The Wolf Of All Streets - More Pain Ahead | Macro Monday With Dave Weisberger

Episode Date: January 2, 2023

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Happy New Year, everyone. It's officially the first live stream of 2023. And I wish I was bringing more optimism. But as you read the news, people seem to be predicting very specifically talking about Cathie Wood, but for markets in general, that there is a hell of a lot more pain to come. I've got very regular, seemingly every week now, amazingly, guest Dave Weisberger here to discuss that and all the other news that's driving the markets, including Cameron Winklevoss is very, very, very aggressive to DCG's Barry Silbert today. You guys do not want to miss this one. Happy New Year. Let's go. Let's go. subscribe to the channel, take your champagne cork from New Year's and pop it right on that like button. I hope that all of you had an amazing New Year's Eve celebration. Feels strange that it's Monday and everybody's still off, even though New Year's Eve was two days ago. I was

gearing up to get my kids back to school and back to normalcy. Then all of a sudden, I remembered that they would once again be home on Monday. So we're still kind of in vacation mode over here. I hope though that you all have had an amazing new year. And I hope that even though it is just an arbitrary date and a random moment with the earth orbiting the sun, that maybe triggering a new year can trigger some good news. But it doesn't certainly feel that way at the moment, even as Bitcoin continues to trade sideways and markets seem to potentially be bottoming. Now, you guys may have noticed scrolling there across the bottom, we are sponsored by PrimeXBT. Check that out in the description, all the information that you need there. And without further ado, I'm going to go ahead and bring on today's amazing guest.

We've got Dave Weisberger. I think we can fairly say a man who needs no introduction at least here now i mean we're here every week right i mean it feels like that i mean you know i don't mind talking about stuff it we're in a world where not a whole lot has changed over the last month uh it feels like we're kind of stuck in amber you know kind, kind of like, you know, the mosquitoes in Jurassic Park. Well, I'm hoping it's not going to take a million years to get out of this bear market. It feels like a million years. It really does feel like a million years. And it's hard to feel particularly optimistic, I think, in the short term, right? I mean, I hinted at it below.

I mean, Bloomberg had this article here. I can just go ahead and share it. Cathie Wood's grim 2022 is over. Next year also looks bad, right? And that's interesting, I think, to us because, you know, Cathie Wood obviously heavily invested in tech stocks, Tesla being one of her larger holdings. And that's where the brunt of the bear market has been felt and also probably the greatest corollary for Bitcoin as it's become

a risk on asset. So, I mean, do you think that the pain is going to continue or do you think that maybe seeing all these articles that say how much pain we're going to get could be a bottoming signal? Well, I mean, it depends on a few things, but probably most important is the central banks. I mean, the Fed is in an interesting situation. I said on this program many times and before the tightening started, I said the Fed was trapped because it never occurred to me that they would be that successful in doing what they wanted, which they have been, which is invert the yield curve. They need to keep the long end of the curve relatively low so that governments can finance enormous deficits. I mean, that's what we have. Frankly, it's the same throughout most of the G7, most of the world, actually. And they need

the long end of the curve to not be too bad. And the short end of the curve they couldn't really care about. They're trying to push that up to squash inflation. With the government passing yet another big fiscal stimulus plan at the end of the year with their $1.7 trillion omnibus bill. I mean, if you're sitting in Jerome Powell's shoes, he's basically like, OK, you know, maybe I can stop inflation by crushing risk assets and crushing the rich. The amount of loss I think I read somewhere last year was certainly numerically, maybe not and certainly not on a percentage basis, but numerically was the largest single loss to holders of assets in history. And, you know, maybe that's enough from his perspective. But the truth of the matter is, as recession starts to bite, and it probably won't bite in the US first, but as recession starts to bite, central banks around the world have an interesting problem. It's like, well, what do we do? My personal, very cynical view is a recession in 2023 is not that big a deal to the people in power.

A recession in 2024 is a massive deal because that's when the presidential elections are. So I would not be remotely surprised to see the market continue to see the Fed continue to hike and or not try to combat recession for the next 12 months. But I strongly believe the 12 months after that, they're going to basically go no mas. And, you know, people who think the Fed is independent and not political. I mean, good luck with that. But I think that that's possible. Now, that said, markets do tend to anticipate things. Yeah. Yeah. Go ahead. No, I was going to say markets anticipate things. So yeah, so it should it should the market should pivot ahead of the Fed in theory. But interestingly, you talk about

the sting of recession, i think obviously in the united states as you said it will be last maybe it will be a little less dramatic than for people in other places i have this article from bloomberg difficult or impossible for a third of adults to cover an extra 20 pound expense obviously this is in the uk but i found this to be a pretty astounding number polling for citizens advice found 37% of those surveyed would struggle or be unable to do so, with about 25% saying they would find it somewhat difficult, 7% very difficult, and 4% impossible. That's to effectively, you know, to spend another 20 bucks a month. I mean.

Yeah, I'm just looking something up. Yeah, basically, I also looked up, according to a recent survey conducted over the summer, 46% of U.S. consumers. Let's see. I just thought I nearly half. Hold on a minute. I got to find this. I mean, to me, this is an astounding number. Yeah, I mean, that number is crazy. I read recently, I'm trying to find it, but some staggering percentage of Americans can't cover a few hundred dollars expense too. I mean, you know, people's, you know, I mean, it's different because it depends on how you do it. You might have a credit card to cover it. But, you know, what it tells you, and it's not surprising, is certainly the UK has serious issues. I mean, I lived there for five and a half years. I kind of understand it.

You know, I don't think that they're they're they're dumb enough to do it. But it looks pretty clear that if a snap election were called and their system is different than ours. It's not every four years. It's, it's every, I forgot exactly four and a half, five years, you have to call an election, but you can call an election whenever the hell you want. If you have no confidence in parliament and the polls basically say the Tories would lose power. And so there are, you know, because people are really not happy, you know, there's a lot of bad going on. And so, you know, the global reserve currency like we do. And if you look throughout Europe, there's lots not going to be here first is kind of the point. But you're right. I mean, you know, when people get that close to the line, that's when voting and that's when political pressure amps up. Right. I mean, if they were looking to break something, it seems

that they've broken the bottom 90 percent of people on the planet. Right. And so I don't understand how these people can effectively take more pain. I mean, obviously, plenty of times in history, Great Depression where they have. But I mean, what happens when you're a normal person and you have a slight emergency or your mortgage goes up? Or as we know, heating bills are going to go up a hell of a lot more probably than 20 bucks. Right. Well, I mean, inflation people look, I recently attended my my HOA, my homeowners association meeting in my condo. And I bought my condo literally a year ago. And this year in our condo, our board was was pleased to represent that our increase compared to other buildings in Florida is on the low side. The increase in the HOA fee is 28%. The increase in insurance premiums was over 40%. The increase in water sewer from the town, other utilities was over 20%. So, I mean, there are a lot of people out there who haven't budgeted. Now, Florida is a little bit worse than most places because after the building in Surfside fell, I mean, you have a pretty good readers

probably know about that. They pass laws which are forcing buildings. They're basically taking the decision out of the condo boards and saying you're going to do structural inspections, which I think is the right thing to do. And I'm not going to. Right. But it's very expensive to get 1950s buildings on Miami Beach up to code. Right. Now, my building is only five years, six years old. And that's why we are below average with a 28% increase. I mean, people don't understand. And people go, oh, well, that's a rich person problem. It's like, not really. It's a problem that's going to happen in every building, which means rents, which you would think would come down due to supply and demand, can't because the cost side of the equation is so high. And so, you know, these are the sorts of things that people don't understand.

Insurance going up, water going up, electricity going up. All of these things that tend to be lagging raises are still to work through the economy. So, yes, gas prices have come back down. You know, emptying the Strategic Petroleum Reserve has been very helpful. There's no doubt. But there are some inflationary pressures out there that I'm not that will show up in the in the months ahead. And so I'm not nearly as as optimistic as people who, you know, others who think that inflation will have is already peaked. And maybe it has in terms of the peak, but it's going to look stubborn and we'll see how it goes.

But I think businesses are going to be forced to do something to help people, you know, basically the market to get people back to where they need to be. So we'll see. I mean, I don't think that the Fed is done like tomorrow. I think at a minimum, there's six months more for us to endure of this. But right. That could be six months, though, of massively decreasing rate hikes and then flat. Right. There's the idea. A lot of people have the idea that the pivot goes back to easy money and QE. Mike McGlone, who's obviously here on Mondays, very often says that ain't happening anytime soon or ever. Right. But so the pivot we're looking for here is for them to stop punishing the market. Right. I mean, I was reading an article over the weekend.

The key point and once again, I've made this point over a year ago with you. So the key point is, will the Fed ever get to a point where interest rates are higher than the rate of inflation? I.e. positive real interest rates. We haven't had them in a very, very long time. And it's interesting how the markets have gotten slammed with negative real interest rates. But they have. That tells you something about the ability to productively employ capital as risk capital. People don't believe you could actually do so on average.

I mean, I'm not saying you can't on the margin, but on average, that's a very strong statement, but that does seem to be the case. And so, look, my thesis is a little bit, you know, is basically difficult 2023, but probably the 2024. I wouldn't be surprised. I agree with Micah in 2023. I don't agree with him in 2024. I will be stunned if into the election cycle, there's not enormous pressure for easy money. I was a bit stunned that we didn't see it for the midterms, to be quite frank, because we have a historical precedent of that that should have kicked in this year. I mean, I talked about it quite a bit. And even in these hawkish cycles that I think 12 out of the 13 times the Fed has been in a cycle like this, markets have actually performed well. But that would be in the end of 2023, 2024, looking historically, It's a year and a half or two years later.

But when there is an election, even a midterm, generally you do see that Q4 rally, and we just haven't seen much. Well, I mean, you've got to understand there are a few things that were going on. Thing number one, the issue of the day on the economy was not growth, was not jobs, it was not investment. It was inflation. And so the Fed was focused politically on the most important political issue, right? You know, the Republicans are campaigning on inflation.

The Democrats are campaigning on abortion and end of democracy because of Trump, yada, yada, yada. Democrats are not campaigning on the economy, but the fact is, is the one thing they wanted to blunt of what the Republicans are saying was inflation. So it should surprise nobody that the Fed, and I'm not saying they're a tool of the Democrats. I just think they tend to be, they tend to lean into the ruling party. And, you know, even in 2020, they did. I mean, people, I mean, Trump lost, but you can't accuse the Fed in the election year

not of goosing the markets. I mean, for Christ's sakes, I mean, it was the largest liquidity injection ever during the pandemic. So, I mean, the Fed is, their political independence is much less than it's been. And, you know, maybe it's coincidence and people are saying, yeah, no, no, that just happens to be. It's like, no, I don't believe that. But the fact of the matter is, when you look at why markets drop so much, I mean, let's be blunt.

When you talk about tech stocks and you talk about the equity markets, I mean, it's still not cheap by any historical measure. I mean, it's still not cheap. I mean, we had, you know, to use different people. I mean, Hayek would have called it, calls it, you know, the melt up boom. Others will call it, you know, just, you know, whatever, a crack up boom or something like that. But the fact of the matter is we had a rally from the debt from that point in the pandemic that was massive. And people buying Peloton's 20 year earnings, 10 year earnings based upon what they're going to have for the next year. I mean, that just gives you an idea. I mean,

that's my poster child. I mean, you could talk about crypto as much as you want. And we should talk about Bitcoin. I think that's very important. But if you want to see the poster child for irrational exuberance, to use Alan Greenstand's old term, it was Peloton. What human being believed that working from home and setting up a home gym because you're locked down for a year is a sustainable thing? We saw that with so many industries. Zoom, obviously, Peloton, as you mentioned, all of the telehealth companies. But there are some that weren't specific to the pandemic, like Tesla, right? Which I love my Tesla. But then, I mean, one of the most overvalued stocks of all time, right? I mean,

the market cap higher than the next two or three car manufacturers combined when sales were only a fraction. Well, but Tesla is a really interesting situation. And frankly, it's fairly predictable. In hindsight, you kind of hit yourself in the head saying, why don't I short this? But just before you go on, before you go on, the thing is that this is one of those rare cases where everyone was right, but got completely wrecked because they did short it. They were just too early and it continued to squeeze. The premise was correct, but the trade was bad. Right. But what is the, you know, going back years and the benefit of being old,

I remember the first, there have been story stocks forever. When you get a story stock where people are investing, not upon earnings, not upon, you know, what their current product is, but what their products could look like in 10 or 20 years. And what do they represent? You get a story stock and there've been many of them over the years, things that people bought into because they said, okay, this is going to be incredible. Hell, even, you know, even Cisco at one point was going to move beyond network equipment and routers to powering the global internet. And so when the internet bubble in 2000, it got way ahead of

itself. Lots of companies have done that. were buying tesla because not because of cars but because he's going to have his own self-driving car fleet he's going to be able to tie that with spacex to be a global network he's going to have all of these things that go well beyond cars kind of like what amazon did people didn't buy amazon in the depths of the internet bubble or after the crash or during it. They didn't push up the first time because of books. People forget Amazon used to be books. Just literally a book company. But now, with a better hindsight, you go back and you say, wait, how could I have been so stupid in 2002? Why didn't I see Amazon had plenty of cash and they were in a position to own books? Who cares about books?

They literally are selling everything and handling all data and all traffic. And they basically have this enormous franchise that goes way beyond books. So people were saying that about Tesla. But a funny thing happened this year. You know, look, I'm a fellow libertarian, so I kind of appreciate it. But the fact of the matter is Elon Musk abandoned his liberal base in terms of supporters. He didn't abandon them. He never really was was their hero. He's nobody's hero. He's his own man. He does what he wants to do.

But the story of Tesla became challenged. First, electric cars are happening in a lot of other companies. And second, he went out and spent a ton of his money and sold a pile of stock to buy Twitter. And the people, his biggest fans didn't like that very much. So don't be remotely surprised. I don't think it affected their purchasing of the car. I mean, look, I'm truth in advertising. I bought a Tesla Y. I love it. Yeah, I'll drive one. You know, down here in Florida, it's awesome. I wouldn't want to have one in the Northeast where, you know, because we all saw what just happened a few weeks ago in the cold.

Not so good. But, you know, the fact is, is the blooms often rose and story stocks go by the herds, you know, the Internet trolls who buy a few shares and a lot of them deserted him. Let's call it what it is. I mean, you can see it just by reading on Twitter, ironically, which is the platform that he bought. That's the place that they all go to bash him for doing it, of course. And listen, I see a lot of people in the comments defending Tesla. Obviously, Jeff says Tesla's being bashed right now because it isn't part of the establishment fair.

Model 3 is the best-selling car in Spain, best-selling car in Norway. I want to be clear. I'm not criticizing Tesla, the car, the company. I'm saying that the stock itself was way overvalued. So if you believe in these things, actually, you enjoy the fact that the stock is coming way back down to a fair value. Right. But the point, your first comment, I didn't catch who that was.

That's exactly my point. Yeah. Tesla is being bashed right now, I didn't catch who that was. That's exactly my point. Yeah. Tesla is being bashed right now because it isn't part of the establishment. The architect, Jeff, I would say I agree with you completely. The point is a lot of his fanboys, you know, left because they're annoyed with that. Now, you know, look, I as I said, I have no horse in this race. I have no Tesla shares. I am not short. At the end of the day, the fact of the matter is that story stocks move based on stories. Are we at an equilibrium now? Could very well be.

Your first story that you reported, Scott, is the one that's going to tell. If Cathie Wood is able to hold and able to survive 2023 or the first half of 2023 without puking her position, that tells you a lot about what will happen with that stock. I think Cathie Wood is, I kind of recognize someone who's a lot like I have been over 30 years, which is generally right, but also awfully early and not awesome on timing. Yeah, like I said, that's exactly the same case for all of Wall Street that was making Tesla the most heavily shorted stock on the entire run up, which allowed it to continue going up. I mean, there's people here saying, what is the fair value of Tesla? Tesla being overvalued is a common misconception. I'm just saying if you value Tesla stock, you know, based on earnings

and, you know, like you would any other stock and you don't buy into the story, as Dave said, you can determine what it's worth based on the story that you believe. But if you're going to compare it to other companies, the stock should not have a market cap of greater than two larger companies that sell more cars. Well, yeah. I mean, look, I'm not nearly as bearish as you. And I'll never forget a conversation with Tesla here, to be honest, or I had a conversation many years ago when Tesla was a 200 pre two splits, I think. So it's definitely not that at that level. Maybe. Yeah, there was two. pre, two splits, I think. So it's definitely not down at that level. Maybe, yeah, it had two splits, didn't it? Yeah.

Yeah. I bought it. 200 the first time with my friend Jim Angel, who's a professor at Georgetown in their business school. And he was going through all the metrics of why Tesla is the most overvalued and how it's as big as short. And I'm like, yeah, you're not getting it. People aren't buying Tesla because of selling cars. They're buying it because of things of building infrastructure. So, you know, I was reading articles over the last weekend about electric car charging. Tesla has such a stranglehold on the best charging network. I mean, it's massive. I mean,

I researched this because I wanted to buy an electric car. You mean, it's massive. I mean, I researched this because I wanted to buy an electric car. You know, it felt a lot better when gas was at five, gas at three. I mean, whatever. I mean, I still like it. It's great. It's easy. I enjoy the car. But the fact is, is our office building is not alone. It has a Tesla charger. It doesn't have an EV charger. It has a Tesla charger. And there are a lot of those out there. And it is a much bigger thing. So they do have, interesting, their battery production. The interesting question to me, and I don't know the answer, so that's why it's a question, is as battery technology improves, will Tesla factories, their gigafactories, be able to stay

current? Because if you own the battery manufacturer and you own the full supply chain with charging, you have a big edge. So these are all things that let stock analysts, let your audience, you know, I'm sure there's a hundred people in your audience who know this point better than I do. Myself as well. And you said, obviously, it's important to talk about Bitcoin in the context of all this. We've sort of seen what I would describe as a bottoming. I mean, there's, you know, there's article right here. Let me be super clear. The last time I was this bullish about Bitcoin was when it was toward the end of it bouncing between 7,500 and 9,000,

which it did for like a nine-month period several years ago, pre-pandemic. It feels like that time, actually. I was going to say, we're talking about all this pain yet to come, and I'll bring that back up in a minute, in 2023. I sort of feel like it's going to be more like the miserable sideways choppy 2018 and not horrible. Of course, 2018, you were sitting at 6000 forever and then it did drop, which was extremely painful. I'm not saying that that's necessarily the case. I just think we're more in for a very long, boring period.

I could be completely wrong. More so than Bitcoin steadily dropping to 5000 or 6000, as a lot of people think. I mean, there are a lot of signals. People, what I think is the biggest misconception in Bitcoin is people look at what's going on with the miners and say how horrible that is, how bearish that is. That's a bunch of horseshit. Let's be really clear. What's going on with the miners is massively bullish for Bitcoin. Now, that is a contrarian view. I know it's a contrarian view, so I want to explain it,

but I want people to understand. The reason miners are in such deep dog doo-doo is for a combination of factors, most notably the fact that there's so much mining capacity and the difficulty isn't going down enough. And so their margins are being squeezed. So what does that mean? That means costs in the Bitcoin network, as the network is getting stronger, stronger, stronger, are going down. Yes, when the halving happens, miners are going to get pounded again. I mean, mining is turning into rapidly into a completely commoditized business

where it used to be a very non-commoditized business. What is the single best thing that can happen for Bitcoin to gain global adoption? And that's you never have to worry about the network security or never have to worry about economic rent being earned by miners. I mean, it's not great for mining investors, but it 100% is great for Bitcoin investors because it tells you the network is secure. It also tells you something else, Scott. It tells you that the idea of building a competitor to Bitcoin, where the network could be strong enough to get an actual new capital investment to build mining on a different standard. I think that ship has passed. I mean, maybe I'm wrong, but I just don't see it. I absolutely agree. I mean, people are asking,

do you like the mining stocks here? It's such a tricky sector in terms of market cap because designed to bleed profitability. I mean, in my mind, it's exactly what you just said. This is a terrible time to be a miner, but it's actually good for Bitcoin, and people confuse those two things. What's happening with hash rate is very bad for Bitcoin mining. The thing is, we are seeing some stuff. Miners who are working with the electrical grids to stabilize grids in areas that need grid stability. By the way, areas that need grid stability, that's the United States. Right now, people are focusing in Texas and some other things. I think after what we've seen in terms of extreme weather events and with people predicting more extreme weather events, I mean, I don't want to get into a climate change

debate, but let's just say that mining, stabilizing grids is becoming a mainstream narrative in his. Actually, it's one of Ryan Selkis's theses. I don't know if you plug him, but, you know, the fact is, I love Selkis and everyone. He writes a great year end piece. It's one of his theses. So if you're a miner, miners that are going to have I'm not going to say the word exclusive because that's not right, but miners that have great relationships and are working with power grids who can gain themselves preferred power costs in order to do that are going to be solid investments. That's whether it's renewable, that's whether, regardless. But renewable miners, people with access to cheap power who are in the grid where there's, you know, with, I don't even want to use a permission, with encouragement might very well be it do well.

The fact is, is the random guy who buys cheap ASICs and thinks their power is cheap and can go for it is going to have a real problem. I think that that's very, very clear. And now since we're on the topic of Bitcoin, I think everybody knows, and this to me happened right before our stream, and I sent it over to you. Gemini's Cameron Winklevoss slams crypto exec Barry Silbert over frozen funds. So for context, what's happening here, guys, you probably know who barry silver does but he's the ceo of dcg which owns genesis which has been uh i will just say repeatedly beaten by insult they had a 2.1 i think billion dollar loan to three arrows capital they've been exposed to basically everything it's been a complete disaster while genesis is behind the gemini earn product you probably know that that caused the Gemini earned product to basically

cease and no ability for people to withdraw. Well, Cameron owns Gemini and has gone after Barry very publicly now in a open letter that he printed on Twitter saying that Barry Silbert has been using bad faith stall tactics, I believe is the quote, basically saying, we tried to engage you in December. You said, fine. And you've ignored us ever since. People are suffering. Nobody can get their money back. What the hell is going on at DCG? I mean, to print this letter publicly on Twitter, how bad are things at DCG right now? Well, I think the fact, look, I have no personal knowledge of the situation, zero. So anything I say is total speculation. What I would say, and this is what I've told people internally, because I've been asked

this question multiple times. There are multiple types of bankruptcies, right? I'm not a bankruptcy attorney. I'm not as expert in the nuance. And they vary from geography to geography. The US has its form. Australia has U.S. has its form, Australia has its form, Europe has its form, etc. But roughly speaking, there is, I want to freeze and force creditors to work together to take some haircut for me to reopen and reoperate.

We call that Chapter 11 here. Other people call that different. Roughly there is, I am no, the other extreme is, I'm done. Fight over the assets. Whatever assets I have, fight over the priority, fight over the assets. And in the middle, there's I don't know yet. But let's stop people from beating the crap out of us. Let's figure out if there's operating entities that we can sell that can that potentially can earn. And we want to stop the pain so they can get back to operation. Yeah, my equity holders are going to get wiped out in this scenario. In Chapter 11, you don't necessarily get fully wiped out in the middle scenario. You do get wiped out in the other scenario. Equity is wiped out and debtors are fighting pennies on the dollar.

So there's this continuum. And we all know that, right? I mean, that's not news to anybody. What's not obvious is there's also a fourth thing that's to the left of chapter 11 on my thing, which is I'm effectively bankrupt. I know I can earn myself out of bankruptcy, but I need all my creditors to cooperate with each other. And we need to get time. We need to refactor debt. This is typically what happens with sovereigns. So every time Argentina threatens debt default or Venezuela or other countries, they try before they actually default, they try to get creditors to accept some, you know, haircut or delayed or whatever. Genesis sure looks and feels like it's in that category where they can't get their

creditors to act together. They think they have more than enough earning power to earn their way out of it, kind of a.k.a. the way iPhone X did with Tether back in after they lost. What was it? Seven hundred million dollars with that, you're going to appear to be completely obfuscating to those creditors who are willing to work with you, aka the Winklevi, clearly are willing to work with them, because he may have five other creditors that Cameron and Tyler don't know anything about who aren't willing to work with them. And they don't want to go so far as to put it in a chapter 11, because probably, and I'm once again, not a lawyer, don't know, but there is at least a risk that the corporate structure involved with Genesis and DCG would trigger certain clauses or certain actions,

if it were to officially be in chapter 11. Those actions, funny enough, might be bad for Gemini Earth. We don't know. So without knowing what's going on, this just seems like Cameron and Tyler could be, it could be one of two things. It could either be they're ignorant of this process, and it could very well be that on advice of counsel, Barry Silver can't talk to them. Yeah. Or it could be that they're fully aware of this counsel, this this process. Don't give a crap. I want to force them in the chapter 11.

It could also be a deflectionary PR stunt. Right. Like I liked Tyler and Cameron. But this certainly deflects a whole lot of stress and blame off of them to put this out there publicly. I want to read two paragraphs from this for people because they probably can't see it, but just so they can see how strong of a letter this is. The idea in your head that you can quietly hide in your ivory tower and then this will all just magically go away or that this is someone else's problem is pure fantasy. To be clear, this mess is entirely of your own making. DCG, of which you are the founder and CEO, owes Genesis $1.675 billion.

This is the money that Genesis owes to earn users and other creditors. You took this money, the money of school teachers, to fuel greedy share buybacks, illiquid venture investments, and kamikaze grayscale nab trades that balloon the fee-generating AUM of your trust, all at the expense of creditors and all for your own personal gain. It's now time you take responsibility for this and do the right thing. Here's the interesting. It's not lost you take responsibility for this and do the right thing. Here's the interesting. It's not lost on us that you started your career as a bankruptcy restructuring associate, to your point, Dave. And it's not lost on us that you've been working desperately

to try and firewall DCG from the problems that you created at Genesis. You should dispense with this fiction because we all know what you know, that DCG and Genesis are beyond commingled. Everyone takes orders from you and always has and anything you have done after the fact pretend otherwise won't hold up.

If instead you had put all this energy towards finding a resolution, we would have been done by now. Everyone would be in a better place, including you. I mean, damn. I mean, it's impossible to know, you know, but it feels like they're trying to lift the kimono and let people know what the hell's going on. And, you know, the fact is, I wrote in my, I'm actually writing my year end piece will go out on the CoinRoutes blog today, probably or tomorrow morning. And I also talked about it in my year end review.

The fact of the matter is, if you want to sum up 2022, it's all about risk. And it's were people, were risks being taken that people didn't know about? How were people taking risk you know you know was it you know with their money or was it with other people's money and were they taking too much risk uh you know and and everything was that and the fact of the matter that the fact that you could have had under collateralized loans as part of a program which was literally marketed as we loan our coins out. You put your money here. We loan it out on a fully collateralized basis and earn yield on a fully collateralized basis. That was how these things were marketed.

The fact that it wasn't is incredibly problematic. And it doesn't matter in my mind whether it wasn't because the company itself lied or it wasn't because the company was lied to. The Voyager case, the company lied. I'm sorry. It's not a question. He lied. He went from doing Bitcoin lending to arbitrageurs generating a yield which was higher than Fed funds to, oh, my God, rates are starting to rise. I can't. And there's no real demand for doing Bitcoin anymore. I'm going to go to an uncollateralized loan to some guys in Singapore because they're famous. OK, so that's one extreme. Now the

other extreme, I'm sorry. I know you're a creditor. Listen, all I can do is laugh, my friend. I know you're a creditor. I understand, but that's what they did. How there's no, how the DOJ is not involved in that. I will never understand because that's, that's clearly a lie, but once again, not involved in the process, don't care, have no befores in that race. The other extreme is clearly what Cameron and Tyler are saying. They're saying we loan money to Genesis, believing that it was being handled on a fully collateralized basis. They obviously didn't take collateral for that loan because if they did, this wouldn't be the issue. No problem. Right.

So they're claiming they were lied to. I mean, one could ask the question, you know, what does that mean? Is there a look through? Did they lie? I don't know. The fact of the matter is, my biggest takeaway personally from 2022 is it should be the death of one of the SEC's favorite and my least favorite rules, the accredited investor rule. Because if there's one thing we know now, it's trusting experts and trusting rich people to do better due diligence than you and I might do is a really bad trade. I would take your audience and their ability to ferret out what's going on over VCs or obviously the Winkle Buy every day of the week. And we have this entire structure. And one of the reasons crypto desperately doesn't want to be called securities because they don't want to be limited to accredited

investors. The whole thing is idiotic. There should be no credit investor rule. There's maybe brokers should have education standards. Fine. Risk disclosures, 100% should be improved. But the notion of this is a problem. And so when you look at risk and you're talking about Gemini Earn, it's like, my question is, okay, you're writing this letter. Shouldn't you have done this before you put $900 million with another company? Yeah.

And I don't know. Actually, Barry just responded, which the guy's been non-existent on Twitter for a while. But he said, DCG did not borrow $1.675 billion from Genesis. DCG has never missed an interest payment to Genesis and is current on all loans outstanding. Next loan maturity is May 2023. DCG delivered to Genesis and your advisor is a proposal on December 29th and has not received any response.

So clearly we have a pissing contest here between a bunch of billionaires. And I guess we're going to see what happens. And what's interesting is when you were just talking about those yield products, I was thinking, and accredited investors, I was thinking, well, Circle actually still offers an accredited investor loan program.

You can make 4% or whatever it is being accredited. So while you were talking, I pulled it up and Circle Yield is not accepting new loans at this time. We are evaluating future updates to the program. If you have questions, please reach our team. So listen, this was for accredited investors. This was supposed to be, you know, and it was a low yield, really effectively the same as a, you know, two, three year treasury or something like that. Maybe it's just over. Well, I mean, look, let's be let's be blunt about this. The same is true with gold. Same is true with every commodity out there. You can there is a market to loan gold. Obviously, Bitcoin and USDC and USDT have more. There are people who want to borrow it more likely because it's so easy and more portable.

But the fact is, is you can do that in an environment where risk-free rates are double digit percentages below inflation and or risk free rates are zero, then one, two, three, four percent might you know that you might be able to get for natural demand for commodity borrows might be attractive in a world where you could get four point four percent on short term treasuries. Why the hell would you risk, you know, you have AAA versus, I don't know what Circle is, but the fact is, in fact, Circle's business model, or USDT's business model, is they create this stable coin to grease the wheels of the crypto economy and payments and everything else. And there's actual real demand for stable coins. And they don't pay any interest on those stable coins.

They're very little. And they collect treasury yields. So they make a lot of money. I mean, you know, but in that environment, where's the demand to lend stable coins at a lower rate that you could get by doing treasury. So there's no demand for it. There's no reason for it until the situation reverses. Go to zero treasury yields, and these crypto yields will become attractive again. And hopefully the next time that happens,

there will be appropriate risk disclosures, and people will know what actual risks people are taking. And the ones who take risks that are not disclosed are in prison. So they're not there. People understand that's a bad business model to do. But the truth is, it's not in a vacuum, Scott. I mean, if the Fed, if overnight rates were like the Bank of Japan, if they were 50 basis points instead of, you know, 4 point whatever percent. At 50 basis points, you may very well find attractive yield products in crypto relatively, but not when it's at four and a half. Yeah. It means that CeFi is just dead for now, right? Because the combination of lack of yield or trust and people actually moving towards self-custody now,

I think is just a trend that is going to crush the even idea of that business for a while. By the way, I don't know if you saw this story. You may not have, but Bitcoin core developer hack highlights self-custody risk community response. I just happened to think when I mentioned self-custody, but this is a Bitcoin core developer guy

who's renowned for his security and his self-custody, but this is a Bitcoin core developer guy who's renowned for his security and his self-custody got hacked. And this has caused quite a lot of people to run to Twitter and say, if this guy can't protect his coins, how can your average person protect their coins? So maybe there will be a reversal from the self-custody trend if things like this continue to happen. I'll make it very simple and i'll probably piss off a lot of people in your audience but i my prediction is insured custodians separated from exchange cfi uh is going to be a very very large trend that will emerge you will see exchanges going back to being the intermediation above custody, and they will have claims based on what they're doing for no more than a day or so.

If you look at the way the Winklevoss twins, since we've talked about the market Gemini before Earn. They said 93%, 95% of our coins are in cold wallets where seed phrases are split up over 20 locations, not known to anybody. It basically described a situation where their cold storage is tighter security than nuclear weapons silos, right? And maybe that's true. And maybe Gemini as a custodian is freaking amazing. And maybe they do it perfectly. I don't know. I'm not saying that to be cynical. I literally don't know. And my guess is I've never heard of them being hacked. So probably they're pretty good. But the fact that custodians and exchanges are in the same business with no provable, verifiable Chinese walls is a problem. Never again are people going to trust a Sam Bankman Freed. We haven't talked about this

episode. They're never going to trust someone. I mean, frankly, Brian Armstrong says the right things, but there's no way in hell out that people are going to trust that any firm that has a custodian and operates it and operates an exchange isn't leaking information back and forth. Right. But you would trust Brian Armstrong if BNY Mellon or State Street was custodying Coinbase assets. That's right. And if if E&Y or someone was verifying what Bank of New York Mellon has, I mean, part of the reason that that Mazars, I'm sure I haven't talked to them, I'm sure their reason they're no longer offering, you know, proof of reserve verification is because it's like it's reminded you go to the park and you see the guys with the playing three card Monty.

And are you going to verify that the bean is on any of the three cards? No. If you can't control the scenario of who's moving assets around and crypto assets can be moved around much faster than accountants can, can, can, you know, build them into spreadsheets. You're not going to want to put your name on that. But if a bank in New York or State Street or Fidelity or Gemini, for that matter, is saying, OK, these assets are here. They haven't moved. They're not going to move. We, in fact, don't have the ability to move them. Here is how it works.

All of a sudden, you can start getting verification. My guess is you're going to see a lot of that. And despite the hoo-ha over self-custody, I don't think that self-custody is that bad. But the one thing that an old friend of mine who used to run security at Two Sigma, who also teaches secure infosec at Rutgers, I think. I think he still does. Bill Squires told me. The first rule of security is don't put all your eggs. Oh, don't put too much honey in one pot. So the larger pot, the larger the amount you have in a particular wallet, the more likely it is people are going to try to figure out how to hack it.

Yeah, you become a bigger target. That makes perfect sense. And also, I think people see the self-custody trend, but an institution, a huge company isn't putting their Bitcoin on a ledger and moving on. Right. So when we talk about institutional adoption, which, frankly, is where most of the money is going to come from in the near future, they need trusted custodial solutions. Right. And so whether DeFi as it's currently constituted, it is currently constituted, no. But can I see a world where an individual trading digital assets with their own ledger can trade with an exchange by putting their coins into a smart contract and interact with an institution who's using a global custodian that is using the same smart contract as a temporary intermediary? Can I see that kind of world evolving? Yes yes that's the way the world needs to evolve it'll be a dramatic more efficient way of trading all financial assets note i'm not confining into crypto so that's the future but i think we're

going to be talking about it as the future for years so the question is is, is what evolves at what time? And it's always great on the first trading day of the year to sit here and talk about what's going to happen in 20 years. I don't know when it's going to happen, but people like Cathie Wood are looking at this saying financial assets are all going to trade digitally. Our securities laws that Gary Gensler insists will work obviously don't because you can't even support self-custody. In fact, you can't even support custody not owned or controlled by a central counterparty with SEC rules. Those need to change. And when they do change, you open up enormous business opportunities that can, you know, for, you know, for what we currently call crypto, but might be

very different tokens, etc. But there are many, many use cases that are still very, very relevant. Most notably Bitcoin, because if the world is rapidly approaching the point where a global store of value is becoming more and more important, not in the US, but look at the inflation rate in Venezuela, look at the inflation rate in Argentina, look at the inflation rate in Turkey, and tell me those people don't look at Bitcoin and say, my God, this is much more stable. Yeah, it's dropped by 60% over the course of from its all time high. That is a godsend compared to

dropping, you know, 90% and continuing, right? And so people need to understand that at a certain point, adoption of Bitcoin as a global store of value starts to become inevitable. And it's dramatically underpriced compared to that. That's really the point. And there are other assets in the crypto sphere that have similar risk return profiles. The fact of the matter is we're still in a riskoff period. And so we have to deal with that. Yeah, 100%. I don't think we can find a better way to close out than you just making the two-minute case for Bitcoin, which I think was incredible. We might have to edit, cut up, and redistribute. Dave, thank you so much for showing up two weeks in a row on a holiday.

We're going to get you next week when you actually have to go back to work. Yeah, that's the idea. Well, I'm going to go to the gym now. And then because unlike last week where it was 50-2. we're paying for it if it's in your building a lot. Yeah. Well, I mean, today is a day to be spent out on the bay, I think. But, you know, it's it's beautiful here in Miami. We're going to take advantage of it. So I hope you can enjoy the rest of the day as well. Yeah, my I going to teach a three-year-old and a seven-year-old or improve their bike riding skills right now. So I'm going to be a practice in patience.

That's my plan is go outside and teach kids to ride bikes. So thank you. Thank you so much. Enjoy your day, guys. Everyone, we will be back, of course, tomorrow morning, 9.30 a.m. Eastern Standard Time. Until then, see you guys. Thanks for tuning in.