Unchained - Lyn Alden and Raoul Pal: Is Ethereum a Good Investment? - Ep.211

Episode Date: February 9, 2021

Lyn Alden, CEO and founder of Lyn Alden Investment Strategies, and Raoul Pal, CEO & cofounder  of Real Vision Group & Global Macro Investor, explain their thinking about Ethereum and its native token, and talk about their perspective on GameStop. In this episode, we discuss: why Raoul views ether as similar to bitcoin at a macro level (1:25) why Lyn decided ETH was not currently investable (5:06) an analysis of utility protocols (John Pfeffer’s paper) (6:55) counterarguments to John Pfeffer’s paper (9:31) how to allocate between BTC and ETH (11:22) why Raoul also invested in other coins beyond BTC and ETH (11:47)  whether Metcalfe's law applies equally to all kinds of networks (13:35) why Lyn views Ethereum’s use case as circular, and why that makes it less investable (15:09) whether Ethereum 2.0 and Ethereum Improvement Proposal 1559, and whether that could make ETH more investable (21:20) the impact of fees on the value of Ethereum (23:36) Raoul's views on what S-Curves and the Lindy Effect indicate about the development of a currency (25:22) how high fees make DApps less attractive, while low fees potentially decrease demand for ETH (27:06) how Lyn believes demand for DeFi is to circumvent compliance and know-your-customer processes, and she doesn't also see that as a downside for Bitcoin (33:10) how the regulators are behind innovation in cryptocurrencies, particularly around taxation (36:32) Raoul's and Lyn's predictions for the ETH price by end of 2021 (41:45) what GameStop says about the democratization of financial information (45:32) whether smart contracts could play in preventing situations similar to what happened with GameStop and/or Robinhood (49:03) how blockchain technology could be used to prevent a situation in which the hedge funds could short more shares than existed (54:03) how the GameStop/Robinhood saga is a giant advertisement for self-custody (54:53) whether r/WallStreetBets' behavior was market manipulation or not (56:53)   Thank you to our sponsor!  Crypto.com: http://crypto.com   Episode links:  Lyn Alden: https://twitter.com/LynAldenContact Lyn Alden Investment: https://www.lynalden.com/   Raoul Pal: https://twitter.com/RaoulGMI Real Vision: https://www.realvision.com/contributor/raoul-pal Global Macro Investor: https://www.globalmacroinvestor.com   Raoul's tweet storm on Ethereum: https://twitter.com/RaoulGMI/status/1347013567799848961?s=20 Lyn Alden’s research paper on Ethereum: https://www.lynalden.com/ethereum-analysis/ Raoul Pal’s tweet: ETH equals BTC: https://twitter.com/raoulgmi/status/1347013567799848961?lang=en John Pfeffer’s paper: https://s3.eu-west-2.amazonaws.com/john-pfeffer/An+Investor's+Take+on+Cryptoassets+v6.pdf Network effects and Metcalfe’s Law: https://saylordotorg.github.io/text_developing-new-products-and-services/s04-12-there-is-power-in-numbers-netw.html Quantity Theory of Money: https://saylordotorg.github.io/text_economics-theory-through-applications/s30-01-the-quantity-theory-of-money.html How Will the Government React to GameStop?: https://www.coindesk.com/gamestop-regulators-response GameStop and Crypto trading: https://cryptonews.com/exclusives/are-gamestop-style-surges-in-crypto-any-different-from-old-p-9151.htm Robinhood Raises Extra funds: https://www.theblockcrypto.com/linked/93258/report-robinhood-billions-raised-investors-1 Possible role of blockchain in trading: https://cointelegraph.com/news/cardano-foundation-ceo-says-blockchain-could-prevent-gme-type-showdowns Caitlin Long: https://www.forbes.com/sites/caitlinlong/2019/05/16/naked-shorting-in-the-uber-ipo-it-couldnt-happen-on-a-blockchain/?sh=f2a0dcd4737d Learn more about your ad choices. Visit megaphone.fm/adchoices

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Today's topic plus a bonus topic, but today's topic is ETH as an investable asset. Here to discuss our Lynn Alton, founder of Lynn Alton Investment Strategy, and Raoul Powell, founder and CEO of Global MacroInvestor and Real Vision Group. Welcome, Lynn and Relief. Great to be here. Hey, thanks for having me. Both of you are widely respected for your financial analysis and views, and you're also both known for being big believers in Bitcoin.

And yet you two have opposite views on the value of ether, which is the asset native to the Ethereum network. Well, in January, you tweeted, If equals BTC, like it or not. What do you mean by that and how did you come to that conclusion? in? You know, again, I'm a macro guy. So I'm, you know, I'm not, I don't have the engineering background that Lynn has. But how I approach this is I look at the attributes of how it trades as an asset. And what I did is I looked at estimations of network effects and said, well, do they

look similar? And when you plot out Bitcoin's journey, its market cap or its price, versus the number of active wallets, actually there's a nice clear regression line. And it happens after a certain period of time. So it gets to about five million wallets. And then it goes in a very clear, steep line, which is essentially an estimation of Metcalf's law. And I found that Ethereum was exactly mirroring Bitcoin. When I say exactly, when I look at it on a plot graph with the same regression. It looks similar, but because it started later, it just follows Bitcoin earlier. But in fact, it's adoption, i.e. the number of wallets at this time is actually faster rate of adoption than Bitcoin had. But what's super interesting is when you go back and match them

from one million active wallet addresses each, their prices are identical and their price movements have been identical. And that took me by surprise. I didn't expect to see that, because that normally doesn't happen. You have to fit the graphs, but it perfectly fit in every way. It's exactly currently in the 2017 wrap up the Bitcoin hair. And at exactly the same time after it hit a million wallets, it gives you something similar. So that's when I say, eth equals Bitcoin is because when you think of it in macro terms, they're both, really network effects. And so they may have very different properties. There may be different things entirely. And people struggle with value when it comes to network effects. Almost everybody

underestimates value by definition, because we try to anchor it on something that we perceive as value. But network effects are so hard to thinking because they're exponential. Yeah, this is really interesting. And you're right when I think to the kind of like late 2013, early 2014 run up in Bitcoin. I think it peaked at about 1250. And then Eith in the last cycle peaked at about 14 something, 20 or roughly. So just 200 or less than $200 difference. And they both had 90% pullbacks. Everybody said they were dead. They were worthless. Bitcoin got down to about 100 and started rallying. Eith got down to 100 started. I mean, it's literally identical. And that's weird. That's weird. Yeah. Yeah. Yeah. No, definitely.

I mean, it was compelling. I mean, the one thing that I do have to ask you, which, you know, I didn't prepare early enough to send you an email. But I just was trying to figure out, did the metrics about the wallets come from blockchain.com? Because when I was looking at the blockchain.com wallet numbers, I couldn't really match them against your slides. And then I was wondering, like, anyway, but did it come from blockchain.com? I'm not sure, Remy, my analyst who puts together the data, got it from, I'm not sure what sources. But I don't think it was blockchain.com. Oh, okay.

Okay. All right. So yeah, maybe I can send an email and then we can put a link or something in the show notes. Okay, so Lynn, you have a totally different conclusion. After writing an extremely well researched piece on all the ins and outs of Ethereum. So based on that extensive research, you concluded that you would not invest in Ethereum at this time. So what factors led you to that decision? Yeah. So one thing I point out is I don't really view my position as opposite of row. I actually think there's a ton of overlap. It's just not a perfect era. overlap. And the way I kind of look at it is, so for example, in the article, the overall conclusion is that I could see a non-zero allocation to Ethereum as making sense. And so for, I gave, for example, 80% Bitcoin, 20% Ethereum, or 90% Bitcoin, 10% Ethereum, or 100 to zero. I think there's still a case to kind of, you know, focus on Bitcoin, which is what I'm preferring to do. But I also point out

that, you know, if Ethereum were to break over 1400, which now as of this recording it has, that's pretty bullish for the price action during a bull market in a broad sense. And so it's not necessarily that I'm bearish on the price in any kind of given six or 12-month period. It's more about outlining various pros and cons and then kind of sharing some of the concerns I had. And so I do agree that it is really the one other protocol that does have a substantial network effect.

And so that's pretty much undisputable because so many tokens run on Ethereum now. There's so much development happening on Ethereum. And so in my kind of mind, I think the big concern is to, make sure we, in some ways, we separate the growth of the ecosystem from the growth of price in the long term. And because you can be, for example, very bullish on the amount of value that settled on Ethereum, the amount of smart contracts that happen on Ethereum, and then have a somewhat different view on what happens to actual Ethereum token appreciation over the long run when you include bullish and bear cycles. And what I mean by that is, for example, if you look back

during the 2017 high. Since then, about three times as much value settles on Ethereum, and the market cap is still just roughly back to where it was. And, you know, that for an Ethereum bull, what you then argue is that therefore Ethereum's undervalued and therefore that's kind of a bull case for Ethereum. A somewhat different view is, you know, for people that are familiar, John Feffer wrote a paper back in late 2017, you know, kind of highlighting this problem. And he basically, his argument was that the utility protocols, even if they are used for a lot

of, you know, kind of ecosystem GDP, you could call it, if they're used for a variety of things, that the value won't necessarily accrue to those tokens. Basically, you can have a high velocity and that, you know, there basically might not be kind of a quote unquote moneyness associated with those tokens in the long term. It doesn't preclude those from being moneyness. If we see things like, you know, more and more collateralization of Ethereum, if you see, you know, a strong preference towards staking and kind of enough people want it to huddle it as money, it can still become money. But basically, there's somewhat of a separate argument about the size of the ecosystem

and the price of the tokens in the long run. Although I do agree, I think in many points that I can see why a lot of people want to have a position in Ethereum. And I can also see that it does so far have a substantial network effect. And I think one of the challenges going forward is how Ethereum is going to transition. Because Bitcoin is, for the most part, of finished product. It's still evolving just like any other finished product. They're still making updates to Adobe Photoshop, for example. But it's in like the release.

And Microsoft words. Exactly. But they're released things. Whereas Ethereum, because they're still doing radical changes to the underlying protocol, and as they shift from Ethereum 1 to Ethereum 2, they go from proof of work to proof of stake, they're changing some of the dynamics because they're running into these scaling problems. Basically, there's just a lot more implementation risk, I think. And so you're kind of getting a higher risk investment.

And, you know, I've kind of open about whether or not it's higher reward. And that's why my preference was I can see why people like it, but that my view is I still like the risk reward of Bitcoin the best. And, you know, to be fair, Lynn and I would probably have roughly similar allocations for the same reason. You know, when we look at asset allocation terms, there's three main metrics we use. One is liquidity preference. So Bitcoin has liquidity preference. So it's our base in this bet in the digital asset space. The next is time preference. Well, Bitcoin has been around longer.

it also has a more understandable both network effect and value proposition. So you tend to hold it longer. But risk preference, and Ethereum has both of those, but not quite as superior as Bitcoin. Risk preference, there is a, because it's earlier and its network affects, the chances of more exponential price rises are higher. So you need a small allocation to have roughly similar effects in a portfolio. So we kind of agree. The one thing I did want to mention,

was that John Feffer paper. I kind of wrote a long article about it. Both of those things. Firstly, he kind of said that the network effect didn't apply to anything except Bitcoin, which I think has been proven wrong. But the other one is he used the quantity theory of money, which basically if we threw out in about 1981. And I worry that trying to look at these in terms of moneyness

is trying to compare Bitcoin with an Apple. that they're kind of not the same thing. And, Ra, can you explain what the quantity theory of money is? Well, this is this MV equals PQ way of looking at, and that's why we talk about velocity of money, because that was one of the reasons the whole thing fell apart. And, you know, you're trying to figure out what the overall value of the money proposition is within this.

And I'm not sure any of that applies. And that was my issue with John Favis' paper. I thought it was really interesting. But I spent a long time thinking about it. thought, A, that doesn't work in the real world. I mean, there is literally zero correlation between money supply and inflation. So that kind of throws all of his arguments, all of that kind of Friedman stuff out of the window. So I looked at it and thought, well, what is the difference here? I think he's arguing the case for Bitcoin about Bitcoin as a reserve asset,

and then saying, basically, nothing else looks like that. And guess what? Nothing else looks like Bitcoin. And that's why we love Bitcoin. You know, it has a unique value proposition in the world. And many of these other protocols have their own unique value propositions. Many of them will not get network effect. And some that we don't even know of now will have massive network effects. It's the same happen with the internet. Same happened with mobile phone networks and almost any other network that we've seen. And so, Rao, does that mean that you allocated 10 or 20% like Lynn was saying she might do if she were to allocate? So I started at 80-20.

The Ethereum's gone up a lot more already. And then I allocated more. So I'm like 60, 35. And then I went further out the risk curve. And I bought a basket of alts as well. Equally weighted. Yeah, which ones? Well, I'm not going to say because I get,

because I don't want to make it like I'm pumping anything, you know, because the alts were. is a little bit wild and crazy. So I didn't want to do that. But basically what I took was, I just looked at ones that looked like they were getting network effects. I asked people on Twitter. I got six and a half thousand responses. So I could figure out, okay, what looks like they've got network effect here? I look at the charts. And as long as they're a reasonable size market cap, I just took an equally weighted basket because I've no clue and I just don't have time to understand these in the depth that, you know, we've all had to learn Bitcoin in and

and we're all having to get up to speed with Ethereum in. So I did that because I know in the end, everybody does what I've done, which is they go further out the risk curve. They do it in emerging markets. So you might start with the EEMETF, which is a very simple way of getting emerging market exposure. Then you might get more India exposure because you kind of favor that and it works for your time preference. Okay, India, I can see that this is going to work for the next 10 years. And then as that trend starts developing, you start buying all sorts of frontier markets

because everybody's piling in the risk curve. And the same happens in crypto. But so you don't even know if they were like defy tokens. I've got a mix from derivatives to defy to dex it. I mean, I purposely made a kind of relatively balanced basket. You know, I didn't, it wasn't a totally random process, but it was just a, yeah, okay, some of that, some of that, some of that, to try and get an overall balance of the space.

You know, I wanted interoperability. I wanted defy. I wanted fast payment networks. wanted, you know, just different things, different protocols that allow smart contracts and just got an overall basket of that. Interesting. And actually, so this then leads to this other question. I wanted to ask you this thing about Metcalf's law and the value of a network. So I was just wondering, like, does that simple framework apply to any network with any purpose, or do you feel like certain purposes will kind of like retain more value better than others? Well, we can see it within,

let's say social media influences, the more that the larger their network is, and the more their network creates connection points with each other and other places, the more that their celebrity is worth. It actually exists almost everywhere, and exists in nature as well. So a strength of the network comes from the network effect.

So I think it's true almost everywhere, and the internet has made it more prevalent in our everyday lives. religion was basically that too. That was a network effect and had Metcalf's law in its earlier days. So we do see it in many places and in biology and in nature. We see it almost everywhere. Okay. So you don't feel like whether it's a payment network or borrowing and lending protocol, it doesn't matter. So Facebook, Google, Amazon, three wildly different network effects. and we might as well use, you know, 3G. You know, three completely different things.

Internet, not internet, email. You know, all massive network effects, all wildly different things. Okay. This is, yeah, this is really interesting. So, okay, another fun argument that I want to explore is Lynn's critique was super interesting because there was this point where she was saying that Ethereum's use case is what she was calling circular. And so Ethereum, Lin, can you?

Lynn, can you define that and then explain, you know, why you think that that makes Eiff less investable? Sure. One point I want to touch on first, though, is so if we look at kind of a couple of points there, because I think Rao brought up really good points. And so just to kind of hit on a couple of them in a row, I think if you look at that that old equation, you know, that MV equals PT equation, one of the things that was wrong with the initial assumption back in the Friedman days was that they assumed velocity was constant. And that was the big flaw because as velocity fell, you didn't get inflation the same way that it would have been expected by the money supply increase.

So whether or not John Feffer is making an error, it wouldn't be the same error because he's actually, one of his kind of assumptions is that velocity will rise in those utility protocols. And that that's why even though you have more and more kind of one side of the equation sorting out, that it won't necessarily accrue to market cap. It'd basically be the opposite reason why the Friedman version kind of didn't work. work out. And so I think it kind of remains to be seen whether that's happening so far, for example, because three times as much value settled on Ethereum as it did three years ago, and we haven't seen that that rise in the market cap of that level, so far I'd argue that the papers, it's somewhat on track. Now, whether or not it will continue to be on track, I still think there's an open question. And then for network effects, we actually do see some kind of divergence

in out there. So for example, if you compare Twitter's number of users to Facebook's number of users, Facebook has more, but if you look at, say, the market size comparison, it's like night and day. And that's because Twitter has been less ideal, that kind of accruing value from its network in the same way Facebook has. And if we do a more extreme example, for example, there's no, like, email companies that have just, you know, tons and tons of money. It's usually like a kind of, you know, it's kind of an unprofitable segment in some ways of these larger entities now. And that's because there's just not a ton of money to be had in email, despite the massive kind of user base of them. Similar things for, say, Wikipedia. If Wikipedia was kind of valued, it'd be less

valuable than other things with a similar kind of amount of traffic because it's just not really prone to monetization. And so one of my concerns overall with Ethereum is that it could fall more like those other ones where it has a substantial network effect and the overall kind of GDP of the ecosystem is very large. And then I think the big question is whether or not that accrues to the value of the tokens. And so going back to the point about being circular, my concern is that, okay, during the bull run, you know, we all expect, like most times that, you know, Bitcoin will go up. A lot of these alts would probably go up even more. And I think the big question is what happens next time. And so if you look at kind of quote unquote successful protocols

like Bitcoin and Ethereum so far, they managed to make new highs in the next cycle. Whereas some of the alt coins, they hit these big highs, then they collapse. And then when the next bull market comes years later, they're unable to get back to where they were because they never really kind of accrued that moneyness or that value. And so I think the big question going forward is how's Ethereum going to handle a bear market? Because a very large portion of its use case is decentralized finance, you know, the exchanges as well as liquidity providers, which all of which I think is extraordinarily valuable to have. But then the big question is, what is all of that worth once we kind of get out of this, you know, this two-year bull market

we've been in. And when we have another consolidation, another kind of bear market, you know, I have concerns about what that would do to kind of Ethereum's price at that point. Yeah, my, my, we don't know. And these are always interesting things because we don't really know. It's kind of like asking what happens to Amazon's price during a recession and they sell less goods. we kind of know what it does to the network itself, but over time as things recover, we know with the theorem that whatever's happening, there's a lot of people developing stuff, right?

So whatever we think we know about what it's worth now, we don't know in the future because we don't know what other breakthroughs. Defi is so nascent, right? I mean, this is basically ICOs from the last boom. And a ton of this will go bust, and then some bigger ones will rise and we'll see. You know, I think, you know, I don't have an issue with that.

You're right. We need to keep an open mind to it because we just don't know. And to try and choose which ones, I'm not smart enough. And so the only way is use the VC approach, I think, which is you take a big enough basket. And my 10 is not a big enough basket. You should take a larger basket, put a bunch of bets in it. You can wait them accordingly to you. And then wait and see how it plays out for a number of years.

and assume that VC should not be real-time mark to market to the worst thing in the world because any business that starts up does this, does this, this, best thing is just, it's a VC bet, I'll look at it in five years and figure out what's the next valuation. So, you know, Lynn's question is dead right. I mean, none of us know any of this. We're just trying to figure it out

because it is a very new space, and maybe the whole space next time around gets up to 100 trillion in size. we just don't know. We just don't know. And it's fascinating to be at this point in time seeing something so new in finance that gives us something to get our teeth into. I mean, Lynn and I are probably bored of talking about the dollar now and probably bored of talking about rates, right? Here's something intellectually interesting that has not been around forever, moves a bit more, so it's a bit more exciting. You can get up in the morning and get excited because it didn't go

up and down 0.3%. There's no central banks really involved in it. It's nice. We can be optimistic. As macro people, we can be optimistic about something. Yes. And for journalists, it's also more exciting than covering traditional financial markets. Okay. So one other thing that I want to, oh, so Lynn, when you were talking, you know, it just seemed like I totally got how you were saying that the way Ethereum is going now, like you could see it going one way or the other, like becoming a widely used business that where, you know, Ether isn't exactly super valuable or, you know, also becoming used, but also Ether does become valuable. It's sort of like unclear. However, obviously we do have the Ethereum 2.0 transition that has begun. It will take,

you know, who knows, at minimum 18 months, I think. So it could even be as long as like three years. However, within that, there's also this Ethereum Improvement Proposal, 1559, which would burn the base transaction fees and then given the kind of like minimal amount of inflation, you could end up with if you're being deflationary. And so do those changes that are kind of in the works start to make you think that actually down the road, EF could become more investable? Yeah, I think it's possible. Actually, the most favorable thing I said about Ethereum in that article is probably the EIP-1559

point because I think that's a really elegant way to kind of improve their mind. monetary policy compared to what it has been. And so for people that are familiar with it, yeah, they would, you know, transactions, the base fee would be burned. And so you'd have this kind of deflationary aspect to the protocol. And then you'd have a somewhat adjustable inflationary policy to incentivize validators. And it would be flexible depending on how many validators are present. But the overall issuance would at backs one be pretty low. And in some cases, if there's a, you know, kind of a medium amount of validators and a ton of throughput, then you could have a inflationary scenario. And so I do think that if they get that into place and that they're able to

do their transition, that is, I think, a really elegant monetary policy for what Ethereum's trying to do. I think kind of my, one of my concerns is that as that transitions from Ethereum 1 to, you know, Ethereum 2, we do have these other competitors, probably some of the ones that are in Rouse side bet portfolio. Probably, you know, I can probably pick out. That's what I was going to ask. I could probably pick out, I can probably guess two or three that are in there. And so some of them are, they came after Ethereum. So they, you know, some people would argue that they're technically superior, but the big problem is they don't have the network effect that Ethereum has. And so the question is, can kind of Ethereum kind of round this turn and maintain its network

effect while it's running into some throughput issues? And so one of the things we're seeing, you know, I think that one of the things that Rao and I are both super bullish on is stable coin usage. Probably stable coins are going to keep proliferating in, you know, the amount of that they're used. But if you look at, you know, the history of tether, for example, that used to be based around Bitcoin and Omni. And then when Ethereum came out, that Tether became more associated with Ethereum. And as, you know, we've seen Ethereum fees rise over the past six months, now actually more transactions for Tether take place on Tron than on Ethereum. And there's still more value settled on the Ethereum side. But because the fees are high,

a lot of the small transactions have had to spill over onto a cheaper protocol in order to justify. Because Bitcoin, since the average transaction size is pretty high, they can handle higher fees. Whereas Ethereum, when you start to run any of these high fees, a lot of these smaller transactions have to go off to a spillway. And so my concern is that even though I'm bullish on kind of the use cases for a lot of these utility protocols, including some of the ones that can run on Bitcoin, for example. But I'm bullish on utility protocols in general in terms of kind of the developments they'll have. And then I think figuring out where that value is going to accrue is tough because there's not a ton of switching costs. from moving stable coins from one chain to another, and that can also apply to some of these other protocols

if, say, Ethereum were to stumble in its implementation and one of these other smart contract platforms kind of picks up the slack. And so I just think it's kind of a point of uncertainty, and people would have to watch that space very closely in order to make sure that their chosen protocol is kind of staying ahead of whatever issues it's facing. Also, I think one of the things we're talking

about here. Again, I wrote in that long article that I wrote in Global MacroVestra about this, is S-curves are very prevalent in this. And the S-curve is, it's either the questioning point or the failure point. And, you know, what we're saying here is there's a big S-curve in Ethereum right now coming up. And will it work or will it not work? We don't know. Almost all of the currencies have had this. Bitcoin's had several S-curve moments where it could have failed. And it didn't. Then the Lindy effect takes place, which is the longer it survives, the more likely it's to survive. So again, it's why we're all really interested in this space, because there are outcomes of which we don't know, we can't figure out the probabilities,

we've got no historical parallels. So it's a really interesting space for all of us to try and figure this out, because, you know, what S curve is just a pause before the rise, and maybe that's what I think Ethereum is going through. Again, I don't know. We'll find out. And, you know, and that drives us further up Metcalf's law and the Lindy effect. Some of these S-curds will see total failures. So as they have existential crisis, so it's amazingly interesting. Yeah, well, it sounds like, you know, both of you kind of agree. However, Lynn's just sort of decided, oh, you know, because of these different factors,

I would rather just go with what I, you know, believe will take off whereas like Rawl, you've kind of like, you know, decided to put a little bit of money in, but you're also hedged so that if the competitors do kind of pull through and start to take market share from Ethereum, then, you know, you'll still benefit. But I actually wanted to ask Lynn one more thing because in your paper on this, you cited this irony within the incentives where you said potentially the eth, the eth price would dip when demand was high. And what you wrote was, quote, if transaction throughput is super high and fees are pretty low, users don't need much Ethereum tokens to run DAPs. And there's this interesting tradeoff. High fees make DAPs less attractive

and provide room for competitors to take market share while low fees potentially decrease the demand for Ethereum tokens. So can you talk a little bit more about that and what you think will actually happen? Yeah. So on one hand, high fees are sign of a healthy, vibrant network. It could mean a lot of people are using, Ethereum. And so, and that's, you know, in the short run, a good thing. And then you need Ethereum to run all this. And so you have to, you know, you have to buy and use Ethereum. And so there's that,

there's that demand for Ethereum as like fuel in addition to the side thing of Ethereum as, as store of value as money that some people use it as. And so, but then in the shorter run, in the longer run, I mean, that starts causing problems like the one I mentioned, where some of those stable coins start spilling off onto other protocols because if you're trying to send $100, you can't pay a $10 dollar fee, that'd be uneconomic. And so you have to kind of sort out those smaller transactions. And then, for example, if you're trying to do a trade on uniswap, you're paying like, you know, 50 bucks, because that's a more intensive calculation. And so it's higher fees than it's multiple fees, basically. And so that becomes uneconomic compared to, say, those centralized exchanges

or towards a decentralized exchange is trying to run on a different protocol. And so you kind of run into that problem. Now, one of the whole points of Ethereum 2.0 is that the will massively increase the throughput of the system so you can have much lower fees to run all these applications. Then it also means you don't need a ton of Ethereum tokens to do all this. And so the question of Ethereum kind of retaining its value goes back to my earlier point of the conception of it as money is somewhat of a different thing than the velocity and the size of its whole ecosystem. So you can theoretically have a case where a ton of value settles in Ethereum. Like it's something like a trillion dollars last year. It could go up five

And it's possible that the market cap would, you know, double or maybe stay flat. It kind of, you know, this big choppy thing. It might not go up in the same kind of ratio that it has been, which is actually what happened over the past three years as well, because the use case tripled and the market cap had this big kind of U-turn. And so I think that's kind of the key thing to watch is that kind of awkward tradeoff between fees as something that's a sign of the health of the network, but then also something that can pressure it and then start spilling over onto the competitors.

The other question is within all of this is, and again, I don't know, is does the number of transactions mean anything in network effects, or is it the number of nodes? So in which case, you can put gazillions of transactions, and that doesn't change it, if there's only three people using it. You have a billion people using it. That is the value of the network. So maybe there's different things here we're thinking of. We're thinking of it either as a utility or a network. And we don't know. It's exhibiting the qualities of a network.

But at court, maybe it's a, if Bitcoin is a, here's an idea, if Bitcoin's a reserve asset with this adoption curve that comes with it of technology, why could Ethan not be a utility with an adoption curve that has a potentially higher future expected value? So they both have different attributes, a utility versus a reserve asset, and they both have these huge upsides because of the network effect. Maybe there's that. Maybe we're just even still framing it in wrong terms. I don't know. I hadn't even thought about that before.

But maybe you're right, and I'm right, is kind of what I'm trying to say. Yeah, I think it's certainly possible. I guess just at one point, one thing I'd like to see over time is the number of stakeholders in Ethereum, because it, if we're monitoring different kind of aspects that we can monitor, that's one of the ones that shows people's willingness to hold it for the long term. And so far, you know, since they've launched that, that's been pretty robust. It shows a lot of people have confidence to kind of stake Eith and then, you know, let it play out over 18 months, which might end up being optimistic. However long that kind of conversion process takes, because that should, that's purely kind of

of Ethereum as a money rather than Ethereum as some of these other attributes. And so I think that over time, that's one of the metrics I would want to keep, uh, track of in terms of monitoring its adoption as something that can, for the token price itself. It's kind of also a little bit like SPACs. You know, you've got this 18 month or whatever time period of which they could put the SPAC together and you need to have faith that they're going to do something that's, it's really interesting because they did create that money market curve for a period of time, which, what am I going to get compensated by giving you my ETH? And as you said, I mean, I found that surprising that a volatile asset, people will lock up for 18 months.

You're like, wow, okay, that really is interesting. Yeah, yeah, but they can still, you know, they can borrow against it and stuff like that. So there's all kinds of solutions for that. All right, so in a moment, we're going to just do two more questions about Ethereum. But then we are going to switch to GameStop because that's what everybody's talking about these days. And it's super fascinating. But first, a quick word from the sponsors who make this show possible. Crypto.com, the crypto super app that lets you buy, earn, and spend crypto, all in one place.

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Back to my conversation with Lynn Alton and Rao Powell. So, Lynn, there is one other thing I want to ask you about your really amazing piece, by the way. People should read this because it's like just extremely comprehensive analysis about Ethereum. It's really, really interesting. But one of the things was, you know, I know that you're a big supporter of Bitcoin. And when you wrote about Ethereum, you said that the purpose. of decentralized apps is largely to circumvent, know your customer rules, which, you know, those are meant to combat money laundering and counterterrorism. But Bitcoin is basically also a network

that enables to avoid people to avoid K-YC. And then I wondered, so, you know, since Bitcoin does also share those features, does that, you know, is that something that gives you pause about investing in Bitcoin? Or do you not see it that, the way that I just framed it? It my view would come down to kind of percentage use case. And so that's how, you know, in Bitcoin, that's always kind of been a trade-off between people. There's kind of the earlier adopters that are that are more, you know, kind of the cipher punk culture. And then there's, you know, the more traditional finance people that want to see it as more

regulated asset so they can get more institutional capital into it. And I think, you know, Bitcoin's going to kind of continue to exist in both worlds where some people want to use it off the grid and other people are fine with using it on the grid. Because I think, you know, apart from the KIC question, a really big use case for it is store value. And then we're also seeing cool things like, for example, strike global, being able to use it not just as an asset, but also as a payment network, to use lightning as a way to kind of send fiat to fiat international transactions, you know, settled within seconds for free. And so, you know, I think that's kind of, it's got enough use cases outside of the, the KYC question that I think

it can, you know, kind of get through all those regulatory questions. The big concern I had for, you know, Ethereum is that we have a lot of this interest in decentralized exchanges, decentralized liquidity providers, which I think is a good thing. I'm happy that they exist. And I think they're going to continue to exist in some form indefinitely. I think we've kind of opened that genie now. But I think the question is, in the long run, what is the kind of the willingness of people to pay high fees for a unyswap transaction, for example, compared to some of those

decentralized exchanges? So, of course, we have this big kind of growth area. we have it's kind of you know once you have your your tokens you can kind of you're operating off the grid a little bit and and people can you know there's there's tax questions associated with that so you know the question is how many of those people that kind of trade on some of the decentralized errors are properly accounting for the taxes every time they do one of these swaps and transactions and I think that if you were to see a regulatory crackdown on that my concern is how much of that volume would would dissipate whereas bitcoin I think is a little bit more kind of cockroach like it's a little bit more resistant

to crackdowns. And I think its use cases a little bit, you know, there's basically more use cases other than kind of circumventing, you know, kind of these KYC issues. Although if we go back seven years, five years in Bitcoin, so the same time in the cycle, if it's birth, then Bitcoin is now, you know, Bitmex, un-KYC derivatives. We have the rise of tether completely unregulated. We have the rise of, I mean, that whole space was the same, right? It's only because as its market cap has got bigger, the regulators have become more and more interested. You're dead right. This is this whole new space that we've got in the Ethereum world and all the others. The regulators are just behind. They barely catch up with Bitcoin. Let's learn

all of this stuff. I mean, how the hell they're going to regulate this? I have no idea. My guess is all they can regulate is you're on ramps and off ramps to fear it. And then they can say, well, hey, you put in 10 grand and you've brought back 20. So I don't care what you did with it. Prove that it went to an exchange or whatever. And then you owe us tax on that. I mean, they'll have to figure out a different way of taxing because they can't tax transactions that happen nowhere and everywhere and whatever. So again, really, really interesting to see how this develops.

But it feels like that whole space is as early as Bitcoin was five years. ago and everyone was scratching their heads then. You know, just now the regulator is still catching up with the securities offerings and the ICOs and, you know, trying to get whatever happens to Ripple and XRP, you know, there'll be an outcome that will have clarified a bunch of legal points and then we can all move forwards again. Yeah, no, I, um, sometimes when I think about these defy hacks where it's like, you know, they borrow money, they do like a flash loan and then they short the thing, and then they manipulate the automated market maker curve to manipulate the price and all those things together.

I'm a little bit like, okay, when you can do that in one Ethereum block, that's like 12 to 15 seconds, and normally in the real world, that would take, you know, I don't even know how many days or weeks, whatever. I mean, it's just like, okay, this technology is definitely going to take off much faster than the regulators can keep up. Yeah. Wait until tokenization really takes holes. You know, we barely started with tokenization.

We're not fiddling around with ideas. But when tokenization, there's going to be literally millions of these things, all with complicated attributes, some with smart contracts. Everything is going to be different. It's offering a whole new trading world of which basically it's almost impossible for humans to deal with the complexities of some of what these. I mean, wait till insurance market with insurance tokens on policies comes in. and allow freely tradable for all of us.

I mean, I don't know how to do that. Which is not prepared for any of this stuff, but it's all coming. Yeah, well, I'm excited for it. Okay, so before we transition to GameStop, I'm just curious. So, Raoul, which of Lynn's points was most persuasive to you or, like, kind of made you pause a little bit about your youth investment? And then same question for Lynn. Well, look, I think Lynn raises really important questions.

And the question is, is, is the transaction body on the network going to drive network effects or not? I don't think it's the issue, but it's something, again, we need to see that dichotomy and see how that plays out. I think there is an FS curve moment. We don't know how some of this plays out. And she's right to be more heavily weighted, well, all weighted, but saying, listen, I can understand why people have an Ethereum view. I think that's totally right, too. I think what happens to these applications with the cost usage and all of this, again, something to monitor.

I mean, the great thing is, is none of us know. None of us have seen this before. So we have no precedent, which is, again, I keep saying it's one of the most rewarding things about this space is we get to think blue sky and not, oh, well, back in 1947, they did this and it's like, this is very different. And that makes it very interesting. And so there is no truth. The only thing you can do is take on board what everybody's saying and just observe and

draw your own conclusions and assess your own probabilities as you go. Yeah. And Lynn. I think Rao's totally right about keeping an eye on it and basically watching the network effects unfold and then see what kind of roadblocks come up. And so, you know, for example, in that article, you know, since then this past weekend, And I provided an Ethereum update in one of my premium reports just because, you know, basically the point was it was kind of right under his previous all-time high. It looked a lot like Bitcoin did back in like November where it was kind of flirting under, you know, like in the low 19,000s.

And I basically said if this breaks out, you know, it's probably bullish 2021. And then the question is I'm less conviction about the long term because, you know, that goes back to all the other kind of concerns I had. And so I do think that Ethereum is large enough to warrant observation. not only as it pertains to a couple different things. One is how it's going to affect the Bitcoin investment. Is it going to eat some of Bitcoin's lunch or they both are going to grow? So you have to monitor it for that reason. And then two, you want to see, okay, how that's going to impact, say, centralized exchanges around the world?

How is that going to impact the banking industry? How is that going to impact the insurance industry? And so I do think that that defy in general is something you have to watch whether or not you're invested in the tokens. It's clearly here. It's clearly growing. And I think it's important to watch kind of all the ramifications because like Rao said, we really don't know in some ways what the future looks like five years from now. And so I'm monitoring the Bitcoin network. I'm monitoring what's happening on Lightning.

And I'm also watching some of the things happening on Ethereum as well. All right. And actually, so the one last question just about this before we moved to GameStop, Raul, you did tweet that you thought Eath might well, and I'm quoting here, might well go to $20,000 this cycle. Are you still standing by that? It's all I did. No magic. I took the chart from a million wallets and a million wallets in Bitcoin. And where did it go?

It went to 20,000. So I'm like, okay, there's a good enough guess. Does it hit that? Does it not hit that irrelevant? What it means, what I'm really trying to say in something like that is it's much large than you think. And we've got some idea of an event that played out in the past that looks very like this.

And, you know, people like me love a bit of a historical chart pattern, even though I said this whole new space is exciting. But when you've got something that's so highly correlated, It's like, okay, this is interesting. That sounds a sensible target. And I know it sounds nonsensical to many, but because nobody can think in exponential terms, we're just incapable as humans to think. I just spoke to, as I said, I spoke to Mark Yusko earlier. He said, and he had a great, and again, I don't know if his maths is dead right, but just take it as roughly. He said, I can walk 20 paces and go across my office. Linear paces. If I take 20 exponential paces,

I go around the world three times. That's why we cannot think in exponential terms. It's hilarious. Humans just can't do it because we don't think that. Yeah, I like that. That's a great quote. Whether Marks Maths is right or not, I don't know. Maybe I'll try to find somebody to fact check that.

Yeah, exactly. I'm sure we can find something. That's like Jeff Booth's thing where he always points out that if you fold a paper 50 times, you know, if you ask people how big do you think it is and people say, I don't know, like three feet, you know, like, no, it's to the sun. Like, it's, and after like fold 37, like you're already to the moon. Like, it's, the math gets silly once you get out far enough. Yeah. Wow. Okay. So, Lynn, what would be your price prediction for if I end of year? I don't have a strong opinion on that. But, you know, I think that, because the

concern is if you, if you were watching in 2017, you gave a price prediction on any of them in early 2017, they probably would have all undershot what happened in 2017. But I do, I think Rao's approach are just kind of looking at historical price and seeing what happens, I think it makes sense. And it's part of the reason why I got so bullish on Bitcoin about a year ago is because I said, look, every time there's a halving, this happens. And so I'd rather take the bet as a, you know, a certain allocation because, you know, I don't have a specific price target. It's almost like you're embarrassed to say what you think the actual price target is. You're like, you know, if it's sitting in there at like 7,000, you want to be like, I think I might go to

100,000, you know, but like, it was like, so even then when I kind of made my Bitcoin argument, I didn't give a price target other than I thought it's well north of here. And I kind of gave like a really big range of outcomes that like starts at like 30,000 and it goes up from there. And so I kind of view Ethereum the same way where if this is a good year for Bitcoin, I would expect Ethereum to also have a very good year. And, you know, in all likelihood, could probably outperform during the bull market of that phase. I wouldn't be surprised. And so I don't really know where the end of the year looks like.

I just think it's probably north of here by, you know, probably a notable amount, if I already guess. Okay. Yeah. Again, I'd use exactly the same way. Look, again, none of us know. Exponential assets are really hard. Not any of us, not a single person on earth would have guessed how big Amazon got or its share

price. None of us would. So we're going to undershoot some years and we're going to wildly overshoot other years trying to figure this stuff out. And again, who knows? All right. Let's talk GameStop. I just want to hear kind of what your main thoughts are around everything that happened. And either of you can go first.

I'm actually more on the fence about it than many. It got all the tribes up with the hackles out. I love the democratization of financial information. trading. I love the fact that people are now not going, you know, we started real vision for this exact purpose, the democratization of information. You don't give it to a wealth advisor who you barely meet once a year. He takes all your life savings. And at the end of it, you get an outcome. It's madness. So people are now taking an active involvement. It took a while for the millennials to do that because they had a lot of debts. But now they're in it, whether it's stimulus checks on it,

doesn't matter. It's great. It's great to see. And people like, it's, you know, it's, you know, David against Goliath. Well, they're actually just doing what everybody else in financial markets does. I mean, hedge funds will look for every single short position. If they think somebody's really crowded short, a bunch of them will get together and try and squeeze the other one out. That's financial markets. That's how it works.

That's how you try and extract values. So, you know, I think a lot of that was normal. I think Robin Hood went about everything in a unfortunately ugly manner. Firstly, most people didn't realize and, you know, any of us had been in markets for a while knew that if the product's free, you're the product. And that will be the same with the new strike network as well. You know, don't forget there's a bunch of FX transactions in the middle of that. Somebody gets paid. So in this, you've got that whole Robin Hood, then the millennials not realizing it, because many of them still don't really realize with Facebook that they were the,

or Instagram, that they were the product. So there's that learning. And Robin Hood also didn't have enough capital. That was actually the issue for the actual margin trades that went through. So, when volatility went so extreme, because of so much retail option activity, everybody got tapped on the shoulder,

but people like Interactive brokers had plenty of capital. They're 10 billion in the capital. But Robin Hood didn't. And that is where lies the problem, because they created their own settlement system internally to net off trades. and that's what created the problems.

So outside of the philosophical battle of David and Goliath and the democratization and people against the hedge funds and are the hedge funds crooks, all of this stuff, it's actually a story of broken financial plumbing. So what you're saying is that if Robin Hood had outsourced that function, then most likely that third party would have been able to put up enough margin collateral. My guess, and I don't know, is the reason they have the own. netting off internal clearing is it lowers margin. So, which is why prime brokers use hedge funds use prime brokers for a similar reason,

because you net off. So they net it off. So they didn't have to post as much margins that have more free capital in the business. So what happens in times of stress, they didn't realize that this is what happens. But the actual issue is here. You know, within the story is the story that a short position potentially was larger than the entire market cap, whether that was actually the case or not. I'm not sure.

but it's the story of plumbing. What actually went wrong is the plumbing blew up. Well, so, and so Lynn, I do want to hear your thoughts, but I actually just want to ask Rao, because I was trying to figure out, you know, when I was looking at all that, you know, obviously I also spend my time looking at Defi where a lot of things are over-collateralized

and then when people don't, you know, they can get liquidated when the value of their collateral falls below, you know, the ratio of what they've borrowed. So, you know, I was just trying to figure out, well, would any kind of smart contract like that solve this issue or not solve but prevent it where, you know, instead of just a blanket, nobody can buy anymore than like individuals maybe that don't have enough collateral will, you know, not be able to do something. Firstly, to have stopped the leverage on the hedge fund side, which was extreme and on the option trading side by individuals. again, a lot of this could have gone on blockchain technology. So at the core of the custody system, which is the DTCC is where some of this problem had evolved and who owns what in a situation where there are more short sellers than there is market cap, if that was the case. None of that

should have happened. It's because there's no recorded ownership at a trusted level. We saw that with dull foods. We've seen this numerous occasions with Lehman Brothers and the 32 times re-apotification of certain assets. So all of this is the big... mess that when I first saw Bitcoin, I realized that actually the blockchain is an answer to so much of this to verify transactions and all of that. In terms of smart contracts, without question, can you build in auto margin liquidation? Right now, what happens is you get margin called, you get an email, and then a phone call, and then you have to make post margin, and then they might liquidate your trade, right? This is nonsense. And I look at it.

money in MF Global, which is one of the blowups in this kind of thing. And I tried to pull my money out. I couldn't. None of this should really happen. Most of this should be just an algorithm. Yeah. One other thing that I was going to say, oh, so Caitlin Long also always, I mean, long before the Robin Hood thing has talked about the ability for companies to, or for investors to buy more shorts than there are even existing shares. And so I saw also Senator Cynthia Loemis, the new Bitcoin supporter in Congress also tweeted about it. And now she's on the banking committee. So who knows what we'll see with that. But yeah, in this case, the hedge funds had shorted 136% of GameStop, which, you know, obviously if they were to try to cover the shorts, they wouldn't even be able to buy enough shares.

So the problem is, again, I spend a long time on this because I almost went after 2012 when Europe almost once in a time, but almost tried to set up the world's safest bank for the group of investors. And then I'd discover Bitcoin and realized there was probably a better solution. I had the DTCC Euroclear, the New York Fed, and I'd spoken to the ECB about settlement, right, custody. What almost happened in Europe and what almost happened, why AIG was not able to go bust, but Lehman was, was because one was a AAA collateral, and there were 32 times re-hypothicated by the system. Oh. So there was 32 claims on that one bond.

Now, when Lehman went under, the ECB injected $50 billion quickly into Euroclear, which is a custody entity. And what Euroclear did was pledge collateral to the ECB for the loan, normal. I found this book and there is the collateral, the customer positions, because there is no segregation of customers at Central. Euro-clear level. So then I went to the DCCC, and there's a whole bunch of us

were there with the New York Fed, and we said, hey, listen, guys, is there segregation? They said, of course, everybody's segregated. I said, okay, let's say one of the counterpart, let's see JPMorgan goes bust, or a collateral,

let's say, UK guilds go bust, and somebody's pledged him as collateral. What happens? Well, if nobody can figure this out, we'll lend money to the DCCC, We can't let them go bust. So, great, what are you going to take?

And they said, collateral. I said, what's the collateral? They said, whatever they give us. I said, this is customer positions and it's non-segregated at this point. They went, yes. So what it means is, at the very core, nobody's protected from anything. And the system overuses assets. And we can overuse assets fine as long as we have a chain of who owns what at what point.

but in this situation you have no idea because then there's a derivative layer on top. And this is why this whole problem is much larger than this Robin Hood story. It's actually the problem of a system that's not able to cope with the amount of leverages within it and claims on it. Right. Like simply just it's like a lack of visibility. So in that sense, the fact that blockchains can make the data transparent is actually literally pretty much the major advantage. Is that it? Trusted ownership.

It's the basic essence of the blockchain is a verified trusted owner, ownership structure. That's what it gives. And we don't have that in the securities market at all. You don't have it as a brokerage customer. You don't have it as a brokerage house. You don't have it as a clearing entity. You don't have as a custody entity. You don't have as a bank.

Nobody has trusted ownership of anything, which is why people store gold in a gold vote. And you have to make sure that the paperwork says that they can. cannot reuse it because you can put it in a gold vote and they can still reuse it. It's extraordinary well. Bitcoin. I own my Bitcoin. It's in my name. All right. And so Lynn, yeah, why don't you just give us any other thoughts that you want to add about GameStop? I know there's so much to unpack here. Yeah, I think overall, I mean, it was a giant advertisement for blockchain, for, you know, self-custody. It couldn't have been a better one for that

in many ways because, you know, people had all these kind of issues about the counterparties they're working with, whether the Dravenhood or, you know, their lenders. And then, you know, like people just not, you know, re-hypothecation of all this things, like more shares short than the market cap. And that goes back to, you know, like Ross said, having gold in the vault or having Bitcoin in your cold storage wallet. And so that's a very different environment than all this kind of counterparty trust that happens. And it also, it opened up questions, I think, to the broader market of what exactly is market manipulation? Because, Because, again, as Rao said, you've had this going on for a long time with hedge funds attacking

each other all the time. And even in this case, there were hedge funds already kind of outlined in some media outlets that did profit a ton from it. So at the end of the day, it's still the hedge fund that ended up kind of making a ton of money from this. And whereas, you know, in an environment, for example, where some firms can pay millions of dollars in exchange to literally put their server inside the exchange data center and basically have a faster advantage than everyone else, what exactly is market manipulation?

What is kind of the limit? What's quote unquote fair in the market? And so that, you know, it kind of tied into the populism of the day. And it kind of just ended up being kind of this focal point that opens up just kind of of a lot of issues that I think have been building up for a long time. And it shows why some of these technologies are being built and what some of the genesis was for all of this. Like what made Satoshi Nakamoto, you know, all those years ago back in 2008 or maybe

before then when he was working on it, what made him or them or then? or they start putting this all together. And it's exactly these sorts of issues and the same types of things that happened, you know, back in the subprime mortgage crisis, the global financial crisis. And then again, all the same stuff that happened here over these past several weeks. All right. And one last thing, which just when I was thinking about it, and it goes back to the philosophical point that you were making Lynn,

you know, it's that question of, well, how do you define market manipulation? Because I don't know if you listen to Chimov, Paula Hapatia's interview on CNN, but he was like, hey, what they did in a, you know, a subreddit is no different from what hedge funders do when they go to a dinner in the Hamptons. He was like, all that was different was that it was public. And so in that sense, it's, you know, even less insidery. And, you know, then I saw other people just saying, well, because, so I mean, I think, you know, what it is is that a lot of people, you know, do feel like, okay, well, clearly what happened with the price was divorced from the fundamentals of GameStop at a certain point. You know, you could argue about, like, in the

beginning, whether or not the low price, you know, that the Wall Street Betts crowd was kind of railing against, whether that was also like artificial. But, but, you know, at a certain point, obviously, once it's sort of going to like 70, 80, 90, you know, 450, whatever, then it just became like something that really didn't have anything left to do with GameStop. So, you know, I was just curious, how do you think a right? like the SEC should handle this. There's another precedent here is, we talk about market manipulation. Many of us have all referred to this one by a different incident that happened in the past,

which is the Volkswagen squeeze. So I don't know if you remember this. No. What happens is Porsche launched a takeover of Volkswagen, which was a much bigger company. And they bought a bunch of call options. and then bid for the stock. And they ramp the stock to the moon because they created, all the hedge funds had a different position on,

which was there's these two types of Volkswagen shares. So they basically forced, it's a gigantic position the hedge funds had on. It was a really safe, one of the safest long-term kind of arbitrage positions. They forced every hedge fund to lose all their stock borrow. They all got forced out of the trade. And Porsche owned the call options.

and suddenly at one point we're making a ton of money and then eventually by forcing VW and eventually the whole thing collapsed and VW ended up reversing into Porsche it was this huge drama but it was the biggest manipulation of all time it played out publicly in Germany of all places

everybody kind of got away with it a bunch of hedge funds went under it was in the middle of 2008 Bondioles collapsed because it was a run on collateral because of the mess that it caused in prime brokerages so this stuff as Linz said goes on and on and on. And what was happening before is inside of trading was slightly different, but that still happens in certain respects. But this ganging up with a group of like-minded people

because you think something has a different value, that's a market. Trying to push it to extremes, that's probably foolishness. Because in the end, value always ascertains itself in the end, or asserts itself in the end. So, you know, that's why we've seen the mean reversion of value. So who knows? It's not an easy question. But the playing field was leveled because people now have information. Look at the information we all get from Twitter.

It's unbelievable. The number of people we've all met. I mean, I met Lynn on Twitter. You know, we all meet there and we exchange information. That's democratization. Before, I'd have to go and find an investment bank. And if I wasn't a customer, couldn't speak to that guy or girl, it's ridiculous. So the world's changed.

It's good. All right. Any last thoughts before we say goodbye on this whole GameStop thing and how it relates to crypto? Because I think for me, what was so fun watching it was, I was like, I recognize this behavior. This is like the crypto market. Any last thoughts? I think it's the same crowd.

It's the same people. They're discovering price to scumption. opportunity, you know, things that nobody understands. I mean, nobody understands any of the B5 projects they're trading the tokens of or any of this stuff. But that's okay. People will lose money, people buy money. But what you're actually doing is giving people the testing tools to test out how to invest

and how to figure this stuff out. And, you know, Bitcoin had its S curves. People will have their S curves in their learning cycle of, of investing. But I think what it's actually done as empowered people overall. Yeah, I think it's one of those important narrative moments where it kind of goes down as a moment in history where people kind of realize a lot of things were wrong with the system. You know, we had that like you point out with the Volkswagen incident back a while ago. Volkswagen briefly became the most valuable company in the world technically for that

brief moment. It was worth over like $400 billion if you look at the market cap. And so I think this kind of, this sort of same event here, it kind of just showed. showed some of the plumbing issues of the system and showed why so many people are kind of working so hard on building other systems, other platforms to fix a lot of these issues. Yeah. I think for me, the other last question that I'm wondering is what is going to happen to Robin Hood? He's going to be in, Vlad 10 of the seat is going to be in the hot seat in front of Congress. And clearly, you know, I think people are going to be, you know, putting a magnifying glass to what happened on. the day that they stopped the purchases. The question is, did he actually do wrong or was he given by the exchange the problem to solve, which is their platform had created more speculation in options on four or five securities than anybody else in the world had ever done before, essentially.

And the way they margin it and net it and all of this stuff is you can't pay your bills because the volatility in these names are too high. you either reduce the trading in these names or you have to come up with the cash immediately. I get it. He didn't go, oh, I want to stop these guys manipulating hedge funds. None of that happened, I don't think.

I don't think Citadel tapped anybody in the show. Citadel are big boys. They've been through everything from the long-term capital crisis to the financial crisis, to the European crisis. Cisdell know exactly what they're doing. Ken Griffin, that team is one of the smartest on earth.

So Melvin, okay, they got it wrong. They shouldn't have had an open-ended risk in that size and they are part of the equation. Stevie Cohen, as Stevie said, he's like, I do have the right to invest in somebody I believe in. He got caught out wrongly, and I want to make sure they have enough capital. That's his choice. He's a trader too. He can make those choices. So I'm not sure there's a lot of accusations of wrongdoing from everybody. And I just think everybody was a victim of circumstance. And the circumstance is what Lynn said to the system itself. Yeah, I think the one thing for me is, and Lynn and I were talking about this before we started recording, I do feel like Robin Hood probably could have messaged better because the night before is when they would have known, oh, probably tomorrow we're going to have to shut off the purchases. But the blog post didn't go out until the very, like, right when the trading started. And so then, you know, you had that massive plunge in price. And so I feel like that was just something they, you know, they could have kind of gotten ahead of that a little bit and like given people.

some kind of warning, but since there wasn't, then I think a lot of people got hurt. They probably should have been fine for risk control or lack of collateral or something else because there was a mismanagement there because really they were at risk of going under because of liquidity. You know, liquidity is what... Which he used to say when he was interviewed. I don't know if you noticed that. You would like...

You never say the liquidity word because everybody will bet against you and pull their money out, right? It's the only thing you cannot say, but we know because they raised one and a half billion dollars in seconds because they had to pay their bills. And then another $2.4 billion the next week. Because they didn't have enough collateral overall. So that, they said, oh, yeah, it's going to be for growth. Guess what?

It's going into your collateral account. You won't run such small collateral again and bleed in var models. Right. Okay. Okay. Well, we will see. He's going up, you know, like I said, to testify in front of Congress. So we'll have to watch that.

All right. Well, this has been so fun. Thank you both so much. where can people learn more about each of you and your work? Easiest thing is find me on Twitter at Raoul, R-A-O-E-L, G-M-I. And I'm often around and always happy to answer questions and help out. Or just check out Real Vision as the other place. And I'm at Lindauden.com, and I'm also on Twitter at Lindelden Contact.

And so thanks for putting us together. I think it was really good conversation. Yeah, yeah, this is great. It's super, super, super fun. All right, well, thank you both so much for coming on Unchained. Yeah, really enjoyed it. Thanks a lot. Thanks so much for joining us today.

To learn more about Lynn and Rao as well as Ethereum and GameStop, check out the show notes for this episode. Don't forget, you can now watch video recordings of the shows on the Unchained YouTube channel. Go to YouTube.com slash C slash Unchained podcast and subscribe today. Unchained is produced by me, Laura Shin, with help from Anthony Yun, Daniel Ness, Shoshank, and the team at CLK transcription. Thanks for listening.