Five Weeks of Losses: Where Do Markets Go From Here?

Transcript

Hey everyone, welcome to Bits N' Bips where we explore how crypto and macro collide one basis point at a time. We're here to discuss the latest stories in the worlds of crypto and macro. Just remember, nothing we say here is investment advice and please check unchainedcrypto.com/bitsnbips for more disclosures. Now, before we begin, a quick commercial break. Introducing Nexo, the premier digital wealth platform. Receive interest on your digital assets.

Borrow against them without selling. Trade a variety of cryptocurrencies all in one platform. Now available in the US. Get started today at nexo.com/unchained. All right, so as always, I'm your host Austin Campbell, high scholar of Zero Knowledge Group and here with my co-hosts Romi Allawalia, mister wealth, leader of Unchained and Chris Perkins, the golden hand of CoinFund. Today, we're going to start with a segment that we're calling the bond market is running foreign policy.

So, on Sunday, Trump told the Financial Times overnight that he wants to quote take the oil in Iran. Um, but some people back in the US are saying why are you doing that? Uh, he referenced Kharg Island which handles 90% of Iran's crude exports and said maybe we take it, maybe we don't. We have lots of options. Chris, you've been on this before but US troops are now deployed to the region uh and available. Brent has surged up early uh in the day to 116 a barrel. Oil continues trading with a significant amount of volatility.

The conflict itself is continuing. The Houthis fired a ballistic missile at Israel. Um, there was a suspected Iranian backed attack on a Saudi airbase that wounded US troops. And Trump's April 6th pause on striking Iranian power plants is still in effect, but the FT interview signals that the military track might still be very much alive. Um, diplomacy, as is often the case, is going either nowhere fast or potentially around in circles very quickly.

Allegedly, Witcoff floated a 15-point peace proposal through Pakistan last week. >> [clears throat] >> publicly rejected it and offered five counter conditions including war reparations. Uh, despite public rejections, however, a source says Iranian officials privately signaled interest per CBS News. However, it becomes unclear which Iranian officials these are and what level of interest there is. Now, before the FT interview, oil had already been moving up. It closed Friday at 112.57 a barrel for Brent. WTI at close to 100. Monday pre-market, Brent was above 116 briefly. The oil disruption

appears to be significant and the timing as this cascades throughout the world is on the verge of hitting some major economies. Also now getting in on the action is the bond market which is where I want to turn to what Romi has to say. But to set the frame there, the 10-year yield hit 4.48% on Friday, eased back down a bit. And there has been a pattern of Trump pausing tariffs or backing off of things previously as specifically the 10-year rate moves up. And for those who are not US persons, most US mortgages, so the housing market are priced off the 10-year rate. It is a point of particular interest in the economy. So,

Romi, you've been saying who wants a deal more, who has the time pressure, and what is going on with the ceasefire? Is this real or is this performative? I want to start with you before we go to Chris and ask what are you making of everything going on right now? Yeah. So, Trump ordered or attempted to manifest the greatest taco supreme of all time last week. Trump Trump has extraordinary manifestation skills, by the way. No taco was delivered. It takes two to taco here.

The IRGC reiterated today that they are not negotiating. They appear to be holed up in bunkers and making uh [clears throat] highly effective meme videos targeting American consumers American brands like Lego using American GPUs and Nvidia technology. It's It's just It's really quite extraordinary. Usually, they make propaganda for their internal audience, but they're they're turning that around. So, Trump wants to taco. It's not clear what the off ramp is.

It seems like he might make a move on Kharg Island to create a bargaining chip and then use that to exchange, you know, as he calls it escalate to de-escalate. Uh, markets don't like that and to your point, the 10-year moving up uh is not good for asset prices. Inflation's also moving up. Dollar's continuing to strengthen. Uh, none of that's good for asset prices and oil uh continues to move higher also. So, yeah, it's not a good story for for asset prices. There's really no way to uh you know, uh sure any other way to tell. I think you should be defensively positioned

for the next few weeks until you see some kind of credible off ramp. Chris, I think you may be on the other side of this discussion. What are What are you making of this one right now? I I I feel as though there's no turning back at this point. Um, the world has seen what could happen um if the strait is closed, the Strait of Hormuz. Uh, right now Asia is choking. Um, Europe is now based on some some new ballistic missile technology. They're actually under threat.

And so there's there's no way that we can return to the status quo. Uh, because the status quo is just going to if everything stopped right now, everyone went home, um you know, by the way, for the Gulf states and for the Israelis, they can't go home. This is their neighborhood. But there there is there's no turning back. Um, what do you do? You just pause and let the IRGC reconstitute. Next thing you know, they have weapons of mass destruction. If they do achieve weapons of mass destruction, then they're holding the Strait of Hormuz hostage forever. Uh, I don't think that's good for the global economy.

So, uh I I It's It's hard to I hate looking backwards and saying, you know, should we have done this or should we have done that? I think it's more important to look at where do we go from here? Um, Trump does have some very capable ground options right now. I think that's going to be very very difficult to deploy them particularly with the drone warfare that we're seeing. Uh, but again, I've been saying this all along. The Marine Corps has been preparing for this moment for 40 years. Their tactics have achieved have have evolved over time. Uh, there's Army Airborne units on scene, special operations on the scene.

So, it's so there are new tools in the theater uh that are available to him. Um, but there is no turning back. I We're starting to see some some very um concerning escalation. I think the Iranians hit uh a Kuwaiti desalinization plant for the first time recently. Um, so I look, I think it's going to get worse before it gets better, but I think the strategic end goal is is pretty obvious. Uh, we need freedom of navigation on the Strait of Hormuz. I think the globe, the entirety of the globe knows that this is the case. Even our adversaries in China know that that strait has to be open and and free.

I don't ever see it being uh having true freedom of navigation if uh if if the IRGC gets its hands on a nuclear weapon. So, uh I do think it's going to get worse before it gets better. Um, >> Are you bullish on markets, Chris, given what you just said or no? Uh, short-term, no. Short-term, uh you're going to have some volatility for sure. Uh, I do think if you time it right, it's going to be a a pri- particularly in the crypto space. I'm a crypto guy. I think it's it's a it's going to be a very very good cyclical buying opportunity um because once this thing gets settled, I I think we're going to be in a very good place. I mean, at the end of the day,

we've been talking about this for weeks. The world is more and more a trustless, permissionless place. Uh, I think crypto does very very well. I think and it's demonstrated continued resiliency. Yeah, we had a little bit of a dump last couple of days, but I think you're going to see Bitcoin starting to catch up to the gold narrative. It's inevitable. So, medium long-term, bullish as ever. Um, there's going to be short-term volatility uh until the situation improves. But it has to. There's no There's no way out of this. It will It will have to improve. What I do like though, Romi, is I've seen the globe This is no longer a US problem.

You know, people will say US Israel started it. This is a global problem now because the world is getting choked off. And so the world is asked to clear that strait and I think one way or the other, it's going to get cleared. So, cleared through coercion and escalation. I think so. Um, yeah, I mean, unless, you know, at some point. And by the way, like the propaganda really Did Did you really think that was amazing that they made some Lego videos? I mean, really? Um, I I I wasn't like that didn't scare me. Um, it I kind of laughed at it to be honest, but um I I don't think I don't think it was scary. No, it's it's entertaining, but it's effective. Like overall, I'd

say the expectation, I believe, going in from the White House was a quick and decisive victory with a kind of head of the snake strike on the Ayatollah and then what Trump calls group one, group two. Now you're seeing less and missile volley from Iran, but more are getting through including uh an AWACS uh it was destroyed. There's uh an acceleration of orders for uh defensive equipment and and bunkers that the Pentagon is doing. There's been no Pentagon briefing in 9 days.

So, I don't think things are going as well as uh people had initially hoped. And you know, the the White House is trying to do kind of play action, audibling, trying to find a path forward. But they need two to ta- taco and the IRGC doesn't want that. IRGC likes the status quo. And it's going to take a lot longer to get done. You know, the initial guidelines were four to five weeks. Okay, well, here we are, week five. And they're saying it'll be done quote unquote soon. Reminds me of like when uh Powell was saying subprime is is contained or Powell was saying inflation is contained.

They're overly optimistic. And it takes time. I I I don't even know how you negotiate a deal in 30 days if you don't know who your counterparty is. And you have 15 points of which there are egregious differences. How is any deal going to get done in 30 days? It's going to take if not 30, 60, or 90. And all you need is a little bit of threat. It's epsilon threat. You don't you know, the US has dominant military advantages. No question about it. No one denies that. But if you look at like the Suez Canal conflict in the '80s it was effective at denying transit for enough time to cause uh an increase in in oil prices. And I think these destroyer convoys haven't

been deployed. It's not clear that they'll be effective. We're spending $200 billion a month. I'm talking trillion dollars $2 trillion in a year, which is also inflationary, which will also you know, increase interest rates. So, the the overall picture is not pretty. It's a very it's a very toxic picture for risk assets. It's it yeah, I think near term there's there's a lot of unknowns and a lot of risks and the market hate that. Uh if the genie gets put back, if we are if if we're successful um and that success could happen overnight. You know, we've seen these things move. I I right now like when we had Spider Marks on here, he was saying this is going to take a long time, fellas. The problem you have

is that if you're a member of the IRGC your entire legitimacy uh is based on your hatred of the US and the West, right? And so it's very difficult for somebody to like pop up and say, "Okay, I'm going to be that guy who's going to take the risk. I'm going to be the the the strongman who's going to take over this country, speak to Trump, you know, we're going to settle things. I'm going to be really rich in this process because, you know, you're probably going to get exterminated in like, you know, 2 minutes. And so uh Well, they have more hardliners. The negotiating team was taken out. Spider Marks when we interviewed him said, I said, "When will the tanker start moving?" He said, "Could be tomorrow."

He was wrong on that. So, I I think the mm military miscalculated effectiveness uh impact and is you know, they're not communicating. And markets are trying to price that in and they're losing trust. You know, Trump came out on the tarmac last Monday and was saying, "Hey, we have 15 points of negotiation." They just issued the points of negotiation, which are there's no discussion around. So, they're losing trust with uh markets. And then on Thursday of last week when the cabinet assembled, it was clear from J.D. Vance and Marco Rubio that they're looking for a 50-year solution.

A 50-year solution. And then if you look at the objectives, they're saying we have well, four objectives. Um it does look like a regime change is an objective for targeting leadership, but none of those are the stated objectives. Uh so it just seems like they're making it up as they go along. And this is going to extend The the relevant question for markets is will it last longer than markets expect or shorter than markets expect now? That's right. We have to kind of make assumptions on markets expect. They were initially anchored at four to five weeks. Now White House is trying to set new expectations for soon and a few more weeks.

And I think it's more likely that it'll extend beyond that. Thank Thank god for prediction markets. At least now we have a market. I don't know. Is there one? I I saw that there's one on you know, when they're going to be ground forces >> Yeah, I was I was going to say I think they're being careful with some of the military markets. To me I think there's two things you've got to think about when you're framing this that are being significantly under discussed as you want to think about both the market response and call it a real world resolution to this event. The first is that negotiating implies that you have a party with whom you can reliably negotiate. And one of the things that I'm observing with Iran is the internal fractures and division appear to be growing, not shrinking over

time both between call it hardliners and moderates in the regime and then other sorts of things that are happening in the country. The longer they are under pressure and the board is getting scrambled, the weirder things get over time. And it may be the case that the party who eventually we will be negotiating with to end this thing has not even come to the table yet because it's not clear that they are going to be the people in charge when this ends. Right. And that is not a one-month period. That is not a three-month period. That is maybe not even a six-month period. Again >> Yeah.

I brought up a long time ago on this show when we were talking about this, the French Revolution. Like this could be a 10-year process of like cascading regime collapse in Iran. And what comes out the other side may be something nobody expects. When you let the genie out of the bottle, there is no guarantee that you can put it back in. The other part >> Yeah, Iran is selling more oil than ever at higher prices. Yes. For now. So, there there's an economic benefit for now. And well, part of best and release sanctions isn't there's an economic benefit for the IRGC to continue this. I took a closer look at the composition of the Iranian population. So, in Tehran there are higher incidence rate of of protesters that want change. But outside the major

cities, it's kind of like American blue states versus red states. In the rural areas they are far more pre- pro-Shia. And there are millions of Iranians on these coastal cities and within access of the shorelines. You just need a couple dozen people with rockets. That's it to have an effective asymmetric deterrent. If you I would encourage you if you want to dig into this, go to Google Maps and zoom in on the Strait of Hormuz and follow the coastline and look at the cities and look at the ports and then ask yourself how do you contain this? Imagine you had like an Aegis destroyer off of Manhattan. One wouldn't be enough.

That's just we're talking just 12 miles there. So, this is a very complex situation. You know, they they made an assumption that you take out the head of the snake and you'd get a resolution. That assumption was falsified and there's no clear path to de-escalation. So, you lead me into my second point, which is and this is something that's been true basically post World War II, but for a handful of the great powers when they're engaged in wars, the answer as to will they win or not is essentially how much resolve do they have to bring force to bear. Because if we want to be particularly gruesome about it, the strait could be open tomorrow if the United States wanted that. The question is how many bodies

are going to be left behind in the wake of us doing that. And one of the things that I would watch for as the IRGC continues these tactics, Rob, is if you restrict supply and drive up global prices to the point that it starts doing real damage to China to India to Japan to Europe and causing starvation in Africa, at what point obviously the United States has to retain political will to fight, but at what point does the rest of the world retain call it the political will not to strike Iran much harder or restrain somebody from striking Iran much harder?

>> Well, how how are they going to strike them? Like UK's navy is defunct, decrepit, it's falling apart. >> I'm talking I'm talking about >> the I'm talking specifically about us and China, right? Like Iran is in this war because the United States is unwilling to deploy our best weapons against Iran. Like let's just be as clear as possible about that. If we choose to wipe them out with nuclear weapons, we have that capability and I'm not advocating that. I want to be clear, but there's a strange game of brinksmanship that you get into with these conflicts that will lead to one side or the other backing down. And if you look at the history of them in Afghanistan and in Vietnam the United States backed down because quite frankly the threat of the people that we were dealing with there was not

existential and global. But when you have an IRGC regime that has been dead set on getting its hands on nuclear weapons and having those capabilities, I'm not certain it goes the other way if they continue escalating. So, you're you're talking about China's tankers got through today. Yeah, China loves this. >> China loves the current situation. You may start You may start seeing a taco from the Iranians because my point is the brinksmanship works differently at this level if you truly want to continue escalating. Ch- China does China does not China does not love this. Uh right now their oil prices are high. They have great risk that the US takes control of the Strait of Hormuz. And now we're in control of 80% of Asia's oil. There's little like any bit about this. They're

in a They're They're in a >> the current situation. They They They like the current situation. I don't think so. The US overextended. Yeah, sure. So You you see what happens when off ramp in the next 30 45 60 days? Uh but but what's the off ramp right there? Like they oil prices continue to go through the roof. That's that's putting a lot of pressure on on their already weakened domestic economy. >> China's buying off market pricing oil from Iran. They get the best price in the world. They're buying oil at 45 a barrel. They did for many years.

>> And their tankers are still moving through the Strait of Hormuz. That's I wouldn't be surprised if China's supplying rockets and maybe uh targeting to the IRGC now. You know, they You know, in realpolitik, one of the goals is to ensnare the hegemon into a conflict that consumes blood and treasure. You're spending $2 trillion a year at current run rate. And you've got a blackout on Pentagon briefings. It seems like interceptor supply is low because they're letting rockets land to preserve supply. That's not >> mean, clearly this was poorly executed at the very least.

I do agree with you. >> You think it was well executed? >> No, I I I The one thing I agree with is that China's in a I think they're in a bad place all the way like all around. If we if we if we do secure the Strait and control the oil, that puts them in a very difficult strategic position, no matter what. That's why they're they're so focused on on alts if, right? Um You know, a lot of generals, friends you probably know. The status quo is not going to Good. Good. right? Because they have they're at risk all across their neighborhood. Oil's getting very expensive. And yeah, maybe they let a few tankers go through.

I think the Russians are very happy right now because there's a lot of pressure for now. I think it's going to bite them in the end. Uh but I I do think they're happy. But I think Austin makes a a very very strong point. We're not talking about the tactical level of war. There's three levels of war. There's tactical, campaign/operational, and strategic. This is a This is a battle at the strategic level. We will whip them every day on the tactical level just like we did in Vietnam. Operationally, you know, are the Gulfs the Gulf states coming closer to us? Yes, I think the campaign is is in in effect.

But it's the strategic that's the battle. How long can Trump hang on to this and not lose the political will? He's not trying to to win an election um you know, next go around. He's already at his at his at his terminal limit. So, he's got some staying power. Like of course, midterms will could impact him and you know, the a hostile Congress is likely to step in and cause him a lot of pain and maybe some impeachments and everything else. But it really comes down to the thing that we ignored in the beginning, which are allies. And to the extent What have we seen? We've seen that Europe is now at in threat. We've seen that our our our uh allies across Asia are their economy's bad. Australia is is is is close to turning back into Mad Max. You ever see

that movie? Like they're running out of gas. Right? So, if if we can build social consensus global consensus and have the entirety of the globe and the you know, like you said, Austin, if if this needs to get fixed, the entire world >> Or or Who cares? You think IRGC cares? They're a pariah. Do you think they care about Australia's opinion? Australia doesn't have a military force to bring to bear. The US is NATO. That is the force and the allies aren't stepping up. And Iran is charging now $2 million a tanker. If the US just withdrew now and just say, "Hey, we're headed back home and It's not going to happen.

>> And Trump talked his Yeah, I'm not saying that would happen. Let's just visual like what's the path to de-escalation? Trump is saying, "Hey, we won." He could just walk away. They would still have control of the Strait. So, if he doesn't walk away, >> And it would turn into a proxy war where Israel would continue to bomb the hell out of the IRGC and we would supply them. Maybe that's Maybe that's what's going to happen, but I'm telling you um we have a big problem unless that that Strait is secured. And the globe has a big problem. >> I I agree. I What do you The global economy has a problem.

Uh look, I think the original playbook I think the original playbook was um it's the Venezuela playbook, right? That That's what they're seeking to achieve. Super hard to do. Um do you continue to to use kinetic measures to to until that strong person pops up to take charge? I don't know. I mean, I I would say on that front, there's a significant difference between somewhere like Venezuela versus somewhere like Iran, right? Like if you look back I totally [clears throat] agree. It's much more complex. And if we look back at pulling agitators out of the populace, to Ram's point, part of what you're trying to determine is, call it, how embedded and representative of the populace are the agitators? Because,

you know, the degree of difficulty of both removing, interdicting, detecting, disrupting something like Islamic fundamentalist terrorism in the United States versus, say, the IRA in Ireland is very different because of how the population feels about the people doing the thing. And I think in Iran, if we're being totally honest about what is the pathway to de-escalate this thing, then almost all roads lead to the United States having to continue to degrade the operational capacity of the IRGC and quite frankly, kill them until it's too painful to continue.

I will say the thing that I'm keeping an eye on and I think we talked about this earlier with the general is, do we start to see factionalist problems within Iran itself? To me, that is an indicator of when the IRGC is probably hitting the point of, "Oh god, we have to negotiate from a position of weakness." Because if you start seeing problems in the east, if you have uprisings with the Kurds or the Azerbaijanis get involved or like Pakistan starts throwing punches, now you have a very different problem in your neighborhood than when it's purely internal. I don't think we're at, just observing the facts on the ground, that level of operational degradation yet.

So, I really do think this is just Chris, to your point about the strategic level of war, who has the will to continue fighting? And also, maybe an important lesson from the Ukrainians fighting Russia. The call it, tactical and campaign level capabilities to rapidly innovate to counter the things that your opponents are doing. Because Ram, to your point about hey, it's going to take a lot of people to keep the Strait of Hormuz like secure, maybe, or maybe it just takes some really good drone tactics so that we can interdict all the people trying to interdict things themselves.

And I'm not saying yes and I'm not saying no, but I'm saying we're seeing a rapid innovation in the art of war as people integrate things like drones in the battlefield tactics that quite frankly didn't exist 20 years ago. And I don't know which way the economics of that is going >> it's very naive, guys. Like you've got rockets landing in Saudi. You got rockets landing. Interceptors can't stop. The Strait of Hormuz is a closer distance and there's more awareness of that category. You just need rockets and a couple of decentralized individuals. You got millions of people.

Uh it's not more kinetics will make this go away. Yeah. I I agree. It's not It's never >> deep miscalculation. >> Yeah, you you can't win a war through just kinetics. It has to be at the strategic level. That's the issue we're talking about, right? And uh and we just haven't seen that with >> up in bunkers. They haven't seen that that leadership But but but but but the kinetics will get you potentially to degrade to a situation where somebody sees an opportunity and they're like, "Okay, guys, I'm going to go for it. I'm taking control of this country. I'm going to be richer than I ever imagined and I'm going to go for it and I'm going to have all the power in the world."

That's what the kinetics will get you. And that's by the Well, that by the way, to your point, Ram, you were talking about this earlier, is the leverage that Trump needs to create if he wants a way out of this. Like if we talk about manufacturing leverage out of nothing, you've got to create a path to winning for the other side who you're going to be negotiating with, right? Like how do you put them in a better position than they otherwise would have been in? And if you look at people who have successfully resolved these conflicts historically, in fact, we can go to what how the United States handled West Germany and Japan after World War II, the answer is if you want to create a winning condition for both sides for one to cease the conflict, it's actually going to need to be very profitable and

viable for both sides essentially to have that relationship. So, if Trump is trying to manufacture leverage, I agree the stick is very important here from a creating leverage, especially when you're talking about a religious fanaticism type argument. But the other side is there's got to be the carrot. And my question is, what is that carrot? Cuz hey, we'll just stop bombing you is not alone itself a carrot. How How do you guys think that Biden gets the 10-year yield under control? Because that is something that is just not He can't What's that?

Yeah. $100 billion in incremental monthly deficit spending. That's one. Oil prices are going up. Yeah. That's two. You have a tightening of financial conditions. He can't control that. There's nothing he could do. Yeah, that's That's part of the strategic level that puts a lot of pressure. >> actually, I think he's working on something that might help with that right now. If you saw the announcement today of the 30% bounty for finding government fraud and other things like that, we get to the point of how do you start dealing with the financial conditions? Like fundamentally, the administration is not the problem there. It's Congress. Like if you look at the budgets we've been passing since COVID, it's just been up up up up. When was the last time

Congress passed a budget that spent less money than the previous year? But that is the paradigm ultimately we need to be getting to. And I will remind everybody the last time that really happened in the United States was under Bill Clinton. So, this has been a problem that's been underway for 30 years now, but the fundamental answer is, y'all are spending way too much money. Yeah. Yeah, and now there's a lot of cities meant to replenish munitions, too. It all It all comes back to spending. So, let's talk about what markets are doing here because we've had the worst month in a year. Um Rob, the S&P closed at what?

It's the fifth straight weekly decline. That is the longest losing streak since 2022. Uh the Dow was down 1.7%. Nasdaq is down more than 10% from the October peak at this point. Year-to-date, I believe the S&P is down roughly 7%. Um the VIX has continued to be elevated. And Moody's said their recession model is at a 50% probability. Um Goldman has raised recession odds to 30% and others like Wilmington Trust, etc. are following. Part of the problem here as well is when you have a supply shock, the standard monetary policy tools like

we can change interest rates, but that does not create more oil. So, Rob, let me ask you as we're looking at all of this negative information coming out of the market. It appears to be pricing in a prolonged conflict. If things proceed sort of as you are predicting, what is the downstream impact? What should we be expecting from here? Uh yeah, the QQQ's are in correction territory now. I think the downside could be something like 6,000 6,200 in the S&P or 15% correction. Something that pulls you back to the liberation day valuation lows.

Um you know, this is more serious than liberation day, though, because you have factors outside control such as the price of oil, which is inflationary. 53% of the S&P market cap depends on that. You've got consumer spending that's pulling back. Consumer discretionary names uh will get hurt. And already you're seeing commodity prices like wheat, uh corn, agriculture going higher, which creates more inflation at home. So uh yeah, I think I think the first time I said there was a something burger was when this broke out like 5 weeks ago.

Like this is a you know, war is highly inflationary. It's just not a good set of background conditions, you know. I'll reiterate what I said before, you know, you should stay small, have excess cash. This is not a market where you want to be a hero. What I see are continued deleveraging from institutions and retail investors. I also see a lot of denial and complacency. On Twitter, I see people uh talking other people into buying these stocks that are down 40 to 50% and that they're trying to buy the dip. The dip keeps dipping. They're referencing fear and greed indicators, which really don't have any relevance given the broader backdrop and

structural forces and facts around the Strait of Hormuz. This is like a sentiment reflex kind of thing. These are legitimate issues. So, uh at the same time, there's starting to be some value emerging, you know. It's not back up the truck, but I have picked up uh Berkshire Hathaway last Friday. It's got a price to tangible book of 1.3. I picked up Microsoft. Uh I picked up Meta at 17 and 1/2 forward PE. So, I think there's a flight to safety to US assets.

I think names in large cap tech, but not all of them. Not all of them by any stretch. Uh Netflix is still expensive. Tesla's egregiously overpriced. Um but there pockets, right? Look at Micron. Look at the leaders in the market that had the highest relative strength. They've rolled over. Whether that's Micron, Lam Research, Bloom Energy, the industrials complex, which I have shorts on, that cracked today. Names like uh Teradyne, Caterpillar, John Deere. That's a bubble. That whole category is a bubble.

So, this bubble existed before the conflict and people were bold up on Goldilocks. And now you have this torrent of negative information hitting markets. So, people are trying to adjust. They've got a view up orders in. And there's just a simultaneous degrossing. So, that whenever you see a market rally, it gets sold off. You had a gap up today, it gets sold off. People are being trained to uh sell rips, taking that advantage to to uh to degross. Biotech is rolling over. Emerging markets are getting whacked by stronger dollar.

So, I'm sorry, guys. I wish I could be more bullish for you. I was bullish, I think, up until 5 weeks ago. But now I think it's just a very uh caustic environment for risk assets. Yeah, I mean, it's a flight to fun here. It's not a flight to safety. I mean, it is, but it's also a flight to fundamentals. And that's what I'm hearing. Right? For the for the right companies with the right fundamentals, when sentiment is down, it actually is a pretty decent setup. So, I think you need to need to double down on fundamentals, acknowledging that there's going to be some near-term macro stress. How do you feel, Rob, about Bitcoin, right? Like Bitcoin's actually holding pretty well at 66K here compared to some of the carnage elsewhere in markets.

It's kind of chopped sideways. You know, we I was going to say we talk about the equities market here, but from a crypto perspective, it's actually the one thing that's been holding up decently as this has started. Why do you think that >> a lot of this crypto Yeah, crypto Bitcoin's held up quite well. It's It's It's really notable to say that. Uh I think a good chunk of that is just STRC flows. That's it. So, Michael Saylor launched another product. It's being heavily marketed. We had a new client join today. I looked at his portfolio. He's got STRC.

He said, "Market sell." We're getting out of that one. And you know, that's creating inflows to Bitcoin. This is not a healthy bid. So, it's it's hard for you know, risk assets to outrun it. So, you know, when it comes to finding finding good names and with good fundamentals, it's just it's just very difficult to find those assets. This is my day job. That's what I do. It's my night, weekend, all that. Like it's like Berkshire Hathaway's not bad. It's not a screaming bargain. You know, there's some opportunities here and there, but the the tides around these companies are under pressure. Like software. Software, you still got companies like MongoDB and DataDog that have 50, 60 arm 60, 80 times earnings.

It's hard to find that one nugget that can rise above when the entire theme is under pressure due to valuation rerating because of higher interest rates. So, if I'm hearing if I'm hearing you right, if we're talking like Mag 7, you think now is when the chickens start to come home to roost for a lot of like the AI hyperscalers who have been spending a huge amount on CapEx, like impairing their forward cash flow, no longer doing buybacks, right? Like >> is the rubber meeting the road on all of that? All of that. A lot I mean, they were amongst the first to feel the pain.

So, they took their lumps earlier. Mhm. Uh and there's some value in some pockets of that category, but not across the board. You have to pick and choose your spots. So, in the crypto space, you you know, crypto is very responsive to liquidity and gold has sucked out a lot of liquidity. Oil's now sucking out a lot of liquidity, but it's still been uh pretty resilient. And And again, when you step back, and we should talk a little bit about the Clarity Act, whether Clarity Act goes or not, I think if it does go, that's going to be a very, very nice tailwind for the asset class.

But we couldn't imagine a better regulatory environment. I mean, I was at the Digital Asset Summit last week. The number of new faces coming into this space, coming from institutions, who do care about fundamentals, um it was profound. I think it was the most sign-ups they've ever had, right? And so, yes, macro is is macro and liquidity when you when you're a crypto investor, you have to be very mindful of. But there are these underlying fundamentals that are and macro themes behind the scenes that are coming together very nicely. So, when when those black clouds lift, I think this asset class has shown that it's here to stay and that it's uh it's pretty well positioned coming out of this.

All right. Well, before we have a bigger argument about crypto, given where we are on time, we do need to go to our second ad break. So, before we continue, another word from our sponsors. Step into a new era of wealth. Discover Nexo, the premier digital wealth platform. Manage your crypto portfolio with confidence and control. Receive interest on your digital assets. Borrow against them without selling. Trade a wide range of cryptocurrencies. All in one platform. Now available in the US with 30 days of exclusive privileges for new clients.

Experience Wealth Club Premier. Access enhanced interest rates, reduced borrowing costs, and crypto cashback on swaps. Get started today at nexo.com/unchained. So, welcome back, everybody. And for our next segment, we're going to talk about the public chain problem. And at the start of this, I want to say, like Chris, I attended DAS, and it was a very impressive event this year. So, first of all, good works to Blockworks and the team for putting that on. Events are tremendous amount of work sometimes, but the crowd, I think, was maybe the best mix of institutional along with crypto that

I've seen in quite a while. And despite the despondent mood among altcoins, I can say with certainty that was not true among traditional financial participants. But this paradigm is also starting to reveal some of the fault lines that exist within crypto that have been under-discussed. One of them is the emerging brawl between Canton Network and call it many of the public block. >> And everybody else. >> [laughter] >> At least some people like I might argue there's a third faction here that right now is staying out of it watching the two brawl, but So Canton's co-founder Schalk Pienaar has been telling regulators and institutional buyers that quote ZK

proofs are too dangerous for mission-critical financial infrastructure and this one fully public. Um, he referred to Solana's April 2025 zero-day and its ZK powered confidential transfers that could have allowed unlimited token minting and nobody quote knowing if it was exploited. Um Obviously ZK sync's co-founder Alex Gluchowski fired back with a tweet thread and then more things were happening here. So on the Canton side they continue to add super validators like Visa for instances was reported on unchained. Um Don Wilson has been criticizing MEV saying that it's not appropriate for people to

reorder transactions to extract valuable quote that's just not suitable for financial markets. And the industry has been fighting back. Uh Meltem Demirrers, Rebecca Rettig and Omid Malekan a friend of the pod have all had things to say about this calling it things like a special or permissioned interest at work. A grossly outdated view on MEV or to quote Omid MEV a risk of blockchain says guy who backs corporate database alternative where a single entity can steal everybody's money.

There's some strong opinions on both sides of this. So I'm going to pause there after describing this fight. Chris ask you as somebody who's been investigating and looking at the space for a while, what do you make of this brawl? I mean it's a really really interesting dynamic going on. Um I'll be honest with you Eric over at Canton DA Holdings he got me into crypto like a really really really long time ago. So I've known these guys forever. And people uh failed to realize that that not Canton itself but DA Holdings is about the same age as Ethereum. I mean they've been around forever.

Um So look the the the debate is there's a couple of things there's also the MEV debate going on where Don Wilson said last week, hey you know this MEV stuff it's just not institutional ready. We should talk about that. But in the bigger conversation between you know private permission chains versus public chains look, I think that there's enough for everybody. Um but it shows that we're in this institutional era where everyone's fighting for real estate. Everyone's fighting for real estate. If you look at DTCC, right? Who have they prioritized?

Canton's on there Ethereum's on there. No one's sure which way the market's going to go. So the competition is as ruthless as it's probably going to get because once you have that real estate it's hard to push you off of it, right? My personal take is that um different strokes for different folks. Like if you're an institution and you know a lot of them were investors in Canton for a very long time uh that solution fits their needs. Other folks um there's some real value in um Ethereum and Solana. But it really comes down to differentiation. How are you going to differentiate your chain?

And then which applications thrive because of that differentiation? It's as simple as that. And it's not one is better than the other. I think it's going to be very very app specific. Right? So let's look at Ethereum mainnet. Maybe not the fastest thing in the world, but what's its edge? Its edge is decentralization permissionless public, right? No one can shut it down. No one can roll it back and that's its edge. The crops thing makes a ton of sense in my mind, you know? That they're leading with censorship resistance. What is Solana leading with? Speed, right? TPS TPS. And what's Canton leading with? Privacy.

Right? And and permissioned and and and other things of that nature institutionalization, right? So I just feel like every single it depends on the app. It depends on the institution and it depends what app the institution is trying to achieve. But I I do think you're going to see liquidity throughout. Who's winning the stablecoin game today? Ethereum. Last week said Tron. Um but we know you and I are going to have a debate about real world assets here in a second, but but again it's it all depends and and I think the great thing about the space is everything's programmable. Everything is is uh unexplored. And if there are explorers

they're the explorers who are like deeply disfavored by the market right now like the Stellars and the Avalanches of the world that everybody is just ignoring as they sort of go off on the Y axis while everybody is fighting about the X axis. And the reason I keep coming back to this and maybe it's the brain damage from having run a stablecoin is that if we think about ledger technology that is decentralized and permissionless and then we think about real world assets then regardless of what the rules of your ledger are the ultimate dictator of the real world assets are going to be the courts, right? And the legal system in the place where you have issued this asset. This is also something that many

financial and regulatory people are missing as we're moving from an account-based world to an issuer-based world for these things. That is a big change. But the reality is let's take Paxos where I used to work so I can use them as an example. If I get a court order from a federal judge to do something with the tokens at Paxos and I want to tell them no, I am going to jail. Right? And so the position that that puts you in is the rules that Paxos will follow are whatever a federal court tells them the rules are. And so you need to be aware of those rules and willing to reflect those rules on your chain because if you don't it's not going to be the ledger of record. So my concern with Ethereum going in that direction is very simple which is that if there's

a disagreement between your ledger and the real world, how do you get your ledger back in alignment with the real world and will you get your ledger back in alignment with the real world? And if you don't you're going to break stuff because the ETH problem like as I've described it and like Chris they continue to be mad with me over at the Ethereum Foundation right now is not that I think you can't have a permissionless ledger with real assets on it. It's that if you want to do that you should not have smart contracts and complex interactions. Because like to give a very live example of something that's on there right now. If there turns out to be a decent amount of Iranian money on Aave in either USDT or USDC and a judge freezes the entire Aave

lending pool the stablecoin issuer is not going to tell them no, but then you brick an entire protocol. Right? Which will have a commingled cascading effect. We're back to like 2008 in derivatives markets. And so to me it becomes one of those clarity of vision type issues back to the strategic level of thing is if ETH truly wants to be decentralized the Ethereum Foundation should be hammering on people every single day to reduce complexity and interconnectivity and do not build things that if somebody pulls that one Jenga block the whole thing falls over. And if you don't want to do that, we move towards Canton.

Now the problem with Canton is not call it a technical design one. There have been some critiques there, but I think all of those are fixable. I think they have a governance one cuz like Rom actually I remember you you and I at one point we're talking about this when we were having dinner is the idea that you could start a private chain with a bunch of money from a small specific group of financial entities and have everybody adopt it by having to pay into that thing is just not a thing that happens. Like you're not going to get Jamie Dimon to make a gigantic donation to another bank to join a blockchain.

And so I think the Canton problem is if you look at DTCC that worked because on day one they got all the big guys in a room and the SEC kind of held them at gunpoint made them all jump together. I don't think Canton's done that. So Chris here's the question I'm actually going to put to you and Rom is do we think 30 years from now either Ethereum or Canton are the answer? I'll I'll answer it. I I I really don't understand your line of I I really don't understand your line of reasoning. Uh I'll be honest with you. So you talked about the Paxos example and I do think we have some big security problems that keep me awake at night and and that security problem is related to latency.

So even if you had uh on any chain let's just say uh if you have a tokenized equity uh and it's it's out on some chain transfer agent's tracking it. Everyone's happy. It gets hacked. You can say, yeah but the the transfer agent know who's who's is what. The problem that you have is that if somebody moves very quickly and swaps it off into Bitcoin and bridges somewhere you're gone, right? So so we have a security problem that has to be solved. Um the great news as we've talked about over the years is that we can track it. I would have introduced privateers in the in the market structure act and that's going to take care of a lot of our private security, but we can talk about that later.

But but getting to your point around Ethereum um what I know about Ethereum is that it's an ecosystem that um tends to evolve in very difficult ways. Moving from proof of stake uh proof of work to proof of stake was like flying an aircraft and changing the engine. And it's it's an it's an ecosystem that continues to uh evolve with with the market. Um and and we can we can talk about that. So, is it going to be around for 30 years or not? That's the what they're trying to do. And their edge is to make it censorship resistant. And so, what I struggle with your examples is as follows.

If I have a stablecoin, we agree that you can freeze and seize. We agree that the stablecoin is centralized. But why can't you why can't you house it, stake it, put it in a pool? Why can't it be on a decentralized censorship resistant blockchain? I don't see why. Now, if you deposit it into an application uh that's centralized, of course the regulators if or the government or the DOJ or whomever, if if that app can be sense is is subject to censorship, subject to sanction, it will be sanctioned.

But again, it's almost like saying, "You know what, guys, um this internet thing, you know, you can't you can't do anything sophisticated on the internet. You can't pay on the internet uh because, you know, it we no one can control it." That's the whole point. Like, Iran uses the internet. They're tweeting, right? Um my point is that I don't see I I totally appreciate the fact that you have centralized assets, uh centralized um applications, but I don't know why you think it's a problem to have a decentralized permissionless layer one.

So, my answer is I don't think it's a problem if you don't have the apps. Right, is essentially the way I would put it. Right, because again, go to Aave, look at it right now. You have very large commingled lending pools. And if one of those contains sanctioned money, the whole thing will get frozen, which breaks [clears throat] the whole ecosystem and damages a bunch of innocent people. I'm I'm more on Austin's uh side of things. Well, look, I think Chris used the word ruthless earlier, which is the exact right word to describe the behavior of of Wall Street. These investment banks have principal strategic investment groups. Goldman Sachs has one.

They created ICE, Market Partners, Tradeweb, whom we had on the pod previously. Their first instinct is going to be if we're going to be customers of some platform, how do we maximize our own value capture and take this company public? They did the same thing with Visa and MasterCard. And the mistake that crypto entrepreneurs make again and again is they focus too much on product features. They focus on the features of the car rather than what the customer wants. What the customer wants is control. They want to deepen their moat. They don't want exposure exposure of the competition. They do want permissioning.

They do want compatibility with existing norms and contracts in the real world like trade disputes, for example, or the ability to handle legal dispute or compliance with OFAC. So, you know, just because you have a a gee-whiz decentralized network with all sorts of great product features, doesn't mean it drives Wall Street adoption. In fact, the initial instinct is for them to go the other ways and co-opt technology. So, I'm not disagreeing with you. And and by the way, I'm not I'm not saying, "Oh, yeah yeah yes to ETH and no to Canton." What I said earlier was that different applications will thrive in different ecosystems. You're right, Tradeweb's an investor in Canton.

Goldman Sachs an investor in Canton. They're asked and and I and and if if those are your my investors, I'm going to make sure that I'm going to solve their needs, damn it. So so, they have product market fit. Can't Canton guys are doing great. Like I said, they're the ones who got me into crypto in the first place like long long long time ago. >> [clears throat] >> And they're going to customize my solutions for their Wall Street um owners and and their Wall Street supporters, totally. But what I'm saying is that So, what market will crypto capture? Good. What crypto uh what market would it would it a trustless permissionless uh chain like Ethereum capture? Yeah, what what institutional part of the market is the Wall Street component? Okay, what segment of the market is up for grabs?

Legitimately up for grabs where some industry-led solution doesn't come to the fore and they seek to maximize their own value capture. Again, it depends on the apps like could you see like repo migrating into a Canton for sure. But the thing about Ethereum that I think it we're also seeing a lot of people really like is is and I know the EF is pushed away from the layer two roadmap. Avalanche does something similar, Austin. You talked about them, too. But you have the the benefit of of real customization, optimizing for a number of different variables, cost, TPS, or whatever, leveraging that Ethereum security and doing so in a in a cheap matter.

So, look at Arbitrum uh on Robinhood as an example. Look at Optimism technology uh base in Coinbase. So, these are getting used in uh Kraken. Ethereum technology is being used in a and and adapted uh by major crypto institutions um and and Trad Robinhood. So, like why wouldn't that continue? But I I I think the real if you look at ETH as a layer one, the real value is the sense that it's it's censorship resistant. It's decentralized if we agree. That means if you're in Botswana or na- name your na- name your your developing country of choice. Like, you can use this new internet and you can move value over that internet. And no one can stop you.

And that's that's its edge. So, I want to This uh sovereign neutrality is really the edge. You you need a there's got to be a a blockchain that's sovereign neutral. That's the edge of a Wall Street. That's right. >> But it's hard to it's hard to sell to Wall Street a pitch that you're sovereign neutral when they're subject to the sovereign. Yeah, I I I think I think your bigger problem is upstream of the banks on that one. Go try to sell sovereign neutrality to the SEC or the Fed. They are totally shut down with that. So, Chris, Yes. like But but they use the internet.

Uh the internet is actually a very different animal because in the United States of America, we have the First Amendment. If the First Amendment did not exist, the internet would not exist because the government shall pass no law regulating speech. Right, the internet exists because of the First Amendment. That does not exist for money and financial assets. So, the road to climb Again, like I said, free money is much higher. The assets, the centralized assets will continue to be regulated. All I'm saying is that I don't see see any issue with a censorship resistant layer one, a global settlement layer. I I don't see I don't see any issue with that. Regulate the activities, regulate the behaviors, regulate the centralized players. That's what we said from day one. Keep your hands off my

decentralized tech. I want to be clear. I have no problem with ETH working purely as a settlement layer that does one-way sends of assets or maybe even like bilateral trading of assets. To me, the problem that a lot of the people building on ETH have not thought through, and your Robinhood example actually kind of brings this to the fore, is if within Robinhood's four walls something goes wrong, Robinhood can solve that problem unilaterally. But what ETH is creating with the current DeFi ecosystem is an interlayered thing where it's Robinhood, Coinbase, Kraken, OKX, Binance, like put whoever you want, and they throw them all into a pot. So, a problem with one breaks everything for everybody. And then you need >> but it's not it's it's the point. It's

it's unbreakable. It's unbreakable. I I think what you're saying I think what you're saying >> Nope, let me Hold on. Let me give you a very specific example. We have an ETH pool right now with a ton of ETH and a ton of USDC in there, okay? And the USDC side gets frozen by Circle. Does that or does that not break the pool for everybody who was Which app? What's app? Uniswap. Again, it's it's about the app if the app is decentralized, I mean, that's a very very high um thing to achieve.

But I think what you're saying though, if you have a centralized application, of course it's going to be subject to regulation wherever it's based. Of course. >> No, but the USDC is the thing subject to regulation. If there's 500 million of USDC in there, there's 25 million of Iranian money. Right, if there's a centralized application, it would be subject to sanction as well. Correct, but I'm saying if there's no centralized application, if you commingle decentralized money, you've created a ticking time bomb. The things that work are things that have a structure like Money Pay on someone where everybody has a segregated account. So, here's the deal.

You you know, you cannot violate the laws if you're an individual, right? Or an institution. So, if I go into that pool and I trade with the North Koreans or the Iranians, I'm in trouble cuz I just broke the law. But that doesn't mean I need to shut down Ethereum or I can't use Ethereum because I can use advanced analytics to look at the pools and I don't trade with them because that's how it works and I don't violate the law. It's not the technology that should be indicted here. It's the behaviors and the activities. But there's no way around the behaviors in the technology is implicitly involving open access things. Like, the Iranians can bomb into that pool whenever they want. Yeah, everybody can then try to start withdrawing, but now

you're in a race between a freeze order and usability. And by the way, I don't think it's reasonable to put the duty on the average retail users to monitor all of that. Like, that's just functionally not >> But again, if if the Iranians are using stablecoins, then there's this thing we call freeze and seize, which we both know and love. And by the way, like no one hates money getting into uh sanctioned hands more than like me, right? But Chris, you've just made my point for me. There is a thing called freeze and seize. So, the commingled pool is going to get frozen. That's right. So, what does that have to do with it with the layer one? Right. To go but to go back to the point, the problem is the trilemma of permissionless, real world assets, and complex smart contracts. You can pick two of them. You

can't have all three. If ETH is purely >> Yeah. It's not truly permissionless, immutable, and trustless. Yeah, the the legal system intervenes here. It's not truly immutable, permissionless, and trustless. Like Correct. The original concept of crypto was an anarcho-libertarian capitalist world network kind of concept that was free from the purview of sovereign control. What's happened is crypto is really become fintech 3.0. And it's shaped, molded, and governed by US laws. And so US laws still prevail.

US laws are layer zero. I totally agree um that code is not law. Law is law. Yeah. Right. We all We all agree with that. But the point is is that again it goes back to the fundamental argument. Do you do you regulate the the coders? Do you sanction the coders? Or do you sanction and regulate the behaviors and the activities of the people that use the tech? That's where I am. But And I I was going to say I think the unfortunate answer to both of those as we look at essentially how we build things in the United States is you're going to end up regulating both for real world assets whether you like it or not. Right.

>> To the accepted centralized, right? From day one, if you have a company that builds tech, that company's going to be held accountable for the tech. I think here we have a horizontal solution where if you truly have something that is And again, incredibly high bar. You assume that's truly decentralized, you know, something that perhaps has a million validators, right? You can't turn it off, you can't roll it back. It It's very difficult to >> Chris, I'm not saying I'm not saying we're giving court orders to the validators. I'm saying there is functionally no way to build a Uniswap pool that includes real world assets that does not answer to US courts. That is Rob's point about what the layer zero is. I agree. I I don't disagree Look, if if you if there are

This is the great thing about crypto from national security perspective. If there is a tainted pool, we freeze and seize. What you're saying is you're saying that creates this domino effect where you just can't trust anything cuz there's bad guys in the system. That's how blockchains were invented because they they were we needed a way to be able to have trustless, permissionless um exchange of value in a very adversarial environment, right? That's the whole idea. >> Well, I want to pause you there. I'm not saying you can't trust anything. I have no problem with holding like USDC in a personal self-custodial wallet. What I'm saying is all the commingling is what you can't trust. Like But I I [clears throat] guess Let me be very explicit in the argument. If ETH wants to be the global settlement layer that is decentralized and have real world

assets, DeFi needs to go away obviously. I don't Maybe DeFi in its current form needs to adjust. You know, I I hear you. Like we did There are some challenges of course with with sanctioned activities that need and we we have no tolerance for that. We also need folks that can proactively leverage the technology to take care of those you know, to freeze and seize, to track, privateer, you name it. So I I don't think we're that off. I just I do think there's value in a trustless, permissionless layer one. And I think it's going to I think that is a humongous opportunity, huge market for certain blockchains.

Um yeah, that's it. But I think we're coming on time. I was going to say or L2s to be fair. Like I don't have a argument against building L2s on top of that layer. Now, Chris is correct. We are coming up on time here, so we will continue this debate at some point in the future, but for today I have to say thanks for joining us for this episode of Bits and Bips. We'll be back in one week to discuss more about how the worlds of crypto and macro and apparently genetic warfare are colliding. Until then, take care everyone. Thanks guys.