We Study Billionaires - The Investor’s Podcast Network - BTC202: Bitcoin Mastermind 3rd Quarter 2024 w Joe Carlasare, Jeff Ross, and America Hodl (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. On today's show, I have the Mastermind Group, and they're back. We've got Joe Carlos Sari to talk about all things policy and legal. I have Jeff Ross to talk about macro and the broader market conditions, and I have American Hoddle here who's the best BS filter that the community has ever heard. We cover a wide range of topics from the SAB-121 situation with Legacy Banks, the BNY Mellon being able to now custody services like Coinbase for digital assets and what that

Starting point is 00:00:34 means for the competition of custody for ETFs, banks being able to mint their own stable coins, where we're at with the Bitcoin cycle versus everything else that's happening in traditional markets, and the list goes on. There's a ton of ground we cover here, so sit back, relax, and enjoy this quarter's release of our mastermind discussion. Celebrating 10 years. You are listening to Bitcoin Fundamentals. by the Investors Podcast Network.

Starting point is 00:01:03 Now for your host, Preston Pish. Hey, everyone, welcome to the show. I am here with American Hoddle, Joe Carlosari, Jeff Ross, mastermind discussion. Third quarter, still the third quarter. A little late on this one. Guys, welcome to the show. Hey, Preston.

Starting point is 00:01:27 What's going on? Good to be here. Good to be back. Thanks for having me. It's going to be fun. It's going to be fun. Lots to talk about here. Last week, let's just kick it off into high gear because last week,

Starting point is 00:01:39 I'm looking at two massive, massive announcements. The first one being the custody that the SEC is giving to BNY Mellon. And then the other one is now we can do derivatives on top of iBit. Is it just Ibit or is it all the ETS that they're allowing this? Do you guys know? Yeah, for now it's Ibit, but now it'll be all of them eventually. So, you know, I'm reminded of this clip that, I don't know, is like a year, a year and a half old with, with Sailor. He was in some spaces and he said, there's three things that are going to take

Starting point is 00:02:15 Bitcoin to multi-million dollar price point in USD terms. And those three things. The first one was the change in the gap accounting treatment, which happened, I don't know, about a year ago, the approval of an ETF, which happened about nine months ago, and then banks being able to custody Bitcoin. So last week, and he's not even talking about. the derivative options being traded on top of it. But with the custody now being approved for BNY, it seems like they're doing like some type of test run. The SEC gave them some type of approval. What are your thoughts? Is this a big deal? Are we making a big deal out of this? Let's just go around the horn. Anybody want to start? Sure. Well, so is it a big deal for sure, right? This is all

Starting point is 00:02:59 inevitable. We all knew this was coming. Everything that's happening and that's going to happen continues to be inevitable. We're watching Wall Street embrace Bitcoin fully. We're watching the SEC start to embrace it. We're watching the regulatory framework get built up around it. The financial rules get built up around it. It chaps the hides of lots of true bitcorners, right? They're very concerned about is it stealing the soul of Bitcoin to have Wall Street so involved? And can they do something deleterious to the network because of this? That remains to be seen, right? But to me, this is all just as expected. So it's kind of exciting. Like if you're into price going up, number go up, and I'm sure we'll get talking about our bullish sentiment a little later in the show.

Starting point is 00:03:39 This is all very encouraging. This is going to increase the volume. It's going to increase the interest for Wall Streeters to get on board. Having options available to trade is a super important next step. It basically means that Bitcoin has moved up a level in the maturity scale and the seriousness of it as an asset. So I think it's all really natural. I think there's going to be snafus along the way. I think there's going to be people who can abuse it, right? There's always bad apples that might do bad things with this. They may manipulate the price that everybody always talks about price manipulation. But in general, it's good because it adds a ton of volume in general. And when you have a lot of volume, the big institutional investors like that, they don't want to come in with a billion dollar buy

Starting point is 00:04:19 order and just jack the price up, $20,000 because they want to buy or they want to sell. When you have these much larger pools of liquidity, this much higher volume, that means institutional investors and endowments and other big hedge funds and things will be much more interested in Bitcoin as an asset. So I think it's a net good in general for Bitcoin. Pottle? Yeah, the way I look at the options announcement recently. And by the way, I was thinking about the same tweet, the spaces that you had referenced with Saylor. I think if he had a little more, you know, just slightly more prescience there, not that he didn't already have a ton, obviously he nailed it. But like, he probably would have put the options, you know, treatment in as the fourth thing, right? Yeah.

Starting point is 00:04:58 And for me, this options market is just this big amplifier for the Bitcoin price. I mean, it's like this massive capital unlock for the smart money. There's a lot. I mean, there's so many different things we could talk about with it. And like I don't fully understand a lot of it. So I'd love to get like Joe's take on it because I think he understands the plumbing of the options markets a lot better than I do. But, you know, just something that comes to the top of my head is that, you know, Bitcoin now is more competitive with real estate. Because you now have different cash flow strategies using covered calls and et cetera.

Starting point is 00:05:27 But you don't have to deal with the. underlying headache of real estate. That's just one of like many different options that this unlocks. And I think it's just going to be a massive, yeah, it's a massive amplifier. And it's, it's like a 10x in terms of inbound liquidity for Bitcoin. So I mean, to me, it's like wildly bullish. And I don't know that we've ever seen an options market like the one we're going to see on Bitcoin. I think it's going to be wild, both directions, upside and downside. I will say this huddle. So I was interviewing Sailor in Madeira. This is, I think, February of 2024. And on stage, he was saying that within, I think he was saying, like, within nine months to a year, that derivatives were going to get approved on top of the ETFs. And it was going to be a massive, massive big deal because of the amount of liquidity, the amount of volume, the amount of reinforcement of all the legacy dollars and legacy Fiat system basically plugging itself in. Not just the ETF was like plugging it in. And then all of this was like,

Starting point is 00:06:25 plugging 40 other cables into this thing in order to just kind of like add a whole new layer of access to Bitcoin. You need to go back and listen to his real comment, not my Jerry-rigged interpretation of it. But that's what I remember him distinctly saying back. I want to say it was like February this year. But Joe, go ahead, take it away. Yeah.

Starting point is 00:06:46 So options for those that are unfamiliar that may not be as savvy in terms of the old school derivatives type systems that we have in the legacy markets. they provide contract exposure, right? There's a reason you call it an options contract. It's derivative exposure where you can either establish long exposure or you can protect yourself against downside exposure via put options. These are extremely attractive to institutional investors because they let them calculate a defined risk benefit reward, right?

Starting point is 00:07:10 Rather than just going long only exposure, rather than just buying the spot exposure, what they can do with an options contract is they can do a variety of different things. They can do cross-asset exposures, right? Long equities, short Bitcoin, short Bitcoin, long equities, hedge the books, however they want. And it provides much more flexibility that you'd want if you're trying to build out cross-asset allocations. So from the standpoint of Bitcoin, it's extraordinarily interesting, right, because you have the first finite asset that we have and you have the introduction to the ETFs. And Dr. Jeff is exactly right. What you're effectively doing is you're pouring

Starting point is 00:07:40 in leverage into the space. You're letting it be attractive to a lot of institutional investors who would not feel comfortable just having naked long exposure into Bitcoin. We would not just want to buy the spot, right? They want to have that hedge. Even if they want to just get a long long exposure, they can't risk the downside of a 20% negative move in Bitcoin. They can hedge that with a spot position. And the interesting thing about that is, and this is the real story, I think, if you are buying options, say there's overwhelming demand in the options market for calls or for longs in any way in the market. What has to happen is the market makers then have to effectively position against the imbalance, right? So if there's a long exposure, they have to be positioned

Starting point is 00:08:17 short to correct the imbalance. Same is true, right? If there's a ton of call selling, right, I hear people really eager and salivating it, the idea to sell calls against their spot Ibit position, right? The dealers actually have to bid that. It's interesting, right? Like, they actually have to go into the supply by the Ibit share, which then in turn buys the Bitcoin. So you have this reflexive loop. All of it, in many ways, tamperes down volatility when there isn't a balance in the market. So you might not see as painful of the drawdowns. You might see somewhat more capped upside. But what that effectively does is it provides a more institutionally safe investment, right? We're like in 2017 market where you had just the spot exposure. You want to buy Bitcoin? Sure, there was

Starting point is 00:08:56 GBTC, but a lot of people would just buy the spot exposure, right? There wasn't an easy way until really the CME futures launch to get derivative exposure and to hedge. So you see these rapid swings up to like 196 at the end of the year. Now you're going to have a lot of institutions that can play that and that can tamper tampen down the volatility and it makes it more attractive. Now, some people always say, oh, that means you're not going to have these blow off tops. I strongly disagree with that because there are plenty of options markets where, you know, for example, GME, right, where there was massive market demand, you saw that thing just get bid and go to the moon, right? Options do not necessarily mean that you can't have an absolute run in the market.

Starting point is 00:09:34 What we've seen in the spy, for example, and Q's, if you look at there's zero DTA expiration options contracts, those have actually moved the market significantly. There's many days the zero DTEs are moving the market more than actually spot bidding. So it is like pouring gasoline on a fire. I think it's really exciting and I think it's exactly what institutions want to get at least excited in the spot exposure. How long until you can do this on some of the other products, not just Ibit, you think, Joe? Well, my guess is they will all launch together. There's a couple different layers they have to go through just because the SEC approved it. You also have to get some CFTC approval. So we're still a little confused as to when they're actually going to launch. Eric Al-Chunis, I think, was speculating.

Starting point is 00:10:12 He's the Bloomberg analyst that was going to be a couple months. My source tells me it could be a little So quicker than that, six months, we could see, or six weeks, excuse me, we could see them launch. And I would place a heavy hefty wager that many of the spot ETS will launch with options on the same day. Wow. And if I can jump in, one of the things that's exciting as a fund manager myself, I, you know, I run a small fund. I've been waiting for this because what this does then is that opens up the possibility within my fund, which is based at interactive brokers, so in a standard brokerage account, if we do get another peak, if we have this exponential move higher into 2025 and say Bitcoin goes to 200 or 400,

Starting point is 00:10:47 400 or 600,000 or whatever it goes to you. Instead of having to sell everything and take that massive tax hit, what I can do is go out and buy puts, as Joe is talking about, right? And I can hedge my exposure to the downside without having to sell and hold on to the assets that I have. So in a lot of institutional investors are going to do that same sort of thing. If you don't have to take that big tax hit at the end of a bull cycle, that's pretty exciting. So just one thing to round out this conversation. Some people might hear this and they make it all excited about selling call options against their Bitcoin and getting all levered up with those. But there are many call option type ETFs that are in the market.

Starting point is 00:11:23 I know Dr. Jeff knows some of these. They will actually try to generate the income and they'll make money from the call option sales, right? The reality is many of these products have underperformed just by and holding the equity ETFs, right? So if you're doing that, it's kind of a way to get Bitcoin exposure, but you're capping your upside to some degree when Bitcoin goes on these absolute tears. Sure, you get your premium from selling, you know, high implied. volatility contracts at 10% out of money, you'll capture that premium, right? But then when you get

Starting point is 00:11:49 Bitcoin going on its hair, you're going to miss out on that upside and you're going to actually underperform. So anybody thinking about doing this, just be careful. You could potentially miss out on some of the most epic Bitcoin runs that we could see coming. How do we communicate the importance of still buying your own coins and taking self-custody? Because I think in the coming four years, especially eight years, the way that a majority of people are participating in the markets are going to through these ETF vehicles. What's your point of view? Explain your point of view on this.

Starting point is 00:12:21 That is a really hard predicament pressing that question you just ask because, I mean, it's two totally different types of Bitcoiners, right? So you got the guys who bought Bitcoin when it was $5 and they've been holding onto it for dear life and securing it against cyber threats and using their cold card and their multi-sigs and their geographically distributed, this and that and, you know, practicing OPSEC and yada. Then on the polar opposite end of the bell curve,

Starting point is 00:12:42 you got the guy who got rich off the Fiat system who's got $100 million with Goldman and he can just call them up and be like, yo, I'm already trusting you with $100 million in this relationship. Pick up some Bitcoin for me. You know what I mean? And that guy is not going to be interested in taking custody of his own keys because there's a slew of problems that come with it. I mean, there was just a social engineering attack for $250 million, like $4,000 Bitcoin, these kids who were in L.A. and Miami got this guy who was a Genesis creditor. It was a single Bitcoin whale to give up $4,000. Bitcoin just via a social engineering scheme where they called him up and pretended to be Google and Coinbase and crack and whatever they pretended to be. We'll learn the details later through the FBI. But a lot of people look at that, especially people with real money and they go, that's a headache. That's a headache, you know? And I don't want to deal with that headache. And so because I don't want to deal with that headache, I'm just going to continue path

Starting point is 00:13:33 of least resistance. I'm going to continue trusting my broker who I already know and like and who I believe has my best interest in heart. And that's the path I'm going to take. So it's just two ends of the bell curve. I think Bitcoin's going to sort of bifurcate in that sense that like the bitcoins that have their keys like myself are never going to get rid of them. And the bitcoins that are just now entering the market are probably never going to

Starting point is 00:13:51 take a custody of their coins. I'll just throw that in there just to piggyback on what you said. This is like a first world problem, right? I mean, Americans, we're into Bitcoin for the profit. Wall Street's going to come in because they want to make a lot of money, right? They see this asset that has this historically high returns, incredible sharp ratio, risk adjusted returns. They want a piece of this action.

Starting point is 00:14:09 They're going to get into it for the first time this cycle. and that's what's going to really help propel the price higher. You start talking to people like Alex Gladstein and people who are in other countries and in developing nations, they're not in here to make a million dollars on a quick hit, right? They're not going to be selling options, trading options. They're not going to be buying calls on Bitcoin. They're using it as life support to get away from their government fiat currency and to maintain their purchasing power.

Starting point is 00:14:32 So this is like a completely just foreign discussion to people like that. And so that's to your point how to like, why are you in Bitcoin? There's so many different reasons why people are in Bitcoin and it can vary by geography. It varies by your income status, all these different things, your experience. And so what I love about Bitcoin, though, is all of this nonsense. That's just going to happen because of Wall Street getting on board and driving the fiat price higher. It's going to help people all around the world who are, you know, sitting in Africa right now, and they only have just a couple sats to their names, and they're just barely trying to make it. And this is going to help

Starting point is 00:15:03 increase the value of the entire network, and it will benefit those people as well. So that's a good thing. Yeah. I'll just say, I think that we're thinking far too, uh, limited. We're not thinking big enough with respect to these ETFs. My particular view is by the end of the decade, you will see a seamless integration between Bitcoin and most financial services, including brokerage accounts. I think you'll be able to deposit Bitcoin in your brokerage account. You'll be able to buy any security with it. And I think the ETFs will be a revolving door where you can port some of your wealth to the ETFs. You'll be able to withdraw in kind from Bitcoin spot ETFs. There's no technological reason why that can't exist. It's a regulatory bureaucracy, legal headache, which those are the easiest

Starting point is 00:15:40 once to fix. The tech is easy, right? If you've got, you know, three, four, five hundred thousand dollars in an ETF and that becomes a million and you want to port some $200,000 with a Bitcoin out of there, I think that they're going to open those up at some point by the end of the decade. And it's not going to be as bilateral as we think that, oh, you either have to have all your keys or all of your point in custody provider. I think you're going to be able to move back and forth seamlessly integrating between it. I think every bank's, bank's going to be able to custody it. I just think we're just early days and it's going to take, you know, six, eight more years. So, Joe, I have heard from people like sources inside BlackRock that they're expecting

Starting point is 00:16:13 in-kind treatment within the next two years. So not even six days. Well, that's different. And so you've got two different things, right? And this is really, there's a ton of confusion on this. And what you're talking about is correct, the in-kind contribution, but those are from authorized participants. So right now, the way the trust requires the Ibit or other trusts require the Bitcoin, they go through the authorized participants. And right now it's through cash creates, right? Cash-grade system is what the SEC was insistent they did not want people to be able to port their Bitcoin from the authorized participants into the ETF structures.

Starting point is 00:16:44 Somebody will say that was just a proverbial screw you to GBTC. We'll leave that aside. But however it shook out, he shook out now where there's cash creates for the shares. That is expecting to change within the near term. When I'm talking about it's a little different. I'm talking about Dr. Jeff Ross has X amount of shares of Ibit and he wants to convert 40% of those shares into spot Bitcoin. There is no technological reason why those shares could not convert.

Starting point is 00:17:08 and move into spot Bitcoin with a withdrawal minus the fees or whatever processing transaction you need to have. So you can have something you can't do with GLD, right, unless you are significant with size and the gold ETF, the GLD, the main gold ETF, you cannot withdraw and take the gold, okay? For obvious reasons, right, it's really hard and difficult to transport the gold. There's no reason that can't happen with Bitcoin, Bitcoin spot EPS. Yeah.

Starting point is 00:17:32 The Bitcoiner in me is very conspiratorial when I hear you say that because I think, well, why the hell would they want to let people take Bitcoin out of, what is effectively a government honey pie. I mean, come on, let's be real. Black Rock is like a financial terrorist organization. I won't say terrorists, but they're like financial like, you know, operatives for the U.S. government. I mean, they're juiced in, right?

Starting point is 00:17:51 Like the Winklevoss twins do an ETF and they wait in the line for 10 years, being like, please, sir, fill my soup bowl with just whatever you can spare. And then BlackRock files and six months later, there's ETFs galore, right? So to me, I think that if the government is smart here, They're going to want to trap as much Bitcoin as they possibly can, and they would stop that sort of revolving door like you put it. Although, that said, if you want to get as many Bitcoin as you possibly can into these ETF products, you would allow Bitcoiners to put their Bitcoin in and be able to margin against their Bitcoin, because that's very tantalizing to be able to do because you don't have to sell your Bitcoin,

Starting point is 00:18:27 and you can start using it to purchase things that you want. So, I don't know. We'll see how it all shakes out. Yeah, the only thing I'll say is that market factors could influence Black Rock's decision. If they're losing market share, if you get some smaller players to launch an ETF that allows you to withdraw in-kind in Bitcoin, if that came to market, right, I would doubt more money would flow to the bigger players. I think at least you'd capture a significant market share from the smaller players. And we see this, right? There's a reason why all of the brokerage houses drop fees.

Starting point is 00:18:55 Robin Hood started as an upstart, right? And then everybody filed suit. They all dropped fees. You know, you would make the same argument. Well, why should Schwab and fidelity and these bigger players, why should they have fees on transactions? well, because the upstarts come and the upstarts start cannibalize their efforts. And this is why, like, even GBTC, right? GBT had to launch the mini Bitcoin, the BT symbol BTC, because they couldn't compete

Starting point is 00:19:17 with fees with Black Rock and the other providers. So I think it happens naturally as new participants come to the market and they say, hey, we want a portion of the Bitcoin spot market and we're going to be better. We're going to be, we're going to give an on-chain addresses for all of our Bitcoin. We're going to allow withdrawals. It seems ripe for takeover if you actually bring a product to market that is better. Let's take a quick break and hear from today's sponsors. All right.

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Starting point is 00:23:47 Just today I read BlackRock amends their custody agreement with Coinbase, filed it with the SEC. As detailed in the SEC filing, the amendment updates the section 2.1 of the custodial service agreement. Coinbase custody now must process withdrawals of digital assets to a public block. chain address within 12 hours of receiving instructions from the trust where it's authorized representatives. What's happening here? Why are they updating this to 12 hours? It used to be 24 or 48? I think it was 24. I think it's just for the sake of efficiency, they want it to move quicker. I mean, it's a good thing. It's positive, right? We would supplement a faster basis. And I don't

Starting point is 00:24:26 view it as anything nefarious or negative. I just think it's more of a faster way of updating the instructions where they're giving the addresses to the institutions or authorized participants, and they're trying to fulfill balance requirements. Is this because they're getting a little bit of slippage or just? I haven't heard that at all. First off, you hear all the time about these rumors that I categorically reject that BlackRock or other ETS do not have the Bitcoin. I think that is preposterous.

Starting point is 00:24:50 Putting that aside, my view is they're just trying to be more efficient and they're trying to get hold of the Bitcoin on a faster basis, which is a good thing, right? Any other thoughts on this one? Yeah, when I read it, I just viewed it as Black Rock dictating terms to Coinbase for, like Joe said, for greater market efficiency. They were like, all right, listen, like speed it up. Like, 24 is too slow. We're Black Rock. If we say 12, it's 12.

Starting point is 00:25:11 You know what I mean? Like, that's, that was the takeaway I had from it. Yeah. What do you guys think about now that BNY Mellon is going to start doing custody services? Do you see them starting to eat into some of the Coinbase custody? You would think that 10 years from now, we're not going to live in a world where Coinbase has control of as many coins as they currently do as a custodian. as a custodian. Right now, that is a risk, like the centralization of coins at a single custodian. I think Fidelity is the only ETF provider that's not custody in coins with Coinbase.

Starting point is 00:25:39 And then Ibit and Grayscale and a few others are, some of the smaller players are. So it's a real central point of failure there. Now, like, I'm sure that the keys are in multi-sig, et cetera, but still, that, you know, there's some process at Coinbase that is the central point of failure. So, yeah, I would think that just as a differentiation point in the markets that you'll want to have different, like for me personally, I, you know, in my retirement account, I bought Fidelity instead of Ibit because I like the fact that Fidelity is doing their own custody, right? I also don't like BlackRock because of ESG and a bunch of other reasons.

Starting point is 00:26:11 But, you know what I mean? That was calming to me as an investor. And I know people who did, you know, half and half they were like, I'll buy half I bit and I'll buy half Fidelity because of the custodial risk. And so I think we're going to see more of that Bitcoin separate. And yeah, why wouldn't it go to sophisticated players like B.N. Y. Mellon or J.P. Morgan Chase or whomever. right, gets involved.

Starting point is 00:26:30 Isn't it interesting that a lot of the ESG stuff is really starting to spin the other way? Like, I just read this week. And it seems that AI is really kind of driving the trend reversal where everybody's like, all right, well, we need lots of energy. So now all of a sudden, we're all about nuclear, right? Oh, totally. The Microsoft, I guess, is firing up three mile island again or whatever. I mean, it's pretty fascinating to see it all taking place right now.

Starting point is 00:26:54 And great for Bitcoin that I guess everybody looks at AI and they're saying, there's a use case. There's no use case with Bitcoin mining. So they weren't on board until AI came along. But I think this is really a good development for Bitcoin to continue to scale and for more energy to come online. Yeah, absolutely. I mean, because basically what they figured it, what big tech has figured out is that if you have an LLM model and you can throw the most amount of power at it, you win, which what does that sound like as Bitcoiners? It sounds very similar to the way Bitcoin mining works. I mean, there's no direct output there. They believe it's going to be a winner take most or a winner take all market.

Starting point is 00:27:29 which is probably correct. And so I think it's great that they're subsidizing nuclear power and they're using their political connections to get it done because we were not able to get it done at all. We've been on this beat for 10 years and nobody cared about us. We were just like the weirdos in the corner. But when Bill Gates is like, we need to build power plants, suddenly, you know, it starts happening, which is fantastic.

Starting point is 00:27:49 I also think like, you know, ESG sort of went away as like it was a zero interest rate policy phenomenon like the minute ZERP ends and all of a sudden like, we can't be mandating, you know, political ideology to companies for whatever reason. Okay, anything else on the ESG part before we move on, guys? I'll say with that is, to me, it's very clear that the Overton window is shifting, right? Yeah. I think it's gone about as far left as it could go of all the socially acceptable topics like ESG,

Starting point is 00:28:16 like I don't want to get into all that right now. But I think we're starting to shift back towards the center again and to Hoddle's point and to your point, Preston. We just realized, look, we did these unreliable, renewable energy sources. just don't work. They're super crappy. Brownouts are terrible to live through. We actually need legitimate base load energy and nuclear is awesome, you know. And so it's starting to shift and now it's socially acceptable for people on the left to talk about that and to say those things. So I can't believe it took this long because it's been really annoying, but I'm really excited to see

Starting point is 00:28:46 that we're finally moving back to the center for these topics. So that's all I have to say. I want to talk about this SAB 121. Sab stands for Staff Accounting Bulletin, 121. I'm assuming, Joe, you're really well versed on this. Effectively, just to kind of simplify this for folks, so if banks are going to custody and obviously BNY Mellon, I don't think falls under this with this announcement this past week, but banks, if they're going to custody, Bitcoin, or any type of digital asset, they have to treat it as a liability on their balance sheet, and then they have to have cash reserves or some type of asset to offset this liability that they would be holding on behalf. So let's say they have $100 million of Bitcoin that they're custodying. They then have to have

Starting point is 00:29:31 a certain amount of assets in excess of that $100 million that they would be custodying to offset that quote unquote risk on their balance sheet. So SAB 121 is trying to, there's a lot of banks, a lot of bankers that are trying to get this overruled so that the treatment isn't that it's held as a liability on their balance sheet. Interestingly, Basel 3 came out. I want to say near the beginning of this year. And it specifically broke out two different groups. You had group one, you had group two. And basically they're saying that crypto assets need to have a 1,250% risk weighting. So in the example I used earlier, if you're squatting on $100 million worth of Bitcoin, you basically have to have $1.25 billion of assets on your balance sheet to offset the custody of that

Starting point is 00:30:23 hundred million dollars worth of Bitcoin. So this makes it impossible for banks to want to touch it. There's been a lot of Howard Lutnik, who is from Cantor Fitzgerald, has come out. He talked a lot about this openly in a couple different interviews saying there's no way we can get banks to ever touch this for all these reasons that I just described. Joe, I'm curious. First of all, did I get that right? My description is that actually? I will say it's connected to the story we just talked about to be at B&Y Mellon. because they actually got the exemption from SAB 121. So just for your viewers and listeners, the backstory starts with the SEC basically puts forward

Starting point is 00:31:04 this bulletin, okay, staff counting bulletin, 121. And this imposes these restrictions on custody arrangements for various institutions. Okay. And then at that point, there was widespread sort of animosity towards this, so much so that they actually got a bipartisan bill passed by some Democrats through the Congress. set it to Biden's desk, and lo and behold, it gets vetoed. Okay, disappointment, right? Then you get this exemption from it where they point to various, there's a speech, actually, that's the big news, right, where you got a speech basically from one of the head regulators saying, we're going to grant an exemption to be in Y Mell.

Starting point is 00:31:40 And the question becomes why. And there's collaboration agreements they've cited with state regulators and other institutional custody risk management controls that are in place. But the long and the short of it is, they're already pivoting away from the requirements of SCB 121, which is extraordinarily unpopular, so much so that it had bipartisan support to repeal. So the question is, where do we go from here? You know, being Y Mellon was able to successfully navigate the SEC's requirements to get this exemption, which is not really fair. And people are crying, well, wait a second, you're again, picking and choosing favorites. You're not giving this to other major players, like Custodia Bank and others that are trying to, in good faith, comply with the requirements.

Starting point is 00:32:17 you're picking and choosing winners once again at CC, which is not your role is supposed to do. It's supposed to be agnostic as opposed to banking and institutions. You're supposed to have a level playing field for consumer protection. You're not doing that. So the question is, in the new administration, whether it's a Harris administration or a Trump administration, will you get a repeal finally of 121? And I, for one, think you do. I think regardless of the administration that takes hold, I think you do get a repeal,

Starting point is 00:32:42 just because there's broad bipartisan support for it. And I still am confused. That's why the Biden administration felt a need to V. in the first place, considering, you know, even people like Chuck Schumer voted for the repeal that is. So, you know, from my standpoint here, I think this all goes away. I think obviously if former President Trump captures the White House in November, I think that is going to be almost a done deal that 121 goes away. Harris administration is going to be a little bit different, probably less likely. But overall, I think there's enough bipartisan support and there's enough

Starting point is 00:33:09 of Wall Street money behind it. That's the key. Wall Street money and influence lobbying to eventually get it to go away. What do they have to match it with? So I'm assuming they're still listing as a liability, but how much assets do they have to have, let's say, if they have $100 million worth of Bitcoin on their balance sheet that they're custodying? Well, this is the confusing thing because they haven't been really clear about it. We only have this speech, right, where they have said that they qualify for the exemption, but we don't know what the specific factors that they're looking at, that they're all soft, right? It's kind of, we don't know under the hood what specifically led them

Starting point is 00:33:42 to that variance, they call it, variance from the requirements. So, I wish you could give you a more direct answer. I know I have clients that would love to have more direct answer on it. But unfortunately, we don't. With the SEC, it's always sort of, you know, tell us everything and we'll hear from us at some point down the line, which is very frustrating, right? That's not a good way to conduct major policy, specifically in an area as important as Bitcoin. So the question really becomes like, so why do you think that it was declined? Is it just to give them a head start over everybody else? Is this, I would imagine it's very political? I mean, what's the tinfoil hat rationale behind these actions?

Starting point is 00:34:16 Because the actions don't make any sense whatsoever. Yeah. I mean, look, when I need a tinfoil hat answer, I go to American huddle. That's just generally where I try to get like. Hottle over to you. The government's not inefficient, Joe. How dare you say that, by the way, somebody will be knocking at your door shortly. And also, they love you and what's best for you.

Starting point is 00:34:37 Well, we'll see. You know, I don't really know what to make of it. It seemed like it came out. the left field. Were you expecting that this week? I was not expecting this at all. Yeah. Many industry participants were taken off guard by it. I mean, it seems strange. I do know that there was some signaling from the Fed. The Fed had to issue with a non-objection letter to be in why, which is interesting. Why they would do that? I'm not quite sure. But yeah, I'm sure we will find out in the coming weeks and months. I think some of the most interesting news of the week came,

Starting point is 00:35:08 I don't know if you guys saw the threads about Silvergate, right? And some of the affidavits that were and declarations on that and how we know now definitively that Silvergate was taken out back and shot because it was pro-crypto. So we learned these things after the fact. And I'm sure there was a story here that has yet to be reported that we will learn after the fact. Yeah. So for people that aren't tracking back when a Silvergate went down, there was a lot of debate as to whether it actually was short on capital and that they went through bankruptcy or they were purposely killed because they were basically the banker to all these businesses that dealing in crypto. And this past week, there's been a lot of evidence that came out that it was

Starting point is 00:35:46 actually the latter, is that they were, in fact, killed by the government on purpose and that they actually had liquidity to service all their obligations. So Nick Carter had a major role in first reporting on it. And then I know this week he was putting out amazing content. I think Caitlin was also putting out some stuff with respect to that. What I find so really frustrating is for Caitlin, dotted every eye, crossed every single T for years. I think what was the bank originally it wasn't Custodia Bank. It was originally, you guys remember the name? Oh, yeah, yeah. It's been a while. Yeah, it's been a while. But like, I mean, it's like four years ago she was starting, maybe even longer on that. But anyway, so my point is, is that she's been at this for a really

Starting point is 00:36:30 long time trying to get a Fedmaster account. The irony that she's saying, yeah, I'm going to fully reserve everything, right? And then basically saying, well, we can't have one person like doing things honestly here and everybody else is fractional reserved. So they slow roll the approval. Then they just flat out declined and said it's not approved. And then they go this week and approve, you know, BNY Mellon to basically provide custodial services. So she was pretty vocal, obviously online about a lot of this for good reason. And I can only imagine, you know, the case that she has against the Fed. But I guess from my vantage point, it's like, well, they, in a way, because they slow-rolled it and whatever shenanigans were played in the background,

Starting point is 00:37:15 you're still going to end up losing regardless of how good your case is because now they're all in this game and you're still not. Or you're starting, or even if they gave her approval now, you're starting from like zero and like flat-footed and they're all just off to the races. So it's really insanely frustrating to see like that level of corruption playing out. And, you know, I'm very comfortable saying I think you all three would agree. It's just total government corruption in that particular case. Avante Bank was the one you're talking about. Avonte. Thank you. Avonte. Avonte bank that was renamed into Custodia Bank. Here's where I'm going with all this. Sorry I'm talking so much. What I find so fascinating is I did an interview with Paulo from Tether. They're now at a

Starting point is 00:38:00 119 billion of assets under treasuries that they're squatting on, and they have tokens that are issued on top of this. I can't say I've audited it one to one, but I'd be pretty shocked at this point that for the number of bare markets that they've gone through and how they've continued to hold their peg, that they're not backed. The fact that you're kicking off a 5% coupon on, you know, three month money, and then he's plowing that into Bitcoin, which then hasn't had a compound annual growth rate lower than 25% over any four-year period tells me that he's probably deeply over-collateralized on the assets, the $119 billion of assets under management. And when I find fascinating is effectively he's doing fully reserved banking, right?

Starting point is 00:38:47 Like we look at Silicon Valley Bank, how long ago was this now? Almost two years ago. Right? Yeah, two years. Yeah. And everybody ready to poop their pants, whether they were going to get it. bailed out by the central bankers or they were going to get their 250k FDIC check even if they had $10 million on deposit. That's the fractional reserve game. And you look at now some of these

Starting point is 00:39:10 stable coin issuers and it almost, and people, I'm going to get a lot of crap for this, but it almost feels like that might be safer because it's fully backed and fully reserved 100% versus these fractional reserve banks that are being kept out of this market because they're not allowed to custody. I see Joe's disagree. And I want you to disagree. No, no, I actually agree, but I think that I have to be whipping boy to play devil's advocate here for the Fed. And we can talk about that if you want to.

Starting point is 00:39:38 Why do you hate fully reserved back in banking operations, right? Okay. So again, this is not Joe's view. I'm full disclaimer. So don't add me. But I'll just say, okay, so the whole premise behind the entire system, right, is credit creation. Credit creation is the heart of the system.

Starting point is 00:39:54 So if you have a fully reserved banking institute, you inhibit credit creation. So the Fed opposes that largely because in their mind, in times of market turmoil and times of downturn, their influence, their transition mechanism pressing to affect monetary policy is muted. They do not have the ability to play on the levers of the monetary system to incentivize. In other words, they would say it's inflexibility. To borrow another term from a recent debate we've had all over Twitter is they would say you have created an inelastic money supply with a fully reserved banking system. That is pernicious to our system. That inelastic system says that in times a downturn, we do not have liquidity tools to incentivize and restart the system.

Starting point is 00:40:36 The system freezes up like a patient going into cardiac arrest and it dies. So from their perspective, they think that these types of ideas are dangerous. They actually undermine their authority and their ability to control the system. Right or wrong, that's their thought process. The inflexibility that is associated with full reserve back systems is what is, I think, in their mind a threat to the stability of the greater monetary policies. I totally agree with what you just said. That's how they view it.

Starting point is 00:41:02 I don't. No, no, no. I'm saying I agree that from their vantage point, that's how they see it, right? This is a threat against them and the way that they implement policy if you would allow fully. Of course, I don't want that. I think that's a way to mask the printing is what it is because you're just doing it through the credit creation. But I'm curious if you guys, this is the question I have.

Starting point is 00:41:25 Do you see Tether and Circle basically doing like an end around fully reserved banking? And they're doing it in a way that the Fed really doesn't understand that that's what they're providing in their service. And it's interesting because they're really not playing by the rules, but then you have people like Caitlin Long that are out there like knocking on the front door at the Fed and saying, hey, I'm willing to do all the paperwork. I'm willing to do all the stuff. And because she's willing to play by the quote unquote rules and be fully reserved, they're basically saying, yeah, you're trying to play a game that's unfair and you're trying to play it fairly, like get lost.

Starting point is 00:42:02 Yeah. There was a Willie Wu tweet tweeted recently. He said BlackRock has 19,800 employees and it has 10.4 trillion AUM, which is 10% of the world GDP. And they make 5.5 billion profit. Tether has 50 employees. They have 119 billion AUM, which is 0.1% of world GDP. and they make $6.2 billion in profit. And $700 million more than BlackRock does annually, right?

Starting point is 00:42:30 But the thing is that $10.4 trillion AUM for BlackRock, that's the actual key number because that number says, I'm in the club. Not only am I in the club, I'm a big part of the club, right? Tether, I think, is too big to fail at this point. I think Tether is going to be, I think they're going to bring Tether into the club. That's what I think is going to happen.

Starting point is 00:42:50 But this sort of shadow banking system with stable coins, I don't think they're going to be able to end run around it for that much longer. I think basically like if you're big enough, you're going to be offered a seat at the table or a half seat at the table at least. And if you're smaller, you're going to get clipped. That's the way I say it happening. I think this is why the SAB-121 thing is such a big deal is because I think these too big to fail banks are looking at the old legacy fractional reserve banking system. And they're saying, look at these guys over here. this rag tag team of call it 100 people, they're making more profit than Black Rock in the last 12 months. We want to play that game. We don't want to, you know, have to obey these 121 rules.

Starting point is 00:43:32 We want to be able to play in this stable coin market and back, we'll buy all the short duration issue and you want U.S. government. And we're just going to issue a coin on top of it and, you know, keep the coupon, right? Or at least most of it. And I think that that's kind of game that they're trying to get into. I think the big banks are trying to get into the game that Tether and Circle and others are playing. And it's fascinating to me because they're wanting to undo the fractional reserve game that they're so well versed at. And one other thing that I find fascinating about this is think about their revenue for like if you're a traditional banker and a Max Kai said this to me when I was doing an interview. He said, think about traditional banking and

Starting point is 00:44:16 fractional reserve banking. If you take a $10 deposit and you can lend out a hundred, you're making revenues off of the hundred that you're lending out, the percentage of the interest off of the hundred, not the 10 that's on deposit. He's like, so you're collapsing multiples if you start fully reserving everything because you're not going to be able to lend out 10 times as much. And it was a really interesting comment and you can see how they're kind of, if you're a legacy banker, you're at odds with you want to be still playing this fractional reserve game, because you've got multiples of 10 on the deposits that you can lend out and the money that you can make off of it. But at the same time, you're looking over here at this guy who's like eating your lunch from a profit standpoint with 100 employees and he's fully reserved.

Starting point is 00:45:01 So it's, I don't know, it's really at odds. The legacy system and I think where we're all going with stable coins, I don't know. What are your thoughts, guys? What do you think, Jeff? Well, love it or hate it. Tether is just an astonishingly good business model. and I wish I would have thought of it first. And it's so interesting to think about it,

Starting point is 00:45:19 the difference between going out and building a business and then asking for permission versus doing it to Caitlin Longway and doing everything by the book and asking for permission and just getting stonewalled the entire. I feel so bad for Caitlin because she works so hard and she's trying so hard to do what's right and she just keeps getting stuffed. Yeah.

Starting point is 00:45:38 You know, it's really frustrating to watch. This is also why I don't invest in lawyers. No offense, Joe. Sorry. Lawyers are too bound by the rules of convention. You know what I mean? Let's take a quick break and hear from today's sponsors. No, it's not your imagination.

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Starting point is 00:49:13 Okay, here's where I want to go next. So when I look at Tether, a majority of these tokens are issued on Tron. Okay. Some are issued on Ethereum. Some are issued on Salonah, I think. So where I want to go with this is when I look at these other quote unquote blockchains, and we're all hardcore Bitcoiners. here, it seems that the sole purpose of these other blockchains that we all know are centralized and from different degrees, right? They're all centralized in different ways. And they're very different than Bitcoin with respect to being able to run a full node and like actually governments, if they really want to shut down any of these things, they can go in there and they can lay the screws to these very centralized servers that are running all this massive

Starting point is 00:50:01 amounts of data that are, you know, these ones that I just named. In addition to that, these stable coin issuers are highly centralized themselves. I mean, I was doing an interview with Paul. Like, if somebody comes knocking at my door, I have to oblige. I have to answer this. I'm controlling a ledger of how many coins are issued against these treasuries that I'm buying, that some bank is custodying. So it seems like this whole hodgepodge of quote unquote crypto, if I had to say what

Starting point is 00:50:31 the point of all of this was, as we were banging our heads and trying to, fight this battle for a decade at this point, it's to basically tokenize Fiat. It's to tokenize the dollar. It's to tokenize the euro. And beyond that, it doesn't really appear to have much of a use case. Now, people are trying to tokenize real equity. There's a company called Stalker that is doing that in Europe, which is really an interesting discussion. There's some other edge cases, but for all intensive purposes, I'm curious if you guys agree with this, it seems like the whole point of all these other blockchains is to tokenize the dollar and to expand the dollar's reach and to make it more saleable and immediately settling all around the world. Would you guys agree with that?

Starting point is 00:51:12 I mean, I think that the coins that did well realize that early on, like Tether realized that early on and did really well. And at any given time, if you go look at the top 10 digital currencies, like half of them are digital dollars. And the other half are just trying to put up a narrative front to appear credible enough as a challenger to Bitcoin to soak in enough liquidity so that they can abscond with the funds and then basically slow rug where you sort of sunset the project in public by saying, oh, we're doing ETH two. What happened to ETH one? It's dead. So yeah, I think basically that is what's going on. And I think the U.S. government really doesn't have a problem with it. They just have a problem with who the players are. They'd like to switch

Starting point is 00:51:52 some of the players out. Like, they want BlackRock to be one of the players. And speaking of Black Rock, Black Rock is heavily interested in RWA's real world assets. And the reason they're probably going to be successful at them or at least moderately successful with them is because you can get around the Oracle problem if you're Black Rock by just being the Oracle. We're the Oracle. We're Black Rock. We'll tell you what's what, you know, so you don't have to do the same sort of left hand, right hand, slide of hand that goes on in cryptocurrency here with algorithmic stable coin or any of that stuff. You can just straight up say, we're the authority and this is what it is. I view it all as all being traced back to exchange activity. Okay. So if you look at the

Starting point is 00:52:32 idea of cross-border payments, remittances, peer-to-peer transfers, all that, it accounts for less than a fourth of the overall volume for the stablecoins. The vast majority of the stablecoin volume is on-change activity, right? So people trading Bitcoin, ether, other altcoins, and they're trading them against the dollar pairs, right, the peg tokens, so they can hedge in and out of volatility. And why are they doing that? They're doing it because a lot of the, quote-unquote crypto exchanges cannot deal with the regulatory environment. So they are forced to not have of banking accounts. So most notably finance and others, they only deal in stable coins because that makes it harder, not impossible, but harder to shut them down. So the entire stable coin market

Starting point is 00:53:11 developed largely as a product for these casinos to fund them and allow trading activity where people could get in and out of these various tokens or assets into something more stable and hedge that volatility. So although there is in the emerging markets, there's obvious uses for cross-border payments and remittances, it still makes up overall a minority of the overall volume for the stable coin markets. So it all goes back to the exchanges. And I look at it mostly as just how do we create exchanges without having to have bank accounts frozen? And the obvious answer was the stable coins. You create a buffer where you have these centralized entities, tokenize the dollar so that you can get in and out of assets for trading purposes. I think Joe gave a very charitable explanation, too.

Starting point is 00:53:48 I would say they were straight up for evading taxes. That's what they were for. I mean, talk to the average crypto trader. They have a erroneous belief that if they go from Bitcoin to a stable coin to an arrow back to a stable coin that there were no transactions that were taxable in that chain. It's like, no, dude, they were all taxable. Each one of them. Yeah, I know. Oh, boy. Yeah, that's trouble.

Starting point is 00:54:15 Something interesting seems when you're looking at Ethereum, Ethereum is being getting destroyed lately in price terms, right, in dollar terms against Bitcoin and others. It was interesting. I remember this back and forth that I had online. this was probably four to six years ago, I'm thinking, with Adam back. And Adam said to me, you know, very casually, he's like, well, now you have Solana and now you have Tron. And it just seems like they're just a lot better from a fee settlement standpoint and a speed of settlement standpoint. And they're all centralized. He's like, so if you're going to cheat, you might

Starting point is 00:54:55 will just cheat better than the other ones. And it seems that Ethereum is kind of caught in this situation where they were still trying to be decentralized. I mean, it was proof of work for a very long. When did they come off? When did they go to proof of stake? Like 2022 or? 20 years ago.

Starting point is 00:55:13 Yeah, 22-ish. Two years ago, three years ago, they moved from proof of work to proof of stake. So they were still trying to keep it together and still trying to be decentralized. But these other ones came along. And we're like, yeah, well, we're not actually decentralized. We just say that. We're faster. We're cheaper and we're going to win because that's what people actually want.

Starting point is 00:55:32 And they really don't care whether we're decentralized or not. The government doesn't seem to be shutting us down. So we're just going to continue to cheat, right? It's all legacy thinking, right? The best ones that cheat are the ones that win. So I guess it's interesting to me to see Ethereum really losing a lot of market share right now because they just didn't cheat well enough. they weren't, am I framing this correctly or am I kind of out to lunch? What do you guys think?

Starting point is 00:55:59 Well, I think one thing you were keying on there is that the main difference between Ethereum and Solana is that Ethereum enforces a lot of the cost of running the system on the users and Solana enforces a lot of the cost of running the systems on the developers. And obviously, if you're trying to create consumer applications, which one of those is going to have more buy-in? It's going to be the one that doesn't penalize consumers, right? So, I mean, that's the main reason why this salana and trana or whatever are doing better than ethereum and i think ethereum is i've thought for a long time that it's like a slow rug and that you know vatolic is looking for a lot i mean a lot of people got rich off of it and like good for them and now they can ride it off into

Starting point is 00:56:37 the sunset and buy bitcoin and stop going to their weird conferences where they dance around on stage and sing okay uh anything else there are we good i think we're good yeah i mean i think that's the spot on. I mean, at the end of the day, right, most of these chains are for minting useless tokens, mean coins, right, and trading them between one another. And if you can do that cheaper and you have the backing of VCs, which Salana has a ton of, make no mistake, they have a ton of very important firms backing the operation, right? So they've got the institutional side behind them, plus they've got the cheaper product. So it seems like a real recipe to steal market share from Heath. All right. Final topic. 50 BIP cut this past week.

Starting point is 00:57:18 we have been tightening. We've been, from a global liquidity M2 standpoint, have been going sideways for what two years now, guys. And I just saw that Global M2 broke out. And we have the Fed cutting. I just saw tonight that China is aggressively adding liquidity into the market. I'm throwing this over to Jeff. He's been very quiet.

Starting point is 00:57:43 This is the topic he loves to talk about. Where are we at? Are we going to continue to chop sideways? Are we about to break out into a bull market, Jeff? What's happening? The bull crab market is over. Oh, wow. It's the bull market officially.

Starting point is 00:57:54 So for all these reasons we're talking about, liquidity is breaking out. Global M2 is rising. It doesn't really matter what most people are U.S. centric, but when you're talking about global assets like Bitcoin, which is the premier global asset, you want to see global M2 monetary supply rising. And that's where you have the strongest correlation. When the Fed dropped by 50 bibs, other central banks are drawn. as well, that's lowering the cost of capital for people's, right? So for people in the audience who

Starting point is 00:58:22 don't know this, right, like the prime rate is what most variable shorter term borrowing rates are based off. And the prime rate is based off the federal funds rate. So when the Fed funds rate dropped from five and a half to five, the prime rate dropped from about eight and a half percent to eight percent. And if you have something like a helock or credit card debt or you're a small business with small business loans, those kind of things, that means literally the next day your rates dropped by about 50-bit, 50 basis points. What does that mean? You have more cash in your pot. Your cash flow is just instantly improved, right? I have a helock. My cash flow is just improved a couple of days ago. That's fantastic. And they're going to drop, they're probably going to,

Starting point is 00:58:59 I think they're going to do a couple 25-bit cuts in November and December. So it'll be a full like 100 basis point cut by the end of this year. That's my take on it. That's real money. So what that does, that means you have more money in your checking in your savings account or in your money market fund or earn your CD. That's what that's what M2 is, right? It's the cash that's floating around. It's checking savings accounts. It's retail, money market funds and CDs. And so that just means that supply is rising. That means just regular people all over the world suddenly have more cash. And what do they do with that? Yeah, they pay their bills. That's going to be a bit of a relief for them from a consumption side, but now they have more money to play with. And that's why you start seeing the risk curve. People

Starting point is 00:59:41 start to move out on the risk curve when this starts to happen. And I think what we're starting to see, If you look at past cycles, obviously, Hidal and I talk about this all the time. It feels just like it did back in 2016. It feels just like it did back in 2020. When you have that kind of everybody's just chomping it at the bit, they're just getting so impatient. I see people bailing. They're like, I thought Bitcoin was awesome. I thought you said it was going to go up.

Starting point is 01:00:02 And I bought in at 55 or 60K and it's just still sitting at 60K, 50K forever. I hate this. And they're bailing. And I'm like, please, please don't. Like, this is when you want to be in right now. And so I think that the next 13 months, we're doing this. on September 23rd, I think the next 13 to 14 months are just going to be lit. And we're going to start slowly at first. And then I think we're going to get that exponential move higher. As people

Starting point is 01:00:25 start getting confidence, the other thing I think people aren't realizing is there's doom and gloom recession East is all over the place still. I listen to them every morning. They're good people. They're smart economists and they're wrong. They're just totally wrong. We are not headed into a recession. I think GDP is going to surprise to the upside. I think manufacturing is going to start shooting higher quickly. And once everybody figures that out and we see that economies are actually starting to grow again, especially here in the U.S., it's just going to be off to the races and it's going to be banana. So I'm very much looking forward to 2025. Joe, do you agree with that? Yeah, I mean, look, I think it's very hard for me to listen to recessionistas with some of the economic data we have. You see

Starting point is 01:01:07 several cyclical sectors which have been lagging, right? But overall, aggregate growth, which is how you measure a recession, has been robust, right? You, You see unemployment, which is significantly below the 50-year average, hovering right above the 4.2%, actually took down the last data point we had. You see that now we're in an environment where inflation has effectively cratered, right? You basically have seen inflation come down by the government standards at around 2.5. If you believe the private sector data, like we're well under 2%, we're well under the target. So why shouldn't the Fed cut?

Starting point is 01:01:40 I mean, honestly, the Fed, I was surprised they cut 50. I think that perhaps the deflation out of China is perhaps scaring them more than, people expect. But reality is, you look at the inflation data. They're at target minus OER, which is the single lagger that's holding up the basket. And that's going to take time to come down. So what is the reason for not cutting? And I was saying this months ago, like, they probably should have cut at the last meeting. I think it would have been better for them to cut 25 and 25 again. But I think they wanted to come out knowing that they're going to have to wait until November for the next meeting to do a cut. And they wanted to come out and signal that the cutting cycle is

Starting point is 01:02:11 here. And what I will note is that if you were following the rates market, if you're following the bond market before the Fed did anything, right? The two year, the 10 year, most of the curve already told you that cuts were coming. They dropped significantly. Mortgage rates reached a significant low, even before the first cut. So the transmission mechanism by the time the Fed is acting is really delayed, they're really just following what the market had already done and already signaled with cutting rates, which is responding to the inflation impulse. So to me, I think it's positive. I still am frustrated beyond belief. I want to pull out my hair when I hear these things about, oh, well, whenever the Fed's cutting, the stock market's about to implode and go down

Starting point is 01:02:46 60%. I see these ridiculous charts. I'm sorry for getting worked out, but they're infuriating where you see like 2008. We're at all time, we're at all time highs right now. And you think it's going hot. It's going to rip. We're going to have a meltup from here. I don't necessarily believe in the meltup thesis. I think you can do very well, you know, a 15%, 20% move, mostly because some of these guys, the meltup guys have been calling for a meltup for like, you know, four years for now. There's guys on Twitter that have said this. But I mean, look, like, this is an environment where inflation has come down. You've had effectively a Goldilocks scenario where real growth remains above trend. Nominal growth remains significantly high.

Starting point is 01:03:25 You've got household net worth at all time record highs. Where is the weakness coming from? Now, obviously, something can happen, right? You can get a catalyst any day. You can get something to, you know, come out of left field and change the game. And that could be a significant headwin for the US economy. But it's not, I find it very difficult for to look at some of these examples where unemployment goes shooting up and people pull up a chart of 2020 or they pull up a chart of 2008 where you literally had contagion in the banking system. Like the banking system was on the ropes ready to fall apart. And they're going to say like, oh, well, that's going to happen next month. Next month we'll tune into this program and all of a sudden there's going to be 25 million

Starting point is 01:04:01 Americans out on the street eating cat food under a bridge. Like that just seems very unlikely. Well, you know, listen, Preston, Jeff and Joe are much smarter than me, especially about economics, and they really get in the weeds with these kind of guys, and they argue all the finer points. No, I mean, like, guys, you go back a little over a month ago, and you could go on Twitter, and there were people talking about Great Depression like events from the Yen-Carrie trade blow up. I mean, I know Dr. Jeff heard some of these people. Like, I'd love to hear his talk. Oh, that was, that was a hilarious weekend.

Starting point is 01:04:33 Everybody was an expert on the Yen-Carrie trade. It was amazing. It was amazing. Why we were all going to be doomed, you know? And then a week later, okay, we're off to all-time highs. It wasn't even a week later. It was two days later. It was two days later.

Starting point is 01:04:48 It was like Monday hit. I mean, it looked like Armageddon. Tuesday, I think, was bad. And then Wednesday, we were back to where we were at. Yeah. Like the market bid, whatever percent. It was crazy. So I would love to hear your take, Preston.

Starting point is 01:05:02 What message do you think that's sending? I mean, if you look at these broad. Ray of at markets and you see them sending the message. What do you think there? What is the signal? I don't know. I think they're going to plug any type of liquidity gap immediately. Like I don't, and this was the crazy part with that one. I don't even know what they actually did. I would assume they opened swap lines, but I didn't read that anywhere in the Wall Street Journal or anywhere, right? Like, what did they do to plug that to stop the unwinding that was happening? I mean, it is aggressive. Those two days were really aggressive. What did they do? I don't know. Do you guys?

Starting point is 01:05:35 I just take some trades unwinded and the market settled at the new level and now we're carrying on as usual. Yeah, I mean, there were some public reports about some of the BOJ finance ministers saying that they were prepared to hold off on future hikes. And that's a really interesting subject, right? The fact that there's still potential out there for hikes with Japan, right, like further VOJ hikes to defend their currency, which if you go back six months a year, right, all you heard about was when is the yen going to stop selling off against the dollar? Now it's the exact opposite. What is the dollar going to find a bit against the yen, right? And I think there's reasons for driving that, one of which is, you know, the Fed entering, entering a cutting cycle,

Starting point is 01:06:12 which was well telegraphed. And then the BOJ saying we still are concerned somewhat about inflation. We want to continue to hike. So that differential is driving that action and that leverage unwind is not a systemic risk. In my mind, it's more of an isolated risk for traders. Like those traders in a mechanical way have to close their positions and sell down to draw down their margin effectively. Yeah. Well, in general, I think everybody's bullish for the coming year. Like Christmas of 25, if we are, you know, fourth quarter of 25 if we're recording, where you think we're talking about not the 58K gang. We're talking about the 580K gang. Is that what's kind of what do you guys think? Can we run? I'm sticking with my, I'm breaking all the cardinal rules. You don't pick a date and a price, but I'm doing both. I'm saying at Halloween of 2025 will be at 475K. Oh, that's really, Jeff, I'm surprised you're saying this. Okay. I've been saying this for like a year, though. This is wow. Okay, 475 Halloween 25. Okay, Joe. I have no idea. I've had this hat. I don't know if you can see it. Probably blurry. Getting blurs. Yeah. So I have had this hat. Let's see. It's a Bitcoin 100k

Starting point is 01:07:22 hat right here. I have wanted to put this on since 2021. I got this as a gift from a client. And I really hope I can wear it in the next year. That will make me happy. If I can wear the 100K Bitcoin hat. That's a victory. Joe, I'm going to guarantee that you're going to wear the hat in 2025.

Starting point is 01:07:38 I'm not going to take it off once I get it. So that's the rule. Hoddle, do you remember this guy parabolic trabb from the 2017 cycle in his shorts

Starting point is 01:07:49 were going to 100K back then? Go ahead, Hoddle. What do you think in the coming year? Well, I already, I have promised 100K by this Thanksgiving

Starting point is 01:07:58 or I will eat a pumpkin pie. And pumpkin pie is disgusting. Okay, it's the grossest food. It's just a dirty gourd. Stop. Stop. No, it's horrible. Horrible. All you pumpkin pie people are communist.

Starting point is 01:08:11 We need to kick you out of America, okay? This is how I feel about sparkling water, but this is a whole other topic. So, yeah, I told somebody, if we don't hit 100K by Thanksgiving, I will eat a whole pumpkin pie. This Thanksgiving? Hold on. Doesn't Peter have a bet with like Mike Green or something this year to, you? hit 100K? I think he does. I think he does. I don't know. Maybe you won't. Usually, historically, we do get bullish towards the end of the year. I think we have a bit of an overhang on taxes,

Starting point is 01:08:44 which will settle out mid-October because crypto people are just total D-Gens and they don't pay their taxes to the last possible minute. And I know because I'm one of them, right? And so it's like, we got that coming up mid-October and then you always get the Thanksgiving effect where people are telling their family is about Bitcoin and people start getting bullish, et cetera. Like, I don't know, things just tend to ramp up towards the end of the year. I mean, that happened in 2020. It happened in 2016. I don't see a reason why it wouldn't happen again this time around.

Starting point is 01:09:10 And then going forward, like Christmas time of 2025, I'm just as bullish as Jeff. And I do think that there's a possibility that we take out this sort of higher lows thesis. You know, there's always some sacred cow to be killed in Bitcoin in terms of narrative. Last time, it was never below the prior all-time high. Well, we took that one out. Yeah, we did. We went down to 15 and I cried a little bit. But I got my big boy pants back on and I was, I'm doing okay now.

Starting point is 01:09:34 But, you know, after I got done while wiping my eyes with Linux, I was looking forward to the next cycle and I said, what's the next sacred cow that we're going to get rid of? And I think maybe it's higher lows. Sorry, yeah, diminished return. Diminishing returns. Yeah. You know what, Haudel, I think you might be right on that one. I would not be surprised.

Starting point is 01:09:51 I would not be surprised if you were right on that. And so if we do get to a level, let's say, here's how I anticipate it going. We get to this level that's like 180, 200 around there, right? And everybody goes, right, this is it. We did it. This is the new all-time high. I'm finishing returns, right? Yeah, I'm going to sell a bunch of my Bitcoin.

Starting point is 01:10:07 Look at me. I'm so smart. And then, boom, it catches a crazy bid. It goes up to 500. And then everybody's going, oh, my God, I got to get back. I got to get back in. This is going to a million. It's got to go to $580.

Starting point is 01:10:18 It has to go. Well, and then once people pile back into the trade, that's when you could get a real crazy problem going up because that's when you could legitimately take a run in a million dollars because, I mean, sitting on the side. lines, like, if you got out at 180 and Bitcoin goes to 500, you can't sit on the sidelines, especially if you're a long-term hodler. No way, right? So, like, to me, I think if we do take out the diminished returns narrative, we could legitimately take a run in a million dollars. And it's either

Starting point is 01:10:46 going to be one or the other. We're either going to stick low at like 200 or we're going to a million. What do you, do any of you think that there's a possibility that we go higher in the six figures next year and then go higher the following year and then go higher the following year? Because that's usually my base. I mean, when I think about it, that's my base case. I don't believe, I think that people are screwed up from the collapse in the crypto markets, FTX, institutional collapses in 2022, and they believe that the 80% drawdown is guaranteed. I don't expect that this time. Maybe not with the wild card is what happens with the derivatives, what happens with the ETFs, what happens with these really large institutions that are just showing up. And

Starting point is 01:11:22 James Lavish says this all the time. He's like, they don't care what the prices. They're just being told, hey, I need, you know, this many millions or this many billions of allocation into this thing, go get it. And I don't know. I think it's, yeah, it might be a little bit different, Joe. I don't know. I would love to be of the same opinion as you, Joe, but I'm just not. I think three greens, one red is an immutable law of the universe where your cycle is real. You know, I mean, it is what it is. I think in Joe, to answer your question, if Global M2, you know, I'm very simple-minded, If Global M2 is still accelerating higher, then I'd say it can keep going up in 2020. I think we're just going to follow the cycle again.

Starting point is 01:12:03 I think that's right. I think it's going to roll over. And then I'm going to start telling everybody to get cautious and I'm going to turn into mean Dr. Barrigan. Well, why do you think Global M2 is going to, sorry, I got to hear this. Why do you think Global M2 is going to decline in 2020? Because it always, it's just everything is cyclical.

Starting point is 01:12:16 And so it can't keep going up for it. It just doesn't go up and up into the right path. It's always, it goes up too far, too fast. And then it's going to roll over and then all the risk assets are going to follow it and Bitcoin will lead the way. That's what I think. So I'll, uh, is that, you doctor. I'm with you, doctor. I hope not though. I think I would love it, Joe. If it, if you've talked about this before, and I would love it if it went up to like 75K at the end of this year. And then the end of 25 was like 120. And then at 20 26, it was like 150. Like,

Starting point is 01:12:44 that would be fantastic. You would be trading it. You'd just be riding it higher. Everybody points to the equity market as being driven by liquidity cycle. And you had a, you know, 20 year bull market in the equity market. Obviously, you have a sell off. and drawdowns, but you have a solid bull market that's continued basically since the great financial crisis. Yeah, but M2 was going up that whole time, Joe. Right. So why would Bitcoin sell off?

Starting point is 01:13:05 I think all Jeff was saying is you might get a respite for a year or two as they're trying. Yeah, I'm a huge believer in this secular bull market continuing. I'm talking about, I think we could get a 75% drawdown though. I think if we go up to 475K target, I'm going to be telling people I think it's going to go down to 75K in 2026. I mean, Hoddle's saying it's just one red dot. He's not saying it's two red dots. Right.

Starting point is 01:13:28 It's just one red dot. That big deal. Yeah. It hurts. I mean, this is real analysis here, Joe. Yeah. Well, you know, that's the meme that's going to die. It's going to die this time.

Starting point is 01:13:39 We'll see. I like the confidence. I like two promises to you. One is you're going to get to wear your 100K Bitcoin hat in 2025. I hope so. Honol, you're going to be wrong. You're going to lose another bet for being too bullish too soon. You're going to eat a pumpkin pie.

Starting point is 01:13:53 And I want to watch that. You should film that. I mean, I like pumpkin pie. But the way he was describing it, it sounded disgusting. But I like pumpkin pie. My last thing is if we do get 475K in 2025 in fourth quarter, I am going to be using those options. And I'm going to be buying puts at that point.

Starting point is 01:14:13 Do you know how expensive that's going to be? That is going to be expensive. That's what I love about options. If it's ripping higher, buying puts is going to be dirt cheap at that moment. Because everyone's going to be buying calls, because they're going to be listening to people saying it's still there's going to be a lot of all that's priced into that. You're right. Yeah. Everybody's going to want the long. Yeah.

Starting point is 01:14:33 I'm going to do the dumb thing and just huddle my way through, you know, up to a million down to 75K. I'm just going to huddle, you know, so that's what I'll be doing. You and me both. That's what I do personally, by the way. I'm two different people when I'm a fund manager and when I'm just myself. Right. Yeah. Yeah. All right. Let's wrap right there. Guys, I can't thank you enough. This was so much fun. I'm glad we just let our hair down there at the end and just kind of had a little bit of fun. Hoddle, where can people find you? I'm on Noster. Check me out on Nostr.

Starting point is 01:15:03 I don't know how to give you the N-Pub or whatever. Just figure it out. You know, it's complicated. You'll get there. Just look at how many followers he has, and if he has a bunch, you're probably looking at the right guy. Jeff Ross, and we'll have a link in the show notes, the primal or wherever you want us to link to, but I'll have a link in primal.

Starting point is 01:15:17 Jeff. Same for me. I'm old. And so people know, I'm only on Noster now. So if you see me anywhere else on Telegram or LinkedIn or Twitter, it's not me. So it's a scam. Two for two on Noster only. Wow. We'll have your link, primal link, so people know where you're at on Noster. Joe, are you only on Noster? I'm not only on Noster. I'm also on Twitter, Alisna's X, at Joe Carlos Rari. If you have a litigated dispute,

Starting point is 01:15:42 you can reach out to me. I am almost at 100% crypto cases in the few cases being generated. Wow. I'm trying to get rid of my old ones, but that's awesome. So any litigate disputes in the broader mining space or crypto space or Bitcoin space, I'd love to help you. and just Google my name. You'll find my website. But yes, I am on Noster, but I do not post enough. I'm told that I should be more active, which I will make a New Year's Eve resolution to do this year and probably do it.

Starting point is 01:16:07 I love it. We'll make sure you do that in the fourth quarter update. So, gents, this was awesome. Thank you so much for your time. I really, really look forward to doing these every quarter. And you guys are amazing. So appreciate all of it. Thanks, Preston.

Starting point is 01:16:21 It was great. Thanks, Preston. Thanks, guys. Thank you for listening to TIP. Make sure to follow Bitcoin Fundamentals on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only, before making any decision consult a professional. This show is copyrighted by the Investors Podcast Network.

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