The Wolf Of All Streets - SBF In Jail | Next Crypto Exchange To Collapse? Raoul Pal, Mike Alfred, Lex Sokolin

Episode Date: December 15, 2022

Sam Bankman-Fried was finally arrested. Can we calm down and move forward or should we still worry about the solvency of other crypto exchanges and projects? Join my Crypto A Team with Raoul Pal (RealVision), Lex Sokolin (ConsenSys), and Mike Alfred (Investor) for this live panel on Thursday, Dec 15, at 9:30 am EST! Raoul Pal: https://twitter.com/RaoulGMI  Lex Sokolin: https://twitter.com/LexSokolin Mike Alfred: https://twitter.com/mikealfred ►► 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  #Bitcoin #crypto #ftx  Timestamps: 0:00 Intro 2:00 Binance will eventually shut down 8:00 Binance smart chain 11:30 What should crypto look like 16:00 Damage to crypto and finance 20:00 The role of regulation 25:00 Regulating on- and off-ramp 29:00 Bitcoin ETF 34:00 Apple and Google are severe threats to Web3 36:30 Is there anything good in crypto? 39:40 Now is the time to invest 42:55 What should people be excited about in crypto 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.

Crypto markets are still reeling from the collapse of FTX and Celsius and Voyager and Genesis and BlockFi and 3AC and Luna and probably a hundred other smaller companies you've never even heard of. So it's pretty, pretty hard to imagine that we're not going to see more contagion and other exchanges and platforms potentially collapsing. I guess then the question becomes, who is next? I have some guests today who may have some thoughts on that. We're also going to, of course, talk about what's going on with FTX and SBF and the market in general. Today, I've got Raoul Paul, Mike Alfred, and Lex Sokolin. You guys definitely do not want to miss this. Thank you for tuning in. Let's go. What is up, everybody? I'm Scott Malker, also known as the Wolf of Wall Street. Before we get started, please subscribe to the channel and go ahead and hit that like button.

As I said, the crypto market still continues to feel the tremors from all of the insolvencies and collapses that we've seen. And of course, now we also have the Grinch, Jerome Powell, showing up and telling us that the Fed is going to be continuing to raise rates until 2047. It feels like they're going to continue to do it forever until they get to a rate of 15 percent. Everything dies and breaks and it's over. It's really not that bad. But obviously, we did see that Bitcoin was trading pretty nicely, looking much more bullish. And then within 30 seconds of the announcement was right back to where it started the day we'll talk about that and a lot more with today's amazing guests i've got raul paul mike alfred and lex oakland gentlemen how are you all doing today mike i know you're up early as usual on the west coast so thank you

and lex is your first time here so uh a special, special welcome to you. Thank you. Mike, I got to go right to you. Okay. Obviously, you have some pretty strong thoughts as to what exchange is likely to be next, or at least is likely to eventually fail. You've been talking quite a bit about Binance. You even sent a tweet in all caps, get your money off of Binance right now. Right. So it's very hard, I think, in our position to separate your favorite word FUD. I know you hate the word FUD, but FUD from fiction, fact from fiction. So what are you seeing there that has you so convinced that Binance could potentially be next? Yeah. So Scott, first off, I just want to say, you know, I've never shorted Binance, right? I've never shorted any crypto token. I also want to say that I take no joy whatsoever in seeing Celsius,

BlockFi and other lenders and exchanges in the space go down. When you look at Binance at a high level, it is probably one of the most nefarious actors in this space. If I gave you the fact pattern, and there's 100 things, if I gave you the fact pattern for any other company outside of magic bean trading, let's say it was a plumbing company or a pizza company or a trucking company. And I said, Hey, this is the fact pattern. You'd say, Holy shit, that's a fraud. You would know it right away. Any good investor who sees the fact pattern at Binance would know that. So why do we have a company that accounts for 50 or 80% of all the trading volume, depending on what you're looking at, that has no domicile,

right? Every time they are actually approached about doing any sort of regulatory improvement, they move, right? Why do they not identify their corporate parent, right? We don't even know who actually owns Binance. They have no CFO. They have no corporate governance information anywhere, right? You don't know who the investors are. They've never done a full audit despite custodying over $50 billion in assets. I can go on. There's about a hundred things. But at the end of all that, what I get to is here's a company that's fractional reserving the assets. They're taking in deposits in different denominations. They're systematically re-denominating those assets into their own homegrown shit coins. And they're certainly not solvent if there's a run on BNB or BUSD, or if at any point people try to withdraw the USDC

that they've taken and loaned out to other parties. And so I'm absolutely certain that this is a company that at some point is going to have severe issues and will be forced not just to close withdrawals for USDC as they did the other day, but potentially for the entire platform. I don't know if that's tomorrow, next week, a month from now. I'm not saying that you're going to lose all your money in the next week because nobody knows that for sure because they're large. But I'm saying that if you have money on there, you should be deeply concerned. CZ has openly said that they're not lending their funds. So I haven't seen that evidence, but I would definitely not. In the report that they just published, which by the way, was not an audit,

they actually admitted to lending out Bitcoin. So I don't understand how people can read literally what it says in the report that they've loaned out 20 or 30,000 Bitcoin and then say they're not lending. Are you going to listen to what the guy says or are you going to look at what's actually happening? And I think everybody's deluding themselves on this. Binance is not a good actor, period, end of story. And so don't regurgitate that talking point because it's not true. Well, that's why I asked. Raul or Lex, do either of you have any thoughts on this? Yeah. I mean, I agree with everything Mike said. You would never do business with somebody of which you don't have any governance whatsoever, know who any of the investors are, know where any of the money is.

It's not regulated by anybody in any way, shape or form and give them your money. It's kind of ludicrous. I actually am one stage thinking it's bigger than that and that it's actually a state enterprise for China. And I think the crypto markets are being bifurcated into two trading zones, much like they want with the currency markets overall. They want a Chinese block and a Western block. And I feel like that is the battle that's playing out in front of our eyes, which is Binance and potentially Coinbase and a few others on the Western side. But, you know, if you're a Filipino or you're a Brazilian or whatever, you use Binance. I mean, there's just nobody else to go to. And so they have a huge part of that. I think, and we've seen already with Tether, even the Chinese have said people are using

Tether for money laundering. We kind of, everybody knows that capital flight in China leads to money coming out. And I think they've been using hedge funds as well, something I don't really want to talk about. But I think that some of the largest hedge funds have been involved in that too. And I think Binance is involved in that. I think it's a way of taking money out of the Chinese system for the leadership and others, and also having control of the digital economy as it develops. And I think they know that. So, you so you know I think so whether it goes bust or not different because we don't know who that backer is if it's a sovereign state probably won't go bust but you're giving your money to a sovereign state it's kind of it's dangerous and we don't need it I mean this is what I don't get sure I've got a finance account I can trade just have my tokens

off it's all over and done within five minutes, five-minute exposure. But why do people... I mean, I go into this space because of what happened in 2012 in Europe when the banking system went under in 2008, that we can self-custody assets. So that's the killer app of crypto. And yet everyone just goes, la, la, la, I can't hear you. I'm just going to leave my stuff on Binance because I can't be bothered to figure out how to plug in a ledger. I mean, really, guys? I can't hear you. I'm just going to leave my stuff on Binance because I can't be bothered to figure out how to plug in a ledger. I mean, really, guys? This is inexcusable. Use it for trading, like an exchange.

You don't store your futures on the CME. They get cleared and casted in a regulated entity. Well, we can do it ourselves. So you can go there, trade, do what you want, use any counterpart you want, and then take it off. Simple. Max? Yeah. You know, I come at this industry from a slightly different mental model, but I agree with some of the things that Raul said about bifurcation that I see is between the Web3 ecosystem with ETH and the roll-ups on top and all the software there, and then Binance Smart Chain, which as, let's call it a venue, is actually moving a lot of transactions, increasingly more transactions. And so there are these two different ecosystems, but some are more decentralized and some are more anti-fragile and then others are much more

closely held. So, you know, it's hard to speculate on the fog of what the exchange is, but I think... Yeah, go ahead. Lex, who's building on the Binance chain? Where is this activity coming from? Ethereum we know, right? It's pretty obvious. We see it, but where is it? Well, it's the problem of garbage in, garbage out, right? So if you put low quality data on chain, you don't know the quality of the data until often it's too late, but you can put low quality data on chain and it may look like a lot of activity, right? So if you look at Solana, for example, once the FTX involvement turned off, the TVL collapsed entirely. And the sort of the architecting of transactions and NFT projects, quote unquote, has also collapsed quite a bit.

But, you know, the other thing I wanted to agree with you on is around self-custody. It is like we're seeing enormous flows out of exchanges. And I hope that the shortcut everyone's been taking of like on ramping to crypto, but not even thinking about what crypto is for, not even trying to use any of it and just trading tokens around. I hope people are starting to at least understand. Like, it's almost like the problem that crypto was trying to solve. Crypto created and put on a pedestal in order to teach people exactly what they shouldn't be doing. And of course, self-immolated as a result of that. Yeah, I think that that's completely accurate. And I love the silver lining being that perhaps people will self-custody more, go back to the original ethos and to Raoul's point, that hopefully they will use exchanges and function in crypto. But maybe you guys have a little more faith in humanity than I do, because I think in my mind, this will be a very temporary

move to self-custody. And once we get another bull run and FOMO, people will go right back to the same behavior. Well, because don't forget, Scott, is every time you're bringing on, you know, by the next bull run, just by the magnitude of the adoption curve, right, you've got another 600 million people to come. You've got to educate them all over again. And humans being humans will make the same mistake every cycle. I've been in this since 2013. Every time an exchange goes bust at the bottom of the cycle and everyone learns the same lesson all over again because they're all new participants.

Mike, let's say we break this down to the roots and we do see continued failures and more contagion from this. What should this industry look like moving forward once we've sort of washed out all of the leverage and bad actors? Because it's hard for me to imagine, again, that we build this back the way that it was supposed to be done and don't just continue to repeat Lehman Brothers 2008 and crypto 2022. Yeah. I mean, look, the free market has to decide. I don't get to decide. You don't get to decide. The US government doesn't even get to decide exactly what that looks like. Right. And so we can do all the things we want right now to try to stop Binance from doing what they're doing. Right? They're taking the deposits and they're denominating BUSD and they're claiming that's a Paxos stablecoin when in fact they separately

wrap their own version of BUSD, leveraging the regulatory brand of Paxos and saying, maybe this is one of the primary reasons why people think Binance is okay. They say, well, BUSD isn't issued by Binance. That's completely untrue, Scott. I hope you understand that, that there's two different versions of BUSD. In fact, there's multiple different versions because Binance is wrapping a pegged version of BUSD and they're wrapping it on other chains like Avalanche. And so that version is not backed one-to-one. It's not taken care of and regulated by Paxos. And so as more and more of their reserves go to that, then at some point there's going to be issues there. And so how do you regulate that? I'm not sure because again, Binance doesn't want to be regulated. They systematically chose to move around the world

in a way that now you can't find them at all. And so they're not accountable to anything. So Scott, I don't know if there's an answer, right? The free market will decide. People will, as you said, continue to make the same mistakes. There'll be another Binance five years from now. There'll be five more Binances maybe, but hopefully people will learn the lesson of decentralization that Lex and others are trying to teach and people will actually learn how to use these protocols properly. Yeah, I agree with that. But like I said, we still need an on and off ramp, right? So no matter where you are in the world, at some point you need to get your cash in and get your cash out. There are regulated Coinbase in the United States. Is that the answer? Yeah, the answer is that the on and off ramp should be regulated.

They should be probably tied into the traditional banking system. And that's where the money's coming from, right? If you take your US dollars and you ship it to Coinbase, that all happens through sort of the traditional banking rails. And for the most part, that has worked. People don't like it. People don't like Brian Armstrong and the Bitcoin maxi community, but that's sort of neither here nor there because they haven't screwed anybody. It's these offshore companies who companies like Binance and FTX and crypto.com who sometimes kowtow to the whole idea of the Bitcoin maxi ideology, but otherwise are actually behaving in a way that's more fiat than anybody else.

Definitely more fiat than Coinbase, because when people lose their money, that's the most fiat thing that could possibly happen to you. So I think the maxis need to get this right, too, because a lot of them are railing on Coinbase, when Coinbase is one of the only exchanges that's actually done what they said they were going to do and held the assets one-to-one and never did any lending. Crypto.com survived a bit of their own bank run, at least for now as well. And so now people are pointing at any criticism of a Binance or someone else and saying, but look, we just criticized and flooded this other exchange and they were fine. But they're not fine. Just because they're still seemingly operating. BlockFi was operating

for nine months as a zombie company. They were dodging bullets. I mean, I always say- They were technically insolvent 18 months ago. Look, the retail consumer in this space has no idea what's going on inside of these companies. So what they're saying on Twitter is almost irrelevant because crypto.com still technically operating does not mean they're solvent. I'm 95% certain that they are not solvent right now. So if there was even a slight uptick in the number of people who want to take their coins back out of crypto.com, they don't have all the coins. I think that's very, very clear based on their behavior.

Recently, the moving of billions of dollars of stable coins around the space in and out of FTX and other exchanges, the movement of 80 plus percent of their Ethereum out of their own wallet into another exchange's wallet. What do you think they're doing? It's very clear to me that something's wrong there. There's smoke coming out of the building at crypto.com. And so this idea that they're fine because they're still operating, complete and utter bullshit, period. Yeah, I don't necessarily disagree with that. So the next, I think, obvious question then is how much damage has this done long term? I mean, Raul, I'll ask you, because obviously you've talked at length about the adoption curve of Bitcoin, of Ethereum,

of the space in general. Do you think that there's been a fundamental change to that argument at this point with all the washouts? Or is this sort of a separation of humans and the technology that we need to be able to buy for Cade? Again, I've kind of lived through this a lot, whether it's in crypto and traditional markets. I was heavily involved when long term capital management, the giant hedge fund went under. That brought down about 20 hedge funds at the time. And it was so catastrophic that the Federal Reserve had to bail out the banking system. The outcome then was anger, despair, hatred, hedge funds, leverage, opaque vehicles, nobody should be allowed to invest, how dare you put your pensioners' money into it. What happened was actually regulation and the size of assets in hedge funds tripled in four years. Then Bernie Madoff came. It's a scam. It's a Ponzi. It's all opaque. It's a terrible business. Nobody should put their pensioners' money into it. What happened? Regulation. It

5X'd after that in size to $3 trillion. So actually the regulation is a good thing. I know a lot of people in this space don't like regulation, but you can't have it both ways. You cannot want to exist on ramping and off ramping from a fiat world and not have regulation. It's as simple as that. And so when that comes, which it will, it's just a matter of who wins the fight between the CEC and the CFTC, there will be an answer. And that will give everybody comfort in the space to get in. So I don't think it changed the adoption curve. It's no different than Mt. Gox going, which is actually bigger because it was a bigger part of the market. It would be like the equivalent of FTx and binance going under at the same time now that may be happening if mike's right maybe maybe it was everything but i was lucky i was with it bit which uh chad cascarilla

who founded paxos had um started and i was i was out of the whole thing luckily um but you know we saw it with bitfinex as well they were huge huge when they went, you know, insolvent. So we've seen it a number of times before. It doesn't stop the space. It's usually just when the tide goes out, and that's usually when monetary liquidity is withdrawing from the system, you see who's swimming naked. And it's always, listen, it's a really simple thing, Scott.

You do not ever build a business of leverage on an asset of a collateral that is 100% volatility. That's fucking insanity because it will, probabilistically speaking, force you into insolvency guaranteed. Now, that's why real estate has leverage because it's very non-volatile. It's maybe a half a percent volatility asset or a 1% volatility asset. This is 100 times more volatile. And idiots think every time, you know what we need to do is build leverage on 100 volatile asset, and then wonder why they blow up and go, really, guys? It's pretty obvious. So anyway, that's my learnings that regulation will A, stop the leverage in certain ways,

or reduce the leverage in line with the underlying volatility and sort out properly client segregation of funds. I mean, I was also caught up in MF Global, which was at the time was massive as a futures brokerage. It was bloody John Corzine, my old boss from Goldman Sachs, who was the governor of New Jersey. He stole the customer money to take bets on European government bonds. And he was a fully regulated futures brokerage. I mean, humans do this stuff. Give them anywhere, a cent of money anywhere, and they will abuse it. The good news is that those people, those investors were eventually made whole, right? So that actually had at least a bit of a happy ending. Yeah, we don't know. Don't forget, we don't know

what we're going to recoup from FTX. We have no idea yet whether it's a donut or whether there's 40% to come back. We just don't know. Unfortunately, I'm predicting donut. But Lex, what are your thoughts on, I just am, I mean, whether the remaining assets were hacked, right? I mean, whatever was there to distribute to customers was basically removed immediately after the bankruptcy. So I don't really see much hope there, but you never know what can happen. I mean, Lex, do you agree that regulation is basically the only way forward for this space, at least for the on and off ramps? I mean, I think to me, that's very clear, but. Yeah, I think you need to put down a couple of distinctions. And you did by saying on and off ramps. But I think maybe making those more, those distinctions a little bit more obvious, right? So Raul's examples of financial services companies blowing up, whether they're asset managers or whether they are margin desks or lenders or capital markets desks. And then Mike made a point about magic beans, which I think was sort of maybe self-critical of the crypto industry, but I think is also very fair. And so the way I have walked myself through this time is

thinking about operating economic activity that generates GDP or is valuable, or there's some sort of commerce and consumer surplus in the exchanges between the things people make and the things that people buy, right? And then separate and apart from that, the financial services industry that grows up around it in order to catalyze it. So if we look around the world, you know, in some countries, we'll say people are unbanked, or they're underbanked. And if only they could have access to credit, then we would have financial inclusion, and they would have like a fantastic time, and have an economy and build businesses. And then on the other side of it, we might look at an economy and say, look at all these derivatives. Everybody's over levered.

It's an over financialized economy. Right. So there's there's some magic number between 10 and 20 percent of GDP where the financial services industry is symbiotic with the actual underlying economic activity that it accelerates for funds and is not parasitic in the way that for crypto, the financial sort of architecture, and particularly the centralized financial architecture, has become relative to the Web3 economy and the attempts to actually build stuff. I mean, if you look at DeFi relative to like holders of Ethereum, DeFi is five to 10% in terms of the users that are using it. It's the stuff outside the attempt to build Web3, which has deeply financialized things. And the shape of it looks to me also exactly like prior financial crises. And so the two examples, let's say Enron and the scams around the energy markets didn't mean that people don't

need energy. Lehman and the underlying exposure to housing and the poor structuring of financial instruments related to housing didn't mean people don't need houses. And similarly, the exact same thing as it relates to crypto protocols and that architecture being used to build digitally native economies, like the failure of that financial system doesn't tell me anything about whether that architecture is fruitful or not. And I think that's the hard

distinction to make. And also Lex, early on in any economy, so whether it's the US economy or the British economy or any of these, the financial system usually fails a couple of times. As people are building, they create the wrong risk, they don't understand. It's actually pretty common. 1929 and the banking crisis that went before it was pretty common at that early stage, because what you do is get the rampant speculation that uses the leverage. The underlying principle, which is this economy is going somewhere, and therefore, as you say, finance will help it along in its journey, gets lost in the speculation of the orgy of leverage. But in the end, the journey still continues.

Yeah, the interesting question talking about regulation, and I also agree with everything, Lex, that you just said, when it comes to regulation, I mean, I've made the argument, a lot of people have, is that they should have already done it and have forced a lot of these issues by pushing everybody offshore into these shadier bad actors. Why aren't on and off ramps already regulated? I mean, Gary Gensler would now change tune and tell you that he has all of the power and law behind him that he needs to regulate the crypto industry. But we still haven't seen anything giving any clarity as to what anyone can do in the United States. That's the first point. And the second is we're obviously talking about all of this in a very United States centric manner, but we're not going to get regulation in every country in the world on and off ramps of crypto.

And the people who need this technology and these assets the most are going to be in those places that was a lot but do you think that the sec and the cftc are complicit in this having not given regulation and do you think that now they will offer it or do you think they'll continue to just let it sort of suffer and die on its own my view on this is Gensler should have, Gensler's the person who's held this up. The CFTC would have done this a while ago and they regulate exchanges.

It's their bloody job. But Gensler has been, you know, I'm sorry, but he should take a lot of blame for this. And I know there's no point pointing fingers at each other, but people like Brian Armstrong has gone to them repeatedly and say, you need to sort this out. And he's like, we will sue you in retrospect and we won't make a ruling on anything.

And nobody's going to rule whether it's a fucking security or it's not a security. I mean, it's insanity. And I'm sorry, but he's got the blood on his hands of the people who lost money. And he needs to own some of this, because it was his fault. If there's anybody to blame in why people within the US got hurt, why did they go outside and use VPNs to use FTX? Well, because of the

regulatory lack of clarity on the ability to do anything in the US itself. Now, at least Europe is a bit clearer. Singapore's great. Dubai's pretty good. Everyone's got clarity. Japan's getting their clarity. It's only India, really, and the US, it's a total swamp still trying to figure this out. And that's hurting people. Right. So I guess the question is is that intentional in the case of gensler i feel like it's absolutely intentional because you don't say come on in talk to us get regulated and then as you said on the way out the door tell them you're going to give them no clarity but you're also going to sue look they also might be able to

hang him up you might be able to hang him on the fact that he's been meeting with SBF and failed to see it entirely, right? Or he saw it. I think the astute politicians will use this to the advantage. I don't know, Mike, what do you think? Yeah, I just think one of the smoking guns here is the way he handled the ETF. In the US, he allowed futures-based ETFs, which are inferior products, but Grayscale Bitcoin Trust is still a closed-end fund. That product is the epicenter

of a lot of the destruction that happened in this space. It's one of the things that felled Celsius, BlockFi, and Three Arrows. They all got trapped, and it was their fault. They poorly structured an arbitrage trade that was limited in capacity, and then they all got trapped. It's this classic thing that happens. But none of that would have been possible if the SEC would

have just allowed GBTC to convert to an ETF and trade it now. So I think, yeah, I would go back to the points that were just made around Gensler and say, it's not just the FTX situation. It's not just the lobbying and not being responsive to that in terms of regulating exchanges properly. It's also the way they've regulated or not regulated an ETF in the US. And so I think looking back, we'll be able to say Gensler is one of the worst SEC chairs in the history of the country. It's interesting because you've got these feedback loops and you can attach yourself to any of them to be causal, but they are just like circular feedback loops, right? So there's retail demand and retail demand, I think, is very structurally determined. So the shape of regulation and the shape of the options gives sort of a labyrinth through which demand flows. But then the demand itself embedded

into it are like these insane behavioral preferences, right? So like, if you take forget crypto, you take Web2 and you give somebody the option of like a flashing video with a red or green button and numbers that blink around versus giving somebody a book. Like everyone presses the buttons and like ninety nine point nine percent of people just like go froth at the mouth and go insane. Right. And like that's because it makes them feel super good. And then in crypto, the equivalent of that is like, all right, you want to hold Bitcoin or you want to try some apps on Ethereum, like go buy the token and use it a bit and see how that goes. And,

and, and instead, and if you want to be safe, like maybe give them your KYC information. And instead what people do is like, which exchange has the shortest signup with no KYC AML of any kind. So that one's going to win. Cause it's like fast. It's like Google search. What's the fastest search, right? Well, it's the exchange that has zero of anything other than your email. And it can be an anonymous email. And then number two is like,

go to the exchange that has 100 times leverage on the silliest things. Like you can't have five times leverage, that's not good enough. You can't have 30 or 40, you need 100 times leverage, right? So you have you have people self selecting that version of financial products. And so if everyone self selects those financial products, the entrepreneurs will build you the thing that you're worthy of, right? You deserve FTX if you don't want to fill out a KYC AML form and are really excited about trading 100X leverage on tokens

worth like 10 million bucks. And so, but the thing is like, who's to blame? It's not the individual's behaviors. That's the crowd. Is it this, the structure of the industry? Well, the structure of the industry relates to the demand and the regulation that's around. Where does the regulation come from? Well, it's like the politics of the things above, where did the politics come from, from the crowd? So, you know, I've got, I have trouble saying like, this is, this is a uniquely bad actor because it's really like the self fulfilling loop. And so you do need better structural solutions. I think a Bitcoin ETF

would have really de-risked a lot of crypto. But again, it's hard to kind of pin it for me on one causal effect. Well, and there's structural issues with this space broadly that have been revealed over the last year in the sense that all of these firms are doing business with each other in incestuous ways. And even within firms, you have DCG with a bunch of intercompany loans, and there's all kinds of related party transactions and all kinds of conflicts of interest. It really does feel, and I am long-term bullish on Bitcoin, by the way, but it does feel like this whole space is some sort of self-referential Ponzi scheme where everything that's happening is in relation to everything that everybody else is doing in a

direct feedback loop where if Binance were to go down, it would take out five or 10 others. FTX going down has taken out BlockFi and will probably take out Genesis. And, you know, three arrows going down was because of Terra Luna, which was because of three arrows, right? Like you draw these lines and they're all pointing back to each other and there's almost no connectivity with the real economy whatsoever. And so that has to change, I think, next cycle. Like at some point there needs to be more connectivity to the real economy, to the real world. And we need to be more careful about supporting companies that don't provide the transparency so that you can see that they're adding real economic value and they're not just, you know, an internal Ponzi scheme.

I mean, SPF's been in jail for all of under a week and we already have now regulators, legislators trying to take advantage, obviously, of this moment to come in as aggressively as we can. I'm sure you all saw Elizabeth Warren and Elizabeth Warren and Roger Marshall, who's a Republican, proposing the Digital Asset Anti-Money Laundering Act, which basically, I mean, I'll sum it up for you. Nobody's gonna be able to do anything ever again if an act like this passed. It won't. It won't, right? This is lame duck. It's a political move. I think that Elizabeth Warren has passed literally less than 1% of the bills that she's ever proposed in the first place. But basically saying that everyone would have to be KYC and AML every exchange platform wallet protocol, obviously impossible.

It would effectively kill the industry. But it seems like they're trying to take this moment to come in as hard as they possibly can. Right. Scary. Anyone? I'm more scared of Apple. Of Apple. Interesting. Yeah.

Because the government has to go through a political process and then legislate squishy words on paper and then try to enforce things through actions that have lags um apple just updates its policies and turns off nft movement you know like it i i'm farm i think i think people are missing that the two big tech firms, the Android operating system and iOS, is a more deeply fundamental threat to Web3 being able to build in the direction of its own architecture. And that's kind of what freaks me out. Because if you don't have actual progress at that layer of digital objects and economies and on-chain native transactions and commerce, if that doesn't get fixed, all this trading of tokens is super irrelevant because that's just financing. And so that's why I'm pretty worried about the operating systems. I mean, interestingly, I've spoken a lot to all of the big Web2 platform teams, right? And there's a lot of really good Web3 people who are really pushing hard to change it.

And I think they get it. I've not heard from a single person from Apple. And I've spoken to all the others at length. Not one person from Apple has come into my ecosystem to say, hey, we're looking at this, which is, you know, it's interesting because they, I mean, Facebook learned that even they don't own their own ability

to thrive and survive. Apple had them by the throat. They didn't even realize it. The app store is so powerful. Elon, you know, Epic epic all of it not yeah and i and i think i mean i think it's a it's a very exciting place for companies like apple and others to go but i think the way that they go there who knows how it's going to be right like if if you're if your mode of building is to walled garden everything,

even if you're very benevolent, like you're not going to want the anarchy of innovation and evolution the way that Web3 brings it forward. Mike, I want to ask you a question because we all focus on the negative and all these collapses and the things that could happen moving forward. But there's also been a lot of good news this year, right? Specifically from Wall Street and the institutional side. I mean, Fidelity and BlackRock. I mean, the biggest asset managers in the world are making access to this asset class easier than ever before. And with all of these collapses that are already happening and the ones that potentially will follow, there's going to be a lot of opportunity for distressed assets, right? I mean, miners, obviously, with hash rate being exceptionally high and miners looking to

declare bankruptcy potentially or become insolvent. So the question is, now that we're seeing all of these institutions flooding into the space and offering these services, and we're seeing somewhat of a collapse of the industry, do you think that Wall Street or these companies are going to end up controlling the bulk of this industry? I mean, I've seen rumors that 0.72 is raising over a billion dollars to buy distressed crypto assets. Is this the way that Wall Street finally sort of comes in and sweeps up the trash? I don't know. Look owns, they're one of the biggest shareholders of most American companies. And that's just the nature of indexing. If you put all your money into Vanguard, over time, they're going to own, BlackRock and Vanguard together are going to own

some big percentage of the equity markets. Is that necessarily nefarious? I don't know. But I do agree that we're coming to a good part of the cycle for long-term value investors. So I've been watching the Bitcoin miners very closely. Obviously, I'm on the board of one of the publicly traded ones, Iris Energy. And we just recently, in a sense, cleared a big chunk of our debt because the debt was in SPVs. Those SPVs only held ASIC machines, but we decided that we couldn't afford to pay for those anymore. We're essentially just giving them back to the lender. And so we're clearing the deck and we're setting the stage for the next part of the bull cycle where we'll be able to replace those

machines and facilities that are still wholly owned by us. Core Scientific yesterday, if you look at their bank, B. Reilly, we also have a facility with B. Reilly, by the way. But B. Reilly, it's very atypical to see an investment bank come out and write a letter to shareholders. But that's exactly what B. Reilly did. They wrote a letter to shareholders of Core Scientific and suggested that, in fact, Core Scientific is a great business and that they just need enough capital to get through the bottom of this bear market.

And I agree with that. I think there's a bunch of really high quality assets right now that are trading in plain sight. They're trading at bankruptcy type levels where they're trading at a level where the market seems to think that they're going to zero. And it's very clear to me that some of them aren't going to zero. And these are potentially generational opportunities for investors. So while I am focused on crypto.com and Binance and things like that, that I think are going to have to go down to set kind of a fertile ground for the next bull market. I'm also looking at businesses that I think look like good investments here. And if I can figure out a way for them to not file for bankruptcy, I think they could be 50Xs. I mean, B. Reilly is basically offering Core Scientific $72 million, right? So that's a pretty

strong endorsement of the business. You talk about the fact then that institutions are obviously seeing this generational buying opportunity. Does that mean that retail, I mean, we can't obviously buy Core Scientific, but doesn't that make this at least begin to look like a good time to start investing for the next bull run? No financial advice here. Yeah. And by the way, you can buy Core Scientific. It's a penny stock. It's trading at whatever, 35 cents, but two days ago it was trading at 12 cents. And when it de-spacked in January, it was trading at $10. There's no reason to believe if it doesn't go bankrupt, it won't be back at $10 at some point. Again, that's not financial advice. But if it doesn't go bankrupt, then there's a good chance

that it'll be a good investment. Will retail act on that? Probably not. Retail is scared. And rightly so, because most retail investors have either lost money due to counterparty risk or because they owned a whole bunch of tokens that are down 95%. And so I wouldn't be surprised if most retailers just go home and take their ball with them. But funny enough, now is actually the time when professional investors should be working because this is the time when actually all of the best returns will come out of it. We look back three to five years from now, it'll be right now. And over the next six months, buying Bitcoin, buying miners, maybe buying Ethereum, maybe

doing some early stage investing again, if you can find companies that aren't trading in a Series A at a 200 million pre. We can go back to a traditional $25 million pre like a Coinbase. There are real returns back in these stocks again. So I'm looking around the market. I'm seeing rationality returning paradoxically despite the pain. Now is actually a great time to be in crypto. But again, you've got to avoid the last few shoes to drop here because I think there's going to be a handful of other things that happen. And that's where I think people are a little delusional. Everybody wants to be pro crypto and bullish on crypto. But to ignore the real risk that still remain, I think, is a mistake.

I agree. You're deep in the mining, obviously, business. As you said, the news came out yesterday that Tepco, which is the largest energy company in Japan, is going to be using all their excess energy for Bitcoin mining, right? I mean, these are huge, huge. We've seen Exxon make similar announcements. Does that fundamentally then change the mining business for the small guys who now maybe do get flushed out for good? I mean, it seems like being a retail miner, as much as ASICs are cheap right now, the business could be changing. Yeah, you need scale. And I've always, I think most of us who've been around the space for a few years, you've always seen it as a convergence

play, right? Where energy and Bitcoin mining are sort of one in the same. At scale, eventually, a lot of the ASICs will be owned directly by large energy companies, right? And in a sense, Bitcoin mining does facilitate changes in the energy grid over time because Bitcoin miners are among the most responsive large-scale users of energy. And so you can use energy and it's location agnostic. You can scale up or down. You can use excess power. Like in the panhandle, there's 20 gigawatts of excess wind and solar. That's some of the power we're using in our new Childress facility of 600 megawatts potentially coming online over the next several years on a large facility there. So I'm really bullish on that part of it. And I think over time, yeah, energy

companies will control a bigger and bigger share of the Bitcoin mining space, and it probably should be that way. Yeah. So listen, I intended to talk about SBF being arrested and Kevin O'Leary seemingly becoming a jackass and losing his mind and all the other bad things, but we have 15 minutes. Let's talk about all the things we're excited about that are still happening in this industry. Lex, you're deep, deep down the rabbit hole of what's being built. What should people actually be extremely excited about aside from the low prices and all of these washouts? What's being built? Are we still, you know, going to dominate the world? What can we look forward to?

Yeah, I'll, I'll definitely take on that question. I want to say that the, the main data point I, I need about retail investing is that Robinhood is launching retirement accounts to save, you know, to save their business. And that tells you everything you know about the psychology of the day trader right now. SBF's retiring too. It's just early. His retirement home looks like the worst on the planet by the way yeah it's very effective um all right so what what what are we excited about um i think like it's it's under everyone's nose and it's obvious and it doesn't have to be magical and confusing and unknowable and some secret like strategic thesis. It's 2022 and I am still like giddy that Ethereum underwent the merge. So there's like actual evidence of people being able to do a core protocol upgrade on the, the most, you know, used computational blockchain while it's computing.

And I think that's amazing. I think all of the, it removes one of the objections, at least, you know, so for the Web3 ecosystem, it is important that other entrepreneurs and builders are happy to build on it. And it is important what their beliefs are. And for a bunch of the NFT industry, especially on the fine art side, the ESG narrative was a concern. So whether or not it's factually true doesn't matter. What matters is that are people using it as a reason not to do things. And so that's removed.

And I think it's fantastic. The other bits are that scalability and privacy keep coming up, right, as the other two things in the way. And so scalability, I mean, again, Arbitrum and Optimism are up and running rollups on Ethereum. They're not sidechains. They're not Polygon. They're not sidechains. They're not Polygon. They're not BSC.

They're not EVM architecture that sort of has a bridge that can be hacked. They are roll-ups. And together, they're adding 800,000 transactions a day to Ethereum. And that can go much, much higher. That's super exciting to me. It shows me that it's possible.

It isn't just talking points, that it's possible. It isn't just talking points, that it's possible to improve scalability and drop gas to trivial numbers. On the zero-knowledge proof side, there's a whole bunch of progress. For us at ConsenSys, we just released ZK EVM testnet. So there's privacy around the corner, right? How exactly it looks, I don't know. But again, it's not a fantasy. So like, the base protocol is much more performant, and I think has removed a whole bunch of friction for people making stuff. And then the second, second thing for me that is, you know, and again, like you don't have to look far, it's right there, is what's going on with DAOs. And if you believe that Web3 needs an economy and that all of that, yes, you need to pull in sort of like real economy stuff and Starbucks NFTs are cool and all of that. But if you want to see evidence of an economy being done in a digitally

native way on chain, DAOs are your answer to that. They're like the small business unit of Web3. People are coming together. They're generating treasuries. They're governing. They're building products. There is variety in the types of products that they build, whether it's interactive, whether it's social clubs, whether it's investment clubs. There's a whole bunch of things that people are putting labor into and that other people are paying for. And so, you know, like the growth in DAOs and the growth in active governance and the scar tissue around trying to figure out governance, whether it's a maker or acoin, like ENS, I think it's fantastic.

It's substantive work that's going on. And so from a fundamentals point of view, again, if you're focused on that kind of building, I think it's super exciting. It's definitely better than a year ago. It's definitely better than three years ago. I think the infrastructure is much more real today. And for people following the space, I think they should be excited about it and use it. Raul, what has you excited right now? First, I'm excited about the macro because everybody

absolutely hates it. I can see it on your face, Scott, and see it in your tweets, Scott. You just can't stand the name J-PAL anymore. And I love those moments in time, right? Those are the turning points. That's when everything's been distressed. And I've been talking about this a lot. The cyclicality of crypto is driven by the monetary cycle. And then we've got the long-term trend of adoption. And when those two meet are the magic periods in time where the risk reward goes exponential, right? And this is why crypto looks like no other asset. It was a great thing that Bloomberg put up recently, which is over the last 10 years, seven of the 10 years, Bitcoin has been the best performing asset in the world

as a proxy for the whole crypto space. In the three years that it wasn't, it was the worst. And, you know, it's buying the worst when you get this is an incredibly exciting opportunity. And you don't get this kind of risk reward. So I really like it from an investment point of view. I think at a broader level, there's a lot of stuff going on in the background that is really interesting. I think ETH staking is still not realized what that means for the lending industry and be able to build better quality DeFi product with understandable risks, because you've got a benchmark yield for the industry. And I think

it's a hugely important thing. People don't know it, but by the next cycle, by three or four years time, everyone's going to be familiar with that. How people can start pricing things of ETH yield plus. So then you know, oh, solana yields trading more expensively why because there's more risk in the ecosystem whatever it is right um i think that's that's a very big deal what products what structured products and stuff that come out of that that's interesting i've spent a you know a deepening amount of time into the nft space and just that nexus of music art music, art, technologists, finance people, just culture all coming together. I don't think it's barely started. It's a magic moment in time. There's something really interesting going on. And obviously it's spinning out into brands using NFTs, whether it's Porsche, whether it's Nike,

whether it's Adidas, whether it's others, what are they doing? How are they building community, understanding community as a new business model? This is a scalable, massive consumer application that is happening in front of our eyes. And Starbucks is right at the forefront of that, as are many other brands. Ticketmaster, and then this one in a lot, Ticketmaster has issued 10 million NFTs. Nobody would have thought they would be the leader they are right so there's a lot going on in building out that uh kind of social graph and i think that's important for the layer of all of that money that went into vc people think it's been nuked it's not everyone's busy building stuff right and that stuff is being built on generally the consumer layer or the deep tech layer those two layers are very interesting lex will know more about the deep tech layer but the consumer layer or the deep tech layer. Those two layers are very interesting.

Lex will know more about the deep tech layer, but the consumer layer, that's where the next breakthrough comes through when we stop caring what bloody chain something's actually on because we just want the digital asset or utility that we've got. And everything becomes a lot smoother

and all of that's extracted away. Digital ID is another big one that I'm very excited about that has to come. It's kind of urgent ahead of the US election with the amount of AI stuff. And then final one for me is I'm actually excited about regulation because I'm a masochist, but we kind of need it. Yeah. So it sounds like you've made the pitch before. You and Jeff Dorman had an incredible conversation once on a Thursday here, basically talking about the applications with Disney and all that huge companies that have their coins. None of that's changed for you very clearly.

Nothing's changed. And none of the people, including the investor base, everybody from the hedge funds to the institutions, the family offices, the pension funds, they're all still doing the work. They're all still set up. They're all sheep now, right? Right now, it kind of is the wrong moment, unless you're brave. So the brave people will do it now. But really, once price turns up, they're all parlin. And, you know, that whatever it was a peak at the last bull market, 3 trillion will be minuscule compared to the peak of the next because of the sheer amount of capital that comes into this space. You know, talking about Bitcoin miners, you know, I've been speaking to some of the biggest Middle Eastern economies. I mean, they get this. You know, they're building, you know, thinking about the gas flare-offs and what they can do with

mining Bitcoin. They're thinking how they can hold it as part of their sovereign wealth fund in a much more meaningful way. It's all people are just very impatient they expect it to come tomorrow and you know we've got to go through this despair loathing phase that scott you're going through as i can tell before my game before you go back to the optimism phase and we can forget all about this and start counting every thousand as it goes up and putting laser eyes on the screen again. I think it's fair to say the despair phase is very real, but at least I'm cognizant of it and can rationalize it in my mind. Mike, what are you looking forward to and what are you looking at right now that excites you? Well, I'm really excited.

I mean, I am in the final stages of launching a new liquid hedge fund, which I got a large commitment for when I was in Miami in October. I wasn't even pitching, by the way. I had no deck. I just got off stage. I was on stage with Nick Carter at a conference and somebody came up to me and said, Hey, I want to write you a big check. What do you want to do? And I said, I don't want to start a liquid fund to take advantage of buying the dip over the next six to nine months, partially in this ecosystem. So I'm doing traditional equities, so value equities and healthcare and staples, but also Bitcoin and Bitcoin adjacent equities in one portfolio structure with just one LP. And so I'll be able to focus 100% on investing. And so I'll be buying a lot of the stuff that we

have been talking about over the next six months. I mean, we just mentioned Core. Core was up 72% this morning. I was tweeting about it over the last few weeks, just because if it didn't go bankrupt, it looked really interesting at a $50 million valuation when they're literally minting 50 Bitcoin a day right now. So you just do the math on that. If they can figure out the debt situation, eventually that's a very valuable company. And I'm seeing like 10 or 15 ideas like that right now that are interesting. And whereas a year ago, I couldn't find anything to buy. So from an investor standpoint, paradoxically now, again, is one of the best times to be an investor and I'll be in the market with a new fund.

So I can't get enough of this, actually. I love this. I don't want to see the whole industry implode. But again, I'm not fully comfortable deploying all the capital into an environment until I see a handful of these additional bad actors get wiped out. I just don't think we're going to see a sustainable bull run. The market won't even allow it, I don't think, until some of these bad actors get wiped out. So that's the primary thing I'm excited about. I just want to see that part of the process flip over so we can really rebuild on fertile ground.

I mean, I'm getting the impression that everybody thinks that we should buy the dip. And I continue to make the point, I don't really care if Bitcoin is 17 or 10 or 12, because the downside is so much less dramatic than the obvious upside. So it's all the same to me. $10,000 Bitcoin and $17,000 Bitcoin are effectively the same to me because I still believe it's going to 250, 500, or I'll even go out and still say in the depths of their market, I think that we will one day see a billion, a million dollar, not billion, Fidelity said billion, million dollar Bitcoin. Well, guys, thank you so much for joining. We are unfortunately out of time. So I feel like we could talk for many, many more hours. Next time,

Mike, I'm going to get CZ on here to talk to you. I'd love to talk to CZ. I had you once on with Machinsky and Caitlin long, man, that was a, that was fireworks. He, he, that was a bad moment for him.

That was a, that was a rough day, but all of you are of course, welcome back everyone else. I will be back tomorrow morning, Friday. Of course we do the weekend review of the news. Should be fun because we have a lot to talk about.

Once again, go follow Alex, Raul, and Mike, please. And guys, hope to see you all soon. Everybody, thank you guys for joining. See everyone else tomorrow. Take care. Thanks, everyone. Thank you. Let's go.