The Wolf Of All Streets - Can Crypto Recover From FTX? Is The Legacy Market Bottom In? | Macro Monday Panel With Join Genevieve Roch-Decter, Alex Kruger, and Peter Tchir

Episode Date: November 14, 2022

Join Genevieve Roch-Decter, Alex Kruger, and Peter Tchir who come to my show to discuss the aftermath of FTX collapse! Genevieve Roch-Decter: https://twitter.com/grdecter Alex Kruger: https://twitter.com/krugermacro Peter Tchir: https://twitter.com/TFMkts ►► JOIN THE FREE WOLF DEN NEWSLETTER https://www.getrevue.co/profile/TheWolfDen  GET UP TO A $8,000 BONUS IN USDT AND TRADE ALL SPOT PAIRS ON BITGET FOR ZERO FEES! ►► https://thewolfofallstreets.info/bitget   Follow Scott Melker: Twitter: https://twitter.com/scottmelker  Facebook: https://www.facebook.com/wolfofallstreets   Web: https://www.thewolfofallstreets.io  Spotify: https://spoti.fi/30N5FDe  Apple podcast: https://apple.co/3FASB2c  #FTX #crypto  Timestamps: 0:00 Intro 2:30 What is the aftermath of FTX 7:00 The role of regulation 11:40 FTX’s company structure 13:40 FTX hack 21:10 FTX was the best exchange 28:50 FTT token is a ponzi scheme 30:30 Valuation of FTT and FTX 31:30 Circularity issue 32:50 $8 billion dollar missing 36:10 SBF’s intentions 37:10 Custodians and exchanges should be separated 41:00 DeFi is the answer 45:00 Will big banks step in into crypto 48:00 FTX case will slow down the whole industry 49:20 What is institutional adoption The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

It's Monday and the crypto contagion has continued. Last summer, we thought that maybe it was all over after Luna, Three Arrows Capital, Voyager, Celsius, and I don't know, name any company, seemingly failed. But as I mentioned, now the contagion has likely gone to Alameda, which collapsed FTX, and now a lot of question marks as to what comes next. Now on Monday, we discuss macro. As you know, usually I have one guest and we go over the news and talk about the context in global markets. But right now, I think there's one story and one story only, which, of course, is FTX. I have three incredible guests today. Alex Kruger has been on the show quite a few times, Genevieve Rockdector, and of course, Peter

Cheer. We're going to discuss everything going on in crypto markets and where it falls in to macro in context. You guys do not want to miss this one. Let's go. What is up, everybody? I'm Scott Melker, also known as the Wolf of Wall Street. Before we get started, please subscribe to the channel and hit the like button. Although if we Let's go. maybe a worse month, certainly a bad six months and an absolutely atrocious, atrocious year. Right. And I don't think I need to catch everybody up on exactly what has been going on, because if you're even superficially involved in this industry, then you've likely felt the contagion yourself, whether you had coins on an exchange, whether you were holding one of the coins, it's crashed as a result, or whether you generally are just disillusioned. I've even seen the price of your precious Bitcoin dropping as a result of all of the nonsense that is happening. So listen, I love to bring on guests

who have far more insight to me. And in this case, some of them who maybe are a little more skeptical of the crypto industry, seemingly rightfully so. I'm going to go ahead and bring them all on right now. I've got Peter, cheer, Alex krueger and genevieve rock dexter welcome to all of you peter i want to start with you you sent an amazing tweet two days ago that i just found what's the difference between a beanie baby and an ftx token at least you can hug a beanie baby as you cry yourself to street sleep crypto crash so i guess the question is, is that your feeling specifically about this situation or could we extrapolate that to the crypto industry as a whole? You know, I think we've got to do some things in this industry. We've been talking

about it a while. And the thing that bothers me so much is I think people throw around these terms so loosely. They call things an exchange, right? Well, an exchange means one thing, and it's a place to bring buyers and sellers together. Most of these things, whether we saw with Celsius, 3 Arrow, and now everything that we're seeing on FTXs, they're actually custodian funds, right? So that is a big difference than just an exchange. That starts forming a banking function.

They do not seem to have good rules in terms of commingling funds, right? They tend to treat client assets as their assets when push comes to shove. We've seen this time and again in other industries, and I think this is something that's kind of, again, it should have been a wake-up call with Celsius and Three Arrow. You've got to look through these companies. What do they do? What do they have? And if your money is sitting in there, they are more than an exchange, right? They are custodians of your money. How safe is it? How can you get it back? I think people are very casual when you look at domiciles, right? I want to invest in a place that's probably

domiciled in the U.S. where the board of directors sits in the U.S., where there is risk of prosecution. I think those are things that should have been paid attention to and have to pay more attention. And I think this is going to be both problematic for the crypto industry going forward still. It's going to bring regulators in. And I think there's actually going to be a big real-world impact from this, but we can get to that later. Sheviev, do you agree that there'll be a big real world impact of this? Or do you think that it's somewhat siphoned off or siloed into the crypto space? Well, look, there was something like 22 VCs

that invested in FTX. There's pension funds. I'm up in Canada. The Ontario Teachers Pension Fund invested something like $95 million. I think the difference that Peter points out here is that there's the custodian of client assets, which is essentially supposed to be treated like I'm putting money in or I'm putting Bitcoin in, I'm putting my crypto in and I'll be able to get it out. But that's not what happened. The funds were commingled and they were used for operations. And this is very different than investing in, say, like a startup space. And if you invest in a startup company, you know that it could go to zero because, you know, the capital is going to be used for the operations. But in this case, there isn't clear definition of separation

between the two. And that's what's caused a whole lot of problems. This isn't the first time we've seen this. And I think the part that's really kind of sad about the whole thing is that, you know, the mission statement of crypto was this sort of radical transparency. And that's not what we've had here. We've had, you know, extreme greed and secrecy. And so that's why there's a lot of irony going on. And people are sort of saying, like, hold on, guys, like, weren't we all supposed to know exactly what was going on? And it's not. And I know everyone's pointing fingers like, you know, there should have been more scrutiny by these VCs. But what was going on in the balance sheets between FTX, the exchange and the Alameda, the hedge fund, and, you know, trying to block this hole that happened sometime last summer when all this stuff went down,

you point out with Celsius and Luna and BlockFi and everything and Voyager, they use their own tokens, right? And so if their own token was valued at whatever in the marketplace, it looked like they had the capital to back it. It gets very complicated in the financial statements. And it looks like the VCs just didn't look too deep or didn't understand the ramifications, the leverage in the system. Or they're a flat out lie too, right? And so I don't disagree with what you're saying, absolutely. And Peter and I even were speaking right before, and it's kind of that everyone's a genius in a bull market mentality. If you're making money and the number's going up, then people fail to scrutinize you. It's only when you're losing money

that they tend to look into you. But perhaps there was no way to really see this. And the fact that you saw Sam Bankman freed on Capitol Hill and in private meetings with Gary Gensler and with the largest players in the industry empowering and backing him, perhaps there really was no way to do that due diligence and to see what was happening until it actually blew up. I mean, Alex, what do you think? Do you think that people should have had their eyes wide open and expected this FTX failure? First of all, I am having sound issues, unfortunately. My headset mutes when I speak, so I'm not sure if you can hear me. We can hear you. We can hear you. Good. So go ahead. The issue is I cannot hear absolutely anything right now uh but uh

answering the question is uh i mean to be honest 99.99 of the people that actually are uh informed in the industry i'm not talking about just uh um uh passive uh investors or or uh retail that basically make a trade uh three times a year now i'm talking about the the actual people that live in the industry and manage money 99.99 of us were not aware of this until a few days ago and uh that's why the uh how it all started a week ago uh with the coin desk leak of the alameda balance sheet there was such a a shock and many of us did not want to process what was hitting us, which was the point that basically, like the way I saw it, it was to be expected

and it was something probable that Alameda would be actually not healthy and had a hole, but not FTX, as these two entities were supposed to be separate. And SBF had actually actively said so multiple times that there was absolutely no commingling whatsoever, that Alameda was just another liquidity provider. And well, it was not the case. So I'd love to jump in here. So he tweeted, SPF has been tweeting up, you know, a storm throughout this whole thing and saying things that are just, then it comes out, it's completely infactual and wrong. But, you know, FTX, most of the client assets were offshore in Bahamas, right? And he did violate his terms of use to his customers, but it's unclear. And this is where it gets really kind of scary is like, did he commit fraud?

Like, will he be prosecuted in Bahamas? Will he be prosecuted in the US? I know they had FTX US subsidiary, but how much of client assets were there? Like, I'm not super deep into that. I don't know how much clarity we have on that. But I know a lot of people online are saying, you know, obviously, crime was committed here. But is he actually going to face actual jail time? No way. Nobody goes to jail for financial crimes. How many people are sitting in jail from 2008? Doquan is on a podcast and Suzu is waxing poetic about things he saw on the beach while he's surfing. Nobody's going to jail. And what I find very interesting, to your point, is that he's obviously regulated in the Bahamas, but he can file for bankruptcy protection in the United States. How can you fire? I understand FTX US or maybe Alameda if they're unsure, which I don't believe they are filing for bankruptcy in the United States. But how can FTX, which is an offshore entity, file for bankruptcy protection in the United States? Anyone have any insight on that? Because I don't. I don't have any insight into that, but I don't know if you

all saw what happened on Friday with the Bahamian government. So on Friday morning, FTX obviously filed for Chapter 11 bankruptcy and assets are supposed to be frozen and money is not supposed to move out. And we can talk about the hack in a second. But the Bahamian government started moving money out, told FTX to move money out of the exchange to give it back to them and then somehow realized quickly like that they can't do that. And then they issued a press release saying, oops, we know that, you know, there's chapter 11 bankruptcy proceedings here and we may be clawed back on these funds we're trying to take out. But to me, that just spoke to the unsophistication of, you know, the government that we're dealing with over

there and probably the lack of ramifications that may happen as a result um So I don't know if you guys had thoughts on that piece at all That yeah, that seems like a likely reason to go move to the bahamas, right? Go ahead alex. No, no, please go ahead You know, I spent a lot of time on distressed death That was kind of my background and you watch the distract desk guys are very very good whether you go back to euro tunnel which if any of you remember there is a difference in price between the french debt and the uk debt right that's the level of nuance

you have to get into this but i can't tell so far from the filings whether sbf's lawyers are really really good or they're just being sloppy but this will all come out i think as you start digging into this and again i mentioned at the start of the show things like domicile matter right when i'm looking at where i want my custodians done i want it done in an entity where i feel that you have rights and legal repercussions and ideally that the founders live in those countries so they can be processed by the law if necessary so i i think this is going to come out and i think people should be looking closely at all their crypto holdings where they're at and what potential protection they may or may not have if push comes to shove alex i wanted to say that i think it's very interesting and something that

the public may be missing the fact that the company that had the assets and the company that went bankrupt that was basically, how to put it, intervened by the Bahamas government during the week. They're separate companies. The way FTX is structured is they have the headquarters in the Bahamas and then they have the digital assets that that company is incorporated in Antigua. So Bahamas saying you can't,

like the bottom line there is that basically what happened through the week was basically friends and family using some made up excuse to get fans through Bahamas KYC entities. And the truth is that bankruptcy,

Chapter 11, it was in the US, but it should have been done right away, not on Friday after days of fans channeling. And furthermore, at the end, Friday night, Saturday, early morning US time, Eastern time, there was this hack and seemingly servers were wiped out. So why isn't there more clarity on that situation?

Like it was wild on Friday night watching it in real time on Twitter. But then, you know, and like Reuters reported, like all the mainstream media reported on it, but then it kind of went silent on like the rest of the day, Saturday and Sunday, no one's talking. There's no further information about where these funds potentially went. There's, you know, Sam had this backdoor thing put in so that he could potentially extract

funds without being noticed. I don't know if that's actually true or not, but did we have further clarity on where the 600 million in funds? When like, I'm, I don't follow the wallets that closely. You guys know more than me about that. 400 were hacked. Where did it go? I would say internal hack.

That's very likely the case. I mean, it's never been hacked in years of operation. Such, you know, so convenient that the first hack happens right after Chapter 11. And 200, as far as I understand, were transferred to cold storage by the law firm that is handling the bankruptcy. I forgot the exact legal term of who they are. Two quick comments. One, everybody's commenting on the fact and we're seeing it across YouTube, but the numbers are not updating for everyone. There's more than 18 people watching. And if you guys want to prove it, you can say hi in the chat. But we're hearing that this is happening on all crypto channels.

I would imagine it's a YouTube thing and not specific to crypto. Number two, to answer Genevieve's question, I think there's just too much information and too many things happening that we move on very quickly from one story to the next. A $600 million hack is a really big deal until you start seeing sitting congressmen and senators accusing Gary Gensler of being complicit with SBF and trying to basically create a moat around FTX to give them regulatory permission and nobody else. And I think by Saturday, that was the big story, right?

And nobody cared about the $600 million. It's really impossible at this point, I think, to process how much is happening and how quickly it's happening. And that idea that I just brought up, though, leads me kind of to my next question. Would regulatory clarity, would more clarity from the SEC have protected consumers from what happens here in any way, shape or form? Well, I listened to the All In podcast this weekend where the CEO of Coinbase was interviewed, and he said that basically, you know, his entity is in the U.S. They have audited financial statements, their financial services business, they must hold

assets one to one in the asset type that is in that is custodied. And he said that because of the lack of clarity by the SEC on, you know, what is, what is a currency? What is a commodity? What is a security? It's pushed operators offshore and it's pushed capital offshore into these more murky jurisdictions. And so, yeah, I mean, I think this is a turning point in the industry. I think there's a lot of pressure on the regulators now to come out and clarify. And I think there was even an interview with one of the members of the SEC, one of the female members who mentioned that, yeah, to some degree, it has been their fault that they haven't been more clear. I'm assuming that was Hester Peirce because she's been a longtime proponent of the crypto industry and has actually proposed some very sensible and obvious ideas. So she's been critical from the beginning. I'm going to imagine it's her. Peter, do you think that we could have

benefited from more clarity or do you think this would have happened either way? Yeah, I think more clarity would have helped, right? We'd have more entities domiciled here with more transparent balance sheets. Again, fraud and things like that could happen if this was what the case was but there's just more information that'd be publicly available that you'd have that chance to figure things out and you know it feels to me a lot of this the whole problem comes back to the bitcoin trust in the us where when it was trading at a premium it was a relatively easy way for a lot of crypto traders to make money because they could attempt to arb that because GBTC was always willing to issue more units every six months, right? Because they're a bigger AUM. But as that switched from a premium to a discount,

I think that started creating these holes in the balance sheet of various things. So maybe if we had an ETF and you had some different mechanisms to play in this where there was a better rebalancing because it's, and again, it's a unit trust. It's not a ETF or anything, but I always find it very telling in my markets where it's more credit side of things. The discount to NAB tends to lead flows. It tends to tell you one way or the other. And there was a, but at least on the ETF, there's a two-way R, right? You can the shares, or you can redeem the shares. And I think that's been one of the flaws with this vehicle is you really are only allowed to create so you can't redeem. So I

think it's been stuck on people's balance sheets. And I was just checking, I think it's trading at a 47% discount to NAV, which seems insane, but I'm not sure who steps in front of that just yet. I do want to say there that, I mean, having an ETF, I'm quite certain it will have diminished the size of the impact, that we will have a great lower amount of speculators and funds in places like FTX. Also, if the SEC would have proper regulation, many tokens that are utility tokens would be securities and it would be issued properly. But I don't think that would have changed the fact that SBF is quite likely a psychopath. He lied repeatedly over and over again in front of absolutely everyone in front

of Congress. And I don't think regulation would have stopped that. He would have done the same thing in the U.S. quite likely with having less of an impact and being caught sooner. I think it's, I mean, just speculation, right? But I would put a high likelihood in that scenario. And I think that brings up like a bigger conversation around these personality types that we sort of put on a pedestal, if you will, these, you know, whether it's Elizabeth Holmes from Theranos or, you know, SBF or who have you, these kind of larger than life characters, if you will, who lack what appears to be any sort of empathy or responsibility to, you know, investors, customers, clients, whatnot whatnot uh you know they will always exist in society like this is just it just you know it's just demographics and the fact that these

people are wired differently um you know genetically um there's a bit of nurture and nature obviously but i think i don't know like if I look back on this whole story and how fast it happened, right? Like, you know, FTX was established in 2019. Like that's, you know, what is that, three years ago? How did it get so big so fast? Like crypto has been going on for over a decade. There was already massive exchanges established. How did they just come into the space and dominate so quickly like i want to understand that story like how did he get the capital initially to to set up shop you know like that's what baffles my mind because at that point when he set up exchanges like the spreads on exchanges were like miniscule like you're not you know it's a it's it's a pretty liquid market at that point. So how are you coming in and making such massive profits and you could keep fundraising and like, you know, I don't know. That's that's the point I really want to understand. I mean, ironically, I think Binance was effectively their first investor as an incubator and sort of taught, you know, CZ somewhat taught SBF the ropes. SBF also had quite a bit of money from

Alamedaa but to me the edge for fdx at that time was that they were unregulated they didn't have the us entity at that time and they were able to offer trading on products within an hour of them coming into existence and being on the market and that's what really blew them up you could trade with leverage on a coin that nobody had heard of an hour before, right? I mean, Alex, you were there. Would you say that that was sort of how they gained their notoriety? In my mind, that's how it happened. I would say FTX was the best exchange out there tech-wise and their ability to roll out products was the best in the industry. So there was something, you know, in front uh what was happening behind the scenes uh but on

the uh on on how they got their money i don't know how they got the money initially but it's uh clear now that uh the the the it's like a cheat code it's like which is kind of crazy it's like how does for the gamers how does a gamer a player who has the cheat code lose he could literally print his own money he printed his own money but I was trying to get to this is that how they got so big was once they have FTX they print money by creating FTT first FTT then serum and then they keep on rolling out uh coins but the main ones ones, the big ones, and you could see that, we could see those in the balance sheet, where their balance sheet were FTT and Xerum,

basically using their own liquidity to manipulate price, push it up really high, and then taking loans against that balance sheet. But that required one thing. Loans or equity in fact? Loans. Loans. They were putting it into DeFi and using it as collateral and effectively taking loans

on FTSE tokens. I never even heard, like you guys are much deeper in this space than I am. I've always just been a Bitcoin Ethereum holder and I've only been in this space since 2017. So never really got involved in the altcoin space. I think I own like two altcoins. But I do come from the money management world, institutional world. So anyways, when this balance sheet was leaked, and I saw this serum coin, I never heard of this coin before. And on their balance sheet, they have 2.1 billion, supposedly of this now likely worthless. Yeah.

Utility token for a billion. Yeah. Yeah. Oh, we lost Jen. We have there. I think she got muted once I had, we lost you there. She,

we can't hear Jen. We have, so we're going to keep on talking, but I think her mic just got tapped on the unmute button. But yeah, I mean, to her, to your point out,

there you go. Your mic was off there for a second. Yep, go ahead. You're good. Maybe she can't hear us now. I'm not sure. So Peter, I want to circle back to something you said before, because I think it's probably the most important conversation. You are one of the first person that I've said, this will reverberate into global markets, into macro markets beyond the crypto space. To me, maybe that's giving us a little more credit than we deserve, but I'm curious to hear how you think that could happen, what the ripple effects would be.

So I think a couple of things are part of this. One, we were at, what, about $3 trillion in crypto valuations not too long ago. We're down to probably half a billion or some number, certainly below a trillion, right? So the amount of wealth that's been destroyed this time has been huge, right? It's not like prior drop-offs where we went from 400 billion to 200 billion. So the total amount lost there has been very large. And more importantly, just take a look at FTX, right? They raised, I believe it was just over a billion and a half dollars last year. That got spent somewhere, right? They're buying servers, they're buying ad space, they're naming arenas. So a lot of that money was flowing into the economy. And I think there's a lot of companies similar to that in the

crypto space, right? They've been able to raise equity money at what they view as attractive valuations. And they've only been on one growth path, right? It's growth, growth, you know, so you're buying those servers, you're buying web services, you're buying buying whatever you need to show growth and i think it actually extends even beyond the crypto if you look at the disruptive stocks as a whole if you want to take the archetype stocks right you've had this whole industry that for the last two years until about six months ago was purely growth only they were able to raise equity which they were then spending through the economy their employees felt well off right so the employees employees felt rich. You start pulling up some charts and you look at Bitcoin versus rent. Guess what? They actually track better than anything else, right? How much of the inflationary

pressure we've seen in the economy came from people finding this wealth, right? I think people underestimate the amount of wealth creation. And I find that's why one thing where traditional economists or old economists or whatever the heck they are they have been so dismissive of crypto they didn't see the size of that has in the economy right three trillion is a non-trivial amount to create in a short time and then to give away and not and then also the companies what they were spending right their ability to grow right they had all these great plans they were buying these servers i think that's where you're going to see continued slowdown in the economy i think it's going to put deflationary pressure on the economy. And that's why I think this will spread in ways that really aren't seen much. And you don't hear enough people talking

about it because I do find a lot of traditional economists ignored it. So if you kind of ignored it on the way up and didn't attribute any of the growth in the country or inflation to crypto and those disruptive stocks, you're not going to attribute some of the slowdown. But I think that's what we're seeing and it's real. I don't disagree with you, Peter. And you can clearly see it, for example, with public miners, right? They bought a massive amount of new machines that were a year or six months delayed and had to put them online and basically destroyed their businesses. But I do think that you're missing an important element.

And I don't think it's unique to crypto. I think that what you just described is the responsibility of the Fed and the money printing, right? I mean, everything was up 40%, 50%. Perhaps there was more bloat in crypto because it's more of a speculative asset class. But the same was happening in real estate. The same was happening in used cars, right? So I think this goes a step back beyond what you described and goes straight to the money printer in the COVID response. Yeah, I always describe, get asked a lot about how I think about QE or quantitative easing, which I do think put a lot of this.

And you know, Newton's cradle where you have the six balls or whatever, you lift the one ball up at the end and it hits and it's the one at the far end that explodes. So to me, what quantitative easing did was force everyone out the risk spectrum. You have to either buy a longer dated bond, a riskier bond or a less liquid bond. And that moved all the way out. And if you think about what really exploded, it was crypto and the riskiest stocks because there's really nothing else beyond the risk factor. Right. So that if you have no order that you can invest riskier, you hold on to those prices. And I think that's what you saw was QE to me behaves very differently than any other Fed policy. And it really directly goes to asset price inflation.

And you don't see it necessarily in the assets that they're buying because everyone gets pushed out this risk continuum and you see it at the riskiest end. So that's where I think you saw some of the big commercial real estate developments that may now look in hindsight not so good. But a lot of it at crypto and these disruptive stocks because that was the ultimate speculation. And it fits kind of my Newton's cradle. And I think it's part of what we're seeing now is it's not going to be quite as aggressive because QE, they were buying out duration out of the market. So they were buying 10 year and 30 year bonds with what they're doing on the quantitative tightening. They're just letting things mature. But I think that's going to create downward pressure because every day it's really going to allow someone to move

down the risk curve. And I can make the same amount of money that I used to have to buy a 10-year bond and a two-year bond and so on. And I think that's taking the bubble out of a lot of these other assets. And then finally, as soon as we got into trouble and you have to start looking at cashflow valuations, I think this is a real thing where even on Bitcoin to me, I've always thought about it as rate of adoption. If I was going to play in Bitcoin, I was thinking it's adoption rate going up or down and that's going to drive the price. But at least that I kind of understood as you move to these tokens. There's nothing that I can figure out how to value this. And that's becoming problematic in this world where risk is back on the table. You know, we might not be great in picking stocks and evaluating stocks, but at least we have some

mechanism for understanding cash flow, what evaluation looks like in various interest rate markets. And I think that's all coming back to roost as the Fed's taken out this liquidity and is going to continue to do so. You know, a couple of things I'd

like to add there. One is that, for example, FTT, even though it was clearly a policy in hindsight, if if you're being honest with a token like FTT, it actually can be valued in a very systematic clear way simply basically the way to think about it ftd represented like an exchange seat it gives you discounts on your trading fees so the same way when you buy a an exchange see that different exchanges in the us you get a discount you pay well you know 10 years ago it was like 200k as it I don't know now it must be like nothing but uh that's that's a way to think

about it and the other thing I wanted to add on on on the uh on what you said about QE uh Peter is that the interesting thing what happened this time in 2020 with QE is at this time unlike 2008 to 2014 QE was basically all those funds went straight into the economy they actually ended up as deposits so it's interesting if you actually look at uh you pull up Fred and you look at the rate of change of different different monetary measures and you look at deposits and the feds balance sheet you're gonna see in 2008 2014 deposits barely change while the feds is is blowing up its balance sheet and in 2020 these two things move hand in hand basically all the money was being pushed into the economy through basically fiscal policy that's what we did different that's kind of like

fooled many of us because hey we already had qe and nothing happened it's going to be fine and uh the rest is history i was just going to jump in there on like the valuation of the ft or of an exchange and valuing it in the real, let's call it the real world of fiat and cash flows and discounted cash flows. Like unless this is what I think, unless you can actually, you know, you're money managers, investors can actually perform, you know, real world cash flow, discounted cash flow valuations. I think it's just like hocus pocus. Because as you're seeing now, the value of FTT token is just like there are no buyers. There's not going to be any buyers of that. That was the same for Enron stock. Right. So I agree with actually what you're saying. They're very hard to value. But we've obviously seen massive collapses by publicly traded and regulated

companies in the past that have had the same effect on the asset that people owned. You're not wrong. No. And the one thing I think I've now written down three times on my little notes is circularity or circular. And I think that's the common theme and whether it's Enron, it's the circularity where you're using equity to collateralize things. So when things go bad, it goes bad very, very quickly, but you're not collateralizing things with debt or things at the bottom of the cap structure, you're using the equity type valuation. It feels to me, a lot of this has been going on as the circularity that makes it very difficult. And, difficult. And if you're a coder and you're coding, anything that's kind of circular, that's very hard to debug because you can't identify it quite as easily. And I think that's

happened here. You can't see it, but when it unravels, it just unravels very, very quickly. And that's actually one of the things I read over the weekend about, you know, prosecuting Sam Bankman Friedman on this whole thing is like the intent. And did he have the criminal intent to defraud, to steal client assets? Or was it just like the circularity that you're talking about? Like, oh, we've got value over here we're just going to lend it over here to like plug this hole and this is fine because everyone does this in crypto and uh you know it's it's not it's like yeah so what was the actual intent is this just completely you know mishandled or is he really trying to steal? I mean, he mentioned about a missing $8 billion line in his accounting spreadsheet. Literally, like he's showing it's a $32 billion valuation

company sharing their financial statements on a Google spreadsheet and saying, oh, I missed $8 billion. They had $15 billion in customer deposits. How can you miss an $8 billion line? But wasn't it backed by his own token? Didn't he just have his own token? He said that he had an issue with his accounting, his spreadsheet, basically, that he was accounting incorrectly for the liquidity and for the liabilities. But yeah. Alex, I think one thing you mentioned there that's kind of triggered me because I've been watching this closely, it's you watch how many people talk about some of these exchanges and they talk about their assets. Customer deposits aren't an asset.

Not assets. It's a liability, right? It's something they owe to their customers. And to me, if you're an exchange and you have $500 million of capital that you're allowed to do it, that's your asset. That's your capital. The $5 billion or $10 billion of customer money, it's not capital in that way. It's not your assets. It's a liability. Now, it's an important metric on how to think about how good a exchange or custodian is doing, how many assets they have under their custody. But it seems like

we use these words so interchangeably, and just that's a big part of the problem but does anybody know what the actual rules are in bahamas when it comes to a financial services business are you required to hold one-to-one client assets in the assets that they were deposited in your exchange like what are the rules i don't believe so but you are if you're saying you are holding one to one assets that should be saying their terms of service. Right. So they will get him on on that. And something else I wanted to add on FTT, the thing about FTT

is that basically over 90% of the supply was not circulating, meaning it had been issued yet and they were taking loans against their full FDB. I don't know the exact numbers. I would presume that, sorry, let me put it differently. I understand that the discount they were using for that was actually not that low. Like, for example, if I'm taking a loan against unvested assets and the this over 90% is unvested and is highly liquid, the discount would need to be extremely steep. You don't just like slap in a 30% discount because it's unvested.

That's liquidated. I mean, it literally can't even be used in a margin call. So it's basically smoke and mirrors, right? They also, there is, sorry to interrupt, very sorry. Please, please. This is interesting. This word has that basically this is all so many things that are surfacing the last few days. But they have the ability to basically just, they control the database.

So they would just go and toggle and change the circulating amount that they had to basically have extra assets against which to take loans. They just went, pressed a little button, and they had more money. I went on a rant about this Friday, Jembe, but it goes to kind of what you were talking about, whether his intent was criminal or whether it was somewhat out of control train. I mean, my feeling looking at each and every one of these same situations from 3ac and luna across which is hubris i i'm not saying he didn't have criminal intent i do believe he knew what he was doing but i think it was his ego not wanting alameda to fail that caused him to go down this track and you know continually snowball it's absolutely criminal the intent is mal intent but he probably never thought it would blow up just like you know steve at voyager and you talked about uh the gbtc before right i mean block by

all these companies were using that to give yield to their customers well now you have a million customers who expect a nine percent yield and the trade is gone so it just forces you further out the risk curve to take bigger risks with your customer assets to make money but the difference here is that everybody knew that voyager and c and BlockFi were rehypothecating their funds to earn yield. It was a risk, theoretically, you're willing to take. FTX is a custodian. This is not the same thing, right? I mean, you were trusting your assets with them and they 100% were supposed to be holding them one for one. To me, that's- Something is going to change now on the US.

Coinbase, Kraken, they're custodians on exchanges. That's one of the things that regulation, I believe, is going to have to change and will change very soon. Exchanges should not be custodians, even if you're regulated and onshore in the US. That's a no-brainer. Well, so I come from the institutional world of money management, mutual funds, hedge funds.

They cannot custody their own assets, right? They have to have a third party do that. So I think that's what you're suggesting has to happen here. You can't be your own custodian. A separation between Coinbase and not funds, but Coinbase, it's a custodian as well as an exchange. It's a matching engine. But it should be separate. Is that what you're saying? It should be separate, yeah, like in traditional finance. Yeah, I agree. In traditional finance, they would never allow one entity to be all four or five things that we're seeing these exchanges be. I mean,

these exchanges are custodians. They're effectively banks. They're a place where you can actually trade. They're a place where you can then earn yield. Those things would never be in the same entity in the United States with a traditional finance. Peter, is that correct? I don't want to- Peter T. Yeah. And again, I assume legally they're probably set up in some of these as separate entities as well. I'm just not sure how well enforced that is. I think that that's the right mechanism. You have to have something where you've got the exchange part is really delineated from the um you know the studio part and it can be done it's you've got you know big large investment banks right they have their

investment bank many own a bank they've got their asset management firms at some level they all report to the same ceo but they're very separate they're each right you know following their sets of rules and their guidelines so it can be done But I think it's that clear separation of church and state where each thing's fairly clearly delineated, what they can be doing. There's walls to prevent kind of co-mingling or anything. And I think that's going to be what comes up with this. And I think we're going to find a great job. Maybe they shouldn't ultimately go up to the same CEO. Maybe they need to be completely different entities. I know. So up in Canada, we have an ETF where I actually hold my Bitcoin and I check the custodian this morning and it's

Gemini in the United States. And so, you know, clear, clear separation there. So I felt happy about that. And I actually hold my Bitcoin and Ethereum on this ETF because previously, a number of years ago, I did lose money in a similar situation to this one, but up in Canada where funds were lost. And I said, people laughed at me. People laughed at me for putting my money in an ETF that trades, you know, five days a week, only nine to 4 430 during regular trading hours. But I'm like, I'd rather have this the safety and security and sleep at night to know that I have

properly custodied crypto. And, you know, for me, I don't want to hold a cold wallet. I'm not as maybe sophisticated as you guys, but I just don't want to bother having to deal with that. I'd rather pay an ETF and pay some money to have that done. I think a lot of regular folk probably want the same thing. And I think that is the opportunity in crypto is to make that cold storage piece really user friendly. And I haven't seen anybody do that yet where like, you know, your grandmother or somebody

would feel comfortable doing that or not. We're not at that part of crypto yet. That's a lot of you know one thing there is Gemini is the same as coinbase right it's uh it's both a custodian and an exchange and in a way that the answer is DeFi because what DeFi allows us is to custody our own assets and trade basically access a smart contract and a front end for us and everybody to manage our own risk and hedge and trade. And it's not just about speculation, right? Oftentimes, these are highly volatile assets. Hedging is very important for wealth protection. And I really think that down the line,

it's going to take a long time. But clearly, the answer is DeFi, where we hold our own assets and there is entire separation. We don't even need the traditional finance framework, can be done entirely separated without having to trust at all. Zero trust eliminated. I actually agree with both of you. Right. I think, Alex, what you just described is the dream. And for people who are deeper into this market is exactly what we want. But to Genevieve's point, and listen, CZ just said it exactly what you said. Here's his quote. He just said it at a press conference.

It's in the comments. Until we can get grandma to easily take her Bitcoin off exchanges and secure her own keys without it being difficult, the industry won't and can't move forward. I mean, it's literally exactly what you said. I didn't see it. But it is. I mean, the thing is, you can get really deep down the crypto rabbit hole.

And I agree. The whole DeFi space, I've looked into it. I think it's fascinating. But if your grandma can't even just own Bitcoin securely, she's not going into DeFi and self-custodying with a smart contract. It's just not going to happen. She's not going into DeFi and like self-custodying with a smart contract. Like it's just not going to happen. It's not going to happen. And so until, so you're not going to get mass adoption. And like this whole situation has taken a huge step back in trust and

people wanting to come into this industry. It doesn't mean it's, it's not going to develop and thrive and get to an amazing place. I do believe that, but this is like a cleansing. It doesn't mean it's not going to develop and thrive and get to an amazing place. I do believe that. But this is like a cleansing. It's a reset. It's a, hey, let's take a step back and reimagine this space. Yeah. For those of us who live in the United States and yourself in Canada, people trust their banks, right? And your average person would rather, this is just pragmatic, it's fact, would rather custody their Bitcoin or any asset with someone that they trust. Whether they should trust them or not can be a debate among Bitcoiners until the end of time. But there's a reason that Bank of New York Mellon and State

Street, Bank of New York Mellon already custodying crypto, but that these companies are talking about it because the mainstream adoption is exactly what you're talking about. It's when everyone can do it and they don't have to think about it. I mean, most people are going to lose their keys and lose their coins in self-custody if they're pushed into it, if they were forced to be pushed into it right now. Single point of failure is yourself, I would say. So I think you're both right. It just depends on the audience that you're speaking to, you know?

A hundred percent. Mm hmm. Yeah. Define. You both right. It just depends on the audience that you're speaking to, you know, a hundred percent. Mm hmm. Yeah. I define you're right. Go ahead, Peter. It's just going to slow down adoption until there's a better mechanism or some, a trusted custodian that institutional investors can truly get behind. Right. There's some big ones. I think more retail investors.

Right. If you go back, you know, I talk about there's two ways to lose money when you're in your asset portfolio, right? One is you buy something that goes down. We do that all the time. And it's been particularly this year been very easy to do since everything's gone down. But the other is to lose your money because you handed it to someone who doesn't give it back to you. And that's really frustrating to people because it feels like you could have done more about that. And I think that's going to cause people to have multiple accounts. You're going to keep cash balances reduced and you're going to look for some trusted custodian ultimately and maybe someone will really step up and up their game that they can become that but until i see that i think institutional interest is going to wane because you don't want to be the one

who says it was bad enough if i bought bitcoin and it went down 25%, but I bought Bitcoin and lost it all, even though it didn't go down, that is much, much more difficult to explain. And I think that's the state the industry's in right now is people, at least at an institutional level, are gonna be very reluctant to proceed until they get some known entity, someone that they truly trust,

who says this is where it's at. And we have something that looks a lot more like the banking system or even the brokerage system, right? where you've got some level of you've got the FDIC insurance, you've got the SIPC insurance. People have not lost money in those types of entities, even when the counterparty itself has gone bad. And I think that's the standard somehow crypto gets to, whether it's DeFi or however. But I think that's I think it's not going to define things like that sound interesting. But I think we're now years away from institutional adoption because of the events that have had people don't want to hear complex sounding tech things right now after the last six months. I completely agree with you. Does this open the path for a JP Morgan, a Goldman Sachs, all these big investment banks and banks to come in and take a foothold and go,

you trust us, here we are. And I know a lot of these firms have opened up trading desks for their institutions, but will they step in for retail in a big way here? Like, is that what we're going to see? Fidelity has been doing that for almost a decade. Fidelity and Mellon are already doing in custody for bitcoin for institutional clients

but retail what about reading yeah retail no so fidelity is fidelity is very soon we'll we'll be offering that but yes yeah whether it's jp morgan i don't know a lot of this is all going to depend on what happens to trading volumes right i think if trading volumes stay high or come back people will spend the time on this. If this is kind of killing trading volumes and interest, then the product development won't come out. I do think it'll probably be an Asian bank or something that leads the way. Some of the bigger Asian banks I think are further along than the US banks, whether it's in Japan or Singapore or somewhere, because I think they've been a little bit more forward-friendly and their client base

has been a little bit more adoptive of crypto. So we might see some interesting stuff come out of there. But I think for the next three, six months, it's what trading volumes do we have? Does this continue to exist as an interesting product for these people to spend the time development on? Or does it fall to the wayside a little bit? Well, and people are scared to invest in the Chinese stock market in equity. So I don't know that they're going to be comfortable putting their capital into, you know, custodian in Asia for like as a again, as a retail investor. So I don't know. But I do think it stifles innovation in this sector because, you know, the lack of interest from big institutions, because, you know, they're just not they're just not going to until there's greater transparency, they're not going to be writing big checks like they've been. You know, they're still going to write little checks, but not, you know, 500 million dollar checks. I just don't see that

happening. Well, what's interesting there is that, I mean, all of these funds are raised and they need to deploy. Right. I agree with you on the institutional side as far as maybe, you know, these services we're talking about now. But VC is going to still be very robust if there's anything to raise money for. But I mean, Andreessen sitting on billions of dollars that I'm assuming they have to deploy in the coming years, no matter what. There's quite a few very large funds that they have to deploy crypto ones. I don't think it's that binary. It's just going to be it's going to slow us down, unfortunately, a lot. But and I cannot quantify it, but it's not binary.

It's like a. Right. But that's what you're talking about is crypto institutions, right? Like they raise capital specifically to invest in the crypto space or investors understand that risk. I'm talking about traditional institutions like the Ontario...

Pension funds, goodbye. Yeah, like... Oh, yeah. Unfortunately, yeah. You know, yeah. Peter and I were talking right before about this sort of full circle is that a couple of years ago,

if you were the guy who mentioned crypto in the meeting, you were like the risk manager, the CFO. You'd get fired because you were the nut job. It was talking about magic Internet money. Then, you know, last year it became if you didn't have an opinion on it, you might get fired because you need to understand it. Now we're probably going full circle back to your reputation is at risk if you come in with a crypto based idea. You just have to call it Web 3. That's right.

We got to move to Web 5. 3 is 3. We got to move now beyond Web 3. Peter, I want to ask you, we keep talking about institutional adoption. How would you define that at this point? Like, what does institutional adoption even look like? Because we do have the Black Rocks and obviously Fidelity, JP Morgan. In some way shape

or form they're all exposed here and moving forward so what does what does that mean to you institutional adoption stop me it's really a lot of the big pension funds it's who then come in and say we are going to allocate three percent or five percent to crypto right that was all the talk whether corporations who have a lot of cash on their balance sheet invest significant amounts right tesla was kind of the first set the stage. Since then, everyone's kind of pulled back. So I think that was kind of the wave is every institutional pension fund, every corporate pension fund starts saying this is part of the asset class that we need to have. It was seeming like we were getting some traction on that. I think that's tractions really dissipated. I've watched people

try and get these guys to invest in gold for decades. And I think that's always been a reluctant thing. And this was a little bit more exciting because it was going up so much. I think this lack of volatility, the fact that it hasn't behaved in any way that it was originally pitched, right? It was originally pitched as inflation hedge, a asset that was negatively correlated to stocks. None of the pitches have really played out. And I think low volatility is actually the death now for this because at least it was fun and exciting to trade when it's volatile um especially in the upside direction because most people are more comfortable trading that way so to me that was it you needed these pension funds you needed these you know your firemen your teachers all over

the country there's so much wealth and if they really committed to bitcoin or crypto that was the you know huge price rise everyone was talking about. And I just can't imagine being the person right now advising them and saying now is a great time to buy crypto. And maybe it is because, you know, often you're supposed to buy when you buy low, sell high. But I think that would be a very difficult conversation to have convincing anyone right now at the institutional side who asks a lot of explaining to do to do it. That's why it's a good time to buy crypto. It's a good time, certainly, to buy Bitcoin, right? I mean, even if you get all of these asset class confused and you bundle them together, which I don't think should be the case,

this has absolutely nothing to do with either the technology or the asset. This is a bunch of people who are young and egotistical who built an inferior financial system, right? So, I mean, I think once all of that is washed out, this could be an exceptional buying opportunity, whether it goes lower or not. But I can see how a CFO or someone doing investment for a pension might not go in and pitch that idea right now. Well, yeah, because a lot of the institutional capital on the investment side, buying Bitcoin and Ethereum in a mutual fund or hedge fund or a traditional client account. A lot of that came in last year in 2021 at like 60 to 69,000. And now they're down a whole bunch. So they're already having to explain what do we do with that? And don't forget, we're heading into tax loss selling season right now. So in the next like,

you know, month or so here, people sell and buy back. So in the very short term, I do agree, buy low, sell high. That's always the way to go with investing. But yeah, it could be cold winter here for 12, 18 months. I don't know. Yeah. And that gives us four more minutes before we're done. Do you think then, we obviously have our opinions on what Bitcoin's going to do for a while, cold winter, as you said. Do you think that that cold winter exists in all markets? Or do you think that stocks and things have likely bottomed with the inflation print and with things seemingly turning around in the stock market?

I personally think that the economic data is going to get worse. I think that, you know, the Fed has been very clear that they want the unemployment rate to go up to make sure that they can, you know, tame inflation. Yes, we've had, you know, three or four months of consistent inflation prints going down, which is great. But I think you've seen a lot of firings across, whether a lot in the technology space. I think we're going to get GDP contraction for another quarter. I think we are going to enter some sort of recession. I don't think it's going to be a hard landing,

but I do think that the stock market will bottom when the economic data looks its worst. And I actually don't think we're there yet. I don't know when it's going to happen. Never put a price target in a timeline on the same prediction. So I kind of somewhat agree. I think we're going to rally for a little while. I think this current rally has some legs because I think we are going to see weak data and that's going to take the Fed off the table a little bit. But then I think we're actually going to get a very big risk off type move where equities go to new lows while bond yields actually go lower. Right. So right now we've kind of had that trend where lower bond yields has been good for stocks.

I think we're going to see such bad economic data that the Fed's already pushed too far, that it's hit housing, that it's hit the autos, that it hit the crypto and these disruptive companies. I think the wealth destruction is real. People, it's being hidden a little bit by two things. The job data has been decent, though there's little flaws within the jobs data, if you look. And I think consumers are still just going through some pent-up demand on the services side. So people who haven't traveled, haven't seen their family are doing that. Once that rule is over, I think coming into the new year, I actually think we're going to see a pretty hard recession. Alex? I think actually're going to see a pretty hard recession alex i think actually markets uh tend to bottom when there is a big uh a big crisis some something breaking and uh something broke a couple months ago in october with the bank of england and basically the english

the british pension funds the lifers so it's uh analyst uh inflation uh surprises to the upside and it doesn't uh not to the absolute basically if inflation doesn't diminish as it's priced in or expected by the Fed at the same pace therefore not pushing the FED to push interest rates to five and a half to six percent if that doesn't happen I think the bottom is seen and recession is secondary. It's mostly about the Fed and interest rates and recession. Markets priced it in and anticipated this. But again, I don't know. I'm going data point by data point, data point to data point. I cannot predict inflation. It's not just about inflation going down. It's about inflation going down in line with what's pricing. Or more.

Right. Or more. Like we could see inflation go down, but it could be less than expected. And that could be bad news for markets because we live in the upside down from stranger things. Right. So we're right up against time. I know all of you guys need to go. I want to thank Peter, Genevieve, Alex. You can find all of them tagged on my tweet about this show.

Please go follow all of them. All of you are welcome back anytime. It was great to get some insight. We have a tendency, obviously, to bring in the people who are well in our echo chamber and have their thoughts based on four or five years

deep in this industry. So it's good to get these outside perspectives. And I really, really value it. And thank you guys for joining. For everyone out there, tomorrow, Big Cheds will be joining. Obviously, it's our trading day on Tuesday. Then Wednesday, you guys have been asking over and over and over again right now. I have BitBoy joining. I have BitBoy joining on Wednesday.

That's for the first time ever since he actually seemed to be well ahead of this. Thank you all once again, everyone. I will see you tomorrow. Jambia, Peter, Alex, you guys are awesome. Thanks. Thank you. Thank you very much.