Chips Crack, Bitcoin Holds. Is Crypto Finally Trading on Its Own Drivers?

Transcript

I call it the generational pump and dump. Right? Both sides of the aisle were complicit in growing the debt burden of the US from effectively zero when they were born to 40 trillion. And interest rates went down for 40 years. And so they really like got it on both sides. Hey everyone, welcome to Bits and Bips, where we explore how crypto and macro collide one basis point at a time. We're here with two special guests today to discuss the latest stories in the worlds of crypto and macro. But before we begin, a quick break. Episode is brought to you by Nexo, the premier digital assets wealth platform. Earn daily

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Thanks. All right, as always, I'm your host Austin Campbell, high scholar of Zero Knowledge Group. I'm here with one of my usual co-hosts, Chris Perkins, the golden hand of Franklin Crypto. And today we have two guests. John D. Agustinino, head of strategy at Coinbase Institutional, and Nick Van Eck, CEO and co-founder of Agora. Um, guys, let's start with a topic that slams together a bunch of things we've been talking about here for a while, which is chips are cracking, but crypto is doing okay. Um, to set this up, NASDAQ had its worst

week since June. The chip index lost 11.4%. South Korea's Cosby had its worst week since 2008. Bitcoin finished the week roughly flat. So the question that I have for everybody here is as we're looking at this, did crypto trade on its own drivers or did it just take losses earlier? Because equities NASDAQ down 4.5%, chips down over 10%, Cosby down almost 15%, it rebounded 1.7% today. So not totally dead. Bitcoin was essentially flat. ETH was essentially flat, but the equity component. So

strategy and Coinbase traded down in line with the market down almost 10% about 5% respectively. So Catrini was out saying crypto now has fundamentals. He has a 15 token basket. They skipped Bitcoin and ETH with the statement, "We can't assume that the majors, primarily Bitcoin and ETH, will make new all-time highs on this. Even if they do, there are better expressions. Milk Road shot back. Thankfully, Bitcoin and ETH don't derive value from Catrini's assumptions. And in the Kobe Essie letter, we believe the S&P 500 is a bare market within a bull market, noting 84% of S&P stocks are 10% off their highs. So, I want to start sort of laying all this out, and

John, I want to flip it to you as somebody who thinks a lot about sort of macro themes and strategy. What do you make of the AI trade cooling off, the performance of the S&P, but crypto actually holding up decently well here? >> Well, first of all, thanks for having me. It's always great to be on with you and Chris, and it's a pleasure to be here with Nick. Big fan of all you guys. Look, we've seen the story before. I'm always very hesitant and concerned about describing any asset whether it's my old days in commodities or Bitcoin or crypto as non-correlated over the long term because as we all know that correlation tends to hop to one at the worst possible time. So here's the good news and the bad news in some situations is like the answer to why Bitcoin is

trading the way it's trading is just a function of its liquidity level. And while Bitcoin has good liquidity, it goes through periods of tighter liquidity and you have these liquidity gaps. And we've been the benefit of those gaps on the upside many, many times. And it's harmed us on the downside. And we talk more about the downside than the upside. This is I think this is one of those times where I don't know if we've had this mad. I mean, there's people who postulate that we're going to have this massive correction in AI and all those hundreds of billions or trillions of dollars of forward investments going to shift back into other assets like Bitcoin. If that is what we had seen over the last few weeks, then we would have seen Bitcoin do more than just tread water. So, I think it's getting some of the runoff. I

think some of this is the post high of clarity not passing and people kind of just pricing in that and then it's also just beneficiary of thinner liquidity than AI markets. So you know strategy making big buys and I think just the overall thesis continues to hold. The market's not as large as the AI equities market and so it takes less to hold it up and we've had a good run. I wouldn't like reading too much into it because then people get extremely disappointed when it trades risk on in other environments, but it's a it's a nice it's nice when we see these handles being held through choppy periods.

>> Can I just jump in and say that John has the authority to speak on AI today because for you people who are listening, he's dressed like Jensen Hong. >> Yeah, that was you caught it right. That's why I'm cosplaying as Jensen so I get credibility. If you get a chance to see him, do it. John, I'll chime in. Look, it feels like the world is blowing up right now. Look what's going on in France. I was driving up 95 this weekend and diesel was at like 655. That's pretty crazy. And I think it's really impacting people at home. I threw the radio on as I was driving up 95.

What's the first thing I hear is a Governor Hokll ad commercial saying how she's going to focus on destroying data centers. So it feels like so many things are coming to a head with inflation, with AI, with social unrest across the globe and against that backdrop for crypto. So that kind of feeds into the long-term thesis around crypto, right? Trustless permissionless Bitcoin independent of governments, a store of value that you don't need to depend on. And so that thesis, that original Bitcoin thesis is still real and live. There's some risk as we're starting to see more and more threats to cryptography that we should talk about, but that underlying thesis still lives.

And on top of that, we have regulatory derisking that continues to occur that really, I think, extends beyond. We always had regulatory clarity for Bitcoin. Now, it's extending beyond into the other asset classes where, you know, if you happen to be a security, you happen to be have fundamentals. It's not a death sentence anymore. You can actually like acrue value because you have those fundamentals. So it does feel like the market is the crypto market at least is starting to change a little bit. It feels like the setup is good when you see relative resiliency during a period of weakness and I think there's a lot of things coming together for crypto. Now I guess I'm oftentimes bullish on this show but it doesn't seem like a terrible

setup. you know, if it's a risk asset like it's traditionally been crypto, massive risk asset, >> it tends to get, you know, un I guess unfairly impacted. Yeah. But I'm hopeful that now we're seeing a little bit of fundamentals shining through because of those factors. >> Yeah. I mean, pick your poison, right? Do we think it's a risk asset? Do we think it's a hedge against geopolitical risk? Do we think that it's a long-term monetary debasement trade? In theory, all of those parties, regardless of what your thesis is, should be spending a little more time and a little more risk capital thinking about crypto and thinking about Bitcoin as its leader.

And so, it doesn't surprise me that it would have some level of resiliency. Also, keep in mind this huge wave of ETFs opening up for everyday RAAS to sell continues to expand as more and more of these banks get comfortable. That ETF product is sold, not bought. And now that you have more and more of those RAAS being able to sell it, we're going to see more distribution. We're seeing good pickup on our tokenized equities offering out in the UAE. So, I think, you know, there's a lot of reasons to be optimistic. Chris, I'm sorry you think the world is blowing up. I'll remind everyone we're not even close to highest levels of inflation adjusted crude oil. I hope we don't get there, but I get why people are scared right now.

>> So, I want to go the other way on this and ask Nick, you're an operator actually in crypto markets right now, right? The CEO of a company in this space. What are you seeing? Are we seeing interest? Are we seeing fundamentals like what do you make of the arguments you know on pro side? >> Yeah, we're you we obviously operate a stable coin business. I think what we've seen over the last year and I think you've seen this with Bitcoin as well is like the asset class is really maturing but I would say stable coins and the growth of that sector is completely separate from what is happening in the risk assets crypto. I think that Bitcoin is really my all, you know, bull thesis

on Bitcoin from 2016 has always been the monetary debasement trade and that continues to look good and has moved at a faster clip over the last decade than I would have expected. But with the stablecoin market, Genius really pulled forward enterprise demand by three to five years when that passed. And that was a big surprise. I certainly didn't think we were going to get the most important piece of banking legislation in my lifetime six months into a new president's term given what had been happening in the prior administration. And so we are seeing enterprises across the spectrum race to adopt stables, right? Whether it's telecom companies, global mobility businesses, you know,

hotels because it's a better form of people to move value across the world. And so that market is accelerating and heating up I would say at a probably much higher rate than what is happening with regards to Bitcoin and other risk assets. My view on where Bitcoin is having been in the space almost a decade personally is that we are in the apathy stage right we're past the max bearishness. People think Bitcoin is going to zero and my view is that it's been mostly unchanged because people have forgotten about it outside of the people that treat it as the monetary debasement trade. I think things will start to look more positive for risk

assets in the crypto markets over the next year. I think the AI trade falling off is going to bring liquidity to a ton of other markets, crypto being one of them over the next year. I think AI has completely sucked the liquidity out of the room of every other market. I was listening to Josh Brown his podcast yesterday and they were talking about how some of the memory names are off 54% from their all-time highs year to date and are still up 100% plus and the markets have been really sucked into everything that is around AI. And so I think that trade starting to unwind is positive for a lot of other markets. Hey Nick, so we've seen stablecoin market

cap actually come down a bit, which was not on a lot of people's bingo card. Do you attribute that to the AI trade as well? And what's your assessment there? >> I think the stable coin market today is still mostly correlated to risk assets and crypto trading. The enterprise adoption of stable coins is still minuscule is part of the overall pie of stables. There's I think about 300 billion in stable coins outstanding, right? give or take. There are companies that we're working with that are planning to adopt stable coins that do that in revenue on an annual basis, right? They're not going to move to stable coins overnight, but I think it goes to show that it's a drop in the bucket. I put out a chart a month ago where B2B payments with stable coins was

about a quarter trillion last year. And on an annual basis, B2B payments in general is 1.6 quadrillion. And so it's a fraction of the market and I think it's still mostly we're crypto trading today. And I think that's why Tether is still the largest stable coin. You once you see USDC or some of these more institutional grade stables past Tether, that's when crypto trading I think will be minority of the market. So on that note, I want to pile in and go back to something John, you were saying earlier as we look at the threading of those two things because as I'm interpreting crypto price action, one of the things I'm looking at here, and John, you were talking about this

earlier, is there's not like one mindset about why these things have value, especially Bitcoin. If you look at the fragmentation of thesis there, it might be larger than most assets and commodities that we've seen over the last two decades. And one of the things you said that was interesting to me that ties in with Nick's bifurcation here is that you guys have seen really good results in the UAE on tokenized stocks, right? Which is not selling Bitcoin, that's not selling ETH. That's something totally different. So like what are you seeing on the Coinbase side there? How is that fragmented?

>> Yeah, I mean, look, I I I do think I do think there's something to be said for training people outside of our ecosystem to get comfortable transacting on chain. So, you're right. Tokenized stock is not the same as Bitcoin. They're completely different creatures. But I do think overall if people get more and more comfortable holding value on chain and doing it in a simple, easy to do way, I have a 1-hour thesis. If the average person, the average technically literate individual, they can work their home PC, they can work their phone, they can engage in online transactions, if they can't learn to use a new system in under an hour with some degree of confidence, I think the probability of getting widespread adoption goes down measurably. So, I think tokenized equities are a way to get that done because people want there's an insatiable appetite for US equities. I

think it marries well with our own national interests. I think the best thing that can happen for the US is if a tokenized version of the S&P 500 could be put into everyone's wallet around the world who can scrape together $5 to invest in their future. I want everyone in the world with $5 of excess savings to bet on the economic miracle that is the US capital markets. I want them looking at their phone and saying I hope the US succeeds and I hope its capital markets succeed. So I think tokenized equities can be as well as stable coins. No question can be Chris to use military terminology a wedge attack with the tip of the spear. What do we call that? We want to push our way in. How do you correct me on right? A pinser move. Is that right?

>> I don't know. I'm we just take the hill. We just go full front assault. Sorry. >> Yeah. So so long story. So so get to your question actually and shortly we're seeing it's all in chain. We're seeing roughly $20 million a week since our launch a few weeks ago. That's growing. We obviously know Binance has a bigger head start on us is doing multiples of that. So there's massive massive almost insatiable endless demand for US equities in tokenized form for the billions of people who can't get brokerage accounts and who still want access to the best quality to start large cap US tech stocks.

So then going the other way, the thing we've started seeing unwinding at least in part unwinding here is relative because it's been hot as hell >> is the AI trade. So >> part of why I'm looking at this disparity call it is the market is no longer thinking with one mind to the point on correlation earlier. You get moments of correlation one where either everything goes up or everything goes down. But the interesting state changes are when sort of those factors start to break apart. And here it appears to me the chain of events and you guys disagree with me if you think otherwise was people started to see some of anthropics results. They maybe didn't have the revenue growth that was totally

expected there. That led people to start to think about some of the economics and the promises of the core frontier sort of like thesis which itself led to a selloff in the stuff most leveraged to that. Take Cororeweave as an example or some of the Cosby and the memory producers but it didn't seem to me to affect like Google or Meta very much which have very different expressions here. So just like with crypto with the stablecoin Bitcoin institutional DGEN, are we seeing now market fragmentation there as well? And the reason I ask this is as we think about macro themes, when you see factors start to break down or break apart, that's when you start to head towards pushing

changes. Of course, I think right with all the other they have massive cash flow businesses and that's the concern right with an anthropic and an open AI is they have absolutely no moat. They're in the red by tens of billions of dollars a year and they're not financially viable businesses and their last equity valuations were in insane prices, insane multiples with the peak of peak expectations. And I think SF and like Silicon Valley was drinking a little bit too much of their own Kool-Aid and we'll see what happens.

>> Yeah. I mean, just to underscore what Nick's saying, I think part of it is what you were describing, Austin. Part of it is just like people realizing that the the debt capital markets are going to get shut off to these companies at some point. There's already a few junk rated. And then for me, I think the big realization was I forget which bank, one of the big banks put out a report saying they're expecting 50 gigawatts to go online in 2027. So if you believe Jensen's number, it's $50 billion a gigawatt. Let's say you cut his number in half because he's motivated to inflate the value, right? So let's say it's half of what Jensen says. That number represents in 2027 96% or so of all tech investment that we have on annual per year about 1.6 trillion. I think people just realize this is not

possible. It's the same when I would argue with people like five, six years ago about Bitcoin is going to keep going up at 10,000% per year. I'm like but it can't because it'll be bigger than the global economy. Like that's not how compounding works, right? So, I think people just are, to Nick's point, they're just saying, "I don't want to be the last person on this train." And look, I'm up 100% 200%. Even if I give up another 50 or 75% run, I won't care because I've done so well. And that's very rational. I think you guys saw the stats. The capex that's gone into AI exceeds that of railroads, exceeds that of other major industrial events in our history, electronification, telecoms, highways by far. So, the question is when does it end? And there's, you know, the one

other thing I'd point out is there's been levels to the incentive spend like masking some of this, right? Because you had so many companies that were funded based on consuming these tokens. I think there was a company that went defunct a week or two ago. I think it was Character or something. They were spending $16 for every dollar of revenue. Like that's insane. And so as this will start to unravel really quickly and open weight models are great for consumers and businesses and really bad for the financial profile of these companies. And it's also why you're starting to see fragmentation, right?

Because players like Nvidia are going to benefit regardless. players like Google and others who have other cash cow lines of business that can continue to finance things all but at a lesser rate will continue to survive and have an edge over the medium and long-term over some of the frontier model lab companies. >> Some of that is also a statement on the core economics specifically of the frontier labs. That is to say, if you're spending money constantly to remain at the front, you never have a durable moat. You just incinerate money endlessly. And part of what's interesting to me is a lot of these models have now gotten what I'm going to call good enough for a lot of consumer level deployments. Muse is a great

example of that. Muse Spark 1.3, which is the model underneath Muse, it's not the most powerful model on the market, but it's more than good enough for what most of people are using it for. That was not true two years ago, right? The Ford Model T may not be a sustainable car for everybody, but the Tesla Model Y might be. And not everybody needs a Roadster at that point. And so I think that has a lot of economic implications for the Frontier Labs. >> Yeah, I think you're right. I think there's Frontier Lab models for I'll just lump everything into competitive versus non-competitive tasks, right? So for competitive task, if I'm using AI to trade, for example, I have no choice.

the top hedge funds have to keep paying for cutting edge research where a small medium-sized hedge fund is not paying for satellite technology for example right so there'll be competitive applications that will force a niche of the market to keep paying for that slightly more nanocond faster or smarter model and then everyone else is going to be like I can create a tutor for my kids perfectly fine with this model I can run my home I can do basic research and they're just going to be completely unwilling to pay for that incremental unit of value. >> Yeah. If if AI were to be a balance sheet on the liability side, you got real liabilities when it comes to litigation and agents doing bad bad things, that's going to add up. You got unit economics that really are

questionable at this point. You've got regulatory risk heading into midterms and then you have a couple of balance sheets across the stack that have really been overextended. But on the asset side, I mean, this is insane technology. It's breaking. It's essentially recreating mathematics as we know it overnight. Like you're a career academic and you're a mathematician. Your goals just shifted and it's going through every single discipline totally changing it and it's going to propel us into something that's going to be very very exciting and interesting. It's touching all of our lives. Like you know how fast was it from when we went from Google googling things to going into chat or you know Rob doesn't go to chat GPD but I do sometimes but like it's

changed our behaviors overnight. It's changed our children. It's civilization defining technology. So >> that's going to crash >> when when the main reversion happens. I think the cognitive dissonance we're all going to have about that because I agree with you, right? How can something that is so gamechanging start to unravel? And when we have the first major bankruptcy of one of these AI companies, I think it's going to be really hard to fathom how that could be the case. But I think it goes back to what Nick said is that even something as universally gamechanging, anything can be overpriced. Chris, you know that. >> Of course.

It's also the pattern to be fair of the first tech bubble, right? Everybody was right that the internet was a transformative technology. That is 100% correct. If you look at the arc of the world from 1970 until today, the internet's probably the single biggest thing. But on the other hand, that didn't prevent a bunch of companies from going bust and a bunch of ideas from being bad and a bunch of things from being overvalued. Being long-term correct doesn't mean that Pets.com was right place, right time. I also think there's this disambiguation of is AI valuable?

Are specifically the frontier labs we have right now valuable? And then are they valuable in the right amounts at the right time? Those are three different questions. And people kind of treat them like they're a single thing when in reality those are discreet statements, right? Like airlines are obviously a valuable overall invention. That has not stopped a ton of them from going bankrupt. >> That's right. And there's been companies from the bubble that were 97 98% off their peak that then did eventually reclaim that peak, but it took 15 years, right? And so I think that's what you're seeing with some of the businesses today.

>> Yeah. I discern between productive and inert bubbles. And there's no question AI is in a bubble, but it's a massively productive bubble when the detritus is going to elevate humanity and elevate business to an entirely new level. And it's not a I don't view bubbles as bad, quite frankly. I think we need we're not a very logical species. Like we don't invent an interconnected system or DARPA doesn't invent it and we don't sit down and say okay we need a search engine we need a payment mechanism. No we have to throw money at things like pets.com to get things like Google. I just think that's how we invest. It's unfortunate reality of the human fail. >> Same with crypto right speculation is what drove investment into all this technology in the first place.

>> Memecoins are memecoins have revealed the resiliency of networks like Salana and allow exchanges to now say wow this thing can actually work in a way that we need it. I'm optimistic no matter what, but it's going to be a blood bath. >> All right, so you heard it here first. AI bubble, not the Dutch tulip bubble. All right, before we get to a slightly different topic, which is inflation, we are going to take our second break. So, we'll be right back. >> What if your crypto could do more than just sit in your wallet? Nexo is a digital assets wealth platform where you can generate daily interest on your crypto or borrow funds against your assets. Today, Nexo serves more than 10 million clients. Find out more at

nexo.com. One more thing, we've got a listener survey open. It takes just a few minutes. It's anonymous and it changes what we make next. Use the QR code on screen or go to unchanged crypto.com/servey. The link is in the show notes. All right, everybody. Welcome back. As promised, now we are going to talk about inflation. No simple way to put it. Inflation remains somewhat elevated. September CPI was 3.7%.

PPI posted its biggest jump in four years. The 10-year Treasury remains elevated. It had hit 5.33 midweek. It's still around 5.14. Brent touched 110. And cost of living anger is driving a lot of political fragmentation. How much that is versus other factors? Hard to know. But obviously Europe is, shall we say, popping off a little bit on this one. So inflation first. September CPI in the US6% month overmonth. That's on pace for 3.7% year-over-year, up from 3.4.

Gasoline, in particular, was up 9.1%. PPI was 1.3% month overmonth versus.5% expected. That's the biggest jump since March 2022. This puts the Fed in a tough space. The 10ear is at 5.33. It's still hanging out at 5.14 even after that. Kevin Walsh had to come out and say, "I don't prejudge meetings. Odds of an October hike have fallen below 15% after he spoke, but odds of a December hike are still there." So John, for you, Brent was 110, slipped to 107.5ish today after Trump waved key Russia sanctions. WTI is almost at 100. And

Priyanka Sachdeva of Philip Nova said Trump's move looks like another desperate attempt to keep oil prices in check ahead of US midterms. We're also seeing some unrest on the back of this. France, 2400 arrests, half a million marchers, historical buildings destroyed by fire, continued looting. In Milan, a cost of living march turned violent. People are being detained. This is starting to replicate across Europe. So, I want to start with this theme, which is we've had a lot of jawbon about inflation, but the core action that it usually takes to bring this down is either austerity or significantly higher rates and demand destruction. And quite

frankly, we're not seeing either of them. So, let me just start with this question. John, I'll start with you as a former commodities guy. Are you seeing anything that convinces you that inflation is going to cool down in the next six months to a year? >> Um, so, so I see nothing to, so let me answer a different question if you don't mind. I see nothing to indicate that the trajectory of inflation over the next 10 to 20 years has changed in any way, shape, or form. If anything, the curve's been exacerbated. However, I also see nothing to indicate that the cycle we've seen in So inflation comes in waves. It doesn't come as this persistent, you know, higher because you pointed out like the bond market and people get angry and then we do some short-term things to adjust it. It kind of cools

off. Everything feels good. Oil maybe dramatically overcorrects at the other end. And since, you know, even though gas prices are not, you know, the majority of consumer spending, we feel it more, I think, viscerally, especially in the US, than we do other aspects like food and rent. When gas prices are low, people feel better and they can still drive and they can go on vacation. And so we forget about it for a while and then we are reminded of it a decade or so later. So I think that cycle will persist. It's been surprising to me that we have not seen a resolution in the Iran war given the level of gas prices.

I guess the American public is being tested to see how much pain it can take before that comes to an end. I'm hopeful it will soon. And the nice thing about crude oil that the problem is that this elevated crude oil price the distillates lag a couple of weeks behind. So we're not going to feel the pain at the pump for another couple of weeks. But as that continues to um uh that continues to rise and it continues to upset people, the nice thing about this is if we have a resolution, even one that's just optically, we can see crude prices pull back very very quickly and we can see gas prices pull back very very quickly.

So I think that cycle I expect to continue. But back to our Bitcoin thesis, the trajectory, as Lyn Alden loves to say, nothing stops this train. Chris, you and I have been arguing about markets for a while on here now. On the inflation front in particular, agree with John, disagree, like what are you seeing? What are you thinking as we look at this data? >> Mostly agree. I think a lot of inflation is driven by fuel prices right now and which is a function of the Iran war. That's part of it. I agree with his long-term thesis. I guess Linds, I guess we know where this is going. I think the thing to watch out for is what we see going on in France. There's a social contract between government and its

people. And when that social contract begins to fray, what causes it to fray? Could be security in certain places, and it could be physical security. It could be economic security, which is related to inflation. That's when you start having real problems. And it looks like we're seeing in Europe and again they're more impacted by the the issues going on in the street of Hormus than we are because they get a lot of their oil and gas from Russia which has a war going on and then Middle East at least we have some local production. So I get concerned when I start seeing the social contract fraying which it seems to be doing and you see forces on the extreme right and forces on the extreme left looking to really disrupt the status

quo. The concern is that if these regions fall into extremism, let's not even forget Saudi Arabia. There's a lot going on in Saudi Arabia right now. A lot of turmoil. And so the world seems to be reshaping. I think that could have a downside effect if we get it wrong. If we get it right and things start cleaning up, you could see recovery rather fast. But despite all this uncertainty, there's still only 21 million tokens when it comes to Bitcoin. And I think that kind of stability is something that people like. That said, now we get hit with AI and people are saying, "Oh, watch out for the cryptography." So truly certain in this world. So I guess you got to keep doing your own research as they say.

>> I mean, for some definition of doing in research, I feel like we're even seeing reflections of this anger in the United States right now as we look at the midterm election. I've been trying to parse through what we're seeing there and I was having a conversation with a friend of mine who's a global macro trader who models this stuff and has been good at it for a long time and he was saying to me Republicans are generationally hated right now because of the economic situation in the United States which would normally make people turn to Democrats who are also generationally hated right now because of the economic situation in the United States. It feels like everybody's just mad, right? And nobody has a clear

answer to this thing. Is that what you guys are taking away from the protests in Europe, too? Like, to me, it just seems like people are pissed. >> It seems generational, though, right Austin? We talk about this all the time, even in the United States. A lot of it is that the older generations in many cases, they took out a lot of debt and they had a decent quality of life and now they're living longer. And the younger folks are really struggling to keep up. So we're seeing this dispersion. What have we seen amongst the younger generation? Financial nihilism. We've seen them punting wherever they can. Why do they punt? Why do they take huge outsiz risks? Because their linear projection is not going to get them anywhere. It's not going to exceed their quality of life of their parents. So they try to take outsiz

risks to try to change that trajectory knowing very well that their odds are not great. But that's how they're wired. I think we've talked about this generational split. I think that's driving it. The bad news is that people are living much longer. So, something's got to give. Something's got to give. I don't know what that's going to be. >> I want to hear Nick's point of view. He's closer to that generation than we are. >> Yeah. >> Yeah. I I would say it's very a Yeah. I call it the generational pump and dump, right? Both sides of the aisle were complicit in growing the debt burden of the US from effectively zero when they were born to 40 trillion and interest rates went down for 40 years

and so they really got it on both sides. Um and so you know I was talking about it with some elderly people in my family yesterday at the lunch table. What really I think most young people would have no problem cutting social programs for elderly people and having them feel some of the pain, right? Because this is like the first time I feel at least in American history where there is a generation that so clearly left off generations following it worse off and they're incredibly selfish about it which has cut across both sides of the aisle. Right? I think neither party today maybe the Republicans more than

the Democrats are providing a potential long-term solution. Right? Iran and some other things aside, right? But you need to solve the source problem which is spending. And that is almost entirely driven by entitlements. And so growing the government, growing entitlements is only going to make us worse off which I think one side is proposing. I wouldn't say the other side is really the party of saving anymore either. They all are also spenders, but at least they're less egregious spenders and are trying to go after some of the inefficient spending.

Unfortunately, it doesn't seem like either side really is. It's sort of the lesser of two evil situation from my perspective, but it is going to be a generational thing where push comes to shove and you either have like, you know, one outcome which is like, you know, pro-individualism, free markets, capitalism or socialism, communism. And I think one of those is definitely better than the other. Um, and neither is Yeah. So, I'll just leave it at that. I think you know where I fit on this. So, >> uh, so I'll I'll speak there as like what's the right way to say this? A professor who studies the history of financial crisis

obviously like hardcore communism central planning has not worked anywhere. It's been tried from an economic perspective. There are fundamental information theory problems in there before you get to the human element of all of these systems. How much free markets you need I think is more of an open question. There is a range between like the United States, what's been done in Asia, certain parts of Europe. Fine. That's a spectrum. But to some extent, I would encourage younger people who are mad, zoom out from the United States or if you're in Europe, zoom out from your local country. Look at the arc of history.

There's a pretty good path of what works and what doesn't because a lot of the core thing driving all of this, Nick, is just functionally government spending. Because in the United States, like I don't think people really think about these numbers. If you look at federal spending, social security is what, like 22ish%, interest on debt is now second. It's around 14. You've got the military around 13. You've got Medicare again around 14. And like Medicaid, CHIP, if you bundle all of that in there, it's about another 12 to 14 depending on how you do it. That is most of your budget, right? And most of that is not discretionary spending. This is not foreign aid. It's not, oh, we're buying

things for these weird interest groups. It's not even infrastructure, roads, and transit. This is mostly health care, interest on debt, retirey benefits, the military. And by the way, for anybody screaming about the military, it's maybe the smallest item in all of those. So if you zero it, you still don't. >> The military is the smallest. It is. >> Yeah. Yeah. >> And and you also have a lot of wasteful or fraudulent spending at the local level that is egregious and then they just hope that their guy gets in office and then it's forgiven by the federal government. >> Well, but ignoring local because it's not even in that total. My point is at the current level of federal spending, you are cutting one of Social Security, Medicare, or Medicaid. if you're going

to balance the budget or you're defaulting on the debt and if you do that obviously there are long-term catastrophic consequences to being able to do that in the future. I think this is what sets up that intergenerational divide, right? Like the reality is if you look at social security over the history of the program, a bunch of money was paid in. They're paying that money out and because not enough was paid in and the benefits promised were too large in a couple of years either you're massively cutting benefits or you're massively raising taxes or massively deficit spending, which we're already having problems continuing. There's kind of no solution here that makes all parties happy.

No. And and and the net result is Chris is the perfect term, the cult of nihilism, which is what we have now, right? So I remember, not to bring up a horrible topic, but I remember when the Luigi Manon murder happens and and what struck me about that outside of the horror of that father being gunned down was when you saw these these celebrations and these people doing interviews. And I remember watching and thinking, these look like normal people. like these look like young people with a future, you know, and why would they be willing to go on camera? It's like if you and I disagree on politicians and you're at a political rally and you believe in that candidate, that's fine.

But these are individuals putting themselves on camera. They've just opted out of the system, right? These are young people who could opt in. They've chosen, I'm okay with being on camera in this way because I don't I'm just not going to for whatever reason they have. They've chosen to opt out of this system. If enough of them do that, and we've seen reports of socialism being preferred by a majority of people under certain age demographics. If enough do that, then we have a massive, massive problem. that concerns me tremendously is a complete disassociation with the current financial system to the point where not only we like let it all ride on a memecoin that's destructive enough behavior but to think that if you can't win that way if you can't pull yourself

out through massive speculation then you'll just opt out that's >> y the only real >> path out of this thing is growth >> is growth >> uh is growth and like that's why we need entrepreneurs like Nick to keep doing what they do and they have to feel that they have upside and to take that risk. >> What I think is really interesting is that you're seeing both sides of the aisle focusing on this a little bit and everyone knows that the Republican administration's like all in on AI, all in on crypto, right? >> But really, do you guys see what Mandani did with NYU on the quantum lab? They put 30 million bucks into that. So New York just invested Yeah. They just put 30 30 million bucks into the NYU quantum lab and they said, "Hey, listen. we want to do this investment so that anything

that comes out of this lab will be shared by the people on the on the left side. So I thought that was just fascinating. So hopefully that light bulb's going on across both sides of the aisle. >> At the same time he banned he banned AI in schools. So that I mean that's just let's just be >> I'm not I'm not I'm not here to defend him. I'm not here to support him. I'm just saying that like that's the only solution and I hope that these parties figure it out. >> That's wonderful Chris, but you have to admit we as a country we're not clear how we feel about AI, right? And that's not shared. I just got back from Korea. >> They are all in on making data center production capacity like a core tenant of their economy.

>> And we're having a massive NIMI problem similar to what we have with natural gas reg. >> Couldn't agree more. Couldn't agree more. I had somebody ask me this week, if some of these data centers pivot back to mining, will it be less noisy? And I'm like, mean politically noisy? They're like, no, like le less noisy. It's fascinating. So, look, I'm not political. I'm not suggesting it, but I'm saying the only way out of this is growth. I totally think we've got an NIMI problem. And I'm right, I was in parts of Asia last month. They don't have a NIMI problem. They just want to grow. All right. So, to hit the AI thing briefly then, as we're looking in the United States, Coreeave down 25% last week. Bonds are trading at distressed

levels. The Bitcoin miners that pivoted to AI hosting have fallen with it. And the FT is revealing that Anthropic probably has a subinvestment grade rating, which for those of us who have traded credit means junk. What do we think is going on in this space? If we're seeing like Iron 65% below the all-time high, Marathon 68% below, and a lot of these folks sort of trading down and price targets coming down and Anthropic being rated this way. John, is that a manifestation of the NIMI problem? Is this a demand problem? Like, what do we think is driving the dynamic that we're seeing?

>> I mean, the only I think it goes back to what we said before. I think they believe the equity markets are tapped out. There's only so much of this you can sell to retail. And I think they're looking at the debt levels and they're saying the debt markets are starting to get skittish about that. And so, where is this? You again, the numbers are, you know, Nick hit it in the beginning, the numbers are so insane. like they're so insane that any reasonable person is going to look and say where are they going to get $500 billion dollars of debt from and if they even if they manage to get it at what cost the only counter I've seen to the corre argument is that they said oh no there's this secondary debt market called the DDIL or the the projectbased debt financing market and yeah there is and it's

massive and it's syndicated by the big banks but if you look at the indexes of those types of markets the interest rates already moving in the wrong direction so it's just I think it's just hard to imagine. And if we're wrong, if all these markets are wrong and AI is bigger than anything we've ever seen before by a factor of a hundred, then we'll all feel pretty silly. I think it's rational to sit here today and say, "I don't understand where half a trillion dollars of debt will come from, and even if they manage to get it, it's going to be very pricey." >> That seems to check out to me because my question is basically, where is the money coming from? Nick, let me flip this over to you as the person who's running a financial business right now.

If you're either a lender in this position or you're operating one of these companies and you need to borrow, what is the market telling you here? Like how are you feeling? >> Not good. >> Right. I think you know capital markets at least for startups and these types of businesses are going to freeze up very shortly or already have you as you've seen started to freeze up. What I haven't been able to figure out is if this was like a result of the AI economics not working or if like it was the 10-year and really like global government yields exploding which might in turn drive more demand for those you know those products over AI which was trading I think at like seven or eight% coupon right or could I sit in a US

government bond for five and change and so it's interesting to see rate markets really start to get jumpy partially I'm actually very excited to even small bond vigilante come back cuz we were just talking about the US government debt problem. I think that's the only thing that solves it. I don't think there's enough political will and it's terrible, right? But I think there's no political will to actually solve this and it's only going to be the cost of service the debt explodes and that's what's going to have to force both political parties to recognize that we have a serious problem on our hands. Growth aside.

>> Yeah. I've jokingly said before, bond vigilantes are not real, right? It's just a problem of people being able to do math. And what I mean by that is if you look at the forward rate of United States spending at what it projects about both debt and inflation, you should get increasingly nervous about owning the 30-year at 3%. Right? So, I think this is people just reacting to market incentives because if you think Congress is not going to be disciplined, the things you want to own right now are not the long bond. Right? And they're not even credit in these AI companies.

You want to own gold and Bitcoin and equities right? >> I mean, what I never understood, and this was during COVID, was how we had like really lengthy maturity bonds trading at like nothing. They were like 1% or less. It's like what why would you ever put money into something like that, right? And the banks were doing it, you know, which is why some of them blew up. >> I was going to say a question Silicon Valley Bank was asking >> like what are you doing? like just put it in a repo or something like what are you doing? >> I I mean can we let's also be positive for like two minutes because I feel like we've been overwhelmingly negative, right? So let's just I agree with everything you're saying. We have to grow our way out of it. So the good news is what an amazing time to be alive and

to be you know I'm going to speak I'm going to brag about my country the United States of America. We've got ownership, got the best companies exploring space, I think, doing a great job of making sure that we retain the world's most credible and desirable capital market by aggressively moving into tokenization. It's not just Coinbase. Every major exchange is adopting it. The US dollar is being distributed through stable coins. It will maintain its competitiveness as the world's reserve currency. And we flew a car for like three and a half seconds, right? So, this is like a cool time to be alive. And the probability of us continuing to do well and grow away out of this I think is very strong.

>> John, I totally agree with that. And you got crypto, the democratization of finance. It's maturing and we're seeing that happen in real time. It's coming together with AI. The unlocks with AI haven't even begun yet. Like we're breaking math problems, you know, overnight. What we're going to be building in the future is like we haven't even contemplated it yet. And then along comes quantum, which continues to make progress every day. all these technologies are slamming together. The upside is actually insane, but that doesn't mean that we're not going to navigate some near-term volatility.

>> So, I'll say this. When when um when uh I think it was Google released those 250 or so math solutions that nobody thought could be solved within the next like 50 years, right? That was like a couple of weeks ago >> and everybody kind of panicked and said, "This is horrible. This is awful. This portends doom." You know, like with due respect to all my colleagues here, I don't think any of us are cutting edge leading mathematicians. So, we all rely on research. We all rely on people we know. So, I'm lucky enough to know a few of those people. And I called them. I'll even name drop one. I'm sure you wouldn't mind. So, Alex Lipton, who's the chief data scientist at Abu Dhabi Investment Authority, I called Alex and said, "Alex, how bad is this?" And he called me back and said, he was

laughing. He said, "It's not bad, John. It's exciting. It's wonderful. It accelerates the time." So, we were already preparing for postquantum proof cryptography. We knew this was coming. We thought we had more time. So, this accelerates the timeline, but it's not like we didn't know this was happening. >> That's right. >> But he said, "Everyone's focusing on the negatives associated with this, like the breakthroughs this will give to us, the improvements in efficiency and the scientific unlocks." He equated it to decoding the genome. And so, I know we're we'd like to be pessimistic because it kind of pushes the algorithm more. This is an extraordinarily exciting time to be alive.

>> That's right. I got to jump, guys. Good to see you this week. >> Good to see you, Chris. All right. So let's end on a positive note there as well, John, which is to say one of the discussions I was having with a friend about quantum cryptography is we were talking about sort of the news thing and this is a person who still works in the mathematics space as well. And he's like, if you have a working quantum computer that can decode, you know, essentially all encrypted communications, he's like, we're going to be traveling into space at extreme rates of speed in the very near future and probably doing things like curing cancer, right? The upsides will be much larger than the downsides. And by the way, we'll discover new ways to

communicate securely. I think there is this natural tendency like when the automobile showed up, they had people having to walk in front of them waving a red flag at first and everybody's focused on the downside. But I don't hear much hey back to horses today. So I think it is important to focus on the positive side of things. The the quick analogy I'll give is be useful to me in explaining this to my parents is imagine that we all believe teleportation would exist in like a hundred years or 50 years and something happened which made us think that teleportation would be viable and economic for the average person within five years right so that would be scary to some degree right your locked door would be irrelevant right at that point we could focus on the scary parts of it or we could focus on the

fact that we can now teleport goods and services and food anywhere in the world cheaply instantly and without delay. So I think of this impending Qday, I think of recursive AGI as in those lines. >> All right. So on that note, we can pause here for today. I want to let everybody know Unchained is running a listener survey and it decides real things. Things like recap shows, what time things stream, what goes into premium. It's anonymous, takes a few minutes. Everybody who finish it gets a free month of premium. Go to unchangedcrypto.comservey.

It is open through November 8th. And on that note, I want to thank you two guys for joining us. This was definitely fun. You are welcome back anytime regardless of what my cranky two co-hosts say. So, we'll see you guys again. Take care and thank you. Thank you for watching and hope you enjoyed this episode of Bits and Vips. Just remember, nothing we say here is investment advice. And please check unchainedcrypto.com/bits and bips for more disclosures.