Why CENTCOM's Move Was 'Extraordinarily Clever'

Transcript

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>> All right, welcome back. As always, I'm your host Austin Campbell. High Scholar of Zero Knowledge Group here with my co-hosts Ram Alawalia, Maester of Wealth, the leader of Luma, and Chris Perkins, CEO of Chris, It's Still 250 Digital Asset Management. Correct. >> Yes, sir. >> Yes, sir. All right. Cool. Today, we're going to start with the topic that keeps on giving, which is Iran, the blockade, yuan myths, and well, everything else. So today the blockade went live and the exit ramps are already getting exciting.

The US naval blockade on Iranian ports took effect April 13th at 10 a.m. Eastern after peace talks in Islamabad collapsed over the weekend according to NPR. As a reminder, rough estimates 12 million barrels per day normally transit the strait and now that is going to roughly zero. Um, Trump warned Iran's fast attack ships, if any ships come anywhere close to our blockade, they will be immediately eliminated and Fortune has said this is a big task and a big gamble. So, the Saudi and the UAE are working to bypass these corridors.

The Saudi East West pipeline, which is 7 million per day capacity, is rerouting crude. The UAE has their own pipeline. Um both corridors are live since mid-March at full capacity, but it does not entirely make up for the straight and Iran has been targeting both of these exit ramps. Um this puts I'm going to start with this before we get into the details there, which is what do we make for now of call it the military and tactical feasibility of this blockade and what's going on in that region?

Chris. >> Yeah, thanks Austin. Really interesting things happening. So, first we had in the last week, we had the attempts at the talks. They broke down. Uh they broke down over nuclear uh you know, the uranium, we wanted to recover the uranium, we wanted to make sure they wouldn't enrich. Totally understood that. Um that seemed reasonable from my perspective, but it also seemed like the Iranians did not present a uniform front. Um but anyway, so after that, what I'm glad to see is that we haven't destroyed civilizations. Uh that's that's a good thing, I think. Um and what the administration's now doing is they're really trying to take put a lot of pressure on the Iranians. I mean, I

don't think it was made a lot of sense to have um the straight of Hormuz. Look, at the end of the day, we cannot have the Iranians control the Strait of Hormuz. To me, that that that's an international requirement. We need freedom of navigation through that straight. You saw the Singaporeans talking about the Straight of Mala, which is another choke point. And they're like, "We cannot have this. Straights must be open. We need freedom of navigation." And so by closing the straight via a US naval blockade, you know, it brings into question, you know, who is controlling the straight because the Iranians were um they were charging commerce as it was going through. They were making money. They were still able to fund, you know, their illicit activities. And we've talked about this on the show using Bitcoin or the yuan.

Um, but now the US has said, you know what, no, like you're not going to fund your activities. You're not going to control the strait. We're going to shut this thing down. We're going to we're going to we're going to cut your liquidity. We're going to cut your exports. And it I thought I think though it will it will result in near-term pain. the Saudis rock up and start pumping oil um to the east west corridor um which it hasn't and and the and the Amiradis are doing the same. We we're not at full capacity, but we are able to meet some of the global demand through that. Meanwhile, I know if you saw over the last week, you have tankers rushing to the US to buy US oil. The markets are hanging in there. The markets are definitely hanging in there. Um so I

think where do we go from here is the big question. Um, this will put incremental pressure on the regime. We still haven't seen that strong man pop up. Looks like to uh General Marx's points ago, this is not happening overnight, but the pressure is now increasing. Um, you know, generally when this these things kind of happen, that's the people that hurt the most. Uh, but hopefully this will get people back to the table. Um, you know, I did read as well like like the negotiations are ongoing. Then when you look at markets, it feels like it's still really uncertain. Like it it it's a very difficult market to trade. You still have this pressure stepping on on crypto, keeping it down as an asset

class, but it feels like we're more towards the middle or the end, not necessarily in the beginning. So I'm hopeful that and it feels like the markets at least are seeing a bit of stasis here. Um and and they've responded pretty pretty well in the last couple of days. Um so I don't know. would love to get your take. Want to hear Ram where you think the situation is. You know, Ram, you've been you've been very critical of the regime. >> Yeah. Well, look, I I think we lacked a little a coherent plan here. Burn down 10 years of Tomahawks and interceptors and all the rest. But I do think this move by SenCom over the weekend was just clever, if not brilliant. It was exquisitly timed moving these destroyers through the straight of Hermuz during

these negotiations when the IRGC can't even convene to formulate a policy. And to your point, there are factions within that. There's a part of the regime that doesn't like the fact that a part of the IRC shook hands with JD Vance. >> That's right. >> Like so the SenCom is is was very clever here. And then they stuck to the ceasefire when the destroyer was harassed by the patrol boat. They did not escalate. And last Thursday, Hexath in his morning remarks gave what was a very clear and decisive final, hey, look, we're done. We're done. We are wrapped up here. Trump and JD Vance was also consistent with that messaging. And then they followed up with action and not escalating at that very critical

moment. So, if you take a step back, Iran was able to close the straight up from Muse through what I call the Kaiser So maneuver. If you guys have seen usual suspects, the guy's like everywhere and nowhere like is he real? Is he not real? Like Kaiser So had closed the straight. Are there mines there? Are there not mines? Are there rockets? Are there guys in the trees? We don't know. It's Kaiser So controls the straight. What sencom just did to introduce another meme was that I am the captain me now. Like this is my straight now. So they're creating clarity and they're doing that control and they said look we're not challenging you. This is a blockade. And now they put the IRGC in a vice. It's a damned if you do, damned if you don't vice. They

have two choices. They can escalate. Right now, they've enjoyed calm and peace for the last two weeks. Their cortisol levels have dropped. They've seen their families. They're starting to formulate a picture what the future might look like. They're glad that they don't have bombs raining down their head. They appreciate that. Okay? They see that. They say, "Okay, look. We can preserve this and build off of this and go back to issuing menacing threats or we can contest and strike back and escalate."

And this is the best move Sencom could have done. You can't control the response of the IRGC, but you can shape the incentives. And they also said they would interdict tankers going to China because if you're China, as I said last week, I think you're loving this. If you're Putin, like China's trying to broker peace deals now. Putin's brokering peace deals. It's nonsense. It's chaos. They're they are soaking it up. But now, if you interdict those tankers, China has an incentive to get this resolved in a constructive way. So, I thought the move by Sencom this weekend was extraordinarily clever. The ball's now in the IRGC court. The IGC chose not to escalate at the timetable when SENCOM said they would enforce the

blockade too. So things were looking pretty constructive. I think the bottoms in for markets overall. That doesn't mean you don't get a pullback, especially going to opex later this week. But I think overall I think you've you've got a bottom. There's so much hedging, so much shorting taking place. There's not many people left to sell and I think there there are great opportunities out there. So I agree with Rahm on the market action here. The fact that this occurred, it seems to have been Rahm, we'll call it relatively wellreceived by the market, right? That is to say, this blockade didn't happen. The negotiations didn't fall apart and we didn't immediately go straight back to hell in the market. We've kind of been like, all

right, let's see what happens as a reaction. And I agree that what you just said seems to be the key, which is we're out of the escalating spiral of call it kinetic intensification here with this move. We've instead now gotten into call it like long-term economic negotiation because if the Iranians can close the straight of Hormuz, that's a threat. But if the United States can close the Straight of Hormuz, that is also a threat. And that means now the Iranians have to think about their own economics and ecosystem here. If we just maintain a blockade for a year and don't do anything else, they have a huge problem.

>> Iran has significant inflation at home too. They have to address that. If if you don't have a functioning economy, how do you how do you contest the military? Yeah, this this Chris was talking about this on a previous episode, but this moves the war for both sides to a different layer of the strategic level of war, right? Because now the Iranians have existential economic risk for an indeterminate amount of time into the future. and Rahm, as you noted, either they end up having to attack the force to try to break the blockade, which looks even worse if they fail, or you've got to find a negotiated solution to get out of this. It's also interesting to me to see the pressure around this visav

their regional like neighbors because after they launched rockets at everybody you know what we're not seeing for the straight of war moves blockade by the US is criticism from the other regional powers like the Saudis are fine the Turks are fine like everybody's just kind of like I mean yeah guys >> the Saudis want more conflict it looks like >> yeah if anything they want escalation >> allegedly they want to continue and one would reason that Israel's incentives are also in that direction too. Although both seem to be following US direction. >> Yeah, we can go home. They can't go home. This is their neighborhood. They got to live there. And so they are the the status quo is just untenable. 50 years of aggression, Iranian aggression

has to stop. So this this is an opportunity. Um one thing I do want to talk about is China. Um, as you see, I think this is really stepping up the pressure on China, not only on the economic side, if we are now controlling, effectively controlling the strait. Um, but there were reports that the Chinese were assisting the Iranians potentially with intelligence or even some manpads weapons. Uh, Trump's response to that was pretty profound. He's just like, I catch you doing it. 50% tariff. See how that goes. And so I think that China is going to be on is going to play a crucial role to kind of navigate out of this thing because they're going to want this to stop. They need those they need the natural

resources. They need the oil. Um so Trump was supposed to have a uh meeting with Xi Jinping uh that was cancelled that that made them furious. I think it's going to be rescheduled for May. All eyes are on that meeting if it happens. And it's going to be interesting to see the role China plays going forward. They're a reluctant player on the international stage. That's that's not in their nature. They focus generally internally domestically, but this is really forcing them to uh be be on the main stage. It's going to be interesting to see how they respond. Not in an easy place, but they can come out of this in a in a very good way um if they play their cards right. So, I'm watching I'm watching China. I think not just China. This kind of creates what's

the right way to say this? A pro- peace contingent in a lot of Asia because Pakistan has every incentive to get this thing to end. India quite frankly has many incentives for it to end. Japan, Korea, everybody wants things to calm back down. And Chris, as you were noting, uh, Singapore, who I think keenly understands these geopolitical dynamics because they are caught between many large like powers globally, is making the point that what we need to get back to is free transit of goods, free trade without call it undue tariffs or piracy or attacks on people. And they were not saying that I like reading

their comments I think in a biased way. They were simply saying like, hey, everybody ultimately is going to need to find a way to live together here if this is going to work properly. So, what I'm curious to watch is how does this unfold for the peace process, but you know, Rahm, you make the point all the time watching the market is like a live poll in many ways of sentiment and how the world is thinking about things. We're not seeing huge distress in the US and we're not seeing huge distress in China or Europe on the back of this right now. Is your take that markets expect there to be a pathway to peace or at least deescalation here?

>> I'd say there's so many bargains in the market that it's hard for these asset prices to go down. We saw software get clobbered three days in a row. Looked like capitulation selling. Microsoft's up quite a bit today. The AI apocalypse trade has kind of spent too much time here. Accenture is up six points. We own both these names, by the way. And quite a few other names. Like there's this compelling value. You know what's interesting about the last six weeks is you had a 9% correction in the S&P, but it was very pronounced in certain categories. So those categories that sold off the most is where I'm focusing my buys and opportunities. And the categories that held up the most like energy, materials, those and utilities,

those should sell off from here as the risk fear premium gives way and people gain more uh confidence. So I think that's what's happening. People are off sides too. They're over hedge. There's too much short interest. Uh and so the bias should be to get long. So I think dips will get bought. I do think you will see more red days this week too. But the bias should be to get long and focus on those areas that are highly dislocated including categories that were sensitive to oil and sold up because of oil. If you look at like the homebuilders category or the airline category, both very sensitive to energy costs. They stopped going down despite increased kind of lengthening of the

conf of the conflict. So it seems to me that a lot of bad news was priced in. Now, of course, if kinetics come back, you can head back down. That's of course the case, right? We're deal land of probabilities here. Uh, but you've got a couple days of peace here, and if you can add another day to that, another day of that, that becomes the new norm. >> How about Bitcoin? That's held up pretty well through all this. >> Yeah, it has. I'll add on the Bitcoin front. The other thing that, you know, talking to the bottoms here, um, CME volumes, Bitcoin volumes and bases collapsed. those things work together.

Um, and that seems to be a bottom signal as well, particularly in this institutional market where a lot of institutions they're nervous about trading just the volatility of the asset class. What they want to do is they want to get long the spot the ETF or DAT and sell the future. If sentiment starts improving and people think positively about the future, the future price will rise. That's when the the basis that's when we're in something called contango where futures prices are higher than spot. um that's when it gets interesting but that basis has collapsed and so you've seen futures you know come like the volumes in the open interest have come down on the CME that's another indicator to watch if that basis starts creeping up very positive signal uh for

the trajectory because then institutions will start taking advantage of it again >> I think Bitcoin's got a bottom it's been acting well it's taken a lot of negative news there's obviously dependency on Micro Strategy and their capital issuance machine. Keep an eye on that like every day, every week. I I think Hyperlid could be a winner this cycle, by the way. That's my exposure to crypto primarily today. I think they're taking share from incumbents. They've got good execution. They got the 247 trading. Um, look, you got to time this category well though. Like the the struggle with this podcast is like the day matters.

Like I wouldn't buy it today. I would have bought it Friday and maybe maybe hopefully Thursday I'd buy it. So, it's one of those things you really have to the volatility is is high on this asset. So, you gota you got to time things well. Buy on red days. >> Yeah. I mean, hyperlid has been the manifestation of 247 markets. Um their ability to go live with HIP3, you know, people turn to the to like, you know, what did I do this weekend? I when the talks broke down, I looked at what the S&P contract was doing. So you you can it's unlocked 24/7 markets um for the really for the first time. Um crypto prices have shown that but now we have real world asset price discovery on the weekends. Um and then of course the

other tailwind you know sadly for them was what happened with drift. Um and so I know that security is at the forefront. That's the other thing that we're going to have to talk about today I know is around some of the security issues that DeFi are facing. But I think you're right. um very very important to see that price discovery from teams like Hyperlid. >> So speaking of things that are experiencing some price discovery and still causing some degree of fear in the market, we also had a large uh drop on mythos. Was it threat or is this just marketing? So, Anthropic gave a preview of Mythos, their new model, um, which

has been autonomously finding bugs and things like OpenBSD, um, some meg vulnerabilities, and both of those had been missed quite frankly for decades. Um, they found 181 Firefox JavaScript exploits versus just two for Opus 4.6. This is a significant increase in call it capability for AI to find various bugs and they are continuing to manifest. Now it's not publicly released. It's deployed via a thing called project glasswing to quote critical industry partners and open source developers but there are some critics. Sole research said several vulnerabilities could have

been detected by openly available models. Fortune said the era of AIdriven hacking is already here. These capabilities are not new. They're just slightly better packaged. Um and that anthropic publicizes the threat to justify controlled rollout and build a competitive moat from Axios. So I'm curious what you guys are making of this thing. Um especially given that things happened like Bessant convening some of the major financial players in the United States to talk about this. Is this a real threat? Will it cause problems? Will it have impacts on some of these entities and their stocks?

>> I I think this is incredible marketing for anthropic. It is extraordinary market. I read about that I Bessin convening these CEOs of financial institute. It reminded me of like Y2K for those that remember which was a big nothing burger. Spent a lot of money and nothing really happened. It's incredible marketing. When Claude released Mythos or announced the release of it, even that's disputed by some say it doesn't even exist. Claude, back to Kaiser. So, Mythos is a Kaiser Sosa. They're they're dealing mythology. They got this legendary concept and they're uh selling it from fear, right? This is a it's it's a masterful marketing that that Claude has done. When they announced that or it

was leaked, cyber security stocks went into a tail spin. Every time Claude releases a product, these stocks go into a tail spin. I think again that's probably behind us now. I don't know how many products they can possibly release every week. So 12 days of anthropic. Uh but I think it's mostly marketing. This is uh it's just a lot of hype. I don't think that that many security vulnerabilities are waiting to be zero day exploited by by AI. >> I don't know. I feel a little bit different. I feel like um you can't ignore the threat because living in crypto every day um you know one vulnerability could cost you tens hundreds of millions of dollars. That

said, most of the threats we've seen in crypto are social engineering. Um and so that's something to be aware of. But if if it is true, um to me it's not just a threat, it's an opportunity. You have to look at it through both lenses. So what it tells me is that as a country we need to accelerate AI. We need to accelerate crypto because the as this technology gets better I would rather corral it use it to fix our vulnerabilities because as much as they can discover vulnerabilities AI can also fix vulnerabilities. And so I don't know I'm not aware of any major crypto foundation that was invited to the White

House if this was such a threat. I would expect them to be at the table in the near future. Uh but like we need to embrace these tools in a major way uh across every single industry from not only from an just to be scared but to fix the threats that exist and there are plenty of threats across DeFi. We get hacked all the time. We need to be better. And so like I think this is a humongous opportunity not just a threat. They they want to win back their DoD contract which they lost to open AI.

This is what this is all about. It's pre if I could go long anthropic and short open AI. I think they're both bubbles and both overvalued. But if I could get market neutral on long claude long anthropic short Open AI, I think we do really well. Claude is eating OpenAI's lunch and they did it because they focused on the enterprise customer. They did had no distractions, no bring the guy from Apple, you know, John Ivy, build glasses, build a new hardware form factor, try to compete with Nvidia, let's do a fab, let's straddle across different customers. So, it's, you know, the execution is incredibly impressive.

What's happening now though is that the demand for token consumption is so high that the throttling usage and the quality of output just isn't as strong as it was even two weeks ago. like the product market fit is there but can you charge for value and capture that value? Now that's gonna be the question. If they can then that's great for semis and a lot of other categories out there. If they can't capture that value and it's really VC subsidizing customer consumption then we're going to have you know some issues around the AI trade.

>> So you're not going to the Worldcoin event on Friday? I am in Puerto Rico, I think. So, I I don't have to make that choice. But >> I So, I will say, Rob, I think you're hitting on something important that we've talked around on the pod previously, which is as you look at the AI trade, in addition to the value capture, like what is the sustainable pricing model? Like, if this is one of those businesses where to capture a dollar of customer revenue, I've got to spend a buck 50. These companies have a problem in the long run. And as you look at what's happening with call it open AI anthropic to some extent Gemini like throwing the ball back and forth between

each other over time I think a lot of the competitive advantage is going to come down to cost structure as people work on things because exactly as you said o open AAI lost market share to anthropic and now anthropic is throttling people because the math is not working for them as they're trying to grow and so on and so forth. And you saw Gemini trying to use totally different chips to train. And I think what we're seeing here is the competitive arms race is acrewing ultimately to the benefit of the consumer. Like I still don't remain totally certain that these companies aren't incinerating huge amounts of capex that they will never get back and that the end value will ultimately be in

the hands of the consumers. So, I know we've talked about this before, but hilariously, the name I remain the longest in terms of benefiting from AI is Apple, right? Because they're just going to use somebody else's and sell it and they've got all the devices, so you're going to have to play by their terms. >> Well, look at Google and Meta. These are ad businesses and they charge zero dollars for their products, so you've got a price cap. And Google also has an enterprise focus, too. It's a it's a tough spot to be in, but you know, Anthropics got the attention.

>> So, on the note of building for consumers, like I've got a friend of mine who's in the creative space, and one of the hardest things to get people to switch out of is web browsers. Like I don't know if anybody's particularly familiar with that market, but I would say most modern web browsers are like riddled with security vulnerabilities over time and do all sorts of user data tracking. And there are better options like Brave and Opera and people just won't use them because the switching cost is too high in many cases, but AI has her using the perplexity browser now. So to me, if you're building for consumers in the right way, exactly as you were saying, it's like the

distribution and consumer capture is where the value is going to be. If you're competing purely on capabilities, I feel like are you in this forever escalating arms race where you're getting revenue, but your costs scale even faster. >> All right. >> Yeah, we saw that with fiber optics in the docom era, right? I mean, >> we had a what valuations are based on number of eyeballs, >> right? >> I was going to say I feel like part of where we're going to start seeing it now is potentially in advertising because I want to pick on another market thread that we've talked about before related to AI here, Ram, which is we're starting to come up, you know, as the calendar rolls to when we're going to start

getting results from people and we would normally get into buyback season. What is going to be happening with many of these stocks that for many many years have had very strong tailwinds due to significant free cash flow and buybacks this time around? That's a great question. That's a great question because last year we had a trillion dollars in buybacks. A trillion dollars in buybacks and stocks that have buybacks up from stocks that don't have buybacks. There's a bid to the market and much of this correction that took place happened during the blackout period when most companies cannot buy back their stock. It's like that bid matters. Buybacks are back now by the way. It's like they're on and not

surprisingly like markets are back on too. They're acting normally. So I think you raised a great point. It's it's about positioning the right names. Names that still have like free cash flow still matters. Like Amazon's is a good question around this. Amazon is trying to compete with Starlink. They're launching low earth orbital satellites. They're going to launch a phone. They're building more data centers. They got to invest in tranium. All that is called cap. That's all expense. The vision is amazing. But I love the vision. But the free cash reels are low. So we'll have to see. But on the other hand, you have other businesses where they've got a viable business model and uh a lot of pain has been impounded with these prices also too. So yeah, everything does come back to cash flow. I think

it's the right metric to focus on. The CFOs have also got smarter around this. They they see what's happening in the market. So like, okay, I got it. I got to watch capex. I can't overspend. Um but uh there there's still legitimately good opportunities in the market. Like there are 20 30% discounts. Like you're supposed to buy these assets. Like I'm not saying all the assets. I'm not saying assets that don't have good free cash flow, but there are pockets of the market that have, you know, I would call compelling value. It reminds me similarly to like April of last year almost to like the day within weeks, let's say.

>> Yeah. For me, the market has come to rely in many ways on the bid, right? Because if you look at shareholder returns for a lot of things like say the MAG 7, a lot of that has been propelled by buybacks, especially if you're also at companies where they're going to be issuing stock as part of compensation. If you're not simultaneously buying back, you're just going to be diluting diluting diluting over time as you do these things. Um that to me I think is the most underdisussed story of AI is not just that all the capex went into like say Nvidia, right? but also that it's going to come out of the buybacks and we're going to see a much greater differential in the market. It could be that the lasting effect of rates going

up and then the Iran conflict is actually the decay of correlation in markets because for many years we saw it increasing. >> Well, so Apple wouldn't be where it is today without those buybacks. >> Yes. And Buffett, if you recall, he exited his Apple position and it was almost dollar for-dollar mashed by buybacks from Apple. $110 billion he was selling. Apple announced a buyback program for like around $10 billion. So they bought. Now stocks go up if your capital allocation is productive. It's the number one driver of stock price returns actually. It's your capital allocation, right? So if you're buying a stock at too high a price, then your book value per share isn't compounding efficiently. So, there are trade-offs.

You get a nice technical bid. You get flows from those buybacks, but uh that can create some downside protection, but it's hard to get an outstanding return unless they're buying back their stock at good, cheap, discounted levels, which is what Bergkshire Hathway is doing right now when their price potential book is just north of 1.3. I prefer that actually versus some of these other companies. >> Yeah. And in the crypto space as well, we've seen a lot of projects focus on buybacks because that's the only way they could do it. It was hard for them to return capital to their token holders uh from regulatory perspective over the years. What I think most people understand is that many of these projects are awful about timing the

markets and they always buy back at the exact wrong time. And so what we like to see is something that's more programmatic rather than discretionary because they're tend to be terrible from a timing perspective. Uh something that we continue to watch. >> I mean you see the same thing in traditional financial markets as well. If you look at the people who have done well with buybacks, it's either people who >> sort of nibble nibble nibble nibble perpetually because they can ensure they do average by using that method. And if it's an otherwise very profitable business, that's a completely viable approach. Or it's the people who do exactly what Rahm was saying, which is I allocate a bunch of money for buybacks, ideally somewhat quietly, and then when

the market pukes and I'm down like 20%, I start buying back. Right? You want to have an average level over time and bid at the lows of that range and just sort of sit at the lows and take things in that. You know, I think it's a call it inverse of the problem that Micro Strategy has. And part of why I get increasingly skeptical of that is they seem to have an uncanny ability to buy Bitcoin at the highs, right? Which to go back to Rom something you've said earlier like whoever's executing over there, you need to do better. Like you >> just call me up. I will do the service for you for free. Okay. I'll build you a little bot. Okay.

But yeah, no, I agree. I agree. Like Micro Strategy is a capital markets issuance machine. >> Yes, >> that's what they are. It's >> it is kind of phenomenal. It is almost like a ninth wonder of the world. >> Uh I but I I'd be a little cautious, right? think they've got all these tanches like stretch, STRC, and STRF where they have an a contractual obligation to pay out billions of dollars in dividends on the right. That's the liability side. That's how they're funding their asset purchases, right? They have an obligation to make those payments, but the assets don't generate free cash flow.

So this is like, you know, Chris, we al we all know this from like 2008 crisis days. Like you got you got a mismatch in the assets that you're financing. And the only way at some point in the future they'll be able to generate the cash to deliver to those bond holders is by selling their common stock. That's called dilution. So that's not good for MSTR >> or >> it works as long Bitcoin goes up. As long as Bitcoin goes up, you're you're good.

>> Yeah. >> Bitcoin doesn't go up and you have an obl you got an obligation coming at you. You have no choice but to sell at the worst possible time. You want to be counteryclical. You don't want to be proyical. And markets have all the data, too. Like m you don't want to trade against Mr. Market when they see your entire financial position. They know that you're a force seller. That's not a great spot to be in. >> So, we can't get away from talking about DATs then, can we? Here we are again. >> Exactly. You're talking about the the OG DAT.

>> It all comes back to DATs. All right. So, I was going to say as as a final I'm gonna put this one to Rom because I'm genuinely curious about your views. As a final thought on all of this right now with where the market is right, we've seen over this span, call it energy exposed things get tanked, a lot of software get tanked. We've seen some degree of strengthening in things that produce energy, which all of that makes sense. Another thing we've seen throughout this is call it real yield cheapening and bond prices cheapening. Do you think where we're at right now is also a place where it would

make sense to buy medium to long duration bonds or is that a trade you're also staying away from? >> I'd be cautious on that because inflation is making a comeback and inflation eats at the real return on bond assets. Add to that the opportunity cost of owning assets that have a 8 n 10 12 15% free cash flow yield. You know, if you want to compare bonds to stocks, you can look at stocks have high free cash flow yield and they're real assets and they repric in nominal terms. So, they're more inflation resilient. The upside you get on a bond is you get your principal back and your coupon payments, less inflation. Whereas with a stock, if it's growing earnings and it's got attractive free cash flow,

as they do right now, like where we stand today, they have attractive free cash flow. Why would I own long duration bonds? It's hard for me to make the math square on that. Yeah, from a personal perspective as a rates guy, the one thing I might pick up right now is tips. But to your point, then you're riding along with inflation, which is a totally different game. All right so >> tips aren't bad. I mean, if you believe bad things are going to happen soon. Tips aren't a bad idea, I would say. >> All right, so we will talk about whether bad things are going to happen soon more in a moment, but before we do that, we have to go to our second commercial break.

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ether.fi/unchained. >> All right, everybody. Welcome back. So thinking about other things that are going on in the world that have been pulling in a significant amount of attention from the crypto ecosystem, there is an increasing skirmish happening between World Liberty Financial and Justin's son where to walk through the details. Um, World Liberty deployed five billion roughly WLFI tokens as collateral on Dolomite, a DeFi lending platform similar to A co-founded by one of World Liberty's own advisers to borrow roughly $75 million in stable coins. So the trade briefly pushed the

main pool to 100% utilization, meaning that for those unfamiliar with borrow lend protocols, the lenders were not able to withdraw collateral and were essentially stuck in the trade until the borrower repaid. Though the borrower, in fairness, will face increasingly high interest payments or liquidation at some point. Now, as a reminder, the WLFI token is down 76% plus from all-time highs at this point, according to FX leaders. Um, and Bloomberg shortly thereafter ran an article titled Trump linked world liberty crypto project faces investor result, broader transparency concerns beyond just Sun.

But let's get to Justin Sun in particular. So Justin is of course the founder of Tron but also an early world liberty investor and he said WLFI treats investors as quote a personal ATM and accuse the team of extracting value from the community. He alleges that there was undisclosed code allowing insiders to blacklist wallet addresses and freeze funds without due process. Justin is probably particularly sensitive to this because World Liberty froze Justin Sun's wallet last September, locking him out of tokens worth roughly $ 107 million at the time. Um, World Liberty has filed back threatening

legal action over Sun's backdoor allegations and then facing several comments online including Bante saying onchain analysis shows the governance structure is more centralized than publicly advertised. So, I want to start with this one. Kristen, I want to start with you as a former investor in this space. Given that they're using their own governance token as collateral and borrows on a platform co-founded by its own advisors, like how have these things worked in crypto? How do you evaluate this as somebody who's been an investor in the space? Like let's for a moment take the the Trump affiliation out of this just what do we think of the

project mechanics here overall? Yeah, I think what this whole tiff has shown, it's really highlighted the good, the bad, and the ugly of crypto that we've seen for a very long time. Uh what's the good news? The good news is is that generally speaking, our markets are pretty transparent. Um you can stop and you can watch wallets, you can watch cash flows, and and therein lies a lot of good things happening. That transparency allows investors and now investors equipped with AI tools to really unpack what's going on, distill it down, and to and and that's one of the beautiful things about crypto is you

have a lot more transparency. Um, in traditional markets, I mean, I I remember some of the things we we used to deal with like you had no transparency. you kind of felt something was off and then all a sudden uh you know this guy you know Paragrin Financial goes goes down or MF Global was doing something they weren't supposed to do. You never had that visibility. You couldn't trace the cash flows like you can in the space. That's the good thing of this all. You know the bad thing is that in in in the crypto markets we've seen plenty of conflicts of interest over the years. Um and you would and and part of that frankly is because the industry is so insular and closed in that you know even some of the major players they had to to create vertical stacks because they just

couldn't like outsource custody as an example like and so there's a lot of naturally occurring conflicts of interest in crypto obviously as we go forward into this institutional era you know there's a lot to lot more to play for in this institutional era and institutions have much higher standards of disclosure when it comes to conflicts. You know, as an RAIA, you have to always disclose outside activities, conflicts, and and that's going to be more table stakes going forward. So, so that's the bad is all the conflicts of interest that we continue to see. And then the ugly is like the, you know, all the crypto Twitter like screaming at each other. um which again does is not in my mind um

the best that doesn't create the best conditions for a project who's trying to appeal to institutional investors. And so like the you know the mudslinging uh has been around for a really long time in this space. Would like to see that step back. Um you know I I'm I'm not in a position to to take sides on this one. I'm still evaluating it personally. Um, but it does underscore the the good and bad and the ugly of our industry. And it's changed like institution, we're in an institutional era now. And if you want to be institutional ready, there's certain standards you got to uphold. And um, the folks who do it are going to be just fine.

>> Did I read correctly that the IRGC said they'd be open to settling in in Wolfie token and it was their >> I saw a tweet I saw a tweet like that. >> I believe it was USD1. It was USD1. It was a stable coin. >> Yeah. Okay. Good. >> But also, if you read the article, they did not specifically mention that >> there's a relationship between the governance token and USD1. >> But there was also talk about Tether on Tron, right? So, both sides. Um, did they actually settle on any of those instruments? I think that would be a pretty dumb move if they did. I I totally get the Bitcoin thing. um much harder to to censor. But um yeah, I I but I think both sides of these guys were involved in the RGC, right?

>> Or at least though he can >> like the the Witco family >> owns the economic entity together with the Trump family and their kids like this is their thing. are isn't it reasonable to expect that they might influence that adoption? In fact, there is one of the GCC countries that has some commercial deal that they announced the USD won sometime last year. I don't know if it had any substance to it, but they had a some some notable transaction. I wonder like this asset is hated so much.

Do I go in the pool? Do I just kind of go for a dip? I think it's been hated so much. Like everyone sold it, you know. Is is there is there some asymmetry here? Even though it I feel like you have to take a shower if you did that. You got to take a shower afterward. Maybe two. Exfoliate your skin as well. >> I mean, one of the dangerous things in crypto though is it's one of those industries where occasionally the bombs keep bobbing. Like I remember a lot of people trying to buy the dip on >> That's a good point, >> right? And like we saw how that played out. So, I'm going to actually throw two rocks here, Chris. I will make some judgments. Um, and I think losers here include both of the major American

political parties. And the reason I say that is that the Republicans have themselves in a position where the Republican president has his family with an affiliation with this project that now appears to be being scrubbed off of the website. And I think that will raise valid concerns about whether regulators will appropriately go after this, investigate this, or look into what happens here. However, the whole reason that we're living here right now is what the Democrats did from 2020 to 2024.

Because if Gensler's SEC had made rules about crypto, had disclosure, made them clear, eliminated a lot of these conflicts, and we know the SEC knows how to do it because they're doing it literally right now as we speak, I think they would have gotten in front of a lot of these problems instead of being behind them. So, it's ironic in a decentralized space to make this statement, but is part of the reason we're here at all just a failure of centralized governance on both sides over multiple years. >> Yeah. And and you could also extend that to some of the heat that Circle's under right now for not seizing uh USDC and they're like, "Hey, well, we need to have the right legal authorization, but

if you had the regulations in place that gave them the ability to move quicker, we know latency is everything." That's another example of of what you're saying, right? So, um, yeah, but look, on the clarity thing, I was in DC last week. I don't want to change the top topic, but I was in DC last week and, um, it feels like every day we get one step closer. So, the CA came out. I know people are challenging it now, but it feels like the Republicans are very close to being lined up. Next step is dealing with the Democrats. The whole question here is like every time you negotiate, you whip, you bring it together. It takes time and the shot clock's coming to an end. So, but Patrick continues to make progress down in DC as far as I can tell. Um, anyway, didn't want to divert from this subject,

but you're right. It's there's a bigger issue at play. Clear rules of the road, transparency. Uh, agree with that. Ironically, I worry like if something major bad happens with World Liberty, aka they've taken this large loan from Dolomite, if they get liquidated and it's left with a bunch of bad debt, does that become a sticking point for clarity as the Democrats will get very agitated about the Trump family activities? The timing on this of like two steps forward, one step back, two steps forward, one step back has been remarkable because I one I agree. I think in DC on at least some of the issues there's significant progress being made on things like yield. I think

part of that has been negotiation. Part of that quite frankly has just been education because some of the bank trades are now realizing actually there's some very good stuff for us around stable coins and what we're able to do to evolve our business models. I think that's been helpful. What I worry about is that Chris, exactly to your point because of timing. If this were done two months ago, we wouldn't be here right now. >> Yeah. Like I said, I'm not aware of any principled resistance on the Republican side to getting this bill moving forward. Uh there's some political stuff for sure. Uh so that's positive. But >> well, do do you consider Rand Paul a Republican? I'll skip the for everybody else here.

>> Fair enough. But all right. So the other point that I want to pick out here and Rahm like you literally at Lumina advise people on investments and things like this. When you're dealing with your clients, when you're dealing with people who I'm going to call it are crypto adjacent but not cryptofamiliar, how is the space perceived nowadays given like the major news stories that are swirling around? Are we seeing more interest from people, less interest? Do they take it more seriously? Like, I want a temperature check from somebody who's actually in the pool.

>> It's probably not a surprise that just given how crypto has been caught up with politics and like the Trump family that people are are more skeptical. All right. So I think you know that's that's a that's a perception that's out there. >> I I see a lot of that too. Um but now with retail investors and even some professional investors who are new to the space they'll ask me hey like how could you ever invest in a token or in crypto? Like why aren't you not just investing in the equity constantly? Like that that makes no sense to me. And my push back to them on the the token um or

the crypto aspect is that crypto is just a wrapper. Like you're taking something and you're turning it and you're giving it new properties. Saying that the that the token or crypto is no good is like saying ETFs are no good. Doesn't matter. ETF's a rapper. It's what's underneath. It's what's underneath. And so what does that token do? It gives you 247 uh capabilities. It gives you global access day one to anyone with an internet, you know, respective of your regulatory constraints if you're a security or anything else. But you you have to do is we're returning to fundamentals like but the other thing that we you know we talked about the good, the bad, and the ugly. This industry has been terrible about educating. Terrible. Um and and like we need to get better at it and

explain exactly what I said. Fundamentals matter. Rappers unlock capabilities. And that's how it works. Like you think your memecoin went to zero. So there's no fundamentals. >> Yeah. Mo most interest in crypto happens at all time highs and their toss by the way. >> Totally. >> So I don't know that there's much signal from the perceptions that are being shared out there. You know, it's it's almost all the time it's the most interest shows up at the exact worst time >> 100% >> and people are running for the hills at the best time. There's very limited interest right now which is you know

that's contrarian constructive. >> I mean if you want to go back >> sorry go ahead Chris. >> No I was just saying typically there's some kind of catalyst. um what could that next catalyst be for retail to come back? Maybe it's the something you the Iran thing goes away. You never know. There's always like some little tiny catalyst that kicks it off. Um and then you're right, Rahm, like like price action is going to it will lead to the next bull cycle >> if you're looking. >> I mean, there's a lot of reflexivity like Bitcoin is a part of the financial system now in a very meaningful way.

Like >> that's right. like hedge funds, global macro funds, they're they have to have a view on this right now. Can that perimeter extend into other digital assets is the question. And yeah, I think you're right. Like what is the catalyst? So, in the last few years, you had a couple really powerful catalyst. You had the well, we're going to get replace Gendler. We're going to have ETFs permitted. We we see the Circle IPO. you had a nice lineup of not just the wall of worry but a potential resolution to that.

So like what is it now? I I it's it's harder to see like I know we tokenize everything under the sun. I was a big proponent of that but it goes back to value capture right and there are other themes that are crowding into this for example like defense infrastructure theme like that's capturing imagination the AI story semiconductors the microns of the world robotics they are capturing the attention and these are these are attention assets so you need something powerful like if Iran were to settle in digital currency That would be significant. That would be like wow. Like we are all off sides on this.

That would be something that we should all look at in a very different way this this asset class then. >> Well, let's go back to something Chris actually was saying earlier. So Chris, you get this question from investors. Why wouldn't you just buy the equity? And here would be my counter to them. How would one have gone about buying the equity of hype? Right? That is not a thing that it was possible to do. But this is the engine powering 247 markets right now. It's showing up in major mainstream media, right? It's being used as the barometer. It's being cited in Bloomberg. This is actually a pretty significant signal of adoption. And I'm not arguing that hype is perfect and this is not investment advice, but to

say there's nothing going on there seems clearly contradicted by the frequency with which it's appearing in the media. And from a fundamentals perspective, if we talk about what is generating fees and what is buying back tokens, Rahm, to your earlier like fundamentals, fundamentals, cash flow, cash flow point, they're one of the best projects. And just, you know, for reference, I looked it up while these two were talking. Three months ago, Hype was trading in the low 20s. All right? And as of now, when I'm looking at this thing on Coin Gecko, I pulled 43.60 as a price. And so if we're talking about thematic structures within crypto, one of the things that I'm actually

looking for for the next wave of adoption is who has users and who has cash flows and who is actually talking to the mainstream because like let us be honest the crypto media landscape is broken. And I know this because I am a professor. I literally have students and all the time they ask me, "Hey, what is the single source where I could take 30 minutes every week and read about crypto and that will tell me everything I need to know?" And I'm like, "Well, okay. So, go look at who I follow on Twitter is about the best that I could do for this." Or you're listening to a couple of exceptional podcasts and also our podcast. But like it's a pretty small list is my point. If you're so

theoretically, let's take somebody who's been very skeptical about crypto, who's very well known, Jaime Diamond. If Jaime told you, I have 15 minutes to read something on crypto and you could recommend him one thing that's got to be understandable to him in 15 minutes. Is there something reliable? I think the answer is no. So part of what we're struggling with here is there are things out there like hype, like mini which nobody knows about and has like 12 million users that is pushing around a huge amount of stable coins.

>> And it's also because of this educational and landscape fragmentation. So actually Rob, I'm going to turn this one back around to you because I know this is a real talent you have. If crypto people want to be able to communicate with regular investors, what would your advice be to them as somebody who's done very well talking with regular two-legged people about this space? >> Crypto entrepreneurs or crypto natives >> like speaking to call it regular humans in the United States. >> I would start with pain points and problems. Like the main issue with the category from an entrepreneurial perspective is that people keep chasing the shiny object. We're going to

tokenize stocks and take out Black Rockck. As opposed to say, for example, we've got this $5 trillion asset cost class called private credit and people can't get real-time measurement of delinquency non-accrs payments loan performance data, credit quality. It's crying out for a solution. and you've got an attentive audience because there's at least five trillion dollars worth of investing in it. So, it's focused on problems that real customers have as opposed to buzzwords like we're going to have machine to machine agentic AI transact and go shop for me on Amazon because it sounds cool but it's a problem no one actually has.

Like we got to get out of Star Trek future and say what are the problems today with banks and credit and money movement and access to financial services that a defined customer segment has. How do we service them with a solution that has a value exchange? That's the world we need to get to. >> Yeah, it's been that's been part of the challenge of this industry since for years. I mean, I remember sitting at my desk at Cityroup at like 2017. Oh my god, I have this amazing technology. Um, like, okay, like what do you want to do with it? I don't know. It's just so amazing. Like, like you can do so much with it. And and so I would say back

then the a lot of the technology, you know, was not advanced enough to handle enterprise needs, but that's what's makes this cycle so interesting because now it does. The TCC is integrating like four or five blockchains right now. you're seeing it actually getting so like the old uh blockchain not bitcoin thing it's actually happening like the blockchain is getting integrated all over the place but you also can't ignore the bitcoin you can't ignore the the tokens that are acrewing value and they are um not all of them in fact most of them don't acrew any value but you can't ignore that as an asset class um and I and I think as time goes on the smart institutional traditional investors are going to yeah first they're like yeah

we're going to integrate this stuff into our rails Wait a second. We forgot about these token things. And that's why I think it's a very constructive setup right now because sentiment awful, worst I've ever seen. Fundamentals continue to improve on the token side of things, on the native token side of things. >> So to pile on to that, I think part of what crypto is greatly underestimated is the complexity and difficulty of transforming financial markets, right? Like the space notoriously builds 10% of the solution in the easy part and then thinks they're done. But in a weird way, a lot of the ideas that people started talking about from call it 2016 to 2018 are finally ready for prime time, right?

Like Chris, you know this maybe better than anybody on this podcast given your background at City, but with the Genius Act, with the ability to integrate stable coins at traditional financial institutions and with traditional rails, we're finally at a world where we can do the remittance use case with stable coins. It's 2026, right? Eight years after people really started talking about it that at scale, but I think we're finally there. So, one of the things I am also watching for is call it the things that many of the crypto OGs gave up on long ago may finally now be timely for this industry.

All right, so on that note, since I can see we are at time, um we are going to call it here. So, thank you everyone for tuning in to Bits and Bips. Hit subscribe, drop a comment. What did we get right? What did we get wrong? What are you angry with us about? And we'll be back in one week to discuss more about how the worlds of crypto and macro are colliding. So, see you next Wednesday at 4:30 Eastern. Thank you. Hey,

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