SotN#24: Everything is bullish, with Nic Carter (Triumphant! 2017 vs 2020 Bull Markets, What's Different this Time?)

BLACK FRIDAY DEAL: GET LEDGERS for 40% OFF! 🔥🔥🔥 https://bankless.cc/ledger 🚀 SUBSCRIBE TO NEWSLETTER: http://bankless.substack.com/ ✊ STARTING GUIDE BANKLESS: https://bit.ly/37Q17uI ❤️ JOIN PRIVATE DISCORD: https://bit.ly/2UVI10O 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ 👕 BUY BANKLESS TEE: https://merch.banklesshq.com/ ----- GO BANKLESS WITH THESE SPONSOR TOOLS: ⭐️LEDGER - 40% OFF LEDGERS THIS WK ONLY! 🔥🔥🔥 https://bankless.cc/ledger 🚀 ZERION - INVEST IN DEFI FROM ONE PLACE (download it now!) https://bankless.cc/zerion 💳 MONOLITH - GET THE HOLY GRAIL OF BANKLESS VISA CARDS https://bankless.cc/monolith 🤖YEARN - YIELD-SEEKING MONEY ROBOT THAT FARMS DEFI FOR YOU http://bankless.cc/yearn ------ SotN#24: TRIUMPHANT! w/ @nic__carter (2017 vs 2020 Bull Markets, What's Different this Time?) Nic Carter, general partner at Castle Island Ventures, cofounder of Coin Metrics, host the On The Brink Nic recently put out a medium article with 9 different Bitcoin charts showing metrics at ATHs. https://medium.com/@nic__carter/nine-bitcoin-charts-already-at-all-time-highs-78abbfe82804 We ask Nic: - What about this bull market is different than last time? - What are the differences that stand out to you the most, that are going to characterize the nature of this specific bullish period? Metrics discussed: - Addresses with $10 of BTC or more - Open Interest on CME Futures - Realized Cap - Bitcoin Options Open Interest - BTC priced in Turkish Lira - BTC held by Grayscale - Stablecoin Free-Float - Silvergate’s Settlement Network - Growth of Crypto-Native Credit Watch the video to hear the discussion! In the SECOND HALF of the video, David and Ryan turn their attention to ETHEREUM: Will Ethereum Capture the Bull Market? Topics we discussed: Ethereum and the Bull Market - The Deposit Contract received the required amount of ETH to start off ETH2 on the earliest possible date. - Then, it received A TON more of ETH after that. The 2017 ETH Bull market was underpinned by the possibility of ETH staking and Ethereum scaling just being around the corner The 2020 ETH Bull market has all of these same dynamics, but AHEAD of the bull market, rather than behind it. ‘Will Staking ever come?’ and ‘Will Ethereum ever scale?’ are NOT questions that are going to be asked this bull run. Also new this bull run: DeFi! DeFi👏makes👏capital👏sticky!👏 The capital that entered the 2017 ICO mania was FLEETING. Ethereum was 95% ICOs, and after ICOs stopped making people money, there was no reason for capital to stay put on Ethereum Things that didn’t exist in 2017: Collateralized money markets - Maker - $2.75B - Compound - $1.7B - Aave - $1.45B AMMs - Uniswap $1.3B - Balancer $0.4B Others - Yearn - $0.5B - Synthetix - $0.8B - Nexus - $0.1B Stablecoin Supply - $20B in stablecoin market cap on Ethereum. PLUS, Alpha is found on Ethereum - There’s a lot of cognitive dissonance in the world about buying Bitcoin. People have heard about Bitcoin multiple times now, and if they still don’t yet own BTC, they may have a level of cognitive dissonance about buying BTC at ATH prices. - People wanting exposure, but not specifically wanting to buy BTC, is a significant reason as to why other assets always do so well in a bull market People want alpha - This cycle, DeFi tokens on Ethereum will capture outsized exposure to people who are trying to outperform BTC - Last cycle, it was many different PoW chains and Ethereum L1 competitors, this cycle it will be protocols and projects on Ethereum ------ Don't stop at the video! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit the official Bankless website for resources http://banklesshq.com/ http://banklesshq.com/| Follow Bankless on Twitter https://twitter.com/BanklessHQ Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time we may add links in this channel to products we use. We may receive commission if you make a purchase through one of these links. We'll always disclose when this is the case.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Hoffman?

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• 16:13David Hoffman?

  If you are looking for the front page of DeFi, look no further than zerion.io. Zerion is your home base for managing your DeFi portfolios. Zerion offers a central place for you to engage with all of the DeFi protocols and assets that you engage with on a daily basis, but all in one central spot. Here you can see I've loaded up a wallet and Zerion is giving me the portfolio performance of all the assets in this wallet over time, as well as a breakdown of all the assets that I own, as well as all of my transaction history that I've ever done in an easy to view fashion. Zerion also lets you invest right into DeFi's best yielding financial opportunities right from their homepage.

• 16:54David Hoffman?

  Zerion also makes it super easy to access interest in DeFi using applications like Compound and Aave in the background. And you can also exchange your assets using the Zerion app, using an exchange aggregator in the background to make sure that you always get the best rates. You can even use the Zerion mobile wallet to add your MetaMask or Argent or another Ethereum address right into your mobile wallet, so you can see your portfolio and engage In DeFi on the go. Here I just loaded up my Argent wallet and now I'm going to load up my MetaMask as well. And Xerion will do the same thing. It will add all of my assets and wallets together all in one space and give me a portfolio summary of what's going on.

• 17:33David Hoffman?

  Adding wallets is trivially easy. If you already have a MetaMask, you can get it right into the Xerion app and it can sync with your desktop app as well. And the best part is you can also buy Ether right into the app itself. Use the Invest tab to look at all the things that you have invested in as well as other opportunities. And coming soon to the Xerion app is the ability to buy and sell your assets straight from your mobile device as well. So download the app. It works on iOS and Android. Go to xerion.io, plug in your wallets and get a historical report of your portfolio over time, as well as a comprehensive breakdown of all the assets that you own and how much yield they're generating for you.

• 18:13David Hoffman?

  We're also brought to you by Monolith. Monolith is your cool new DeFi account, your DeFi savings account, your DeFi checking account. Except the cool thing about the Monolith DeFi account is that it gets software updates, right? You actually get to increase the usefulness of this over time. So here are some of the features. Monolith is a smart contract wallet with a lot of the features that you would expect if you've come to know DeFi and what it is. You can, you can add money to it. You can put that money to work in Compound and accessing yield. But you can, and you can also swap through Uniswap. What was cool with Monolith is that they will send you a very sexy Monolith Visa card that connects to your Monolith smart contract wallet on Ethereum.

• 18:54David Hoffman?

  So it's a really awesome tool to live a bankless life with a savings account that gets software updates. So this is something that you're never going to find out in the real world, but you can still do real world things with, you know, real money and like buy your groceries. So that's just fantastic. Coming soon to Monolith, actually already here to Monolith is now you can buy, die and get it sent to your wallet directly, right? So it's also being an on-ramp. So you don't have to go through your centralized exchange like Coinbase or Gemini or wherever. You can just go straight from your bank account right into your Monolith checking account smart contract wallet. So check them out at monolith.xyz.

• 19:37Ryan Sean Adams?

  Hey everyone, welcome to episode 24 of State of the Nation. We are in a bull market, my friends. David and I are super excited to be with you at the very forefront of it. Let's talk about State of the Nation. What we do is talk about what's happening in crypto and relate it to you in insights and action items. This episode comes out every Tuesday. We release it on YouTube and it comes out live on YouTube and you also get it in Bankless podcast form. So however you like to tune into State of the Nation's audio, video, you've got it both ways. Today, we are bringing on Nic Carter. This is his fifth appearance on Bankless. So he is a veteran guest.

• 20:19Ryan Sean Adams?

  We're really excited to have him to talk about the bull market. And then David, what are we talking about after that?

• 20:26David Hoffman?

  Yeah, well, so Nic Carter is going to come on and talk about all the different metrics that are at all time highs for the Bitcoin ecosystem. We're also going to ask him about like, well, why is this Bitcoin or is this bull market different than the last bull market? Like, what are the new, what's the new infrastructure like? Like, why is this unique and different from the last time we've seen these bull markets before? Nick's going to answer that question for Bitcoin. And then in the second half of the show, you and me, Ryan, are going to answer that same question for Ethereum, because Ethereum has gone through plenty of growth and maturity and development. And so a bull market that happens on Ethereum is not going to look like the same bull market that happened in 2017. So we're going to do a little bit of comparison here.

• 21:04Ryan Sean Adams?

  Absolutely. All right, guys. And before we get to the show and introduce Nick yet again, let's talk about a few things that are new. David, we had our episode with Melton Demiris coming out. That came out this Monday, actually. And that was a spicy episode. It was a lot of fun. Like, I think it was the most fun I've had on a podcast, for sure. You know, maybe it was also the spiciest episode where we got into this conversation about Bitcoin versus Ethereum and tribalism. But I feel like it ended in a really good place. What was your take on that?

• 21:36David Hoffman?

  Yeah, Melton is just a ball of energy. And so making a show with her was a ton of fun. And she comes in with just a bunch of data and metrics and she Such slides that she shared. And so that was actually our first video podcast. And so the start of the conversation is all about how like the state of the world is now different, right? In the same theme of things that are different nowadays. She comes in and with just this torrent of data and shows like, well, the world is about to go. Basically, the conclusion was money printing. This is a theme that you hear on all crypto podcasts. Bankless no exception. And then we kind of turn into the, we do a little bit of a pivot where we start to talk about identity, which is actually something that we've talked to Nic Carter about previously. It's like, what is the identity of a Bitcoiner?

• 22:19David Hoffman?

  Is she a Bitcoin maxi? And she, she turned the conversation into the metaphor of Dante's circles of hell. What, what circle of Bitcoinerism is melting in? And for what it's worth, I actually consider whatever, whatever circle it is. Meltem and Nick are roughly in the same circle. They both understand the macro outside landscape and they are both self identify as Bitcoiners, but I wouldn't classify them as maxis.

• 22:44Ryan Sean Adams?

  Yeah, to be clear, Nick, who's listening, you're here offstage. We do not think this is a circle of hell.

• 22:53Ryan Sean Adams?

  Just, you know, just, just FYI there. Okay. And then we also have an episode with Balaji Srinivasan coming out next Monday. Dude, I'm super excited about this. This was maybe our longest episode. I'm not sure if we've fully edited it yet. But we're talking about the digital nation with Balaji. It's gonna be, it's just a killer episode. You talk about a ball of energy. Balaji is just like a ball of like revolutionary ideas. We got right into them and how they apply to crypto. So that's gonna be super cool.

• 23:21David Hoffman?

  Yeah, but we often talk about the metaphor of the nation state as a crypto nation, like a digital nation on Bitcoin, digital nation with Ethereum. Balaji is taking this a full step forward and making this much more concrete. And so that's basically what the podcast was about. Like, how, how can we literally make a nation out of, out of this world?

• 23:40Ryan Sean Adams?

  David, we've been promising that we had published some memes and we also published some pretty slick memes that, that can be purchased. But I don't know, we're gonna talk about this in the second half, but like Ethereum hit its number. Right? We, we got staking up.

• 23:56David Hoffman?

  Yep.

• 23:58Ryan Sean Adams?

  Ethereum is going to launch on December 1st. The community rallied together, the community did its job. We played a minor role in helping on the meme propagation layer. It feels really good right now. I know we'll get into that in the, in the second half of this, but uh, super excited about that.

• 24:14David Hoffman?

  It's a good day to be an Ethereum.

• 24:16Ryan Sean Adams?

  Absolutely. All right. Well, um, last thing to mention is of course, this is uh, Thanksgiving week. Black Friday deals, Ledger is putting out probably the best deal I've seen this year where it's like 40% off Ledgers. We will include a link in the show notes so you can get on that. I think it's good until this Friday. All right, David, I think that's what we have as far as announcements. Uh, why don't we get to the opening question that I ask you every week? What is the state of the nation right now, David Hoffman?

• 24:45David Hoffman?

  The state of the nation is triumphant. Not only did we get to, to the number of ether needed to deposit it into the smart contract to get the phase zero beacon chain up and rolling, but we absolutely crushed that number. Like the, the, uh, the acceleration curve of ether deposits just like went through the roof at the last possible uh, moment. But then it just like shot way beyond it. I think we're at something like 625,000 ETH in the deposit contract, which is just like, even if it didn't get to that point, like it was still going to be okay. But the fact that like, there's just this massive vote of confidence from the Ethereum community saying like, yes, let's get this ball rolling. We are ready to get this kickstarted. Let's bootstrap this network. We're all here together.

• 25:29David Hoffman?

  Uh, this is a, there, there's no debate. There's, there's, there's only consensus. Uh, and we really, as a, as a community, we really seem to be moving as a complete holistic unit. And so that is something to be absolutely triumphant about. And also at the same time, the prices are reflecting this triumphal triumphantness, whatever triumph.

• 25:50Ryan Sean Adams?

  This triumph.

• 25:50David Hoffman?

  Triumph, yeah. Uh, and so uh, everything just feels really proud and uh, things are being reflected as such.

• 25:58Ryan Sean Adams?

  All right, so Ethereum's are feeling really good, but before Nic Carter thinks that this is a bait and switch, we're just gonna talk about ETH the whole time. I think that Bitcoin community is feeling super triumphant, too, wouldn't you say? I mean, like, all-time high already exceeded in market cap. Bitcoin is quite clearly reaching institutional mind share. The Wall Street Journal had Bitcoin price once again on the front page, this like illustrative boomer newspaper. It's coming back, and this time Bitcoin does not seem like a tool for scammers. And, you know, and people trying to escape government controls, this time it's mainstream. The Bitcoin community, to me, has never, has never, like, seemed more triumphant than it is now.

• 26:43Ryan Sean Adams?

  What's your take on that?

• 26:44David Hoffman?

  Yeah, I would agree that that would make sense. But I think if we also wanted to peel back the layers specifically into the Bitcoin versus Ethereum dynamics, which some Bitcoin maximalists spend a lot of time thinking about, Bitcoin dominance is falling. And so Bitcoin as the dominant crypto store value asset is actually not currently something to be triumphant about. It is something to be triumphant about the total market cap and how the legacy world values Bitcoin, and which are all the right reasons to be proud about Bitcoin. But if you're a Bitcoin maximalist who thinks that all other tokens are going to zero, you are not a happy camper right now.

• 27:18Ryan Sean Adams?

  All right, well, you just got a little bearish on Bitcoin for that moment. But now we will introduce Nic Carter. It's a pleasure to have him on. Nick is the general partner at Castle Islands Ventures. He is a co-founder of CoinMetrix, which is a fantastic crypto analytics firm that I use almost on a daily basis. He also hosts the podcast On the Brink. Nick, it is fantastic to have you today. Can you come in, talk to us a little bit about why this time it's different with Bitcoin? And the numbers showing all-time highs?

• 27:53Speaker 02

  This time is different. I, that might be a dangerous thing to say, but thank you for having me on. Fifth time, is this the fifth time?

• 28:01David Hoffman?

  I think it's the fourth. I think it's the fourth.

• 28:03Ryan Sean Adams?

  Are you sure?

• 28:04David Hoffman?

  Two podcasts, and then this is the second save of the nation.

• 28:08Speaker 02

  Yeah, five is, five would be too money. Uh, but I I'm addicted to creating content. What can I say? It's, it's all I, it's all I can do these days.

• 28:17Ryan Sean Adams?

  Well, you are, you are moving right up. Um, you know, I know you got your start on bankless here, Nic Carter. But you are moving up to, was it, uh, last week, was it Bloomberg?

• 28:27Speaker 02

  Bloomberg, yeah.

• 28:28Ryan Sean Adams?

  Okay. And you know, who, who, who knows what might be in the future, CNBC, you know? Lots of outlets.

• 28:37Speaker 02

  The, the, the news networks need like a slightly younger generation of Bitcoiners to go and say sensible things about Bitcoin. You know, can't just, they can't just have Novo on every time.

• 28:50Ryan Sean Adams?

  That's a go to.

• 28:51Speaker 02

  No disrespect to Novo, but.

• 28:53David Hoffman?

  That's kind of one of the things that's different about this bull market is like, we have a new cohort of pundits and I'm bullish on the new cohort of pundits that are bringing brought on to speak about Bitcoin, especially, especially if it's you, Nick.

• 29:06Speaker 02

  Thank you, gentlemen. Thank you. Um, I do think it's important to like, let's get a slightly more diverse array of opinions around Bitcoin and crypto out there. Um, I don't know if mine are actually that unique necessarily, but, uh, it was, it was great.

• 29:21Ryan Sean Adams?

  Well, you do a, you do a great job. You do a great job, Nick, like distilling all of those ideas, I think, and like coalescing and collecting them and explaining them. Um, but like, before you go into an interview with somebody like Bloomberg, do you have the voice of, of maximalists in your head at all from the community who are like, Nick, you can't say this. This is off limits. Or are you just totally open book and you just kind of speak your mind? Because it seemed like after the Bloomberg conversation, there was a little bit of a, a kerfuffle, I guess, on Twitter about something that you said. Can you talk about that?

• 29:57Speaker 02

  The buzzing of the cyber hornets is buzzing in my brain. I mean, obviously I know if I'm going to say something that offends the orthodox Bitcoiners. I mean, I, I, I think I said it, uh, when Joe asked me about the having, I was like, this is going to piss people off. And, uh,

• 30:15Ryan Sean Adams?

  What did Joe ask you?

• 30:17Speaker 02

  Well, he was, what did he say? He like goaded me into saying the halving was priced in, which he is right about, by the way. So, you know, the halving itself was obviously not a direct catalyst for Bitcoin. Say it again. You know, it's just so naive and like, it's such an intellectually impoverished opinion to have that like Bitcoin's supply schedule defines the trajectory of the Bitcoin price. Because it's so, so reductive. It reduces this amazing, rich, multifaceted phenomenon to a single variable, which is effectively fixed.

• 31:00Speaker 02

  So it's weak. It's just very weak. Like, and people wrongly, you know, took that as me saying, you know, I'm not positive on the Bitcoin price. Like, buddy, I'm as long Bitcoin as anybody, okay? You know, in multiple different ways.

• 31:16David Hoffman?

  You're wearing the shirt, right?

• 31:17Speaker 02

  That's a shirt. I have Bitcoin hat. So like, you know, like, I'm long Bitcoin intellectually, like, the actual asset itself, etc. So I'm very positive on it, just not because of some, like, inane supply-related metric, but for, in my opinion, what are better reasons? And here's the thing, like, I think being pro Bitcoin because of stock to flow, or like, halving, that's a very brittle thesis. Like, if that's invalidated, then your whole worldview is shattered, right? So you actually want to be long Bitcoin for reasons that make sense, so that you can be a good hodler, you know, like, so you don't just give up in a year or two if it doesn't hit like your arbitrary price thresholds. I know I'm not going to give up.

• 32:00David Hoffman?

  And I think that's why, or perhaps one of the motivations behind the article that we wanted to get you on to discuss, the nine metrics that are at all-time highs for Bitcoin, which to me are nine reasons to be bullish Bitcoin that are just not related to like the halving, right? They're outside demand rather than intrinsic scarcity.

• 32:19Speaker 02

  Yeah, yeah, they're mostly demand-side metrics, or they might have something to do with financial infrastructure, or even macro. But yeah, this was the reason I wrote this article is to somewhat demystify, you know, our current rally, you know, and like cast a little bit of light on market structure. You know, some of these things people don't pay that much attention to. So I wanted to say, look, there's like good, real credible reasons why the bull, you know, has returned.

• 32:52Ryan Sean Adams?

  By the way, before we get into the article, Nick, I just want to like finish off that discussion about Bloomberg. So like, you got some flack by a contingent of the Bitcoin community for breaking orthodox on something that I didn't even know was orthodox in Bitcoin culture. But like, what does that feel like?

• 33:09Speaker 02

  It shouldn't be.

• 33:10Ryan Sean Adams?

  Does it piss you off? Or is there still an element where you're like, well, you know, Bitcoin culture does need people with very strong opinions in order to sort of forcify its social defense structure? Are you just like, this pisses me off? And then it's like, I'm angry about it?

• 33:27Speaker 02

  I mean, I didn't catch your discussion with Meltem, so I don't know exactly what she said, but I think I understand the metaphor of like, there being this like hardcore, you know, codder of like, really, you know, like, strong-willed holders that are the guardians of, you know, the views and the social contract. And then, you know, percolates out from there. But with stock to flow in particular, I just think it's a, like a faulty opinion to hold. So it's just like, in my opinion, not a valid model. So it would be a big shame if that was

• 34:05Speaker 02

  somehow interwoven into, you know, the orthodox Bitcoin doctrine. Because, you know, Bitcoinism, in my opinion, should be more about like, you know, the political objectives of the system, and not about some, you know, contrived, about some, you know, contrived mathematical models stipulating that. So it would be a big, big shame if that was somehow interleaved into the most orthodox kind of set of core views.

• 34:32Ryan Sean Adams?

  All right. Well, so let's talk about some of the views that probably almost all Bitcoiners could share. And certainly, we've seen this massive price run up. Like, you started the article by saying it's entirely plausible we could regain 20K level again, which, I mean, it's quite a stunning ascent from... What was the low on Bitcoin? Were like, did we get below 3,000 at all? Or it was 3,200 or something?

• 35:00Speaker 02

  Just above 3K on BitMax, I think, yeah.

• 35:03Ryan Sean Adams?

  Wow, and that was a year and a half ago, something like that?

• 35:07Speaker 02

  I mean, yeah, I would say, oh, the low in 2019.

• 35:11Ryan Sean Adams?

  Yeah.

• 35:13Speaker 02

  Yeah, really not long ago. But I mean, as recently as March, we were wicking down to the 3,500 range, which is crazy to think about.

• 35:20Ryan Sean Adams?

  So this like kind of marks the beginning of the bull market, I think, for Bitcoin. So can you talk about some of these charts? And like, let's go through the data here and tell us what's different or what's unique about this bull run or how we should view this bull run? I don't know where you want to start, but...

• 35:37David Hoffman?

  Let's start with the first one. Addresses of $10, addresses that hold $10 worth of Bitcoin or more.

• 35:44Speaker 02

  Yeah, it's one of my favorite charts, any of these metrics of dispersion. And the point is, there's just more Bitcoiners today than there were in 2017. And there's a number of ways to get, you know, to apprehend this data. You could use a survey-based approach, which the Cambridge study is pretty good, I think. And they look at holders on exchanges. And this is just kind of more of a directional approach. It's not really telling you with any precision how many Bitcoiners there are. That would be the wrong way to interpret this. But it just tells us directionally, like Bitcoin's getting more distributed to smaller addresses. And of course, there's a number of different ways to get at this data. I could cut this data, you know, 20 different ways.

• 36:28Speaker 02

  But to me, this is just the purest single expression of this dispersion. There's just more people that have heard about and own crypto today as opposed to three years ago. So we have a more stable base.

• 36:43David Hoffman?

  So this this number basically has to go up and to the right for Bitcoin to be successful, right? Like, we have to see.

• 36:50Speaker 02

  Yeah, 100%.

• 36:51David Hoffman?

  And so like, and this, the fact that we are seeing it continue to do that, and especially do that really, really strongly in the 2020s, is just overall bullish.

• 37:00Speaker 02

  Yeah, and I would encourage you to look at this data for Ethereum, too. I'm sure you have. Ethereum is showing that same dispersion, which, guess what? That's not the case for every of every blockchain. Both of the major forks of Bitcoin showed concentration. And to me, concentration spells doom.

• 37:19David Hoffman?

  Right.

• 37:19Speaker 02

  Because it basically means like, a lot of people sold their coins on exchanges, and whales bought up the coins. So you see the address, the UTXO set actually shrink. And to me, that is a sign of morbidity.

• 37:31David Hoffman?

  Right.

• 37:32Speaker 02

  You always want to, because we're talking about the brand new monetary systems, you want to be distributing that to the entire world's population. So if it starts shrinking, you've failed. You're in the first inning. You've already failed.

• 37:43Ryan Sean Adams?

  So this is particularly important, a particularly important metric for those crypto networks that are trying to become money, or global money, in any real sense.

• 37:53Speaker 02

  Undeniably, undeniably. And I've seen more attention on the dispersion metrics recently, but in my view, they're absolutely critical. I think everybody should be looking at them.

• 38:02David Hoffman?

  Totally agree. All right, let's move on to the second topic of open interest in the CME Bitcoin futures. Why is this an important metric to pay attention to, Nick?

• 38:13Speaker 02

  This is actually probably the most important metric in the entire article.

• 38:16David Hoffman?

  Wow.

• 38:17Speaker 02

  Yeah, so the rally these days is characterized by participants that really, in some cases, can only participate in this market specifically. The CME is a market where, if you're, you know, a large hedge fund, or an asset manager, or, you know, institution, as they say, you have likely already sort of done that counterparty risk analysis. There's no additional work that you need to do to get comfortable with this market, trading on this market. That's obviously not the case for any of these newer crypto exchanges, where you have to do diligence, you know, and you have to, you know, ascertain their their trustworthiness. The CME is, you know, deeply intertwined into sort of established financial plumbing.

• 39:03Speaker 02

  So the cash settled futures product is really critical. And the more open interest we see, that's indicative of a very certain type of market participant that in some cases is only able to trade on this specific market. So I gave the example of Renn Tech. That's where, you know, probably the most successful and lucrative hedge fund in history. This was the one market that they specifically said they would be able to take their positions on. A lot of these guys, a lot of these hedge fund guys, when they come out and say they're taking Bitcoin exposure, they're talking about the CME product. And a lot of Bitcoiners will listen, will hear that and say, well, that's, you know, that's fake Bitcoin

• 39:47Speaker 02

  and it doesn't affect the spot price. But my response to that would be that the market makers that are trading on those exchanges are hedging their trades with spot Bitcoin. So I do believe that it does affect the spot price of Bitcoin. You know, there's like all these conspiracies, a lot of gold bugs like to say, you know, paper, paper gold, you know, is totally decoupled or even suppresses the price of spot gold. A lot of Bitcoiners subscribe to that view as well, but I do think this is tremendously positive. More liquidity, more open interest on this product. A few people complained to me that open interest is a bad metric.

• 40:29Speaker 02

  But whichever one you use to look at it, whether it's contracts or open interest, the number looks good. It's more liquid than it's ever been.

• 40:37Ryan Sean Adams?

  So what's interesting is we've had a few other developments this year with like BitMEX being sort of shuttered, where it seems like regulators are really trying to clean up this space has been almost a theme. We also had, as you mentioned, Renaissance Technologies and CME. We also had the BlackRock CIO, managed eight trillion or so in assets, said something crazy positive about Bitcoin that you would have never heard in 2017. Do you remember 2017 and Jamie Dimon was big news?

• 41:09Speaker 02

  Rap poison squared, was that when that came out?

• 41:11Ryan Sean Adams?

  Yes, like around that time, it was like, you know, folks like Charlie Munger and Warren Buffett and Jamie Dimon. But now, this this time around, it seems like the tables have turned and maybe it's partially because these institutions. Well, now they can become Bitcoin bank holders too, right? They could buy in. They didn't have a way to buy in before, but now with the CME, they do.

• 41:32Speaker 02

  This product, you guys remember this product launched on December 16th, 2017. Literally the precise top of the last market. And some people attribute it to the collapse of that market, which is kind of plausible, like you've you finally. A certain set of institutions had the ability to instrumentalize a short against Bitcoin, which they couldn't do before. Totally plausible, or December 17, I guess it launched. So, yeah, this is really important. As you say, like, if you listen to some of the reasoning behind that BitMEX indictment. They also talk about this notion of unfairness.

• 42:12Speaker 02

  The fact that there's offshore derivatives exchanges which can operate with less constraints or no constraints. And they can sort of outmaneuver these onshore exchanges which are regulated. And the regulators and the enforcement arms that sort of, you know, work on behalf of the US state. They want to uphold the validity of the US regulated, you know, capital market. And so one of the reasons they enforce is to maintain fairness and say. You know, you can't just go offshore and compete with our American regulated exchanges.

• 42:53Speaker 02

  And so I think that's actually part of the reason is that they they want to inculcate this vibrant. You know, local ecology of of marketplaces. And that's part of the reason why they go after the offshore exchanges, for better for worse. Is to protect and maintain the competitiveness of the CMEs and the CBOs of the world and the BACS of the world and so on.

• 43:16Ryan Sean Adams?

  So because there's more volume happening on CME, which is a is a US friendly institution. What does that mean for the prospects of a Bitcoin ETF?

• 43:27Speaker 02

  Very, very positive, extremely positive. That's probably the number one thing that the SEC called out is they are interested in more and more Bitcoin volume taking place at markets that are kind of US-regulated with surveillance sharing agreements where the market structure is apprehensible to regulators. And it's not very cypherpunk of me to say, obviously, but that's the specific thing that the SEC called out. That's what they asked for.

• 43:56Ryan Sean Adams?

  Wouldn't it be interesting if the CME launch marked the top of the 2017 bull run and a Bitcoin ETF marks the top of this 2020 to 2021 bull run?

• 44:10David Hoffman?

  Or just continues it.

• 44:12Speaker 02

  Yeah, I mean, the first gold ETF, I think GLD that launched in 2004 that had a billion dollars of inflows in the first three trading days. And then we're going to smash that record with Bitcoin.

• 44:27David Hoffman?

  Smash that record. Yeah. Ryan, you got to keep your bullish hat on, right? Okay.

• 44:33Speaker 02

  Yeah. Can you tell that I'm a little bullish and like fired up?

• 44:39Ryan Sean Adams?

  New paradigm. There are no pullbacks, right, David?

• 44:42David Hoffman?

  That's exactly right.

• 44:43Ryan Sean Adams?

  Straight up, straight ascent. All right. Realized capitalization, that's another metric that you've, I think, popularized. Nick, can you talk about it?

• 44:52Speaker 02

  Yeah, so realized cap, it basically just measures the value of each individual coin at the time it last traded or settled on chain. So it's kind of a liquidity adjusted market cap. You can also see it as the aggregate cost basis of all holders. That's way, way above the 2017 highs. To me, this is a more pure market-relevant measure of capitalization than market cap is. What it shows to me is that, look, you know, Bitcoin costs, like, people are storing more wealth in Bitcoin than ever. Their cost basis is higher than ever. People are buying Bitcoin at higher thresholds than ever. In 20, in late 2017, we wicked up to these crazy levels and that was

• 45:37Speaker 02

  We weren't there for very long. There wasn't a lot of economic activity that happened at those levels. This tells us that we've been, you know, having Bitcoin commerce at these high levels for much longer and for a much more sustained period. So we're way, way above the all time high here.

• 45:52Ryan Sean Adams?

  I've also heard this described as it's it's almost kind of a measure of the average Bitcoiner, basically their cost basis. So it's almost a measure of like the happiness of the average Bitcoiner, right? So like this goes up and the average Bitcoiner is really happy because they just made a but that it just means they made a bunch of gains, right? So and then what's the average Bitcoin are going to do? Tell her friends about Bitcoin, how awesome it is and how much money they made. And then that creates this feedback loop, right? Is that another way to look at it?

• 46:23Speaker 02

  Yeah, there's the flip side of that, though. I mean, if price outpaces the realized price or if market cap outpaces realized cap too much. You know, and you can look, obviously look at the ratio. It's it's a great reliable kind of top picker. Then people, it's an indication that people are going to take profit most likely.

• 46:41Ryan Sean Adams?

  Right.

• 46:41Speaker 02

  If if the ratio gets too significant. And so I love it for trading purposes. Wow. To me, it's one of the purest things that I've found in terms of ascertaining where you are in the market cycle.

• 46:54Ryan Sean Adams?

  And so where does this indicate that we are in the in the market cycle from your reading of it?

• 46:58Speaker 02

  Midway through rally, but by no means at the extremes of 2017. I think the the ratio hit something like five or six in 2017. I think we're in the maybe the two range right now.

• 47:11David Hoffman?

  More room for growth. Awesome. Yeah, keep keeping the the bullish hat on. Let's let's keep that going. Moving on to the next one, let's, what is this Bitcoin options open interest? Well, I'm personally going to need a definition for this one because this is outside of my area of expertise.

• 47:28Speaker 02

  I mean, this is like among the least consequential charts in the article, but so we don't have to dwell on it necessarily. Be a options open interest is the nominal value of all the outstanding contracts. And as you can see, the it's mostly deribit that we're talking about here. But really, the point is here, options give you more creative ways to express your opinion of the, you know, price, direction and volatility characteristics of an asset. And that just basically didn't exist before, you know, there wasn't really an options market, so.

• 48:04David Hoffman?

  Does larger and larger open interest imply that more and more Bitcoins need to be held by the parties that are participating in this?

• 48:14Speaker 02

  Um, that's a really interesting question. Um, I'm not an expert on options, so I don't necessarily have a good answer for you. You you mean like sort of as like a protocol sync?

• 48:25David Hoffman?

  Yeah, exactly, exactly.

• 48:28Speaker 02

  Really, the reason I included it was just that it shows that A miners, for instance, have more

• 48:37Speaker 02

  concrete ways to potentially hedge their exposure should they want to. And I happen to know miners that are using options to hedge their exposure.

• 48:46David Hoffman?

  All of this was not available at all during 2017.

• 48:49Speaker 02

  Basically, it didn't exist, basically didn't exist in size. And, you know, it it just means that as a trader, you can engage with Bitcoin in a more creative way now.

• 49:00David Hoffman?

  This is a super cool one, Nick. Bitcoin price in the Turkish lira. Why the Turkish lira?

• 49:06Speaker 02

  I love Turks. I got many Turkish friends.

• 49:10Speaker 02

  But, you know, they're having a currency crisis. And guess what? The Bitcoin market in Turkey is booming. It's booming. There's a number of exchanges. BTC Turk is the biggest one. And of course Bitcoin is well at an all time high. Really, the point here is it doesn't really matter which sovereign currency you look at it at, you know, in in which terms, like, could be the Turkish lira, could be the, you know, Brazilian real, could be the Nigerian era, the Argent. Any of these kind of weaker currencies, Bitcoin is already well past its all time high. And we have this dollar bias because we denominate our lives in dollars. But that's actually not the case for most people worldwide. They have been forced to use these more inflationary currencies.

• 49:54Speaker 02

  So let's just sit back and remember that these hard monies, they look extra good when you denominate them in extremely soft monies. Like the dollar is one of the strongest sovereign currencies. But there's so many other currencies worldwide that are super inflationary.

• 50:13Ryan Sean Adams?

  And where are most people in like a Turkey getting their Bitcoin? Is it something like local Bitcoin or are there exchanges?

• 50:20Speaker 02

  No, they have full sophisticated order book exchanges in Turkey. So they're they're well provisioned from an exchange perspective. It's also a country where there's like a cultural Fendi for gold. And I think one rubric or heuristic you could use would be, it's kind of easier for the for individuals living in those places who are used to storing value outside of the state or the bank system to make their peace with a new thing like Bitcoin.

• 50:47David Hoffman?

  Speaking of Turks that we all know and love, Meltem is in the chat saying that BTC Turk was the second ever Bitcoin exchange. So hi, Meltem, and thanks for the info.

• 50:58Speaker 02

  Shout out BTC Turk. Let's go.

• 51:01David Hoffman?

  So to me, to me, the Turk is like you just said, is just like this representative of other other currencies, which there seems to be just the metaphor that I've gotten from Bitcoiners is like Bitcoin is the apex predator of currencies. And so Bitcoin is just working its way up the line of weaker and weaker currencies. And it's gobbling up each one, right? Like the last one in line is just eats that one and then eats the next one. And it's just working its way up to the to the final boss, which is like the dollar, right? The dollar is the one like leading the charge.

• 51:30Ryan Sean Adams?

  So it is, there's like this fiat herd of wildebeest and Bitcoin is picking off the weak.

• 51:37David Hoffman?

  Ones as they go.

• 51:38Ryan Sean Adams?

  Ones.

• 51:39Speaker 02

  Totally correct, totally correct. And here's the twist on that. Bitcoin helps the dollar predate on the other currencies, by the way. You know, like not just Bitcoin, but crypto infrastructure. We've all seen this. Crypto infrastructure is proliferating dollars around the globe.

• 51:56Speaker 02

  We're seeing these, you know, digital crypto dollarization, whatever you want to call it, aggressively predating on these weaker sovereign currencies. My guess is that it's because of crypto infrastructure, not even necessarily the existence of Bitcoin. I know that's heresy as well. It's because of, you know, like, public settlements infrastructure, allowing dollars to proliferate globally, that kills off a lot of these weaker currencies.

• 52:22Ryan Sean Adams?

  All right, Nick, do you have time for a quick side quest, quick detour?

• 52:25Speaker 02

  Because this is This is on point. There we go.

• 52:27Ryan Sean Adams?

  All right, quick, quick side quest, right? So Circle partnered with the Bolivarian Republic of Venezuela. This is Jeremy and crew, who basically Circle has a USDC, and they are providing, it's, it, this is almost like, um, like, political action, wouldn't you say? Like, because they are arming the, um, a dissident government, government in Venezuela with USDC stablecoin in order to circumvent capital controls? Is that what's going on here?

• 53:02Speaker 02

  Uh, well, yeah, I mean, so what happened was the Maduro regime had some funds that were seized by, I believe the Treasury seized them. And then, you know, in the eyes of the US establishment here, Juan Guaido is the legitimate president of Venezuela, and Maduro is actually a pretender to the throne, even though he has de facto power. And so that's, that's the US's attitude to this whole thing. And so they didn't see anything wrong with, you know, appropriating the Venezuelan account that they could sort of get access to in the US banking system, because in their view, Guaido was sort of the legitimate president,

• 53:45Speaker 02

  and Maduro was the pretender. So it's sort of in the eye of the beholder, whether you consider this to be theft, or sort of a rightful return of capital to where it should be. But so what's happening is that, you know, the US said, okay, Guaido, you can Here's your budget. You know, these are, these are funds that kind of belong to your government. And his move was to try and distribute them to a medical workers in Venezuela directly using RTM, which is kind of a fintech app, which is dollar-denominated. I had Ruben Galindo on my podcast, quick little plug, if you want to learn about this in detail.

• 54:25Speaker 02

  And so that's what's happening here. So it certainly is, you could maybe discuss it as slightly imperialistic or interventionist, but honestly, Venezuela is undergoing this dollarization anyway. In fact, the Maduro regime is in favor of the dollarization of Venezuela because it's kind of a palliative measure. It's making the local population less angry with the regime, the fact that they can dollarize, so they decriminalize dollar ownership this year. So, you know, there's as much of a pull as there is a push happening.

• 55:02Ryan Sean Adams?

  And it's interesting, it's using crypto rails. So this is USDC. This is not, you know, US foreign policy intervention through the use of the SWIFT system. For example, this is like the first time it's being done through a stablecoin.

• 55:16Speaker 02

  Well, there's a last mile delivery problem, right? Because, you know, people, there's no real market to spend USDC in Venezuela right now. So they still face the challenge of getting USDC liquidity into Bolivars, which still exist, or into actual physical dollars. Really Venezuela dollarized with physical dollars. You know, like remember those things?

• 55:40Ryan Sean Adams?

  Yeah.

• 55:40Speaker 02

  We used to use them before the pandemic.

• 55:42Ryan Sean Adams?

  Yeah.

• 55:42Speaker 02

  So there's, there's probably about $2 billion worth of physical dollars circulating Venezuela. That's how they initially dollarized. Then it got more complicated. They used Zelle, a lot of Zelle. But the problem is that Zelle is kind of powered by banks like Wells Fargo. And there's no sanctions on Venezuela, the whole country, but there are sanctions on members of the kind of regime, the elites. And if you have, if you're unlucky enough to have sort of You know, maybe your uncle went to the coffee shop that's run by the nephew of the Minister of Transport or something. And then, you know, he sends you a birthday gift. You might have become tainted by association

• 56:23Speaker 02

  in the in the transactional graph, kind of like chain analysis, taint, that idea. So because of that, Venezuelans are constantly getting deplatformed from Zelle, from all these fintech apps. So you see, there's an obvious case to be made for the usage of stable coins or fintechs that are built on stable coins. Really fascinating sandbox environment. But yeah, you do need to kind of close that loop a little bit and get local merchants to accept USDC if you want this to like fully work.

• 56:54Ryan Sean Adams?

  It's super fascinating. Also, interesting because I I feel like there's something about that that was bullish crypto rails, right? But also like bullish, non-sovereign currencies that are credibly neutral, like a Bitcoin, or we would argue an Ether, and maybe some element of DAI. Because from like Venezuela's perspective, from the the anti-US regime, right? Their funds were essentially confiscated. And there's it's the same old problem of SWIFT where they're being kind of locked out of the existing system, right? So US's ability to exert some sort of control over something like a USDC, where they can, they have a centralized apparatus where they can exert that kind of control,

• 57:40Ryan Sean Adams?

  also make space for the presence of a of a non-sovereign, uncontrollable, neutral currency like a Bitcoin or an Ether.

• 57:50Speaker 02

  I recently wrote an op ed in CoinDesk saying, you know, the US should embrace crypto dollars because the alternative is the emergence of much less accountable forms of crypto dollars like DAI, for instance.

• 58:05Ryan Sean Adams?

  Yeah.

• 58:06Speaker 02

  And so they should embrace the somewhat, you know, fairly neutral kind of stablecoin infrastructure and surrender their control over the system that they exert with SWIFT. Because the alternative is much worse for them. It means that they have no control over the financial system if we go fully hashtag bankless.

• 58:28Ryan Sean Adams?

  Yeah, that would make sense if you were the US government. Hashtag Bankless tweeted out, okay. Bitcoin held by grayscale. This is, um, we had Mike, Michael Sonnenstein on a couple of weeks ago. And then we played the episode like two weeks later and we had to change the titles because at first we started at like, there's six billion in grayscale. And by the time we actually shipped the episode, there was like over 10 billion in grayscale. So this is blowing up, right?

• 58:53Speaker 02

  Yeah, and this chart's a little, um, maybe cheating to use this one because it only goes up by definition. It cannot go down.

• 59:02Ryan Sean Adams?

  Right, right.

• 59:03Speaker 02

  You know, so Melton pointed this out on her podcast, I think, What Runs My Gears. GBDC is a black hole of Bitcoins or, you know, the, the equivalent for Ethereum as well. You can't get them out. You can only put them in. So it's the most unbelievable phenomenon really ever, I think. Is it's, it's just sucking all this liquidity in. And the only way it gets out is if, you know, they wind it up and there's an ETF maybe. And then they go into global settlement or something. But really that is, the prospect isn't even described in the documents as far as I understand it. So, um, yeah, the grayscale is, is absorbing so many Bitcoins right now.

• 59:48Speaker 02

  It's preposterous. And some people say, well, that's because hedge funds are creating all the units of the trust to do this arbitrage play. But the reason that the arbitrage play is profitable is because there are investors on these brokerages bidding up the financialized Bitcoin product. So that's the reason the arb works because there's still that sustained bid pressure on the exchanges.

• 1:00:10David Hoffman?

  Nick, I remember hearing, I think in one of your weekly recaps recently where you noticed how Bitcoin tends to pump during business hours and how that was associated with grayscale. Can you talk about that connection? Because we just watched Bitcoin pump from like 18,500 to-

• 1:00:25Speaker 02

  Sorry, guys, I, I just lost you. I just lost the audio.

• 1:00:30David Hoffman?

  Oh, you can't hear us? Sounds like you can't hear us.

• 1:00:34Ryan Sean Adams?

  He can't hear us.

• 1:00:34David Hoffman?

  That's weird.

• 1:00:35Ryan Sean Adams?

  We can talk amongst ourselves, David.

• 1:00:37David Hoffman?

  Yeah.

• 1:00:37Speaker 02

  Okay, I'm back. I'm back. Sorry.

• 1:00:39David Hoffman?

  No worries.

• 1:00:40Speaker 02

  Just flipped to my phone.

• 1:00:42David Hoffman?

  So I was, I had been listening to one of your weekly recaps, weekly roundups with Matt Walsh on the On The Brink podcast, and you talked about how Bitcoin tends to pump during business hours, which is actually exactly what we've seen this morning, where Bitcoin jumped from 18,000 and a half to like 19,200, and you associated that with grayscale. Why, why are you associating this with grayscale?

• 1:01:05Speaker 02

  I might be wrong to do that, honestly.

• 1:01:09Speaker 02

  You know, maybe they are running their operations on the weekend or outside of business hours, but my guess is that either grayscale or any of these institutions that are intermediating Bitcoin custody brokerage for, you know, this institutional clientele, the NIDigs of the worlds, the Fidelity Digital Assets of the worlds. I don't have precise knowledge of their operations, but my guess is that those US-based, more institutional in nature organizations are more likely to be active during US trading hours. And the seasonality bears this out. I mean, I looked at it on SKU

• 1:01:47Speaker 02

  yesterday. You have strong return profile during weekdays, and you've, the absence of those returns on weekends, and the strongest returns in the last few months have been US trading hours. So in my view, that's consistent with the existence of a bid during banking hours when, when those markets can really clear.

• 1:02:13Ryan Sean Adams?

  So, so Nick, one thing that, that keeps on, I think, surfacing as we're going through these metrics is this departure from the 27, the difference between the 2017 bull market and the 2020 bull market that we've seen so far that you've described as in maybe the, the first half, right? Maybe the midway point, maybe not even the midway point. And that theme is institutions, like we're talking about the CME, we are talking about this robust options activity, we're talking about Bitcoin holdings and grayscale trust. I mean, these are all institutions. It feels like, like none of that infrastructure was available in 2017. Now it is. We're seeing it all go up and to the right, essentially.

• 1:02:57Ryan Sean Adams?

  Is it, is the bull run that we've seen thus far a result of the institutions coming are here? And has retail not yet arrived yet? Or is retail taking cut of this first? Who's leading this bull market? Is it different?

• 1:03:11Speaker 02

  Yeah, I would just say the capacity is very, very much enhanced. And that just broadens the, you know, addressable set of entities that can get exposure to the asset class. Now, you know, we talk about institutions, you know, pension funds, endowments. You know, like it's kind of a squishy term a little bit. We know anecdotally that, you know, sovereign wealth funds, we know that they have exposure to the crypto industry or a handful of them do in certain ways, some of them through the venture vehicle, through, you know, some of those larger venture funds, some of them through startup exposure. You know, they're getting exposure in a variety of ways. I would say honestly, probably the biggest change though would just be the social acceptability

• 1:03:56Speaker 02

  of having a long position in Bitcoin among high net worth individuals and family offices. You know, people on Wall Street, they obviously didn't want to be involved in a, like a retail kind of clown show in 2017, which was ICO driven and hype driven. Nobody wants to buy the top from retail investors, right? Absolutely nobody wants to do that. But this time around, you know, those people have had time to think about it and devise an investment thesis. There's macroeconomic tailwinds, which are incredibly real this time around. They weren't really present in 2017. So it's just become much more acceptable to have a Bitcoin position as, you know, this, you know,

• 1:04:37Speaker 02

  as a Wall Streeter or a billionaire, you know, or a dissident in Russia and you're trying to offshore your wealth. When all these people now, the, the, just the general atmosphere around exposure to Bitcoin and crypto has changed. And obviously the plumbing is better. So you can actually get that exposure if you want it now. You don't have to mess around with a ledger or anything. So, you know, I think it's, it's, you know, there's maybe a little bit more to it than just like the institutions are finally here. You know, it it it just sort of depends, but basically the industry can finally actually absorb capital from a variety of participants in a way that it just fundamentally could not do in 2017.

• 1:05:23Ryan Sean Adams?

  Wow, yeah, it's a huge change. All right. Stablecoin Free Float, there's a few more. We've got Stablecoin Free Float. We've got, what else? Oh.

• 1:05:34David Hoffman?

  Silvergate Settlement Network.

• 1:05:35Ryan Sean Adams?

  Settlement Network Layer, which is interesting. And then what else do we have?

• 1:05:39David Hoffman?

  The growth of crypto native credits.

• 1:05:42Ryan Sean Adams?

  Yeah, which which are the most, what's the most interesting thing to talk about of those three, Nick? Which would you like to dive into?

• 1:05:48Speaker 02

  Up to you. They're all very different. I had to kind of a contrarian take on the credit. I know a lot of Bitcoiners don't like banking. I was trying to say, the credit, if you look at where these lenders are lending to, and, you know, we invest in lenders, right? So we're pretty direct understanding of this market. The consumers of this credit are arbitrage firms, market making firms, trading firms. A lot of these firms make markets. They're the reason that these pairs are tight. You know, the spreads are are thin, and, or, you know, the markets are liquid. So the incredibly liquid and integrated, you know, and like

• 1:06:30Speaker 02

  sort of no arbitrage markets that exist in in crypto, exist partly because there's so much credit outstanding, because the cost of capital has decreased in the industry. So, and that's a great feature, right? You want the markets to be incredibly liquid. So we have the lenders to thank for that. That was the point I was making here.

• 1:06:51Ryan Sean Adams?

  But this is huge, right? So this is like, we didn't have any of this. Again, this is another thing we didn't have any of in 2017. There was no such thing as Block 5 for retail. Genesis, from a lending perspective, was just getting started. And to be clear, guys, what what Nick is talking about is crypto. Bitcoin, in this case collateralized loans, basically where you can deposit your Bitcoin and then you can take a loan against the value of that Bitcoin. And that market has just totally exploded and I think Genesis is certainly one of the leaders of that. So where do you see that, I guess, developing, moving forward in this bull run, Nick?

• 1:07:33Speaker 02

  I think we're going to see the largest deposit-taking institutions, Coinbase is the world, all those exchanges, realize that their destiny is to become a bank. So right now they're banks in the sense of I will custody your gold coins for you and then give you back those same coins, right? But in the near future, they're going to become banks in the sense that they will give you the option to have an interest-bearing account and they will put your assets to work for you and create credit, the same way that commercial banks do. And I can see you shaking your head because this isn't very bankless, this is bank full, you know, which is the wrong direction.

• 1:08:16Ryan Sean Adams?

  Well, I think you've got an interesting slant on that where you talk about how Bitcoin specifically enables a much more auditable trail here. But like, let's talk about banks for a minute and the next evolution, right? So first they're starting with these collateralized loans. But at some point, banking, they love to make fractional types of reserve products, right? That's how they.

• 1:08:40Speaker 02

  Yeah, I mean, the banking I'm referring to is not Lombard loans, but specifically standard commercial banking with credit creation where.

• 1:08:51Ryan Sean Adams?

  So you think that's coming? That's coming then?

• 1:08:53Speaker 02

  Undoubtedly, undoubtedly. There's nothing which really stands in its way. And of course, exchanges will probably give their depositors the option to have a full reserve account. So you'll sort of have the option, full reserve, not interest-bearing, fractional reserve, interest-bearing. But there will be an explosion of credit, simply because if you actually look at the yields. Um, in, in the crypto industry, the interest rates are kind of structurally high. And so there's clearly an under provisioning of credit, even though this chart is up and to the right. There's not enough credit being created in the crypto industry. There's a structural high demand for credit.

• 1:09:35Speaker 02

  Someone's gonna satisfy that demand. My guess is that one of the major exchanges starts to turn on interest-bearing accounts. Kind of in the near future.

• 1:09:45Ryan Sean Adams?

  That would be interesting.

• 1:09:47David Hoffman?

  I do want to touch on the stablecoin supply because that's uh, highly relevant to both Bitcoin and Ethereum. So I think right now there's roughly, there's perhaps even at this point, over $25 billion in stablecoins out there. And maybe, I think we had like three or four billion in Tether at the peak of 2017. And so not only is there, less than that, yeah. Not only is there just straight up more stablecoins, there's also more kinds. And they're spread across the ecosystem. Well, that's actually not totally true. There's like three billion on Tron and I think the rest is on Ethereum. Uh, so, so Nick, when you see just a massive supply of stablecoins out there, what does that tell you about the nature of this particular bull run?

• 1:10:28Speaker 02

  So the one thing is it pertains to Bitcoin is that Bitcoin was the uh, it was the kind of quote currency for exchanges, right? And it was the default currency pair for all crypto exchanges, kind of long to all coin exchanges, derivative exchanges. And that changed in the last year. I think you guys have pointed out too. These exchanges became largely tetherized. Tether became the default collateral. It became the default pair that things were traded against. And so what that will have done is that will have removed some of the structural kind of reservation demand for Bitcoin.

• 1:11:07Speaker 02

  So you know, you think about crypto exchanges as being a sink that Bitcoin, you know, falls into if it's the default asset. That was eliminated largely.

• 1:11:18Speaker 02

  And then Tether became the default pair. So despite that, the Bitcoin is now trading back at its all time highs. Means it is trading more on the basis of being kind of pure macro asset. As opposed to being, you know, like a, a reserve currency for the crypto industry. So that's a very positive thing in my view is that, you know, Bitcoin is largely eliminated from that reserve asset use case. Tether kind of replaced it, USDC as well. Um, and so it's impressive that it was able to sort of recover from that loss of a major use case. And then as for just the, you know, I think what this allows us to do is just reason more carefully about what we use these things for.

• 1:12:01Speaker 02

  It's clearly stable coins are the default, uh, MOE in the crypto industry. They're what people use to transact with. And then Ether and Bitcoin, people are using more as like the base collateral in these systems. I think that really clarifies what they're for. And, you know, we don't have to smash together all these different features and or try and use, uh, I mean, you, maybe you guys disagree with this, but I don't think that we have to force a square peg into a round hole anymore and trying to believe in retail. Bitcoin is this like payments asset, which is really not suited for. So the stable coins as a cohort have taken over that activity. The other interesting thing is that stable coins have a mutualistic relationship, I

• 1:12:44Speaker 02

  think with, I know, I, I've heard for you, your newsletter that it might be parasitic, but my view currently is that it's highly mutualistic with stable coins and crypto native, uh, crypto native assets. Uh, because the stable coins need something to trade against, something that's liability free. And if there's ever run on Tether, what did, what are they going to sell it for? They're going to sell it for the most liquid cryptocurrencies because, you know, those can't be confiscated. If there's a worry that your stable coins can be freeze or confiscated, frozen or confiscated, you'll just trade it in for the most liquid crypto pairs.

• 1:13:23Ryan Sean Adams?

  Yeah, I think that take could be right on, right? Because as you said, there's always the concern or the fear that the birth of stablecoins could lead to the demonetization of something, crypto native assets like a Bitcoin or an Ether. But really, what it seems to be happening is it's really totally killing the use case of 2017. I mean, part of the 2017 ICO fervor was these futility coins, where any coin can be a currency and therefore have a monetary premium associated with it. I think the success of stablecoins completely slaughters that 2017. Like, that

• 1:14:04Ryan Sean Adams?

  was the lazy fat protocol thesis, if you will, right? Like, all we have to do is we'll create a protocol and then we'll create this medium of exchange and we've got our own currency and bam, we've got a valuation to compare with Ether or Bitcoin, right? Well, like, no, just use USDC in DeFi, right? You don't need that. So it does, I guess, almost like act as an apex predator in the crypto ecosystem in that it like eats these tokens that aren't a Bitcoin or an Ether and can't rise above and create this monetary premium. It just eats all of those other imposters.

• 1:14:39Speaker 02

  It makes them more honest, you know, these payment tokens. If you're selling something as a payment token, you're gonna be, you know, my challenge to you is, are you gonna outperform a stablecoin in terms of your qualities and your transactional usage? This puts a gigantic hole in the Ripple story, by the way.

• 1:14:57Ryan Sean Adams?

  Yes.

• 1:15:00Speaker 02

  No one would. Yeah, gaping, gaping chasm in the Ripple story. Ripple's a bridge asset. That never happened. But guess what is a bridge currency? Stablecoins, 100,000%.

• 1:15:10Ryan Sean Adams?

  All right, last question for you, Nick. Why is Ripple going up right now, then?

• 1:15:15Speaker 02

  Ripple is really popular in, you know, in like Japan and Korea.

• 1:15:20David Hoffman?

  Oh, God.

• 1:15:21Speaker 02

  I don't, I don't necessarily have a ton of color. It could also be that people think the next administration is going to be favorable towards Ripple. That's plausible. Ripple invested a ton of money and energy in lobbying for good outcomes in DC. Maybe what's being repriced right now is the prospects of getting, avoiding the security monitor, moniker and being called a commodity. So that is one theory that I have to explain the price action.

• 1:15:48David Hoffman?

  And it changes nothing about the overall fundamentals of the project.

• 1:15:53Speaker 02

  Yeah, virtually no usage as a bridge currency.

• 1:15:56David Hoffman?

  Yeah.

• 1:15:56Speaker 02

  Obviously just use stable coins instead.

• 1:15:59David Hoffman?

  Yep, that's exactly right. Nick, thank you so much for putting the work into this article and then also coming on to share it with the bankless nation. I'm particularly bullish, but again, looking at all of this data, it's nice to have the data to back up the bullishness.

• 1:16:16Speaker 02

  My pleasure, gentlemen. Thank you for having me back. It's always fun.

• 1:16:20Ryan Sean Adams?

  Thanks a lot. We'll do number five pretty soon here, Nick. Guys, hang with us. We're going to do a quick sponsor break and then Dave and I will be right back with you to talk about the ETH side of the equation, the bull market that's happening there. Stay tuned.

• 1:16:34David Hoffman?

  Hey, guys, the next sponsor is Ledger and Ledger is running a 40% off Black Friday week sale. So if you haven't gotten your Ledger yet, you are in luck. For the week of the 23rd through the 30th, you can get 40% off of all Ledgers on the Ledger website. So if you are still using a hot wallet or you're just looking to get a backup, maybe for a multi-sig or just for some more redundancy, now is the time to go get that Ledger. There's a link in the show notes that can get you that 40% off Black Friday deal. If you want to live a bankless life, you need to get a hardware wallet. There is no alternative for storing your crypto in a self-sovereign fashion.

• 1:17:14David Hoffman?

  That's why I have four Ledgers that I use to manage my different crypto assets using the Ledger Live account as well. Ledger Live is like your home base for managing. Your Ethereum, DeFi, and crypto accounts. It does a really good job of aggregating all of your different Ethereum wallets. If you are the type of person that uses more than one. But you can also add other cryptocurrencies like Bitcoin or Cosmos, or whatever your preferred blockchain is. And then it will display an aggregate portfolio of all your accounts at the main page. One thing that Ledger is doing a really good job of is enabling all the money verbs that me and Ryan talked about with the Bankless Skill Cube enabled in the Ledger Live app. So right now in the Ledger Live app, you can buy, sell, lend, swap,

• 1:17:58David Hoffman?

  and stake your crypto assets, which is doing a really good job of fulfilling all of the money verbs in the Bankless Skill Cube. Something that's new to Ledger Live is Ledger Swap, where you can swap assets one for another directly inside the Ledger Live application, ensuring trustlessness in your financial activity on Ethereum and on Bitcoin. If you want to learn more about what you can do with a Ledger, go to the blog post "The Power of Ledger Live" on the Ledger website, where they share some of the more advanced things that you can do with your Ledger that you might not have known about. There's a link in the show notes that will take you to the Ledger shop, where you can get your preferred Ledger hardware wallets. I personally like the Ledger Nano X, but I also have both. They're both great options. When you own a Ledger, you own your own assets

• 1:18:43David Hoffman?

  in the way that they have been designed to be held by the user and the user alone. So go get your Ledger today to make sure that you are as self-sovereign as possible. The Bankless Data Nations are brought to you by Wyarn. Wyarn is DeFi's first self-building, community-run project, which I just get really, really excited about. Wyarn is a system that seeks out yield in DeFi, and it does that in a number of different ways. A very aggressive way is with the vaults, where you can deposit your preferred asset of choice, and different DeFi experts will come in and generate a strategy for what to do with your deposited token, right? And so it'll go find ways to get yield in that deposited token in DeFi.

• 1:19:26David Hoffman?

  For those who want to just earn yield on their stablecoins, the Earn system is for you, where you can deposit your preferred stablecoin, and Wyarn will go and figure out. Which money market on DeFi and DeFi is producing the best interest rate, whether it's DYDX, it's Compound or AVE. It looks around DeFi to see where the yield is coming from and it directs stablecoins automatically. So you don't have to. Check them out at whyearn.finance to get started. And also check out the stats page to see what other people are doing as well.

• 1:19:57Ryan Sean Adams?

  All right, Bankless Nation, welcome back. It's not only Bitcoin that is in full beast mode.

• 1:20:02David Hoffman?

  Full send.

• 1:20:04Ryan Sean Adams?

  Full send. It's also Ether that has gone full send as well. David and I are here to talk about this. David, let's start with that number. 524,288 ETH.

• 1:20:16David Hoffman?

  Right.

• 1:20:16Ryan Sean Adams?

  What is the significance of that number?

• 1:20:18David Hoffman?

  That is the number of Ether that we needed it to have gotten deposited into the deposit contract last night. And we absolutely blew that number out of the water. We were talking a while ago, a couple of weeks ago, I guesstimated like 85% chance probability that we'd make it. You said 95% chance. The fact that we exceeded that number by like 25% more Ether than what was needed. This probably makes me think that the probability was even higher than 95%.

• 1:20:46Ryan Sean Adams?

  David, I felt a little nervous. I'm gonna be honest. The last probably maybe like three days before or so, because look, when you put, when you've got a reputation like we have, David, which is absolutely stellar, and you put guesses sparkly, like indisputed, basically, and you put percentages of 80% probability or like 95% probability, right? And you're wrong.

• 1:21:13David Hoffman?

  Yeah.

• 1:21:14Ryan Sean Adams?

  It doesn't feel great, right?

• 1:21:16David Hoffman?

  That's a scar.

• 1:21:17Ryan Sean Adams?

  And it looked like things weren't happening as quickly as we thought. Well, even when we had Eric Connor on, it was funny because we had Eric Connor on, we're talking about like patriotic duty to stake and this sort of thing. And Eric Connor like leads Ether, I think. And even he was like, well, guys, it only makes sense from like, from a pragmatic investor perspective, if you're making the returns. But the funny thing about it was, Eric's tweet like two days ago was basically like, oh, change of plans. I've gone into staking, like I'm doing this for real. Forget yield farmings and he stepped up as well in a big way. And I think many in the Ethereum community did. And this is just the Ethereum community delivering.

• 1:22:01Ryan Sean Adams?

  That's what makes me more bullish than the actual numbers here. It's like the community came together collectively to go accomplish something. And not only did it do it technically, but it did it socially in getting this contract funded. And now we have ETH2 December 1st, 2020. That is going to be the launch date for this new internet bond and it's super bullish.

• 1:22:25David Hoffman?

  Yeah, and you know what I think happened is like the deposits ticked up slowly, right? And if it ticked up at the rate that it started to, and if it continued that it was totally going to miss. We weren't going to get there. But as that happened, the spots to fill became more scarce, right? Because if you're not in the deposit contract by the time the deadline hits, then you are got to wait in line, right? So I think all of a sudden people like saw that first it started going slowly and then it ticked up a little bit in speed. Still wasn't enough, but then it just like burst because the FOMO kicked in. Like FOMO of being part of ETH2 kicked in and it kicked in really, really hard.

• 1:23:03David Hoffman?

  So like I said in the in the intro to this to the show, like just a massive vote of confidence to how strongly the community is rallying behind like the desires for ETH2. Like there's a lot of external FUD coming, like especially coming from like Bitcoiners who are like, do the do, does the Ethereum community even want Ethereum too? Like how do the Ethereum developers even know that like Ethereum 2.0 is interesting to the Ethereum community? Which to me is just like a total disconnect from reality. But if there was any debate about what the Ethereum community wants, like look at the numbers like we want ETH2. We want it.

• 1:23:37Ryan Sean Adams?

  We want ETH2, absolutely. All right, so here's something else I think that kind of combats the FUD and is basically a headwind going into the bull run for Ethereum. Over the last, I don't know, three years, this whole bear market, the narrative has Spread that ETH two will never ship. It cannot ship. ETH is too slow. Every single Ethereum killer, uh, so-called, started with this premise that basically we can develop, Ethereum is a great idea, but we can develop faster than Ethereum.

• 1:24:12David Hoffman?

  We can do ETH two better and faster than Ethereum can.

• 1:24:15Ryan Sean Adams?

  Yes, you know, hundreds of million dollars of like projects were based on this entire, on this entire premise.

• 1:24:21David Hoffman?

  Eos, a billion dollar ICO.

• 1:24:24Ryan Sean Adams?

  Right, that ETH would, would never ship, would never be able to conquer this.

• 1:24:27David Hoffman?

  Definitive, near, like polka dot, like how many do we want to list?

• 1:24:30Ryan Sean Adams?

  They're still out there. They're still out there. So, and then what happened? It shipped. It shipped. And not only did it ship, like, I, this is not the entire, like ETH two vision, the Serenity vision, but the hardest part, like talk to Justin Drake, talk to Danny Ryan, who we've talked to, talk to Vitalik. They will all tell you that this phase zero is the absolute hardest part to get, right? Because this is the, Danny called it the heartbeat or like the brain of the operation. This is the consensus layer right here, and this is the launch of staking. So when you get that right, I'm not saying, you know, the next phase is just fall into place magically. It'll still take some time, but this was the big thing for the ETH community to overcome.

• 1:25:15Ryan Sean Adams?

  And we've overcome, now it hasn't launched yet, so December 1st is another milestone here. But, uh, we've, we've got a date now and now the smart contracts are in charge. So that's what dictates what's going to happen next.

• 1:25:28David Hoffman?

  Yeah, the, the ETH two will never ship, like all of a sudden, if you are still saying that, like you have so much responsibility to prove that statement, like right now, the default position is that ETH two is shipping, right? And the market is starting to price that in, right?

• 1:25:42Ryan Sean Adams?

  Okay, tell me about price, David.

• 1:25:45David Hoffman?

  We're gonna get there. We can't talk about price yet because there's so many things to talk about as to why the price is doing the thing that it's doing right now. One of them is just the removal of execution risk of Ethereum 2.0, right? Like that's, that's a huge thing. So there's, there's no way like people can, can still be legitimately saying that ETH two will never ship, uh, unless you have some sort of crazy knowledge that the rest of us don't have.

• 1:26:10Ryan Sean Adams?

  Yeah, absolutely. It's definitely gonna start ship. It's, I mean, it's already out there. So they can't say that. Like, where do you want to start with this, then?

• 1:26:17David Hoffman?

  I want to start with this. And so in 2017, the bull market had this underpinning of like, dude, we're gonna be able to stake Ether like in six months, right? In 2018. It's coming in 2018.

• 1:26:29Ryan Sean Adams?

  Is that what you thought?

• 1:26:30David Hoffman?

  That's what I thought. I was stacking my Ether in order to prepare for staking.

• 1:26:34Ryan Sean Adams?

  I was too.

• 1:26:35David Hoffman?

  Yeah, right? And then it never came, right? And then like, the bull market kind of ended. The ICOs are not a very good mechanism to capture value over the long term. They're very fleeting. If ICOs stop making people money, then people are going to leave. And that's exactly what happened. And staking didn't come in order to absorb that capital soon enough, right? Like, staking is coming in like seven days. Like, we missed that mark by roughly three years, like, whoops. But the whole underpinning of the bull market was by the prospect of staking Ether and getting a return, and Ether scarcity as a result of that. And that was happening towards the tail end of 2017 bull run. Like, that was at the end of the bull run. Now, staking is here, really even before the bull run for 2020

• 1:27:20David Hoffman?

  is really getting started. Like, to me, the price action now is just a return to the norm, a return to fair values. Bull markets always happen when we shoot above and beyond that. But to me, like, staking is happening before retail, rather than after retail, before people flood in, not afters. And so like, the whole genesis and development of Ethereum 2, all of the energy and capital and attention that got devoted to Ethereum killers back in 2017 and 2018, that's not going to exist. That's just going to exist onto Ethereum. That capital and energy is going to be directed towards Ethereum about the excitement of Ethereum 2.0. And instead of trying to fund your average Ethereum killer, it's much more likely that that capital gets deployed to trying to build some sort of crazy awesome

• 1:28:03David Hoffman?

  application on Ethereum. That's just a much more likely outcome in my eyes.

• 1:28:06Ryan Sean Adams?

  And we're already seeing it absorb capital. You know, I tweeted this out. Let me, uh, let me share this with you, David, because this is super cool, I think. So, one way to look at how much capital staking has absorbed is to look at sort of, um, like we've called it the internet bond and the bond market. And if you look at the domestic bond market of other nations and you like chart all of the nations and how mu- much in terms of bonds they've issued. Ether right now at launch will be somewhere between El Salvador and Venezuela in size. So if you plot it on kind of nations, it is number 145 with a $314 million bond market.

• 1:28:45David Hoffman?

  Actually, I just, I just reran the numbers because the numbers in the deposit contract have gone up and ether price has gone up. We are now at $390 million in the market cap of deposits.

• 1:28:55Ryan Sean Adams?

  You know what? Then we just pa- passed St. Lucia and we're right behind.

• 1:28:59David Hoffman?

  Apex predator of bond markets, baby. Working our way up the line.

• 1:29:02Ryan Sean Adams?

  We're trailing Uzbekistan. Okay. So now we're at 143. Not too bad. Uh, so th- th- this is what I mean. Of course, the, the non-sovereign bond market is absolutely massive. We've estimated it like 57 trillion. With a T inside. And of course, the big apex predator in the, in the bond market is, uh, treasuries, the old T bills. That's, that's number one. But this is another interesting way of looking at the capital absorption of it. And David, there's another thing that wasn't present in 2017, and that is this. DeFi.

• 1:29:35David Hoffman?

  DeFi.

• 1:29:36Ryan Sean Adams?

  It was just a, just a glimmer. I mean, like you saw a hint of it. I, I, I always argue that the 2017 ICOs were a form of DeFi, right? It was permissionless fundraising. A primitive, and it was very primitive in that sense of the word to you because, um, like there, there, there wasn't sufficient alignment between investors and stakeholders, right?

• 1:30:01Ryan Sean Adams?

  That was just the start of DeFi. Now we have a robust DeFi ecosystem. So what will that do, do you think, as a headwind going into the bull market?

• 1:30:12David Hoffman?

  Yeah, and in stark contrast to the 2017 ICO mania, like I said, the capital going into Ethereum, that was the thing that pumped Ether to $1,400, that capital was fleeting. People didn't give a flying fuck about what Ethereum was, or about bankless values, or about self-sovereign money management. They saw ICOs number go up and they wanted to play the game. And when it became obvious that the game was like wrapping up and coming to a close, and that people were making less money than they were making more money, then people left, right? It was, there was nothing sticky about Ethereum, right? There's no reason to hold your capital there. Again, Maker Dow wasn't created until December of 2017. And even in December of 2017, it had like a couple million dollars worth of ETH in it.

• 1:30:57David Hoffman?

  DeFi as a term wasn't even coined until the middle of 2018. And then we kind of retroactively said that like, okay, well, DeFi kind of started with Maker Dow, which means it started in basically the last two weeks of 2017. So we can call it, it started in 2018. Ethereum hasn't had a place to deposit capital and have it be sticky in any bull market ever, right? Ever. And so like the whole, and like Uniswap has never seen a bull market. And Uniswap has, as an application on Ethereum, is one of the applications that locks up the most amount of value. Same thing with Maker Dow. Like, right now, there is 2.75 billion in Maker Dow. There's 1.7 billion in Compound, 1.5 billion in Aave, 1.3 billion in Uniswap,

• 1:31:40David Hoffman?

  half a billion in Balancer, half a billion in Synthetix, 0.8 billion in Wire. Nexus is up there as well. We had none of these things in 2017. And now in 2020, we have so many places for capital to come to Ethereum and then stay there and get sticky inside of an AMM or inside of some sort of collateralized lending position. That when, when I see a dollar coming into Ethereum, I see like, oh, maybe 20 cents leaving in four years. Rather than in 2017, I see a dollar coming in, I see a dollar going out.

• 1:32:09Ryan Sean Adams?

  People aren't going to exit once they enter.

• 1:32:13David Hoffman?

  They're gonna be bankless.

• 1:32:15Ryan Sean Adams?

  Right? I mean, even if you, obviously, there's going to be a speculative type bubble in many DeFi tokens. That's totally obvious, but even if you invest in those things and then exit because the market gets overexuberant, out of control, are you gonna exit into fiat in your Wells Fargo account? Right? Or are you gonna exit to a stablecoin on crypto rails? Now that you know how to use all of this stuff and deposit it into some DeFi protocol and get like a 3% to 4% return versus your Wells Fargo account that's giving you nothing, 0%? Like, the people in this bull run who come to DeFi, what you're saying, to come to Ethereum,

• 1:32:56Ryan Sean Adams?

  are actually going to stay after the dust settles because there's a reason to stay, right? Like, you cross the bridge and there's a whole carnival here. Now you can like, set up shop, you can hang out, like, it's, this is the frontier, make a 10, right?

• 1:33:10David Hoffman?

  Water's fine.

• 1:33:13Ryan Sean Adams?

  Totally different than 2017, and I think that's bullish too.

• 1:33:17David Hoffman?

  You know what else is here in 2020 that wasn't here in the 2017 bull run?

• 1:33:22Ryan Sean Adams?

  Bankless.

• 1:33:23David Hoffman?

  Bankless, it was bankless.

• 1:33:24Ryan Sean Adams?

  That's not what you were gonna say.

• 1:33:26David Hoffman?

  No, that's exactly 100% what I was gonna say. There are two people that people love to watch that shill all of DeFi and tell people about how to live a bankless life. And so they're gonna come in and they're gonna be like, I'm interested about Ethereum, what's this Uniswap thing? Where do I go to learn about it? They're gonna find bankless and they're gonna learn about living a bankless life and they're gonna be compelled by that argument. And then they are going to keep their capital in Ethereum to base on that narrative.

• 1:33:51Ryan Sean Adams?

  As the bankless community, we are creating a narrative here and a shared experience here. And David and I, when you see us on these things or when we're talking, just the tip of the iceberg of the bankless community. We have bankless members in Russia converting bankless content into Russian and distributing that on Telegram. We have bankless members in France spreading the message that way and they've created a whole kind of like, David and I are just doing, we are just one. Small part of this movement in trying to like propagate it. But this movement didn't even exist in 2017 because DeFi didn't exist in 2017. It was just associated with like ICOs and scam projects, right?

• 1:34:33Ryan Sean Adams?

  And so we are planting a flag in the ground. If you're watching this, I hope like you are too. To say, we're not just speculating in this asset class. That's part of it. Of course, there's going to be upside and opportunities. But we're setting up shop here. Like this is, we're settling here. This is our home. Like we are claiming this vast, open white space. And creating a new economy here. Um, that's what I intend to do for the next decade, man. So.

• 1:35:00David Hoffman?

  I absolutely, I, I actually think that's one of the, the getting a narrative across during a bull market is really important. Like that's actually why, why we started promoting the whole Moloch thing. So like we had, we had attention. And we wanted to direct that attention towards the concept of like human coordination failure.

• 1:35:15Ryan Sean Adams?

  Well, I love that quote that you say so much, right? Which is basically, uh, don't let me butcher it, but you said the most bullish thing for Bitcoin and Ether is to be understood.

• 1:35:25David Hoffman?

  That's exactly right.

• 1:35:26Ryan Sean Adams?

  Right? And like, that's the same is true of DeFi and this, this bankless movement.

• 1:35:30David Hoffman?

  And the theses that we have put out on the bankless program, the protocol sync thesis, the Ether, the triple point asset thesis. Like the, the concept and ideas that we put out so far have been proven right. And so, so long as they continue to be proven right, like I think that the bankless narrative will continue to be proven out and more people will be, more people are compelled by theses that are proven, right?

• 1:35:52Ryan Sean Adams?

  Oh my God, dude. Thank God that contract made it and we made it. So, so we went wrong. Our 95% prediction, that would have destroyed our entire reputation.

• 1:36:02David Hoffman?

  Gone down to zero.

• 1:36:03Ryan Sean Adams?

  We would have gone and, and, and of bankless. All right. Uh, stable coins. We already talked about that's, uh, you know, it's interesting, like. Nic Carter wrote an article for Bankless, uh, where he argued the case. This is back in December of last year that stable coins might actually be parasitic to Ether. And now it seems like, and he was laying out the case. So he didn't, to be fair to Nick, he didn't totally subscribe to it at that time. But we just talked to. And he laid out the opposite case that stable coins are in fact bullish for ether.

• 1:36:35David Hoffman?

  Right.

• 1:36:36Ryan Sean Adams?

  Which is super interesting. Now we have almost 20 billion.

• 1:36:39David Hoffman?

  20 billion plus, 20 billion.

• 1:36:40Ryan Sean Adams?

  Worth of stable coins on Ethereum.

• 1:36:42David Hoffman?

  One transaction away from purchasing ether. All all stable coins on Ethereum are one transaction away from purchasing ether. 20 billion.

• 1:36:51Ryan Sean Adams?

  Pretty crazy. That's none of that existed in 2017.

• 1:36:54David Hoffman?

  Yep. And as the global demand for dollars increases, which it definitely is, it's going to that that need is going to be serviced by Ethereum. And so it's just

• 1:37:04Ryan Sean Adams?

  You've got

• 1:37:04David Hoffman?

  Growing the tentacles.

• 1:37:06Ryan Sean Adams?

  Yeah, absolutely. All right. So there's also some additional alpha to be found in Ethereum. This is one of the points you raised to me when we were talking about this episode. What do you mean by that, David?

• 1:37:15David Hoffman?

  Yeah, so I had a friend text me, a college friend, non crypto. And so I'm starting to get texts, right? Which is kind of how we know that retail is starting to arrive. And he he expressed that his being bummed about how he missed the boat on Bitcoin, right? He missed the party. And I told him like, well, no, you shouldn't think that because you haven't. The party is ahead of us. However, it doesn't matter that regardless, retail people and people coming into this space after about hearing Bitcoin ever, you know, for 12 years now, up to 12 years now, like they heard Bitcoin back in 2013, they heard about it in 2015, 2017, and they still haven't bought it. So that cognitive dissonance about buying Bitcoin now, even though they've already known about this asset for like seven, eight, nine years,

• 1:37:57David Hoffman?

  and Bitcoin is at this crazy high price tag of almost $20,000, there's going to be some cognitive dissonance there. And this is always true about bull markets. It's like people try and it's like, well, damn it, I missed the boat on Bitcoin. I'm going to buy this illiquid token that's going to pump 100x so I can like get up to where I would have been if I had bought Bitcoin back at $1,000. And those financial opportunities are DeFi tokens on Ethereum.

• 1:38:22Ryan Sean Adams?

  Yes, I totally agree. That is bullish the asset class now, but I do have a worry about that too, David, which is XRP price has been pumping.

• 1:38:31David Hoffman?

  Yeah.

• 1:38:32Ryan Sean Adams?

  And so your friend, unless he takes time to understand why Bitcoin and ETH are as valuable as they are and understand a little bit about capital assets and the DeFi ecosystem, the ways we sort of define, like define things, that education path, then they could be like, oh, XRP is less than a dollar. It seems like the next Bitcoin. And by the way, this crypto YouTuber, who has like 10,000, you know, 100,000 follower, like subscribers, says that XRP is going to be the next big thing.

• 1:39:03David Hoffman?

  It's going to a thousand dollars.

• 1:39:05Ryan Sean Adams?

  That's my worry for retail. Like, guys, if you're listening to this, don't let your friends who text you fall down these paths because those roads lead to a lot of pain and destruction.

• 1:39:17David Hoffman?

  Yeah. And, and there's also, you know, I, I think Ripple and other companies that benefit from these type of trades like are definitely culpable and like they're, they're definitely leading, they're definitely, they're not doing it on purpose, but like they could be doing a better educational effort in making sure that the people that are purchasing their token are doing a more informed decision-making process, which they're definitely not doing.

• 1:39:39Ryan Sean Adams?

  I definitely think Ripple's doing it on purpose.

• 1:39:41David Hoffman?

  Oh, yeah.

• 1:39:41Ryan Sean Adams?

  But.

• 1:39:41David Hoffman?

  Totally.

• 1:39:42Ryan Sean Adams?

  However. Some are not.

• 1:39:43David Hoffman?

  So Ripple, like you expressed this concern that Ripple just pumped and Litecoin also just pumped. I actually don't think that's retail. I think that it are is traders positioning themselves because that's what they think retail will buy. And I don't actually think we know what retail will buy this time around. I think that's an unknown quantity rather than a known quantity.

• 1:40:04Ryan Sean Adams?

  I actually agree with you there. I don't think we've seen retail enter. I think most of this has been institutions and people that were already bullish crypto doubling down on it.

• 1:40:14David Hoffman?

  The people that, sorry to interject, the people that have had come in that are new are people that were around in 2017 and then fully exited. And then those are the low hanging fruit coming back. So that's, that's maybe the people that are coming back.

• 1:40:27Ryan Sean Adams?

  That's who I'm getting the text messages from.

• 1:40:29David Hoffman?

  Yeah.

• 1:40:30Ryan Sean Adams?

  Right? So like you kind of worry when you start to, I mean, it, it used to be when you start to hear from a taxi driver about an asset, right? And like the bubble series, what they used to say, well, for crypto, sometimes it's getting texts from a friend. So far, I've only gotten texts from people who. Joined crypto in 2017 and then became like dormant.

• 1:40:48David Hoffman?

  Right.

• 1:40:49Ryan Sean Adams?

  And were sleepy and now they're waking up.

• 1:40:50David Hoffman?

  Right.

• 1:40:51Ryan Sean Adams?

  I haven't gotten texts from, which I received a lot of these in 2017. The guy that is friends with the guy I know who heard that I know something about crypto and has this question about.

• 1:41:02David Hoffman?

  An ICO.

• 1:41:03Ryan Sean Adams?

  Buying, yeah, yeah, buying Tron, right? When I get those texts, that's when I start to be like, okay.

• 1:41:10David Hoffman?

  Right.

• 1:41:11Ryan Sean Adams?

  Again, that's just a heuristic, but you know, another thing I, I, I hear sometimes. Um, this is more from the, more like the, the Bitcoin only crowd, but it's this. Um, I'm not interested in ETH until it's a globally adopted reserve asset. Everything's solved about scalability and DeFi runs the financial infrastructure for the world. This goes to your point about, you know, the, the texts you received about some people, they just are in this crypto paralysis of, oh my God, should I buy or not? It's like so volatile. What if I, like, they try to time their buys rather than just taking action and jumping in, right? And like, they'll hear something about some risk to ETH two, for example, maybe not being able to pull it off.

• 1:41:56Ryan Sean Adams?

  Or maybe, um, maybe there's, uh, there's lots of concerns about ETH two and they wait. And they wait until all of, not only the risk has been boiled out of the asset class, but all of the upside has been boiled out of the asset class too. It's like my retort to that is like, if you're waiting for Ether and DeFi to become the financial system for the world.

• 1:42:20David Hoffman?

  Right.

• 1:42:20Ryan Sean Adams?

  And for like central banks to buy into it and issue all of their, like,

• 1:42:24David Hoffman?

  Too late.

• 1:42:24Ryan Sean Adams?

  You're waiting, you're essentially waiting until ETH is 50K in price, right? Like, all the opportunity has been boiled out of it. So people also don't understand this kind of risk reward dynamic of, you just gotta take action sometimes if, if you believe in it. I'm, I'm sure you have friends like that.

• 1:42:40David Hoffman?

  Yeah, yeah, totally. And I mean, I was like this back in, in 2017 where like, uh, I came in, in the middle of, middle to late 2017. So like, late to the show, right? Like I was the retail club being dumped on. It was the rite of passage. Now I'm past that point now. And so I would always, I would see people that that I met who's like, who bought OMG, which was like the 2017 token at like a 20 cents and then it pumps all the way to $20. And so what I would do is I would like backtrack and be like, well, if I had deployed my capital at these prices, I would have gotten this rich, right? But you only ever get the full upside of the exposure if you purchase it immediately, right? You have to be owning it all the way through.

• 1:43:20David Hoffman?

  And that's why like I've, I was totally okay suffering through a goddamn three year long bear market, where I saw my Ether holdings fall down to $82, because I know that if I sell, I'm going to have to buy in later in order to access the upside. So why would I even sell now? You have to hold the asset for the entire lifespan of its cycle in order to access the full upside of its potential. Right? Like, that's, that's why you bag hold during bear markets, because you don't know when it starts to go up. But you do want the full exposure of when it goes up. And so when it finally does go up, you finally feel validated. That's kind of what I feel a little bit like right now, when I, when I watch the price of Ether like bust through 500 and scream to 600. I feel a little bit like that, like, imagine if I had tied, tried to time that.

• 1:44:05David Hoffman?

  Like, no, I'm just, I'm just gonna make sure I gain all of the exposure to it by just being a backholder.

• 1:44:11Ryan Sean Adams?

  Yeah, absolutely. And it's still, we think, probably early in the cycle. But, I mean, to be honest, it would have been way better for you to buy ETH when it dropped below 100.

• 1:44:21David Hoffman?

  Right.

• 1:44:21Ryan Sean Adams?

  Right? Just like in, in March, right? So that conviction is super important and it sort of separates the, the tourists from the, from, from the believers. And I think there have been a lot of people during the crypto winter, and this has been a particularly grueling winter for Ether, right? A lot of people left, but a strong community stuck around. And, you know, it's just, it's fun to celebrate that. I think that, you know, that there, there's some rewards there on that side of things. David, maybe we should end this with kind of like super bull case for Ether. I've got a few ideas on that.

• 1:45:00David Hoffman?

  Sure.

• 1:45:01Ryan Sean Adams?

  But where do you think, like, where do you think the market is taking us next? We said before that. This is 2016, right? So it's a setup for next year, which is 2017. I, I still think that's largely directionally correct. What's your take? What, what's the next step of this bull market here?

• 1:45:20David Hoffman?

  So if I, if I want to put on my maximally bullish hat, which I usually put on every single morning, I, I, I would, I would claim that this cycle is going to be a longer cycle than last time. The, and that's what we've seen with Bitcoin. These cycles get longer and drawn out. And so saying like, oh, we're in 2016 and next year's 2017. Well, we need to fit an extra year or maybe even two years in that timeframe somewhere. Because these cycles are getting longer and there are, are just when you, we capture the institutional side of the world. Institutions are by definition bureaucracies, which have our big ships, which have lots of money that pivot that ship really slowly. And so I could imagine a very long, slow, drawn out bull market where capital just constantly

• 1:46:05David Hoffman?

  just trickles into the space over and over and over two years, right? And so like I, maybe, maybe even longer, right? And so that's, that's why I'm particularly, particularly bullish on the, the concept of Ethereum 2.0 being in development in parallel to the Ethereum one DeFi chain. Because like that sentiment is that, that two year, two to three year long phase of getting Ethereum 2.0 out the door, I think it's going to run in parallel with a two to three year long bull market. So I think 2017 as a year could be two years long for us. And it's just a two year long, just, and this is something that I put out on the market Monday yesterday, and it's something I've been chewing a lot, a lot on my head, in my head recently is like the bull markets of this industry and why we are able to just like put it clear

• 1:46:50David Hoffman?

  like bookends as to when bull markets happen and when they stop happening, at least in hindsight. The bull markets happen when the world around crypto turns its attention back to crypto and reprices the whole entire industry all in one go, right? And so like it, it's, it's a huge lagging effect. Like the last three years of crypto, the, the attention of the world has not been on crypto. And so that's when prices bleed out and decline. Now the world is turning this. Attention back to crypto saying, oh, there's a lot more here than the last time I was paying attention to crypto. I'm going to price things accordingly. And that's when ether price goes from 200 to 600 in like, in like two and a half months. Right? Like it happens really fast.

• 1:47:31David Hoffman?

  And right now is when the purview, the eyes of the world are turning towards crypto and repricing this entire industry. And I think it's going to, to be a two-year-long repricing event.

• 1:47:44Ryan Sean Adams?

  I actually agree with you on that. I do think we've used the analogy of 2017, but it's probably the case that, that 2017 is sort of an analogy that stretches maybe multiple years. Right? I guess I'll, I'll, I'll leave with, with these thoughts. This was kind of my take on what, what things could look like in that two-year time horizon. And looking at it from a, how much ETH supplies actually locked, right? So we've been talking a lot about kind of the demand side. And these things are certainly triggers. But I also think what's coming in the next two years, again, not right away. This is the first milestone of ETH two is a big change in the supply economics of ether as an asset.

• 1:48:26Ryan Sean Adams?

  So let's say you get 25% ETH locked up by true believers who are in this for decades and they're here to stack way, stack ETH, right? And then you've got 20% locked in DeFi. Well, is that crazy? At, uh, right now it's about six to 7% ETH law, ETH supply, uh, locked in DeFi, right? And at the beginning of 2017, it was zero. So could that double? That's not crazy. As the institutions sort of come and as DeFi projects do well, they might consider locking a portion of their capital into balance sheets. These DAOs are essentially a new type of crypto capital formation tool.

• 1:49:11Ryan Sean Adams?

  They're like a, a corporation. So that could take up, say, 15%. Grayscale is already at two to 3% of all ETH that's locked. Could that rise to 5%? If you get 3% in staking and we're already at a half a percent right now at the very start. Well, all of that, you add that up and you've got already 70% of ETH supply pretty much locked. And then what's going to happen, David? Is in 2020, when the proof of work chain merges with the proof of stake chain, which is about to be launched, you get annual ETH issuance going from 4.5% to something near zero, right? This will be less than 1%, possibly it could even graduate to the negative territory,

• 1:49:56Ryan Sean Adams?

  where we're actually burning more ETH than we are issuing and minting. So what happens when you get demand but no supply? That's a supply-side crisis, and for a scarce asset like ETH, the only direction when that happens is up. That, I think, is like a two-year bull case or a three-year bull case for what could happen to ETH the asset. And if that's the case, we're not going to be staying at 600 for very long. That's my take.

• 1:50:22David Hoffman?

  Yeah, this is absolutely the right formula. I would tweak these numbers a little bit. I don't think it's actually, I don't think you actually get to claim that there's never such thing as never sellers, because there's literally a price for everything, right? And so like, yeah, I'm a never seller, because I could never really reasonably see Ether at like $1 million per token. But it's like, well, if you offer them $1 million per Ether, they're probably gonna sell.

• 1:50:43Ryan Sean Adams?

  Let me ask you this, though, David. So what happens, though, if your ETH is going up in value, right? But also, your ability to generate wealth on top of that ETH goes up in value too, right? So the ability to, rather than sell your ETH, why don't you just take like a very small portion of your supply and take out a loan?

• 1:51:05David Hoffman?

  Right.

• 1:51:05Ryan Sean Adams?

  On it, a collateralized loan on it. Or why don't you just put some of that ETH, David, into DeFi or into staking? And then instead of selling, you can earn a nice 5% to 10% return off that ETH, and you don't have to sell. This is kind of back to the, like, the Neo taking the pill, right? Like, when, when this is all fully matured, you won't have to sell your Ether, you know, because it becomes part of the fabric of the, the economy and of the financial system. So I agree with you, there's a price for everything, of course, but there might be... There might be some never sellers out there, at least a portion of your proceeds you might never sell because of this.

• 1:51:44David Hoffman?

  Yeah, I haven't considered DeFi has infrastructure to help support you not to have to sell your Ether and be able to access liquidity from that in different mechanisms. That's, that's, that's an interesting take. That's an interesting take. That's pretty cool. Yeah. Okay. So maybe we can generate like a cohort of like never sellers who like, they still get the value out of their Ether, but they do it from like loans rather than, rather than selling. One thing that you did not, I think you really priced down the supply of Ether in staking. I think you, you said like three to 5%. I think that's going to be something like 10 to 15%. I think that's going to be a lot higher than that.

• 1:52:20Ryan Sean Adams?

  Yeah. So these numbers, play with these numbers as, as you will. These are all supply syncs, I think for.

• 1:52:27David Hoffman?

  And then burn a fuck ton with EIP 1559.

• 1:52:31Ryan Sean Adams?

  Which is, is going to be native to ETH2 and we will see. All right, David, I've gotten all the like, my bullish feelings out on this podcast, so I'm, I'm feeling like it's pretty complete. Anything else you want to say?

• 1:52:44David Hoffman?

  Nope. I think we should wrap this up. This is as bullish episodes as they come.

• 1:52:49Ryan Sean Adams?

  All right, guys, risks and disclaimers, of course. We are bullish on these assets, but this is not financial advice, not at all. ETH is risky. So is crypto, so is DeFi. You could lose what you're putting in. We're headed west, though. This is the frontier. It's not for everyone. But thanks for joining us on episode 24 of State of the Nation. We are triumphant this week.