The Crypto Bull Market Just Got a Reality Check

Transcript

Bankless Nation, it is the third week of Downtober. We are We are not getting October. It is look like October is not on the menu. Kind of was the same exact thing that happened last year. Uh happy one-year anniversary, Ryan, this week of 1010 that happened 1 year and 5 days ago. Uh wow. It's it's been a while. >> You said you said this was like last year, but like last year was a lot worse than this. I just like to say. I mean, we're not that down that much. Like last year was like the end October last year started with a hint of bullishness and then quickly reversed course to be very very red. And so that is a repeat of last year.

>> Last year, Bitcoin started at like 120,000 and then ended at like >> 80 or 90,000 or something. Yeah. uh and we started this month or even last month in 60,000s and we're ending 80,000 uh last month and so the direction of travel is quite different. >> Every month we start out with the roll-ups saying the words October >> curses the month. Okay. and it's bound to be a downtober instead or like a everyone everyone in crypto does that in addition in addition to downtober in the crypto markets we also got a flush coming out of the AI sector of the traditional stock markets both in the United States equities markets but also the Korean stock market Korean stock

market down 23% blowing back into the NASDAQ and the S&P the AI credit part of the uh the AI infrastructure buildout starting to show some cracks and maybe is blowing back into into Bitcoin into crypto or maybe not. Ryan has a take. >> I do have a take on that. I don't know if it's uh the best informed take, but I do have a take, David. Also, I have a take on the attack on the Ledger wallet supply chain. Okay. Somebody was implementing a spy sort of device inside of Ledger wallets, the hardware wallets you guys know, that would read your seed phrase during setup and beam it to some hackers that would then steal your funds. over 100 million in funds stolen this way. How deep does this attack go?

We're also going to talk about the Bank of America. Apparently, they had been ignoring some suspicious activity, a little bit of terrorism, a little bit of uh drug cartels, moneyaundering, >> a little bit of crime. >> Yeah. 5 billion worth. And they were fined by Fininsson this week. CZ has some thoughts on that fine actually, having been there before. What else we got? Richard Hart, we have not talked about that name in a very very very long time. Good riddance as well. Uh was arrested in Istanbul on an interpole red notice. Uh the fi the law finally caught up to him. We're going to talk about the saga and how it all concludes. And I have a take about the hexagons that I

want to share with you as well when we get there. Can't wait. >> And then we're also I'm going to talk to Ryan about paper trade. What is this thingy? What the heck is this? I know Ryan has been just dying to get his hands on a way to go 1,00x long in any particular direction. So, we're going to talk about what what it's been like in paper trade 10 days in or so. But let's start in the crypto markets. Bitcoin is down 2.5% on the week to 82,500. I think we're actually are recovering a little bit at the time of recording. Uh at least some of the some of the down market coins. Uh but overall down 2% on the week. Uh, I think there was a lot of bullishness as the Bitcoin price broke through the previous May time May highs of this year into 85 $87,000.

Uh, we are now below the the May highs and so people are now worried about I don't think we're worried about setting a lower low, but I think people are worried about setting a higher low, but going down nonetheless. like the whole Ben Coway and bearish until the midterms take seems to be coming back into focus, back into view. Uh, and so >> I thought he reversed on that though. He did reverse on that, right? >> He didn't quite reverse on it. He said that he was wrong about getting new highs above the May highs, but he he still like held out like room for like the midterms could still be rough. I was just wrong about having like a new high set in this year.

>> Yeah. Well, maybe this is part of a midterm selloff, of course. So, uh, on poly markets, 64% chance the Democrats take the Senate right now. A 91% chance the Democrats take the House. So, this could be a blue sweep coming in early November. >> Imagine that the crypto assets want that. Like the the over the last like month or so, we have to have seen like Bitcoin and other crypto assets just price in a Democrat win, right? >> Yeah. I wonder. But I mean, like, why would that be so negative for crypto at this point? I could understand why a >> um, you know, you know, a crypto disparaging president would be incredibly negative for crypto, but it's not like we have any laws in Congress,

right? Clarity is dead. >> What does crypto have? Yeah, I don't I don't know that this would be so bearish for for crypto. >> Yeah. I mean, traders could just be trading it, right? Like I agree with you, the fundamental analysis. I don't think the Democrats are going to come in and be like, "All right, let's rip everything about crypto out." I don't think they care that much. Uh they're mostly indifferent. >> They're focused on AI right now. >> Yeah. They're focus AI is like the flack. Yeah. >> Yeah. It really has. I was going to say I I think because um part of the reason the vibe seems so down down this week is not just because of Bitcoin. That's only actually off 2 and a half%. It's because the rest of the alt market has continued to sell off. We started seeing that in

the beginning of October and that has persisted. ETH down 7 and a half% on the week. But if you look at Soul, Ze hype near another 10% down and that's stacking on what the 10% 15% down from last week. What's happening in the altcoin market right now? >> Yeah, I I guess using Bitcoin as a barometer for the market isn't really that useful these days because Bitcoin has just been really slow. A lot of the activity has been down market in some of those coins that uh that you've mentioned near in the last like 2 hours. So we are recording right now at 11:30 a.m. Eastern time on Thursday. In the last two hours, some tokens have had a a rebound in strength. So VVV is up 10% on the day. Near is actually back up above above uh $5. Uh so there's definitely

been some strength in the market. Uh not everywhere. Uh Pump and Lit are both down 20%, Hype is down 10%. uh Zcash down 10%. Uh and so yeah, it's continues to be a flush from some of the strongest assets in the market, but you're still seeing some strength. >> Do you remember what 2023 felt like? That was the early bull of last cycle. I want you to teleport your mind, >> but we still felt like >> That's right. That's right. That that was sort of the point Michael uh NATO made this week in the DeFi report and he looked at this uh number which is so in blue you see the 50we moving average for Bitcoin and the Bitcoin price in purple and at the time of inflection the same

point at which we we we saw this time where things started to flip early bull bullish we did stay above the 50we moving average which is about 78k Bitcoin. So, if we stay above the 50week moving average and the average will go down a little bit over time, that would still mean a Bitcoin over 75K. That said, though, um there was about 7 months of oscillation of sideways action of like we might call it Barts on the charts, right? Where it held this very narrow range. We had uh two times 17% corrections on Bitcoin and just 7 months

of absolute chop even though it was the early bull market in 2023. >> So that's kind of the way early bull markets feel. They feel sideways. >> It's like Schroinger's market like is it a bull market? Is a bare market? You just don't know until hindsight. >> Yeah. So still my base case is that we have broken the back of the bare market that we're not going back >> for sure. We are not setting a lower low. We're not going down the low that we set a couple months ago. >> Exactly. But that doesn't mean like the good times are here and like it's all, you know, going to be sunshine and rainbows and easy from here on out.

That's not what the early bull market actually has has been in the past. That's not what it feels like. >> So, we're probably continuing to just maintain that trend. >> Yeah. Yeah. There are some just idiosyncrasies like this is a new cycle. Well, we are in a new era of crypto. Everyone feels it. We're in like the product era. It is interesting to me that like um one big story of this last flush or so of the last two weeks is like what what are the tokens that have really spawned this boost in crypto morale that are up anywhere between 4 and 10x from the bottom? Like VVV at $24 right now was $1.5 9 months ago. You know, Zcash was $50 12

14 months ago. So, some of these tokens are a bigly like lit for example was a dollar. Now it's at $3 touch $5.5. >> Revenue generating assets other than Zcash. >> Revenue generating assets are all up very very big. Hype the big one is up very has been up very very big. It's all revenue generating and that that those assets really changed the whole tide, the whole morale of the rest of the market. And two weeks ago, what even last week, it really kind of did the euthanasia roller coaster where people are like, "Oh, the bull market's on. Let me go take a leverage long position on a super illquid dog coin." Like I

don't want to name examples cuz I just made it mean but there were people buying the bottom of calling them quality alts and let me tell you they were not quality art alts. So we just we just skipped into like the bull market froth way too soon and that was like last week and now I think we're just paying our debts from like people going from fundamentals to like rampant speculation just way too fast in crypto and that's getting flushed out right now. I agree and I also agree with the idea that our tokens seem much stronger this cycle than in previous cycles and I think that could persist into the like into this early bull phase and then into kind of wealth creation phases a little bit later. So that might be where the majority of crypto alphas actually

generated less Bitcoin dominance uh this time around. But let's talk about some of the other things in the waters in macro and financial markets. I think the big thing we should start with is inflation. It came in pretty hot this week David. >> So September inflation came in at 3.7%. That is almost 4%. This is versus an expected 3.6%. It was 3.4% in August. And I mean this like when you start to get to 4% inflation, I mean that does not feel normal at all. I think this is going to bite Republicans in the midterms as well. And where was the bulk of this inflation coming from?

>> Uh energy, gas, air travel, which is gas, uh fuel. I don't know why fuel and gas are in different categories, but they are. It's all energy. It's all downstream of the Iran war and increased gas prices coming out of the straight of Hormuz. >> Okay. So when you have hot inflation prints, then what happens is the probability that um the Fed has to raise rates increases and that's what we saw in prediction markets and probabilities go up that the Fed was going to continue to increase. We also saw um the 10-year and the 30-year long duration US bonds, they spike back up. So they were starting to settle down a little bit.

Now, they spiked back up on the on the back of this because of course investors in bonds want higher yields in exchange for this uh very hot these very hot inflation numbers. It's just um I mean GDP has been pretty high lately. You know, we're tracking five between five and maybe 6%. And inflation has been hot too. So 3 to 4%. Just the nominal number here like nominal uh growth here is like pretty large, right? So I guess real growth we might be like 1 to 2% in real terms when we got 4% inflation >> 5 6% GDP growth everything is running pretty hot on the money uh side of things also the AI financing concerns

popped up uh there was coreweave which I don't know if you saw this David but coreweave which is kind of the neo cloud story it's data centers for AI it fell 17% on Wednesday. Okay. And the big scare was um coreweave bonds which now the um 2032 bonds bought at par 4 months ago. So bought at 100 trade at 78. Okay. So this implies that coreweave might have a greater than 50% chance of default in the next 5 years. That's what bond investors are are pricing this as.

And so it's become a narrative again of like okay like how is the AI buildout going? Are the revenues justifying the amount of capex spend? Where is that capex spend coming from? Because in 2025 it was all retained earnings from hyperscalers. It's just basically profits on their balance sheet, cash on their balance sheet. Now it's bonds. Here's a chart from the uh no opinion post I read this morning. Look at 2026. This is the amount of bonds issuing issued by the hyperscalers that are flooding the market. So, we're starting to see more and more debt, more and more leverage to fund the AI buildout, which

means everyone is focused on kind of the revenue side. What is anthropic? Is OpenAI are these these Neoclouds? Are they generating enough revenue to justify the the loans and the debt that these companies are taking on? And when there's little blips like there was a blip this week on Open AI revenue projections. This was in the last week or two. And also >> both right. So >> both really. >> Yeah. Open AI it looks like it's coming in closer to 50 billion ARR rather than the 68 70 billion that investors thought. Anthropic is looking a little softer as well. And again still growing insanely quarterto quarter but just not as fast as it had been previously. So

people are wondering if if revenue is starting to approach that S-curve and when that happens then the entire AI trade starts to become suspect. I should say like NASDAQ is down 1 to 2% on this. So it hasn't hit you know the stock indices in large measure. It's just hitting some specific sectors but you're starting to to hear this narrative once again that okay like debt funded is this like railroads again? Is this 1873 when just after a railroad uh boom, we ran out of debt, loans started going bad, and it caused like, you know, a multi-year depression in the US.

>> Did it cause a multi-year depression? >> Yeah. >> Oh, >> it caused So, it caused a multi-year depression. It looks like this. Noah actually has another chart in his story. It looks something like this. Let me see if I can find that. Uh here you go. Uh this is the number of miles of railroads built in the US. And I I think these bars are kind of like, you know, depression, recession type. >> Depression in the number of miles built, but not a broad economic. >> Oh, no. It definitely did that too. It definitely did that too. See see this gray part that is all kind of recession negative uh growth um arrows of the chart. But but here's the interesting thing about the railroads. It you there were multiple cycles of this too. So you see this like

>> so after there was a flush they just w it started happening again. >> There was a boom in the 1870s and then a bust. Okay. And then there was another bigger boom in the 1880s followed by another bust and then there was another bigger boom in like the late 1880s followed by another right. So you have multiple cycles of this with railroad infrastructure. >> All of this in the AI sector feels very expected. the efficient frontier of AI investment requires some amount of leverage, right? It's just like who of all the companies that have burned through their cash. Like we before AI really turned into like an investment project, all the big companies, all the

hyperscalers like Facebook, Amazon, uh all had were sitting on piles of cash like Microsoft. >> Yeah. >> Burn through all that cash. >> But the race isn't over and so you have to go into debt. >> Yep. And there is a a correct amount of debt, a correct amount of risk. That's right. You can't you can't have no debt because the race is still on. You can't have too much debt because you'll get wiped out. But there is a correct amount of debt. And whichever company plays this game correctly is going to be one of the winners. And so when we see like pe people like coreweave kind of getting punished by the market or other companies getting punished by the market, this is what you would expect to happen when the market is so sensitive to Anthropic and OpenAI's revenue

numbers. So we got Anthropic's revenue numbers this week, 16.8 8 billion of Q3 revenue, which is up 5050% quarter over quarter, which how can you be upset about that? >> You can if you're expecting like 100% or 120%. >> So there was 140% revenue growth quarter over quarter between Q1 and Q2 and then only 45% revenue growth in Q3, the 50% number I just quoted. Yeah. So it's actually slowing down. And so when people are on margin and the acceleration slows, the acceleration is decelerating, then all of a sudden the people on the uh further end of the risk

spectrum get in trouble the most. This is totally normal and expected and markets climb a wall of worry and I feel like this is just what this looks like. >> Yeah. And it it is the case that like you need 100% 140% some more numbers like that in order to justify the amount of capex that's being spent here. Um of course Korea was starting to price this in. So didn't you say that the copsy was down almost like 20% or something like this? >> Yeah 23%. And the copsy is our NASDAQ or spy. So imagine if the spy was down 20 20%. The reason why it's like that is because memory stocks just like chip productions for the AI buildout are such a large part of the Korean stock market.

Uh and so the Korean stock market is down a very big amount. When the Korean stock market is down that much, it blows back into the American stock markets. So there's a little bit of contagion happening here. You know, if uh the if the AI trade hadn't kind of unwound in the last week, would crypto prices be higher? Probably also true. They probably would be higher. It maybe is a little bit of that. Did crypto need to cool off? Yes. And the reason why we we know this is true is because as we said, Bitcoin was down like one or two% on the week, but the big ones that have gone up multiples are up down 20 to 30% equivalent of memory stocks when Yeah.

Yeah. Yeah. And so like overall I think there's a lot of reasons to talk about. We talked about inflation, the AI climbing a wall of worry, people worry about leverage, revenue growth stalling out, but also timing with just like, yo, crypto was running hot for a hot bit. Well, can I give you the the backdrop on this and maybe a projection beyond where we are in 2026 into 2027. This was uh I think this was kind of the required reading of the week. My favorite piece of the week was from Ray Dallio. um he had a wrote an article called numbers behind the bond and bare market and outlook to equities all of these things and here was this major point and I want to see if this resonates for you David because due to all of your crypto

experience living through these cycles okay he said the big problem that he sees in the 2027 horizon he of course talked about debt to GDP and interest payments how that was going to hit in kind of like the the fiscal dominance era that we're and and he also talked about rollovers. So, we're moving a lot of the long-term bonds in the US, the long-term debt. We're converting those to bills. We're converting there to 3 month, one year, shorter term treasuries. Of course, we're trying to sell it in 2027. There is going to be a lot more debt that needs to be sold to investors. you have much more supply and you have whatever demand is available to

soop that up. So he says this, the way I would think about the 2027 challenge is that the supply of debt will likely rise from about 3.5 trillion in 2025 to about 4.4 trillion in 2027. And that doesn't include the debt rollovers where we have to take the long-term debt, roll that over into short-term debt. Okay? So, think of this as like token issuance, token over supply. And you have to have an extra 1 trillion in dollar token demand to stop that up. And if you don't have that, well, yields will have to continue to increase to compensate. So,

you have that happening in 2027. And that's just government debt. Then you have all of the AI debt looking for buyers. again token issuance token debt looking for demand of buyers who investors who want the exposure to that type of debt competing against this too. So a lot of issuance and not only issuance in debt at all-time highs and growing at pretty uh exponential rates. We also have a lot more equity token issuance. All right, you get a SpaceX IPO, you get an IPO. Okay, even Google for the first time, I don't know, in decades issued shares this year. Wow.

Issued net new shares in order to fund some of their expenditures. So, a lot of new hard assets. >> Okay. Things that don't uh inflate in supply. And that was actually Dallio's conclusion here. He's like 2027, I see long-term yields continuing to ramp up. I see equities being kind of flat. Doesn't matter what what um price to earnings do. And you know, like profits do if we have all of this new issuance, there's not going to be enough demand to stop it up. So, he again is back to uh yeah, you better have gold, maybe a slice of Bitcoin, and prepare for the debasement trade. I'm not sure if he's entirely right. I feel like

directionally he's going to be right. I don't know if this all hits in 2027 or we get to extend this a little bit longer, but this piece is kind of required reading in my opinion for understanding the debasement trade and and why hard assets and and why crypto monies. I don't I don't think anything Ray Dalio says will be able to be like confirmed right in a short time frame. He's just such a long-term guy. It also kind of makes him just seem a little bit infalsifiable, but that's a topic for a different day. >> Exactly. Exactly. that that would be the main uh criticism of D.

>> He's like over 80 years I'll be right. Like all right, dude. Like I need to make some trades this decade, please. >> Yeah. >> All right. Coming up next, we're going to talk about the ledger. The ledger exploit attack. A physical supply chain attack on real ledgers bought from a real resaler, but with a spy chip in the ledger. Over $und00 million have been gone. And also, Bank of America just ignores $5 billion of moneyaundering going through their bank. I thought I thought banks weren't supposed to do that. The terrorists and drug cartels. We're going to talk about all the bankers that went to jail as a result of all this. But first, we're going to talk to some of these fantastic sponsors that make the show possible. I've been trading crypto for almost a decade, and I've used so many different wallets,

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sales and shipments. Uh, Ledger later confirmed that a hardware implant had been found in at least one effective affected device. So some poor soul bought a ledger from an authorized resailer and then put their money in the ledger after setting up their ledger and then their money was gone. >> Many poor souls we should we should uh specify >> start starts with one starts with one. The investigation starts with one and then so ledger opens up this ledger be like hey there's this extra chip in here. We need to figure out what this chip does. Uh and so what the chip did was it intercepted when you've you've set up a few ledgers in your lifetime, right? I'm sure many of the listeners have. You go and you set up your ledger and your Ledger securely gives you 24

words and that's securely produced on the device and you plug it into the Ledger software on your computer and the Ledger software says this is a verified Ledger device. You can trust it. None of that was tampered with. Uh the new chip intercepted when the Ledger device gives you the 24 words. it just watches that go onto the screen and then using a radio transmitter it transmits that over data using an an electronic uh SIM to the attackers and so the Ledger device is un it's tampered but it's not the software is not tampered with uh as this investigation continued as of that Ledger's October 13th update hundreds of uh reported exploited devices were found across different reports uh over an

estimated 102 $2 million stole from 324 wallets uh wallets, not individual victims, but you could imagine individual victims are in maybe the one the 100 range. Um yeah, so physical supply chain attack. We've seen these before, but not at this scale. This is by far the biggest supply chain physical supply chain attack in crypto. >> I mean, it was relatively sophisticated as well. This company, CryptoBillis, was not a recent reseller. They've been a longtime uh reseller of Ledger products for Ledger somewhere in Asia, right? And they were purchased by uh a Chinese national company of some kind. Now, this company seemed to be sort of shady. I I

believe they were purchased 6 months ago. The previous owners were under NDA, so they couldn't even they felt like they couldn't disclose that they were purchased. And this this new purchaser quite clearly was some sort of op that was installing a spy device in the ledgers in order to harvest those seed phrases and those private keys. Gather up enough of them and at the point right before they were discovered actually launch the attack. So all of this hit because somebody cracked open a ledger and was like, "Huh, there's a spy device here. Post that on Twitter." And then it seemed like whoever is operating CryptoBillis then was like, "Oh our cover's blown. We better get out

with the private keys we had." And then just started draining the wallets with all the private keys they had. And that's where you get the 100 million number from all of that. >> Do you see who posted that picture on Twitter? >> Mark Corpelis, right? The Mox guy. >> Yeah. >> Redemption guy. Yeah. >> Scary attack though, right? And this begs the question of how many other parts of the supply chain might be infiltrated and Ledger is still trying to like I I saw reports that possibly there were some resellers in in Europe that had some tampered devices. I mean, you just don't know. There's quite an incentive to tamper if if you're a

reseller of these devices. >> Yeah, it the buying from a reseller, even though it's an authorized reseller, doesn't seem like a good idea. Definitely don't do an unauthorized one. Like people were talking about reports of people who bought like used ledgers. Like give me a break. >> Just like go on eBay and just be like, "Oh yeah, >> don't don't don't do that." But also like if buying from Ledger has also resulted in like data exploits, which has also made self- custody hard. Self custody has just taken L after L after L in the last like two years.

>> Oh yeah. A a bunch of um punches to the gut. And not only that, I mean this attack aside, we should just say um the way to purchase a hardware wallet or the best way to purchase a hardware wallet is is definitely from the company itself, not from a third party reseller. In any case, >> yeah, >> even from the company like they the company is dependent on the supply chain as well. >> Yeah. They're they're not producing the chips. They are hire they're servicing that out to a third party producer >> and there's never been an issue there so far. But again, these attacks keep getting uh more and more sophisticated and they just find the points of vulnerability. So that's a that's a definitely a hit to um self-custodial wallets. You could use multi-IGs, you

can have multiple there are ways around this, but it is a hit to self-custody usability. Speaking of which, David, not only are we taking hits from from hackers and uh like pirates taking these funds, also governments coming after self custody. And I think this is going to happen more and more in countries that are having a problem servicing their debts. Okay, France is one of those countries, relatively high debt to GDP, yields on French bonds going up. I don't know if you've seen the the high school protests in France. Government looking for new ways to get money, new ways to get capital. And one of the things they want to prevent is any sort

of backdoors maybe with crypto. There was a uh amendment in in France um put together by some MPs that was reported out that would require all self-custody wallets to be declared. Okay. So, you have to declare whether you have a self-custody wallet if it's over at first it was 100k in euros and now there's a revision to make it 5k in euros. So any self-custody wallet you have that has over 5k euros in it, you have to declare and report to the French government. And of course we've seen hacks on the French uh infrastructure tax infrastructure has actually revealed the holders and the locations and the

addresses of of these holders. So it's a massive physical security risk to all French citizens. Not only that, it's an inventory of digital property that the state maintains. And you know, this is like um that's in other contexts. It's called a hit list, right? I mean, it's like just like not a good direction of of travel certainly. But you could see this is a French government trying to seal off all of the doors for any form of of capital flight. And you know, suspicious that some of that capital flight could come in the form of crypto.

So >> yeah, >> another hit on custody. >> One of the quotes that um resonated with me at token24.99 and I saw this was I can't remember who was giving this presentation, but it was about Zcash. Uh assets that can be seen can be seized. And so if it it I mean it's advocating for putting your Zcash in the shielded pool. But like even if it's Bitcoin for example, like you would think Bitcoin is like very uh seizure resistant and mathematically that's true until quantum. Um, but if the government knows and can link physical digital property to your identity, then they have means to to go after you and your $5,000 of

like digital assets that you keep in your in your back pocket. >> Well, so if you're the French government, you're trying to do that. How soon until you just ban any form of privacy? So you can't have a private self-custodial wallet >> or that's illegal, subject to fines, subject to jail time. I mean that would be the logical direction of travel here, right? >> Sure. Yeah. I don't know if that would be bullish or bearish. >> It seems to be just a thing that is happening that markets and the world will have to contend with. Um, speaking of something else that's happening, >> speaking of things that are happening, I saw that transition coming from so far away.

>> Bank of America, David, the biggest fine in US history from the OC to a bank 1.2 to an American bank, I should say, $1.2 billion, hitting Bank of America with a fine for $1.2 billion. The charge is that the bank failed to flag over 5 billion in suspicious transactions. >> Moneyaundering. Yeah. Chinese moneyaundering networks, elicit finance, drug cartels, terrorism, the gamut. $5 billion worth. And so this was a penalty that u Fininsen OC issued to the Bank of America for uh for these for these

crimes. Um, CZ had an interesting take on this. No one went to prison, no home confinement, no DPAs, no one was charged. Water under the bridge onwards. Very interesting that no bank uh manager, no banker was harmed, was sent to jail, was was was threatened by this. This was just a fine at the corporate level. Unlike when Finson has taken actions in crypto where people like CZ have actually gone to jail.

There's a little bit of hypocrisy there. Yeah. This reminds me of Bill Gurley's talk a couple years ago at the All-In Summit where he was just talking about like Yeah. Like the reason why stuff this happens is because certain sectors have a very close approximation to DC. Like the the banks are in DC. You know who wasn't in DC when CZ got arrested and put in jail? Crypto. Crypto is not paying its protection money to the DC racket. But the banks have been paying protection money to the DC racket for years. And so that's why they get are allowed to get away with this.

>> And that's also why in a counter move, crypto has decided to move into DC. >> Pay protection money to the DC racket. >> Honestly, it makes it makes one jaded like just like looking at the whole process. That's that's what crypto had to do. And also it corrupts crypto in the process the way it has corrupted banking. >> It's mutual. It's mutual corruption. >> Yeah. It's just like inshitification of our industries and um Yeah, it's unfortunate but AML KYC I guess it doesn't work. David, >> yeah, I'm sure it works when the state wants it to work.

Uh there was also simultaneously this week a report from the OC on debanking and Nick Carter was was quick to claim this. We weren't imagining it. Operation chokepoint 2.0 the thing he had talked about so much was real. This report he says confirms it. So it confirms that banks between 2020 and 2025, banks in the US based on all the complaints they saw in the investigation that the OC did uh debanked individuals and businesses based on three things. Political risk, industry risk, religious risk, some combination of those. And that was

enough criteria for a bank to debank someone. nothing illegal, just if you're in kind of a a risky pool of actors as digital assets, as crypto was, you could be debanked. This was actual policy coming out of um the OC and this report kind of >> delineates it, formalizes it, and also reiterates that they're putting a stop to it now. So that that's no longer continuing. >> Yeah, it feels like we're tracing over what we already knew to be true. I mean, certainly we knew it to be true, but I guess this kind of just makes it common knowledge for everyone else, but also everyone else doesn't care. Like, the only people who still care about this

are crypto people, right? >> I think anyone who's been debanked cares about it. I guess people who have never been on the other side of that don't care about it. >> Yeah. Yeah. All right. Coming up next, we're going to talk about Richard Hart, the creator of Hex, just injustice, complete injustice to his arrest and seizure in Istanbul. We're going to talk about how we can free Richard Hart. And we're also going to talk about paper trade where you can get a hundred, excuse me, 1,000x leverage, but when you get liquidated, you get to be part of the house. We're going to talk about this and all the uh the shenanigans going on on paper trade.

But first, we're going to talk to some of these fantastic sponsors that make the show possible. Bankless Nation, we've built something for you. Introducing the bankless MCP. Chat GBT and Claude are great at a lot of things, but ask them anything beyond the basics of crypto about protocol mechanics, tokconomics, or just what happened last week in crypto, and the gaps will start to show. The problem is context. Bank list, on the other hand, has spent almost a decade building one of the deepest archives of crypto data anywhere. More than 2,000 podcast transcripts, 10,000 articles, and countless conversations with the people actually building this industry. And now we've structured all of that data into the Bankless MCP. So you can go and connect it to your claude or chatbt and suddenly your AI can answer your crypto queries with the entire bank list archive behind it and every new banklist

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1010 price drop happened. His cycle analysis has been absolutely on point. I've been following him for years and this year we started recording weekly podcast episodes. Each one we get into his portfolio, what he's holding, the market structure, entry targets, fair market value of Bitcoin and Ether, and where we are in the cycle. There's new episodes that are released every Wednesday. They're 30 minutes, they're short, they're punchy. I think this crypto cycle is harder to navigate than most. So, let's do it together. Go subscribe to this podcast. Search the DeFi Report wherever you get your podcast YouTube Apple Spotify or find a link in the show notes. There's a new episode waiting for you now. Ryan, how do you label Richard Hart? Who was he in crypto? He was the founder of Hex.

He was a persona. >> Yeah. Ponzi scheme demagogue maybe is >> Yeah. Like cult leader I think actually is one of the better descriptors of Richard Hart. >> Sure. >> Uh Richard he had been in crypto since I was in crypto since the amount of people he got into Bitcoin is actually pretty notable. amount of people I heard. Oh, I'm embarrassed to say this, but I actually got into Bitcoin because Richard >> because of Richard Hart. >> Yeah. >> Yeah. He's one of these characters that, you know, in a different era, he would have started an literal religion if he was in the 1800s or something. Yeah.

Yeah. Yeah. Uh he he was one of the first streamers before we have the modern streamers that we have today. He was like one of the first streamers. uh he created Hex and Pulsecoin, Pulse Train, Pulse X, all that kind of stuff. Uh US citizen that was living in Finland for quite a long time uh was arrested in Istanbul on an Interpol red notice. Uh we might uh remember going back to when the SEC was going after Richard Hart because of the assets that he had uh issued. um the Pulseex, all the things I just I just mentioned, Richard Hart actually won that case. This was the Interpol Red Notice was not because of

the SEC because that case was basically dismissed. That was dismissed on 20 in February of 2025 on jurisdictional grounds. This is what I learned this week. The way that Richard Hart got away with the SEC case was that, and this is something that when the Pulse Chain and Pulseex and all that kind of stuff was uh being spun up by Richard Hart, the efforts of Richard Hart, you would send him ETH to a contract and then you would get Hex back in return. And it was like a one to like a onetoone, you know, you put in one ETH, you get the same amount of Hex back. And Richard Hart would say like you are not this is not a sale. You are sacrificing. This is a sacrifice

that you are making in order to get Hex. This is a the Hex is a gift or the the ETH to me is a gift and the Hex back to you is also a gift. It's not a token sale. Uh and also I'm in Finland so you can't come after me SEC. Uh, and so he raised something like hundreds of millions of dollars on this on on the idea that the hex the ETH being given to him was a gift because he loudly told everyone that this is a sacrifice. >> Well, the Finnish IRS was like gifts. You say gifts are actually a tax thing.

That's not just like a miscellaneous category. A gift is you can't just give people money, large amounts of money that goes that must pay through taxes. So the Finnish IRS says, "Oh, you're in this court case in United States, you're saying that these are all gifts because now you owe us 30% of your hundreds of millions of dollars." Which if you've ever watched Richard Hart for two seconds and all of his Rolexes and Gucci that he's bought, he's not paying taxes. He's not paying taxes. Uh I didn't know that he w I didn't know that he was in Istanbul. I'm sure he knew that Interpol was after him. So he was in uh uh he was in uh Turkey when he was arrested. Uh and he is now uh in jail, I guess, going to court for Finnish tax fraud is

actually the the final conclusion of the Richard Hart story. Okay. Well, what to make of Hex? What to make of Pulse Chain? What what are the Hexacans actually doing about this? And by the way, I I was never actually super sure what exactly was Hex. Was it like an ERC20? Ethereum copycat, but I have no idea, dude. I >> sort of like a Tron type of like copy paste thing. It was I know it was from that era, the era that that started, but it never picked up actual use cases beyond pumping and shilling the Hexcoin itself.

>> Dude, I don't know, man. >> You clearly have not followed the Hexa system >> because the fact that it's like an EVM chain that was a clone of Ethereum is just not relevant to the story. The the Hexacans are cult leaders of their deity Richard Hart. Now like I have a take here is actually like Richard, you know what the difference between a cult and a religion is? >> What's the difference? Scale. >> The leader the leader is dead. >> Oh god. >> And so Richard Hart is like he's he's going to jail. He's like being removed from the equation. I think the Hexacans are going to get stronger as a result of this, not weaker. Like this is not like them. They're they're cris they're not

having a crisis of faith here. They're just going to double down because that's what cults do. >> What am I looking for on like Coin Gecko? Like is it Hex? Hexagon. What is this? >> Yeah, Hex. Yeah. >> Yeah, Hex was down. It dropped. It dropped like uh 50% on the news. All the Richard Hart tokens dropped like 50% on the news. >> Okay. >> I I think it's goes up from here. That's crazy. I I guess maybe you're a future hexagon then, David. I mean, I know the hexans are still I haven't seen the hexacons since the SEC case uh against Richard Hart. Like I forgot that they exist, but now they're all up in my replies or in everyone's replies cuz people are remembering that they exist.

They still exist, dude. And it's all the same ones. It's the same accounts >> and they're these are real people. These aren't just >> real hearts bot network. Yeah, because because the hexagon cult army got started before LLMs were a thing. Like the hexacons have been around for a long time. >> Well, I thought it was very big of you to post your David crying photo, the thing that has been memeified across crypto Twitter and like beyond because this actually has a tie into the heck story, doesn't it? Back for you. >> It it ought not to. Uh the David crying moment on the weekly rollup was just fatigue and sadness about the demise of FTX

>> and poor sleep, right? >> Poor I had like terrible sleep. I I was running on like three hours of sleep at night for like four nights in a row because FTX was like in this slow motion implosion. This is we were cover we were live streaming every single day. I was exhausted. Um and uh and so I was like I was just sad about the state of the industry and the hole that we had dug ourselves. We were like we were doing the weekly rollup and we had Richard Hart's tweet up on this screen completely coincidentally and we just happened to be talking about that and so like Richard Hart was like this is this is perfect for me.

>> Yeah. >> And so uh I actually still oh I still have this this painting actually. This is a hexac skin made that for you. >> Yeah, a hexagon painted this and shipped it to me. Beautiful 100 USDC or something. >> That is so 2022. >> So, are you cool now with the hexagons? Is this like full circle that you posted? >> I mean, I don't have any They're not causing me any problems. I mean, like I'm not going to go hang out with them because like I'm not Why would I hang out with somebody who's compelled to become a Richard Hart like cuck?

>> Okay, look though, um Richard Hart is arrested, but he still has his day in court, right? So, you know, he's, you know, >> who knows how the story could unfold. There might be still a way out for him. >> Yeah. Right. All right, let's get into paper trade. Uh, Ryan, have you ever been bullish on an asset and been like, man, I wish I could have a thousand times the exposure to that. >> Yes. Like, I'll take the upside on that, but I don't want the downside on that, if that makes sense. >> It's a thousand possible,000. Is that what paper? I don't know if people have have created that one.

>> Okay. Uh, paper trade is a per platform uh, on top of hyperlquid that lets you go a,000x long or short. Uh, no real spot orders are ever made. It's all synthetic, completely derivative only, which is why it's paper trade. You're trading paper. Um, the beauty of this fantastic Ponzi game, and I say Ponzi game endearingly, like it's a great Ponzi. It's a really >> Wait, what's the Ponzi part? Have you described that? when when you get liquidated because you win,000 will >> uh you are compensated with the paper token and the only way to get the paper token is by getting liquidated. You

can't it doesn't trade on secondaries. If you want paper tokens, you have to go long or short and get liquidated and you'll be compensated. >> If you get liquidated, they give you paper as compensation. So you could dry your tears with paper. >> Exactly. Exactly. But then you can go and stake your paper and then you can get the fees the liquidation fees from other people as well. And so you become the house by staking paper. You become the house. And so far uh traders have lost $50 million but $42 million has been paid out to paper stakers. So, some of those dejents who got liquidated just took their paper compensation and staked

it and got the fees of other people getting liquidated. >> What an exceptional holder base you're creating. You're you're creating a bunch of holders of your of your token, of your asset that are like um degenerate traders that have lost big money. >> Totally. Totally. Yeah. Well, some people went onto the platform and like tried to get liquidated on purpose because they want the paper tokens. That's how you get the paper tokens. Uh in the first in the first week they the paper trade is beating the NASDAQ in volume.

>> What? >> Yes, that is a true statement. A trillion dollars of volume in the first week. A trillion dollars of >> assets are we trading here by the way? Is it is it crypto assets or is it everything? >> All the all the blue chips. I'm sure you can kind of go down market and get some of the more crazy ones. But I don't think you can go too far down the market because of the oracle manipulation exploit that also happened this week. And so when you are on 10,00x leverage, oracle attacks become pretty trivial because a trade on paper trade doesn't ever hit the order book. It doesn't ever hit the spot market. It's all synthetic. So a hyperlquid whale went to hyperlquid and started buying tens of millions of dollars in ETH while also having what I could only assume is a 1,000x long ETH

position on paper trade. >> You can move the market. >> You can move the market because it's all synthetic. And so as a result, paper the paper trade team had to just like kind of increase the constraints. They had to lower the caps on uh the open interest on some of these markets. Uh so like this one trader made out with a few millions of dollars. I think I think it's recovered pretty well and people are kind of going back at it. Uh but this is definitely one of the most interesting things interesting projects uh to have started in crypto for sure. Why? Why you say interesting? Because like it's never been done before or I mean >> it's a it's a it's a thousandx. Like where else can you get I think this is probably the most liquid place to get 1,00x exposure.

>> Why do you need 1,00x exposure? >> It's like uh >> to gamble. >> It's like the Zar like super megaton, you know, nuclear bomb. It's like that's like way more than anyone has ever needed. Yeah, but what if it works out? >> You don't have to go thousandx. You can go like two something more modest like 200x. >> The novel thing that's really interesting to me is is kind of the the paper token distribution itself. That is like that mechanism is pretty genius. >> Is this like a VC funded thing or >> uh No, this is Jez and uh I'm forgetting the other person's name. Uh I they're in please or doubt but I never got the Jez

and Blur. Yeah, I met Blur a number of times in 2021. >> So, it's kind of like hypered in that it's just like a small team self-funded in order to build this thing. >> Yeah. Correct. Yeah. >> So, there's not like a lot of paper float that's with VCs or >> Correct. >> You know, third party investors. >> Correct. >> That's right. That's right. Yeah. Which one of one of the more attractive things about it, I think. >> Well, I'm happy for everyone that is uh trading paper. It's like it's great. All right. We got the uh Salana app and glow upgrade coming down the pike on October 14th. Uh that'll bring faster settlement to Salana 150 milliseconds for settlement. Uh this also will take away the onchain vote transaction. So validators just send votes directly to

each other and bundle them into certificates instead of posting individual vote transactions onchain. So it's kind of a an overhaul of the voting mechanism. And also the consensus uh mechanism is also getting an overhaul. So, Solana's legacy tower BFT consensus mechanism mechanism is getting replaced and upgraded. Uh, and this is coming in Wednesday, October uh 21st. 21st. That's right. That's right. >> 150 milliseconds is is pretty good. It's very fast. >> I don't think that's perfect settlement. I think it gets perfect settlement later, but you have like near perfect settlement at 150 milliseconds.

>> Yeah. So, what layer ones can do that now? I mean, and does that matter? Is that a big differentiator? I guess time will tell. Pikmonad's doing that kind of thing. >> I mean, Mega E promised to do that sort of thing. >> Yeah. >> Like other factors matter a lot more this cycle than in previous cycles. >> It seems very much about distribution. >> Yes. Yes. That's right. >> Speaking about layer ones, uh Starknet is voting to become a layer 1. We talked about this last week where uh Ellie on Twitter uh just raised the idea of Starknet is investigating open to the possibility of becoming a little >> I think they threw us a little bit of a shade, David. He said like we've been

talking about the first throwing him some shade about just like Starknet always has been posturing about like leaving the Ethereum ecosystem. >> They've always been dissatisfied in some way about >> it wasn't meant to be shade, but it's more of just like come on just like just do it. Just do it. And they are voting to do it. Who votes in this? Is it >> is it validators or allo holders of any stark token? >> So they really have onchain governance. Onchain governance then. >> Yeah. Yeah. >> Interesting here.

>> I don't know if I don't know if it's onchain governance. Um >> I think I think this is just like a sentiment check. So if the Stark community says yes, then the team will go into it. Uh right now at the time of recording uh 180 million Stark tokens have been cast. Uh would you like to guess uh which outcome according to this the vote so far? >> Oh, it's going to be yes cuz token price has been up, right? >> That's a good point. 99.9% vote in favor of yes, >> man. So what do you think that's um what do you think this means? What do you think this implies for layer 2s in general? For Ethereum layer 2s? I think that's the bigger story than like Starknet.

>> I think it means that like being a layer 2 is just not that much of a differentiator. >> I mean, we'll see. We need they need to move. They need to migrate off and then we need to get the data after the fact. I just feel like so my conclusion probably like 18 24 months ago after being bullish on layer 2s prior to that or somewhat bullish for Ethereum prior to that was that layer 2 were a complete side quest for Ethereum and Ethereum is much better off focusing on >> layer 1 block space and Ether the asset and DeFi use cases there and this just feels like further evidence of that. I mean like why subsidize a bunch of chains that >> you don't have like mode or lock in and clearly not getting enough value from

you like why do that at all? I mean Ethereum >> totally >> definitely needs to this cycle focus in on its layer 1 and Ether the asset. >> I 100% agree with that. Also like starknet itself it's not an EVM chain. It's got its own Cairo uh language. It's not that composable. And so the one of the main benefits of uh all these other EVM chains is is the composability with you know Ethereum itself. And so it's it's always kind of been on a silo. And so like is this a loss for Ethereum?

Like not I wouldn't I would say it's mostly indifferent. Uh not to throw any shade at Starknet is is this a win for Starknet potentially because uh Starknet is dependent on Ethereum and Starknet is already postquantum and so they kind of kind of get to shine that light. Overall, I kind of think in the grand scheme of things like this isn't gonna be that big of a deal. >> Well, tell me if this is a big deal. So, uh the Near Foundation just >> added Mert to the Near Foundation council. >> Yeah. The the foundation board. Yeah. And so like for Ethereum speak, this is like Vitalic A uh that one Swedish attorney, one more person who governs the EF. This is uh the governance board of uh near. So Mert, Ilia, a few other

NER co-founders. Uh, one more person who I'm I'm getting. So Mert has joined the Near Foundation board. I mean, Mert is just like really well respected after kind of just like leading Salana's technical strengths into the Salana bull market and then also seeing Zcash at $50 and pushing forward Zcash. Uh, I think I think this is because of privacy uh near confidential intents and all the things that um, Near's doing with like the whole privacy world. I think there's like a big Zcash uh near pairing cuz like Zcash private money near has confidential intents. Um and so it's just like a very technical endorsement of uh Near's tech I think.

>> Well, I guess Merch star continues to to rise uh as as does right now. >> I haven't heard that term ever used outside of the context of Nick Carter in the big corners. >> That's my favorite that's my favorite usage of it though. Uh tell me about Venice. Uh >> tokens per day chart. What is this chart showing us? Is the token do is VVB doing okay by the way in this alt downturn >> or not so much? >> As of this morning VVD is doing one of the best better performer in the market >> because usage is up. That's what this chart is telling us, right?

>> Yeah, it's up 12% uh this week. All of that happening in the last 24 hours. So, it was starting to like kind of slide with the rest of the market. It got down to like $21 after being at a high of uh 34 at the very peak in September. Uh it got down to like yeah below below $22, but it has rebounded up to $24.5 right now. And I think it's because of this chart. This chart and then maybe also the data center clip that I tweeted out, but I think this chart is really sealing the deal. As a VVV holder, whenever I see this chart on Twitter, I like stop what I'm doing and I pay attention. Uh because this is revenue for Venice. It is like highly correlated with revenue

for Venice. It is adoption of the product. Uh and I like this slope and when this slope gets more aggressive upwards, I get more bullish. And so I like asked John, the head of strategy at Venice, um when he thinks Venice crosses one trillion tokens a day before or after the the new year. >> We're at half that now, right? >> We are at half that now. And that is well ahead of >> And that's the chart that we're looking at token usage chart. >> That's the chart that we're looking at. When I when I So Sabrina Sabrina is she works at Venice head she's the head of APIs at Venice. uh she tweeted out uh this chart uh and it was it had flattened a little bit and I was like again as a VVV holder I was like oh I

don't like flat >> it got it flattened no I want it to go up uh she the four days later she posts this new chart and there is a 25ish jump in daily token consumption on the Venice platform all from this one model uh this is this is a um deepseeek model um it's really good at coding gives very fast responses is uh but for some reason this deepseek model just like jumped massively in terms of consumption. Is the driver here token efficiency do you think or is it more like privacy is really the driver here is is people just don't want their AI queries being spied on

>> right because it's not any more efficient to do this inference via Venice versus like doing it directly. I think I the only explanation that I can do have is like why did Venice win this is privacy because that is their core competency. Um the other core competenc competency that I think is coming online with Venice is like the combination of many uh models to do like more complicated work in very coherent ways that are built uh together. That's their minds product. But that's not what I see here. What I see here is I see one model just being hammered all at once in this idiosyncratic jump up where like the the uh deepseek model was being used a similar amount as all the other models

but then you see this one model just jump from maybe like 10% 5% of the graph to something like 50% of the graph. I see >> my speculation is one single customer came online on the Venice API and that customer is using AI inference for whatever reason either to resell it to people on their website who need inference or like one possible alternative is like there's a data sensitive industry that is using Venice for inference maybe customer support maybe it's a healthcare company who's got customer support and they want an AI agent to automate some of their stuff and they are just hammering ing one single model to do customer support.

Like that would fit that would explain this chart. But like the notable thing is that it's I think it's one single company who is using the Venice API and they're just using this one model and they're using it in a very big way and it made the daily token consumption of Venice jump like 25% overnight. >> It's like signing a big enterprise customer I guess you're >> saying. Exactly. Exactly. >> Very cool. Well, David, I think we have to tie it off here, but uh you have a little moment from our old friend who we hadn't talked about in a long time, Elizabeth Warren. Senator Elizabeth Warren. She had a a hot take on crypto that you wanted to share with the bankless world.

>> Oh, it's not about crypto at all. It's about hot sauces. >> Okay. >> She she tweets out Helman's mayonnaise, McCormick spices, Cholula hot sauce, Frank's Red Hot. What do all of these products have in common? One company could soon control them all. I have concerns that McCormick and Uni Livver's $45 billion merger could increase your grocery prices >> getting protected from big hot. What is going How is this?

>> Hey, maybe that's a valid concern. I don't know. I I feel like Elizabeth Warren is not conspiracy theor theorizing in the way that like kind of the world demands right now. This is not a very deep conspiracy theory to me. Dude, >> you got to go after something far bigger. I mean, we're doing aliens. We're doing all sort like reptile. >> Yeah. Dream bigger dreams. Elizabeth Warren. Like, find a bigger fish. My lord. All hopefully next week we can get some uh green in the market. But until then, Bankless Nation, crypto is risky. You can lose what you put in. We are head west. This is Frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.