The Wolf Of All Streets - Should You Invest In Crypto During A Recession? Guests: Jeff Booth, Steven McClurg, Tom Dunleavy

Episode Date: October 6, 2022

Thursday's live panel is back! Special guests: 1. Jeff Booth, author, entrepreneur, and technology leader: https://twitter.com/JeffBooth 2. Tom Dunleavy, senior research analyst at Messari: https://mobile.twitter.com/dunleavy89 3. Steven McClurg, CIO and co-founder at Valkyrie: https://twitter.com/stevenmcclurg ►► Get 20% off on your ticket to W3BX. Use my code: WOLF20. Register here: http://web3expo.live/  ►► 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   TRADE ON THE WORLD’S BEST DEX, BULLISH: ►► https://thewolfofallstreets.info/bullish/youtube  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 #Trading 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.

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Thank you for listening and enjoy. There's been seemingly endless debate as to whether the world is in recession or not. Because, of course, anytime we come near a recession or any sort of global meltdown, we have to change the definition of what those things mean to make the situation seem better than it is. But I've brought on three incredible guests today to talk about whether the world is in recession, what comes next for global markets, and of course, where crypto fits into that picture. I've got Steve McClurg, Jeff Booth, and Tom Dunleavy from Masari, whose name I just butchered for no apparent reason.

Let's go, guys. What is up, everybody? I'm Scott Melker, also known as the Wolf of Wall Street. Before we get Let's go. is happening with global markets and where we currently stand. Every day, it seems like traders and investors and markets react to the news of that moment and their sentiment as to whether the Fed is likely to pivot or not, what central banks are going to do, and what the status is of inflation. And the status of inflation, of course, is different seemingly in every country around the globe. As usual, I like to bring on people much smarter than myself to discuss these topics. So without further ado, I'm going to bring them all on right now. We have Jeff Booth, of course. Hi, Jeff. Hey, Scott. Steve McClurg from Valkyrie. Steve, how are you? Great. How are you, Scott? You're well-shaven. This is a very well-shaven group today.

And of course, someone who's not well-shaven. Tom Dunleavy from Masari. You're the Lone Ranger with the beard. I was with you yesterday. Morning. Good morning. So listen, first of all, Steve, I have to say that you have been almost prophetic in your views and predictions about the market. You were one of the first people

who was on here when perhaps some of us were over optimistic saying this stuff is going much lower. Right. So now that it went much lower, I mean, I think we were sitting at two thousand something ETH, forty thousand Bitcoin. And you were talking about, you know, eight hundred and and, you know, fifteen thousand or sixteen thousand. So where do you think we stand now? Well, you know, a year ago and for the last year, it's been a lot easier to make these predictions because they were obvious, I guess, to me. Going forward, it's a little bit harder, right? Because we knew what the Fed was going to do a year ago. Right. So so last October, they they foreshadowed their unwinding of the balance sheet in March. The potential of rate hikes, you know how to position yourselves.

And if you do the simple math, you can see where inflation is going and you can see where where rates need to be hiked to. Right now, our current view is that the Fed will probably hike another 75 basis points, another 50, and then next year, probably 225. Now, that could change because something could break. And there's a lot of things with the potential to break, which makes this a harder market to really go into. But given that scenario, we probably see the S&P lower by 20% to 25% by the end of the year, which would definitely have an impact on crypto, causing it to go lower by probably,

if not the same magnitude, less. And the reason why I say less is because crypto got hit the hardest last spring and is already closer to that bottom than the rest of markets. So equities would most certainly need to catch up. But I do feel like we're closer to a bottom in say Bitcoin than,

we could still go back down to 15,000, but that's still not terrible in the grand scheme of things. That's actually really interesting because the perception is always that sort of Bitcoin is a riskier asset. We'll move more than whatever the market does. You know, market does 30, Bitcoin does 40.

And so in this case, you're saying that we are closer to that bottom. Jeff, he sort of alluded to the fact that maybe it gets worse if we break things. Couldn't you make the argument that we've broken all of these things already? Not completely yet, but that's coming. Nothing is different, Scott, than what I wrote about in 2019, 2020 when my book came out. You have a technology driving a trend that's deflationary. And because that trend of deflation, which would save our time, destroys the existing financial system. The existing financial system is caught in a debt trap that must continue to print money. If it tightens, when Steve said things break, the entire system breaks and you have an unwinding deflationary collapse

that doesn't look like good deflation like I'm talking about. It looks like a credit-based system. The entire system is based on credit that must grow forever, offsetting the deflationary technology that's coming. It must. And what that means is that whole system collapses. And so the Fed and all central banks are trapped. They don't have to just bring more debt on, more credit on. They have to bring exponentially more credit on to match what's happening. And so it's literally crazy that we

live in a world that the only thing that's pricing every other asset is how much are you going to manipulate money and when. And so when we're talking about which event triggers the avalanche of the entire cascade of the financial system, we're really what we're saying is which snowflake causes the avalanche. Because it's coming and it doesn't matter what what and and here's the thing for a larger picture than uh than than specifically bitcoin or crypto that existing market is four orders of magnitude bigger than bitcoin or bitcoin so the thing that is everybody's measuring their life in, that misinformation, essentially, because money is just information. You don't want more money. What you want is more of what you think money buys you. It's a ledger that explains how much, what you have and what

you think you need to achieve your results. So when you apply misinformation to that money at the scale that's happening and everybody's looking through that misinformation, they're liable to make all of these mistakes. What's happening as well in parallel is Bitcoin is repricing that entire system. So it's a transition. And what people are doing is they're mismeasuring it from the system because they're used to pricing in the system. But just to accentuate that, this is going to collapse spectacularly one way or another. You're going to have hyperinflation for a long time or high, high inflation for a long time, causing other events, the world to unwind and go and pull in on itself

and society to rise up, or you're going to have a deflationary collapse. But that's actually how, because there is no fix from the existing system. And Tom, you're probably the deepest in the weeds, I would say, on this as a researcher. I mean, you obviously, the depth of charts that you've shared with me in the past is impressive. So obviously, we're talking about what things look like moving forward and what's already happened. I think you had a more optimistic view last we spoke, and so did I, at least about sort of the fourth quarter of this year in election season, but where do you think we stand? Yeah. So right now we're looking through the lens of inflation for everything. Inflation is certainly coming down. It's not coming down as fast as everyone would like it to,

but inflation is housing. It's 40% of CPI, 33% of PCE, which is what the Fed measures. And you can look at leading indicators like new mortgage applications, which dropped 40% year over year, the last reading. The issue is that those readings take a lot of time to filter in. The housing indicators are sort of lagging in sort of the broader CPI numbers. And they're going to contribute to broader inflation for the next six, nine months or so. So you're going to have other components of CPI sort of fall off the medical component and a few other things like airfares and stuff like that. But the Fed is going to really just be closely watching those numbers.

And you could see how quickly the market is turning on a dime for every data point. I mean, this morning we had initial jobless claims, you know, they were, you know, a little worse than expected and the market suddenly spikes because, you know, bad news is good news. So every single data point is going to be closely monitored, closely watched. And right now it's, you know, I think we're all here for crypto, obviously, but we're looking through the lens of macro and looking through the lens of equities because that's what's really driving the bus at the moment. And if you're going to listen to the Fed when the money printer is on, you really have to listen to the Fed when the money printer is off and they're suctioning liquidity from the system. If you look across the world right now, it's not just the Fed, it's the BOJ, the ECB, everyone is withdrawing liquidity.

That's tightening conditions. That's making things a lot more challenging for risk assets, a lot more challenging for equities, a lot more challenging for crypto. I think for me, my base case though, is that we had so many forced sellers in May and earlier this year. I'm not sure who's left really to sell. You have traders who are sort of moving in and out of the market and you have discretionary folks who are kind of playing at the edges, but the people who are holding Bitcoin, Ethereum, these other assets right now are really the long-term buyers, long-term holders. So what could be another capitulation event that sort of sells us off? I think it's maybe like minor liquidations or something like that. I think the $17,000 level on Bitcoin is a key one to watch there. But, you know,

I think Bitcoin and Ethereum hopefully, in my mind, kind of stay at this level and equities still, as Steve said and Jeff said, you know, I think they sell off pretty hard from here. So we do get that decoupling that everybody's been sort of looking for and hopefully in the right direction. But touching back on what you just said, everybody's tightening. But we did just see the Bank of England start to buy bonds. Right. So, Jeff, I mean, to your point, you can already see these sort of cracks in their dedication to tightening and hawkish position. Right? Yeah, the equity markets, like who cares? The bond markets are where the action is. And when you see what's happening in the bond markets,

there's stress. Of course, there's stress integrating because you have a world order of financial system that's collapsing and people are mismeasuring. Like when they're looking at equities, they're mismeasuring the risk that's what's because because what has to happen again follow all of these conversations to the sand on these conversations and every one of them is when 12 12 old men or 12 when 12 people are going to press a button and destroy your currency. Every one of the conversations comes back to that.

And remember, inflation is a manufactured event. It is not a natural event. It actually happens as a result of manipulation of currency because deflation is natural. But people believe that inflation is required to run a productive economy. It is not. It is only required to keep a credit-based economy going. And that credit-based economy cannot keep going forever because it steals the productivity from the free market and transfers it to very few and makes malinvestments

as a byproduct. So that credit-based market is a centralizing function where we are today in manipulation of money. And it has to drive more and more coercion and control, and it has to overtake all markets. If you look at the BOJ, if you look at how much they own of stocks, if you look at what's coming everywhere, that's what's coming everywhere out of the existing system. And there is no fix other than Bitcoin. Steve, I mean, you obviously alluded to the fact as well that you think Bitcoin or Ethereum could sell off less than all of the other markets. So why everybody actually now, I think we have consensus from all four of us thinking that that's possible. What if that's

not the case and it just continues to trade as an extreme risk asset with this sort of inevitable downside? Yeah, that's certainly a risk that could happen as well. And if it does, just like all risk assets, when the Fed does pivot, by the way, pausing isn't a pivot. Pausing is actually a pretty bad situation. If we have high rates for a long period of time, we're just going to be sitting in a stagflation environment. And but when they finally pivot and go the other way, which I believe there's going to be a point of capitulation where they do, it might not be for another year or 18 months, but it will, like other risk assets, go up and will probably go up the most fiercely. Steve, can I just jump in on that, what you that? Because I agree with you. But right now,

the stress in the bond market, if they don't pivot soon, you're going to have... Dollars are becoming harder to get all over the world. And what that means is other governments are having to sell their treasuries. And that's driving the US dollar higher. And everybody's racing for that liquidity. If they don't pivot fairly soon, like not a year from now, if they don't pivot, there won't be anything left to save. This thing is going to start unwinding and it's going to accelerate the unwind.

Remember, what ends up happening once you tip over into a deflationary spiral and the deflation you're dealing with is that debt collapse, the amount of easing to be able to stop that from happening will blow your minds. And it just matches the next financial pattern. But it has to, and that's in our future. There's going to be yield curve control. There's going to be everything from the next pattern. Exactly. It just has to. But it has to. And that's in our future. There's going to be yield curve control. There's going to be everything from the existing system. Because there has to be.

All over the world, there has to be. And then you have to say, what does that do to society? And it gets worse and worse and worse because it's a concentration. But again, if you just zoom out on what's happening, that's what's happening. No, I agree with you. And even though that's what's happening and what should happen, the Fed has a habit of reacting very slowly and frantically when they finally decide to act. So even though, you know, I take the view, I'm a former bond manager

and there's bond managers way smarter than me that are taking the view. And I have the same that, you know what, they should just, last time they should have just, you know, gone up a hundred basis points and left it alone and keep rolling up the balance sheet and stop there, right? And yeah, inflation is going to continue to be high

and it's going to continue to be in the 7% to 9% range, but it's going to take a very long time to get it to come down. If you raise rates too fast, which is what's happening right now, and the continued rate hike cycle, things are going to break. But that other currency breaking isn't necessarily what they're worried about right now, although they should be. So so I still think that they're going to you know, I think that there's a greater than 50 percent chance that, you know, they continue to raise even through next year and it breaks worse.

And then it's a quick pivot, you know, sometime at the end of the year when they realize what had happened. If you remember back in 2000 and 2008, right? When 2007, 2008, I mean, the Fed was behind by a year, right? Yeah. Powell is not going to repeat the mistakes of Arthur Burns. He's made that very, very clear. And I think what you're both getting at is the fundamental underlying issue, which I think is going to be the next big driver of potential crypto adoption. And that's the underlying dollar based system we all operate on.

The dollar is the denominator right now. So with the dollar as the denominator, everyone, as the dollar rises, everything gets more expensive for everyone. So how do we change that? I don't know. I think, you know, right now we're seeing potential Plaza Accord kind of 2.0 conversations, you know, Plaza Accord in the 1980s, we basically said, let's strategically devalue the dollar as a group of G7 countries or whatever they called it back then. Because when the dollar rises, everything else is in pain. And you can look at the correlations between global growth, global trade, et cetera. As the dollar rises, everything else goes down. So that's the end game is what do we

do with the dollar? How do we get off the dollar based system and how do we find some new alternative to it? I don't know that personally it's Bitcoin, but I think Bitcoin has a role to play. Well, to Jeff's point, what's going to happen is as the dollar continues to strengthen, manufacturing in the U.S. becomes, you know, the products that we manufacture become more expensive and people are going to stop buying. So our exports are going to drop pretty drastically. If that happens, then, you know, we're going to hit that unemployment rate that the Fed wants very quickly because you're going to see manufacturing jobs go away. Yeah. And that whole thing accelerates.

It means also imports get cheaper and the trade balance explodes. And there can't be, because of the Triffin dilemma, there can't be an underlying global order that works for a long time based on one country's currency. You have to have a neutral reserve asset. And what I think is happening here, and I specifically, I think you guys know this, but I don't think Ethereum at all,

and I don't want to get into that debate right now, but what's happening is you need decentralization and security because you know governments will not give up the control of their currency. That decentralization and security is so critical. Bitcoin is the only thing that has decentralization and security. It actually doesn't matter. Typically, a technology like this, a base protocol level technology like this, helps the people furthest away

from a monopoly. No matter what technology, any technology change helps the people furthest away from a monopoly. So that makes sense that we wouldn't see it in the US or Canada or people who have been close to the money monopoly. But it makes perfect sense that El Salvador would go first and other countries would go and you cannot stop that adoption because it's providing staggering value to billions of other people and that adoption like all technology is from the bottom up it's not typically technology

is not from the monopoly down it's from the bottom up and that's what causes the change. So what we have today is a transition to a neutral reserve asset that has unlimited velocity in technology on the second layer through lightning and such that slowly erodes something that cannot work for a long time. And that's, and that volatility in the asset is actually also what you're seeing in that, because you're measuring it from the existing system, you're seeing that erosion. But as that network effect expands, expands, expands, and I'm investing on top of that in companies that are building on top of that, people don't know what's coming. It's like, it feels like, it feels like I'm investing in the internet in 1995 and similar that people have no idea what's coming.

Well, it's hard to imagine it when you're, when you're sitting in our seats, right? I mean, even, even, even us, right. We're all, I'm assuming we're all in North America. We have a pretty robust banking system, a pretty robust currency system, exchange system. I can go anywhere, put something on a credit card, put something on my phone. It's really easy for me. And it's easy for most people in North America, Europe. And so it's hard for us to imagine,

you know, Bitcoin to a lot of us is kind of cute. Like I can, you know, I bought art from people using Bitcoin. I've done a couple of transactions with, you know, at fast food places or Starbucks thinking, okay, yeah, this is kind of cool. I'm going to use some Bitcoin for this just to do it, right? Just to do it but if you go to some other countries that don't have robust banking systems that have a history of currency inflation and hyperinflation um it's a pretty serious thing right um you know you you go to a lot of countries that you know people still live in houses with dirt floors they don't have a bank account um They don't really have a currency that's stable,

but everybody has a phone and they can all make transactions on their phone. And it's become very easy. And those are the places where it's going to get critical mass first. And then other places like El Salvador, where for the most most part they were utilizing the dollar but the dollars in an inflationary you know era right now and and granted Bitcoin is is very volatile but it's still a a good second currency for a lot of people to use when there's uncertainty and it's it's it's going to slowly catch on it's got to grow in market cap and grow in adoptability before the volatility starts being sucked out. That's with any currency. It's just the law of large numbers.

But as it does grow and is more adopted, you're going to see that volatility move out and you're going to see more practical uses. Because you're measuring the volatility through the existing system. That's the point. Everybody's measuring this new system through the existing system. And you know that old fish swimming by the two young fish and says, how's the water today? And the two young fish, what's water? We're all in the water that we don't know we're in. That's the system. And every question is about when is Powell going

to print? When's this going to, does he want to be Arthur Burns or not? Every single system, our housing prices are the water. And the new system is replacing that, measured in a different currency. So go ahead, Tom. But I want to ask you a question specifically after that, Tom. Go ahead. Yeah, just two points. So Jeff, really interesting. As we saw the pound and the euro sell off, and I'm someone who came into crypto because

of Ethereum. So I am not a Bitcoin maximalist or someone who sort of leans that direction. I was very interested to see as the pound and euro sold off, the cross currency pairs with Bitcoin actually spiked in volume five to 10x their previous situation. So people are actually actively putting on Bitcoin positions, you know, fleeing developed currencies, which I think is fairly unique. And then Steve, to your point earlier, you know, we see sort of six to 10% remittance rates just traveling back to dollars for developing countries' currencies. So, you know, there's a really, really simple use

case for crypto. It's stable coins, and it's not very sexy, but it's going to be something that is really going to lead adoption in the US. Sorry, go ahead, Scott. Literally exactly what I was just going to ask you about, Tom. And also to your point, we saw that in Russia and Ukraine as well, right? When we saw that war start, we saw people actually a flight to Bitcoin and not anecdotal, like literally going to that currency to protect their money. But I guess playing devil's advocate a bit and what I wanted to ask you about, I think Bitcoin, as Jeff described, is the cure for the system. But right now, the Band-Aid is stable coins. And that's been the killer app,

because as all of you have admitted, there's sort of a rush to dollars, right? There's a lack of dollars all around the world. People are looking to get into them, whether right or not. So aren't stable coins, to what you just said, sort of at this exact moment, one of the huge, I guess, bullish use cases for crypto? Absolutely. And if you look in South America, you're seeing this. I mean, countries like Argentina and Brazil who are having sort of very high levels of inflation, you're seeing loans and USDC and other currencies, you know, spike very dramatically. And I think that's only going to continue to increase as we go forward. So it's going to be a challenge to sort of make that use case really hit home in the US, because as both of you

mentioned, you know, we have dollars. We all have dollars in our bank accounts. It's not very interesting for us to transition to stable coins. But outside the US, it's a very real use case. So my base case right now is crypto is going to be more and more adopted outside the US than it is in the US. And hopefully, we don't get left behind, but that's a real risk. If you look at chain analysis reports every year, they put out a report on like the top 20 cryptocurrency nations and the U.S. is eight or nine, but the nations that are actually leading in that sort of count are the nations that have corruption, that have inflation, that have dollar devaluation. They have all these things that make crypto a very real use case for

them. What I think is actually a very real risk in the US though, is that you have stable coins fall under the purview of our government. And then all of a sudden, traditional DeFi and everything is sort of under the purview of Gary Gensler and his friends. They become central bank digital currencies. I mean, I think that's the inevitable course of action there. That's why I called it sort of a bandaid for people who are just in need of dollars. Yes. Tom, read a piece and I'd love you to come back and from a first principle, try to poke a hole in an article I wrote that is calling Finding Signal in a Noisy World.

And it describes where Bitcoin is in this whole place today and crypto in general and why it's natural to think crypto could work in the existing environment. It's completely natural from market incentives, but it won't, I don't believe. And from a first principle standpoint, if you see what's actually happening on top of Bitcoin in layer two, when people say decentralized finance, the decentralized finance has to rely on top of a centralized organization like Ethereum. How does that work? Isn't that an oxymoron? And that's what you see. You see, if these things actually worked, they would be centralized quickly because they have to be because the government would control them. So Bitcoin is the only thing at the base layer that is decentralized and secure and built into that.

And actually, that function also created a slow, because it hardens it. It didn't have any other use cases for a long time until the layered protocol comes in and lightning and FETI is coming out. But if you see what's happening on the second layer and third layer right now, where I'm spending a lot of time, it literally changes the world and people are missing the boat. How fast this is going to explode and provide real value to people. But anyways, I just say take a look at that because so many people are confused

because it would be natural to be confused if your existing world is breaking down and you're pricing everything through that world. Jeff, what about then stable coins on Bitcoin? So I think longer term, I think that's going to happen for a little while, but it's for the same risks that you're talking about. I think that's where Feddy comes in that changes that. I think that's where Tero comes in and it changes that structure. Longer term, if you zoom out, longer term, stablecoins won't be a long-term use case, I believe, because it'll be replaced by the technology. But I understand where we are

today. And I understand for some time, for the next five years, three to five years, it will be. But if you kind of look deeper on where this is going, it doesn't look like it. Just really quick, I'm sorry to take up so much time. It is natural in a system change, completely natural for everybody within that system change to carry all of their baggage from the old system into the new system. It's the most natural thing. It's why monopolies typically don't invent the new technology or get killed by the new technology because they bring in all of their old biases

on how a system must work into the new system. That's what's happening today. And people aren't deep enough to understand from first principles because it's so confusing what's happening. It's literally a protocol level change. So thank you for adding to my wide array of tabs that I have here. I feel like when we get into crypto, all of us have a million tabs. So I just opened it up. Thank you. I will certainly read through that. So I guess, Jeff, I would ask you, do you think that individuals want to spend Bitcoin, not only, you know, in lieu of stable coins, but on everyday transactions, or, you know,

other other forms of payment? So that's what's going to happen in the long run, essentially, a debt based system has to grow forever, we've always lived in a credit based system. And we don't know anything different. And that credit based system has always had to. We've always lived in a credit-based system and we don't know anything different. And that credit-based system has always had to rely on gold or some sort of peg to value to the natural world. And then it loses the peg because of market incentives. And we don't want to say, we don't, we would never vote for deflation. We would, we want our house prices to always go up. We want more and more jobs. Even if those jobs are getting taken away from technology,

we will vote to destroy our time short-term and kick the can down the road. We'll vote for people who tell us they can give us more than less. And that creates an incentive all around the world where credit has to continue to grow because we will make it continue to grow all over the world we

will not vote if somebody said here's the deal technology is deflationary and pricing pricing will fall and you increase your value because pricing falls all the time you'd never vote for it because it would cause a credit collapse the whole system would collapse because of the nature of techno bitcoin 2 and decentralization, we've never had that before. Society has always had to rely on trust of institutions to be able to be unlimited velocity in the tech through lightning and layer two solutions, then what would naturally happen in that is you would rebuild a credit-based system on top of this. But that's not what I suspect is going to happen. I think the credit is going to be destroyed over time, but a long time. And it's going to rebuild a system that doesn't require as much credit to be able to run velocity of money. Because you can

literally, the technology allows unlimited velocity of money. So you don't have to build, you don't have to recreate the system. And so the answer is yes, I think people will use it extensively. They're already, when you look at lightning adoption rate, the network effect of lightning adoption pointing out, you know, short term versus long term, because I agree with you in the long run. I don't know how long that will take. Could take two years, five years, 10 years, 20 years. I agree. But certainly in the short run, you know, stable coins are really being used in various reasons for different things.

Right. So for instance, I mean, and not many people realize this, but Tether is used as a currency all over Asia. But with the piece that people don't realize is it's used on top of Tron, right? Tron is sort of the Ethereum of Asia. And Tether is one of the biggest currencies from a digital perspective or the biggest currency in Asia on Tron. And then here you're talking about stable coins are more used as trading tools. You know, we're not using USDC or Gemini coin or Tether making transactions at Starbucks. We're doing it with Bitcoin because it's fun, but we're not really doing it with stable coins here because we have dollars. It's inconvenient, right? We're using it as trading tools in most developed countries in the West, but uh are are using it as as as a currency but

you've got to keep in mind that stable coins are tied to the dollar so if the dollar is inflationary it's strong right now it's great it's great to hold it you're buying things but when things start going the other direction that's when that adoption is going to shift and people are going to want something that's a little bit more stable. Right. I mean, you might want to use stable coins, but you don't want to, you might want to use stable coins, but you don't want to hold them. That's a long term investment. Yeah, that's, yeah, that's, that's right.

I don't know how long this would happen. I think what's happening currently in the world with, with, with high inflation, with stagflation I think I think one of the things that you said early on Scott was are we in a recession or not yeah we're in a recession we've had two quarters of negative GDP print negative 1.6 negative 0.6 sure low but it's still the technical definition of a recession. And as this recession continues and as economies globally break down and this is the type of recession where, you know, you know, the last one we were looking at, OK, mortgages and banks. This one is probably more economies collapsing. One of the things that you said, Tom, about debt being taken out in dollars, the reason why countries don't take out debt in their own local currency often,

they do, but it's because of the people that are buying the debt. The two biggest buyers of debt are going to be pension funds and insurance companies. They want to hold debt that is denominated in the currency that they have liabilities in. So if you're a U.S.-based insurance company, you're not wanting to have exposure to global currencies. You want to have exposure to the dollar because your liabilities are based on the dollar. And whether it's inflationary or not that's that's that that's that's your liability base and that's how you measure so both countries through sovereign debt and corporations within those countries if they want to access capital markets they have to denominate their debt in the currency that gets them the most distribution, whether it's in euros or

pound sterling or in dollars. So when they're issuing debt and the dollar is inflating against their own currency, that's essentially a tax that's added on top of their coupon payments and their principal at the end if it continues to go that way. So it makes it very expensive. So this is why you might see some entire economies collapse because the corporations and the government itself may get to a point where they can't afford the debt anymore, the debt payment. And that's a big problem we have in the next year or two. That's back to Plaza Accord 2.0. So how do we strategically devalue the dollar? But the issue today is the dollar is the denominator and there are no good alternatives. You don't want to use the renminbi. You don't want to use the Euro, obviously. You don't want to use the pound. And Bitcoin, frankly, is way too volatile right now to be the base layer of anything.

So short-term versus long-term, maybe long-term Bitcoin could potentially be that denominator, but right now it is way too volatile. And unfortunately, I think this latest May sell-off did more damage, not only for the price, but also for the sentiment. If you were thinking of Bitcoin as your potential alternative to gold and then it sold off whatever, 80%, that's a real dent for a long time. And that's going to play into all of the models that all of these asset allocators actually put into play. Because the endgame we're trying to get to here is how do we get incremental flows into the industry to actually move the price and move the thought process forward. And to get incremental flows, you need people to think of these things as either, you know, stores of value like Bitcoin or technology plays like Ethereum, but you need incremental flows and you need,

you know, either asset allocators, you know, large pension funds or whoever, or you need, you know, governments. So, you know, my bet is that, you know, there's going to be a government at some point that actually, you know, El Salvador is great, but I'm sure, you know, an actual government who's going to put real money behind Bitcoin, and that could potentially move the ball forward. You know, I think if you look at hash rate right now, hash rate is at an all time high. Why is that? I mean, I don't think it's out of the question to think someone like Russia could be using, you know, their excess energy stores to actually potentially mine Bitcoin right now. So there's going to be someone who says like, hey, we're putting Bitcoin on our balance sheet, because we're trying to get away from this

dollar based system. And we're trying to move the ball forward. I don't know who that's going to be. But you know, that's actually good there. But I agree. It's inevitable because what are the other options? Is that a Michael Saylor line? Exactly. Michael Saylor would say that Bitcoin price goes up forever. I actually think that, and I think Michael's great, but I actually think that that's a wrong way to look at it. The way to look at it, if you're actually measuring the new system by the system,

is everything against Bitcoin falls in price forever because that's the free market. That's the natural market. And that's what should be happening everywhere. And the only reason prices rise forever is because they're manipulated to do so. And the only reason you need two is because they're manipulated to do so. The only reason you need two jobs and you're on a mouse wheel working harder and harder in that system is because it's manipulated to do so. And you cannot, what's happening today, and when you

kind of touched on it, Luke Grohman talks about this extensively, a friend of mine, extensively. If you're saying that I have to, because the US has to, on the reference currency of the world, run about 10% inflation per year for many years to be able to get out of the debt travel, and that's a debt crisis with debt to GDP at 130%. If you're realizing that,

and that's the reference rate of the currencies of all the world, that means that everyone else is selling their labor or their oil in monetary units that must devalue by at least 10% a year. And what they're saying is, why am I going to do this? And they're looking for alternatives. And what alternative do they have? Are they going to reprice in Rumi? Or are they one? There's not another choice. And Bitcoin is... So I agree, we're really early in that happening. But there's a whole bunch of things that could change that paradigm really quickly because it builds stronger and stronger use cases with every new person,

every new node, every new country, every new company starting to hold it. You're creating a network. And that network, truthfully, is us. It's all of us. Tom, actually, you made an interesting point, of course, about sentiment and volatility. And I agree that the sentiment, obviously, because of having nothing to do with Bitcoin, let's be honest, because of three arrows and Luna and sort of the systemic contagion that we saw, obviously, somewhat crashed the market. I can only speak anecdotally. You probably have a chart on this, but I would assume that Bitcoin volatility has actually been smashed down dramatically and watching what's happening with the euro and the pound and other currencies is actually far more volatile against the dollar as a denominator than what we've seen from Bitcoin. Bitcoin's effectively been between

19 and 20,000 for months. Right. So I think that, listen, we all want the number to go up. So maybe that's a bad thing in some people's minds. But I would say that the currency markets are more volatile than Bitcoin, even versus the dollar now. Yeah, the charts prove that out, that, you know, both the pound and the euro are much more volatile on whatever rolling through you want to look at than Bitcoin for, you know, at least the past six months. And that's a good thing, right? Getting back to what you need allocators to actually put money into this thing, you need some stability. And you need them to carve out 1, 2, 3, 4, 5% of their portfolio to put in Bitcoin, to put in Ethereum. And the only way they're going to do that is if they see a very concrete

use case for this thing in the short term. In the long term, it could definitely go where Jeff's saying or Steve's saying. But in the short term, if we want incremental flows, we need some stability. We need some real concrete use cases. And frankly, I think the merge is very positive for this because you have Ethereum essentially becoming a technology play and you have Bitcoin becoming a store of value use case play and they're separate things. I agree. I don't see them as competitive assets. Yeah, hopefully people in the traditional market start to think of it this way. But I think we're still a little bit off. Jeff, so then the question, it comes back to the point you continue to make at First Principles, which is that all of this and what we're saying is because we're viewing it through the lens of the markets that we know and the system that we know.

Right. And so we've had this sort of cheering of institutional adoption. I mean, Saylor included to some degree. But is that actually what we want for Bitcoin long-term or are they actually hurting the cause to some degree? I honestly don't think it matters what we want. And everybody's looking for the next person or the one thing that's changing Bitcoin adoption and the one person or the one cheerleader, the one country. What you're seeing in a broad-based application, like it should look like, is a network effect that's making the network stronger

and stronger with each additional user. And people aren't selling it. Like when they're selling it, price is coming down, the traders are selling it. But if you look at the long-term holders, it's expanding and it's expanding and expanding. Tom probably has more recent data on that than I do. But you don't see a lot of sell-off of this asset. People are holding it

because once you've gone down the rabbit hole and you really know what it is, you would never sell it for your fiat currency. But more so, this is maybe a unique view because I'm in this sector now investing on top of this sector. People are underestimating this asset class like crazy, and they're actually overestimating what Ethereum is going to do. Because we've done diligence now on 320 companies that are building on the second and third layer. We've invested in one, we have two other term sheets that are closing shortly. And when you see what's coming on top of this, now that it can, it couldn't before. The thing that made it decentralized and secure also prevented the scalability of it. There was no use case. And so it's totally natural that if something else creates a use case, that everybody would go there and a whole bunch of tech builders would build on top of that because you could because through

smart contracts. But what's happening is today is a bunch of that's moving back to Bitcoin. And if you see the use cases, they're going to provide completely differentiated value that come down and get reinforced. So you have essentially a neutral reserve asset that can't be manipulated in the base layer of the technology. What you have is a new peer-to-peer internet emerging that is based on Bitcoin. It has staggering implications. And I would encourage people to get out of the noise of the, and this includes in the Bitcoin maxis and the works too, yelling at each other and just look deeper at what I just said. Because I actually cannot believe I'm in a spot that I get to invest

on top of this, on entrepreneurs that are building on top of this ecosystem, and most people can't see it. I can't believe it, because the companies that are coming on top of it are going to change the world. Could you, without being specific, obviously you don't want to give anything away, but could you give us some of those high-level use cases you're seeing? So I'll mention one, FedE, which we invested in, but there's, I have to be, so watch in the next two, three weeks some of the things that we're coming out with.

But one that ties energy and Bitcoin together specifically ties energy and it removes a whole bunch of cost from the existing legacy system and accelerates energy in Bitcoin and reduce energy prices, specifically reduce energy prices. Now, these are early. Some of them won't work out as intended. But when you see some of the use cases on top of this protocol now that cannot be changed, it starts to become really compelling. Yeah, Tom, I think the short answer is that everything you're seeing built in the other ecosystems is starting to be built on Bitcoin. I also like happen to, you know, have a lot of these meetings and see a lot of these things. And it is pretty incredible to

Jeff's point, what is going to be built on Bitcoin. But also, we'll see the market's going to decide what wins, I think. But you can do almost all of it now that there's basically smart contract functionality on Bitcoin, which I think is mostly what Jeff's probably talking about. I can't tell if Steve is frozen or not. Oh, you're there. Wow, impressive eye control. Steve, I want to go back to what I was asking Jeff about, obviously, because I think you're in a unique position to discuss institutional adoption and made the point that once you go down the rabbit hole, you never come back. Have you seen anyone that you guys are talking to who

was interested in Bitcoin or I guess crypto in general and has come back out of the rabbit hole as a result of what's happening in the market? I haven't. Well, no. I mean, well, here's what it all depends on the market too, right? You know, when you, when you talk about institutional investors, there are, there are market, there are market activities that can make people skittish and, and wait, even though they want to invest. And the last year has, has been that. So, so a year ago it was, well, we're probably in a bubble right now. You know, um, all, all these cryptocurrencies are really high, you know, they just run up a lot. So everybody paused and then the market started going the other way and it's like, okay, well, you know, they're going down. Um, let's, let's

pause again. And then you had all the issues with the lending platforms blowing up and the deleveraging that happened in the spring. And that caused even more pause. And then the summer, nobody was investing in any risk assets. I talked to my friends in the bond world and salespeople are saying, hey, i have more redemptions than i do you know new new sales i i don't know what i'm going to do this year and um and and that's across all all assets well this time of year people i i think people are warming up to the fact that um you know the the changes in the market have now occurred. We've had two negative GDP prints. We've had the bulk of interest rate hikes. Even though we will probably see a few more, people feel like the

worst is behind us, even though it can get worse, and I think it will, and are ready to start making decisions and taking action again. And so we're seeing a lot of interest from the institutional side once again. And by the way, we've seen the interest all summer, but it's just, you know, it's a lot of meetings and due diligence. And we knew it was a slower play. But now we're starting to get, you know, I would say closer to commitments. So, uh, it does seem like things are turning around on that. You know, people aren't trying to catch a bottom, but they do feel like we're, we're, we're close. And for the, for the certain

instrument, for the certain, you know, for certain, um, plays, uh, they're willing to, uh, start moving in. I think you'd be hard pressed at this point to find anybody who's looked at this market and thinks that we are, uh, closer to the top than to the bottom. Right. I mean, I think everyone agrees now wherever that bottom is that the upside from here is exponentially larger. Uh, Tom, are you seeing sort of the same thing in the data on your side? Yeah, absolutely. I mean, it goes back to what I said earlier. I mean, who is left to sell? Who is the last person who's going to capitulate? And it's really, in my mind, just the Bitcoin miners that could potentially have a liquidation cascade. And there's a few levels I'm watching,

you know, 17,000 is notably the one on Bitcoin, but I'm not sure who is, you know, market selling Bitcoin or Ethereum or any of these other assets right now. It's more allocators who are thinking about where can I strategically get a position in right now. But there are people still trading Bitcoin and Ethereum as just a risk asset and the beta to equities is going to be, unfortunately, still tied for a while. But I think potentially that could decouple as we move forward and equities really solve sharply. I think if we see the sort of minor selling capitulation events, that that would be that huge wick on the chart that is the generational bottom and buying opportunity

that everyone would be looking for. I'm not saying that that will happen, but that usually is a very quick and painful event that the smart money comes in and swoops in on. Totally agree. Is there anything else, Jeff or Steve, that either of you are watching that could be this sort of last event in this market that would push us? We have three minutes left, so I'll kind of give you guys each your last piece.

The credit-based markets are unstable and they must get more unstable. So it's just a function of what ends up happening. And that instability kind of going throughout the entire system could cause any event. I agree with the mining capitulation, but that could be caused by another event that drives the mining capitulation. And so all of these things that people are looking at, just imagine some of the scenarios. There's a higher probability of a nuclear strike today than there was six months ago. All of these types of things, what it would do to human nature, what people would do in a panic scenario, make trying to time the bottom, at least for me, like, what am I doing? I know where the existing system goes, and I know the existing system must create more

instability, and I know what happens to humanity out of existing system must create more instability and I know what happens to humanity out of a system that creates more instability I'm just going to go over here and create the new system as fast as I can I'm going to spend my time in a in a world that's moving to truth hope and abundance instead of a world that's reinforced around control, coercion, and scarcity. And, and that is, and so for me anyways, that's where, but there's lots of events that could, if you're talking about pricing that could cause downward pricing, and there's a lot of events that could cause massive upward pricing because the entire thing is growing more instable and stable by the day.

Why mess around on the edges with an asset you think is going to go 5 to 10x is what I keep coming back to in my personal portfolio investments. To leave us on a happy note, we're in October right now, and October has had the three biggest sell-offs in US market history. So be careful out there. It's 1929. But it's been the best month for Bitcoin. It also has. You're both sides of the out there. It's 1929. But it's been the best month for Bitcoin. It also has. You're both sides of the equation there. Well, as negative as I've been for the last year, and I'm still negative, I'm still bearish, just not as bearish.

There are some positive notes. The last Powell speech really laid out a prescription of exactly what they're going to do. And, and if anybody caught that, and this is really where our numbers are based on, they're very clearly looking to raise interest rates, another one and a quarter by the end of the year. So likely 75 50 and then probably one or two more rate hikes next year, February, March. So certainty actually brings stability to markets. That's one piece of certainty. And the second piece is going

to be coming in midterm elections. Markets are always uncertain, you know, opposing parties that are in control, that's usually a better sign for stability. So if the president is of one party and the house is of another, then you usually have a lot more stability because, you know, you don't have, you know, any laws getting passed and laws just messing things up. Awesome. I think that was, yeah, grinding everything to a resounding halt is what's good for everybody. Let the government do nothing. Yes. I think that's a great, great note for us all to conclude on. Well, listen, I'm glad. I think that there's a collective optimism, at least once again, that, you know, the bottom is a lot closer than we think, even if things get worse and that we could potentially see that decoupling of Bitcoin, which I think everybody is certainly cheering for. And thank you guys, Jeff Booth, Steve, Tom Dunleavy for joining.

That was a really thought provoking conversation. I can see everybody in the comments. And I think we gave them a lot to go home and read. And now, Jeff, you also gave us all some homework to go and readings. No, it's good. I think everybody needs to take some homework back from all these things. So thank you, guys. Everyone else, I will be back

once again tomorrow morning at 9.30. And then I should note, I'm going to be at the WebEx conference in Vegas hosting a stage, as I've told you guys, all next week. And we are attempting to live stream the entire thing. So my channel should be live basically for eight to nine hours a day from Monday to Thursday next week. So I apologize in advance. You're all going to have to see my face a lot more than you want to. Guys, thank you so much. And we will see you next time. You're all invited back, of course, anytime. Peace, everyone.