Unchained - Unconfirmed: Mike Novogratz on the 5 Reasons the Crypto Markets Plummeted - Ep.239

Episode Date: May 21, 2021

Mike Novogratz, founder, CEO, and chairman of Galaxy Digital, digs into the drivers behind this week’s market selloff. Show highlights: the five factors Mike believes led to this week’s dip  what Mike thinks about the environmental concerns surrounding Bitcoin how Ethereum will perform in 2021 whether centralized blockchains will survive regulatory scrutiny why Galaxy Digital made its $1 billion acquisition of BitGo what sort of projects Galaxy Digital is mulling in the DeFi space when Mike thinks a bitcoin ETF could be approved Mike’s 2021 bitcoin price prediction   Thank you to our sponsors! Crypto.com: https://crypto.onelink.me/J9Lg/unchainedcardearnfeb2021  Tezos: https://tezos.com/discover?utm_source=laura-shin&utm_medium=podcast-sponsorship-unconfirmed&utm_campaign=tezos-campaign&utm_content=hero  NEAR: https://near.org    Episode Links   Mike Novogratz: https://twitter.com/novogratz    Galaxy Digital: https://www.galaxydigital.io    Recommend Reads:  Galaxy Digital BitGo purchase https://www.coindesk.com/galaxy-digital-to-buy-bitgo-for-about-1-2-billion-in-stock-cash SEC skepticism regarding bitcoin ETF https://www.coindesk.com/sec-warns-mutual-fund-investors-of-bitcoin-futures-risks Galaxy Digital 2021 Q1 results https://www.coindesk.com/galaxy-digital-q1-aum-rose-58-net-comprehensive-income-more-than-doubles Galaxy Digital bitcoin ETF https://www.coindesk.com/galaxy-digital-files-for-us-bitcoin-etf  Youtube energy consumption https://www.iea.org/commentaries/the-carbon-footprint-of-streaming-video-fact-checking-the-headlines  https://thefactsource.com/how-much-electricity-does-youtube-use/ Dapper Labs lawsuit https://www.forbes.com/sites/andreatinianow/2021/05/17/no-slam-dunk-for-plaintiffs-in-nba-top-shot-moments-class-action-lawsuit/?sh=be89ec3df3da Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unconfirmed. The show their reveals how the marking names in crypto are reacting to the week's top headlines and gets the insights give on what they see on their horizon. I'm your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto six years ago, and as a senior editor at Forbes was the first mainstream meter reporter to cover cryptocurrency full-time. Head to Unchainedpodcast.com, where you can sign up for my daily newsletter. And there you can also find out about my upcoming book and where you can make pre-orders. head to Unchainedpodcast.com and then sign up for the email newsletter is right on the homepage. TASOS is smart money that's redefining what it means to hold an exchange value in a digitally connected world. Discover how people are reimagining the world around you on Tazos. The crypto.com app pays you up to 8.5% interest on your Bitcoin. Get $25 when you download the crypto.com app with code Laura. The link is in the description.

NIR is an open source platform that accelerates. the development of decentralized applications, overcoming high fees and slow speeds with its fast, scalable, low-cost, and climate-neutral blockchain protocol. Learn more at N-E-A-R-D-O-R-G. Today's guest is Mike Novogretz, CEO of Galaxy Digital. Welcome, Mike. How are you doing, Laura, by third time on your show? We'll have to have you back. So we've seen a bloody week in crypto, but as of today, Thursday, which is recording day, there's a noticeable bounce back up. What do you think was the cause of the washout and what do you think the outlook is from here on out? Great question. Listen, when you have these big liquidations, there's always

more than one cause. And so the first thing is, I think you have to recognize people were longer crypto than we all thought. I got calls yesterday from, you know, people I've met years ago. What is, what should I do? What should I do? Celebrities, athletes, you know, rappers, uh, right? Crypto fever found its way into lots of pockets. So that's one. Two, we had tax day in the U.S. you know, two days ago. And so a lot of people had to sell to pay their taxes. But we also had, it was about one year after like Paul Jones and that whole group of hedge funds bought crypto. And so they hit their one year long term to short term or short term to long term capital gains mark. And so I'm sure some of them decided, hey, now it's a short term. You know, I've made so

much money if you bought Bitcoin at $8,000 and it was trading at 50. Let's lock some in with the lower tax rate. And then you can't deny Elon Musk. His comment about ESG kind of hit Bitcoin in the, remember that book, The Hobbit, or Smog had that, the dragon had that one vulnerability. And the archer hit the arrow right there. Like, that's a vulnerability. And it's not fair. It's a vulnerability in lots of ways. We can get to the ESG. question in a little bit. But you add that all together. Plus, my last, we had this kind of craziness going on with really crappy coins that were pumping 5x. And I looked at Heath Classic. I was short, Heath Classic. And thank God I was disciplined and covered. And then it went up five times.

I was like, thank God I covered. You know, for no reason. These Fudd coins were, our Irish and Fud coins, It's kind of crummy coins were just being pumped. That's always a sign of excessive speculation. What we saw with Doge and Shiba Inu and that, it's fun if you're involved, I guess, but it's not healthy for the ecosystem. And it's certainly a sign of excess speculation. And so you put all those things together, the charts crack, and then you take out leverage. And I think I read 700,000 or 700,000 people got stopped.

stopped out, $9 billion taken out of their wallets. And that's mostly retail. Some hedge funds, of course, stopped out. A lot of friends that are disciplined and sold. Most of the big institutions don't move that fast. They're like, whoa, what just happened? Most of the crypto OGs, they're like, this is just part of being in crypto.

It's like, yeah, a painful part of being in crypto. But we bounce back pretty quickly, I think partly because, you know, the story doesn't really change. There is a revolution going on. I see it with the kind of human capital that we're hiring. More and more unbelievably talented people want to work in our industry. And I see it with our competitors doing the same thing. I was talking to our own troops yesterday.

And I was like, I remember when the Niki fell 50% in one night when they had the Fukushima earthquake, the earthquake and then the Fukushima reactor. Literally, the second biggest stock market in the world fell 50%. percent at night and then bounced. It wasn't like, oh, the stock market's over, right? People dust it off, went back to work and the industry continued. It's kind of the same thing when we have things like it. For a moment, you're like, oh, my gosh, what's happening? It was a liquidity, too much leverage. And so if there's a lesson in this, it's for the individual investor. Bitcoin is an 80-val instrument. Ethereum is 120-ball instrument. The alt-coins have higher

evolve than that. You don't need leverage. And everyone in, especially the younger generation, but everyone wants to get rich quick. Give me four to one levers, three to one, six to one. And like, we're dealing with nitroglycerin. That's the kind of volatility. And so run with less leverage and you'll get stopped out less. Long answer. Sorry about that. No, no. But, you know, you covered multiple questions at once. I'm glad you. you actually raised the environmental concerns that was going to be a question of mine. And I just wondered, how much of a problem do you think that they are? Do you think that the industry should try to address them directly in some way? And, you know, obviously, Galaxy, you just launched,

you know, a new mining operation. And you also said you'd be launching new financial services and tools for Bitcoin mining sector. But will any of that address energy issues or is it just financial tools for miners? So, yeah, let me answer that question. holistically. First, I think let's defend our industry a little bit. We use a lot of electricity. We provide an amazing service, right? Bitcoin itself provides an amazing valuable service to the world, right? Storing wealth, and it should be expensive. It uses a decent amount of green electricity and some less green electricity, just like every other industry. We're not talking about boycotting Google and banning YouTube because YouTube uses two and a half percent of all global

electricity. Think about that. It crushes Bitcoin and, you know, let's stop watching. YouTube provides an amazing service. I will bow down at the altar of YouTube. It is one of the great innovations in the world. You can learn anything on YouTube, literally anything. And so you'd be crazy not to think YouTube's a valuable service and it uses a lot of electricity. Just like Google and Microsoft and Facebook and all the big tech companies and all the banks should be looking at, reducing their carbon footprint going carbon neutral by 2040 or 2050, whatever they decide as the appropriate target. Crypto should too. And I think you're going to see a rash of measures from the big crypto players to say, hey, this is how we're going to push our industry towards carbon

neutral. And those will be things like carbon sequestration, right, taking carbon and sinking it into the ground. That can happen with carbon capture. It can happen with these big machines that suck carbon out of the air or planting trees. It's complicated, though, like a tree is not a tree is not a tree. Planning trees in some area actually create more carbon emissions. And so, you know, we're working on finding the right experts. I actually know one or two of the world's best people in this space. And I think, you know, give the industry time, there will be a, there'll be a response. And I know that because I'm talking to lots of people that are in the space. Yeah, I feel like the more that I see Bitcoin people talking about,

this, the more I keep thinking they may be working on some renewable energy, you know, combined initiatives. I mean, we're already seeing it like with Caruso energy. Hey, everyone. Just a quick note here. The International Energy Agency says, referring to this 2.5% statistic and others about YouTube's energy use, that, quote, it is clear these figures are too high. Although the IEA does not calculate its own number, it does note how energy efficiency and demand are constantly changing. Ether has also been a big story this year. And despite the bloodletting earlier this week, it's tripled in price since the beginning of the year.

And this is even before we get to the London Hard Fork, which will institute EIP 1559, which will, you know, it's largely seen as a change in monetary policy that will make ether deflationary asset. How do you expect the rest of the year to go for ether? Yeah, it's a great question. People were like, what, do you think Ether's going to go? I was like, dudes, it went from 700 to 4,000. That's pretty good. You know, like how greedy can everybody get? Listen, ether has a lot going for it right now, right?

It's got this monetary shift, which I think is wonderful. But it's got the three big tailwinds of stable coins being, you know, built on ether, DFI being built on ether, and NFTs being built on ether. And so I remember when I first met with Joe Lubin in 2000. 2015 and was explaining how all this was going to work. And I was like, eh. And he's kind of gotten it right. And we always said, well, Ether's got to, it's got to scale faster.

And it hasn't yet. But they're side chains and level twos and people are making all their their adjustments. I do think because it's been slow to scale, it's and because other people are creative, it's led to the explosion, really, of these other ecosystems, right? the Binance smart chain, Solana, the Terra Luna system, you know, where you have these charismatic entrepreneurs, all three, maybe the three entrepreneurs of the year, building similar ecosystems on far less decentralized, far more efficient, blockchains, right? I mean, I don't even know if you can call the Binance smart chain a decentralized blockchain. It's the CZ chain. And I don't

I don't badmouth that. I think there are unbelievable areas for innovation, right? And people are being brought into the system. I wonder, and you probably have a better insight on this than me, if as these ecosystems grow and we transfer more value and we get more regulated, our regulators are going to allow these less decentralized blockchains to be where we transfer all our wealth? Our consumers are going to care, right? Like right now consumers don't care because most of the consumers,

of crypto are gamblers. What do they call them DGens, right? Crypto is still mostly a gambling ecosystem. It will shift over time. And you've seen it. Listen, you know, one of the cool things about Luna is this shy payment system. You know, people, I think it's 7%, 8% now of payments in career being done over this blockchain-based payment system.

And so, again, I'm watching this thing as an investor, but also as a sociologist. to see how this plays out. I mean, I think of like, you know, the flow blockchain, dapper. It's pretty tightly controlled. Like, you know, but a blockchain is not a blockchain is not a blockchain. I was going to term of frame by those, blockchain and name only. And again, I know I said like I'm casting dispersion. I'm long a lot of this stuff because like charismatic leaders, good communities,

momentum in the stuff in adoption. I don't know in the long run how that plays out. We all started in this because it was a decentralized revolution, right? Like literally. And it was a peer-to-peer decentralized revolution where no one really controlled all the knowledge, all the data. And so we'll see how this plays out. That was a long tangent. Sorry about that.

No, no. But I mean, you just, again, you covered some other questions that I had because some other thing that that raised for me was whether, you know, if SEC Commissioner Hester Persis' Safe Harbor proposal were in place, then it may not matter for some of these chains to start off centralized as long as they got decentralized within some certain time frame. But, you know, right now, obviously we're not operating in that environment. But we're going to discuss a little bit more about the markets and also Galaxy. But first, a quick word from the sponsors who make this show possible. With over 10 million users, crypto.com is the easiest.

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What do you see happening in the industry now that makes bringing custody in how seem necessary? Yeah, so I guess, you know, I was wrong originally in my instinct that institutional clients would want you to custody elsewhere, right? When you buy bonds at Goldman Sachs, you custody of a bank of New York. You don't keep them at Golden Sachs. And in crypto, I think, because of the complexity of the instrument, people wanted a soup to nut solution. So we heard that from a lot of customers. Not every customer, but a lot. And so it's to some degree we needed it to fulfill or growing, though I wouldn't have paid a billion dollars for custodian if. I didn't think there was more to it. What I really get excited about the BigGo is they have 60 blockchain engineers, 60 and growing blockchain engineers. And, you know, from the time I started in 2012, 13, now I have invested in blockchains. I've had traded on top of blockchains. I've been at a cheerleader and an unofficial spokesman for blockchains, but I've never built on

blockchains. And I think building on chain and having that capacity. is kind of the next chapter of where this whole industry goes, right? We can talk about our asset management business and should it be an on-chain asset management business, or part of it should be on-chain. And, you know, we didn't have the technical expertise to make that happen. And so I think I see this merger as a marriage of West Coast and East Coast, Silicon Valley and Wall Street, but it's mostly an acquisition of human capital.

Our best assets in the whole industry go up and down the elevator every day, right? It's not like we have machines that create, you know, harvesters or automobiles or, right? We're a human capital business. And that's what we're buying. Well, so to expound a little bit on that you did in the same vein tell the block that you think where the industry is going is, quote, it is building on the blockchain. It is defy. And you kind of hinted that galaxy would start doing that. So what are you envisioning when you talk about wanting to build in defy?

Well, listen, so first of all, we invested a ton of cool defy projects. That's been one of our best businesses because, like, seems everything you bought in the last 18 months is up a whole lot. And we're going to continue to do that. There have been structural impediments of actually using defy, regulatory mostly, right? I think it's something as simple as uniswap. Are you trading against the smart contract who's on the other side of the smart contract? Well, if you're a retail customer, there's a zero probability that the feds are going to come busting through your door for having, you know, done a trade that might have happened with someone from a, you know, an evil empire, right? That's someone who wouldn't have been KYC.

But if you're a regulated institution, you better be damn sure you have a process in place at least to say, hey, no, I know I'm executing with someone legit. And so we've spent a lot of time on, as a lot of people have, on cracking that code, right, of having to some degree a safe, a safe garden inside of, to be able to use defy. I think about it like a blue check. And I think we're close there as soon as that gets done will be a much bigger user. We use some things now. But like, you know, staking and trading on centralized systems is still regulatory, confusing space. And then it's, listen, you know, BitGo has a big wallet. Like, you know, I think, I forgot the exact statistic, but a significant portion of transactions in the whole space happen in Bitcoin wallets.

They support lots of other exchanges in and around the world. And so I can see all kinds of staking services and even, you know, like what I said, what I thought about, should we do part of our asset management on Shane? We've invested a lot of cool on Shane asset managers. you know, it opens up a whole lot of possibility. Okay, yeah, I'm trying to read between the lines, and I was thinking AMMs, liquidity providers, like using, I forget what Bellum Protocol changed its name to. But anyway, okay, so I guess we'll have to. But in some ways, the simplest function of a bank, right, is you take in money and then you lend it at higher rates. And so just even being able to be a broad lender in the space could be a huge opportunity set, right?

Right now, one of the hindrances, and you see it on days like yesterday, one of the reasons I think we also did this merger, I think bigger is better as we go into the broader institutional world. And I think having deep balance sheet is important. Days like yesterday are really important, right? Markets are a collapse. You want to have capital. But the traditional banks don't lend to crypto yet. I can't go to JP Morgan and say, hey, give me a $300 million credit loan. line at LIBOR plus 200 or 300, even.

We've got a $2 billion plus balance sheet. Like, what are you scared of letting me money for? That's crypto. We don't understand. And the days like yesterday, they're like, oh, thank God we to lend them money. Right? Like those days set our industry back a few months, not years, a few months. The conversation has to die down.

And that's a endemic to the space. It's still a young space. But it allows people that were on the edge. to back away from the edge. And so getting capital into the space is critical. We're working really hard and being really thoughtful. And how do you, because if you could get cheap capital, there's plenty of places to deploy it, right?

The basis trading that happens letting on shame, you know, there's unbelievable yield to letting on shame. The problem is there's not a lot of dollars. So if you want to borrow dollars in crypto, you're borrowing it almost 13, 14, 14, 15 percent. during times of duress, which is crazy. So if you could borrow it three or four percent, well, it's a whole heck of a good business. All right. Well, I will keep my eyes filled. I'm very curious to see what you do.

Last quick question, Galaxy also filed for a Bitcoin ETF last month. And at the beginning of the year, many people thought that having Gary Gensler as SEC sure was a positive signal for a Bitcoin ETF. But last week, the SEC released a cautionary statement, basically, for mutual funds that wanted to invest in Bitcoin futures. So did that statement change your view on the odds that a Bitcoin ETF would be approved this year? You know, I think it's going to be fourth quarter or first quarter of next year. I don't know. Like it's hard to say, Gary, I just keep saying if I'm the chairman of the SEC,

an ETF is far better than the gray scale trust or the other products that institutions have, that public equity markets are allowing people to invest in. And so, like, we allowed the gray scale trust, but we're not going to allow it. An ETF makes absolutely no sense. Like, bizarre, right? And so, and I know Gary's very bright. There are a lot of technical issues that I, you know, surveillance of the exchanges, all these issues that common people like me don't like to get in the weeds up,

that when I talk to the guys that are working on it, they're like, and so I think it's as much of a technical solve. Listen, days like yesterday aren't good for, that accelerating. Let's assume they were going to approve the ETF last week. I mean, they decided last week to approve it next month after yesterday's volatility. Any bureaucrats are going to say, let's wait a couple more months. And so I do think it happens. I would make a market probably 30-70, 30 percent fourth quarter, 70 percent first quarter. All right. And before we go, do you want to give a Bitcoin price prediction for end of year and

same with Ether? Yeah. So it's funny. My price prediction in December for end of year was 64,000. And we got to 64,000 in March. And if I was smart, I would have said, hey, I made my whole year. Let me take half of my Bitcoin off. Of course, then you're like, oh, let's go to 100,000. It's hard to say. I think we're going to go sideways for a while. We're going to consolidate between, you know, 35,000 and 45,000, 50,000 for a while. And I think a lot of the selling pressure is gone. A lot of the stories that got people scared to sell are gone, right?

The ESG story came. Regulatory stories have not been great. They've kind of come, you know, China regulatory story that helped kick off yesterday. Now we need new buying. And, you know, institutions are coming. They come slow. You know, I could tell you that every one of the major banks, Goldman Sachs, JP Morgan, UBS, PNC Bank, they're all coming with product geared to the wealth of clients, right?

That's the 50 to 80-year-olds who don't buy through their Coinbase wallet. But it takes a while for them to get set up. then the money takes a while to get in. So the positive news is, I think it's something about our experience with Morgan Stanley. In order to be a financial advisor at Morgan Stanley and sell Bitcoin, you have to take a Bitcoin course online. I have done 10 probably teachings with various regional sales forces

on how I think about Bitcoin, how I sell it. And so think about 2013, there was like Dan Moorhead. there were three or four institutional salesmen of Bitcoin. Not even. Me, Dan, Morton, I'm trying to think who else was out there, Bering, of course. Now, we just trained up 4,000 Morgan Stanley FAs to sell Bitcoin, who have an economic incentive to sell it,

who understand it, who help control people's investment decisions. And you're going to do the same thing at Goldman Sachs and the same thing in JP Morgan. And so the institutional army is coming. It's coming slowly. And so I'm always balanced between that being the buffer of the downside. What was interesting yesterday's price action is as the market collapse, people that traded on exchanges were getting stopped out because they were levered. People that traded in the U.S. stock market came in and micro strategy outperformed Bitcoin by 14% yesterday.

The Grayscale Trust went from a 14, 15% deficit to trading at a premium. right? And so non-levered dip buyers showed up. Levered, you know, over their skis, people got stopped out. And so again, if there's a message to send to crypto investors, it stopped taking so much leverage. But you did see demand from U.S. retail buying a lot of crypto yesterday, which I found really interesting and promising. It really feels to me we put in a tradable low. we retested it last night, which felt scary again. Because when you're testing lows, it always feels scary. It's the end of the world.

It wasn't the end of the world. And I think now, listen, it doesn't mean we're going to just rock it off to space. But we got Bitcoin Miami coming up. There'll be a lot of good positive energy. I think the town's going to go wild. You know, he's got COVID plus Miami, end of COVID plus Miami plus crypto. I don't know. You're going to be there?

You might want to have some... I will not. Unfortunately, I have a big book thing going on, so I cannot do fun things for a little while. But I will be watching from afar and, you know, by living vicariously through you. But I agree. I think it'll be pretty wild.

All right. Well, Mike, this has been super fun. I would love to have you back again. You know, these shows are pretty short, but we covered a lot of ground. So thank you so much for coming on Unconfirmed. Awesome, Laura. Thank you. Don't forget. Next up is the weekly news recap.

Stick around for this week in crypto after this short break. TASOS lets you easily exchange smart money throughout our digital world. As self-upgradable blockchain with a proven track record, Tazos seamlessly adopts tomorrow's innovations without network disruptions today. Because of this adaptability, engineers, conservationists, entrepreneurs, collectors, game developers, and artists from around the world are building, creating, and using Tezos every day. Discover how people are reimagining the world around you on Tezos.

Hi everyone. Thanks for tuning in to this week's news recap. First headline. The market crashed. Coinbase, Binance, and other exchanges briefly shut down. The total cryptocurrency market capitalization is down roughly 20% over the past seven days, from about $2.2 trillion to $1.7 trillion. As at press time, Thursday afternoon, Bitcoin is sitting at around $40k after bouncing back from $30,000, while Ethereum hit a weekly low of $1,860 before bumping back up to the high 2000s. Wednesday was the bottom for the market when Bitcoin and Ether lost 30% and 40% of their value respectively in a single day. The correction led to Coinbase reporting intermittent downtime for customers attempting to purchase cryptos on sale. Finance was also disrupted as the

exchange stopped Ethereum-related token withdrawals from its platform. The dip, however, did not affect decentralized exchanges such as sushi swap, which reported its highest trading volume ever in a 24-hour period. On the flip side, average gas fees rose 239.4% on Wednesday compared to Tuesday, meaning Ethereum users paid steep prices to use daps. Next headline. The crypto dip is not all Elon's fault. As for what caused this week's bruising, several factors likely came together. First, tether. Last Friday, for the first time since 2014, to the tether revealed the breakdown of its reserves, as part of its settlement with the New York Attorney General's office three months ago,

which requires an ongoing publication of the assets backing, USDT. As of March 31st, 2021, USDT is backed by 76% cash and cash equivalents, with the final 24% filled by secured loans at 12.55%, corporate bonds, funds, and precious metals at 9.96% and other investments including digital tokens at 1.96%. The FT looked at what the 76% of cash and cash equivalents is comprised of, and surprisingly, only 3.8% percent. 8, 7% of that, or 2.9% of all Tether, is actually backed by cash. About two-thirds of that 76% in cash and cash equivalents comes from commercial paper, with fiduciary deposits making up 24.2%, reverse repo notes taking up 3.6%, and Treasury bills just 2.94%. When Tether initially launched,

USD claimed to be backed one-to-one with US dollars. In 2019, the company changed, the wording to say USDT was backed 100% by TED reserves, which, it seems, is still company policy today. Caitlin Long, CEO of a Bondi Bank, wrote a tweet thread about her thoughts on stable coins and the crypto sell-off, which are probably connected. In the thread, she argued that risk managers at crypto hedge funds, quote, almost certainly will require haircuts on Tether, forcing traders to sell crypto to reduce risk because, quote, Tether's probability of default and loss severity in default just went up based on the disclosure. Another cause of this week's sell-off may have been unease over China. On Tuesday, three self-regulatory bodies in China, all of which are under the supervision of

the People's Bank of China, jointly published a note reiterating a 2017 ban on financial and payment institutions from providing services related to cryptocurrency transactions and initial coin offerings. Although it was nothing new, it appears a misleading Reuters article made the rounds Tuesday morning, spreading a rumor that China had completely banned crypto, which was much more dramatic than the reality. The third driver of the drawdown this week may have been Elon Musk and his Twitter account. Last week, Tesla announced it will no longer accept BTC as payment for vehicles, citing environmental concerns regarding Bitcoin's proof of work consensus algorithm. Then, over the weekend, Tesla's CEO Elon

Musk hinted that Tesla may sell or had already sold its Bitcoin holdings by responding, indeed, to a tweet from Cryptoil on Twitter that said, quote, Bitcoiners are going to slap themselves next quarter when they find out Tesla dumped the rest of their Bitcoin holdings. Musk later clarified the speculation, tweeting, Tesla has not sold any Bitcoin, and that Tesla has diamond hands. However, by that time, BTC had already slid well of, under 50K. The final impetus behind the price plunge may have also been retail traders. Meltem DeMier's chief strategy officer at coin shares said, quote, crypto is still largely a retail driven market driven by fear and panic. It operates 24-7-365. This is a perfect recipe for panic

selling exacerbated by media hype over non-events. Next headline. Ethereum had an impressive Q1. James Wang, a former ARC analyst, wrote an insightful article earlier this week about Ethereum's impressive Q1 performance. Here are a few highlights on Ethereum's growth between Q1 2020 and Q1 2021. Total transaction fees on Ethereum are up 200x to $1.7 billion. Daily active users increased 71%. Total value logged in defy rose 64x to $52 billion from $800 million. NFT art sales rose from $700K to $396 million. On a related note, on Wednesday, coin shares reported that digital asset investment products saw a net outflow of $50 million over the previous seven days, which is the first net

outflow since October 2020 and the largest since May 2019. Surprisingly, the prime suspect of the outflows was Bitcoin investment products, which accounted for $98 million flowing out of the system. Poinshers noted that other digital asset investment products saw inflows totaling $48 million over that last week, implying that investors might be diversifying their crypto portfolios. Interestingly, Ethereum accounted for $27 million of the inflows, continuing the trend of ETH outperforming BTC this year. As Melton pointed out, quote, May is the first month, ether products traded more volume than Bitcoin. Next headline.

U.S. regulators sprint to keep up with crypto. During a virtual hearing of the House Financial Services Committee, Michael Sue, the acting head of the controller of the currency, expressed concern that, quote, the regulatory community is taking a fragmented agency-by-agency approach to the technology-driven changes taking place today. Sue was eyeing a collaboration between the OCC, Federal Reserve, and FDIC to create what he's calling an inter-agency sprint team that would establish a unified framework and set definitions for cryptocurrencies. Additionally, Sue requested a staff review of all the OCC's crypto-related guidance issued over the past year, which will encompass the entirety of former controller Brian Brooks's reign at the OCC. When the regulator established crypto guidance largely seen as beneficial to the industry. For example, Brooks wrote a series of interpretive letters during his tenure, clarifying that federally chartered banks could custody stable coins and hold them in reserve.

Caitlin Long, CEO of Avanti Bank, pointed out that earlier, on Tuesday, the OCC had reversed a final ruling, which although unrelated to crypto is a very rare occurrence, perhaps signaling that Sue could zig where Brooks zagged. Four other U.S. regulatory headlines are also worth noting. U.S. Congressman Thomas Emmer sent a letter to the Financial Accounting Standards Board, or FASB, urging clear accounting standards for digital currencies. The FDIC put out a request to depository institutions this week, asking banks about the handling of digital assets. On Thursday, Senate Banking Chairman Sherrod Brown penned a letter to Michael Sue regarding his concern over the OCC previously granting national trust charters to Paxos,

Anchorage, and Protago, signaling that the trust charters may be at risk. The U.S. Treasury is calling for businesses that receive $10,000 in crypto to report such transactions to the IRS, stating that while they are a, quote, small portion of business income today, cryptocurrency transactions are likely to rise in importance in the next decade. The IRS will also be given additional funding to address the crypto market. Next headline, Wells Fargo and Bank of America make crypto moves. On Wednesday, Wells Fargo's wealth and investment management division announced that it will soon introduce an actively managed crypto strategy. Wells Fargo is the latest U.S. Bank, following Morgan Stanley, Goldman Sachs, and possibly J.P. Morgan, to grant wealthy clients

exposure to crypto. Bank of America joined the Paxos Settlement Service, which has the capability to settle stocks at T-plus-Zero through Ethereum-based blockchain technology. You can listen to CEO Charles Kaskarillo talk about Paxos on Unchained in three different episodes, which we will put in the show notes if you want to check them out. Kevin McCarthy, B of A's head of finance and clearing, believes that technology would be a positive for the bank as B of A could free of the collateral we'd have to post on an overnight basis, which would improve the return on assets. B of A will offer the service to clients when and if a clearing agency grants approval. News heard around the block. The Bitcoin hash rate fell almost 20% this week as miners in China's Sichuan region faced

temporary power limitations. Pancake Bunny, a finance smart team protocol, lasts $45 million in an exploit on Thursday. As a result, the price of Bunny dropped significantly. From $146 to $6 before jumping back up to the $40 range. BlockFi accidentally gave away large amounts of BTC, 700 being the highest number reported, in a promotion gone awry. And finally, figure technologies, a blockchain lending company, raised $200 million led by 10T Holdings and Morgan Creek Digital. The company is now valued at $3.2 billion.

Time for fun bits. MySpace Tom. With Bitcoin, at one point down 50% from its all-time high, it was an easy week to bash the first cryptocurrency. In the past, a dip of this magnitude may have warranted a Bitcoin obituary. This week, the obituary was replaced by an article titled, First Mover Advantage is great, but could Bitcoin end up the Myspace way by Joe Weizenthal, executive editor at Bloomberg, with the gist being that BTC could, like Myspace, end up being replaced by better technology a la Facebook. though Joe admits it will be harder to supplant BTC due to the nature of blockchain tech versus social media. Here's where the humor comes in. However tenuous the connection, it seems the creator of MySpace, Tom Anderson, is a bitcoiner,

which is perhaps worrisome for BTC holders or hodlers. In an odd yet humorous move, Tom has only posted on his Twitter account five times in 2021. Three of those posts came in response to Nick Carter, partner at Castle Island Ventures, and an ardent Bitcoin defender. Tom's latest tweet was posted on Sunday, showing off his new profile pick, replete with laser eyes, with a quote, buying the dip. All right, thanks for tuning in. To learn more about Mike and Galaxy, be sure to check the links in the show notes. Heads up, everyone, the Unchain Newsletter is switching to a weekly news recap to a daily blog in order to keep up with the crazy pace of crypto news. Each morning, you'll get a four to five

quick headlines, a crypto meme or two, and a few. recommended reads. And in the newsletter, you can find details on how to order my book, The Cryptopians, Idealism, Greed, Lies, and the making of the first big cryptocurrency craze. Or just go to bit.ly slash cryptopians, which is spelled C-R-Y-P-T-O-P-I-N-S. Head to Unchained Podcast.com, and the sign-up from the email newsletter is right on the homepage. You'd also find the link in my Twitter bio. Unconfirmed is produced by me, Laura Shin, with a from Anthony U. Mark Murdoch and Daniel Ness. Thanks for listening.