Balaji's BTC Bet, Macro Chaos and Coinbase vs SEC | Roundup

Transcript

all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-hosts today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode Michael's wanted to advance no you know this week how are you doing guys doing good we uh we actually got to hang with Yano this week so uh where where were you Mike Oz guys I'm sorry I guess my priorities aren't ordering I can make it over there I was I was he in person

tall dress nicely felt like we were we were addressed the nines like he was but I could see him I was on that you know you watched that Michael Howell thing Michael Howell's in a suit Jack Farley's in a suit I got a t-shirt I feel like a bum but what are you gonna do listen to it I didn't watch it I appreciate that thanks man well you heard about Yano in his uh statement we're all really proud of him he said he's shaving his head bald he's in solidarity with Brian although it's like you guys don't come on I've got hold on we've got a little oh no no no no it's really good look at

here we've gotta actually our team has done a little mock-up of of what this could uh potentially look like [Laughter] horrifying oh my God your ears really gotta be yeah you got to be aerodynamic did not work with that I might want to invest in some Scotch tape all right with that I think we can uh let's get into it so uh yeah this is bell curve this is a macro pod so we got to talk about um we got to talk about fomc this week yeah so

so basically the the high level is there is the 25 basis point height that we all sort of knew was gonna happen I think the thing that people were looking forward to is you know that the context going into the fomc was you know before this we had expected ongoing hikes right so I think the expectation was if I had to like put a guess on it but like a series of 25 basis point hikes I was going to Peter off for some period of time obviously with the amount of baking stress like we'll talk about Credit Suisse a little later but I think that like spooked people a lot and there's still a lot of fear around Regional Banks uh like Bank stocks are trading absolutely horrendously I think they're going to put in a new low today which uh you know if it yeah we're recording this

on Thursday the 23rd um so the question is like how much more leeway do they have and is this going to get them to pause rate hikes you know Powell comes in he talks all about inflation he doesn't really mention any stress in the banking sector whatsoever uh it it sounded pretty hawkish until we got to the reporter's questions and then there were a couple of pointed questions and what he changed ongoing hikes to maybe some firming in the exact words of Jay Powell was I would direct your attention to May and some so so everyone's trying to figure out what exactly that means I'd be curious you know what your guy's take was on on that phone see felt felt tense you know

the vibe last time when inflation was lower Jerome was smiling you know saying the world deflation a bunch he was you know laughing even now it's like you could cut the tension with a knife he you can tell he does not want to be there you can tell this is probably one of the last hikes that he does you can probably tell that he might not be in this job for too much longer if things keep going south like this banking tax all these Bank stocks they are trading like Dogecoin like and and you literally have like the Luna chart where it just drops off I'm not a macro Economist but it doesn't look good for Jerome at this point or or really any of his plans as a

result I was gonna say 100 agree with with all that it reminded me of sort of the reciprocal of I think it was June or July last year where he literally gets up to the podium and he's holding a piece of paper and he's shaking because he knows like what is about to happen like this feels like the equivalent of that there you you can't go back in your words I mean you kind of have to do what he did but at the same time he knows like you're meeting a hard place with like raid Heights or anything that's going on I just looked up FRC First Republic Bank down another seven percent today uh I mean they are 91 off the all-time high which is just six months ago it's not looking good

it's bad the the two-year as well so if you look at what the bond market is pricing in I mean the two-year fell in anticipate even before the fomc and then it fell even lower after Jerome finished talking you know basically the the thing to understand about the two years the two-year and the fomc policy rate typically walk hand in hand right so the two you're dipping lower uh says right that's where the market thinks that the phone like the the policy rate should be and Jerome has it you know at five percent the two years uh just just below four percent so usually when this happens the FED comes to the market instead of the other way around and also typically what happened like when the two-year crosses the fomc that is historically when the FED starts to

change their monetary policy and start cutting instead of hiking so the signs are kind of there I mean you can kind of call it it's been a it's been a year of radics and it feels like it's probably over you know if this is the first hiking cycle that you've lived through congratulations if you're still here and alive and excited about crypto but you know even a year ago prices were probably not exactly where they are today but you know roughly similar we've just had so many casualties even though getting arrested or whoever if that was like does body double and like negro we don't know what exactly happened but we've come so far and and so many people have

left uh it does feel like a lot of the damage has been done to the extent it would have been done two year right now at least according to trading view on my phone is at 3.77 percent the the 30-year this is interesting is at 3.67 and granted the 10 years at 3.38 but what we're talking about here is you know for the last I don't know how long it's been nine months ten months we've had an inverted yield curve we actually might be getting back to where the two-year is below the third year for the first time in a long time and what that suggests is that grades are going to drop in the short term they're going to rise in the long term exactly and you know the FED has an enormous amount of

control over the short end of the curve you know going out to about like definitely two but even through kind of five years long the further you get out the more that's about expectations in terms of growth and you know another thing too that has just been thinking about this week is it is very difficult to run a bank with an inverted yield curve and it's kind of a uh you know it's just a tough Banks to drastically oversimplify are supposed to borrow short and lend long that doesn't work if the short rates are higher than the long rates and I yeah it's just it's just a tough it's a tough feature if that's how you fight inflation as well do we ever find out who owns these Bank stocks like these must be sitting in large mutual funds or retirees accounts

like I can't name a single person who's ever owned any of the shares of any of these Banks yeah I think I think it's probably spread out throughout the S P 500 index funds mutual funds Zero Hedge says we've taken about I think 400 billion off of financial since this started like that is so that is half of crypto white I I think the other thing might that you just touched on which I think is an important call out is the the variable that's still in play that we don't really have any control over directly is inflation and the price the price metric that uh or the inflation metric the advanced nitracked is the Cleveland fed puts out the inflation now casting and as of today CPI month over month is at 0.3 percent pce is at 0.28 so if you Analyze That We're actually

very close to getting to that you know whatever two percent two point eight percent is going to become like The New Normal of whatever the whatever the FED decides is the the new rate of inflation that's acceptable but the other thing too is that historically over the last four months five months the inflation now casting print has been higher than what the actual read is so this this March read which is you know we're on the 23rd of March so not done yet but that's where it's trending I think could be something that suggests that inflation is now not the the primary cause and remember we also don't have anything until May from the Fed so there's going to be two months of

inflation prints before we actually get another fed meeting which will be really interesting to see you know how the market price is in these changes in between now and then hear me out like the war resolves inflation resolves rate Cuts growth scare passes like that's the bull case I think the bear case which the is the one I hear the most is kind of like reminds me a lot of covid of you know the market has it wrong these banks are not going to be able to lend you know the we've lost business confidence like all of these businesses are kind of upside down in their unit economics I don't know you just keep seeing Tech rip and gold is now at almost its all-time high I think this could be another hated

extremely hated rally yeah you could be right I mean this is where the you know people have been saying this for a long time so you know just like take this with a big grain of salt but people have been saying for a long time the rubber is going to meet the road when you have these incredibly high levels of debt the fed and central banks globally have been like very willing to like ease rates it's been these free you know uh kind of a free lunch for in a lot of people's eyes but now that's just much tougher to do when you have inflation and that that point that you brought up Vince about um Banks the way the Jerome Powell the way he phrased it actually was the the contraction and credit is basically going to be equivalent to a rate hike because you know what they're trying to

do is they're trying to control the amount of credit that's in the system and Banks going under this amount of stress they're not going to be as willing to extend credit so the you know Financial conditions have tightened considerably since last week as well if you think the bank stuff is really bad that that's like 10 rate hikes that you that you're just basically telling people like okay no more Lending yeah I don't know he just seems increasingly out of touch with reality I don't think it's going to go very well for him well for folks in crypto I mean this is so this is it's not as drastic in terms of percentages but it's similar to what happened when all of our C5 lenders blew up the contraction and Credit in hours right I mean this is going on on a much larger scale

right it's yeah it's not like blowing up all of the crypto lenders was equivalent to like hiking funding rates it's just like the system had a heart attack like I don't know what particular insights you you may or may not have about Credit Suisse but I do think it's worth I mean it feels like forever ago that this happened but Credit Suisse you know they are they are not uh First Republic they are not Silicon Valley Bank they are a you know a very old very well established bank at one point they had about you know just under 1 trillion um you know in terms of assets like that's fallen in recent years they made a bunch of bad decisions uh we got the full list here but yeah it's not been a good um you know decade for Credit Suisse they lost uh five and a half billion on

the Arca ghost blow up after making after making 17 and a half million of fees which just seems like the worst risk reward of all time they lost 1.7 billion on this green cell capital uh you know trade financing type fund which was a little bit of a scandal when it was happening over in Europe uh they lost 100 million on the Citrix that deal so it's been a it's been a it's been a tough decade for them basically but you know they uh you know they got they got bought in a basically a fire sale by UBS at two billion dollars there was actually something pretty significant that happened by the way in terms of governance uh around the the shareholders of Credit Suisse they were excluded in this deal by the Swiss

government and then and this is where I like don't really know this I've sort of read the headlines but there's a there was a series of bonds you know some pretty significant amount of value that was held in these bonds that got wiped even though 2 billion in equity was protected that is the opposite of how that is supposed to work that is supposed to be senior on the in the capital structure over Equity so this is where look I'm I'm not an expert in this so I kind of hesitate to talk about it because out of my realm but you know people were up in arms I think rightly so because you know the stuff that holds our financial system together property laws seems to have been disrespected here to say the least it feels like we're doing like Men In Black style like concerted effort to memory

hole all of this stuff or to sweep it under the rug like when Silicon Valley blew up their Silicon Valley Bank blew up everyone was acting like that was like a you know college credit union that just got destroyed it's like no that's like a huge it's the second largest bank failure ever and you know now it's spread and it's not just the tech bank it's like more Banks First Republic people are trying to say oh yeah we put deposits in well it might actually fail we and also we may need government assistance like okay we're trying to sweep that out of the rug in Europe Credit Suisse is one of the global systematic important Banks and it's just gone and you wiped out 17 billion billion of bondholder value and something that probably is pretty legally questionable in terms of the transaction it just feels like we're

we're making this concerted media effort to like not talk about it or not you know like blow it out of proportion but really I mean the charts don't lie if the bank stock index is about to hit a fresh all-time low since covid like you might want to check on some things you forgot one which is Signature Bank also on a Sunday was shut down Signature Bank killed itself yeah right it got suicided I think I I think there's actually going to be a lot of uh there's gonna be a lot of blowback from all of these actions because all of these things are going to get litigated in the courts eventually when the dust settles when when all this stuff stops we're gonna have some

lawsuits we're gonna have some suits we're going to have some figure figuring out what the hell happened and who made decisions for your requests you know there's going to be some some questioning there's going to be some depositions we're we're going to get to the bottom of this but I agree right now it looks pretty sketchy that being said there there is kind of a funny tweet that I found this week um Credit Suisse fines by year did you guys see this total amounts of fine I'll put it in the chat it's uh I don't know if these are all going in the Swiss government 2022 700 million 2021 280 million 2018 90 million 2017 5.4 billion like it just goes on and on back to 2002.

it's pretty incredible I mean I I think someone on on some podcasts this week talked about it but it was like a very well-known secret that credit Suites would do business with anyone and I think you know the proof is in the pudding you know other people have since brought up this point I mean look if you have if you do business with bad people I think a lot of the charges that that made their lives hard for the last decade were there were you know accusations of impropriety and stuff like that but one of the challenges for banks you know the implicit understanding of regional Banks is in order to compete with these gigantic you know banks that have access to the best customers lowest cost Capital et cetera you have to take a little bit more risk so one of the undesirable like

kind of side effects of this whole weird thing that that Regulators are trying to do is they're just you know they're making a very difficult environment to be a small Regional Bank and that's just going to lead to more consolidation and then I don't know like what's the difference then if if all these these bet if there's only a couple of small Banks they become like arms of the state they're kind of de facto nationalized in a way like I I find enormous issue with that at that point they are nationalized if we have four Banks and all four of them are the service providers of all banking infrastructure for the entire country for all businesses for everywhere Community Nationwide federally everything that's a problem that that means that we have no competition in a major financial

sector of you know supposed growth um and you don't have diversification of products like you don't have any sort of ability to compete and break through um so yeah but I mean what we're seeing right now is the riskiest the most heterogeneous and very specific banks are are going under the gun right now but this is not over I think that when Silicon Valley Bank blew up one of the things that we talked about internally was this is not the end this is the beginning and I think we're starting to see the the rest of the dominoes start to fall that's why I'm kind of like I don't agree with Balaji but I see what he's doing and I see the dots he's connecting and it feels like we're kind of building to that point in the in the macro sense

where it's like kind of getting frenzied and anything can happen including Bitcoin going to a million but not in the next 90 days but if this is the path we're really going to go down like I I definitely would not bet against Balaji with you know any time frame less than a year like I I do think he is and maybe it's not a million maybe it's something less than that but the thing that that I'm personally internalizing about where we are in the market right now feels like 2019 when everyone started to put out these crazy markers you know Bitcoins trading at 3K at that point and people like it's going to 100. Willie was doing on-chain analysis like it's going to 200 to 400 and so like people

are starting to put these markers out and the markers are such a key part of bull market psychology whether you want to do like plan b or like I think maybe the rainbow chart is also Plan B I forget but like you know all these like crazy kind of like uh that's Eric Wall yeah that might be error but like people index on these things and they're kind of the road map for okay like things look kind of crazy right now things look kind of bad but like we're staying till million and a million is is 50x from here in Bitcoin or 40x or whatever it is so even despite it not reaching 100K last cycle people are even more bullish and that that's kind of like that's the animal spirits that you think about that's that's when they're reignited in

my opinion my favorite line from the biology podcast on uh I think it was Moment of Zen was uh he said the critique that Mark Andreessen has given me is that when I'm right I'm off by some order of time but it happens or I'm too early and when I'm wrong I say it's going to 11 but it only goes to eight or nine and I think that that's a really good framework to think about balaji's perspectives which is that directionally he's probably right like we're going to move in some direction that he is completely right about he also was probably you know the one person in January or like one of the 10 people in January of 2020 that was calling that this was you know a lab outbreak it was going to spread virally you know it's

it's going to be disastrous for the entire world like you can't stop it it's a viral outbreak and he was completely right about that and he was calling you three months before basically anybody else was um so you can't fault him for you know his perspectives he's well researched he's well read he knows what he's talking about it's possible that he's wrong about the time and it's also possible that to Vance's point it it goes in that direction it just doesn't hit a million dollars in 88 more days yeah we need to get moving if it's going to get there so Let's uh let's all why are Bitcoin today do your duty yeah my first instinct is not to fade Balaji like he doesn't put out too many predictions he'll put out like weird science stuff and like you know

seafaring in the network State and all that jazz but you know if he's putting out hard numbers and he's betting real money on it I'm kind of inclined to believe him directionally there's a um I I have kind of complicated feelings in how I think about this like this is like people have people writ large Society like have systems for how to handle things the for Game Theory from people just being suddenly being irresponsible in our group psychology whatever Humanity has this thing where we get it way out ahead of our skis we create too much credit we do all this stuff and then there needs to be some kind of big reset and there's probably all this game theory for why that happens but like that's what does happen the way governments have historically handled that without defaulting which causes an enormous amount of consternation and probably

like deaths and stuff like that because people are very serious about that kind of thing they self-default so what they do is they Implement Capital controls and they do Financial oppression they hold uh you know yields interest rates very low they let inflation run hot and there's this kind of uncomfortable but you do accomplish this thing called a reset I think what balaji's Keen in on is I'm I'm not okay with that system anymore like I don't want to do that system anymore you made decisions here at this period of time that I shouldn't necessarily be holding to and I'm ringing the fire alarm um the you know part I feel like that too that's how I feel I'm I'm like in awe I'm just shocked all the time by the generation that came before us like how

the hell did you guys make this decision this is completely responsible decision making that shouldn't be on us but also then I kind of try to play out well what would happen if we all upped it out of the system and the US was just bankrupt and I try to imagine my life like waking up in that world I'm like woof that would suck so I kind of have complicated emotions about this I'm not really sure where I land yeah bitcoin's a tough one because it does have like that dimmer mentality where someone has to lose for you to succeed like the other like things like eat feel a little bit less zero-sum because it's like you're creating real on-chain value that hopefully is benefiting more people than just yourself and nobody's losing on the other side of it but I still can't find any real flaws in

balaji's math like demographically you know there's more old people they're gonna need more money to care for them in a medical sense for the rest of their lives there's less young people like we're kind of over the demographic Hill there's a lot of debt it needs to be refinanced we're going to print more money like this is math you can do on a napkin that you really can't refute it just depends on where we go from here are we going to be this indebted Society kind of like Japan or or is there a different path potentially but the other path does mean a lot of pain for people who don't hold you know whatever the chosen assets might be and there's no guarantee that it's Bitcoin it could be things like gold could be things that are Commodities or real estate but it doesn't look really good you know in

any sense for people who don't hold types of assets so one of the most fundamental books that frankly I've ever read but I think it's also a key point to balaji's entire argument is the changing world order by Ray dalio and it it came out maybe like two two maybe three years ago it basically talks about the long-term debt Cycles in relation to the short-term debt cycles and the long-term debt Cycles essentially are are such that there is you know 100 to 150 year process that happens where there's a new country and that country becomes a reserve world currency and then it becomes the massive financial center of the world it gets to be so large it becomes over Barren with debt and that eventually they lose Reserve

currency status in a new country steps up and takes over Reserve currency status part of what biology is saying is Bitcoin is one of the paths that we can have going forward he's also acknowledging that frankly RMB is going to be one of the other paths that we should have going forward where China is now the new Reserve currency of the world where it becomes a new hegemon whereas the United States basically becomes the same thing as the UK and the same thing as the Netherlands before that like there are these processes in history it's not just like it is just math on on a napkin but it's also historical context that you can apply to this that has happened three times previously and it feels like in all the all the information in Ray dalio's book is also true that we're in the middle of

that process of transitioning you know Global Reserve currency status to a new country or a new asset I'd rather be Bitcoin than Chinese uh 100 100 there's no there's no question I'm just saying that there is also another path that is in the same logic thread that isn't Bitcoin going to a million or isn't this you know Network state that we're talking about it's another country taking up the reins from what we've had over the last hundred years the only reason I disagree with that is uh relative to most other countries the US isn't a better debt position and so like all of the emerging markets and even places like China have a lot more debt but also like demographically we look a lot better than other countries as well

look at a country like Japan look at a country like China or Korea like they're further over the hill and so like there's not a clear like Okay um this is the country or this is the type of currency that we might want there's just no good options if if you're looking at it on a very long time scale so I completely agree with that perspective just just to play Devil's Advocate going into the process that made us the the global Reserve currency of the world which was World War II we also looked like that we also looked like we were a smaller growth country we were not in the top ten in terms of GDP or in terms of economic or militaristic power and there was a catalyst that changed all of that in favor of the United States

it is possible that this all can change very rapidly two ocean superpower demographically you know in a much earlier State at that point the world war definitely catalyzed it but like the US was also going was always going to be the most powerful country on Earth just because of its geography and if there if you anyone wants to read a book on this it's called Uh 10 maps that change the world it's really interesting it's just a book about geography that tells the history of like why certain nations are powerful why certain Nations aren't for instance Russia doesn't have a warm water Port like that's been their challenge throughout their entire history it like it's funny like it's in a wave of like a lot of Technology a lot of times it just does boil down to like rocks and dirt and and you know where you are and and

stuff like that to be clear I I completely support this as well also another book Peter zihan accidental superpower it's the exact same logic as long as you're connected to it oceans you're fine Canada somehow didn't make that work it really is mind-blowing that like the guys with all the rocks and dirt and trees had the most inflation when like Bush came to shove like what and oil and oil I know oh I love Canada but [ __ ] it's just such a brutal place there are chilled out people I one thing that uh lately I agree with parts of what both of you are saying let me um I'm not sure if I've ever articulated this to you but I my concern actually in this like I see a lot of stuff through the lens of this

like great power competition with China but what I think is the most likely outcome is uh I think the US is even though there's this you know perception out there that oh the China's playing the long game and we're just bungling and you know can't walk over two feet in the United States I don't think that's the case I think we're actually far more competent than most people think like we're still the superpower but I think what's gonna happen is you know usually you know to dalio's point the thing that accompanies these deleveraging that he's talking about is external conflict because people internally start looking for someone to blame you already see that we're gonna ban Tick Tock you know those you know there's the chips act so all this you know Rising hostility they're going to look for a bad guy in the form of China

I think if it comes to some sort of power competition the US will win but they're gonna erode freedoms along the way do you see what I'm saying like they already want to track every every transaction over six hundred dollars you know the old politicians thing um you know never let a good crisis go to waste I'm sure that there are people who've been around the block and think like this you know oh great power competition everyone thinks China is a threat not a threat we're gonna be fine oh and then but to be China we need every transaction over five dollars to be directly emailed to Janet Yellen I'm like kind of making it hyperbole here but do you see what um do you see where did you get that five dollars I don't know that's why that's my concern you know temporary programs become

permanent the permanent programs get more restrictive you know get your covet booster every year get it twice a year no thanks laughs yeah I mean listen the these are this is the entire argument that biology presents which is basically we're on this path and there is the path from a more economic geopolitical perspective which is you know China or Russia or whomever is going to be you know the next Global hegemon I agree there is another path which is the network state which is what he talks about which he what he promotes which is we are not going to actually lose I mean look at Russia and think about you know the superpower militaristic power that they supposedly had but they've been at war

with Ukraine for a year now and it's still not clear who is absolutely winning that conflict and just think about that in relation to you know the military of the United States and there's no question that we are not going to be fine but that we are going to be fine if we were ever to get into a skirmish with anybody but I think your point is exactly right which is the network State actually is the bigger threat you know what's happening domestically and what we can do and what we're losing domestically is going to be the bigger problem it's just going to happen like a like a toad in slow boiling water you're not going to know it's boiling until it's too late I I do think like all of our politicians are are so old and people say that that's

really terrible you know they are old for sure but that is both a feature and a bug like they are going to either you know age out of their posts uh gracefully or not gracefully but like that's coming DeSantis is 44. you know who like the the next people up are young there's a gen Z Congressman in there like it's happening we're slowly taking over and the biggest issue is that none of these people realize how impactful technology is you know I don't know if you guys watch The Tick Tock questioning but there weren't that many questions it was just them saying things at the guy and him getting kind of flustered and them not really knowing how it worked it was just really embarrassing like those hearings in 10 years will look a lot better for

whatever tech company or protocol is being questioned and I think that's ultimately what you're playing for like Dianne Feinstein Michael and I's uh local congresswoman how long should you be in Congress 30 years 40 like so old you know but she's not running for reelection next year had a great career great life you know hats off to you but whoever's next needs to understand this at a little bit more of a you know a deeper level than she did I mean she's not the it's not the same district but look at the look at one of the replacements roguecon you know someone who actually understands it goes on Meet the Press calls for the bailout of Silicon Valley Bank probably initiates that like that type of energy that type of perspective

was there for that of course but you know that that was the Catalyst on Saturday or maybe it was even Sunday that started the process or at least furthered the process to be able to get you know that solution solved very rapidly I I mean there's a famous line in science that is progress happens one funeral at a time and I think that there is there is like obviously not calling for anybody to to pass away but at the same time there is a Changing of the Guard that's going to have to happen in the next decade where we're going to have the first generation of more than not a congress person or a senator will have been grown up in an age where the internet existed think

about that every single person who is in Congress right now basically the vast majority of them saw the internet go from zero to something but imagine having the majority of the people who are the elected officials of our country be in in place of power where they just have known about technology from the start and I feel like there is a huge difference for people who just like have known about it from the start and have grown up with it have seen it and like that's been just something as commonplace as electricity or water do you just understand technology at a much better deeper level and we're gonna see that happen in the next decade because that that aging up is happening imagine when that's Regulators too I you know what I also think is um it's been

instructive and kind of eye-opening and kind of scary that no one at Banks considered the impact that Mobile Banking would have on Bank runs like this is so bad and so embarrassing nobody's happening faster than before yeah what of course yeah that was that was a real eye-opener to me and you know what it made me think of is this whole this whole phase that we're talking about where there's Financial oppression and yield curve control and stuff like that that's never been tried in an era of Twitter you know 24 7 pundits you know these people I just don't think they understand the blowback that

they'll that they'll get also the the whole system is global it's so much more Global now you can't just ring fence the United States like you were able to do I think it's gonna be not it's gonna go poorly I think they're going to try it and I think it's going to go poorly and and more people are learning about this stuff too like I know all the macro pods you guys have are probably blowing up just because it's like people are starting to learn about this stuff and they probably never understood it before like even myself I didn't really know what a bond was or like what a yield curve was and I started business in college until like 2015. like a couple years after I graduated three months ago and like 90 of people if you ask them

they would have no idea how that works like I'm with you ask them ask them how a two-year Bond Works mechanically like when do you get the money when do you put the money up when you get things back they're not gonna know but like now they will you know and and increasingly these things of like oh it's the btfp it's the QE it's the different you know three letter acronym like people are just gonna see through that stuff I'm gonna be the Senate here and say that people will still not understand it and that's the big problem more will I totally agree with that more will enough will like the the market is growing but this is gonna and unless it is something that becomes so cataclysmic that if it faces every single United States person every single person under

the sun it's really just not gonna be something that people pay attention to kind of like every Regional Bank blowing up at this very moment we don't have that but it could happen I'm not saying it you know we're gonna head into the cataclysm as I'm saying but if that happens I think a lot of people a lot more people will know but definitely more people know more now than you know like 12 months ago you know people also have a sense of things being unfair even if they don't quite exactly know the mechanics and how all of it works I've actually kind of noticed this about Finance in general too Finance is complicated right it's like complicated how all the mechanics of everything works exactly and oftentimes I do think people like people

say Citadel security is front running and citadel's like no we're not blah blah blah because of some technical you know technical reason for why they're not exactly doing it but you printed 20 billion dollars last year friends like yeah you probably are in some indirect way you know and they get to say no or not and you don't know what you're talking about but I think people generally over long enough to have a sense if things are working properly or working for them or if things are fair and if they're not and even if people can't pinpoint it I think they generally have a sense that something's not going particularly well that's actually a little dangerous too when that happens because then people are just mad emotions are flying and I found it harder to talk with people

about this stuff people like sometimes stuff that would just be a discussion is is a uh you know emotions get involved much sooner than they we are force-feeding people financial literacy like inflation okay you got to figure out exactly how much your money is is worth okay all this Bank stuff like you got to figure out where exactly your money is hanging out like I don't I can't even remember but when I was when I graduated from college I don't think I thought about any of this but but this is a classic stranger it was a classic speaker but now they're talking about it I don't Translate in Greek we also graduated college into a decade of nothing but up and to the right

zero interest rate policy nothing but up and to the right put your money in the S P 500 it'll grow seven to ten percent a year maybe 20. like Tech is going to continue to grow growth is is taking over there's no such thing as value investing like we literally graduated at a decade of the exact same thing happening every single year after year and this is the first change agent that we've had post graduation in the last 13 years it kind of feels like that's what Balaji is trying to do is just take that to the next level of like okay these localized problems of inflation in your Banks being insolvent like zoom out what if this really starts the Domino

I I kind of don't like the Doom and Gloom stuff he does but I understand the point and if he's putting real money behind it here's my support it's gonna be a weird weird decade but you know there's someone you know what else the other thing that I've because yeah to your point we have a sponge macro podcast we do stuff that's like way more in the weeds a great way to feel kind of existentially nervous is to focus in on this stuff a great way to feel very sure and like happy is to talk to people who are like deep in the weeds of building something because they're so unaware of what's like going on and I think it's the way to live personally I get interested in this stuff I pay a lot of attention to it but you know talking to developers like makes me

happy to be honest with you it depends on what you're building or developing because when your job is also to pay attention to what's going on and decide what you're building is the right thing for what's going on I never wanted to learn any of this stuff [Laughter] I'm gonna be honest I had no interest yeah I'm interested in it from purely like it's it in a very important sense is how things work you know and some honestly Michael you said like people don't want to know I've heard people talk about this you know 10 I'll be honest because we're admitting that we didn't know what Bonds were on this podcast I didn't realize that we had a central bank like in 2018 you know when I was getting into crypto I was like oh a central bank like

okay what is this thing and now everyone in America knows who Jerome Powell is they know by name you know that's this is it this is a this is a safe space you know it's in the cone of silence anything else you want to admit no that's good he's going viral yeah you know what blows my mind is that that guy wants to be in that position it was a pretty cushy job until recently lots of people will tell you how smart you were until things really I was gonna say there there was like a three-month period of time where he got you know ripped by Trump but other than

that has been pretty nice dude he's just out of the frying pan Into the Fire just getting jabbed by Trump on Twitter straight I was gonna say I don't know if he wants this job ever since whatever fomc meeting it was where he was literally shaking at the podium someone definitely told him like Jerome Jerry make sure you put that paper on that pedestal doodle I saw it like you know he's like oh he's almost done he picks it back up and his his hands are stuttering I was like I felt bad for the guy didn't make me feel confident though the whole gang has had a good run yelling Brian deese Powell there has to be like you can't we

haven't even gotten the part where we've started assigning blame and like that is the most important question uh especially politically I I don't know how they survive this I don't think they will do you want another thing that I think has uh also flown under the radar maybe it hasn't I just haven't been paying attention the thing that got dead and killed the most in the last 12 months modern monetary Theory everyone who is talking about how inflation is never going to come into play we can literally print money forever let's just like blow more money on the problem it's gonna be fine every single one of those theorists it doesn't feel good to be you right now they were on a sick one for like 10

years and then it didn't work I mean that's that's literally how crazy it got that's how crazy the last decade got where we were just like throw out every Theory we have about money we can print it into bazillion I guarantee you that comes back though yeah yeah long enough I don't know that specific idea does but I think exactly exactly dude you know what is so crazy about this stuff is that it's so apparent in history it's not even hidden like oh I'm like some scholar and I look at this stuff inflation price caps you know like naturalization event all of this stuff has happened many times throughout history and it's

just funny that the the same Solutions are provided and they do not work but people that's my frustration with Liz Warren I'm like you are a smart person she isn't yeah well she's a smart person she's a smart person she's a Savvy politician I think it's important to give people the benefit of the doubt she is go look at her early stuff I'm from Massachusetts actually you're a fan of her early work yeah fan of the early years I like the old war and oh God it's not gonna do it uh but yes no she's a smart she's a smart person she's a sad the problem is you have all these politicians saying stuff they don't believe I talked to a um I'm recording his podcast with a guy who's ex FDIC

ex-fedible reserve on Friday and I was talking to him about some of this stuff and yeah I think we would all be pretty disgusted if we actually knew how it really went down in Washington I it's this stuff kind of stuff you know you know you're like I'm sure it would be bad but then you dig in and it's probably so much worse than you even imagined it would possibly be how's the car House of Cards was a documentary I forgot uh I've got a friend in a group chat and it's kind of like a political chat or it's turned into one at least over the last couple of years and he was like one of the few people who was like I'm on I'm on Liz Warren's side I'm I'm absolutely supportive of her every like

two to three months he attacks me and it's like I can't believe how wrong I was I was so wrong you know what Robin William said this as a joke years ago but I think they should actually do this politicians should have to disclose who their biggest donors are they should just have to wear it on their clothes like when they're when they're talking it would solve so many problems do they do that they do you can you can go and see anybody who donates who they donated to and and you know all that type of super Pacs and stuff those are all dark you can't tell hey well you can't tell who's donated to them but you can't tell what they did with the money which candidates they supported it was just super below the fold you can't tell like

it is it is cloaking dagger at best like yeah a forensic accountant could put it together and be like okay this money ties to there and okay there we go and but no like it's not a person talking about an example of this I saw today so the tick tock hearing was today and Jamal Bowman the congressman from New York held a protest outside of Capitol Hill not against Tick Tock for tick tock and he had like 20 creators with him and it was like this like we need to keep Tick Tock in America Tick Tock is good for small businesses just makes you think why are you saying these things you know is there something we need to know about because I didn't realize Jamal was such

a big Tick-Tock guy you know he's doing his little dances he's going like going like that like Jamal I agree I agree with that let's let's let's um let's talk about a little bit of crypto stuff yeah like all right let's talk about uh the wells notice that got served to coinbase because that's the big one so SEC served coinbase a Wells notice Wednesday afternoon over concerns about alleged Securities violations the wells noticed which uh precedes an enforcement action states that the SEC will be targeting quid bases spot Market staking service coinbase Prime and wallet so man that is basically everything um and it there was uh Paul grew off yeah that's everything that's everything and you know Paul Grewal who's the chief

legal officer at coinbase he dropped a Blog and you know he kind of highlighted you know two years ago that he kind of dropped like a history from the coinbase perspective obviously of what happened but you know two years ago the SEC food coinbase in detail they improved coinbase to go public um and clearly like the S1 explained their asset listing process included you know 57 different references to staking um you know again this all all from Paul's blog I'm kind of summarizing here but over the past nine months coinbase has met with the SEC more than 30 times they shared details of their business uh you know building a path towards registration blah blah blah they said that SEC never gave them any feedback last July coinbase filed the petition with SCC calling for more regulatory Clarity still no response they've sent

Millions you know in dollars in Manpower you know trying to draft a registration proposal you know they've basically you know his his perspective is that coinbase has done everything that they can you know it even gone above and beyond to try to act in a responsible way and register with the SEC and his point was that this this just didn't feel like you know due processor that this was just I'd be curious to get both your perspectives I think all this stuff eventually needs to end up in the courts the courts are like the most American most egalitarian you know thing that we have and it doesn't exist in every country and we're very lucky that it's not just like Gary Gensler calling the shots and you know that's how it is the grayscale hearing was a disaster for

them you know it looks like a couple of the other cases are going to be harder fought or harder to win than they might have otherwise anticipated and so you've got you know coinbase going up against and they're the most Resource company in the U.S going up against the SEC for something that appears to be related to staking I would guess it's eth and so in the process you're likely going to have to prove that eth is a security which there's just not a great fact pattern there either I I think this is scary for coinbase in the sense that the downside is real um but I would give them pretty good chances you know in in a court of law and we have a general counsel and you know most things he's like oh [ __ ] like this

is not good or whatever he's like this is you know actually pretty interesting this could go coinbase his way and that's kind of what the rest of crypto Twitter lawyer section lawyer division has also said people are excited to see this in court because it feels like at last we're gonna have a fair Shake yeah only thing I'd add there is uh coinbase is the most probably the most litigious company uh representing the industry like we know exactly where this is going I kind of view this as like the situation when you know in an old western town it's like all right I'll meet you at noon in the Town Square you know guns guns blaring but you know it it SEC knows exactly what they're doing with

coinbase this is like the Big Kahuna that they've all been waiting for everybody knows exactly what's going to happen which is frankly like this is going to go to court and it's going to take years it will literally take years to be able to process this look at Ripple that was what 2019 uh and and we're still talking about it it still hasn't been settled and this I think will probably be even more so um but the fact of the matter is like the fat pattern is really positive for coinbase you know this was a business model which obviously talks about staking in the S1 that was approved by the previous iteration of the SEC and for whatever reason you know this SEC decided that it was not you know the business that they should still be in so

I I it it does kind of question you know are we talking about not just the political politicalization of all the the previous stuff that we're talking about macro wise but are we also talking about the politicization of regulatory bodies and and that becomes a big problem but to advance his point the courts are not politicized I like their odds I I think it's overall the point and you know the more The Regulators push on things like this it's hard for Republicans to get like super behind crypto from first principles as a broad you know statement of the Congress and senators but Republicans love what Democrats hate and Republicans love pushing back on government overreach and you don't need

to be for or against crypto to know that that is what's happening here and you know you're just kind of building up this bucket of Goodwill with one party as they see this government overreach happen especially on the regulatory side so if things ever change you know from a congressional or Senate split or the presidency probably looks a lot different in terms of what the regulatory landscape does as well yeah I think it's a little bit it's a little bit of a bummer because I don't feel like it was Destiny it didn't need to happen like this but it is becoming just a completely partisan issue crypto and you saw you know that DeSantis came out and said we're not going to have a cbdc in Florida uh you know that's probably some bit of

political posturing you know he's done stuff like this in the past like he sent up you know the uh you know immigrants no those are not the same thing those are not the same ones you know these people are all you know what they're doing I didn't understand this until I started doing like media and tweeting and stuff they're like you know when you I got a fire tweet you're like this shit's gonna rip this is gonna be a ripper that's what they do they're like oh yeah I'm gonna bust these people up to Massachusetts hit him and Martha's Vineyard that that's the game that's the game that's being played and whatever I respect the game but I think that's what he's doing too but if that gets the thing done I guess it gets the thing done because I think a cbdc would be

disastrous I think it'd be horrible we're getting presidential candidates to stake out positions on crypto like that's what's Happening Here and and it's not because DeSantis loves crypto it's because he hates big government and he hates what the Democrats are doing and he hates the CBD study that's going on right now so it's kind of like the enemy of your enemy is your friend a little bit um and I think that's how I would categorize like the Republicans right now but then you have Republicans like and very important ones Patrick McHenry tall member that are in leadership positions in the house that are very pro-crypto because they know what it is and so like over time you hope that core grows to the rest of of the you know

Republicans at least and rokana and all the Democrats I feel like they know what crypto is I don't know about you Michael but like I feel like they're pretty reasonable 100 I was gonna say I don't think that this is necessarily crypto is not a partisan issue as much as it is an age issue and and I think that you know if anybody came into in into you know Congressional or senatorial seat in the last five years three years maybe they know what it is they understand the power of it but also they understand that the number one the number two thing that everybody has in the Robin Hood account behind an S P 500 Index is some form of crypto if you are under the age of 35 if

you're over the age of 35 it's literally the opposite and I think everybody at at least at some point is the bit is going to flip as people start to realize you know where where the inner generation is actually trending uh the problem is we just don't have a mass or we don't have representation in our government at the moment also the youngs don't vote we're not good voters we're gonna have to change that things are going to get so bad if if like you know the worst plays out here that it's really going to be a call to mobilize because I don't I don't know if yeah it's just going to be tough if we have another 40 Years of like bank failures and inflation poor decision making a weak leadership on it's you know weak leadership but uh let's talk about a

little bit about the arbitrary air drop because that you know I I don't I'll be honest I don't have much of a take here you know I was gonna say a drop they did it congratulations yeah everyone saw it was phenomenal I mean yeah trading at 1.38 which is 13. 14 billion dollars and we're back launching 11 figure FTV tokens like the blue Market never ended like wait wait wait what's the what's the fully diluted versus the market cap or what's the percent trading right now so they did 11 air drop so they've got about one and a half billion out but they're fully diluted is

11 and a half yep math tracks out many such cases but you know times guys can I get you guys to speculate on something actually I just have a question about this um so let's say let's say like to oversimplify here what ends up happening on ethereum is you got ethereum mainnet you got generalized layer twos and then you've got uh kind of app specific blocks like roll apps whatever the whatever the word that you want to use is between those three how do you think the value distributes so I mean eth is going after a market of being both technology and money and the key thing is like

number one what is the business of L1 the business of L1 are like the central banks of D5 maker Ave and all the best nfts and basically like the main stage for finance you know when when the really big battles play out like UST getting liquidated or you know block fi or Genesis going under all that stuff clears on chain on ethereum L1 so like they have sticky demand it's not going anywhere the question is also like not just okay is there one L2 is there two l two are there a thousand are there three thousand because then it's like okay even if they cannibalize your fees you're gonna have enough call data booting put on chain where that's generating a lot of additional fees and like honestly I view the l2s as

technology like they're not going after the market of being the next Reserve currency of the planet so like you have to discount them you can't give them that high of a multiple and you need to Value them based on fees and you know most things are valued at the biggest tech companies in the world and some of the fastest growing are 10 to 12 to 15x next 12 month revenue and that's being very generous we're probably looking at like a few thousand X in some of these l2s and some of these l1s so you know my bullish on an 11 figure coin like that's always going to be a challenge no matter what it is but at that point you better be producing real fees for me to be excited about it the the way I think about it is it's sort of like the

dichotomy between AWS versus like maybe Facebook or SnapChat as an application that was built on top of that infrastructure where you can have and and to be clear you know there is a professional class of investors that invest in Snapchats and Facebooks and applications and that's you know basically the Venture Capital thesis right there there's also a class of investors who buy AWS stock Amazon stock in 2006 because they understand that it's gonna become the platform but it's not necessarily something that you can invest in from a venture scale outcome which is like a thousand X and and so I think you've got just a risk reward difference that being said I I do think that you know it really does to Fancy's Point depend on what the valued role model is

if you're if you're talking about the promise a future platform level participation and therefore revenue and cash flows that's great but like you have to prove that especially uh under the guys under the backdrop of eth being able to generate that and and some applications on top of it being able to generate that and and so it really does come down to like what are the metrics what are the value equal models but I I kind of think about it as like platform versus application and you might have apps that are super super valuable but the definition of a platform at least is you know the the value the economic value that's created on top of the platform is greater than the platform itself um and so so I I can yeah it's it's that dichotomy it's a tough one I I was just curious to see what you guys thought

because I was kind of thinking about it myself keep in mind none of the crypto trades on or very little of crypto trades on fundamentals you're seeing like glimmers of Hope in that direction right now but I can't explain to you why Ripple was worth 15 billion at the bottom you know when everyone was getting liquidated and things were terrible I don't have an A logical explanation for that and so sometimes you just have to suspend disbelief if you're really gonna like get into crypto it would be hard to get in with like a very very skeptical lens I agree with that we were talking to this uh partner of ours who's also an investor and he recently was like I'm I'm convinced there's a formula to be

able to predict how something will become valuable and it's like I don't even you don't even want to go there like it's not gonna work but you know you know people are like why why this doesn't make any sense like ultimately it comes down to animal spirits and fundamentals that's it yeah over time hopefully more of the latter than the former yes I think it will there's no no one can explain why Tesla trades where it is either you know like I I do understand we need to be rational here but within the context of the environment that we're operating in it's tough I mean isn't that the you know the theoretical rationale for what uh you know what an equity's value is

the discounted sum of all is future cash flows the important part there being the future like people's ideas and their expectations about where a company's gonna go changes quite a bit so I don't know if the last 20 maybe this is just me being you know a millennial and my experience with investing has been crazy manipulated up only Insanity I'm sure it probably isn't always like that but for my entire like it wasn't always extensions to markets yeah so security analysis uh by Benjamin Graham was written in 1936.

Twitter did not exist in 1936 like there is this element that we've kind of been talking about which is like is it worth revisiting all of the models all the mental models all the formulas that we have for you know politics Finance just general perspectives on things it for this new normal and I think the the smartest people the earliest adopters are actually moving in that direction but it it does kind of beg the question of like it's not a total ripping and replacing but do we need to adjust or do we need to add to our perspectives or our formulas to be able to actually get to what's what what the new normal is yeah there was some I I had a friend of mine we were talking about this when covet was happening and it was that

crazy you know markets Mania sometime in 2021 you know we were looking at the company snowflake uh you know Snowflake and we basically just like back the napkin math where it was like the wildest you know in order for that price to be rational like the wildest expectation was I forget like some like 100 billion dollars of Revenue and like X percent profit margins and there are companies that are already there that were trading at like one-tenth the value you know so it just you got to kind of look at that and just say people aren't wildly people aren't as rational as everyone would like to believe I don't think in terms of pricing even like the you know not gonna name any names of their investors but like the Silicon

Valley set especially like the growth investing set really you know if you ask them about snowflake they'd be like oh my God like this is going to change the planet you know it's it's not just about the next two years it's about the next 200 years it's like okay does that even make sense like yeah I'm not invested on a 200 time frame here yeah I I'm like you know that's insane and and then you look at CNBC and it's I was I turned it on the other day and it was they were doing a segment called grade the trade and they would all throw out like ridiculous trades and they would grade each other oh you get a c or like that's an A plus trade we're all doomed if that is you know to be honest that's hilarious

content that you know people give CNBC a tough time like whatever man it's you know it's 3 25 in the afternoon you're having like a yogurt you put CNBC on it's just an absolute circus yeah you're having a yogurt as one does that 245. is what it is I guess but I wouldn't call them you know any smarter than your average retail investor if markets were efficient we wouldn't have jobs yeah I I thought about that that was that was a deep thought I had the other day it's like is chat gbt eventually just gonna be able to like ingest everything and spit out trades probably but they they will probably be very similar to everyone else's trades because that's like the biggest training data that it has right let me ask you

guys a question this was this is probably a stupid question but if there might be a business or something in terms like transforming data in such a way that it could get processed by chat gbt or or you know whatever agis behind it because I was actually thinking what if you could feed all of the transaction like blockchain's entire transaction log you know entire history into a blockchain and just into Chachi between just ask it questions you know and and all the centralized order book data yeah it could probably come up with some wild insights you know I know so we we actually we actually have a couple of uh at least one portfolio company who as one of the proof points of their product and they're gonna have chat GPT but for

uh Dune Analytics you ask a question and it'll tell you the answer dude that's um yeah they I mean this isn't it has been pointed out but it is funny that everyone's like yeah the blue collar workers they're gonna get screwed and it actually is probably the white color oh my God that was so funny first of all the thing that everyone always said with AI is like don't worry the business people will go first but we're gonna protect the artists and we're going to protect the people who like really like you can't you know you can't replicate The Passion of these people and then the first thing we did was create a way to create any image and disrupt every artist and never pay them any more money it's just like oh we eliminated the artist first and all the white collar

jobs are gonna go last literally last night I'm we have GDC game developers conference here in San Francisco and and I was at uh one of our portfolio companies events was having a conversation with a game uh Company CEO who's like yeah we used to have eight people on the creative team now I have mid-journey and it works just fine life comes at you fast it does it does man that is uh we're real real stuff we're gonna need to find places for all of these people because if we have all of the artists not getting paid it's gonna get so wild people are gonna be pissed yeah I mean

that is a PR it's a funny thing to be like oh yeah we stopped you guys don't need to work anymore you know that should be this you know euphoric kinda oh I just I read this book um I'm gonna blank on the name this was a uh shoot uh there was like children's time or something like that I cranked through it on audiobook but the premise of This Book Is aliens cup is written in like 1953 Arthur Clark is the name of the the author and he the premise was aliens come down to earth and they're benevolent and they solve all of Earth's problems to solve everything like overnight you know and uh it basically starts out from that kind of hypothetical and then branches out from there I don't want to ruin the plot of

the book but it's extremely interesting and one of the predictions one of the things that this guy writes in 1953 is that with so many problems solved content explodes and people sit around consuming content all the time to a point and he actually says this where people some people consume content for as much as three hours per day three hours per day like that was a mind-blowing number that you know people wouldn't really believe you know written down in the book and now it's like I have five and a half hours of screen time on my phone you know I would love to get it down to three you ever read you ever read snow crash I haven't actually so so this is uh that's a good one uh the the premise is that the only job left after AI takes

over is delivering pizza and that is that's the one job that that is left for Humanity we're laughing right now but you were just talking about three hours of content per day no I I know it's it's worrisome shout out to anyway I mean it's it's gonna be a wild decade it just feels like it's gonna be super volatile and that's probably a good thing that's for us the the crazy thing is it's not going to happen it's already happening the the AGI stuff is it's yeah I'm a little bit of a like a a Luddite like a closet Luddite I know we

all work in crypto but I kind of have a little bit of a distrust of technology and I don't like buying software and stuff like that the the I've been trying to wrap my mind around the implications of Chachi BT and it's a little frightening to be honest have you seen the South Park episode yeah oh they wrote a whole episode right oh my God he uh Stan hooks his phone up to chat gbt to text his girlfriend back and like they have this like amazing relationship and at one point she was just like yeah there's just one thing I don't get about the boating accident in Switzerland and he's like wait what like Chad gbt's been making up this whole separate Life For Me blows up his relationship blows up his family it's like yes this is exactly how it's gonna happen so many people are gonna get

caught texting their girlfriends via chat gbt my girlfriend not yours though right man yep no no one of my friends has been using that for uh for uh hinge he's like everybody's gonna start using it I'm ahead of the Curve he is wow this is also the friend who on without meeting um uh someone he met on hinge is going to a wedding in Tokyo with her hmm so chat GPT I just made up a trip out of time

yeah it's been a fun one all right we'll see you next week foreign