The Wolf Of All Streets - Crypto VCs Raise Millions In Crypto, Binance Is Doomed, War On CBDCs, & More | Friday Five

Starting point is 00:00:00 The SEC has increased their attacks on Binance, making some new claims about custody and the way that Binance US and Binance International were likely working together. But of course, CZ and the courts have both pushed back. We have an anti-CBDC bill coming out of committee in Congress. We've got SBF's parents being sued by FTX. Man, there's a lot that happened this week. Luckily, you've got myself and Nathaniel Whittemore to review the top five stories of the week. Here's your Friday Five. Let's go. What is up, everybody? I'm Scott Melcar, also known as the Wolf of Wall Street. Before we Let's go. strong i've got nlw here man how are you good morning i'm doing well i sound like at least physically i'm doing better than you at the moment yeah yeah yeah actually i feel pretty fine i was in rough shape about two days ago the combination of uh jet lag and covid i couldn't

Starting point is 00:01:15 really understand what was going on but the 12 hour difference from singapore is pretty brutal yeah yeah i literally like got a sore throat on the plane like three hours before we landed so of course this is telling you it's coming well glad you're back glad you're here thank you let's actually dig into what matters here obviously this binance story is first and i could pull up 15 articles about what's been happening with binance but i think we'll talk about what happened this week which is that the sec made some claims about shaky custody, effectively saying that, I guess you pronounce it Seifu, right? The Binance custody.

Starting point is 00:01:50 That's what I've been saying, yeah. Turns into Seifu, and that maybe they were using that custody for US assets, meaning that they were basically an off-ramp into Binance International. What do you make of this story? So when it comes to understanding where things are with Binance and the SEC, everything is sort of just part and parcel of the biggest question that they're trying to determine, which is how much control of Binance US did Binance International actually have? The SEC is basically saying that there's actually no differentiation in practice.

Starting point is 00:02:26 And that's the sort of core, that's the crux of their case. The part that we were discussing this week is around this company, CEFU, C-E-F-F-U, for those who have seen it but not heard it. And the question is, is that actually a Binance company, which the SEC basically claims that it is? And if so, does Binance US custodying its assets with CEFU effectively mean that there's no barrier between those two? Now, the part that we were dealing with this week is actually kind of procedural because it relates to an agreement that the SEC and Binance made as part of this, that Binance International would have no access to Binance US funds during the proceedings. Remember a few weeks ago, a few months ago at this point, the SEC actually wanted to freeze all of Binance US's funds so that

Starting point is 00:03:17 they couldn't flow out to Binance International. Basically, they didn't get that approved, but they had sort of a more, the judge went back and said, find something more reasonable. And the more reasonable thing was Binance US, not, you know, them agreeing to not have any interaction with Binance International, but the fact that they're still custodying with CEFU, that's a potential complication. Now, if this feels like a lot of nuance, it is, it's relatively immaterial, probably in the long run for how the case resolves. It matters in terms of how much leverage in the short term the SEC has to impose sort of more punitive things against Binance US.

Starting point is 00:03:55 Basically, what the judge said was, I'm not prepared to compel any more document creation, but Binance US, you got to kind of... The judge basically slapped them both around a little bit and said, stop asking for preemptive judgments, SEC. And Binance US, you got to do more than you've been doing. But all in all, it just kind of continues to be a weird stalemate. And frankly, the market is doing the SEC's jobs for it, you know, to the extent that they're concerned with funds flowing to international because there are no funds left, you know, I think. Yeah, they killed Binance US merely with some claims, whether right or wrong. That is not the democratic way, in my opinion. I mean,

Starting point is 00:04:40 as you said, you got the judge asked Binance US and SEC to simmer down a dispute over documents. Perfect. Yeah. I mean, you guys need to chill. Basically, like this is too much. But I mean, as you said, you got the judge asked Binance US and SEC to simmer down a dispute over documents. Perfect timeline. Yeah, I mean, you guys need to chill. Basically, like, this is too much. But I mean, to wrap a bow on this, I think it's just this is not going anywhere. The SEC is going to continue to push against Binance, but it might take quite a while for them to sort this out. And then, of course, we will wait and see if there's any criminal DOJ activity coming. But for now, I think this is just a continuation

Starting point is 00:05:06 of the story that we've been telling for weeks here. 100%. Yeah. Next, U.S. CBDC efforts opposed in legislation advanced by House Republicans. The House Financial Services Committee approved a bill meant to prevent a U.S. central bank digital currency.

Starting point is 00:05:20 Now, we've seen this taken up by a few states. A few governors have sort of used it as a talking point to say there'll never be a CBDC in the United States. Now, we've seen this taken up by a few states. A few governors have sort of used it as a talking point to say there'll never be a CBDC in the United States. Now, coming out of committee, now listen, this is the same group of Republicans, the Tom Emers, the Patrick Henrys, the Warren Davidsons that continue to push forward crypto-friendly legislation. But this one basically saying we will never have a CBDC in the United States. Yeah. So this is interesting. I think that one, I think a lot of people are surprised that this has become sort of a meaningful issue to Republicans heading into the presidential election season, but it certainly has. And I think that

Starting point is 00:05:58 it's starting to actually make more sense if you watch the way that the discussions even of crypto and the crypto industry are evolving. So there was the Senate Oversight Committee hearing last week with Gary Gensler, and crypto really wasn't a big focus on it. What was clear is that Republicans have started to wrap crypto into a larger narrative, which is government expansion and sort of bureaucratic expansion. And they're sort of using crypto as exhibit A, right? Where what they are arguing is that the government under the Biden administration has tried to sort of expand its authority, you know, outside of what Congress has allowed it to do. Look at the crypto industry as an example. Look at Gary Gensler as sort of the chief example. I think in some ways, then, if you look at this sort of

Starting point is 00:06:49 anti-CBDC legislation, in many ways, it is a preemptive strike against an expansion of government authority, in this case, the Federal Reserve. And it starts to make a lot more sense as part of that overarching picture of what they're trying to argue going into the next election season. Now, the good thing for people, regardless of where they find themselves in the sort of political spectrum, is that it is rising right to the surface, really important issues of surveillance, of power, of money questions. So it's kind of like the fact that these things are being marked up in committee, which is what happened this week, is probably a net positive thing, almost regardless of what side of the aisle you find yourself on,

Starting point is 00:07:30 assuming that you are sort of against surveillance and expanded authority over our lives. Yeah, but here's the part that got me, and this is the story in my mind. We all know Maxine Waters, of course, she famously taking pictures with SBF, the head of these committees. This is what Maxine Waters had to say about this, because the irony of this is just bewildering to me. It will keep the United States behind other countries, including China, as a race forward to develop a global standard for central bank digital currencies. She said that Republicans are taking a deeply anti-innovation stance on the technology, which has been embraced by other nations. The legislation, she said,

Starting point is 00:08:11 would stifle that research and prevent us from moving forward, even if it means that the dollar loses its status as the world's reserve currency. And even if it means the US citizens lose out on faster, cheaper, and simpler payments. Holy shit. Isn't that literally what we've been saying to her about crypto the entire time? Yes. And in fact, I bet we could dig up a quote from Brad Sherman or someone else that says something to the effect of China isn't worth following all the time. It's the nature of the beast. Listen, it's going to get a lot worse for us over the next year or so, year, whatever, 14 months. It's going to get just sillier and sillier and sillier with the contortions of politics heading into the election.

Starting point is 00:08:54 But she's making the claim that she's pro-tech and that we should not stifle innovation and we should support faster, cheaper payments. I mean, she literally just described crypto, but put it in the bundle of a CBDC instead. It obviously doesn't see the nuance. Yeah. But this is the reason that people are concerned about CBDCs is that they feel like a co-optation of a lot of the things that are appealing about cryptos, but with sort of like the retained authority of the government and, you know, a mass expansion of power that comes with it rather than a distribution or a dissolution of power that comes with sort of a non-governmental system like crypto.

Starting point is 00:09:35 I agree. I just made my brain hurt when I heard her, when I read those comments. It was just, nothing makes me surprised anymore, but that one got close. Now, the next story here we have is kind of interesting because we've had a narrative that there's no money coming into crypto, right? No new money, no new funds being raised. Everybody's having trouble fundraising. I can tell you that being in Singapore last week, I was able to outright anecdotally dispel that myth because the amount of money being spent in crypto in Asia is absolutely astounding. And I think they've taken all their budgets out of the US to spend there. But it's not just anecdotal anymore. We have a few announcements just this week. Crypto VC blockchain capital score is 580 million for

Starting point is 00:10:14 two new funds. I mean, you can see their portfolio. It's literally everybody in crypto. We have Nomura's Laser Digital starting a Bitcoin adoption fund for institutional investors. Investment firm Reveri launches 20 million crypto venture firm. That's a drop in the bucket. And then finally, that Tether is making a massive bet on chips and moving into AI. But do you think that we're at the point of the cycle now where we can stop talking about there being no new money in crypto or no investment and that it's all dead? Well, the interesting thing, the interesting nuance on this is that if you have talked, anyone who's talked to sort of institutional investors

Starting point is 00:10:50 over the last however many months, there's been a slight different story, which is that things are a lot more quiet, but money hasn't vacated quite the way that it seems like it might have from the outside, right? Certainly in pockets of areas like NFTs being down 95% to the surprise of no one. Things like that I think are valid, but that gets wrapped up with an overarching idea that all the money flowed out of the system. And that actually hasn't been true. What has been true is that there hasn't been a lot of action. It's been still, right? The capital hasn't been a lot of action. It's been still, right? The capital hasn't been flowing. Certainly projects haven't been funded

Starting point is 00:11:29 to nearly the same degree, but you wouldn't really expect them to be necessarily, right? You know, if you see this sort of cataclysmic event and you're a venture capitalist and you've got a whole slew of startups that are trying to survive, which by the way, is the scenario for all of venture capital right now, not just crypto, because we're in a totally different environment than anyone's been in venture capital since 2007, you know, then you don't necessarily pour more fire under the problem by having more people raise. But eventually, you start to, that starts to shift. And you start to get rewarded for having, you know, stories of funding hit the wires and, you know, movements start to happen again. People start to position.

Starting point is 00:12:10 We've been, you know, you and I have talked about this. We're in the hinterland between sort of the worst of the bear market ending, but there's certainly not a bull market that's begun. And that's the part where at some point in there, people start positioning for the bull market that they know is inevitable. And I think the fact that you had, there's actually even another fund that launched Oak Grove, which has been out, I think maybe of, they used to be at Sino Global, I think one of the people there. In any case, the fact that there's three or four of these announcements in a single week suggests at least that maybe we are starting to kind of hit that period where people want to get a little bit

Starting point is 00:12:46 louder again, and they want to start sort of attracting capital. You also saw a couple of, we didn't put this in the story, but there were a couple of sort of big picture funding announcements as well. A company called Bastion raised $25 million, ex-A16Z guys building Web3 infrastructure for brands. So you had a slew of announcements that felt more uh lively than we've seen for a while all happening at once feels like the industry is like the black knight guy in monty python i'm not dead yet like but you lost your arm yeah we are yeah there we are still still fighting still fighting i love that movie i need to watch that again maybe while i'm sitting around doing nothing i can uh add that to my list here but the next story obviously is a crazy one uh it's the ftx

Starting point is 00:13:32 sues sam bakeman freed's parents to claw back funds listen maybe we all knew that this was happening uh but man when you read this bloomberg article which by the way is a tome it's a book right how sam bakeman freed's elite parents enabled his crypto empire literally goes into the details of what diapers they used to put him in and how his schooling was. I mean, this is really deep, but seems that they opened a lot of doors, obviously protected him. And even at the end, when likely they were insolvent, took effectively a $10 million gift and about $16 million in properties in the Bahamas.

Starting point is 00:14:08 I mean, listen, you were pretty close to all this when it was happening, obviously. What do you make of the Bankman-Frieds? A couple of things. One, I think that even for folks who were there, the depth of engagement or maybe not so much the depth of engagement, but the sleaziness of some of it is surprising. I think that it was quite clear to people who were inside the company that at a handle on whether it was the actually materially important role or the kooky uncle hanging around. Frankly, it felt a little bit more like that. So there's one of the examples that is called out in the lawsuit from the FTX estate around Joe hiring his sister to run a charity hackathon in Miami. And this is the one time in my life, I'm the guy who like people get credit for in the group project, because I do it all.

Starting point is 00:15:14 This is the one time in my life that I was like, I'm not touching this project with a 10 foot pole, I will do anything to stay away from it. But my perception was, again, Joe being kind of like the kooky uncle that Sam had, I mean, it was, again, Joe being kind of like the kooky uncle that Sam had. I mean, it was his dad, but it had given him the ability to do whatever he wanted. It was clearly ridiculous that he hired a sister. She was a nightmare from the get-go. But again, there's a lot of things that looked like managerial incompetence and kind of whatever from the inside that when it turns out they're exhibit 19 in a story that also involves Sam's dad setting up a hundred shell companies look a lot different, you know, after the fact.

Starting point is 00:15:51 I mean, listen, I guess on the giving the benefit of the doubt, anyone with connections and power would help their child. Okay. I get that part, I guess. But it seems like his mother deeply involved in the plan to have donations come through loans and put in the names of other people, which is illegal. So if that is proven true, if all those emails are true, that's just, it is what it is. There's no debating that. Secondly, it appears, and this sort of does, I think, reflect people's perceptions, at least somewhat internally, that Joe had a significant role in structuring the company, which hiring you know picking who was going to be hired for for the law firms and stuff and i mean listen sam's whole the thing that strikes me is weird going into this uh trial is that the indications that we have so far is that sam's defense is going to largely rest on the idea that he got bad legal advice and that you know he was just doing what

Starting point is 00:17:22 the lawyers told him to do. But his dad chose all the lawyers and set up the whole... So it's like, I don't know. It feels like there's going to be a weird tension there. It feels like there's going to be a very weird tension there. I think the story that really got me was where his father was pushing for a higher salary. He was only getting $250,000 a year, wanted a million. And if the story is true, I mean, I just have to ask. Looped at his mom.

Starting point is 00:17:47 Oh, my God. He basically said, oh, you don't want to give me a million? Talk to your mom. We're going to deal with a lot of this stuff. I think the other interesting substory around SPF this week, he had tried to get out of jail in advance of the trial, but that was denied this week. So he's there until they get out. To the extent that the prosecution's goal with having him in detention was to put pressure on him to not delay the trial endlessly, which my betting a few months ago before he was locked up was that they were going to delay this trial as much as they possibly could, right? Just try to get it out of the headlines, try to get it away from the worst of the crypto cycle. Things start going well again in crypto. There's a very different public perception, whereas right now

Starting point is 00:18:33 it still feels like it's dead because of him. My guess had been that they would try to delay. Boy, as soon as he went to MDC, that changed. He was like, nope, let's do the trial. In fact, can we move it up? You know, can we do September 25th? And they hit him with 2 million documents or something. I mean, just absolutely astounding. The guy's in there with like a 14-4 dial-up internet trying to go through 2 million documents.

Starting point is 00:18:56 Yeah. This guy's not going to win. It feels like it's, I mean, I don't know. We should check to see if there are prediction markets for whether he pleads out at the last minute because it feels like, I don't know. I should, we should check to see if there are prediction markets for whether he please out at the last minute. Cause it feels like, I don't know. I just don't know how he thinks like he,

Starting point is 00:19:10 everyone has rolled on him. Like literally every single person, the only person that we don't know who would be in a position to roll on him is Tribuco. And where is Tribuco? Well, the fact that there's nothing that has been happened to him suggests that he did roll and it just happened earlier than everyone else, you know, or he's the world's greatest hider, you know, but it doesn't even seem like they're trying to find him. So I don't know. It's maybe he got out earlier enough. But I mean, when you look at that sort of incestuous relationship between Alameda and FTX, there's no way that he was completely oblivious to it and had no part in it.

Starting point is 00:19:45 But that's just a conjecture. And then the final story, obviously, is FOMC and the Fed, right? I mean, obviously, this is Bitcoin price action as a result. But we basically saw Jerome Powell do the expected. 99% predictive markets had it at no rate hike for September. But he was relatively hawkish in his tone and gave the message that we would likely be higher for longer, which I think everyone is expecting. But it finally seems like markets are starting to react to that. It's almost like

Starting point is 00:20:14 nobody's believed the guy for a year and a half, and all of a sudden they believe him today. Listen, there's a lot to critique Powell for, particularly how long they waited, I think, to start trying to pursue inflation after it happened. I think history will judge them harshly for that. But subsequent to getting on the page, he's followed through to the letter with everything that he said at every point, despite the fact that for the entire time, markets have flipped their nose at him and said, we don't believe you. I think that you're right that the story of this time was that it finally seems like they're buying the story. That's my feeling as well. I was literally just trying to pull up a chart to see how bad the markets were looking at it. It's not great. I mean, this is the first time. I think it's the

Starting point is 00:21:00 worst week that the markets have had since last year, since December. I think we had some of the worst days that we've had since December. And actually, I'm kind of encouraged that Bitcoin is sort of just hanging out. Yeah. I mean, you and I kind of talked about this, I think, two weeks ago, that it feels like we might finally have hit the rational price bottom for this part of the cycle, where it's sort of, it's not the like scary things are going bad all the time price. And it's also not the, hey, things are probably getting better now price, but it's just the, we're fine to live here forever as long as it takes price. Who knows? That could change.

Starting point is 00:21:36 But the lack of reaction, or at least the very temporary reaction to all of the sort of macro news this week suggests that to some extent, I think. I just find it really surprising that when he did exactly what he said he was going to do once again and nothing changed, all of a sudden there seems to be this panic. I mean, do you think that it's just been hanging by such a thin thread that, you know, anything, maybe he needed to say something positive? What do people expect? I don't understand what the anticipation was. I don't know that we've ever had... I mean, this would be interesting for market historians. The degree to which enthusiasm around artificial intelligence has backstopped the market this year is fairly astounding. And to your point, nothing has really changed at all throughout this entire year in terms of high interest rates have been there.

Starting point is 00:22:34 It hasn't. There's been no indication that anything around that is going to change. Powell continues to say that the dot plot shows that by and large, I think 12 out of the 19 predict there's at least one more hike this year. We're down to potentially two reductions next year from the four that were anticipated back in June. So none of that's changed, right? We live through the banking crisis. It's just that, you know, this sort of enthusiasm around not just specific stocks, although that's obviously a big piece of it, but the idea that we are on the verge of unlocking a fundamental productivity gain and the fact that this market hasn't wanted to believe the bad stuff for

Starting point is 00:23:16 so long, so they were able to cling on to that. But the question, I think, for a long time has been how long can that countervailing force hold back the tide of just sort of the general malaise of the rest of it? And the answer was never going to be forever, right? So I don't know. Maybe, again, it's just kind of part and parcel of the market accepting the higher for longer thing. And maybe they'll rebound again. I was going to say, maybe we're talking next Friday and we're back at the highs. And we're like, why did we cover that story to the to the extent that it's to the

Starting point is 00:23:48 extent that that i you know i and other people who have argued this are right that it's a lot driven by the the ai theme there's going to be a lot of product announcements this fall because the competition is on aggressively you know and so who knows what combination of you know google announcing Gemini and Facebook racing the Llama 3 and all these sort of things might change that again, especially if the market continues to do what it seems like it's done for the last 18 months, which is just look for any sliver of positive news that it can pile in on rather than dealing with the reality of the situation.

Starting point is 00:24:29 For sure. How much do you use AI personally? I mean, listen, you create content. I use ChatGPT every day. How about you? Non-stop throughout the day. I mean, I have five or six different categories that I use on a fairly daily basis. On ChatGPT, so ChatGPT images, what else? fairly daily basis on chat so chat gpt images image creation editing uh social media curation voice uh synthesis stuff is not daily but it's probably you know every every couple weeks uh and then and then i from a sort of pure learning but it's not for any applied purpose the video generation stuff is something that i'm playing around with. But certainly for me, actually the image generation

Starting point is 00:25:07 is the stuff that I use most because it's just, there's so many thumbnails to create, you know, so many newsletter images to create. That's my number one. Do you primarily use Midjourney? I do. I haven't tried it yet.

Starting point is 00:25:21 That's sad to admit. I'm a Midjourney stan, although OpenAI just announced Ali 3 coming to ChatGPT+. It does. Yeah. And ChatGPT eventually got rid of the web search part,

Starting point is 00:25:34 which I found quite annoying. Yeah. So it's interesting because they were sort of pressured into doing it. I don't think that they wanted to. I think that they had concerns from a safety perspective because it kind of nullifies the whole, you know, it creates new risk. Let's put it to solve that problem, or two, it's a convenient

Starting point is 00:26:06 reason to keep it turned off for the moment. You know, I think either is plausible. All right, man, I love it. We knocked that out in 30 minutes. I think that I think this was a 30 minute week. There's a lot a lot of stuff, but still very, very in between very liminal, right? Is Binance continuing to, you know, be in this fight, continuing to recede from the US continuing to, you know, figure out where it's going to land globally. It's, you know, the beginnings, the embers of capital, you know, kind of showing its head again, in the space, you know, it's all these sort of things that are, you know, it's not big, like pounding news, it's, it's, you know, stuff that's going to show up and be relevant in a few weeks, few months.

Starting point is 00:26:48 I'm glad it doesn't mean we don't need to talk it all to death and we can cover it rather quickly. Guys, everybody follow NLW. You can check this out, obviously, on his audio and YouTube channel as well. And I will once again, every single week, tell you just listen to the breakdown every day and you won't have to listen to anything else. Thank you so much, man. I appreciate it. As usual, see you next friday cheers guys

Starting point is 00:27:08 let's go

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The Wolf Of All Streets - Crypto VCs Raise Millions In Crypto, Binance Is Doomed, War On CBDCs, & More | Friday Five

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