What Bitcoin Did - The Bitcoin Bull Market Hasn’t Started Yet | Eric Yakes

Episode Date: December 12, 2025

Eric Yakes joins the show to discuss what’s really driving Bitcoin right now and why price is determined by fundamentals, not cycles or models. We break down how marginal supply and marginal demand actually work in Bitcoin, why the four-year cycle may never have been real, and how years of behind-the-scenes work inside institutions and regulators lead to the sudden headlines that reprice the market. We also dig into sovereign wealth funds, nation-state reserve adoption, and why Bitcoin is still one announcement away from a major move. Eric explains why liquidity, not ideology, is the real constraint, why gold still dominates today, and what Bitcoin needs to reach true reserve-asset status. THANKS TO OUR SPONSORS: IREN ANCHORWATCH BLOCKWARE LEDN BITKEY SWAN FOLLOW: Danny Knowles: https://x.com/\_DannyKnowles or https://primal.net/danny Eric Yakes: https://x.com/ericyakes

Around the world, there's a bunch of conversations being had in boardrooms. There's a bunch of conversations being had at federal agencies. There's conversations that are being had at, you know, summits amongst different, you know, institutions and different government organizations. Everybody's trying to come up with, what are we doing with Bitcoin? Bitcoin is a reserve asset by governments is something that is, like, completely untapped right now. and there's so much money that sits behind all of this. If we just have small percentages of sovereign wealth around the globe start to flow into it,

then that would drastically impact the marginal demand for it. Bitcoin is always and everywhere some major headline announcement away from this happening and a massive run-up in price. I don't think it's over. I think that it's going to resume. I'm expecting Bitcoin to hit all-time highs in the first half of next year. We're happy. Vibes are good.

Oh. This is, this is Epoch. That's the start of the podcast. Okay. Eric Yakes. Okay. This is my show now for everybody listening. A year in.

Danny and I recorded already. And he didn't turn the camera on. No, the cameras were great. Okay, he didn't turn the audio on. Audio was great. So now we're re-recording the podcast. Honestly, the show just wasn't quite good enough, so I had to get you back. He keeps saying that to put me down.

It's a toxic character trait, man. You know I have plenty of toxic character traits. How you doing, man? Good, good. Vibing in Abu Dhabi. Yeah, man, I am viving. I was just on the boat, and the boat was a nice boat. I saw the boat.

I've not been on it. Yeah, you're leaving after this, right? Yep. No boats. No boat parties for me. I don't want to lose any keys. Yeah, I mean, it's been cool. It's been a, it's a very different vibe.

We've been from basically hanging out with the poorest communities in Africa last week to hanging out with ultra wealthy, Dubai vibe, chic vibes. And I'm loving it. And we were at a party last night and you ever heard of Sheik who's going to buy $100 billion. That's right. I did tweet. It was a picture of me with the Sheiks.

And I didn't think they understood anything I said, but we're having fun. There you go. So you're about to do a panel. straight after this show on why this time is different. Yes. Is this time actually different, Eric? Okay. So I think like, yeah, so like the question's like, what's going to happen with price?

And I think when people think about cycles, I think about all these models, I think about where it's going in the near term, it's kind of like a macro piece. There's a sector specific piece, like how people are perceiving tech or digital assets. assets or Bitcoin. And I think like the best way to frame this is to like take a step back and just say like how do prices work. And it's pretty simple. A price is where marginal supply meets marginal demand. And then there's all these different factors that come into play that determine what the marginal supply and marginal demand is. Now for Bitcoin, it's nice because marginal supply is fixed. So we don't even have to worry about that side. We know that it's

going to be something like this. Or sorry, like the supply issuance is fixed. So then like marginal supply is really just like based on how seller perception is coming into the market. Marginal demand is where a lot of people are, you know, speculating on things. But there's so many different variables that can like impact how many new, you know, buyers are coming to this market and how many new sellers are coming to this market. And like, I think the reality is just that.

when people in Bitcoin cling to these models to try to, like, produce some sort of certainty of where that's going in the future. And we have these four-year cycles. We have, you know, these power law models or we have the stock to flow model. And we try to come up with all these different correlations that could have existed in the past and to basically say, here's how it might be working in the future. The reality to me is just that price is determined by these underlying fundamentals. that make these outcomes happen.

The, you know, Black Rock announcing the ETF years ago, that was something that happened because of boots on the ground, people advocating for Bitcoin, companies building things that enable this all to happen, people talking to regulators. You know, there's all these things happening in the background that make this one big announcement that totally changes the market

in the way that people perceive the asset. So, like, when I think about price, all I'm thinking about is, what are the fundamental things happening behind, the scene and how could that impact the price in the near term? What we know is that when we look at the price of Bitcoin historically, there's only a few days, you know, very small subset of days where you get the vast majority of the runups and price. And that comes from all of like, it's like a, you know, it's like an iceberg that's under the

water. There's all these things that are accumulating and eventually like the top comes out. You can see just the top. And like that's when there's public knowledge of everything happening in the background. So that's how I'm thinking about all of this, right? Like, I'm thinking about what are the fundamentals that are driving this? And that's something that makes me be very bullish on Bitcoin. And we can get into a lot of those reasons later on.

And that's kind of all related to like different types of Bitcoin adoption and discussions that are being had in the background. I think when it comes to this model question, the reason that we're like crashing over the past few months is one, there's the macro environment. You know, at like a really high level, it's just that we have this. perception right now where inflation's been rising over the past few months. And the market's being perceived as saying like, okay, so Federal Reserve was, you know, people wanted it to shift towards easing. And we have had a few things happen that's like putting it like right in the middle

between easing and tightening. And but if inflation continues to rise, then we may not live in this world of easing that everybody's expecting. We, you know, we're close to like 3% right now. It could spike up a little bit more. And like that's kind of the primary concern. there and I think that like sparked the catalyst in the market. So everybody's like, okay, well, AI demand is causing energy prices to spike and, uh, or it's, it's creating an outsized demand for energy assets. And, you know, over the next six months, we could see there being a shortage of enough capital deployment to fulfill those energy needs. And then that could spike, you know, the cost of energy. And then that would spike inflation and that that could put central banks in a

precarious position. So that is like that, I think like things like that are kind of the core drivers of how the market's perceiving it. And then I think there was a crash with that. And then I think there's, you know, obviously like leverage coming out of the system. And then I think that there's just this people have a hard time with the actual perception of what's going on. Because there's all these people that are like, well, we always, you know, they expected four-year cycles. They expected this to just like continue for some reason. And, and now they're like, uh-oh, well, if we've broken this pattern, does that mean it goes down? And there's kind of like this existential crisis, I think some of the buyers in the market are having right now of what the true reality is. And

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That is anchorwatch.com. The thing that's interesting there is like Luke Groman, who I have like a ton of respect for, I think he's amazing. But he, in his recent newsletter, was basically telling people to sell Bitcoin. And he, I'm pretty sure, I did read it, but I can't exactly remember,

but I'm pretty sure he mentioned the cycles. And then it becomes like a self-fulfilling prophecy. And like, if people are selling because they expect a four-year cycle, can they create a four-year cycle? Yeah. But I would even go one step further of being like, did the cycles even ever really exist? Yeah.

Because I guess really have to go from like 2013 onwards. So there was the 2013 peak, 2013 peak, 2017 peak, 2020 peak, or 2021 peak. Like, they also line up with business models and liquidity flows. Like, do you think liquidity is the bigger driver here rather than the halving cycle? Yeah, yeah. Like liquidity in the market is like, you know, the most correlated aspect that we can look at over time. What I'm expecting is that there's going to be an environment in the not too distant future where liquidity is not on Bitcoin's side and we're still getting a run up in price. What would cause that?

All these fundamental drivers that I'm kind of talking about in the background. Like I think that right now, around the world, there's a bunch of conversations being had in board rooms. There's a bunch of conversations being had at federal agencies. those conversations that are being had at, you know, summits amongst different, you know, institutions and different government organizations. Everybody's trying to come up with, what are we doing with Bitcoin?

And just like how this happened with, like, institutions like BlackRock coming in, that's happening with a bunch of other people behind the scenes. So, like, Bitcoin is always in everywhere some major headline announcement away from this happening and a massive run-up in price. And that's, like, the question I have in my mind is, you know, who's the next major organization

that's going to make an announcement that they're supporting it, right? Like, we had a Czech Central Bank is, you know, buying Bitcoin, like, that's happening. And we'll have other governments that continue to come into this. And, you know, there could be a future

where we have some major announcement of the usage under the BRICS nations or it just like actually comes up to the surface that there is some sort of usage happening by them. Yeah. You know, Bitcoin is a reserve asset by governments is something that is like completely untapped right now. And there's so much money that sits behind all of this.

If we just have small percentages of sovereign wealth around the globe start to flow into it, then that would drastically impact the marginal demand for it. Do you believe in this idea of like a nation state arms race for Bitcoin in the sense of like, I imagine China are stacking some Bitcoin somehow? Like I think mining is still happening in China. I think that's pretty obvious. Like, is that nation-state mining? Are they stacking Bitcoin?

Like, is Russia stacking Bitcoin? We don't, like, I don't know the answer to that question. But as soon as that came out, if it was happening, do you believe that that would cause, like, the U.S. to be like, holy shit, well, we can't have less Bitcoin than China? Like, I think so, but I think it, at a certain point, like, Bitcoin needs to be, so before we can get to that type of an arms race, Bitcoin needs to get to a certain level of maturity. So if we were to like think about I'm a nation state, I want to buy reserve assets, you know, what am I looking for and why? And there's all these, there's different characteristics, right? There is like, you want an asset that is something that is like highly liquid, something that has some stability and value, still retaining some value. And then ideally something that you have more control over and something that might even be like countercyclical during town times. There's these different characteristics that they're looking for.

And like the main shift over the past decade has been nation states are shifting towards a commodity in the reserve because trust is eroding amongst the world. We're starting to fracture into this multipolar geopolitical system. And we're having this shift towards commodities. So that's like that's one good thing. Is it like, you know, marginal demand from nation state allocation towards commodities, that's good for Bitcoin. As that increases, Bitcoin is going to be like classified in that bucket because it has a lot

properties that fall into that bucket. I think that what holds Bitcoin back right now is if we were to like directly compare it with gold, if we're to say like, okay, if I own gold, like, gold's done incredibly well. Having a nation state reserve in gold has done very well for you this year. And that's something that's, you know, reasonably retained value over time. And then what gold has is a major advantage over Bitcoin is that, you know, the depth of liquidity in its capital markets is much larger. So if you're a country and you want to have, you know,

$500 billion of exposure to a particular commodity, and you need to go liquidate some amount of that, you know, so you need to go liquidate $200 billion at some point. Doing that in Bitcoin, that's 10% of the market today. And that's going to move the price very significantly. So it doesn't have that depth of liquidity just yet. Now, as Bitcoin grows and it becomes larger, then it's going to get to that point.

And that's a major inflection point for Bitcoin. And like, that's one of the most bullish things about Bitcoin is that it gets better as it gets larger. And like, that's why some people kind of confuse it with a Ponzi scheme because of a network effect is really what they're talking about. But that's what's holding Bitcoin back and all these considerations. And then so like, let's say Bitcoin gets to like, you know, a $10 trillion market cap. Now we're talking about a very significant, it already is a significant global asset. But now we're talking about something that's close to the top of the leaderboard. And that's something that you can move a lot of money around with.

Then Bitcoin has the advantage of being the only asset that you can send permissionlessly in the world and have like final physical settlement of the asset, something that you can guarantee another nation that we can do that within minutes for you. I mean, that advantage, that's something that just like nothing else compares for. anything where you can get some sort of like relatively seamless settlement with, that's something where you're trusting another nation state. So to not trust another nation state, which ideally you want to do with your reserves, which is why people are shifting to commodities, Bitcoin's the epitome of that. And then being able to store it yourself, being able to own it yourself, it's like,

where's all these gold reserves that these countries own? There's a lot of different versions of it, but a lot of them own an interest in a reserve held by another country. So you might have economic exposure. But push comes to shove and you end up getting some enemies, things can go wrong. I mean, that happened to Venezuela, like, I don't know, seven, eight years ago, they asked for their gold back from England and they just said no. Right. Right. Yeah. But like Bitcoin has become insanely liquid. Like it's really impressive. But even when the guy a few months ago tried to sell 80,000 Bitcoin, which was like $9 billion or whatever at the time, it still dropped like 10% or something. Right.

which is far improved from where it was a few years ago. But like if you're talking about settling $500 billion, then we're just not in the ballpark yet. Yeah. So that's just literally a factor of price. We just need price to go up. Yeah. I mean, it's we need, yeah, we need like broader liquidity of the assets.

So like it's like, like price goes up. It's like, you know, the calculus goes to this bigger market. But that comes down to like a lot of practical. realities. It's like, okay, so I'm a country, I'm Russia and I actually do want to exchange it for dollars. Like, who am I going to exchange it with? More distribution of the actual like liquidity on ramps and off ramps into Bitcoin is like that's a practical reality. You know, they need to know that there is some form of exchange with either another, you know, country or another partner that can provide them liquidity or whatever other asset they're looking for. There's a lot of ways

you need to actually be able to execute that effectively that should grow as well too. But yeah, growing in price and not being able to just move the market, like, that's important as well. So we need price to go up to increase liquidity. Like I was talking to safety before, and he was saying price is the only thing that matters. He's like, that's the scoreboard of us winning. Right. But where does the demand come from to move Bitcoin? Because it's such a big asset now.

And I know the demand is marginal, but where do you think the big money is going to come from? Yeah, I think that like the largest market that's really untapped right now is just that I see, relatively near-term demand from is the commodity allocation within nation-state sovereign wealth. Like, I think that if we just look, like we put this in our annual report last year, if you just look at the gold market and the size of that,

we put together a market sizing around. And it's just like, you know, percentage points of that is, you know, multiples of what came from like the Bitcoin ETF demand. And like when you think about those types of allocation, like that could move the market drastically. And not even top of that to your point about what safety was saying, like, that's the scoreboard.

So like that does start moving other countries into this like prisoner's dilemma of Bitcoin adoption that we've been talking about. Are we even past the point of like retail making any real difference to the price of Bitcoin? Is it getting to the point where it's too big an asset for normal people like you and I to change anything? I think it's just like like what is an institution, right? Like an institution is somewhat just like an aggregation of like, like retail. And like, so like the way that I kind of look at it is that, you know, a lot of

these organizations are like, often they're like indirect paths of retail. And so that means like the decision makers are different because the decision making authority over the capital has been delegated to them. But the like functionally, it is still like often driven by perceptions of retail. I think what like people really mean when they're talking about retail investors now is I think we have plenty of retail investors in the market. I think that we are obviously getting more flows driven by institutions. But of the retail investors in the market, I think that like the mix of them is shifting. I think that a ton of the retail, like when people talk about retail, what do they mean? They mean like the people from 2017 cycle that were like bidding up and gambling shit.

And like, and that's a very different investor profile. Because what have they done? They've done what they want to do. Bitcoin's not nearly as much of a gambling asset. Like, it's still a very high return asset, but it's not being perceived like that by them anymore. They're not thinking, like, I can 4x my Bitcoin this year. You know, and like that is causing them to shift

into other things that they want to go to do. Well, we've seen that this year. Like, this is one of the strangest things that I would never have predicted what have happened so early is that it's almost as if Bitcoin's now not volatile enough for some people. Right.

And instead they're chasing AI stocks or treasury companies or even gold, which is the weirdest one. Like I would never have thought gold would have more retail fomo than Bitcoin in 2025. Yeah, yeah. There's like friends that I have who are like that classification of person

and they're talking about like trading leverage futures on gold. Yeah, which is a great top signal. But do you think like, so gold has had an insane run this year? Yeah. Do you think we will see that spill over into Bitcoin as that calls off or do you think gold is just going to keep ripping because like China, central bank are buying a ton of it? Yeah, like,

filling over into Bitcoin, I, you know, I think that that buyer behavior is generally speaking more long term, but some of those people, yes, like to the point that we're talking about, like, I don't know how much of the flows that ultimately is. It could be a pretty large percentage. But I, like, I think that what we're going to see, you know, shifting over to Bitcoin is, it's less like, I think Bitcoin's some, like, leading or lagging indicator. It's more that I think that there's just like this existential crisis in the market that's happened among some of the Bitcoin buyers. And then that's like we're at the worst of that. Like that's shifting out.

I think the retail investors who are like here for like very quick number go up, like that investor profile has shifted a lot. And now we have a lot more people that are just coming into Bitcoin because they think over the next three to four years, they can, you know, triple or quadruple their money. You know, there's a lot more investors like that that are entering the market. I think that we had a lot of leverage flushed out. And even before this decline, leverage, I think, was like relatively low to prior cycles. We put out this banking report through epoch. And I put a chart in there just kind of like comparing proportions of leverage to market capitalizations of assets in the system.

And like if you look at what happened in like broader crypto during the prior cycles for leverage expansion and like, where we're at with Bitcoin today, it's significantly lower, like less than, I think it was close to like, 40% of that amount. And I was kind of expecting more of that to come in, but I think with this crash, like, even more of that got flushed out. And we're like below general like leverage of like, you know, broader securities markets. So I think a lot more of that could start stepping back in, particularly when banks start lending a lot more, which I expect to happen over the next year. So it's like leverage can be expanding a lot more of that. Could be retail driven.

I think that, you know, yeah, with like a lot of those factors combined, the, it's just, it's healthy is kind of how I'm looking at this. There's a lot of just like very healthy characteristics that have come in. And the funniest part is like, nobody knows why we're having this crash. That's like the funniest part of this. So it's like you literally can't even come up with a good reason for why it's happening. So buy the shit out of it. Like, what are you doing? You know, it's that easy.

So one of the reasons why I don't think, maybe cycles never existed, but I don't think we're at the peak of this cycle is one thing that checkmate always says is the bull market authors, the bear that follows. And we've not really had, we've had no euphoria. It's like only just a bull market. Right. We've not really had a crazy run up at all. So to think we then get a drop down to like 50K Bitcoin, I just can't see how that happens.

Yeah. And if that doesn't happen, like, I could see we have like a period of sideways, but I don't think this is over, man. Yeah. I don't think it's over. I think that it's going to resume. I'm expecting Bitcoin to hit all-time highs in the first half of next year. Should we have a bet? Yeah. Well, okay, we already had a bet. Okay. We'll tell the bet. But it doesn't count because if it's not recorded on a podcast, then a bet doesn't count. Correct. Yeah. So, five. I'm offering worse terms now. That's fine. You gave me really good terms. Okay, okay. We'll do a million stats. that Bitcoin will be 150K by June. Oh, that is worse terms. First of June.

You push that back a little bit. 150K by June. So we've got six and a half, seven months to go. Can I just take the under on that? That is less than. Yeah. You take over. I'll take under.

Okay. By June, Bitcoin will be above. Well, no. Okay. Okay, so if it crosses 150K before then and dips back down, I still want my money. Done. Okay. I can't reach across this table, but we'll shake on that.

All right. This is the most silly wide table I've ever seen. So, I want to get one of your macro takes. Because you've given me some of the best macro takes I've had over the last few years. And no one knows you as the macro guy. Yeah, I can macro. So we're coming to this end of the QT cycle, going into QE. I spoke to Len Olden about this a couple weeks ago.

And she was saying what she expects to see is QE more in line with like GDP growth. So if GDP's at 4% she thinks it'll be like a 4% QE, maybe not called QE, but 4% increase in the money supply. Then there's the other like cohort of Bitcoiners who expect us to go through some kind of crisis period and the big print. Like where do you fall between those two like extreme scenarios? I'm probably pretty moderate with how I think about things like I think I would agree with Lynn that we would get you know easing that tries to be aligned with that type of a metric because like theoretically we wouldn't expect and this is not considering you know

certain like shocks that can happen within a system in any point in time like we all remember you know what was the terminology we were using in 2020 a transitory transitory inflation like we remember that period and and who knows what could happen in the next year who knows what could happen um you know if we were to get into like a significant contentious scenario with another country and there's a lot of pressures like that geopolitically around the world um so i i think that i generally agree that like that's the goal and i expect that to happen and that like you know we're not going to see like the big print anytime soon. But we are getting to that point where it's like we are between a hard place in Iraq.

I just think that the runway could last within the next five to 10 years before we see some sort of like major fiscal crisis emerge from, you know, just like on the run printing that gets out of control. Like honestly, I think I, what I learned like, so I used to spend a lot of time following more short-term macro. Now for the nature of our business. This is a venture capital fund. Like, there was actually, there was a partner to private equity fund that I remember we were in the room with when I was like, you know, just a young budding analyst. And I remember when one of the advisors in the room was asking them, like, what they expected.

We were looking at like this telecommunications type company for an acquisition. And somebody asked them, though, they're just like, well, you know, they asked him like his macro perspective and how that's going to impact, you know, some of the aspects of this acquisition. And he like quickly responded. I remember just like, that's not the business we're in. And like that's kind of how we look at it as a venture firm. Like, yeah, like Bitcoin's price fluctuations impact things that we do. It's not something we can control.

And we believe in the long term potential of Bitcoin in the direction it's going. So like on five year time horizons, we feel very confident Bitcoin will be higher. And because of that, it's like I stopped spending a lot of time focusing on these like short term characteristics within macro. I did get a lot more interested in that I think is very illuminating is like the geopolitical side of things. And what was really helpful for me to understand geopolitics better was Marco Papage's book, Geopolitical Alpha, because it gives a framework for people who haven't spent a lot of time thinking about this, particularly for investors on how do you think about geopolitical impacts of things. So like, I think that that is something, if like you're trying to

anticipate what's structurally going to shift within an economic system over time. Well, macro is largely a bunch of systems that are impacted by governments. So those are the shocks. Those are the big things that impact this. And those shocks are basically coming from trying to anticipate geopolitical situations. So that book was great because, like, I think what you'll see, like, I remember after I read that book, I started seeing it everywhere in the news with headlines, where, or on podcasts, like you'll hear, like you'll hear people talking a little bit, like, you know, there's always these, like, at a rudimentary level, like, there's these lines of reasoning people will have and they'll say, like, well, China wants this, therefore, this is what they

will do. You know, China wants world power. China wants, you know, more commodity export. China doesn't want tariffs. And it's a very simplistic, myopic form of reasoning because The reality is, he's like, you don't really, like, every, like, that's obvious. Everybody knows that people want things, you know. There's a lot of things that I want. The question is, is asking what are people constrained by. And then if you can understand what they're constrained by, you can understand and predict their behavior much better.

And that was, like, very illuminating because it kind of helps you sift through a lot of, like, the, you know, sensationalist headlines, I think, that come out about what's happening with governments and really focus on, like, okay, well, you know, they're constrained by their exposure to U.S. debt. and there's all these other economic variables that can be impacted. And people are going to play nice for a long period of time. And it makes you much less sensationalist and a lot more like, okay, there's kind of like these gradual shifts that are happening. Like we are seeing significant shifts in eastern, western, western divide.

Those are going to probably continue. We're going to see a lot more intrabrics trade occurring. And like, you know, we've seen that increase, I think, about threefold over the past decade. and like these are all good long-term structural trends that we can kind of anticipate. And that's what gets me kind of excited about some of the sovereign wealth characteristics because all of these things are blowing in favor of Bitcoin.

But anyways, like that those are kind of the things that I get more interested in as opposed to what the Fed's going to do in the next six months. We kind of know directionally over the next five to 10 years that they basically have to keep pushing debt into the system. That can come from a monetary standpoint. that can come from fiscal. Seems like they're getting to a hard place in Iraq

and fiscal is going to continue to be more dominant in this system. That might be a lot more inflationary. People think they might have to run it hot. I see all those things unfolding over the next five years. Bitcoin's going to go up in price. Like, you know, spend time with your kids, go hang out with your girlfriend. You know, it's not something that you have to belabor and, you know, click refresh on every week.

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It was really smooth. So if you need cash but you don't want to sell Bitcoin, head over to ledden.com. forward slash WBD and you'll get 0.25% off your first loan. That's leaden.io forward slash WBD. Yeah, for sure. And the interesting thing on the sovereign wealth funds that you brought up is that started happening. So I'm pretty sure Norway has exposure to Bitcoin in their sovereign wealth fund. I think Belgium came out and said, Belgium said they had it. Oh, interesting. And I see that as like nation states adopting Bitcoin is a hurdle. I think sovereign wealth funds will move much more quickly. I think, in fact, I think the, was it the Saudi sovereign wealth fund that also have

expected like 400 million, 400 billion dollars of Bitcoin. Yeah, yeah, yeah. And they might be buying a hundred billion more. If what we heard last night was true. Yeah. But one of the other interesting things that's come out as Bitcoin price has been dipping is some of the fud that's not been around for a long time has come back. Um, specifically Tether. Like I remember when I was first getting into Bitcoin, BitFenex was always screaming on Twitter that Tether was about to go up. I think he even sold his Bitcoin at like, I don't know. thousand dollars or something because of tether. Should we get into the tetherford?

Yeah, it's, yeah, it's, when we wrote this banking report back in the fall through epoch, you know, we were talking about tellers reserves. And, and I think it's, there's two sides of it. One, there's just, it's just, this is, this is new fud, right? Like, and I think like the general arguments on axes, um, tether to maintain a one-to-one peg is not fully reserved in dollar liquidity, even though it's supposed to be all redeemable for dollar liquidity. Therefore, there's a risk of a run on the bank of Tether. And it's like, okay, like, let's steal man this question. So.

I'm pulling up their exact reserves now. Yeah, yeah, pull it up. So like, the reality is, is that Tether needs to meet redemptions. And if it meets redemptions from the people who are capable of redeeming dollar liquidity from the dollar liquidity system, traditional assets like a wire, then it's going to be maintaining its peg over time. And as long as it's doing that, things are fine. So the question is like, well, how does that actually happen? Like, you know, if you own Tether on your Coinbase account, you can't go redeem your Tether from Tether. Coinbase has to do that. And they do it in patches over time. If there ever was like a run, and by run to be significant, like they have 80%

I think of their reserves. Is that right? So I've got it here. 77.23% are cash and cash equivalent. Right. Yeah, okay. 0.1% corporate, 0.01% corporate bonds. Seven and a bit, precious metals of gold. 5.4 Bitcoin,

2.14 other investments. Whatever the fuck that is. Other investments. And 8% secured loans. Tether, I want to be one of those other investments, by the way. Put Epoch in those. But, yeah, I think that,

So looking at that breakdown of numbers, 77% it's in cash equivalence. So that means that assuming you can't get enough liquidity out of the any other assets, and you can only get that from, you know, basically the government treasury bills that they have in there, that are the most liquid asset you can have, if they had 70% of the total amount of like the 200-ish billion in Tether market value that's currently outstanding get called, then that would have to come from the exchanges. And if for the exchanges to want to do something to blow up the liquidity of tether, it would obviously be a coordinated attempt

because there is no need to have that much redemption in tether, it would have to be the exchanges when I get together and destroy their most critical partner that they use for maintaining balance on all these exchanges. So like, it just doesn't make any practical sense. I kind of view it as akin to the idea of when people would talk about, oh, well, like, there's some,

theoretical value for being able to, you know, a 51% attack Bitcoin as a network. And you say like, okay, there is some theoretical amount. Whatever it is today is vastly higher than like the numbers I remember from back in 2021. But it's like so high that you're like, okay, to even get enough money, back then it was like 80 billion. I don't know what hash rate is compared to that now, but it's probably, it's hundreds of billions probably.

And if we think about that, it's like, okay, well, sure, like somebody theoretically has hundreds of billions of dollars, but then, like, they have to execute on that attack. What does that mean? We need to go get $100 billion worth of miners. Okay, where are those going to come from? Okay, so people who are selling you these miners whose business is dependent upon the price of Bitcoin are going to sell you a bunch of miners all at the same time to some, like, you know, gray organization that they would obviously be aware of something is happening

in a coordinated fashion and would destroy their underlying business model if they were to do that. So, you know, they're probably just going to say, fuck you. or at least they're going to catch on to it and the network can react. And to actually like go get the miners, find the energy assets to deploy these things all on, get them up and running and do it in a time to where not everybody would be aware in the entire supply chain that you just had to walk through. Like that's just not a reasonable scenario. This is something that would actually happen. You can't execute it.

So like that's kind of how I look at some of this with Tether 2. It's like, you know, you can say these things theoretically if there was some sort of. of massive bank run like that, and then they're still in a very good fiscal position. But the actual execution on some sort of like tether run like that is just not even like a feasible concept to me. And that's kind of like the main thing. And I think that people would be like, you know, their argument's like, well, you know, we're much better capitalized than any of the banks. And that's true, but the banks have a central bank backing them that can always print liquidity for them. So it is different. But nonetheless, they're an incredibly sound.

financial institution. So for like a really good example of this is when Silvergate during the last crisis back in 2022 with the fall of FTX and everything, Silvergate Bank survived like a massive run. I think it was, you know, I'm not sure, but I think it was like the 70-ish percent of capital or something like that. And they survived it. And the bank was like reserved because that bank was aware, like we're serving this industry. Super volatile. And it's volatile. So, That was like probably the best reserved bank in the world. You could have been at the point in time. Like no bank is capable of surviving runs like that.

And they actually did survive that bank run. And then they were just left with saying like, okay, well, size of our bank is shrunk now and we have to lay off some employees. But like all of the customers got their deposits back on a bank run like that. And not because the government stepped in and gave them the deposit back. They got them back from the bank. Right, from the bank. Exactly.

Yeah. Like they did things right. And I think a really good comparison for this is like, so like that Silvergate, they survived that. And like, Tether has a very similar like reserve balance is what they were doing. And then I think if you look at like if we think about how free banking systems existed in private markets, you know, like in Scotland during the, you know, 18th and 19th centuries when they actually had like this free fractional reserve banking system that was, you know, naturally emergent by market. demand, those banks had certain reserve ratios that we know the numbers on. And like, generally speaking, at the market's maturity, functioning fractional reserve banks were reserving somewhere in like the 20 to 30 percent reserve. And that was like good for the market. And every

now and then you would have some sort of bankrupt bank. And bankruptcy doesn't mean the customers lose their deposits. Bankruptcy means you get bought by a competitor and the customers keep their deposits. But, you know, there were scenarios like that that were happening in this system. And I think that that's a good benchmark to think about with tether. It's just like, okay, so if like that was the reserve range and then we're sitting here with 80% cash equivalence. Oh, and they have gold. 7% gold, which is super liquid. Yeah, 7% gold, which is a very liquid asset, which goes up in value. Oh, and they have

Bitcoin, which is also something that does well. Oh, and they're over-reserved. by a certain percentage, I think it's about the amount of Bitcoin that they have. Like, there's a million risks in the world to be concerned about. And like, this isn't one of them. Yeah. You know. And they've also, like, since the 2016, 2017 days, they've massively changed the way that they handle their reserves.

Like, corporate bonds were a much larger part of it a few years ago. And they've obviously gone almost entirely to cash-cash-equivalent. What I don't necessarily understand is, like, they're one of the most profitable companies in the world, probably the most profitable, like per headcount, why would you not just go 100% cash and cash equivalents and then sweep profits into Bitcoin, like just to dispel this kind of idea that this is a problem, even if it's not? Because they're thinking long term, what happens if we do run into a crisis in 80% of your reserves are in a debt that people don't want? Like, I think that that's something they're trying to hedge

against. I think it's hedging risk on both sides. And like having a balance in something like this gives you that type of a benefit. For the reason we're buying Bitcoin, for the reason gold investors are buying gold. They're like, it makes sense to have some of this. Like, we don't know what could happen in the next five years. And we're going to have, like, that's their concentration risk is the treasury debt. The other thing that I think is quite funny about this is people talk about the tether flood as like something that could crash the price of Bitcoin. Like, first of all, I don't think there's an issue there. But let's just say hypothetically, was. If you're sat and you've got a load of tether and you think tether's going down,

what are you going to do? You're going to buy Bitcoin. Right. Because that's your trading partner. That's how you escape. Weirdly, if tether did go down, which I think is going to, I think Bitcoin pumps. Totally. I couldn't agree more with that. Yeah, that's exactly what it is. But maybe that's a very short-term pump. I don't know. All right. Let's move on to our next piece of fud. Quantum. Oh, okay. You've been doing a bit of a deep dive on this. Like kind of, Really. I just, when I was writing my book, I, you know, I did some reading into just like how cryptography worked. And I kind of explained some of that in the book. And I think that it's, it's helpful context to really get a bit of what's going on here. To understand quantum computing,

I think, like the reality, like, nobody knows. Nobody's a quantum expert. There isn't like a quantum expert. There's like guys working in quantum who are like trying to, they're building amazing, complex things that like very few people in the world are capable of understanding, but they're not even sure exactly where they're going yet, you know? And like, you see that in any sort of early field. It's just like, in hindsight, once we've built all the systems and we have the historical track records to look at and we can understand things like it's much more obvious, but in the near term, really intelligent people have a hard time understanding just what, where things are going and that's fine. But that's a reality we're dealing with is like

there is just quite a bit of uncertainty around what's happening with quantum, and everybody's trying to form an opinion on where we should go with this. And I think to explain some of it that's helpful, like basically cryptography is secured by this other type of math. And it's called like a modulo calculation. And it's basically like the current operators that you're familiar with, like addition, subtraction, multiplication, division, those operators are done differently under these modular calculations.

And in the best way of describing it is it's similar to like a clock where you have something called an order. And that order is the maximum number in this universe of calculation. So you'll say if our order is 12, that would be the maximum number of hours on a clock. We cannot go higher than that. Once it hits that number, we start back at zero and go to one, two, three, four. So in normal arithmetic, if you say four times four equals 16, under this type of a calculation, it's four times four equals four. And that's because you go all the way around the clock to 12, resets, and then you end up at four o'clock.

And so you end up with the remainder. And that's really important because you could have a bunch of other answers and different types of numbers other than four times four, that you could multiply and can end up with the same answer of four. but you don't know unless you have all the numbers how many times it goes around that clock. And that's where you can create the uncertainty. So the only way that you could guess, if we were to say four times B equals four, in normal arithmetic you'd be able to say four divided by,

or sorry, four times four equals 16, sorry, then we'd say four divided by 16 equals four. We can find B. But in this, it's like we can't do that division. But computers can guess and they can guess what B is and you can find a plugin back, okay, so if it's at four, does this work for what we're trying to solve for? What you're trying to solve for is to find is to decrypt something. And but when you get your order, that maximum number in the set,

when that's a prime number and it's incredibly large, computers can't do that division. There's not enough guesses they can make. And it's kind of like versions of this is kind of how Bitcoin mining works is we make it just easy enough to actually guess your way into that problem. But it takes a hell of a lot of tries. And it takes a lot of tries.

So computers can't like guess their way into these problems. And that's what makes cryptography so secure. And then Bitcoin addresses are the encrypted version of a private key through a process like this. So to get your private key, they would have to be able to do that division

by looking at your public Bitcoin address, doing the division and then finding a private key. So what quantum is basically doing and what people are scared of is these computers are going to be able to guess their way into these problems. Without doing the work. Yeah, and like the theoretical concept

is basically like the way that humans are able to understand everything is we put a layer of language over the natural world. We describe things with words. We describe things with numbers. And this layer of language is, it helps us make things work. It's always all we've ever been able to do.

But it also limits us because like one of my, one of my favorite quotes on like what the definition of art is, is art describes a difference between what we can say and what we mean. And like there's this, there's this large gap between those two things. And people are just trying to describe an emotion or a thought process. There's some other medium that they can't really put into words in the right way. And that's kind of like that gap. Like that's the difference.

That's like a very limiting gap for us between what we can physically do. And quantum is like, quantum is like trying to take that step. It's trying to take that step into like, let's not apply our mathematical language to this. Let's try to like recreate physical environments from the way that they exist rather than our own language for it and see if we can produce the outcomes we want through that. The complexity of that, I can't comprehend. end. But they're making enough progress now to where there are shifts. There are shifts in what people are, you know, thinking and expressing and like Nick Carter put out this great paper. They really summarize a lot of the major shifts that are happening where we're starting to see a lot

more growth in qubits and logical qubits that's making these things more efficient. And that's the idea. It's like if the logical qubits get high enough, guessing power is better. And we have a lot more experts that are changing their forecasts and their opinions on its viability over time. And we're kind of hitting a bit of inflection point where people are kind of like, okay, like this is real. Now, the reality is, is the time horizons that we're starting to see is, you know, quantum could be a problem for Bitcoin within, say, the next five years to the next hundred.

Like, it's a massive range. So that's what everybody's debating is we still don't know. But I think it's like when you have a risk that does. have some sort of existential impact, then that's something you take immediate action to forego or ensure in some sort of way. And we do that all the time in our day-to-day lives with a lot of different things. You know, we want to protect ourselves. We have locks on our doors, you know, because terrible things can happen if people come inside. And there's a lot of things that we're doing to prevent it. And like, I think that's kind of the question today is everybody's like,

okay, quantum was this form of fud. And it was at that point in time back in like 2017. But are we getting to a point where we do need to have these conversations? And we do need to be like, okay, this is on the horizon. How many more upgrades to the Bitcoin protocol are we really going to get? Because it's only getting larger and it's only getting more socially distributed. And maybe for our next upgrade, we really do need to think hard about putting a quantum resistant form of signature into the protocol.

And when I was talking with like Hunter Beast one time, the way that he kind of explained our options to us around that is like the tradeoff is basically when you have a quantum signature. It's kind of like the old, the quantum resistant signatures. There's kind of like the older cryptography that is like much more proven and more Lindy. But that is very data inefficient. Yeah, a huge address. So we could be filling up blocks and we could be expanding, we could be expanding the chain and a much more. rapid rate. And so that has its second order effects that are well debated. And then we also have newer forms of quantum resistant signatures. And those are much more efficient, but they're not as

lindy. They haven't been around as long. So that's where a lot of the debate really lies. It's like, okay, if we were to do this, then what quantum signature do we use? And then I think what really makes and complex, is it would be like, okay, well, what might we have in the next five years? And if we were to put one in now, are we going to be making a huge mistake? Because we're going to get a much better quantum resistant signature in another five years. And if we did this preemptively, and had we waited the whole decade or 15 years that we actually had before it's a problem, we might have had, you know, a quantum resistant signature with much less impact of second order of facts. And to my understanding, like, these have to be hard forks. So the thing

I don't think we should act now, but we should start talking about it now. I think these needs to be like serious conversations that are happening. I know Hunter Beast has BIP 360 that he's working on. But like the solutions we have now, like huge, huge signatures, doesn't sound like a great option. But if we have no other option, like if this thing in a year's time is a real thing that we need to worry about, then we're going to make a change. Like that's not necessarily the huge issue. I don't see that being contentious. The thing that I can see being contentious is what we do with all the coins that don't move.

like if all the old address formats that are probably the most vulnerable to quantum attacks, like if people are dead or if they've just forgotten about their keys, whatever, like there's going to be a debate of whether we should essentially freeze those funds or if we let those be stolen by the quantum computer. And like this is what one of the really important sort of philosophical conversations I think to have as Bitcoin is, is that do we break these people's property rights and destroy one of the key value propositions of Bitcoin

just to stop a bad actor taking them? And I don't think we do. Even if all those coins get dumped on the market and the Bitcoin price drops significantly, I still think that's a better outcome than freezing someone's funds and breaking the property rights of Bitcoin. Because long term, like if you're looking at the value proposition of Bitcoin in 50, 100 years time, like breaking property rights, I think will be more detrimental than a few million coins coming onto the market. Totally. Yeah.

It's going to be interesting, man. It's going to be tricky, man. Yeah. It's a crazy new world for Bitcoin. Yeah. So do you think this is like a thing? three to five year problem, or do you think this is more likely to be a hundred year problem? I'm putting my money. I'm putting my money on this being like something in the next decade.

I think like 10 years from now, we might be running into some issues with this. Yeah, I think it's the kind of, like this isn't even like Fudd at this point, I don't think. I think it's something we should be having very serious conversations. Yeah, something we should be talking about. And it's just because like the primary thing is that Bitcoin would be the bounty for people to go after in a lot of ways. The canary in the coal mine. Yeah, yeah. So, like, the Bitcoin is definitely, like, high on the radar for people that are discovering this.

But, I mean, all encryption is, all non-quantam-proof encryption is broken at that point. Like, every bank account is probably broken, at least with the cryptography they use right now. And I think probably the signal is when everyone starts quickly upgrading to using quantum-proof encryption. Like, that's when we need to be acting quickly. Exactly. Yeah, yeah. It also depends probably on who's controlling the quantum computer. Right.

Like if that's, you know, a government agency in the U.S., are they going to attack Bitcoin? I'd be skeptical. Yeah. If it's some private individual who has control of a quantum computer, that's when we're at risk. Right, right. It's going to be interesting, man. It's going to be crazy, man. Right.

You've got to go hop on my panel. But it's been good podcasting with you, bro. It has been good. We've had nearly two weeks together. Yeah. Just broing down. Yeah. Yeah.

It has been a bro-sash of two weeks. Well, I will see you soon, Eric. Thank you, ma'am. All right, thanks, man.