#1145 Will Clemente On Bitcoin 2023 Outlook & 2022 Review

Will Clemente is the co-founder of Reflexivity Research. In this conversation, we talk about bitcoin, bitcoin miners, 2022 crypto contagion, and the bitcoin outlook for 2023. ======================= Announcing LYCEUM | Miami, a day-long event on March 4th, 2023 in Miami hosted by Pomp. We’re gathering an explosive group of experts to engage in a series of fascinating discussions. We'll cover topics from investing, emerging tech, scientific research, sports, music and more. We have some massive names being announced via Twitter throughout January so stay tuned for details. This will not be your typical event and it certainly won’t be one you want to miss. We’re going to learn a lot, make some smart friends, and as always, we’re going to have fun. Spots are limited so head to lyceummiami.com to buy your ticket today. ======================= Pomp writes a daily letter to over 200,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/ ======================= With a Messari Pro subscription, you gain access to exclusive industry-leading long-form daily research reports, daily crypto news & insights in your inbox, advanced asset screeners, curated sets of charts and metrics and so much more. Try Messari Pro today! Get up to 25% off their Messari Pro membership by visiting www.messari.io/pomp and entering promo code "POMP" at checkout. ======================= LMAX Digital - the market-leading solution for institutional crypto trading & custodial services - offers clients a regulated, transparent and secure trading environment, together with the deepest pool of crypto liquidity. LMAX Digital is also a primary price discovery venue, streaming real-time market data to the industry’s leading analytics platforms. LMAX Digital - secure, liquid, trusted. Learn more at LMAXdigital.com/pomp =======================

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

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Will Clemente is the co-founder of Reflexivity Research. In this conversation, we talk about Bitcoin, Bitcoin miners, the crypto contagion of 2022, and his outlook for 2023. I really enjoyed this conversation with Will, and I hope you guys enjoy it as well. Once you get done listening, let me know what you think. Jump on Twitter, tell us what you agree with and what you don't agree with. I always appreciate the feedback, it helps us get better, and the guests also enjoy hearing from you. Okay, here is my conversation with Will Clemente.

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• 1:33Speaker 05

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 1:57Anthony Pompliano?

  All right, guys. Bang, bang. I've got Will here, the young wizard. You and the team at Reflexivity Research put out a brand new report summarizing all of 2022 and doing a little bit of a look forward for 2023 for Bitcoin and crypto assets and also the macro environment. So I thought it'd be great just to kind of dive right into, maybe we'll start with macro. Obviously, inflation was a major story over the last two and a half, three years. How do you break down where we are in that inflation story and where we've been? Yeah.

• 2:26Speaker 06

  Absolutely, it's a great question. You know, if we just backtrack to early 2020, you know, we had the largest liquidity insertion into, you know, the broader, you know, economy than I think we've ever seen in history, at least on like a rate of change basis. And, you know, with that, we had kind of a lagging effect where, you know, some people were speculating, would we see inflation? Bitcoiners, of course, said that, you know, we would, but it took about six months until we finally started to see that be reflected in CPI. You know, a large portion of that also had to do with the China lockdowns and a lot of the COVID-related, you know, policies that had kind of gone into place. Obviously, towards the back half of the year, we saw that to be, you know, begin to be a big issue. And in retrospect, you know, once Jerome Powell came out and said, hey, you know, inflation is no longer transitory, that should have been kind of the signal to sell

• 3:11Speaker 06

  everything in hindsight, which of course is 2020. But, you know, since then, we've seen the most aggressive, you know, monetary tightening period in history. If we go back and look at year-over-year change in M2 money supply, I think it's the first year that we've seen a net negative change, and this is a chart that we put in the report, you know, going back and looking at this over the last 40 years or 50 years, I don't think we've ever seen such a sharp decline in the rate of growth in M2 money supply. Also, you know, at the same time, we're seeing, you know, quantitative tightening from the Fed as well. And so the combination of that has made, you know, absolute brutal conditions for, you know, growth assets. And unfortunately, you know, Bitcoins got basketed in with that. You know, I think one thing to keep in mind, and I think we definitely both

• 3:54Speaker 06

  agree on this, is that you kind of have to compartmentalize CPI and M2 money supply, right? And so, or I should just say, you know, broader liquidity conditions.

• 4:03Anthony Pompliano?

  Explain that.

• 4:04Speaker 06

  Sure. So, you know, when money comes into the system, it doesn't have an immediate effect, right? You know, money comes in through QE, which is basically the Fed buying bonds, right? And that doesn't immediately translate to, you know, the prices of something at the grocery store. And, you know, at the same time, also, you know, we had a bunch of stimulus checks that came out in 2020, which added, you know, another, you know, piece on top of the QE that had been taking place for the last 10 years. But there tends to be a big lag between when the money comes into the system and when it begins to get reflected in something like a CPI, which is a lagging indicator by definition.

• 4:39Speaker 06

  And so I think that's kind of why, you know, while Bitcoiners were harping on, hey, look, they printed 40% of all the money in existence in early 2020, it took, you know, five, six months for that really to start, you know, getting reflected in the actual CPI numbers. And Bitcoin, you know, performed accordingly. You know, there's a lot of people that said Bitcoin failed as an inflation hedge. You know, I would actually argue the complete opposite. You know, I think what you need to be looking at is Bitcoin's performance on relative to like the six, six month change or one year change in the M2 money supply, rather than looking at the CPI, because it's a direct, what I would say hedge against monetary debasement instead of necessarily inflation. And so when we look at its performance since the end of last year, it's done exactly what Bitcoiners have said it would, you know,

• 5:21Speaker 06

  would do as basically a check on central bank, you know, monetary policy. And so of course, you know, as the liquidity tide has pulled back, we've seen Bitcoin perform exactly how you would think it would do so. And, you know, those environment, that environment. And so, you know, I think you've had a lot of kind of misguided criticism over the last year, people saying, well, you know, inflation is at, you know, a multi-year high, how come Bitcoin is down? What happened to the, you know, what happened to the inflation hedge argument? And, you know, I think for a lot of Bitcoiners, including the two of us, I would say it's performed exactly how you would like it to.

• 5:52Anthony Pompliano?

  So that's interesting because I think that there was this, maybe not confusion, but almost used as a common term where people would say inflation and some people were actually talking about true CPI, you know, year-over-year rate of change. And some people were talking about monetary debasement. And there's obviously a lot of connectivity there, but they are two separate things. And so is your belief today that given all of the benefit of hindsight, that actually Bitcoin is a monetary debasement hedge, but not necessarily an inflation hedge? Or do you think it's both? Like, how do you kind of come to a conclusion and say like, this is how I think about Bitcoin today?

• 6:24Speaker 06

  Yeah, I think it's the former, right? And, you know, you have certain periods where, you know, like what we saw at the end of 2020 into the beginning of 2021, where you kind of have an overlap of, you know, M2 money supply and the broader, you know, liquidity, however you want to look at like net liquidity, this is something like Darius Dale likes to talk about looking at like TGA accounts as well as M2 money supply. You know, you kind of can get this period where if it's continuing to trend up for like a year or so, you could have a several month period. Where CPI is ticking up in, you know, confluence with M2 at the same time. And you know, Bitcoin appears to be, you know, performing at, you know, a high correlation with CPI itself going up. But yeah, I think, I think when you look at the kind of historical data and the way that Bitcoins perform, looking at different correlations to things like the Dixie or like the net liquidity index or M2 specifically.

• 7:10Speaker 06

  I think that those are the, the, the best mental frameworks I would say to think about Bitcoin.

• 7:14Anthony Pompliano?

  So when we actually look at the quantitative tightening that's been happening, it, or I'm sorry, monetary tightening that's been happening. It's very obvious that interest rates continue to go up and without speculating on like where interest rates are going to go from here. Is it as simple as just like when interest rates go up, people realize the cost of capital is going up and therefore they stop buying things, they stop investing in things and therefore that is what is going to pull down inflation. Is it really like just how the theorist would describe it?

• 7:43Speaker 06

  Sure. Yeah, I think on, in a general basis, yes, you know, you have basically, you know, the Fed tightens monetary conditions, raises, raises interest rates, which goes down to, you know, your large traditional banks and then affects all businesses below that. And then, you know, as you have, you know, businesses that decide that they need to cut back, they're no longer, you know, able to borrow money as easily, right? I mean, you could borrow basically any amount of money over the last two to three years at a 0% interest rate. I mean, look at what Michael Saylor did, right? He was able to borrow a billion dollars for his leveraged Bitcoin bet at a 0% interest rate, which is just absolutely insane. We also had, you know, negative real yields, which is you're basically paying people to give you less money in the future. It's absolute madness when, you know, you're in that zero interest rate environment.

• 8:26Speaker 06

  But now it's taking place is, you know, as you have all these companies that are starting to pull back on spending, they're cutting back on hiring. You know, that trickles down into all the smaller guys below them. And so you basically get this effect where, you know, as certain large businesses pull back, then all the small businesses that, you know, perhaps they have lending exposure to, or, you know, they're, they're, you know, they, they impact in terms of like they're part of their supply chain or whatever it may be, their B2B businesses, things like that. It all trickles down and so, and then kind of the, the final trickle down effect of that is that as businesses cut back and people lose their jobs, then the consumers stop spending. And so I think, you know, over the next few months, we're finally starting to see that take place. We have started to see CPI kind of roll over over the last few months.

• 9:12Speaker 06

  And what, you know, this is something that Stanley Drucker Miller has talked about before. Historically, like, large raises in CPI inflation don't end until the federal funds rate actually crosses the CPI number. We are getting very close to that, we're within 50 bips of that taking place. And so, you know, if we have another two months of, you know, a continued downtrend in CPI, and, you know, the Fed raises another 25 bips at their next meeting, then you, I think, you know, you could see that kind of crossover of the federal funds rate finally getting above the CPI number, perhaps, you know, sometime in Q1 of this year.

• 9:47Anthony Pompliano?

  And when you're talking about CPI, you're talking about the CPI number or the core CPI number in terms of that cross?

• 9:52Speaker 06

  Correct, the, just the regular CPI.

• 9:54Anthony Pompliano?

  CPI. And so, as that occurs, the thought process would be, okay, CPI comes down, the interest rate continues to go up, they cross, is there any analysis that you're aware of in terms of how long it needs to, the interest rate needs to be above to kind of kill off the inflation? Or is it just a simple cross of those two numbers should signal that, hey, we're going to head in the right direction?

• 10:16Speaker 06

  It's a good question. I don't know the time aspect of something.

• 10:19Anthony Pompliano?

  Yeah, I don't either. It's fascinating to think about that, right?

• 10:21Speaker 06

  Yeah.

• 10:22Anthony Pompliano?

  It's like, because really, it says, like, once they cross, then should the Fed keep interest rates high for a long period of time? Or is it just good enough to cross, leave it there for a quarter or so, and then you can actually start to pivot?

• 10:31Speaker 06

  Right. I think, you know, that's been kind of the big debate is, you know, the velocity of, you know, rate hikes, I think, is kind of in the past. But, you know, the bigger question on everyone's mind is, how long is the Fed going to, you know, hold rates where they are? According to the dot plot, it's going to be towards, you know, the back half of the year into 2024. But that was the same case at the end of 2018. So, you know, I will say, on one hand, you know, the Fed has done exactly what they said they were going to do. And I will say, you know, I think we were both kind of surprised with, given where debt to GDP is at, you know, how the economy hasn't, or at least, you know, things like looking at the Treasury market, just hasn't completely melted down, although we have seen a big sell-off. Markets have been relatively, you know, orderly, I would say. And the sell-off in equities has been relatively controlled. We haven't had any,

• 11:15Speaker 06

  like, limit-down days or anything of the sort, right? So, you know, I think it's, it's something where, I've been surprised personally, but I would also still be surprised if, you know, we get to the end of the year and the Fed's Holding interest rates at, you know, five and a quarter percent and, you know, we haven't seen any type of significant, you know, decline in the economy. I think also, you know, maybe part of it is, you know, all the stimulus checks that went out in 2020 and, you know, all just the massive amount of liquidity that got pumped into the system kind of gives a buffer where, you know, maybe the historical numbers of, you know, how, how quickly it took for CPI to really start rolling over and, you know, how, how long it took for things to really start breaking after the Fed, you know, raises rates at, you know, such an unprecedented rate like we've seen over the last few years, you know, potentially that's why we've seen a couple of month delay and some of those effects

• 12:00Speaker 06

  that I think both of us are kind of surprised that we haven't seen already.

• 12:03Anthony Pompliano?

  One of the things that you don't expect in the bond market is lots of volatility, right? And in the report, you guys talk about the move index, which is kind of the VIX for bonds. And it actually was more volatile last year than it was during the March 2020 crash. So there was more volatility in 2022 than there was in the bond market than in March of 2020 during the liquidity crisis of the start of the pandemic era. Now, the only time that the move index had been more volatile than it was in 2022 was during the 2008 global financial crisis. And so how do you think about, you know, if there's so much volatility in bonds, and yeah, we know the volatility in the stocks and in crypto and all these other things, like, was it just generally a year of volatility across 2022 and there was nowhere for people to hide as investors?

• 12:49Anthony Pompliano?

  Hey, guys. I hope that you're enjoying this interview. Before we continue, I want to quickly remind you, I'm hosting a conference, March 4th, at the Miami Beach Convention Center. That's right. It's a big venue for a big event. On March 4th, I'm bringing together some of the absolute fan favorite guests from the podcast and this show, and we're going to debate ideas. The event is called Lyceum Miami. The Lyceum was the public gymnasium in Athens, Greece. That ancient gymnasium was important because it's a place where people from all walks of life came together to have a war of ideas. You were able to not only participate in the debates, but also people could sit and watch some of the smartest people in the world talk about important issues. That's what we're going to be doing

• 13:31Anthony Pompliano?

  on March 4th at the Miami Beach Convention Center. If you want to join us, go to lyceummiami.com or click on the link in the description and I'd love to see you there. Okay, let's get back to this conversation.

• 13:43Speaker 06

  Yeah, I think that's pretty well said. You know, I think, you know, one mental framework is just looking at markets in general. It's really just comes down to liquidity and volatility. And so when you pull back liquidity, then volatility increases. And so that's been reflected heavily in the bond market. You know, it's been the worst year for bonds, I think, since like the late 1700s or something like that. You know, it's funny, too, when you look at Bitcoin. At one point this year, Bitcoin is actually less volatile than than bonds, just looking at the move index. Bitcoin's volatility is at an all time low right now, while, you know, the bond volatility represented through the move index, as you mentioned, is, you know, near, you know, 10 plus year highs, right? So I do think it's kind of funny, just as like, as kind of like, just separate, you know, fun fact is that this year Bitcoin's

• 14:27Speaker 06

  volatility actually reached a lower state than bonds, and also several currencies. So if you remember, you know, when everything went on in the gilt market, the pound sold off aggressively, right? And so during that time period, Bitcoin actually became less volatile than one of the largest currencies in the world. And so I think, you know, for a lot of the critics of Bitcoin, just on, you know, a volatility basis, I think a lot of those things have just been kind of completely wiped off, off the map, right? In terms of Bitcoin is too volatile to be an asset. You know, we've seen every single major asset class this year show incredible amount of volatility.

• 14:59Anthony Pompliano?

  What do you think about dollars and like the dollar index? So the dollar against other foreign currencies, right? It seems like the dollar has continued to strengthen pretty aggressively all throughout 2022. And what is your expectation in 2023?

• 15:12Speaker 06

  Yeah, I think it's interesting. Now you're finally starting to see like the ECB starts to raise rates. And so I think with that, you know, the Dixie itself, which, you know, to, to just remind people, you know, it's just a relative gauge of currency strength against each other. So you're just looking at a basket of different currencies relative to the, to the dollar. And so I think you could have the DXY decline, you know, as these other foreign currencies are, you know, continuing to, on a relative basis, get stronger because the monetary conditions in those countries are, are getting tighter. And the US has kind of surpassed the, you know, rate of, the rate of change in terms of, you know, rate hikes, whether, you know, Hold them there as kind of a TBD for the rest of the year.

• 15:56Speaker 06

  But in terms of kind of a relative basis to the other countries, you've seen, you know, the Fed tighten really aggressively throughout the year. You know, other central banks haven't, you know, tightened as aggressively and kind of caught up. And now I think you're starting to kind of see them catch up, you know, with Christine Lagarde stating that, you know, they finally need to start to raise rates to try to catch up to the Fed. And I think part of that is just currency strength. So I think you could see this, this period where perhaps the Dixie could decline, but that doesn't necessarily mean that it's bullish for, for risk assets, right? And that's solely because, you know, the Fed, you know, you could have the Dixie decline because the Fed is easing, you know, monetary conditions relative to other countries. Or you could have it decline because, you know, the Fed has already raised, you know, rates and tighten monetary

• 16:39Speaker 06

  conditions. But then you have the other countries, you know, stepping in to, to catch up. And so I think with that, you could, you could kind of get this weird period where the Dixie actually declines, but perhaps it's not like super bullish for risk assets like it historically has been.

• 16:51Anthony Pompliano?

  So I want to read a part from the report specifically talking about US yield curve. It says, as it stands, the US yield curve is now nearly entirely inverted. And other countries such as Canada are entirely inverted. Going into 2023, all indicators in the bond markets are pointing towards a significant recession occurring in the next 12 to 18 months. And so when you see that, the yield curves inverting has historically been a warning sign. But to say that there's a significant recession in the next 12 to 18 months, that is something that is becoming much more of a popular view. There's more people kind of sounding the alarm. There's more people who are pointing to all these different data points. How do you view the inversion of the US yield curve? And then also the inversion of yield curves around the world? And is that a signal for the severity of how bad the recession will be?

• 17:36Anthony Pompliano?

  Or do you just look at those as two separate data points, but they tend to kind of follow sequentially?

• 17:41Speaker 06

  Yeah, I mean, it is pretty weird when you think about it just from like a first principle standpoint, you know, because banks traditionally borrow on the short end and land on the long end. And so when, you know, you have an inversion, it completely throws off that dynamic. And like you mentioned, historically, when you look at kind of like the 10 twos or some people like to look at, you know, different, you know, comparisons of, you know, different, different yields. You know, yeah, like you said, Historically, they have been kind of a a leading indicator. And like you said earlier, you know, I think we could kind of have this lagging effect where the tightening that's, you know, taking place over the last year hasn't fully, you know, gotten reflected in consumer spending to the extent that maybe it perhaps will over the next few months.

• 18:19Speaker 06

  But yeah, I mean, I guess it's kind of TBD. I wish we had a wish we had Felix who's our macro analyst who could give you a much better response than I can on the macro stuff.

• 18:27Anthony Pompliano?

  I love it. You wrote a whole section on crypto contagion. And that was one of the big stories of 2022. Walk me through kind of in hindsight, what is your evaluation? How would you describe to a friend like, okay, here's what happened with contagion in the Bitcoin and crypto industry throughout the year?

• 18:43Speaker 06

  Yeah, it's a great question. I think like the first thing to state is that everything we just described, you know, historic rate of, you know, monetary tightening, you know, that that's caused everything in crypto, at least, you know, indirectly. I think it's important to just state that, you know, all of the kind of crypto contagion and credit blow up that we've seen throughout the year is all well, should all be taken into context with, you know, the liquidity tide pulls back, right? As Warren Buffett likes to say, when the, you know, when the tide comes back, you see who's swimming naked. And that's absolutely what we've seen in crypto this year. Going back to the beginning of the year, the the kind of initial thing that, you know, the initial domino that set everything off was Luna. You know, Luna was this at its peak when you when you combine U S T and Luna was worth over $60 billion on paper.

• 19:27Speaker 06

  You know, not that there was that amount of, you know, value that went into the actual asset, but that was that was the peak market cap. When you looked at kind of Luna and U S T, U S T was this algorithmic stablecoin that was very closely tied with Luna. At any time, you could redeem one asset for the other. And so the whole kind of system was whereas you had like Solana was kind of, you know, bootstrapped and spearheaded by, you know, SBF and the F T X group. You had Avalanche, which was essentially, you know, spearheaded by Three Arrows. Luna was really brought to prominence through this DeFi application that was built on Terra called Anchor. And with Anchor, you could basically get 20% risk-free yield by, you know, piling, you know, your U S T, purchasing the U S T, putting it into the protocol.

• 20:12Speaker 06

  And some people would say it's very Ponzi like and that you need new market participants to step in to kind of, you know, you to cause that, you know, yield to continue to be sustainable. And what happened was is basically, you know, this, this works great when, you know, there's high confidence in the system. But when you do lose confidence in the system with an algorithmic stablecoin, you could have something called a death spiral. And this is something that, you know, Do Kwan was very vocal about when he came on your podcast. He walked through and said, you know, this is something that's possible is you could have this death spiral. But I think, you know, he was just a little too confident in hindsight about, you know, the validity of the protocol and its resiliency.

• 20:50Speaker 06

  You know, I think one thing that I think it taught people is just, you know, when people lose confidence and people, you know, are in a state of fear that overrides any rational thinking that maybe they had about. You know, the protocol, they could be, you know, have a positive outlook on it for like six to eight months. But as soon as they, you know, start to feel fearful, that overrides all of that, right? And so, um, you know, you had all these diehard Luna people that I think as soon as the peg started to break, you know, they started to get a little nervous. And so you had initially this move down in the peg from like a dollar to like 99 cents or 98 cents. It bounced back quickly. I don't know if someone was like defending the peg like jumper, one of those type of entities.

• 21:29Speaker 06

  It's hard to say, but after that, you know, it kind of had this dead cat bounce up back up to like 99 cents on the dollar and then completely nosedive. And so, you know, what happened was basically, um, once, once the U S T supply was significantly lower than the Luna supply. It was basically locked in and it was going to be a death spiral because the redemption mechanism no longer worked. And so that completely crashed in a matter of two days. I think it went down like 99% or something crazy. So it's crazy looking at the chart now in hindsight. And so with that, you know, I tweeted out at the time, this is the, uh, this is crypto Lehman Brothers moment, right? In terms of, um, you had this, you know, huge kind of too big to fail entity that failed. Uh, and now we're going to see the fallout of it.

• 22:13Speaker 06

  And it took some time, um, which, you know, I guess is because, you know, people don't immediately want to kind of poke their neck out and say that, you know, they're hurting. Everyone kind of wants to assess the damage and see who pokes their neck out first and, uh, then kind of reassess from there. But, um, you know, after, after a few months, um, you know, we began to see all the effects of that. And the first kind of big domino to fall after Luna was Three Arrows Capital. Three O's Capital was initially started as a currency arbitrage fund. They would do different types of arbitrage through foreign exchange, started by Suzu and Kyle Davies. We both had like a traditional banking background. They ran up, from my understanding, I think their initial base of capital was just a few million dollars,

• 22:53Speaker 06

  like two or three million dollars, ran it up to on paper, peak 2021 to 18 billion dollars. Through a lot of venture capital investments and one of their most lucrative trades, at least that kind of helped propel them to, you know, build up a large capital base was the Grayscale trade. So at the time, you could buy Grayscale, you could purchase the shares into the trust and then after six months, you'd be able to, the shares went on market, you'd be able to sell them on the market. At the end of 2020, Grayscale was trading at a premium. And part of this was just because I think there's a lot of entities out there that aren't able to get direct Bitcoin exposure, whether that's because they feel uncomfortable, you know, holding their own keys, or some people just for compliance and regulatory reasons, just like, aren't able to actually hold digital assets.

• 23:35Speaker 06

  And so, you know, they, they thought that Grayscale was the best way to kind of get indirect exposure to that. And so you, you know, had, I think at the end of 2020, early 2021, Grayscale was trading at like a 20 or 30% premium. I think it was like 30, 33% at its peak. So essentially, you know, you could purchase shares, put them into the trust and then after six months, sell them at a 30% premium. This sounds awesome, but what happened is, is it just got completely overcrowded. And then, you know, eventually you had the, you had the trust fall into a discount, I think in March of, of 2021. But nonetheless, during that kind of time period from the end of 2020 into early 2021, Three O's was able to just borrow an immense amount of capital and make a bunch of different, you know,

• 24:18Speaker 06

  venture capital investments that on paper, you know, showed that they were, you know, they, they had a massive P and L, right? I mean, they, they ran up billions of dollars through these venture capital investments that were liquid and they, you know, were probably locked in for several years, but on paper, they grew the fund to an enormous size. You know, unlike anything you could do in traditional finance. And so what happened was, is I think, you know, they had collateralized several of these loans, some of them unsecured, with their Grayscale holdings and it's my, it's my. Understanding that they they were trying to basically arbitrage the 20% rate that you could get through through Anchor. So essentially, they had borrowed a bunch of money from all these lenders, piled it into Anchor, and the idea was, okay, you get, you know, 20% on, you know, return on that capital.

• 25:01Speaker 06

  And then you give, you know, whatever the the rate is that you're borrowing from from the lenders, you give, you know, pay that back and then keep the difference. Sounds super straightforward, sounds too good to be true, right? And it was. And so what happened was when Luna got wiped out, I think Three Arrows was probably already under some pressure from, you know, the grayscale trade. And I think that was kind of probably their their final death blow. And in an interview after kind of everything went down, Kyle Davies stated also that, you know, like, I kind of caught them offside. So I think that was kind of the final arrow in their in their heart that that put them down. And so after that, then you had this just immense panic of all this credit contagion in the space. And it turned out that, you know, the the minimization of counterparty risk just completely didn't exist.

• 25:44Speaker 06

  Everyone thought, you know, in the crypto space that they were exposed to different people. Reality, everyone was exposed to the same largest counterparty, which was Three Arrows, and and also to a lesser extent, Alameda. And so, you know, immediately after that, you had Voyager that went down. I think Voyager lent them, I forget the figure off the top of my head, over a billion dollars unsecured. Three Arrows also lent, also, excuse me, Three Arrows also borrowed from BlockFi over a billion dollars. But that was actually collateralized, but the issue was it was collateralized with the grayscale, with the GBTC shares. And so whenever BlockFi took delivery of the collateral, they tried to liquidate it. They weren't able to get back the full mark to market value of that because, you know, GBTC was already at a discount and the market was already liquid.

• 26:30Speaker 06

  So, you know, basically every major lender, including Genesis as well, all took a hit on once Three Arrows went under. And then through that, we started to see, you know, continued contagion throughout the space. We also saw Celsius go under at the time, which was also a byproduct of them having a lot of money in risky, you know, DeFi product, you know, products. And, you know, they experienced the hack from Badger Dow, you know, a couple other DeFi hacks. And then I think Luna was probably the final death blow for them as well. And so, you know, throughout the rest of the year, you had, you know, FTX that was basically trying to act as this kind of white knight in the space and coming to save the day after, you know, three arrows had gone under and they're like, hey, look, we're the good guys.

• 27:11Speaker 06

  We're here to, we're here to clean everything up. And in retrospect, that was just a bunch of posturing from, from, you know, SBF and, and his team. You know, they, they had purchased the Voyager assets for, I think it was $1.1 billion at the time. They also extended a credit line to BlockFi, which had basically saved BlockFi at the time. And so, you know, for, for several months, people had kind of thought that FTX was kind of the white knight of the space. And they were kind of the, the responsible ones, which is pretty funny. You know, in retrospect, like at the time, the tactics that SBF was using to like, you know, puff his chest out and kind of posture that they were kind of the adults in the room. It did fool everybody. But then, you know, November comes and what happens in November?

• 27:55Speaker 06

  Well, you had this initial kind of leak from CoinDesk, which was showing the balance sheet of Alameda, which is the kind of sister fund, which we know is basically the same entity as FTX now. Which, by the way, you know, I think in crypto, a lot of the kind of crypto, you know, Twitter people always knew that these two entities were commingled. Not that, not that they were using customer funds, but they, they knew, you know, okay, Alameda probably has some extra trading edge that no one else has. You know, they're probably getting access to, you know, customer like liquidation data and, and things like that. But people just kind of accepted it and they said, okay, you know, it, it kind of is what it is. Just play by the game, right? But I don't think anyone knew the kind of extent to, to what was going on behind the scenes. I think that did, you know, catch almost everyone

• 28:38Speaker 06

  off guard. I think there were a few people in, in, with, you know, the benefit of hindsight that, you know, were super skeptical, but very few people were saying, you know, this is a, this is a full on, you know, scam. And to, you know, SBF, SBF's credit, you know, I think a lot of the posturing that they did, the political donations, all these types of things, the effective altruism, it really did fool everybody. But once that, once the balance sheet got leaked, everyone realized, holy cow, Alameda is not the entity that we, that we thought they were. Because their entire balance sheet was just a leak. Liquid allcoins and most of the allcoins were coins that Sam had literally created. So it was Serum, Oxy, um, FTT and also some Lock Solana as well. I think like $900 million in Lock Solana.

• 29:21Speaker 06

  You know, the crazy thing especially about Oxy, FTT, uh, and Serum is that these were essentially what we like to call these, these, uh, high FTV, low float tokens. Uh, and what that essentially means is that you have, you know, the circulating supply and then you have the total amount of supply that will ever be in existence. And there was a very small amount of supply that was actually circulating relative to the amount that would ever come into the market. And so you can have these crazy price moves that cause a massive run up in market cap because there's a very small amount of circulating supply that you can actually access if you want to get exposure to the asset.

• 29:56Speaker 06

  But meanwhile, you know, Alameda was holding, you know, the majority of the assets, especially in the case of, of FTT. And even going back to kind of the origins of FTT, a lot of people, you know, it's hard to say for sure, but it seems like there's a good likelihood that FTT was originally created just to fill a hole in Alameda's balance sheet. I, I don't know that for a fact, but there's a lot of speculation around that and some people have some compelling evidence of that being the case. But once the balance sheet was leaked, it's unclear, you know, I, I'm, I'm kind of in the camp of it was leaked for a reason. I don't know if it was from someone in kind of the Binance camp or one of those things. It's kind of, you know, tinfoil hat type of, type of question, but nonetheless, it got leaked and, and everyone kind of realized that, you know, they weren't in the position that, that everyone thought they were.

• 30:38Speaker 06

  And so what happened after that was CZ had his infamous tweet where he basically said, hey, look, you know, this entity is weaker than we thought they were and therefore, you know, kind of our, our FTT tokens are at risk. Uh, and also we just don't want to have exposure to this entity that seems to be, you know, kind of not on the up and up. I don't, I'm kind of in the camp that I don't think CZ realized, you know, how they were completely swimming naked. I think he probably realized there was, you know, to some extent, some, some weird behavior going on behind the scenes. But I doubt he probably knew full on that, you know, they were basically, you know, giving Alameda the majority of their customer deposits. But after he tweeted out that they were going to sell their FTT stake, which they got, you know, whenever they they cashed out of their their FTX equity,

• 31:20Speaker 06

  it caused two things. It caused, first of all, a panic on the FTT token itself. Everyone said, oh, my gosh, like, the only buyer of this thing is Alameda and FTX, and Binance is about to dump, you know, multi-nine-figure bag on the on this, you know, already a liquid market. And then the other thing it caused was a bank run on FTX itself, because people began to wonder, hold on, does the CZ know something? You know, why is CZ getting rid of getting rid of his FTT tokens? There must be something that, you know, maybe he knows that that we don't. And so you saw a massive amount of withdrawals, billions of dollars of withdrawals within the first few days, which got processed originally in the first, like, 24 to 36 hours. But then, of course, after that time period, they no longer could process the withdrawals

• 32:04Speaker 06

  because they didn't have the capital. Because with the benefit of hindsight, we now know that they lent eight to nine billion dollars of customer deposits to Alameda, which was collateralized with FTT tokens. And when we go back and look on-chain, and this is something that we put in the report, when we look at the balance of FTT on exchanges, we see this massive jump in September. And, you know, at the time, SBF tweeted out, he said, oh, this is just a natural, you know, shift of wallets. We're just moving around some wallets, which we now know was was definitely not the case.

• 32:37Anthony Pompliano?

  What were they doing?

• 32:38Speaker 06

  You could see that they were lending out the customer assets to Alameda, and Alameda had moved the FTT tokens to FTX, basically as collateral for taking on those customer deposits. Because there's no way that if Alameda actually, you know, if they had a liquidity issue at the time, that they were going to be able to get that liquidity out of selling off their FTT tokens, because they were the only buyer of them.

• 33:01Speaker 06

  And so, you know, when you when you look at when you look at, you know, the end of September and you look at the balance of FTT on exchanges, you can see this huge jump, which we now know to be as the day that they ended up transferring over the customer assets for the FTT tokens as collateral.

• 33:17Anthony Pompliano?

  When we see in hindsight, the FTX situation, Alameda, it didn't stop there. Like, there was continued contagion. We're still seeing it now. Yeah. There's obviously Genesis, there's DCG, there's kind of Gemini is brought into this. Talk a little bit as to how FTX and Alameda, which appears to be, at least based on prosecutors and law enforcement, a nefarious or malicious thing, where obviously people have been charged, arrested, the whole thing. Yeah. Versus DCG and Genesis, at least from what I read online and on Twitter, seems more of like, got caught in a bad trade, right?

• 34:00Anthony Pompliano?

  I don't see people kind of being like, hey, this was a malicious, you know, intentional thing to like hurt customers. Is that your read on the two differences? Hey, guys. I hope that you're enjoying this conversation. As you probably realize, we don't run any ads on this show. That's right. All the other podcasts, all the other YouTube shows that you watch, they have advertisers. We don't have any direct relationships with advertisers, and we simply create this because we enjoy doing it. Now that we do that, though, we have a team. And if you'd like to support us, one way you can do that is to go subscribe to the Pomp Letter. It's a daily letter that I write to about 235,000 people about my personal opinion on financial markets, business, technology, and Bitcoin. Just go to pompletter.com

• 34:43Anthony Pompliano?

  and you can sign up there. I'd love to have you join us, and it's a great, easy way to support the work that the team and I are doing on a daily basis. All right, let's get back into this conversation.

• 34:53Speaker 06

  Yeah, I mean, you could question kind of Barry's ethics and handling the whole thing. And, you know, I think he's probably very carefully, you know, conveying all the potential options for them. But yeah, I think it's different than, you know, what took place with FTX and Alameda, which was just flat out fraud. I think, you know, that's partially just reflected in the time that it's taken, right? If, you know, there was something to the scale of the FTX-Alameda fraud that would have gotten sniffed out by now. I mean, it's been over a month, you know, since Genesis has paused withdrawals. What basically happened was, is that, you know, Genesis had a large amount of exposure to Three Arrows, as I mentioned earlier. So they took a huge hit on that. And then also, they had extended a loan to DCG.

• 35:33Speaker 06

  And so, you know, what happened was after the Three Arrows, you know, loan was defaulted on, DCG basically absorbed the hit to their balance sheet. So now it's kind of come back to bite DCG, and they're now under, you know, some immense trouble. I do think, though, Barry has several potential options. You know, they do have several assets, including, you know, their venture investments in terms of like different like crypto protocols. I doubt that they'd be able to get anywhere near the mark-to-market value of those on paper right now. They also have several portcos, and you know, whether they're full out, you know, outright owners, they're also investors in, you know, numerous different companies in the space, dozens and dozens of different companies in the space.

• 36:17Speaker 06

  And then on top of that, you know, they also have Grayscale, which is their cash cow. And I think, you know, if they, if it really came down to it, I think Grayscale is probably the, the kind of crown jewel of the DCG empire. It's the last thing that they would want to get rid of. But depending on the multiple that you want to put on, on, you know, the GBTC trust, you know, I think you could argue that it's worth, you know, maybe somewhere between 750 to a billion dollars. Again, depending on the multiple that you want to put on it. It also depends on, you know, what, how are you determining what, you know, you're saying that their yearly revenue is? I know they did almost, I think it was like 750 mil last year and, and, I'm sorry, in 2021. But, you know, now, obviously, that's significantly lower. It's like somewhere between like 200 or 300 mil.

• 37:01Speaker 06

  Because they're just collecting a 2% fee on the Bitcoin that are sitting in the trust. I mean, it's just absolute goldmine. You just sit on Bitcoin and hold it and get paid to do it. So I don't know exactly, you know, also, knowing that DCG is in trouble, they probably wouldn't get the terms that they'd be looking for if they tried to sell off Grayscale. But my point is, they have several different potential assets they can tap into. They're also the largest holder of GBTC. And this is something that they've kind of come under scrutiny for is that they borrowed capital from Genesis to make venture investments, and then also buy back GBTC shares, I think, once GBTC started going into a discount, just kind of, kind of backstop, backstop the discount. And so, you know, there's no way that they could get the full mark-to-market value

• 37:43Speaker 06

  of those assets in the same way that they couldn't for their venture investments as well. I think this is why they recently came out in a letter to to grayscale shareholders that they're considering a tender offer for it's a 20 tender offer. And so what that would essentially do is I don't know exactly how it's. I don't know if they just go down the list of the largest holders and that's how it's determined who's able to to participate in the tender offer. But if that is the case, they're the largest holder, they own over 4% of the GBTC supply. So that would benefit them immensely, right? They, you know, they could get, I don't know exactly what the GBTC shares that they're they're holding are worth today, some are, you know, multi, multi nine figures. So, you know, that would also help them shore up some liquidity.

• 38:24Speaker 06

  So, you know, I think, I think Barry has some options and he's definitely assessing all of those very carefully. You know, people should also keep in mind that Barry was an old, he used to be involved in in bankruptcy restructuring. So, you know, I don't think this is anything new to him. And I tend to think that, you know, Barry's one of the OGs in the space and he'll probably figure it out. But it's definitely come under, come under an immense amount of scrutiny, mostly because of the Gemini earn product, which was a retail facing product where, you know, retail are going on Gemini and seeing, oh, I can get, you know, 7, 8% yield. You know, this sounds great, you know, they they're not thinking about, you know, the risk going on behind the scenes. Of course, you have terms of service, but like no one's actually reading what's, you know, going on with the assets.

• 39:06Speaker 06

  They just see, you know, the, you know, percentage return that they could generate by simply just, you know, pushing a button and giving the assets to Gemini, which they perceive as risk free. So I think that's kind of the biggest ethical question is, you know, should, should Barry just expedite the whole thing to get customer funds back? But at the end of the day, I think, you know, the cynical reality is that everyone has their own personal incentives and Barry's going to try to look out for himself.

• 39:29Anthony Pompliano?

  Yeah. What about Bitcoin miners? I know you touched on this in the report and they seem to be kind of taking a backseat because of all the contagion and that, but they haven't exactly had a great year either.

• 39:39Speaker 06

  Yeah, I think this has probably been the toughest year for Bitcoin miners ever. You know, when you look at kind of the variables that go into be, you know, go into being a successful Bitcoin miner, you're essentially, you know, long Bitcoin spot price, and then your short hash rate and your short energy costs. Right? And so when we look at the three of those components, I mean, they're going in the complete opposite direction is what you would ideally want to see, right? You have Bitcoin spot price down 75%, you have global energy prices at multi-year highs, and you have hash rate near all-time highs, which has actually been increasing. It's come down a bit over the last few weeks, but it's actually increasing as Bitcoin is trading down at, you know, 15, 16K, which is absolutely mind-boggling.

• 40:20Speaker 06

  And I'm unsure exactly who the entity is that was piling on hash rate. Maybe it was just because, you know, a lot of these miners were like financed with debt and, you know, previously that wasn't the case, but nonetheless, I mean, that's just been making the, you know, outlook for miners this year incredibly, incredibly difficult. So, you know, their margins and one way to look at this is through hash prices. You can compare miner revenue divided by hash rate. And what essentially you get is the price per terahash. And so when you look at that, over time, that perpetually declines because you have more and more people that want to mine Bitcoins, so it becomes increasingly difficult to do so.

• 41:04Speaker 06

  But we've just, over the last few months, mid more all-time lows. Every week I check it, it's on a new all-time low, basically showing you that, you know, margins continue to get more and more compressed. Another way to look at this is something called the Puel multiple, created by our buddy David Puel over at Arc Invest. What essentially this looks at is miner revenue divided by the 365-day moving average. So you're essentially gauging, you know, how much revenue our miners bring in relative to how much they've brought in over the last year. And so that also is at, you know, relatively historically low readings in addition to hash price. And so when we look at, you know, something called hash ribbons, which looks at two different moving averages of hash rate,

• 41:46Speaker 06

  according to that indicator, which tries to like identify capitulatory periods for miners, we've seen two capitulatory periods this year for miners. The first one took place in June. At the time, you had the 30-day moving average of hash rate cross below the 60-day moving average of hash rate, which was an indication that we entered a capitulatory period for miners. During that time, you saw Core Scientific sell, I think it was 7,202 BTC for like 170 million in proceeds, which bought them some time, but now we've, you know, they weren't able to kind of weather the storm and we've seen, you know, they're undergoing some type of restructuring at the moment. And then you also saw, looking at on-chain data, you could see that the kind of miner wallets, which basically the way these data providers track them is they can just look

• 42:31Speaker 06

  at the Coinbase transactions, you know, coming directly from the Bitcoin protocol as mining rewards, and then tag the wallets from there to see, you know, the heuristics around how the wallets are moving around and then get a gauge of, okay, this appears to be a miner wallet. And so when you look at these miner wallets, you could see back in June that a substantial portion of BTC was also sold off. We came out of that capitulatory period and then just entered another one roughly a month and a half ago. And with that, we saw an immense amount of sell pressure come from miners, you know, tens and tens of thousands of BTC were sold onto the market. And then recently, over the last week, we've finally seen that 30-day change in their holdings actually flip positive.

• 43:12Speaker 06

  So, you know, potentially kind of coming out of that period, at least temporarily. You know, I think historically, it's been a good indicator of kind of macro bottoms for BTC. This is the same thing that took place at the end of 2018. You know, I think that kind of leg down from 6K to 3K at the end of 2018 was mostly all miner selling. You can also see that, you know, reflected in the on-chain data. And I think, I guess just to kind of like wrap up on Bitcoin miners, I think some of the, like, the key takeaways here are, you know, if you are looking at, you know, purchasing, you know, Bitcoin mining stocks, I would say, you know, look for miners that have, you know, fixed energy contracts, right? So they're not susceptible to the, you know, crazy volatility in energy prices that we've seen this year. And also look for miners that have very low debt.

• 43:56Speaker 06

  You know, with with any company, you want to have some degree of debt to, you know, help your growth. But I think with Bitcoin miners, it's a little different because it's just such a cyclical business, the volatility of Bitcoin and also, you know, hash rate is just absolutely insane. So I think you kind of have to approach, you know, holding debt on your balance sheet differently than you would traditionally. And, you know, there's a few, I guess I won't name names on the pod, but there's a couple of names that, you know, have fixed energy contracts, have super low debt relative to assets or relative to equity. And so those are, those are the guys that I would keep an eye on. And I think also, it's a pretty fair conclusion to make that you'll probably see a lot of M and A and consolidation in the mining space. And then I think the last thing to kind of hit

• 44:37Speaker 06

  on with miners and hash rate is, I think over time, you probably see, if there is a way to basically look at the amount of passive hash rate versus outright mining operations that were set up to mine, I think you probably see the amount of quote unquote passive hash rate increase over time as a percentage of overall hash rate. You know, I think as you see guys like Shell and Exxon kind of, you know, dip their toes in the water with Bitcoin mining and, you know, some of these entities that are basically, whether they're, you know, flaring off excess energy or whatever it may be, you know, take, take what you and Jason were doing, for example, with the tires early on with ETH mining, right? You know, I think you'll probably see a larger portion of people who have what

• 45:18Speaker 06

  is essentially, you know, free energy or extremely low cost energy, tap into Bitcoin mining that, you know, maybe Bitcoin mining just, you know, wasn't a large enough industry and Bitcoin was too small for them to even, you know, think about getting involved in it. But, you know, with Bitcoin surpassing a trillion dollar, you know, asset class and of course isn't there right now, but, you know, still multi billion dollar, multi hundred billion dollar asset class. I think it's large enough now that some of these bigger energy producers can step in and kind of use it as a way to monetize what otherwise would be, you know, wasted energy. I think one really cool example of this is the Great American Mining Company. When you look at what they're doing in the Midwest, I believe, you know, they have what are essentially like, you know, traditional miners that are out there, you know, like digging in the earth, actually physically pulling things

• 46:03Speaker 06

  out, like not computing with Bitcoin miners. And of course, you know, they're flaring off their excess gas. And you know, there's all kinds of environmental restrictions on, you know, how much they can burn off every day. And that also causes a restriction on, you know, how on their profit margin, right? Because, you know, if they could operate 24/7, they would, but there's restrictions on, you know, the, the energy that they're allowed to burn off into the air. And so, you know, you bring a Bitcoin miner out there, you say to these guys, hey, look, you give us this energy for dirt cheap, or, you know, even, you know, free in some cases. You know, we benefit because we have super cheap mine, we have super cheap power, which allows us to be, you know, a profitable miner. At the same time, it benefits you guys because you're able to operate for a longer period of time

• 46:47Speaker 06

  because you don't have to burn off that excess energy. And so I think, I think as a, as a percentage of hash rate, I think the kind of amount of passive miners will probably grow over time. And so when people talk about, you know, oh, it is such a bad time to be mining right now. I think at the same time, you know, as we continue to see these guys who have just extremely low, you know, energy costs come into the space. I think that'll be what kind of drives hash rate, you know, into the future.

• 47:13Anthony Pompliano?

  This episode is brought to you by LMAX Digital, the number one institutional crypto exchange. They offer clients the deepest pool of liquidity and they have 100% uptime track record through all the volatility spikes. LMAX Group's liquidity relationships and ultra-low latency technology means that LMAX Digital is the market-leading solution for institutions across crypto trading and custodial services. LMAX Digital, secure, liquid, and trusted. Go learn more at LMAXdigital.com/pomp. Again, that's LMAXdigital.com/pomp. This episode is brought to you by Messari. Your days of spending hours scouring the internet for quality crypto insights are over. Messari is your one-stop shop for all your crypto data and research needs.

• 47:54Anthony Pompliano?

  With Messari Pro, you gain access to exclusive, industry-leading, long-form daily research reports, daily crypto news, advanced asset screeners, and curated sets of charts and protocol metrics. You can try Messari Pro today and listeners of this podcast will get 25% off the Messari Pro membership by visiting www.messari.io/pro and entering promo code POMP. Again, that's messari.io/pro and use promo code POMP. Navigate the market with confidence with Messari Pro. Will the public miners stay public or will they be forced in the private market? Like there would be like M&A and kind of these take privates just to get them out of those public markets? Or is it the capital market so important to them? To survive.

• 48:36Speaker 06

  I don't know. It's a really good question, right? Because like a large portion of the hash rate that came online was largely driven just by debt, right? In the end of 2020 and early 2021, we saw a lot of the, you know, big public miners take on substantial amounts of debt. But I also do wonder, you know, I guess it just depends on the type of entities that come in and step in, buy what are essentially distressed assets. And, you know, maybe you have some of these larger kind of tradFi firms or, you know, big energy firms that step in and take these guys public. I just don't exactly know who the entities will be that come in and step in and do the M and A.

• 49:09Anthony Pompliano?

  When you look forward 2023 and into 2024, how do you feel? Are you bullish? Are you cautiously kind of optimistic? And will you think we're going to go sideways? Like, give me a little forward looking perspective.

• 49:20Speaker 06

  Yeah, sure. I think, you know, first of all, the outlook and case for digital assets is stronger than ever. You know, I think the FTX situation proved that. And I know there's a lot of kind of, you know, Bitcoin maxi types that, you know, listen to this podcast. But, you know, I think you have to really appreciate, if you look at a lot of these DeFi protocols, they continue to operate flawlessly throughout the entire, you know, debacle of FTX and all the other major, you know, lenders in the space. And the reason for that is, you know, no one's getting extended unsecured loans off of one phone call, as Kyle Davies said that Three Arrows was able to do. You know, it doesn't matter who you are, you have to maintain the same LTV as everyone else in these DeFi protocols. You know, no one gets any special treatment based on their connections or anything like that, right? And so, you know, a lot of these protocols just operated completely flawlessly.

• 50:04Speaker 06

  And so I would say, you know, with that, you know, while at the same time you had all these centralized players blow up, the case for DeFi, I think, is stronger than ever. So that's one thing I would say. And then on Bitcoin specifically, you know, I think the kind of need for, you know, a non-political asset that is for enemies is stronger than ever. I mean, if you look at all the kind of geopolitical craziness that took place this year, you know, you now have countries that are trying to move off a dollar standard as, you know, the US basically said that they're going to be using SWIFT as a weapon moving forward. You know, that's kind of their their big bazooka that they could pull out and they immediately pulled it out once, you know, the Russia, you know, Ukraine situation began to unfold and it kind of showed their cards of, you know, the kind of

• 50:46Speaker 06

  biggest move that they could make from, from like a, you know, non, non-physical, you know, war standpoint. I think that was probably the biggest move that they could make against a country without, you know, physically going to war with them. And so I think with that, a lot of countries, and this is something China's known for a while, as they've stopped buying US treasuries, you know, You can essentially just get completely cut off from your reserves and that's what happened to Russia earlier this year and the entire financial system. And so I think you have a lot of countries that are probably waking up to the value proposition of BTC over the last year. Wouldn't be surprised if you have sovereign wealth funds or central banks and developing countries at least that are probably accumulating some BTC down here.

• 51:26Anthony Pompliano?

  When you think of reflexivity research, you've put together an entire team of various analysts. You guys are pumping out a ton of research. I read it every day, obviously, involved in helping start the business. Talk a little bit as like, what's the goal? There's a lot of people who do research, there's a lot of people who are looking at the space. Like, why is another research firm needed? Why spend all the time? I think this report is, what, 40 pages? Why spend so much time to put together a 40-page report?

• 51:58Speaker 06

  Yeah, sure. I think, you know, when I put together the team, I didn't look at anyone's credentials. I didn't even know when I first hired each of our analysts, what their background really even was. I kind of knew vaguely a few things that they did. But it didn't matter to me. I found these guys through Twitter because they had great insight and I liked what they put out. And it was essentially proof of work, right? The crypto ethos is proof of work. You put out the information and let people judge you based on that. And you could be an anonymous, whatever you want to have as your proposal, a monkey picture. And if you're putting out great stuff, people will find you. And that's how people found me. That's how you found me, is I put out an article and you DM'd me and said, "Hey, man, I like this. Let's record a pod," right? And then ever since,

• 52:43Speaker 06

  we've been good friends. And that's how I found these guys as well. I just thought they put out great content on the internet. I said, "Let's put a group together of young people who are completely passionate about the space and have proven that they have great insight into the space and have a unique perspective." And so through that, we've compiled a team covering everything from global macro, fundamental Bitcoin analysis, derivatives, on-chain stuff that mainly I'm covering, and then also DeFi, and even a little NFTs in there as well. We kind of cover a breadth of everything that you need to know in the crypto space. I think when you think about,

• 53:23Speaker 06

  why would you want to purchase a research subscription? I think it comes down to the following. If you're a hedge fund, or a family office, or someone in traditional finance, like an independent investor that's looking to get involved in crypto, but you just don't want to take the time to do it, you could bring on a crypto analyst, right? How much is that going to cost you? Probably 90, 100,000, probably less than it did a year or two ago. But it's probably going to cost you near six figures a year. And for us, you can go on our website right now, purchase a subscription for $2,500, and get access to four to five quality reports about everything that you need to know about the digital asset space, from a team of analysts that are constantly surveying the market 24/7, so

• 54:07Speaker 06

  you don't have to. And so when you kind of think of it that way, you get the value of four analysts, not only through reports, but also we do weekly analyst calls, for a fraction of the cost, a 50th of the cost of what it would be to bring on your own full-time analyst. And so that's how I would say I think about it. And I'm really happy with when we launched. We launched what I think we both at least hope so is near the trough of the bear market. And I think that just kind of reflects that we really do care about the space, and we're here for the long term. We didn't launch this at the peak of the bull market to make a couple bucks. I think there's room for, especially as people have gotten shaken out over the last 12 to 16 months, there's room for several reputable,

• 54:50Speaker 06

  trusted, transparent voices in the space to step in and really help guide people, particularly in traditional finance. I think there's a lot of word salad that gets thrown around. There's a lot of weird terms in crypto, and things like that. And I think we really make an effort to unpack that for our clients. And in our weekly analyst calls, we answer any questions that they may have, and help simplify the approach of coming into this space that, quite frankly, is pretty overwhelming when you first step in. And so our goal of launching the business, of course, as you know, is that we wanted to help bridge traditional finance into the digital asset space. And I think we could play a big role in doing that moving forward.

• 55:30Anthony Pompliano?

  Are you still having fun?

• 55:31Speaker 06

  Of course, of course, man. You know, when I, when you first met me, I was sending out tweets and sending out charts in the bathroom at Target.

• 55:40Anthony Pompliano?

  You were?

• 55:40Speaker 06

  We're still doing the same thing.

• 55:42Anthony Pompliano?

  Yeah, just not at Target.

• 55:43Speaker 06

  Just not at Target.

• 55:44Anthony Pompliano?

  All right, where can we send people to find you on the internet? Or if they want to sign up for Reflexivity Research, where can we send them?

• 55:48Speaker 06

  Sure, you can find my Twitter. It's W Clemente III. Reflexivity Research dot com is where you can find our research product. We've got a bunch of example reports. And then, as you mentioned, and we walked through today, we just also released this 2022 Year in Review 2023 Outlook Report. We cover everything in that from everything that took place in global macro and what to expect in 2023, moving forward with that from our macro analysts. And we can word a lot of things more eloquently than I can. Covered all the crypto contagion of this year, a lot of the positive statistics of, you know, kind of the silver lining of Bitcoin's resiliency despite the price drawdown. A lot of the big kind of mainstream events that took place. You know, I think, you know, not to turn this into a whole nother tangent here, but I think there were a lot of kind of things that got overlooked this year.

• 56:33Speaker 06

  You know, Fidelity offering Bitcoin to clients, BlackRock offering Bitcoin to clients, Starbucks integrating NFTs in their rewards program, which is the largest rewards program in the world. You know, Visa recently announcing that they're going to be integrating Starkware into their payments. And so I think there were a lot of positive developments that took place, you know, below the surface. We also cover everything that took place in DeFi this year, all the trends in terms of individual protocols, you know, the kind of rise of layer twos, how to think about layer twos versus layer ones, and what the potential multi-chain landscape might look like, basically everything you need to know. So, you know, if you have a little time and you're looking for a little extra reading, definitely check out that report on our website. And we also have a couple other example ones as well for you to check out.

• 57:15Anthony Pompliano?

  I love it. We'll definitely do it again in the future. Thank you so much.

• 57:17Speaker 06

  Absolutely. It was fun doing this in person after the last three years.