The Wolf Of All Streets - US Downgraded, Bitcoin Prepares For A Massive Pump!

Episode Date: August 4, 2023

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Unemployment numbers just came in and they missed expectations coming in lower and looking like this could be leading into a recession. But of course, we have the Fed and a number of banks saying there will be no recession, that we will have the mythical soft landing. We also had, obviously, the Fitch downgrade of the United States debt and of Fannie Mae and Freddie Mac this week and a million stories in crypto that we've talked about. It's Friday. We're going to do the week in review myself and co-host David Lynn, who's much better at this than I am. So I'm happy to have him here to make me look bad. You guys don't want to miss this show. Let's go. It has been. I mean, we've had everything from Richard Hart being charged by the SEC, Coinbase, Bald, Rugpulls, DeFi, almost going under, on-chain summer coming when base finally launches. We've got so much to talk about today, and I'm glad I do not have to do it alone.

We've got David Lin here from the David Lin Report. How are you, man? I'm good, Scott. Good morning. Good morning to your audience. A bit of correction to what you said in the opening. This was factually incorrect. I'm not better than this, than you. We're better at this, rather.

You've got to set expectations low. No. See, I like to set them by reality. You can't. This is why it was my double speak to actually make myself look better and set you up to fall on your face so that I can look relatively good.

Oh, I see. Okay. Even like you have the better background, you have the deeper purple, you have the nicer tie. I mean, I don't even have a tie. It's whatever. So everybody can see the thumbnail, right?

Bitcoin, massive pump ahead of we kind of had that up there but should i show them what uh we considered the thumbnail for that that was sent to us by the producer you should yeah should we be embarrassed by this i mean i look i i've got to say uh my barbie looks pretty good like you know she's, my Barbie is, is your Barbie literally is hot. My Barbie is atrocious. I mean, it's, it's, yours didn't work out very well. I don't know what happened.

You're not great. You know, I don't know how to feel about it, but it's not good. It's not good. But, but obviously, so why, why Barbie? Well, the, the reason is this video that has gone quite viral. Let's, let's watch it really quick. And then, and then we can talk about Margot Robbie here,

who, by the way, apparently Twitter thought that Margot Robbie was like a seven or something. Did you see that a couple weeks ago? I don't know what you're talking about. What do you mean? Good. That means that you're not too deep in it. So Margot Robbie, who's Barbie, apparently the Internet decided she wasn't hot and that she was just normal. And then everyone was like, yeah, a bunch of like virgins on their couches have decided that Margot Robbie is not

hot enough. But, but here she is talking about Bitcoin. People are going to be saying he's such a Ken. So I want to know, I want to ask all of you right now, what is a Ken? How does one spot a Ken? That's so funny because when we were in prep for this movie, two of our wonderful producers, one of whom is also my husband, when David and Tom would start talking about Bitcoin or something, Greta and I would be like, they're being such Kens. They'd talk about golf, we're like, stop being Kens.

So it's hard to define what makes a Ken, but there can also be big Ken energy, and that's a good thing. Or as Ryan says, Kennergy. Kennergy. Yeah, I mean, that's the gist of it, is that apparently if you talk about Bitcoin, you have big Ken energy, but then also golf. So does that mean that the girls are really excited

when their husbands talk about golf? Wait, I missed the link. Hold on, I missed the link to Bitcoin. Is this a meme that people have made? Yeah, she literally she literally said when our husbands start talking about Bitcoin, it's oh, and she like swooned and said we have big can energy. OK, and so obviously that became major news in the financial media. Barbie Mario Robbie has a take on Bitcoin, says it's a Ken thing. And then Saylor Bitcoin is big Ken energy, and he linked it.

I don't really know what to think of this, to be quite honest, but it's a thing. I've been a bit out of touch with the Barbie verse. I apologize. Honestly, I respect that. Right before the show, Misha. I haven't watched the movie. I don't. It's home, I think, uh maybe do later in the summer yeah it's not on my list and uh first of all

someone said that my barbie looks like paris hilton wait your wife your wife hasn't dragged you to the theater no i don't think she's so excited about it um our producer saw it he was like have you seen barbie yet i haven like, no, I haven't seen Barbie. Okay, anyways, our crowd is telling us to focus. So, okay, first of all, we have U.S. downgraded. Bitcoin prepares for a massive pump. I'll tell you why we made that the title. This is coming from the block.

Bitcoin's hard money status reinforced by U.S. credit rating downgrade, which we'll get into in a moment. Okay, do you think that this credit rating downgrade, which we'll get into in a moment. Okay. Do you think that this credit rating downgrade, which we will talk about momentarily, actually affects anyone's view of Bitcoin status? No. Well, first of all, the status of Bitcoin is a hotly debated issue that we can later talk about, But the short answer to the downgrade issue is no. And that's actually an interesting question because the last time we had a US downgrade, which was by S&P in 2011, Bitcoin wasn't really a thing back then. To the same extent it is now. So no one was talking about Bitcoin status after the downgrade

back then. People are talking about it now. Fair question. My answer is no, doesn talking about Bitcoin status after the downgrade back then. People are talking about it now. Fair question. My answer is no. Doesn't impact Bitcoin. Hasn't even had an immediate impact on short-term rates yet from what I've seen so far. Yeah, I totally agree with your take on that. But let's actually dive in.

Why the US credit rating was cut by Fitch and what it means. You're the macro guy. What's going on here? Why have we gone from a triple A rating to a double A plus rating to A plus seems pretty good, honestly, if you're looking at it in a vacuum. I know that it's not. But what's happening here? Why this downgrade? First of all, pretty good is subjective.

There's 11 countries with the triple A rating. The U.S. is no longer one of them. I don't have the whole list of countries in front of me, but you can look it up. But yeah, Fitch, the Fitch downgrade caught everyone by surprise. They don't typically telegraph these things. And there's three major ratings agencies, Fitch, Moody's, S&P. And markets fell this time, but from what I've been reading, it didn't fall as much as it did in 2011. The S&P dropped by 7% on the day after the news. And I think partly it's because, well, analysts think partly it's because it's basically a downgrade in line with what the S&P already gave in 2011, 12 years ago. And they never re-rated the AAA rating, by the way. It's always been AA, well, the one tier down from AAA for S&P.

And so Fitch's downgrade was not a surprise to people following that piece of news. It was a surprise overall because, like I said, they don't telegraph these things. Now, they've assigned this downgrade with more or less the same reasons or similar reasons as the S&P downgrade in 2011. And I'm just going to read you a paragraph from the Fitch report, which is public, by the way. You can Google Fitch downgrade. They issued the statement on the 1st of August at 5.13 p.m. Eastern time.

And they said, ratings downgrade the key drivers. The rating downgrade of the U.S. reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to AA and AAA rated peers over the last two decades that has manifested in repeated debt limit standoffs and last minute resolution. So they cited these debt limit standoffs that happened pretty much every single time. And of course, as we know, none of these times actually materialized into an actual sort of default or anything beyond just squabbling in Congress. Yeah, that's my feeling. It's mostly squabbling. Go ahead.

Yeah. And the article was quite comprehensive into drilling down on each of these points that mentioned fiscal deterioration. And actually, the Fitch actually, interestingly, projects a recession. So they think there's going to be a mild recession by Q4 2023 and Q1 2024, according to their projections. The agency, I'll just read you this paragraph, the agency sees US annual real GDP growth slowing to 1.2% this year from 2.1% and overall growth of just 0.5% in 2024. Notice how these are not negative GDP growth numbers. So apparently we no longer need negative real GDP numbers to have a recession. I love the redefining of everything in real time. Let's talk about that real quick.

So what I've learned over the last couple of months covering this pretty much every day is that the U.S. and in particular NBER, the organization that designates recessions, they never actually followed the two quarter of negative GDP definition. Other countries do, but the U.S. does not. And well, specifically, Enber does not. And on the Enber website, there's an FAQ section that addresses this issue. And the FAQ is, does the Enber look at two quarters of negative GDP? And the answer is no. They look at seven other macroeconomic indicators and all like most of them have to be flashing negative for for this to actually be a recession. So they don't actually look at that. But yeah, going back to the Fitch downgrade, erosion of governance is another interesting one.

So that basically goes back into irresponsible fiscal management. If you look at I don't know if I can share my screen. No, I'll do that next time. Yeah, you can. You can. You absolutely can. You go to present at the bottom. Okay.

Then you go share. I'll sit. Yeah. Unfortunately, it's on the other side of my room. But I will direct the readers to the St. Louis Fed data. So if you just Google St. Louis Fed interest rate payments, so the federal government interest rate payments on their existing debt is nearing $1 trillion. It's spiked up dramatically from $600 billion all the way to $1 trillion in the span of a year,

just under a trillion, 900 something. And yeah, there we go. we go so yeah that huge spike up so that's just interest payments on existing debt it's not even money being utilized to to like you know build infrastructure or whatnot that's just interest payments on a sick on existing debt and if you look at if you google st louis fed tax federal tax receipts so st louis fed federal tax receipts. So St. Louis Fed federal tax receipts. That has trended down over the last quarter. So it was at $3.2 trillion. Now it's at just under $3 trillion.

So the ratio is compressing. You're able to afford less of your interest payments with just tax receipts. So I spoke with an economist this week, Steve Hanke, about this issue. What can the government do now to close their deficits? By the way, we're not even talking about their debt to GDP yet, which we can talk about later. But just to close the deficit, what can the government do? Well, they essentially have two choices. They can raise taxes on everybody or they can reduce government spending. It doesn't look like they're going to reduce government spending anytime soon. So perhaps higher taxes for everybody. If they're interested in closing the deficit, that's assuming they are.

Yeah, it feels like they might not be that interested in that. Hence the downgrade. Yeah. Yeah. So to sum up your question, yeah. Fiscal deterioration. And what's really interesting, Google one more thing, please. If you look up the CBO budget projections into, well, just look up CBO budget projections, the Congressional Budget Office, they actually are projecting the debt to GDP to go to more than 180% in the next few decades. Yeah. I didn't find the actual chart but i'm standing through here

they're they're uh they're projecting that that the the debt to gdp ratio to widen they're projecting the uh they're projecting the deficit to widen uh so yeah the government's own budget office is not projecting any sort of resolution to. But I think what you said is the key. They're not even trying. Right. I mean, obviously. So Fitch downgraded them because of partially because of the shenanigans around the debt ceiling that we saw, which was highly politicized, came down to the wire and everybody knew it would happen. But they forced political concessions as a result. And then we saw debt go from effectively thirty one trillion to thirty two trillion in a matter of a month or two right after that. Right. So how can you blame a credit agency like Fitch for not downgrading us when they see that our government is so thirsty for more debt? We literally had an argument. Can we get more debt? And then went up a trillion in a matter of weeks, right?

Yes, yes. The interest payments on the existing debt, some of it was already locked in. So it's not all new interest rates on the existing debt. But yeah, the point is, like we saw on the chart, interest payments are going up. So yeah, on the one hand, you've got higher debt. On the other hand, you've got higher interest payments. That's what's actually most important. The question is, can you service these interest payments? The answer is, right now, the government still can, even with just tax receipts. But they're not using tax money to just pay off interest payments.

There's a bunch of other things they've got to finance. Yeah, like almost $900 billion in military spending, which is basically as much as the next four or five countries or more, eight countries combined, right? So it's unfortunate that the deficit is going to have to widen in part because of just interest payments alone on existing debt. That's kind of crazy when you think about it. I'm going to look up, actually, the current net interest. Net interest payments as an expense of the total budget, or total government revenues, rather, is about 11%. Right, and it's now going to be the single largest budget item ahead of military spending.

So, and unless they're going to actually deal with the debt or reduce military spending, everything else is effectively a drop in the bucket, right? And all of this, what you're saying, I mean, we also, as I said, saw the Fannie Mae and Freddie Mac downgrades as a part of that, the mortgage lenders controlled by the government. But then somehow, this all seems to lead to a recession, but somehow we've heard the Fed say there will be no recession. Bank of America Global Research raises US growth forecast on soft landing

expectation. Is this cognitive dissonance? I mean, what is going on here? How can we possibly not be heading into a recession with all this bad news? Well, they're looking at data that perhaps the Fed is looking at as well. To your point about unemployment coming out this morning, the rate actually dropped. That's good news. There you go. The labor market is not soft. It's actually been more resilient than a lot of economists have predicted. And you cannot have a recession unless we get higher unemployment.

In fact, that's actually one of the indicators. I think the NPR looks at. And, um, usually when the unemployment rate rises by about 50 basis points, it goes up to one, it goes up by another 1% and you can't really control that. And that's when you get a recession, but the unemployment rate, even though it's a lagging indicator by about a month, it hasn't shown any weakness. In fact, it's better. It's a better reading. If you consider month, it hasn't shown any weakness. In fact, it's better. It's a better reading if you consider a lower unemployment rate a better reading. I have to drill a little bit deeper into the components of unemployment to see which sectors are actually doing well and what not.

But I haven't had time this morning yet. But it's something you should look into. But, yeah, to answer your question, I'm not surprised. A lot of economists and analysts do agree with the notion of a soft landing. It's not. I haven't always been. I haven't been interviewing exclusively bearish people. Some people do believe that a recession won't happen this year.

I have not interviewed anyone yet that thinks there will be no recession period. Right. But that's what the Fed literally said. I mean, Jerome Powell said that a week and a half ago, and that's what Bank of America is effectively saying here. I mean, it is important to note, though, that this is, as it says here, the sixth month in a row of a weaker labor market than expected. So we're not a particularly weak market, but it's not doing as well as they project each time. And how relevant that is, I'm not really quite sure. But it does seem like we're seeing these sort of cracks in

the facade here of the job market. And there's only one way for unemployment really to go when it's at historic lows. So probably the Fed tightening we've seen in the past should have already been enough to do the job here. So I think that unemployment is inevitably going to go up and we are going to see a recession. That's my opinion. Yeah. So that's an interesting point. Yeah. Who knows? I mean, if you look at surveys of small businesses, I believe business owners are projecting themselves, are projecting higher unemployment

because the bosses themselves know that they may have to lay off people more. So people across the board that I've talked to are also agreeing with you that the unemployment rate will eventually have to rise.

The question is by how much and which sectors will be hit the hardest. I also want to draw your attention to asset prices because you can't really have a recession if the wealthy are still spending money. Part of what's driving the sticky consumer spending and the core PCE being sticky, which comes from services, by the way, is the fact that people are still spending money. Retail sales are continuing to go up.

Asset prices are continuing to go up. I don't have to talk to you about stock prices. But even the Case-Shiller Price Index, the home price index for the largest U.S. cities, a conglomerate of the largest U.S. cities, that's been trending down in the beginning of the year. And then now it's trending back up. So people that were calling for a housing crash nationwide, they were wrong so far. It's actually going back up. So if you combine – and an interesting chart that I saw over the weekend, consumer sentiment.

If you look at the University of Michigan consumer sentiment, they break it down by income. So the wealthiest tercials, so the wealthiest people, their sentiment just shot through the roof in the latest reading. Like it was a straight line up. While the lowest tercels, the less wealthy people, their sentiment has kept deteriorating. So it's going down. So there's this bifurcation in sentiment, which doesn't usually happen. It's happened a few times in history, but it's not a common occurrence. I actually put this on my Twitter and polled people. People had some really good explanations. One of them is that inflation obviously hit the wealthy less hard than the poor.

Inflation is basically a poor tax, if you want to call it that, and the wealthy are less affected by the inflation we've had. The other good explanation is that the wealthy have assets invested, and their assets have gone up, so they feel more wealthy because they are on paper. And so their sentiment is getting better. Uh, your sentiments getting better, your housing, there's actually a direct correlation by the way, between your house price and your consumer discretionary spending that the usually, uh, on paper, if your home price value increases, you feel wealthier, you spend more. This is a well-documented correlation. So, um, if asset prices continue to go up, I suspect the wealthy will continue spending their money and that may actually prolong a recession. I think that makes sense.

I once read an article that the amount of money and the timing for when men buy new underwear is also a signal for how wealthy they feel. I'm not joking. That was a legitimate article that I once read and reported on. When guys finally decide to replace the underwear in their drawer, it's when their asset prices are going up and they feel wealthy. I wish I was kidding. It's actually true. Yeah, but the wealth, okay. Yeah. If you feel poor, you just ride that underwear for another

six months. I'm just telling you it's statistically apparently true maybe it was in maxim i don't know but i think i think i think the strip club indicator is a better indicator have you heard of that one how how much rain is being made and i don't know specifically what it is uh various articles have said that strippers are they they know when a recession is coming because um they're usually able to know like how much yeah exactly like what you said it's pretty good indicator of a slow discretionary spending by wealthy men it actually makes a lot of sense as much as we laugh about it sort of like the opposite of the big short when the movie he flies down to florida and talks to the stripper

who has like four mortgages and says short everything right yeah yeah yeah, yeah, yeah. And by the way, people have been talking about interest rates and mortgage rates going up. And you know about this, of course. I'll just reiterate this point because I think it's important. Most of the rates that we have today on existing homes were locked in prior to the rate hikes. And so the mortgage rates increase. It impacts new home buyers, but most homes today

in the US are locked in at 30 year rates. So very low rates. It's up 4%. Right, it's up 4%. Which, yeah, which actually is one of the reasons why people have not been selling their homes, because if you do and you want to refinance, you're going to have to do so at a much higher rate, which partly explains lower inventory than one might expect, which probably explains why prices are going up. Yeah, as Drew Spat said, no one's going to sell their homes. It's absolutely true. It's more like it can't crash if there's just nothing happening. And that's what it feels like. Which ironically feels like if rates go down, people might be incentivized to sell because

on paper, your homes have gone up a lot since before COVID. So it's like if rates go down, people might be incentivized to sell because on paper, your homes have gone up a lot since before COVID. So it's like, if you sell now, you're actually making a lot of money if you had bought before COVID, but you're going to have to pay more to live somewhere else. And most people are making that calculation. They're like, I don't want to deal with that. But if rates go down, ironically, we may actually see a huge rate of selling initially. I 100% agree with that because then people can get out of the home they don't want to live in and afford a home that they do want to. It's been a problem for people in New York City forever and a place where effectively prices always go up. I have a lot of friends

who are like, yeah, my apartment might be worth millions of dollars now, but what am I going to buy? Something worse for much more money. And that actually makes sense when you think about it rationally. Should we move on to the crypto news of the week? Yeah, let's do it. Are you pumped for it here? I know this gets you excited because SEC charges Hex founder Richard Hart with misappropriating millions of dollars of investor funds from unregistered crypto asset securities offering that raised more than $1 billion. To give the high-level summary here, we have the one side, which is the unregistered crypto asset security that I think surprises literally nobody because we know that the SEC

is going to continue coming after people who launch things without registering them. The bigger story here is whether they actually recycled transactions to make it look like there was more interest in HEx than there was, effectively taking the money that came in, putting it back in the contract, saying, hey, look how many people are putting their money into the contract when it was literally just the same money going through and through. Not a pump and dump, but certainly a pump and sentiment, which obviously is quite illegal. And then the bigger claim that Richard Hart took some of the money of the contract from investors or sacrificers, as they like to call themselves, from investors and went and bought a whole bunch of lavish items, including the world's largest black diamond. What's crazy

is that I had a Twitter spaces with a group of hexagons. And then I actually did a live stream here a couple of days ago where I allowed some of them to come on and convince me why I should care about hex. And what I got out of it, and this is no fault of the people, but they don't even care if he spent $12 million of their money on these things, because they said it was part of his outrage marketing campaign that he was very transparent about. So effectively, in their minds, he could buy literally anything, go show it off on the internet publicly, and they would consider that part of their marketing budget. They also said that since he said, I'm just basically taking your money as a sacrifice to me, your billionaire leader,

there's no investment contract here. You didn't expect any wealth to be made and therefore it's not a security. Have you dug into this at all? Okay. I'll comment on that. I've seen you tweet about this. You're very passionate about this subject. Can we just comment on that first? This has really piled you up. Are you against are you against the well everyone's against the idea of getting scammed um have you always thought i'm just curious have you always thought hex was a scam i i i i very careful about my words and i don't think i've ever said scam yeah um because i don't know and can't say that it was created specifically to take money from retail and put it into his pocket. And I think that maybe his intentions could even be good, even if he's doing these things.

Do I think that it's a protocol that's no different than anything else, but literally was advertised as pumponomics and the only utility of it was put more in and you'll make more and more people will put more in and then they'll make more a bit Ponzi scheme ish. It sounds like, although there's nothing there, that's an actual Ponzi scheme. I was extremely skeptical and can't see any reason fundamentally why anyone would have ever invested in it. And then on top of that, his antics, whether intentional or not, I think just alienated people to a degree that I was wildly uncomfortable with. Okay. So have you ever spoken to Richard Hart? I haven't. And to be honest, I'm sort of embarrassed because I, well, once we were supposed to have a podcast and I had a family emergency and canceled it, but that was legitimate. And then I never rescheduled it. But then I kept getting like just so many attacks from the hexagons for not having him on that it became an aggressive thing. And I just didn't want to have

a part in it either way, to be quite honest. But a lot of people have had him on that it became an aggressive thing and i just didn't want to have a part in it either way to be quite honest but a lot of people have had him on he's exceptionally intelligent there's no question that i just think that he's a bit narcissistic and he's openly said listen i should be the most famous person in crypto i'm the smartest i'm the best right he means it so i i interviewed him twice at my past game wow okay here we go. They're like, they were long interviews. And I kept a neutral stance on hex. I never personally invested. Both times, my very first question to him was addressing the fact that a lot of people, a lot of people thought he was a scam. A lot of people thought he was a Ponzi. So I gave him a chance to basically defend himself. I said, here are all the facts for why Hex is a Ponzi, including the fact that people claim it has no utility, including the fact that you've got a fixed rate of inflation, which is used to pay your stakers, which sounds like Ponzi-nomics to a lot of people.

He called it pumponomics. I mean, that was literally like a term they used. But yes. Yeah. And so I gave him and he both times he defended his stance, I would say reasonably well. You know, he was he said, look, first of all, you can't be a scam if you're transparent. And it's actually quite true, because even on their website, they explain exactly how the staking process works. So you can't blame him for using additional tokens to partly pay the

stakers because it's very transparent. And he was so transparent in the fact that, uh, hex was working a certain way that he wanted it to, and that I, I almost kind of respected his transparency. Um, one,

it didn't convince me either way, whether or not it was a Ponzi or not, because definitionally it wasn't. But then if you look at the economics, one could argue that, again, it was trying to get pumped up to the extent that he mismanaged funds and used it for personal. I don't know. I got nothing on that. Right. That's what I'm saying. I have nothing on that. I can't. So I can't call him a scammer outright, irrational Ponzi adjacent. That's a funny comment, whether you believe it or not um rant when we talked about on twitter spaces ran nooner came out effectively in defense of richard hart and said listen exactly what you just said he's so transparent about it he said

exactly what he was going to do he did all of it he's never lied to anyone he told you he was going to do this outrage marketing that he was going to buy lavish things to get more attention so you know i don't really have the answer there for what one of my questions to him was look you've got people staking for 15 years that's your staking period by the way you can opt for a number of years the maximum is 15 if you want the maximum return 15 years yeah so i i said can you guarantee look like look us in the eye guarantee us that we will get our money back in 15 years? And he was like, I'm not going to freaking guarantee that. I can't even guarantee if I'll be alive in two years, which was kind of a cop-out answer. But basically what he's saying is this is a risky investment.

You may lose your money. So he never said on air, to me at least, that this was fail safe. He was never, Malik Smyshynski said that. He said this is a risk-free investment you can't lose. Yeah, fuck me. Richard Hart never said that. Yeah, I agree. And I've said that over and over again.

I fell for the actual scammers, which was the Smyshynskis and Ehrlichs and those guys of the world. Richard Hart told people exactly what he was going to do, and he did it. So whether that's legal or not, whether the SEC agrees or not, that is the at least perception. And I think that's fair. Can we go back to the case? Actually, what is the SEC pursuing him for exactly? Well, it was, I believe, securities fraud on the taking the investor money, although they claim they're sacrificers and they knew they weren't investors. And then, of course, the launch of the unregistered security, which I think is dead to rights on that one.

OK, because Ripple Ripple gave obviously precedence that secondary sales are not, but that the initial raise was very much a securities offering. And whether you I don't believe the SEC is going to dance around the semantics of calling it a sacrifice or an investment or that his terms of service said, like, you never can expect to get anything back. Because if you listen to any of these people, first of all, this case is only coming because there's angry people in that community, right? I mean, that's literally the reason. This wouldn't be happening otherwise. We know that people have reported him and complained to the SEC about it. And we had all these hexagons on. They were like, of course, I'm here for the money, right? And so if there's people that are expecting

Richard to make the money, it's certainly a security offering right right um what's that rule that you can't you can pump something but you can't sell it right i mean that was kind of that's a whole other issue is that uh you certainly are not allowed to do the opposite of what you're saying. And we don't know that. I don't think that he necessarily was selling it. So I think that, listen, he created an asset that's probably a security and the SEC is definitely going to get him on that. But I do also want to be clear, though, there's no criminal charges here. Like right now, unless criminal charges come, which the fraud, if that is proven, may happen, like the guy will probably just write a check and go on.

To be fair, also, I did ask him how much hex he owns, whether or not there was a pre-mine and how much of the token he actually controls, and he would not answer that. He controls, apparently, the OA, the origin address or whatever it stands for, is like 95% of the tokens. And he's the one who controls that.

I asked him that. It's not his. Yeah, he wouldn't confirm or deny that. So he was transparent about a lot of other things, but not his own ownership. So I don't, he never, at least with me, he did not admit exactly how much he owns. So I don't know. I don't know how much he owns so i don't know i don't know how much he owns um it's possible to assert to a small degree of probability that he doesn't actually own a lot so uh in that case would his

sentence be lighter i have no i don't know if that would i don't know if that has any impact how much have you uh been following the defFi and Curve situation? I have not actually looked into that myself. What's going on there, Scott? Good for you. Okay, so Michael Agarov, who is the founder of Curve, which is one of the largest DeFi lending smart contract platforms, has sold a total of 160 million Curve for $42 million. I've talked this to death, guys, you know,

but the broad strokes here is that effectively on multiple platforms, this guy took a massive loan, some reporting as much as $100 million by well over collateralized, you know, 300 million worth of his own token founder Curve. But then what happened was Curve got exploited through a re-entrancy bug. We will not get into exactly what that means, but a bunch of the liquidity pools were empty. It crashed the

Curve token and started putting his major loan at risk. So there's one issue is that the most stable, secure, and trusted platform in DeFi Curve was hacked. Big problem, obviously. But the second one is that this guy had taken out such a big loan that if it got liquidated at 37 or 38 cents for Curve, it could literally crash all of DeFi because all of those tokens, there's a smart contract, not a bank. They don't call you to negotiate and see if you can put up more collateral. The smart contract would have sold all of that Curve on the open market, which would have also crashed Aave and all of these other basically could have been the quote unquote end of DeFi. So a lot to parse here. One is that he took this massive loan out so they could buy two huge mansions in Australia. That's one. Two is that, yes, it's amazing that this is decentralization, but sometimes what you

get with decentralization is that there's no human to say, hey, maybe somebody shouldn't be able to take out a big enough loan that it could crash all of DeFi. And C, if you saw Sam Bankman-Fried use FTT, which was his own token to take out massive loans and effectively create a Ponzi scheme that crashed FTX, should a founder be able to take his hundreds of millions of dollars of tokens in his own protocol and use them as collateral when they are highly, highly volatile? So that's basically what's happening here. He could have, to some degree, collapsed almost all of DeFi by having his loan liquidated. So why should a loan that big be given, even over collateralized if the collateral is that bad. I think this is, well, not this particular case, but things like this is one of the reasons why Canada, where I'm based, recently banned the exchange or sale of any proprietary token

on an exchange. So what are your views on that? Is that a little too extreme, you think? I think that's too extreme. So I think that, well, this is a DeFi problem. And to be honest, I'm torn because I believe in free markets. I believe people should be able to do whatever they want with their money. And the nature of these smart contracts, obviously, is there, like I said, there's really nobody vetting this and making sure that that loan couldn't have systemic risk. But once you start saying that we should control those things,

you're becoming centralized. And then you're back to being the normal legacy system. I think that people should be able to freely trade whatever they want. I do not think that you should be able to use literally anything as collateral. Maybe that's where I land for the loan. Yeah. Well, I think this just goes back to risk management. You can't be using anything as collateral um and certainly i think people i i agree with you let the free markets

do what they want let the free markets decide but there has to be more information and transparency with how these tokens are um are are created the tokenomics has to be a little more clear and how the users are using the funds that has to be reported. And I think that's where the regulation comes in. You and I talked about regulation last time. So, yeah, I think that'll change. Yeah. And I think my bigger issue here is just it's yet another sort of notch in the lack of trust belt of DeFi. Right. Because even if you do all these things, this loan was secure until there was a hack and nobody can predict these unknown unknowns of hacks, right? If it gets hacked,

all of the economics of the loans, all of the risk management goes out the window because the coins literally disappear, right? So, I mean, it's just hugely problematic. And then obviously you get the people selling on the open market because they think there's going to be a problem and you get the liquidation cascades that you've seen before. So I think that DeFi is still in its infancy. That's really the moral of the story in my mind. Yeah. Do you think we'll get the APYs that we saw pre-Celsius collapse? The high single digit APYs for putting your token Bitcoin in an asset manager?

I do. I do think that we'll see it. And I think you still see it in DeFi. But I think what will likely come with it is disclosures and transparency. And to be quite frank, that's fine. I've said this many times, you know, as a Voyager creditor, if Steve Ehrlich had or Voyager had had to put out a public disclaimer of exactly what they were doing with the money, who they were loaning it to and the terms, I would have just taken my money out. Right. So the problem wasn't necessarily that they were that now Celsius was a Ponzi scheme, but Voyager, he just gave an unsecured massive loan that failed because the company went in bankruptcy. I'm not sure that's illegal. It's certainly, I would say, he did not uphold his

fiduciary duties and make good decisions. But if they had said that to their customers, people would have probably just withdrawn their money. I really think that. I'm going through the Celsius case in my head. And I wonder how much more they should have. The word should have disclosed. A lot of people trusted them. One of Canada's largest pension funds invested in them. So a lot of money, actually. I can't remember. It was like $700 million from Cassie DePoe.

At least tens of millions, if not hundreds. Celsius. It was. I know some of the 33. Wasn't it the Ottawa Teachers Union or something? No, it was, and I know some of the, 33. Wasn't it the Ottawa Teachers Union or something? No, it was, it was,

it was called, uh, Casted the Pole de Quebec, which is a Quebec pension fund. It's one of, it's one of Canada's largest pension funds. That's right. These are smart guys that work there.

Um, I know some of the guys who work there personally. I, I don't know if they worked in the Celsius. Right. That's my point. They, Celsius was flat out lying,

right? They, they were a ponzi scheme using the celsius token and he made false claims to investors i'm not sure voyager did that and trust me i would i would rather be able to just rail against them for doing it but that's where auditors come in i mean that's why that's right unless you get an n1 case where uh arthur anderson is also in on the lies, the auditor is supposed to do their job and actually go through their statements and say, this is a lie. I don't know what happened with that process. Right. But I think the regulation needs to step in if we're going to have deals in centralized finance and just require the same transparency and disclosures that you have in other markets that's what was lacking there to my to my uh to my understanding celsius though is

just straight up like theranos or enron right i mean literally it was just scam like lies and deceit what's going on with mishinsky actually now they were on the subject he's been arrested not yeah he's been arrested so i guess we'll see what happens there and so you know i think it's it justice will probably be served there and a lot more of this will become clear but this is one of those things where there's no way that like you said there's no way pensioners and and these and people like that were giving the money if they knew exactly what was going on transparently it's not possible yeah yeah yeah and so at the time it was a big case it was like wow it's like not even is it a trap by institutional firm it's like a pension fund supposedly one of the most risk averse institutions

out there um that are investing in this it's like wow now that's like it's like a stamp of approval that this is safe for institutional investment and then then it blew up. So now everyone's going to have to go back to the drawing board and reassess everything. But this is all old news. Yeah, I agree. And you know who else lost a lot of pensioners' money? Bernie Madoff, right? That's who lost all the pensions. My father went to Albert Einstein University in the Bronx, and they invested all of their money with Bernie Madoff and still to this day have been struggling to get like fully funded. It's crazy. And in case that's not a,

in case the curve story and the Richard Hart story are not stupid enough and embarrassing enough, we have bald meme coin on Coinbase layer two goes to zero as devs pull liquidity. I'm not sure if you saw this story, but to give you the broad strokes on this one, and then we have this cool picture of SPF being bald because people thought that SPF did it to give you the very broad strokes of this bald story. Effectively, base is launching next week, the layer two from Coinbase. It's huge news on chain summer. We can talk about that later. All these things coming if we have time. But basically, somebody figured out how they could just go ahead and start launching meme tokens on this layer two before it was even bridgeable to Ethereum or elsewhere. And this coin went up like 4 million percent and then immediately crashed. And at no point in there could the

people who put their money in be able to get it off of base then there were 29 more meme coins that launched and rugged and then they made some connections to alameda contracts who had donated to the chinese and who were involved in all of the donations and all these things and people posited that it was spf who doesn't even have internet access yeah it could have very well been a coin desk in a coinbase insider in some way in conjunction with an alameda insider even one of the craziest things was the serum twitter account serum obviously was the dex that ftx controlled on on solana that twitter account changed to bald and the bald launch was done from the x serum twitter account okay uh what what's the i i've been following this story i i i i people were talking

about the link to spf and then that later was not it hasn't yeah it's been dismissed but i think that listen i think that somebody who had to do with launching this had something to do with at some point and is not in jail what what what is this what does this token do what do you mean what does it do it's bald man what so it does nothing it pumps and rugs in the same weekend like how do they even market this like what like what how did that happen like how these happen i do not really understand to be quite honest i think you start pumping it you start talking about social media how people even got their money into base i have no idea idea. People start buying it, it goes up massively, and then you pull all the liquidity out of the pools, and even a small sale sends it basically to zero. That's effectively what

happened. You know what I'm surprised hasn't been rugged yet is PepeCoin. Remember that? Everyone was talking about that a few months ago. Dude, it's still, I think Pepe, I hate it. I despise it, but it's been resilient. And if we have another meme coin craze, it's, yeah. But I think at this point, Pepe is one of those things where it's become so big and so many people are holding that you can't fully rug it. You can sell it down massively, but I don't think you can send it to zero like this. But I mean, how embarrassing is all of this, man? Like, listen, you're not like necessarily a crypto insider. How do you look at those? I have a lot more stories here. Maybe we won't even get into all of them.

Will you look at those three stories as being the most significant things everyone in crypto is talking about this week? What's your first thought? My first thought is that the crypto news cycle is a bit slow. These are the top stories.

It's interesting. People love the, well, they don't love scams, but sorry, let me rephrase. Journalists love scams. There's something to talk about. And the media loves to get out on this. So I'm not surprised. As somebody who has come from a TradFi background,

I'm looking at this. And these things happen with penny stocks all the time. The concept of a rug pull did not originate with crypto, by the way. So people have been getting scammed. Prior to Bernie Madoff, he was not the OG scammer either. So listen, these things are not indicative of the overall crypto space i think there's a lot more legitimate projects that the media should be focused on why aren't they getting attention well probably because it's not interesting to talk about so yeah i totally agree i think that

uh it's just funny that a month ago it was all sec and coinbase and binance and BlackRock ETFs. And here we are, right? I will tell you that the importance of the news cycle from specifically this week is to counter act all the claims that Web3 is just fantastic. There's no faults and that it's just moving all in the right direction for humanity. There's a lot of bugs that we have to sort out. These are some of the bugs. It's still early. You can't make the claim that everything is going well with the development of Web3 and cryptocurrencies overall without highlighting some of these cases. And so the more people are aware that scams happen and and rug pulls happen and the more the regulators are aware, I think down the line, unfortunately, these things have to happen for better regulation to occur. and we kind of talked this to death, but they are seeing a 65% chance of a Bitcoin ETF being

approved in 2023 before the end of the year, up from 50% a few weeks ago and up from sub 1%, basically at the beginning of the year. Obviously, a lot of this having to do with the fact that they think Grayscale could win the case, having to do with the fact that Gary Gensler has walked back his talk. I mean, if you saw yesterday, Gary Gensler literally kind of hinted to, I'm sort of done with crypto, I'm moving on to AI. I don't know if you saw that, but AI is a much bigger problem than crypto. He said that. And he alluded to the fact that he's just one of the commissioners and they will all vote on these things. And in the meantime, I think we've now seen up to 11 Ethereum ETF futures, futures ETFs proposed and filed for.

It feels like we're going to get an ETF and that Gensler is going to be his way to say, look, we did the right thing. We gave people a safe way to invest and then just kind of move on. I do think they'll keep cracking down on crypto, but it seems like the rhetoric is luckily dampening at this point. I mean, what do you think here about this

um what do i think about this i think uh i well i i don't think i know you hate gary gensler so um whatever i say is it gonna influence your decision on gary gets it it won't actually i there's i i'm i'm uh open enough to say okay if he's realized he went too far, maybe that's political pressure and nothing personal. First of all, I think he went too far because of political pressure. Right. I think he's a kind of a puppet to some degree of the Elizabeth Warren side of the cryptoverse. And if he's pushed too hard and is going to back off his rhetoric. OK, I respect that. If he admits he made a mistake, but he won't. I think the enforcement by decree mantra that the SEC has showcased is probably unique to the U.S. and to some extent Canada because when I talk to people from other countries, they're like, hey, I live in the uae and regulators here sit down with projects and actually work it out like what do you guys need what kinds of regulations do you do do the consumers want apparently there's some sort of dialogue between the industry and the regulators to kind of come into a cohesive framework that is constructive for everybody but here it's just like

nope we're gonna we're going to, we're going to, these are the rules. You guys haven't followed these rules that we didn't implement two years ago. Therefore you're a violation of these non-existent rules. And I think that's kind of where the frustration is that there's no dialogue. And I, from, from an outsider looking in, if you want me to want to call it that I, I, that's something that I would like to see a little more dialogue between the regulators and the industry leaders. Maybe it's happening behind the scenes. I don't know. Maybe it's happening behind the scenes. I don't know.

Yeah. I mean, it feels like something has changed a bit. Maybe they pushed too hard and it's time for them to refocus. But I'll tell you who hasn't seemingly pushed too hard at this point. Wall Street Bank side with nemesis Elizabeth Warren on crypto crackdown. Didn't see that one coming. Renewed bipartisan push to curb crypto related crime. Honestly, I think that's fine. But this is being supported by the Bank Policy Institute, a trade group for lenders that Warren often blasts, like literally her mortal enemy or saying, maybe we need to control the KYC, AML and the side of crypto that's being used for crime. To be honest, man, I want to rail against this, but this should be for crypto and for everything else. Why are you surprised at this?

I'm not. It's just the big news. But yeah, I mean, she also wrote a Penda letter alongside Bernie Sanders just yesterday or two days ago saying that the Department of the Treasury needed to come up with their rules effectively to close the tax loopholes on crypto. I love to hate on Elizabeth Warren, but things that reduce crime, as long as it's not being used to crush the industry in some way, shape, or form, Gensler style, they really are going to get rid of the few criminals that are in crypto and this policy works, and they're going to close tax loopholes so that the tax code is fair for everybody i can't argue with that okay yeah yeah i'd like to i want to yeah i mean it doesn't first of all i think the industry needs maybe in popular opinion i think the industry needs um stricter KYC requirements.

I'm not saying that – look, there's some regulations that have gone too far. In Canada, again, I think you have to KYC for anything over $1,000, which a lot of people are up in arms about. I think that's fair, to be honest, because because yeah um but but um yeah wall street firms it looks like they're positioning to compete with the coin bases in the binances of the world which is why they are siding with regulators it's my impression yeah i agree i think there's an impression a that there's money to be made here right so the wall street wants a piece of that but be that there's adults in the room you know or that we require adults in the room and the government thinks that they're the adults who need to be there you go through these first three stories and it's hard to argue with that i just don't think that elizabeth warren and her anti-crypto army are the adults that need

to be there but yeah like uh that that that's par se know, that that's what we have. And that's the situation. Who is part of her army? I'm curious. Who's your army? Well, Gary Gensler and Joe Biden, certainly, I would say. But I think, you know, from what we've heard quietly, we talk to a lot of politicians now, actually. I mean, she's a very, very powerful voice in Congress. She's the most powerful Democrat, certainly when it comes to financial regulation because she heads the committee but also just people don't you don't cross elizabeth warren apparently if you're in the democratic party what are her views what are her views on cbdc's do we have any insights oh i think she loves them i mean i wouldn't be surprised

but then i can't now i'm trying to remember now Now I need to look it up. But she, in theory, I think, has no problem with the government having more control of the money supply. Now we're both looking it up, right? Yeah. Warren calls for the U.S. Yeah, there you go. Warren calls for U.S. to create a CBDC. This was last year. You can't be anti crypto, but pro CBDC.

That doesn't make any sense you can if you if it's your belief that crypto is a threat to that cbdc it's clearing out the path for your competition i'm being facetious but cbdc's are definitionally a form of blockchain so you correct yes digital currency right she wants the ones that she doesn't control out of the way right yeah that's all right well okay well i don't yeah what's um uh another another do you have any insights on world coin by the way speaking of um oh god i didn't want to go there again yes i have long insights and i don't know if you saw that yesterday, Kenya banned them, basically said that they're going to look into where the data is going. And now I have to find my tweet.

I mean, I tweeted this yesterday. I know we only have a couple of minutes left, but I really thought that this headline in Reuters was crazy. So I will share this over here if I can get it up on the screen really quickly. Reuters, WorldCoin says will allow companies, governments to use its ID system, to which I said WorldCoin just said the quiet part out loud. Right? I mean, I think we all knew this, but yes, WorldCoin, a lot of people say Sam Altman is WEF. I don't get into all that crap, but clearly WorldCoin is building a biometric database of the entire world that they will then sell to governments

and companies who need to use that. So I have a problem with it. Yeah. Yeah. I know. I understand that concern. This is, this is, this is my pushback with somebody else who, you know, everyone's voicing your concern. Um, you're already doing that every time you log into your phone or your computer, you're scanning your fingerprints. So every time you go to the airport and you take a picture, people have databases have already your face, your eyeballs, and your fingerprints. So to the extent that your information is safe or not, I don't know. WorldCoin has promised to not store the data. But my counter argument is that this is not a new phenomenon. Your information is already out there.

I do agree with that. I'm staring into a camera looking at the computer right now. Apple looks at my face every time I open my phone. But Apple, I will say in their defense, very serious about privacy, at least in theory. I think it's just hard to trust that they're going to do the right thing or protect your data in this world. And that's really where it stops for me. Yeah, fair enough. Fair enough. And now we're up against time. So the only things left to talk about were on-chain summer on base. And I we covered that, and the Litecoin halving, which literally killed clearly nobody cared about

for more than 37 seconds. Anything else on your mind before we go? No, no. I mean, let's see who else gets rugged next week. Hopefully, oh, well, to that end, guys, everyone, I'm taking next week off completely. I take one

week in August off every single year. It's the week before my kids go back to school, and I take it off to hang out with my wife and kids before they go back to school. It's the family tradition. So I'm, I'm sure that I won't entirely disconnect because I lose my mind when I try. I'm going to be honest, but I'm not writing newsletters or doing YouTube next week. I do know that. So I will be back. Yeah. Thank you, man. Hopefully I don't lose my mind again this time. How how do you how do you like hard not to work how do you structure a vacation like how do you plan for that because you mean you you don't just hang out just hang out i just commit to whatever we do well we might go away but i'd like in general but like in general it's just uh

you know nobody has anything to do kind of the rules are off to some degree for the kids they can do whatever they want and and i commit that i'm not going to be distracted i'm going to do it with them do you do you film like a lot the previous week and then you just post like i'm gonna do nothing this time i usually do but this time i'm just i'm just gonna have a blank channel for a week i'll have my podcast on sunday with preston pish which is awesome by the way you guys will listen to that on sunday but otherwise this time, I'm just going to let it happen, man.

All right. Well, enjoy. You deserve a break. I've got another two months of summer left. You just started, so you don't get a break for four years now that you started your own channel. I don't deserve a break. No, not yet. Guys, you should be checking out David's channel. What's

the address? Do you want to give it to us? It's the David Lin report. If you just look that up on YouTube, the David Lin report, you'll find it at the David Lin report. So yeah, thanks for that. Guys, his content is incredible. It's what I don't have much time or care to watch many other people's content, but I watch almost everything on your channel. So, wow. That's a great compliment coming from you. I appreciate that. Thank you. How else can I keep up? Somebody's content, but I watch almost everything on your channel. Oh, wow. That's a great compliment coming from you. I appreciate that. Thank you. How else can I keep up?

I watch it on 2X. Your voice is great on 2X. I'll put a Barbie filter on my face next time. Perfect, guys. I'm going to leave you guys with this on the way out. All right? Everybody look at that. Dream of it for the next 10 days or so.

It's going to haunt me. All right, man. Thank you so much, David. Thank you, everyone. I'll see you guys after I come back. Appreciate it, Scott. Enjoy your week. Take care.

Thanks. Let's go.