Unchained - How Arthur Hayes Has Prepared His Portfolio for the Elections - Ep. 728

Starting point is 00:00:00 So even if you believe that all coins are going to perform well, it doesn't make sense to trade them on this short-term basis based on your lecture prediction. Because if you get it wrong, you're going to get smoked getting out of your trade. Whereas you get it wrong at Bitcoin, maybe you lose a few percentage points. So what, right? You live to fight another day. Hi, everyone. Welcome to Unchained, your no-hyped resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians.

Starting point is 00:00:25 I started a carbon crypto nine years ago, and as the senior editor of Forbes was the first, May 2MET reporter took up for cryptocurrency full-time. This is the November 1st, 2024 episode of Unchained. Pocod is the original and leading layer zero blockchain with over 2,000-plus developers, and the Pocodot 2.0 upgrade will be a massive accelerator for the ecosystem. Join the community at Pocodot.network slash ecosystem slash community. FBT is the fastest-growing Omni-Chane BTC asset this summer. Join FBTC Points-inspired campaign, where you can hold FBTC,

Starting point is 00:01:00 to earn sparks, lucrative yields, and token drops, all on your Bitcoin. Today's guest is Arthur Hayes, co-founder of Vetmex and chief investment officer at Mailstrom. Welcome, Arthur. Thanks for having me. I just want to start this episode by noting that, as in every episode, nothing we say here is investment advice. So do your own research. That said, we have Arthur here because people might be interested in how someone like him, meaning someone very well versed in both crypto and macro, would think about trading.

Starting point is 00:01:30 the election. So, Arthur, at the moment we're recording, the election isn't a week. Yeah, I should just let people know we're actually recording on a Tuesday. What are you anticipating broadly when it comes to how the election might affect the markets? So I think doesn't really matter who wins Trump or Harris. In the medium term, more money will get printed and therefore crypto should do well or will do well. The short term, obviously, the market really likes Trump because the things that Trump is saying and how he's going to print money and hand it out is what, you know, politicians in the United States have been saying since Reagan in the 80s, which is cut taxes, decrease regulation on businesses and keep spending the same, if not increasing spending. So the rich people get tax breaks and there's equities pump and everyone else gets their health care paid for, essentially, right? And the U.S. can continue bombing everybody because the defense budget isn't going down.

Starting point is 00:02:24 That's what Trump is saying. And the markets like it. Harris is basically saying the same thing, but in a more convoluted way and probably more annoying given just the way she sounds. But it's essentially the same message delivered in her packaging for her particular audience. But the market likes what Trump is saying because it understands that. I think the real risk here is regardless of who wins, if the other side says, I don't believe that this election was done in a proper manner. I believe there were inconsistencies. I'm not accepting that my candidate lost. Let's take to the streets. Let's take to the courts and let's create a situation of confusion as to who will be the next leader of the American empire. And so I think that is the real

Starting point is 00:03:08 risk for markets. Obviously, people right now are saying, oh yeah, Trump is, you know, odds on favorite by a very, very, very small margin to win the election. I still think it's pretty much a coin toss. But the market seemed to think Trump's going to win based on some of the markets like polymarket and drift as a market as well. So that's where I think the market is right now. I'm not really adding too much more risk on right now. I'm already longing a lot of crypto. I'm longing some energy stocks.

Starting point is 00:03:36 I'm happy in my positions. Do I feel that it's prudent to add more risk here, given that I think there's a very real chance that we don't know who the next U.S. president is for, you know, weeks. Might even be past January 20th when they're supposedly supposed to be sworn in. Oh, wow. Interesting. Well, one question for you. What if it's sort of like a medium scenario where it's not decided right away, but maybe it takes like a week or two simply because, you know, there's like mail-in ballots, there's like counting. There might be some, a few recounts. But if it's, you know, not the kind of panamonium you described, but just sort of like a longer

Starting point is 00:04:13 term uncertainty that could last, I don't know, a week, two weeks, even a month, then what do you think? I still think the market's so off. I still think right now a market's a price for a a Trump victory, Republicans taking the House and the Senate, and him raining down money on all the rich people, right? So I think that's what the markets are priced for. They're not really a price for, even if he does win all those things, if the Democrats and the people come out in the streets and they file challenges and Harris does not concede, right? So it's funny. So at Maelstrom, I like to train the youngans and risk management and making decisions. under uncertainty using, you know, implied probabilities. So we have a few different election games that we're playing internally. And I give, you know, five to $10,000 per game for the winners.

Starting point is 00:05:06 And but if you lose, then you have to pay into the communal pot and you buy drinks for everybody when we're next out at a conference or something. So there's a cost to betting and not getting it right. How I am deciding when a bet is paid out is based on when the loser concede that they've lost the game. That's when we know it's over. When Harris gets on TV or Trump gets on TV and says, hey, I lost. The other person wins. That's when the election concludes. And so it doesn't matter who's in the streets or all the electoral challenges in the courts. If the actual candidate who lost says I lost, then we know it's over. So who knows when that's going to happen. Well, what about this

Starting point is 00:05:44 scenario where like even to this day, Trump won't say that he lost? I'm pretty sure that on he conceded the election in 2020. He might have after the facts that, oh, there were all these things that happened and maybe, you know, there were fake voters or he insinuated that some things that his supporters were saying that entered the election wasn't done properly. But he conceded the election. Okay. Right. Right. Sorry. He conceded on January 7th, 2021, which that's a significant day. But yeah, you probably heard in Joe Rogan's thing he didn't say, or he actually made a slip, but he said he lost. And then Joe Rogan laughed at him. And then he said, I didn't lose. But anyway, okay, I see what you're saying. Well, so one thing that I saw was, so you said that you're positioned long. And so I saw you told CoinDess that you have 5% of Maelstrom's funds in USDE, which is the synthetic dollar of the Athena system. And then you said, like, you'll move. funds out when the election winner becomes clear, lunar, the loser accepts to feed. So is the other 95%? Is that all just long and all those things that you already described?

Starting point is 00:06:59 Correct. Bitcoin, ETH, token projects, right. Okay. So you're not really, like, you're only using the five per, you're, so it actually sounds like you're not really trading the election. Like, are you going to trade on, because I imagine there's like a lot of volatility. Are you going to trade that night or during that time? Absolutely not. I'll probably be, you mean, when the election will be coming out, I'll be in the morning and the age of time, I'll be stretching in my yoga room getting ready to play tennis. The election, the winner will be who the winner will be. And the markets, again, they're going to print of money. I'm not worried.

Starting point is 00:07:36 Yes, there could be some medium term, some short term volatility in terms of, you know, people not accepting the result. But at the end of the day, the American population is not voting on let's have a. austerity versus let's print more money. It's let's print more money and let's decide who we're going to hand it out to, whether it's the people who like Trump or the people who like Harris, right? That's, that's the decision that we're, that they're really facing right now. That's it. Okay. Well, this is hilarious because the vast majority of my questions are about like how to trade the election, but we can wing it. So why? So you're not doing that because what? What's the point, right? So you're going to sit here and maybe you'll eke out a few percent.

Starting point is 00:08:17 percentage points here and there trying to pick a winner. But then if you're wrong and you're on the wrong side of the trade, like the Trump trade has been going on for the last probably, I know, month or so, once it's been in the media like, oh, the prediction market say Trump is winning.

Starting point is 00:08:32 And people kind of don't really understand what the prediction markets are really saying. It's actually much closer than, you know, the 68% or whatever it says on the prime market the percentage chance of, of Trump winning. It's actually much, much closer than that. It's probably within the margin of error of any polls.

Starting point is 00:08:47 whether it's Trump or Harris. But for whatever reason, the financial markets are, Trump's going to win, strong dollar, tariffs, low taxes, deregulation, blah, blah, blah. Let's, you know, markets have been melting up. Obviously, you had a Fed cut in September. So that's providing another form of stimulus into the markets. And so the markets are priced for a Trump win. So even if Trump wins, yes, the SEP could be up another 100% of the next 12 months. But if you're really just trading a week-long period, you could actually lose money even if you're right on the bet that Trump wins because you enter the market

Starting point is 00:09:21 and then around now because oh, Trump wins, cool, and we sell off 5%. That could happen. Or Trump wins, the market stays flat. And so you've taken this risk and you're not going to be properly compensated for it.

Starting point is 00:09:37 The better risk is the, okay, well, I think Harris is going to win and I think the market's going to take that in a negative fashion. Therefore, I'm going to on a tactical short position because the market's not priced for a short position. The market is not priced for the winner not, the loser not accepting the result. The market is not priced for Harris winning and being a bit confused about how she's going to print money and hand it out to people. She's still going to do the same thing, but it's just

Starting point is 00:10:02 a little bit more convoluted. So I would say if I was going to place a trade on, I would put that trade on. I don't really like, I still don't like the asymmetric return profile, but if I was going to put a trade on, it would be that. only because the polls are in this dead heat and you feel like the prediction market maybe is often. So the only way to benefit would just be, you know, the odds that there is a Harris win are higher than the prediction market is currently suggesting. The prediction market is basically saying if I ran the election 100 times, Trump would win 60 something for that 60 something times and Harris would win 30 something times. That doesn't tell you the probability that Harris or Trump

Starting point is 00:10:44 would win the election. It's like if I flipped a coin, I know a fair coin is 50-50 and I flip 100 times, I'm not going to get 50 heads and 50 tails. There's valiant variation within that distribution. If I flip a coin infinite times, then I get the fair of 50-50, right? So we only have there. We have a one event and we have a probabilistic curve or cloud of what could happen. We don't have enough parallel universes that we can run this trial in to get the

Starting point is 00:11:14 actual probabilities. And so Polymarket is destroying people's mind thinking, oh, Trump is definitely going to win. No. That's not what it's saying. And so I think people have the wrong impression of these markets because they don't understand statistics. Okay. Okay. But that's what I'm saying, is that the reason why you would only

Starting point is 00:11:34 put on the Harris trade is simply because you feel like the prediction market is not accurate. The prediction market is accurate in saying what it is. It's the interpretation of people. That's the problem. So I think the market is misinterpreting what the prediction market is telling them. And so they're saying, oh, Trump's going to win. Yeah, yeah, maybe he could win. But the probability that he wins is not 68%. It's probably 50. Right. That's what I was saying. Right. And so the market, so it's an odds, a better odds is to bet on Harris winning and the market's selling off.

Starting point is 00:12:07 Not to say that's going to happen. But if I had to put a trade on, that's what I would put on. Right. Okay. Yeah. That's what I was meaning. Because it is confusing to see how the polls are basically neck and neck. I think actually right before we got on here, I looked and pretty much every poll has Harris ahead by one point. But I'm sure people know that the popular vote in the electoral college are two different things. And the Republicans generally have an advantage if the race is that close. So yeah, so anyway, so the point is, I guess, for the prediction markets, it is like probably some combination of, yeah, people getting overconfident, but also maybe the electoral college confusion.

Starting point is 00:12:48 Yeah, there's a lots of confusions, right? Most people don't understand math and statistics. Most people don't understand how the American election system works, right? It's a lot of my misunderstandings and has led to everyone thinking, oh, Trump's going to win. Okay, market gets go up. Okay, it could be, but that's not the bet I'm going to take. Okay. Well, so let's just talk about, I mean, now we've been, you know, talking about markets broadly,

Starting point is 00:13:10 but do you have specific expectations for some of the, major different cryptos, like would you say that you think Bitcoin might perform differently from, you know, any of the other coins or, you know, like Aether Sol or whatever? I think that Bitcoin leads the market. And so if you're going to be betting on this in a fashion that you get the most liquidity, right? Because if you're wrong, you want to get out of your position immediately. And you don't want to, you know, suffer massive, you know, liquidity comes out, bit-ass spread goes wide. You try to, you know, big crowd trying to get out a small door, right?

Starting point is 00:13:45 So that's why if you're going to bet, you want to use Bitcoin, one of the majors, Bitcoin Heath, maybe with a soul. Those are the things that I would be speculating using. The all coins will do well. So if Bitcoin goes to, you know, 85,000 next week because Trump wins and it wins. Yeah, Trump. And then you see, oh, shit, I'm rich. I'm rich now. Or I'm richer.

Starting point is 00:14:04 Therefore, now I need to own goat and, you know, smoking chicken fish and much for the dog kit around the world. I obviously own those two. That's why I mentioned them. Always be closing. And so, yeah, I think the alt coins and the meme coins and the dog shit, it follows Bitcoin. But if you're going to speculate in the election, you want to stay in the majors because, you know, it's very lucky you get it wrong. Either you get it wrong in the probability of the winning of what's going to happen and how the market responds or just our right, pick the wrong person. You want to be able to get out of your position as quickly as possible with the at least amount of slippage, which is why you're going to, why traders will concentrate themselves

Starting point is 00:14:43 in, in the majors. Okay. And so would you still say that you think Bitcoin is positioned to perform the best, even though right now, at least at the time that we're recording, it's trading near its all-time high? Yeah. I mean, I think the liquidity and the flows will go into Bitcoin. You know, post-the-election, obviously, if Bitcoin is rising, then the other stuff will go up more in percentage terms, right? That's the whole point. It's, okay, I've made some money in Bitcoin

Starting point is 00:15:12 going to rotate into this other things because people have the, you know, the nominal price fallacy. Oh, Bitcoin is 72,000. I'd rather get spiced in this worth of dollar because that's cheaper. Therefore, it goes out faster, right? It's that fallacy that a lot of traders have and investors. And so if you want a front run rat, then you say, okay, Bitcoin's going up. So that means people are going to go, oh, I want the cheaper thing on a nominal basis on it. So I'll just go by that. And so that's sort of the all coin rotation kind of thing. Okay. But then I guess like if people are anticipating that, then they could just buy the all coins originally.

Starting point is 00:15:48 Cool, they could. But the problem is if you're thinking like a trader, like I'm, but I think a lot of people are just absolutely, we know they're terrible traders, right? They don't actually think about these things before they go and press the button, right? You have to think about what happens when you get it wrong. When you get it wrong, you want to make sure you lose the least amount of capital. And so if I get it wrong, and I'm in the least amount of capital. I get it wrong and I'm in this fucking dog shit Alcoin, liquidity evaporates, and all of a sudden I'm looking 10, 20, 30% loss because I just can't get out of my position.

Starting point is 00:16:18 Or I could take the same bet on Bitcoin. I can even lever it up. If they get the same notional exposure or same risk profile, but I still can get out of my position much easier because Bitcoin is so liquid versus these other things. And so even if you believe that all coins are going to perform well, it doesn't make sense to trade them on this short-term basis. based on your election prediction because if you get it wrong, you're going to get smoked getting out of your trade. Whereas you get it wrong at Bitcoin, maybe you lose a few percentage points. So what, right? You live to fight another day. Right. And that's so funny that you said I was thinking like a trader because I have never

Starting point is 00:16:50 traded anything in my life. But anyway, so obviously Ethereum has kind of been a very interesting token to watch this year. You know, people think of it is obviously, I mean, it's been the, you know, second largest crypto for a very long time. And it obviously has accomplished a lot of a lot in terms of the ecosystem, developers, et cetera. But the performances here has been really terrible. You know, the ETHBTC ratio is low. You know, Saul obviously has taken a lot of the wind out of the Ethereum. So how would you think about that trading that particular asset? So I haven't run the numbers. I was actually having a conversation with one of our portfolio companies covalent as they have like an Ethereum data way back machine. And we're talking

Starting point is 00:17:31 about like from a fundamental perspective, like why has sold them so well? Like if we take a look at app. FTCs goes under in whatever, November of 2022. Seoul goes down to something like $7. I think Ethereum was like at $1,200, something around there. And obviously, sold at $180, whatever it is now. And Ethereum's at $2,600-ish, right? So Ethereum's like double-ish. Soles up, what, $2030X, almost?

Starting point is 00:17:57 And so why has that happened? Now, I haven't run the numbers yet. So I'm just talking on my ass here. I have a hunch. And my hunch is that the underlying profitability, of being a validator in Solana has changed from a percentage basis at a larger magnitude than is as if I was in ETH. And so therefore, if the market's forward looking, I'm going to ramp that asset,

Starting point is 00:18:23 a E. Sol more because the profitability has changed more because the unlocks have sort of slowed down, because of M. because of just the transaction volume and how much money you're getting in terms of fees from being invalidated in Solana. The profitability of the chain has improved dramatically over the last 18 months, whereas ETH really hasn't done that much, hasn't done poorly, obviously. But so then the question is on a go forward basis, on a marginal return basis,

Starting point is 00:18:50 is that going to slow? Is the Solana improvement in terms of the profitability of the network going to slow and therefore the price sort of tops out at this level? And then the eth accelerates as sort of the improvements on the costs of L2s renting blocks base to secure themselves on the ETH chain has gone much cheaper. Therefore, more flow can go through L2s and the price is obviously more competitive with the monolithic Solana architecture, right? That's the thesis and the hypothesis.

Starting point is 00:19:19 I don't know if the data backs it up. But I think that just from thinking about it, that makes sense to me as one reason why Alana from a theoretically fundamental cash flow basis would do better than Ethereum over the last since the FTX collapse. Okay. But going into the election then, would that? Going into election, I'll trade sold. It's a, it's the higher, it's a high beta Bitcoin.

Starting point is 00:19:45 Right. So I want the, this, the wippy action. It's liquid. And I know that it's going to pump. If Bitcoin does well, then I don't want to trade sole. I don't want to trade. If it's too slow right now, it's for that, for these cash flow things, matter. It's going to take months and sort of a narrative shift in terms of people's mindset about

Starting point is 00:20:02 what, where eth is. Right now, eth is slow, old, boring. You know, Vitalik's trying to become a social media influencer right now, which he's never tried to do because everyone's like, oh my God, eth is so fucking boring. Vitalik, get on social media and make it interesting again, right? I don't want to trade that. So Lana's got the, the, uh, mine share. It's, it moves. It's high beta Bitcoin. And so, you know, and I actually put on some small positions, Bitcoin broke out. okay, I'm not going to buy Bitcoin. Let me buy Seoul because when the market rotates, then it's going to outperform, right? Heath's just going to do, ETH is probably equal beta to Bitcoin, if not a little bit less.

Starting point is 00:20:40 So I'm probably not going to trade that as a trading position. That's not to say I'm going to sell you my ETH, which I have a very long core position in ETH. It's just Solana is a better trading vehicle right now, given the mind sure that it has amongst medium frequency traders. Yeah, and in particular, are you saying that because of meme coins? Mem coins, active community, UI, UX, all the reasons, you know, fast, all the things that people think of when they think of Solana, right? And the fact that it's gone from 7 to 180, right, so people have made a lot of money over the last 18 months. And so as humans, we say, oh, that happened in the past, so it happens in the future, right? So there's liquidity there.

Starting point is 00:21:23 And so they're willing to sort of like ape into things and really ramp this thing if Bitcoin. that's going. So that's why it's high beta Bitcoin. Okay. I also want to ask you about this whole, you know, L2s are parasitic to ETH narrative that's been going around. Do you think that's true or do you not think that's true? I don't think that's true. Again, I need to get some more numbers behind this. Wow. me talking out of my ass here. But like, what is, if all this sort of complex transactions get put to push down into the L2 layer and, you know, the people are complaining they're accruing all of value.

Starting point is 00:21:59 But at the end of the day, they need ETH for security, right? And so unless you're going to tell me that the intrinsic token on a lot of these L2s is going to go up 80, 200, 200x to match the market cap of Ethereum, then it's not as secure in a proof of stake system as Ethereum. and therefore they need the Ethereum ecosystem. And so the bet that you have to make is over time. There's going to be so much flow in transactions and aggregate in L2s that they're going to have to spend so much money securing themselves

Starting point is 00:22:26 by posting transactions on the ETH network that that's what gets you your valuation. Now, that's the assumption. I think that's the view you need to have. Maybe some people say, I don't like that view. I still think that because the L2s are taking all these transactions that ETH as a chain is not as valuable and I don't want to be involved in that, I'll go buy this cheap L2 token, right? But again, then you're just competing with every other L2.

Starting point is 00:22:51 I don't know how many fucking L2s that we get pitched, right? L2 for this, also for that, right? How do you pick which one is going to make you money as an investor? But they all have to secure themselves on Ethereum, right? Otherwise, our token needs to go up a lot and a lot more than what has already gone up. It's almost inconceivable that these things can go up high enough to sort of secure themselves in a proof of sake manner, similar to what a theme already gets you out of the box. So I think this ETH, this L2's a periscite to the ETH narrative is people not really thinking

Starting point is 00:23:22 about what ETH is doing for these L2s and what these L2s need to do in terms of a price and market cap appreciation to match a security that they get out of the box by being an L2 on Eith. And what do you think about this trend of the L2s on Solana? And I forget, Anatoly or somebody, or Austin Federa wanted to call it a different which I'm blanking on, but what do you think of that? I haven't really looked into it much. I mean, I don't really see there's going to be much excitement there yet because

Starting point is 00:23:51 Solanas is so fast, right? Whether or not you think that's scalable or it's going to continue in forever in perpetuity, whatever, but it's fast enough right now. So what's the point of an L2 other than to take more dumb VC money and incinerate it? Okay, yeah, by the way, they were calling them network extensions. Oh, network extension. I'm going to raise a new $100 million. fund on network extensions.

Starting point is 00:24:21 Anyway, well, so, you know, we were discussing, obviously, what could happen around the election. Do you see anything different happening potentially in defy than like, you know, everything else we've been discussing? Again, some people think, oh, Trump's going to be better for regulation on crypto and therefore defy does better because more Americans can participate. I don't really see that. Trump was president for four years. Look at his record.

Starting point is 00:24:47 He did fuck all, right? So he's got to assume, and also, number one, if Trump, if the Republicans don't win both the Senate and the House, Trump can't do fuck all. He can't do shit. He can only do executive orders on whatever things that executive orders can do. And I don't really think that is like a comprehensive reform of the American framework around cryptocurrency regulation that needs, congressional bills and all that kind of stuff that happen can't happen and even if the republicans win both most of them hate trump right they he's like an an anthem to to them they only kneel and kiss to rain because they're going to get elected get elected it's prime time to say fuck you to

Starting point is 00:25:32 trump you're not a real republican you get to you know new york city liberal democrat in disguise i again i don't see how trump gets a lot of these things that he says on the campaign trail actually put through because in his own party, he's not really at a base level liked that much. So even if the Republican sweep, again, I'm not really seeing him being able to fall through on all this stuff. Right. So there's a lot of ifs here. And now we know what Harris is going to do the same thing that's been happening for the last four years. So I think the defy narrative, oh, better regulation in the U.S. Therefore, more Americans can do defy and therefore like, you know, all these American VC funds can come and pump my back.

Starting point is 00:26:12 I think is a bit of hopium. Okay. Well, yeah, a couple of things that I wanted to say there about Trump. Just so you, so like because he made all these crypto promises to crypto people, but you. He's a politician. Politicians go around and they make promises and they don't fulfill any of them. That's their job. It's a lie to you to get them to vote for you.

Starting point is 00:26:33 You get an office and then you do whatever you felt like were you going to do anyways or what you can actually accomplish given the limited political capital that you have. Right. So imagine that, you know, the Iraq-Israel thing kicks off or Russia, Ukraine kicks off, or China, Taiwan, or any of the other global conflagrations that could happen, that will happen over the next four years. Is he going to be spending his time trying to get comprehensive crypto regulation to help the crypto bros or getting more money for defense contractors so they can go bomb everybody around the world, right? It just doesn't make any sense that people think that crypto is his priority. There's so many other things that are going to take his attention once he gets elected. into office and crypto is going to be way, way down on the list.

Starting point is 00:27:15 Okay. Wow. I'm excited to see what the comments are on this episode after it comes out. The other thing that I wanted to mention, though, is when you said you think Harris will continue the policies of the Biden administration on crypto, we actually, so here at Unchained, we did report that there's a couple of names that apparently are being floated in her circles of who they're looking at for who could replace Gary Gensler, the SEC chair. And one of them is Chris Brummer, who has testified about crypto positively multiple times in front of Congress. And the other was Erica Williams, who was the head of the PCAOB, which stands for the public company accounting oversight board. And apparently they're both more pro-crypto.

Starting point is 00:27:58 So, you know, obviously it's- I mean, again, I'm going to call bullshit on that. Gary Gensler was a professor at MIT. He knows crypto inside and out, taught a course on it. People thought he was pro-crypto when he got in. And then what happened? he became a political animal and he had to do what Elizabeth Warren told them do because he wanted the Treasury Secretary of the Treasury job, right? And so yeah, maybe these people on paper in their past life before they got to Washington and got corrupted by the power that they could get

Starting point is 00:28:25 by doing the bidding of others to get the next position that they want say all these things, but then they do what they're told to do afterwards. So again, people don't understand politics. This is, yeah, oh yeah, yeah, crypto bros. Look, we're going to hire somebody who said in a public statement or taught a course that they're positive crypto. And then they get in there and they get in the government machine and that all changes because the priorities of the government machine are completely different than what you did in the private sector as your own person. Okay. Yeah. Yeah. Well, we'll see what, I mean, who knows, maybe neither of these people will end up in that position. So in a moment, we're going to talk more about other parts of the

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Starting point is 00:29:43 Back to my conversation with Arthur. So one of the last areas of the crypto markets that we did not discuss are meme coins. What do you expect to see from them in the election period? So again, I think they're high beta Bitcoin, right? And so if Bitcoin starts doing well, more money is going to come into meme coins. But, you know, Bitcoin is broken out over the last, the day or so above 70,000. Maybe it's kind of eclips the, you know, Fiat price in the nominal all-time high. And memecourt is sort of lagging, right?

Starting point is 00:30:13 Because I think the market needs to see more out of Bitcoin first before we get that rush into into meme coins. And so I think it's not they're not, you don't want to trade these things right now. You want to wait. So if the narrative is Trump wins good for Bitcoin, wait for Trump to win and then see how the things perform and then ape into them. But don't go into them first, go into Bitcoin first. be safe, be safer. And there's no other thing as safe. Be safer.

Starting point is 00:30:40 And don't experience just like getting your ass handed to you because you pick the wrong horse. And then the liquidity evaporates you can't get out of these things. So that that's, but I think mean coins will do very, very well in the medium term as, you know, the Bitcoin drags everything else up with it. And so you mentioned earlier that you're a fan of goat, which I am like obsessed with this whole story. So we just discussed this on the podcast, but as a reminder to people, this is the meme coin that is associated with the AI agent that was trained on a conversation between two other AI agents that picked up some lore from like the late 1990s internet about this very vulgar meme called Goatze. You guys just listen to the previous episode because I don't want to have to describe it again because I gave the graphic details of that in that other episode. But anyway, what are your thoughts about goat and AI coins?

Starting point is 00:31:38 So I think it's an AI coin is all about being either the first or the second in sort of a new genre, right? Because that is the, and then there's all sorts of derivatives afterwards, right? You wanted to own the crypto punk and maybe the second PFP collection when we're talking about AFTs in like 2020, 2021. But all the other pieces of docket you want to own because it's just a Me Too product that has no. originality is a derivative of what's already been successful. So now we have a new category. And the category, you know, king right now is goat, which is AI agent creates some sort of meme and launches a meme coin. So goats, it has a great story, right? And it had Mark Andreessen giving 50,000 Bitcoin to truth terminal to get its own wallet. $1,000 dollars in Bitcoin. Yeah, yeah. And then it

Starting point is 00:32:30 created this, it created this coin called Goat and now it's trading. Maybe there was a human involved, maybe there wasn't. There's a bit of like, is it really, is it really like an AI coin? I don't know. Like, it's got all these like. Yeah, but the AI agent didn't create the coin as far as I understand. Some other, it just got launched. Right.

Starting point is 00:32:48 But he, yeah, or the AI agent got into it. Yeah. And so like, it's just a great story. Right. And it's the first of its kind. That's when I want to invest in. Invest very, very highfalutant word for what you're doing. Gamble.

Starting point is 00:33:00 And it went from zero to whatever at a high, I think it's reached up to 800 million. in market cap within two weeks. So if you look at the distribution of meme coins on a statistical basis, something like not point, not one percent, something really small, like one basis point or 10 basis points of all launched meme coin that pumped out fund are over 500 million market cap, something very, very small. So if you want to have the Lindy effect, which is that which has survived in the past, shall survive in the future, then you want to invest in higher market cap.

Starting point is 00:33:34 Meme coins because there's a greater chance that it exists within the next three to six months, which is a big if because there's no intrinsic value. This is really just a memetic concepts and how viral they are across the internet. And so past virality portends the future virality. Therefore, I want to be in, if I want to be in this asset class in general, these are the ones I want to own. I want to own something that's gone through 100, 100 million market cap, stayed over 100, continues to be talked about on social media.

Starting point is 00:34:04 So I aped into Go when it was about $300 billion market cap, right? Because, okay, it's gone over $100. It's existed. There's a very high chance to lose all my money. But if I'm going to play in this game, I already accept those risks. Therefore, this has a better risk-per-term profile than investing in sort of the next one down who says, oh, I want to do the same thing. I'm going to have an AI agent trained on whatever it is, launched its own meme coin.

Starting point is 00:34:29 And so there's a bunch of these like sub 100 million market cap copycat concepts. But I don't want to invest in those. Yes, there could be one that breaks out and goes to 100 million, 500 million a billion, right? There will be one. If goat goes to $5 billion, there'll be one that goes to a billion. And then the rest of them are going to go to zero. The problem is how do you pick the second one? Picking the first one's almost easier because it's the first time you saw it.

Starting point is 00:34:51 You're like, oh, this makes a lot of sense. You saw people appreciate it in terms of the price appreciation on sort of radium and Jupiter and some of these Solana training platforms. it's easier to invest in goat than is to find number two that you find number two at I know 25 50 million market cap and you think that's going to go to a billion I know a lot of people have tried to be in that game that's a very very hard game yes my returns yes you can you could make the hundred thousand X but you have a way higher chance of losing everything so that's why I like goat but so I mean essentially it's it's almost like you're saying

Starting point is 00:35:24 that goat is like the Bitcoin of these types of coins correct so then like for a another kind of crypto AI coin to take off, there would need to be like some differentiator, sort of like an Ethereum to that. Is that? Yeah. If we want to use sort of that taxotomy. Okay. Yeah. And earlier you also mentioned a different meme coin, but I didn't catch it. Smoking chicken fish. So what is that one? I don't know what that is. It's another like, you know, pseudal meme memetic religion. It's a chicken body,

Starting point is 00:35:56 fish head, smoking a marlborough red cigarette. I guess it's funny. And like the saying is like ramen. So instead of like amen, it's ramen because you're in a broth because you're chicken and you based. Yeah. I think it's funny. Is it also promoted by an AI? No, no, no, no.

Starting point is 00:36:13 This is just a standard meme coin. Just another like is this memetic concept going to be viral or not? And I think it could be. Oh, okay. Okay. Got it. Well, I'm noticing that it already has 20,000 followers on X. So I guess it's getting there.

Starting point is 00:36:28 And what is the market cap on? that one? That's about a $60 million market cap. So a little higher risk. Okay. Okay. So you went in there even though hadn't reached the 100. Yeah. I just thought it was funny and I like the concept. Okay. Why don't we talk about the fact that right after the election is the next Fed meeting? What are you expecting there? And how is that coloring your thinking about the markets, both traditional and crypto? So it was quite interesting. So I was at a commodity investor conference in New York a few weeks ago. And Zoltan Pazar, he's formerly at Credit Suisse and the Dallas Fed a long time ago. He's an expert on money markets and like the plumbing of the Fiat

Starting point is 00:37:10 money markets. And he used to publish a very well received and well read essay blog, whatever you want to call it, a piece of research that went around the street. And he's now off on his own doing his own thing. And he mentioned something that this is, It's been starting to get a little attraction, which is, I'm going to be a bit of technical here, that we've reached, at least in the United States, the United States has reached, the banking system, has reached a point where the amount of banking reserves might be at the point at which the Fed needs to start doing QE again. So after 2008, banks went bust because they didn't have enough reserves backing, you know, all these dodgy mortgages that they underwrote and kept on the bank. balance sheets. So the Fed said, okay, we're going to enter a regime where the banks will never

Starting point is 00:38:01 have not enough reserves. So we're going to do QE, which is I'm going to buy these bonds and credit reserves to the banking system. So right now, the banking system reserves hit are around $3.2 trillion. And what the Fed officials have been saying is that they're going to operate, they need to stop doing QT quantitative tightening, which is reducing their balance sheet. taking reserves out of the system and start putting reserves back into the system at the point in which the reserves are low enough to cause financial stress. And this is a, and you can't really observe this a priori as an ex post observation that you can make. Oh, something fucked up, therefore there's not enough reserves. And so there's a sort of a repo scare about, I don't know,

Starting point is 00:38:50 a few weeks ago when the rate on sort of interbank lending spiked. And that indicated. And that indicates that we might be at that situation where the U.S. banking system, the amount of reserves that it has, are not enough. So part that for a second. And then the second point is that if you take a look at who's been buying U.S. treasuries on a marginal basis, obviously China, Japan really aren't participating that much anymore. Saudi Arabia and some of the oil exporting countries are not participating as much as they used to. But the demand has been soaked up by these hedge fund tax-friendly domicels like Caymans, Luxembourg, United Kingdom. If you look at who marginally has been buying the most U.S. treasuries, it's those jurisdictions, which means these are hedge funds.

Starting point is 00:39:39 And these hedge funds are putting on a basis trade whereby they sell a futures contract on bond and they buy and buy these bonds. And usually it's sort of a treasury bill or some sort of bond, whatever, whatever the operatives exist. And so hedge funds don't really have, Hedge funds always finance their purchases. So what they need to do is they go to the bank and say, hey, I've got this high quality collateral, U.S. treasuries, risk-free debt. And I need to purchase them. Can you lend me money against that? And they make sure, we'll do that.

Starting point is 00:40:09 So the banks lend these hedge funds money against this treasury collateral, right? Now, as the, you know, U.S. government has been increasing deficits to pump markets and pump the economy, the U.S. Treasury has been issuing more and more and more treasury debt. And so the buyers of this are hedge funds putting on this basis trade, this arbitrage trade. And then they need to finance it in the U.S. banking system, which takes sort of balance sheet away from them. And so the U.S. government issues more debt. The bank's balance sheets get more precarious because they're helping these hedge funds finance the purchases of this debt. And so we get to this situation where the banking reserves are inadequate for the level of federal borrowing.

Starting point is 00:40:53 So one of two things can happen. either the federal government stops spending money, which we know is not going to happen, right? Or the Fed stops QT and at a minimum the Fed slows us down QT or stops it. At a maximum, they say, hey, the level of reserves, we've reached that point at which it's too low for the U.S. banking system. Therefore, we need to increase the amount of reserves. Therefore, we're starting QE again. We're going to go back in and start buying bonds. And so I think that given that we've seen a 70 to 75 basis point rise in the 10-year treasury since the Fed cut rates, which is not supposed to happen, right?

Starting point is 00:41:36 Everyone's like, oh, Fed cuts rates. That's because the economy, they're going to have a soft landing. Economy is going to slow down, but it's not going to go into recession. Therefore, these bonds are going to appreciate and value. The yields go down, but that's not what's happened. The yields have rocketed higher. I haven't looked at my screens this morning. They were about like 4.3 percent on the 10-year.

Starting point is 00:41:55 which is about 70 basis points higher than it was September 18th when they cut 50 basis points. And so now the Fed is a situation where it's getting an expense with the finance of the government. The folks that are financing the government are taking the bank's balance sheet away and causing these market disruptions and the things that they really care about. And so I think that we could see some language around them acknowledging that this is happening and sort of soft telling the market that QT is going to come to an end and QE is going to start soon. which is going to be very positive for risk markets, irrespective of what they do with the rate,

Starting point is 00:42:33 whether it goes up or goes down, I think that almost doesn't matter. I'm focused on what are they going to say about QT, QE, and bank reserves. Maybe they're going to allow a question from one of the financial reporters to sort of like skid them a softball so that J. Powell can sort of allude to what's going to happen in the future. But I think that is the interesting thing that I'm looking for at the Fed meeting right after the election. Wow. That is so interesting. Yeah, I just feel like I learned a lot right in there. So, okay, because so everybody, yeah, has been focused on the interest rates, but obviously if there's QE, then that is, I think that I've seen this thesis from you so many times and various things that you've written that, you know, that will pump the markets.

Starting point is 00:43:18 And you think that that will happen both for. It's going to happen. The question is when? The Fed will start QE again because, The only people buying treasury bonds at these prices are hedge funds doing these arbitrage trades. It's not real money buyers. There's not anyone who actually wants to own this debt. Everyone knows it's trash debt. Everyone knows that Trump and Harris are going to print money and expand the deficit to further their own government programs.

Starting point is 00:43:43 And so why would I want to own this? It's trash. But I'll own it if I can make a few basis of points in an arbitrage funding trade if I'm a hedge fund. And I park those bonds in these jurisdictions. And this is what the data is telling us, right? It's not trying to buy these bonds. It's not the long money, the long only real money buyers. The Fed isn't buying them either, right?

Starting point is 00:44:04 So it's the banking system financing the purchases of hedge funds. And so this leads to a problem in the plumbing of the markets. And we know that the Fed is very active in terms of trying to make sure that nothing actually happens. If we look back to Mars 2020 during the SVB and sort of the regional banking crisis in the U.S., the Fed and the Treasury responded immediately with printing money, right? The Fed's balance sheet won $400 billion a week after when they, SVB went bankrupt and they had the bank term funding program, right? And so they're very hyperactive to making sure that there is no disturbance in the financial firmament that they are supposedly supposed to manage. And so the election is almost a side to.

Starting point is 00:44:44 I know people are like, oh, man, the election, the election, but like there are things happening. They are so structural to how the United States finances itself that it doesn't matter who wins the election. I know that people are like, oh, yeah, Elon Musk is going to come in and, like, eliminate two trillion dollars of government spending. I saw that headline. That is the utter crock of bullshit. The biggest three outlays in the U.S. federal government of the defense, Medicare, Social Security, and veterans. So Elon Musk is going to come into the government, one of the most militaristic empires we've ever seen in human history and tell them, okay, we're going to cap or reduce the defense budget. So you can't go bomb anybody else.

Starting point is 00:45:20 we're going to tell all the old people, all the baby boomers, oh, we're going to take away your health benefits. And we're going to tell all the veterans that injured themselves in these wars that you're not getting any more benefits either. That's the only way that $2 trillion is coming off of federal spending. It's complete another bullshit. And so I think people need to stop focusing on this election. It's really corrupting your brain because the structural issues, regardless of who wins, are going to remain. And we know what the answer is. It's always printed money.

Starting point is 00:45:48 And so if you're able to buy dips using no leverage or very, very low leverage, if you're able to make your position sized responsibly for your level of net worth, then Trump wins, Harris wins, regulatory apparatus of the U.S., all this shit doesn't matter because the finances aren't changing. The math, the compounding interest, the demographics, the proclivity to spend money, that's not changing. And so I really think that people focusing on whether or not they're making out of extra five percentage points on this election, but then they blow up their capital stack and can't really can't really participate in the real bull market that's going to come is absolutely ludicrous. Okay.

Starting point is 00:46:29 So given that that's your thesis, then what are you thinking of in terms of trading? Is it the same that you just want to be long, a bunch of positions? You want to be wrong positions. You don't want to be able to weather, you know, short. term market dislocations. Like if if you're long in Bitcoin, Trump loses or there's social arrests in the U.S. and say Bitcoin goes from 75,000 down to 50,000, right? You don't want to have to sell your position. You don't want to be shook out of your position because we know that they're going to print money. We know that there's these structural issues that neither party has

Starting point is 00:47:02 decided to fix. Then Bitcoin goes from 50 to 250,000. And you look like a schmuck because, oh, you needed to add a bunch of leverage on the two days before the election because you thought that polymarket told you that. that Trump was going to win on a probabilistic basis, but you didn't understand the statistics and you didn't size of positions accordingly, and you got wiped out. And then you couldn't participate in the massive bill market that is to come because fiat currencies are being debased in the United States, in Japan, in the EU and in China to a massive extent. Wait, when you just talked about how to properly size your positions, like, how do you think of that? I think of that is if you go to bed at

Starting point is 00:47:37 night and you look at your phone, look at the price of crypto, your position is too big. Wait, I'm sorry, repeat that. If you look at what? If you go to bed at bed at night, and you look at And the last thing you do is you look on your phone and you check the price of crypto. And you're in any way worried about what that is while you're asleep, your position is too big. Okay. I like that advice. Well, so you just mentioned a bunch of global things, which I was also interested in because your most recent crypto trader digest was about China. Can you talk a little bit about, you know, what you see happening there and how you think that will affect both traditional markets and crypto markets?

Starting point is 00:48:10 So China, just like the U.S., Japan, and the European Union has experienced its property bust, right? And so we know that the medicine that all these other three countries or economic blocks used was take interest rates down to zero, pump liquidity in the system, that's quantitative easing, and expand how much banks lend to the politically right industries. That's what happened. We capitalize the banks to let them lend again. And so China is going to do the same thing. because the alternative is there's another way to solve this problem, which is let everybody go bankrupt who took too much leverage. But nobody wants to do that. That's not how you stay elected and that's not how you stay in power if you're in an autocratic government. It just doesn't matter.

Starting point is 00:48:54 So deflation and sort of right sizing your economy for their appropriate level of growth and demographics, that is never on the cards for any government, no matter what ism they pretend to believe in. It's certainly not in China. And so they've suffered enough pain. And now that the Fed has started this easing cycle, China can do the same. And so that's what they're going to do. They've already started doing QE, the PBOC, People's Bank of China, has started buying government bonds again. They have told the party officials, hey, I know that I've been doing these corruption things, right? Corruption is bad. We're going to come after you if you lost money and you've misappropriated things as a party official. They've now softened that stance. There was a recent circular release to party officials, basically saying that,

Starting point is 00:49:40 If you are going for growth and you make mistakes, that's okay, which is different than what they were seeing before, which is go for growth, but don't fuck up. And so now that they've given carp blanche to party officials who are in charge of the banks, in charge of the local governments, in charge of the property developers, to go out and do business again to take credit and reflate the economy, we're going to see broad credit growth growth grow in China on the bank credit. we're going to see the PBOC's balance sheet grow, and we're going to see China the same thing that the U.S., the EU, and Japan has done for the last 30 years. And given the scale of the property, the misallocated amount of capital

Starting point is 00:50:21 in the property market, which is in the single digit or 10 trillion U.S. dollars of misallocated capital, that's the type of money we're talking about that they're going to have to print. And so it's going to be analogous to how much money the Fed printed

Starting point is 00:50:33 from 2008 until the present, right, to solve its financial collapse. Or how much money Japan printed from 1989 until today or how much money the EU put it for 2011 when Draghi gave the we'll do whatever it takes for the ECB between then and now. So China's going to do the same thing. I know that a lot of people are saying, oh, China's not doing enough. Well, the Fed wasn't doing enough in September in 2008 either. The market didn't bottom until March 2009, a 666 on the S&P, and then we rallied, right? So the initial response yet is not, oh, they're doing enough.

Starting point is 00:51:07 It's, oh, you started? We want some more. We want some more. Give us more money. Give us more money. Because the hole is this big. You only give us this much. Give us more.

Starting point is 00:51:16 And China will give you more because deflation is not on the cards for any of these politicians or any of these economic or political systems. And so I think that's what thing that people are missing here. You know, they're getting too caught up and, oh, the property bug big bus is this big. Well, okay, give it 10 years and $10 trillion. Did they solve it? Probably. Did you sit on the sidelines and miss one of the biggest rallies and risk? assets because you were too focused on what they did today and not thinking about what they're

Starting point is 00:51:41 going to do in the future, that's the point I'm making. And so Bitcoin and, you know, finite supply assets that are globally fungible are going to do very, very well, gold and Bitcoin. And so I think this China thing is probably the biggest thing that matters. Again, the election is a side show. It doesn't fucking matter who wins the U.S. election. It's irrelevant to the returns, your long-term returns your portfolio. Understanding how the change and that's Chinese stance on their monetary policy affects the West, that's way more important. You should be spending your time looking at that and reading about that versus going on YouTube and listening to the Trump ad, the Harris ad, or this person fucking up or that person fucking up. It doesn't matter.

Starting point is 00:52:22 Okay. Well, this is so interesting. And then I also wanted to ask, because earlier that summer, we saw the start of the Japan carry trade and unwind. And, you know, the markets did not react from all of that. And I wondered, you know, what you thought would happen going forward. Like, do you think that's over? Do you think the markets that that continue could continue and also affect the markets adversely? Or what are your thoughts? I mean, I don't know when it's going to happen, but rates in Japan will rise. Dollar yen will go near 100 and Japanese capital will come out of the West and repatriate at home to show up the the Japanese economy. Now, I can't tell you how long it's going to take, right? Because we just had the LDP lose majority in Japan on Sunday.

Starting point is 00:53:06 that's what some party there are. That's the party since 19, whenever they got out of the U.S. colonialism period after the war. That's the party. They always win. I think they lost in 2009. That's probably one of the only years they lost. But they lost. They're not the majority anymore.

Starting point is 00:53:23 And so the question is, what is a political pressure on the BOJ, the big of Japan, to normalize rates, i.e. hike rates. So we have a B.O.G meeting on Thursday. I don't know if this will come out by then. We'll see what U.A.S.an says about the path of, B.J and rate normalization. Dollar Yands at, what, 153 right now, something around there, right? We're almost back to 162, the highs of dollar yen right before it collapsed. So the BOJ might surprise the markets and hike rates because there's political confusion, so they're not

Starting point is 00:53:55 getting pushed by a particular politician to slow down because there is nobody in charge right now. UADA has was appointed to the BOJ to unwind Corota's policies of, you know, yield curve control, weak yen, balance sheet expansion. So that's his job. And so the question is how long it takes him to do it? And he said he's going to be very patient in doing it. But this might be an opportunity for the BOJ to raise rates, given that the politicians are in such a disarray that they can't pressure him to stall it. Okay.

Starting point is 00:54:25 All right. Well, then I guess it looks like we'll have to see. Again, a lot of this is this very complicated situation and very interesting, very important. And it's not the U.S. election because, and again, the U.S. election does not matter. Wow. Okay. I love ending on that contrary intake. Thank you so much, Arthur, for coming on in Change. Thanks for having me. I'm here with Unchained's regulatory reporter, Veronica Irwin, who wrote two articles this week that will likely be of importance to people ahead of the election. But before we get going, I just want to explain to the audience that the reason my background looks different and also my mic may sound different is that we had initially recorded this on Wednesday. And then Thursday, there were some unexpected developments that forced us to re-record. And I am now in a different. location and had to borrow a mic. So Veronica, the first story you wrote this week was about Stan with Crypto's scorecard. What did you find there? Yeah. So I have been using Stand With Crypto a lot

Starting point is 00:55:18 as a reporter for kind of shorthand on how different politicians fall on crypto policy and crypto regulation. They give you a very simple grade for where every politician stands and it's easy to understand. And so I wanted to know more about how they arrive at those different grades. And so I reached out to the executive director, Logan Dobson, and he walked me through the process somewhat. And it honestly seems like it's kind of wishy-washy or dependent on the specific circumstances. He basically said there's a loose general rubric. For example, you know, a policy paper is more valuable than a tweet and on the record

Starting point is 00:56:01 official statement is more important than something said offhand and that votes were the most important because actions speak louder than words is how he put it. But he also said that

Starting point is 00:56:13 he ultimately makes the final call on who or on what a grade for a politician is and that he also engages in one-on-one conversations with key stakeholders, he said, who weigh in on the process. And so there were a couple other things that you found in the initial story, which was you felt, or there's another kind of job that he has that it seems could present conflicts of interest.

Starting point is 00:56:43 Yeah. So he declined to talk about any job that he has other than his current job at Stand with Crypto. But there's a conflict of interest, so to speak, with the fact that he is currently also vice president at a firm called Targeted Victory, which is one of the largest recipients. of the Republican Party in elections this year on open secrets, which tracks federal election commission data. And they have a long history of working with Republicans and other right leaning or on different right leaning issues. And that provides an incentive to make Republicans look better than Democrats, I think. I will say that the comm person for Stand With Crypto did reach out and say that that is untrue, but she did not

Starting point is 00:57:34 elaborate as to why. That's not the case. And the last bit of your story was about whether or not they have a fair shake affiliation. Yeah. So this has also been something that I think a lot of the crypto community has wondered about because on the Stand with Crypto homepage, there's a tracker of how much money has been raised for pro-crypto candidates, this election cycle. And the tracker lists a very high number. And when people pointed out, maybe that's fair shake money. They actually responded to that criticism and started breaking out, which how much of that money is fair shake and how much of that money is stand with crypto. So now if you hover your mouse over that number on their homepage, it does the breakdown. And the vast majority of it is money that's been donated to

Starting point is 00:58:23 fair shake. Strangely enough, Logan Dobson says they have no affiliation. And he would really explain why then they lump their fundraising numbers together. Okay. And then you also talk to separate sources about why they might not, yeah, want to be public about that affiliation. Yeah. So there's, I mean, there's some obvious, you know, shared connections, I'll say. Coinbase founded Stand With Crypto and Coinbase has now donated at least $50 million to Farishik. They've done so very publicly one time in June and then one time, again, this week, $25 million each time. And when I reached out to other, you know, folks involved with crypto politics and policy,

Starting point is 00:59:05 they essentially said that because of some negative press coverage of Fair Shake has gotten recently, stand with Crypto probably wants to distance themselves as much as possible. There was a New Yorker article not that long ago that went into Fair Shake strategy and really highlighted how they've been running a lot of attack ads. And there's been several other smaller news stories that also cover. that. And so this source that was willing to talk to me a little bit on background basically said that they probably want to distance themselves because of that PR. And so the reason that we're re-recording is because after we published the article, you heard back from Stan with Crypto.

Starting point is 00:59:47 Yeah, this was a very strange situation. I've never had a situation like this with another publicist. Yeah, and actually I should say, because I have a lot more experience than you, I also have never had this kind of situation before. Yeah, all of this started when I direct messaged Logan Dobson in early October saying, hey, I want to do a call with you at like to set up a call. And he told me to get in touch with their publicist. And this publicist, Sabrina Siddiqui, we went back and forth for several weeks about scheduling a phone call. She and I actually hopped on a five-minute call where she asked what I wanted to write about. and I was very clear that I want to write about why Logan Dobson works here

Starting point is 01:00:28 and why a scorecard and how they come up with the grades for this scorecard. She didn't seem to have any problem with it, but once we got on the phone, she and Logan Dobson both said, you know, this whole phone call has to be on background, which

Starting point is 01:00:44 for those of you that don't know journalism speak, that means not for attributions. You can quote the source, but you can't say who they are. and that otherwise they wouldn't be able to do the call and that I would have to email them afterwards to get any comments actually on the record. So we did that whole phone call interview

Starting point is 01:01:03 and then shortly thereafter I emailed them for on the record comment on all of these things and they ended up never responding to me on it until I wrote the story. And you had given them a clear deadline so they knew like when they had to respond by. Yeah, email. And there were, I think, five emails and one text message. So. Yeah, I emailed them five times. I texted them once. The final email was a very thorough line-by-line,

Starting point is 01:01:33 fact-checking email, we call it, where we just run every single statement we're going to say about them by the organization so that they can say what they find untrue or what they want to provide a comment on. And I gave them a very clear deadline. And I got no response. But then hours after the story was published, I got. And we should say, when we publish. it. So when you, when you were telling me earlier about all the things that they said for the article, initially when we published it, we had to say it was a source. What was the phrasing? A source directly involved with the grading process is I think how I'd put it. I wanted to make it very clear that the source knew what they were talking about and that they were very involved in what they were talking about because, you know, a single source is a little bit iffy.

Starting point is 01:02:18 So, yeah, I wrote all of the quotes that Logan Dobson had given me, but without attributing them to Dobson. And then hours after, I got a text from the publicist asking why the story was sourced the way that it was, even though I had told her it was going to be sourced the way that it was in that final fact-checking email. And you were executing the terms that they had set for you. These were their terms. Sabrina has worked in communications for overage. decade for the Senate and the House and the Treasury and meta. So I assume that she knows what those terms mean. But she texted me asking why, why didn't I quote him?

Starting point is 01:03:02 And said that in a follow up email Thursday morning that the way that I wrote it sounded like somebody had leaked and that I should put it all on the record. Right. Even though they were the ones who had requested all of that. Yeah. It was, I'm still kind of perplexed. what happened there? Because, yeah, these were their terms.

Starting point is 01:03:22 And Logan has worked in communications as well for over a decade, more political communications. So is she. I think they, I thought they would know what those terms meant. I mean, they do, but for whatever reason they... Yeah. So we updated the story. I wrote a tweet thread explaining this as well for readers,

Starting point is 01:03:45 because I realized this is kind of in the weeds with journalists. and speak. And we also republished the newsletter with this information. Yes. So for those of you who received the newsletter twice, and also now if you see on the website, we included the strikeouts of where we changed copy. But yeah, that's because that is how the events transpired.

Starting point is 01:04:11 And, yeah, haven't experienced that before. But, you know, 26 years into doing this, I guess there's always a first time for everything. I guess so. So your other article this week was about SEC Commissioner Hester Perce, aka Crypto Mom, and whether or not she might want to become SEC chair if Trump wins the presidency. What did you find there? Yeah.

Starting point is 01:04:34 So it seems like it's kind of an open secret if you are engaged in crypto politics. And if you're engaged with SEC regulation and advocacy on this issue, that Esther Burst does not want to be chair of the SEC. I spoke to plenty of sources that said, oh, yeah, no, that's something that everybody kind of knows. But I was able to get in touch with four sources that do speak with her directly or speak with people in her orbit all the time about this. And she's made it very clear. Some said for at least a couple months. One source said they've known this for at least a year, that she is just not interested in a role that political, that she is very much a public

Starting point is 01:05:19 servant. She has very strong values that she feels like she have been important for her to voice as a dissenting voice on the commission, but that she doesn't want to be in charge. Which is really interesting because most people would have expected that she would want such a position given her outspoken takes on crypto. So, like, why? Why? is it that she doesn't seem interested? Everybody explained it to me the same way that's really just a personality thing. The chair role is a much more political role, and you have to kind of manage the whole commission,

Starting point is 01:05:58 and you have to navigate the politics of compromising with this person or agreeing with this person to get things done. And she is just much more ideologically firm. She has very strong views, and she likes having, I think, the freedom to speak those views without having to deal with the politics of it all. So given all that, did they have a theory about what might happen if Trump becomes president? And as he has promised, he would, you know, fire Gary Gensler on day one. So what are their theories?

Starting point is 01:06:34 Yeah. So, I mean, he can't legally fire Gary Gensler, but he could demote him on day one if he wanted to. and that would mean that there's probably like an interim period where we have like an acting SEC chair. And it is possible, especially for someone like Hester Purst that like my sources said, is very values driven and also really believes in being a public servant. It is possible that if the president called on her that she would serve as that acting chair. But like I said, she's making it very clear she doesn't really want that job. And it sounds like when her term ends in 2025 that she actually wants to return either to research or the private sector, I heard divided views on that. Okay.

Starting point is 01:07:19 Yeah. And I think people are theorizing that potentially Mark Uyeda, who is actually also much more friendly to the crypto industry, would be open to having that interim chair role. That's it. So all right. Well, it's been a pleasure chatting with you. Thanks so much for sharing what you found. Thanks for having me. Don't forget.

Starting point is 01:07:42 Next up is the weekly news recap today presented by Wondercraft AI. Stick around for this week in crypto after this short break. Pocodot is the original and largest layer zero blockchain with over 2,000 plus developers. The anticipated Pocodot 2.0 upgrade will be a massive accelerator for the ecosystem. Upgrading the infrastructure with eight times higher transaction throughput and twice as fast block times, tailored court time for the needs of every protocol, trustless bridges to multiple chains, and revise tokenomics with a token burn to reduce inflation. Perfect for GameFi and Defi to build, grow, and scale.

Starting point is 01:08:17 Get your Web3 ideas to market fast. Think big, build bigger with Pocod. Join the community at Pocodot.network slash ecosystem slash community. Welcome to this week's crypto roundup. In today's recap, we dive into Optimism's controversial grants, FTX's strides toward customer refunds with a $228 million by-bit settlement and Reddit's surprising move to sell off most of its cryptocurrency holdings. We'll also cover X-FTX exec, Nishid Singh's sentencing, Coinbase's launch of an AI-powered

Starting point is 01:08:50 crypto-agent creator, and Circles new USDC redemption fees. Plus, we'll touch on recent layoffs at Consensus and DYDX, Phantom Wallet's outage during a high-demand air drop, and micro-stratage bold $42 billion. dollar plan to boost its Bitcoin holdings. Thanks for tuning in to the weekly news recap. Let's begin. Optimism's grants sparks debate. Crypto Exchange Cracken's recent decision to build a layer two network, Inc, using Optimism's OP stack, has ignited controversy following a CoinDesk report, revealing the significant

Starting point is 01:09:24 financial incentive behind the move. CoinDesk's scoop revealed that Cracken received a substantial grant from the Optimism Foundation, 25 million op tokens, currently valued at $42.5 million giving it a significant financial incentive to join Optimism's Ethereum-linked super chain. The grant, part of a structured release tied to transaction milestones, has led to questions within the crypto community about whether such incentives compromise the decentralization of the layer two ecosystem. Optimism's chief growth officer Ryan Wyatt defended the grants as essential to fostering development. writing that, the collective is not going to stop investing in developers.

Starting point is 01:10:06 However, critics argued that financial inducements to major firms such as Cracken and Coinbase, the latter of which launched its own Layer 2 base last year, risk tipping the ecosystem towards centralized control. Related projects are also tapping into optimism's resources. Bitcoin-based Layer 2. Bob, which aims to integrate Bitcoin with Ethereum, received an OP grant of around 870,000 to join the super chain. Similarly, Swell, which had initially planned to build on Polygon, is now developing a roll-up on the OP stack, though it is not confirmed if it was incentivized by a grant from the Optimism Foundation.

Starting point is 01:10:44 Former FTX exec, Nishad Singh avoids prison. Nishad Singh, FtX's ex-head of engineering, has been sentenced to three years of supervised release, avoiding prison after cooperating extensively in the high-profile case against F.TX founder Sam Bankman-Fried. Singh, who pleaded guilty to six charges in February 23, including conspiracy and wire fraud, provided detailed testimony that aided prosecutions of Bankman-Fried and other FTCS figures. His cooperation was praised by Judge Lewis Kaplan, who noted that Singh's actions helped the government uncover unknown details of FTX's financial

Starting point is 01:11:22 misconduct. The court recognized Singh's remorse and family support, with over two 20 relatives in attendance, despite facing potential decades-long sentencing guidelines, Singh's extensive cooperation, and his limited early involvement in FTX's collapse, weighed in his favor, leading to the court's leniency. DWF Labs fireers, partner amid drink spiking allegations. Cryptot trading firm DWF Labs has terminated a partner after allegations surfaced that the individual spiked a woman's drink at a Hong Kong bar. The incident came to light last week when an ex-user posted claims that a DWF lab's partner had drugged her,

Starting point is 01:12:01 reportedly with video evidence. DWF responded swiftly, issuing a statement that described the allegations as deeply concerning, and announcing the partner's immediate dismissal from all management and operational roles. The company, which is currently conducting its own investigation, emphasized its commitment to transparency and upholding the highest ethical standards. The press release further underscored DWF's core values of integrity, respect, and accountability, noting that it would not condone any behavior contrary to those principles. Hong Kong police have been notified about the incident,

Starting point is 01:12:37 though neither the individual's name nor any additional details were disclosed by DWF Labs. Reddit sells off, majority of crypto holdings. In a recent SEC filing, Reddit disclosed it had sold the bulk of its cryptocurrency holdings in the third quarter, liquidating Bitcoin and Ether previously held for Treasury purposes. While Reddit hasn't detailed the total amount of the proceeds, the sale occurred before October's significant Bitcoin rally, when prices remained between $54,000 and $73,000. The move signals a shift,

Starting point is 01:13:10 as Reddit had been an early adopter of crypto initiatives using Ethereum-based Polygon to power virtual collectibles. While Reddit continues to hold some Ethereum and Polygon assets, Mainly from avatar sales, it said that future crypto investments would require board approval. Consensus, DYDX, and Crackin. Announce layoffs. Crypto Giants Consensus, DYDX and Crackin all announced significant layoffs this week. Consenses, the Ethereum infrastructure firm behind Metamask and Infura, disclosed it had cut its workforce by 20%,

Starting point is 01:13:42 attributing the move to broader economic pressures and regulatory hurdles. The macroeconomic environment has created. challenges for our industry. The company stated, emphasizing the need to streamline operations for long-term sustainability. Meanwhile, crypto derivatives exchange D-YDX took more drastic measures, laying off 30% of its workforce as CEO Antonio Juliano cited the need to make a strategic pivot. The company we've built is different from the company DYDX must be, Giuliano noted. The reduction comes as DYDX faces rising competition, particularly from rival Hyperliquid, which has has surpassed DYDX in total value locked. Moreover, major crypto exchange crackin also laid off

Starting point is 01:14:26 15% of its workforce and announced a new co-CEO aiming for a leaner structure after reporting organizational challenges tied to its $1 billion revenue growth as a remote company. Tapioca Dow strikes back. Decentralized finance protocol. Tapioca Dow has made waves this week by successfully executing a counter-exploit to retrieve $2.7 million in stolen funds from a hacker. This bold move came after a $4.7 million breach that saw the hacker siphon millions of tap tokens, causing the token's value to plummet by 96%

Starting point is 01:15:02 and leaving investors reeling. According to a post-mortem report, Tapioca's security team used a carefully timed exploit to recover 996 ether, worth approximately $2.7 million, before the hacker could fully launder the funds. The report attributes the initial breach to a North Korean hacking group that targeted a tapioca Dow engineer with malware in a social

Starting point is 01:15:24 engineering attack. Though the protocol still faces a 45% overall loss from the incident, the counterhack is a rare but successful example of turning the tables on attackers in the defy space. Coinbase launches, Based Agent for rapid AI-driven crypto automation. Coinbase has unveiled Based Agent, a new tool enabling developers to create AI-powered crypto agents in under three minutes, marking a significant step toward integrating artificial intelligence with blockchain operations. Announced by developer Lincoln Murr, Based Agent runs on Coinbase's Layer 2 network, Base, and is powered by technologies from OpenAI and Replit.

Starting point is 01:16:04 With API keys from Coinbase and OpenAI, developers can quickly deploy customizable AI agents that manage on-chain tasks, including trading, staking, and interacting with smart contracts. FTX secures $228 million settlement with ByBit. Bankrupt Crypto Exchange, FTX has reached a $228 million settlement with ByBit, advancing its efforts to reimburse customers impacted by its 22 collapse. The settlement allows FTX to reclaim 175 million in digital assets from Bybit and secure an additional $53 million from the sale of Bit tokens to Bybit's investment arm, Moranacorp. The agreement, which includes dropping ongoing litigation by FTX against ByBet, recovers nearly all of FTX's targeted funds. FTX's court-approved repayment plan aims to distribute $12.6 billion to customers,

Starting point is 01:17:00 with initial payments expected within 60 days of the effective date. Defy Education Fund challenges SEC's Regulation by Enforcement. The Defy Education Fund has filed a new brief in its lawsuit against the SEC. asserting that the agency's approach to regulating crypto projects, particularly air drops, exceeds the agency's legal rights. In the brief, filed alongside apparel brand Beba, DEF argues that the SEC's repeated enforcement actions amount to an unapproved policy on digital assets, violating the Administrative Procedure Act. The APA requires formal notice and commentary, a process DEF claims the SEC bypassed. Coinbase, CoinCenter, the blockchain association, and several crypto VC firms have filed amicus briefs in support of the DEF's stance. In those briefs, Coinbase emphasized the agency's conflicting statements on digital assets,

Starting point is 01:17:57 while CoinCenter argued for the DEF's legitimacy in representing crypto developers facing regulatory uncertainty. Micro Strategy unveils ambitious plan to expand. Bitcoin Holdings Micro Strategy announced plans to raise $42 billion over the next three years in order to buy additional Bitcoin under its 21-21 plan, with $21 billion raised via equity offerings and $21 billion through the sale of fixed income securities. The capital raises and purchases will serve to bolster Micro Strategies position as the world's largest corporate holder of the cryptocurrency. As of September 30th, the company held 252,220 Bitcoins. valued at around $16 billion. The firm also reported a year-to-date BTC yield of second print

Starting point is 01:18:46 and expanded its Bitcoin holdings by 11% in Q. Despite reporting lower than expected revenues of $116 million, CEO Fongle, affirm the company's commitment to driving shareholder value through strategic digital asset investments. Circle increases? USDC redemption fees. Stablecoin issuer Circle has raised redemption fees for its USDC StableC StableC.

Starting point is 01:19:09 marking the second fee hike this year. According to a Bloomberg report, USDA holders will now pay tiered fees, with redemptions over 2 million incurring 0.03% to 0.06% fees, depending on the amount. This increase follows the introduction of a tiered redemption plan in February, aimed at streamlining cash-out processes, but with added costs for larger transactions.

Starting point is 01:19:33 Phantom wallet faces outage. During grass, token airdrop frenzy. Solana's popular Phantom wallet experienced a nearly three-hour outage on Monday, coinciding with a high-demand airdrop of grass tokens. Phantom's back-end issue, which caused inaccurate balance displays for some users, began just six minutes after the grass airdrop launched. Phantom confirmed on X that services were restored, adding that the team would continue monitoring the situation. The outage occurred as users flocked to claim 100 million grass tokens, which were distributed to participants monetizing unused internet bandwidth through the grass platform.

Starting point is 01:20:11 And that's all. Thanks so much for joining us today. If you enjoyed this recap, go to Unchained Crypto.substack.com, that is Unchained Crypto.com and sign up for our free newsletter so that you can stay up to date with the latest in crypto. Unchained is produced by Laura Shin with help from Matt Pilchard, Juan Oranovich, Megan Gavis, Pam Majumdar, and Margaret Korea. The weekly recap was written by Juan Aranovich and edited by Nelson Wang. Thanks for listening. Unchained is now a part of the Coin Desk Podcast Network. For the latest in digital assets, check out markets daily, five days a week with host Noel Atchison. Follow the Coin Desk Podcast Network for some of the best shows in crypto.

Unchained - How Arthur Hayes Has Prepared His Portfolio for the Elections - Ep. 728

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