoin is such a powerful meme. Yes, it may not exactly describe the nuances of what these things mean, but the idea that everywhere around the world, the supply of fiat currency is increasing at the same time that the issuance of Bitcoin is decreasing is so massively and instantly resonant. And resonance is what matters when it comes to narrative. How quickly and easily and powerfully does a narrative

resonate? I believe we've never had a moment where the narrative of Bitcoin is contrasted more strongly with what's happening in the world. And the resonance that that creates is so palpable. You can feel it right now. You can feel it in these text messages. People are getting from their friends and family. Even for those who aren't on the Fed is the devil and we're going to hyperinflation train, it's hard to not see that contrast as something that makes Bitcoin more interesting. Which gets us to our eighth point, the perceived strength and resilience of Bitcoin. A tweet from Scott Melker, I think perfectly summed this up. He said, Bitcoin is resilient AF, 10,000 to 3,800 to 9,000 in the blink of an eye. That really nails what has

happened over the last month. This is literally the only asset in the world it feels like that didn't get a bailout. It's certainly, as many have put as Dan Tapiero said on this show, as Mark Yusko said on this show, it's the only truly free market left. Bitcoin didn't get a bailout, it didn't get any support, it didn't get any help, and it's doing just fine. It is the definition of anti-fragile. And the important thing is that this isn't just perceived resilience. It is real resilience. It's true, right? Here are a couple examples of how we know. Coinbase, in the wake of Black Thursday, when that price crashed down to 3,800 very briefly, a preponderance of the transactions on Coinbase were buy orders. It was the hodlers that formed the base of the Bitcoin

community scooping up that cheap, delicious Bitcoin at those prices. The point is that something like 76% of the transactions were by transactions, which is up significantly from the average. What's more, Willie Wu pointed out recently that it's also Bitcoin whales who have been accumulating steadily since January. So all of these things come together to show both a perceived and a real resilience in Bitcoin. Which brings us to our last point. And I want to talk about this idea of anti-fragility again. The Lindy effect is the idea that the longer something lasts, the more likely it is to continue to last. Effectively, that things get more durable the longer they survive. Put differently, every additional period of survival implies a longer remaining life expectancy. This idea of Lindy effects

is particularly important to Bitcoiners. Bitcoin has been pronounced dead hundreds and hundreds of times, and each time it comes back. And the relevance of that is that each time it comes back, some percentage of people who saw that it was dead previously, who saw their favorite news outlet or their favorite business commentator call it dead, and then discover that it is not only still alive but thriving, start to become more interested or start to become more of a believer. So basically, Bitcoin's survival predicts for its future survival by attracting more people who previously heard it was dead. And in a lot of cases, there's a lindy effect element to all eight of these other factors that I told you before, right? Like, of course the price should be higher four years on.

Of course the hash rate should be higher and more miners should be involved. But that's kind of the point. The point is that the longer Bitcoin survives and in fact thrives, the more likely it is to survive and thrive in the future by virtue of the fact that it attracts its fact of survival, its fact of thriving, attracts and brings more people in. The point of all of this is that Bitcoin has never been stronger going into a halving. You can feel the excitement, it's palpable. And by the way, and this is a really important point, this doesn't mean that we should expect to see some massive increase in the Bitcoin price right after the halving or even weeks after the having or months after the having.

That's not the point. The point for me is that the having is this incredibly symbolic moment on top of its important function in the economic and monetary policy of the system that creates an opportunity for new people to understand what makes Bitcoin different and FOMO into this space. The point of the having is to increase demand on the same time that we're decreasing the issuance, decreasing supply. Eventually, increased demand and decreased supply leads to price increases. But in the short term, that doesn't matter. I don't care if every new person who discovers Bitcoin and gets excited about it doesn't buy a ton right away. It's highly likely

that those new buyers won't move the needle. The point is that they're paying attention. The point is that they're in the community. And the point in why Bitcoin is so much stronger now that in any point in its past is that there's so much more for them to find, to discover, to use, to interact with, to build upon than there has been in the past. So it's a really exciting time for Bitcoin, and it's really hard to deny that. Anyways, guys, a fun little Bitcoin-having episode for your Thursday. I appreciate you listening, as always. So until to me, tomorrow, be safe and take care of each other. Peace, guys. And one more thing. Just after I finished recording and sent this over to be edited, we got news via Bloomberg that Paul Tudor Jones, who's one of

the most legendary, well-known hedge funders in American history, disclosed in his investor's letter that he had purchased Bitcoin. I haven't had a chance to read the letter. It hasn't been released yet, but he said that Bitcoin reminds him of gold. in the 70s and called it a great hedge against, quote, great monetary inflation. I mean, this is everything that we just discussed altogether. Narrative relevance, true relevance, institutional adoption, infrastructure. This is a big deal. And you're going to see a lot of news about this, so I couldn't let it pass without at least mentioning it. Welcome back to the breakdown, Money Reimagined, a special podcast microseries in the run-up to

Consensus Distributed, a free-to-attend virtual event from May 11 through the 15th, hosted by CoinDesk. Money Reimagined is about the battle for the future of money in the post-COVID-19 world, and it's a hell of a story. This episode is sponsored by Aris X, the Stellar Development Foundation, and grayscale digital large-cap fund. Here's your host, NLW. Welcome back to The Breakdown. So on the first episode of this special money reimagined series, we looked at the strange, almost schizophrenic narratives around the US dollar. On the one hand, Money printer go burr.

Massive stimulus and increasingly exotic forms of QE would suggest for future inflation, right? On the other, however, in practice, the dollar has gotten nothing but stronger and become even more in demand during the crisis. The goal of that episode was to maybe piece through and figure out how these two, things, how these two narratives might not be mutually exclusive. On this episode, however, we are turning our attention, and instead we'll be looking at the contenders in this battle for the future of money. These are the insurgents that would replace the dollar in the global order, and in particular in this episode, the insurgents who would replace it in an inside-the-system

formal way. So before we fully dive in, let's get some historical context from Neil Ferguson. He's a historian and senior fellow at Stanford's Hoover Institution and the author of works like The Ascent of Money. It wasn't always a foregone conclusion that the world would be organized around a single dominant standard like the US dollar. In fact, as Ferguson argues here, this was a byproduct of globalization. Some of the greatest theorists about money, Hayek, for example, Friedman, thought it better for the to be multiple competing currencies rather than a single global standard. And there were plenty of periods in history

when that was the case. There were multiple currencies in, for example, 17th century Europe. And there were, in fact, many different forms of payment across the United States in the 19th century. Standardization of money came relatively late to the world. It began with the British gold standard, which by around 1900 was,

a global standard pegging currencies to a specific quantity of gold. I think one of the lessons of history is that with globalization comes a tendency for a particular currency to become the number one dominant currency for transactions, for trade, for international reserves. In the 19th century, it was the British pound, in the 20th century, it became the US dollar. And a great question to ask is globalization enters this phase of crisis. Will there be some other transition from the dollar to another currency? Or could we see a reversion to a multipolar, multi-currency world of the sort that we've seen in previous eras? Okay, so a unipolar monetary order was a byproduct of globalization.

Globalization is being unwound right now and unwound in an accelerated fashion thanks to COVID-19. So when it comes to the U.S. dollar system, does this mean an unraveling too? And if so, who might be stepping up? That's really the whole point of today's episode. Let's look first to the euro. If the genesis of the global dollar standard that were on now was the end of World War II in the Bretton Woods Conference, the euro came about as Europe tried to re-forge both a shared identity and a shared economic destiny after the fall of the Soviet Union.

Agreed upon in principle in the Maastricht Treaty in 1992, the euro would come into being in real form about a decade later. It quickly became the second most widely used reserve currency after the U.S. dollar. But as Europe and the Euro came into the COVID-19 crisis, both were on kind of shaky ground. Brexit had taken the most valuable economy out of the European Union, and flagging economies within the Union created pretty significant fragility. In this clip, we revisit comments from the geopolitical strategist and author of Disunited Nations, Peter Zeyan.

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 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. It'll lead 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 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. 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. CoinDesk's chief content officer, Michael Casey, takes this argument around the euro farther, saying in some ways it's inherently a question of political validity. So the euro is actually a really interesting way to think about some of the other questions that those of us who are interested in cryptocurrencies and new currency designs go about perceiving things. Because in and of itself, right, was a really interesting experiment. It's an entirely different way of thinking about issuance of a sovereign currency because it's a federation

of otherwise sovereign nation states who, yes, are bound with some level of political unity within the EU, but are otherwise independent, but have this one common currency. And that disconnect between sort of the local political power and the reduced political power at the EU level and the common currency is actually at the heart of the euro crisis that we saw maybe 10 years ago. The capacity of the EU to act in unison and the common interest that the EU was supposed to represent kind of fell apart, right? Everybody was each to their own. Italy was onto its own. Spain was under all of a sudden. borders got shut down, it was all each nation to him or herself as the pandemic took hold.

So the EU's kind of validity as an entity to manage this, I think, has been challenged somewhat. COVID is a force for decentralizing power. It's pushing interest down to the local level. And so I think from a currency perspective, the value of these currencies are political questions. therefore the EU's own sort of political validity is being challenged right now. I'm not sure that's going to be a very positive environment for the euro. Of course, the contenders in the battle for the future of money aren't just other sovereign currencies that exist today like the beleaguered euro. Coming up after the break, we turn our attention to something more digital

and potentially even more disruptive. Support for this podcast and this message come from Eris X. With ArisX, you can trade spot and regulated futures on cryptocurrencies through a licensed, U.S.-based exchange. ArisX believes in fair access for all. Sign up today to take advantage of zero fees and learn more at ArisX.com slash consensus. This episode is also sponsored by the Stellar Development Foundation. The Stellar Network connects your business to the global financial infrastructure,

whether you're looking to power or payments application, or issue digital assets like stable coins or digital dollars. Stellar is easy to learn and fast implement. Start your journey today at stellar.org slash coin desk. In July of 2019, Facebook stunned the financial world with the announcement of Libra. Libra was a new global money to be governed by an association of corporations and nonprofits. Importantly and disruptively, Libra wouldn't get its stability from a peg to a single fiat currency, but instead would be backed by a basket of fiat currencies.

Now, much of the ensuing attention focused on questions of Facebook's legitimacy in leading the project. They had outstanding and unresolved criticism around data practices, and in the U.S. in particular, there were huge issues with the government vis-a-vis the 2016 elections. For economists and systems thinkers, however, it was this basket of currency's idea that was the most interesting thing. For some, it looked like a modern-day version of the bank or, a global, pan-national, currency first proposed by John Maynard Keynes at Bretton Woods. Macro-researcher Luke Gromond provides a quick synopsis of that proposal. At the end of World War II, at Bretton Woods, there were two options.

There was John Maynard Keynes proposed something called the Bank Corps, which was a neutral settlement asset that floated in all currencies and would have basically prevented systemic deficits and surpluses from building up over time that we have since seen because because we didn't go with the bank, or we went with a proposal from the United States as voiced by Harry Dexter White, which was the dollar is the center of the system. The dollar's paid the gold at $35 and pounds, and everything else is then tied to the dollar. And it provided the U.S. what DeGaul called exorbitant privilege. Now, when Facebook proposed the structure for its Libra, it sparked conversations at the highest

level of global central bankers about whether the dollar system was to the continued benefit of the world. In this clip, Ferguson again discusses a similar sounding proposal from the then Bank of England Governor Mark Carney for what he called a, quote, synthetic hegemonic currency. Mark Carney gave a brilliant paper at the Jackson Hole Federal Reserve Conference last summer in 2019, in which he argued that it was inherently unstable for the United States dollar to be world money. for a variety of reasons, one of which being that that puts the position of the Federal Reserve into being essentially the World Central Bank when it's mandated just to be the U.S. National Central Bank. And Carney argued that we should be looking at ways of creating some surrogate digital currency linked potentially to more than one of the existing currencies.

This bore more than a passing resemblance to what Facebook was trying to do with Libra, which was going to be a digital currency linked to existing currencies that would be held in a Swiss-based reserve. We are, I think, in other words, in an era of experimentation. An era of experimentation. As it turns out, that experimentation would not be limited to the wide-eyed dreams of tech companies. If U.S. regulators reacted to Libra with scorn at their past transgressions and the established monetary order took it as a moment to discuss a highly theoretical new non-sovereign currency system, there was one party that reacted to Libra as a direct competitive threat.

Coming up after the break, why one of the most speedy and significant responses to Libra came from China. Support for this podcast and this message come from grayscale digital large-cap fund. In times like these, diversification is key. Consider Grayscale Digital Large Cap Fund, ticker symbol GDLC. It's the only publicly traded investment product that offers diversified exposure to large-cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash CoinDesk.

That's G-R-A-Y scale.co slash CoinDisc. Even before the discussion of Libra and Central Bank digital currencies, China had built up a comparatively advanced system of mobile money. Neil Ferguson puts it in the context of how robust the Chinese corporate mobile money system is as compared to the experiments we were just discussing. In fact, the most advanced of these experiments since Carney's paper is just a sketch

and Libra is still at the launch pad stages in China where the Chinese technology companies have created a new kind of payment system, payment platforms like AliPay and its Tencent equivalent, which are no longer just confined to China but are being adopted in more and more emerging markets. Now, the relationship between private companies and the Chinese state is, of course, something very different from that of governments and companies in the West. But still, if the Chinese Communist Party enjoyed the ability to surveil transactions through relationships

with AliPay and WeChat pay, a digital currency would be something completely different and on whole different level. Castle Island Ventures, Nick Carter, puts the opportunity for them pretty bluntly. 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've granular discretion to modify their behavior in any way. China began researching a prospective digital currency between 2014 and 2015. In the aftermath of Libra, however, there was a new significance in communications from the People's Bank of China, who were dead set on sending a clear signal

to the world that they intended to be the first major nation to bring a digital currency to market. Matthew Graham is the CEO of Sino Global Capital and has been based in China for the better part of seven years. In this clip, he discusses how the crypto, tech, and finance communities in China responded to the increased focus on a Chinese DSEP or digital currency and electronics payment system last year. You know, I think it's important to understand that there are many different ecosystems and many different constituencies that play into something like that. So I think for some of the crypto-oGs in China, it's just a question of, what even is this?

Is this crypto? Is it not crypto? How do we interact with something like DSEP? and people choose to do that in a number of ways. For some people, they saw it as an opportunity to introduce new people to crypto through kind of a halo effect. For other groups of people, they saw it as a business opportunity where they could service many of the companies such as Alibaba in Pingon, which is a huge insurance company that are trying to find ways to integrate. blockchain into their business. For companies like Tencent and Alibaba that have huge existing digital payments, businesses

with AliPay and with Ten Pay, which is WeChat Pay. I think there's a little bit of an undercover story, which is that the Chinese government with DSEC is potentially competing with their enormously lucrative digital payments, businesses. So there are a lot of moving parts here. They are all kind of interacting. But the one thing then in common is that there are more eyes on blockchain and on crypto, both in China and internationally as a result of DSEP and, of course, Libra as well. Going into 2020, many believe that China's DCEP would be one of the most important stories,

not only in crypto, but in global financial markets as a whole. venture capitalist Catherine Wu put it like this in January of 2020. I think every major Chinese tech company will launch a blockchain solution and all of their payment platforms will incorporate the Chinese DCEP, which is their digital currency electric payment system. And I think like, you know, I've always long thought that the only state backed stablecoin or digital currency or whatever you want to call it that will gain a. adoption and wide usage would be a China state-backed currency instead of of something like Libra. And, you know, we sort of saw the announcement of DeSep like sort of this fall, but I think this

reality will gain fruition in 2020. Interestingly, some argued that, if anything, COVID-19 created even more of a motivation for China to push forward with their DeSep project. China's economy went, you know, into a, tailspin before everybody else's. It went down into lockdown earlier than others. And the Chinese government needs these rapid growth rates to basically stand up the political bargain that they've maintained with their population for the last, you know, 30 odd years. That, you know, we control your lives. You know, we have certain constraints on your ability

to move capital and to do certain things, but in return will give you economic growth and well-being and it will continue to improve your lives. So on that basis, the Chinese have, from time to time, just put their foot on the accelerator and throw in massive amounts of stimulus money to build bridges to nowhere and all sorts of ghost cities and everything else. And it makes to keep the machine going, building up massive amounts of debt in the process. and now they have to come out of this and just say that bargain is under threat because of the the massive downturn we will have faced how do we get out of it and there's two things I think that they do you know one is they entered into a currency war it's just it's what you

do they desperately need to boost it and the currency is one tool that they have from the that is in terms of the value of the yuan and the other is that they use that they use all this technology to absolutely fast-track innovation and development, both domestically and overseas with all of their various partners, using the digital currency as the vehicle through which they integrate all of those relationships. That was CoinDisc's chief content officer Michael Casey again on how COVID has created a new context for China's DeSep currency. All right, let's take a moment to gut check on the actors in this battle for the future of money.

The euro is mired in its own crises as it tries to figure out the politics of individual national health care response in the context of a common economic response. This is especially tricky as the ability for the European Central Bank to engage in the sort of quantitative easing that has become derogure in the USA is being challenged in court. Add it up and you certainly don't see or don't expect a big move into the euro. What about China? As we've seen, there's no doubt that they're moving aggressively forward with their digital currency project.

The problem is that the fancy new digital model is still resting on shaky foundations. First, the world's opinion of Chinese leadership is flagging. Reuters is reporting that an internal report presented to the leaders of the CCP concluded that anti-Chinese sentiment was at the highest it's been since Tiananmen Square. Second, the yuan to date has been primarily an internal currency. Peter Zeyan explains. 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 what about Libra? While the basket of currencies approach may have intrigued economists and even a few global central bankers, it created an instant regulatory brickwall in the USA. Libra tried to argue that the U.S.'s position in the global order was being maintained by having the USDA comprised the largest single stake in the basket, something like 50% of the basket was intended to be U.S. dollars. What's more, as they saw their positive message of banking the unbanked wasn't working,

Libra switched pretty aggressively to an argument that if we don't do this, China will. U.S. regulators simply weren't buying it. And this is to say nothing of the European countries who immediately called Libra an affront to their monetary sovereignty. By April of 2020, Project Lead David Marcus summoned all of his optimism to announce that they had decided to pursue the much less ambitious model of individual fiat-pegged stablecoins. Instead of allowing anyone to build wallets and applications for the currency, it would be entirely permissioned and within the system. Instead of the disruptor that would usher in a new non-sovereign modern bank or, they were effectively setting themselves up to compete with Tether and USDC and maybe to build the rail. and be the consultants for central banks who wanted to make their own digital currencies.

From this vantage point, the continued supremacy of the U.S. dollar in its current form seems assured. But we don't live in a world anymore where the only types of money are those that come from governments or even work through the official channels. The Times, 2003, January, 2009, Chancellor on the brink of a second bailout for banks. These are the words embedded in the Bitcoin Genesis block, words that harken back to the last financial crisis. Even as Libra failed to impress, there were those in power who recognized a new force on the scene. Representative Patrick McHenry in his opening remarks at the first Libra hearing. Change is here.

Digital currencies exist. Blockchain technology is real. And Facebook's entry in this new world. world is just confirmation, albeit at scale. The world that Satoshi Nakamoto, author of the Bitcoin white paper envisioned, and others are building, is an unstoppable force. We should not attempt to deter this innovation, and governments cannot stop this innovation, and those that have tried have already failed.

In our next episode of Money Reimagined, we look more closely at that, unstoppable force. Can Bitcoin or any permissionless decentralized cryptocurrency compete in this battle for the future of money? You've been listening to The Breakdown, Money Reimagined, a special podcast micro series where we dig into some of the conversations we're hosting a consensus distributed, a free-to-attend virtual event from May 11th through the 15th, hosted by CoinDest. Our theme song is MoneyPrinter go Burr, a new track by DJ Scrilla, which is available as part of his newly released Sound Money album. This episode featured content from Nathaniel Whittamore, Neil Ferguson, Michael Casey, Luke Groman, Nick Carter, Matthew Graham, Catherine Wu, Peter Zion, and Patrick McHenry.

This episode was written and produced by NLW, announced, scored, edited, and executive produced by Adam B. Levine, and the rest of the team at CoinDest. If you have any questions or comments, email podcasts at coindex.com. And stay tuned for the next installment on Friday, May 15th, with episode three in our continuing story. Another disaster is just waiting around the corner. Chancellor on Frank of Second bailout for...