Why Wrapped Energy or Compute Will Be the New Store of Value: Bits + Bips

Transcript

Hey everyone. Welcome to Bits and Bips, where we explore how crypto and macro collide one basis point at a time. As always, we're here to discuss the latest stories in the worlds of crypto and macro, but before we begin, a quick commercial break. >> If you've been loving Bits and Bips, don't forget [music] that the show is transitioning to its own feeds on X, YouTube, and your favorite podcast player. [music] If you're not already subscribed to Bits and Bips on its own channels, go there now and hit that subscribe button so you can keep up with our twice weekly live streams and macro meets crypto breakdowns. Bits and Bips will only be on the Unchained feed for a few more weeks, so subscribe [music] today to be ready for launch. You can get all the links at unchainedcrypto.com/bitsandbips. [music] >> All right, everybody. Welcome back. I am

your host, Austin Campbell, high scholar of zero knowledge, here with my co-host Ram Allawalia, meister of wealth, the leader of Lumida, and Chris Perkins, uh the golden hand now of 250 Digital Asset Management. We're going to start today with what I think is perhaps unsurprisingly the top news of the day, which is that Iran had a technician but not a military moves. So, the latest from the strait. Iran fired cruise missiles uh at commercial vessels in the strait, um and allegedly US Navy warships.

>> getting any audio. >> Centcom says no hits, and the Iranian state media claims otherwise. Tehran says that Trump's Project Freedom and naval escort mission violates the ceasefire. The South Korean Ministry of Foreign Affairs allegedly confirmed a Korean vessel was struck by Iranian fire today in the strait. The US Navy has fired on and sank multiple Iranian small boats after they attempted to interdict efforts to break the blockade.

And Iran fired missiles at the UAE, striking the Fujairah oil industry zone, which to be clear is the primary export terminal on the Gulf of Oman that bypasses the Strait of Hormuz. It was on fire earlier today, sparking rumors that the UAE and allies may retaliate. So, the market, unsurprisingly, not super happy. Brent was up 5% to about 114. WTI up to 105 intraday. Um call sheet traders are seeing an over 50% probability of 127 Brent.

The UAE, obviously, has already quit OPEC, but there was an op-ed at Al Jazeera by Anas Albdoun, saying this is not about oil, it is the end of Gulf solidarity. And today that has definitely spilled over into kinetic conflict. So, Chris, I want to start with you on this one, which is to say, what do you make of what's happening in the Strait today before we get to more on the market reaction? What's happening in terms of the physical theater? >> Yeah, I mean, I wanted to start with the market reaction cuz that's what's really fascinating here. I mean, come on. Like Bitcoin >> Bitcoin ripped through 80. It's It's now surpassed its 150-day moving average.

Um which generally shows a regime change if you look through history. Uh Ethereum's up. Like crypto seems very, very resilient. Traditional markets are down a bit. Uh but crypto is like is just like kind of shrugging it off. To your point, WTI is ripping, Brent's ripping. Uh what's going on in the Strait right now is a couple of things. The Trump administration uh is now I mean I mean, there's there's a million things to unpack, but all focus is on freedom of navigation. Um and the administration is approaching this almost through a humanitarian lens now and saying, "Hey, we're doing the right thing for the globe. We're going to help shepherd these ships through the strait." Um my understanding is they were able to to bring two ships through

the strait today including a a Maersk a Maersk vessel. Um again, with the focus on freedom of navigation in accordance with UN charter. So, that's good but against the backdrop, man, like it feels like things are about to boil over. Iran feels like a caged animal. Um they continue to be decimated there, you know, they're effectively their they're swelling with their their they're not able to export their oil. That's going to impact long-term uh their ability to uh to pump out of the ground. It's going to hurt their if they're not able to get that oil out. Um it feels like this, you know, things are coming to a head. Um and who do they lash out at again? They they're lashing out at the Emirates again. Um it's

fascinating. I was at Milken this morning um here at the Milken conference and uh someone very very senior was presenting from Mudabala uh Mudabala today. Uh and gosh, the amount of optimism in the crowd was profound. Um when you talk to business leaders in the Middle East or beyond, yes, this is a short-term geopolitical stress but I can't understate the excitement about how the world is going to come out of this. The amount of focus on CapEx, the amount of innovation and development in the GCC and beyond and so the general sentiment is like, "We're going to get through this.

It's tough but on the other side, it sounds like it's going to be a very very uh we're going to be in a in a very good place." So, long story short, things are very um you know, it's it's a very uh tenuous time in the Gulf. The United States Navy is doing God's work, uh continues to do God's work. I think you're also seeing a lot of psycho psychological warfare. Iranians said they hit one of our one of our ships, a cruiser or something. CENTCOM's denying it. Um and so obviously, you know, having been in war, I'll tell you what happens is like there's a lot of stuff that happens on the ground. It gets filtered up and then you just hear sound bite. So I I guarantee you there's like there's a lot of hooking and jabbing on the ground. Yes, we we took out like six or

seven boats. Um we got to a couple ships flow. So, you know, the markets tell the truth over and over again. Obviously, there's stress on oil. Crypto feels really good. Um I still feel like we're we're kind of heading towards the end of this. And when I say the end of it, I don't mean the end of actions. I mean I mean when this geopolitical event will reach a certain peace like will reach stasis where it kind of gets relegated to the back and the markets will take over again. So generally lots going on. Uh crypto feels very very constructive again. I say this every week now, I feel. And and it does continue to feel constructive. Uh but yeah, let's go over to Robin and love your take there, Austin.

>> Yeah, I I agree with what Chris is saying. I agree uh markets are constructive. Digital assets is constructive in many areas. Uh I think this Strait of Hormuz as an issue is increasingly less relevant. I think the IRGC uh is beat. They're boxed in. Uh the blockade is working. Uh markets are generally shrugging off high oil prices. Markets are 1 day from all-time highs, which was last Friday. Uh so I think opportunities to buy the dip will be bought by a number of investors that continue to remain offsides. That includes institutional investors.

Uh overall things are good. You know, the earnings growth uh estimates for next 12 months is 19% and what we saw is 40% of the market cap report last Wednesday. Every single mega cap tech company beat beat, and raised, which suggests that even that 19% may be an underestimate, meaning that they're sandbagging the numbers and they're holding back. Uh so, overall, I'd be biased bullish. Take advantage of weakness. Uh a a small pullback at the beginning of this week is natural, what we were expecting.

Uh and I would take advantage of that. I would remain overweight energy, though. I do believe oil prices will be higher for longer. They're not going to settle back to the $70 range, uh and that area is a bull market, and it's a nice inflation hedge, also. >> Yeah, I just want to touch on the CapEx that you talked about. So, I think with the uh I think even in the AI space, data center space, what we're seeing like 800-something billion dollars of CapEx spending, um that's going to extend for multiple years. This is just not a one-off. And the amount of stimulus that this will bring with it across blue-collar jobs, even. Um you know, it it's not just, you know, going to go into the hands of a couple of like private equity firms. You're going to

see job creation, and I think that's why there's a lot of optimism, you know, when I talk to the people here at Milken. It's the amount of stimulus that's going in, like the investment in this new infrastructure should be very, very good for the economy in the medium to long term. So, a ton of optimism here. >> I'll add to that. It's a great point. I saw the data point that the demand for software engineers is increasing. Job openings for software engineers increased. AI apocalypse news is overdone. It's true that there are head count reductions at the mega-cap tech companies who are substituting labor for tokens.

But for the long tail of the economy, they need engineers to adapt workflows. Also, you're seeing that the tech ETF went up today because of software. So, software is rallying, too. Software has got a nice interesting correlation with uh digital assets, So, that's constructive. I think the bottom's in uh for software also. >> Yeah, and and you'll see it's a repositioning, right? Jobs will shift. Some will go away. Some will come. Some that we haven't heard of will be back and and and emerge. And so, it's just a restructuring of labor markets, but I think long story short, based on the amount of capex going on, it should be it should provide nice stimulus to our economy in

the medium term. >> I think part of what's important to look through on the job >> is ramping up spending as well. We saw that uh I think they're they're talking to four of the big uh AI players now, two hyperscalers and two the LLMs. We haven't really seen Pentagon defense spending get involved in AI yet. Some initial toes in the water. So, that data's coming online. And this UAE uh kind of the attack there that happened. What are they going to do? They're going to turn around and buy American defense equipment like Raytheon Patriot defense systems and interceptors.

So, that leg of the economy is going to do well. Industrial are doing well. It's hard to find weakness. The the weak point would be inflation risk. I think it's Yeah, they're expectations are neutral. So, as long as a 10 you have some inflation, overall real will benefit from that. >> Yeah, and there's another region that we don't often talk nicely about here, um Europe.

And like it or not, the Europeans, um they're going to have to do some building themselves as well. As they focus on their own internal security apparatus, and they have to, you know, galvanize their manufacturing. So, you know, even if there is a decoupling, and if US pulls back, you know, out of Germany or whatever, that could be short-term, um, you know, difficult on their economy. But they're going to have to reconstitute and they're going to have to, again, build back a manufacturing capability and and self-sus- and self-sustainability, which also should be, you know, positive from a stimulus perspective. So, uh, that's something that they're going to have to do, uh, and it it's part of this greater theme.

So, like, yes, we were maybe global inefficient and now as we decouple and become more self-sufficient, you're going to have to do a lot of building. You're going to There's going to be a lot of economic activity, um, due to that rewiring. So, it's pretty interesting from a macro perspective. >> So, how do we feel about Germany rearming here? >> Well, I'll I'll hop in to say >> Chris, I can't hear Austin. >> Yeah, I'll I was going to say, I'll hop in to say, one, one of the things that the economy has been short on over the past, call it, 10 years has been physical >> the way.

>> like manufacturing needs. We've had to take this trend of building piece by piece by piece by piece into the AI infrastructure, Chris, as you've been talking about, and committed capital to it in the way that we haven't. Europe is now going to have to do the same thing with defense. And by the way, they're doing nothing on AI and they're probably going to have to build around energy if these problems continue as well. So, I I'm I'm actually going to say this, I think before Germany can really build out their defense industrial base, to flip this back to the two of you, don't they need to fix energy first, Chris?

>> Did we lose Ron? >> Yeah, I think we lost Ron. Uh, >> All right. I Well, I was going to ask you, >> I can hear Chris, I can't hear Austin. >> Yeah, Germany's got an energy problem, do they not? >> Yeah, they absolutely have an energy problem. Um, their dependence on Russian gas and energy has been a huge issue. Um, so where does this road go? Um, and they also pulled back out of nuclear a while back. Uh, so they're going to have to figure it out. Um, I think near term that's going to result in probably more dependency on US oil and US energy. I think but medium term, you know, they're going to I think nuclear has to come back. Yes, solar, you know, you can get you can do your best with solar and clean energy quote, but I think nuclear is probably the way

forward personally. >> Right. And so as I'm looking at that, right? We're playing through this whole sort of situation in Iran. And my my central view is like their capacity is not coming back online for a while. There's going to be continued conflict in the region. Who knows what the timeline for resolution is? Is it weeks? Is it months? Is it years? I don't know. And that tells me that the energy buildout globally is going to be a problem and something that the market will have to digest. And the people are going to need new sources of energy. And once they have that, they can then start moving forward and building all these other components. So Chris, to your point, when I'm looking at the CAPEX story, I

think it's very bread and butter stuff. I think we're talking about like energy. I think then that legs into data centers. Europe is massively behind on those in the AI space. It's really the US and China fighting that battle. And I think the restructuring that we're seeing here of CAPEX is going to be spending in the United States on data centers while we're doing spending in Europe on energy. And that tells me as I'm looking at markets, if we're worried about valuations in the United States, are we in a world where earnings are going to catch up to the valuations as opposed to valuations like prices coming back down to come to the earnings?

>> Yeah. So Rob, is this the time of the episode where you you're critical of Sam Altman? I mean, you have to give him some credit. He's doubled down on data centers, right? He's gone totally long compute and it seems like it's paying off. I don't know. Maybe you got something right. >> paying off. I don't know if it's paying off. So, they are falling short of their own projections. So, OpenAI projected to hit 1 billion weekly active users. They're behind target. There was >> I think we're losing Ram. Do you guys Do you hear Ram or not?

>> Internal disagreements. >> I hear I hear Ram slowly turning into a robot, which tells me Sam Altman is using OpenAI to sabotage this. >> That's right. Absolutely. >> Can you hear me, Chris? >> Yeah, we got you a little bit. >> You hear me or not? >> Yeah, yeah, yeah. >> So, Sarah Friar, the president of OpenAI, is having some internal disagreements. She's trying to kick the IPO to 2027. Trying to bring expense discipline. They're behind on their weekly active users goal and their revenue goal. Google Gemini is the leading LLM out there and Claude is growing quickly. So, OpenAI is in a rough spot.

Uh but yes, uh we're going to keep criticizing Sam Altman until he sponsors this podcast or acquires it, one of the other. >> Not we. Not we. You, my friend. >> Yeah, I was going to say I don't I don't think that's how TBT will pull that off. All right. So, Chris, I want to go back to something you were talking about earlier and let's in fact drill a bit more on one particular topic here, which is Bitcoin. So, Bitcoin, as you said, broke its 150-day average, but the one I want to talk about is Paul Tudor Jones, right?

Who came out saying that Bitcoin is unequivocally the best inflation hedge that there is, more than gold. He's saying it's going to be really hard to make money in stocks over the next decade, that the S&P reminds him of the 2000 dot-com bubble. So, contra all of the optimism that we've heard here, he's thinking that the valuations in equities are still quite high, but he's very long Bitcoin. Now, with that said, you know, and Cliff Asness has been talking about this that Bitcoin's correlation of stocks is now like 0.75 and like 0.92 to Nasdaq.

But, I wanted to bounce this off you. If you've got PTJ calling the top on equities and calling Bitcoin the best inflation hedge, given his trading history, what do you make of that? Like, what do you think is going to happen here with Bitcoin in that context? >> Look, I think he's right. And he was an early adopter, um, you know, came out long Bitcoin many years ago. He was one of the first real macro guys uh to come out and say, "Yep, Bitcoin is the solution here." Um, and it really comes down to its fundamentals as a store of value, uh digital gold. It's actually better than gold because like we're not entirely sure how much gold is out there. Um, yes, I think people will tell you that

you can put the amount of gold in the world in a in in a pool, but gosh, there's a lot going on in space and and there's a lot of innovation happening. So, it's it's not a perfect known, you know, we we don't exactly know how much how much gold there is or isn't in the universe right? And so, but Bitcoin there's 21 million to coins that that can potentially come into existence, many of which have been lost or stolen. Like, they're gone. You got Satoshi stuff. And yes, there's some There's going to be a conundrum that happens as we uh try to navigate some of the quantum challenges, but it is a more pure commodity of of limited value of limited amounts, right? It's it's constrained in its size. And so, in that sense, because we have a very similar social consensus,

albeit, you know, gold has had that social consensus not because of its utility, because people believe that it's precious for for thousands of years. You know, yes, it's a shorter duration of that social consensus, but it's a pure store of value due to its limited quality. It's known limited quality. And so, I think he's right. And and again, you know, as time marches forward, you know, look look at the Bitcoin chart. It looks very constructive. Um it's been very like look at it against gold since Iran began. It's a beautiful chart. If you do one thing, look at that chart. It's it's up into the right. So, again, like prior to that, when gold went on a did its thing, people freaked out. They're like, wait, the narrative's been lost.

It's really gold. It's not Bitcoin. But, what have we seen time and time again? Bitcoin catches up to gold. It's a catch-up trade over and over again. I think long-term, he's right. It it's going to emerge as as a store of value. It's and look, there are risks out there. There are risks with any asset class, but, you know, he's one of the greatest macro traders of all time. I think you got to listen to him and and agree with him or disagree with him. He's got a perspective and I respect it. >> money comes online. We're going to have quantum money.

You're going to see some successor to Bitcoin that's quantum encryption resistant. And that'll be the next move. It won't be in the next few years, but that's what you want to keep an eye on. There's going to be be some flurry of quantum money coins that are created in a few years time. Um I agree the quantum risks I think are priced in at this point. Yeah, you know, you should be biased bullish. Uh those risks are still legitimate. It's a it's a question of time frame. Right now, you should be biased bullish. >> Yeah, look, I think your quantum point is interesting, but I I think it's going to be a little bit different. So, as I think of store of value going forward, it's really energy, right? That's what we're really talking about. You know,

all these these AI models, the LLMs, the hyperscalers, they're desperate for energy. What is tokenization? What is Bitcoin? In a way, it's wrapped energy. Right? And so, the way to think about it going forward, I think the next iteration of that store of value is going to be either compute or energy, which is, you know, one step downstream from that compute. But those are going to be the new commodities. It's going to be wrapped energy, wrapped compute. And I I I almost the next backed stablecoin will be backed by energy or compute. You know, is that Bitcoin or not? But but I I kind of agree with where we're going, Rob. It's hard to articulate exactly where it's going to land, but to me that's the future.

>> I think your point on uh digital assets as backed by compute is a super powerful one. I mean, we already use the term token to represent a unit of compute, and tokens are priced in dollars. Uh you know, Bitcoin is one-way energy. So, I'm not of the view that Bitcoin is wrapped energy. It's not like the ability to convert kinetic energy to potential energy and back and forth again. But compute and tokens and dollars are fungible and interchangeable. Uh and compute should approximate the cost of energy production, and you should see money linked to that in some way.

>> 100%. >> So, I agree. I think that's the future. You know, the the best digital asset might not yet exist. >> I think that's right. And great point on the like the irony of calling the these tokens for AI models tokens, right? You're like, "No, it's my token, man. That's my word." But uh it's uh but it does actually show like this thing is converging, guys. AI crypto, AI quantum, quantum crypto, it's all coming together. They're all accelerating each other. It's an amazing time to be alive.

All right. So, let me I was going to say pile it on this one and come back to a previous theme that we've talked about here, which is MicroStrategy. And what I mean by that, Chris, is if we're going to take the bull case for Bitcoin from here, that being we've seen a very constructive setup. I agree with you it's had catch-up trades with gold previously. It's handled today relatively well compared to equities, which tells you that a lot of the conflict risks are probably priced in in addition to the quantum risks.

What do you make of STRC as the issuance machine coming out of MicroStrategy? And what do you make of MicroStrategy itself in a world if Bitcoin prices are going to be going back vertical? Like say we're back on the road to 125k. >> Yeah, look, I don't love talking about individual stocks or underwriting them on the show, but it's a debt. Right? We debt Everyone hates debts, but they don't hate MicroStrategy. Um and I think you're starting to see some real financial innovation.

>> Yep. >> Using using Like again, what did we say? Securities are not a death sentence. And here you have a company that's been incredibly innovative around using the wrapper of an equity and doing some really cool things under that public framework. I just saw Tom Lee yesterday, my buddy Tom. Shout out to you, sir. Uh we'll get you on the show one of these days. Doing amazing things in the in the Ethereum space as well. Um and you know, leveraging the organic yield of Ethereum amongst other things uh to drive that ecosystem. And so, I'm going to get a lot of crap for saying this, but debts are not dead.

They're not dead. And like wait till you see some of the reflexivity once once uh once tokens pick up and and again like NFTs, a lot of them are going to go the way of the dinosaur. However, some of them are going to figure it out and you're going to see some real innovation as we go as we come out, you know, out of this bear market into the next cycle. So, yeah. Rob? >> I own the other side. I own two dots. I own two dots right now. So, I think there are opportunities in dot land.

Um you got to pick them well. >> It's fundamentals, right? Like you have to understand the fundamentals, what's going on under the hood. >> So, >> fundamental you I think there are things you have to do to underwrite it. The fundamentals are you know, I think technicals matter more than the fundamentals right now. But, fair enough. >> Yeah, you got to look at both. >> Yeah, sure. So, but we talked about one thing one or two weeks ago, right? We talked about like hype and uh dots related to the hype. I think that's going to continue to do well, but there's a lot of things that can do well now.

Like it's it's hard not to be constructive. >> I mean, given what happened today, I do think it's very hard not to be constructive on that front, but I also want to What's the right way to say this? I think one of the interesting things about the current situation that we're in is we're at sort of a collision of various market forces here. Chris, to go to a topic that you were referencing earlier and I'm just going to pull this up right now.

Um you were at Milken today. Um in Beverly Hills. I think what was attendance there? It's like 3,500 plus people this year. It's pretty crazy, right? >> They had to like bring it down. I think it's like normally five. I think they brought it down to four cuz there's a lot of construction. >> Okay. >> But, it's like it's insane. Yeah. >> So, the headline poll that I saw was the Milken Institute poll was 88% of business leaders agree companies can't solve AI workforce readiness alone. That we're going to need some sort of coordination and response. 41% of workers had zero AI support last year. Uh a big gap between saying and doing. Though now 69% of workers believe AI can create more opportunities than it

eliminates with the right approach. Um Jensen was speaking. I think DeSantis and Whitmer were there on workforce. You had Hagerty and Warner. Um I wanted to ask you specifically since you were listening to this and then we'll hop over to Ram. As we're thinking about all of the themes that we're seeing in markets in this great restructuring and the AI buildout that you were referencing earlier with regard to Milken, where is public sentiment on that? Cuz if we're going to talk about technicals and animal spirits, we kind of need to take the temperature of like two-legged human beings.

>> Yeah, look, I can't talk to There was an opening here. President of Milken Foundation came out and talked about the world as we know it and some of the challenges and the opportunities that we see. And they're both. Like I think he meant mentioned that 27% of kids have anxiety issues and and things of that sort. Like what are we doing about it? But I'm telling you the overall sentiment amongst and again, this conference has like serious industry like leaders across every industry, CEOs, you know, everywhere.

The sentiment was overwhelmingly optimistic. Optimistic about the opportunity ahead leveraging technology to solve some of the world's problems. Healthcare especially, things like that. Excitement about robotics. Excitement about, you know, that interface. Um everything from enter know, interesting sectors. energy came up over and over again but overall the sentiment is like yeah we're facing some near-term challenges here guys like geopolitics are awful but gosh we're going to get through this thing and there's so many amazing things happening across the economy you know really powered by number one strong regulation the the countries where regulation is

transparent predictable results in capital inflows get Johnson was talking about that today so like why is Singapore doing so well because it has an amazing regulatory regime that attracts capital why is the United States doing so well because we have a transparent predictable regulatory regime people can do business here and know what they're getting into tracks capital and so you're going to see more focus on that and the countries that get it right they tend to do very well. I'm loud and clear now. So two different views on AI I'll give you the public sentiment view and then anecdotal data both of which conflict but the public sentiment surveys are pretty negative especially from areas like lawyers and even teachers that have a lot to lose

with AI but also I just advanced professionals. Uh also the politicians including a lot of the candidates if not all of them in the next presidential election seem to be biased negative around AI due to the hike impacts on utility bills it's an easy scapegoat to make and just point the finger at here's the other side though anecdotally across all age cohorts looking at my family just when I go to the cafe I'm just seeing conversations around AI that really come from joy including like my 7-year-old son every night ask him hey what do you want to talk about put him in the bed and last night he's like let's talk about AI

what is AI? And I remember last week he's like hey you work you work at AI He doesn't even know what that means. And it it's something that he's talking about. He's heard of the term GPT. Um it's something that he's brought up. He's like, "Who's built AI?" He has a natural curiosity around it. Uh and then also retirees. Was at a coffee shop and I uh just overheard a conversation of these retirees talking about AI in like a positive excited way and they were engaging with it. So, you know, I think the adoption option is it of course is strong. We see it in the numbers, see in the data. The value creation is coming online in the enterprise world. They can't get it fast

enough. We're getting rate limited by Claude. Thought for a week Claude was smarter than me and presumably a lot of humans. My wife would tell you that's not a high standard. Uh but I think now they they rate limited it, so now it's not. But the demand and the usage and the value is there. Uh and you're going to see consumer applications come soon. More consumer consumer applications Um Uh yeah, we'll see how we uh you know, wrestle with this as a political issue next in the next cycle. >> Yeah, it's a democratization of access to knowledge and data. Now, it's not always perfect, but people can now use it to learn things much more quickly.

Even your 7-year-old. It's like crypto's a democratization of finance in its in its purest form. So, this should elevate the human condition. Not everybody, but those who use it the right way, it should. >> Right. I agree. I agree. My wife brought up the concept last week of like not contributing 529s. She said, "Why do we need colleges anymore? Just, you know, focus on critical thinking and entrepreneurship in the age of AI." >> So, >> Uh >> Yep. >> There's a lot of value in 529 for other reasons, by the way, even beyond education for portability of wealth. You should you know, so it's kind of a separate question.

But uh yeah, like everything's up for grabs, which I like, which I like. I think the thing that I get I think we need to be focused on just not losing the humanity behind the decisions impacted by AI. Right? When you talk about like automated lethality, I think you got to have humans in the loop around all of that. Um but we're seeing the benefits. Here I am, I'm I'm driving and not driving. This is amazing. So, we can all have a wonderful conversation together. So, the promise is there. We got to lower health care. It's 20% of GDP. And how many incremental years of life extension have we really gotten for all that spend? It's not clear we're getting the right side of the trade-off there.

You know, so the promise is is tremendous. And obviously, there's all the national security. If you If you don't win in AI, you're on the wrong side of history as a sovereign. >> Yeah, I want to comment on your 529 comment. And um I think that that entire the whole college thing, I mean, needs to get disrupted for many of the reasons we can have we can talk for hours and hours about. But the need for community, the need for critical thinking, creativity is more important than ever.

And I think the teams that win going forward are cross-disciplinary. Right? We're going to like, you know, in crypto, in AI, it's been very tech computer science dominated. As we move forward, I think we're going to reintroduce those humanity majors, literature majors, the classics majors, because it's going to critical thinking will and creativity will be at a premium. So, that's That makes me excited, actually. I also think there's going to be some significant opportunities in spaces that people aren't thinking deeply about. Like, here's Here's a good example. So, my wife works in health care.

Um she's the head of compensation for Memorial Sloan Kettering, which is like the major New York cancer hospital. And she is now running an AI working group and training thing to upskill everybody in HR, which is hopefully going to allow them to do things like onboard doctors and nurses faster, spend less time on all of these things to dedicate even more time to research and patients, which as it should be is the number one focus there. And one of the things that she's been observing, Chris, to exactly what you're saying is once you start teaching people how to use this with their hands, that is to say not talk to them theoretically, but like how do you prompt this thing? What

workflows are working? How do you build these things? People get increasingly excited about the potential of it and the possibility of it. I think what's going to, you know, a little bit like the advent of the personal computer, going to happen here is the divergence between the people who train themselves and upskill and the people who refuse to engage with it will get increasingly large, but net-net that's a benefit for the world as we move forward. I think the biggest mistake you could make with AI right now is just doing nothing. Right? Like you've got to engage with it, neither learn how to use it or learn where it's not good and where human skills will still dominate.

All right, I think we're losing so much Rob, we're losing you, buddy. All right, since we're losing Rob again, we're going to give him a moment to recover by going to our second ad break. So, before we continue, a quick commercial break. >> If you gave me $50 right now, the first thing I'm buying is a pair of espadrilles. Coinbase One member month starts with 20% off your first year of Coinbase One, plus a $50 Bitcoin bonus when you spend $100 with a new Coinbase One card and your first 30 days. It's one month of more, more rewards and prizes all month long. Coinbase One is the ultimate membership to make the most of your money, and I know because I'm a happy Coinbase One member. It gives you

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Offers valid until May 31st. Terms apply. Coinbase One card is offered through Coinbase Inc. and cardless Inc. Cards issued by First Electronic Bank. Bitcoin back rates are based on card holders assets on Coinbase. >> All right, everybody, welcome back on the part where Chris and I get to talk politics. By which I mean, apparently, there is a compromise on yield for the Clarity Act. So, what's the deal?

Coinbase says agreement has been reached, passive yield banned, activity-based stablecoin rewards permitted, clearing a path to the long-stalled Senate banking markup. Circle jumped 16% on the news. Markets are pricing in stablecoin legitimacy. Um Couple of comments from Coinbase, from Far Yar and Paul Grewal. Much of this debate was based on imagined risks, not real evidence. Um Carlo D'Angelo framed the carve out as a substantive crypto win disguised as compromise.

I, on my own Twitter account, may have called it grindingly mediocre, but said that the industry should probably accept it in order to just move forward given the context on the ground. Um and the tension was banks pushing this narrative of a passive yield band causing deposit flight risk. I don't just to be blunt think there's any credible research supporting that. But that was the argument. Um and yet crypto got an activity rewards definition which Chris, I think you and I both agreed that was going to have to be preserved because otherwise you start implicating all the credit cards rewards programs and like gift cards and things of that sort. So, I guess let me start with this.

Did crypto win? Did the banks win? Did anybody win? >> It's like we're back to where we started, right? Like I don't know. I don't want to say I I told you so Austin, but I told you so. I said like this interest thing is going to get worked out. It's kind of dumb. And it is what it is. I I think we're going to be in a place that's workable for everyone I get. I guess my question for you, sir, is that me Does this mean that we can now liberate money market funds? And uh and send them anywhere we feel like?

>> Okay. So, for one, I'm going to give a super hot take here which is I think banks are a catastrophic loser in this like compromise because they are going to regret in the future that they cannot pay yield on stablecoins because I will remind everybody you could definitely pay yield on a government money market fund. In fact, you are required to do that by law. You do not have the ability to hold that interest back. And what that means before you hop in Chris >> Yeah, yeah.

>> is that an asset manager, let's pick Fidelity for the purposes of this discussion because they are launching a stablecoin and a tokenized money market fund could have a stablecoin backed by their tokenized money market fund that for anybody who's got a wallet with them, you can just unwrap it when it's in there and you've got a money market fund paying interest. And then when you want to move it, you can wrap it again. So, did asset managers not just dominate both the crypto industry and the banks here? >> Maybe maybe this is very good for asset managers because again, we've talked about this over and over again. What's the difference between a treasury back money market fund and a stablecoin?

>> The wrapper. >> risk perspective. Which one's more risky? Right? And so like these worlds are coming together. We call one a security since it's regulated, we put more restrictions around it. Does that make sense from principles based perspective? I don't know. Here here's the deal. Let's just talk clarity for a second. As we discussed, the interest piece has been worked out. And to my knowledge, in talking with policy makers, there are no technical gaps to passing this thing. No technical issues. However, now we're going to face the harder challenge. We're going up Hillary's step as I like to say on Mount Everest. Those are the political challenges.

The political challenges now need to be overcome. Two things to be on the lookout for. Number one, commissioners. Right? We only have We only have a single commissioner at the CFTC. I think it's it's a little bit better on the SEC, I think, but um we're going to need to have some some additional commissioners introduced into the fray. That's a big part of the political navigation. And then of course, probably the biggest hill of the climb of all, ethics. Ethics, ethics. There's certain people that believe that the Trump administration and crypto go hand in hand. Um again, are these Can we overcome these obstacles? Absolutely. Do I think we will? I do. I do. I I think Polymarket's around 62% at time of filming.

I'm probably in the 50s still a little I'm I'm I'm net positive. I It's not a done deal, still a coin flip. But we got guys like Patrick Witt down at the White House working his tail off. And and Harry and the crew down there. So, I think it gets done. It's not going to happen overnight. As we saw at the end of Genius, all the craziness happens at the end. It can go in either direction. I think it gets done, but it may take some time. Politics are Technical is done. Politics are next.

What's your take? Does it get done, sir? >> So, I remain skeptical on it getting done, but for completely non-technical reasons, exactly as you've just said. I would say the bill is currently constructed certainly [clears throat] not perfect. There are some elements of it that I think could be better, like the yield compromise, but there are some elements of it that are extremely good. One is just giving a taxonomy on who's supposed to do what with their hands, cuz part of the reason we're here in the first place is in America, we have what is it, 19 regulators touching this stuff as opposed to one in most places. But two, you know, I'll remind everybody part of the initial impetus for clarity, because work on things that were

predecessors to what is now clarity, probably started in 2017, um is the BRCA, right? And making sure that we have clear delineated lines of where the boundaries on things like money transmission, when does regulation attach to you in the first place, what are your obligations. And just being able to know what the law is, regardless of what we think of it, is a very big win. I think all of that's good. I think the bill as constructed is reasonable to pass. I think you hit the thing that to me is likely to be the landmine here, which is how do we get around the ethics component, because we can I'll say we can probably break the Senate into four groups conceptually.

Group number one is they want to pass this, and they genuinely don't care about what Trump is doing, which will be some on the Republican side. I would imagine none on the Democratic side. Two is they're grudgingly willing to pass it on the Republican side. They don't love the bill, but if they can find an excuse that plays, maybe they duck back out of it. I don't think there's many of those. That maybe is just a handful of Republicans. But let's go over to the Democratic side. There is the Elizabeth Warren led group who hates blockchain with the fury of a thousand suns and wants nothing to do with this and will not vote for this under any circumstances. You know, there's no amount of facts that will persuade them and we just have to accept that.

But then there's the group you need to get this passed. And that's the Democrats who are probably largely willing to deal on crypto, but their bigger problem is call it ethics in the administration writ large. Now, getting that group on board, Chris, I think you would agree with me is going to be the key unlock to actually moving this from technically correct to politically viable. And what I'm looking at there and why I'm a little bit worried is I think any ethics compromise that's going to get passed, the Republicans won't let it be something that just targets the Trump family. So, we're probably looking at comprehensive ethics reform for Congress and maybe federal employees. Like, what is your take on

what the art of the possible is there? >> So, so Trump in his State of the Union address mentioned the Stop Insider Trading Act twice. Yes. And I think that's was his way of getting in front of that, saying, "Hey, let's look at this holistically, you know, across why we singling out a single asset class?" And frankly, that's probably the a better way to do it. Um and yes, I think most people would agree that ethical issues should always be reformed and and and attacked. Um so, not an easy path forward, but there but but that's what's going to happen. I also think I'm I'm generally bullish on overcoming this because the president has a lot of political chips in DC. He's He's got more than anybody. And he has to choose how he's going to spend them.

And, you know, if you remember at the beginning of Operation Epic Fury, he came out and what did he talk about? While the while the the bombs started flying, he's like, "Pass Clarity." And so, I think he's going to put a lot of those chips on the table uh that may hurt his agenda in other places, but I I remain confident. There are two other things that I'm focused on in Clarity. Uh one that came up been watching closely is this thing called Section 505. Um this could restrict the SEC's ability to provide an innovation exemption um or some exemptive authority. And so, like, having lived through Dodd-Frank and when I was building businesses within Dodd-Frank, oftentimes technology moves faster than regulations

and the law, particularly regulations. And so, one of the the the key differences between our regulation here in the US and some overseas regulators is that our regulators have this concept of exemptive authority. So, they're like, "Hey, you know, the regulation was like this, but the conditions have changed on the ground too fast. And so, we're going to exempt this this this old regulation. We'll go through proper rule making. We're just not going to enforce it for now um because it's going to let because we're focused on principles." So, 505 seems to constrain that a little bit. And so, that's something that we're focused on.

And then last but la- not least, the one thing that I'm dying to see in markups is I want to see a recovery program where we can recover stolen assets from bad guys. Yes, I call it privateering as well, but I'm supposed to call it recovery program now. Public-private partnership recovery program. Um so, please write your congressperson, your congressman, your congresswoman. >> Hold on. Public-private partnership recovery program asset There's got to be a way to make this a pirate acronym when we pass the bill. >> We'll figure it out, but come on, man.

Like, the great news about this today was Kim Jong-un, you know, came out and said, "Oh, you reptilian media, we're not stealing anyone's crypto." Which is great. Um so, this is not an escalation now against against North Korea, DPRK. They're they're, you know, they're doing their own thing. We can actually go after the criminals. So, so again, um those are the two things I'd like to see, maybe some focus on 505, and then on top of that, we got to address this the security situation, um you know, every week. April was one of the worst weeks for hacks, like 600 million bucks. Well, not sorry.

>> No, I agree with you on that. And like, it continues to spawn complicated situations, cuz like, look, clarity or not, the security landscape continues to be a problem. In fact, I mean, Chris Arbitrum is a good example of this, right? So, what's going on there now is the Arbitrum Security Council froze funds that were related to the North Koreans' theft from Kelp DAO. Let's call it what it is. That's just straight-up theft, right? And what happened is now, in US courts, a lawyer has shown up seeking funds for the victims of a decade-old judgment against the North Koreans for terrorism. One, reminding you how long they've been a problem for.

But two, attempting to seize money that was linked to the Kelp DAO exploit. So, I'm going to say a couple of things here from people in the industry, and then I'm going to make a point about this as well, which is one, Aave has said this flags existential risk to DAO governance autonomy if judgment creditors can reach treasuries. Now, with that said, if this is correct, that existential risk is real. Uh Peter Van Valkenburgh of Coin Center said the real precedent is whether US courts can reach decentralized treasuries. Sanctions enforcement will become a tool of DAO control.

Um Bentech said it's theater, DAOs don't have legal personhood, you can't serve papers on code, but I want to make the point to everybody DAOs are a name that we throw around in crypto without thinking terribly hard about them. And whether you're acting as a partnership with de facto control or truly decentralized, the facts and circumstances matter. But I think there are two points in the legal discussion that were missed that are important to raise. One is what is the actual legal status of these funds?

There is a very big difference here. If we take the code as law, exploits are working as intended, and that is how things work on chain. One good exemplar of that actually might be some of the Mango Markets decisions, because in that case I'm going to tell you a weird but coherent outcome is that the North Koreans became the legal owner of that, so that in this case the plaintiffs actually might have a legitimate claim about a judgment and taking control of those. The other one is to say, "No, this was theft." And if this was straight-up theft, that is not the North Koreans' property. Chris, I can't steal your car and then have somebody unrelated come after me for a previous judgment and take your car,

right? And then essentially re-victimize you. So I think part of what we're skating onto with this territory, and it relates to the recovery thing, is exactly what the hell is going on here. So I want to start with this, because I know you've actually thought about this space a lot as you've looked at companies, which is what is going to be the future of call it DAO not just DAO actions, but DAO structure here. As we move into a world where courts are getting significantly more cognizant, I think you agree with me a recovery act would only further that, how are people going to have to think about these concerns in DeFi and is the industry ready for it?

>> Yeah, I think we've talked about this before. Code is not law. Law is law. And that's, you know, I know there's a lot of libertarians that wish that it was different, but that's not how it works. And if you're a centralized actor using DeFi, you're subject to the law, too. I think, you know, I'm of the opinion that developers, they should not be subject to sanction. That's freedom of speech. Decentralized technology is technology. It should be left alone. But entities and people that use that will be held accountable. Now, this is a really interesting debate. Um and and and Stani, uh the founder of Ave, has come out and said, "Dude, that's not that's not the that's not um North Korean uh

possession. Like, no, that's they stole it. So, why are you laying a claim to stolen assets? It's not theirs." Um but it's it's a fascinating part of of law. It's cutting edge and at the end of the day, it's something that we're going to have to we're going to have to sort out, but um law is law. I think the interesting point on on on Mango and like we have to watch case law and see how it's going to evolve over time. Uh but hopefully we come out with something that's very reasonable and and the the money gets returned to the people who were stolen from.

>> No, I think to your point as a starting baseline here, if we can't take assets that were taken in actual theft in this case or potentially in significant exploits and return them to call it normal to like it people, my prediction is over time that proves to be an existential problem for developing a decentralized ecosystem. And the reason I say that is while deep subject matter experts might be willing to engage with that system, e.g. the Stani's of the world, I think it will be very difficult to get the average person who knows they are not a deep expert to use on-chain

finance if the answer is finders keepers and if something breaks you lose your money. Because they're not going to have the time to be experts or do due diligence, right? Like back to our old haunt. This is why things like rating agencies, auditors, like financial regulators exist in the first place. Yeah. Because if you told every American there's going to be no FDIC, go fully underwrite your bank's loan program before you put any money in the bank, most people would just take their money out of banks. So, as a starting point I would ask you, you know, to sort of volley back on this, how do you see that evolving for the industry? Can we get mass adoption without getting to good answers here?

>> It depends on how you're using the technology. I I'm a strong believer that anyone in the world should be allowed to use decentralized technology decentralized finance. They should do their own research and AI's making that better. I think AI's going to come up with, you know, people say AI's a threat to security. Well, guess what? It's also a humongous benefit for security because it's going to tighten a lot of those loops. And so, I think in time, as we close these security gaps, investors need to have good disclosures. They need to know the risk that they're going to take. Not only market risks, but operational risk, hacking risk, etc.

People should be allowed to use decentralized networks unimpeded. That said, for many institutions and for some people, frankly, they love intermediaries and they want to keep using intermediaries and that's okay. And some of those intermediaries can provide value-added services. What are some of those services? Well, they can mitigate and provide enterprise capabilities when it comes to operational risk management, etc. So, it's different strokes for different folks and I think you're going to see like today almost all of our financial services market is intermediated. As time goes on, you'll see less and less of that, but there's still going to be a need for for intermediaries going forward in my opinion.

>> I definitely agree there will be a need for intermediaries just like this is a specialization of labor point. Most people don't have 40 hours a week to monitor this market or more and so we're going to need somebody to do it for them and that that's fine. That's how market works. Right? Like none of us are on here arguing that everybody should be building their own car if they want to drive anywhere. Why would you think the same thing about finance? But you do raise a very important point which is where I think the divide is going to get complicated for the industry. Is I think we're going to need to find ways to preserve the values of decentralization while potentially to be blunt making it simpler and safer for people to functionally use that. Like the chain with the least exploits Chris is

probably Bitcoin, right? There's very little going on there. The attack surface is not large. Right? Like ignoring potential future quantum risk, it's primarily people >> I was going to say it's state actor gets his hands on on a quantum computer then maybe that that shifts and it's maybe the largest of all time, but I'm just joking. I think that the community will figure that out. Uh >> But my point is more on the surface area to attack. Like part of why we're not seeing these hacks in the Bitcoin ecosystem is what is there to exploit? Right? And >> Lots.

>> And so simplicity may be part of the cure here as well. But I I guess where I'm getting to and I wanted to rope this the reason I brought up >> that the opportunity? You're talking about you know the challenges. I mean that's the opportunity for startups. Yes. Abstract. Abstract the user experience. Make it easier for humans and agents. It's make it more secure. Make it more transparent. Um that that's why it's an exciting time to be in venture. There's still so much to be built. And yeah, go chase your shiny new toy and learn about AI, and then bring it back to crypto and let's build something really special.

>> Well, I think this is the other point I wanted to get back to with clarity and bring this back around is the only way we're going to get concrete answers to many of these things are if we have a legal framework where people feel comfortable to build things here. Because to bring up a project that we talked about earlier, one of the most successful, most adopted, and most valuable crypto-native projects of all time is Hype. And Hype was built by Americans who left America to build the protocol. So, if we can't do a much better job of getting these people back to the country, I think long-term we have an economic problem in this space.

>> Amen. >> All right. Then on that note, we will go ahead and call it a day here. So, thank you very much for joining us for this episode of Bits and Bips. We will be back in 1 week to discuss more about how the worlds of crypto and macro and AI are colliding. Until then, everyone. >> See you, buddy. >> Thank you for watching and hope you enjoyed this episode of Bits and Bips. Just remember, nothing we say here is investment advice and please check unchainedcrypto.com/bitsandbips for more disclosures.

>> Yeah.