The Wolf Of All Streets - Student Loans, Money Printing, Inflation Reduction Act: Does Crypto Still Fix This? Guests: David Duong (Coinbase), Rich Rosenblum (GSR), Alex Miller (Hiro)

Episode Date: August 25, 2022

More than 43 million Americans have federal student debt. President Biden announced the student loan forgiveness plan yesterday, so many Americans will be able to cancel either $10,000 or $20,000 of their student loan debts, depending on their income. The total cost of this plan is estimated at around $300 billion. Who will pay this money? Will this increase inflation? How will crypto react?  We discuss this and many other questions in today's live panel with my guests: David Duong, head of institutional research at Coinbase, Rich Rosenblum, co-founder and president of GSR, and Alex Miller, CEO at Hiro Systems. JOIN THE FREE WOLF DEN NEWSLETTER https://www.getrevue.co/profile/TheWolfDen  GET UP TO A $8,000 BONUS IN USDT ►► 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  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.

Unless you've been living under a rock with no internet or a phone, then you probably know that the Biden administration has, true to their promise, canceled some and delayed some student loan debt. Now, that's obviously the story of the day, and it relates to crypto because it, of course, relates to inflation and money printing, which are two of the things that we hate the most in this community. As usual, I have an amazing panel today, Alex Miller, David Young, and Rich Rosenblum to discuss all of this topic. And, well, we have a whole lot more in store for you guys. You guys don't want to miss it. Let's go. Let's go. Let's go. What is up, everybody?

I am Scott Melker, also known as the Wolf of Wall Street. As I said, we've had sort of a bit of a slow news cycle here, but on the macro side, I think things are ramping up very quickly. Of course, we have the Jackson Hole Symposium tomorrow, that famous meeting where a bunch of very old and angry white people get together and collectively decide how to make our lives as miserable as humanly possible, as is tradition. And of course, other very old white men making decisions about student loan debt. Of course, the questions then become, how will it actually be paid for? And will that trickle down to you and I as taxpayers? Not necessarily all of you and I, because a lot of you have the fortune maybe of not being here and dealing with this in the United States at the moment.

But for many of us who are in the United States, who's going to pay for it? How is that going to happen? And how will it affect inflation? The true answer is, I'm not a macroeconomist, and I don't know that well. So I bring on much smarter people than myself to discuss it today. I have Alex Miller from Hero, David Young from Coinbase. Dave, I think you are now probably the person whose face other than myself has been seen on this screen the most often. And it's only been like two or three months. And of course, Rich Rosenblum from GSR. How are you guys doing today? Good morning. Everybody good early here on this

Thursday morning. So listen, let's just start right now. I would love your very quick hot takes on the student loan forgiveness. We can just go around the horn, Alex, then Dave, then Rich. I mean, we need to fix the student loan system. It's insane where it is, but the complete lack of actually doing anything to fix the underlying problems while just giving away money before an election for obvious reasons to make themselves more popular is just an insane way to go about it. Yeah, I would say that, I mean, this debt problem has been an overhang for quite a long time. But the problem is that in juxtaposition to what we're getting from the Inflation Reduction Act, you're basically going to cut $300 billion over 10 years.

And then you now have this offsetting that. So effectively, you're not doing anything for inflation. So you're just making the Fed's job a lot harder, especially going to Jackson Hole. We're probably going to get more hawks tones coming from Powell. That also, by the way, before I let Rich go, you have to believe that the government's actually going to be efficient and that the Inflation Reduction Act will actually cut costs. I don't think anyone believes that it will play out the way that they say. Go ahead, Rich. Sure. Skipping the irony that it's under the Inflation Reduction Act, because that's ridiculous. I think it's more that it's a slippery slope in that, just as Alex mentioned, we're not getting to the core of the problems.

I think college has been too expensive. And also, I think now that we're cutting whether 10 or 20,000, the colleges realize that they're going to have a prices further and students are going to have the moral hazard and parents that they'll just borrow more than they were because they'll assume it's going to be wiped out. So basically, universities will just raise the cost of a college education and the banks get the government as a counterparty, which is kind of a dream for them. Right. Isn't this good for banks? Yeah, I mean, I'll say I actually, I don't think some of the other elements like everyone's focusing, obviously, on the 10, $20,000. But there's other changes that were being made in it, too, specifically in terms of capping, you know, lowering the cap on student loan repayments to 5% instead of 10%. Messing with some of the terms, actually, on the go forward basis, I think is a good thing. Number one,

you're not changing the terms of the deal. So it doesn't have the same moral hazard issues. But two, it's insane the amount of money that banks are making off of these loans that are backed by the federal government. Like why is anyone getting paid more than like a marginal nominal amount of interest on something that they're never going to lose the money? So I can totally get behind some of those other changes, but it's the changing the terms of the deal and just wiping out money. Because as Rich pointed out, like, cool, now everyone's just going to assume that money they've taken on is going to get wiped out.

And colleges are going to know that. And this is the reason colleges, I don't know, gone up 400% in the last several decades. Like, it's just going to keep going up like that. Yeah, it was already too expensive for me in the 90s. Go ahead. No, it's the demand part of the equation. And I mean, this is going to be good for maybe fintech companies.

You know, you're seeing that SoFi stock is going up today primarily because at least you're lifting the moratorium and you're trying to find some way for, you know, debt refinances to kind of come back into the equation. But certainly, I mean, we're dealing with like $1.6 trillion worth of debt here. And I'm not going to say I have a better alternative for this, because there are no easy answers to trying to resolve this. It's just that I feel this was more of a convenient solution that really didn't like dive too deep into the practical impacts of yes, this could completely start to increase

tuitions on one side on the micro level. And on the macro level, the demand implications of this are huge. So I think this wasn't well considered. Yeah, I mean, I obviously have to agree. It's sort of hard. You can see both sides, I think. I mean, obviously, there's an argument that student debt is out of control, that people deserve relief. It just makes no sense. It's like having an appendage that needs to be removed and putting a Band-Aid on it. Right. And like you said, I think this is going to actually encourage banks to offer more predatory loans. It's basically a green light to say, do whatever you want. The government's going to pay for it. And that in a time of inflation and when these are the narrative seems just absolutely insane to me.

So, yeah. So moving on to the Inflation Reduction Act, which David brought up, if you read it, which obviously I've just kind of done a summary, it seems to be about the environment and taxes and nothing to do with inflation. Have you guys looked at this? Yeah, I mean, it does. It does reduce inflation as a proxy of, you know, trying to tackle some of these other things. It tries to, of course, pay for that by cutting. I'm sorry, actually increasing taxes on corporates, for example. I mean, not to a meaningful degree. So it's actually been okay from that perspective. But frankly, it all has to kind of go right. And, you know, this is the reduction over a 10-year period. So it's not going to be immediately felt. But I mean, it will actually support things on the fiscal level, at least probably over the next decade, assuming that no one kind of comes in in two years and kind of undoes all of it. Or in a few months. Yeah. Yeah. I mean, that that makes perfect sense.

Certainly. And that's the laughable thing you just kind of touched on is like, is there any law that's passed or bill that's passed in this country that can't just be reversed basically immediately anyways so i mean how do you have a 10-year plan when the new it has to be as a bill and not just as executive actions which are really easily flipped um but yeah i'm kind of with david like i actually i don't think the ira is that bad a bill overall like there's a lot of necessary spending around climate change and infrastructure that does need to happen it's spread it's a small enough amount of spend. I know it sounds ridiculous to say that about 700 or hundreds of billions of dollars, but it is still relative to like, you know, the multi trillion dollar stuff that was being discussed a year ago. It's a small enough amount of spend spread over a long enough amount of time. Like we need to

worry a lot about inflation now, but it's not like we need to stop planning about how we're going to be spending in three, five, seven, 10 years. I mean, if inflation doesn't get under control by then, we got a lot bigger problems. So I think actually looking forward, figuring out spend for that kind of time horizon is actually a pretty responsible and reasonable thing to do. Unlike say, you know, if they were to give away another half a trillion or trillion dollars, like in direct stimulus today, which would obviously be disastrous. Feels like they could still do that, though. I mean, yeah, hopefully. It feels like that's not off the table with in the current situation. Maybe I'm wrong, but it feels like to the debt relief thing, at least the debt relief thing, again, is inherently also spread out, In the current situation. Maybe I'm wrong, but it feels like I would not surprise anyone. To the debt relief thing, at least the debt relief thing, again, is inherently also spread out, right?

You're stopping, you're canceling a lot of payments, but those are multi-hundred or thousand dollar payments over the course of, you know, the next 10 years. So it's, what, $400 billion? But again, there's at least some inherent spread out on it, which hopefully lessens the inflation impact. Because the last thing we obviously need right now is prices going up more. I mean, I guess it begs the question then, if inflation has actually topped and is going to become less of an issue, I would love your thoughts on that. All of you rich do what do you think? Do you think that now that we've seen at least one month of a reduction that inflation has potentially topped? I think on energy, it's topped. I think in food, it might have a little bit more ways to go. Overall, I think that I don't think it's going to go run away, but I think it could be stagnant around these levels, maybe go slightly higher. But for the most part, we've seen

the brunt of it. I think that's why financial assets have been performed OK here. I think the bigger risk is that we're going to raise rates too quickly and it's going to cause a fall in risk assets. And we're going to see a lot less inflation and be more in fear of deflation, have to lower rates. I would argue that probably inflation could still remain sticky. So if you look at the Chicago Fed's now cast, they're suggesting that August inflation is going to be 8.33 percent, which is lower than the 8.5 percent we just got in the previous month. But if you look at core inflation, they're predicting that it's going to be somewhere. And it's not really predictions and now cast, but they're predicting that somewhere around six and a quarter, which means that core inflation is still fairly sticky, to your point about other goods that we're kind of dealing with.

So I think we haven't really quite seen that even with the base effects we're getting from August, September of last year, that we're necessarily going to see some kind of meaningful kind of adjustment from the previous month. And I think it's going to create a quandary for the Fed because they still need to think about core inflation, not just the headline number. And, you know, probably we're going to get some key words coming out of Jackson Hole on today, but also mostly Friday where we're probably going to need to see if they're going to say things like over tightening or he's going to concede that actually they need to take a moderate approach to tightening which is what i expect and that they're going to need to continue on with the hiking cycle yeah i mean they've clearly been so timid about i mean they keep doing this thing where they signal

really aggressive markets freak out they pull themselves back like they they're i would say i don't think they're going to go too aggressive just because they pull themselves back. Like they they're, I would say, I don't think they're going to go too aggressive, just because they've made very clear that they're not going to go too aggressive, right? They're too scared to spook at all. But I think we have topped on inflation, but it's going to take a long time before we get back to 2%. Like it's not I mean, I don't think we ever get back to 2%. That that's so maybe that's the next question is, do we now get this adjustment of a new normal where all of a sudden in classic government fashion, they sort of just move the bar, right? Oh, did we say 2%?

Now 5% is the target, and that's fine. Or do you think that we're actually going to aim for – if they're aiming for 2%, they're going to have to continue to be very hawkish, right? A slight 0.3 reduction is minimal. Yeah, I don't think we're – I think 5% to to six is not where we're going to see inflation settle out. I mean, the, as much as it was driven by money printing, it is also being driven by supply chain effects. You know, it's, it's being driven by the combination of everything. And so I think as stuff continues to reset to normal over the period of, I don't know, 18 months, 24 months, you know, I, I'm not an economist. I'm not going to predict exactly the level, but I think it gets a lot closer to two or

three percent than likely that stays at five or six. And if it does go ahead, David, please. No, I mean, that's exactly what Neelam Kashkari was saying, right? One of the Fed governors, he was saying that you basically need to engineer recession in order to get inflation down, because in order to kind of even bring us somewhere below like even six percent by the end of the year, you're going to need to actually see some sort of deflationary effect, which really is asking a lot. I mean, yes, energy prices have been kind of coming down, but that's not going to be sufficient in order to

kind of get these numbers down, particularly since supply chains, even though they've eased, aren't necessarily much better. For example, I would imagine that probably going into 2023, if they continue sticking with this plan and continue sticking with the current tightening cycle as is, and given the kind of direction for the economy, maybe that could happen. But it's not going to then be a soft landing. They are going to have to engineer something pretty dramatic in order to get that down. We give you a global housing crisis. Go ahead.

Do you think that's coming? I think it's a good possibility. I think the numbers look pretty stretched. You still see rents going up for now because we're at full employment. But it does seem like there's a good chance there's a mini repeat of 2008. Yeah, that sounds bad. Let's not do that.

But I guess that brings us back to the core topic of what we always like to talk about here. That's Bitcoin and crypto. Because if we were seeing these inflation numbers a few years ago and it was sort of all maxis, we would all be railing against inflation, saying Bitcoin fixes this. I'm not hearing as much about that anymore after sort of this bear market when people have started to argue that Bitcoin is no longer an inflation hedge. Do you think that we still can make that

debate? Is it now a nascent inflation hedge? It will be an inflation hedge. Where's Bitcoin's role in this if inflation continues to run hot? I would say it still does serve as an inflation hedge and it's just more forward looking. You know, Bitcoin has been one of the best performing assets of the decade. So the times when Walter Jones saying it's the fastest horse to move, maybe he's right. The horse just moved faster than others. And also it's like, what are we comparing it against? I think people would agree that gold is an inflation hedge and it has been for not a decade, but for centuries. And gold hasn't been performing either. So I think we don't want to be too hard on Bitcoin. But at the same time, Bitcoin has only been alive for

a dozen years. And the last time we had inflation was 40 years ago. So it's pretty hard to say for certain what type of protection you're going to get. But I do think if you look at what's happening today and you go up 10 years, if there is a lot of inflation, I think Bitcoin is going to be one of your better bets. Alex, I know you've got thoughts on this.

Yeah, I mean, I think over a long, you know, people, you've got, it really does come down to what time horizon you're looking at it, right? And I mean, ultimately, yes, Bitcoin is in the crypto asset class, and that is still heavily speculation driven, right? And as additional things, I mean, this is part of actually our thesis kind of in the Stacks ecosystem is the more programmability and underlying kind of capability that you add to Bitcoin and other cryptos, the more it gets adopted, the more stable and less speculatory it becomes. Right. And you've already seen that to a degree. If you look at the level of volatility on Bitcoin of 10 years ago versus Bitcoin today, it's already substantially less and you comp it against kind of other younger crypto assets. So I think over the course of the next 20 or 30 years, you're really going to see the stability of Bitcoin improve kind of for both of those reasons, general maturity and applications that are developed on top of it. And it does become a stronger inflation hedge. But people are going to

have this idea that like, oh, my God, it didn't hold against inflation perfectly right now. It's like neither did gold, as Rich pointed out on it. And so I think it's going to take time to develop onto it. But, you know, I think I think it's a responsible part of almost any portfolio. I wouldn't put all of my money into anything. But I think it's you've got to divorce from kind of being locked into a single economic system at all times. I don't know if it was last month or two months ago, but Masari, they had a tweet that basically said this is the first month in a very long time where every single asset class was down and we had runaway inflation. So basically there was absolutely nowhere to hide. Right. So to your point, it's kind of disingenuous to which people love to to just point at bitcoin and say it's not acting as an inflation hedge when there's literally nowhere nowhere to hide yep yeah

you agree we're dealing with an economic regime that combines 1974 2000 2008 2018 i mean when we we often kind of use hyperbole of like we've never seen this before, but we literally have never seen this before. Like this, this is a completely different economic regime. And maybe this is not the right forum for a debate about whether Bitcoin's an inflation hedge or not, because it's a very nuanced question in my view. Like, I do think that, you know, it's inflation itself is such a, you know, difficult concept to grasp on because it is not the same in up cycles versus down cycles, for example. So it's really hard to say that it should operate as an inflation hedge in all regimes. I mean, that's asking a lot of anything, much less just, you know, something that's been around for 10 years. But I would argue that definitely the way I see it, it's a hedge against profit spending and interventionist policy.

I think that for me is the bigger argument for something like Bitcoin. Yeah, I think that's the more nuanced and accurate approach. I was talking about this on the spaces, but I mean, during the period of historic money printing, Bitcoin went from sub 4000 at the bottom to 69000. Right. So to me, that's the story, not where it's sitting now. And by the way, it's still trading at over 5x those lows. Right. And what else is doing that? Nothing. Nothing. Yeah, exactly. And that's that's the context that people miss. Right. Everyone looks at like the 12 month graph chart instead of the 36 month chart. And that's that's where the entire story lies. Right. So I want to ask you a question, Alex, actually, you're obviously

building in the Stacks ecosystem. And so we have this obviously world of tribalism in the crypto space where different communities seem to all always be on the attack against one another. But for the first time, I think at a more granular level, it seems like Bitcoiners are going after each other like crazy. And I see always you guys and Maneeb and everybody sort of in the heat of that argument. You're obviously, for people who don't know, you're building basically developer tools for the Stacks ecosystem to allow smart contracts on Bitcoin at the most basic level, correct? Exactly. Exactly.

Yep. Okay. So you believe that all of this can be built on Bitcoin, but how can you succeed if even Bitcoiners are fighting now? Well, so first, this is not the first time there's been any kind of strike. Oh, yeah. We've got the Forbes. Yeah, of course. Does everyone remember the block size wars?

I mean, that was aggressive. And I think actually, if you really dig into the aggressive and i and i think actually it's it's if you really dig into the layers and you look at sort of who's on what side and things you have a lot of people who actually over the last few years took for lack of better term real religion around bitcoin especially and it's a lot of times those are the most focal vocal about things and it's not the actual like og people who've been in it since 2010, 2011, 2012, or something like that. It's the folks who founded in 15, 16, 17, or something, or even potentially after 17, and haven't actually lived through a bear market or anything before. So look, I think this is a natural part of any

cycle. It's part of the reason that I actually think a multi-chain world is a good thing. Competition between different ideas and different systems is always going to produce a better outcome than some, you know, single, single culture. And so, yeah, there's back and forth on it. I don't think it's particularly bad. I'd like to see folks be a little more welcoming at times to people coming in, especially if you're trying to get people to build, like people want to build in supportive, you know, in supportive ecosystems where people are encouraging them to do. And that's a big part of what kind of we're trying to build in our ecosystem. And it's not just us, right? You've got other projects like Lightning and RSK that are also trying to build

on Bitcoin. And like, we like working with them. We like being a part of kind of anyone who wants to see this kind of next generation internet, next generation of applications being built on top of Bitcoin. So yeah, there's always going to be some strife and conflict there, but I don't, I'm not really concerned about it in the long term.

Like I think innovation is almost always going to win out. I mean, Dave, Rich, you guys are both dealing with institutions probably on a regular and day-to-day basis. I mean, Dave, Rich, you guys are both dealing with institutions probably on a regular and day-to-day basis. Does any of this, is this something that we're seeing sort of in our bubble and these arguments, it seems crazy because we're on Twitter, or does any of this actually leak out and become a concern for people that are looking to enter this space?

Because you would imagine that if some random new person is reading Twitter, they would be like, these people are nuts, I want nothing to do with any of this. Right. Rich, you want to go first? I think on a general sense of, you know, Bitcoin maximalist versus other, you know, it's pretty critical. I think you have some groups that have paid a lot to be extremely regulatory compliant, being able to deal with sovereign wealth funds, help them acquire pensions. So they've been leaving and breathing the story that Bitcoin is the one and only digital asset that there will ever be. So they're going to make up reasons why that's the truth. And I think that if you're in the space and dealing with crypto natives, you actually don't hear that

maxi term. It might be that they're referring to Ethereum now if they're in the NFT space. I think it's very clear they're going to need different blockchains for different things. And also, whether we're looking at a MIST and Aptos, we're looking at very brand new blockchains to do the exact same things because we're still trying to focus on the same scalability and security issues that we have been for a decade. I would just say from my part, looking at institutional investors, like we forget kind of sitting inside the crypto ecosystem a lot of times that what resonates with us and what kind of comes up in the conversation doesn't necessarily make its way out into the trad buy or into like the world of people who aren't listening to this stuff all the time. Like I talk to friends who aren't in crypto and, you know, I'm like, oh, yeah, there's a sanction on Tornado Cash.

Like, what are you talking about? What is that? Like they have no idea. But this is all we want to talk about in our world. And, you know, I think kind of same goes for the Bitcoin conversation surrounding like what really constitutes, you know, hard money. You know, if we start to introduce, you know, smart contracts or this, does that dilute that? I mean, that I would say that conversation isn't really being had among institutional investors. I think that's something that we as a community are taking very seriously. But I don't know if that's going to be the value prop for those guys. Yeah, I mean, I think people have the attention span of Nats and it will all be forgettable in a month, including the student loan forgiveness, to be quite honest.

I think that's the bet that the government's making is that they'll just come up with something. There'll be something else in a month that'll make everyone forget about it. But Alex, I mean, to that end, you made the point that you believe multi-chain world is viable, but obviously competition is good. So what's the thesis then for building, you know, specifically on Bitcoin, smart contracts on Bitcoin when, I mean, one could obviously make the argument. I'm not necessarily making it that, you know, that's functioning well on Ethereum and other chains. Right. So Bitcoin is like the OG cryptocurrency, right? It's the most stable. It's the most well-known. If, you know, I always like to say, like if your crazy uncle starts talking to you

about crypto over Thanksgiving dinner, he is not talking to you about like Cardano or something. But he might be talking to you about SHIB or Doge. But yeah, I was going to say, there's two coins he's talking to you about, either Bitcoin or Dogecoin. Those are the only two coins that like normal people know. But kind of, again, to what Dave was saying earlier, they're not aware or involved in

the inter-Sinai conflicts that, right? They're aware of what it is. But so if you're looking for something that's like the most secure, right, the most trusted, the most long term, like that's what Bitcoin is. And so our view is if you're building out that, again, as we like to go back to the next generation internet, you want something you are confident is going to be around and trusted in another 50 or 100 years from now. And that's what Bitcoin is. So I think that there's a real benefit to building these things on top of that, even if more specialized chains for certain applications are going to sprint. Some know, some people want something that's called a blockchain,

but it's really just a centralized database. And they can totally go use Solana if they want it for that. But some people are actually building things where they understand the benefit of a decentralized trusted ecosystem. And that's why they're going to come to something like Bitcoin for it. Surprised that you guys aren't just talking about BitBoy around the Thanksgiving table. I mean, I figure that's the topic of conversation. Yeah, I'm trying hard to keep from going full gossip panel and conversations on this channel,

but it's very hard when you have things like that going on in the community. Listen, David, going back to the student loan debt, we're going to see a lot of people. It's not the same as stimulus necessarily. They're not getting a $10,000 check or a $20,000 check. But that debt relief obviously is likened to having money in their pocket. At Coinbase or in your personal thesis, do you think that that will act sort of like stimulus did in the past and allow people to spend more money buying Bitcoin or other digital assets? It's a really good question. I mean, certainly the inflation argument was twofold and one of them is demand.

But do they feel sufficient enough in terms of like because I mean, when you get stimulus, it's a wealth effect, right? Like you actually feel like almost like it's free get stimulus it's a wealth effect right like you actually feel like almost like it's free money and it's worth kind of spending but here it's a little bit different because when we think about money debt forgiveness is a little bit different from like money you owe is different from money you're given so i think that psychological effect really does kind of you know it doesn't necessarily make that same transition. So I actually don't think that it's necessarily going to be the same as pumping liquidity into the system. It's just kind of suggesting, hey, you know what, like this was a pain point for you and this pain point is now relieved.

So I don't think it's necessarily going to transition into necessarily free spending that's going to go into the crypto markets. It makes sense. Most people who probably have that debt still don't have, even though they're not paying the debt, don't have that much extra cash on a month to month basis that they're going to go speculate with. Rich, what do you think? I mean, do you think that, listen, it was $1,500 last time and that, you know, but to everybody. But everybody points to that as the reason that we had this sort of huge boom in markets. This is 10 or 20,000. And probably going to people who are generally a bit younger and crypto native or at least interested in this market. Yeah, I'd say it's somewhere in between, given that if somebody just deposited 20,000 into your account, I think we'd see the

movements into Coinbase and other venues about Bitcoin move pretty quickly, you know, within a couple of days. Here, I think that it's a little bit less direct. At the same time, if the stimmies were 1,500 a person or so, if here it's more 10,000, 20,000, it might feel like they have a little bit more wealth to put a thousand or so. It's just less people that will be having that benefit since I think that the stimulus payments covered more people. I think on an individual level, it looks a lot more like a tax cut in terms of stimulus than it does in you know in terms of a straight stimulus drop right it's a it's 100 maybe 200 bucks a month over several years to and in this case a concentrated group of people so that 1500 bucks i think it was like 2 trillion in total spending or something across everyone like it was a huge amount of money so this is an order of magnitude less money

dripped over much longer time periods into people. And to David's point, like it just it's psychologically different, I think, for folks. So I think it's more likely to drive kind of longer term spending around like housing. I mean, a lot of people have said, like, great, I can now afford a house or, you know, I think it makes I think it makes longer term investments more feasible for that group of people, which is a good thing. Again, achieved in a really clumsy and terrible way that will have lots of side effects. But that underlying thing is good. Yeah, and you have to keep in mind, too, that that was just the U.S., by the way, Alex, I mean, 2020, we were seeing that a lot of people, a lot of countries were actually providing fiscal stimulus to the point that we had $12 trillion of global liquidity in the system.

Yep. So, I mean, a lot was kind of, as a result, like crypto benefited from that. But the other thing I kind of want to say is that you have to feel that you're richer. And, you know, it's when you're, when you've got debt relief, does that make you feel richer? I mean, that's really the kind of the question. And I don't have the right answer to that, to be quite honest with you. You know, I was listening to something else where someone was talking about how housing prices have gone up. So if you're a homeowner in this country, like you actually feel that you're wealthier. I own a home and I don't know if I necessarily feel because I can't realize that

liquidity until I sell. So even if you do, you're going to go have to buy something more expensive in the same market. I think that whole argument is so nonsensical. Personally. Always a second mortgage. Yeah, I would say you can re-lock it, though. I mean, a lot of people did. A huge number of people did. Yeah.

And Alex, to your point, I think you made a great point, which is now you would just think if housing prices gone up, you'll just apply that $150 to your mortgage budget or your and not just go like buy assets. Also, there's a lot of context to the macro situation when that happened, even though I think people were expecting something horrible to happen. The effects hadn't really kicked in. Right. People were literally given fifteen hundred dollar checks while they still had their jobs and while things weren't bad yet. Now everybody thinks that we're all doomed and the entire world is going to zero

and are probably less inclined to throw their extra money at investments. I'm also a big believer in Matt Levine's board markets hypothesis. Like everyone was trapped inside and couldn't spend all their money on Traveler going out. Like they had to put it somewhere and the markets and kind of the fun of the online market gambling game,

just, yeah, okay, great. I got $1,500. I got nothing else to do. Again, like, let's go play in the casino. And that is definitely not happening here. I think everyone, to your point, Scott, is like reasonably very worried that like we're about to fall off a cliff economically. I mean, it's weird because, of course, inflation's high, unemployment's low.

Nobody knows what the hell is going to happen. But I think that means people are much more likely to hoard any money that they get and hold it and try and wait and see what happens than to go out and do something profit with it. I think that's why sell in May hypothesis is often more correct for crypto because it's a bit of younger constituents that are more likely to be out and about over the northern hemisphere summer months. So as you've seen the past two

Mays, the market's just collapsed. I don't think it should be that sharp. But when people are outside and barbecuing at the beach, they're not on the screens buying Bitcoin. Rich, has your investment thesis at GSR or anything you guys have been looking at changed dramatically as sort of the macro has changed with the inflation? I know that, you know, we've talked in the past. Obviously, there was this beautiful time when you could just have an investment thesis surrounding crypto and operate on that. And now you really have to be a master economist to understand what's likely to happen in crypto. So what's changed for you guys?

I think at a global level, not all that much has changed. But I think that this cycle has been a bit sharper than we would have expected. We started the business in 2013 and cycles have always been sharp. But I think seeing the funding, not just from VCs, but now from private equity over the last year, it seemed like there was enough money on the sidelines that the market would be a bit more stable. So I think we have a 16 person risk management team. So I think we handled the downturn well. But I do think that we weren't expecting quite a 80% type drop. That's 15 and a half more people than Celsius had. That's impressive. That's a joke, guys. I don't really know about

Celsius's risk management team. Well, speaking of that, any has any of the C5 contagion, the Luna 3AC, any of that changed the thesis for investing in crypto right now for institutions? And anyone can jump in on that one. I guess I don't think i i mean it will for a very short period of time obviously liquidations had an impact on the market but i think uh for many of the institutions i spoke to at least they understood that that was a credit event not a crypto event and when they kind of heard the facts and understood you know what celsius for example just to take one entity, was doing in terms of, you know, taking in user deposits and actually re-hypothecating them or, you know, putting in DeFi and recursively yield farming on Aave or whatever they were doing. Like, I think that they said, oh, OK, that reminds me almost like, you know, replacing certain words. But this reminds me of 2008. And we understood like what was behind there.

And it obviously wasn't a good situation. But like kind of getting that out of the system can only be a good thing. Because now hopefully we'll have learned our lessons about what to do in the next cycle rather than trying to have this over-exuberance and kind of just keep putting money in. So I think institutions were nervous for a little bit, but now they promptly kind of moved on.

You have great faith in humanity way beyond mine to think that we will learn the lessons, considering we're still talking about 2008 lessons in 2022 that we're repeating. I mean, Alex, you're building in this space. How much concern do you have that we will yet again build things i mean you could argue that the celsius voyager this whole world was like we basically built all the things that we were supposed to be hedging against but like shittier and with worse rails right how do we prevent doing that it was really amazing how efficiently the crypto world rebuilt like the pre 2008 u.s financial system and then we're like, it's innovation. Yeah.

There was, I would say it looks like 2008. It also looked like, you know, the late 90s, right? Where you basically have a technology that is a lot of really cool power and possibility for the future and just dumped way too much money into it long before it was ready for that level of investment. But if you, again, go back and rewind, like you have all these things that people tried to build in the late 90s on the internet, totally failed and crashed in the 2000s.

And all of those things ended up getting built in a better way as the world was more ready for them over the next 10, 20 years. And so I think you'll see that hopefully again without some of the weird financial manipulation stuff that was going on in it. But yeah, I think May, it's funny, without some of the weird financial manipulation stuff that was going on in it but yeah i think you know may it's funny i literally put an offer in on a house the day that luna was collapsing

luna and tariff stuff was like collapsing it was super fun um but you know the next two months i think were really nerve-wracking because you know we're looking around we're seeing 3ac we're seeing what's going on and it felt like the question was, okay, not necessarily have we reached the bottom of it, but is there another contagion shoe that is going to drop? Is there something else that's going to crater it? Because it's sort of, you know, I had a lot of confidence I think most people had confidence in the long-term thing of crypto and its ability to weather a downturn. But what causes really bad things is when all the legs fall out at the same time.

I think we are past, and David, Rich, you guys probably look at this a lot more closely than I do. It feels like we are past the point, knock on wood, of something really contagious, bad happening and like ripping out a huge part of the ecosystem. I think a lot of people have spent the last few months looking at their positions, looking at their counterparty risks and trying to make sure that there's going to be a soft landing instead of a hard one if it happens. And so I think that's good. We're still probably going to be in a down market for the next 12, 18, 24 months, whatever it is. But, you know, as you've heard a lot of people saying, I'm a strong believer in like bear markets are a great time to build. The reduction in hype, the lack of distraction is really great.

I know at Hero and we have a ton of stuff that we're working on and going to be shipping over the next few months. So, like, I don't think it's that big a problem. You saw an entire shift. I mean, the whole SaaS market largely exists because of the shifts that happened after 2008. So as long as we don't have a bad contagion event that, you know, really hurts a lot of people, I think the next 24 months

will actually be a pretty good time for seeing a lot of innovation come out. Yeah, I think there's a lot of dry powder from a VC standpoint waiting to kind of put money into projects. And, you know, if anything, I think it's a lot of dry powder from a VC standpoint waiting to kind of put money into projects. And, you know, if anything, I think it's a good thing to see that now the projects that continue to exist and are continuing to build are the ones that are probably going to build the foundations for the Web3 ecosystem. You know, and I'm not saying that the ones previously who were kind of not wiped out in this were good or bad. I'm not trying to pass judgment on it, but it does seem that some of those projects were less than fruitful, let's just say.

Whereas I would, you know, kind of argue that for the time being, what we've kind of gotten out of this crisis, and I don't think we've completely seen all those contagion effects kind of weeded out yet. I mean, we are still getting stories about HODLNOX, for example, and other kind of entities that maybe some people aren't familiar with. But certainly it's nowhere near the same magnitude that we got in June. I'd say the macro currents are just a lot stronger than the tides that have been flowing in crypto. And so I think it's hard to picture a very bullish event in macro unless there's some type of surprise where we need a lot more stimulus. It might be that things need to actually get a lot worse for there to be stronger stimulus for people to vote with Bitcoin against these types of monetary plays. But I do think when you look at the reasons for Rally, we had the DeFi summer, you had the surge in purchasing of NFTs. I feel like we're going to need something new, a real new type of innovation. Maybe it's going to be in gaming or

finally have something in social. But I do think that myself, my company, as much as the industry, are very bullish long term. But I think for the next couple of years, if there's nothing really bullish in macro to come out, it's hard to get that excited about crypto. Can the Ethereum merge be that catalyst or have we already seen all of the buying and excitement for that? No, I mean, I think you'll see, assuming it completes successfully, you'll see it take up another some, I don't know, 5, 10, 15% just because of increased certainty in it all, right? Same way that public market mergers traded a discount until the close. Now, sometimes that discounts 2%, sometimes it's Twitter at 50%.

But I think you'll get some of that. But I don't think the merge doesn't actually affect. It doesn't affect developers. It doesn't really affect end users. I mean, there's some staking change stuff there. But for the most part, it's a very inside baseball, very technical thing. But I think Rich is right. The next resurgence of interest in crypto is going to have to be driven by something.

I don't think it's gaming. Not that I think you can't have interesting Web3 gaming, but I think it's hard for people to divorce the economics from the actual game. And you've seen that as a really big problem where like people just keep trying to slap paid NFTs into a game and be like, it's Web3 gaming. And like, no And nobody wants that. Our games also objectively suck. Yeah, but that's kind of my point, right? They're so focused on the financial angle of it that they don't actually build a good game that someone wants to play.

I think it's either going to be social. There'll be a fresh round of some sort of financial and earning mechanisms because that's always going to be part of crypto. But I think it's either going to be social or something around like identity and something that gets them there. Those all sound like things that are pretty far in the future, though. So I would say that that sounds like consensus is there's nothing immediately on the horizon that would give us reason to see a renewed, sparked bull market. Not that it can't happen, but all of these are ideas that could happen at some point

in the future, right? Yeah. I mean, I think the average crypto bear market is something like 24 months. I don't think you should expect to see in three months from now that we're back at $70,000 Bitcoin. It hasn't been 24 months yet. I know. It feels like it's been 24 months it does i've aged a lot more than the 24 months since it happened and if you look at the having cycles actually a lot of people love to sort of pull up the chart but i think that historically you know the bottom is 500 and

something days after the having which would put us at sort of the real lows in November, December of this year. So and then you have to slowly climb out of it. Right. So even if we just go back to the normal four year cycle, which you can certainly make the argument is not that compelling anymore with the market being so different. But it would indicate that we're still in for a whole lot of crap market here. Yeah. and that's still fast compared to traditional financial systems. There was actually a funny thing. Going back to buying the house thing, I was at one second, I was like,

should I try and wait and look? And I pulled a chart from the 2008 crash. And do you know how long it took housing prices to bottom after the 2000? Four years. Yeah, four years. It didn't bottom until 2012 and i'm like well cool i'm not gonna sit back and wait for that you know in an eight-year cycle so it's like all right cool

if it's if it's only a 18 or 24 month cycle for crypto to go through it all we're we're innovating quickly yeah i bought and sold a house like less than two months ago and yeah i'm sure i sure i top ticked it but like if you're going to live in it, you're going to live in it, right? What are you going to do? Not buy a house. But the best financial decision I ever luckily made was buy a condo in Miami in 2012, which happened to be four years after the bottom.

Yeah, that's really good timing. Yeah. You should have bought five condos. It would have worked out even better. I could not afford to buy five condos, Alex, but thank you for reminding me. Yeah, I bought the one cond better. I could not afford to buy five condos, Alex, but thank you for reminding me. Yeah, I bought the one condo that I could actually afford. But it sounds like then, you know, we could be here for a while.

Are there any other great ideas that you guys think could be catalysts, things you're excited about that are coming in the crypto space that maybe haven't really come to the surface yet? You said it's not gaming. A lot of people would have pointed to gaming, Alex, I think. So anyone have any other bright ideas? I wouldn't say it's an exciting innovation, but I'm surprised we've gone 45 minutes here without anyone bringing up the B word, politics. I think we're a few months away from midterm elections. That's a lot of what's been driving what's happening in the news lately. I think that the Biden administration is doing anything as possible to keep inflation down and to prop markets up because they know that they have a lot on the line coming to the elections in two months. And I think it's really coming from the advent of social media 15 years ago

than the past decade, where instead of the media being driven by intellectuals for a certain set, I think we have the news driving more of a reality TV type concept for the masses. And so I think that this ultra polarization caused by social media is having a major impact on politics. And over the long term, I think that is bullish for Bitcoin, because when people see that you can't get anyone, people are excited about elected or even on the roster, it breaks a lot of the trust that we have in that institution, which is a really important one, not just for the U.S. and for the world. And I think that gives people reason to want to buy something that more like Bitcoin, where it does have trust and is more consistent over time.

Opting out of the nonsense, going back to the core thesis for Bitcoin in the first place, right? Yeah, great modern philosopher Ricky Gervais said recently that when feelings start to outweigh facts, the world starts to go downhill. I think that's increasingly correct by the moment. Oh, then we're really screwed right now, at least judging by anything you would read on social media. I mean, we have a long, actually historical context. There's plenty of times when we can look at midterm elections in tightening cycles.

Right. I believe there's been 12 tightening cycles since 1950s. Actually, 11 of them, the stock market has performed well, if you zoom out to one to three years, as opposed to just looking at the first three quarters, which is what we're doing now. So markets actually historically have performed very well in tightening cycles once I think the sort of initial pain is absorbed. And they've never done poorly in a midterm or election cycle. There's always been a bullish Q4 and Q1 of the subsequent year, even if the bear market sort of continues. Maybe social media changes that. But I mean, if you just look back at history, Q4 and Q1 should be pretty good. And politicians hate losing their jobs, right?

They're all going to lose their jobs. That's the most surprising thing, given how they want the markets to move. Go ahead. I was saying it's hard for a president to cause a four or eight year rally, but a one or two quarter rally, it's possible. It just seems like when everybody starts ramping up their election spending in October, they're going to need to have better talking points than what they have right now, which maybe means the Fed lets off the gas, even though the Fed is independent of the government, right? Totally. Yeah. So I mean, does even they kind of like these conflicting thesis then, because there's really no catalyst here that should get us excited. But we do have this historical precedence, at least that we could get like a nice relief rally or bounce in those two quarters. I mean, Rich, are you guys, you know,

is that part of your thesis at all? Is that on your radar that you brought up the elections, that that could actually dramatically affect markets for that period? Yeah, I'd have to look at the analysis you did. I was thinking that it's more going to peak in November. But I think if... That would make sense. Yeah. So maybe we'll get another massive October like we did last year. The only good month that we've really had in like

a year and a half. That'll be fun. I guess we need to now talk about the merge, right? We talked about it a little bit, but do you think that, and Dave, you and I have talked about this at length, but do you think that there's a significant risk that it doesn't go well anyone like that it just utterly fails and it doesn't work i don't i really hope god it's bad

for everybody if it doesn't go well i say this is someone who's ardently in the bitcoin ecosystem the last thing i want to see is the merge not go up. After three test nets go through, I don't think it's going to be a titanic situation. I think there's some mini missteps, and it might be sensationalized by groups that are following it closely and want to have a news story. But at this stage, why would they move forward ahead of the timelines that were stated a few months ago if they didn't have confidence? Yeah, I think we learned a lot from the test nets

and the Shadow Forks as well, because I mean, this is basically what confirmed that we had to run with total terminal difficulty, whether we needed just a hash rate and you wanted to kind of reach that. I mean, maybe like we have to qualify what does failure look like as well? I mean, like what we are considering in finality is like we just need to have like two thirds of the validators

actually approve the blocks into epochs or all the blocks within two epochs. Right. And once that does and once that's finalized, like we're done. So we'll know in 15 minutes more or less. But I would say there could be some you know issues with oh maybe the participation rate isn't quite what we wanted um which would kind of reflect what happened on the gorley network for example um and certainly like what happened at the end of may like i think that was actually a blessing in disguise in terms of understanding, OK,

like these are the potential risks we can actually have with the merge. But I think beyond that, too, you know, we were kind of talking about what's the next narrative for the crypto cycle. And I wouldn't be as dismissive that the merge isn't necessarily it, not because the merge itself isn't an important event. It really is. But for everything that kind of comes after in terms of what happens with the layer two landscape,

for example, ZK EVMs kind of being built right now, which, I mean, that's no small ask. Like we thought that was going to happen like two years from now. It's happening now. If we build it, will it come? I think that's the big question because it could be very possible

that these l2s will start housing all this transaction activity for the ethereum network uh and if that happens your experience on the l2s will just be the same as what you're getting on the ethereum mainnet could that be like what is necessary to kind of get people into this because then like it's night and day like things are going to be fast things are going to be cheap like i'm just going to be able to kind of use it and if that's going to be the case you know it'll look a lot more like web 2 and frankly that's came what people want you know people want an easy to use ecosystem they don't want to have to like bridge things and move stuff around they just want to be on it and have it work. So I think that could be the big unlock from all of this.

Alex, you've got to have thoughts on that. Yeah, it's possible, certainly. I mean, I think the flip side of that is, I think, and kind of to what Dave was saying, it's unlikely anything goes wrong in the short term on it. There's second order effect stuff that I get a little worried about six or twelve months down the line um the you know if this really does unlock a an order of magnitude let's call it improvement in the you know ease of like transacting through the network i don't know it's possible um the you're still going to be left with the need for the next kind

of generation of actual building right so it'll take 12 months at least 18 months for I think some of that network stuff to shake out and people to actually see if it's working the way they want and then hopefully more builders start coming in and building so again this is a long time horizon game it is years before I think we hit the next real up market and turn where people start doing it. But it's, I'd say it's possible. I'm slightly skeptical. I mean, it's kind of like the halving, right?

I mean, it's a very long-term fundamental event that for some reason people get super excited about as it's happening, as if we're going to have this Y2K moment and the entire world is going to change like the second that the merge happens. It's not. But I think, you know, to David's point, it really to change like the second that the merge happens. It's not. But I think, you know, to David's point, it really maybe unlocks the power of the L2s

and then you don't have to wait for Ethereum, the underlying network for all that development to happen, David. I mean, is that correct? Yeah, exactly. You know, I think right now it's still a bit of a challenge to kind of work with all of these things. And I'm very much kind of separating the user experience away from the performance of the ETH token itself, you know,

because I think what I'm talking about strictly is just the user experience. Like you got to make things easier and we got to make things easier, the ecosystem. And that's basically what the layer twos are going to accomplish. And I'm not going to get into like, you know, creating a modular versus a monolithic kind of system. Although that's really what this is. Like the merge represents this movement towards a modular kind of way of thinking in terms of separating the consensus layer from the execution layer from the transaction layer.

And that speeds things up significantly to the point where we actually could improve the user experience. So if we do that and we have the block space, can we fill that block space? And at the end of the day, I don't have the answer to that. But it seems like we've done that before and it's happened. Sorry. I think that is the right general direction move. I mean, it's part of what we've said about the advantage of building on Bitcoin for the last few years is that, you know, Ethereum is sort of started out, Bitcoin started out

as a sound money layer, right? And we're introducing programmability to it. Ethereum, other way around, started out as programmability and now really wants to become sound money. That's a lot harder of a move to make than sound money to add the programmability. But actually separating kind of the asset or the value layer from the transaction, the programmability layer is an important important move in that. Because one of those things you want to be able to innovate on very quickly, and one of those things you want to not be innovating on very quickly at all, right? All people care about is stability there. So assuming that goes through, as David said, I think he's right. It will be a positive move in that direction for them. You really rather see all of the innovation happening

you know the technical innovation happening on L2s where you can have multiple different projects going and people trying out different things without risking compromising you know the underlying asset which again is why you see if you're probably trading at least a little bit of a discount to where it will do post-merge because there is that chance like, oh God, what if something goes catastrophically wrong and the entire asset crashes or goes offline? Yeah, you know, I think about this like the start of the internet and I'm not talking about like, you know, when we had 50 different protocols. I'm talking about when we finally first had like the first real public internet. You know, we didn't know what was going to be innovated on the space. We couldn't have predicted podcasts like this one.

We couldn't have predicted, you know, creating an Amazon or whatever, but like eventually it happened, but it was in the longer term. Right. Like, I mean, like it still took time for us to kind of finally say like, ah, there's a use case that we could have for this and people could stop by. Well, you couldn't actually do that until we finally had SSL, right? But it happened. And then we, we ultimately did that. So that's kind of what I'm looking forward to. I don't know what's going to be built on there. Once we get the block size,

I'm just saying that it's possible that it hasn't been thought of yet, but it will because it will be possible to actually execute it. We first need to let it be possible to execute first. Yeah, that makes perfect sense. And believe it or not, here we are at 1030, which means that we're done, guys. So thank you so much for all of your thoughts, everybody. I tagged everyone here

instead of saying all their Twitter names. I tagged them in tweets. You guys can go check it out and follow all of them. I think the moral of the story, as usual, that I get out of all these conversations is we're still really early. We're still really early, which is a good thing. Right. And there's still always going to be speculation as to what's going to happen. And yeah, there's just endless opportunity in this market. And whatever we guess is probably the next thing to come will probably be wrong. But thank you guys very much. Everyone else, I will be here back again

tomorrow morning at 9.30 a.m. Eastern Standard Time. So tune in. Once again, Alex, Rich, David, thank you guys so much for your time and for sharing your thoughts. Peace, everyone. Thanks, Mike. Thank you, Scott.

Let's go.