The Pomp Podcast - #1376 Nic Carter on Bitcoin Mining, Trump vs Biden, and AI

Episode Date: June 26, 2024

Nic Carter is the Co-Founder and General Partner at Castle Island Ventures. In this conversation, we talk about bitcoin, artificial intelligence, energy consumption, regulation, politics, Trump vs Biden stance on crypto, stablecoins, impact of ETH ETF, and future outlook on the industry.  ======================= Introducing Espresso - the world’s most interactive portable display. They have a portable screen that is incredibly light, comes with a nice stand, and the user interface is very easy. Anyone who listens to this podcast can go to ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠us.espres.so/pomp⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. They have a brand new offer waiting for you.  ======================= Meanwhile is the world’s first licensed and regulated life insurance company built for the Bitcoin economy. Protect your loved ones with sound money built to manage life’s uncertainty and a broken financial system. Their BTC-denominated Whole Life Insurance policies allow HODLers to pass more BTC on to their loved ones and a tax-advantaged way to access BTC for liquidity during their lifetime. Visit their website at https://meanwhile.bm/ to join the waitlist for a policy and to learn more. ======================= Pomp writes a daily letter to over 265,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/ ======================= View 10k+ open startup jobs: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. What's up, guys? We've got a great conversation today with Nick Carter. He's co-founder and partner at Castle Island Ventures. In this conversation, we talk about Bitcoin and

artificial intelligence. We talk about all the energy consumption, what's true and what is not. We then get into things like regulation and politics. We even go over President Trump and President Biden's current stance in the industry. We talk a lot about stable coins and what people are really using these assets for. And then we get into the Ethereum ETF. Will assets flow into this fund? What exactly is Ethereum's curtain roll? And how do we look at Bitcoin, Ethereum, Solana, and many other assets? Nick always brings the heat. There's tons of unique thoughts here, and I think you guys are really going to enjoy this conversation. So here is the latest episode with Nick Carter. Anthony Pompliano runs Pomp Investments. All views of him and the guests

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data centers and these huge facilities that are getting built you came at it from the bitcoin side but now many of the publicly traded miners are talking about this there's people in the ai side that are starting to talk about this the proof of work haters are starting to go after the ai companies like there's a lot of intersection so just how do you evaluate you know what the miners have been doing and then also what these new ai you know kind of data center companies are starting to experience well it's great to be back i feel like it's been a really long time since we did a show together and uh it's very kind of you to say i don't really consider myself an expert just an interested amateur uh but yeah it's very very interesting uh because for years the miners

tried to represent themselves as hpc companies if you remember but all they were doing was bitcoin mining and hpc high performance compute yeah and so it was kind of a farce at first where the miners we're trying to get a higher multiple because bitcoin mining is a tough business you know like think of another commodity where the supply of the commodity gets halved every four years that's crazy and they were always trying to chase higher multiples by implying that they could do ai stuff and they were never able to until now now there is such a demand for compute and data center space and just power and signed PPAs, power purchase agreements, that now a lot of these AI data center firms

are taking a second look at the Bitcoin miners and realizing, okay, you have all this infrastructure built out. Fine, we're going to have to do some work to retrofit it. It's not perfect for us. Like Bitcoin mines are very different from AI cloud data centers. But because there's such a shortage of power, because the AI infrastructure boom has gone so, so far. Now they're taking a second look at the Bitcoin miners

and we are seeing these deals struck. So CoreWeave struck a deal with Core Scientific. They don't have, the Core is just a coincidence that they're both called that for 200 megawatts of power and hosting. And HUD-8 recently got an injection of capital from Co2 convertible node, I think, to go after this as well.

So it's interesting now, many years later, we're now finally seeing Bitcoin miners, you know, people are taking a second look at them and realizing, OK, maybe we can repurpose some of these assets and do AI stuff. Now, inside of the data center, a lot of people don't know this, but I started out mining Ethereum with GPUs. And back in 2016, early 2017, part of the thesis was like one day you'll be able to take the GPU and you'll be able to switch between mining ETH, DNA sequencing, self-driving cars, like all this stuff. A lot has happened. ETH no longer is proof of works, now proof of stake. GPUs are good, but the form factor in which they were in 2016 would get smoked today, just given how much the hardware has evolved. There's now even announcements coming out of people building specialized hardware for transformers or whatever. And so what is

happening inside of the data center when somebody is, I have a business, I do mining, and I am doing kind of AI-related high-performance computing? Is it, I have a section for mining, I have a different section of the building for the ai stuff are they trying to figure out the hardware just walk us like inside of those facilities yeah so bitcoin miners you can kind of just throw a bunch of asics in a shack with power and put some cooling in there and it'll work the chicken coop you know exactly and like if you've ever visited a bitcoin mine of course you have like these don't look like you know cia data center like anything serious you know they don't look like a microsoft or hyperscaler data center, a lot of the time, it's just like a gigantic building out in the

middle of nowhere, like probably in West Texas somewhere, with big fans, super loud, tons of ASICs running. A cloud compute data center, by contrast, is much more specialized. And you want it to be in a favorable location. You want good latency, right? Because you're getting jobs from probably Silicon Valley, New York, like population centers, the places where the queries are coming from in the case of AI. You want really good networking. So you have fleets of GPUs. You need those all to work on the same synchronous job. If you're doing something like model training, they all have to be working. And we're talking tens of thousands of GPUs. They need to be working together on the same exact job, right? So you need super tight connections,

Like the state of the art is what NVIDIA calls InfiniBand. So you need all these fleets who are working exactly, you know, on the same job, on the same time. And the power density is very high. Well, they have that in common with Bitcoin mining, but they don't have that in common with sort of conventional data centers. So AI data centers have a higher power density than legacy. And you also need more security, arguably. and uh the gpus themselves are um kind of more uh fragile i would say than asic or you sort of like don't want to risk the gpus so you know when you're talking tier three tier four data centers

you're dealing with stuff like how does this react to an earthquake how do we harden this building against that what's the security practices um you know we need like arm security things like that whereas bitcoin miner is kind of you know obviously things are different these days but it's kind of like a random warehouse you plonk down in the middle of the desert somewhere as long as there's power and transformers and things like that you're good to go the other difference is bitcoin miners can tolerate downtime right all of bitcoin mining installation is doing is running the same process sha256 trillions and trillions and trillions of times a second uh so it's kind of a discrete process it's not continuous in a sense and it

can be interrupted and we know this about bitcoin mining that's why they're really suitable as a buyer of energy on the grid um you can turn it off if it gets really hot in texas and everybody's running their ac and power becomes scarce the miners can just curtail their energy consumption um you can and and that's a great thing for bitcoin miners right that means they're able to engage in what's called demand response. AI data centers haven't figured that out yet because these jobs might take longer. You're training a model. You can't tolerate interruption or downtime. So they can't situate themselves in the same way from a power purchasing perspective. So people think, okay, it's data center. It's a data center. It doesn't matter if I'm putting

ASICs in there or H100s, but they're totally different setups. So to answer your question, I would say you probably can't just plug and play GPUs into the same data center that you have your ASICs in. You have to reimagine the whole thing, have it be more fault tolerant, better uptime, better security, et cetera, for the AI use case. How much of the decision between these power consumers is coming down to what hardware I already own? What facility? Do I have a tier three center or do i have you know the chicken coop or is it how much money can i get paid for each you know kilowatt that i am uh consuming and ai right now is paying more so let me go focus on ai versus bitcoin or vice versa well like what's their decision making look like i mean you can't

really uh switch you can't toggle that easily like if you're talking back in the day go back in time no if there's a facility right and i'm basically going to decide hey for the next three to five years should i go do bitcoin mining should i do you know some sort of ai related work or should i try to do both like what what is it that's really driving those decisions do you think yeah i mean i would say there's like a bunch of entities involved so it's not necessarily the bitcoin miner itself that is um deciding to buy a bunch of gpus and get into the ai mining game in some cases they are doing that but it'd be more common for them to use uh to kind of contract out the space and use a third party that is a specialist

in managing ai compute because there's also kind of a software and infrastructure and orchestration layer so i would say the bitcoin miners don't necessarily have the technical skills of being able to operate a fleet of gpus it's not just a matter of plugging them in you actually need to figure out how to route the jobs and do the networking and stuff so generally well at least what we're seeing at the moment is kind of like a joint venture model, or there's a company that's specialized in AI cloud, like in the case of the Core Scientific deal, CoreWeave is the specialist in managing an AI fleet. And they contracted out for some power and the physical infrastructure that Core Scientific had built. But Core Scientific itself, obviously not to disparage them,

probably didn't have the skills to become an ai service provider themselves and as we're watching this play i think the public markets obviously are salivating over all the ai stuff we see in video you know becoming one of the world's most valuable company if not the most valuable um will bitcoin miners get pulled up with it like you know you see hud 8 obviously is kind of playing this game there's a couple of others around the world um should we expect that these converges trends and now it's just high performance compute or is like bitcoin mining is a good business but if you can somehow get you know an ai story out there now you get repriced and a higher multiple and and the economic incentive just pulls you to do it yeah we've seen multiple expansion in all

i would say almost all bitcoin miners starting with when the corey of course ideal was signed and now there have been other deals in the space as well um and public markets have already revalued up bitcoin miners with the expectation that now they can participate in this huge trend which is ai data center uh so that's already happened it might continue to happen but we've actually already seen public markets rethink uh what a bitcoin miner is worth now is there a worry that ai becomes such a big trend that what would be net new miners coming on to the bitcoin network uh there's fewer of them they're going to the ai world and like yeah hash rate is you know near all-time highs over the last couple of months but maybe there's a security concern in

the future or like anything that's on the horizon you see is a big issue or uh bitcoin's the most secure computer network in the world is going to remain so yeah it's a good question i've seen a few people pose that same question it's like if miners now have to compete for attention between bitcoin and ai maybe there's less hash rate it doesn't worry me at all i mean uh you know bitcoin doesn't need a specific number of hashes per second to be secure in my opinion uh i think it's sort of overwhelmingly secure from a proof of work perspective um so even if hash rate declines a little bit i don't know if it will um i don't see bitcoin security is being sort of linearly impaired at all uh because bitcoin security

is almost overkill let's say and at current rates at 30 or 50 decline it doesn't really meaningfully change the calculus i don't think it adds to the risk of a reorg or anything like that uh just because like the security is so overwhelming you know so if bitcoin's hash rate went down 50 you wouldn't be concerned about the security like it's that much more secure than it necessarily would otherwise be yeah it wouldn't concern me too much i mean there's been a big literature of people trying to uh quantify bitcoin security uh the thing that is because you know if bitcoin mining is so distributed there's so many different miners globally there's not one big pot of energy that people use and then it's a matter of controlling

that it's like energy resources are globally distributed there's no one country that even dominates that much you know it's all over the world there's still mining in china believe it or not even after the ban uh and within the us there's so many different operators and things like that so i don't see any like points of significant concentration or nodes in the network nexuses where you can obtain control the one thing that would maybe worry me a little bit would be if hasher declined so much that there were a bunch of asics that were fallow you know asics that were just offline. And then a sort of malicious entity could sort of marshal those ASICs and maybe try and cobble together enough power to turn them on and then do something hostile. So as long as the

ASICs are mostly online and are mostly controlled by entities that are benevolent, have an economic interest in the network working and Bitcoin being secure, which is the miners, of course, they're sort of biased long bitcoin then i'm not too concerned but if it's a matter of okay of all the set of basics that exist 90 of them are offline in a warehouse somewhere and only 10 are online okay then i'm maybe a little bit worried because some malicious entity could sort of rent or purchase those asics and then try and attack the network but doesn't seem to be the case one of the other threats to uh bitcoin historically has been just the haters right The Bitcoin miner, anti-proof-of-work, the ESG crowd, there's a bunch of different maybe nomenclature or tags you could put on these people.

But pretty much they hate the fact that we're consuming energy. They hate the fact that Bitcoin is seen as, quote-unquote, dirty. And sometimes they have recommendations for potential solutions, most of the time not. But just it's very clear they don't like Bitcoin mining. um when i look at the data 60 ballpark of the energy mix is coming from renewables which is like three times the average of the american economy uh it seems like maybe we should be considering bitcoin mining as like put it on a pedestal and every other industry should aspire to have the the renewable penetration um but now ai people are starting to feel the heat as well

and i've seen i don't know four or five different you know kind of hit piece articles i've seen a couple of oh on twitter like you're going to be the anti-ai energy consumer person um how real is that risk for for the ai people now it's the funniest thing ever man it's like i'm getting deja vu from this thing because i mean for years for years my main focus as like a content creator and a writer was okay i'm not just going to blindly defend bitcoin from the environmentalist concerns but let's sort of clarify the issue here let's get real data let's be really clear about how Bitcoin interacts with grids. My hypothesis the whole time was,

hey, Bitcoin's actually pretty benign on the grid. Bitcoin miners can actually help add flexibility to the grid. This we understand now, but it's taken a lot of work, right? A lot of serious work. And Bitcoin miners themselves have changed their business models such that they can be interruptible, which is very helpful in grids like Texas that need that interruptibility. And it's so funny because the same exact haters

that made a living out of trashing Bitcoin mining are now moving on to AI. And it makes you realize it's not about Bitcoin. It's not about AI. It's just these people belong to what I think is like a secular cult, or they have this almost religious zeal, and they think that economic progress and industrial activity is bad. And I call them de-growthers. These are people that want to reverse the trend of growth and civilization out uh you know to obtain penance or something from mother nature i don't really understand it uh but it does seem to be kind of a religious fixation as opposed to you know uh you know firmly reasoned thing and the bitcoin mining hater in chief was this guy alex devries he worked for the dutch central bank i think he's independent now he's

now pivoted to being anti-AI. And with Bitcoin, it was always a little bit harder to make the case because most people don't see the value of Bitcoin. Of course, lots of people do. But if you took a poll of the entire world, the majority would still probably be like, well, I don't see the use of it. With AI, AI is already embedded into so many use cases and applications. You may not know that there's ai like you are interacting with a chat bot for some customer service thing like there's ai there uh you are using snapchat a snapchat filter or zoom you're on a zoom call ai is being used right maybe using chat gpt like that was the most successful product launch of all time right i think with ai it's a little bit easier to make the case to bite the bullet and be

like yes we're consuming energy for sure but we're creating all this value for you and after years and years of defending Bitcoin mining, I realized to myself, well, it doesn't really work to say, oh, you know, we're using such and such renewables and it's not that bad. And if you look at the numbers, like washing machines are worse or whatever. I think you just have to bite the bullet and be like, we are delivering value. And if you're going to consider the costs, you also have to consider the benefits. With AI, it's a little bit easier because it's not is about creating um you know images of people with you know 17 fingers or whatever like ai is clearly very useful and it will only increase in its usefulness as society so my advice to the ai

people is bite the bullet explain that ai isn't a toy it's something that is going to vastly enhance human flourishing right we're going to use ai to develop new medicines and maybe new industrial techniques and maybe even you know help develop nuclear fusion like there's a lot obviously on near infinite number of ways it's useful there's one problem though which is ai data centers as i mentioned are gonna be less benign on the grid than bitcoin mines because they're not as interruptible if there's a way for them to figure it out to plonk down ai data centers in more rural areas where there's more um you know cheaper energy where it's not as disruptive and if there's a way to make ai data centers engage in demand response so they're only doing jobs

at specific times it's better for the grid that would help the bitcoin miners kind of figured that out so that would be the challenge i would pose to sort of the ai people is try and figure out how to make the you know mode of energy consumption by ai more like bitcoin mining because that's how the the industry reacted yeah what's also interesting i guess is it's not just demand response and you know kind of certain areas um there is stranded energy right the bitcoin miners have obviously done a fantastic job all the gas flare uh um you know mining and stuff like that and when you see why they're able to do that you know i remember doing a deep dive with uh daniel batten and we were talking about the landfills and kind of the landfill gas being

converted to energy and you could right there on site mine you can't really do that with ai because you need the you know much more kind of built out infrastructure and data centers and stuff like that so there are some limitations i think because of the fragileness of the gpus and the jobs that are being done um but to your point like you don't have to replicate bitcoin mining but maybe just like move in that direction uh probably helps them yeah definitely and you're right um a large part of the reason why bitcoin was able to penetrate the renewables so well was because bitcoin mines can be modular they can be transportable you can kind of put asics on a truck easily set up a little shack somewhere you know go after that stranded energy in wherever it is upstate new york

hydro in southwest china hydro in canada west texas lots of wind and solar again that's very hard to do for ai maybe there'll be a startup that figures it out that would be an amazing thing if they can make ai data centers more modular more location agnostic more interruptible i would hope to see that um because i i mean you know look the ai growth trajectory here i think it's gonna far far outstrip the energy demands of the bitcoin mining space i don't think bitcoin mining consumes much more than one percent of u.s power uh from my estimate i think ai could be five 10 percent so eventually you will start to have you ai will compete with residential buyers of electricity that will be a real problem i think of course you're delivering significant societal

value for that you know so there's benefit that accompanies the cost but we are going to have to grapple with this stuff and the us has not done a good job of adding power we just haven't to the grid china's way way ahead of us we're not building a lot of nuclear we're not building much of anything from a power perspective so hopefully ai is kind of the wake-up call um to the grid planners that okay we need to tack on tens and tons of gigawatts here because there is a new energy consumer in town and and it will be competitive with residential or industrial um another part of the bitcoin ecosystem that people have been talking a lot about has been the etfs uh we now are you know five six months since they got approved um there has been 15 16

billion dollars that has flowed in um what i find fascinating is bitcoin is up about 50 you know give or take since when they were approved uh but the estimates that are coming out now is like 80 of the etf flows have been retail and whether that number is exactly right or not i think just directionally like it has been much more retail flows than people originally thought right if you get the etfs like the institutions are here they're coming um is it good or is it concerning that you know five or six months later it's mostly been retail flows that have gone into these vehicles well i don't think retail is any less valid than you know institutional um i'm very satisfied with the you know um the the progress being made here i think i mean it is the biggest

category launch of all time in the etf and it's you know it's still early i know it's kind of weird to say but um some of the you know wire houses and banks and ras and asset managers still haven't fully come to grips with the etf they're still diligencing it they've yet to approve it for their clients so these flows will come uh it just takes a long time months if not years if you look at when the gold etfs were first created you had structural flows that were unlocked for gold over a number of years gold had i don't know the exact number but gold had a number of consecutive up years after the etf so not all that flow is going to happen the first six months one thing one note of caution i would say on the flows is a good portion of that 15 or

16 billion has been funds prosecuting the basis trade you know going um long spot and short the future because now you have you can do the entire trade within kind of the regulated financial system you can short the future on the cme and you can long the etf for spot and so those are interpreted as flows into the etf but it's delta neutral market neutral and all they were doing is just compressing uh the arbitrage between future and spot so those look like strong flows but they're actually just arbitrage now when that trade gets put on because it is market neutral uh is that also a suppression of volatility and you know one of the things that we've seen in the past is when certain futures products in crypto got approved uh it would be near the top of market

cycles um or there would be you know some sort of negative downside impact uh because people now can short or kind of manipulate the market in certain ways uh is this basis trade being executed at this size and scale uh something that could actually limit the upside of bitcoin you know in a bull market i would say the general financialization of bitcoin suppresses volatility whether it's the basis trade or something else um you also get these structural buyers that have a desired percentage allocation of bitcoin whatever it is let's say five percent if so they have a portfolio all kinds of assets in it equities fixed income real estate venture whatever and then some crypto and if you're targeting whatever five percent if bitcoin

sells off all of a sudden they're underweight bitcoin so they buy it if it rallies maybe they trim the position a little bit so you see how that just chops the tails off the return distribution to the extent you have those kinds of institutions that are now incorporating bitcoin into their portfolios that's definitely a volatility dampening thing now those allocators can get access to to bitcoin efficiently i 100 think that we're going to see less volatility on a go-forward basis um and uh yeah i mean i i personally think that's a good thing but you know some people love the volatility yeah well when we talk about lack of volatility there is maybe like day-to-day week-to-week month-to-month volatility and then there are these like four-year cycle type

volatility do you think that the dampening volatility leads to a disappearance of you know hundreds of percent upside 80 percent drawdowns every four years yeah i don't think we're in the fourth year cycle regime anymore i don't want to say super cycle uh because that's a term that was coined by some pretty bad guys uh but uh yeah i think we're in for kind of a longer term secular positive cycle uh or um it just kind of grinds up yeah especially as we have this sovereign debt issue continue to be a problem in the entire developed world which it is it certainly is and i just think a greater portion of those fiat assets continue to take a look at bitcoin uh especially as the asset class matures now one of the things that most people get excited

about is they would hear backwards looking the 10-year compound annual growth rate of bitcoin depending at the top or bottom of a cycle was like 50 to like 120 right i mean these are massive numbers where in a world where the s p is up eight percent a year right um what number compound annual growth rate for the next 10 years would make Bitcoin become unattractive to investors, right? Is it a thing where I deem it to be riskier than the S&P and so I need it to be at least two times the S&P's return for me to allocate three times? If all of a sudden it's only returning 12% a year for a decade, is that now something that you're not getting paid for the risk that people perceive they're taking? How do you just think about a threshold where Bitcoin's return gets dampened

so much that it actually could you know change the way people evaluate it i mean i i the way i would think about it if i were in that frame of mind would be in terms of sharp ratios so return over volatility and even if returns are dampened if volatility is also less you can still have a very attractive looking sharp ratio for me it's about the qualities of the asset itself and uh something that's truly sovereign it's outside of the reach of governments banks uh something that you can self-custody you know so for me i just consider the qualities of the thing itself and i don't have a nest you know desired return profile or anything like that um so i mean look gold is an attractive asset and it goes sideways for years at a time so i

think bitcoin can also be like that i know that's not a very exciting story to tell but But I think the returns can be positive, especially if volatility is dampened. It still looks attractive from a sharp perspective. So I agree that gold is attractive to a certain subset of the population. One of the things that I find interesting, though, is how many people in the Bitcoin world are like, oh, this is like gold, but it goes up. And so if it's like gold, but doesn't go up at 50, 60, 70 percent a year, do some portion of them start to say, maybe I won't sell the Bitcoin that I already have. but i will allocate elsewhere right and you see that maybe some with some of the alt coins but also maybe they actually start to invest in completely different asset classes um because

they were really chasing the return versus where you're looking at it from the properties of the asset being the the kind of attractiveness yeah and i mean i think it's funny to have this conversation as we've run up from whatever the 20s to 60 70 now i guess we're around 60 so bitcoin is still showing that can surprise to the upside and move very quickly for an asset that large is remarkable. But I do think this is a feature of the maturation of the asset class is those massive candle days or weeks or months, you just don't get them as much anymore. The law of large numbers has to kick in at some point. Bitcoin cannot grow indefinitely. I mean, we've we've seen nvidia go from a 200 billion dollar asset to 3.4 trillion in a couple of years

um so you know these things can happen i mean i don't know where bitcoin is today around a trillion maybe there's like 1.2 trillion yeah uh so but a great point is if it went to you know two and a half it's only really a double from here which in bitcoin world is actually not that attractive to people who are used to you know 800 900 a thousand percent upside in a bull market Yeah, this is why you have to calibrate your expectations. And I think that backwards looking analysis where you're looking at the returns from starting 2011, when this thing was minuscule, like, that can't happen again. But that's okay. You know, Bitcoin has reached a period of maturity. For me, having been in Bitcoin for as long as I can remember, when the ETF was approved, I thought to myself, most of my work is done. You know, I don't need to be an advocate for Bitcoin anymore. now there's black rock that's doing it you know like the biggest asset managers in the world so my part of the story is almost over in a sense right i really thought that day was the end of the beginning and now we're in a new phase where bitcoin is more integrated into the financial

system it's great it's part of the plumbing anyone can access to it efficiently but that also means you're you know some of the upside is gone it's funny you think that because um i've said similar comments i know a couple of other of our friends have basically been like hey kind of like we're not going to be nearly as effective almost as larry fink going on television and saying people are buying bitcoin because it's a flight to quality like that one sentence is more powerful than majority of what anyone who considers themselves a bitcoiner has done for institutional adoption right you don't get him to say that sentence without a bunch of the other work but it does feel like uh kind of like the varsity team is here now yeah right totally

um that's not to devalue like your contributions or mine or anything like that but it's just like a different level you know yeah but but i think that it's if you want quote-unquote mass adoption you need them right and i think that's kind of the point that you're making now the flip side of that is blackrock has the largest bitcoin fund in the world i believe right or uh grayscale blackrock and then you also have micro strategy those three have very large pools of of bitcoin there's a couple of other individuals or groups that have you know half a percent one percent of supply. Should we worry about concentration of ownership in Bitcoin? Like, can BlackRock get too much Bitcoin into the ETF? Can MicroStrategy have too much Bitcoin on their balance sheet?

Well, BlackRock is holding it on behalf of many thousands of investors. So that doesn't worry me. I mean, you have the legal claim on your Bitcoin if you are holding iBit. It's not BlackRock's Bitcoin. They're just the service provider. The thing that does worry me concentration-wise is actually the custody side because of the nine major bitcoin etfs eight of them use coinbase i mean fidelity is different they homebrewed their custody obviously i used to work there proud alum but i think almost every other etf provider uses coinbase custody i don't have any worries about coinbase i mean they're you know very successful company but it does seem like a potential point of fragility. In terms of ownership concentration, I actually would

guess that it's getting much more distributed as you now have this ETF rails that can distribute it to anybody that's active in public markets through their brokerages. So I'm not as worried from the ETF asset manager service provider perspective. I do worry from the custody perspective. I was hoping that some of the other ETF sponsors would diver us away from coinbase custody and then what about uh a micro strategy or any other company that's gone and put bitcoin on their balance sheet where you know microsoft's that was the leader with the most amount um yes there are shareholders at the same time there's you know one person who has voting control and so um you know it has an element of the etf where like yeah the shareholders

technically have a claim on the assets but maybe like the decision making is concentrated um and the beauty of bitcoin is it doesn't matter how much you own you can't change the system but are there other risks that maybe people don't talk about yeah so you're right i mean with microstrategy it's much more the decision of one man um but as you say like bitcoin's not a proof of stake network and that's one of the beautiful things about proof of work is your wealth in the system does not grant you any additional political power not explicitly at least people listen to michael saylor because he is an individual that controls a huge amount of bitcoin but the network doesn't grant him any additional credibility versus you or me so that's what i worried about

with proof of stake for sure i mean we know proof of stake works and everything like that but i'd be very concerned if bitcoin was a proof-of-stake network that these large holders i mean especially etf sponsors if bitcoin is proof of stake then blackrock fidelity coinbase etc would really have a lot of influence over the future of the network uh so we do have to be vigilant about that but yeah that's the beauty of proof work you know that's why i like it so much uh speaking of proof of stake the ethereum etf or ether etf looks like it is going to be approved um it is proof of stake uh are there concerns on the proof of stake side and then also do you think it's going to be a popular product uh or do you think that people assigning you know extrapolation from bitcoin's

etf success to ether maybe misplaced yeah so i'll address those in turn so yeah i would be a little concerned i mean i don't think the etfs will have staking at inception is my understanding so for now i suppose they're not going to be exercising that power and overall ethereum staking seems uh fairly fairly decentralized um but yeah that's definitely something to monitor and be aware of i mean long term i expect maybe a majority of you know the units of bitcoin to end up in the etfs maybe something similar for ethereum at that point you are consigning a lot of control and we have plenty of precedent for this i mean blackrock holds equity right um individuals hold um you know equity through the vanguard and the blackrock

index funds, and then Vanguard and BlackRock do vote on resolutions because they are the main shareholders, for the most part, you don't have retail individuals submitting their proxy votes to BlackRock or anything like that, right? And this actually does influence corporate outcomes. Infamously, there was this Exxon case, if I don't even remember, there was a tiny hedge fund that was able to put i think three board members on the board uh they were uh kind of esg advocates uh they were able to put three board members on the board um because they were able to get the support of blackrock this was before blackrock had their anti-esg turn more recently um and so that's very similar to like how proof of stake might work right so there is a principal

agent problem where you have a huge service provider that controls votes, even if they're holding funds on behalf of some individuals, but they're actually doing the voting themselves. This does cause problems, cause problems for Exxon. I mean, you're putting board members on the board of an oil and gas company that are against the business model. It's crazy. It doesn't really make any sense. So that does concern me. What was the second question? I ethereum so people are saying okay well the ethereum etf just take the ratio of the assets in the bitcoin etf and then the ethp dc ratio and that's how you'll back out the assets that flow into ethereum etf i don't think it's like that at all bitcoin because you have to remember take

yourself outside the mind of a crypto native take yourself into the mind of main street and wall street these people aren't necessarily that familiar with ethereum right bitcoin has this incredible brand value that's accrued over 15 years ethereum is successful as it's been doesn't have that same brand value uh so i'm kind of more skeptical about the flows for that reason and i think ethereum's caught in the middle so bitcoin is sort of the store of value asset digital gold type thing people understand it ethereum is more technologically progressive they change more frequently it's more sophisticated there's um you know l2s smart contracts defy etc you know huge amount of complexity but then you have newer like faster

blockchains like the salon is the world right and so they can offer even more tps and even lower transaction fees etc and so ethereum is a little bit caught in the middle there narrative wise and i think they struggle with that like um if you look at uh some of the changes made to ethereum It seems like leadership vacillates between we want to be more like Bitcoin or more like Solana, like introducing EIP-1559, in my opinion, was an attempt to make Ethereum more like Bitcoin. So, OK, we're going to turn it deflationary and we're going to burn the fees and create a capital return to the token holders. So that's more store value-esque. And then what was the newest EIP-4844 designed to reduce fees dramatically for L2s? That's kind of going the Solana direction.

It's like, all right, well, maybe we went too far in terms of having high fees and burning a lot of units of ETH and make it look attractive from a capital asset. Let's go the other direction now, and let's make it as cheap as possible because we're actually worried about the threat from our flank here on Solana. So I think they don't know what they are. It's the lack of principles. Yeah, it's no firm guiding North Star in terms of the identity of the network. trying to be everything they can trying to compete with bitcoin on credibility monetary soundness

etc also trying to compete with the salinas etc on low fees transactional throughput etc i think they're in a tough spot narrative wise people who have critiqued bitcoin have long said oh bitcoin is the aol it's the first one if you go and you look there's 40 years of research and development you know many many attempts 8 10 12 different attempts at digital currencies before it it's the first one that's worked at kind of a global scale. And so it's hard to argue it's the quote unquote AOL given the product market fit and kind of everything that came before it. But is it a fair argument to say Ethereum is a potential AOL because it was the first kind of smart contract blockchain and actually the Solanas and others who came after it had the

advantage of kind of seeing what worked, what didn't work and trying to improve on it. And so in a weird way, not only is Ethereum caught from a narrative standpoint, but also in a technology competition they don't have the benefit of kind of like building on top of what other people had figured out already it's tricky i i feel conflicted about it because on the one hand you know ethereum does have the bulk of liquidity defy activity developer traction etc big first mover advantage yeah and i mean you know really they've done exceptionally well and now they're um being recognized as a commodity by the u.s government not that that should matter but of course it does like i don't see any other major blockchains getting an etf after ethereum

not for the you know near term but at the same time there's so many new l1s always being created that are nipping at their heels and i would argue that solana was the first truly successful Ethereum competitor to emerge, get traction, and actually sustain that. People thought Solana was dead. After FTX collapsed, it came back. And Solana is ahead of Ethereum by many metrics now, right? And the fees really seem to matter. The monolithic structure really seems to matter. Ethereum has chosen the more fragmented approach of going for L2s, which I think L2s are sensible because that's how real payments networks scale in the real world but that's a hard case to make when we have a monolithic structure with tons of composability there's no question of going

between l2s or from the l2 to the l1 the whole thing just works so even though it might seem cheap and maybe doesn't scale in the long term the monolithic structure is much more appealing in the short term and so ethereum has this much harder task where they have to argue why the l2 model uh the kind of effectively sharded model where you're losing composability they have to argue for that while it's a better ux on solana for instance um this isn't to say i think ethereum is going to fail or go away or anything but i think they're they're in for a bit of a challenge here i mean especially as you get more performant blockchains too that come out you mentioned no other blockchain getting an etf you don't think solana or others are likely to get it in near term

no i mean look ethereum's been at it since 2014 15 you know they have a track record arguably eth2 was a centralizing event frankly i think that is the case you could probably argue that there is a nexus of power and control and efforts of a third party etc um but yeah nobody else is even close i think to the level of decentralization that they have obviously behind bitcoin okay um Let's talk stablecoins. I know you've spent a ton of time on this. It seems actually, I might even argue that it has more product market fit than the smart contract platforms. It's debatable. People can go back and forth, but Bitcoin seems to have product market fit. stable coins definitely seem to be either number two or number three on that list. What is your current evaluation at $150 billion market cap, give or take? Is this just a straight line and eventually be trillions? Or is there something else that could kind of impede the

continued progress? Well, the stable coin growth did slow down. I think we rocketed off the bottom in around 125 bill to around 150 and then the growth eased off i think it's 162 now but um i remain extremely bullish on stable coins for so many different reasons um we're seeing them obtain real traction outside of the crypto industry as a digital dollar alternative right just um a substrate that powers these fintechs that work globally that help regular folks get access to dollars access to the risk-free rate so get access to u.s yields effectively treasury yields that they weren't able to before we're seeing stable coins achieve real breakout success powering remittances and cross-border payments in a way that's fundamentally more efficient than

the correspondent banking system much much more efficient we're seeing um and and you know these trends are accelerating so actually we uh wanted to get data on this so we as in castle island commissioned a study um about a month ago uh at five key emerging markets so this is forthcoming we haven't published it yet but we just got the data so i'm very excited and we looked at india indonesia turkey nigeria and brazil to see how people were using stable coins were they using it crypto or are they using it to do payroll uh send money their family back home are they using it to get yield dollars etc and i kind of had some ideas of what the data would look like but i was pretty excited i mean you know a lot of people in washington and stablecoin skeptics like to say

stablecoins are just for crypto they're just to trade out nfts or get access to crypto exchanges to speculate. That's not what we're seeing in the data. We're very clearly seeing that people now treat stable coins as just a dollar alternative, a way to engage in commerce, get access to yields, get the equivalent of a dollar savings account. All of these use cases, payroll, B2B transfers, cross-border transfers, trade invoicing, all these use cases that have nothing to do with crypto. They just so happen to be settling on blockchain rails. And that's the exciting thing to me because it enables us to tell the story in Washington, other policy venues saying, hey, we've created a product that's enormously useful for hundreds

of millions of people worldwide that has traction outside of the crypto casino. In fact, it doesn't have that much to do with trading crypto. That's exciting. So I'm pretty fired up about it. Another area that I think people are closely watching domestically is the presidential election. Trump went from multiple public comments in previous administration. I don't like Bitcoin. I like the dollar. It's all about the dollar. Essentially saying this Bitcoin thing is nefarious, competitive, and not something that he would support to now explicitly saying,

i am the pro-crypto candidate if you would like bitcoin or crypto vote for me pandering does he actually do we think he understands some of this um would he be good for bitcoin and crypto if he was to become president yeah i mean look it's hard to know um but the you know if he gets elected his cabinet is certainly going to be far more pro-crypto than the biden admin one i mean biden's main financial regulators were hand-picked by elizabeth Warren, and they just took a foreign brimstone attitude to crypto. They tried to destroy it. It doesn't matter what agency we're talking about, FDIC, SEC, CFTC, DOJ, every possible angle. So it wasn't, okay, Biden was neutral on crypto. No, the Biden admin actively tried to dismember

crypto in the US. So whether or not Trump's feelings are authentic or not, I can tell you for sure that his cabinet would be staffed with either pro-crypto folks or people that are neutral on crypto. I don't see any real risk that we have a repeat of the Mnuchin situation where he passed the midnight rule that was, I don't even remember what concern, but it was hostile to crypto. And I do think there is a political understanding now on the Republican side that there is a significant crypto constituency in this country there may not be single issue voters but there's a lot of them and crypto does move the needle there's a lot of money it's now supporting crypto packs i think fair shake is the largest single issue pack in the u.s period i think it's

one of the top five or six super packs at all it's just like 160 million dollars they've raised and there's these tight elections senate elections in montana ohio where fair shakes can be deployed and you know these like you're looking at ohio looking at sherrod brown who's been a massive antagonist of the crypto space i think the left is realizing they have extremely determined opponents if they're going to die on the hill trying to destroy crypto so like even the left is uh kind of bending the knee a little bit so i do think republican strategists have realized that the crypto constituency is an important one and it doesn't make sense to offend them it just doesn't you don't have to be ludicrously pro crypto you don't have to swing the whole other way

just let us do business let us open bank accounts give us clarity around what constitutes a security versus commodity simple stuff we're not asking for the world um it feels like we went on the ether etf um i was at lunch with one of the large issuers uh with the ceo of the business and i asked him at lunch kind of joking like are we going to get the ether etf because it seemed like everyone was saying no and he was he literally said there is a zero percent chance they're not even engaging with us yeah that afternoon on you know monday whatever he messaged and was like just kidding like we just got the word it was all over the news uh and it was obvious like there had been a switch um do you think a lot of that was just like we can't see to this point we we

can't allow trump to take a pro crypto stance and force us to be anti-crypto and so therefore we're better off just hey we don't want to be pro but we sure as heck can't afford to be anti and so like let's give a couple of these points and kind of just get out of the situation yeah i think some biden campaign strategists i don't know who i'm sure we'll know five years from now looked at some internal polls realized that they were getting hammered on crypto they realized trump's endorsement of crypto he was going to hammer them with it he was going to use it as a wedge issue and they thought to themselves okay what are two or three things we can do to show that we're not anti-crypto to get back to a more neutral perspective on it what are some small concessions we can give these

people so we don't get just shellacked on this issue in the election the etf the etf was won then you had leadership in congress passing uh the sab 121 repeal bill um even though biden vetoed it um so you know there and uh marty grunberg uh you know uh announced his resignation from the fdic he's been extremely hostile to crypto throughout his tenure there so there were some issues where they eased up the pressure a little bit but i compare it to it's like if they have their boot on our neck maybe they lifted their boot by an inch but the pressure is still there there is a laundry list of things that the biden admin has done that make it difficult to operate in this country as a crypto entrepreneur that's just a fact and they've undone one or two of them

there's a lot more regardless of who becomes president in this next term what could they do to help bitcoin and crypto thrive and there's a balance between letting people do business um and i'm sure you have a list up there uh compared to maybe the maniacs who are like just kill the dollar and like let's go on the bitcoin standard yeah right so like what do you think are like sensible things that the next president administration should do um to maybe help this thrive but also not go too far yeah yeah and look i'm not asking for all right let's just eliminate securities laws you know like i think actually securities laws make a lot of sense you know um so the first thing i would say is end this informal campaign of pressure against

the banks led by the fdic which i call chokepoint 2.0 which inhibits the ability of crypto firms to get bank accounts that's a very simple thing that's not even constitutional actually um it wasn't allowed the first time it's still not allowed but it still happens uh the bank regulators go after the banks that serve as crypto firms they make life hard for them stop doing that you know very simple second thing uh that i think would make a ton of sense would be uh some kind of stable coin legislation stable coins are issued under patchwork of state-by-state licenses a lot of stable coin issuers are leaving the us they're going to greener pastures paxos just launched a stable coin in abu dhabi you have interest-bearing stable coins launching

in bermuda because they can't launch here you have dollar stable coins being launched out of dubai middle east singapore hong kong let's re-onshore that you don't want to lose oversight of these stable coins what's happening is good for the dollar they're buying treasuries but why would you want to lose that control right so pass a bill allowing some kind of federal standard for stable coins i would ask that and then uh something like the fit 21 act that clarifies the difference soon as security and a commodity gives tokens that have some cash flow mechanism some kind of carve out under securities laws maybe you still have to do disclosures maybe you are treated like public equity maybe it's a lighter touch regime something that allows these tokens to exist and

work uh such that you can gradually bring tokens into alignment with sort of like public equity i I think that would be great as well. And then just stop this, you know, attempts to undermine privacy. Like, I think we've gone way too far in criminalizing privacy. Like, should it be criminal to use Tornado Cash? Because it's not criminal for me to pay you with a physical dollar bill, even though there's no record of that transaction. So why is it criminal,

you know, to develop a protocol that allows people to pay privately? So that would be more on the DOJ front. But yeah, those are kind of the main things I'd ask for. It's a lot of simple, pretty straightforward things in there. I like to think so. I like to think so. Hopefully we're going that direction. Before we leave, remind everyone, Castle Island, what you guys do,

what type of companies you're looking for to invest in. Yeah, so we do Series C and Series A venture investing in crypto all across the industry. and we're kind of known for financial infrastructure stable coins i would like to be the most active stable coin vc hopefully look out for our report that's coming out on emerging market stable coin usage in about a month we're doing a lot of stuff in the bitcoin space lots going on there bitcoin l2s but yeah we were active throughout the whole ecosystem have been at it for long time now, six or seven years. Amazing. We'll do this again. Thank you so much for your time. Thanks for having me.