This Week in Startups - Crypto Roundtable: SBF updates, $GBTC's role, Saylor says $ETH is unregistered security | E1631

Episode Date: December 8, 2022

Sunny and Vinny are BACK to break down all the important topics in crypto: SBF updates (2:52), how $GBTC played into the industry unraveling (11:34), why we should be paying attention to Genesis (25:51), Michael Saylor's recent comments (44:13), and more! (0:00) Jason tees up today's crypto roundtable! (2:52) Sunny and Vinny are back to talk about the current vibes in crypto and some updates on the SBF situation (10:20) Embroker - Use code TWIST to get an extra 10% off insurance at https://Embroker.com/twist  (11:34) How the Grayscale Bitcoin Trust played into the industry unraveling (24:21) Supergut - Get 30% off with code TWIST at https://supergut.com  (25:51) Why Genesis is more concerning than $GBTC (35:00) Microsoft for Startups Founders Hub - Apply in 5 minutes, no funding required, sign up at http://aka.ms/thisweekinstartups (36:29) Decentralized exchanges, importance of self custody, how Solana's price drop relates to Genesis (44:13) Michael Saylor's recent comments on Ethereum and Ripple being securities, problems with the "foundation" entity workaround FOLLOW Vinny: https://twitter.com/VinnyLingham FOLLOW Sunny: https://twitter.com/sundeep FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood

All right, everybody, we've got a great crypto roundtable for you today. Sunny and Vinny, join Molly and JCal. I'm talking about myself in the third person. To break down everything going on crypto, of course, we're going to talk about SBF, FTX, but we're going to talk about the wider contagion and the source of all of those crazy 18, 20, 30 percent interest rates you were seeing in crypto. There was one place that was causing all of this, the gray scale Bitcoin Trust. And we're going to explain what that is and why you're going to explain what that is and why you're

that can cause this huge contagion. We're also going to do a vibe check and figure out what's going on in crypto right now as SBF, Sam Bank Run fraud, goes on his insane, demented I'm sorry tour while having run what is apparently the greatest fraud in the history of frauds, making Bernie Madoff say, hey, pump the brakes kid. Then finally, Michael Saylor goes scorched Earth on anything but Bitcoin, saying the obvious that ripples of security, but But then talking about all of the other foundations that have tokens out there and saying they're obviously securities.

We're going to talk about this issue and what it means for the wider crypto space and America's viability in the global market where other people don't have as tight restrictions on what you as an individual can do with your money. It is a hot episode. It's an important episode. Stick with us. This week in Startups is brought to you by and Brokers Startup Insurance Program, Help Startup. up secure the most important types of insurance, at a lower cost, and with less hassle. Save up to 20% off of traditional insurance today at imbroker.com slash twist. While you're there, get an extra 10% off using offer code twist. Super gut. The holidays are here, and between the eating, drinking,

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Hey, Molly, how are you doing? Great. Just want to say for the record, you were magnificent on all in. Oh, you got to see the all-in-up Oh, you caught up. Bravo, bravo. Okay. I guess we have to keep this in the show then. So welcome to Wednesday.

It's the Crypto Roundtable. Molly's starting with a compliment. We're keeping that in this week in startups. Obviously. Doesn't have a lot. Very stingy. Yes, she does dole out the compliments once every couple of weeks. I get one.

But it's Wednesday. So we do our Crypto Roundtable every other Wednesday with us, of course. Vidy Lingam, Sundeep, Modig. Sonny and Vinny. How we doing, boys? Gentlemen. Excellent. Lots to talk about.

Interesting times. Lord, it's crazy times right now. Yeah, full disclosure. I had to send Sunny a note the other day that was like, hey, so, you know, sometimes on the crypto roundtable, we're kind of snotty about it. But then I realized, like, that's your whole job. Like, should we be more sensitive to this? It's all good.

Well, I think that's a good place to start. Let's start with that, Molly. What is the vibe in? in crypto right now, because with this FBF situation, I think everybody's at their wits end with the crypto community and all this hard work. There's code that's being written. There's businesses that are doing real things in the real world

that I think are obviously getting massively overshattered by this SBAF fiasco, and he can't seem to shut up. We'll get to that in a minute. But Sonny, what's it like to be a crypto executive in the age of Bernie Madoff? Yeah, well, you know, if you're building real utility, it's great because the, you know, the exchanges were sucking all the oxygen out of the room for a very long time. And so the folks that are actually building are loving it because instead of the industry being about speculation, we're seeing people actually talk about utility properly now. And, you know, not rushing to, you know, launch a token and put it out there and get it on an exchange and everything else. So from the builder's standpoint, it's a really, really good conversation right now.

Vinny, what's it like for you? You know, you've been one of the OG crypto people since the beginning. And now this Sam Bank Run fraud can't seem to shut up. He's doing three Twitter spaces a day. We've discussed on our private chats and group chats. I mean, every group chat is taken over by this. Yeah. What do you think, Vinny?

I mean, obviously it'd be great if he would just shut up and go to jail and go to trial. But apparently, will not. So what's what's the crypto community think about him specifically? You know, obviously we got Sunny's take on the industry. But what about the man? The man child. This guy is, I mean, he's not an idiot, right? He's not stupid. He's, you know, he might, he might have gone downhill and made a couple of bad decisions, which snowballed into absolute fraud and corruption. And when I say, when I say that is, I don't think he started off the business trying to be a fraud. Forced that. Like, that wasn't the intention. He tried to build an

exchange. At some point, he got over leveraged and he lost money. And then he was like, well, I was going to double down, double down, double down, double down. And he kept doubling down, hoping to make it back. And the market kept sliding south and he just couldn't make it back. And at that point, it was way too far, too late too gone, you know. And so what he's doing now is he's making sure that he's safe in the Bahamas. That's why he let all the Bahamian people take their money out on the same day. So he's safe there. There's no tradition treaty between the Bahamas and the U.S. He will not set. What was that you said? He let's, he let him. the Bahamian people take their money?

Yeah, yeah. On the day, everything was collapsing. He authorized and he allowed Bahamian people to withdraw their money from exchange while everything was collapsing. Wow, I actually didn't hear that in all of this. So there wouldn't be a revolt, basically. Otherwise, I let people in the Bahamas coming to him. Exactly.

So obviously all the politicians, everyone had money in exchange, they were able to get money out. Then his parents are both lawyers and I think Harvard educated lawyers or whatever. Stanford props, whatever. Like, these guys, they know the game. First of all, he's never standing foot in the U.S. Okay, and there's no tradition to you with Bahamas. So I can't see him coming to the U.S. to do anything.

He's supposed to speak to the Senate on the 13th. I will bet you money, Sonny, that he does not come. I bet you, whatever you, I'll bet you a Bitcoin that you already owe me, that he will not come back to the Senate for test. Double or nothing? Okay. The good news is the Bitcoin's half, so you can give them two. It's fine.

Bitcoin's half. You want to go double nothing? It'll be $8,000 by then. Okay, cool. Double or quits on that. Okay, so it's recorded. Wait, wait, what is the bet? Is the bet that he will be extradited?

No, then you will show up or not show up for. You will not show up for the congressional hearing. Wait, wait, in person or on Zoom? In person for the congressional hearing. For the hearing, he will not show up in person in the United States for the hearing. and you believe, Sonny, he will show up in person. What happens if he shows up on Zoom? No, that doesn't count.

Okay, I thought you were saying he won't show up to the hearing, Vinny. No, no, no, no. This is fine. I'm a bookmaker. I'm a bookmaker. I just got to make sure I understand. He'll do the yearing over Zoom. He will not do the yearing in person.

He will not physically come to the U.S. bets off, that's off. The reason he moved to the Bahamas, and that was sort of raised all the red flags was for lots of reasons. Like, that's why he moved there, right? And I mean, look, I'm not going to go through my personal text with certain friends of ours, but I can show you texts at some time with friends of ours where I called this like months ago, six months ago.

I was like, I don't trust this guy at all back in May. I mean, when everything was collapsing and he was coming to the rescue of the shiny white night, I'm like, something stinks here. There's no way he made money while everyone else was losing in this industry. Anyway, long story short, I think that we, you know, what he's doing right now is he's trying to paint the picture and taint jurors potentially if he does get arrested and picked up, that everyone sees him as the altruist that failed as opposed to the fraudster. He doesn't want to be the made-off.

And so the more he can taint jurors, because the guys, look at even the Craig Wright trial, for example. Like, these jurors have no idea what goes on in crypto. Like, you get 10 average people onto a jury pattern. You explain them how the, like, imagine trying to explain them how derivatives work. I mean, come on. Like, these are like normal average Joe's on the street, right? Maybe you'll get lucky in one person is tech savvy, but that's about it.

So all he's trying to do is like everyone sees him in a positive light, and the media has been covering this up, at least to some point. I think they're loosening up right now. But in the beginning, they're like, this is one of our biggest donors. We, you know, we've got to defend him in some way. I think he's probably holding some people over a barrel with donations because he hasn't actually named all the Republicans and the Democrats that he purportedly gave money to. So at some point, he's like, look, you know, and I don't know how.

how he gave the money. And I will actually go and posit that he probably paid off people in Bahamas and other politicians and other parts of the world as well. So he's basically got a dead man trigger right now. The Bahamians are not going to extradite him. He's obviously probably paid people off there. And any other country in the world that he has, like he was licensed. And he got licenses very quickly.

And it was very clear that he was willing to donate money to politicians. Listen, I have been dealing with business insurance for three. decades. And switching providers, always a nightmare. It's too expensive. It takes so much time. Often, you don't even get better coverage, but now you can make switching radically simple with imbroker. Embroker is the radically simple destination for industry-tailored commercial insurance. And broker's single application helps startups get four quotes for four lines of coverage in 15 minutes. They connect you with one of their expert brokers for unmatched service. It's unrivaled in the industry. and it goes way beyond your policy.

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Chef's Kiss, I give them my highest rating. We love inbroker. Inbroker.com slash twist. Okay, so separate from SBF and that specific story, do we think that, to Sonny's point, the best thing that can happen in crypto is for it to just not to dispense with the Great Man Theory strategy or, like, it become decentralized,

like lots of different builders and not one. giant hero of the whole thing. Also, one of the things that's been uncovered through this whole process is, you know, most likely what the cause of all this was. And Vinny, Vinny's going to have a heyday in this one. So this goes back to that grayscale Bitcoin trust. And what a lot of people are starting to zero in on is, you know, much, a huge part of the speculation side of the industry, the Arb side of the industry, the yield side of the

industry was driven from at the core, the gray scale Bitcoin trust. And we talked about this a little bit last time, but we have Vinny here now. And up until 2021, the gray scale Bitcoin trust traded at a premium to Bitcoin price. And what everyone is uncovering because of this contagion right now is that most of the bigger players in the industry were all arbing that and then, you know, taking customer deposits to buy Bitcoin to put more into the trust to take advantage of that ARB. And Vinny, I'll let you. Hold on a second. I just want to understand that mechanically. Bitcoin's trading at 16,000 today.

That's trading at, I don't know, $16,500. No, so historically. You move by Bitcoin there, you get the $500,000. Let me outline it and then you jump in, right? Historically, up until 2021 March, that bit, the gray scale Bitcoin trust traded at about a 30% premium to Bitcoin. And so what people were doing was buying Bitcoin, putting it into the trust. And then if you left it in there for six months, you could get the GBT out, which was at a 30% premium.

So essentially it was a- What is GBTC? That's the gray scale, the ticker. Oh, I see. Got it. Yeah. And so people would put Bitcoin in. And so let's just use some round numbers.

Let's say they put the Bitcoin in for 10,000. And then they could get the equivalent of 13,000 out after six months, plus whatever appreciation that's happened as well. And so this trade has been running since 2013. up until 2021 positive. And that went from a premium to a discount in 2021. And what everybody has really realized now is a huge part of the industry was basically making a ton of money off that trade and using that to give high yield interest accounts and all kinds of things out there.

And now once that stop and once it went negative, that's what's really led to the collapse of the industry. But that's a good thing because this trust probably should. have existed, I'm going to throw it to Vinny as to why. I mean, so, thanks, Sunny. I've spoken about this many times in the past. I posted a link to you guys, and I'm going to read up one of the comments there. So I wrote this blog post.

It's called Preventing Another Bitcoin Bubble on my blog. I haven't written blogs in years, but this is 2017. And I actually, I'm scrolling down to point number four. And anyway, so I'll skip ahead. But I wrote, I don't believe that, and this is when 2017, you know, the price of Bitcoin was like $5 years ago. Yeah, five years ago. So price of Bitcoin was like $1,000 or something at the time.

I don't, so I wrote that I don't believe the market cap of Bitcoin is growing organically enough to be large enough to support $300 million plus of immediate demand from potentially fickle and retail or corporate investors with stop loss triggers. Like this is in relation to an ETF. I said, Bitcoin works when the price rises slowly. People hold and are reluctant to sell. $0.00 million overnight demand or create a spike, potentially encouraging more buying and some selling and the price will keep rising until it doesn't.

Then one day, the ETA. will need to offload half its holding because people get scared. Imagine what that will do the price overnight. Bitcoin will be most successful when it's held in small amounts by large numbers of people, not when they are highly centralized

in one or two ETFs that have to force sell it whenever people get the jitters or have to make margin calls. You think you've seen volatility? Baby, you ain't seen nothing yet. Okay. Well, and here we are.

In this case, Grayscale, you're saying, was operating like that ETF, that hypothetical ETF, they were making it easy. And it seems like it was like the fountain of youth of money, like a CD that never doesn't appreciate. You just go and put your money there for three months.

Here's the ob. The ob is it wasn't an ETF. And this is on the regulators. This is their fault. It wasn't an ETF. And so the disparity between the trust and synthetically what an ETF was, was this arbitrage margin that you could play around with. Because it wasn't there, this margin was created and then it was exploited.

And then that's how the whole thing broke. Why, a stupid question, why did Grayscale offer this to attract people to put their coin there? Well, that was the only way for regular people to buy the coin before the exchanges got big, right? It's been around since 2013, so you could buy. Why do they have this premium? The premium is, this is a regulatory arbitrage premium. It's like the difference between a trust and an ETF is this premium or discount, because it flips to a discount as well sometimes. I think it's also slightly different.

Like the reason the premium started to disqualify. disappear by 2021, there was much, it was easier for retail folks to buy Bitcoin through Coinbase and everything else. All those companies were becoming public. And so before you were paying a premium to buy Bitcoin through, you know, your traditional. So then people who had Bitcoin that they bought on some international exchange or had for some reason or where they had mine could put it in there and get that extra bit. So Jason, could they take it out after, hold on, just a technical question here. Could they take it out after six months and then do it all over again? Yes. Yes. Yes.

Like buying a short-term CD, reaping the interest earnings, and then selling it and then locking your money back up. So when, so this starts to answer that question that Jason asked over and over, which is like, if you're offering 18% yield, which felt Bert, you know, made off-ish, where who is paying that yield? And so what you're saying is that it was coming from. This is where it was coming from. Well, what? Yep. The bodies are coming out of Lake Mead. It's all starting to come together.

Okay, so... Two things that they made, that you hold on, just two things for the audience that may not have caught it. The Craig Wright case, Vinny, you mentioned before

that people didn't understand crypto. That was the guy who claimed he was Satoshi, right? And people were upset that he did that and they sued him or something. Yes. And then Dead Man,

and Dead Man Switch, just so people know that term of art, is you think you're going to be assassinated. You've got, I don't know, know, a book of secrets, you have it automatically email it to folks unless you every,

I don't know, 10 days press a button on a website. So these dead man switches exist in the world. The dead man switch originally came from trains, by the way. If you are running the New York City subway, you have to put your weight on the accelerator. And then if you died and fell to the ground from a heart attack, the thing would pop back up, the throttle, and therefore the dead would stop the train, knowing that the conductor was dead. I just hate when a term comes out and I know half the audience doesn't know it. Sorry, everybody knows it. I only know from the gray man books.

Well, what's even more, what's even more interesting now is he happened to hire the other person with a known dead man switch. Other person of the known dead man's attorney. Hold on, you get that. Attorney. No, no, no, no. It's got to be Snowden or Assage. No, no, no, no.

Just named Maxwell is still alive. Oh, Dead Man Switch. Yeah, she got a Dead Man Switch. She's got a dead man. For sure. And his lawyer, her lawyer, is now Sam's lawyer. So he's got a Dead Man Switch attorney? Exactly.

Wow. I did see that. I go by Drudge Report. I love going to Drudge Report. Because Drudge reads like whatever the story is. And he's like, here's the, here's the portion of a story that you'll talk about on a cocktail party and it was, you know, Sam Beckmanfried, Ohio's

Yeah. So, so think about it. Like, like, we, it's almost like, unbelievable that, that, you know, what's his name died and,

you know, killed himself. What's his name? Epstein. Yeah. It was like a suicide. Yeah. Yeah.

There was a lot of security. The guards are gone. Exactly. We all know what happened there. Yeah. The cameras were broken. Exactly. But just lane is all alive and well.

Who kept the records? God, this is going to be a good movie. This is going to be a great movie. Back to the topic. But back to the topic. Okay, so back to Grayscale, because on the emergency pod that you came on, you said Grayscale is like the thing you're watching. Yeah.

And so let me just finish the arc of the story. So there's this premium. In March of last year, the premium flips and it becomes a discount. And right now, GBT trades at a 40% discount to the price. of Bitcoin. And what's the real issue, because there is the premium was there, exactly, the premium was there because it was sort of the only place, one of the easier places by Bitcoin, I can get Bitcoin wherever you want. And so it's a supply demand thing. And now what's happened is many of those businesses that were put, you know, so what was happening? Let's try to paint the whole picture.

And we won't name names, but let's just say you're a crypto bank, right? Or you're one of these exchanges. You're taking people's deposits and you're saying, hey, come here, I'll give you these high interests. This is what, you know, Molly, you were saying, Jake, where is it coming from? Well, what they were then doing is taking that money, going and buying Bitcoin, putting it in the trust, getting it out six months later, getting the 30%,

and this rinse and repeat, and then taking more money in, everything was working. What ended up happening, as that premium flipped, that game stopped, but now people are underwater, and they're becoming more and more underwater, and that's the issue.

And that's what started to kind of break everything. Ah, yeah. That's the real kind of tie-in that everyone's, you know, going back to the initial point, now everyone's kind of digging in and realizing this thing was at the core of a lot of the, you know, the high-yield accounts that we saw everywhere. And this is what people were leveraging to put more money into. And this is what led to the blowup of 3A, Voyager, and a bunch of other folks. And even these FTX folks are involved in this as well.

Okay. Interesting. So to recap that, just so I understand. Graysdale launches a financial device where people can put their Bitcoin in or they can buy Bitcoin, either of those things. So if you're a miner, you put a Bitcoin in. And if you want to buy Bitcoin, you can buy Bitcoin. And your example is $10,000. If you buy Bitcoin, it's $13,000 because we make it easy for you and we custodian it.

That's your basically your Vig as a consumer. You buy your Morgan Stanley and all that stuff. Perfect. Yeah. And this has like the patina of something that's very trustworthy. On the other side of the business, they're saying, hey, if you want to make a little bit of money, put your Bitcoin here. Oh, no, no. They said, hey, if you give us a Bitcoin, we're going to give you 13K.

We're going to have 13K in value when you contribute it. So I contribute it, and now I get 13, the extra $3,000. Now, I am in exchange. People are buying a million dollars in Bitcoin a day. Six months later, I get $300,000 for having put that Bitcoin that they bought, that I bought from some other. exchange or from mining it into the gray scale. So everybody has the gray scale incentive. Get your Bitcoin over a gray scale to get that 30%.

And it's 30% twice a year. Yeah. And even if they're not putting their Bitcoin in, you can offer them a high yield interest account for their cash. And you can basically take their cash by the Bitcoin yourself, put it in and then give them the interest as well. Right. So I'm just somebody with a million dollars in customer deposit.

Literally propped up businesses across the entire ecosystem. And once it went away is when everybody found themselves in a Ponzi scheme, right? It's like it always starts out fine. I think even Madoff started as real investments. It's when, for example, the crutch, the tree of life in this case, gray scale, goes away. And then you can't meet the obligations anymore and you have to start cheating to keep up. So you've borrowed money to put it in there and now you can't get it out with a 30% premium, let alone even now it's 40% down and you have a real problem. And now your depositors show up and say,

I'm really scared of this crypto thing, gave me my money. You're like, uh, it's sort of locked up in gray scale because I converted it to Bitcoin and put it in there and it's 40% down. Would you like half of your money? All right, listen, I gained back a couple of pounds. I'm being honest about it. I got a little crazy over Thanksgiving. And now I'm cleaning things up.

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I'm going to go back to my, like, look, I think Graysdale is probably fine. I mean, you know, on balance, it's regulated. I don't think that there's funds missing in Graysdale necessarily. I think it's actually all the bitcoins there. They use Coinbase custody. Coinbase is sitting with billions of dollars of Bitcoin. I think it's all there. What I'm really, really concerned about is Genesis.

And I'll tell you why. Genesis was the largest lender of Solana, okay, over the past couple of years. Sam Bankman-Fried, we know for a fact, is sitting on north of, well, I think the last, and that was 37 million locked Solana. Now, that was acquired a year ago. and that was acquired a year ago it would have been probably closer to 50 million because of obviously the unlocks have happened

at 200 bucks a coin a year ago that was 10 billion dollars worth of Solana or something on that okay so so oh no sorry 5 billion 5 billion it was like billions right that obviously that collateral dropped in value now I do not think for one second

I do not believe that the guys the Alameda held that position long unhaged. I don't believe it for a second. I believe, and this is why I'm, like, I'm hopping on this point, is that Genesis has not told us what is in their billion dollar loss or whatever it is. What assets are there? They haven't told them. They're not saying we owe 10 million salt to our lender, you know, we owe X number

of Bitcoin. It's just a round dollar number. but they were a lender of crypto, not just dollars. So that number can't be fixed in dollars. It has to be floating because you could borrow a soul from Genesis. So people could have borrowed Sol from Genesis. So Alameda hypothetically could have borrowed 10 million Sol from Genesis, dumped it on the market and effectively taken profits and hedged themselves out of a position.

And now they owe 10 million Solana to Genesis. But a fraction of the price. Yes, yes, exactly. So you're saying two things are happening. One, the gray scale was the tree of life that propped up all of these businesses and allowed them to offer these various premiums and yields. Genesis. Oh, great, great. No, no, I'm coming back to that.

Right. So gray scale. Yeah. But it's that, and what you're saying is it sounds like gray scale is probably solvent in the sense that it has all the Bitcoin. It said it had. It's just that now it's at a 40% premium instead of a 30% or a 40% discount instead of premium. But on the other hand, you have Genesis, which, And there was news that came out today, actually, that said that Genesis owes the Winklevoss Twins crypto exchange, Gemini, $900 million.

And you're saying that on the other hand, there is also Genesis that plays a huge role here and that doesn't have the money. It's not going to be able to make people whole. Well, we don't know. Everything I'm saying right now is speculation. Because there's no transparency and there's no regulation. Exactly. Gary Gansler, SEC, everybody else said, you know what? You're not playing by the rules.

We're not going to give you the rulebook. The rulebook's over there. So if you want to read the rule book, feel free. Gary sort of messed up, and I'll drop an article in our chat, but Gary messed up because he had a chance to approve a Bitcoin spot ETF. Then there would have been none of this ARB, and it would have been just tracking one to one, and he didn't. And so that's also, you know, the discount is there now because of that.

Either you could blame him for or you could say, listen, there's so much shenanigans going on over here. Probably a smart move that he didn't touch it. I just want to also point out that this. what Grayscale was doing was even more extraordinary than the 30% number. Because that could be claimed in six months, if you do just a simple, you know,

two flips of 30%, you go from 10 to 13 to 169, that means on a yearly basis, it's 69%. If my math is correct. 69%. There's a great article that I just dropped in that Bloomberg had earlier this week. It's called the credit bubble in crypto that shows exactly that.

That's what people, but people were taking off a billion dollars in profit. It was really, really crazy. I knew this was a problem when I saw people in the, uh, some friends of ours who play poker, who are professional poker players. Like they play poker for a living, Molly. And they were talking about staking and how they were making free. Well, yes, but I'm, but you're putting a fine point on it. Like they are gamblers.

Yep. These are like, not just like your friends really good at gambling. Like this is their job for a decade or two or a three. They've been doing it as their chosen profession. So they know an angle when they see it. They, they know a 1% angle. So if they can play blackjack, roulette, whatever, with a one or two percent advantage, they will plow a million dollars into it just to make whatever it winds up being,

you know, 10, 20K in extra expected value, I guess, or whatever, depending on how many turns they're going to do this. So here, they told me they've stopped playing poker. They stopped doing sports betting because they were staking and they were doing all the stuff. They saw this and they were like, oh, well, that's obviously a scam. So I'm just going to exploit the scam as fast as possible. And then one of them who's incredibly high profile and does a lot of different podcasts, I wouldn't say who, was just like, yeah, I got out like a year ago. He's like, yeah, the easy money's gone.

I'm out. I'm on my yacht. Literally, I see the guy on a yacht. And I'm like, okay, there you go. The industry suspended disbelief in the face of absurd returns. Whenever you see a predictable return that is absurd, and absurd is compare it to the existing devices, venture returning 20% IRA, you know,

muni bonds returning four or five or six percent, whatever bonds, you know, treasuries, stock, 7%. Whenever you see something that's just an outlier, it's a scam. it's basically a scam. I'm going to come up with a rule, but whenever anything is double or triple the existing stock, it's probably a scam. It wasn't a scam, right?

It was, there was a desire for Bitcoin, and for a very long time, there was a premium you'd pay through Grayscale to buy Bitcoin. What people didn't realize is that premium disappeared as exchanges and everywhere else made it easier to buy Bitcoin. So I don't, that wasn't a scam. That was a premium that was being paid

for making it easier for, you know, more regular But aren't the exchanges taking the customer deposits and doing the arbitrage where it starts to get into scammy territory? But what is the claim. No, but they're telling

customers, they're saying, hey, we have a high interest account pays 18%. Right? That's better than what, you know, Bank of America or anyone else offers you. And they basically, you know, they're telling you that they're doing that as well.

Now, if they're doing it without, there's another topic we want to get to on SBF and FTX, which doesn't add up right now. But with respect to all the folks that were offering the high interest accounts, they were telling their customers that they were re-deposites,

to generate. It's called re-apotocation. Reapotication, yeah. When I hear a word that I've never heard before combined with an interest rate that I've never seen before, that's when I'm like, you know what, you're using a word I don't understand.

You can't explain the process to Mimali and the numbers four times what, you know, another instrument is offering me. Sorry. I think that people always want to believe, right? And it's very, what we're hearing from SBF now on his tour is I wanted to believe. But you will also have one, if you, look, if you set up a tree of life that spits out money all day every day and you can just put money in and get more money out, somebody is going to build a scam on top of that. Those things can all be true at the same time.

But also, like, of course, it's real for the time that it's real, right? Real until it isn't? With SBF, it's slightly different. maybe a good transition here. If you guys have more questions, we can stick on it. The thing that's not adding up with SBF is he keeps saying a couple of things very consistently. He keeps saying, well, the customer deposits were going into Alameda because we didn't have bank accounts at FTX. You guys have probably all heard this.

He says it almost at every time he gets a talk. What doesn't make sense for me is, okay, if I'm sending money to FTX, I'm sending it there to buy some crypto, whether it's Bitcoin, Ethereum, you know, Solana, take your pick of whatever it is. And what doesn't make sense to me is if I send it there, then I log into my FTX account and say, let's say I send 100K and I go, okay, you know, I go in there and I win bitcoins 20,000, I buy five Bitcoins. It's those five Bitcoins should still be somewhere. What I'm really struggling with is, was everyone on FTX and Vinny, I want your take, just plain fantasy crypto because it would be really hard to use people's money that was, you know, crypto that they were buying to the exchange, right? And that's where things are adding up for me and we're not getting a lot of clarity. Okay, I'm here with Allison Rose from Microsoft for startups. So Allison, what is the most valuable resource for founders in the early stage of their startups that Microsoft is offering?

So let's face it, financing is one of the biggest, if not the biggest roadblocks that startups face today. Through Founders Hub, we're alleviating some of the financial stress of starting a company by providing tons of free resources for founders. So we provide founders of any stage with up to $150,000 in Azure credits, which is here. huge because that can be used to do anything from building your prototyping to a lot of our founders are using that for conducting experimental development without eating into your runway. So it's, there's so many things that you can do with those credits. But beyond that, we also provide founders with free access to crucial tools and software like GitHub Enterprise as well as a suite of Microsoft software like office teams, power BI and so much more. That's amazing. Yeah. I mean,

those things alone are like a line item or two in any startup's budget. And you could, redeploy that with an extra sales executive, designer, developer, just by recapturing those credits. The Microsoft for Startups Founders Hub has no fundraising requirements. It's open to anybody. You don't have to go to some elite program to get those credits. It only takes five minutes to apply and startups can get up to six figures of benefits right away. Sign up for the Microsoft for startups founders hub today at AKA.m.S. slash this week in startups, aka.m.m. slash this This Week in startups. Thanks, Allison.

Thank you. I've always been a big fan of decentralized exchanges because I just don't trust exchange operators. Jason, you're right. I mean, someone posted a comment here, which I think is really, really important. K-Pack-Ruddy, there's always counter-party risk with high-yield accounts. It's 100% true. Okay?

So the moment you have to trust a third party, you know, that is counter-party risk. I mean, touch word right now. I haven't lost any funds in crypto ever on exchanges because I don't leave money on exchanges. So I dodged the Luna Bullets, a dog, FDX, Mount Cox, all these places. Like, none of them, because I just don't leave funds. I tell people that do not leave funds. Exchanges are meant to be a transaction point. You go there, you wire your money, you buy your crypto, you take it off.

And you don't leave it with them. Use Coinbase custody. Use Anchorage. use one of the custodians out there, there's no reason for you to go and leave. Even metamask. You can just put it in your own wallet. Self custody, yeah. Use ledgers, metamask, figure out how you want to store your crypto.

But the whole point of crypto was that it's self custody. That's the whole point. But I want to go back to this other point early on where you said that the price of Solana has dropped. The price of Solana has dropped. And that is a good thing for in theory if you're, if you're owed Solana. It's a bad thing if the person can't pay you back. So now, let's say, for example, the price, and the price was, so this is what potentially happened.

They borrowed some Salana from Genesis. They gave FTT at some point, look at April, by the way, where it all came crashing down. I mean, it's like, so, you know, they borrowed some FTT. They borrowed some Salana. They gave FTT. The FTT is worth nothing now, a buck 50. Now Genesis still owes the people it borrowed the, it took the salana from. Let's say I had Salon a deposit with Genesis.

And by the way, I had some Salon with Genesis at some point, and they were lending it out. There's a company I'm part of that we're a distribution of Solana and we were just basically earning interest. And it was okay. It was like Genesis. It wasn't a huge amount. We withdrew that when all the stuff started looking shaky. But we weren't the only ones they were taking the soul from and then lending out to other people. We're lucky we got our money out before the whole thing collapsed.

And now it's obviously locked up. But here's the point. if they go and raise a billion dollars to plug this hole, they have to get, you know, if Sunny lent them, I don't know, 100,000 Solana,

and they owe Sunny 100,000 Solana. They don't owe him 15,000 bucks or whatever it is, or whatever, 1.5 million, whatever is worth today. They owe him 100,000 Solana. So now they can go to Sunny and they can say, Sunny,

your Solana is only worth 15 bucks right now, 14 bucks. We're going to pay you out 1.4 million. And he might accept that. So Sunny may go, okay, I'll just take the cash value. However, there's a tax consequence of that because then he's effectively sold it at that price.

So Sonny's going to say, you know what, guys, I actually don't want to sell these prices. I don't want to pay the long-term capital gains tax on this. Give me my soul back. So now they're going to scratch their heads and go, shit, we've got to go out into the market and go buy the sole back as we owe Sunny. So now for Sunny, they're going to go buy 100,000 soul at SPOT to give him the 100,000 soul back. What does it do? It pushes the price of Solana from 14 bucks to 15 bucks, let's say. Now, the next person, same thing happens.

The next person, same thing happens. All of a sudden, they cannot go and buy all the salina. So they're almost like a short squeeze. It's a short squeeze. Them raising a billion dollars to fill the hole is immaterial. If the people on the other end, they owe the coins to don't want cash in kind. They want the actual tokens. Because there's an infinity.

There's a black hole on the other side. Exactly. So here's the player. The play is that they're potentially the short squeeze, but the reason they haven't leaked and haven't shown, nobody has seen what the liabilities of Genesis are, except this cash amount they're trying to raise is because if it gets out that it's Solana or whatever coin, that coin is going to run. Yes, because they have to buy that.

Because they have to cover, which is exactly what the Wall Street bets people did when people were shorting AMC and GameStop. They were like, let's buy a bunch and make it go up. that and will be the apes and apes help ace. Exactly. But here's the other problem, okay? At some point that price moves up so much that they have to go into liquidation. Because if the price goes, so any lender, if any lender comes to them and says,

we're going to give you a billion or a half, for example, and this thing doubles in price, now is three billion you need to cover. So there's a couple additional data points here, Vinny. I think related to the 3AC crash, DCG, up a huge liability, like a $1.6 billion liability, right, from Genesis. And then there's another like $500 or $600 million facility. So some of these have already been moved up the stack into DCG. So it's really fascinating what's happening here.

Gemini going to go out of business? I don't think so. I think the combination of Gemini and DCG is probably going to have to go through like some kind of equity financing or restructuring or so. I don't think it'll go out of business. Who's going to put money up into equity financing these things? things after what happened with SBF and FTX. Well, on DCG, there's, sorry, on Grayscale, which is owned by DCG, they have 640,000 Bitcoin,

which today is roughly worth $10 billion. That's generating $200 million a year of fee income. That thing has a 2% fee on it. And so that thing is, that's real, right? Again, that's real. 600,000 there. So that's something's real. They also own Coin desk and a bunch of other assets.

And so, and the Genesis. this business is quite complex. Outside the lending business, they also have a prime brokerage and other things, like Vinny knows it really well. And so what may happen is their lending business could go to the side, but other businesses could remain. I think as a side note, too, before we move on, because we have a, I know we have a clip we want to show you. We want to get your impressions on this viral conversation and the future of the whole thing. But one other note on, not necessarily when it might be a scam, but when you might get yourself in trouble is a thing that we've been talking about like SBF using this chaff strategy where he, all his answers are like unbelievably

complex. And that's not the point. The point is did you use customer deposits? But like this entire ecosystem, you know, I'm going to wager that a fair number of people listening to the show right now listen to everything that Vinny said and we're like, I get, I got about 12% of that. If it is too complicated for you to understand, don't put your money there. Like that is a way for you to get in trouble. And what these exchanges did in a lot of ways, what all the centralizing in this industry has done is make it more convenient. We love convenience. That's why we used to have an open internet and then we got Google and Facebook and Wald Gardens. The convenience abstracts away the complexity, making you think that you can understand it, which is how you lose your money.

Yeah, we see it in mortgages, complex mortgages and other complex devices, really, really good advice or if the game is too complicated, you're not obligated to put more than 1% of your money into it. If you're going to go play poker, you don't know if a flush or a straight is a better hand. Vinny's still figuring that out. You can just do 1% of your net worth and then we can all just pay our mortgages based on Vinny spewing at the table. Ask Sunny who owes who money in poker this year. Oh, it's like that now. Here we go. It's like that. Cue up the clip. This is a great clip. I really want to ask you. you guys about this clip. This is amazing. So Michael Saylor, who obviously a Bitcoin Maximilist,

he was on CNBC the other day saying crypto and Bitcoin and crypto are in an unhealthy relationship and we want out. And now he's just taking his chance as the uncoupling begins to just come out swinging against everybody. Let's do this one minute, 40 second clip in which he basically says, everything is a scam, except for me. Ripple is an unregistered security. It's pretty, obvious. There's a company. The company owns a bunch of it. They sell it to the general public, but there's no, they never took the company public. There's no disclosures. So the SEC's position is you're selling an unregistered security. It's a crypto token, right? Just like Ethereum is an unregistered security. It's controlled by a few people in the Ethereum Foundation and Consensus.

Fair. Then here's a question. Just like FTT. Just like Solano. Perfect. But here's a follow-up. They're all unregistered secured. I think the best thing for the world would be if the SEC pretty much shut down all of it. It's all unethical, right? I mean, the Bitcoin position would be Bitcoin is an ethical commodity. All of these other altcoins are unregistered securities. They're all just equity tokens issued by a company in order to get around going public, and they're committing securities fraud. Ethereum included. Of course, especially Ethereum. You know, Ethereum's got $20 billion of ETH token locked up in the staking contract right now, and there's a couple of people that may or may not give it back to you ever.

Now, isn't that the definition of investment contract? If a bank took $20 billion of your assets, froze the window, and said you can't have your money back ever, maybe in the year 2024, we're not sure, we're just going to keep it. We may actually give you interest on it. We may take it all. We may slash it. That's the definition of a security, right?

It's an investment of money and a common enterprise, you know, relying upon the efforts of others an expectation of profit. The whole point is if you want a crypto asset to be a commodity, you can't rely upon four engineers, a company, a CEO. Especially Ethereum. Sunny. Yeah, I'm still processing that. I thought you were going to do that Rickroll sale.

Doesn't it the other clip you've played a couple of times? So I was just, I was ready for that one. Well, where he says, sell your home, sell your this, sell your that. The only logical thing to do is by more Bick. Obviously, he's super biased. He's put all. of his chips on Bitcoin and he told the public to sell their homes. I think he has a margin call or has multiple margin calls for micro strategies at certain Bitcoin prices, you know, going

from like $3 to $20,000 where he has to cover. And I think he's actually had to cover with some cash, but he hasn't been liquidated. So what do you think? I mean, Ripple to me pretty clearly a security, but the Ethereum one Molly and I were talking about feels like, huh, could Did you make the case that Ethereum is a security, even though there's a foundation? You know, because there's a foundation and central control. What do you think this is all going to hash out as? I'm still processing what he said here because it sounded reasonable. And so, um, this is what's so confusing.

Like, how was he starting to sound like the normal uncle? Yeah, I felt the same way about that crypto and Bitcoin comment where I was like, oh my God, that's kind of true. It does sort of make sense. Um, you know, look, we've talked about this a couple times like that. You know, there's a, it was a hewey test or something. right, the Dewey test. Howie.

Howie. Howie tests, yeah. Common Enterprise. He basically explains the Howie test there. Yeah. I still think, and again, just reading the T leaves, is that probably Ethereum, Bitcoin, end up, you know, sort of in the same category. And then what he puts, you know, the other ones, like whether it's Solana or XRP or other

things like that, probably end up in the securities category. That's the way it seems like to me. But if I were to kind of, you know, agree with his line of thinking, Vinny? Yeah, it's a tough one. I mean, I think when we try to draw comparisons between companies and crypto, you know, protocols and entities, it's very, it's very, it's not very clear, right? Now, you could argue ripple was, ripple, I think is very different from Ethereum. I don't think it's the same thing. Ripple has shareholders.

You could invest in Ripple. Ethereum has no shareholders. There's no dual structure there. So I think, I mean, say, look, say Liza's a Bitcoin maxi, he's going to slap everything together and say it's all the same. And it's because it's serving his purpose of being a maximumist on Bitcoin. So I don't think it's as simple as what he's trying to make it sound. I feel like the way he described Ethereum to try to make it sound like a security,

to me sounded like it also described Bitcoin. I mean, and isn't there like a big chunk of Bitcoin held in the Satoshi account that if it were to be released, it would like mess up the economy and isn't it also a common enterprise and people? I was like, well, to me, I felt like listening to it again as somebody who's like, I understand, I think I'm up to like 62% of what you guys are saying most of the time now. I actually can explain this, I think. I'm going to take a shot. Okay. So just the Howie test. You're investing money, one, in a common enterprise, two, for profit, three, derive from the efforts of other. All of these projects share those things. Now, here's the problem. In a company that's a corporate entity,

Ripple is a corporation, as Vinny correctly points out, to share structure, they control it, there are shareholders, there's governance, it's clearly a security. There's no way for them out of that box.

It's a security. They have them dead to rights. Now, there's two other structures. No structure, or a foundation, offshore foundation or structure. That's where Ethereum lives.

Ethereum has a foundation. And then you go to Bitcoin, there's no Bitcoin foundation. There is no Bitcoin central governance, right? You can vote as a server, correct me if I'm wrong, and if a certain number of servers vote, you can make changes to the code.

Ethereum happens through the control of four or five developers, I believe they have a foundation. The foundation holds those coins. So now the argument is, when is it a security, no control, which makes it a commodity, which is the brilliance of Bitcoin. So yes, there's a wallet somewhere that's never been touched.

But there's no corporate entity, Molly. This thing we just put out into the world. There's nobody to subpoena. There's no board of directors. But then when you get to the foundation people and the corporation people, each step along the way gets easier to hold somebody accountable and there's somebody who profits from it. Here is the rub. And I'll end on this one and then you have it.

a lot of the companies who are corporations created parallel foundations because they felt like the foundation argument was the strongest. I heard this from attorneys. You create a foundation, you put it in Panama, put it in Bahamas, put it in BVI, put it in BVI, put it in the Zerg, your foundation will protect you. And the foundation owns the coin, and the foundation does stuff with the coins. Now you as the founder, since you have the early line on this, can buy a, billion tokens for 10 bucks, and then there's a public offering. So essentially, they architected a lawyer,

law firms architected this, what I'll call shady and or clever, depending on the interpretation, you just be clever, or it could be shady, or it could be trying to get around securities law. That'll be up to a jury and a judge to figure that out. But that dual structure is where I think you're going to have a problem. I don't think, I don't believe there's a ripple foundation. Ripple came before all this foundation concept. And so if somebody creates a foundation, it's a nonprofit, do they get some level of protection? I don't know. I'm not a lawyer.

I don't know how a trial and a judge and a jury if it goes to a jury trial is going to call balls and strikes here, Vinny. So I want to at least make the point that not all cryptos, even if there is a company behind, it means that it is a security. Right. So it depends on like this is not a simple answer. So let's just make that point first. The next thing, I will ask you, like, U.S. security laws apply to Americans and how security is sold to Americans. And so basically, the laws are being built, the global laws around, crypto is a global state,

right? Like, it's a global movement. The U.S. laws dictate around, basically dictate how crypto is sold to Americans. Why is that, Jason? Because Americans have protections because of what happened in the 19, early part. of the 19th century, or 20th century in the 1910 and 20s when people sold grandma's gold mines and they were scams and then securities laws came out after the Great Depression in 1929 to protect people.

So why do those laws apply globally to the concept of crypto? Is that what you're saying? They don't need to apply to people in the Zerg or in the Philippines. Of course not. But it does apply to Americans if they're profiting from it. So what happens then is that people start, and this happened, we saw, and we saw this over the past couple years, people start doing really cool projects and they start selling tokens and Americans can't participate in it. And like, if I want to go buy tokens in some foreign

project, which I think is amazing, I'm a sophisticated investor and they say, well, you're American, we won't sell to you. What is the American government doing for me then? Because they're not helping me to recover those. It's my money, right? So I have, I have like my cash. I can put it wherever I want. I can go to the casino and drop it on black or red or one of 36 numbers in a relay table and they don't stop me. Why are they stopping me from? So here's the solution. I'll cut to the chase.

Crypto investing and buying tokens, whether it's a curious or not, should be an opt-in for the individual. Something simple. You file with the SEC, you file some paper, form 1A, B, C, whatever, and say, I will not hold governments, whatever else, libel, courts, whatever. I'll not chase off this money. I believe that I have the ability to make these investments myself, and I'll take the losses myself,

and move on because it's the same as the accredited investor laws, which you know, Jason, it's the stupidest laws ever that people like, just because you don't have a lot of money, you can't even. So the same principle should apply. Instead of having to get a license or something, I just do an opt-out form. And so I just, you know, I accept that this is high risk. I accept that I can get scammed and I do it of my own volition and I'm done. That's one solution, a waiver.

And another solution is to allow people to have an education and get a license just like they some places have a gun license, a driver's license, a truck license, or a haircutting license. That's all the time we have for today, Vinny. Yeah. I understand. I understand you believe people should be able to do

what they want with their money. Gamble it on crypto, the next, the next, the Jets. You know what? Pire, beware. You want it to play a game? Sonny, I want to give you. Play silly games, win silly prizes.

Let's give you the last word here and then we'll let Vinny catch this way. Sunny, yeah. Sunny, you have a voice a reason. Yeah, again, like I do think, we have to allow more people to play in the ecosystem, but the rules need to be defined. Like what we're seeing here,

what we spend a lot of time talking about, just the transparency doesn't exist. And honestly, the technology was meant to be about transparency. And that's right. I thought Vinnie was going to go. And it's not being used in that kind of way. And I think maybe the new rules that get established go to transparency.

Love it. You nailed the target. So well said, Sunny. We can all agree with Jeremy Brown, one of our notice. Vinny and Sunny are gods. walking among men. Thanks for another big crypto roundtable.

I think just take that one and run with it. Take the W. Gods. Thanks for your time with us mortals today. Men and woman, by the way. Humanity. Among humans. Humanity.

I don't get all right about that. I'll take the generalization. Thanks, guys. All right, everybody, stay tuned tomorrow. We got our boy, Lon Harris. We're going to talk about all the streaming news going on out there. And of course, it's Friday. It's OK Boomer with Rachel reporting. It's going to be a great show. Can't wait to see you tomorrow. Don't forget, rate and subscribe. Wait, if you got to this

point in the show, you've rated and subscribed already. Just tell you your friends about the show.