Crypto Is Forcing Traditional Finance to Upgrade

Transcript

If you ask me whether we would see perps in the US three or four years ago, I was like, I don't know. I think this is going to take a very long time. I don't know if this is going to happen in my lifetime. And and here we are. >> what you're seeing, which is really interesting if you can step away from it, is the traditional financial system reacting to the innovations of crypto. Perps is a good example of that, right? They are seeing the pressure coming from what crypto is providing. >> I think crypto and stable coins and tokenized assets are probably the first threat to this extremely well-established model.

>> be characterized as participating in unregistered swaps. But the CFTC didn't simply bless off-shore perps for everyone. >> Nothing said on Inflection Point is a recommendation to buy or sell securities, tokens, or any other assets.

Nor does it constitute a solicitation or offer to invest in any fund, product, or financial instrument. This podcast is for informational purposes only. The views and opinions expressed by hosts and guests are their own and do not necessarily reflect the official positions or views of their respective employers or affiliates. Hosts and guests may hold positions in companies, funds, tokens, or projects. Hey everyone, welcome back to Inflection Point. I'm joined as always by David Lawant, Matt Hogan, and Michael Moro Antonio. This is the pod for the institutional adoption of crypto. And you know, if you are first-time listener, welcome. If you are second-time listener, I hope I hope that you've subscribed already. There's a lot of information specifically to do with

the institutional adoption of crypto. Speaking of which, I'm going to plug DAS, Blockworks DAS. So, there's DAS Asia on October 7th in Singapore, and then DAS London in November 10th to 11th. These are, in my opinion, the best institutional high signal events of the year. And there's early pricing available right now. And as always, and I don't I don't like when people message me on LinkedIn the day before the week before, tickets will sell out. And I will not be able to help you out so so close to the time. So, please try and try and get there early. And and that's that's it for my little plug.

Let's let's let's dive into the markets, guys. >> And and and can I just say like and subscribe to Inflection Point. Let's get that out early. >> Um how are we feeling? I know the market's a little bit rough. Um how we we talked we spoke about this last week, and somehow the season even choppier. Um what's on you guys' plates? Maybe maybe Matt will start with you. >> Uh I just think it's going to be grindy for a while. That's my honest take. It's one of those, you know, I've never been more bullish on the long-term outlook for crypto, and there's so many crosscurrents in the short term, whether those are macro, uh policy-related, strategy-related, uh you know, ETH community-related.

I wish I could just give a full bullish uh answer, but um but I think it's going to be choppy. I will share one thing, Mark. You know, I did more sales calls yesterday than I've done since I joined Bitwise in one day. I spoke with eight different advisor teams, more than 40 different advisors. The the probably the two interesting takeaways from that is they're still interested in crypto. So, these are people who've been studying the space. They're not scared by the pullback. They want to know if the bottom is in. That's that's one fact. The more interesting thing I found is that they were interested specifically in stablecoins and tokenization and not in Bitcoin, which I thought was a little bit of signal.

Usually in a bear market, it's Bitcoin that leads us out. If you think the marginal buyer is actually an institutional buyer, I think it might be stable coin and tokenization related plays that lead us lead us out. This might be one of the rare sort of early bull markets where Bitcoin dominance falls. Because their interest was explicitly outside of Bitcoin into {quote} the real world of crypto. Eight calls in a row, they like said the exact same thing. And I thought that was an interesting takeaway.

>> Matt, how do they plan to get exposure to this real world of crypto? >> They would love for me to tell them how. Look, I think it's I think they don't know. They're sort of feeling around the edges. There are two schools of thought. One is invest in an array of tokens that are related to this hoping that one hits. So that means everything from ETH to SOL to LINK. Maybe it means hyper liquid. It means just sort of spray in that area and hope that it hits. The other thing that really did appeal to them were the companies. I think there might be a specific bid for crypto-linked companies that are using the platform here. So I told the story of Figure a few times and that really resonated. Circle certainly

resonated. Some of the financial giants that are playing this space really resonated. So I wonder if the meta is not you know, actually the infrastructure but the apps or companies that are building on this new blockchain base. That may be the story. You know, there may be crypto asset-related plays. I think hyper liquid actually fits into that. Who cares it's crypto, right? Almost doesn't matter. It's an application. I think that is probably where they're going to end up by and large. >> Yeah, I think one interesting narrative that relates to what you just said is at the same time that you see news about AI actually being a lot more costly to

business than was initially anticipated. I think it would be very interesting to see blockchain best based technology integrated into tradfi or traditional businesses reducing costs to businesses. >> Yeah. >> that counter narrative needs to take place because it's true. >> I think that's absolutely true, right? And that's why Figure is such a great example, right? They cost the cut the cost of issuing key locks from three grand to a couple hundred bucks. Um, I think this application layer of crypto idea uh or this cost reduction layer or this using the infrastructure layer, um I think that's an interesting story and it really came across in these There's something about doing eight

calls in a row, right? It's like an exhausting marathon, but you start to hear the same story repeated and and that's definitely one that came across. >> I love it. It's time for the fat protocol thesis to die. >> Um >> Finally. Uh Not that there's not going to be valuable protocols, there are going to be those, but I'm I'm very much looking forward to an application uh phase of the market. I think we need that. >> I mean so so far I mean fat protocol thesis or not so far Mats been talking about like publicly traded companies not hasn't really meant I mean just utilizing it. There was a panel last year and us talking about how these companies, publicly traded companies, well-capitalized companies are going to

come, take the 10 years of free open-source crypto um code and then just use that in their back end for the DeFi wallet. >> Yeah, well I think there's an element of that, but I actually think it's probably more There's more disruption than that makes it seem like. So I think it may be new companies and uh and earlier stage companies that use this uh better than the traditional financial firms. There is a real disruption taking place in the financial services business. I was looking at the largest, most valued private companies in the world. A lot of them are actually financial services companies. It's basically AI or financial services. It's Stripe, it's Revolut, it's Tether, it's Kraken, etc.

Those are among the 50 most valuable private companies. So, I I I agree with you, Mark. There's a little bit of like free riding on the built infra by TradFi giants, and I think you'll see that. But, I think you're going to see more disruption from startup firms than maybe people are giving giving them credit for. And, I think you'll see I think you'll see crypto infra get a bid. It's It's a relatively small market. Right? Uh it's already They've already Ozempic'd the fat protocol thesis, right? Outside of Bitcoin, the whole architecture that we're talking about reinventing finance on is half a trillion dollars, right? It's a small market. So, that's already happened. Um so, I'm still bullish on that space as

well. But, I do think a lot of publicly traded companies, including sort of crypto-native companies like Figure and Circle, etc., stand to to win a fair amount. >> Yeah, I think uh Matt Mark, I think there's a distinction that you need to make between a company sort forking existing technology for its own use versus a company using the public blockchain rails. Um if the former, it's not going to accrete to the broader crypto market.

They're just going to basically be using blockchain technology um in their own walled garden. But, if on the other hand companies actually build on top of Ethereum or Solana or Hyperliquid or any of these other blockchains, it will be net accretive despite the fact that they're now taking technology that has been built over the last 10 years and somewhat co-opting it. They're co-opting it in a way that's actually maximally beneficial to the overall network. >> And then which one do you think it will be? The ones that come If you have If you have to say a combination of both, lean lean towards one.

>> Okay, so in my view right now, I think that Ethereum is well-positioned to be the home of I think the Alex said like slow boring finance. I don't think those were his exact words, but borrow lend basically the credit union, the global credit union, right? Whereas Solana and Hyperliquid I think are positioning themselves for high-frequency trading, fast finance, where price discovery takes place.

Ethereum as of today does not have the throughput or the speed to be able I think to compete for tokenized securities in any meaningful way, but certainly Solana does and certainly Hyperliquid does. >> Yeah, maybe more on the bond side, I guess with Ethereum, something that's less traded, not like not stocks, not maybe more private credit, I don't know, we'll see. But but Matt, you brought up Figure. I mean, that's something I also used to sell people on the vision. I did a report on them last year. You mentioned they cut the cost. Yeah, they cut the production cost of a loan by 93%. They cut the median funding time to give out the loans from 42 days to 10 days. And obviously not all of this is purely

based on blockchain. They're they're utilizing other advanced features as well. But I mean, it's it's a it's a solid example of of where the future is. And another example is SoFi. They just, you know, they're a bank and they just launched their stablecoin. Um, I brought this up in the group on David and you know, I said, "Oh, it's the first bank to launch a stablecoin." And David had some beef with that saying, "Um, um, actually, no. Uh, Anchorage was the first bank." So, I I think I looked it up and it was uh, SoFi is the first national retail bank, you know, technically and then Anchorage is actually the first, um, but you know, when when you know, when mentioning

media. Um, but what I think about, okay, so one, it's nice that oh, a bank a pseudo stablecoin, that's all well and good. But what I think is interesting, two, is that SoFi also has tokenized deposits already. So, you know, there's always been this debate about which one is better. And and the banks would have you believe tokenized deposits and you know, I guess everybody else would have you believe it's stablecoins. I don't know if you all have any takes on on this debate in general or even just the SoFi launching their own stablecoin.

Um, maybe David, what was the beef? >> Well, no, I think it definitely speaks to how uh, stablecoins are reaching escape velocity. Um, our our CEO and co-founder Nathan, he was at uh, Consensus just a few weeks ago uh, and he mentioned that Anchorage for example has 2020 large financial or tech companies on the pipeline to issue their stablecoin. So, I think we're going to see a lot more of those. Uh, this is just the first inning. Uh, of course and there there is a topic that we discussed many times here is that although the genius act passed mid last year, there is this long rule making process that will probably go until maybe end of this year, maybe

beginning of next year. And I think as we approach that date, I think we're going to see a lot more interest. Um, I think it speaks to that. Uh, there's definitely very interesting trade-offs to be discussed between a tokenized deposit and a stable coin, right? Um the the way I think about the differences here is that well, first of all, uh a stable coin runs on 100% reserve. Um a tokenized deposit runs on the typical um fractional reserve system of a bank. Oh, there you got it. Uh you you you have a good clarity there. Nice.

Look at that. Uh it does feel like uh I think the main thing here is that it does feel like maybe a tokenized deposit is something that can work well within a bank's walled garden, but that stable coins are something that travels much more smoothly throughout the system. Uh these are two very interesting models. Uh let's see who wins. Um I think stable coins has um a lot going for them. Uh the one thing I would um I would say here is that um the the the biggest flaw that is highlighted on this table, which is that stable coins have no public backstop in a crisis, and that tokenized deposits have the

FDIC safety net, and that stable coins do not. Uh we discussed this in a previous episode. I think this speaks very much to the structure upon which stable coins are built, right? Stable coins are full reserve, uh so they provide a lot more security on that side. But yeah, it's definitely going to be um a fascinating uh battle here to see who wins, or maybe there's going to be more than one, right? I can definitely see different use cases and different instruments being uh better for for each year. >> Can I just I just raise a question? Uh maybe somebody can can help me with this. The the criticism uh that get labeled at stable coins is like what about in a crisis? Uh I mean, that's what it says right there, no public

backstop in a crisis. But the in in a crisis, the backstop is the most liquid reserve asset in the world, short-term treasuries. Um why isn't that crisis risk like 8,000 times worse on tokenized deposits? Because the backstop there is like a fake guarantee by the government uh that doesn't have to be there. Doesn't it have the same sort of velocity risk? Um or am I missing something? >> No, thank you. I I I I put this chart up as from Fintech Brainfood, but I I was going to bring this argument up and it felt like they were searching for some kind of flaw to bring to stablecoins, but I don't have a good answer to that, Matt.

>> Yeah, I think that goes to the topic of what is acceptable collateral for stablecoins. And I think there's been a lot of attention uh within the genius act to what is acceptable collateral. Um I think here we're talking about short-term uh treasuries by and large. Um there are I think few other things that are accepted as stablecoin collateral. So, things like bank deposits. Um so so to the extent that a a a big part of of a stablecoin collateral is on short-term uh treasuries, the way I think about these is that this is the most liquid asset in the world, right? To the If if you're

getting to a point where these markets are under stress, you have probably a much deeper problem. So, yeah, I I agree with you, Matt. >> Can I ask why do tokenized deposits need to sit within the bank's perimeter? Like what And and I I interpret that as saying it needs to sit within the bank or the bank network on some sort of walled garden private blockchain, not freely tradeable on public blockchains. Is Is that just compliance reasons? Is there something actually inherent to a tokenized deposit that limits its ability to to act as a liquidity source on chain?

>> It's purely purely regulatory. you go ahead. >> Oh, yeah. Yeah, I was going to say it's probably a regulatory thing, but there's also a risk factor to this year, right? Because when you're buying a tokenized deposit, you're literally underwriting the creditworthiness of that bank. So, like it I wouldn't imagine um a market of tokenized deposit a lot like the inter interbank market you used to look in the past is not as is an active off a market today, right? But I feel like there's there's a credit risk component here and credit underwriting component.

>> But aren't I underwriting the credit of Circle when I use USDC to some extent? >> Post Genius Act? >> Well, maybe not post Well, even post Genius Act, you're just as you're just appealing to the law and saying, you know, Circle needs to be doing these things or else they're in violation of the law, but I mean technically, right? Like if they're in violation of the law, um or if they're not doing the right thing, um there could be a run on theoretically on a stablecoin uh issuer just as much as there could be on a bank, right? Or not?

>> Well, I mean that but that's that's assuming two different things. One is assuming fraud, and the other is assuming fractional reserve banking, which is just the reality. Like money is the money is just literally not there at the bank, and it uh you can't get rid of fraud, but >> Of course. >> But but I think they're materially different. I actually worry a little bit about a run on tokenized deposits cuz the velocity is so fast in these ecosystems. You can see an SVB-style thing happening at real speed, uh and then sort of getting blamed on crypto. Um whereas I see the whole stablecoin thing is so strange to me because uh it's like positioned as risky and it's much safer.

>> Right. >> Uh it's positioned as like uh anti-consumer and it's trying to pay yield to consumers. It's like everything is upside down when traditional people talk about the stablecoin market. Um it's very it's very hard for me to wrap my head around. >> I agree. They will I think the model will prove itself over time and folks will start to get more comfortable. But yeah, I yeah, agree with you. >> So just the the reason banks like tokenized deposits and are pushing this is because they've got this superpower of money creation, right? And they want to basically they don't want to lose that. If they buy into the stablecoin game, they're essentially losing that power.

>> Yeah, that's exactly right. And and they're and they're forced to have a large deposit base by regulation and they have they have all sorts of good reasons to throw fud on the stablecoin space. It's just strange to me that it's been so effective >> Right. >> at capturing politicians and public sentiment and Bloomberg writing articles about stablecoins, you know, being a risk and the New York Times running op-eds about stablecoin being a risk and they're just sort of missing logic that my 12-year-old understands. >> Right.

>> Which is if you have something backed by short-term treasuries, it's going to be fine. I don't know. It's it's it's very odd to me. But yeah, it makes sense why they fight it, of course. >> Yeah, I guess maybe they need to come up with these stories because tokenized deposits have an inherent disadvantage to stablecoins because they're not fungible, right? So you have a JP Morgan tokenized deposit that will be different from a small bank XYZ tokenized deposit, right? So on on on stablecoin world, when you think about USDT or USDC, especially let's think about the genius compliant stablecoins, when you are within one stablecoin issuer, these are all interoperable and

fungible with each other. So yeah, I maybe there is a few inherent disadvantages here. So maybe they don't need to come up with some maybe clever marketing whatever to to overcome those things. >> It It's such a great point because this oneness of money is at the heart of like the Bank of International Settlements criticism of stable coins. And it's a false criticism there, but as you point out David, it's a real criticism potentially on tokenized deposits. There isn't the same oneness of the money. So yeah. >> I remember reading that in 2022 I think they put that the I B S put it out.

But to be to on the other side of this, you know, it was just announced this week that a consortium of the largest American banks are creating their own tokenized deposit network. And again, maybe this is an example of what we were talking about earlier. I I assume they're going to use private rails and it's not actually going to be a blockchain. I mean, a public blockchain that is. But I mean, they're trying to solve that that singleness of money problem by by and then instead of having to underwrite an individual bank, you're underwriting the 20 largest banks in the world which then you could maybe argue too big to fail. And then and then on and then on the flip side looking, you know, again I'm agreeing with you all, but looking

for some criticisms of stable coins, remember back in 2023 there was the USDC D peg because of I don't want to get into the details, but there was a gap between redemption window on the weekend and being and you not being able to arbitrage it because it was closed and people panicked sold because maybe they didn't understand how the if it was backed or not. I remember at the time thinking, oh, I need to buy some USDC going to my wallet and all I had was USDC. I had no tether, so I couldn't make that make that arbitrage without actually liquidating some crypto assets. But you know, this is what I'm thinking of maybe some of the fears that have gotten into people and then

especially with Jamie Dimon being maybe perhaps more vocal now than before. Um I I he he gave an interview where he criticized Brian Armstrong. He He called him some some names. And I think after Senator Cynthia Loomis said that she either thinks that Jamie did not read the updated vision of the bill or is in intentionally misrepresenting what it stands for now. Um and I'll Yeah. What what what do you guys think about that?

>> I mean on the on the stablecoin front, it's absolutely true that we suffer from the original sins of stablecoins. Like if you go back to the very early days of Tether, uh it was really pretty dodgy. Right? You had offshore payment processors. Uh I think arguably they probably did lose a billion dollars and they got bailed out by the Leo token. I think all of those things are probably true. And uh and one challenge we have is that reputation stays with you even as we get into a genius act era where they're truly backed one for one for treasuries. So uh to some extent we are sort of paying for the uh the challenges of the past in the in the confusion of today.

My guess on Jamie Dimon is he's deliberately misrepresenting it. That's that'd be that'd be my my guess. >> Yeah. And I I I guess the other thing is that banks never had any threat to their core banking business in what? Generations in ages. And I think crypto and stablecoins and tokenized assets are probably the first threat to to this extremely well-established model. Uh but it's a it's a more efficient one. So uh we'll see who wins. I think it's normal uh for some of these banking institutions to distrust um new innovations uh that are coming to the market. And I think it speaks to to to the importance that we're gaining in the

market at the end of the day. >> Yeah, I'm not super interested or concerned about this consortium, um assuming that it is just an intra bank almost payment or uh settlement layer, right? Um to the extent that it makes banks more efficient, that's great. Um but I don't think it's really going to touch outside of banks as far as I know. Um I don't know if you've heard any different. >> No, I I think that's right. Look, I think what you're seeing, which is really interesting if you can step away from it, is the traditional financial system reacting to the innovations of crypto. I think this exchange network is a good example of that. I think Nasdaq

and ICE trying to go 24/7/365 is a good example of that. I think CME and others developing perps is a good example of that, right? They are seeing the pressure coming from what crypto is providing and they're trying to respond. I think towards what what what Mike was saying is is if it's limited in their response, right, then it won't ultimately win. It can't compete with the true global open network, which is sort of the classic innovators' dilemma. Like I see the threat coming, I take a baby step towards it to address it, and I get crushed, right? That is that is the classic um innovat- That's not a guarantee that that will happen in finance, right? It's

worth noting that the financial services industry has been the least disrupted by technology uh of any industry in the world. JP Morgan was founded in 1870s, and it's the Find another industry where the largest company was founded in the 1800s, right? That just doesn't exist. So, they're very good at protecting themselves with a regulatory moat, uh but they do see the disruption coming, and you can see them trying to respond to it. It's uh fascinating to watch. >> Yeah. Um I guess another example of this movement towards it is the CFTC's allowance of bringing perps onshore. Um, that was actually a pretty big one. I mean, and they would There were two

different stories this. One was actually, you know, allowing Kalshi, they applied for it, allowing them to have their BTC perps, and others applied for it as well. And I think Kalshi's applied for 12 other altcoins yet. I don't know if any have been approved or what the timeline for that is. And then the second story was using existing regulations to help US entities or or bring offshore perps onshore. And in this particular case, it really helps Coinbase with the acquisition of Deribit. That was earlier this year. That seem Was that earlier this year? It seems like forever ago.

With the acquisition of Deribit, now bring the largest offshore options network onto the onto US soil. So, I mean, David, I know you have some thoughts around these stories. >> Uh, oh, yeah. I think this was a massive milestone in the industry. All the derivatives lawyers I I know, for them this was like Super Bowl. This was like earth-shattering. Because there's there's a few questions that have been lingering with regards to perps that I think were answered in in in these statements. But but also, I think we can see this nothing short of the first step of us seeing perps in the

US, which honestly something if you ask me whether we would see perps in the US 3 or 4 years ago, I was like, I don't know. I think this is going to take a very long time. I don't know if this is going to happen in my lifetime. And And here we are. Um, the main thing and and and Michael might know a little bit more about this is one big thing that folks are paying attention to is that the CFTC clearly stated that these specific instruments, right? So, we're not talking about perps in general, we're talking about one specific instrument on the Cauchy side, which is the the Bitcoin perp that they're that they're getting listed in the US, that that instrument is a futures contract.

And this might sound like a technicality, but again, for derivatives lawyers, this has been this this massive massive statement because there has been a question on whether perps are either swaps or futures contracts. And I think you can argue that they have characteristics of both. And in previous statements, the CFTC has characterized perps as swaps. And and again, this might sound like a technicality, but it's not because whether you fit in the swap or in the futures bucket, this this has massive implications on to whom which types of investors you can offer

this, what kind of leverage you can offer, what is the whole like regulatory framework that you operate under. Swaps are instruments that are much more fit for institutions. Futures are instruments that are much easier to distribute to broader retail. So, this statement that perps are can be categorized as futures was was massive. The the other thing I found is >> Sorry. Sorry to cut you off, but before can you I I didn't realize there was a debate between you two. I thought it was just whether they were futures or not and they were looking at the funder rate.

But how I'm still racking my head around it. How could perps perps be considered swaps? What what features give it that kind of characteristic? >> Yeah. So, that I mean, not all lawyer not a specialist, so I'm not sure if what I'm going to say is going to be 100% accurate here. But there are I mean, I think it's relatively easy to see why perps can be character- characterized as futures, right? Because they are standardized instruments. They are instruments that you can open a position and then you can sell a position to close the previous position you had. So, like they they operate a lot like like futures.

I think the reason why they they can some folks in the past used to categorize them with swaps is because of um the way they structure without having this terminal expiration date and then just having these quote and quote cash flows, right? Exchanged over time to basically peg the price of the perp to the price of the spot asset. Some folks would argue that this looks like a lot like a swap, right? Because in the end of the day a swap is an exchange between an exchange of cash flows between two counterparties, right? But I think you can make an argument that the swaps market is a essentially a bilateral market, right? A

swap is basically an agreement between two parties. You don't have this concept of a listed product that everybody can buy and sell at an exchange. So, but but I think that's the thing that in the past has led some folks to say that perps have swap characteristics and that's probably why the CFTC has explicitly stated that perps are swaps in a few. Those are mostly I think in enforcement cases. It's not like that the CFTC was actually discussing specifically the viability of perps in the US, but those were like enforcement cases. And then the CFTC, in order to justify their jurisdiction

around those cases, they had to say why they they they have they have this power. And they basically did that by saying perps are swaps. So it wasn't like that deep of a discussion, but it but this has been has happened uh a few times over the past, I don't know, three to five years or so. So now we're um I think way more firmly on the futures territory. >> Uh David, is it at a at a 50,000 ft view, is it is it easy enough to say that before this, futures had to have a date?

And like and like now they don't have to have a date by which they expire, right? >> You know, yeah, so we we probably need to bring a derivatives lawyer uh to to to the pod, but I I actually don't think that there is a formal definition of what a future is in the Commodity Exchange Act. Um bec- because >> Oh, there is. There is. There is. >> But but it's kind of recent, right? Or I I don't remember exactly the issue here, but I do know that the CFTC, they operate more on a principles base, while but let's say the CFTC CFTC works under these more strict rules. So maybe it's there's a little bit more flexibility here. Maybe maybe you know this,

Michael better. >> Yeah, I mean, the CFTC's governed under the Commodities Exchange Act. And the Commodities Exchange Act regulates the definition of futures pretty strictly, actually. And it requires futures historically to have a set expiry. Um it has other rules that the CFTC has fashioned for margin requirements, limits, etc. But the big one was that a future under US law needed to have an expiration. In fact, all derivatives that would could be characterized as futures needed to needed to have some sort of uh expiration. So what you saw with some issuers, like Coinbase, um was they would make the expiration like

five years in the future, right? So that so as to like sort of preserve the um the perpetual nature of it. Um but yeah, there there one of the problems um before the recent CFTC news um that we're talking about here is that perps were illegal under US law for a lot of reasons, but one of which was just that they didn't fit into any sort of regulatory regime because their characteristics were totally unique relative to what had always been contemplated.

Um To to one other point um about why a perp can look like a swap, uh and and I think David just described it beautifully, but traditional futures usually have you know a defined expiry and um when the CFTC uh they requested comment and they um for like some guidance on this question. And they highlighted that perpetual derivatives differ because the pricing relationship with spot is monitored and settled on an ongoing basis, often multiple times a day with less need for a specific termination date. And so they said that feature they were they were thinking

makes a perp easier to analogize to a swap. Cuz a swap is often understood as a contract where parties exchange payments over time based on a reference price, uh reference rate, price, you know, index. Uh and a perp's funding leg can resemble exactly that. So, what they're trying to do is see in the first instance where they can fit this in. Now, it's incredibly important that that perps don't get characterized as swaps um because it would then be relegated into a much more restrictive regulatory regime.

Um with much more onerous regulatory rules. Um so uh the swap regulatory apparatus um requires, you know, uh It requires a bunch of, um, a bunch of licenses and, uh, market structures, rule books, intermediaries, customer protection rules, and and all these different access channels that would make it quite burdensome for anyone to comply with, um, under the current, you know, market structure.

>> Yeah. What what I what I can say for sure is that uh, swaps are bilateral agreements typically. So, they're heavily used by institutions. You have these ISDA agreements, which is kind of a master agreement that, uh, it takes a very long time to negotiate, but then after you're done with that, you kind of can operate on, uh, kind of ongoing basis. But, those are done on a counterparty by counterparty basis. So, it's a place where like a lot of the big institutions interact with each other, but it's definitely not an instrument that is probably fit for for retail. And and I think that's that's the big, uh, the big distinction here.

>> That's definitely true. One reason why it work the current swap regulatory regime works is because they're not typically, uh, fit for retail. And therefore, um, most retail's not clamoring to buy swaps. Uh, but when you have a product like perps where retail it it seems to become it seems to be the preferred way of trading for many people in retail, um, to sort of now require, let's just say, I'm not saying this is happening, but for to require an ISDA, um, would would just completely torch the entire market.

>> And and and I think the the other thing that's interesting is that the CFTC I I think they made a public comment request maybe a year ago even even before Chairman Salley was, uh, was, uh, was in office. I think that was on Carolyn Pham's day. Um, and then they did a thorough, um, information gathering. Um, and and I read some of those letters. Uh, actually they're they're they're they're very interesting. And the one thing that it seems that the CFTC was careful enough to do at this time is that, "Hey, we are approving this one single product." And they seemed relatively reluctant to put, um, certain classes uh, within, uh, a

perp. I think mostly agricultural commodities. So, there's a very interesting discussion here on whether perps are an instrument that is basically good for anything or there are a few, um, commodities futures that would be better served by a dated futures format. Um, I have a view on that, but yeah, that we don't need to, uh, to get into. But, I think the most interesting thing about perps is that, again, kind of what we're discussing on the stablecoin debate, uh, perps unify liquidity. When you're in the dated perps, uh, in the dated futures market, uh, you guys know this well. Well, uh, you have the

front month contract and then two months and then three months and then what not. And all this liquidity is fragmented through all these different contracts. Sometimes if you want a longer dated contract, you're going to incur a liquidity risk because that's not the contract that is being traded right now. So, perps kind of do away with that because you have only one perp contract trading that doesn't have any expiry. I'm not saying that perps are the best instrument for every single asset. I kind of agree, uh, with the CFTC reading here is that there's probably a few, uh, assets, especially the ones where you want to take physical delivery, um, that that the dated futures format is, uh, is interesting uh, and and potentially maybe even

better. Uh, but I I do think it's kind of very cool to see and a massive milestone that we're kind of opening the doors for for perps in the US. >> Yeah, 100% and thanks both for explaining that little swap spoofs future difference. I'm I'm I'm kind of seeing the swaps angle of it now a little bit more. Makes me um makes me wonder, you know, we spoke about the sunny pod too, but even the formulation of perpetual futures that funding rate, that's not even necessarily mathematically back. There's no like formal verification. It's just thing in the air the exchange or whatever the venue is determines the funding rate and I wonder if there was

of some mathematician to actually prove that how you can price these things whether that could help maybe formally classified as a as a futures. Like maybe the 8-hour funding rate is an expiration and renewal at the same time. But I'm I'm kind of digressing there. Um and then I thought it was also interesting that about you know, you mentioned the CFTC also had a let's just say a no-go on the agricultural products. The Clarity Act also um says something similar when it comes to you know, some commodities can be tokenized like gold and silver, but other took other other agricultural um other agricultural commodities, they can't couldn't be tokenized as easily.

They would have to go through higher levels of regulation if you were to put them on a blockchain. So I I I think it's interesting that they make these distinctions, you know, in one case I I'm not really I'm not really sure why, but you said David that you might have you had some further thoughts on what might be the best uh product or might not might not be the best product for agricultural commodities. >> No, I I mean yeah, I want to delve too too much into this, but um in in some of the letters when the CFTC asked for public opinions, a lot of them from I actually first layers uh actually explicitly acknowledged that.

Um imagine you were a corn producer and you want to sell a certain amount of corn by, let's say, 3 months in in 3 months. When you do a dated future, you're setting your price at exactly that amount. And then you can you can be sure that the contract will be settled at that specific price that you mentioned. Um if you replace that by a perps contract, you're basically replacing that by a contract that has infinite duration, uh which is good because it gives you flexibility on on on the expiry here. But on the other hand, you are incurring this funding rate that is variable. And so so you basically it's very hard for you to

actually fix a certain price at a certain point in time. So uh that's one thing. And then and then the other thing that that I believe is more obvious is that um although most derivatives contracts are financially settled, uh there are derivatives contracts that are physically settled. So if if you actually need that market, then probably a dated future contract is is is the best contract to have. So I I kind of don't disagree with the agricultural exemption, at least for now. Yeah. >> But but uh I guess the question I've no dog in this fight, but why not have both?

What's the downside of allowing both? >> Um it's a good question. Uh just me thinking out loud here is that you need hedgers on one side and speculators on the order on the other for you to basically make a market. Uh if you create a perp, probably all the speculators will move to to to the perp instrument, and then the hedgers will not have anyone to trade against. Uh that's that's kind of my guess, but but I don't know. It's a good question. >> Interesting. Go ahead, Mark. >> But then the funding rate would be pretty high, and then it would encourage the other side, but then maybe now you need futures for the funding rates to make sure that you don't overpay.

>> Let's just say that. I mean, we can go in steps, right? And I think that's that's a pretty pretty prudent and pretty pretty reasonable rule for us to to abide by, at least at least for now, and then we'll see how things go. >> I think that's very much correct. Yeah, I think it's a step. Uh >> The other interesting thing here is that Kalshi and Coinbase, they seem to have very different strategies on how to tap this market, right? To to Mark's point, because Kalshi is listing a perps contract in the US through a DCM, right?

So, in the derivatives world, a DCM is is the exchange. Uh Coinbase is using an FCM, which is kind of the broker in derivatives world, to access Deribit, which is an offshore contract. So, I found it interesting that these two firms, I mean, these two initial forays in in the perps market are kind of coming from different angles. One of them is trying to build liquidity here in the US from zero. Uh the other's kind of trying to tap international liquidity into the US. So, yeah, just interesting to see here which which model's going to win.

>> I'm glad you raised this point, David, uh cuz I think the mechanics are really interesting. So, the CFTC didn't simply bless offshore perps for everyone. It created a narrow pathway where Coinbase, um which is a CFTC-regulated FCM, can intermediate certain Deribit perpetuals for US clients by treating those contracts as foreign futures, um which they're allowed to do under Reg 40 um of um of uh the CEA. And so, um this is the first time that US persons can interact with offshore perpetuals that is not going to be

characterized as participating in unregistered swaps. Um and I think that's really important. I think it's important, um, for two reasons. One is because it allowed Coinbase to sort of tap Deribit liquidity, right? I mean, this is why Coinbase wanted it. It bought Deribit. Deribit has the deepest liquidity, um, and, um, rather than having to create a US Deribit and then fracture that liquidity, it's able to plug right into it. I think the second takeaway for me, at least, is when looking at how Hyperliquid can extend to the US, this seems to be the best potential option. Um, there's not

many good options for Hyperliquid and extending to the US outside of this one, um, because if Hyperliquid has to create a US sub, it it fragments liquidity and it therefore fragments their fee, uh, buyback mechanism, um, which hurts the token. Um, they don't want to do that. Uh, and so I think this is a viable strategy for Hyperliquid, um, and I think it's going to be, uh, and and for that matter, for Binance, frankly, um, and for other for other foreign, perp uh exchanges.

>> Yeah, that's actually a really good point. How how I I can see how Binance would do this. I can see how others. How would how would Hyperliquid do this? Like, legally struct, you know, structurally speaking, these others already have changes in the US and they can just do the exact same thing Coinbase has now gotten permission to do. >> Yeah, I mean, the way I would do it, if I were Hyperliquid, is I would partner with a already existing FCM in the US and that taps Hyperliquid liquidity directly, thereby giving US persons and institutions a funnel through which to trade directly on on uh on Hyperliquid. There are, of course, still going to be AML KYC questions and there's this doesn't totally eliminate

all of hyperliquid's hyperliquid's regulatory problems, but it certainly could create a much more a much easier pathway. So I would partner with someone, but hyperliquid could also just establish a US entity, apply for an FCM, get an FCM and then plug it into hyperliquid. But presumably Deribit I mean actually I know this. Deribit, you know, complies with AML KYC, right? Like they they have a lot of the structures that any centralized exchange typically has, albeit offshore. So it would was easier for them to do this than than maybe hyperliquid.

>> Yeah, I I think that's that's a great point, Michael, because at the end of the day Deribit is regulated. I think I think they're regulated in Dubai. And and probably the CFTC will have to wrestle with the question of how to allow folks to engage with a decentralized protocol. Again, next step of the conversation, right? We're clearing up the easier questions to answer and then we'll get to the tougher ones as as time goes by. >> Yeah, I think the unique thing for hyperliquid is and this is different than on Ethereum or on Solana is that they actually have the ability

to do compliant AML KYC and and sanction screening if they wanted to because they control the protocol pretty tightly. The question is not whether they have the ability to do so. That is a question for blockchains like Ethereum or Solana. Like there's not a really clean way for any protocol built on those on those blockchains to truly I don't I don't want to say there's not a clean but it's not really something that hits at the at the L1 layer. But for for hyper liquid, they could do that. Now, whether they want to do that is a separate question and whether it makes good business sense to do that is a separate question. But I think they

like from a US regulatory perspective, regulators would say you could just update the protocol, which they do constantly right? To provide for sanctions clearance and screening or AML KYC or some sort of filters there. And that's what they would need to do, I would think, to be able to access US liquidity in this FCM compliant way. >> Yeah, I think that makes sense. It would definitely be an off-menu option though, right? So like if you're already regulated in another country, you're probably some part of some board of trade or something like that, which is the derivative case.

There's probably already a rule that allows you to follow this path to interact with with with a decentralized entity like hyper liquid, it it might require some sort of rule change. So it's definitely it's definitely a different process, something that might be more complex in the sense that we'll probably need to create a new rule to accommodate that. But yeah, I think it's definitely possible and maybe we'll we'll see that as part of the evolution of the the market structure. >> That's awesome. The CFTC gave us a little and we're already talking about what's what's next what's next. We want more. I mean, that's good. I love the I love the ambition.

Um Also I know we have we have a we're coming up on time here. We have a few minutes left. I did want to mention what's kind of going on in the markets. I know there's there's a Bitcoin and crypto in general. A lot of people are talking about stretch, STRC, stretch is product. I do want to give Michael some kudos even though I still do disagree with him. He did say that Michael Saylor selling Bitcoin. He was he was bearish on it and you know, I'm still I still think it you know, was the right move as he says to inoculate the market. But I mean let me I'll just pull up stretches chart here. We can see I mean it's not supposed to do this.

Um we can see for dividend yield increase or maybe just time will stabilize it up again. But I mean how what what do you guys think about um you know Michael Saylor strategy? Do we think is this how he anticipated the market reacting to his his very minor sell? And and actually when I say minor sell I've charted it here. That that is how what how much of of my of strategies holdings that they sold on that very one day and and immediately bought back multiple times over the next week. So uh what what are we thinking here?

>> Well >> Um yeah. >> So it was a minor sell because it was a test, right? They wanted to test the market to see if they could sell. And I think the market resoundingly said they cannot. Which is a pretty big problem uh for strategy. I I can't imagine I don't know how they're going to get around this um because if they do plan to sell in the future or if they need to sell um in the future uh they're going to have to do a lot more work on priming the market for it and a lot more uh a seller's going to have to

totally change the narrative that has been his bedrock for the last 6 years has been they're never going to sell a sat, right? They're not going to they're not going to part with one uh Bitcoin and to go about face on that so I I don't want to say so abruptly, but it was a little flippant, right? You you mentioned it in a on an earnings call that you might sell, you do a little test sell, and the market responded pretty pretty violently to it. So, I don't know I don't know what their next step is other than to just go back to their original strategy and say that was a mistake.

>> I take the other side there. >> Oh, no, you go, Matt. >> No, you go you go first, David. I'm actually going to take the other side, too, but you go first. >> Okay. >> The The one thing I would say is um I think sometimes we have to untangle try to untangle a little bit which market factors are here into play. And I I fully agree that there was a negative reaction on the Bitcoin price once they sold 32 Bitcoin, which is I think at at the time to something like 2 and 1/2 million dollars.

But I I was watching the tape really pretty closely during that day and and then the day after on on Friday. And my perce And these are all just just personal perceptions, right? It's impossible to untangle these things perfectly, but my perception is that the Michael Saylor or the the strategy sale is probably what drove Bitcoin from 73k to 71k. That's That's more or less where I think the the market was when when the news started to spread. It probably had a $2,000 dip in price impact. But I think the the big drop, the one that took us from the low 70s to the low 60s and at some point even under 60s, I

think this was a much broader concern. Here, there's just so many factors at play, and and if I had to say what was the most important of them, was probably the capital drain that the Space X IPO is is is bringing to the market. I think there's probably a lot of overlap between the holder bases of Bitcoin and maybe folks would be interested in something like a SpaceX IPO. So so I think there was probably this capital drain. The other issue is that on that Friday we had this massive jobs positive surprise, which basically gives more credence to the folks who believe that there's an interest rate hike coming and

and Bitcoin is negatively impacted about that. Actually Bitcoin is especially sensitive to these things. On that very day we also had the Blackstone gating their leading private credit fund, I think for the first time ever. So so I mean there was a lot going on. The Nasdaq fell 4% on that day. So I'm not sure how much we can attribute to the drop in the Bitcoin price to to the fact that Michael Saylor sold. But yeah, I I definitely think that it had an impact. Um the other thing I would say yeah, I'll I'll just stop here and then I I I have more to say. But yeah, I want to hear Matt and I see

you're putting a chart here Mark. >> I mean my my basic thought is that everyone, in part because Michael Saylor and strategy talks this way, they talk in infinities, everyone takes their action and extrapolates it to infinity. They sold 32 Bitcoin, they're going to sell 850,000 Bitcoin. Uh they issued, you know, $11 billion of preferreds or whatever, they're going to issue a trillion dollars of preferreds. That's the way they talk, that's the way the market interprets these things and so they panic. Um but over time people get over it. Right?

Remember Michael Saylor hated Bitcoin and then he loved Bitcoin. He was going to never issue an ATM share unless the MNAV was two and now he's issuing it at 1.1. He was going to do an infinite number of preferreds of converts and then he pivoted to preferreds. He was going to issue stretch to infinity and now it looks like it'll probably be like 20% of the market cap or something ad infinitum. Um, I basically think people overreact to almost everything strategy does. And the right way to think of them is as a capital allocator with like 10 different levers in front of them and they'll pull different ones at different times. I think it's good that they have a sell Bitcoin lever. Uh, if they can

sell 32 Bitcoin and then buy 1,500 Bitcoin a week later, I think they should do that forever. I think it's fantastic. Um, so I just think of it as one more tool and I actually do think it inoculated the market in the sense that I think the next time they sell Bitcoin, the freak out will not be as large. Right? That's actually what the inoculation means. It means you do something, there's immune response, we saw that and then the next time the response is half as big. I suspect that will be true as well. If he does if he sells Bitcoin and then buys more a week later five times, on the sixth time, we're not going to care that he sold Bitcoin. And I think

that's actually what's going to happen over time. It's just going to be one more tool in his toolkit uh, is my guess and all these extreme examples um, uh, will will fall by the wayside. >> Yeah, I I think to that point, I do believe that the narrative has been evolving and and I'll firmly believe just like Matt that selling Bitcoin can make a lot of sense in an institutional Bitcoin accumulation strategy, right? So this is not like hoddling for your personal uh, investment just riding the cycles. What Michael Saylor has been doing is getting more and more sophisticated and having the option to strategically sell some Bitcoin in order to to it's kind of literally the one

step behind to to move two steps ahead in the future type strategy. So I think it it makes total sense to have that. At the very least for tax loss harvesting, but I I I think it goes beyond that for actual risk management purposes. So, I I actually think it's it's an it's it's an evolving um narrative. Uh it would be awesome if Michael Saylor had figured all that out when he started buying Bitcoin in 2020, but that's just not possible, right? I think Michael Saylor has said uh publicly that his ideal capital structure would look a lot more like equity and stretch and not all the preferreds that he issued in between. But, those are things that he

he he That's the journey that he he he had to go through in order to get stretch, which right now is the the best vehicle to work at this time. So, I think the the the narrative is evolving. Uh it's fine that we didn't have the whole narrative figured out right from the get-go. I think that's that's how things actually work. That's how big businesses are built. So, I'm I'm I'm totally fine with that, but I also understand that it's painful, right? It I mean, uh the market doesn't like to see narrative changes sometimes. And and and whenever these are happening, there is this transitional phase that is uncomfortable, but I think we're going to end up in in a much better spot.

>> I just don't think that at least right now Strategy has the ability to sell any Bitcoin. Um I think that the tiny sale that they made and the market response now we can say it was actually only from 73 to 71 and then there's all these other factors that drove the price down and it had nothing to do with Saylor. I think the narrative is what matters and everything I've been reading is blaming Saylor. Um I think that he if you're advising Saylor right now and he wants to sell Bitcoin next month, what do you tell him?

How much how much Bitcoin do you tell him to sell? I mean, the worst thing about the sale was actually that it was such a small amount. Like if they needed the cash, they sort of sold more, right? At least then they could have funded their obligations. And yeah, there would have been the the a backlash, but I don't think it would have been any worse than what it was that what we've seen. So, um we don't know how much size they can sell, um and we don't know how strongly the market will react. Matt could be right. I hope Matt is right that uh it's an ocular the market's inoculated now and they'll get used to this. I do think though that we are not fully appreciating how the market will start to perceive

strategy um if they start regularly selling Bitcoin. From a that that is just an accumulation vehicle of levered Bitcoin into a basically a a Bitcoin risk management and hedge fund. Yeah. Um And I think that is a different underwriting exercise for investors that I'm not sure Michael Saylor's prepared to to contend with. >> I actually think that's a really good point. I I agree with that fully. Um I have to hop, so we should dig into it next week. Um 10 minutes late, but um But I agree. Let's let's let's do tackle that next week.

>> Sounds good. >> Thanks, Matt. >> Yeah, on that hedge you know, on I think I agree with Matt. That's a good framing. And now I it makes me wonder. I think we we spoke about this after the pod last week. Why didn't Michael Saylor go for option selling? Why is that not one of the levers that he's pulling right now? And it doesn't need to be selling calls that are very popular because it will derail his thesis about 20 to 30% cargo Bitcoin appreciation over the next decade. But maybe just maybe selling puts. Maybe lending. You know, you know, these things these things he He he would never do, but we've talked about him saying stuff he would never do and then doing it anyway.

So, I I'm not sure why why these aren't some levers that he's pulling either. Um and I also wanted to, you know, just bring up some contacts. I pulled up that chart, David, when you were talking, and it wasn't just Bitcoin that week. Bitcoin fell 17% that week, but a lot of a lot of assets had either their worst week or were in the, you know, 25th percentile of that worst week. So, it could have been a broader market sell-off. I know you know, price dictates narrative, and if if we look there's we look at in like Bitcoin's institutional demand here versus price, and institutional demand I've I've added ETF flows plus treasury flows, and it,

you know, there's been more there's been a lot more selling than there is buying, and that simply put. And so, I mean I mean that's the that's the state of the the market right now. I know we're coming up on time and we're a little bit over, actually, but I I did want to ask both of you all is the bottom in? >> No. >> No. >> No. >> You think how how low do you think we can we can get? How low how low do you think we can get? And and I hate I hate number calling. I hate price predictions, but I'm just curious. >> Um I'll take it first. Um I'm not going to give price predictions. Um I'm going to say that I am particularly worried about the macro climate.

Um and I'm particularly worried about I mean, I just got a notification that, you know, Trump says that Iran downed a US helicopter. Um and vows to retaliate. As long as this Iran Strait of Hormuz closure continues, we are just going to it increases the risk that we're going to have a supply shock in oil. Um and with that is going to we're going to have we're going to see inflation um, on prices. Um, and that's the best case scenario, right? Like, the worst case scenario if this straight of war moves or a war moves closer takes place is we actually we actually start to see

uh, a significant disruption to our agricultural supply and and um, many other uh, US client states throughout the world that rely on US oil and US protection, we're not going to be able to provide it. So, I think um, or sorry, you US uh, subsidy and and US protection. Um, but of course US is selling its oil to the global market right now from its reserves and those reserves are not infinite. Um, so I'm I'm particularly worried about that. I don't know if you guys have a have a view on it.

>> I think we're going to struggle uh, with the current price levels for a while. I mean, we're we're right at the 200 moving average level. And I mean, we've been talking this since the podcast started. I actually remember in our very first episode we were talking about the 60k to 80k band that Bitcoin will trade in. Um, the encouraging signal is that whenever we get to the 60k level or a little bit under it, the amount of buy pressure that comes to the market from different many different channels is is kind of very interesting and very strong. So, we can see this from from the more institutional side. We see this at our desk. My Mike is probably seeing this uh, or my uh, Michael's uh, buddies

at at Galaxy assets are definitely seeing uh, a lot of buy interest that comes in when Bitcoin is trading in the territory that it is. You can look like in the broader market the Bitcoin order book just gets huge to the buy side very aggressively. So, there seems to be a lot of buy interest at the 60k give or take a little more or less here level. Having that said, I fully agree with Michael. The macro is very uncertain and I would add on top of that the capital drain that all these IPOs are going to bring, right? So, SpaceX recording this on a Tuesday and I don't know when it's going on air, but SpaceX's IPOing at the end of the week.

Anthropic is coming probably later in the year. OpenAI just filed confidentially for their IPO which could potentially come further down the road. But, the final thing I want to highlight on these IPOs is that they're kind of following the high FDV low float playbook that we've seen in token launches, right? SpaceX is coming as this 1.7 1.8 trillion dollar company and the equity issuance is only 80 billion. Of course, there's a lot of buy pressure from the index inclusion and all of that, but there's also probably going to be a lot of sell pressure because a lot of these employees and early investors, they're going to get unlocked relatively quickly. So, I do think that these

mammoth IPOs and probably a bunch of others that are also coming, I think a lot of these will continue to drag capital out of the market and Bitcoin is probably a capital giver on on this side. So, you add that on top of the macro. We're probably going to be struggling here at at the very least for a few months, I think. >> What do you What do you think about the what the Fed's going to do? You think the Fed's going to raise rates? Mark?

>> I mean, I I think they're going to have to. Not maybe maybe at the end of this year, maybe Q1 next year. I mean, we are we're seeing inflation pass through. We're seeing PCE rising for the past 5 months. Some tariff effects. Oil inflation hasn't properly hit yet, but all of this is why I I mean I'm maybe I'm being naively optimistic about the end of the war because I just see, you know, if oil reserves draw down a little bit too much, if the war persists, there's midterms coming up. I just see all of that as too negative to sustain a war going on, and I'm hoping that, you know, cooler minds prevail and we have, you know, it maybe it's not going to be a

full reopening of the Strait of Hormuz like pre-war. I mean, I've I'm already seeing Iran talk about Hormuz insurance paid in BTC, which is an interesting dynamic in of itself. So, maybe we don't go back to square one, but, you know, I I I I just think that the downside is way too too negative um for for us to to approach that. And again, maybe I'm being naively optimistic. >> I mean, I think you're completely correct. It's it's devastating. I don't know if the US can do anything, though, right? I mean, the I I Iran wants to send a message not only the US not only to Israel, but to the world that you cannot do this ever again.

And they seem to have all the time in the world. I mean, the the mullahs do not really care that much about how miserable it is for their people in Iran, right? Um they're protected, and they're are still in control of the military. Um and so, if you're Iran, why would you stop this closure? I mean, why would you reopen? Um it it's tremendously more destructive to the West than it is right now to Iran. Um um when when when measured against the alternative, which is Iran continues to be attacked, right? And continues to be invaded. Um I Iran wants to make sure

that this is so costly that this never happens again. And right now, you know, it's been costly, but it hasn't been it hasn't been significantly uh it hasn't been as costly as one might have expected because the US is such a large oil producer now. Um if it was not for that, um this would be a much worse situation for the US already. It's already the largest supply shock in in history. Luckily, the US is less reliant on oil than it was in the '70s when this happened last time. Um but we are still very much reliant on it. Um China right now is struggling as far as I know. Um China is hoarding oil as much as they can.

Um so, you know, the it might be interesting that the one your to your point, Mark, you the one hope could be China brokering some sort of deal to get to get this thing back back open. But I've read that even if they open the strait today, we still have six to eight to even six to eight weeks back uh of of of no oil coming out of the strait of of Hormuz, right? Cuz that's how long it takes to travel over over uh over the oceans. So, it could be it could be uh we could be in for a rough fall.

>> Yeah, and um and then, you know, to clear out the mines and whatnot. And that's why I think I'm I'm optimistic that it will reopen, but that's why I think that because it will take so long and because the the supply dynamics will take a while to get back online, we're probably going to need a rate hike. Probably going to need a rate hike at the end of the year early next year because of the inflation. Um we're coming up on time, David. Um I let me give you your last thoughts here. >> No, the only thing I'm going to say is in a couple of weeks, we're going to have uh Kevin Warsh's first FOMC meeting, and that's going to probably be one of the most watched in a long time.

Uh I'm looking forward to covering that one with you guys. >> Oh, yeah, absolutely. All right. Awesome. Um thanks for joining me, guys. Thanks everyone for tuning in and you know, one once again, please if this is your second, third time listening, like and subscribe, follow, five stars, Apple podcast, whatever whatever device or platform you consume your media on, just scroll it all the way and we'll see you again next week. >> Yeah, smash it. >> Thanks everyone. Cheers.