The Wolf Of All Streets - Unforeseen Bear Market: Analysis | Crypto Town Hall

Episode Date: June 21, 2024

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I wonder what we're talking about today. Probably how the market's dead. It's all over. Well, we got unforeseen bear markets. Nobody saw it coming. The bear market of summer 2024 when Bitcoin was casually trading at $64,000. The pain. maybe the great altcoin bleed of this week. I just love our titles. I love them so much. So good. Unforeseen bear market analysis. I don't think it's bear market, to be clear. I think it's the exact boring summer that almost everybody predicted, but can't possibly tolerate when it's actually happening. I guess though we do have

some slightly bearish metrics. James, we had a lot of outflows this week, huh? Yeah, I mean, if you time this correction, just look at the FOMC statement. The dot plots went from three predicted by the Fed to just one. That's in contrast to the future markets that are saying two cuts this year. But it's definitely had an effect. The price question started immediately after that FOMC meeting. And then that prompted $600 million of outflows last week. And this week, the same thing. We've seen about, so far, 473 million dollars of outflows so definitely future straight expectations are having a big impact and in my view are the kind of key reason why we're seeing this correction i agree but it's rationally so stupid i'm old enough to

remember uh last year when we were supposed to get four cuts that were priced in still no cuts yeah and i i think there's a lot of it comes in the face of actually quite a lot of deteriorating quite bad macro data really quite a lot the best way to sum up all macro data and whether it's beating or missing expectations is to just look at the bloomberg economic surprise data. And that's pretty negative now. It shows you most analysts are being way too optimistic about economic growth in the US. And my view still is that I think the Fed will be late. A lot of the Fed speak recently has been around cutting interest rates only when it's clear that inflation has fallen enough. And that is too late.

So my view is that the Fed will likely cut late, but it'll be 50 basis points. So a knee-jerk reaction rather than 25 basis points. Well, they raised late. Why not cut late? So I say raise, I mean telling you you know you're right i'm saying they they are always like that was my point in both directions that's kind of their uh because they operate on lagging data it was interesting we had true flation on yesterday and they you know by their metrics inflation was around two percent already and they were kind of making the point that it's already time. And that lagging data from the Fed is a huge problem.

And I agree. Whatever they do, it will be too late. Yeah. What they should do and what they will do are different things. As always. Well, listen, Matt, we haven't spoken in quite a while. We're talking about outflows here. I know you just got on stage and you just jumped up, but I would have to imagine knowing you, you're not too worried here. uncertainty. There's a lot of uncertainty out there. There's uncertainty around the Fed. There's uncertainty around when national account platforms like Morgan Stanley and Wells Fargo will approve Bitcoin ETFs. There's a lot of uncertainty around the election. And you also

have the fact that institutional investors are starting to think about summer and migrating away from those screens. It's not unusual to see outflows at this time of year. And I think it's just an opportunity to add to positions as we wait for all this uncertainty to resolve itself, which it will in the coming months. So no, not worried here. I don't think it's a great bear market. I think it's a natural summer doldrums,

particularly in the face of all these uncertain items. Yes, but our title says unforeseen bear market i think it's a natural summer doldrums uh particularly in the face of of all these uncertain items yes but our title says unforeseen bear market no one saw it coming no one saw it coming scott the great sideways of summer every year especially every four years should be the title that's right that's yeah so listen though you, obviously, Hunter had sent it to me, and then I saw it come out. Incredible new commercial for Ethereum. So you had the tweet on like, big finance, Ethereum doesn't clock out at 4pm. Kind of amazing. But to my knowledge, you guys are the first to push effectively Ethereum marketing, obviously in advance of an inevitable Ethereum spot ETF trade, maybe July 2nd, I think Gensler said,

or by then. Pretty cool. I'm psyched to see you guys doing that. Thank you. It was a fun ad for the team to make. I think they did a great job. I think the rest of the world doesn't have a good idea

about what Ethereum is. And we think it's time to educate them around Ethereum, you know, not specifically ETFs or timing, but everything in the ad is true, right? Big finance is going to go to sleep this Friday at 4pm and take the weekend off. That's just true. So if you think about how far the market has come in understanding Bitcoin over the last 18 months, that same sort of educational process is going to take place on Ethereum. It'll come through things like ads. It'll come through things like media placements. And it'll come through thousands of meetings. And that's just going to lift this market up.

So thanks for the kudos. It was a fun ad. And there's a new one out this morning. So there's going to be a series of them. And this is a similar roadmap, actually, to pre-launch of the Bitcoin spot ETFs, right? We sort of got these educational campaigns on what Bitcoin was without it being ETF specific, which I know maybe is for legal reason. Right. And then I assume when they launch, it'll start to hone more in on the specific product offerings that each issuer has versus the others and fee wars and all the fun things that come with that. Yeah. You might remember we had the Dos Eis ad uh on bitcoin um which was another fun one if you haven't seen that one definitely look it up and um you know this is this is the playbook uh

sort of tried and true and yeah i think i think it'll be fun to watch and again it's just going to be a massive education of Wall Street on what Ethereum is. And we're starting to make down payments now. And it's pretty exciting. Yes, there's more for you and Jeff. You're on the same team, obviously. How do you now, when you go out on the red show, how do you start allocating?

How much time is spent on the Bitcoin spot ETFs? How much is spent on new education for Ethereum? Or is that determined, I guess, by the questions you're getting? I went to an RIA conference right when the Ethereum spot ETF was approved and not a single person asked there had even heard of Ethereum. Right. So maybe that means you don't even bother yet, you know, but, uh, or maybe it means there's just a lot more time now dedicated to, uh, talking about Ethereum as a, cause I got to imagine, like you still have the same resources, the same meetings, the same people. Now you got another product.

Yeah. Yeah. I'll throw in one comment and then Jeff can follow on. Um, this is probably not intuitive to people who spend all of their time in crypto, but as you mentioned, advisors don't necessarily know what Ethereum is. But the real assets and you have no exposure to them. And you might want to consider them. They are sort of picks and shovels plays on other applications like stable coins, DeFi and NFTs. The default position for many financial professionals is going to be three quarters Bitcoin, one quarter ETH, because that's what the market cap is telling you you should invest in if you want broad based exposure to this space.

And I think before you get into arguments about cash flow value or all the exciting applications or talk to these advisors about the Denkun upgrade and programmability and throughput and layer twos, you just start with that basic item, which is you diversify your bonds, you diversify your stocks, many people are going to want to diversify their crypto assets. And that means, you know, adding some ETH to their Bitcoin. And I think that's going to be a primary driver of flows over the first few months. Jeff, I don't know if you have anything to add there. Yeah. And quickly, Jeff, like Matt obviously mentioned the 75-25. Have you guys done some heavy calculating on Sharpe ratios, et cetera, for sort of determining that

number? Or is it just a nice, easy round number that they'll understand? Yeah, it's a great question. And I think ultimately, the 75-25 portfolio does show an improvement in the Sharpe ratio. We've studied it across the timeframe that Matt published over the last four years, assuming a quarterly rebalance. gives people the ability to understand the degree of freedom that having diversification adds to the portfolio. So there's a way to appeal emotionally and philosophically, but there's also the objective truth of empirical evidence, which I think is equally powerful, as Matt alluded to. The other thing I just want to add onto the campaign that Matt touched upon, and this is another way I think we try to educate people around the use cases is that we had an NFT mint program alongside our campaign. And I think this is super important because it gives people the ability to actually touch

and feel the concept of Ethereum a little more closely in a way that brings it to life. So for those who have participated or seen, we allowed the chance to mint the ad campaign itself on the base layer of Ethel 2 through Zora. And it was really cheap, really fast. And you actually get to observe how many people have minted, what are the creator royalty earnings that are being distributed very transparently and contractually. You see half goes to Protocol Guild. You see the other half go divided by the two actors. And I think when people see that, that too appeals the logic and emotions of what it does. As Matt mentioned, Dancun upgrade and inflationary mechanisms and all those things are interesting. But hey, there's nothing as more interesting than actually seeing the money flow to the actors who actually

now engage with us on Twitter. And it's been really fun. And it brings that whole social economy full circle. So I just want to touch on that being also a useful toolkit. Bitwise always trying to advance more ways to engage the audience, both that are crypto native, and some that might be touching Ethel too, for the very first time. Really interesting. I love the argument of sharp ratio, math, diversification, and not digging deep into the weeds of the tech or any of it. I told kind of told the story before, but Don issue hosts the morning finance spaces. And I used to co host it with him. And he's been on here many times. He was, I would say pretty anti crypto, very dismissive of all of it and of Bitcoin. And I whittled him down for like six months by just consistently sending him what Bitcoin does for

your Sharpe ratio, the correlation numbers, and just telling him that even if people hate Bitcoin emotionally, it helps your portfolio because it's uncorrelated. And these are the numbers. And eventually, I think Jerome Powell pissed him off one day, when the Fed sort of paused or pivoted, as some would like to say, and he started buying Bitcoin and since has been doing it for those exact reasons, not because of a passionate belief in the community, or that it'll become a global reserve currency, because this is the language that Wall Street or, you know, normal investors understand, if it's going to help your portfolio, you should add it in. So interesting to see, I guess, the next layer there of adding Ethereum to that math. And I

think that's the way. But before I go to Simon really quick, Jeff or Matt, do you guys, since you're recommending, I guess, 75-25, does that mean that you expect effectively the Ethereum spot ETF to be 25% of the flows of Bitcoin? Or do you think that it'll be less? Because obviously, not everybody is going to jump on board that ratio. Yeah, I'll jump in here. There are a bunch of dynamics on this. You know, there's less basis trade in ETH than there is in Bitcoin. And that's a portion of Bitcoin flows. There's a question of retail versus professional demand. But the long-term answer is that's approximately right. I'd suspect it's a smidge lower, at least initially over the first year or so. But I do think we're going to see eventually billions and billions of dollars flow into spot Ethereum ETFs if they launch, assuming

they launch within the first year or so. It may be a little bit slower to build than the Bitcoin ETFs. I think that could surprise the market. There may be more of a sort of a U-shape in how the market reacts than it did with Bitcoin. But yeah, billions of dollars, 20% 20 to 25 i think is a reasonable zone to to look at long term i think that would uh be exceptional simon uh yeah hey guys um yeah just a question for matt and jeff funny um so if we're now getting this um indication that east isn't a security i'm doubt they're actually going to confirm

it. But if it's like being framed that way, where does that leave the staking conversation? Because a huge part of the narrative with Bitcoin and ETH is growth and debt. Even though ETH has got nothing to do with debt, but if it generates a proof-of-stake income, then I think that's another thing that the institutional investor might try and draw a comparison to. And if staking, like, do you see the whole change in narrative around whether ETH is a security or not, how that changes anything on the ETFs, whether staking will be allowed?

And if staking were allowed, just a question on design, do you think it could actually be paid as like a coupon or a dividend or anything like that? Or do you think it would simply be like more ETH goes into the ETF and then how would that relate to units? Just a bit of a question we're working around if that comes. Yes, Simon, it's a wonderful question. And it shows you, I think, the complexity behind Ethereum as a sharp, sharp contrast to Bitcoin. In the US, at least, as we are thinking about the spot ETF launching, the inevitable reality is that the world has already been introduced to a lot of Ethereum-centric products in the global marketplace.

You have already seen Hong Kong launch a version of it with staking as a part of their long-term effort. You also might have seen recently that Purpose Investments out of Canada acquired Ether Capital to launch an ETF that incorporates staking as a component of their total return. And at the same time, you've seen the US have the futures ETF market launched last year to give some proxy as to what the market appetite and demand might be. So one of the most beautiful things about these ETFs is I think that it makes folks ask the next question. The Bitcoin ETF made people ask the question of self-custody. The ETH is the dynamic in which people are now going to ask questions about staking. And as Matt said,

the basis spread has been less pronounced in ETH. And I think there is actually an economic reason for that, which is if you think about the total return of a long and a short component of any pair trade, the market clearing price will be the most profit minimizing one for that marginal player. And if you're able to stake, of course, your total return on the long asset is much higher than holding a passive asset that a futures strategy may be unable to participate in. So I don't think it's an accident that the ETH futures basis is more compressed than Bitcoin. But at the same time, it doesn't mean that someone is not earning excess yield. It just requires different mechanisms. And that is going to promote

further introduction to lawmakers into thinking about how to incorporate staking as part of the total return construct. I think the question, Simon, you're asking around the classification of security is a super nuanced one. I happen to still believe that the definition of security is a little bit more narrow in the construct of how the legislation is meant to guide people's understanding. Some of it related to offerings, some of it related to governance, some of it related to a construct around dividends. But the ultimate ethos ultimately behind staking is that it's actually perhaps not as passive as one might intend. So dividends, if you're a stakeholder of a stock, feels very passive. You're told you get a certain amount of dividend and it's decided by the board and you receive it. You have no

participation in actually controlling for that outcome. The reality is with staking, we look at these yields as if these are passive numbers, but there is a spread of income possible by participant, right? There's no one staking revenue you receive. There's actually different ways as to how that spread could differ by the kinds of participation you perform. So in the future, I think that the advancement of how products are going to differentiate further, Bitwise included, amongst other competitors and our peers in the space, will be exactly that. How are we treating that in a way that is most fair to the end consumer, the ways in which it is most cost minimizing and profit maximizing for our stakeholders? And

there in itself, I think, will be a kind of alpha that comes out of what other wise might be perceived as passive, but really does require some active involvement into maximizing that yield component. I mean, it's not ETF relevant per se, but obviously we have this, I guess we'll call it controversial synthetic dollar Athena, right? And they're playing that basis trade plus staking to earn a yield in a creative way. That's their entire structure. So I don't know if that will ever come to institutions or not, but there are people already in crypto thinking very deeply about the possibilities with that. So I think that you're right, Jeff.

Go ahead. Yeah, Jeff. Go ahead. Yeah, no, and you know, it's funny because crypto moves like also one cycle ahead of the TratFi cycle too. So already the next dialogue happening around restaking, as you guys have followed around the theme of Eigenlayer and the launch of other protocols on top of Lido that promotes restaking.

You might've heard of Symbiotic. These things are also now topical in the crypto arena. So think about how complex the conversation evolves after staking in an ETF. What about restaking? What about all the other kind of financial innovation that can happen in that wrapper? And so I think you're right. There's going to be a lead-lag relationship in some of these, but the hope is that the crypto frontier is moving people closer towards the opportunity where you're maximizing yield, where some of that authority can live with the asset owner distinctly than a passive shareholder of a stock. Pretty soon, we're going to see Goldman Sachs and JP Morgan competing to yield farm yams and tacos. That's where it was all headed, obviously. Matt, just a comment. Go ahead. Yeah, I was just going to jump in to add two more pieces to what you said,

Jeff, which was great. On the question of whether they would pay out dividends or reinvest the proceeds, I actually don't know the answer to that since these ETFs don't stake. I would say in Europe, where there are staked ETPs, as far as I know, they all reinvest the proceeds as opposed to paying out dividends. I'd note that amongst those ETPs in Europe, there's a big spread in terms of how much of the fee revenue the ETF issuer takes, which ranges, believe it or not, between 10 and 100%. And obviously, investors should look for those ETFs where the ETF issuer is not taking the vast majority of the fee, something like 10 or 20% is probably right for the amount of service they have to provide. And then one more note on flows, Scott, since I was looking at Europe, you know, Europe,

there are a lot of ETF issuers that have both Bitcoin ETPs and Ethereum ETPs. And I looked at the relative size of those. There are five issuers that have both on the market, typically with hundreds of millions of dollars. And the ETH ETPs are somewhere range between 11% and 40% of the size of the Bitcoin ETPs. And the sort of mean number is 27%. So there's one example from a live market to tell you that there is demand for ETH ETPs, at least in Europe. And the scale is about, you know, 11 to 40, and maybe an average about 25 in that market. Exactly kind of what you predicted. Go ahead, Fred.

Hey, thanks, Scott. I just wanted to say that the white flag surrender from the SEC is absolutely great and it's phenomenal. But I just want to caution that the battle isn't over on ETH, even though everything good is happening on the ETF and on, you know, they're not going through with one part of an investigation. But, you know, perhaps no surprise that the SEC and the most beta male move that you could make consensus is still going forward with their lawsuit in Texas about whether ETH is

a security, whether the network's a security, probably going forward on the MetaMask stuff. So that lawsuit was just going to be the same lawsuit that the SEC brought against ConsenSys had they done the enforcement action. It's just switching the parties and switching the burden of proof. So it's still out there. ConsenSys says they're still doing it. They're not withdrawing it. It's going to be interesting to see how the SEC responds, because there's obviously been some back and forth discussions between Consensus and the SEC's lawyers that we're not aware of. And so, you know, it depends on how much is this retreat for real? And how much

is this just a we're saving face for the administration, but we're still as rabidly anti-crypto as ever. And, you know, I just remind everybody that Gary Gensler was hugely pro-crypto before he was the SEC commissioner doing speeches at MIT and all sorts of things. And then he obviously rugged everybody when he came in. So,

you know, again, good news on that front that we saw this week, but do not take your foot off of the gas. Fred, are you daring to imply that Gary Gensler's motives are not genuine? You know what? I, I,

I dare you a United States government official. How dare you? So it's just, yeah, it's just something that, you know, United States government official. How dare you? So it's just, yeah, it's just something that, you know, everything's playing out kind of the way it always has been. And, you know, we've gotten some good things, some unexpected things, but, you know, do not get head faked. And I mean, that's the name of the game in crypto. So just don't get head faked. It is big news that they're not going to charge consensus but that's just something not happening to your point it's not something proactive the approval of the ethereum spot etf says a hell of a lot more than uh this consensus situation because that happened

effectively overnight largely because of the political environment when nobody expected it yeah and that's that's obviously huge news. It's great. And I'm not taking away that in any way, shape or form. But also remember that, and there's not going to be, I don't think it's going to be as bad as Coinbase and Kraken type situations when they got sued by the SEC. But just because the SEC decides to approve something, and it's not the way how the organization used to be, this is a very new thing.

But just because they approve something doesn't mean they're not going to sue you for it later. You know, again, Coinbase said, we're going to list all of these things. We're going to offer them on our platform. You know, and the SEC says, go ahead and do it. We're going to approve this registration statement. Not the substance, but the statement. And then, you know, they sued them for their basic business plan. So, you know, everybody be very happy with the wins, but always, you know, keep pressing. Yeah, be vigilant. Eladio? Yeah. And I certainly don't claim to have any

knowledge relative to the people in this room regarding cryptos. But one of the things that I have noticed about the correlations, and I think correlations matter most when they break. If you look at crypto, gold, and home builders, and the NASDAQ 100, they sort of hit an inflection point in March. The only area that continued up was the NASDAQ 100, mostly led by semiconductors. But there's no question that we are below that 68,000 mark in November of 2021. And I'm sure a lot of the bulls in crypto will love to see that number break to the upside again. But there's no question that we hit an inflection point on everything but the NASDAQ 100. And I continue to see crypto as an anti-Fed, anti-government control, sort of proletariat type of investment. And Emma Molleman, I believe, sort of educated me this morning, because I think that's one of the

benefits, is that with governments becoming more controlling about our money, And certainly the Fed hasn't made things easier for the lower 80%. They've only helped the top 10 or 20% that own assets that only appreciated because, you know, stocks and real estate appreciate against inflation better than anything else. But I, I continue to see crypto as a leading indicator that breaks down before the NASDAQ. And now the NASDAQ has been completely hijacked by semis with the AI narrative that started well over a year, a year and a half ago. But I think we're going to have some pain, a lull, a lull. I don't think, I agree with Thomas Lee. I think that the likelihood of a BTC hitting 100,000 is still very possible, even possibly this year. But I think that there's no question that when you look at the meme coins and the way they've completely imploded, I mean,

I see crypto in my limited knowledge, BTC, ETH, Litecoincoin uh ripple and solana to me are the big five sort of the fab five correct yeah we've talked about this before you lose me at the uh well the coin like coin you lose me at the top five because it's kind of you know the nine or ten years ago list but i do agree that those are the ones who've been checked off, at least previously, as likely to be commodities in the safe funds. It's always laughable when you see platforms offer Litecoin, BCH, and such, because I guess they have some clarity, they think, regulatorily. But I don't disagree with you. But what I hear there, Eladio, when you talk about that 100,000 by the end of the year is literally the exact same cycle we go through every single time and then bang our heads all summer talking about when inevitably it

ends up just going up in the fall. Listen, I don't have a crystal ball by any stretch. Most predictions are wrong, but in March, I tweeted about it a lot and had a pretty damn good feeling that we were about to enter a super sideways six months. And meme coins and overboughts, altcoins and peak euphoria about ETFs were the signals, right? To your point. And if people didn't see a meme coin implosion coming, well, that's on you. I mean, I'm sorry when you find out that most people who went into the casino didn't end up winning. If you're surprised by that, then I don't know what to tell you. Simon, you had your hand up before. Yeah, no, I was just going to say that the open question of what comes next, and I'm trying to think about whose opportunity it is. So if you can do ETH staking, then obviously the fund managers

or the ETF providers is probably because you'd need to have access to the actual key to stake and do the restaking. It means that it would have to be done at the custodian level. So Coinbase would suddenly have to say, okay, you've got ETH custody,

then you've got staked ETH custody, then you've got staked ETH custody, then you've got restaked staked ETH custody. And then that opens up a whole risk management department. But then those are all individual securities or not. So I think it's just a classic question with ETH of once you've answered one question um it then just leads to more questions simon it's james here i don't think that stakes thing would be too difficult it you know coin shares is doing it here in europe and you're right is at the custodian level for staking and um we do offer a yield but it is like the main issue with actually with staking is the liquidity because it's locked up for a certain period so we can't stake the whole lot so we have

to have a certain component of it free to if people liquidate positions and then yeah sorry yeah no i mean we do it at bang to the future and obviously you have to you have to wait for 32 weeks to come in and then you go up and down but the because we're both a virtual asset service provider and the securities business we get to classify it as both and kind of on board with both but if you were constructing and then going into the restaking, sorry, it's probably a bit in the weeds for this type of call. It just opened one question. At what layer does it become a security and what layer is it not?

Yeah, I think the majority of clients we see, staking is clear enough, but as soon as you start restaking or rehypothecating or lending out all those kind of things with etfs people really start to get quite wary of doing that because of the additional custodian problems but just simple staking you know it's being done in europe fairly effectively i think we should eventually get there in the united states i don't know if it would be in a grant to trust structure though hey simon you asked what asked what's next. A company called 3iQ, I'm not saying this actually what's next, by the way, has filed for a Solana ETF in Canada. I got to ask Matt, Matt, is that something that we should even have remotely on our radar at all in the United States? By the way, it's just

been applied for, it doesn't mean it's been approved. No. No. I mean, you have to wait till after the election and then maybe we can have a conversation. But at the moment, I would try to keep your mind happy on the idea that we have Bitcoin and maybe ETH. Wait, did you say maybe ETH? Oh, you know, there's a compliance genie sitting on my shoulder scott so to just say right i guess they they're not trading yeah they are not trading that don't count your chickens that is right that's correct that seems to be the new formula right so you have global regulatory clarity on what a crypto asset is that you need to be registered as a virtual asset service provider that then opens up a whole industry outside the us where everyone can legally custody and they can

be audited and they can do everything in compliance with their regulator um and then that leads to their stock market being okay with an etf so they go down the risk curve a little bit higher. And then the US has to try and catch up and then you get the deepest, most liquid. So that seems to be a formula because outside of US, they're just going to keep going further and further down the risk curve, because the clarity is there and there's a legal way of doing it. And it's not up to the regulator to decide which one of these. It's up to the investor and the financial products can be constructed. You're saying that investors are allowed to make their own decisions, how they want to

spend their money. It's a wild concept. Yes. The regulator is not here to pick which are winners and losers. They're just make sure you get disclosures. And that's what they were originally there for. Make sure you don't manipulate markets and make sure you disclose so people know what they're getting into. And then people- In the United States,

you just have to be rich enough to clear the hurdle to be able to invest in things you want to, according to accredited investors. But you know what? That's even interesting, Scott, because 15 years ago, we crossed that hurdle in the UK.

We created equity crowdfunding. They updated securities laws. Then America copied that. They did the Jobs Act. And there is Reg CF and Reg A+. And there is regulated ways of securities being offered to retail investors. But they just decided that they would not give the clarity to the virtual asset side. So even once you get there, if it is securities, you already have a very robust, like we spent years on it, like getting jobs act. And that was like a seven, a seven year process of how do you sell high-risk securities, illiquid securities,

and liquid ones to retail investors. And the US already has all that. It just needs to use it. Really interesting. Eladio? Yeah. There's no question that the ripple decision by the courts of not calling it a security was so, so important. The minute you bring in regulation, they start with a great, you know, a great intention. But I mean, let's be honest, regulatory environment of wealth management is destroying the business to the point where advisors and even clients can't choose what they want to do because they have to subscribe to some formula that some compliance person who has no idea how markets work in most cases in many of the wire houses, this is true, you know, and they, again,

they start with great intentions, but they end up regulating to the lowest common denominator. And you can't treat regulation as especially in areas like wealth management, as if every person is the wolf of Wall Street. No, no pun intended, Wolf. And my pun was intended. And the longer that the SEC and any other regulatory body stays out of crypto, the better it is for everyone. Because in essence, it is in essence a proletariat revolt against more control by government. And I do think that is the good side of crypto, because governments have become more intrusive in the financial decisions of investors. And even the Fed, with all its great intentions, look what it's doing. It's basically controlling asset flows, and it has for 15 years since they started quantitative easing. Again, no coincidence. I brought this before in front of Wolf that when would crypto get created? Just about the same time that we had the GFC and we had the creation

of quantitative easing, which is a sterilized form of printing money. It may not have directly gone into the economy, but it certainly created the carry trade that pushed people into assets that normally would not have, people would not have bought in order to get a return. Yeah, I agree with you on the self-custody story. And obviously, I live in the self-custody story. And, you know, we're in this industry for that. But when it comes to actually running financial services companies no regulations and is an absolute nightmare like because you can't get banking i agree i agree i agree there

has to be regulation but then it morphs into something that it's not supposed to and it ends up destroying wealth uh the decisions of where capital goes and capital should go freely to the smartest and most intelligent people. And the one thing I have, the only problem I have with crypto, it is that it has interfered with traditional investment flows where money was supposed to flow to the Steve Jobs, the Bill Gates, the Mark Zuckerberg, so that they could create the things. I mean, the investment banking world is dead, both on the fixed income side because of the interest rate environment and in the equity space. We have one tenth the number of IPOs given the rally that we have had. Look at how little

IPOs have come to the market. Do you think that's a function of crypto? Well, I mean, yeah, there's only a certain amount of money. That's one of the things where we look at rotations. Yesterday, we saw this market is tiny though i mean relative to even it is it is and then you have the the that's like the ceo the former ceo of micro strategies he's become the warren buffett michael saylor uh you know and he he talks it is a small market which makes it more susceptible for when mich Saylor says, well, we're buying more. You know, money flows do determine where cryptos are going in the short term, among other things. I would argue that you've said multiple times, you know, the Fed, good intentions, regulators, good intentions, regulators good intentions. I would argue that they don't necessarily have

good intentions and the regulatory environment has been more prohibitive for the things you're describing than simply the existence of a new asset class that's probably small and barely on their radar. I mean, we despise Gary Gensler in the crypto industry for obvious reason, but literally everybody, private equity despises him, hedge funds despise him, Wall Street despises him. We live in an era now where the government is seemingly anti-capitalism, anti-tech, anti-entrepreneur, anti-wealth, right? I mean, choose your weapon there, but wouldn't that have a hell of a lot more to do with

the death of IPOs and investment banking than the existence of Bitcoin? And listen, I love that you're giving Saylor so much credit. I still view him as a god king of our echo chamber and not of the mainstream. I concur. What do you think? I concur. Again, the fact is, we also had a whole bunch of decisions come down.

We had the decision again where the SEC tried and tried and tried to create to turn Ripple into our XRP into a security and they failed. And I think that was an important decision. And, you know, and we had a couple of things go wrong with Sam Bankman Freed and crypto went right through it. And the only reason I think crypto continued to power back from its lows, even with the horrific news and they were going after Binance, is that everybody knew that after the regional banking crisis of last March, we were going to have the Fed come and save the system. And they did come and save the system by swapping long dated assets that had declined by 30%, you know, in this case, long term treasuries. And there's no question that the market's still waiting and has been waiting for that one move they they have eased on quantitative tightening and they've and they're easing and they're and they're moving away from it that they're tapering it so that's adding more liquidity uh and they and and but when you look at the next

move the next move is what everybody's still expecting the next move down and more liquidity you know should be good for small caps for for cyclicals and for bitcoin the minute we get up we get a the news that the economy is slowing but the problem is employment isn't breaking and and we got some numbers today that show that we're still we may be slowing down in certain areas, but we're not slowing down fast enough for the Fed to merit cutting rates. And until we get closer to September, you know, and I think that's part of the reason why we're fizzling out on the risk assets, because the rate cut. I mean, a year ago, we thought we were going to get six rate cuts, you know, and we were going to get one in December. And well, guess what? we haven't gotten one. So that so there's no question that once we hit this point here, where we hit this June meeting, and the Fed decided that that we were not going to have a rate cut, and we're probably not going to get one in July.

You know, we're gonna, we're probably going to see a low in risk assets in the short term, a low. I get that. But you know, like you said, we've been expecting rate cuts that don't come and the market's done nothing but go up for the last year and a half while that's happened, right? I mean, anyone who's actually expecting predictive markets on rate cuts to be right at this point needs to be dropped on their head one more time. Because it's been absolutely absurd. Dave, there was so much so much to unpack there. And I'm glad you jumped on stage because I knew you would have quite a few comments. Yeah, so let's take them in turn.

First, regulation. You know, I agree with everything you said, by the way, Scott, about intentions. I don't think the intention of these regulators are good, but I also agree with Simon that there's a need for a base layer of regulation. The fact is we know what it needs to be. Hester purse has laid it out extraordinarily well, we should have a disclosure based regime for financial products that people make disclosures that they have to be material, they have to be

full, and they have to be accurate. And if you don't, you get punished, you are effectively created as fraud, we only have one problem. There's no way in the current system to be able to disclose issuers don't have any place to disclose any of the things that matter for token offerings. And there's no way for trading systems to disclose what they're doing either the way because they trade the market structure is so differently. Now, the market structure for equities and we can talk about this, and

it's probably worth the whole space is fucked up. It happens to be that people have engineered the way around it, but it's way over regulated in terms of tick sizes and all sorts of other stuff. And the data from crypto suggests that suggested is way too weak a word data from crypto proves that that regulation is unnecessary, because you can trade crypto quite literally as efficient, if not more so than equities without any of it. So the issue is getting regulation right,

making it light touch and basically holding people's feet to the fire when they commit fraud. And that matters. And we don't have that in crypto. And that actually creates problems with confidence. We also have a regulatory environment on the custody side, that's a problem. You know, the Kraken story is funny and interesting and people talk about it, but here's the bottom line. There's no way, if you hold equities, you have $500,000 worth of insurance for what you hold through something called SIPC. People can't do that in crypto because there's no base layer for standards and it's not treated the same way. And we need that. We do need something from a confidence point of view for the average person

who doesn't want to deal with a hardware wallet to be able to deal with it. Now, the Bitcoin ETFs give you some of that. So that's the regulation thing. The next thing he talked about, which I found amusing, was the IPO scenario. The reason IPOs are down is really a function of two things. One, being a public company sucks balls. You have dramatically increased costs, dramatically increased regulation. And at the same time, private markets have become dramatically more liquid. And so companies don't need to go public as much. so you see that and unfortunately the way the private market set works is the ipos have become exit liquidity to the private equity and vc guys who have created that that game so the game itself is messed up right now uh it's partially because of the way the

regulations are way too much on public probably light light touch on private, but even if it's not light touch, it's just the disclosure-based regime. If you went to that, people would be public more often. Right now, if you're a public company, you have to allocate a percentage of your budget to shareholder lawsuits, literally. And it's a non-trivial thing. And no one talks about it, but that's what happens. It has nothing to do with confidence and anything else. It's just pure incentives. Lastly, on the Fed, the fact that we've had this divergence in the crypto market going lower while the S&P and Nvidia and other stocks are making all-time highs means it's not a pure risk-off issue. It's much, much simpler than that. It's the hot money has said, oh, it stopped going up.

Okay, let me find something else to play with. it's the hot money has said, it stopped going up. Okay. Let me find something else to play with. And while I'm not playing with that, of course, when the hot money is not there, uh, and it takes time for drink cycles for other people to come in, the market's in a low, we're in a range.

And you and I have talked about this ad nauseum. Okay. Way too much of a soliloquy there. So I'm sorry. The great unpacking. I can always count on you for that, Dave. Thank you. And I, it always blows my mind,. I can always count on you for that, Dave. Thank you.

And it always blows my mind, by the way, how you can listen to things and then say, okay, I have seven comments and you remember them all. So I have ADHD and I get through one comment and then I'm looking at squirrels and trying to figure out what the hell I was talking about. Go ahead, Simon. Yeah. Dave is brilliant at that. Yeah i just want yeah you know it is i just wanted to add a comment as well because it's somewhat of a libertarian fantasy but i do think we should appreciate what a different world we are in today when these regulations were written um and the the reality is is that there was i was listening in and participating in a seven-hour space with Mario the other day because people were speculating on whether a coin was associated with Donald Trump. And he said, yeah, I had meetings here, I had meetings there, and then I messaged the CEO of Kraken and find out, did that meeting happen? And in real time, there was a trial of tell us what you got.

And this is what happened with spf as well like the trial started on x basis when he came up and we were all grilling him and we were all questioning him so there is there is a self-regulating rate sorry a self-regulating regime that is emerging in this industry where, yeah, there's a lot of rug pulls, but are people really getting away with them when we can do this type of thing in real time? Well, clearly they are. But I just think that there should be an appreciation that the disclosure-based regime is kind of competing with a new world where the SEC can never find as much information out as putting, you know, the people up on the next base and having everyone

grill them. Now, I do believe that, you know, forcing people to give the information and evidence and all of the things that you have to do in terms of being audited and all that type of stuff of course it of course it still adds but there is a new world that we we are in and this whole concept of you know the the the wisdom of the crowd and crowd diligence and and just trials by x spaces and reputation is a very interesting thing that that can add to where the world is going now. Yeah, I also love the movie Lord of the Flies. Go ahead, Dave. Well, I mean, look, I agree with everything you just said, Simon. Let's just be clear.

And my point on the exposure-based regime is it needs to work with modern technology. So we have people like Masari and then there are others who are repositories for tokenomics. And so if an issuer says we have a supply of 1 billion tokens and it turns out and it's fixed and it turns out that they could create more, well, that is a very, very serious problem. If an issuer says my governance works like XYZ and it turns out that there's a backdoor and it doesn't work like xyz that's a serious problem and all i'm saying is let's get the things that need to be done baseline out on an internet site that's easy to put out there that's indelible and that regulators can now have the the evidence that if in fact someone does rug pull because of x y or z then they can do it. When it comes to market manipulation, more or less the same thing. And manipulation is, look, it's tricky. I actually have helped and advised SEC

and FINRA over the years on how to define it. It's non-trivial, and they always get it wrong, but it always boils down to intent. And so you can pick on the things that matter. But my point is, and it's and I make it all the time is no one reads these prospectuses that cost half a million dollars with legal fees to print. But let's take the parts that matter, make them the things that people actually care about, put it on the internet, make it clear, make all issuers have to do it. And guess what? If they lie, it's a problem. And if they don't do it, that's a problem. But it shouldn't cost half a million

dollars, maybe $10,000. I mean, it's orders of magnitude too expensive right now for all the reasons Simon said. And then if someone screws up, the thing, people like Mario will hold their feet to the fire, probably before the regulators do, but at least then there's going to be consequences. I'm in disbelief that we're so bored, Simon, that you, that we're at that part of the cycle that there was a seven hour space on Donald Trump. Oh, by the way, I listened to that too. And I'm not going to, I had my wife listening to it and she was just muttering under her

breath about Skrulli the whole time, but it made me- I'm surprised she wasn't muttering under her breath about what losers we all are and that we need to go get lines. That came later. That came later, Scott. I'm sure it always does, unfortunately, for anyone who's married. Yeah, that's when you get the real opinion later. So guys, I think we've covered pretty much everything we intended for today. Another great conversation.

I should have changed the title from Unforeseen Bear Market at some point during a thing, but I saw a squirrel and forgot. It is theoretically my job to change titles based on what we're talking about. And I don't think we talked about the Unforeseen Bear Market analysis. But it's Friday. I hope you guys all have a wonderful weekend. We will of course be back on Sunday, unless of course somebody launches a new Donald Trump token, in which case we will spend 14.7 hours over the weekend.

Unpacking how important that is for you, man. We spend our time on some stupid things, guys, get off the internet, go touch some grass, play some golf, hug your kids,

have a good weekend. Don't pay attention to this market. See you guys later. Bye.